As Long Beach prepares for the eventual phase-out of oil production, officials want to know how the loss of that major revenue-generating sector will affect local services and how much the city will owe to plug abandoned wells.
The City Council approved a request from Mayor Rex Richardson on Tuesday for the city auditor to drill down on those revenue sources and provide a report to the council and its Climate, Environment and Coastal Protection Committee about how the loss of oil production will affect Long Beach.
Costs to shut down and plug abandoned wells have been a bit of a moving target, with a recent estimate putting that figure at over $1.2 billion, with the city’s share at about $154 million and the state and individual mineral rights owners responsible for the rest.
The state owes the largest amount—over $900 million—and last year, Gov. Gavin Newsom signed into law a bill that allows the state to deposit more funds into an account intended for covering the costs of its share of phasing out oil production in Long Beach.
The city has set aside about $70 million toward its share, but phase-out plans could be further complicated by Senate Bill 1137, which voters are slated to weigh next year. The law would prohibit new well operations within 3,200 of sensitive areas likes homes, schools and parks.
The city’s current plan relies on oil operations continuing, including in those buffer zones, through 2035 in order to pay for the remainder of its abandonment responsibilities.
Richardson said Tuesday that the audit would provide the city with a clear picture of what it needs to do going forward.
“It starts with getting good numbers,” Richardson said.
Richardson has made expanding the city’s revenue streams by investing in other sectors a key point of his agenda, which he announced in January.
Most of the city’s oil revenue goes into the Tidelands Fund, which helps the city pay for things like some public safety services in the Coastal Zone and helps fund big projects like the proposed Belmont Pool, which was last projected to cost about $119 million, with the city already setting $61 million in Tidelands Funds aside.
However, the city says that SB 1137 could endanger those projects because the additional monitoring costs—and the fact that maintenance and other repairs on existing wells within the 3,200-foot buffers would be disallowed—could force a faster phase-out of most wells.
City officials say that over half of the oil wells in the city would be affected by SB 1137 and have estimated that it could mean a loss of about $20 million annually in funds for the city. In December, City Manager Tom Modica said that could mean the Tidelands Funds available for capital projects could dry up by 2029, instead of 2035.
Councilmember Kristina Duggan, who represents Southeast Long Beach and chairs the commission that will discuss the audit before it comes back to the City Council, said she backed the audit, noting that her constituents are concerned about the loss of oil revenue and how it will affect services.
“We know we’re headed into deficit years,” Duggan said, adding that the city will “not going to have federal dollars to cover shortfalls,” as it did in recent years under COVID-19 emergency orders.
Long Beach has been able to delay some big budget shortfalls because of those federal and state pandemic relief funds, which helped pay for services and allowed the city to refill its emergency reserves.
The city budget for the fiscal year starting in October is expected to be revealed in the summer. The originally projected deficit of over $40 million has been reduced to about $6 million, with some federal funds expected to again help the city avoid service cuts.
Long Beach is projecting a budget deficit of about $33.8 million through 2027.