|Chevron Property Tax Appeal Could Cost
November 25, 2007
following story in todayís Contra Costa Times is the latest in
Chevronís continuing effort to bankrupt the City of Richmond, this time
through a property tax appeal. The tax break Chevron is seeking would
cost the City of Richmond, alone, $7 million. Thatís the equivalent of
about 70 police officers. Read onÖ
DANIEL BORENSTEIN: TIMES COLUMNIST
Contra Costa Times
Article Launched: 11/25/2007 03:00:43 AM PST
DESPITE A rough third quarter of 2007, the refinery business has been very good for Chevron. In 2006, the oil company doubled its 2005 profit for refining, marketing and transportation.
But when it comes to the value of the firm's Richmond refinery, Chevron pleads poverty.
The firm is the largest property taxpayer in the county, accounting for about 2 percent of all revenue. This week, the company will begin pleading its case for a refund of about $65 million because, it says, the refinery is not as profitable as the county assessor thinks it is.
If you live in California, if you live in the East Bay, and especially if you live in West Contra Costa, you should care. A successful Chevron appeal of its property assessment would mean cuts in public services and larger bills for other taxpayers:
∑ Contra Costa County, cities and special districts in the county, as well as East Bay transit agencies and the regional park district, would lose about $27 million that would not be replaced.
∑ School districts would lose about $24 million, which state taxpayers would have to pay instead. In most cases, when property tax revenues for schools go down, the state makes up the difference.
∑ Local governments would lose about $7 million designated to pay off outstanding bonds. That money would be recovered from other taxpayers, with the burden falling mainly on property owners in the West Contra Costa school district. (Property tax bills in the school district could go up on a one-time basis $14 for every $100,000 of assessed value.)
∑ The city of Richmond would lose about $7 million designated to help cover employee pension costs. The city would have to make up that money from other sources.
The Chevron case before the Contra Costa Assessment Appeals Board in Martinez begins Wednesday, and the 20 to 30 days of hearings are expected to stretch into next year. At issue is the value of the 2,900-acre refinery for the 2004, 2005 and 2006 fiscal years.
The debate will be highly technical. It's the result of a property tax system created by ballot-box lawmaking.
To begin, the county assessor estimates the value of the refinery by applying the formula that was established when voters passed Proposition 13 in 1978.
It's the same formula that applies to residential housing that has had the same owner for three decades: Start with the 1975 valuation, and then increase it no more than 2 percent a year plus the value of improvements to the property. The property taxes are then about 1 percent of that number plus a share of local governments' debt obligations (which adds 0.27 percent in this case). Chevron and the assessor disagree on that calculation.
But that's not the heart of the dispute. Rather, if Chevron can prove that the refinery is worth less than the Prop. 13 value, the company is entitled to a reduction. That's the law, established when voters passed Proposition 8 later in 1978. And that's what most of the hearing will focus on.
So how far apart are the two sides? Very far.
For 2004, Chevron wants to reduce its assessment from $2.5 billion to $600 million. For 2005, from $2.6 billion to $940 million. And for 2006, from $2.7 billion to $1.1 billion. Simply put, the two sides are not close.
Indeed, while Chevron is seeking a reduction in those assessments, County Assessor Gus Kramer is raising the stakes by seeking an increase.
Kramer said he thinks Chevron is low-balling. "They wouldn't sell it for twice what they say it's worth," he says. "That's the acid test: What would you really sell it for?"
There are three ways to figure out the value of the property: Cost (the price of rebuilding the refinery); comparable sales (what similar refineries would sell for); and income (what a buyer would expect the refinery to earn over time).
All three approaches will be considered, but Kramer and Chevron attorney Stephen Davis tell me that the big fight will be over the income approach. That calculation seeks to compute the current value of future earnings.
A key part of the debate will center on what investors would expect as a reasonable annual return on investment. The higher the required return, the lower the value of the refinery.
Chevron says investors would want a 20 percent return to account for the risk inherent in the refining industry. The county argues that 10 percent is reasonable.
"That's silly. There's too much risk" to pay only a 10 percent return, says Davis. "Our view is operating a refinery ... is a heck of a lot more risky than owning an apartment building."
Kramer says Chevron is overstating the case. "I recognize this refinery business is risky, it's volatile, it's dangerous," he said. "But the rewards are fantastic."
Taxpayers can only hope he's right.
Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or firstname.lastname@example.org.