City Hall East 200 N. Main Street Room 800 Los Angeles, CA 90012

CARMEN A. TRUTANICH City Attorney

REPORT RE:

(213) 978-8100 Tel (213) 978-8312 Fax

CTrutan i ch@laci ly.org www.lacity.org/atty

REPORT NO. R 1 0 - 0 3 8 5 NOV 1 2 20iil

BALLOT RESOLUTION AND BALLOT TITLE RESOLUTION REGARDING A PROPOSED MEASURE TO IMPOSE AN EXCISE TAX ON OIL PRODUCERS IN

LOS ANGELES AND ORDINANCE CALLING A SPECIAL ELECTION AND CONSOLIDATING IT WITH CITY'S PRIMARY NOMINATING ELECTION

The Honorab le City Council of the City of Los Angeles

Room 395, City Hall 200 North Spring Street

ON MARCH 8, 2011

Los Angeles, California 90012

Council File No. 08-0411 -81

Honorable Members:

On November 2, 2010, your Honorable Body requested th is Office to prepare the documents necessary to place a proposed oil production tax on the March 8, 2011 bal lot. This Office now transm its, approved as to form and legality, the ba llot resolution, the ballot title resolution and the election ord inance necessary to place the measure on the ballot.

Summary of Measure's Provisions

This measure imposes a quarterly tax of $1.44 on each barrel of oil produced from each oi l well located within the City. The measure wou ld adjust the tax rate accord ing to changes in the consumer price index.

Tax Rate Method Used

The measure uses the "Fixed Price Per Barrel" methodology, which is the standard methodology used by the majority of local municipalities imposing a tax on oil production or oil extraction. It imposes a rate of $1.44 per barrel of oil produced,

The Honorable City Council of the City of Los Angeles

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approximately 1.8% of the current price of a barrel of oi l according to the Report of the Budget and Finance Comm ittee (CF-08-0411-81.) That Report recommended that an oil extraction tax be similar to a method purportedly used by Culver City, which presumably imposed a tax rate of 1.8% of the selling price of a barrel of oil.

This Office has confirmed that Cu lver City's methodology does not use a percentage of price per barrel as cited in the Committee report. Instead , Culver City imposes a gross receipts tax of $18 per $1,000 of gross receipts from oil production activities, which is rough ly equ ivalent to 1.8% of gross receipts from oil extraction.

An alternate tax scheme was also noted in the Budget and Finance Committee report , which used a Fixed Price per barrel Oi l Extraction Tax linked to an annual CPI adjustment. A rate of $1.44 per barrel was suggested as a revenue generating equivalent to a 1.8% price per barrel tax, assum ing an $80 per barrel price point. Thus, the proposed measure is consistent with the recommendations in the Report.

Voter Approval and Deadline for Council Action

The ballot measure imposes a general tax and therefore must be approved by a majority of the voters in the March 8, 20 11 election. Cal. Canst., Art icle XIIIC, §2(d).

Council must adopt all resolutions and election ordinances necessary to place a measure on the ballot by no later than 110 days before the election. City Election Code § 601 . With rega rd to the March 8, 2011 election, that deadline for Counci l action is November 17, 2010.

If you have any questions regard ing this matter, please contact Deputy City Attorney Dan Whitley at (2 13) 978-7786 . He or another member of this Office will be present when you consider this matter to answer any questions you may have.

PBE:DW: Ie Transm itta l

Very tru ly yours,

CARMEN A. TRUTANICH, City Attorney

By~D.~~--PEDRO B. ECHEVERRIA Chief Assistant City Attorney

M:\Government Counsel\20 11 OIL TAX\Oil Production Tax Report.doc

RESOLUTION

Resolution providing that a ballot measure be submitted to the qualified voters of the City of Los Angeles .

BE IT RESOLVED BY THE COUNCIL OF THE CITY OF LOS ANGELES AS FOLLOWS:

Section A. The following ordinance of the City of Los Angeles is hereby proposed to be submitted for approval by a majority vote of the qual ified voters of the City of Los Angeles at a Special Election to be ca lled and consolidated with the City's Primary Nominating Election held on March 8, 2011:

ORDINANCE NO. ___ _

An ord inance amending Chapter 2 of the Los Angeles Mun icipal Code by add ing Arti cle 1. 18 to establish an excise tax on oi l production from wells located in the City.

THE PEOPLE OF THE CITY OF LOS ANGELES DO ORDAIN AS FOLLOWS:

Section 1. Article 1.18 is added to Chapter 2 of the Los Angeles Municipal Code to read :

ARTICLE 1.18 OIL PRODUCTION TAX

Section 21.18.1. DEFINITIONS.

The fo llowing words and phrases whenever used in this Article shall be construed as defined in this section:

(a) A "well" shall be deemed to be located in the City if the surface location of the well or the surface of the well itself, is located in the City regard less of where the hole of the well may be bottomed .

(b) A "barrel of oil" consists of forty-two U.S. gallons of crude petroleum of hydrocarbon substances corrected for temperature variations in accordance with methods genera lly approved in the petroleum industry.

(c) "Petroleum or hydrocarbon substances" means crude oil remaining after the removal therefrom of water or other impurities by prel iminary process ing in the vicin ity of the well site, preparatory to the shipment thereof.

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(d) If oil produced from two or more wells shall be comm ingled without the production of the respective wells being separately measured, each well whose production has been commingled shall be considered as having produced an equal part of the total.

Section 21.18.2. OIL PRODUCTION TAX.

(a) There is hereby imposed an excise tax upon every person engaged in the business of producing oil from any well located in the City of Los Angeles . The tax imposed by this section shall be $1.44 per barrel of oil produced per well per quarter.

(b) The taxes imposed by this subsect ion shall be increased or decreased annually as of June 1 each year, commencing June 1, 2012, in an amount equal to the increase or decrease from the base index in the then latest ava ilable consumer price index, as prepared and released by the United States Department of Labor, Bureau of Statistics for the Los Angeles­Riverside-Orange County, CA area ("CPI") .

(c) For the purposes of ca lculat ing the annual inflation/deflation factor under th is section, the base year shal l be the year ended December 31, 2010. Rates sha ll first be adjusted on June 1, 2012, and annual ly thereafter, based upon the annual ly ca lculated change from the base year. The June 1, 2012 adjustment for the change in CPI for the year end ing December 31, 2011, and the adjusted rate shal l f irst be app lied for the payment due on October 1, 2012.

(d) The Director of Finance shall notify each person required to pay the per-barrel tax of the rate to be used for each fiscal year.

(e) No person required to pay tax under the provisions of this section shall be re lieved of the ob ligation to pay add itiona l taxes under the provisions of Section 21.42 with respect to the sale of gases or other by-products produced or recovered as an incident to the business taxed by this section.

Section 21.18.3. QUARTERLY PAYMENTS-- DUE DATE.

Payment for the quarter cons isting of October, November and December shall be due and payable on January 1; payment for the quarter consisting of January, February and March shal l be due and payable on April 1; payment for the quarter consisting of April, May and June shall be due and ' payable on July 1; and payment for the quarter consisting of July, August and September shall be due and payable on October 1.

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Section 21.18.4. PENAL TIES AND INTEREST.

(a) Interest and penalties for delinquency in remittance of any tax co llected, or any deficiency determination sha ll attach and be paid by the reta iler at the rates and in the same manner as is provided in Sec. 21.05 of this chapter for delinquency in payment of Business Tax.

(b) The Director of Finance shall have power to impose additional penalties upon a retai ler for fraud and negligence in report ing and rem itting in the same manner and at the same rates as are provided in Sec. 21.05 of this Chapter for such penalties upon persons requ ired to pay Business Tax.

(c) Every penalty imposed and such interest as accrues under the provisions of th is section shall become a part of the tax herein required to be remitted .

Section 21.18.5. WRITTEN STATEMENT.

The provisions of Section 21.14 of this Chapter shall apply to the reporting requ irements for persons subject to the tax under th is Article.

Section 21.18.6. ASSESSMENT- ADMINISTRATIVE REMEDY.

(a) The provisions of Sections 21 .16, 21.19 and 21.20 of th is Chapter shall app ly to the admin istration and co llection of the tax imposed under the provisions of this Article in the same manner as they app ly to the adm inistration and collection of the Business Tax.

(b) The Director of Finance may make an assessment for taxes not remitted by a person required to remit under this article. The manner of making and providing notice of such assessment; the right to a hearing and the conduct of decision; filing exceptions; and passing upon exceptions shall be the same as provided in Section 21.16 of th is Chapter.

Section 21.18. 7. RECORDS.

It shall be the duty of every person liab le for the collection and payment to the City of any tax imposed by this Article to keep and preserve, for a period of four years , true and accurate records as to the amount of oil produced by him from wells located with in the City, and shall upon demand of the City Clerk, or his representative, make said records, together with any shipp ing documents or sales invoices pertaining to such oil avai lable for the inspection of the City Clerk, or his representative, at all reasonable times.

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Sec. B. The City Clerk is hereby authorized and directed to publish a notice containing the proposed bal lot measure, specifying the date of March 8, 2011 as the date the measure is to be voted upon by the qualified voters of the City of Los Angeles . The notice shall be published once in a newspaper of general circu lation in the City of Los Angeles, and in each ed ition thereof during that day of publication. The City Clerk is authorized and directed to prepare and keep in the City Clerk's office a sufficient supply of copies of the proposed ballot measure and to distribute the proposed ballot measure to any and all persons requesting a copy. Further, the City Clerk is authorized and directed to mail copies of the proposed ballot measure to each of the qualified voters of the City of Los Angeles .

Sec. C. The City Clerk is hereby authorized and directed to cause a notice to be published once in a newspaper of general circulation that copies of voter information pamph lets containing the proposed ballot measure may be obtained upon request in the City Clerk's office.

Sec. D. The City Clerk shall file a duly certified copy of this Resolution forthwith with the Board of Supervisors and with the Registrar-Recorder of the County of Los Angeles.

I hereby certify that the forego ing Resolution was adopted by the Council of the City of Los Angeles at its meeting held on ___________ _

JUNE LAGMAY, City Clerk

By ________________________ _ Deputy

Approved as to Form and Legality

CARMEN A. TRUTANICH, City Attorney

By r~~LEY Deputy City Attorney

Date \I /)'d-/1 t} I

C.F. No. 08-0411 -S1 M:\Government Counsel\2011 OIL TAX\Oil Production Tax Reso.doc

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RESOLUTION

WHEREAS, the Council of the City of Los Angeles has adopted a resolution to place an ord inance before the qualified voters of the City of Los Angeles at the March 8, 2011 Special Election to be consolidated with the City's Primary Nominating Election to be held on the same date; and

WHEREAS, the City Election Code requ ires the City Attorney to prepare and present a ba llot title and question consisting of an impartial statement of the measure; and

WHEREAS, the City Attorney has presented the fo llowing ballot tit le and question for the proposed measure:

LOS ANGELES OIL PRODUCTION TAX. PROPOSITION

In order to fund general municipal services, includ ing but not limited to such matters as police protection and crime suppression services, fire prevention and suppression services, park and recreation facil it ies, and general improvements throughout the City, shall an ordinance be adopted to impose a tax of $1.44 per barrel of oil produced in the City of Los Angeles?

NOW, THEREFORE, BE IT RESOLVED that the ballot t itle and question presented by the City Attorney be adopted by the City Council.

I hereby certify that the foregoing Resolut ion was adopted by the Council of the City of Los Angeles at its meeting held on ___________ _

JUNE LAGMAY, City Clerk

By _ _____________ __ Deputy

C.F. No. 08-0411 -81

M:\Government Counsel\2011 OIL TAX\O il Production Tax Tit le Reso.doc

ORDINANCE NO. ----------------

An ordinance ca lling a Special Election to be held on Tuesday, March 8, 2011 for the purpose of submitting to the qualified voters of the City of Los Angeles a certain tax measure and consolidating th is Special Election with the City's Primary Nominating Election to be held on the same date.

THE PEOPLE OF THE CITY OF LOS ANGELES DO ORDAIN AS FOLLOWS:

Section 1. A Special Election is hereby ca lled to be held in the City of Los Angeles on March 8, 2011 , for the purpose of subm itt ing to the qualified voters of the City a certa in measure ordered submitted by the Counci l of the City of Los Angeles.

Sec. 2. The ballot title and question to be used at the Special Election for the measure to be submitted to the qualified voters of the City of Los Angeles shall be :

LOS ANGELES OIL PRODUCTION TAX. PROPOSITION

In order to fund general municipal services, includ ing but not limited to such matters as police protection and crime suppression serv ices, fi re prevention and suppression services, park and recreation fac ilities, and general improvements th roug hout the City, shall an ord inance be adopted to impose a tax of $1.44 per barrel of oi l produced in the City of Los Angeles?

Sec. 3. The measure shall be designated on the ballot or ba llot pages by a letter or number determined by the City Council in accordance with applicable City and state laws. Upon the designation by the proper officia ls of the letter or number to be ass igned to the measure, that letter or number is hereby adopted and shall be the designation for the ba llot title .

Sec. 4. To vote on the measure, the voter shall mark the ballot next to the word "Yes" or the word "No." A "Yes" vote shall be counted in favor of adoption of the measure and a "No" vote shall be counted against adoption of the measure.

Sec. 5. The Special Election hereby cal led shall be, and hereby is ordered to be, consolidated with the City's Primary Nominating Election to be held in the City of Los Angeles on Tuesday, March 8, 2011.

Sec. 6. The voting polls on election day shall open at 7:00a.m., March 8, 2011, and shall remain open until 8:00p.m. of the same day when the voting polls shall be closed, except as provided in City Election Code Section 857.

Sec. 7. The election precincts, polling places, and officers of election for the Special Elect ion shall be the same as those provided in the City of Los Angeles for the Primary Nominating Election , and the elections shall be held in all respects as if there were on ly one election. Furthermore, for the precincts, polling places , and officers of election, reference is hereby made to the list that will be prepared and approved by the City Clerk and filed in the City Clerk's Office not later than February 8, 2011, and that list is incorporated into and made part of th is ordinance.

Sec. 8. In all other particu lars, the Special Election shall be held and conducted as provided by law for the conduct of the Primary Nominating Election in the City of Los Angeles.

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Sec. 9. The City Clerk shall certify to the passage of th is ord inance and have it published in accordance with Council policy, either in a daily newspaper circu lated in the City of Los Angeles or by posting for ten days in three public places in the City of Los Angeles: one copy on the bulletin board located at the Main Street entrance to the Los Angeles City Hall ; one copy on the bulletin board located at the Main Street entrance to the Los Angeles City Hal l East; and one copy on the bulletin board located at the Temple Street entrance to the Los Angeles County Hall of Records.

I hereby certify that this ordinance was passed by the Council of the City of Los Angeles, at its meeting of ____________ _

JUNE LAGMAY, City Clerk

By _______________________ _ Deputy

Approved _________ _

Mayor

Approved as to Form and Legality

CARMEN A TRUTAN ICH, City Attorney

By ~kt1~ Deputy City Attorney

File No. 08-0411-S1

M:\Government Counsel\2011 OIL TAX\Oil Production Tax Elec Ord.doc

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