Amid a $584 million budget deficit in the California State University system, an assemblyman is presenting legislation that, if passed, would bring a projected $1 billion in funds to state colleges and universities.
The legislation, Assembly Bill 656, introduced by Assemblyman Alberto Torrico (D-Newark), would put a 9.9 percent severance tax on oil and gas in California and give that money to California’s higher education system. Of the money, 60 percent would go to the CSU, 30 percent to the UC and 10 percent to the community college.
Although early versions of the bill were intended to provide money toward renewable energy education, the most recent revision would direct money toward any and all facets of higher education — including new buildings, faculty pay, classes and more.
“That change is a direct response to the 20-30 years of depleting funds for California public education,” said Lillian Taiz, a professor at Cal State Fullerton and president of the California Faculty Association, which helped write the bill.
Although money raised from the tax wouldn’t solve the CSU’s current budget deficit immediately, it would prevent a future deficit.
“If it were in existence now, maybe we wouldn’t be talking about a 30 percent [student] fee increase,” Taiz said. “It’s not a total problem-solver… but at a time like this, it would be a safety net.”
To date, California is one of the few states in the U.S. that doesn’t already impose a severance tax on oil and gas companies for exporting the state’s fossil fuels — which has been a selling point for the bill.
But California is not alone. Large oil-producing states like Pennsylvania and Iowa have no severance taxes on oil either. And those that do — like Alaska and Texas — don’t have to pay many of the local taxes that California oil companies pay.
Torrico said he believes oil companies owe it to the people of the California.
“The oil belongs to the state,” said assemblyman Torrico. “It’s the people’s money, not the oil companies’.”
But his isn’t the first time legislation has been pursued to tax oil companies. Legislators have tried passing a severance tax in California dozens of times since 1930, all of which have failed to pass.
However, Brian Ferguson, a spokesperson for the CFA, said that this time it’s different.
“We think we’ve remedied the issues that have plagued this in the past,” he said. For example, a provision in the bill makes it illegal to pass the severance costs onto taxpayers.
There is also a “make whole” provision to the bill to ensure that local municipalities don’t lose money.
Although there is not a California severance tax, that’s not to say that oil companies aren’t paying.
California oil companies pay taxes to the state and local governments, corporation taxes, sales and use taxes and local property taxes, which constitute the sixth-heaviest tax burden among the 10 largest producing states in the U.S., according to a 2009 report from Law and Economics Consulting Group (LECG).
Ferguson said they’ve taken that fact into consideration.
“Obviously, it’s going to hurt them down the line, but we think that money will be much better spent going to education and making it more affordable,” Ferguson said.
Rock Zierman, the CEO of the California Independent Petroleum Association, said a severance wouldn’t only hurt oil companies.
“Studies show that this would cost 10,000 jobs,” Zierman said. “Those are jobs of 10,000 families in California that want to send their kids to higher education too. There are ramifications not just to the industry, but the people who work for it as well.”
The study he referenced was released by the LECG and cites four reasons for a decrease in jobs as a result of the severance tax.
First, production will decrease as a result of higher taxes, resulting in a job loss. Secondly, as those jobs disappear, so do indirect and induced jobs that depend on the oil sector. Third, the cost of doing business with oil companies in California will be more expensive, driving investment to other destinations. Lastly, households will consume less if they have to face higher costs.
Taiz said that although a severance tax would probably hurt the oil companies, everyone has to make sacrifices in this economy. She said it was the “responsible” thing to do.
“When I go to the pump, I can tell they’re doing well. They’re getting a lot from us,” she said. “They may think they’re paying enough, but we all think we’re paying enough.”
CSU Reluctance to support “mystifies” faculty
Erik Fallis, a CSU spokesman, said the chancellor’s office doesn’t have a position on the bill yet — a stance that frustrates Torrico and members of the CFA.
“I’m dumbfounded,” Torrico said. “It seems to me if anyone supports the bill it should be the CSU administration, since they’re going to raise fees again.”
Torrico said the timing of CSU’s projected deficit of $584 million poses the perfect opportunity for the passage of AB 656.
“The state is spending more on prisons than education,” Torrico said. “It’s time for us to reverse that trend.”
Torrico and the CFA presented information about AB 656 at two trustee meetings, yet CSU leaders have yet to schedule even a discussion of the bill.
“I think we all feel it’s only logical that the head of the system would want to embrace legislation that would help us through these embattled times,” Taiz said.