The UC system and other institutions of higher education may gain funding from the taxation of oil production in the state under a new piece of proposed legislation.

Assembly Bill 656, first introduced by California State Assembly Majority Leader Alberto Torrico on Feb. 25, would levy a 9.9 percent severance tax on all oil and natural gas extracted from California and its ocean holdings beginning in January 2010.

California is the only oil-producing state without a severance tax. Oil lobbyists have said that California already collects property and corporate income taxes and additional taxation would discourage investment in the state.

The tax would raise about $900 million for the UC, CSU and community college systems per year, according to estimates by the 2009-10 Budget Conference Committee. This would not prevent cuts to the 2009-10 UC budget.

Proponents said the bill would provide a reliable stream of revenue at a time when higher education institutions are facing major budget cuts.

"We get sliced and diced whenever the economy wavers," said Lillian Taiz, president of the California Faculty Association, a group in support of the bill. "We need to get a source of revenue that is not subject to these ebbs and flows."

UC or CSU officials have not yet come out in support of the bill, which would provide them with $270 million and $540 million a year, respectively.

"We have neither analyzed the bill nor taken a position on it yet," said UC spokesperson Ricardo Vazquez. Vazquez said he was unsure if the university would release a statement.

"We hope that (UC officials) are simply preoccupied and haven't gotten around to it yet," Taiz said.

Oil industry representatives argue that a severance tax would deter companies from investing in California.

According to Rock Zierman, CEO of the California Independent Petroleum Association, an industry-funded survey estimated that AB 656 would result in the loss of more than 10,000 jobs.

"Those are 10,000 families who want to send their kids to school too," he said.

According to a series of studies done by Montana non-profit Headwaters Economics, having low taxes would not translate into a higher rate of industry investment.

"California could probably set the tax rate at or above the rate in other states and it would have almost no effect on whether the industry wanted to drill there or elsewhere," said Mark Haggerty, an author of the study and an economist at the non-profit.

AB 656 faces a number of obstacles because Democrats do not have the two-thirds majority needed to create new taxes. A similar measure was included in Democratic assembly members' recent budget proposal, which was defeated again on Sunday.

Gov. Arnold Schwarzenegger, who proposed a 9.9 percent severance tax in December, is now opposed to the bill, according to spokesperson Lisa Page.

"The governor has been crystal clear that he will not support tax increases," she said.

Torrico acknowledged that he would need to win the support of Republicans in order for the bill to pass.

"If the Republicans and governor want to do the right thing and stand on the side of California families, the bill will pass," he said. "If they choose to stand on the side of record-making-profit companies, it will fail. It comes down to a matter of conscience."

The Assembly Committee on Higher Education will hold the bill's second hearing next week.

Tags: OIL SEVERANCE TAX