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Wednesday, Feb 13 2013 11:00 PM

Don't let Oxy off the tax hook so easily

By The Bakersfield Californian

More than a decade ago, Kern County went to court to settle a dispute over the method by which oil holdings are evaluated for purposes of property tax assessment. Can assessments be based on "unproved," or potential, oil reserves on a given property or must they be based on some interpretation of its "proved" reserves? Kern County prevailed in the 2002 case and Occidental Petroleum was billed on the basis of potential reserves at its newly acquired oil field, Elk Hills, which for almost a century had been a Naval Petroleum Reserve.

Now, somehow, Kern County seems prepared to give back its victory in -- and the multibillion-dollar implications of -- Maples v. Kern County Assessment Appeals Board (Occidental of Elk Hills Inc.). And for what? An end to the cumulative fatigue that the Kern County Assessor-Recorder's Office must understandably feel from the annual deluge of tax assessment appeals from oil companies like Oxy?

We hope that's not the reason.

In any case, the Assessor's Office does not seem inclined to joust any further with Oxy over the oil company's requested devaluation of its Elk Hills property. That devaluation leaves several local public agencies -- including the county's general fund -- facing the likelihood of $27.3 million in lost revenue.

Why, exactly, did the Assessor's Office accept inaccurate and incomplete valuation reports over the course of several months, as the office told the supervisors Tuesday? That lack of information resulted in the office moving forward with the prior year's evaluation. Should Oxy provide more detail about which "underperforming old oil reservoirs" are responsible for the drop of $2.5 billion, more than a quarter of Elk Hills' taxable value?

The Maples decision is not a rock-solid precedent that county attorneys might wield in this present case. The Maples case dealt with Oxy's initial purchase of Elk Hills; the present case is a re-evaluation of an oil field that Oxy has now operated for several years, opening new areas of exploration along the way and ratcheting back others. But the principle of proved vs. unproved reserves is still central, and previous verdicts ought to count for something. The county must fight this.

On a side note, the supervisors ought to consider steps to minimize the impact of such tax assessment volatility. One possible avenue could be property tax averaging -- basing oil and mining companies' tax bills not on a current year's property value but rather on an average spread over several years.

Averaging has been in place for various types of property in Vancouver, British Columbia, for 20 years. That Canadian city's assessor averages the current year's land assessments with the prior two. The practice does not lessen a property owner's tax burden, and it does not negate the need for the assessor to vigorously contest attempted devaluations when appropriate, but it does make advance planning easier and gives public agencies time to prepare for any hits they may have coming.

Property valuations -- and, as a consequence, property taxes -- can be volatile. And oil, it should be noted, is one of the most volatile of commodities. Put those uncertainties together and it's amazing that the Kern County Assessor's Office isn't faced with these quandaries even more often than it already is. County supervisors should investigate the benefits and liabilities of such a formula.

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