Chevron, El Segundo reach $134 million settlement
The Chevron refinery in El Segundo. Photo by Pedro Szekely
After a year of intense negotiations that began with the firing a former city manager, the City of El Segundo and Chevron have tentatively agreed to a settlement in which city will receive an estimated $134 million over the next 15 years in lieu of disputed tax payments.
The City Council on Tuesday night voted 4-1 in favor of the proposed settlement. A finalized formal agreement is not expected until February or March.
“This has been a long hard and disturbing battle for a year now,” said Mayor Carl Jacobson. “Everybody on the council and on Chevron staff has worked extremely hard to hammer out this agreement.”
Jacobson stressed that the settlement does not represent a new tax.
“It’s an amount that Chevron has agreed to, not a tax that has been put on by the city,” he said. “…I appreciate what Chevron has done. They have come to the table – it hasn’t always been easy for either side, but I am glad we are at this point.”
The only dissenting vote came from Councilman Dave Atkinson, who praised aspects of the proposed settlement but ultimately didn’t believe the city was receiving enough money from Chevron.
“I do not feel it’s the right amount, and therefore I am voting no on it,” Atkinson said, who noted afterwards that he didn’t get elected last year “to always do the popular thing.”
The agreement comes at a crucial time for the city, which faced projected budget deficits over the next three years of $5 million to $6 million annually and has already drastically trimmed its budget over the past few years.
“Facing those budget deficits over the next several years would have been extremely challenging,” said City Manager Greg Carpenter in an interview Tuesday morning. “If this deal is approved, it is sure to address those deficits and to allow the city to continue providing services at current levels. The relationship to Chevron is important to the city, but the relationship to Chevron is also important to the community. The other alternative would have been to put a tax on the ballot through a ballot measure, and that could be divisive for the community.”
The city was poised to go down that path last December. Doug Willmore, the city’s former city manager, had proposed a ballot measure increasing taxes on “petroleum production businesses” within the city. Willmore been instructed by former mayor Eric Busch to look into what appeared to be a potential discrepancy in the taxes Chevron paid the city as compared to taxes Chevron and other oil refineries paid to other cities in the area. He discovered that both on a per-acre and a volume basis that Chevron paid roughly half what refineries in Carson and Torrance paid their respective cities in taxes.
According to Willmore’s analysis, the 951-acre Chevron plant produced 285,000 barrels per day and paid El Segundo $4.7 million annually; the 750-acre Exxon Mobil plant in Torrance produced 150,000 barrels daily and paid the city $9.9 million, while the 700-acre BP refinery in Carson produced 265,000 barrels a day and paid $10 million annually.
The council was on the brink of seeking a tax increase, which would have required a citywide vote. But strenuous objections from Chevron – which, as Standard Oil, purchased its property in 1911, six years before El Segundo was incorporated as a city, and as such is deeply entwined in the history of the city. Chevron and its supporters in the community helped convince council to instead vote to negotiate a settlement.
Willmore was fired a week later, after only 10 months on the job. Willmore, who is now city manager of Bell, said in an interview Monday that the settlement gave him some sense of vindication.
“The average refinery in the state of California is paying about $15 million in total taxes to their city, and Chevron in El Segundo was paying about $5 million – so this settlement adds about $9 million a year to what they are paying, which brings them about up to average,” Willmore said. “So it’s darn good for the city.”
Willmore still believes, however, that Chevron got away with vastly underpaying. He notes that the refinery takes up 36 percent of the city’s commercial acreage yet has for decades has produced only 10 percent of the city’s general fund revenue. He also notes that a less productive Chevron refinery in Richmond pays far more in taxes. A recent San Francisco Chronicle article reported the Richmond facility has a capacity of producing 275,000 barrels a day and pays nearly $40 million annually city taxes and fees – a number that Richmond city officials argue is too low.
“[The settlement] obviously doesn’t rectify the past,” Willmore said. “Over the past 25 years, you could say Chevron was able to avoid probably hundreds of millions of dollars in local taxes…. And by Chevron paying less, other businesses had to pay more.”
But Chevron has also contributed financially to the city in various other ways, both as a leading employer and a funder of everything from education to recreation facilities and numerous local charities. Chevron officials also emphatically reject the notion that the company has not paid its fair share of taxes.
Chevron spokesperson Rod Spackman said that city tax structures vary so greatly that it is very difficult to make fair comparisons. Richmond, he noted, is a charter city, for example, and as such receives a much greater share of property taxes back from the county – 26 cents on the dollar versus the 6 to 7 cents received locally – thus greatly increasing the amount of Chevron taxes that end up in local coffers.
“So the taxing structures are very different,” Spackman said. “And that is one of the things that is unreasonable and was very much not appropriate in the context of how people were trying to draw comparisons. You look at your relative competitors in the region – so if you look other facilities in the South Bay… you can normalize some of that and say, ‘Yes, this is a fair agreement’ and it’s consistent with what you see in other adjacent communities where similar facilities reside.”
Another key difference between El Segundo and its relationship with Chevron, Spackman said, is a very unique “recycled water surcharge” that the company pays the city. That arrangement, which Spackaman characterized as a cutting-edge environmentally “green” practice that entails Chevron’s use of locally recycled water in its operations, nets the city $1.8 million annually and was set to expire in 2015. As part of the settlement, the surcharge has been extended 15 more years.
Spackman urged everyone to look ahead rather than continue to look towards the past.
“It’s a very reasonable and appropriate agreement,” he said. “It’s balanced and it allows us to maintain our competitive posture in the region, but to do so in a way that substantially benefits the city. And it’s just that simple.”
Councilman Bill Fisher, who along with Councilwoman Suzanne Fuentes was on the subcommittee that negotiated the deal, said arguments could be made that the settlement could be more or less. But he stressed the importance of moving beyond the disagreement.
“I think our city benefits,” Fisher said. “We can move on. We can not worry about going for a ballot measure. And we can get on with running this business and having Chevron as a good partner in this community, which they have always been. I truly liked what [Councilwoman Marie Fellhauser] said earlier, Chevron has always paid what they have been asked to pay. If there is any fault, it is the fault of councils prior not looking at this closer. But I don’t fault anyone on councils. This is all complicated stuff, folks.”