Court: Glendale Breached Its City Charter by Reallocating Utility Funds; Refunds Feasible

Los Angeles Superior Court Judge James Chalfant stated in a tentative ruling (Case No. BS147376) last week that the City of Glendale, California, had violated its own charter by transferring $85 million from Glendale Water & Power to its General Fund over the past five years – at a rate of a little more than $20 million annually.

However, city officials will not be required to pay any money back at this time.

The Glendale Coalition for a Better Government, which filed the lawsuit, had asked for payback to the utility of funds transferred for fiscal years ending June 30, 2011; June 30, 2012; June 30, 2013; and June 30, 2014; in order to cover the cost of key city services such as police and fire departments.

Such uses are improper: Under municipal law (Charter, Article XI, Section 17, Judicial Notice No. 12), Glendale is permitted to annually set aside “monies from its Waterworks Revenue Fund and Electric Works Revenue Fund, as estimated by the Glendale City Manager to meet normal depreciation of the Waterworks and Electric Works – and to be used only for repair, replacement, betterment, and extension of plants and equipments.

“After payment of all outstanding demands and liabilities,” the law mandates (Judicial Notice No. 13) that “the excess” shall be transferred back to the Glendale Water & Power Surplus Fund.

No vote, no money?

So why isn’t the utility or its ratepayers getting any payback now?

While Judge Chalfant stated that the city had violated its own charter because of how the money was transferred, he is now looking at whether Glendale can continue the annual reallocation of tens of millions of dollars if accounting practices are changed, according to a report in the Los Angeles Times.

The charter enables the city to transfer up to 25 percent of utility revenues, as long as the utility maintains “a strong fiscal position,” which the judge agreed with in the ruling, the news outlet said.

However, the city may end up having to pay back residents some of the money because electricity rates were increased to continue funding the transfer, without a public vote of approval. Indeed, the Glendale City Council voted to raise electricity rates in August 2013 – without a vote by the electorate.

Under Proposition 26, passed in 2010, a rate increase intended to pay for something that’s not related to the cost of providing service requires approval by two-thirds of each house of the state legislature, or by local voters.

“The transfer cannot fairly be described as cost of providing electric service,” Chalfant wrote in his tentative ruling. “Any contrary conclusion would defeat the purpose of Prop 26 by permitting a city to drain monies from its public utility as an alleged cost and then impose that cost on the utility’s customers without a vote from the electorate.”

Chalfant further stated that Glendale had violated its own charter because the money should not have been moved from the Glendale Water & Power’s surplus fund to the city’s General Fund.

The city will confer with the judge again on August 11 for a hearing on how to remedy the violations.

 

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