Residents sue over 'hidden taxes' in utility transfer
Coalition files suit a year after officials dismissed civil grand jury's advice.
Harry Zavos, a board member of the Glendale Coalition for Better Government, the organization that is suing the city over money transfers, speaks out at a Wednesday press conference. (Courtesy of Diana Martinez / February 26, 2014)
“These transfers amount to hidden taxes that are unlawful unless submitted to a vote” of the people, said Arthur Jarvis Cohen, attorney for the Coalition for Better Government, at a press conference in front of City Hall Wednesday.
Members of the coalition that filed the lawsuit in Los Angeles County Superior Court on Tuesday have long complained about the city’s money transfers, describing them as backdoor taxes that artificially inflate utility rates.
Even as Glendale Water & Power slid into multimillion-dollar deficits, the city continued to transfer money the utility received from ratepayers to cover general government expenses, such as those for fire, police and libraries.
At the same time, the City Council approved multiyear rate increases for both water and electric services in 2012 and 2013, respectively.
The lawsuit comes nearly a year after a Los Angeles County Civil Grand Jury said Glendale should stop using its utility as a “piggy bank.” City officials decided not to take the grand jury’s advice, calling its analysis flawed.
In addition, officials have said the transfers are the only way to maintain the current level of public services.
“When the voice of the people falls on deaf ears, the only remedy is legal action,” Cohen said.
Even Mayor Dave Weaver challenged transfer opponents to sue the city recently.
“Well that’s what we’ve done,” said Harry Zavos, a board member of the coalition, which was founded last year.
While the city used to transfer money from both the water and electricity sides of Glendale Water & Power, Zavos’ complaints prompted officials to halt the water transfers in 2011 because it could leave Glendale vulnerable to a lawsuit.
City officials declined to comment on the recently filed lawsuit because they have yet to analyze its contents.
Paul Jarvis Cohen, another attorney representing the coalition, alleged there were other illegal transfers made before 2010, but due to statute of limitations, the lawsuit focuses only on those made since then.
This isn’t the first lawsuit to challenge utility transfers, but this one is unique in that it focuses on alleged violations of Glendale’s own charter as well as other provisions of the state constitution beyond one that other lawsuits have highlighted in the past — Proposition 218.
At least four cities, including neighboring Burbank and Pasadena, have been sued for transferring money from their respective water funds to their general funds. Those lawsuits claim that Proposition 218, passed in 1996, prohibits utilities from charging service fees that exceed service costs.
Last year, Riverside settled its water-fund case, agreeing to return $10 million to the water fund from the general fund.
Electricity costs are exempt from the provision and Glendale’s lawsuit does not rely on Proposition 218 to frame its arguments. Rather, it focuses on the city charter’s rules governing the transfer, alleging that the charter only allows the city to move money over to the so-called General Fund after Glendale Water & Power expenses have been covered.
City officials have balked at this argument in the past, pointing to another line in the charter that commands a maximum 25% transfer outright from Glendale Water & Power. The City Council has long approved transfers of far less than 25% annually.
The lawsuit also asks a judge to prohibit Glendale from increasing electric rates without a public vote on the matter.
Roland Kedikian, a coalition board member who made an unsuccessful run for City Council in April, said the lawsuit signifies the first step the group has made to “vindicate the rights of our members and all Glendale residents” regarding taxes.
“What this lawsuit is really about is our right to vote on taxes being imposed on us,” he said.