Last November, California voters bought into Gov. Jerry Brown's bold and controversial plan to right the state's tenuous financial footing and passed Proposition 30. The centerpiece of Prop. 30 -- at least the part that seems to have won voters over -- was its guarantee that it would spare our schools from extensive and disastrous budget cuts.
Now, using the same, attractive fund-our-schools carrot, another revenue generator is on the table: an oil severance tax.
There are, in fact, two proposals. One is a proposed ballot initiative, the California Modernization and Economic Development Act, that sponsors hope will generate $2 billion in annual revenue, with $1.2 billion of that earmarked for education. The other is a bill brought forward by state Sen. Noreen Evans, D-Santa Rosa. Her California Education Resources and Reinvestment Act would impose a new 9.9 percent tax on the oil industry and send most of the revenue to education, with 7 percent slated for state parks and recreation.
Proponents of the ballot measure have 150 days to collect a half-million signatures to win a place on the 2014 ballot. Their proposal calls for a 9.5 percent on extracted oil and natural gas.
The problem with these proposals is that the oil industry already pays a statewide severance tax that falls into line with severance taxes paid in other states -- it just goes by a different set of names. California's property taxes, extraction taxes, sales taxes and corporate taxes, combined, place a total tax burden on the industry that is roughly equal to, and in some cases exceeds, the total tax burden imposed by other states. A new oil severance tax would boost the industry's California tax obligations to a level substantially higher than those of other states.
The oil industry is a favorite target for taxation, and not without good reason: Multinational corporations like Royal Dutch Shell, Chevron, ConocoPhillips and Exxon Mobil count their annual profits in billions, not mere millions. But tax these companies, their subsidiaries and their smaller, regional competition significantly higher in California than elsewhere and economic migration is bound to occur. Oil companies won't leave California entirely; their investment is too great. But over time, a significantly higher cost of doing business will have a negative effect, decreasing production, taking jobs and inflicting a dent in the revenue that these severance-tax sponsors now seek to increase.
And who suffers from that? Places like Kern County, where oil and gas activity translates into local tax revenue -- and jobs. Ten of thousands of jobs.
The California Modernization and Economic Development Act and the California Education Resources and Reinvestment Act may have their hearts in the right places -- education has taken a fiscal beating over the past decade -- but taxing an important industry disproportionately is not the way to go about it.