Earlier this week, Fifth District Councilwoman Gerrie Schipske sent a letter to City Auditor Laura Doud requesting that the Auditor reassess whether or not the appropriate "inflator" was used to increase the "oil production tax" passed by voters as Prop H last May 2007. Schipske raised concerns that the City may be leaving "millions on the table" because of the decision to use the Consumer Price Index inflator instead of the Producer Price Index for crude petroleum.
The CPI is an index computed by the U.S. Department of Labor to reflect the costs of goods and services. The PPI for crude petroleum is also computed by the U.S. DOL but is specific only to crude petroleum and is considered by most economists to more accurately reflect the costs of this commodity.
Schipske had expressed her concern to the Auditor personally last year and again recently regarding the use of the CPI as the inflator "in light of the fact that the City of Signal Hill more accurately uses the Producer Price Index ("PPI") for crude petroleum" because it more accurately reflects the increase in crude oil.
In May 2007, the City of Long Beach voters approved an increase in the oil production tax (OPT) per barrel of crude petroleum taken from Long Beach. The OPT was increased from .15 a barrel to .40 with the .25 increase going to public safety budgets. The ballot measure also included that all future increases of the OPT are on the basis of the CPI.
Schipske believes that using the PPI would be a more accurate reflection of the increase in crude oil and that Long Beach may be only getting a fraction of what the increased tax should be come June 2008 when it gets adjusted because the CPI, and not the PPI, was used.
"The PPI more accurately reflects the inflation factor for crude oil production. The CPI does not and the figure is often manipulated (and lower than actual) by the federal government so as to not show the high rate of inflation facing the nation," Schipske stressed to the Auditor.
Schipske noted that since the passage of the ballot measure several significant events have occurred that seriously put into question whether or not the City of Long Beach is receiving the appropriate increases in the OPT, including the fact that Chevron just posted a $5 billion profit for the first quarter of 2008 and that crude oil just hit $126 a barrel.
"Most significantly," says Schipske, "is what has happened to both the CPI index and the PPI index during this time."
The Consumer Price Index in June 2007 for the LA-Long Beach area was: 217.3; as of March 2008 (which is the last time the index was published) it was: 223.6. Now compare the Producer Price Index, which is a more accurate reflection of the increases in crude oil. In June 2007 the Producer Price Index for crude was: 177.4; as of March 2008, the PPI was 301.0 -- nearly double what it was a year ago.
"Consequently, the City of Long Beach gets a fraction of what the increased tax should be come June 2008 when it gets adjusted because the CPI was used and not the PPI."
"My bet is the voters are pretty fed up with the obscene profits being taken by the oil companies while the city scrambles for money to pay our employees and fix our infrastructure. The voters would welcome the opportunity to vote to increase this tax by changing the inflator," concluded Schipske.