UPDATE 3-Calif. governor to seek tax on oil producers in state

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By Jim Christie

SAN FRANCISCO, Nov 6 (Reuters) - California Gov. Arnold Schwarzenegger on Thursday reversed his previous opposition to a severance tax on oil production in his state and called on lawmakers to approve such a measure to boost revenues to help close a budget shortfall that has swollen to $11.2 billion.

"We have drastic problems that require drastic and immediate action -- we must stop the bleeding right now," the Republican governor said in a statement a day after two top lawmakers in the state's Democratic-led legislature also called for an oil severance tax.

Schwarzenegger has previously sided with Democratic lawmakers on a number of environmental initiatives, including a landmark law requiring cuts to greenhouse gas emissions, but has resisted calls from Democrats to raise taxes in general.

California voters tend to rank environmental matters as a top priority, but on Tuesday they rejected two statewide ballot measures focused on alternative energy.

Two years ago, state voters rejected a measure proposing a tax on oil producers extracting oil in the state to fund incentives for researching and producing alternative energy and alternative fuel vehicles.

At the time, Schwarzenegger opposed the measure, which had the backing of former President Bill Clinton, former Vice President Al Gore and Hollywood celebrities.

Schwarzenegger's about-face stunned California's oil industry, said Catherine Reheis-Boyd, an executive vice president at the Western States Petroleum Association, which represents oil and natural gas producers, refiners and marketers.

"We understand California faces fiscal challenges but we're facing serious energy challenges," she said. "It's not a tax that sunsets. It looks like a permanent, new tax."

State Senate President Pro Tem Don Perata signaled support from Democrats for the tax. "I applaud the governor for proposing a realistic solution to the state's budget problems that includes significant new revenues," Perata said in a statement.

By contrast, Republican Assembly Leaker Mike Villines told reporters any plans for tax increases were dead on arrival in his caucus: "They're dead with us. We're not going to look at taxes. We just don't think it is the right thing to do."

The legislature's Republican minority, which has sufficient votes to block tax and budget bills advanced by Democrats, saw its relationship with Schwarzenegger strained earlier this year when he proposed an increase to the state's sales tax. (Reporting by Jim Christie with additional reporting by Jenny O'Mara in Sacramento, editing by Gary Crosse)