The City Council on Tuesday discontinued the annual transfer of water utility revenues to pay for public services — a move city officials said would add to a looming $10-million budget deficit next fiscal year.
The City Council voted unanimously Tuesday to discontinue the transfer of millions from Glendale Water & Power to support the General Fund, which pays for firefighters, police and other services — a provision written into the city’s Charter by Glendale voters more than 60 years ago.
The action came after City Atty. Scott Howard determined that recent court cases have thrown the legality of the practice into doubt.
Since 2000, nearly $35 million in water service revenues have been transferred to the General Fund. Another $153 million has been transferred from the utility's electricity revenues in the same period.
Critics have for years blasted the transfers as illegal and artificially inflating utility rates. City officials have defended the transfers, which they say make up for Proposition 13, which left it with a below-average stake in property tax revenues.
The annual transfers have been an important revenue source for the General Fund, which has been buckling under the weight of spiking employee health-care and pension costs and plummeting revenues during the protracted recession.
Next year, the absence of the $4.2 million in water revenues will add to a projected $10-million General Fund deficit, officials said.
“As you can imagine, this issue has a tremendous impact on the General Fund …” City Manager Jim Starbird said Tuesday. “An additional challenge like this is not going to be an easy one to try to surmount.”
In contrast, it will mean more funds for the water utility, which has seen major budget cuts during the recession and increased water conservation.
“We are still operating in a reduced economic position,” General Manager Glenn Steiger said Tuesday.
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, and stated that fees could not be used “for any purpose other than that for which the fee was imposed.” Electrical services are exempt from the provision.
While city attorneys in previous years defended the water transfer as legal, Howard on Tuesday said that a 2006 court decision — which determined that water service fees could not be used to supplement unrelated programs — and later court challenges have thrown the constitutionality of the practice into doubt.
The City Council could still “charge” Glendale Water & Power for city services. The utility already pays for many services, but others could be added to the charges, according to a city report.
On Tuesday, the City Council directed officials to study what additional costs can be legally charged — an action that drew the disapproval of regular City Hall critic Herbert Molano.
“You are trying now to rationalize in one way or the other that you need the transfer,” he said.
Glendale resident Bob Getz went further, arguing that the City Council should reverse the controversial 3.8% water rate increase approved last year.
“[Ratepayers] have been funding illegal and improper transfers,” he said. “What recourse do they have?”