October 12, 2006
BY HARMONY TREVINO/Daily Titan Staff Writer
Proposition 87 Measure would create program to reduce petroleum consumption
Proposition 87 would establish a $4 billion program which would reduce California’s petroleum consumption by 25 percent. The measure states that research and production incentives would be given for
alternative energy, alternative energy vehicles, energy efficient technologies and for education and training. The new program would be funded through an imposed 1.5 percent to 6 percent severance tax on oil production in California. “Producers” are defined by the measure as anyone who extracts oil from the ground or water, owns or manages and oil well, or owns an in-
terest in oil. The law would not allow oil producers to pass the cost of the severance tax to consumers through increased costs for oil, gasoline or diesel fuel. The California State Board of Equalization would enforce this prohibition. The measure says that economic factors may limit the extent to which to the tax is passed to consumers because of the difficul-
ty of administratively enforcing this prohibition. The new program, California Energy Alternatives Program Authority, would replace the existing California Alternative Energy and Advanced Transportation Financing Authority in the state government. The program would spend the $4 billion within ten years of creating plans to implement the measure.
The severance tax would expire once the program has spent the $4 billion and any bonds issued by the new program are paid off. Currently oil producers pay state corporate income tax on profits earned in California and pay a steady fee to the Department of Conservation. The fee is currently used to fund a program which oversees drilling, operation, and maintenance of
oil wells in California. California property owners now pay a local property tax to help pay for equipment to extract oil. The measure excludes the severance tax from federal offshore production and from oil wells that produce less than 10 barrels of oil a day. The new tax would take effect January 2007.
No on 87
Yes on 87
The proposition would lower gas prices while funding schools and creating jobs
The proposition would actually increase gas prices and create more government
Beth Willon, spokeswoman for profit as they are getting now. Yes on 87, says that higher taxes on She also said that no new buoil does not equate to higher gas reaucracy will be created because prices. the program will use an existing “That is oil company fiction. All body of government. you have to do is look at this logically. She said within the regulated It is going to decrease our dependence program there are going to be nine on foreign oil,” she said. volunteering If the oil is extracted members on from places “like Stock- California oil compathe board who ton instead of Saudi allowed nies have been getting are Arabia, it’s going to advisory combring down the price. a free ride because the mittees. Not increase it,” she oil drilling fee has never Willon said said. and will never pass the that the opShe added that the California legislature. position is lyU.S. Supreme Court ing when they – Beth Willon said that none and Attorney General Spokeswoman for Yes on 87 Bill Lockyer have said of the money that the oil producers from the tax cannot use any “backwill go to edudoor approach” to try to increase cation. gas prices. “They are protecting their profThe same tax that will be applied its, they are making these things in California has been implement- up,” Willon said. “I don’t see how ed in states like Texas and Alaska these guys sleep at night. The lies and none have seen their gas prices that they are spitting out are unbeincrease, Willon said. lievable.” “California oil companies have Willon mentioned that a study been getting a free ride because the done by an economist who works oil drilling fee has never and will for Gov. Schwarzenegger, said that never pass the California legisla- the proposition is going to create ture,” Willon said. 20,000 jobs and put $2.2 billion She said oil producers will still into the economy. get 60 percent profit per barrel of She said that with a $4 billion oil that is extracted from California, fund, the money will be invested but they just won’t get as high of a back into the economy.
Bill George, spokesman for No ated with the tax would definitely on 87, said that if this severance be passed along,” he said. tax is imposed on oil produced in George said that the initiative is California, the state would be the the “wrong vehicle” to create alterhighest taxed state for oil in the native energy. country. He said there is no guarantee “There’s a comfrom the probination of taxes, posed initiative like the corporathat any alternation tax. There’s a tive energy would corporate tax here You just can’t be produced. but there is no magically come up “The idea of corporate tax in with $4 billion and getting to an other states,” he say there is no impact energy indepensaid, focusing on dency is fine, to any other existing the opposition’s there’s nothing claim that other state programs. wrong with that,” states have the George said. – Bill George same tax. “But farming Spokesman for No on 87 out $4 billion, The other consequence, George creating a state said, is that there agency that is will be a “bump at not accountable the pump.” to anyone, is not a good idea for “The difficulty of the issue is, the people of California.” if the tax goes through, there will George wanted voters to know be less oil produced in California,” that the initiative, if passed, would George said. have an impact on education and That means that gasoline would local government. have to be imported from other He said that less money will go states and nations so the cost to schools and local services at the of importing, refining and county level. distributing would be higher, he “You just can’t magically come up said. with $4 billion and say that there “The tax may not be passed on is no impact to any other existing [to consumers] but the cost associ- state programs,” George said.
Faculty PerspectiveS Economics professor says measure would make California more dependent on imported petroleum Professor of economics Jane Hall believes that Proposition 87 is “ill considered and badly structured.” “The oil market in California is a bit peculiar because we are somewhat isolated physically. If you tax only
oil produced in California which is usually more expensive to produce anyway, you encourage California producers to shut down production, and force us to import more,” Hall said. “We become more dependent on imports, and we shift from a state
source to a more expensive out-ofstate source.” Hall said that there would be no issue for California taxpayers but an issue for people who consume gasoline and diesel. “Those people are likely to see
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higher prices,” Hall said. She said that one has to look at the overall cost of oil production, look at property taxes and severance taxes. “When you make comparisons to other oil producing states like
Texas and Louisiana, you have to consider that other states have severance taxes but they don’t have the other taxes we do have,” Hall said. Hall said cleaner air and alternative energy is ideal but that there
needs to be a better way to achieve it. “We’re creating a new agency that’s going to take the severance tax money and spend it in ways that we hope will develop alternatives faster,” she said.