While Gov. Arnold Schwarzenegger has promised to veto another attempt to impose a tax on oil production, just the threat of a 10 percent tax on every barrel of oil produced is enough to keep business activity in the industry from picking up to match a rise in oil prices.
Democratic legislators have proposed a 9.9 percent oil severance tax to raise revenue as one means of finding funding in the midst of the state’s budget crisis.
Taft Mayor Dave Noerr touched on the subject Monday night at a meeting of the city’s finance committee.
He said the combination of a proposed severance tax along with state and federal climate legislation that could impact the oil industry is keeping the producers from any major activity – even though prices have nearly doubled since lows around $30 per barrel last year and have remained steady.
“You’ve got some real concerns there,” said Noerr.
Those comments came while discussing city sales tax revenue, much of which comes from oilfield supply companies.
Les Clark, executive vice president of the Independent Oil Producers Agency, agreed.
He said just the threat of adding a 9.9 percent tax on the profits is enough to make oil companies think twice before committing to major projects that would help the local economy.
Even with the governor’s promised veto, there’s no guarantee that the tax couldn’t be resurrected again, even as a “fee,” Clark said.
“It’s the unknown. Dave’s right in his thought process,” Clark said.
The proposed severance tax would hit this area harder than any other, Clark said.
Since Kern County produces more than 60 percent of all oil produced in California, the county would pay a disproportionate share of the new tax, and also shoulder a much bigger part of the burden, Clark said.
Clark said the oil severance tax or fee could have impact both the public and private sectors.
Its most immediate impact could keep some fields from being drilled, Clark said.
“Those are not going to be developed,” Clark said. “Some of the marginal fields are going to be shut down.”
That could have major impact on Taft and Kern County, which Clark says produces 60 to 70 percent of the state’s oil.
“I like to say ‘When you drill one well you affect 70 jobs,’ ” Clark said. “It’s a ripple effect.”
Adding to the fear is federal legislation aimed at combating climate changes and even proposals to cut the industry’s oil depletion allowance that would translate to greater production costs, Clark said.
That’s a big reason companies aren’t spending more money now even with Midway Sunset crude selling for $63.50 on Tuesday.
That’s Noerr’s fear – that the city may lose more and more sales tax revenues if oil companies aren’t spending money.
Moreover, Clark warned, the stifling effect on the oil industry would lower the value of the oilfields and cut the assessed valuation of the lands for tax purposes.
That translates into a greater loss of funding for public agencies.
Assemblymember Jean Fuller, a vocal opponent of the oil tax, said Kern County’s tax assessor estimated that the tax would cost the county, special districts and school districts $45 million in the first year.
“Kern County will get a double whammy,” said Clark.
Right now, Clark said, he’s hoping Schwarzenegger sticks to his word and veto any attempt to levy a severance tax.
“We’re concerned. We just hope the governor stands by his ‘No New Taxes’ pledge,” Clark said
Taft, Calif. —
