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    City Auditor Urges Raising LB's Oil Production Tax, DeLong Backs It & Wants Revenue Split Between Public Safety & Infrastructure Improvements

    (Jan. 20, 2007) -- City Auditor Laura Doud has agendized an item for the Jan. 23 City Council meeting urging a ballot measure that could increase in LB's current oil production tax revenue from 15 cents/barrell to 40 cents/barrel, which she says would produce $4 million annually for LB's General Fund.

    3rd district Councilman Gary DeLong has also agendized an item urging that the measure be placed on a May 1st citywide ballot...wiith the resulting revenue dedicated 50% to public safety and 50% to infrstructure improvements.

    In her memo to Councilmembers, Auditor Doud writes in pertinent part:

    Over the course of the last two months, the Office of the City Auditor, in conjunction with the Office of the Mayor, the Office of Councilmember Gary DeLong, and the Department of Financial Management, has been reviewing and analyzing the current Oil Production Tax utilized by the City of Long Beach...

    In 1990 when the $0.15 OPT was passed, the average price of oil (using the West Texas Oil Index (WTI)) was $24.49...Concurrently, however, the price of oil during this same period of time has steadily grown . Between 1990 and the present, the price of oil based on the WTI has fluctuated between $18 .58 and $74 .41. Utilizing the same ratio codified by the original ordinance (.006 per bbl on the WTI), and indexing that ratio to the fluctuation in oil prices, the OPT would have fluctuated concurrently between $0.11 and $0.46 in any given year within this time frame.


    The City's current OPT rate is significantly lower than that of other neighboring cities, many of which use a rate tied to inflation or other industry indices . The weighted average (taking into account production volume) of neighboring cities is approximately $0.28 with the un-weighted average at $0.37.

    In October of 2004, the Office of the City Auditor released a report with recommendations for increasing the OPT . Our office has reviewed this report and provided updates accordingly . Namely, our office has verified the OPT rates currently used by surrounding cities and we have confirmed that Long Beach in fact remains near the bottom of the list, while Signal Hill currently charges four times more per barrel than Long Beach does ($0.60 per barrel) with less annual production overall....


    In order to bring Long Beach in line with surrounding cities and in order to capture revenue from a competitive and fair OPT rate, we recommend that the current ordinance be changed to increase the OPT currently charged by the City of Long Beach. After reviewing and discussing these issues with the key stakeholders including oil producers and Long Beach constituents, and taking into account both the average of surrounding cities as well as the potential revenue that could have been generated using an index at the same ratio codified in the current ordinance, we recommend that the OPT be increased from $0.15 to $0.40 with an annual adjustment based on the CPI index . Given the volatile nature of the oil industry as well as the costs associated with production in the Tidelands area, we believe this fee is fair and equitable for both the residents of the City and the Oil producers. We would also recommend some "safety net" language be placed in the ordinance consistent with other City ordinances that would reduce the OPT in the event of a true emergency. We would defer to the City Attorney and the Department of Oil & Gas to develop appropriate language .

    We believe such an increase would be consistent with surrounding cities and the amount of oil extracted within the city boundaries . Such an incremental adjustment is anticipated to raise an additional $4,000,000 .00 in the General Fund annually.

    We further recommend that the City Council consult with the City Attorney and the City Clerk regarding the issue of ballot timing and placement for purposes of any such increase.

    In his memo, Councilman DeLong writes:

    [I]t appears that an increase to the City's current Oil Production Tax is warranted...Additionally, given the pressing need for additional funding to the City's two highest priorities, Public Safety and Infrastructure Improvements throughout the City, the second recommendation is to dedicate the OPT revenue 50% to Public Safety and 50% to Infrastructure Improvements.

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