The city will look to voters to increase the tax on oil production in November as it seeks new revenue sources to fund social and environmental initiatives.
The City Council on Wednesday agreed in an 8-0 vote to ask voters to add 15 cents to the current taxes on oil production in the city. Councilman Al Austin did not respond to a roll call vote on the item.
If adopted by voters, the 15 cent tax would go toward funding health equity, youth and climate-related initiatives in the city. The choice to target those issues was largely driven by the nationwide protests that have occurred since late May calling for reforms and investments in underfunded communities.
The effective date for the tax would not be until October of 2021, and the City Council would have the ability to reduce the tax amount to as low as zero cents per barrel, effectively giving future City Councils the ability to eliminate the tax entirely. The tax would also drop off in months that the price of oil dips below $20 per barrel.
If adopted, the tax could generate about $1.6 million annually according to city officials though they acknowledged that the amount of revenue created would likely be volatile and would “decrease at a noticeable rate” as oil production continues to decline.
The council reached its decision after hours of discussion about whether the proposed tax was the best way to address the issues it would aim to support.
Councilwoman Stacy Mungo proposed allocating just over $2 million to fund those causes outright without placing a tax increase on oil production, saying that investing in a tax levied on a resource that fluctuates as wildly as oil might not be the most stable move for the city.
“I just don’t think I would take that risk as a person or a family,” Mungo said.
Some council members objected to the roughly $1 million it’s projected to cost the city to put this on the Nov. 3 ballot, while others questioned the ethics of the education campaign the city would undertake to make voters aware of the ballot measure.
“I’m not comfortable with using public money to try and encourage a vote in one way or the other,” said Councilwoman Suzie Price.
Councilman Rex Richardson, a co-sponsor of the item which was introduced earlier this month, said that the city has an equity mandate before it and the time to act to invest in youth and equity is now.
“We have an opportunity today to take some real action,” Richardson said. “If the voters decide to go the other way, our conscience is clear.”
The proposed tax was largely supported by members of the public, some of whom called for a higher tax to be placed on oil production, with the proceeds going to the communities that have been negatively impacted by the city’s long history with oil production and other polluting industries.
City Manager Tom Modica said that a community survey that is still in draft form and has yet to be made public showed that somewhere between 52% to 57% of voters would likely support the tax. Because it would be a general tax, the proposed oil tax would only require a simple majority to become law.
That might not be the only obstacle standing in the way of the oil production tax.
A letter from the State Lands commission expressed concern that the proposed tax was outside the scope of allowable taxes on oil production on state land. The State of California stands to be the second-largest party to the proposed tax increase and could pay up to 36% of the tax. It previously opposed an oil tax increase in 2012.
“While Commission staff understands the City’s rationale for the proposed tax, staff is concerned that the proposed tax increase may improperly affect the City’s fiduciary responsibilities as trustee for the State, as well as its contractual obligations as the unit operator for the Long Beach Unit and West Wilmington,” the July 7 letter read.
A representative from the California Attorney General’s office spoke on the matter and suggested that there were some “serious” legal concerns in the proposed tax that could bring about a lawsuit.
However, Deputy City Attorney Rich Anthony said that the amendments added to the language by Richardson, including the October start date and the potential for the tax to be lowered or eliminated in the future by the council, had lowered the likelihood of litigation “quite a bit.”
The proposed tax will now head to the Nov. 3 ballot.