Bill Would End Mayor’s Raid on DWP to Expand Police : If Senate approves the measure, already passed by the Assembly, there will be no more donations to the city of 5% of the utility’s revenues.

In a stunning setback for Mayor Richard Riordan, a bill that would prevent the diversion of utility funds to pay for city services passed the state Assembly a week ago and has gone to the Senate for final approval.

The bill would upset a longstanding practice by the Los Angeles Department of Water and Power of donating 5% of its revenues to the city, and it would put an end to the mayor’s raid on the utility to pay for police expansion. In effect, all the transfers represent a hidden tax on the DWP’s customers.

Assembly Bill 318, by Assemblyman Richard Katz (D-Sylmar), applies to all publicly owned utilities in California, but its principal target is the DWP.

Although DWP customers would benefit with lower water and electricity bills, its passage would create serious financial problems for the city. In this fiscal year, the DWP’s contribution will be $109 million. Although this sum is less than 3% of the city’s $4-billion budget, it represents more than half the revenue shortfall that officials were worried about earlier this year. In terms of police expansion, it would be enough money to add 1,400 officers.

The mayor’s campaign to treat the DWP as a cash cow has roots in his election pledge to expand the Police Department without raising taxes. He promised he would accomplish this goal by introducing private-sector efficiencies into city government and skimming off the savings.

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At the DWP, the effect has been more like a fire sale. The Riordan-appointed Board of Water and Power Commissioners is selling off surplus assets and diverting funds from the employee pension plan. In addition, it has taken a huge bite out of money budgeted for the power system.

Until the advent of AB 318, the mayor was accomplishing the transfers with ease. He not only had the blessing of the City Council, the DWP’s chief regulator and rate fixer. He also had the approval of the city attorney, whose liberal interpretation of a “surplus” clause in the City Charter had eliminated the only legal obstacle.

This was an obvious attempt to siphon off funds and still maintain a healthy utility. Unfortunately, however, this is not happening. Routine preventive maintenance on electric facilities has been so severely cut as to be almost nonexistent, and this could create outages in the future.

The commission’s indifference to the deteriorating conditions is evident in its unabated efforts to generate additional transfers.

In February, it awarded a questionable $13.5-million contract to an English company to find a way to implement a council-sponsored private study that recommended a layoff of about 3,000 employees. The study had omitted an important detail: how to fire people protected by civil service rules. The mayor had assigned this job to his commissioners and a handpicked general manager, none of whom have experience managing a utility, and they were unequal to the task.

Interestingly, the job was given to PSC Energy Corp., a company owned by H. Ross Perot. The company earned its reputation by helping the British government to privatize publicly owned utilities, and this may provide a hint as to its final recommendation.

What is more eye-opening, however, is that PSC was selected over 13 lower bidders, with only a murmur of complaint from the City Council. The PSC proposal was three times the amount of the second-highest bid, and the lowest bid was $650,000. Many of the losers were large, respected American companies.

Now there is another agreement in the works. This is a golden handshake for about 1,000 older employees. Buyouts like this are common in private industry, but for a city agency the size and cost is unprecedented.

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In addition to regular retirement pay, the employees are being offered an extra week of pay for every year of service, plus $10,000, with a cap of $85,000 per person.

The total cost is estimated at $33 million, with an expected pay-back in salary savings of $60 million within seven months. What is not explained, however, is how such a scatter-gun approach will affect the DWP’s operation.

The Katz bill calls for such savings to be returned to the ratepayers.

Significantly, his legislation was endorsed by numerous Valley homeowner organizations, statewide taxpayer groups and the California branch of the American Assn. of Retired Persons, and it passed by a whopping 42-12 margin over the strenuous objections of the city’s lobbyists.

The Senate will now take up the bill, which carries two amendments. One permits L.A. voters to decide to continue the DWP’s traditional 5% contribution to the general fund, and the second would phase out the transfers over a five-year period.

Even the gradual loss of these funds would mean big trouble for the city. To prevent a financial crisis, a frightened City Council and a chastened mayor can be expected to descend on Sacramento to try to kill the bill.

If the Senate complies, the aforementioned citizen groups could take another tack by seeking a City Charter amendment to close the surplus loophole.

Should they succeed, look for the mayor to try to cash in by selling the power system, the utility’s moneymaker, to the highest bidder.