Proposed Oil Extraction Tax to Fund California’s Public Higher Education: AB 1326

CUCFA supports Assembly Member Warren Furutani’s proposed legislation that would raise funds for higher education through an oil extraction tax. We delivered the following letter of support with suggested changes:

May 2, 2011

Assembly Member Warren Furutani
State Capitol Building
P.O. Box 942849
Sacramento, CA 94249-0055
Tel: (916) 319-2055
Fax: (916) 319-2155

Re: AB 1326 — Support if amended

Dear Assembly Member Furutani:

While the Council of UC Faculty Associations (CUCFA) endorses both the general aim of AB 1326 (as amended April 13, 2011), which is to increase funding for public higher education in California, and the bill’s proposed method of an oil and gas severance tax, we have concerns with some of the specifics of the bill, and we offer the following suggested additions and changes. In our view, these will substantially strengthen the bill.

Suggested added wording:

1) Consistent with the principle that the natural resources in the State of California be managed for the benefit of its people, this oil and gas severance tax is enacted for the benefit of California public higher education.

2) It is the duty of the board to maintain the integrity of the fund and to manage it for the benefit of public higher education in the State of California. The board shall adhere the highest standards of transparency, accountability, and fiduciary responsibility.

3) Among the oversight responsibilities of the board is to manage the tax revenues to create an endowment for California public higher education that will outlast the declining oil and gas production in the State.

4) All members of the board, the director, and all employees of the corporation shall be subject to California law and reporting requirements relating to conflicts of interest.

5) The board shall maintain a public website to report on its activities including all of the reports listed below.

6) The board shall issue quarterly and annual reports on all of its activities including, but not limited to, income, payouts, and investment holdings, transactions, and performance.

7) The activities of the corporation shall be audited on an annual basis by the California State Auditor and the resulting reports shall be posted on the website.

9) The board shall conduct quarterly open meetings with the agenda posted on the website two weeks in advance of the meeting and the minutes posted within two weeks after the meeting.

10) Payments to the segments shall be made both directly from the tax revenues and additionally from the endowment net appreciation. During each year, one half of the tax revenue shall be paid directly to the segments while the other half is added to the endowment. For each year, the net appreciation of the endowment shall be calculated as the inflation adjusted year-on-year increase in the market value of the endowment minus the amount added to the endowment from tax revenue during that year. The additional annual payment to the segments from the net appreciation shall be one half of the five year running average of the net appreciation.

11) If the endowment reaches a market value of $60B in 2011 dollars, the payout method shall be shifted to the following. All of the annual severance taxes shall be paid out to the segments. The annual endowment appreciation shall be the year-on-year, inflation adjusted increase in the market value of the endowment. The additional annual payment to the segments from the appreciation shall be the five year running average of the annual appreciation.

12) All management fees for the fund and salaries and other expenses of the board and its employees shall not exceed 1% of the taxes collected in each year.

13) The payouts to public higher education shall be divided equally among the segments: Community Colleges one third, CSU one third, UC one third.

Suggested changes:

14) In Sec. 99505 a. 2, the term “nonmanagement employee” is not defined. We suggest that it should be more specific and that the definition should include public higher education faculty.

15) Delete 99514.d on real estate investments and the references to real property investments in other places.

16) In 99512 d, replace “…the average amount that has been appropriated for the institutions of higher education…” with “…the average amount of the general fund that has been appropriated for the institutions of higher education…”

17) In 99508 (a) and 99512 (a), replace “direct classroom instruction” with “instructional purposes.”

Joe Kiskis
Vice President for External Relations
Council of UC Faculty Associations and
Professor of Physics, UC Davis

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