City settles over fund transfer

The city of Burbank has finalized a settlement in a lawsuit that claimed its long-running practice of transferring certain funds from the city’s utility to its General Fund is illegal.

On a monthly basis, the utility transfers a percentage of its electric and water sales to the General Fund, which pays for most public services.

Last year, Burbank resident Christopher Spencer filed suit in Los Angeles County Superior Court, asking the court to order the city to quash its practice of transfers from the water fund. He argued the practice had illegally hiked up water rates in excess of “reasonable costs” for providing the service, which he claimed violated a state law passed in 1996 that requires a public vote on such practices.

Earlier this month, City Manager Mark Scott signed a settlement in which the city agreed to stop the transfer under its current methodology beginning in fiscal year 2014-15 and repay $1.5 million from the General Fund into the water fund over the next four years.

“Hopefully, it’ll satisfy people that we’ve done the right thing by the water fund,” Scott said Tuesday before the details of the settlement had been released. “It’s good news for the water fund — not so good for the General Fund.”

In an email last week, Spencer declined to comment on the settlement’s details, but he said it will result in a cost savings for all Burbank residents on their water bills.

“There was no victor nor loser in this case,” Spencer said.

The settlement, which discharges the lawsuit, was reached through mediation earlier this year. It allows the city to continue some forms of water-fund transfers. Spencer agreed not to challenge transfers based on right-of-way maintenance costs described in a study the city commissioned through a consultant and presented to Spencer during the mediation.

In the lawsuit, Spencer claimed the transfers, which amount to 5% of annual water revenues, totaled nearly $3.4 million over the last three years and were not earmarked for any specific purpose.

However, the city’s study sought to identify services paid for through the General Fund that benefit from the utility, but for which the water fund was not “paying its fair share,” according to a statement the city issued this week.

“Based on the city’s study, the city undercharged the water enterprise fund in one year and overcharged the fund in the other two years which were the subject of the litigation,” the statement said.

The settlement allows the city to develop other methods for making the transfer to recover additional costs for services provided through the General Fund. Under the terms of the settlement, Burbank may also reinstate the transfer program with voter approval.

The city will also pay $275,000 in attorney fees and costs to the San Diego law firm Krause, Kalfayan, Benink & Slavens, which represented Spencer. Those funds will be deducted from the $1.5 million being returned to the water fund.

The settlement with Burbank follows a series of settlements in similar lawsuits brought by the firm against other cities in the past few years. Suits against the cities of Riverside, Pasadena and Anaheim all alleged similar practices.

Riverside agreed to return $10 million from its General Fund to its water fund over three years, Anaheim agreed to return $3 million to its water fund over five years, and Pasadena agreed to reimburse its water fund $7.2 million over the next seven years.

The Burbank City Council plans to discuss the settlement in an upcoming open session, city officials said.