HomeMy WebLinkAboutRES NO 177-06
RESOLUTION NO. 1 7' '( -0 6
RESOLUTION IN OPPOSITION TO THE OIL TAX
INITIATIVE (A.K.A. CLEAN ALTERNATIVE ENERGY
ACT) HEADED TOWARD THE NOVEMBER 2006
BALLOT.
WHEREAS, few argue with the need to expand alternative energy uses.
But the proposed $4 billion oil tax initiative headed for the November 2006 statewide
ballot is not the way to get there; and
WHEREAS, the oil tax initiative would create a new alternative energy
bureaucracy with the power to spend tax dollars without accountability or results at the
expense of higher gasoline prices and revenue cuts to schools, local governments, law
enforcement, and other vital services; and
WHEREAS, according to the independent California State Legislative
Analyst, the oil tax initiative reduces general fund revenues, local property taxes, and
could reduce transportation fund revenues; and
WHEREAS, a reduction in general fund and property tax revenues means
less funds for education, public safety, and other services; state and local revenue
losses also could worsen the state's budget deficit; and
WHEREAS, the oil tax initiative robs schools of their fair share of new tax
revenues since current law (Proposition 98) requires that a portion of new state tax
revenues be spent in K-12 classrooms, but the oil tax initiative circumvents that
constitutional requirement, thereby robbing schools of $1.9 billion; and
WHEREAS, the new alternative energy bureaucracy this measure creates
would be run by more that 50 political appointees with the power to hire unlimited staff
and spend a minimum of $4 billion in tax dollars - outside the state budget review
process and outside the normal checks and balances that govern other agencies; and
WHEREAS, the new bureaucracy is authorized to spend additional taxes
year after year after year, even if they are making absolutely no progress advancing
alternative energy use or reducing petroleum use; and
WHEREAS, the $4 billion+ tax increase means higher costs for
consumers and business; and
1
« ,?>þ..K~-9
o ~
>- -
I;: J!!
v C)
ORIGINAL
WHEREAS, higher taxes on in-state oil production would also discourage
in-state oil production, thereby increasing our dependence on foreign oil; and
WHEREAS, the oil tax initiative bypasses elected officials and removes
normal government checks and balances by artfully exempting themselves from many
important checks and balances designed to ensure ethical and accountable government
programs; and
WHEREAS, the measure exempts itself from the competitive bidding
process in the State Public Contracts Code (10295 and 10335) that governs other state
agencies and allows the Authority to write its own contract selection process; and
WHEREAS, the measure exempts itself from Proposition 98 requirements
- setting a dangerous precedent that could be used to erode education funding
protections in the future.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Bakersfield that the City opposes the oil tax initiative (a.k.a. Clean Alternative Energy
Act) headed toward the November 2006 ballot and lends its name in support of
Californians Against Higher Taxes in opposition.
----------000----------
2
~ <õ/l-Kt1>
o ~
>- -
~ m
_ r-
o tJ
ORIGINAL
I HEREBY CERTIFY that the foregoing Resolution was passed and
adopted by the Council of the City of Bakersfield at a regular meeting thereof held on
JUL 1 9 2006 by the following vote:
~
NOES:
~:
,/ .../ / ......--- ~
COUNCILMEMBER CARSON, BENHAM, MAGGARD, COUCH, HANSON, SULLIVAN, SCRIVNER
COUNCILMEMBER
COUNCILMEMBER
COUNCILMEMBER ~c'-"'!c.~ \ \-\-o...-v--~
PAMELA A. McCARTHY, CM
CITY CLERK and Ex Officio rk of the
Council of the City of Bakersfield
APPROVED
JUL 1 9 2006
By
HARVEY L. HALL
Mayor
APPROVED as to form:
VIRGINIA GENNARO
City Attorney
/ /~
/~
" /
By Z~A~ . _. /,<V4)
VIR IA GENNARO
City Attorney
S:\AC\Council\Resolution Opposing the Oil Tax Initiative - 2006 ballot.DOC
jp
3
<¢~K~1>
J ~
>- -
m
'::;. r-
t.:> (:)
ORIGINAL
LAQ~
@Mhà¡M-~n:r;F::>:···_,v"..",JJ:'tt",
60 YEARS Of SERVICE
January 25, 2006
Hon. Bill Lockyer
Attorney General
1300 I Street, 17th Floor
Sacramento, California 95814
Attention:
Ms. Tricia Knight
Initiative Coordinator
Dear Attorney General Lockyer:
Pursuant to Elections Code Section 9005, we have reviewed the proposed initiative
File No. SA2005RF0138, Amendment #2-S, the Clean Alternative Energy Act (version
two).
Background
California Oil Production. In 2004, California's onshore and offshore oil production
totaled 268 million barrels of oil-an average of approximately 733,000 barrels per day.
California's 2004 oil production (excluding federal offshore production) represents
approximately 12 percent of U.S. production, making California the third largest oil-
producing state, behind Texas and Alaska. Oil production in California peaked in 1985,
and has declined, on average, by 4 percent to 5 percent per year since then. California
oil production supplies approximately 42 percent of the state's oil demand, with Alaska
production supplying approximately 22 percent, and foreign oil supplying about
36 percent.
Virtually all of the oil produced in California is delivered to California refineries. In
2004, the total supply of oil delivered to oil refineries in California was 655 million
barrels, including oil produced in California as well as outside the state. Of the total oil
refined in California, approximately 67 percent goes to gasoline and diesel
(transportation fuels) production.
Oil-Related Taxation in California. Oil producers pay the state corporate income
tax on profits earned in California. Oil producers also pay a regulatory fee to the
Department of Conservation (which regulates the production of oil in the state) that is
assessed on production, with the exception of production in federal offshore waters.
Currently, producers pay a fee of 5.3 cents per barrel of oil produced, which will
generate total revenues of $13.8 million in 2005-06. Additionally, property owners in
X ~A.k~1>
o <fJ
>- -1'1
I:; f!.'
v f::::J
ORIGINAL
Hon. Bill Lockyer
2
January 25, 2006
California pay local property taxes on the value of both oil extraction equipment (such
as drills and pipelines) as well as the value of the recoverable oil in the ground.
Proposal
Severance Tax on Oil Production in California. Beginning in January 2007, the
measure would impose a severance tax on oil production in California. (The term
severance tax is commonly used to describe a tax on the production of any mineral or
product taken from the ground, including oil.) The measure defines "producers," who
are required to pay the tax, broadly to include any person who extracts oil from the
ground or water, owns or manages an oil well, or owns a royalty interest in oil. The
severance tax would not apply to oil production on state lands (which includes offshore
production within three miles of the coast) and would not apply to federal production
(offshore production beyond three miles from the coast and production on federal lands
in the state). Additionally, the severance tax would not apply to oil wells that produce
less than ten barrels of oil per day ("stripper wells"), unless the price of oil at the well
head was above $50 per barrel. At current levels of production, the tax would apply to
about 165 million barrels of oil produced in the state annually.
The measure states that the tax would be "applied to all portions of the gross value
of each barrel of oil severed as follows:"
· 1.5 percent of the gross value of oil from $10 to $25 per barrel.
· 3.0 percent of the gross value of oil from $25.01 to $40 per barrel.
· 4.5 percent of the gross value of oil from $40.01 to $60 per barrel.
· 6.0 percent of the gross value of oil above $60.01 per barrel and above.
The wording of the measure regarding the application of the tax rates could be
interpreted in two different ways. Specifically, it is unclear whether the tax would be
applied at a constant rate on the full gross value of oil per barrel (for example, if the
gross value is $70 per barrel, the tax would be applied at a rate of 6.0 percent on the full
$70) or rather, applied on a marginal basis similar to the income tax (for example, if the
gross value is $70 per barrel, the first $10 is not taxed, the value from $10 to $25 is taxed
at 1.5 percent, and so on). The issue of interpretation would presumably be resolved by
regulations adopted by the California State Board of Equalization (BOE) and any related
litigation.
According to the measure, the cost of the severance tax is to be borne only by the
producers of oil. The measure states that producers would not be allowed to pass on the
cost of this severance tax to consumers through increased costs for oil, gasoline, or
diesel fuel. The BOE is charged with enforcing this prohibition against passing on the
cost of the tax. However, it is unclear the extent to which BOE would be able to enforce
~MS"-9
~ ~
>- ñí
~ r-
Õ CJ
ORIGINAL
Hon. Bill Lockyer
3
January 25, 2006
this statutory prohibition, given the difficulties in determining what portion of a
potential price increase on oil and related products is due to the imposition of the
severance tax, as opposed to other costs of production.
Under the measure, the severance tax would expire once the new California Energy
Alternatives Program Authority (discussed below) has spent $4 billion as provided in
the measure, and any bonds issued by the authority are paid off.
Tax Revenues to be Deposited in New Special Fund. The proceeds of the severance
tax would be deposited in a new fund created by the measure, the California Energy
Independence Fund. These revenues would not be subject to the state appropriations
limit, would not be eligible for loan or transfer to the state's General Fund, and would
be continuously appropriated (and thus, not subject to the annual state budget
appropriation process).
Reorganized State Entity to Spend the Tax Revenues. The measure would
reorganize an existing body in state government, the California Alternative and
Advanced Transportation Financing Authority, into a new California Energy
Alternatives Program Authority (If Authoritylf). This reorganized authority would be
governed by a board made up of nine members, including the Secretary of the
California Environmental Protection Agency, the Chair of the California Energy
Commission, the Treasurer, and six members of the public who have specific program
expertise, including: economics, public health, venture capital, energy efficiency,
entrepreneurship, and consumer advocacy. The board would appoint a staff to
administer various programs specified in the measure. The Authority is required to
develop strategic plans, adopt procedures and standards for awarding incentives to
encourage the development and use of alternative energy technologies, and award
incentives based on the allocation of the revenues from the new severance tax provided
by the measure and discussed below.
The stated goal of the measure, to be achieved through the various programs funded
by it, is to reduce the use of petroleum in California by 25 percent from 2005 levels by
2017. The actual reduction would depend on the extent to which the measure was
successful in promoting, and consumers and producers adopted, new technologies and
energy efficient practices.
The Authority would have the power to issue bonds, which would be used to fund
the various programs created under the measure, and which would be paid back with
future revenues from the severance tax.
Allocation of Funds. The measure authorizes the Authority to spend $4 billion over
its first ten years of operation. The funds generated from the severance tax and any
'óA.K~?>
~ ~
>- m
\::;. r-
o (:)
ORIGINAL
Hon. Bill Lockyer
4
January 25, 2006
bonding against future severance tax revenues would be allocated as follows, after first
covering debt-service costs and expenses to collect the severance tax:
· Gasoline and Diesel Use Reduction Account (57.50 percent)-for market-
based incentives (consumer loans, grants, and subsidies) for the purchase of
alternative fuel vehicles, incentives for producers to supply alternative fuels,
incentives for the production of alternative fuel infrastructure (for example,
fueling stations), and grants and loans for private research into alternative
fuels and alternative fuel vehicles.
· Research and Innovation Acceleration Account (26.75 percent)-for grants to
California universities to improve the economic viability and accelerate the
commercialization of renewable energy technologies and energy efficiency
technologies.
· Commercialization Acceleration Account (9.75 percent)-for incentives to
fund the start-up costs and accelerate the production of petroleum reduction,
renewable energy, energy efficiency, and alternative fuel technologies.
· Public Education and Administration Account (3.50 percent)-for public
education campaigns, oil market monitoring, and general administration. Of
the 3.5 percent, at least 28.5 percent must be spent for public education,
leaving a maximum of 71.5 percent of the 3.5 percent (or roughly 2.5 percent
of total revenues) for the Authority's administrative costs.
· Vocational Training Account (2.50 percent)-for job training at community
colleges to train students to work with new alternative energy technologies.
Fiscal Effect
New State Revenues to Be Used for Dedicated Purposes. The measure creates a
severance tax on oil production. Based on current oil production and prices, and
depending on how the measure is interpreted, it would raise annually either about
$200 million (under the marginal tax rate interpretation) or about $380 million (under
the constant tax rate interpretation) in new state revenues. However, actual revenues
collected under the measure will depend on both oil prices and oil production in the
state, and the effects of the initiative on them. As these variables are difficult to predict,
there is uncertainty as to the level of revenue collection. The revenues are to be used for
new spending (that is, they cannot be used to supplant current spending) for a number
of specified incentive programs, including programs intended to reduce energy use in
the state, particularly petroleum use.
State and Local Administrative Costs to Implement the Measure. Under the
provisions of the measure, up to 2.5 percent of revenues in the new fund would be
available to the Authority for its general administration costs. Because programs of the
~ 'ò~K~1>
C) ~
>- -
~ m
_ t-
o (:)
ORIGINAL
Hon. Bill Lockyer
5
January 25, 2006
size and type to be overseen by the Authority have not been undertaken before in the
area of transportation fuels, the administrative costs imposed by the measure on the
Authority are unknown. Costs to BOE to collect the severance tax and administrative
costs associated with the issuance and repayment of bonds by the Treasurer's Office are
not counted as part of the Authority's administration budget and are to be paid from
the severance tax revenues. Additionally, local administrative costs would increase, by
an unknown amount, in oil-producing counties due to increased reassessment activity
by local property tax assessors to account for the effects of the severance tax on oil-
related property values.
Reduction in Local Property Tax Revenues. Local property taxes paid on oil reserves
would decline under the measure, to the extent that the imposition of the severance tax
reduces the value of oil reserves in the ground and therefore their assessed property
value for tax purposes. The size of this impact is unknown and would depend on the
price of oil, which determines both the severance tax rate and the value of oil reserves.
Under certain circumstances, existing law requires the state to offset reductions in
property tax revenues experienced by K-14 school and community college districts. To
the extent that this measure reduces property tax revenues to these districts, the
measure could increase, by an unknown amount, state funding obligations for
education.
Reduction in Income Tax Revenues. Oil producers would be able to deduct the
severance tax from earned income, thus reducing their income tax liability under the
personal income tax or corporation tax. The extent to which the measure would reduce
income taxes paid by oil producers is unknown, as it would depend on various factors,
including whether or not an oil producer has taxable income in any given year, the
amount of such income that is apportioned to California, and the tax rate applied to
such income.
Potential Reduction in Gasoline and Diesel Excise and Sales Tax Revenues. To the
extent that the programs funded by the measure are successful in reducing the use of oil
for transportation fuels, it would reduce the amount of gasoline and diesel excise taxes
paid to the state. Similarly, it would reduce sales and use taxes paid to the state and
local governments, under certain conditions. These impacts would be offset, to an
unknown degree, by increased sales and excise taxes paid on alternative fuels, to the
extent that the measure results in an increased use of alternative fuels that are subject to
these taxes.
Potential Indirect Impacts on the Economy. In addition to the direct impacts of the
measure, there are potential indirect effects of the measure that could change the level
of economic activity in the state, thereby affecting state and local revenues. For example,
by increasing the cost of oil production, the imposition of the severance tax could result
~A.K~1>
~ 0>
'-r\
>- -
~ m
_ r-
t,) (:)
ORIGINAL
Hon. Bill Lockyer
6
January 25,2006
in reduced production and/ or reduced investment in new technologies to expand
production. The impact on oil production and investment would vary depending on
each oil producer's rate of return and the measure's impact on it. To the extent that the
measure reduces investment in oil production, the measure could result in a reduction
in economic activity, reflected, for example, in a reduction in jobs and/ or capital
purchases related to the oil industry. Additionally, if the measure results in reduced oil
production, over the long term it could increase the price of oil, which could also reduce
economic activity. Any negative impact on the economy will potentially reduce state
and local revenues through reduced personal income, corporation, and sales taxes.
On the other hand, using revenues derived from the severance tax to invest in new
technologies may spur economic development in California. To the extent that new
technologies supported by the measure are developed and/ or manufactured in the
state, the benefits to the economy from this development may offset, to an unknown
extent, any negative economic impacts of the measure.
Summary
In summary, the initiative would have the following fiscal effects:
. New state revenues annually-depending on the interpretation of the
measure's tax rate provisions-of either about $200 million or about
$380 million from the imposition of a severance tax on oil production, to be
used to fund a variety of new alternative energy programs.
. Reductions of unknown amounts in: local revenues from property taxes paid
on oil reserves, potentially partially offset by state payments to schools to
make up their revenue loss; state revenues from income taxes paid by oil
producers; and, potentially, state and local revenues from gasoline and diesel
excise and sales taxes.
Sincerely,
Elizabeth G. Hill
Legislative Analyst
Michael C. Genest
Director of Finance
X fòþ.,K~??
o ~
>- -
~ f!!
t,;> ()
ORIGINAL
COALITION AGAINST the OIL TAX
headed for November's Ballot
(as of June 13, 2006)
Taxpayer Organizations
Alameda County Taxpayers Association
Butte County Taxpayers Association
Butte County Citizens for Better
Government
California Taxpayer Protection Committee
California Taxpayers' Association
Central Solano Citizen/Taxpayer Group
Contra Costa Taxpayers Association
Howard Jarvis Taxpayers Association
Kern County Taxpayers Association
Marin United Taxpayers Association
National Tax Limitation Committee
National Taxpayers Union
Orange County Taxpayers Association
Sacramento County Taxpayers League
Sonoma County Taxpayers' Association
United Californians for Tax Reform
Valley Taxpayer's Coalition, Inc. *
Ventura County Taxpayers Association
Waste Watchers, Inc.
Yolo County Taxpayers Association
Statewide & National Organizations
Air Transport Association of America, Inc.
Association of Energy Service Companies
(California Chapter)
Automobile Club of Southern California
California Autobody Association
California Black Chamber of Commerce
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Hispanic Chamber of
Commerce
California Citrus Mutual
California Cotton Ginners and Growers
Associations
California Grape & Tree Fruit League
California Grocers Association
California Independent Grocers &
Convenience Stores
California Independent Oil Marketers
Association
California Independent Petroleum
Association
California League of Food Processors
California Manufacturers & Technology
Association
California Restaurant Association
California Retailers Association
California Small Business Alliance
California Space Authority
California Trucking Association
California Women for Agriculture
Chemical Industry Council of California
Consumers Coalition of California
Consumers First
Independent Oil Producers' Agency
Korean Dry Cleaners & Laundry
Association
National Association of Manufacturers*
Nisei Farmers League
Olive Growers Council
Peace Officers Research Association of
California
Printing Industries of California
Small Business Action Committee*
Computer Generated
Californians Against Higher Taxes
a coalition of taxpayers, consumers, businesses and energy producers,
with major funding by Chevron Corporation and Aera Energy LLC
111 Anza Blvd., Suite 406 · Burlingame, CA 94010
11300 West Olympic Blvd., Suite 840 · Los Angeles, CA 90064
« <¢f\K~?>
o ~
).. -
Þ' m
:..~ r-
L) <:)
ORIGINAL
Statewide and National Organizations
cont.
The Seniors Coalition
U.S. Chamber of Commerce*
Western Electrical Contractors Association*
Western States Petroleum Association
Local & Regional Organizations
Alameda Merchants Association
Asian Service Organization*
Bethel M.B. Church
Camara de Camercio Agrupacion de
Comerciates de San Jose
Central California Hispanic Chamber
of Commerce*
Central Valley Asian American Chamber*
Corona Chamber of Commerce
Filipino American Chamber of San Joaquin
Fresno Area Hispanic Chamber of
Commerce*
Fresno County Farm Bureau
Goleta Valley Chamber of Commerce
Greater Bakersfield Chamber of
Commerce
Greater Corona Hispanic Chamber of
Commerce*
Greater Fresno Area Chamber of
Commerce
Greater Riverside Chambers of Commerce*
Hispanic Chamber of Commerce -
Alameda County*
Hispanic Chamber of Commerce -
Contra Costa County*
Hispanic Chamber of Commerce--
Silicon Valley*
Kern County Board of Supervisors
Kern County Farm Bureau
Kern County Hispanic Chamber of
Commerce
Kern Law Enforcement Association *
-.._..,,--~-..-,... ...".,.-~.,.-...,--..",
Lake Elsinore Valley Chamber of
Commerce
Long Beach Area Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles Metro Hispanic Chamber of
Commerce
MADIC - Making A Difference in The
Community
Milpitas Chamber of Commerce*
Murrieta Chamber of Commerce
Napa County Latin Business Association
Ontario Hispanic Chamber of Commerce
Orange Chamber of Commerce &
Visitor Bureau
Oxnard Chamber of Commerce*
Palm Desert Chamber of Commerce*
Regional Hispanic Chamber of Commerce
Regional Legislative Alliance of Ventura &
Santa Barbara Counties
Saint John Missionary Baptist
Association
San Jose Silicon Valley Chamber of
Commerce*
San Mateo County Hispanic Chamber of
Commerce*
Santa Clara Chamber of Commerce*
Sonoma County Black Chamber of
Commerce*
Southwest California Legislative Council
(chamber coalition in Riverside County)
Temecula Chamber of Commerce
Valley Industry & Commerce Association
(VICA)
Ventura Chamber of Commerce
Ventura County Economic Development
Association
~A.K~~
~ ~
>- ¡:¡;
\::; r-
Q tJ
ORIGINAL
Oil Tax Initiative is Bad News
for Drivers, Schools & Taxpayers
Few argue with the need to expand alternative energy use. But the proposed oil tax initiative
headed for the November 2006 statewide ballot is not the way to get there. It would create a
new state bureaucracy with the power to spend unlimited tax dollars without accountability or
results, at the expense of higher gasoline prices and revenue cuts to schools, local
governments, law enforcement, and other vital services.
That's why the California Taxpayers Association, California Chamber of Commerce, California
Manufacturers & Technology Association and many other taxpayer, consumer and business
leaders OPPOSE the new oil tax.
HIGHER PRICES AT THE PUMP
GREATER DEPENDENCE ON FOREIGN OIL
Despite the initiative's promises, higher oil production taxes would increase the price of
gasoline, diesel, and jet fuel. Higher taxes on instate oil production would also discourage in-
state oil production, thereby increasing our dependence on foreign oil. That's the last thing
we need.
A NEW STATE BUREAUCRACY WITH NO ACCOUNTABILITY TO TAXPAYERS
UNLIMITED SPENDING WITH NO PROGRESS REQUIRED
The initiative creates a new state bureaucracy run by more than 50 political appointees with
the power to hire unlimited staff and spend a minimum of $4 billion in tax dollars - outside
the state budget review process and outside the normal checks and balances that govern
other agencies. The new bureaucracy is authorized to spend additional taxes year after year
after year, even if they are making absolutely no progress advancing alternative energy use
or reducing petroleum use. That's a recipe for waste, not progress.
CUTS EXISTING REVENUES TO SCHOOLS, LAW ENFORCEMENT, LOCAL GOVERNMENTS
ROBS SCHOOLS OF THEIR FAIR SHARE OF NEW TAX REVENUES
The state's independent Legislative Analyst reports that the proposed initiative would
reduce property tax revenues and general fund revenues. That would force new tax
increases or cuts to education, law enforcement, health care, and local government
services.
In addition, current law (Proposition 98) requires that 40 percent of new state tax revenues
be spent in K-12 classrooms, but the oil tax initiative circumvents that constitutional
requirement, thereby robbing schools of $1.6 billion. Not one penny of the new revenues
could be spent in K-12 classrooms on teachers, textbooks, or other critically needed
resources.
Californians Against Higher Taxes
a coalition of taxpayers, consumers, businesses and energy producers,
with major funding by Chevron Corporation and Occidental Oil and Gas Corporation
111 Anza Blvd., Suite 406 · Burlingame, CA 94010
11300 West Olympic Blvd., Suite 840 · Los Angeles, CA 90064
4.19.06<òt>.K(::
x ?>o>
o -1'1
>- -
m
t:: ¡--
o (:)
ORIGINAL