BILL ANALYSIS �
AB 2711
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2711 (Muratsuchi) - As Amended: April 21, 2014
Policy Committee: Utilities and
Commerce Vote: N/A
Natural Resources 5-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill loans the City of Hermosa Beach (City) $17.5 million
GF to pay the liability it will incur if voters reject a ballot
initiative to approve an offshore oil lease on City tidelands.
This bill requires loan repayments to be deposited in the State
Coastal Conservancy Trust Fund for expenses related to its
Climate Ready Program. Specifically, this bill:
1)Authorizes a $17.5 million GF loan from the state's oil and
dry gas revenues, which shall be paid to the City if the City
is obligated to make payment pursuant to Section IV.4.6.c of
"The Settlement Agreement and Release" entered into on March
2, 2012, between Macpherson Oil Company (Macpherson), Windward
Associates, E&B Natural Resources Management Corporation
(E&B), and the City.
2)Requires the City to annually pay the state at least $500,000
until the loan is paid in full.
3)If the City fails to make a payment, requires the Controller
to deduct the payment from the City's sales and use taxes.
4)Requires the City's loan repayments to be deposited into the
State Coastal Conservancy Trust Fund to be used, upon
appropriation, by the Conservancy for expenses related to the
Conservancy's Climate Ready Program.
FISCAL EFFECT
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$17.5 million GF loan to the City to be repaid to the State
Coastal Conservancy, at an annual rate of at least $500,000
until the loan is fully paid. If the City fails to make a
payment, the Control is required to deduct the payment from the
City's sales and use taxes.
COMMENTS
1)Background and Rationale. In 1919, the Legislature granted
the City administrative control over the tide and submerged
lands located off the City's coast. In 1932, the voters of
the City enacted a ban on all oil and gas operations within
the City.
In 1984, voters adopted city council-sponsored measure,
Propositions P and Q, to allow slant driller from tow onshore
sites into oil and gas deposits located within the City's
granted tide and submerged lands. The funds from the leases
were intended to acquire open space and parklands within the
City.
In 1986, the City published a request for proposals for oil
exploration and production at the two sites. MacPherson, who
placed a role in placing the 1984 ballot issue before the
voters, was the only company to respond to the City's request.
The City and MacPherson entered into an oil and gas lease in
1992. On August 10, 1993, the City approved a conditional use
permit with 140 conditions requiring submission and approval
by the City before drilling could commence.
In April 1994, the Hermosa Beach Stop Oil Coalition (Stop Oil)
qualified a ballot initiative to end the MacPherson project
and reinstate the 1932 ban. The measure, Proposition E, was
approved by 56% of the voters.
Following the enactment of Prop E, the City continued to
perform under the lease with MacPherson. Stop Oil commenced a
lawsuit of June 9, 1997 for declaratory and injunctive relief
to acquire the City to apply Proposition E to the MacPherson
project. In 1998, the City reversed course based on a the
results of a public safety risk-assessment.
Following a variety of complaints, cross-complaints, and city
actions, the parties subsequently engaged in protracted
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litigation over whether MacPherson had a claim for damages for
the breach of the lease. MacPherson was seeking more than
$700 million in damages.
During the litigation over damages, an unrelated third-party
oil company, E&B, approached the City and MacPherson with a
plan to settle the case.
A settlement agreement was executed by all of the parties on
March 2, 2012, which consists of the following terms:
a) E&B will provide Macpherson with a settlement
payment and a small percentage of the oil revenues in
exchange for assignment of the oil lease to E&B.
b) The City will place a measure on the ballot decide
whether E&B should be allowed to drill. The measure will
be on the November 2014 ballot.
c) If the ballot measure passes, the City will pay E&B
$3.5 million through deductions from royalties otherwise
due to the City through the lease.
d) If the ballot measure fails, or if the measure
passes but the lease is denied for any reason other than
an action or inaction undertaken solely by and under the
control of E&B, the City will pay E&B $17.5 million.
(This specific provision is contained in Section IV.4.6.c
of the settlement agreement and is referenced in the
bill.)
e) The City and Macpherson will dismiss their pending
lawsuit.
1)E&B's Proposed Operations . According to the draft
environmental impact report for the E&B project, the project
will include "an onshore drilling and production facility site
that would utilize directional drilling of 34 wells (30 oil,
four water injection) to access the oil and gas reserves in
the tidelands (pursuant to a lease granted by the State of
California to the City) and in an onshore area known as the
uplands." In addition, the project "would result in the
installation of offsite underground pipelines for the
transportation of the processed crude oil and gas from the
Project Site to purchasers, extending through the Cities of
Redondo Beach and Torrance." The lease provides for a 35-year
drilling period.
2)If the ballot measure fails, how will the city pay the $17.5
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million due to E&B ? According to the City's website:
"The city has earmarked $6 million already to pay for
a portion of the debt, and it may need to issue
municipal debt in order to raise some of the funds to
pay E&B the remainder of the $17.5 million, payable
over 20 or 30 years. It may not be necessary to adopt
new or increased taxes to pay the principal and
interest payments on the debt, but it is presently
uncertain whether some services would be reduced or
eliminated in the absence of some type of increase in
revenues. The city's Cost/Benefit Study will include
an examination of ways to pay the debt and the
potential financial impacts on the city."
If the City has earmarked $6 million, should a similar amount
be reduced from the GF loan of $17.5 million proposed by this
bill?
3)The Coastal Ready Program. This bill proposes loan repayments
to be made to the Conservancy's Coastal Ready Program rather
than the GF, which is the source of the loan.
State revenues from oil and dry gas activities are deposited
in the GF for generally state government purposes. It is
unclear, why loan repayments should not be returned to the GF.
4)Technical Concerns. The author may wish to make a conforming
change in the Public Resources Code relating to the loan
appropriation.
Analysis Prepared by : Jennifer Galehouse / APPR. / (916)
319-2081