Long Beach Council On Collision Course With State Agency That Oversees Tidelands Oil Revenue; State Lands Comm'n Att'y Warns Proposed LB Oil Tax Ballot Measure And Existing LB Oil Tax Violate State Constitution, Legislative Grants, and the City’s Obligations As Tidelands Trustee
SLC Att'y: "The Oil Barrel Production Tax, as the City applies it to State interests, unilaterally and unlawfully diverts revenue due the State’s General Fund to the City without the consent of the Legislature, the Governor, or the statewide public. The tax improperly seeks to convert Public Trust assets for expressly municipal purposes, notwithstanding explicit prohibitions by the Legislature and California Supreme Court against doing so. Finally, the tax violates the City’s fiduciary duty to the State as trustee."
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(July 31, 2020, 8:10 a.m.) -- To may have seemed like a clever, near politically painless way for City Hall to get more General Fund ("blank check") revenue (publicly labeled for "equity" purposes): just put a measure on the November ballot asking LB voters to increase the tax paid by entities extracting oil in LB.
But it now threatens to escalate into a major fight with the State Lands Commission (SLC = Lt. Governor, State Controller, Governor's Dir. of Finance),which oversees uses of state-owned property. In LB that includes the coastal hugging "tidelands" from which considerable oil comes. The state of CA lets the City of LB conduct certain activities in the "tidelands" (including running a the Port of LB) subject to a "tidelands trust" agreement.
As previously detailed by LBREPORT.com, the State Lands Commission (SLC) first became aware of a LB City Hall proposed oil tax ballot measure when it surfaced July 3 for Council action on July 7. SLC's Chief Counsel raised issues immediately about the measure, but the public was kept in the dark about the magnitude of the matter until Attachment F appeared to a city staff agendizing memo for the second of three votes (July 29) to put the measure on the ballot. . .
The attached materials disclosed teleconferences with SLC (July 13 and July 22) that hadn't resolve issues. On uly 28, the State Lands Commission's Chief Counsel sent the City a six page letter that amounts to a mini-legal brief detailing the agency's position. In pertinent part:
Since July 7, Commission staff communicated repeated concerns to City staff that the existing and proposed tax, as applied to the Long Beach Tidelands, run afoul of the State constitution, legislative grants, and the City’s obligations as trustee
the People of California.
The Oil Barrel Production Tax, as the City applies it to State interests, unilaterally and unlawfully diverts revenue due the State’s General Fund to the City without the consent of the Legislature, the Governor, or the statewide public. The tax improperly seeks to convert Public Trust assets for expressly municipal purposes, notwithstanding explicit prohibitions by the Legislature and California Supreme Court against doing so. Finally, the tax violates the City’s fiduciary duty to the State as trustee.
The City has not substantively responded to the legal issues raised by Commission staff and provided no analysis or law supporting its position that it has the authority to tax the State and Long Beach Tidelands operations in the way contemplated by the Oil Barrel
Production Tax. The Oil Barrel Production Tax thus fails both substantively and procedurally. Substantively, the tax is illegal as applied to State interests for the reasons noted above and discussed in more detail below.
Invited by Councilman Rex Richardson (a strong proponent of the tax) to describe the City's stance, Deputy City Attorney Rich Anthony said:
Deputy City Att'y Rich Anthony: "While we understand and appreciate the arguments thatthe State Lands Commission is making, we don't think they are unreasonable or out of left field, we do think that the City has more than a leg to stand on in defending the existence of this tax which has been imposed and collected for thirty years. Notwithstanding that...even if the City were to face a lawsuit and the City were to change its mind about the likelihood of that lawsuit's success with the amendments currently on the floor, the legal damages that the, the potential damages to the City would be greatly reduced o that makes us more comfortable telling the Council that you may move forward with an affirmative vote if you're so inclined."
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The SLC's lawyers left room for a possible work-around...but said it would require more time than the City's Aug. 4 legal deadline to put a measure on the Nov. 3 ballot and urged the City not to move forward with the proposed ballot measure.
Commission staff desire to work with the City to address these legal defects and find alternatives that can sustainably fund necessary and timely racial and social equity programs, which the City initially stated to be the purpose of the tax increase (although this is not reflected in the ballot measure itself or the City’s staff report for the July 29 meeting). But doing so will require longer than the August 4 deadline for the City to act on the tax increase ballot measure. As such, Commission staff respectfully request that the City table the proposed tax increase to allow for a meaningful, robust discussion between the City and Commission, and to avoid litigation which may otherwise become necessary.
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On July 29, the City Attorney's office brought the Council a redrafted version of the proposed ballot measure which included adjustments, amendments, tweaks and lowered some expected revenue for the City.
[City staff July 29 agendizing memo] Staff...met with the State Lands Commission (SLC). In setting a proposed general Barrel Tax increase, staff was cautioned by initial conversations with the SLC. The SLC reiterated their concerns that a tax increase is inconsistent with the City's responsibilities as a trustee based on a potential claim that it diverts money from the State's trust and inconsistent with the City's responsibilities as an operator, if the Barrel Tax places a burden on the existing operations and drives down production.
...In order to minimize the concerns expressed, one course of action is to set a total Barrel Tax rate that is competitive in the market. A Barrel Tax increase of 12 to 15 cents per barrel can be competitive with the market, depending on what indices other cities use. A 12 to 15 cent increase would place the total Long Beach tax in line with recent Signal Hill oil Barrel Tax rates, so that Long Beach would not stand out in terms of tax rate. Also, by using the more stable consumer price index (CPI) the tax will be relatively consistent. Some of the rates are periodically index adjusted. Signal Hill is one of the cities along with Long Beach that makes periodic
adjustments and Signal Hills rates are shown for several different time periods as they vary significantly over time.
...In order to minimize the concerns expressed, one course of action is to set a total Barrel Tax rate that is competitive in the market. A Barrel Tax increase of 12 to 15 cents per barrel can be competitive with the market, depending on what indices other cities use. A 12 to 15 cent increase would place the total Long Beach tax in line with recent Signal Hill oil Barrel Tax rates, so that Long Beach would not stand out in terms of tax rate. Also, by using the more stable consumer price index (CPI) the tax will be relatively consistent
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Those changes didn't cure the State Lands Commission's objections.
To underscore the point, an attorney for the State Lands Commission and a lawyer with the CA Attorney General's office (representing the SLC) both spoke during the July 29 teleconferenced City Council meeting. To hear what they told the City Council, click here. .
Deputy City Att'y Rich Anthony: "While we understand and appreciate the arguments thatthe State Lands Commission is making, we don't think they are unreasonable or out of left field, we do think that the City has more than a leg to stand on in defending the existence of this tax which has been imposed and collected for thirty years. Notwithstanding that...even if the City were to face a lawsuit and the City were to change its mind about the likelihood of that lawsuit's success with the amendments currently on the floor, the legal damages that the, the potential damages to the City would be greatly reduced o that makes us more comfortable telling the Council that you may move forward with an affirmative vote if you're so inclined."
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The Council ultimately voted 9-0 to approve the ballot measure with Council originated tweaks: "to [1] set
the implementation date to October 1, 2021; [2] to include a provision that allows the city council to reduce the tax rate or
eliminate the tax rate by majority vote; [3] direct staff to continue engagement with State Lands Commission and stakeholders on legislation that achieves more modern and comprehensive alternatives that allow for local investments into equity, health, and climate; [4] request a Resolution of Intention on how the council intents so spend the funds with an emphasis on youth and health; [5] repay the total election costs out of the proceeds of the tax; and [6] adopt Resolution No. RES-20-0085." .
LB taxpayers will ultimately pay for their Councilmembers' upcoming choices: to put a measure on the ballot that, if it passes, could produce about an estimated $1.6 million in GeneralFund ("blank check") revenue (that Councilmembers say they want to use for "equity" purposes, or trigger a lawsuit over the proposed measure and possibly the City's current practices.
The City Clerk's office says the cost of the special citywide election along is a little over a million dollars.
Developing.
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July 31: Details ot July 29 Council motion added, text clarified.
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