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Oil tax proposal to hit wallets

Senators debate merits of 9.5 percent increase

By Lorenzo Morotti, associate editor
On April 26, 2014

The Oil Severance Tax initiative proposed by Sen. Noreen Evans (D-Humboldt County) is sponsoring a bill that would impose a 9.5 percent tax increase per barrel of crude oil that companies extract from the ground up and down California.
In Senate Bill 1017, Evans states that the tax can potentially raise $1 billion annually to reduce tuition and mandatory fees for students in California's community colleges, UCs and CSUs. K-12 schools will also receive funding under the proposed initiative.
Opponents of the bill question if the new tax is necessary, considering the existing oil taxes and recent Senate bills passed to support higher education.
"I don't think this is the year for new taxes," Gov. Jerry Brown said in a press release. "I just think we want to do everything we can to live within our means before going back again and trying to get more taxes."
In favor of the new oil severance tax are students and faculty currently in public institutions of higher learning that have experienced a large spike in tuition costs since the budget cuts of 2010.
Associated Student Union Director of External Affairs Kirsten Kwon said the tax is necessary to make community colleges more accessible to students who may not be able to afford the expensive tuition fees.
"The tax won't raise gasoline prices," she said. "It will mainly affect oil companies that are already bringing in billions in revenue every year."
Over the last five years students at community colleges have had to pay 130 percent more in tuition, books and fees.
The funds raised by the oil severance tax will be divided between two other public institutions: the Department of Parks and Recreation and California Health and Human Services Agency. Each will receive 25 percent of generated funding if the bill is passed.
The remaining 50 percent of the money would be deposited into the General Fund before reaching the California Higher Education Fund.
It would then be allocated depending on the minimum funding requirements for each school district.

Drilling for funding
The Richmond Progressive Alliance is a community collective of organizations, city commissions and neighborhood councils advocating against corporate influences in politics.
Andres Soto is a co-founder of the RPA. He said that he and fellow members are in "strong" support of Sen. Evans' proposed oil severance tax.
Soto said that targeting money toward the community colleges is what the system needs to accommodate residents in search of higher education.
"Community colleges are institutions desperately starved for funding," he said. "Money brought in by the oil severance tax can be used to remedy this public issue."
He said California's community college system would benefit the most.
"It would allow the poorer, working class person to afford the cost of enrollment and enter the professional work force and stimulate the economy in the long term," he said.
Similar tax proposals in the state's history have been defeated by the oil industry before. To become law, the bill needs to receive two-thirds majority votes from each house of the Legislature. If the bill were to pass, the severance tax would go into effect immediately as an urgency statute.
"We have had problems getting bills like this through the Legislature in the past because the amount of money energy companies spend buying votes," Soto said. "It is necessary to exercise our political rights to expose that the governor is in the pocket of big oil companies. If this bill does not pass, it will show that Brown and the oil companies are against the people of California."
California is the nation's fourth largest producer of oil after North Dakota, Texas and Alaska. It is the state only out of 36 major oil-refining states to not have a severance tax. The three states listed employ a minimum severance tax of 6.5 percent, 7.5 percent, and 25 to 50 percent depending on the net value of the oil, respectively.

Gas spikes
Californians Against Higher Taxes (CAHT) spokesperson Beth Miller said, "Just two years ago, voters approved more than $7 billion in higher taxes and earlier this year the governor announced the state had a $5 billion budget surplus."
CAHT press consultant Sabrina Lockhart said the oil severance tax would do more harm to the fragile economy than benefit.
"California has the highest gasoline prices in the nation," she said. "Another tax can drive that costs even higher. It (Oil Severance Tax) is not what the state needs right now."
While California is the only state without an oil severance tax, it is the most heavily taxed state when it comes to oil production she said. "Oil companies are taxed before the oil is pumped out of the ground, all the way through the production line, and when it reaches the pump."
The biggest problem CAHT has found with the proposed severance tax, she said, is that implementing it will add to the cost of the refining process for oil companies and in effect raise the cost of gasoline for consumers.
Lockhart said that raising the price of gasoline will lead to an increase in prices of anything shipped through California, such as everything one buys at the supermarket.
All of the oil produced in California is used in the state, she said. "Another big concern is that by penalizing these companies, it will make the state more dependent on foreign, out of state oil sources." 


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