DWP Slush Fund

On March 25, L.A. Superior Court Judge Kenneth Freeman handed down a tentative ruling against the city’s practice of skimming 5 percent off the top of Angelenos’ water bills, and slamming city officials for this sleazy move just when City Hall can least afford to give back any ill-gotten funds.

For years, city leaders propped up the general fund with as much as $30 million in revenue derived from an added tax on water used by residents and firms.

In 1996, the Howard Jarvis Taxpayers Association crafted state Proposition 218, the Right to Vote on Taxes Act, which Californians approved to make sure that “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.”

Los Angeles city officials began expressly disregarding that law, but the Jarvis group kept losing when it butted heads with the city in appellate courts. That is, until 2006, when California Supreme Court upheld Proposition 218’s requirement that fees paid by the public must provide the related service.

City Hall wasn’t too keen on the ruling. In 2007, knowing that the practice might be deemed unconstitutional, city attorneys under Rocky Delgadillo tried a slick maneuver: They floated an announcement in the obscure Metropolitan News-Enterprise for three days, stating that anyone opposed to the 2006-2007 transfer of nearly $30 million from DWP water fees to City Hall coffers — where it was spent on anything Mayor Antonio Villaraigosa and the council wanted to spend it on — had to quickly file as a defendant if they wanted the practice stopped. If no one stood up, the court would enter a default judgment and the transfer of funds would be validated forever.

“The [DWP] knew they were vulnerable so they sued the whole city,” essentially suing all residents of Los Angeles, says the association’s president Kris Vosburgh. “They were hoping no one would notice.”

The sly trick failed. The taxpayers’ association jumped in as a defendant in the city’s tellingly titled lawsuit: The City of Los Angeles vs. All Persons.

Two and a half years later, in late March, Judge Freeman whacked the city’s legal arguments, stating bluntly: “The City argues, without authority, that under Home Rule, Proposition 218, a constitutional provision, must give way to its transfer ordinance. However, a charter city’s regulation remains subject to the state and federal constitutions.” Freeman wrote that the movement of huge sums of cash raised by DWP overcharges, then transferred for the use of the City Council and Villaraigosa, was “unconstitutional and void.”

On April 9, the final day to do so, Delgadillo filed a response to the judge’s tentative ruling. Among a long list of reasons why City Hall is still fighting the return of money overpaid by Los Angeles households and businesses was that DWP “has software dating back to the 1970s.” DWP’s chief information officer, Matthew Lampe, estimates $5 million to $8 million is needed just to hire contractors or pay city workers for the months needed to figure out how to pay back the $30 million in overcharges.

DWP argues that it “would have to lease a separate mainframe computer and completely write or modify six computer programs” to return the ill-gotten funds.

Watchdogs argue that there should already be plenty of money available to update computers, as well as power lines and pipes, but Villaraigosa and the City Council use the DWP as an ATM machine. Last year the DWP transferred $175 million to the general fund. It’s going to hurt, badly, to now have to give back $30 million to DWP. For comparison, that’s more than enough dough to fund — entirely, for a year — the city’s Animal Services department, or the entire Planning department or the mayor’s experimental antigang program.

Says Councilman Dennis Zine, ”When there is not enough in your checking account, you tap into your savings account, but if you keep on tapping, you’ll have nothing left because you forgot to replenish it.”

Zine says the money might have been better spent on fixing a water grid notorious for general disrepair. A citizen activist who closely watches the DWP, Jack Humphreville, agrees: “The DWP has failed to fund between $7 and $10 billion to maintain its infrastructure, fund its retirement obligations, and maintain its information technology platform. These guys [city politicians] are using DWP as a cash cow and destroying the trust people have in this great institution.”

If the ruling stands, the city will have to return the $30 million from fiscal year 2006-07 and, presumably, nearly $100 million it has more recently overcharged Los Angeles residents and businesses for their water.

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