Special Email – FW: Chevron Chamber Package – 1-4-2012.pdf – Adobe Acrobat Standard

From: Willmore Doug
Sent: Saturday, January 07, 2012 4:49 PM
To: MGIORDANO@TorranceCA.gov
Subject: FW: Chevron Chamber Package – 1-4-2012.pdf – Adobe Acrobat Standard
Attachments: Chevron Revenue Analysis.pdf

Mary,

This is an email I sent to my Council and I’m sending it for background. Please don’t forward the email on or quote it in any way.

Doug

From: Willmore, Doug
Sent: Wednesday, January 04, 2012 6:58 PM
To: Busch, Eric (Mayor)
Subject: FW: Chevron Chamber Package – 1-4-2012.pdf – Adobe Acrobat Standard

All,

Attached is a comparison of Chevron’s refinery in El Segundo to the other five largest refineries in municipalities in CA. The ES refinery is the largest (by volume) in the state of CA. As you can see, by almost any useful measure or ratio or method of comparison, the tax revenue we receive from Chevron is far below those of other refineries in other cities in CA.

You should know that before I had decided to present revenue per acre as one of the ways to evaluate Chevron’s tax burden, I spoke to a couple of people who I trust who are knowledgeable about local tax structures. They were my brother Brad, an investment banker in the SF Bay area, and Darrin Casper, my CFO at Salt Lake County. Brad used to do energy deals for Solomon Brothers on Wall Street and has done more than 15 utility or oil and gas mergers or acquisitions of up to $5B and knows the business inside and out — especially how they pay their taxes. Darrin used to do energy financing for oil and gas deals for the firm Lewis Young in the investment banking world before becoming a CFO. Both Brad and Darrin suggested to me to use revenue per acre as not just one way to analyze Chevron’s local tax structure, but as THE best way. Brad and Darrin both said comparing one refinery to another is useful, but not as useful as comparing this refinery to other land uses in your City.

As you know, when constructing a revenue collection system for any public entity, the fundamental criteria has to be fairness and equity. That is the reason that both Brad and Darrin suggested the revenue per acre comparison. I’ll get into the additional reasons why they said so in the next paragraph.

Since December 20, I’ve also spoken with lead analysts at Fitch, Moody’s, and Standard & Poor’s – all analysts that I used to present reguarly to while I was at Salt Lake County. They all are lead analysts for the State of California and for many of its cities, counties, and school districts. And, I also spoke with the Director of Public Finance for Zion’s Bank, a regional banking firm in the west that acts as financial advisors for public entities who are heading to the market. Zion’s Bank is the FA for Salt Lake County. All four endorsed the use of revenue per acre or something similar as a valid and valuable method to attempt to construct a fair and equitable tax structure in El Segundo. All four people that I spoke with concurred that the existing system is extemely unfair. In fact, one of them said that if we were presenting to them that he would grill us over “the issue” and ask us when it was going to be fixed. He said he would ding our rating because our structure was so unfair unless it was going to be fixed because it puts the sustaining revenue of the city at risk.

The analyst at Fitch said our tax structure sends this message: “If you need square fottage and people to produce a profit we tax the hell out of you, but if you need acreage and a big machine to produce a profit, you’re home free.” The analyst at S&P was quite scathing about our tax structure and said not only is it unfair, but it’s “dumb public policy”. I asked him why, and he said, “Because you’re taxing the businesses that can move, and the one that can’t move is getting special treatment.” He said it’s the worst kind of public policy, wherein Northrup Grummin, Raytheon, DirecTV and others are taxed as they expand and Chevron can add infrastructure to increase their volume and they pay nothing for their expansion. They all said that Chevron’s acreage and infrastructure should be viewed comparably and taxed comparably to our aerospace community.

Having said that, local tax structure in CA is far more subjective than in other cities in other states, so it is a judgment call. Nevertheless, if you leave aside the comparison to other acreage in El Segundo and just compare this refinery to the others in the state, you could double what Chevron pays us and they would still be the lowest in all the ratios.

Thought you should have this information.

Doug

Note by Michael D. Robbins on March 23, 2012:

Imposing business tax revenue per acre standards is extremely unfair, impractical, and counter-productive for multiple reasons as explained in Are Chevron’s Taxes Too High?” by Michael D. Robbins, at http://publicsafetyproject.com/blog/2012/03/16/are-chevrons-taxes-too-high/.