Valley Commentary : Effort to Siphon Off DWP Money Uncaps a Well of Fears : Mayor Riordan’s proposal could leave employee pensions seriously underfunded. Some observers think his real motive is to privatize the municipal utility.

Until the earthquake and the heroic efforts of Department of Water and Power employees to restore service to the prostrate city, it was difficult to find anyone who had a kind word for the utility.

The DWP’s fall from grace began last summer with the controversy over a new two-tier water rate structure that angered Valleyites in particular. This was quickly followed by a strike, a catering scandal and the rippling effect on other city employees, who requested me-too raises at a time when the city was gripped in a recession.

The unfortunate sequence of events has not only endangered the DWP employees’ security in an indirect manner, it has placed the entire concept of municipal utility ownership in jeopardy.

This was demonstrated in November by the ease with which Mayor Richard Riordan moved to alter the DWP’s employee retirement plan to divert pension money to help fulfill a campaign promise to hire more police officers.

At a time when the DWP needed friends in high places, no one was willing to step forward to oppose the mayor.

As a result, the employees have been in a state of alarm because the majority are not covered by Social Security and the news media have been rife with stories about underfunded plans that leave employees with little or no pension when they retire.

The money the mayor seeks is in addition to the 5% gross revenues the DWP voluntarily transfers to the city every year as a substitute for taxes it would pay if it were a privately owned utility. This year it will contribute $122 million.

To get the pension money, the mayor has adopted the recommendation of Dennis Tito, an appointee to the Board of Water and Power Commissioners, to make two seemingly minor changes in the way the DWP contributes to its retirement plan. The city does not contribute tax money, as some people believe.

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The plan presently uses a conservative method of calculating its investment assets, based upon their purchase price. The stated asset value is used to determine the pension contributions; the higher the value, the less the DWP must contribute.

Tito, who owns a pension consulting firm, wants the asset value to reflect current market value. Since many of these assets have appreciated from their original purchase price, their current value would be reflected in a larger pension fund, and the DWP could cut its contributions accordingly.

The downside of this is that it would create a paper gain only, and it would place the plan at greater risk. Most of these assets are stocks and bonds, which are subject to wild swings on Wall Street. In a bear market, the reduced DWP contributions could leave the plan seriously underfunded.

Tito also wants to change the way the DWP sets aside pension money during the employee’s entire career. His proposal would delay payments until the employee is closer to retirement.

If the two suggestions were adopted, the DWP’s pension contribution would be reduced by an estimated $40 million a year. Instead of going back to ratepayers, the money would pay for police salaries and, ironically, their pensions.

The International Brotherhood of Electrical Workers, which represents the largest group of employees, is preparing to challenge the legality of such a move.

The crucial vote on this issue is expected this week. The mayor would seem to have the winning votes, since four of the seven DWP Retirement Board members are political appointees and subject to dismissal.

If he succeeds, and assuming an adverse financial market in the future, the DWP will have to make up any monetary losses to keep the retirement plan solvent.

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However, the crisis could occur long after the mayor leaves office, and there is no assurance that a future administration will raise rates to eliminate the deficit.

What is troubling about this idea is that the DWP has earned a reputation for providing low-cost water and electricity since it was founded as a municipally owned utility in 1902. Its rates are still among the lowest in the nation.

Although the mayor has spoken repeatedly about introducing private-sector efficiencies into government to obtain more money without raising taxes, the reality is that he is attempting to take money from the till.

This is uncharacteristic for a person with his successful business background, and it raises a suspicion that his real intent is to weaken the city utility so it can be privatized.

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Be that as it may, and giving him the benefit of the doubt, there are now rumors that the mayor may drop the pension fight and look elsewhere for police money.

The reason that is frequently mentioned is his newfound respect for city employees, many of whom placed themselves at risk to rescue the city from the earthquake.

The rumor may be wishful thinking on the part of the employees, but it has introduced a new element of suspense into the showdown meeting.