Chevron asks for new tax appeal judges

Chevron's Richmond refinery. (Photo by Rachel Waldholz)

Chevron's Richmond refinery. (Photo by Rachel Waldholz)

Chevron is worried that James Giacoma, Art Walenta and Clark Wallace might be holding a grudge. That’s one argument the oil company made in legal documents  filed in January asking that the three be removed from the county tax appeals board–the most recent maneuver in Chevron’s nearly decade-long battle with Contra Costa County over the property taxes it pays on its Richmond refinery.

The three men are civilians appointed by the county Board of Supervisors to handle property tax disputes. They form the three-person panel that will hear arguments and decide whether Chevron did or did not pay too much property tax for its Richmond refinery in 2010, 2011 and 2012.

Because Chevron has named the three in a lawsuit regarding its previous property tax appeals, the company argues they cannot fairly judge its most recent appeal.

Chevron’s objection, read, in part: “The Board Members cannot be adverse advocates in that litigation and impartial adjudicators in the instant appeals.”

Chevron spokesperson Sean Comey said by email, “As one of the largest property taxpayers in Contra Costa Country and one of the largest taxpayers in California, we are committed to paying our fair share of taxes, but we need a fair and transparent process for calculating our property taxes in Richmond going forward.” 

The dispute goes back to 2005, when the county assessor raised the value of the refinery from $1.9 billion to $3.5 billion. That increased Chevron’s property taxes by more than $20 million.

When the men on the panel heard Chevron’s appeal for its 2004-2006 taxes, they agreed that it paid too much. The county had to pay back $18 million to the company, including $400,000 that came from Richmond city funds. But when the panel heard Chevron’s appeal for its 2007-2009 taxes, they agreed that the refinery was worth slightly more than what the county assessors had calculated. The county got to keep the tax money.

In October, Chevron sued over the panel’s denial of their appeal, demanding new hearings. Giacoma, Walenta and Wallace, as members of the panel, are named in the suit. Chevron said that would make it hard for them to be unbiased when considering the separate question of whether the refinery overpaid on its taxes for the years between 2010 and 2012

In its objection, the company said the panel ignored evidence, held hearings when key witnesses for Chevron weren’t available and otherwise showed bias against the company. Chevron said that, “Under the circumstances, Chevron does not believe that the Board can or will act fairly or impartially toward Chevron in the pending 2010-2012 Appeals (or any later appeals) as it is required to do by law. Accordingly, Chevron requests that the Board Members recuse themselves or be disqualified.”

“That’s like saying, ‘I hit you in the face with a mud pie, and you’re going to make a ruling on something I’ve done, but now you can’t make a ruling because you’re dirty,” said Gus Kramer, the county tax assessor, who originally determined the value of the refinery, which is used to decide property taxes. “I think it was an absolutely idiot move,” he said, referring to the objection. “Or a stroke of genius.  We’ll see.”

A fourth member of the property tax appeals board, Harold D’Ambrogia, will hear the objection next month. If he agrees with Chevron that his colleagues are biased, then that would only leave D’Ambrogia and the fifth member of the tax appeals board eligible to hear Chevron’s most recent appeal.

But because state law requires that the panel be composed of at least three members, the Board of Supervisors would either have to appoint new board members, or would have to hear the appeal itself. Either way Chevron might find more sympathetic ears, Kramer said, because Chevron has contributed heavily to several of the supervisors’ past campaigns. “Would they allow that to prejudice them?” Kramer said. “God knows.”

Either way, losing Giacoma, Wallace and Walenta would mean a loss of knowledge on the subject, Kramer said. Giacoma worked for the county assessor for more than 35 years before retiring in 1994 to work as a private valuation consultant. Wallace is a former president of the National Association of Realtors, and Walenta is a former county attorney. Kramer called them, “three of the most knowledgeable people in California about business and real-estate.”

All three have responded to Chevron’s objection with public statements, each refusing to recuse themselves and denying they have a bias.

“Neither this Assessment Appeals Board nor any of its members showed any bias or prejudice against CHEVRON nor any of its witnesses,” wrote Wallace in his response. “Rather this Board and its members bent over backward to allow both parties (CHEVRON and Assessor) a very full and fair 35 days of hearing on CHEVRON’s 2007-2009 applications. While CHEVRON apparently is unhappy with the Board’s decision, it cannot rightfully complain that it was the result of not having a full and fair hearing.”

James Giacoma wrote, “I James Giacoma deny that I am disqualified by nature of the allegations and objections presented by Chevron USA, Inc. to my hearing of Chevron’s 2010, 2011, and 2012 applications for changed Assessment of Chevron’s Richmond California Refinery.”

Arthur Walenta wrote, “I deny that I am disqualified to hear CHEVRON’S pending 2010, 2011, and 2012 applications for changed assessment.”

D’Ambrogia will hear 15-minute presentations from Chevron, Giacoma, Walenta and Wallace on April 12, and then will give a written decision.

The conflict over the property taxes is just a part of the complicated Richmond-Chevron relationship, said City Councilmember Tom Butt. Chevron often gives with one hand while it takes with the other, he said. The company frequently contributes to local school programs and other good causes in the area.  “On the other hand, they’re doing things like pursuing the property tax appeals that could bankrupt the city,” Butt said. “It’s like good cop, bad cop.”

The whole county relies on the property taxes Chevron pays, but Richmond is particularly tied to the refinery. It’s one of the city’s biggest employers, and Butt said its taxes make up 30-40 percent of the city budget.

Butt said that the appeals are particularly worrisome, because if it ever turns out the county has vastly over-valued the refinery, the city could have to pay back far more than the $400,000 it did after the 2007-2009 decision. “It’s very unfortunate that we have to keep going through this,” he said.

Don Gosney, a retired Richmond steamfitter who has worked on the refinery in the past, and a recent City Council candidate, said that the county can’t expect the company to not appeal their property taxes.  “We look at Chevron and we try to think of Chevron as somebody special—record profits, they’ve got more money than God. … But we have to ask ourselves, what would we do with our own property taxes on the house that we own?” Gosney said. “Wouldn’t we try to get it assessed at a lower value?”

Gosney, though, said that Chevron’s challenge to the appeals panelists could be poor timing. The company is still trying to get approval for its Hydrogen Renewal Project, a costly upgrade of the refinery. The Richmond City Council approved the permits in 2008, but environmental groups including Communities for a Better Environment, West County Toxics Coalition, and the Richmond Progressive Alliance sued, alleging a flawed environmental impact report. A judge ordered a halt to the project, and now the company is working its way back through the process of getting permits.

Gosney says that the ongoing fight over the property tax appeals could taint the work on the renewal project. “Don’t fight the battle of trying to get approval of the permits at the same time you’re spitting in the face of the people you’re trying to get approval from,” Gosney said.

According to its December 2012 Securities and Exchange Commission filings, the company views the hydrogen renewal project as up in the air: “Management believes the outcomes associated with the project are uncertain.”  The filings make no connection between the project and its tax appeals.

Kramer, the assessor, said that the nine years of property tax appeals and lawsuits have cost the county $5 million to $6 million to fight. “These guys have been doing this for 100 years. They’re experts,” Kramer said of Chevron’s lawyers. “Chevron is known for papering people to death. If they don’t beat you in court, they’ll bury you in paperwork.”

4 Comments

  1. Jeanne Kortz

    Why is Mr. Gosney the mouthpiece for Chevron in this story? He is a retired steamfitter. Just because he ran for city council does not make him the authority, nor the voice for the city of Richmond regarding this. Please seek out other multi-faceted viewpoints.

    Thank you.

    • Why is it that whenever someone refuses to drink the “I Hate Chevron” Kool-Aid, that they must be in bed with Chevron?

      What you didn’t read here are any proclamations from me demanding that Chevron pay more taxes because “we need it more than they do”? This was what we heard so often in very public meetings when this was before us the last time. Arguments like that are ridiculous.

      Perhaps your ears were closed and your eyes covered back then when I argued at City Council meetings and in the media that if the City and County wanted to fight Chevron on this issue they needed to argue on the merits of the County’s valuation of the property and NOT whether we need the money more than they do. [This is where it helps to be something of an expert on refineries.]

      What I was quoted here had to do with whether any person or business has the right to demand a fair valuation if they believe the County has appraised their property unfairly. I suggested that if it were you or I that had our property appraised for more than it was worth we might appeal that valuation, too. What I was quoted as saying here is that we should have expected Chevron to appeal this decision. When we’re talking about tens of millions of dollars each and every year, it would be imprudent of us NOT to expect this or be prepared for it.

      When I criticized Chevron for the bad timing of this appeal occurring at the same time that they’re seeking permits to complete their billion dollar Hydrogen Renewal Project, did that really come across as sounding like I was Chevron’s mouthpiece?

      And one of the reasons the media has come to me on a regular basis for much of the past 35 years is that I have a level of expertise in many areas above and beyond the regular man/woman on the street. The fact that I have sought a seat on the Council a couple of times makes me no more of an expert than Councilmember Butt who has never built an oil refinery yet I see no derogatory references coming from you because the media frequently seeks out his opinions.

      And please tell me just who has the authority to speak for every resident of Richmond? Would it be the Mayor–a person that has never received the support of more than 11% of the Richmond residents? Surely it’s not any member of the Council, business group of religious organization. No one has the authority to speak for the people of Richmond, Ms. Kortz. If you re-read the article, I don’t believe you’ll read anywhere that either the reporter nor I claim that I speak for anyone other than myself. Just who do you speak for, Ms. Kortz?

      There’s a reason why so many members of the media have sought my opinions on a great many subjects over the decades. Perhaps you might want to learn more about what I know.

      • Jeff Kilbreth

        OK, Don – I’ll take you up on your offer! You certainly seem to know more about refineries than I do. Three questions:

        1) How should a refinery be valued for property tax purposes? Cost of construction? Replacement cost? Economic value of annual production (revenue generated)?

        2) How did the assessed value jump from $1.9 bil to $3.5 bil? Was it way too low before or is it way to high now? Do you have an opinion? Do you understand the basis of the increased valuation? I can certainly understand Chevron being upset by such a big increase. But if $1.9bil was way too low, then they should lose their appeal and pay their fair share. (What do you think of their attempt to disqualify the members of the appeals board? Doesn’t look good to me – these people don’t look unqualified or corrupt)

        3) Given the dynamics of their business, how often should their property assessment be reviewed? Or do you think it should just increase 1% per year forever once it is established on some sort of fair basis?

        jeff

        • All god questions and I hope my responses do them justice.

          If you don’t mind, I’m going to take the responses out of order.

          As for the “corruption” of the Appeals Board members: Corruption is definitely the wrong word to use here. What Chevron has done is brought suit against them and publicly proclaimed them to be biased against Chevron. Once they’ve made that claim, they’re now asserting that these Board members have an animus against Chevron and can’t rule in an unbiased manner.

          If this were a valid argument then all it would take anyone to do would be to make public claims like this until they get a Board they can live with.

          I don’t know these Board members so I can’t say that they’re corrupt, biased, unable to fulfill their duties or whether they should be put up for sainthood. In the society we live in, though, they’re presumed innocent until proven guilty. If Chevron has proof that these Board members are corrupt, if they have proof that these Board members are incapable or unwilling to fulfill their sworn duties; and if Chevron can prove without a doubt that they have been harmed or will be harmed by the unjust actions of these Board members, then they owe it to us all to bring forth this evidence so the public can rise up and demand that these Board members be replaced. But if they cannot do this, then they need to shut up and back off. They need to keep their bitching to themselves or limit themselves to whining in their board rooms and within their social groups.

          How should a refinery be valued? First and foremost the refineries should be assessed in part on their value to other refiners. If an oil company spends $10 billion to build their refinery then it’s a reasonable assumption that up front it might have a value somewhere near $10 billion. Like any other business, though, there will be depreciation that has to be considered.

          When looking at this refinery, much of it is very old and has less value than when it was built. In particular, their main power plant is nearly 80 years old; the LSFO unit (where the fire erupted) is 37 years old; the hydrogen plant is 48 years old; the Isomax about 48 years; RLOP 29 years; the Co-Gen power plants are 19 years old. There are plenty of other smaller units that were built over the decades and of course we have many dozens of tanks dotting the hillsides that have been built over a wide time span.

          Just because the units are old, though, their value hasn’t depreciated down to nothing. For tax purposes they might claim that they have little or no value but if the City were to eminent domain them and pay Chevron only what the4y claim they’re worth, then we know we’d end up in court.

          Because an oil refinery is a manufacturing plant, it’s value as an operating business also has to be considered. Here in the Bay Area we’ve seen the several refineries increase and decrease in value depending on who owns them and how they’re being operated at the time. On the whole, though, Chevron seems to be doing okay and their refinery certainly has substantial value as an operating refinery.

          Cost of construction has to be factored in but not replacement cost. For that 80 year old power plant, how do you factor in the construction costs from the Depression? I wouldn’t know how to do it.

          One thing to keep in mind is that the oil companies pop up about every 15 years or so claiming that they’re being cheated on their property tax bill. They want everyone to believe that their refineries are worth far less than what everyone else might think.

          Think back to the mid 1990’s when all of the California refineries had to reformulate their gasoline if they wanted to sell it in California. These were called Clean Fuels projects. Because the design and permitting process is so time consuming and difficult, many of the refineries tacked on some capital improvements to their projects. The Shell refinery in Martinez went hog wild and spent about $1.8 billion on capital improvements. About a year later, though, they demanded an adjustment on their property tax claiming that their entire refinery was only worth $900 million. What they were claiming was that their very large and profitable refinery actually had a negative net worth before the capital improvements and then they got back on 50¢ on the dollar for the money they invested. And they thought the public was stupid enough to buy that.

          When they went to court, though, they ended up with a negotiated settlement where the assessed valuation was higher than what they claimed but lower than what the County claimed. It was a winning situation for Shell.

          The reason for the significant jump in the assessed valuation was that the Appeals Board reviewed all of the factors they’re required and allowed to consider and determined that the earlier figure was significantly lower than it should have been. Just as Chevron was claiming, an error had been made but it had been made in Chevron’s favor and that’s what they’re displeased with.

          I read the reports when they came out and while I understood much of it, there were parts that were beyond my technical expertise. Quite frankly, the issue is so complex that few people have the expertise to understand it. That’s one of the reasons Appeals Board members are required to gave specific skills before they can even apply for the position. Even so, the complexity of this valuation required that the Board bring in expert consultants that knew what they were looking at.

          Your question about the ever changing dynamics of their business is especially intriguing. Not only are they constantly changing their physical plant but the dynamics of the refining business is very volatile. Has their physical plant really changed all that much in the past decade when gasoline cost us a third what it does today? No. But the market for oil products has changed. Since Chine decided to become a major world economic power their demand for oil products is such that they now own 80% of the world’s oil reserves. Their demand for oil products is so powerful that it’s affecting what oil companies can get away with charging.

          As complex as a valuation can be, though, doing it every year or even two years would be such a financial burden on the County that the rest of us could not afford it. I really couldn’t say how frequently a full analysis should be made.

          What I can say, though, is that if the County and the oil companies worked more closely together (stop laughing at me), they could come up with an agreeable figure on an ongoing basis.

          I have heard some oil refiners in this county publicly berate elected bodies by telling them they have more attorneys than that body has and they can afford to bury us in litigation—and they do. There’s no way that CCC or Richmond can go head to head against Chevron when it comes to paying for attorneys. That’s why we often settle before things get to court.

          How often have we heard over the decades that these oil companies want to be good neighbors? Sounds good in the half page newspaper ads and the TV commercials but when their actions threaten to send our counties, cities and school districts into bankruptcy, I can’t see that as being good neighbors.

          What I tried to point out when interviewed for this article is that we should not be surprised that Chevron is going this route. Their costs will be high but if they’re successful their rewards will be exponentially higher and will go on forever. They can also use these successes for future tax assessments. It’s certainly worth the risk for them.

          What I also tried to point out is that if the County assessed our own homes at a price we thought was excessive, wouldn’t we try to get an adjustment? Whether we’re a 99 percenter or a 1 percenter, I think this would be true. So how is Chevron any different except they have more means to fight their case?

          I believe now as I always have that Chevron is wrong in their arguments but I also believe that too many of our neighbors are wrong in their arguments against Chevron on this issue. They need to fight this battle on the merits of the case and not on their sentiments against the big bad oil company. Claiming that we need the money more than they do can be used just as effectively to run up to Councilman Butt’s palatial estate at the top of Point Richmond and take what we want from him because we need it more than he does. [Sorry, Tom. ☺]

          If you’re going to go to a knife fight, you don’t go armed with a feather duster.

Comments are closed.