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$122 Million Worth Of Hype

Both sides strain facts about California's most expensive ballot measure in history.

October 19, 2006

Modified: October 19, 2006

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Summary

Former President Bill Clinton says California's Proposition 87 will help "save the planet" and Al Gore says it's the one thing the state can do to "free us from foreign oil." One ad urging a "yes" vote says it will bring "cheaper fuels for our cars, trucks and SUVs."

On the other side, a campaign financed mostly by oil companies says it would mean more foreign oil, higher gasoline prices, and fewer tax dollars going to pay for firemen and other public safety officials.

Both sides are overselling. Stripping out the hype and hooey, we find the measure would impose an additional $4 billion in taxes on the state's oil producers over an uncertain number of years, with uncertain results. The measure would set aside the money for research and development of alternative energy and for consumer subsidies. The results, however, can't be guaranteed, or even foreseen with any certainty.

Analysis

This one stands out even in California, which regularly sees huge sums spent on various attempts to legislate through the ballot box. Proposition 87  would impose a $4 billion tax on state oil production, spread over a number of years, and earmark the money for developing alternatives to oil as a fuel and for subsidizing consumers. So far $121.6 million has been raised for and against,  by far the most ever spent in a California ballot-measure fight.

Clinton crony vs. Chevron

Money for the "yes" side is coming mostly from a California real-estate heir, movie producer and major Democratic party donor named Steve Bing, whom former President Clinton called "my good friend" at an Oct. 14 rally (where Clinton said  the measure is an opportunity "to do something remarkable to save the planet.") Bing personally supplied $40.1 million of the $46.8 million raised by the measure's supporters, according to reports on file as of Oct. 19.

The "no" side is financed mainly by oil companies, particularly California-based Chevron Corp., which by itself has supplied $30.3 million of the total $74.8 million raised so far to defeat the measure.

Money like that can buy a lot of fact-twisting, and it has.

Yes on 87 ad:
Al Gore

Al Gore: Here's the truth the oil companies won't tell you. Half the foreign oil they import to California is from the Middle East. As a result California is dangerously dependent on foreign oil. Prop 87 means more alternative fuels, and wind and solar power. And that means less oil dependence. Prop 87 is the one thing Californians can do now to clean up the air, help stop the climate crisis, and free us from foreign oil. The sooner we do it, the safer we'll be.

Al Gore's Comeback

Former Vice President Al Gore is appearing in a recent ad for the "yes" side, his first political spot since his unsuccessful bid for the White House in 2000. He starts by saying, "Here's the truth the oil companies won't tell you. Half the foreign oil they import comes from the Middle East." Actually, the oil companies do tell the US Energy Information Agency, which makes the figures public. That's how Gore and the rest of us know.

Gore says Prop 87 "means more alternative fuels, and wind and solar power," which in turn will mean "less oil dependence." That's certainly the stated goal, but the measure makes no guarantee of what would actually be delivered.

Gore also stretches facts when he says "Prop 87 is the one thing Californians can do now to clean up the air, help stop the climate crisis, and free us from foreign oil." In fact, there are other things Californians could do immediately. They could drive less, buy more efficient autos, homes and appliances, and even turn off air conditioners.

Among other exaggerated and dubious claims from the "yes" side:

"Will free us from foreign oil" One "yes" ad shows an imag:e of Saudi King Abdullah, followed by a US flag being burned by a mob, while the announcer says, "We buy their oil, they burn our flag. . . . Proposition 87 will free us from foreign oil thanks to more solar and wind energy made in California."

That's not likely. Even if Prop 87 were to achieve its stated goal of reducing the use of petroleum in California by 25 percent by 2017 it would not make the state "free from foreign oil." The state imported 40.4 per cent of its oil from overseas last year, according to the California Energy Commission. And there's no guarantee that spending $4 billion can accomplish a 25 per cent cut in consumption. As the nonpartisan California Legislative Analyst put it, "The actual reduction would depend on the extent to which the measure was successful in developing and promoting—and consumers and producers used—new technologies and energy efficient practices." Those are unpredictable.

"Cheaper fuels"   Another "yes" ad promises "cheaper new fuels for our cars, trucks, and SUVs," and concludes, "cleaner air, cheaper energy." But we've seen no support for the claim that less expensive fuels will result.The "yes" side's website mentions "cash rebates to consumers" for purchasing high-mileage vehicles, but that's not the same as producing fuels that are lower in cost than petroleum products.

Distortions on the "no" side

As we said at the outset, it's not just the "yes" side that has been peddling malarkey about Prop. 87. The "no" side also has misled the public.

No on 87 ad:
Higher Gas Prices?

Announcer: Here's what the economists say about Prop 87:
On screen: Philip Romero, Ph.D, Former Chief Economist, California Office of Planning and Research
Announcer: "87 would shrink California's oil supply, increase dependence on foreign oil, and result in higher gas prices."
On screen: Economist William Hamm, Former California State Legislative Analyst
Announcer: "The added costs of importing oil would be lawfully passed on to consumers."
On screen: Professor Charles Chicchetti, Ph.D, Environmental Energy Economics, USC, Former Chief Economist, Environmental Defense Fund
Announcer:  "If 87 passes, expect higher prices at the gas pump."
What are the chances a $4 billion dollar oil tax won't impact the price of gas? Vote no on 87, more foreign oil, higher gas prices.

The "no" side argues generally that passing the new tax will raise the price of producing oil, discouraging production within the state and thereby forcing more to be imported, not less. That in turn, they say, will bring higher costs and force an increase in prices at the pump. An often-repeated refrain: "What are the chances a $4 billion dollar oil tax won't impact the price of gas?"

We find some merit in the oil company's arguments, but not as much as the ads would have viewers believe.For one thing, they buttress their claims by quoting economists carrying impressive titles. But not all of them can be called disinterested judges.

Economist for hire

One economist quoted prominently in the "no" side's ads is William Hamm, identified as a former California State Legislative Analyst. It's true that Hamm's job used to be one of a neutral analyst for California voters. However, he left that job 20 years ago and currently  is one of several managing directors of LECG, a global firm offering expert analysis for hire to corporations, lawyers and others. Hamm's firm is being paid by the "no" campaign, a total of $94,718 as of Oct. 19 according to reports  filed with the California Secretary of State's office. 

That certainly doesn't make Hamm's statements wrong. However, identifying him by a position he held two decades ago invites voters to give what he says more weight than they might when they discover he is a consultant being paid by one side in the debate.

For a more neutral expert, we turned to Severin Borenstein, director of the University of California Energy Institute and a professor at the Haas School of Business at the University of California Berkeley. He hasn't taken sides and at last report said he hadn't decided how he would cast his own vote. He says "some of the rhetoric coming out of both sides is highly questionable or just plain wrong."

"Higher Gas Prices" This claim is overblown. Taxing oil production in California is bound to discourage some production, but Borenstein for one says the effect won't be enough to be noticed at the gasoline pump. "Prop 87 would not raise the price of gasoline in California to any noticeable extent," he states.

"More Foreign Oil" This is also exaggerated. "In reality, prop 87 would have a very small impact on California oil production," Borenstein states. Hamm's LECG group, the one paid by the "no" campaign, estimates that California production would decline by 9 per cent. Borenstein says LECG's report "presents no analysis to support this number, and it seems implausibly high to me." But even if correct, Borenstein says it would be such a small portion of world supply (0.07 per cent) as to have "no noticeable effect on world oil prices" or by extension on California prices.

Public Safety The latest "no" ad features police and fire vehicles with sirens blaring, and says that Prop 87 would reduce state revenues that go to "critical public safety needs." That's also overblown. The fiscal analysis of Prop 87 by the nonpartisan California Legislative Analyst's Office says the effect on other state and local revenues would be slight. There would be a cut in local property taxes paid on the value of oil reserves which "would likely not exceed a few million dollars statewide annually," and – because the new oil tax would be deductible by producers – a reduction in state income taxes that "would likely not exceed a few million dollars statewide annually." In addition there might be other reductions in fees paid to the state on oil pumped from public land or from fuel taxes collected at the pump, but this would depend on whether the tax is interpreted as applying to state-owned oil or whether it actually reduces consumption of taxed fuel.

With all the misinformation being spooned out in this fight, Californians who manage to cast an informed vote will do so in spite of this record-breaking TV blitz, and not because of it.

-by Brooks Jackson

Sources

Marc Lifsher,  Oil Tax Campaign a Cash Guzzler for Both Sides; More than $107 million has been raised for and against Proposition 87, a state ballot record, Los Angeles Times 16 Oct 2006

Patrick McGreevy, "Clinton Touts Oil Tax Measure at UCLA Rally," Los Angeles Times 14 Oct. 2006.

"Oil and Petroleum in California," California Energy Commission, website, accessed 18 Oct 2006.

"Proposition 87 ," California Legislative Analyst's Office, 20 July 2006.

Severin Borenstein, "My Views on California Ballot Proposition 87," undated website posting, accessed 19 Oct 2006.