At the same time, an environmental organization says oil drilling would be less lucrative than coastal tourism, and recreational and commercial fishing activities.
By Melonie Magruder / Special to The Malibu Times
In a press conference last week at the Malibu Pier, Assemblymember Pedro Nava (D-Santa Barbara) announced the introduction of the Oil Industry Fair Share Act (AB1-6x), to be taken up during the next legislative session.
The announcement coincided with a report released by Environment California, which found that offshore oil drilling in areas being considered by the Minerals Management Service, including an extensive swath from Santa Barbara to the Santa Monica Bay, might do more harm than good for the nation’s coastal economies.
Nava believes the bill would help narrow Sacramento’s perennial budget gap and provide a measure of relief to overextended public schools; while Environment California’s report may help strengthen legislative opposition to drilling off Malibu’s coastline.
Nava’s bill would establish a 10 percent severance, or extraction, fee on the gross value of every barrel of oil produced in the state, while prohibiting oil companies from passing the tax on to consumers in the form of higher prices on any of their products. Nava insists that California could raise substantial revenues without opening the coast to any new drilling.
“California is the third largest oil-producing state in the nation, but the only one that doesn’t charge a severance tax,” Nava said. “Yet, as this report shows, it means the whole notion of drilling is bad for California and carries with it a serious risk to our scenic coastal waters and our abundant resources.”
Twenty-seven states charge oil severance taxes. Nava’s bill estimates that, at current oil prices of $70 per barrel, the proposed tax will raise approximately $1.5 billion for the state’s General Fund, at a time when California faces record deficits.
Oil companies operating in California already pay income tax on profits, regulatory fees and property taxes. They have objected to any severance tax, saying that it would increase prices at the pump and cause California to lose jobs. Nava disputed these claims.
“Oil is traded on the world market,” Nava said. “Besides, when Alaska increased their oil severance tax in 2007, they saw job gains.”
The top six oil producers in the country posted increased gross profits for 2008 and their CEOs saw corresponding increased compensation packages. Rex Tillerson, CEO of Exxon Mobil Corporation, received compensation in 2008 of more than $32 million. Ray Irani, CEO of Occidental Petroleum, took in more than $30 million.
“I’d like to see Rex Tillerson sit down with a California family facing foreclosure and explain why his company shouldn’t be taxed here like it is in every other oil-producing state in the union,” Nava said. “I don’t object to anyone making profits, but I don’t think you’ll see too many seniors whose services have been cut or parents driving their kids to school in overcrowded classrooms objecting to Big Oil being treated like they are in Alaska and Texas.”
In an opinion column for a California business journal, Joe Armendariz, Carpinteria city councilman and anti-tax advocate, blistered Nava’s bill, arguing that oil companies operating in California are already subject to a wide range of regulation and taxes, and denied any parity between Alaska’s severance tax and Nava’s proposed tax.
“Alaska’s 25 percent severance tax … only taxes oil company profits,” Armendariz wrote. “Nava’s severance tax… is a 10 percent tax on gross revenue; a huge difference as anyone in business understands.”
Armendariz insisted that Nava’s proposal will make “everything we buy” in California more expensive, something he said working class families can little afford with a 12 percent unemployment rate.
Gina Goodhill, spokeswoman for Environment California, emphasized that their report shows that California has a vested interest in protecting coastal oceans.
“We found that sustainable activities like coastal tourism and recreational and commercial fishing generate $65 billion annually for the Pacific Coast,” Goodhill said. “Oil and gas production is worth only about $23 billion a year. So it makes more sense to keep our oceans clean and tourist-friendly.”
Though oil companies say improvements in extraction techniques have rendered offshore drilling safe, Goodhill pointed out the recent spill in Australia’s Montara oil platform. It started spilling oil and gas last August and has yet to be contained, now totaling almost half the size of the infamous 1989 Exxon Valdez spill in Alaska.
“We have unique species here in the Santa Monica Bay and Channel Islands,” Goodhill said. “We can’t risk that eco-diversity.”
Malibu City Councilman Jefferson Wagner echoed that concern.
“This city is dependent on tourism,” he said. “Surf shops and other tax-generating businesses depend on clean water and if that’s threatened, our way of life is threatened.”
Last May, Nava announced his intention to run for attorney general next year.