Next Board Meeting

The last 'Perspective' Newsletter (July 08) listed the next League Board Meeting on September 21. That is in error. The CORRECT date is Thursday, September 18, at Zigatos Restaurant corner of Auburn Blvd and Fulton Ave (inside Clarion Hotel) at 12:00pm. See you then.

Niello News
By Assembly Budget Committee Vice-Chair Roger Niello

As work continues in the Legislature to solve our state budget problem this year, I’ve heard from many people with many different opinions on how to accomplish this. Some have said that we should fill our entire budget gap with new taxes, while others have suggested that spending needs to be brought under wraps. Meanwhile, many believe that a combination of tax increases and spending cuts should be the answer to our budget crisis. While that’s a nice-sounding compromise solution to our budget woes, the reality is that new taxes would only further weaken our economy and lead to long term budget problems that would make our budget challenges now seem minor in comparison.

First, a historical perspective. It’s a fact that new taxes rarely bring in the projected revenue originally estimated. A classic example of this are the state tax increases of 1991 that were purported to bail our state out of a budgetary situation not unlike the one we are faced with this year. While tax revenues to the state grew in the short term following the tax increases enacted in 1990-91, tax revenues for the two years that followed actually declined and many now believe that California’s recovery from that recessionary period was at delayed, at least partially, because these tax increases were a continued drag on the economy.

The tax proposals that my Democrat colleagues have put forth this year are similar to those in 1991; increase tax rates on higher income earners because they “should pay their fair share.” But the reality is that if you’re going to raise taxes, in terms of a stable long-term source of revenues, you couldn’t pick a worse group to target. Taxpayers making over 100,000 in income already make up 83% of our overall income tax revenues, providing a highly volatile revenue source that leads to the wild swings in our state revenue collections.

Relying this heavily on tax revenues from any one demographic would be dangerous and create volatility, but what we’re seeing is that many of those that can “afford” to pay, can also afford to move – right on out of the state. Just recently, two large employers, Toyota, and the AAA auto club, decided to move large operations out of California because they said that the tax burden and cost of doing business here is simply too expensive. Nearly 2000 jobs and the economic benefit to the state and the local communities is now gone, lost to another state. Tiger Woods, a native Californian, lives in Florida and avoids a California tax bill, because he can. If the choice for the state is collecting some revenue from individuals like Tiger and the employees of organizations like Toyota versus collecting none, the choice is clear.

Finally, tax increases avoid any discussion of our underlying spending. If your family is drowning in debt, the last thing you do is go out and spend more and run up higher debt. Yes, at some point, you might look to get a second job to increase your revenue, but the first thing you would do is look at where you’re spending your money. Our state spending has increased at a very healthy 44% over the last five years, but for some in the legislature, the first place they look to close our budget gap is new taxes without ever considering our spending habits.

Frankly, it’s unfortunate that it comes to this debate between spending reductions and new taxes. I’ve often wondered why, with such wild fluctuations in our state revenues, and no guarantees of long-term funding, that many programs were ever created to begin with. It is far worse to create a program and then be forced to cut or eliminate funding, after a dependency has developed, than to have never created the program in the first place.

This is a cycle that can’t continue and is exactly why Republicans in the legislature are demanding that significant budget reform including a spending cap and a rainy day reserve fund be established that will prevent future spending sprees from creating new programs that only later have to be jettisoned when the state runs out of money. If we choose to bury our heads in the sand and not address this problem now, our budget problem this year will seem minor compared to what we will be faced with later on.

Yes, Republicans are against taxes, and that’s nothing new to anyone, but that resistance goes way beyond knee-jerk ideology. The fact is, there are some very real consequences of tax increases to our economy and our budget that just can’t be ignored.

Our Untapped Oil Reserve – Oil Shale
Joe Sullivan – Geological and Petroleum Reservoir Engineer

THE OIL SHALE INDUSTRY – Shale oils have been used as fuel and as a source of oil in small quantities for years in a few countries such as Estonia, China and Brazil. However oil shale production on a significant level has not developed because the cost of production is significantly higher than the cost of production of conventionally pumped oil.

WHAT CHANGED? – With the increase of crude oil prices over $100 per barrel, and as costs will remain this high for the foreseeable future, major corporations are looking at the possibility that shale oil production costs may compete with traditional oil production costs. The oil industry knows developing a shale oil industry will require high cost production facilities, and a need to consider and mitigate impacts on ecosystems, water, and global warming. The Colorado School of Mines, in 2007, hosted its 27th Oil Shale Symposium, along with the Colorado Energy Research Institute. The results appeared in the Mines Magazine, which is summarized here.

THE RESERVE - It is estimated there is about eight trillion barrels (42 gallons per barrel) of shale oil in the United States, most in the thick geological Green River Formation underlying 16,000 square miles of Colorado, Utah and Wyoming, 72% of which is federally held. Of this oil about 800 billion barrels is recoverable, three times the proven oil reserves of Saudi Arabia.

THE PROCESSES TO OBTAIN OIL FROM OIL SHALE – The oil in oil shale is kerogen, a waxy material, a precursor to liquid oil, which can converted by distillation at high temperature which produces both gaseous and liquid hydrocarbons. There are two methods to do this: Ex Situ - above-ground retorting wherein the oil shale is mined, crushed and heated for an hour or two in a large kiln called a retort, which yields a thick tarry product that is then further refined into useable fuels and other products.

In Situ - deep underground heating where the shale naturally exists. The shale is heated for two to four years and the resulting liquid and gaseous hydrocarbons are pumped out. The product is a less viscous, lighter oil than produced by a retort, and requires less refining than ex situ shale oil to make gasoline, jet fuel and diesel fuel.

WHAT GOVERNS PRODUCTION OF OIL FROM OIL SHALE? – The large scale development costs; and impact on the ecosystems including water; and global warming.

High Cost of Ex Situ Production - For the ex situ process the mining operation, either open pit, or underground requires digging two metric tons of shale per barrel of crude distillate, moving the ore to be crushed in a processing plant, crushing it, and disposal of the shale debris which expands during retorting. The crushed shale must be heated above 700 degrees Fahrenheit in a retort to convert the Kerogen to a middle-distillate range hydrocarbon. It must be further refined to produce kerosene, jet fuel and diesel fuel. As the product lacks the full range of hydrocarbons used to produce gasoline, to obtain gasoline additional processing would be required. During the processing, it takes three barrels of water (55 gallons per drum) to produce a barrel (42 gallons) of the middle distillate oil.

B. High Cost of In Situ Production - In situ processing oil shale deposits are heated by inserting electric heating elements in boreholes in oil shale deposits where the kerogen is cooked slowly for two to four years. Then the resulting liquid and gaseous hydrocarbons are pumped to the surface. The product is less viscous and lighter than retorted shale oil, and uses less refining to make gasoline, jet fuel and diesel fuel. Major problems, beside the need for refining facilities, are that the heating process will require construction of power plants for sustained operation, and that free flowing groundwater must be protected from contamination.

C. Other Factors – Mining and processing of oil shale by either of the production processes involve a variety of environmental impacts. Involved are global warming and greenhouse gas emissions; disturbance of mined land; impacts on wildlife; and air and water quality, coupled with the large amount of water required in the refining processes. All must be addressed and mitigated.

A PERSONAL COMMENT – The Colorado School of Mines has been engaged in shale oil research projects for many years. As a student of Mines from 1947 to 1951, I helped disassemble Mine’s research oil shale retort for shipment to Rifle, Colorado where additional work was done to determine the impact of production needs. Years later, as a Gulf Oil Petroleum Geologist working in Venezuela, I worked with in situ combustion heating to reduce the viscosity of heavy tar oil in sandy formations to enable it to be pumped to the surface. There is no question that the high price of oil will evolve increased research techniques to produce shale oil. If successful it could break the strangle hold oil producers outside the United States presently have on us.

LETTERS TO THE LEAGUE

We seek “Letters to the League” from Members concerning projects and issues on which we are working, along with recommendations on those we should look at. Letters may be edited and republished in any format, primarily in the interest of available space. Send letters, faxes, or e-mail to the Sacramento County Taxpayers League. Our e-mail is info@sactax.org, our telephone number is 916 399-5600, and our address is:

1620 35th Ave. Suite K
Sacramento, CA 95822

EXECUTIVE DIRECTOR'S MESSAGE

 Executive Director’s Message

On July 29, I testified at City Hall against the proposed Gang Tax. My rationale was simple:

• With a $58 million deficit ahead, this is not the right time to be increasing taxes
• None of the regional police forces came out in support (that sends a clear message)
• There was no real plan on how funds would be allocated, or tracking effectiveness

I was one of two people that testified against the Gang Tax. There were 46 that signed up to speak in favor of the tax, which included several teens and young twenties with their nicely done Gang Tax signs. In addition, a busload of children were brought in to help fill up seats and add a “special touch” to the proceedings. It didn’t help!

Fortunately, for our own personal budgets, the Gang Tax was NOT SUPPORTED by a Council majority and it went down to defeat.

Cheers

To Senator Dave Cox – for pointing out that the State Budget General Fund has grown from about $50 billion in 1998 when he began his service, to over $100 billion today in 2008. Much of that increase is for salaries and very good benefit packages for tens of thousands of additional state employees. And some of our most liberal legislators want to increase taxes so that more employees can be hired!

And cheers to Assembly leader Mike Villines – for his continued strong , sensible leadership on the budget issues. There are no easy compromises here, partially because of past tax increases put into law. Keep pushing sir, we support you.

Jeers

To the County leadership handling the Library issues. In private industry, when major things go wrong ($4.6 million in unpaid fines and value of unreturned items) the CEO is fired, and a new CEO is brought in to fix the problems. In Sacramento government they retain the CEO – and then spend $300,000 on a consultant to find out what went wrong! This is leadership?

To the City Council - for moving the Development Services Department out of a leased building into a city owned building. This saves money, right? Not in this case; the City was unable to get out of the lease, so they are still paying on the lease - even though the building is unoccupied! (Originally from the Sacramento Bee)

This N That

Recently a long time County Supervisor described how this was the worst County budget he had seen in fifteen (15) years, causing cutbacks in mental health programs, senior centers, the Probation Department and business development programs. Then we find out that the County has advertised for two (2) high-paying communication positions, with salaries and benefits that would add over $200,000 to the budget! Go figure?

Sometimes “Timing is everything. Recently our City Council brought forth two (2) measures that would impact the budget they are struggling with. Spending $650,000 for a consultant to do an analysis of the city’s trees. Did that need to be done NOW? Isn’t there expertise within the city’s landscape maintenance staff to at least do part of that effort? Then, we get hit with a need to raise salaries by 4%, even though they are dealing with a $58 million deficit. Someone did come to their senses, and the raises are being put on hold. And as a result of all this - the Council’s credibility remains on hold.

Bob Blymyer

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