A Los Angeles Superior Court judge permitted a lawsuit challenging Glendale's controversial utility transfer to move forward with some tweaks on Tuesday afternoon.
Although the city's attorneys asked Judge James C. Chalfant to throw out the lawsuit altogether for a number of reasons, including a statute of limitations as well as missing facts, he decided to let the Glendale Coalition for Better Government, a community advocacy group that filed the lawsuit in February, have a second chance.
The group, which claims the utility transfer is illegal under both the city charter and the state constitution, now must resubmit the lawsuit with the necessary changes, including a clarification as to why its members think the transfer is an illegal tax and how it has increased.
Glendale transfers about $20 million a year from its electrical-rate revenues to the General Fund, which pays for police, parks and other general services.
Critics, including residents and the Los Angeles County Civil Grand Jury, call the transfer a backdoor tax, while supporters say the money shuffle was approved by voters more than 60 years ago and is necessary to maintain quality-of-life services. Without it, the city could be in financial turmoil, officials have said.
"We did very well today," said Arthur Jarvis Cohen, attorney for the coalition, after the hearing in a downtown Los Angeles courtroom. "It was a very encouraging hearing."
But Michael Colantuono, the city's attorney, described the coalition's lawsuit as muddied, adding that the judge narrowed the case a bit, but not enough.
"We're still waiting to find out what this lawsuit is about," he said. "The plaintiffs have to decide what this lawsuit is about."
However, the judge described the three main points of the lawsuit during the hearing. Glendale is transferring money from the utility's total revenues, when the coalition claims the city charter states it should only come from a surplus, the city can't transfer when there is no surplus and the transfer is an illegal tax, based on the state constitution.
Glendale Water & Power has faced years of multimillion-dollar deficits — prompting increases in water and electric rates — so the coalition argues there could be no surplus.
Colantuono said the surplus issue is moot because when Glendale created its electricity rates, the transfer was already mixed in.
"The General Fund transfer is baked in the cake, so to speak," Colantuono said,
In addition, according to court records filed by Colantuono, the constitutional provision the coalition is using to back up its illegal tax claims is canceled out since the law, known as Proposition 26, is not retroactive and the transfer was approved decades before the law, which limits taxes, was penned.
While the city used to transfer about $4 million annually from the water side, too, complaints from resident Harry Zavos, a leader of the coalition, prompted officials to halt the water transfers in 2011 because it could leave Glendale vulnerable to a lawsuit.
Glendale has transferred $90 million from both sides of the utility since 2010 and the coalition wants that money returned to the utility. It remains to be seen, though, whether the coalition can stretch its case back that far as there are two competing statutes of limitation. One sets the cutoff at three years before a lawsuit is filed, while another is four years.
The city's attorneys asked the judge to choose the former cutoff, but he said he would allow the coalition to use the latter, for now.
A few weeks after the coalition filed its lawsuit, the International Brotherhood of Electrical Workers, Local 18, the union for utility workers, and a Glendale resident, filed a similar one.
"There's a good deal of overlap, but the two are not carbon copies of each other," said IBEW attorney Henry Willis during the hearing, adding that the union claims the city miscalculated the transfer and acted "arbitrarily and capriciously" when moving money to the General Fund when the utility needed it the most.
The judge also decided to link the two cases and combine them at trial.
The competing sides are scheduled to meet in court again in September for a status conference.