Utility transfers up for debate

CITY HALL — As Glendale Water & Power officials continue to push a proposed water rate increase, questions have been raised regarding the annual transfer of millions in utility revenues to support the city’s General Fund, which pays for most public services.

A review of city records shows nearly $35 million in water service revenues have been transferred to the General Fund since 2000. Another $153 million has been transferred from the utility’s electricity revenues in the same period.

City critics have for years seized upon the multimillion-dollar transfers — written into the city’s Charter by Glendale voters more than 60 years ago — as causing artificially high utility rates.

In turn, city officials have long defended the transfers, which they say make up for Glendale’s below-average property tax rates, frozen decades ago by Proposition 13.

“Other cities that did not have a power company had much higher tax rates,” said Glendale Mayor Ara Najarian.

While transfers from electricity revenues remain protected, city attorneys are in the process of taking a fresh look at how a 2006 California Supreme Court ruling affects the water side.

“We are looking at that very closely,” said City Atty. Scott Howard. “There are some more recent cases which have caused us to have to take a hard look at the continued validity of our Charter provision.”

The review should be completed in the next few months, he added.

Critics have continuously pointed to the court decision, which determined that water service fees could not be used to supplement unrelated programs, in opposing the annual transfer.

“I don’t know whether it’s good policy or not,” said Glendale resident Harry Zavos, a former attorney and law professor who has repeatedly broached the topic at city meetings in recent months. “All I know is it seems to me a city should not be in a position of doing something that undermines the [state] Constitution.”

The annual transfers have been a key revenue source for the General Fund, which has been buckling under the weight of rising costs — due in large part to the increasing burden of health-care and pension benefits for city employees — and stagnant revenues during the protracted recession.

So if the water revenue transfer is deemed unlawful, city officials say taxpayers could still be left on the hook since those millions will have to be found elsewhere.

“There is no magic solution to this,” Najarian said. “If the funds are deemed nontransferable, then we have to find other avenues to get those funds, or cut services and programs.”

Rising water rates

In recent weeks, utility officials have held several community meetings on a proposed 3.8% water rate increase that they say is needed to keep the utility financially stable as it grapples with millions in lost revenues during mandatory conservation.

But the proposed rate increase has faced skepticism — including from some on the City Council — for coming off as penalizing consumers for complying with mandatory three-day-a-week watering restrictions.

But with the lost revenue sharply hitting the utility’s bottom line, officials have said that their budget has already been slashed to keep the proposed increase as low as possible. Along with significant budget cuts, critical capital projects — including maintenance of the city’s aging pipe network — have been postponed, officials said.

“The rate increase we are proposing, we believe, is absolutely necessary,” Assistant General Manager Peter Kavounas said at a meeting of the Glendale Homeowners Coordinating Council last week.

But some in attendance pointed out that the rate increase is slated to generate about $2 million, less than half of the $4.2 million in water revenues slated to be transferred to the General Fund this year.

“You would get more support for a rate increase if that transfer was reduced or eliminated,” said Adams Hill Neighborhood Assn. President Christopher Welch, who also serves on the Transportation & Parking Commission. “It is unconscionable.”

Utility officials say they have little control over the controversial transfer, which is controlled by the city’s Charter and approved by the City Council each year.

“The transfer to the General Fund is not a decision that we make,” Kavounas said. “We treat that as a line-item expense.”

Constitutional issues

The constitutional issues surrounding the revenue transfer stem from Proposition 218 — passed by California voters in 1996 — which required voter approval for any increase of property-related assessments.

The law also requires that the amount of any property-related fee does not “exceed the proportional cost of the service” to which it is tied, and it cannot be used “for any purpose other than that for which the fee was imposed.”

Electric service is explicitly exempt from the provisions, but whether water service falls under Proposition 218 has been debated since its approval.

Critics of the transfer say the uncertainty was cleared up by the 2006 California Supreme Court ruling in Bighorn-Desert View Water Agency v. Verjil, where the court deemed that water service was property-related and thus subject to the restrictions.

In the years since, some cities have moved to eliminate the transfers. But others, including Glendale, continue to transfer water revenues to support other public services, which taxpayer advocates argue is illegal.

“When cities start transferring just to fill holes in their General Fund budget and the money is going to get spent on things unrelated to the water utility, then it’s illegal,” said Tim Bittle director of legal affairs for the Howard Jarvis Taxpayers Assn., a nonprofit advocacy group.

He cited a multimillion-dollar transfer by the Los Angeles Department of Water & Power, which was struck down by a Los Angeles County Superior Court judge last year.

City officials have said Glendale’s Charter provision differs from Los Angeles, but critics argue that the substance of the Charter is irrelevant.

“That decision says nothing about the content of the Charter,” Zavos said. “It again quotes the California Supreme Court that Charters have to obey the Constitution. I think intuitively it makes sense that a local government cannot trump the state Constitution.”