PAYMENT IN LIEU OF TAXES (“PILOT”) AGREEMENT
BETWEEN
THE CITY OF EL SEGUNDO AND
CHEVRON CORPORATION
This AGREEMENT is entered into this ____ day of January, 2012, by and between the CITY OF EL SEGUNDO, a municipal corporation and general law city (“CITY”) and the Chevron Corporation, a California corporation (“CHEVRON”).
1. RECITALS. The Parties enter into this Agreement with reference to the following facts and objectives:
A. The CITY’s general fund expenditures exceeded the CITY’s incoming general fund revenues by approximately $6.9 million in fiscal year 2008/2009. The CITY’s fiscal condition has been negatively impacted by the unprecedented challenges in the worldwide and national financial markets and the chronic economic recession in the national, state, regional and local economies.
B. The on-going economic recession has significantly decreased the CITY’s revenue sources and negatively impacted expenses requiring the CITY to institute various austerity measures including expenditure curtailments for equipment and capital projects and deferred maintenance of CITY infrastructure.
C. The CITY’s general fund expenditures were projected to exceed the CITY’s incoming general fund revenues by approximately $10.4 million for fiscal year 2009/2010 requiring that the CITY utilize various one-time monies to balance its budget for fiscal year 2011/2012 and beyond.
D. The CITY general fund expenditures were projected to exceed the CITY’s incoming general fund revenues by approximately $ 9.2 million for fiscal year 2010/2011 causing the City to continue to implement cost savings measures. .
E. The CITY has decreased its unreserved/undesignated General Fund balance by 25% and has decreased its Equipment Replacement Fund balance by 10% since fiscal year 2008/2009.
F. The region, state, and nation are undergoing one of the worst economic downturns in the history of our Nation and financial forecasts are that it may worse, or at best, take several more years before the economy begins to strengthen.
G. The negative impacts of the current economic downturn are expect to take several more years before the economy begins to strengthen enough for local government agencies to see any significant restoration of revenues.
H. The California Constitution prohibits the CITY from enacting new taxes without voter approval which prevents the CITY from generating new revenues to offset
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losses.
I. CITY’s city manager is recommending that CITY’s City Council consider placing a ballot measure on the April 2012 election that would increase the amount of taxes paid by oil production companies including, without limitation, CHEVRON to CITY (“TAX”). If approved, the TAX would generate an anticipated $_____ in revenue for the CITY. Such revenue would help replenish the CITY’s capital improvement project (“CIP”) budget to help ensure the CITY’s infrastructure does not fall into disrepair.
J. CHEVRON is an oil producer with a significant place of business located within CITY’s jurisdiction. It enjoys significant benefits from public services provided by CITY including, without limitation, transportation infrastructure; potable and recycled water infrastructure; and recreational infrastructure used by CHEVRON’s employees.
K. CHEVRON believes it is in its corporate interest not to pay the TAX. In exchange for the CITY’s postponing any consideration of the TAX, CHEVRON believes it is in its corporate interest to enter into this Agreement and make the payments in lieu of taxes (“PILOT”) contemplated by this Agreement.
L. CITY believes it is in the public interest to accept CHEVRON’s PILOT revenue in lieu of implementing the TAX.
2. CONSIDERATION.
A. In exchange for CHEVRON performing its obligations in this Agreement, CITY agrees to forgo placing an TAX initiative on the ballot during the duration of this Agreement;
B. In exchange for CITY forgoing placing an TAX initiative on the ballot, CHEVRON agrees to the terms and conditions in this Agreement including, without limitation, making annual payments to CITY.
C. In addition, the Parties agree to the provisions set forth in this Agreement regarding that will lessen the current use restrictions on certain properties located in CITY and extend for a period of five years the Recycled Water Agreement entered into between the parties on or about ___________.
3. PILOT PAYMENTS.
A. In addition to the promises and covenants otherwise contained in this Agreement, the Parties acknowledge that CHEVRON’s ongoing oil production may, in the absence of a TAX, result in lost revenues to CITY.
B. The Parties agree that CITY has not implemented a tax and that the payments
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made under this agreement do not constitute taxes, exactions, or fees.
C. The payments agreed to below are approximate off-sets to the above-mentioned potential losses and impacts to CITY and are intended to support repair, replacement and construction of capital projects within the CITY.
D. The amount of such payments by CHEVRON is as follows: CHEVRON must make fifteen annual payments to CITY in the amount of $5,300,000 which amount is due on or before January 2 each year for fifteen years. However, the first payment is due within five days of the execution of this agreement.
E. The payments made by CHEVRON under this AGREEMENT do not relieve it of its obligation to pay others taxes, fees and charges imposed by the CITY including, without limitation, to those that CHEVRON currently pays to the CITY.
4. CIP TRUST ACCOUNT.
A. All payments made pursuant to this Agreement must be paid into a trust account established by CITY for the purpose of funding capital improvement projects (“CIP”).
B. For purposes of this Agreement, a CIP is a project that helps maintain or improve CITY infrastructure. To be considered a CIP, a project must meet one of the following requirements:
i. It is a new construction, expansion, renovation, or replacement project for an existing facility or facilities. The project must have a total cost of at least $10,000 over the life of the project. Project costs can include the cost of land, engineering, architectural planning, and contract services needed to complete the project; or
ii. It is a purchase of major equipment (assets) costing $50,000 or more with a useful life of at least 10 years; or
iii. It is a major maintenance or rehabilitation project for existing facilities with a cost of $10,000 or more and an economic life of at least 10 years.
C. “Infrastructure” as used in this Section, includes, without limitation, CITY owned real property and associated infrastructure, buildings, parks, roads and highways, bridges, and water facilities.
D. Under no circumstance may CITY transfer funds from the CIP Trust Account into CITY’s general fund, except to pay administrative overhead costs identified in E. below.
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E. The monies in the CIP Trust Account may only be used for costs associated with CIP within CITY’s jurisdictional boundaries. Additionally, not more than __% of the funds can be used for administrative overhead costs related to the construction of the CIP.
5. ADDITIONAL PROVISIONS.
A. On or about February 2, 1999 the Parties entered into an agreement regarding Recycled Water fees and charges (City Agreement No. 2677). The Parties agree, by separate instrument executed within thirty (30) days, to extend the term of that agreement for an additional five (5) years.
B. As part of this Agreement, CHEVRON agrees, by separate instruments, to [LIFT THE RESTRICTIONS OFF REAL PROPERTY]. The parties agree to implement by separate instruments this provision within one hundred and twenty (120) days of this Agreement’s effective date.
6. TERM. The term of this Agreement is from January __, 2012 until December 31, 2026.
7. AUTOMATIC TERMINATION. This Agreement will automatically terminate for cause and CHEVRON is relieved of making future payment due under this AGREEMENT if CITY imposes a new tax, or increase an existing tax (except for consumer price index increases permitted by ESMC § 4-2-1(B)) on CHEVRON at any time during the term of this Agreement. Taxes imposed by governmental entities not affiliated with CITY does not result in a termination of this Agreement even if CITY directly or indirectly receives a portion of such tax revenues. Additionally, charges and fees imposed by the CITY on CHEVRON cannot result in a termination of this Agreement or give CHEVRON cause to terminate this Agreement.
8. SPECIFIC PERFORMANCE; ENFORCEMENT COSTS. The Parties agree that failure to perform this cannot be adequately relieved by pecuniary compensation. Accordingly, either
Party may compel specific performance of this Agreement in accordance with Civil Code §§ 3384, 3386, or 3389, and any other applicable law, should the other Party fail to fully perform its obligations under this Agreement. If successful in compelling specific performance, the enforcing Party will be entitled to recover all costs associated with such enforcement including, without limitation, reasonable attorneys fees.
9. NOTICES. All communications to either party by the other party will be deemed made when received by such party at its respective name and address as follows:
If to CHEVRON: If to CITY:
City of El Segundo
El Segundo, CA
Attention: _______ Attention: _____
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Any such written communications by mail will be conclusively deemed to have been received by the addressee upon deposit thereof in the United States Mail, postage prepaid and properly addressed as noted above. In all other instances, notices will be deemed given at the time of actual delivery. Changes may be made in the names or addresses of persons to whom notices are to be given by giving notice in the manner prescribed in this paragraph.
10. MUNICIPAL POWERS. Nothing in this Agreement is intended to, nor can it, act as a limitation on CITY’s present or future exercise of municipal powers in accordance with the California Constitution and applicable law.
11. THIRD PARTY BENEFICIARIES. This Agreement and every provision herein is generally for the exclusive benefit of CHEVRON and CITY and not for the benefit of any other party.
12. WAIVER. CITY’s acceptance of payment from CHEVRON under this Agreement will not be construed to operate as a waiver of any rights the Parties may have under this Agreement or of any cause of action arising from their performance. A waiver by either Party of any breach of any term, covenant, or condition contained in this Agreement is not deemed to be a waiver of any subsequent breach of the same or any other term, covenant, or condition contained in this Agreement, whether of the same or different character.
13. ASSIGNMENT. Except as expressly provided by this Section, neither party may transfer, assign or hypothecate its rights under or interest in this Agreement without the written consent of the other. Any attempted transfer, assignment, or hypothecation without such written consent is void and confers no rights upon any third person and constitutes a default. No transfer, assignment or hypothecation releases a party from its obligations under this Agreement.
14. SUCCESSORS. All the terms, conditions and covenants of this Agreement will inure to the benefit of and be binding upon the Parties’ successors and assigns. The provisions of this Section will not be deemed as a waiver of any of the conditions against assignment as set forth herein.
15. INTERPRETATION. This Agreement was drafted in, and will be construed in accordance with the laws of the State of California, and exclusive venue for any action involving this agreement will be in Los Angeles County.
16. COMPLIANCE WITH LAW. CHEVRON agrees to comply with all federal, state, and local laws applicable to this Agreement.
17. RULES OF CONSTRUCTION. Each Party had the opportunity to independently review this Agreement with legal counsel. Accordingly, this Agreement will be construed simply, as a whole, and in accordance with its fair meaning; it will not be interpreted strictly for or against either Party.
18. SEVERABILITY. If any portion of this Agreement is declared by a court of competent jurisdiction to be invalid or unenforceable, then such portion will be deemed modified to the
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extent necessary in the opinion of the court to render such portion enforceable and, as so modified, such portion and the balance of this Agreement will continue in full force and effect.
19. AUTHORITY/MODIFICATION. The Parties represent and warrant that all necessary action has been taken by the Parties to authorize the undersigned to execute this Agreement and to engage in the actions described herein. This Agreement may be modified by written amendment. CITY’s city manager, or designee, may execute any such amendment on behalf of CITY.
20. TIME IS OF ESSENCE. Time is of the essence for each and every provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which will be deemed an original
IN WITNESS WHEREOF the parties hereto have executed this contract the day and year first hereinabove written.
CITY OF EL SEGUNDO CHEVRON
_________________________________ ____________________________
Eric K. Busch,
Mayor
ATTEST:
_____________________________
Cindy Mortesen,
City Clerk
APPROVED AS TO FORM:
MARK D. HENSLEY, City Attorney
By: _________________________________
Karl H. Berger, Assistant City Attorney
El Segundo Police Officers' Association (ESPOA) Exposed