Measure O’s overwhelming defeat at the polls on March 3 came with a price tag.
A grassroots campaign defeated E&B Natural Resources’ proposal to drill for oil at the city’s maintenance yard by a 4-1 ratio, emphatically rejecting potentially millions of dollars in city revenues in favor of upholding the city’s ban on oil drilling.
The measure’s defeat posed a new challenge. E & B previously bailed the city out from a possible settlement with Macpherson Oil Company in the hundreds of millions of dollars. An agreement between the parties now requires the city to repay E&B $17.5 million, $14 million more than the amount it would’ve had to pay if the measure succeeded.
For the first time since election results were announced, the Hermosa Beach City Council on Tuesday publicly contemplated the various avenues and structures for repaying the debt. How much should the city put down in cash and how much should be financed? Should it be financed privately as a leaseback or publicly as a lease-revenue bond, and over how long a period? Should the city move discretionary funds, such as from the sewer fund, to bulk up the interest-free down payment? Can the financing be considered tax-exempt?
Is now a good time to revisit raising the city’s hotel bed tax as to benefit from the recently record-setting hotel occupancy rates?
These were some of the questions posed Tuesday night. Larry Kosmont, a financial consultant for the city, compared the process to shopping for a home mortgage. He recommended the Council move quickly on making these decisions because interest rates could potentially increase. He also recommended forming a Joint Powers Authority [JPA], a partnership between two public entities, in the next 30 to 45 days to facilitate the borrowing.
After testimony from three financial consultants and a half dozen community members, the Council unanimously gave staff direction to continue with the $6 million the city previously set aside as the down payment and explore a lease-revenue bond, as well as the lease-back option, for a 15 to 20 year period. The motion also authorized staff to begin an informal selection of the financial and bond advisory as well as the Joint Powers Authority.
While Mayor Pro Tem Nanette Barragan expressed interest in increasing the down payment by way of the city’s $3.4 million sewer fund — for which the state could issue borrowing at a lower rate of 2 percent — Mayor Peter Tucker highlighted the importance of financial health, including a healthy reserve and council contingency, to appeal to lenders and credit agencies.
“It’s key not to go all in on a settlement,” Tucker said, adding no planned project should be postponed as a result.
According to City Manager Tom Bakaly, the city has had one conversation with E&B officials since the elections. E&B is expecting a repayment proposal from the city by the end of April.
During the public comment portion, the conversation turned toward the topic of Hermosa’s transient occupancy tax (TOT) rate, which some residents argued was too low at 10 percent. According to the city’s annual financial report, average occupancy in Hermosa’s eight hotels and one hostel for 2013-2014 was 81.1 percent compared to the previous year’s rate of 78.1 percent.
Resident Dency Nelson noted that Los Angeles, Santa Monica, and San Francisco have a 14 percent TOT rate.
“We’re two percent less than any of our neighboring communities,” Nelson said. “Why are we undercutting our value? Why are we at the level of Lomita?”
While Tucker, Barragan and Councilman Hany Fangary expressed support for putting a TOT initiative on the November ballot, Councilman Michael DiVirgilio said Manhattan Beach’s rate is still 10 percent although the council is authorized to raise it to 12 percent. Councilwoman Carolyn Petty strongly opposed the idea, saying she philosophically did not agree that raising taxes promotes economic health. She sought to stop the discussion on the basis that the issue was not on the agenda.
The Council did not take any action on the subject.
Tucker stressed that Tuesday’s discussion marked the beginning of a participatory conversation with residents and that their input will shape how the Council approaches the settlement repayment.
“One reason I think oil was defeated was because of the transparency and the community involved,” Tucker said. “So we need to continue on with that.”
In related news, election results will officially be certified Thursday. The City Council will hold a special meeting at 5 p.m. at City Hall to adopt the resolution.
