SACRAMENTO — California oil producers vowed Thursday to wage an all-out lobbying battle against Gov. Arnold Schwarzenegger's call for a 9.9% state tax on every barrel of crude pumped out of the ground.
The governor said the tax was an important part of a budget-balancing solution at a time of economic crisis in the state. But the oil industry warned it would mean higher gasoline prices during a recession.
The governor asked for the levy as part of a package of proposed new revenues aimed at raising $4.7 billion to fill about half of an $11.2-billion hole in this year's budget. The remainder of the deficit would be offset by proposed spending cuts.
"We have drastic problems that require drastic and immediate action," Schwarzenegger said just after calling a special session of the Legislature.
The proposed oil tax would raise $528 million in the fiscal year that ends June 30 and $1.2 billion the following year, according to the state Department of Finance.
The governor's proposal would make California producers the most heavily taxed in the nation and "would decimate drilling programs" here, said Rock Zierman, chief executive of the California Independent Petroleum Assn., a producer trade group.
Representatives of the state's top petroleum companies who met with the governor's staff Thursday morning "expressed our complete opposition to this proposal," said oil industry lobbyist Catherine Reheis-Boyd.
Currently, California, the country's third-biggest-producing state, is the only one that does not collect a substantial extraction tax on oil at the wellhead. But producers counter that they pay plenty of other taxes, including local property taxes on oil reserves and income taxes.
Schwarzenegger's embrace of an oil extraction tax marks a reversal of the position he took just two years ago in opposing Proposition 87, an initiative that would have taxed crude to pay for research and development of alternative energy programs. The measure failed, getting only 45.3% of the vote in November 2006. Oil companies spent about $95 million to defeat Proposition 87.
Times have changed, now that California and the nation have been plunged into a global economic crisis, the governor said.
Republicans, who would have to provide some of the votes needed to approve new taxes, vowed to oppose the governor's call to tax oil as well as to increase the state sales tax by 1.5 percentage points and broaden it to a number of services, including tickets to sporting events, amusement parks and automobile repairs.
Taxing oil producers could lead to higher prices at the pump for motorists, Republicans and oil companies contend.
It would be "insanity" to push gasoline prices higher during an economic crisis, warned Assembly Republican Leader Mike Villines of Clovis.
Schwarzenegger administration officials countered that they did not expect the tax increase to spur higher prices at the pump. Oil prices are set by international markets and California's production is too small to affect those benchmarks, said spokesman Aaron McLear.
Democrats lauded the governor for what they called a "realistic" assessment that the state's budget problems are being caused by a drop in revenue rather than excessive spending.
"The world has changed with the collapse of the credit markets and the crash of the national economy," said Senate President Pro Tem Don Perata (D-Oakland).
"The rug has literally been pulled out from underneath the state budget."
Environmentalists said they welcomed the new levy on the oil industry, which has posted record profits in recent years.
"We hope that the governor can deliver the handful of Republican votes that it will take to put it over the top," said Bill Magavern, state director of the Sierra Club.
A double-digit sales tax in L.A.?
Proposed and approved increases could push the figure to 10.25%. PAGE A27