It’s been talked about for years. On Monday, July 23, the City of Seal Beach officially hired a consultant to collect unpaid taxes and fees from local oil companies.
After more than an hour of debate at the City Council meeting, the council voted three to two to re-hire consultant Greg Kirste of Municipal Petroleum Analysts or MPA.
The contract awards Kirste a 15 percent contingency fee on any one-time or ongoing revenue he identifies that the city validates and collects from “entities engaged in the production, extraction, transportation, distribution, storage and exploration of liquids, solids, and gases, included but not limited to, water, minerals, crude oil, gas, petroleum, and other hydrocarbon substances” in Seal Beach.
For example, if Kirste discovers a pipeline operator isn’t paying its required fee to the city, Kirste would work to retrieve that unpaid money and receive 15 percent of whatever the city collects.
According to the city’s staff report, Kirste estimates there is $13 million in “total potential new revenue” for the city to collect.
“MPA is already working towards completing elements of its research and will soon meet with the City to discuss new revenue possibilities,” Kirste wrote in a text message to The Sun on Tuesday.
City of Seal Beach Finance Director/Treasurer Victoria Beatley wrote in an email Tuesday that the city looks forward to working with MPA. “Mr. Kirste has one year to make good on his claims of recovering outstanding oil money and after a year the Council will review his progress in revenue recovery. Mr. Kirste will not be paid if he is unable to recover delinquent revenue,” she wrote.
Prior to the vote at Monday’s meeting, in response to questions from District One Councilwoman Ellery Deaton, City Attorney Craig Steele clarified that money from any new taxes or fees placed on oil companies would not be included in Kirste’s contingency-fee contract. Nor would any revenue from potential new drilling or oil development. “It’s essentially a collections contract,” Steele said and emphasized the contract is for collecting past-due money.
The contract specifies some circumstances where Kirste could be paid an hourly rate of $200 including for “additional services” such as helping modify the city’s municipal code, but that would require approval by City Manager Jill Ingram or her designee. The staff report notes Kirste would not be hired for any additional tasks until “sufficient revenue has been received to cover the cost of the work.”
Obtaining more oil revenue has been on the radar of the city for a few years. During the public comment segment of the meeting, Bridgeport resident Ray Zeoli, said he had more than 35 years’ experience in the oil industry, said he had been following this issue for years. He expressed the opinion that Kirste was the least qualified of the consultants the city had communicated with. According to Zeoli, this oil contract was Kirste’s first oil contract. He also said Kirste did not cmplete his last contract with the city. However, according to Kirste, he believed that he had delivered everything
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The new contract approval comes as the city is grappling with serious financial problems, including a deficit for the current fiscal year of about $400,000. At the same meeting city council approved the oil contract, it also voted to approve putting a measure on the November 6, 2018 ballot to increase the city’s sales tax by one percent. (For more on that story, see page 1.)
The staff report states the first of the new oil revenue money the city collects will go toward repaying a loan that was taken from the city’s designated swimming pool fund to pay for the first-year salaries of two new police officers. The Seal Beach Police Department has yet to hire the two new officers but is actively recruiting to fill the positions.
Councilman Moore breaks deadlock
This is the second time this year a contract with Kirste and MPA has been considered by the Seal Beach City Council. On June 11, council members deadlocked two to two to deny Kirste a contract.
District Two Councilman Thomas Moore had to recuse himself from that vote due to a potential conflict of interest. The conflict was that Crimson Pipeline, a client of Moore’s employer, could be impacted by the oil contract. But at the June 25 council meeting, Moore asked that the contract be rewritten to eliminate the conflict by excluding Crimson Pipeline from the scope of Kirste’s contract.
In the June 11 vote, Councilwoman Deaton and District Five Councilwoman Sandra Massa-Lavitt voted for the Kirste contract while Mayor Mike Varipapa and District Four Councilwoman Schelly Sustarsic voted against it.
The same vote scenario played out at Monday’s meeting but Moore became the deciding vote in favor, breaking the deadlock. “My current understanding is this is not easy-to-find money available on any public website. According to the City last night, the other consultants did not know where to start looking for additional revenue,” Councilman Moore wrote in an email the morning after the vote. “Eighty-five percent of something is a lot better than 100 percent of nothing.”
Moore also suggested an amendment to the vote, which was accepted and approved, to have council consider hiring another consultant in one year to review changing the city’s oil and gas municipal codes to generate more revenue.
Requests for more information
At Monday’s meeting, opponents of the contract, Mayor Varipapa and Councilwoman Sustarsic, repeatedly expressed a desire for more information regarding the oil revenue recovery issue. “I think that this is still something that’s not guaranteed and I would actually appreciate more information,” Sustarsic said.
Sustarsic said she wanted to hear from the other consultants that submitted proposals to the city, Donald Clarke and William Greene and Millennium Consulting. (Millennium did make a presentation to city council last year.) Mayor Varipapa also wanted more information about what MPA delivered during its previous contracts with the city. His concern was that some of the items Kirste is tasked with performing in the current contract, should have already been completed in the past, including related to auditing pipeline companies.
“I just try to understand … what we asked for and what we’re asking for now and I just see a lot of redundancies,” Mayor Varipapa said.
“I believe that everything that was asked of me during the contract was delivered,” Kirste answered.
The city hired MPA twice before, in 2013 and 2014, to research and audit oil and gas businesses in the city at a total cost of $48,000. In 2014, MPA secured around $216,000 in unpaid taxes and fees from the oil company Breitburn. Two PowerPoint presentations representing past work by MPA for the city were part of the city council agenda packet on Monday. Last year, Beatley said the results of Kirste’s first contracts were in draft form and therefore could not be made public, partially because they could reveal “trade secrets.”
At the end of Monday’s meeting, City Manager Jill Ingram said staff would work to get the other deliverables from the previous MPA contracts to city council. The next day, Beatley wrote in an email, “City staff will work diligently to ensure that Mr. Kirste is transparent with regard to his work and the Council and the public will be made aware of any significant progress.”
