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Oil Tax Campaign a Cash Guzzler for Both Sides

More than $107 million has been raised for and against Proposition 87, a state ballot record.

October 16, 2006|Marc Lifsher | Times Staff Writer

A $100-million-plus political battle over taxing oil production in California is underway, and most of the action can be seen in living rooms across the state.

At issue is Proposition 87, the Clean Alternative Energy Act, one of 13 statewide ballot issues to be decided Nov. 7. But it has been hard to miss this one. So far, dueling opponents have spent $85 million just on TV advertising, helping to make this the most expensive ballot fight in California history.

"This is one the voters will be aware of," said Shaun Bowler, a political science professor and initiative expert at UC Riverside. "When somebody with deep pockets has his ox being gored, you see the money spigot being turned on."

Voters are being asked to pass judgment on an extraction tax on crude oil from California wells. The tax ranges from 1.5% to 6%, depending on the price of oil, and would raise an estimated $4 billion over 10 years. The proceeds would be directed at efforts to develop cleaner alternatives to fossil fuels and reducing dependence on imported energy.

Environmentalists love the idea; oil companies hate it. Both sides are putting huge sums into their campaigns.

As of the most recent spending report, Yes on 87 has collected $47 million, most of it from Hollywood producer Stephen L. Bing. The No campaign has collected more than $60 million, mainly from oil companies. Chevron Corp. gave at least $22 million and Aera Energy, a joint venture of Exxon Mobil Corp. and Royal Dutch Shell, contributed at least $12.6 million.

The campaign, so far, has stuck to the issues with TV spots featuring economists, scientists, firefighters and even former Vice President Al Gore. On Friday, former President Clinton endorsed Proposition 87, drawing a crowd of thousands at a UCLA rally.

Gov. Arnold Schwarzenegger opposes the measure but is not campaigning for the No side. In addition, the oil companies have joined with an opposition coalition that includes public safety employees, taxpayer organizations and business groups.

Proponents insist that the tax is way overdue. California -- which accounts for 12% of U.S. oil production, ranking behind only Texas and Alaska -- is the only significant oil-producing state that doesn't collect an extraction tax.

Environmentalists say a Yes vote on Proposition 87 would make us less dependent on foreign petroleum by encouraging nonpolluting, homegrown fuels.

The oil companies contend that just the opposite would happen. Taxing domestic producers would shut down many local wells, forcing California refiners to buy more expensive crude from the Middle East and other potentially unstable regions, they say.

But perhaps the biggest question for consumers is what Proposition 87 would mean for prices at the pump. Not surprisingly, the two sides disagree here also.

Opponents insist that California refiners would hike their prices and pass along much of the tax to motorists.

But supporters note that crude oil prices are set globally, not locally, and a few pennies of tax per gallon should have little effect on the market. What's more, Proposition 87 would expressly outlaw any effort to raise prices because of the tax.

So, which side is right? Both, it seems, up to a point.

The tax "will reduce profits somewhat, but to say it won't have any effect on the pump prices is naive," said David Ramberg, a West Coast oil market analyst in Portland, Ore.

The oil industry, both in California and around the world, is too complex for officials to keep track of every incremental cost from the oil field to the refinery to the gas station and ensure that none of the tax hits consumers, he added.

Severin Borenstein, director of the University of California Energy Institute in Berkeley, said both sides were trying to fool voters about who would end up paying the tax. Proposition 87 backers are trying to capitalize on people's distrust of oil companies, which are earning record profits, he said.

At the same time, he said, "the oil companies figured out that the only way to get people to vote No is by telling them it will raise the price of gas."

Another major point of contention is the government agency that would be created to spend the funds, possibly $400 million a year, raised by the tax during its initial decade in force.

The new authority would be run by a board of up to nine members. They would include several members of the governor's Cabinet, state officials and people appointed by the governor and legislative leaders. The authority also would have the power to sell bonds backed by future tax proceeds.

The board would parcel out money from the tax and the bonds to scientists, universities, companies, public education campaigns and vocational training centers.

Proposition 87 opponents claim that the authority, with as many as 50 employees, would become a new bureaucracy with little accountability to the governor's office or the Legislature, unlike other state agencies.

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