Oil severance tax will hurt Kern County
As the state budget discussions continue to grind on, it appears that Democrats in the Legislature are once again looking to impose a significant and economically hazardous oil severance tax that could have massive consequences for Bakersfield and Kern County. In Kern County, its bipartisan --both Republican and Democrat -- elected officials know what the devastating impact an oil severance tax would have on the people of the city and county.
It is vital that local elected officials throughout the county and state continue to inform the public about the facts surrounding this multi-billion dollar tax increase. According to a recent Milken Institute study, a total of 22,000 jobs, $1.1 billion in earnings, and $3.8 billion in economic output in the Bakersfield/Kern County region are tied back to the energy industry as a whole. The county could see job losses of nearly 7,000 at a time when county unemployment is well above the state average.
It comes as no surprise to the readers of this newspaper that the energy industry is vital to the local economy, and contributes significantly to the local tax base. In recent discussions I had with Board of Supervisors Chair Jon McQuiston, the proposed oil severance tax could have more than a $13 million impact on Kern County's already battered general fund. In data provided to the Board of Supervisors by the County Assessor and submitted to the governor and Legislature, the total impact on property tax to schools, special districts and the county would be a hit of $45 million in the first year. Schools alone would lose almost $30 million a year, all of which would have to be backfilled by the state general fund.
Kern County is not alone in suffering potentially significant and devastating effects from an oil severance tax. Southern California, the Central Coast, and other parts of the valley, according to independent review, could see this tax cause the loss of more than 10,000 jobs in California. In addition, the effects this tax could have on the agricultural sector would be seen in higher gasoline and diesel prices, a return to supply volatility, and increased costs everywhere along the line from pumping water, to fertilizer, to harvesting to sending crops to market. Also troubling will be the obvious if unintended consequence of causing the state and nation to be even more dependent on oil imports from erratic and stridently anti-American leaders.
There are painful facts that members of the Legislature are conveniently ignoring. And some legislators, whether intentionally or just mistakenly, are making statements, which if believed, would seriously mislead the public. One misstatement frequently made is that California is the only oil producing state in the nation without an oil severance tax. Illinois and Pennsylvania do not have such a tax.
Oil in California is in fact heavily taxed -- by property taxes and by both sales and use taxes and corporate income taxes -- at significantly higher marginal and effective tax rates than in other oil-producing states. Some legislators also argue that an oil tax will have no effect on prices at the pump when in fact it must have as an added cost of doing business. And it is vitally important that the public clearly understand that the proposed tax would affect only companies that produce oil in California. This additional tax burden will put California producers at a competitive disadvantage with those operating in other states. It makes no sense to punish companies operating in California by imposing on them a new tax that will hurt our state's job producers at a time of severe economic trouble.
California voters last rejected an oil severance tax soundly in 2006. Recent independent studies estimate the reduction in California oil production could be as high as 80,000 barrels a day for the next 30 days. The tab for replacing this oil with higher imports could top $1.3 billion a year. That's money going overseas instead of supporting good, tax-paying jobs in our state.
Any way you size it up, the oil severance tax is a big loser for Kern County and our state, and a losing proposition for consumers and businesses. Now is not the time to add to prices people pay, nor is it time to impose a massive new tax that will destroy California jobs and seriously worsen our struggling economy.
Pete Wilson is the former California governor and current member of the California Chamber of Commerce.
