Aside from the hoopla of the proposed local fracking ban and what I consider its stealth attempt to stop all oil and gas operations in parts of San Benito County, there is an important issue at work in the state legislature; should California impose an oil and natural gas severance tax?
A severance tax is a tax imposed on the extraction of nonrenewable resources such as crude oil, natural gas, and coal severing it from the property; thus the term “severance.”
According to Investopedia, a “Severance tax is charged to producers, or anyone with a working or royalty interest, in oil or gas operations… You may be charged severance tax even if you do not realize a net profit on your investment.”
It can take several thousand, tens of thousands, or millions of years for the formation of oil and gas under various conditions; therefore, those resources are depleted as they are recovered.
Depending on the definition, somewhere between 20 and 40 states, including California, already have some type of severance tax, but the truth is that California’s tax consists of very limited assessments, mostly to offset administrative costs. In 2009 it was less than nine cents per barrel of oil or ten thousand cubic feet of natural gas.
During 2009 crude oil prices varied from $37/bbl. to $73/bbl., and averaged about $60; ten thousand cubic feet of natural gas averaged $37 at the wellhead. That means the effective assessment rate that year was a miniscule 0.15% to 0.24% of the wellhead values.
Unlike California, many states have significant severance taxes, some even on timber production and many have complex parts. Alaska’s tax, for example, ranges from 25 percent to 50 percent depending on net value of oil and gas, which is the value at point of production minus certain lease expenditures or 22.5 percent net value at wellhead, an additional surcharge for each dollar when net value exceeds $40 per barrel. This cannot exceed 25 percent of the monthly production tax value of taxable oil and gas; plus a conservation surcharge of 4 cents per barrel and an additional 1 cent per barrel if there is less than $50 million in the Hazardous Release Fund. 
Alaska can do that because they are a large, easy to harvest, source. Lower and simpler rates such as Oregon’s six percent of gross value at the wellhead are more common amd more reasonable.
There are several bills afoot in the California legislature to add a significant severance tax to the state code. A properly calibrated tax could ensure that the public saw a direct benefit from extraction operations; however, there’s always a catch – in this case a couple of catches.
The first is that the usual suspects, special interests, in this case the college administrators’ and teachers’ unions, wants the majority of funds dedicated to higher education; in other words their pay and benefits. That would be a serious error. We already have far too much revenue tied up in programmatic budgets. Local politicians end up acting as mere bank tellers receiving and doling out money without the power or resources to address local needs.  
Assuming we can beat back the special interests, how should we distribute the proceeds? Some states have implemented a better idea, rather than immediately spend the money – unused funds can always find a taker – they have used the much of proceeds to set up endowments that generate a continuous return to the state treasury.
Just think about it, an investment in our future economic health, what a neat idea.