El Segundo, Chevron at odds over oil company’s taxes
Doug Willmore wasn’t on the job long as El Segundo’s city manager before discovering just how deep the town’s loyalty runs to the oil giant that put it on the map.
After the city began discussing a big tax increase for the Chevron oil refinery a few months ago, he walked out of City Hall to find a note on the windshield of his car.
“This is a Chevron town and we owe our existence to them and should be grateful. Get that through your head,” it read.
The note ended: “Beat it!!!!!!!”
After decades of mostly prosperous times for the city and the oil company, El Segundo is having a falling-out with its longtime benefactor.
A majority of the City Council thinks Chevron should pay an additional $10 million a year in taxes — about three times what it pays now. But the tax push has stirred strong emotions in the town, which was formed a century ago when Chevron built its second refinery there. El Segundo (“The Second One” in Spanish) gets its name from the refinery that overlooks the Pacific Ocean and stretches more than a mile inland.
Many residents remain loyal to Chevron and feel the proposed tax hike is unfair.
The dispute has roiled politics in the small upscale city south of Los Angeles International Airport known for a downtown district lined with mom-and-pop shops, good schools, cool ocean breezes and the rumble of jetliners. Although only 17,000 people live in the city, El Segundo’s population swells to 80,000 on weekdays as workers roll into town for jobs at Northrop Grumman, DirecTV, Raytheon, Mattel, Boeing and Chevron.
The tax battle began late last year when Mayor Eric Busch asked Willmore, the former chief executive of Salt Lake County in Utah, to look into an acreage tax Chevron pays the city.
El Segundo enacted the tax on refineries and chemical plants in the 1980s. It receives about $5 million a year from Chevron in various taxes, including the acreage tax and the city’s cut of the property tax.
But city officials found that other cities with refineries generated significantly more taxes: Nearby Torrance got $9.8 million from the Exxon Mobil refinery, Carson got $10.2 million from the BP refinery and Richmond, in Northern California, got $15.4 million from its Chevron refinery.
“You look at it and it kind of shocks you,” Willmore said. “We could double the taxes they pay to the city of El Segundo, and Chevron would still have lowest tax rate [of any oil refinery] in the state.”
He also discovered that the town’s other major employers were paying about five times more per acre in various taxes than the oil company. The 951-acre refinery encompasses 36% of the commercial land in the city but contributes just 10% of the city’s commercial tax revenue, he said.
Armed with the data, the City Council began discussing a tax hike in December.
Chevron officials said they felt blindsided.
“We would have hoped when this issue surfaced they would have first come talk to us and said, ‘Let’s work on a constructive path forward,’” said Rod Spackman, Chevron’s manager of policy, government and public affairs for the L.A. Basin. “Instead they seemed to do something in a rushed and hurried way.”
Spackman told the council that Chevron actually pays the city $7.5 million per year when a reclaimed water fee is figured in. Chevron makes about $500,000 a year in charitable donations in the city.
As news of the tax proposal spread, Chevron swung into action.
Former Mayor Kelly McDowell said he received two calls from a Chevron spokesperson “sobbing and in tears asking me to help out. Chevron is shocked and amazed.”
McDowell said he later received a 90-minute call from Busch, asking McDowell to testify in favor of putting the proposed tax increase up for a citywide vote. “He went on how this would solve the city’s cash problems for years,” said McDowell, who believed the matter was being rushed.
Chevron met with individual council members. Councilman Don Brann said the two sides were close to a deal that would have doubled Chevron’s payments, but the agreement fell apart.
“I said why don’t you just give the city an aquatic center and put your name on it and we don’t put it on the ballot,” Brann said.
At its Dec. 20 meeting, the council told the city attorney to prepare documents so it could decide whether to place an ordinance to increase the refinery’s taxes on the April 13 city ballot. The measure passed 3 to 2 at the next meeting. However, the council needs four votes to place it on the ballot.
The two sides are back in negotiations.
But the issue has become part of city politics, with three council seats up for election in April.
Brann said he thought if the city cuts a bad deal with Chevron, angry residents could try to run a petition drive to place the matter on the November ballot.
El Segundo is not the only city fighting for more taxes from its oil refinery. Chevron has had a contentious time in Contra Costa County, where the Richmond refinery was its first in the state. Several years ago, a city audit found that the oil company was underpaying its utility tax, which set off dueling petition drives to place initiatives on the ballot. Chevron’s would have repealed the tax entirely; Richmond’s would have removed a cap.
The two sides came to an agreement in 2009, with Chevron paying the city $28 million in back taxes, said City Manager Bill Lindsay. The next year, Chevron agreed to pay the city $119 million over 15 years, in exchange for Richmond agreeing not to place any measures on the ballot increasing the tax.
Chevron remains in a legal battle with Contra Costa County over the property taxes it pays on the Richmond refinery site, with the oil company saying its bill should be lowered. Public agencies could be forced to repay $73 million if Chevron wins.
In El Segundo, the city remains divided. Some residents say the city desperately needs the money and that Chevron is not paying its fair share. Others, however, say City Hall is trying to shake down Chevron, which employs more than 1,100 workers.
Brann says the story line is simple: “Big oil company founds small town, sits there for 100 years but doesn’t pay fair share of taxes, but finally somebody comes along and reveals it.”
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