State loan urged to help Hermosa Beach settle legal claim

A South Bay assemblyman is proposing a loan of state funds to Hermosa Beach to take the financial heat off voters who are being asked to decide whether to allow oil drilling in their city for the first time in more than 80 years.

The legislation would allow the city to take out a no-interest loan from the state to help pay off a $17.5-million penalty the city would face if voters in the beach town reject an oil drilling proposal.


Assemblyman Al Muratsuchi (D-Torrance) said Friday that he wanted Hermosa Beach residents to vote "without this gun of the financial penalty pointed at their head."

Muratsuchi unveiled the bill, AB 2711, at a news conference, flanked by leaders of neighboring beach cities and representatives from Heal the Bay and Stop Hermosa Beach Oil, both staunch opponents of new drilling.

The funds for the loan would come from oil and gas revenues in the state's general fund, and payments by the city would go toward a state program that helps coastal communities address the effects of climate change, such as sea level rise and beach erosion.

State Sen. Ted Lieu (D-Torrance), who championed the climate change program and also attended, called the bill "ingenious," saying that it would allow residents to keep the coast safe from the potential risks of drilling.

"I can't really think of anything more stupid than oil drilling along the coast," Lieu said.

The bill, if passed, could represent an innovative solution to the high-stakes question Hermosa Beach voters will probably face this fall, the result of a multimillion-dollar legal settlement that threatened to drive Hermosa Beach into bankruptcy.

If voters approve the ballot measure, oil company E&B Natural Resources would gain the right to drill as many as 30 diagonal wells from a city maintenance yard blocks from the beach.

Initial projections from a city-commissioned economic analysis say that the city stands to gain $118 million to $270 million over the 35-year life of the project, with an additional $1 million to $2 million going to Hermosa Beach schools.

If they reject oil drilling, however, the city will be on the hook for the $17.5 million — the terms of the legal settlement reached in 2012.

The city has $6 million saved to pay toward the sum. Financing the rest could mean payments of $825,000 a year for 30 years, or $1.1 million a year over 20 years, according to the city-issued report. Under the legislation, those annual payments could be reduced to $500,000, according to the assemblyman.

Stacey Armato, a co-founder of Stop Hermosa Beach Oil, an organization that has plastered the city with hats and stickers that urge residents to "Keep Hermosa Hermosa," said the bill would "make it easier for the voters here to make the right decision for the health and safety of our community."

The debate over the oil question has divided the quaint, beachside town, which largely escaped the early century oil boom when it enacted a ban on all new drilling in 1932.

In 1984, Santa Monica-based Macpherson Oil dangled the prospect of tens of millions of dollars in royalties, and voters in then-cash-strapped Hermosa voted to lift the ban.

But the drilling rigs never came.


Voters changed their minds and reinstated the ban, and the City Council eventually halted the project, deeming it unsafe.

Macpherson sued, claiming as much as $750 million in damages, more than 20 times Hermosa Beach's annual budget and enough, city leaders feared, to bankrupt it.

The city settled the suit in 2012, allowing Bakersfield-based E&B to buy out Macpherson's stake in the deal and limiting the city's liability to $17.5 million.

In return, E&B will have a chance to ask Hermosa Beach voters to exempt its project from the ban.

E&B's project proposal is undergoing environmental, health impact and cost benefit reviews, and city leaders are trying to meet a summer deadline to place the measure on the November ballot.

Eric W. Rose, a spokesman for E&B, said the firm was unclear why the legislation was needed because the city has stated that it will be able to pay the penalty if voters reject the project.

The bill is scheduled for its first hearing Monday in the Assembly Natural Resources Committee. Muratsuchi says that he hopes to pass the bill by the end of the summer before voters decide on the oil question in November.

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