L.A. Must Borrow to Meet Its Payroll : Finance: Dispute with DWP over rate increase holds up transfer of surplus funds from the utility.

The city of Los Angeles had to borrow more than $15 million from special funds to meet its payroll this week, as the effects of a dispute between the City Council and the Department of Water and Power have left it strapped for cash.

Faced with empty coffers, City Controller Rick Tuttle ordered that money be borrowed from the city’s Special Parking Revenue Fund until the dispute with DWP can be resolved and more than $100 million in cash can be freed.

In making projections for the city’s cash flow needs, Tuttle had counted on an annual transfer of surplus funds from the DWP that is usually made in December, said Deputy Controller Tim Lynch.

But because requests for DWP rate increases have lingered before the City Council for four months, the DWP has not made the transfer, officials said.

The DWP has customarily transferred 5% of its annual gross revenues--about $110 million this year--to the city’s general fund. The transfer is typically made in December, but this year the department has refused to send the cash until the City Council acts on its request for higher rates.

“Until you are certain of your financial future, you can’t make a finding of a surplus,” said Eldon Cotton, DWP assistant general manager. “And without the rate increase, we are certain of the future: It is bleak.”

The council this week tentatively approved a 7% electric rate increase that will come back for a final vote Tuesday.

A 3.6% water rate hike was rejected by the council, but is scheduled to be reconsidered--in part because of concerns that loss of DWP surplus funds will further undercut the city’s shaky financial condition.

The city is facing a deficit projected to grow to about $150 million by June.

In December, the City Council gave the controller authority to borrow up to $65 million from the parking fund to bolster cash flow while the DWP transfer is delayed. Lynch said the city may have to dip into the fund again in two weeks when the biweekly $55-million city payroll for 32,000 employees comes due--though he said it is possible that other revenues may arrive in time.

Cotton said that if the rate dispute is resolved, the earliest DWP transfer would be made would be Feb. 21. The first payment would be about $70 million, with the balance made in monthly installments through the end of the fiscal year in June.