The GCBG vs. City of Glendale – Round One
On February 25, 2014, the Glendale Coalition for Better Government (GCBG) filed a petition against the City of Glendale, Case No. BX147376. It brought this lawsuit in keeping with its mission of advocating for a sustainable, responsible, and transparent government. It seeks to insure that the City obeys the law.
The City Charter provides, among other things, that income from the waterworks revenue fund and electric works revenue fund is to be set aside; (a) and transferred to the waterworks depreciation fund and electric works depreciation fund, respectively, sufficient to meet normal depreciation — each of said funds shall be used only for the repair, replacement, betterment and extensions of the plants and equipment of the waterworks or electric works respectively (Section 17), (b) and transferred to the GWP sinking fund to service GWP bonds (Section 21), and (c) used to meet outstanding demands and liabilities on account of budgeted appropriations (Section 20).
Section 22 of the Charter establishes the GWP surplus fund which provides that it is to be credited from the waterworks and electric works revenue funds with any amounts in excess of the requirements set forth hereinabove. Section 22 further provides that all Glendale Water and Power (GWP) surplus fund monies be devoted to GWP purposes except as provided as follows: At the end of each fiscal year an amount equal up to (25) percent of operating revenues of the Department of GWP for such year…shall be transferred from said Glendale Water and Power surplus fund, if any, to the general reserve fund. If there is no GWP surplus, there is no transfer.
However, the City Council and the General Manager Ochoa would prefer to bypass the surplus restriction all together, and transfer directly from GWP’s electric and water revenue operating fund. Actually, they unsuccessfully attempted to pass a ballot measure, Measure B in the 2012, to support their illicit practice and violation of the City Charter, just like they did with the 2012 water rate increase and the 2013 electric rate increase approved by the City Council, without voter approval.
- It also included an indeterminate drought charge adjustment, that occurs when water revenues fall due to conservation, and the decoupling charge adjustment when electric revenues falls for conservation purposes. In both instances, residents and businesses are assessed an additional charge when both electric or water volume falls, to make up for the lost revenue to ensure that there is sufficient revenue to cover GWP’s fixed overhead and fixed operating costs.
The intent of State Proposition (Prop.) 218 is to ensure that all taxes and most charges on property owners are subject to voter approval. In addition, Prop. 218 seeks to curb some perceived abuses in the use of assessments and property-related fees, specifically the use of these revenue-raising tools to pay for general governmental services rather than property-related services. (1)
Prior to Prop. 218’s passage, the courts allowed local governments’ significant flexibility in determining fee and assessment amounts. Prop. 218 changed this legal standard by shifting the burden of proof to local governments. After Prop. 218, it prohibits using revenue from city-levied utility fees for … “Transfers from the water fund to the general fund. Now local governments must prove that any disputed fee or assessment charge is legal. (1)
Although, Prop. 218 passed in 1997, the City continued its illegal practice of transferring water revenue to the General fund, through 2011, finally stopping in 2012 under threat of a lawsuit. The City was also in violation of State Proposition (Prop. 26) in 2013, when it raised electric rates without submitting it to a vote of the electorate. Petitioner has a clear, present and beneficial right that the City complies with the Glendale City Charter and return all monies illegally transferred to the general budget fund and to submit any electric rate increase to a vote of its citizens.
Members of the coalition that filed the lawsuit have long complained about the city’s money transfers, describing them as backdoor taxes that artificially inflate utility rates. Then, Mayor Dave Weaver challenged transfer opponents to sue the city, which they did. (2)
Even as GWP slid into multimillion-dollar deficits, the city continued to transfer money the utility received from ratepayers to cover general government service expenses, such as those for fire, police and libraries. City officials contend that the transfers are the only way to maintain City services. The lawsuit comes nearly a year after a Los Angeles County Civil Grand Jury said Glendale should stop using its utility as a “piggy bank. The lawsuit also asks a judge to prohibit Glendale from increasing electric rates without a public vote on the matter under State Prop. 26. (2)
The City filed with Superior Court, a “Demurrer”, on March 29, 2014. The rules regarding a demurrer provide that “The function of a demurrer is to test the sufficiency of a pleading by raising questions of law”. A demurrer tests the legal sufficiency of a complaint, accepting as true all facts properly pleaded or subject to judicial notice. The City said that PROP. 26 does not apply retroactively to the General Fund Transfers (Transfers) and any other challenges to the 2013 Electrical Rates are Uncertain. The City argued that because it’s not retroactive, it does not apply to subsequent actions which implement pre-existing legal mandates. In addition, because the Transfers pre-dates Prop. 26, compliance with this mandate is a legal cost of GWP’s electric service and it must bear irrespective of future electric rate increases.
The GCBG/Petitioner in its Opposition to the Demurrer, filed on June 16, 2014 said; City argues that Proposition 26 enacted in November 2010 was not retroactive. The Coalition agrees. Retroactivity is not an issue. The GCBG is not challenging the City’s right to Transfer. The Petition concerns itself with the August 2013 increase in electric fees.
The City also argued that the electric transfer increase permitted in the 1946 charter amendment predates Proposition 26. The Coalition agrees. However, this is irrelevant. The eighth and ninth causes of action do not address the transfer of monies from one fund to another. It only addresses the illegal rate increase charged to the ratepayer. Under Prop.26, an increase in the rate fees is an increase in the tax.
There is no dispute that City increased electric rates on August 13, 2013 and that this increase was enacted without a vote of the electorate. The Coalition had expressly alleged that the increase in electric rates without a vote was an illegal tax. Further,
- Article XIIIC of the state constitution expressly states: “The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax….”
- Once the Coalition alleges that the charge to the ratepayer was a tax, the burden is upon City to prove that it is not. If City wishes to assert that an exception under Article XIIIC(e) exists, the burden is upon City to prove that exception. It is not sufficient to state in a demurrer that the charge was not a tax or falls within an exception.
The City asserts in its demurrer that the Transfer is not subject to Prop. 26. The GCBG contends and irrespective of the validity of the Transfer of monies already collected, the transfer is not the rate to be charged in order to collect these monies from the rate payers in the first place. The City has patently confused the transfer of monies with the rates charged to collect those monies.
At the July 15 court hearing on the City’s Demurrer, the LA Superior Court judge permitted the lawsuit to move forward with some tweaks. (3) The court also found the GCBG petition was legally sufficient as to its claim that the city violated the charter in transferring electric and water fees to be used for other than supplying Glendale customers with water and power. The coalition is seeking the return of electric funds for a period of 4 years under the charter and seeking recovery of the water fees for a 4 year under the charter and state constitution. While the court limited the recovery period to three years under the charter, it did allow it to proceed with the recovery of water fees for a 4 year period under the constitution.
The California Constitution, Article XIIID (6) (b), provides, in pertinent part, that property related fees must satisfy the following requirements:
(1) 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.
In the City’s Interdepartmental Communication, from Michael Garcia, City Attorney, dated July 30, 2012, to the Interim General Manager and the Department of Glendale Water & Power, it pertained to a legal analysis overview of the Electric Fund Transfer to General Fund, Issues Pertaining to Interpretation of City Charter and Application of Proposition 26 to Electric Rate Increases, Depreciation fund, etc. (4)
It was more or less the City’s rationalization and justification for raising electric rates, in violation of Prop. 26, without a vote of the electorate. It’s really a work of fictional art. They can rationalize it to themselves as much as they like. Now they will be forced to explain their rationalization in a court of law.
For the past several years, the City has been transferring GWP Electric Revenues to the General Fund without a surplus. Now it has raised electrical rates, strictly by City Council approval, so that it can now create a surplus to justify any future transfers to the General Fund. Their only problem is, that a portion of the rate increase is intended for General Governmental Services (general fund), not exclusively for Property Related Services which is a violation of Prop. 26, without voter approval.
In addition, the City Council has been non-compliant with Article XI, Section 17 of the Charter. It states that the City Council “shall … annually set aside from the income of the department of Glendale Water and Power derived from the electric works of the city”, according to the estimates of the city manager, shall be sufficient to meet the normal depreciation of such electric works. For 2013-14 the city’s budget for Electrical works depreciation was $25.6 million. The City Council is willfully negligent in bypassing this mandatory obligation to set aside Surplus Revenue funds from GWP for future capitalization in the depreciation fund. Surplus revenues are those revenues left after providing for all budgeted expenses, obligations of the utility, including monies set aside in a cash reserve to cover the need for future utility capital improvements due to normal depreciation.
The Coalition is gratified and encouraged by the courts denial of the city’s challenge to the legal sufficiency of the petition. This is but the first step in the coalition’s effort to make the city obey the charter and the constitution. This process will continue and the Coalition will aggressively fight for the rule of law.