A ballot measure in Beverly Hills and a charter amendment in Los Angeles present voters next Tuesday with the opportunity to hike taxes on oil companies. The L.A. basin is the third-largest oil field in the United States, but companies that produce oil from wells dotting the region say the boom days are long over. Molly Peterson reports on the initiatives - both called “O,” for oil.
Edward Doheny and Charles Canfield dug the first well in the L.A. City Oil Field. I'm standing on it. It's the parking lot for the Echo Park Pool.
L.A. welcomed a boom 119 years ago that came with exploring below the city's footprint. L.A. officials, including councilman Paul Koretz, are now putting forward the idea of taxing that exploration.
"It's not a business that will run away and go to another place. The oil's here. So you're not going to lose any jobs. You're not going to lose any business. It's not going to impact oil companies, it'll just produce revenue for us. So it's really a no-lose situation," Koretz told a City Council committee last year.
L.A. Amendment O would levy a $1.44 tax on every barrel of crude oil extracted in the City of Angels. L.A. Councilman Bernard Parks says it's overdue compensation for people who live near the nuisance of oil rigs in places like Windsor Hills, Baldwin Hills, and the harbor area.
"The oil companies I believe owe the city of L.A. some funds for benefits to the community. This is an industry that has benefitted mightily from driving, conscious L.A. residents," Parks told his fellow councilmembers. "And we need not to ignore this revenue source, we need to figure out how to enhance it."
Revenue from the tax would add $4 million to the city’s general fund in its first year, given present drilling levels. L.A.'s city administrative officer Miguel Santana admits that's a small drop in the bucket of L.A.'s big budget gap. "I mean, we're facing a $350 million deficit next year so at this point I'm not leaving anything on the table," Santana says.
L.A. officials point out that other places tax oil extraction. Beverly Hills is one – its voters will consider raising what the city calls an excise tax on oil operations. If Amendment O and Measure O both pass, three companies that use well heads in L.A. to reach reservoirs in Beverly Hills could pay twice.
One of those companies is BreitBurn Energy. Its executive vice president Greg Brown says that if L.A. and Beverly Hills separately skim taxes from BreitBurn's slant wells, mineral rights owners would feel the pain, too.
"Taxes are passed along to royalty owners," he points out. "So this is a tax on a lot of those residents."
Beverly Hills High School is one good example. I'm looking at a rig operated by Venoco that towers over the track field; it's decorated with flower murals.
The "Tower of Hope" has its detractors, but this well contained entirely in Beverly Hills pulls in up to a million dollars a year in royalties for the school district – which is why school leaders have come out against Measure O. Business associations have too – BreitBurn's Greg Brown says the taxes could essentially shrink the tax base.
"The oil isn't going to go away, but it costs millions of dollars to get out of the ground," says Brown. "As taxes go up it becomes more attractive to do that work other places, and that means jobs go away."
L.A.'s never imposed a severance tax for oil. Beverly Hills hasn't updated its tax scheme in decades. But Brown counters that BreitBurn and other independent oil companies do pay gross receipts taxes, business taxes and other fees to the cities in which they operate.
"We pay property taxes on our oil in the ground, before it's even produced. Other states that have severance taxes – those are in lieu of property taxes," Brown says. "So you pay either a severance tax or a property tax. Here now they want to make it both."
Critics who want to drive out oil companies are fine with that. But statewide, the picture's murkier.
California voters turned back a 6 percent severance tax five years ago. Still, the idea keeps bubbling up as a potential budget boost at the state capitol and at city halls.
BreitBurn's Greg Brown has heard this song before. He sings a different tune, in which major oil companies pack up and move out.
"Unocal had their headquarters across the street. Atlantic Richfield was HQ in this building, we had Mobil had a major office – they were all high-paying, very good jobs." Brown's remembering a time when he started in this industry, in the 1970s. "They're all gone."
That image of oil companies as Hillbillies in reverse is just one consideration voters in Los Angeles and Beverly Hills will weigh when they decide on these measures next week.