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Posted by: mturnipseed on 07/02/2009 01:28
Updated by: mturnipseed on 07/02/2009 01:28
Expires: 01/01/2014 12:00
Oil Severance Tax
Media Event Comments on Oil Severance Tax
Californians Against Higher Taxes
By Michael Turnipseed, Executive Director
Kern County Taxpayers Association
July 2, 2009
Good morning, I am Michael Turnipseed, Executive Director of the Kern County Taxpayers Association.
KERNTAX opposes the State Legislature’s attempt to impose a Oil Severance Tax for several reasons:
Six states—Texas, Louisiana, Alaska, California, Oklahoma, and Wyoming—account for 80 percent of all oil produced in the United States.
Media Event Comments on Oil Severance Tax
Californians Against Higher Taxes
By Michael Turnipseed, Executive Director
Kern County Taxpayers Association
July 2, 2009
Good morning, I am Michael Turnipseed, Executive Director of the Kern County Taxpayers Association.
KERNTAX opposes the State Legislature’s attempt to impose a Oil Severance Tax for several reasons:
Six states—Texas, Louisiana, Alaska, California, Oklahoma, and Wyoming—account for 80 percent of all oil produced in the United States.
Except for California, most oil producing states rely on a severance tax for the majority of oil revenues. Yet contrary to popular belief, California does not place an abnormally light tax burden on crude oil producers. Considering both tax and royalty revenues, state government revenues from oil production in California amounted to 13.4 percent of the value of nonfederal production in the state, well above comparable rates for Oklahoma, Texas, and Wyoming.
Severance taxes are economically very inefficient but politically very tempting. Because oil cannot leave the state, it presents an easy target for tax-hungry legislators and bureaucrats. But severance taxes drive out other variable factors of production, such as labor and capital, and thus stifle production.
Because it has no severance tax, California has one of the least costly, least economically distorting energy tax systems in the nation.
If California imposed a 6 percent severance, it would reduce the average remaining economic lifetime of existing wells by three years. Over the full lifetime of existing wells, the tax would reduce production by about 10.5 percent of the remaining production from those wells.
Severance taxes discourage exploration efforts and the drilling of new wells. A 6 percent severance tax in California, for instance, would reduce the number of new wells drilled in the state by 230 to 280 annually, or 6.5 to 7.0 percent.
Imposition of a 6 percent severance tax in California would destroy jobs. Direct employment demand in the fossil fuel extraction sectors would fall by an average of 1,700 to 2,600 positions over a 30-year period. When the indirect employment effects in other sectors are added, the total reduction in California employment demand would amount to 9,000 to 16,000 full-time equivalent positions.
Imposing a severance tax in California would reduce significantly gross sales of oil in the state. Estimated total reductions from the direct and indirect effects of a 6 percent severance tax would total $1.2 to $2.0 billion annually.
Kern County produces 70 percent of California’s crude oil.
The Kern County Assessor estimates a severance tax would depress the value of oil and gas properties in Kern County by $4.5 billion.
Losses in county property tax revenues to local government agencies would be $45 million the first year.
o The total impact to Kern County alone of the State Legislature’s fiscal irresponsibility could be staggering:
o New state borrowing of local property taxes: $26.5
o This is on top of the ERAF, Education Revenue Augmentation Funds. ERAF will cost Kern County $100 million this year. Prop 172 monies, which are suppose to backfill about half of the transfer, are a question mark.
o Loss of Williamson Act subventions: $ 4 million.
o State gas taxes: $ 14 million
o And the Oil Severance Tax: $13 Million
o That totals $157 million, less whatever the Prop 172 backfill, if any.
All of this will result in a loss of an estimated 7,000 jobs in Kern County.
Kern County is being unfairly punished by the State Legislature.
With this said, we must commend Assembly member Danny Gilmore for his steadfast opposition to the oil severance tax. As you know, Assembly member Gilmore is retired from the CHP and many public employee unions are pressuring him to support this new tax. He has firmly said, “No!”
All Kern County Taxpayers must oppose these irresponsible actions of our State Legislature.
Thank you for your time to attend this event.
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