Economic Tanks Running Low in California Towns Fueled by Oil Revenue

Way before people were striking it rich in Silicon Valley, another breed of millionaire was getting minted in a much different and much dirtier California industry -- oil.

For a time, the Los Angeles area was gushing with the stuff and so, too, the Central Valley.

During the peak of the oil boom in the 1920s and 30s, parts of the Central Valley and Southern California coast were blanketed in oil wells and derricks.

You can still find huge refineries in the Long Beach area and spot the occasional seesawing pumpjack pulling oil from the ground in strip-mall parking lots or housing tracts.

While output isn’t nearly as much as it once was, governments in those areas still rely on oil revenue to help balance the books. But the recent plunge in oil prices means some bills might not get paid.

The city of Long Beach  still earns a pretty penny from its underground reserves through sales and property taxes. How much depends on the ups and downs of the oil market.

Even city leaders sometimes wonder, as City Councilman Rex Richardson did at a public meeting a few days ago.

“How much? I know we budget our general fund based on this volatile commodity. What percentage of our budget is based on oil revenue?” asked Richardson.

About 5 percent a year, or roughly $45 million. Most of that money is earmarked for seismic upgrades to public piers, strengthening protective seawalls and other projects along the city’s picturesque coastline.

To help finance those projects, the city counts on oil prices staying well above $70 a barrel. But it’s now going for about $50 a barrel. So some projects may end up getting shelved, scrapped or paid for with grants or private donations.

“And just as one would do in a regular household budget, we have to make some adjustments in light of the fluctuations,” says Councilwoman Suzie Price.

“And so we will really be focusing on things that need to be fixed.”

The city does not anticipate more widespread cuts, like layoffs or slashing of public services.

Kern County, on the other hand, may wish it had such problems.

The still oil-rich county declared a fiscal emergency last week as it braces to lose about $61 million in oil-related revenue. That represents around 30 percent of Kern County’s annual budget.

The declaration allows the county to tap a rainy day fund. But it’s unlikely to stop possible hiring and salary freezes and cuts to some emergency services.

“We’ve been through this cycle before,” says county board chairman David Couch.

“Kern County is pretty reliant on oil and gas and the property tax that comes from that, and from the agricultural industry as well,” says Couch.

“I mean the price of oil going from $100 to less than $50 a barrel in six months, we had to react pretty quickly to that.”

The oil industry is reacting even quicker, slashing some 20,000 jobs across the country since oil prices started slipping about seven months ago. It’s unclear just how many of those jobs are in Kern County.

But county animal control officer David Camacho asked supervisors to keep those oil workers in mind before they begin trimming vital services.

“All the things our oil workers need right now, from job training and placement to temporary assistance, are provided by this county,” said Camacho.

“Cuts and freezes aren’t going to help our economy, and the damage they do in the long term will be more than we save in the short term.”

Earlier this month a couple of the largest oil contractors in Kern County announced layoffs. Les Clark says he’s bracing for more. Clark is president of the Independent Oil Producers Agency, which lobbies on behalf of Kern County-area oil firms.

“And there’s a lot of small contractors out there that will be at risk to as far as any job opportunities. If you’re not making any money, you certainly can’t go out and spend it,” says Clark.

“So we hope this is of a short duration. But you never know when the price for what you’re getting for crude is going to drop again.”

Over the past week the price has been ticking up, but slowly. Any number of factors could, of course, swing prices the other way and back again.

That includes an ongoing labor dispute affecting nine major oil refineries across the U.S.

Around 1,600 workers affiliated with the United Steelworkers union are walking the picket lines at the sprawling Tesoro refinery in Carson, not far from Long Beach. Work inside continues with non-union employees. Not so up in Martinez, northeast of San Francisco, where the strike brought a Tesoro refinery to a standstill.

Industry analysts worry a prolonged work stoppage could mean tighter supplies and a surge in oil prices. Good news maybe for the oil-producing regions of California. Not so much for those of us who have been enjoying months of record low gas prices.