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Oil Companies Warned Prices Must Be Cut

Legislature: Assembly Democrats say a new levy on profits could result from 'gouging' at the pump. But they admit tough talk may not lead to legislation.


SACRAMENTO — The state Assembly's ruling Democrats sent a message to the oil companies Wednesday: Stop bilking Californians with disproportionately steep gasoline prices or we will levy a new tax on your profits.

"End the gouging now," warned Speaker-elect Bob Hertzberg of Sherman Oaks, "or face an excess profits surcharge."

The threat by 22 members of the lower house was instantly assailed by business interests, who considered it a regressive impediment to a free market, and slammed by political opponents as a toothless publicity stunt. Hertzberg conceded that the tax talk was meant to scare oil companies into more responsible conduct and might never see the light of day.

Whatever the case, the tactic strongly differed from the political panacea for surging gas prices that was offered by lame-duck Assembly Speaker Antonio Villaraigosa (D-Los Angeles), clearly spelling doom for Villaraigosa's plan for a temporary cut in the sales tax on gas. Senate President Pro Tem John Burton (D-San Francisco) had already come out against Villaraigosa's legislation, calling instead for a tax on "oil company greed."

Villaraigosa, who did not attend a news conference on the windfall tax because he was in Los Angeles, where he is running for mayor, conceded in an interview Wednesday that his bill was dead. But he argued that by pushing forward with his plan, he had forced his Democratic colleagues into action.

"I applaud their efforts in joining me to seek solutions to this crisis," Villaraigosa said. "A couple of weeks ago, the silence was deafening as to what to do on this issue. We need to explore whatever options are out there. The key for me is that this proposal has precipitated a broader debate."

With gas prices reaching record levels in California, and running about 20 cents a gallon higher than the national average, anti-tax Republicans recently seized on the opportunity to push killing the gas sales tax, which runs from 7.25% to 8.5% depending on the county. A repeal of the tax, they said, would instantly save strapped consumers 15 cents a gallon.

Villaraigosa responded by proposing a partial suspension of the gas tax during the high-travel summer months--an idea that did not go over well with his Democratic colleagues, who learned of it by reading about it in the newspaper. Many of those present at Wednesday's conference--including Hertzberg--made it clear that they were not behind it, arguing that it would have little consequence because the oil companies would simply raise prices again, erasing the tax saving.

Assembly Democrats held a lengthy strategy session Tuesday to weigh options on the simmering gas price issue and concluded that moving in the Republicans' direction would be a political and policymaking blunder.

"That temporary gas tax reduction is not a solution," said Assemblyman Tony Cardenas (D-Sylmar). "There's very little support for that. Everyone's head was nodding at the caucus meeting when we said we reacted that way when the Republicans wanted to get rid of the [vehicle license fee], and the result was not so good."

As an alternative, Democrats united behind a proposal to slap oil refineries with some kind of punitive tax if they continue to take advantage of a national oil shortage by raising their profit margins, a proposal floated Tuesday by Democratic Atty. Gen. Bill Lockyer.

To prove their point, Democrats pointed to state figures breaking down the costs that made up for the state's surge in gas prices, which showed a dramatic increase in the refinery portion between January and March, when prices jumped from $1.36 to $1.79 per gallon.

"Working families are the ones paying for the oil company greed," said Assemblyman Kevin Shelley of San Francisco, which now has the highest gas prices in the nation. "Working families pay while the oil barons get their way."

Amid all the oil bashing, however, broader business interests expressed concern.

"This is an inappropriate interference in the market," said Kathy Fairbanks of the California Chamber of Commerce, a powerful force in the Capitol. "A punitive tax sets a bad precedent. This is the issue of the week. The question becomes, what do they target next?"

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