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With passage of Measure O, L.A. would join other Southland cities in taxing oil extraction

Los Angeles needs the money Measure O would provide, but oil companies say the $1.44-a-barrel tax would lead to lost jobs and higher gas prices.

March 05, 2011|By Patrick J. McDonnell, Los Angeles Times

To proponents, it's a win-win concept: Generate revenue for Los Angeles' depleted treasury while taxing an industry — the oil business — that is widely reviled, despite its historic ties to Southern California.

But detractors see something else: A job-extinguishing levy that would ravage small businesses and raise gasoline prices while doing little to close the city's budget shortfall.

So go the arguments for and against one of the most contentious March 8 citywide ballot items: Measure O (O as in oil), which would slap a $1.44-a-barrel tax on crude drilled within the city limits.

Los Angeles, a hub of the nascent oil industry a century ago, remains home to significant underground deposits — hence the La Brea tar pits and the sometimes jarring roadside presence of derricks and pumping jacks, or "nodding donkeys". The rigs recall an era when petroleum, not Hollywood, was king.

The City Council crafted Measure O last year in response to bulging deficits. Drafters noted that cities from Beverly Hills to Long Beach already imposed an extraction tax on oil producers. Why not here?

The L.A. levy, however, would be the highest such tax. According to official estimates, it would generate some $4 million annually — a not-insubstantial sum, but not a panacea for a looming budget deficit of $350 million.

Councilwoman Janice Hahn, whose district includes the Wilmington refinery zone, initially proposed the oil-extraction tax idea but then urged her colleagues to drop it because of a likely "massive campaign" by oil companies against it.

On Friday, Hahn, who is now running for Congress, issued a press release saying she supports Measure O.

Several environmental groups have backed the L.A. tax, noting that extracting oil comes at a societal cost — polluted air and water, buckling sidewalks and roads. "Drilling for oil is an inherently dirty business," said Bill Corcoran of the Sierra Club.

The oil industry — irate at what it views as a legally sanctioned mugging of its hard-earned proceeds — is fighting back with its signature asset: cash.

The "Stop the L.A. Oil Tax, No on Prop. O" committee, sponsored by the California Independent Petroleum Assn. trade group, has raised more than $400,000 to hire consultants, send out mailings, conduct polling and otherwise engage in electoral combat.

(By contrast, Measure O allies have raised about $11,000.)

Recognizing the widespread enmity toward Chevron, BP, Shell and their ilk, the anti-O campaign has chanted a consistent mantra: This is not about Big Oil, which long ago checked out of town.

Rather, the industry argues, it's about small businesses — oil producers, along with service providers and subcontractors — who provide thousands of blue-collar jobs, many unionized, all now threatened.

L.A.'s present-day oilmen, in the anti-Measure O portrayal, are struggling little guys, already taxed to the hilt in business-hostile Los Angeles, now caught in the cross hairs of rapacious and wasteful city bureaucrats. Various business groups have joined in opposition.

"These are small companies where jobs are dependent on this production," said Ted Green, a veteran consultant who manages the No on O campaign.

Back in 2006, Green worked on the industry's successful multimillion-dollar battle against Proposition 87, which would have slapped a statewide severance tax on oil drilled in California.

Supporters of the proposed L.A. oil levy say the industry is resorting to scare tactics.

Although L.A. oil producers may not be Exxon or Mobil, the companies are still mostly large, profitable enterprises, said Councilwoman Jan Perry, who co-wrote the ballot argument in favor of Proposition O. Companies are unlikely to walk away from the crude, she says.

"The reason the oil companies are so opposed to this is because it cannot be passed on to the consumer," Perry said.

Oil prices, argue Measure O supporters, are set at the international commodity level, where L.A.'s comparative production is minuscule — thus negating any effect on the cost of gas at the pump.

However, the opposition to Measure O insists on possible rising gasoline prices as an outcome, while also aggressively denouncing the potential effects on employment.

"This is a job killer," Henry Perry, an oil-industry worker and shop steward with the United Steelworkers, said at an anti-Measure O media event last week at a Westside oil company, BreitBurn Energy.

At its Pico Boulevard plant, in the midst of a residential neighborhood with Jewish and Middle Eastern-themed shops, BreitBurn extracts hundreds of barrels of oil daily — along with natural gas — from more than 50 wells hidden from view. On site, a 10-story rig resides inside a steel casing that muffles sound and appears to be a nondescript tower — one of the many disguises employed to camouflage L.A.-area rigs.

The BreitBurn site is at the corner of Pico and Doheny Drive, the latter named after Edward L. Doheny, the legendary tycoon whose exploits during the California oil boom inspired an Upton Sinclair novel, "Oil!," which was the basis for the 2007 film "There Will be Blood."

Oil may no longer be king in Los Angeles. But as the Proposition O debate demonstrates, the industry and its host city continue to share an uneasy coexistence more than a century after Doheny is said to have employed the sharpened end of a eucalyptus tree to drill near what is now Echo Park.

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