Published: Wednesday, 22 Jul 2009 | 3:56 AM ET

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The deal to close California's $26 billion budget deficit included a plan to drill for offshore oil, drawing allegations that the fiscal crisis was used for a backroom deal following rejection of the idea by state regulators earlier this year.

Democrats agreed to Republican Gov. Arnold Schwarzenegger's request to expand drilling from an existing platform off Santa Barbara to generate a one-time $100 million advance royalty payment this fiscal year and an estimated $1.8 billion in royalties over 14 years.

It would be the first new offshore oil drilling on state lands in four decades since a blowout on a platform off Santa Barbara coated miles of ocean and shoreline and galvanized opposition.

Details of the agreement reached late Monday were scarce, but Lt. Gov. John Garamendi, chairman of the State Lands Commission, said Tuesday that the framework involved taking authority for approval of oil leases away from State Lands and giving it to a newly created panel.

"This is a play by the governor to have it his way," he said. "This is a sellout to the oil industry. They want to open the California coast to drilling, and this is the first step."

The lack of details on the agreement and the way it emerged in budget talks concerned Victoria Rome, deputy California advocacy director for the Natural Resources Defense Council. "I think it should be very troubling to the public that a decision that was made through a public process in the light of day can be overturned by a few leaders behind closed doors," she said.

Schwarzenegger spokeswoman Lisa Page said the proposal would bring new revenues to the state, end oil drilling off Santa Barbara's coast and speed up the permanent removal of platforms there.

The governor's office said in a statement that the platform involved is already drilling in federal waters adjacent to state waters. It said the project maintains a moratorium on oil drilling "but takes advantage of a specific exemption that allows for new leases if oil is leaking from an existing state field into an actively producing federal field."

The drilling proposal has been percolating since 2008 when Plains Exploration & Production of Houston announced a novel deal with three veteran environmental groups in Santa Barbara County.

The groups, including Get Oil Out!, agreed to promote the plan in exchange for money for the state, thousands of acres of land and Plains' commitment to cease operations countywide by 2022.

Garamendi said he opposed the plan in January because provisions for ending operations could not be enforced and because it would serve as a precedent for further drilling, encouraging the federal government to issue new leases off the California coast.

The $100 million would be a loan against royalties and would be repaid by deductions from future royalty payments to the state, he said. Garamendi asserted that the sum was of minor usefulness in solving the budget problem.

"I think that this can easily be subtracted from the proposal without doing any harm to what is a terrible piece of work," he said.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said that under the budget agreement, a panel made up the state attorney general, the secretary of resources and the secretary of environmental protection would make a final decision on the project.

Steinberg said the state had run out of options and had to make a choice between a project that would generate about $100 million annually for the next 14 years, or to make deeper welfare and social service cuts. "And, you know, that's a choice," he said.

Michael Endicott, resource sustainability advocate for Sierra Club California, said environmental standards and statutes should not be rolled back as part of the budget process.

"Eventually we'll be rebuilding and we'll be operating again, and those standards should be implemented again — that people worked long and hard to put in place in order to avoid problems," he said.

Endicott and Garamendi both said a better alternative would be an oil severance tax that other major producing states have. Their estimates of such a tax ranged from $800 million to $1 billion a year.

"California is the one large state that doesn't charge a fee for the extraction of oil," Endicott said.

Attorney Linda Krop, who represents the three Santa Barbara environmental groups, said they continue to support the agreement they negotiated with Plains but she had not yet consulted with them on the possibility of it being put before a new panel rather than State Lands.

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