A Second lawsuit Filed against the City of Glendale pertaining to the GWP Transfers
On 2/26/2014, the Glendale Coalition for Better Government (GCBG) filed a lawsuit against the City of Glendale, asking a Los Angeles County judge to force Glendale to stop transferring tens of millions of dollars annually from its utility to the city’s coffers and return $90 million it had shifted from one fund to another since 2010. The lawsuit alleges that there were other illegal transfers made before 2010, but due to statute of limitations, the lawsuit focuses only on those made since then. (1) For years, the city of Glendale has hidden the city’s financial deficit by illegally transferring utility funds, misappropriating them into the city’s GWP general budget fund. This practice has dangerously compromised Glendale’s public utilities and public safety. As a result, the Glendale public utilities are now in the red. (2)
Glendale business owners and residents have gone before the city council on numerous occasions and have voiced these serious concerns that have been ignored by the city council. In fact, Mayor Weaver said: ‘We’ve been over this before, if you don’t like it — sue us.” So, with that directive and understanding that the council will do nothing to remedy their violations of the law, the coalition did exactly what the mayor had suggested and filed a lawsuit. The Glendale Coalition for Better Government, acting according to its mission to promote transparency, accountability, integrity and responsiveness in city government, has filed suit against the City of Glendale for violating Articles XIIIC and XIIID of the State Constitution as enacted by Propositions to 218 and 26 and for misappropriating GWP funds in violation of the Glendale Charter. (3)
These transfers amount to hidden taxes that are unlawful unless submitted to a vote” of the people. Members of the coalition have long complained about the city’s money transfers, describing them as backdoor taxes that artificially inflate utility rates. Even as Glendale Water & Power slid into multimillion-dollar deficits, the city continued to transfer money the utility received from ratepayers to cover general government expenses, such as those for fire, police and libraries. At the same time, the City Council approved unprecedented multiyear rate increases for both water and electric services in 2012 and 2013, respectively. (4)
Glendale’s charter authorizes surplus utility revenues, if any, to be transferred for use by the general government. Surplus revenues are those revenues left after providing for all budgeted obligations of the utility, including monies set aside to cover the need for capital improvements due to normal depreciation. The amount that can be transferred is measured by 25% of the utility’s operating revenues. There are two limits on the transfer: (1) it can only come from surplus and (2) only a portion of that surplus can be transferred. In direct violation of the charter the city has transferred utility operating revenues as a budgeted obligation of the utility regardless of any surplus and the need that utility revenues be set aside in a cash reserve, to be available to pay for future utility capital improvements. This lawsuit seeks to cause the city to obey its charter by only transferring utility revenues after all the utility’s needs have first been met. (3)
Harry Zavos, a founding member of the Coalition, said while the city has been illegally siphoning off GWP revenues to pay for things unconnected with supplying ratepayers with electricity or water, it has ignored critical infrastructure needs of the utility. For example, at one public hearing GWP stated that some water mains were in such disrepair and low in pressure, it could not support one additional fire hydrant, if needed. This lawsuit by the coalition seeks to require the city to follow the law and first take care of GWP’s needs before it considers diverting ratepayers money for something other than providing them with electricity and water, alleging that the charter only allows the city to move money over to the so-called General Fund after all Glendale Water & Power expenses have been covered.
The first lawsuit filed by the GCBG alleges that the City has transferred non-surplus GWP revenue funds from the electric works revenue fund to the general budget fund in violation of the Charter. It is informed and alleges that the City has budgeted in excess of $20.6 million for the fiscal year ending June 30, 2014 to be transferred from the electric works revenue fund to the general budget fund in violation of the Charter. Petitioner has a clear, present and beneficial right that the City comply with the Glendale City Charter and not illegally transfer revenue from the electric works revenue fund to the general budget fund, and return to the electric works revenue fund all monies illegally transferred to the general budget fund during the fiscal year ending June 30, 2010 through 2014 for the purposes specified in said revenue fund. (1)
No local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote in accordance with State Proposition 218 and 26. On or about August 13, 2013, the City increased electric rates charged to city rate payers without submitting the increase to a vote of the electorate in violation of Article XIIIC of the California State Constitution. California Constitution, Article XIIID (6) (b), provides, in pertinent part, that property related fees must satisfy the following requirements:
(I) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service.
(2) Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed.
(3) No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. (1)
With respect to the preceding, the City violates all the above due to its annual transfer of GWP revenue, representing non-surplus funds, to the general fund to pay for Non-GWP related costs and expense. In addition, the City failed to set aside an annual cash depreciation reserve for depreciable assets that will need to be replaced sometime in the foreseeable future. The city’s only alternative is to issue bonds or raise water and electrical rates again to pay for future infrastructure costs.
The second lawsuit was filed on March 13, 2014… Juan Saavedra and IBEW Local 18 AFL-CIO vs. City of Glendale. This action concerns the transfer of funds by the City of Glendale from the GWP Surplus Fund for Fiscal Year 2011-12 to the City’s General Treasury in violation of Glendale’s City Charter and the provisions of Article XIIIC of the California Constitution. Plaintiffs / Petitioners seek to obtain both declaratory relief and a writ of mandate compelling the City to abide by their obligations under the law and to restore the improperly transferred funds to the Glendale Water and Power Surplus Fund. IBEW brings this action on behalf of those employees of the GWP whom it represents and its other members who reside within the City and pay taxes to the City and purchase electrical and water services from the GWP. It contends, (5)
Section 22 of the Glendale City Charter provides:A fund to be known as the GWP surplus fund is hereby created, to which fund shall be credited from the receipts of the department of GWP in the waterworks revenue fund and the electric works revenue fund. All disbursements (except those payable from the waterworks and electric works depreciation fund) provided in the GWP budget on account of said waterworks and electric works shall be charged to said waterworks and electric works revenue fund. Any amounts in excess of the requirements of the several funds as hereinbefore set forth. The credit balance, if any, or any part thereof, in each of said funds at the end of any fiscal year, the amount of which is in excess of the amount of all outstanding demands and liabilities unpaid from said fund on account of budget appropriations there from, shall be transferred to the Glendale Water and Power surplus fund. (5)
Section 22: At the end of each fiscal year, the GCC may transfer up to twenty-five (25) percent= of the operating revenues of the department of GWP for such year, excluding receipts from water or power supplied to other cities or utilities at wholesale rates, from said GWP surplus fund to the general reserve fund; provided, that the council may annually, at or before the time for adopting the general budget for the ensuing fiscal year, reduce said amount or wholly waive such transfer if, in its opinion, such reduction or waiver is necessary to insure the sound financial position of said department of GWP and it shall so declare by resolution.
In a letter dated October 3, 2012, the City notified Local 18 that it intended to conduct a Reduction in Force resulting in the layoff of employees of the GWP. The letter explained, “[t]his Reduction-In-Force is necessary due to the current financial state of the utility, specifically a $10.8 million shortfall in the electric fund for the 2012/2013 fiscal year.” More than twenty employees of the GWP lost their jobs because of the layoffs produced by this shortfall. The ‘shortfall” in the GWP budget was less than half the amount the City transferred to its General Fund from the GWP Surplus Fund pursuant to Resolution 1288. Had the City not transferred these funds these employees would not have been laid off. (5)
IBEW desire a judicial determination of the limitations on the City’s right to make such transfers. They allege that the City has transferred from the GWP Surplus Fund to the General Fund an amount in excess of the twenty-five percent of net revenues for the 2011-12 year that is permitted under Article XI, Section 22 of the City Charter. As a result of this transfer the City brought about a $10,800,000.00 shortfall in the electric fund for the 2012/2013 fiscal year. That shortfall caused the loss of jobs of more than 20 GWP employees. (5)
IBEW also allege that once it found that the sound financial position of the GWP was at risk as stated in Resolution 12-88—the City had a clear, non-discretionary duty under Charter Section 22 to reduce the Section 22 transfer by the amount “necessary to insure the sound financial position of said department.” Instead, the City transferred funds from the GWP in so great an amount as to precipitate a financial emergency. Doing so was an abuse of its discretion under the Charter. An actual controversy has arisen and now exists between IBEW and the City of Glendale concerning whether the City may transfer funds from the Glendale Water and Power Surplus Fund to its General Treasury without violating Article XIIIC, Section 1 of the California Constitution and requiring the refund of millions of dollars that the City seeks to transfer. Article XIIIC, Section 1(e)(1) of the California Constitution defines the term “tax,” for purposes of that Article, as used in this article, “tax” means any levy, charge, or exaction of any kind imposed by a local government, except imposing a charge which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege. (5)
Article XIIIC, Section 2(d) of the California Constitution provides: No local government may impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. A special tax shall not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved.
The City’s proposed transfer of funds from the Glendale Water and Power Surplus Fund to its General Treasury would not change the fact that such funds were derived from the payments of ratepayers in the City of Glendale for the utility services they have received and are therefore ‘covered by the exemption in Article XIIIC, Section1(e)(1) of the California Constitution for utility charges that do not exceed the reasonable costs of providing the service. The City has a present legal duty to abide by Article XIIIC of the Constitution. Its transfer of funds from the GWP Surplus Fund to the General Fund without the approval of two thirds of the electorate would violate Article XIIIC. (5)
Having (2) lawsuits now filed against the city on the GWP transfers, from two separate entities, but for different reasons is a black eye on the City Council’s lack of transparency. The City in effect created its own financial emergency, weakening the sound financial position of GWP, by continually transferring “non surplus funds” to the “General Reserve Fund”, that eventually resulted in the need to raise electrical rates by 29.1% over the next five years. In addition none of the $300 million in UUT raised from utility usage since 2002 went back to the utilities.
The 25% of operating revenue in the Surplus Fund is only symbolic since the amount transferred to the General Reserve fund cannot exceed the amount of funds in the Surplus Fund at the end of the fiscal year, representing excess revenue funds after all GWP operating costs expenditures, designated capitalization costs, and money set aside in a depreciation cash reserve have been subtracted from gross GWP operating revenue.