BILL ANALYSIS
AB 656
Page 1
Date of Hearing: June 23, 2009
ASSEMBLY COMMITTEE ON HIGHER EDUCATION
Anthony Portantino, Chair
AB 656 (Torrico) - As Introduced: February 25, 2009
AS PROPOSED TO BE AMENDED (RN# 09 17318)
SUBJECT : California Higher Education Endowment Corporation:
oil and gas severance tax.
SUMMARY : Imposes a 9.9% oil and gas severance tax, effective
January 1, 2010, and directs the proceeds of this tax to the
California Higher Education Fund (CHEF) to be allocated
annually, as specified, to the University of California (UC),
the California State University (CSU), and the California
Community Colleges (CCC). Specifically, this bill :
1)Imposes a new oil severance tax of 9.9% on the extraction of
oil from the earth or water within California's jurisdiction,
effective January 1, 2010, and deposits those funds in the
CHEF, created by this bill.
2)Establishes the California Higher Education Endowment
Corporation (CHEEC) with the following responsibilities:
a) Disperse CHEF funds accordingly: 60% to CSU, 30% to UC,
and 10% to CCC.
b) Exclusive control of the investment of CHEF monies, as
specified, and requires investment transactions made during
closed session to be disclosed and reported at a public
meeting within 12 months of the close of the transaction.
c) Authority to appoint a chief executive officer, which
shall be designated a confidential position exempt from
civil service, as specified, and to whom the board may
delegate authority, as specified, and to hire employees.
The chief executive officer may delegate any duties to his
or her designee.
3)Establishes the CHEEC oversight board comprised of the
following 11 voting members for four-year terms, unless
otherwise specified:
a) Two members appointed by the CSU Board of Trustees and
AB 656
Page 2
at least one member shall be a CSU non-management employee.
b) Two members appointed by the UC Board of Regents and at
least one member shall be a UC non-management employee.
c) Two members appointed by the Speaker of the Assembly.
d) Two members appointed by the Senate Rules Committee.
e) One member appointed by the Treasurer.
f) One member appointed by the CCC Chancellor.
g) One member who is a student enrolled at a public
postsecondary educational institution, who must be enrolled
during the duration of his or her two-year term.
h) Three nonvoting, ex officio members, as follows: the CSU
Chancellor, the UC President, the CCC Chancellor.
4)States that nothing in this section shall cause appropriations
for postsecondary education to be reduced below the amount
appropriated by the Legislature during the fiscal year
immediately preceding the CHEF's establishment.
5)Includes an urgency clause to take effect immediately.
EXISTING LAW :
1)UC and CSU receive their funding through the annual Budget
Act. There is no funding policy in statute for these
institutions; thus, their funding is discretionary. However,
UC and CSU have entered into system-specific "compacts" and
"partnerships" with several Governors to ensure stable
multi-year funding in exchange for a commitment to deliver on
specific performance measures.
2)Proposition 98, in general, provides K-14 schools with a
guaranteed funding source that grows each year with the
economy and the number of students through a combination of
General Funds and local property taxes. The legislature
determines the allocation of Proposition 98 funds between K-12
and CCC; in general, CCC receives approximately 11%.
FISCAL EFFECT : According to the 2009-10 Budget Conference
AB 656
Page 3
Committee, a 9.9% oil and gas severance tax would generate $900
million annually.
COMMENTS : Purpose of this bill : According to the author,
recent reports have highlighted the need for more
college-educated workers, yet the state's General Fund has been
unable to consistently provide adequate funding for UC, CSU, and
CCC to meet this demand. This bill creates a dedicated funding
stream for this purpose.
Double-referral : This bill has been double-referred to the
Assembly Revenue and Taxation Committee. This analysis will
focus only on the higher education provisions and does not
discuss the tax provisions, which are potentially significant.
Budget Conference Committee : On June 17, 2009, the 2009-10
Budget Conference Committee approved a conference report that
includes a 9.9% oil and gas severance tax. These funds are used
to offset some of the cuts included in the Governor's May
Revision.
Budget situation : The state currently faces a $23.4 billion
deficit that is likely to result in substantive reductions to
state-funded programs, including higher education. Many
analysts believe that statutory and court-mandated spending
requirements have exacerbated this situation by limiting
lawmakers' options for responding to economic downturns.
Is this the appropriate split ? This bill requires 60% of the
funds be allocated to CSU, 30% to UC, and 10% to CCC. These
percentages do not reflect the relative amount of state support
the institutions currently receive nor are they based on student
population or the cost to educate students in these
institutions. Similarly, this bill authorizes UC and CSU to
appoint two voting members to the CHEEC board, yet CCC receives
only one appointment.
Should the funds be allocated through the budget process ? By
allocating these monies separate from the budget process, there
is no legislative oversight of where the monies are spent or how
they coordinate with the funds these institutions receive in the
annual budget act. Further, this bill does not contain a
reporting mechanism, so the state will not receive information
on how these funds are being spent.
AB 656
Page 4
Investment authority : The CHEEC board has broad authority to
invest an estimated $900 million per year. It is conceivable
that CHEEC could invest unwisely, resulting in a significant
loss of public funds.
Administrative costs : CHEEC has the authority to hire
employees, who will be funded from CHEF, yet there is no limit
on the amount of CHEF fund that can be spent on administration.
Suggested technical amendments :
1)Since the CSU Board of Trustees and the UC Board of Regents
appoint their respective members to the CHEEC board, staff
suggests the same process be used for the CCC CHEEC board
representative (Amendment 5, RN# 09 17318). Thus, the CCC
Board of Governors should appoint the CCC representative
instead of the CCC Chancellor.
2)The proposed amendments delete reference to "green collar
jobs" (page 6, line 3); thus, staff recommends the correlating
definition (page 4, lines 8-10) be deleted.
Related legislation : The severance tax provisions are similar
to ABX1 2 (Evans) of 2009, which was vetoed by the Governor, and
ABX3 9 (Nunez), which did not pass the Assembly. ACA 16
(Torrico) of 2008, which failed passage in this Committee, would
have provided a state funding guarantee for UC and CSU. AB 462
(Price) of 2009, which failed passage in this Committee, would
have imposed an additional 1% tax on incomes in excess of $1
million in order to provide funding to UC and CSU in lieu of
student fee increases.
REGISTERED SUPPORT / OPPOSITION :
Support
California Faculty Association
California Federation of Teachers
California Nurses Association
California State Student Association
California Teachers Association
Faculty Association of California Community Colleges
Service Employees International Union
AB 656
Page 5
Opposition
California Chamber of Commerce
California Independent Petroleum Association
California Manufacturers and Technology Association
Cal-Tax
Western States Petroleum Association
Analysis Prepared by : Sandra Fried / HIGHER ED. / (916)
319-3960