LEGAL EARTHQUAKE: CA City Must REPAY $57 Million For Illegal Rate Hike; Violated State Constitution

On Friday, the Los Angeles Superior Court ruled that the City of Glendale had violated the state constitution in 2013 when it raised utility rates and illegally transferred funds from the utility company (GWP) without voter approval.  The court ordered the City to repay almost $57 million to residents as well as return the over $1.7 million of illegally transferred funds back to GWP utility fund and out of the city’s general fund.

For three years, a group of residents in Glendale led by Roland Kedikian battled the City of Glendale over the rate and use of its utility fees.  The Glendale Coalition for Better Government is a non profit organization of residents and business owners formed in 2013 to combat the city’s electrical rate increase.

The Coalition accused the City of Glendale of “illegally siphoning off Glendale Water & Power (GWP) revenues to pay for things unconnected with supplying ratepayers with electricity or water.”  The Coalition also alleged the city had illegally transferring funds to “maintain lavish and unsustainable benefits and retirement to city employees at the expense of Glendale Utility payers.”  The Coalition alleged the City’s misuse of funds had imposed an “illegal backdoor tax” on Glendale residents because the tax operated without voter approval.

Los Angeles Superior Court Judge Honorable James C. Chalfant agreed with the plaintiffs, ordering the City to apply credits in excess of $56 million dollars plus interest to its customers and ordered the City to return over $1.7 million dollars:

Despite the repeated denial of wrongdoing by City management over the past three years, Los Angeles Superior court judge Honorable James C. Chalfant has ruled:

1. The City of Glendale’s rate increase adopted August 13, 2013 VIOLATED article XIII C of the California Constitution (Proposition 26).
2. The City of Glendale has a DUTY TO COMPLY with the City Charter, article XI, Section 17, 20 and 22.
3. The City is ENJOINED from applying the electric rates adopted on August 13, 2013 in the future based upon the annual transfer required by Glendale City Charter section 22 of article XI without submitting to a vote of the electorate.
4. Within 60 DAYS of entry of Judgment, the City SHALL begin to apply credits of $56,949,600 plus interest to the electric portion of the utility bills of active customers.
5. PEREMPTORY WRIT OF MANDATE is issued for the return of monies transferred from the Waterworks in the amount of $1,733,333.35

Judge Chalfant explained:

“The transfer cannot fairly be described as cost of providing electric service,” Chalfant wrote in the ruling. “Any contrary conclusion would defeat the purpose of Proposition 26 by permitting a city to drain monies from its public utility as an alleged cost and then impose that cost on the utility’s customers without a vote from the electorate.”

Mr. Mike Mohill explained the significance of Chalfant’s ruling against the City of Glendale:

For years Glendale has been transferring funds from its utility GWP in violation of the Law. Those transfers were nothing but an illegal back door tax imposed on all Glendale citizens without citizens right to vote on these taxes. Glendale business owners and residents have gone before the city council on numerous occasions and have voiced these serious concerns and were ignored. In fact Glendale citizens were told by then Mayor of Glendale, Dave Weaver,

“We’ve been over this before, if you don’t like it — sue.”

With that challenge by the then mayor and [with] the clear understanding that the City Council will do nothing to remedy their violations of the law, the Coalition initiated this lawsuit on February 25, 2014 and persevered for the past three years.

Over 100 California cities tack on a Users Utility Tax (UUT) as a ever-increasing percentage of customers’ utility bills, transferring those fees into their general operating funds just as the City of Glendale did in this case.  As energy rates rise, so too do the UUT rates, and all without voter approval.  It is a hidden tax hike and a major source of supplemental funding for the ever increasing costs of police and fire salaries.  Refunding these UUT transfers would deeply impact city revenues across the state and force city officials to address local spending.

If this ruling stands, the ramifications could change the political landscape of California more drastically than an 9.0 earthquake.  It would deny greedy city councils an easy source of funding absent voter approval.  Given the financial stakes involved, it is almost certain the City of Glendale will appeal.