Calif Oil Tax Hike Bid Could Proceed Despite Ind Opposition
The oil tax proposal, part of a larger plan by Gov. Arnold Schwarzenegger to cut spending and boost shrinking tax revenue, hasn't been endorsed by Democrats, who control the state legislature, and Republicans oppose any tax increases. But as Democratic lawmakers look for areas of agreement with Schwarzenegger, a Republican, and with Republican lawmakers, who are at odds with the governor on taxes, the oil production tax increase could be one of the building blocks toward agreement on a state budget.
Schwarzenegger's proposal would apply a 9.9% tax on each barrel of oil produced on state land or state-controlled waters. The fee, called an oil severance tax, would be in addition to a tax that producers currently pay, based on estimated reserves.
"Everything is on the table, especially when it comes to bringing revenue for the state," said Alicia Trost, a spokeswoman for state Senate Pro Tempore Darrell Steinberg, a Democrat from Sacramento.
"What it comes down to is, what can we get Republican votes on when it comes to getting new revenue coming in," Trost said. "If it's in this area, that's fine."
Schwarzenegger has called California lawmakers to a special legislative session to resolve what he called a "fiscal disaster," including an $11.2 billion hole in the state budget that he said could grow to $28 billion in 18 months.
California Democrats haven't taken a position on Schwarzenegger's proposed oil production tax increase, but they have supported various proposals over the years that would have increased taxes on oil production, said Trost.
Oil producers warn that raising their taxes will force refiners to turn to cheaper oil imports, thus compromising the energy security of both California and the nation. Higher taxes also would lead to higher fuel prices in California, where prices are already among the nation's highest, they argue. Gasoline in California retails for an average of about $1.92 a gallon, compared to an average of $1.80 a gallon nationwide, according to AAA's daily Fuel Gauge Report.
"We certainly understand and appreciate what California is going through, but we're also facing serious energy challenges, not just in California but across the whole United States," said Cathy Reheis-Boyd, chief operating officer of the Western States Petroleum Association, an industry group based in Sacramento, Calif.
"Putting in place an oil tax of this magnitude on domestic production will lead to a decrease in domestic production because it'll make it less competitive," said Reheis-Boyd, whose organization represents oil majors Chevron Corp. (CVX), Exxon Mobil Corp. (XOM) and ConocoPhillips (COP), as well as smaller producers such as Occidental Petroleum Corp. (OXY) and Berry Petroleum Co. (BRY) and refiners and pipeline operators.
A spokeswoman for Chevron declined to comment, saying WSPA's comments represented the company's view.
Schwarzenegger has estimated that his proposed oil severance tax would raise $1.728 billion between January 2009 and June 30, 2010. The estimate assumes a crude-oil price of $58 a barrel during the first half of 2009, and $65 a barrel from July through June 2010. California crude oil is trading these days at an average of about $39 a barrel, about $10 less than the West Texas Intermediate crude that trades on the New York Mercantile Exchange. Oil prices in New York have fallen nearly 68% since reaching $145 a barrel in July.
Oil producers in California pump about 580,000 barrels of oil a day, most of it in the arid, desert-like San Joaquin Valley, according to the California Department of Conservation.
Schwarzenegger, who just two years ago successfully opposed a ballot initiative that would have increased oil production taxes, has said the oil tax increase, among other of his proposals, is unpalatable but necessary.
"There are a number of decisions that are in this package that run counter to what we want to do, but we're in unprecedented territory here, with an unprecedented dropoff in the state's economy," said H.D. Palmer, a Schwarzenegger aide.
In addition to the oil tax, Schwarzenegger has proposed increasing the state sales taxes by 1.5%, to 6.5%, for three years, and taxing services including appliance and furniture repair, vehicle repair, golf and veterinarian services. He also has proposed taxing amusement parks and sporting events.
Many Republicans are still opposed to the governor's tax-increase plans.
"Raising taxes will have a negative effect on people and the ability of our economy to recover," said Jennifer Gibbons, a spokeswoman for state Assembly Minority Leader Mike Villines, a Republican from Clovis, Calif., who has been an adamant and unwavering opponent of tax increases.
But Schwarzenegger and Democratic lawmakers say the state can't cut its way out of the red and that new taxes are inevitable.
The oil industry plans to fight against a tax increase, particularly a permanent one.
"It's a permanent tax and it's the only tax proposal aimed at a specific industry," said Reheis-Boyd of the petroleum association. "It's bad public policy, plain and simple."
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468; cassandra.sweet@dowjones.com
(Ken Clark contributed to this report.)
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(END) Dow Jones Newswires
December 03, 2008 17:26 ET (22:26 GMT)
Publié le 03 Décembre 2008 Copyright © 2008 Dowjones
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