The Case for an Oil Severance Tax

Here's an enigma: California is one of the highest taxed states yet "the only state that does not impose a significant severance tax," according to Wikipedia and the National Conference of State Legislatures, although ad valorem taxes are "administered by each county," notes the state Department of Conservation.

With Sen. Jim Beall's (D-San Jose) transportation funding bill, SB X1-1, seemingly going nowhere, columnist George Skelton asks, "Why not raise the money by taxing the oil extracted to fuel the vehicles that tear up the pavement? There's a logical nexus."

The oil lobby must be feeling pretty smug and invincible after spending millions to block legislation that would have required state regulators to cut petroleum use by half before 2030. Maybe that makes it vulnerable after burning so much political juice. Anyway, the governor and Senate leader owe some payback.

However, there's nothing novel about trying to tax oil extraction. It was tried legislatively last year (SB 1017) and by ballot measure: Prop. 87 was rejected by voters in 2006. However, the former was for education, the latter for alternative energy.

Earlier, a 1993 bill, and then a 2008 bill and a 2009 bill would have directed revenues to the General Fund, which perhaps prompted these responses to Skelton's query about going the legislative route:

It's something always on the menu," said a Brown insider who insisted on anonymity. A Senate advisor told me: "We're going to examine everything, but in the past sponsoring an oil severance bill was like beating your head against the wall."

Skelton goes on to provide an excellent analysis of the legislative failure of the oil provision in SB 350, and then comes back to transportation:

Meanwhile, there's not much hope for negotiating a gas tax increase to pay for highway repairs. That's why the oil severance tax looks so tempting. It wouldn't directly hit the motorists' pocketbooks. A 9.5% extraction tax on the value of oil and natural gas could raise more than $1.5 billion annually.

Easier said than done. Skelton admits, "I'm under no illusion that an oil severance tax is likely to pass the Legislature. That would require a two-thirds majority vote. Brown and Senate leader Kevin de León (D-Los Angeles) couldn't even muster a majority vote in the Assembly to cut gasoline use by half."

It's time for Sacramento to rev up this idea again. The oil lobby has to lose sometime. You'd think.

Skelton references another 2008 severance tax bill: AB 2, by Assemblywoman Noreen Evans (D-Santa Rosa): Sales, use, income, fuel, and oil severance taxes. Unlike the aforementioned bills, this one actually passed the legislature only to be vetoed by Republican Gov. Arnold Schwarzenegger. Presumably Democratic Gov. Jerry Brown would sign such a bill if passed.

Ironically, such a bill would bear an uncanny resemblance to a 2011 Republican proposal by House Speaker John Boehner (R-Ohio) to apply new oil and gas royalties to fill the Highway Trust Fund shortfall.