Tue, May

DWP Violating Purpose of Government-Owned Utilities … Shouldn’t be City Hall’s Cash Cow


LA WATCHDOG--The Department of Water and Power will ship $267 million of our hard earned cash to City’s coffers this fiscal year pursuant to the 8% Transfer Fee. Along with the 10% City Utility Tax of $344 million, the City’s total haul will be over $610 million, an amount equal to 16% of the Power System’s revenues. 


Next year, we will be smacked with a 9% increase in fees and taxes, or a whopping $661 million.  And this does not include City Hall’s pet projects or the IBEW Labor Premium that has been facilitated by the City Council and our previous mayor as payback for generous campaign contributions by IBEW Union Bo$$ d’Arcy.  

City Hall justifies the Transfer Fee from the Power System by claiming it is equivalent to a dividend that shareholders of investor owned utilities receive.  Yet, despite repeated requests over the years, the City has not provided us with any analysis to justify this ever growing Transfer Fee. 

The City also says that the Transfer covers the property taxes and franchise fees that would be paid if DWP was an investor owned utility.  But once again, we have never received any supporting documentation.  This includes when the Transfer Fee was increased in two steps by 60%, from 5% in 2005 to the current level of 8%, thanks to Mayor Antonio Villaraigosa and the Eric Garcetti led City Council. 

Both these justifications are inconsistent with the purpose of government owned utilities.  They were created to provide reliable and low cost water and power for the Ratepayers, where surplus funds are reinvested into the system and not siphoned off by the local governments for non-utility related uses. 

For example, over the last six years since voters approved Proposition 26 (The Supermajority Vote to Pass New Taxes and Fees), over $1.5 billion of Ratepayer money has been diverted to the spendthrifts at City Hall instead of being invested in the Power System’s infrastructure (utility poles, transformers, power lines) or its renewable energy portfolio. 

There is also a high likelihood that the 8% Transfer Fee will be ruled to be an illegal tax.  According to a class action lawsuit, the 8% Transfer Fee violated Proposition 26 because it is not a fee for a specific service, but rather a general tax.  

Needless to say, the City will contest this lawsuit because if the City loses, it will be denied the 8% Transfer Fee.  The City will also be required to repay the $1.5 billion that was diverted to the City’s coffers since November of 2010 when the voters approved Proposition 26.  This would require an outlay of about $150 million a year for the next 15 years to amortize this $1.5 billion obligation.  Overall, this represents a hit of over $400 million to our cash strapped City’s budget.  

The City contends that we approved the 8% Transfer Fee in 2011 when 82% of the voters approved Charter Amendment J which required DWP to “annually submit a preliminary budget to the City Council for informational purposes and establish procedures for making surplus transfers from the Power Revenue Fund to the City Reserve Fund.”  But nowhere did it ask us to approve the Transfer Fee.  

More than likely, the City will ask us to approve a new Transfer Fee along with Charter Amendments that will reform the governance and personnel policies of our Department of Water and Power.  But this will require the City Council and the Mayor to engage Angelenos in an open and transparent dialogue where Ratepayers and other civic leaders have a seat at the table and are active participants in the drafting the proposed ballot measures that authorize the Transfer Fee and reform and restructure our Department of Water and Power. 

Without an open and transparent process which includes the Ratepayers and the public, the odds of the voters approving the Transfer Fee (and any other taxes for that matter) are remote as we will not be treated as a cash cow to be milked dry by the City Council and the Mayor. 

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and a member of the Greater Wilshire Neighborhood Council.  Humphreville is the publisher of the Recycler Classifieds -- www.recycler.com. He can be reached at:  [email protected].)


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