Editorial: For now, Richmond shouldn't count on tax money from Chevron

BAY AREA NEWS GROUP

Posted: 03/04/2009 12:01:00 AM PST

RICHMOND CITY OFFICIALS should not count on new tax revenues of $16 million annually from Chevron until they have the money in hand and a final court ruling that it's theirs to keep.

Last year, city voters approved a raw materials tax in Richmond, an initiative that was aimed primarily at Chevron. The city already had a business license tax for manufacturers based on the number of company employees.

The initiative added a second way of calculating the tax, charging $2,500 for every $1 million of raw materials used in manufacturing. Under the initiative, companies are responsible for paying the higher of the two amounts.

At the time, we warned that the new tax method probably violates state law, which prohibits the city from taxing inventory and specifically defines inventory to include raw materials. Backers of the measure claim they are on sound legal footing because the materials are not taxed until they enter the production cycle.

Now it will be up to a court to decide because Chevron, by far the city's largest manufacturer, filed an expected lawsuit last week challenging the tax.

We expect the company to prevail, but we could be wrong. Predicting how a judge and an appeals court will rule is a bit like reading tea leaves.

As we've said before, we're not fans of Chevron's corporate citizenship. The firm shortchanged the city tens of millions of dollars on underpaid utility taxes, forcing the city to hire a law firm and audit the oil company's books to recover the money. They engaged in unseemly secret deal-making with City Council members to win approval of a controversial plant modification. And, while receiving record high profits, the company has been seeking a reduction of the property taxes on its Richmond refinery.

While we'd like to see Chevron help the community more, we question the legality of the city's latest attempt to extract money from the oil giant. We think Chevron is on legally solid ground to fight the raw materials tax, which would add $16 million annually, or about 11 percent, to the city's annual budget. Chevron says it intends to pay the tax while the case is pending. City officials would do well to not count on keeping the money. They certainly should not spend it while the dispute works through the legal system.

Finance Director James Goins says he plans to set aside that money until the legal dispute is resolved, which could be a few years, and he is not including it in any budget projections. That's wise. However, we expect there will be political pressure, as the city faces declining property and sales tax revenues, to spend that money. City officials must resist that temptation.

Contra Costa Times March 4 Letters from our readers

Letters from our readers

Posted: 03/04/2009 12:01:00 AM PST

Thanks to the Times for the Feb. 20 editorial, "Welcome tax deal between Richmond and Chevron." Here is additional information to consider:

For years, council members Tom Butt and Gayle McLaughlin, and the Richmond Progressive Alliance insisted Chevron should pay the utility users tax (UUT) at the same 10 percent rate everyone else pays (on all the gas and electricity consumed). Chevron refused and used a loophole (maximum tax payable cap).

In 2006, McLaughlin was the mayoral candidate who stood up to Chevron. The company temporarily switched to paying the 10 percent rate with a twist. It sent a check for $4 million less than before and refused to show documentation.

Despite this and a Chevron-funded opposition, McLaughlin prevailed. As mayor, she continued to stand up to Chevron and demanded legal action and an audit of Chevron's books. When the audit finally took place, it seemed to suggest that McLaughlin and Butt were right all along.

Thanks to McLaughlin, Butt and the RPA, Chevron paid an additional $28 million. This settlement is a loud acknowledgment that Chevron shortchanged Richmond millions of dollars for many years using the UUT cap loophole. This should end.

Jovanka Beckles

Richmond