California lawmakers introduce exceptional oil tax law

California lawmakers introduced legislation on Monday to penalize oil companies for alleged price gouging, setting up a showdown with an industry that has long wielded political influence in the Golden State.

At the request of Governor Gavin Newsom, California Senate Budget Chair Nancy Skinner, D-Berkeley, proposed a new bill that would impose a penalty on oil companies when their profits exceed a legally established threshold. The money generated by the penalty would then be placed in a fund that would be redirected to taxpayers in the form of refunds.

But the initial wording of the bill is vague, failing to define the profit threshold that oil companies would be penalized for exceeding and lacking an explanation of who would be eligible for rebates. Newsom said those details will be ironed out during the special session.

The move comes two months after the Democratic governor first unveiled a plan to levy a windfall tax on oil companies that posted record profits as Californians were squeezed to the pumps. He then convened a special session to begin developing the plan.

“These guys have been toying with the system for decades,” Newsom said Monday of the oil and gas industry. “…I think we have a lot of outstanding legislative leaders here who get it and they’re tired of paying the price in terms of dirty air.”

Getting a one-of-a-kind penalty like this through the Legislative Assembly and into the governor’s office will not be without its challenges.

Along with the opening of the extraordinary session, Monday also marked the first day of the regular legislative session. It meant a new class of legislators were sworn in – some of whom were elevated to state office with the support of the oil industry and its associated unions. An oil-funded political action committee has spent more than $8 million this year backing candidates it says might be helpful in avoiding a potential windfall penalty.

California faces soaring gas prices

Newsom proposed the tax when Californians were paying $2.60 a gallon more than the national average — an unprecedented markup, even in a state known for its high gas prices.

Although California’s high environmental taxes and fees contribute to the disparity, Newsom and supporters of the penalty say it doesn’t fully explain what was going on at the time. Gasoline prices in California continued to climb as the price of crude oil fell. Newsom said it was because oil companies were taking advantage of California drivers to reap unprecedented profits.

Gas prices in California have fallen significantly since then, but Newsom says the price hike measure is still needed to deter future price spikes.

Newsom did not say how much money Californians could expect to receive if an oil company still decides to raise the price of gasoline above the state-designated threshold.

And as to how the refunds would be distributed, he suggested it could be done in the same way as this year’s inflation relief checks and the 2021 Golden State Stimulus.

In both cases, executives used the Franchise Tax Board to send money to taxpayers by direct deposit or postal debit card.

“Hopefully we never have to go,” Newsom said. “Because I hope the oil companies will change their ways.”

The bill also calls for expanding the powers of the California Energy Commission and the state’s Department of Tax and Fee Administration to allow them to investigate and obtain information from oil companies about their costs, levels of procurement and their operations.

Oil companies had hoped to see more specific language on the penalty proposal after months of discussion, said Kevin Slagle, spokesman for the Western States Petroleum Association. He said market forces, environmental regulations and public policies are responsible for high gasoline prices.

“Overall, this is still the wrong approach to reducing energy costs in the state,” Slagle said.

Penalty for excessive pricing in relation to the tax

Over time, the Democratic governor changed his rhetoric around the proposal, removing the term “windfall tax” and calling it a “price gouging penalty” instead.

It’s a change that could help win over more moderate Democrats and provide more wiggle room for the votes needed to pass the measure. Passing a tax in the legislature would require two-thirds support, while a cap or penalty only requires a simple majority.

Asked about the discrepancy, Newsom said his proposal “took a different path, a much better path.” He said the threshold for the legislative vote was “not part of my conscience”.

Democratic lawmakers were hopeful about the new term’s chances in the Legislature. But Republicans have suggested the move won’t do much to change gas prices, and lawmakers would be better off suspending the state’s gas tax and boosting oil production there. statewide.

Assemblyman Alex Lee, D-San José, who floated a similar idea last year, was optimistic a proposal would pass but acknowledged there would likely be a rocky road ahead. Browse.

“I think in times of crisis we have more momentum,” Lee said. “Now we are talking about the future and being proactive, so it might be more difficult.”

R-Kern County Assemblyman Vince Fong said the penalty would do nothing to lower gasoline prices and would “in fact have the opposite effect.”

“If we really want to focus on energy, let’s have the debate,” Fong said. “But what the governor’s proposal will do is it will increase the cost of power generation in California. And that will make us more dependent on foreign countries, like Saudi Arabia, Iraq, Ecuador, countries that don’t share our values.

Fong suggested the Legislature should instead suspend the gas tax and fill in lost revenue with dollars from the general fund, a proposal Republicans pushed repeatedly during the previous legislative session.

“The governor always says the budget reflects values ​​and priorities,” Fong said. “If the governor’s No. 1 priority is lowering gas prices for hard-working Californians, make it a priority — make it a priority.”

This story was originally published December 5, 2022 2:47 p.m.

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Lindsey Holden covers the California Legislature for The Sacramento Bee. She previously reported on housing and local government for The Tribune of San Luis Obispo. Lindsey began her career at the Rockford Register Star in Illinois. She is originally from California and grew up in the Midwest, where she earned degrees from DePaul and Northwestern universities.

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Maggie Angst covers California politics and Governor Gavin Newsom for The Sacramento Bee. Prior to joining the Bee’s Capitol Bureau, she worked for the Mercury News and the East Bay Times where she covered San Jose City Hall and later wrote corporate articles on the breaking news team. .

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