Chevron’s Huge Tax Break Cost City Manager His Job

In El Segundo, California, a city manager is fired after finding a secret, possibly illegal, backroom deal with Chevron to pay unusually low taxes in this company town.

One morning after a council meeting in December, Doug Willmore, El Segundo’s city manager, walked outside to his car and found a note. It was a warning for him and his family to get out of town.

“Who does something like that?” says Willmore, who had relocated from Salt Lake County, Utah, earlier that year. He says had he known the city had such close ties to Chevron Corporation, he probably would not have taken the job.

Tucked between a waste treatment plant and the largest oil refinery in California, the city of El Segundo just south of Los Angeles International Airport has earned a reputation over the years as a sort of “Mayberry by the Sea.” The town’s picturesque little league fields, antique streetlights and quaint holiday parades all help give it a hometown feel despite its beachfront industrial development.

El Segundo is also a Chevron town. The international oil giant owns the refinery next door, which receives crude oil through pipelines from tankers off the coast. It produces about 150,000 barrels of fuel each day, fully the largest refinery in California by volume.

Roughly 1,200 people work for Chevron in El Segundo, so just about everyone in this city of 12,000 people has some connection to the company. Even the city’s name, El Segundo, which means the second, refers to Chevron’s – then Standard Oil’s – second refinery in California. It is not uncommon to hear someone around town say, “Chevron built El Segundo.”

“Throughout the years Chevron has been a really good community partner,” says Marie Fellhauer, who won election to city council for the first time in April. “I know that growing up here they sponsored all kinds of things I was involved in and they’ve been great. In terms of a city, though, we’re run on tax dollars.”

How much tax Chevron pays to the city has become a very contentious issue lately. In February, Willmore, the city manager, was fired after discovering a secret, possibly illegal, backroom deal hatched in 1994 that allowed Chevron to pay an unusually low tax for more than 20 years.

During the campaign for three open city council seats, Fellhauer was on the side of increasing the tax, but the question steeply divided this Southern California beach community as well as the council candidates.

Willmore is now suing the city for wrongful termination as a whistle-blower. His attorney, Brad Gage, wants to know why city leaders are reluctant to raise taxes on a multi-billion dollar corporation that pays proportionally less than other businesses..

“This is an oil company that pollutes the environment,” Gage says. “It’s not like this is some environmentally friendly organization that’s going to help better the planet and we want to give some tax credits for that, but it’s the reverse.”

Special Favors

Last year, then-mayor of El Segundo Eric Busch tasked Willmore with evaluating the city’s tax structure. That analysis found Chevron was paying on average a third of the amount of total taxes to the local government compared to the other eight largest oil refineries in the state.

“Chevron was paying about $4.7 million a year and the average of the other eight largest is $15 million. And that had been going on for more than 20 years,” Willmore says.

So Willmore negotiated with Chevron executives to pay an additional $5 million in annual taxes. At the same time, the city pressured Chevron with the threat of a ballot measure if the deal fell through. That is when Willmore, who had been the city manager for just 10 months, began to face strong opposition both from the city council and the community at large. One particular city council public hearing in December got especially heated.

“It was truly some of the most hostile, hateful, mean-spirited type of comments you would ever see,” Willmore says. “I remember saying at the time it was like I was trying to shut down the corner grocer. It was amazing that here was this corporation that was going to make $30 billion in profit and these people were standing up to try and keep their taxes so abnormally low and keep a policy in place that was so unfair to the rest of the community.”

Civil unrest

Compared to other companies in El Segundo, Chevron generates about $5,000 per acre of property while other businesses contribute about $25,000 per acre. The company’s roughly 1,000-acre refinery occupies close to 30 percent of the city territory yet generates just 10 percent to the city’s general fund, according to Willmore’s analysis.

Willmore then made another discovery. Back in 1994, an auditor hired by the city found that Chevron had $9.5 million in delinquent utility user taxes. But when those findings were brought to light at the time, the council quietly fired the auditor and settled with Chevron for just $200,000. They also inked an agreement to cap the company’s utility taxes at $150,000 per year. Documennts corroborating these events are posted on the El Segundo web site.

“To me, I looked at that and said, ‘I just don’t think this is legal,’” Willmore says. “You can’t just exempt someone from a voter-approved tax unless you actually go through the proper procedure. It was then that I brought that to the city attorney and the council and I said I want a legal opinion and we need to fix it. Ten days later I was fired.”

Willmore’s case is proceeding, but so far there is no internal investigation within El Segundo and neither is the LA County prosecutor’s office looking into the matter. Brad Gage, Willmore’s attorney, says it does not make sense for the city to act this way.

“To have a city that has the ability to collect a fair amount of taxes which would significantly increase their revenues, why wouldn’t they want to do it and why are certain council members so enamored with Chevron? What’s going on?” Gage asks. “It raises the question to me whether or not there is something being paid improperly. Now we don’t have that evidence yet but it’s certainly something that ought to be examined.”

Longstanding ties

One man knows more about El Segundo local politics than any other and that’s Carl Jacobson, who has served on the El Segundo city council since 1984 with just one eight-year break. Jacobson was mayor at the time of the 1994 deal and recently became mayor again after winning re-election  in April even after the Chevron deal-making was revealed. Jacobson continues to argue against increasing the tax on Chevron but would not respond to repeated attempts for an interview. Neither would a spokesman for Chevron.

This spring, Jacobson largely managed to avoid any in-depth questioning. At a candidate’s forum during the race, he defended his intentions.

“While some may try and question my integrity, I can promise you I have always had the best city’s intentions at heart,” Jacobson said.

Jacobson went on to win re-election in a race for three council seats among a field of eight eager contenders. It is a tough time to govern anywhere in America because of budget cuts and El Segundo is no different. Badly needed infrastructure projects are being put off. Local voters opposed transferring its fire department to county control, a proposal supported by the fire fighter’s union as a way to improve services.

In each of the past two years, the city faced a roughly $10 million revenue shortfall, forcing it to make some tough choices. City employees have taken pay cuts, library hours have been reduced and fewer police officers were hired.

More than $110 million in infrastructure repairs were identified that included improving the city’s public swimming pool, re-paving streets and expanding the library so that children are not sitting on the floor for four hours after school. It was for these infrastructure improvements solely that Willmore approached Chevron about increasing its tax burden.

But few people around city hall and the community appear all that willing to take a hard line with the oil giant next door as a means for getting the city back on track. Even though Willmore had reportedly reached a verbal agreement with Chevron to pay an additional $5 million per year in taxes, roughly 10 percent of the city’s annual budget, the city council fired him and reopened negotiations rather than accept the supposed deal.

Fellhauer, the third newly elected council member, believes Chevron should probably pay more, especially because the funds will remain local. Fellhauer says she is waiting for the current negotiations with three of her other council colleagues who were not up for re-election to play out before casting judgment.

“It’s essential that a city occasionally opens up its books and looks at where our money is coming from and how it’s going out,” Fellhauer says. “The fact Chevron is a good neighbor should have no bearing on the city looking at what needs to be adjusted. I’ve sat down with Chevron executives. They aren’t arguing an adjustment needs to be made, it was the way that it was gone about that made them upset.”

Current city manager Greg Carpenter says the goal of the ongoing negotiations with Chevron involve coming to a resolution that is fair to the city and reasonable compared to what other Southern California refineries pay in the cities in which they are located.

“The object of any city shouldn’t be to tax as much as you can. It should be about what’s reasonable,” Carpenter says. “El Segundo is a pro-business city. We have been a pro-business, pro-development city throughout much of our history. There is a policy reluctance to tax somebody to the maximum and really try and have an image and a position of being pro business and having that as a way of attracting more businesses to the city and getting more revenues from the diversification of our business base.”

Similar to conservative attitudes nationally, the response from Jacobson and another council colleague elected last month is that they would rather reduce pensions for city employees than increase the tax on Chevron. Outside a polling location during elections last month, resident Noel Salinda said she does not believe the city should charge Chevron anymore in taxes.

“I’ve lived my whole life here and I have relatives that work for Chevron,” Salinda said. “There are others things that need to be looked into. I don’t believe the comparison that was done by the previous city manager was correct.”

Environmental Challenges

Meanwhile, a new report by the Union of Concerned Scientists found that California oil refineries are some of the dirtiest in the world. On average, California refineries emit 19 to 33 percent more greenhouse gases per barrel of crude oil compared to other gas-producing regions in the United States.

The Chevron refinery in El Segundo recently installed sulfur removal and recovery units to limit air emissions as part of compliance with a 2006 state law, AB 32. The climate change legislation aims to reduce green gas emissions 15 percent by the end of this decade and 80 percent by 2050.

Brad Gage, Willmore’s attorney, believes Chevron should be taxed more than most other businesses because it is such a large polluter.

“One of the things we know that happens is that Chevron doles out a few hundred thousand dollars in perks and benefits that helps with little leagues and stuff but that’s a small pittance of what they actually owe. And if they paid their fair share all of the people that were entitled to perks would still be able to get them. You would have more little league, more parks, more infrastructure. You wouldn’t have concerns about reducing your police and fire protection.  Something has to be the reason why a city council would be so in favor of a very large corporation, a huge polluter for the state as well, and then trying to save it so much in taxes.”

Discovery in Willmore’s case is expected to begin soon during which Gage hopes to find some answers.