It seems no one likes to pay taxes. Most people think that taxes, while not wished for, are necessary to pay for public safety, street repair, parks, safe and reliable water, good planning, economic development, and recreation and cultural services. Earlier this year a major tax fight was settled as described below:
The City of Benicia entered into a ten-year agreement to modify the previous ten-year agreement regarding Valero Refinery's User Utility Tax (UUT) obligation. Over the years Valero paid a set amount instead of the 4% rate that everyone else pays. The reasoning was that since the refinery would pay a substantial amount, the City would benefit from a certainty in the amount of the revenue rather than a fluctuating revenue based on market prices for consumption of utilities. Whether or not this is a good policy, that was the policy. The city probably lost in the long run - indeed there are estimates of nearly a million dollars a year (for a total of $9 million since the agreement capped the total yearly UUT for Valero at $1 million - more or less). So the city lost some revenue. But now we have an agreement that is based on the 4% rate and it won't fluctuate, thus providing stability to the city's revenue. An added bonus is that the city may conduct an audit of the Valero utility bills to confirm the amount paid. This would be a confidential audit by staff.
The agreement, by the way, says that it is a five year agreement that both parties must agree to cancel the successive five year term.
What is wrong with this agreement? The city has a constant stream of revenue, and Valero can budget knowing what this tax will be on a ten-year basis. Read on -- there is more to the story.
The rest of the story is the property tax settlement by the County Tax Assessor. Valero filed a petition with the county to protest its property tax bill. Basically Valero contended that the approach used by the county was flawed, no one else used this approach (except Contra Costa County), and it added value to Valero thus raising its property tax basis. The settlement is between the county and Valero as the City of Benicia has no say in such matters. But because the county advised the City that there was a good case for the county to prevail it asked the City to help pay for attorney fees. And we did. About $700,000. And then suddenly after two years and an election of a new tax assessor there was a settlement agreement - the City was advised that the agreement was reached and that was that.
What is odd about the settlement is that the approach used by the county was adopted by the State Board of Equalization in October of 2006. Below is an explanation of this Rule 474 (Contra Costa Times article). The county had a good and credible basis for its method which could have survived the challenge. But the county choose to the settle prior to the almost certain adoption of Rule 474.
So, Benicia owes about $2.3 million dollars to Valero for the overpayment of taxes by Valero (based on the settlement). In addition, since the assessed valuation of Valero is lowered, the rest of the property owners in Benicia will be paying more on the bond and parcel taxes on property tax bills. The payment terms for this refund to Valero are subject to the good will of Valero. In addition, the annual City share of the property tax will be reduced by this settlement by approximately $325,000.00. This affects the City's budget.
The City can pay its bills and will not go below the 20 per cent reserve and will maintain its workforce. But there are several things that we will struggle to achieve for a better quality of life. Here is a partial list:
Historic Preservation: Clock Tower Improvements, Commandant's Residence Restoration.
Human Services Funding: e.g. Foster-a-Dream, Affordable Housing Affiliation, Child Assault Prevention Project, Families in Transition, and the Food Bank.
Cultural Arts Funding: Arts Benicia, Benicia Performing Arts, Benicia Community Arts, Benicia Old Town Theatre Group, Historical Museum, Youth Action Task Force.
Community Projects: traffic calming, energy saving projects, tree planting, east-side improvements, community center (at Mills if approved by BUSD).
Government Buildings: retrofit for energy conservation, Police Station, expansion of library.
Here is what the Fortune 500 says about Valero: Out of 500, Valero is 15th. It had an increase in revenue in the third quarter 2006 of 50.9%!!!. Its profits in the third quarter were up 99%! It's market value is about 36 billion, and its earnings in the 3rd quarter were $1.3 billion and it is worth $81 billion.
You may ask "why did Valero need to protest its property tax that affects its host - the City of Benicia.?
I don't have an answer. I am disappointed and will work to make things right for Benicia and our quality of life.
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Bid to eliminate tax breaks lingers amid opposition
Posted on Mon, Mar. 06, 2006
By Rick Jurgens, CONTRA COSTA TIMES (www.contracostatimes.com/)
A proposal that would help county assessors fight oil companies' future bids for tax breaks remains stuck in a low-profile state tax panel. The rule would prevent refineries from cutting their tax liabilities by rapidly depreciating some machinery and equipment.
Assessors say that Rule 474 would close a loophole now available to refineries but not to homeowners. Refinery owners say it would take away a protection guaranteed under the rules to implement Proposition 13.
When it came up for a vote in December, only two of the five members of the state Board of Equalization backed Rule 474. Contra Costa Assessor Gus Kramer denounced the board's inaction as an "early Christmas present" to refinery owners.
The proposed rule could strengthen the assessor's hand in already filed appeals and would certainly help tax collectors in future disputes.
Not surprisingly, this talk of new tax rules has refinery owners seething. "There is no issue or problem that needs to be dealt with here," Cris O'Neall, a lawyer for the Western States Petroleum Association, told the board before its vote. "We're somewhat at a loss as to why this rule has been proposed."
But Rick Auerbach, the assessor in Los Angeles County, where the tax rolls include $8.8 billion of refinery property, casts the proposed rule as an issue of simple fairness. Without it, he said in an interview, "you would be giving a special break to the refineries and the petroleum industry that is not available to homeowners."
Elected local assessors set property tax values, but the state constitution gives the Board of Equalization the job of making rules to ensure that local practices don't vary too much. Prop. 13 capped rates at 1 percent and annual assessment hikes at 2 percent.
Businesses got an important break when state officials wrote the law that translated Prop. 13's broad principles into specific rules. That law called for separate assessments of permanently installed business machines and equipment, known as fixtures. That esoteric distinction allowed businesses to write down those fixtures as they lost value due to wear and tear.
That opportunity to depreciate fixtures, when combined with Prop. 13's limit on upward reassessments on land and buildings, put businesses in a sweet spot within the property tax system. Businesses shared with homeowners the benefit of a ceiling on land and building assessment hikes. Businesses got the added benefit of no floor limiting their ability to gradually reduce the taxable value of another class of assets -- fixtures.
But some businesses -- oil and gas wells, mines, geothermal fields -- don't get that depreciation break.
Now, with gasoline prices still hovering in the $2.50-a-gallon range and the media filled with reports of record-setting oil company profits, assessors are pushing to add oil refineries to that list.
The assessors have found an unlikely champion in their battle with the oil companies: Claude Parrish, a Republican from Long Beach who wants to run for treasurer.
Refinery owners have countered by upping the political ante. They proposed an alternate version of Rule 474 that could result in hikes in the assessments of automobile assembly and power plants, food processors, motion picture studios and amusement parks.
That has sparked opposition from other businesses. "We're opposed to the rule being applied to the petroleum industry but we're also concerned that this could be easily expanded to apply to other industries," Kyla Christoffersen, a tax advocate for the California Chamber of Commerce, said at the board's December meeting.
So far, that strategy has worked. At December's meeting, the only supporter for Parrish's proposal was board member John Chiang, whose equalization district includes Los Angeles.
But if, as expected, Rule 474 eventually comes up again at the board, it could have the additional vote required for passage. Member Betty Yee, whose district includes the Bay Area, said in an interview that she voted against the proposed rule in December in order to promote more discussion among the parties about the range of issues affecting refinery assessments. "Ultimately, there still needs to be a rules change," she said.
