Senate Bill No. 1017

Introduced by Senator Evans

February 14, 2014

An act to add Chapter 8 (commencing with Section 99500) to Part 65 of Division 14 of Title 3 of the Education Code, and to add Part 21 (commencing with Section 42001) to Division 2 of the Revenue and Taxation Code, relating to taxation, making an appropriation therefor, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

SB 1017, as introduced, Evans. Taxation: Oil Severance Tax Law.

(1) Existing law establishes the University of California, under the administration of the Regents of the University of California, the California State University, under the administration of the Trustees of the California State University, and the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, as the 3 segments of public postsecondary education in this state.

This bill would establish the California Higher Education Endowment Corporation (CHEEC) in state government. The bill would establish an oversight board to govern the CHEEC and would require that board to appoint the chief executive officer of the CHEEC. The bill would require the CHEEC to annually allocate the moneys in the continuously appropriated California Higher Education Fund, which would be created by the bill, to the California Community Colleges, the California State University, and the University of California, the Department of Parks and Recreation, and to the California Health and Human Services Agency, in specified proportions and for expenditure as provided. The bill also would authorize the board to invest the moneys in the fund in accordance with prescribed procedures.

(2) Existing law imposes various taxes, including taxes on the privilege of engaging in certain activities. The Fee Collection Procedures Law, the violation of which is a crime, provides procedures for the collection of certain fees and surcharges.

This bill would impose an oil and gas severance tax upon any operator, as defined, for the privilege of severing oil or gas from the earth or water in this state for sale, transport, consumption, storage, profit, or use, as provided, at specified rates, calculated as provided. The tax would be administered by the State Board of Equalization and would be collected pursuant to the procedures set forth in the Fee Collection Procedures Law. The bill would require the board to deposit all tax revenues, penalties, and interest collected pursuant to these provisions into the California Higher Education Fund.

Because this bill would expand the scope of the Fee Collection Procedures Law, the violation of which is a crime, it would impose a state-mandated local program.

(3)  This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2⁄3 of the membership of each house of the Legislature.

(4)  The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(5) Funds appropriated by this bill and allocated to the California Community Colleges would be applied toward the minimum funding requirements for school districts and community college districts imposed by Section 8 of Article XVI of the California Constitution.

(6)This bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: yes. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares:

(a) California is the nation’s fourth largest producer of oil, after
only North Dakota, Texas, and Alaska, and it is the only one of
36 oil producing states that does not have a severance tax. For
example, Alaska employs a minimum severance tax of 25 percent
that can range up to 50 percent depending on the net value of oil
and natural gas, while Alabama, Kansas, Texas, North Dakota,
Mississippi, Oregon, and Florida tax oil and gas at 8 percent, 8
percent, 7.5 percent, 6.5 percent, 6 percent, 6 percent, and 5
percent, respectively.

(b) California is currently tied with Mississippi for the highest
unemployment rate in the nation, and is ranked 47 out of 50 in
quality of education in the United States.

(c) A recent study prepared by the Public Policy Institute of
California found that, by the year 2025, the state will experience
an educated labor shortage of about one million college-educated
workers. This would leave firms unable to fill vacancies, which
would potentially raise the unemployment rate in California and
lead firms to look outside the state for an adequately educated
workforce.

(d) A study conducted in April 2012 by the Institute for the
Study of Societal Issues at the University of California, Berkeley,
sponsored by the California Chamber of Commerce, the California
Civil Rights Coalition, and the Campaign for College Opportunity,
found that for every dollar the state invests in higher education,
the state receives a $4.50 return on its investment. Moreover, a
person with a bachelor’s degree will earn, on average, $1.34 million
more in his or her lifetime than one without a college education.

(e) Since the budget cuts enacted in 2010, over 32,000 teachers
and faculty have been laid off. This has resulted in cuts in classes
being offered, an increase in the ratio of students to teachers, and
a reduced quality of education in the state. Moreover, University
of California student fees have almost doubled in the last five years
alone, while California State University student tuition fees have
risen 80 percent, and California Community College student tuition
fees have risen 130 percent. As a result, over 750,000 students are
no longer seeking to attain an advanced degree in California.

(f) This proposed severance tax is intended to provide at least
$1 billion of annual revenue that will, among other things, promote
economic stimulus through the education of our citizens so that
they can excel, innovate, and become eligible for high-paying
professional careers.

SEC. 2.  

Chapter 8 (commencing with Section 99500) is added
to Part 65 of Division 14 of Title 3 of the Education Code, to read:

 

Chapter  8. The California Higher Education
Endowment Corporation

 

Article 1.  General Provisions

 

99500.  

As used in this chapter, the following terms have the
following meanings:

(a) “Board” means the oversight board described in subdivision
(a) of Section 99505.

(b) “Corporation” means the California Higher Education
Endowment Corporation established pursuant to Section 99502.

(c) “Director” means the chief executive officer of the
corporation appointed pursuant to Section 99506.

(d) “Fund” means the California Higher Education Fund
established pursuant to Section 42147 of the Revenue and Taxation
Code.

99502.  

The California Higher Education Endowment
Corporation is hereby established in state government for purposes
of implementing this chapter.

 

Article 2.  Oversight Board

 

99505.  

(a) (1) The corporation shall be governed by an
oversight board, which shall be composed of the following voting
members:

(A) Two members appointed by the Board of Trustees of the
California State University.

(B) Two members appointed by the Regents of the University
of California.

(C) Two members appointed by the Chancellor of the California
Community Colleges.

(D) Two members appointed by the Senate Committee on Rules.

(E) Two members appointed by the Speaker of the Assembly.

(F) One member appointed by the Treasurer.

(G) One member appointed by the Superintendent of Public
Instruction.

(H) (i) One member who is a student enrolled in the California
Community Colleges at the time of the appointment. The member
appointed pursuant to this subparagraph shall be enrolled in the
California Community Colleges for the duration of his or her term.

(ii) The Board of Governors of the California Community
Colleges shall appoint the student member from a list of three
eligible persons furnished by the Student Senate.

(I) (i) One member who is a student enrolled in the California
State University at the time of the appointment. The member
appointed pursuant to this subparagraph shall be enrolled in the
California State University for the duration of his or her term.

(ii) The Trustees of the California State University shall appoint
the student member from a list of three eligible persons furnished
by the California State Student Association.

(J) (i) One member who is a student enrolled in the University
of California at the time of the appointment. The member appointed
pursuant to this subparagraph shall be enrolled in the University
of California for the duration of his or her term.

(ii) The Regents of the University of California shall appoint
the student member from a list of three eligible persons furnished
by the University of California Student Association.

(2) (A) At least one member appointed pursuant to paragraph
(1) shall be a nonmanagement employee of the California State
University.

(B) At least one member appointed pursuant to paragraph (1)
shall be a nonmanagement employee of the University of
California.

(b) The oversight board shall also include the following ex
officio, nonvoting members:

(1) The Chancellor of the California State University.

(2) The President of the University of California.

(3) The Chancellor of the California Community Colleges.

(c) The Legislature requests that the Regents of the University
of California and the President of the University of California
comply with the membership requirements in subparagraph (B)
of paragraph (1) of subdivision (a) and paragraph (2) of subdivision
(b).

(d) Except as specified in subparagraphs (H), (I), and (J) of
paragraph (1) of subdivision (a), each of the members identified
in subdivisions (a) and (b) shall be appointed to serve a term of
four years.

(e) The members of the board shall annually select a member
to serve as the chairperson of the board.

99506.  

(a) The board shall appoint a director, who shall be
the chief executive officer of the corporation. This position is
designated as a confidential position and is exempt from civil
service under subdivision (e) of Section 4 of Article VII of the
California Constitution.

(b) The director shall serve at the pleasure of the board.

(c) The board may delegate to the director any power, duty,
purpose, function, or jurisdiction that the board may lawfully
delegate, including the authority to enter into and sign contracts
on behalf of the corporation.

(d) The director may delegate to his or her designee any power,
duty, purpose, or jurisdiction that may be lawfully delegated.

99508.  

(a) The board shall select an auditing firm to conduct
periodic audits as provided in subdivision (b) to determine if the
funding allocated pursuant to Section 99510 is being appropriately
used to fund direct classroom instruction in compliance with this
chapter. The auditing firm shall submit a report of the results of
the audit to the board.

(b) The three segments of public postsecondary education
receiving funding from the California Higher Education Fund, the
University of California, the California State University, and the
California Community Colleges, shall be audited at least once
every six years, with the audits occurring alternately between the
three public postsecondary education segments every two years.
An audit of a public postsecondary education segment may occur
independently of the six-year cycle if the board determines that a
more immediate audit is necessary.

(c) The independent audits shall be funded with investment
returns from the fund.

(d) The board shall select a different auditing firm to perform
the audits at least every six years to ensure the audits are conducted
in a fair and equitable manner.

(e) If the board determines through the audits performed
pursuant to this section that any campus or related administrative
office of any segment that receives funding from this chapter is
found to have improperly used or otherwise improperly
administered moneys allocated under this chapter, the board shall
take the following disciplinary actions:

(1) Upon a first finding, the board shall place the recipient
campus or related administrative office on probation status and
require the recipient campus or related administrative office to
submit a remediation plan as a condition of receiving funding
under this chapter.

(2) Upon finding that a recipient campus or related
administrative office has subsequently mishandled funds allocated
under this chapter within five years of a finding pursuant to
paragraph (1), the board shall bar the recipient campus or related
administrative office from receiving funds made available under
this chapter during the following fiscal year.

(3) Upon finding that a recipient campus or related
administrative office has subsequently mishandled funds allocated
under this chapter within five years of a finding pursuant to
paragraph (2), the board shall bar the recipient campus or related
administrative office from receiving funding under this chapter.

(f) The board may allow a campus or related administrative
office that has been barred from receiving funding pursuant to
paragraph (3) of subdivision (e) to apply for funding under this
chapter after five years have passed since the campus or related
administrative office was barred from receiving funding pursuant
to paragraph (3) of subdivision (e).

99509.  

The board may adopt regulations necessary or
appropriate to implement its powers and duties under this chapter
in accordance with the Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code).

 

Article 3.  Powers and Duties of the California Higher Education
Endowment Corporation

 

99510.  

The corporation may hire employees as it deems
necessary to implement this chapter.

99512.  

(a) The corporation shall annually allocate the moneys
in the California Higher Education Fund, for immediate
expenditure as follows:

(1) Fifty percent of the moneys in the fund, in equal shares, to
the Regents of the University of California, the Trustees of the
California State University, and the Board of Governors of the
California Community Colleges. The moneys shall only be used
for the following purposes and in the following order of priority:

(A) First, to reduce mandatory systemwide tuition and fees.

(B) Second, to hire faculty and reduce class sizes.

(C) Third, for instructional materials.

(D) Fourth, for English as a second language (ESL) programs.

(E) Fifth, for deferred maintenance.

(2) Twenty-five percent of the moneys in the fund to the
Department of Parks and Recreation for the maintenance and
improvement of state parks.

(3) Twenty-five percent of the moneys in the fund to the
California Health and Human Services Agency to fund health and
human services programs.

(b) The funding established pursuant to this chapter shall be
used to supplement, not supplant, existing levels of state funding
for the California State University, the University of California,
and the California Community Colleges.

99514.  

(a) The board shall have exclusive control of the
investment of the fund. Except as otherwise restricted by the
California Constitution and by law, the board may, in its discretion,
invest the assets of the fund through the purchase, holding, or sale
of any investment, financial instrument, or financial transaction,
if the investment, financial instrument, or financial transaction is
prudent in the informed opinion of the board.

(b) The board may itself make any investment authorized by
law or sell any security, obligation, or real property in which
moneys in the fund are invested, by affirmative vote of a majority
of the board, or, by the same affirmative vote, may from time to
time adopt an investment resolution that shall contain detailed
guidelines by which to designate the securities and real property
that are acceptable for purchase or sale. While the resolution is in
effect, securities and real property may be purchased for investment
by an officer or employee of the board designated by it for that
purpose, and sales of securities may be consummated by the officer
or employee under the conditions prescribed. Purchases and sales
of securities shall be reported to the board, on a monthly basis, at
its next regular meeting.

(c) Any investment transaction decisions made during a closed
session pursuant to paragraph (16) of subdivision (c) of Section
11126 of the Government Code shall be by rollcall vote entered
into the minutes of that meeting. The board, within 12 months of
the close of an investment transaction or the transfer of system
assets for an investment transaction, whichever occurs first, shall
disclose and report the investment transaction at a public meeting.

(d) In addition to the other investments authorized by this article,
the board may invest in real estate, leases of real estate, and
improvements on real estate for business or residential purposes
as an investment for the production of income.

SEC. 3.  

Part 21 (commencing with Section 42001) is added to
Division 2 of the Revenue and Taxation Code, to read:

 

PART 21.  OIL SEVERANCE TAX LAW

 

42001.  

This part shall be known and may be cited as the Oil
Severance Tax Law.

42002.  

For purposes of this part, the following definitions shall
apply:

(a) “Barrel of oil” means 42 United States gallons of 231 cubic
inches per gallon computed at a temperature of 60 degrees
Fahrenheit.

(b) “California Higher Education Fund” or “CHEF” means the
fund that is created by Section 42147.

(c) “Gas” means all natural gas, including casing head gas, and
all other hydrocarbons not defined as oil in subdivision (f).

(d) “Division” means the Division of Oil, Gas, and Geothermal
Resources in the Department of Conservation.

(e) “In this state” means within the exterior limits of the State
of California and includes all territory within these limits owned
by or ceded to the United States of America. “In this state” includes
the mean high tide line to three nautical miles offshore.

(f) “Oil” means petroleum, or other crude oil, condensate, casing
head gasoline, or other mineral oil that is mined, produced, or
withdrawn from below the surface of the soil or water.

(g) “Operator” means a person that, by virtue of ownership, or
under the authority of a lease or any other agreement, has the right
to drill, operate, maintain, or control an oil or gas well in the earth
or water in this state, including any person that takes oil or gas
from the earth or water in this state in any manner, any person that
owns, controls, manages, or leases any oil or gas well in the earth
or water of this state, and any person that produces or extracts in
any manner any oil or gas by taking it from the earth or water in
this state; and includes the first person that acquires either the legal
title or beneficial title to oil or gas taken from the earth or water
in this state by the federal government or a federal instrumentality.

(h) “Political subdivision of the state” includes any local public
entity, as defined in Section 900.4 of the Government Code.

(i) “Severed” or “severing” means the extraction or withdrawing
from below the surface of the earth or water of any oil or gas,
regardless of whether the extraction or withdrawal shall be by
natural flow, mechanical flow, forced flow, pumping, or any other
means employed to get the oil or gas from below the surface of
the earth or water, and shall include the extraction or withdrawal
by any means whatsoever of oil or gas upon which the tax has not
been paid, from any surface reservoir, natural or artificial, or from
a water surface.

(j) “Stripper well” means a well that has been certified by the
division as an oil well incapable of producing an average of more
than 10 barrels of oil per day during the entire calendar month or
a gas well that is incapable of producing more than an average of
60,000 cubic feet of gas per day during the entire calendar month.
Once a well has been certified as a stripper well, that stripper well
shall remain certified as a stripper well until the well produces an
average of more than 10 barrels of oil per day during an entire
calendar month or produces more than an average of 60,000 cubic
feet of gas per day during an entire calendar month.

(k) “Unit of gas” means 1,000 cubic feet (mcf) measured at a
base pressure of 15.025 pounds per square inch absolute and at a
temperature base of 60 degrees Fahrenheit.

42010.  

(a) (1) An oil and gas severance tax is hereby imposed
upon any operator for the privilege of severing oil or gas from the
earth or water in this state at the rate of 9.5 percent of the average
price per barrel of California oil or 3.5 percent of the average price
per unit of gas, as calculated pursuant to this section.

(2) (A) On or before December 1, 2014, and June 1, 2015, and
on or before those dates of each year thereafter, the division shall
determine the average price per barrel of California oil for the
six-month period ending on the preceding October 31 and April
30, respectively. The price of California oil shall be based on the
first purchase price for California Midway-Sunset crude oil as
determined by the United States Energy Information
Administration’s (EIA) First Purchase Report. In the event the
EIA First Purchase Report is delayed or discontinued, the division
may base its determination on other sources of first purchase prices
of California oil.

(B) On or before December 1, 2014, and June 1, 2015, and on
or before those dates of each year thereafter, the division shall
determine the average price per unit of gas for the six-month period
ending on the preceding October 31 and April 30, respectively.
The price of gas shall be based on California’s price for gas as
determined by the United States Energy Information
Administration’s (EIA) Report. In the event the EIA Report is
delayed or discontinued, the division may base its determination
on other sources of city gate prices of California gas.

(C) The division shall notify the board of its determinations
pursuant to subparagraphs (A) and (B), on or before December 1,
2014, and June 1, 2015, and on or before those dates on each year
thereafter.

(b) Any person that owns an interest, including a royalty interest,
in oil or its value, is liable for the tax until it has been paid to the
board.

42012.  

The tax imposed by this part shall be in addition to any
other taxes imposed by law, including, without limitation, any ad
valorem taxes imposed by the state, or any political subdivision
of the state, or any local business license taxes that may be incurred
for the privilege of severing oil or gas from the earth or water or
doing business in that locality. There shall be no exemption from
the payment of an ad valorem tax related to equipment, material,
or other property by reason of the payment of the severance tax
pursuant to this part.

42014.  

Two or more operators that are owned or controlled
directly or indirectly, as defined in Section 25105, by the same
interests shall be considered as a single operator for purposes of
application of the tax prescribed in this part.

42015.  

(a) There shall be exempted from the imposition of
the oil and gas severance tax imposed pursuant to this part, the
severance of oil or gas produced by a stripper well, unless the well
produces more than five barrels per month.

(b) The division shall notify the board of all wells that have
been certified as stripper wells.

42016.  

There shall be exempted from the imposition of the tax
imposed pursuant to this part all oil, gas, or both oil and gas owned
or produced by the state or any political subdivision of the state,
including such public entity’s proprietary share of oil or gas
produced under any unit, cooperative, or other pooling agreement.

42019.  

Each operator shall prepare and file with the board a
return in the form prescribed by the board containing information
as the board deems necessary or appropriate for the proper
administration of this part. The return shall be filed on or before
the last day of the calendar month following the calendar quarter
to which it relates, together with a remittance payable to the board
for the amount of tax due for that period.

42145.  

(a) The board shall administer and collect the tax
imposed by this part pursuant to the Fee Collection Procedures
Law (Part 30 (commencing with Section 55001)). For purposes
of this part, the references in the Fee Collection Procedures Law
to “fee” shall include the tax imposed by this part and references
to “feepayer” shall include any person liable for the payment of
the tax imposed by this part.

(b) The board may prescribe, adopt, and enforce regulations
relating to the administration and enforcement of this part,
including, but not limited to, provisions governing collections,
reporting, refunds, and appeals.

(c) The board may prescribe, adopt, and enforce emergency
regulations relating to the administration and enforcement of this
part. Any emergency regulations prescribed, adopted, or enforced
pursuant to this section shall be adopted in accordance with Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3 of
Title 2 of the Government Code, and, for purposes of that chapter,
including Section 11349.6 of the Government Code, the adoption
of these regulation is an emergency and shall be considered by the
Office of Administrative Law as necessary for the immediate
preservation of the public peace, health and safety, and general
welfare.

42147.  

(a) All taxes, interest, penalties, and other amounts
collected pursuant to this part, less refunds and costs of
administration, shall be deposited first into the General Fund and
then into the California Higher Education Fund, which is hereby
created in the State Treasury. Notwithstanding Section 13340 of
the Government Code, moneys in the fund are continuously
appropriated, without regard to fiscal year, to the California Higher
Education Endowment Corporation established by Section 99502
of the Education Code.

(b) (1) Revenues, less refunds, derived pursuant to Section
42013 for deposit in the California Higher Education Fund pursuant
to this section shall be deemed “General Fund revenues” and
“General Fund proceeds of taxes” for purposes of Section 8 of
Article XVI.

(2) Moneys allocated to the Board of Governors of the California
Community Colleges pursuant to Section 99512 of the Education
Code shall be deemed “moneys to be applied by the state for the
support of school districts and community college districts” for
purposes of Section 8 of Article XVI.

(c) Any local property tax reductions that may result from the
imposition of the tax by this part shall be reimbursed from the
revenues received from the imposition of the tax.

SEC. 4.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

SEC. 5.  

This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

In order to reduce mandatory systemwide tuition and fees as
quickly as possible, it is necessary that this act take effect
immediately.