Legal opinion backs money transfers from Glendale electric utility

Officials can continue to transfer millions of dollars from Glendale’s electric utility to pay for general public services, and at the same time increase electricity rates without a public vote, according to a legal analysis of both practices presented this week at City Hall.

While the analysis largely backs up a practice long defended by city officials, it did find that Glendale must make two changes to be in line with city and state laws.

The transfer, which typically occurs each month, must now come at the end of the year, said Christine Godinez, senior assistant city attorney, at the Glendale Water & Power Commission meeting on Monday. Also, revenues from ratepayers can no longer cover the cost of powering street and traffic lights.

But while the controversial transfer may be legally defensible, commissioners said the practice hasn’t been carried out judiciously, and as a consequence, Glendale Water & Power’s own finances have been left in dire straits at the expense of propping up the city’s General Fund, which pays for most public services.

“I fear what has happened over time, whenever there’s been a budget shortfall, one of the ways we tend to make it all balance out is by transferring more, moving funds around in the city and making that balanced budget appear,” said commission President Zanku Armenian.

Lower revenues have now prompted utility officials to push more rate increases to maintain the operation, he added.

More than 60 years ago, a voter-supported provision was written into Glendale’s Charter allowing the city to siphon off 25% of Glendale Water & Power’s operating revenues so long as the transfer did not affect the utility’s “sound financial position,” as determined by the City Council.

That definition, said Commissioner Armen Adjemian, “is very vague.”

In recent years, the City Council has approved the transfer — albeit at a lower rate — even through Glendale Water & Power was on shaky financial ground, commissioners said.

The water utility increased customer rates in March to help backfill a roughly $22-million hole. And last month, officials held several public meetings describing a proposed electricity rate increase and bond issuance to boost electricity-side revenues by roughly $20 million in 2013.

Last month, the City Council transferred $21 million in the electricity revenues into the General Fund.

If the City Council had been more conservative with the transfer, then the utility may not be as cash-strapped, commissioners said.

Even with the transfer, the city faced a $15.4-million budget shortfall, mostly closed by eliminating a net 110 filled employee positions.

“There’s no question there’s a tension between the departments in this case,” Godinez said, adding that the plan is to reduce the electricity transfer over time.

The city stopped its annual transferring water revenues last year after recent court cases cast legal doubt on the practice due to a 1996 proposition that limits how property-related fees can be used. But that proposition exempts electricity rates.

Glendale resident Harry Zavos has railed against the transfer for years, claiming that it can’t be a line-item budget at the beginning of the year because the Charter says the money should come from the utility’s surplus fund.

“You can’t budget for a surplus,” the retired law professor said.

But Godinez said the city isn’t budgeting for a surplus, but rather a cost of doing business, likening the transfer to dividends paid to shareholders at a private utility.

Zavos has also argued that a 2010 proposition invalidates the electricity transfer much like the 1996 law did for water. The proposition expands the definition of a tax, putting the transfer at risk. It requires any taxes that are increased, imposed or extended go to a vote of the public.

But the proposition is not retroactive for local fees, meaning that the transfer is grandfathered into the rates, Godinez said. Any new electricity rates also won’t need a public vote, she said, because they are exempt so long as rate revenues are used to directly benefit the ratepayer.

That means public benefits, such as street and traffic lights — which have long been paid for through electricity rates — must now be covered by some other revenue source.

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