Spartan Daily - Serving San Jose State University since 1934

Issue date: 11/19/09 Section: News

Media Credit: Chad Ziemendorf Assembly Majority Leader Alberto Torrico addresses the crowd at a rally on October 12 and is surrounded by supporters during the "Fair Share for Fair Tuition Rally" in support of measure AB 656 in front of SJSU's Cesar Chavez Memorial Arch on Monday afternoon.

In the middle of drastic state budget cuts, a proposal to tax oil companies in California to fund higher education has won support with some student and faculty organizations.

The proposal, a bill drafted by Assemblyman Alberto Torrico, D-Fremont, is more complex than it seems, an economist at the Legislative Analyst's Office said.

According to the text of the bill, a 9.9 percent tax would be placed on all oil and natural gas extracted in California.

The estimated $1 billion raised will be split among the University of California, California State University and California Community Colleges systems, according to the bill.

Mary Do, a senior double major in business and environmental studies, said she was interested in finding out more about the proposal.

"I feel like a lot of students are interested and do care," she said. "It affects everyone."

Oil severance tax

California is the only oil-producing state in the nation that doesn't have an oil tax, said Justin Garosi, an economist with the Legislative Analyst's Office, a nonpartisan government office that provides fiscal and policy analysis.

California produces heavy sour oil, a different kind of oil than what is found in states such as Alaska, he said.

"It's not as valuable because it takes longer to refine, and it's more expensive to refine," he said.

Garosi said the oil supply in the state is limited.

"We haven't found a lot of new oil, and our existing ones are being depleted," Garosi said.

Torrico said the bill was meant to serve as a stop-gap to pump money into the education system while it is available.

"I certainly hope California leads the way for the transition from fossil fuels to alternative energy," he said. "I hope at some point they stop using it. In the meantime, we should stop giving away oil for free and start charging oil companies to help make education affordable."

Assemblyman Pedro Nava, D-Santa Barbara, introduced a similar oil severance tax bill in October, but the money would go to several state programs, not just higher education, according to a news release on Nava's Web site.

Torrico said he would rather see the funds go to higher education.

"I'm not opposed to other ideas, but I want to make sure we are going to raise over a billion dollars and secure it for education," he said.

Numbers origins

The Legislative Analyst's Office arrived at the $1 billion figure when Gov. Arnold Schwarzenegger proposed a similar oil severance tax in February in his rejected budget proposal, Torrico said.

Garosi said the number was calculated based on the amount of oil produced in the state, the average price of oil and the tax rate.

William Hamm, an economist who formerly ran the Legislative Analyst's Office, said that calculation didn't take into account the declining amount of oil produced by the state.

"The one thing we know 100 percent for sure, if you impose that tax, you're going to today make some oil wells unprofitable to operate," he said. "You will accelerate the day when other oil wells become unprofitable and will be shut down sooner than they should be."

Hamm, who works for the consulting firm LECG, said though the wells may shut down, demand won't go away.

"The tax by itself isn't going to affect the demand for oil," he said. "That oil will have to be replaced. We will increase our dependence on foreign oil."

Hamm is a co-author of two studies on oil severance taxes, "Comparison of Oil Tax Burdens in the Ten Largest Oil-Producing States" and "Economic Impacts of an Oil Severance Tax."

The former study stated that an oil severance tax would make California oil companies the most heavily taxed in the nation, taking into account other taxes such as property and corporate taxes.

The latter study stated that an oil severance tax would cost the state 9,850 jobs and cost the state $1.3 billion a year in increased oil imports.

Report Objectivity

Both studies were commissioned by the Western States Petroleum Association, a trade organization representing oil companies in six western states, according to the studies.

The other author, Jose Alberro, is the founding CEO of PEMEX Gas and Basic Petrochemicals, Mexico's state-owned oil company, according to the LECG Web site.

Andrae Macapinlac, vice president of Students for Quality Education and a supporter of the oil tax, said he views the funding behind the studies as a sign of bias.

Macapinlac, a senior political science major, said the College Republicans at SJSU used information from those reports to protest a pro-oil tax rally Oct. 12.

"This isn't a grassroots movement," he said of the protest. "It's coming from the top down."

Hamm said any research done at the consulting firm is strictly independent.

He said he spent 17 years earning a reputation as a nonpartisan analyst.

"The most important asset I have is my credibility," Hamm said. "There's no way I would put my name on a report that I didn't think wasn't objective and reliable."

Hamm said he and Alberro remain neutral on an oil severance tax, and the organizations that fund the reports cannot change the results of their studies.

"In all cases, in all the work I do, I insist I have complete control of the reports," he said. "They can choose not to release the report, but they can't change the content.

"I don't know if the petroleum association agrees with all those conclusions or not."

Union-funded research

The California Faculty Association commissioned its own research report through Blue Sky Consulting Group, a public policy and economics consulting firm, titled "Examining the Fiscal, Economic, and Social Impacts of the California State University," according to the report.

The report cites a 2005 economic impact study of the CSU system that found every $1 spent by the university generates $1.83 for local economies.

The report also cites research from the Public Policy Institute of California, which states that by 2020, 39 percent of jobs will need college-educated workers, but only 33 percent of the state's workers will have bachelor degrees.

Good cop, bad cop

The bill was sponsored by the California Faculty Association, the statewide teachers' union for the CSU system, according to the text of the bill.

Liz Cara, the SJSU CFA chapter president, said the statewide teachers' union supports the bill.

"We're looking for any possible way to fund higher education," she said. "We recognize that there needs to be funding sources from the CSU in particular."

Students for Quality Education, a student activist group affiliated with the teachers' union, has also been an ardent supporter of the bill, said Julian Rosenberg, group group.

"In this economy, it's a matter of give and take," the senior mechanical engineering student said. "Is it 9,000 jobs now or millions of people educated later?"

The CSU remains neutral on the bill, said CSU spokesman Erik Fallis.

"The CSU hasn't historically taken a position on specific tax measures," he said. "It's really the responsibility of the legislature and the governor to fund California's priorities."

The College Republicans at SJSU are against the tax, said Jonathan Sandhu, a recent political science graduate.

He said the bill won't fully address the budget shortfalls and will cost jobs at the same time.

"When people complain about 10 percent increase, I say it's a risk (you need to take)," he said. "College is an investment. If you don't think a 10 percent increase is worth that investment to getting an education and a better job, then you should spend their money elsewhere."

Rosenberg said he supports the bill.

"It's proven that money put into education comes back to the state economy several times over," he said. "We need to make a good investment, and this is a profitable way to do that."

Download the full reports here:

• "Comparison of Oil Tax Burdens in the Ten Largest Oil-Producing States," LECG, December 2008
  
  http://www.scribd.com/doc/22741962/LECG-State-Tax-Comparison-Report-12-08-Final
  

  
  

• "Economic and Fiscal Impacts of Governor Schwarzenegger's Proposal To Impose A 9.9 Percent Tax on the Market Value of Oil Produced in California," LECG Consulting Group, January 2009
  
  http://www.scribd.com/doc/22741961/LECG-Economic-Jobs-Report-Full-Report
  

  
  

• "Examining the Fiscal, Economic, and Social Impacts of the California State University," Blue Sky Consulting Group, April 29, 2008
  
  http://www.scribd.com/doc/22741960/CFA-Blue-Sky-Report-Economic-Impact-of-CSUs
  

  
  

• "Educating California: Choices for the Future," Public Policy Institute of California, June 2009
  
  http://www.scribd.com/doc/22741959/PPIC-Educating-California
  

Page 1 of 1

Article Tools