California public colleges and universities are seeking a 9.9 percent state tax on crude oil produced in the state to help generate funding during the budget crisis.

Assembly Bill 656, which is sponsored by the California Faculty Association, would impose a tax on every barrel of crude oil produced in California to generate about $1 billion dollars annually for California public higher education. The California State University system would receive about $300 million, according to Assembly Majority Leader Alberto Torrico, D-Fremont.

California, which produces about 10 percent of U.S. crude oil, is the only major oil-producing state in the country not to impose a severance tax on the oil industry. An oil severance tax is a tax on every barrel of oil extracted in California.

"I think it's the best alternative we have, given the recession, and oil is a natural resource that belongs to the people of the state and not to the oil companies," said Torrico, who introduced the bill in February.

The bill is based on law in Texas, which has a severance tax of 4.6 percent and generates about $400 million annually in revenue for higher education through mineral and oil taxes. The state has used a tax to help fund public higher education since the 1800s.

Oil producers are aggressively trying to fight the bill because they say it would tax oil at a higher rate than any other state.

"If California was 9.9 percent with no deductions, plus still having to pay property taxes on minerals in the ground, we would pay twice the rate of taxes per barrel than any other state," Zierman said.

Oil companies also argue they already pay an ad valorum property tax to California, which is the tax on the value of minerals while they're in the ground, according to Rock Zierman, chief executive officer for the California Independent Petroleum Association.

In November 2006, voters rejected a similar measure, which would have taxed crude oil to pay for research and development of clean energy. The California oil industry spent $100 million to defeat the bill.

"California voters have already made known their disapproval of increasing severance taxes on the oil industry," said Kyla Christoffersen, policy advocate for California Chamber of Commerce, which believes AB 656 will raise gas prices and ultimately result in less funding for education.

Torrico said the oil industry is using scare tactics to defeat AB 656 by saying it will raise oil prices and cause job losses.

"The cost of gas in California is already the highest in the country," Torrico said. "The price of gas is based on the market and peace in the Middle East. It's cheaper for companies to produce oil here. The argument they can't beat is why shouldn't they pay for California oil."

Zierman insists that the price of oil would rise and the tax would be detrimental to California.

"AB 656 would decimate the effort to find new sources of domestic energy," Zierman said. "That would result in an increased dependence on foreign crude tinkered into our crowded ports, higher gas prices, higher greenhouse gas emissions, lost jobs and lost local and state revenue used for police, fire, schools and roads."

Tyson Slocum, director of Public Citizen's Energy Program in Washington, D.C., said the oil and gas industry is one of the most profitable industries, which makes it a good source of revenue.

"It's a relatively low rate of taxation," Slocum said. "It won't burden the industry, it will just give some profits to help public schools. The state of California is in a severe budget crisis and this is a way to raise revenue in an equitable way."

The bill passed the Assembly Higher Education Committee in July and is currently in the Revenue and Taxation Committee. If passed, the bill will move to the senate in the spring where it must win a two-thirds majority vote.

If AB 656 is passed, schools would start receiving the tax revenue in January 2011 or earlier.

"I'm confident that if students mobilize we will be able to pass this bill," Torrico said.