Fitch Ratings withdrew its AA- grade for $720 million worth of bonds issued by the Department of Water and Power after the City Council last week rejected any increases in electricity rates for DWP customers.
The result is that the department will have to pay more to borrow money to maintain cash flow, although the agency is reported to be $1 billion in the black even as the city's general fund is facing a $700 million deficit come July 1. The mayor late Monday spoke out on the downgrade and on city controller Wendy Greuel's Monday announcement that the general fund will run out of money by May 5 because the DWP has refused to transfer a promised $73 million to that account.
“Today we are facing the consequences of the city's failure to enact the necessary rate increases … thereby costing the ratepayers more in the long run,” Mayor Antonio Villaraigosa stated.
“Over the past several months, I have been advocating for a plan that would put the Department of Water and Power back on a path towards fiscal health, protect the department's credit rating and avoid the very situation in which we now find ourselves,” he said.
That's not 100 percent true, however: Villaraigosa was cloaking a massive rate hike (as high as 28 percent for some customers, with more to come) as a “carbon surcharge” plan that would create jobs and wean the city off coal power. It was only in recent weeks, as he faced resistance from the City Council, that Villaraigosa painted his four-tiered rate hikes as a budget saver that would essentially act as a tax on the city's power customers.
It was, as Councilman Bernard Parks noted, an easy way out as City Hall faced hard choices that included layoffs, service cuts and slashing entire departments. The mayor and the City Council knew of impending budget doom as early as 2007 yet advocated union raises, a hiring spree and pension benefits that today have helped to put the city underwater.
Late Monday Villaraigosa sounded like a failing small business owner who couldn't pay the rent. He ordered city managers to ensure any outstanding city loans are payed, expedite invoices and adhere to his earlier “spending controls” that included travel restrictions.