PLACENTIA : Tax Increase on Oil Production Rejected

The City Council has rejected a proposed tax increase on the city’s dwindling oil production because of uncertainties about the Persian Gulf crisis and the U.S. economy.

In a unanimous vote Tuesday, the council defeated the 25% hike after oil producers argued that recent price increases only compensate for a five-year business slump.

Tax increases, the producers said, could force independent companies out of business because of a relatively low financial return from the city’s 399 wells.

Oil companies also feared that the proposed 25% hike would set off a chain reaction leading to similar increases elsewhere.

Under the defeated proposal, the annual tax-per-well would have risen from $350 to $437.50 and the tax-per-barrel rate would have gone from 12 cents to 16 cents. Taxes on gas production would have risen from 1 cent to 1.25 cents per cubic foot.

City officials said the tax increase would add $70,500 to city coffers each year and was an attempt to make up for declining revenues from oil over the past five years. Oil-per-barrel income fell in the city from $175,421 in 1985-86 to $130,405 in 1989-90.

Only recently, with the Iraqi invasion of Kuwait, have prices rebounded, oil producers say. Oil in Placentia and Yorba Linda now averages about $30 per barrel, according to Ed Malmgreen, manager of environmental affairs and taxation for the California Independent Petroleum Assn. But he added that, over the past five years, the price per barrel averaged only $13.54.

Further, Malmgreen predicted that the price will soon fall, just as independent producers are taking their higher revenues to pay off debts and repair aging wells.