November 7, 2006 Ballot Prop. 87

Beginning in January 2007, Proposition 87 would establish program that would impose a severance tax of anywhere between 1.5% and 6% (depending on the price of petroleum on the open market) on oil production in the state of California to generate revenues to fund $4 billion in alternative energy programs. The measure defines a "producer" as any person who extracts oil from the ground or water, owns or manages an oil well, or owns a royalty interest in oil.

Background

According to the State Legislative Analyst's Office, California produces about 37% of the oil it consumes, with the remainder coming from Alaska (21%) and foreign sources (42%).

The campaigns for and against Proposition 87, the Clean Alternative Energy Act, bear strong resemblances to the campaigns in 1980 around Proposition 11, the so-called "Tax Big Oil" initiative, which was spearheaded and promoted by Bill Press, a director of the state Office of Planning and Research under Governor Jerry Brown (and later the chairman of the state Democratic Party and a highly visible television commentator and newspaper columnist). The goal of Proposition 11 was to raise between $125 and $250 million from a 10% surcharge on the profits of oil companies doing business in California, with the proceeds going toward financing public transit and alternative energy projects. Strong opposition to the ballot measure came from Standard Oil and other oil companies, which spent over $5 million to defeat the measure. Proposition 11 started out with a huge favorability lead in polls, but it was defeated by a vote of 55-45% in the June 1980 primary.

The main financial supporters of Proposition 87 include Silicon Valley executives, venture capitalists, entertainment industry figures, and advocates of ethanol and other alternative energy resources. As of the end of September 2006, the supporters of the Clean Alternative Energy Act had obtained over $38 million in funds from Stephen Bing, the son of a New York real estate magnate, a major contributor to Democratic Party candidates and campaigns, a Hollywood producer (Bing produced movies such as Sylvester Stallone's 2000 remake of "Get Carter" and invested $80 million in the 2004 animated movie "The Polar Express"), and an occasional gossip-column target. Bing contributed over $4 million in 2005 to the campaign fighting to defeat Proposition 77, which would have transferred control of redistricting in the state of California to a three-member panel of judges appointed by the leaders of the two major parties in the Legislature. He also contributed $2.4 million to the fight to pass the Rob Reiner-sponsored Proposition 10 (an education-related tobacco tax) in 1998.

Vinod Khosla, one of the founders of Sun Microsystems and now a venture capitalist (both as a partner in the Silicon Valley firm Kleiner Perkins Caulfield & Byers, and in his own firm, Khosla Ventures), is another heavy investor in Proposition 87. Khosla also invested heavily in Proposition 71, the 2004 measure that advocated spending $3 billion on stem cell research.

According to an article in the August 26 Sacramento Bee, Anthony Rubenstein, a former Hollywood screenwriter and producer (he was the producer of the 1998 Mark Ruffalo flop "The Last Big Thing"), started the ball rolling on Proposition 87 with a phone call to UC Berkeley professor Daniel Kammen, director of the Renewable and Appropriate Energy Laboratory (RAEL), and, according to the Bee article, a "longtime alternative energy advocate." Rubenstein also got Bing, a high-school friend, involved. Other major financial backers of Proposition 87 include John Doerr, another partner in Kleiner Perkins (Doerr is also one of the major backers of Proposition 88); Larry Page, the co-founder of Google; Wendy Schmidt, the spouse of Google CEO Eric Schmidt; and Robert Reiner, the director and long-time Democratic Party activist (Reiner was the chief backer of Proposition 82 in the June 2006 primary, and he spearheaded Proposition 10 in 1998).

The Clean Alternative Energy Act qualified for the ballot on June 21, 2006 with 1.2 million signatures, more than twice the number (598,100) necessary to qualify.

According to the Los Angeles Times, as of October 30, supporters and opponents of Proposition 87 had spent over $142 million, surpassing the $93 million spent in 1998 on both sides of Proposition 5, making the battle over Proposition 87 the most expensive in state history. Data from the Center for Responsive Politics show that the cash that major oil companies have infused into the No on 87 campaign amounts to more than the companies have spent on any single candidate or political party in more than a decade [Los Angeles Times, October 3, 2006]. As of the beginning of November, Chevron had contributed over $34 million to the No on 87 campaign; Aera Energy, a partnership of Royal Dutch Shell and ExxonMobil, had given nearly $33 million; and Occidental Oil had given over $9.5 million.

Arguments For and Against

Proposition 87's proponents argue in favor of the measure on the basis that it is going to "make oil companies pay their fair share." Vinod Khosla was quoted in a July 29 San Jose Mercury Newsarticle as saying, "We're counting on the fact that people don't trust oil companies and energy companies in general. Remember Enron." The opposition to Proposition 87 is based on the argument that higher taxes on domestic oil will decrease in-state oil production, increase the state's dependence on foreign oil, and cause gas prices to skyrocket.

Both Proposition 87's supporters and opponents mounted expensive television advertisement campaigns to promote their views. Both sides started running ads on August 8, three months before the election. The first TV ad in favor of Proposition 87 featured serene music and a calm voiceover talking about "making oil companies pay and mak[ing] it illegal to pass the cost to us" while using an unflattering photograph of ExxonMobil CEO Lee Raymond as a backdrop. The ad campaign against Proposition 87 launched with an actor playing what Bill Bradley's New West Notes blog called an "attractive soccer mom type" filling her vehicle at the gas pump and inveighing against "a new alternative energy bureaucracy ... with no accountability to taxpayers."

In August, the Yes on 87 campaign was forced to settle a lawsuit brought by the measure's opponents against them for cybersquatting on a No on 87 website and redirecting those who typed in or clicked on the website's URL to a Yes on 87 website. Meanwhile, in September, the Yes on 87 campaign filed suit against the measure's opponents to force them to disclose their top two financial contributors in their TV ads. (The No on 87 campaign's TV ads and other campaign materials describe the campaign as a "coalition of taxpayers, educators, public safety officials, and businesses." While Chevron and Aera Energy are listed at the end of the disclaimer, it is potentially misleading that the oil companies are lumped in equally with "taxpayers" and "educators" as the funding sources for the ads.)

The No on 87 ads appeared to have a significant effect on support for the ballot measure as the election season progressed. In July, a Field Poll showed 51-32% support among likely voters for the measure. Another Field Poll was released on October 4 that showed that the margin of support had narrowed to 44-41%.

Official Voter Information

Voter Information Guide

Alternative Energy 
Analysis by California Legislative Analyst, 2006.

Individual Campaign Committees
Total Contributions and Expenditures (select "Nov. 2006 election" and "Prop. 86" in dropdown boxes)

Key Websites and Links

Podcast: Community Media Center ( Midpeninsula Community Media Center and Foothill College Sociology Classes)

Public Opinion

Analyzing the Vote for Selected Propositions, Los Angeles Times Exit Poll, Nov. 9, 2006.

Exit poll: Complete poll data, Los Angeles Times Exit Poll, Nov. 9, 2006.

Drop in support for Propositions 86 (Tax on Cigarettes) and 87 (Alternative Energy/Oil Tax). Field Poll, Release 2215, Oct. 4, 2006.

Feinstein, Brown and Lockyer ahead, other statewide races close or tied; Support for infrastructure bonds and propositions 86 and 87 lukewarm.
Los Angeles Times Exit Poll, Sept. 29, 2006.

Reports and Studies

Proposition 87: The Clean Alternative Energy Act. Sacramento: Legislative Analysts Office, Sept. 12, 2006.