IT'S A good thing that Richmond city officials have set aside the $21 million they collected from the Chevron refinery under new voter-approved business license tax rules.

A Contra Costa Superior Court judge this month threw out the new rules, which means most of the money must be repaid to the oil company unless the city successfully appeals the decision.

We think it's unlikely the city will prevail if it prolongs the legal process. Residents would be better served if city officials use the judge's ruling as a guide to recraft the measure and return it to the ballot for voter approval in November 2010.

In the meantime, city officials and Chevron should sit down and see if they can work out a compromise that increases the refinery's contribution to the community while avoiding a long legal showdown.

What both sides really want is some financial predictability.

They should both give some ground in that pursuit.

Let's face it. Chevron is not the most popular company in the city and chances are good that backers of another ballot measure would likely be able to muster the necessary votes again. On the other hand, city officials know that, absent a compromise, Chevron is capable of dragging out a legal fight, whether it's over this measure or a successor.

Currently, the city's business license tax for manufacturers is based on the number of company employees. The initiative, Measure T on the November 2008 ballot and passed by 52 percent of the voters, added a second way to calculate the fee.


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Under the measure, the city could charge $2,500 for every $1 million of raw materials used in manufacturing. The higher of the two calculation methods would be applied.

The measure was clearly aimed at Chevron, for which the new calculation method would produce a far higher fee.

In a highly technical decision, Judge David Flynn ruled that the initiative runs afoul of the commerce clause of the U.S. Constitution. It could punish companies in Richmond that also operate outside the city, and it could allow Richmond to benefit from products produced outside the city. Also, Flynn ruled, the initiative violates state law because it taxes the value of the raw materials rather than the volume.

The judge hinted at remedies that should be included in a future ballot measure to fix the legal problems. A new measure should eliminate the two-part nature of the tax and simply use one method for calculating the fee. It should clearly spell out how to measure the amount of production that comes out of the Richmond facility and should only try to tax that portion. And it should base the tax on the volume, not the value, of the raw material.

We opposed Measure T. We agreed with backers that the Chevron refinery should step up to the plate and be a bigger contributor to the community in which it resides. But we feared, correctly it turned out, that the measure would not withstand legal challenge, although we anticipated it would fall for other legal reasons.

Clearly, it's time for cooler heads to prevail, for all parties to sit down and see if they can hammer out a compromise. If not, backers of last year's initiative now have a road map for fixing their measure.