New Battle is Brewing

Harry Zavos received his JD from Loyola Law School. He was an associate professor at Cal State University at Los Angeles. He became a partner with Acret & Perrochet, and was a general counsel for the Building Industry Assn of So. Calif., a special counsel for the Calif. Builders Council. Harry was also active in state and local legislative matters affecting the construction industry. Even after joining the faculty at Loyola Law School he continued to be involved in legislation. He is currently Prof. emeritus at Loyola Law School, having retired five years ago.

Never in his wildest dreams did Harry ever envision or contemplate becoming a public advocate on behalf of the residents and businesses of Glendale. When Harry comes before the City Council, he comes as a concerned citizen. He focuses only on the issues and stays away from the fray of personalities. He is careful with his assertions and rational in his arguments.” Harry is not vain or over confident. He always double checks his work and states to the City that if they have documentary evidence to the contrary, then present it. To the best of my knowledge, this has never happen. Ron Kaye, former GNP editor, wrote an article, titled, “The trouble with Harry”, where be described Harry, as a “ persistent, one-pointed like a pit bull, Zavos pushed city officials to the wall, claiming the transfer amounted to a tax requiring voter approval under the state’s Proposition 26 and violated the City Charter’s rules for Glendale Water & Power financial operations..”(1)

Harry’s gadfly image evolved over time and was hermetically sealed due to the arrogance and incompetence of the current and prior City Councils, by approving legislation that they did not fully understand the implications of or the unintended consequences of their actions, that often was in violation of both the City Charter and the City Constitution. Rather, they rely almost entirely on the advice and guidance of the General Manager, responsible for overseeing City staff reports and analysis, and the City Attorney. It’s apparent, that even if they had the limited capacity to understand what was presented; it was superficial based on a summary. The devil is in the details which they appear to lack either the desire or capacity in fulfilling their fiduciary responsibility. There is no independent opposing viewpoint or checks and balances in place for the City Council to otherwise consider, only what is spoon fed to them by the City Manager, what he wants to see.
In February 2011, Harry Zavos was instrumental in getting the City Council to discontinue the annual transfer of water utility revenues to the General fund, to pay for non-utility related public services. Even some council members gave the retired lawyer and Law professor grudging respect as an adversary focused on issues, forcing a halt to the unconstitutional transfer of “surplus” water revenue to the General Fund (2)

• Since 2000, nearly $35 million in water service revenues have been transferred to the General Fund. 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, that stated that fees could not be used “for any purpose other than that for which the fee was imposed.” (3) In prior years the City Attorney defended the water transfer as legal, However, Howard, former City Attorney, said that a 2006 court decision — 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. (4)

In 2011 the City decided it needed more revenue for the water utility. It retained a consultant, Willdan Financial Services, to prepare a Cost of Services Analysis (COSA) and based on that COSA to design the ordinance which would provide those revenues. However, the COSA is crucial because Art. XIIID, added to California’s Constitution by Proposition 218, requires: (1) “revenues derived from the fee or charge shall not exceed the funds required to provide the property related service” and (2) “The amount of the fee or charge imposed upon a parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel”. (5)

Prior to the ordinance’s adoption Harry attended several City Council meetings, speaking on this issue and provided the city with his written analysis detailing errors in Willdan’s work product that violated Prop. 218. The City had access to Harry’s analysis as well as other materials. Harry also met with Lagerlof, Senecal, Gosney & Kruse, attorneys for the Realtors Association familiar with Proposition 218. They all agreed that Willdan’s work contained Proposition 218 errors and the law firm agreed to prepare a letter to that effect that supposedly was shared with the city prior to the ordinance’s passage. This appears to be a consistent pattern attributed to the City Councils’ self-serving interest and arrogance, that they ignored these ominous and obvious warnings. (5)

• In March 2012 the City Council approved a four years of rate increases and restructuring that would significantly change how people are charged for water and other changes. GWP said it must generate more revenue to chip at a $21-million deficit on the water side, and to afford badly needed infrastructure upgrades. The rate increases would occur incrementally over the next four fiscal years. Since 2007, rates have increased about 38.8%. The plan was to split residential customers into multiple tiers, charging those who use large amounts of water a higher rate. It also puts more of the cost on fixed infrastructure, such as meters, rather than the commodity of water. Commercial customers were charged significantly more for their fire lines.(6)

In December 2013, Glendale’s water rate was found to be severely flawed which caused Glendale to overcharge some commercial customers and undercharge some residential customers, resulting in GWP losing at least $8 million in expected revenue. City officials decided to eliminate the newly implement water rate system in its entirety, by starting over, after discovering that water rate increases was riddled with errors. (7)
Harry on 2/10/2014 noted, Prop 218 Requires a Cost of Service Analysis Consistent to all Water Users. The COSA is crucial because Prop. 218, constitutionally require that water rates not exceed the proportional cost of providing water service to the ratepayer’s parcel. A flawed COSA that doesn’t accurately identify the relative cost of providing water service to the various ratepayers will cause an ordinance, based on it, to violate this State constitutional proportionality requirement. The Willdan ordinance established using tiers for charging residential ratepayers for the cost of water service. When the amount of one’s water usage increased to a certain point, the higher tier kicked in, where the per-unit cost of water increases based on a peaking data factor during summer months when residential ratepayer water use increases over normal use. The peaking effect–resulted in incrementally higher use of water during summer months over normal use–results in higher costs for the delivery of water. (8)

Harry illustrated that the problem with this scenario, was the irrigation ratepayers do not have tiers; but, it stands to reason that those users would also result in peaking along with its related increased costs. Indeed, GWP data shows that peaking, as a percentage of normal use, that’s caused by irrigation ratepayers is almost 1 and 1/2 times greater than that of single-family residential users; a class of ratepayers described as “public authority”, which also are not subject to tiers, cause almost 5 and 1/2 times more. The City could hardly meet Prop. 218’s constitutional proportionality requirement when it only captures peaking costs for one group of ratepayers (i.e. residential users) and not for others. There were additional methodological and computational errors in Wildan’s tier system as well. (8)

Harry has also been challenging a similar transfer in GWP electricity revenues, approximating over $20 million. The City violated its charter by transferring utility monies as a GWP budgeted appropriation, regardless of surplus and even in the face of GWP losses. Since 2000 $193 million has been transferred from the utility’s electricity revenues to the General Fund. Again, Harry is not addressing the appropriateness of the transfer, but the legalities–whether the city is acting within legal constraints regarding those transfers.
In August 2012, the City Council attempted a Hail Mary to circumvent the charter, by calling for a change to the City Charter by ballot measure, also known as Measure C. City officials said they wanted to clear up outdated practices and ambiguous language with a ballot measure that will go before voters as early as spring 2013. Also, they said, to tweak language in Glendale’s Charter to reflect modern financial accounting practices. (9) What they actually wanted to do was to legalize their illicit “current” practice, and to end criticism by city advocates, by streamlining the annual transfer of millions of dollars of utility revenues, as a budget appropriation, instead of from GWP’s surplus account, if any, to pay for other public services. By doing so, the City left the GWP with insufficient revenues to pay for needed infrastructure, resulting in deferred capitalization, that eventually lead to artificially higher utility rates.

Any electrical rate increase, approved by the City Council, not by ballot measure, that was not based on actual needed cost, due to stripping GWP in excess of $20 million dollars annually, is in violation of State Proposition 26. The City’s self-serving interest was fully realized, when they said, “the Charter’s current decades-old language is a hindrance, given the current way of doing things”, and if they were unable to continue transferring these funds that it would cut into other essential services. City officials even had the chutzpah to attack the LA County Grand Jury, whom Harry filed a complaint with, as a bunch of homemakers and retirees, who questioned their alleged illicit practice of using the GWP as a cash cow.
Although the City Charter allows for the transfer up to 25% of the utility’s operating revenues, the transfer can only come from the utility’s surplus funds, if any, at the end of the year. “The Charter is a fundamental law of the city. Accounting principles have to adapt to the law of the city, not vice versa,” Zavos said, adding that if the city wanted to raise revenues to support parks and police, it could put new taxes on the ballot. City Manager Scott Ochoa said, “We understand what the objections have been,” said. “We just don’t agree with them”, even suggesting that Prop. 26 doesn’t apply because the transfer was grandfathered in. (9)

Ultimately, Measure C went down to defeat. Voters were not fooled by the misleading intent of City Officials. Yet, the City Council continued with their illicit ways and practices, as business as usual. Even as Glendale Water & Power slid into multimillion-dollar deficits, the city continued to transfer money in monthly installments, as has been their past practice vs. at the end of the year from the surplus account, to cover general Non-GWP related expenses, i.e. fire, police, parks and libraries.
When Harry and other concerned citizens continued to challenge the City Council, then Mayor Weaver, finally said, to stop with the criticism, that if you don’t like the way we do business, then sue us. So, Harry and other concerned citizens formed the, “Glendale Coalition for Better Government”, whose mission is to return control back to the city residents, by increasing transparency, accountability, responsiveness and integrity in City Government. Several months later, the Coalition sued the City of Glendale over the hidden taxes in the utility transfers. (10)

• The Coalition’s lawsuit seeks to require the city to comply with its charter and use ratepayer’s utility fees to first take care of utility needs before it transfers any money for general government use and to return to the utility some of the money transfer in violation of the charter. The lawsuit also asks a judge to prohibit Glendale from increasing electric rates without a public vote on the matter. Californians passed Proposition 26 to prevent local government from denying taxpayers’ constitutional right to vote on increased revenues by disguising those increases as fees. (11) The lawsuit is presently pending.

Glendale subsequently retained a new consultant, Bartle Wells, to correct the water rate errors caused by Willdan. After Bartle Wells completed its analysis, Harry on May 30, 2014, noted several possible PROP. 218 VIOLATIONS IN BARTEL WELLS’ COSA FOR GLENDALE WATER FEE ORDINANCE. Art.XIIID, sec. 6(b)(5) that states: “In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article.” i.e. just to list a few:

1. Charges for Fire Protection The COSA earmarks a portion of fixed charges to pay for fire services, including fire hydrants Art. XIIID, sec. 6(b)(5) expressly provides that “no fee or charge may be imposed for general government services including, but not limited to,…fire…where the service is available to the public at large in substantially the same manner as to property owners.” Using a portion of the water fixed charge for fire service, on its face, is in direct conflict with Art. XIIID, sec. 6(b)(5).

2. Discount for Recycled Water. The COSA (pp. 40 and 44) provides a 15% discount on fixed charges for recycled water customers compare to potable water customers. This discount is not because the fixed costs associated with recycled water are 15% less than those for potable water; rather, the sole rationale for the discount is to provide an “incentive for customers to use recycled water.” While this is a laudable goal it cannot be accomplished by violating Art. XIIID, sec. 6(b)(3) (see Palmdale case 198 Cal. App. 4th at 936-37).

• Art. XIIID, sec. 6(b)(3) dictates that a “fee or charge as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.” The fact that potable water customers are charged 15% more than recycled water customers to cover the total of fixed costs, on its face, conflicts with Art. XIIID, sec. 6(b)(3).

3. Peaking for 15 categories of GWP customers with their individual peaking factors is expressed in the third column of Table 17 of the COSA as a ratio of average monthly consumption The 15 categories, for the purposes of charging customers, have been collapsed into four categories. Table 17 shows the same data for those four categories that are shown for the original 15. How is this disparity justified given Prop.218’s proportionality requirement? How do you justify categories with lower peaking factors that are merged with other categories with higher peaking factors, using the same average peaking factor. In effect, wouldn’t the categories with the lower peaking factors be subsidizing the categories with higher peaking factor? Again, how does this rate structure distribute costs differently for residential customers than non-residential customers that is not conflict with Prop 218 proportionality requirement.

4. Wildan’s data shows monthly average consumption for the single family residence category as 357,314 hcfs. If we divide the number of single family accounts, 22,309, into 357,314 hcf, we get 16 hcfs. Thus, on a per account basis, peaking begins after the consumption of 16 hcfs. (In 2011 the then GWP Assistant Director for Water Services, Peter Kavounas, publicly stated that consumption of a typical single family consumer is 19 hcf)

5. COSA states that the typical single family residential household consists of 2.8 persons, the efficient water use allowance is 50-55 gallons per day and the typical home uses 70% of water outside. The COSA provides no basis for these assertions.

6. Single Family Residential Tiers. The COSA (p.44) establishes tiers to capture costs associated with peaking. Tier 1’s upper limit is 6 hcf for single-family residences. Once you exceed that limit and go 6.1 hcf you go to tier 2. Once you go to tier 2, according to the COSA, you are using peaking water–water in excess of normal or average use. There is no basis to recover peaking costs.

• According to COSA’s Table 17 normal monthly consumption for single family residences is 400,973 hcfs. If you divide that number by 6 hcfs, the product will give you the number of customers it would take to exhaust the entire normal monthly consumption of single family residences. That product is 66,828. But, that is a preposterous number given that the COSA (p. 3) states that the total number of meters is approximately 34,500. This means tier 2 customers are paying for the cost of supplying peaking water when in fact they are not using peaking water. They are paying for costs which they are not causing the utility to incur on their behalf–they are paying on behalf of others. I can see no explanation that would prevents this fact from making the COSA fatally flawed in light of Art. XIIID, sec. 6(b)(3).

The preceding was only a few examples of Harry’s analysis of Bartel Wells COSA. If these issues are not adequately resolved prior to the City Council approving BARTEL WELLS COSA FOR GLENDALE WATER FEE ORDINANCE, the Coalition has the means and resources to slap the City with another lawsuit. So, it really behooves the City Council to correct these apparent errors and/or provide documentary evidence to the contrary to show that BARTEL WELLS COSA calculations are in compliance with Prop. 218. The City of Glendale should be grateful for having Harry Zavos, acting on their behalf, who has the time, ability. Experience, and perseverance, to spend countless hours of his own time, dealing with a ungrateful and thankless City Council.

Source Reference:
(1) http://www.glendalenewspress.com/opinion/tn-gnp-0826-ron-kaye-the-trouble-with-harry,0,7170277.story
(2) http://www.glendalenewspress.com/opinion/tn-gnp-0617-ron-kaye-hes-embracing-his-gadfly-identity,0,4761418.story
(3) http://articles.glendalenewspress.com/2011-02-09/news/tn-gnp-city-council-halts-water-utility-revenue-transfers-20110209_1_transfers-water-service-water-utility
(4) http://articles.glendalenewspress.com/2011-02-09/news/tn-gnp-city-council-halts-water-utility-revenue-transfers-20110209_1_transfers-water-service-water-utility/2
(5) http://www.glendalecacoalition.org/2013/12/failure-to-heed-results-in-water-utility-rate-errors/
(6) http://articles.glendalenewspress.com/2012-03-28/news/tn-818-0328-glendale-approves-water-rate-increases_1_customers-into-multiple-tiers-rate-increases-average-residential-customer
(7) http://articles.glendalenewspress.com/2013-12-18/news/tn-gnp-glendale-water-rates-found-to-be-severely-flawed-20131218_1_water-rate-glendale-water-power-city-council
(8) http://www.glendalecacoalition.org/2014/02/prop-218-requires-a-cost-of-service-analysis-consistent-to-all-water-users-will-the-city-listen-this-time-around/
(9) http://articles.glendalenewspress.com/2012-08-15/news/tn-gnp-0816-council-calls-for-charter-update_1_transfer-rules-electricity-revenues-ballot
(10) http://articles.glendalenewspress.com/2014-02-26/news/tn-gnp-residents-sue-over-hidden-taxes-in-utility-transfer-20140226_1_glendale-water-power-water-transfers-utility
(11) http://www.glendalecacoalition.org/2014/03/city-of-glendale-is-equaly-expected-to-abide-by-the-law/