Judge: Glendale violated charter with money transfer from utility, but reallocation can continue

A judge has ruled that the city violated its own charter when it transferred $85 million from Glendale Water & Power to its General Fund during the past five years, but city officials won’t be required to pay any of that money back for now.

The Glendale Coalition for a Better Government, which filed the lawsuit two years ago, said it wanted to pay the utility back for money transferred between 2010-14 from the electric revenue fund to the city’s general fund, which pays for key city services such as police and fire departments.

While L.A. Superior Court Judge James Chalfant stated in a tentative ruling last week that the city violated its own charter because of how the money was transferred, it can continue the annual reallocation of tens of millions of dollars if accounting practices were changed.

The charter also allows the city to transfer up to 25% of utility revenues as long as the utility maintains a strong fiscal position, which the judge agreed with in the ruling.

However, the city may end up having to pay back residents some of the money because electricity rates were increased to continue funding the transfer.

Under Proposition 26, passed in 2010, a rate hike to pay for something that’s not related to the cost of providing service requires a two-thirds approval by voters.

The City Council voted to raise electricity rates in 2013.

“The transfer cannot fairly be described as cost of providing electric service,” Chalfant wrote. “Any contrary conclusion would defeat the purpose of Prop 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.”

The city will confer with the judge again on Aug. 11 for a hearing on how to remedy the violations.

Harry Zavos, a board member with the coalition, said one way to go about it would be to refund the rate payers in Glendale the rate increase.

“I think [Judge Chalfant] ruled correctly,” Zavos said in a phone interview. “[The city] raised the electrical rates, which are being used for things other than providing electricity, so they are, in fact, a tax.”

Chalfant said in the ruling that a rebate could be possible.

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However, City Atty. Mike Garcia, who said the City Council will vote on whether to appeal the judge’s ruling, said voters have twice in the past voted in favor of having the utility transfer in place.

“We primarily believe that because the transfer was grandfathered in before Prop 26 and, in a charter provision, we’re allowed to maintain it,” Garcia said. “Even though we’re increasing our electric rates, that’s a component of our rates.”

The coalition’s lawsuit specifically targeted annual transfers from the electric revenue fund to the city’s general fund between 2010-14, which totaled $85 million.

Chalfant said the city violated its own charter because of the source fund of the transfer. Instead, the money should have been moved from the Glendale Water & Power’s surplus fund to the city’s general fund.

The city can continue to make that transfer if it follows the judge’s direction, but Garcia said the council will also have a vote to decide whether to appeal because the method Chalfant is mandating goes against modern accounting practices.

Garcia said he equated making the change to paying for one’s bills from a savings account.

The City Council on Tuesday voted to approve the annual transfer — this time totaling $20 million — under the procedure Chalfant ruled should be followed.

Also, at the Aug. 11 meeting, there will be a discussion on whether to pay back $7.7 million to the utility’s water fund. Transferring from that fund was stopped in 2011.

There was a similar case also filed in 2014 by the International Brotherhood of Electrical Workers where the organization wanted to stop the transfer, but Chalfant ruled against it.

The union also sought to restore the jobs of 20 utility workers who were laid off in June 2012 because of a budget shortfall in the utility because of the transfer.

However, Chalfant ruled against restoring the positions.

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Arin Mikailian, arin.mikailian@latimes.com

Twitter: @ArinMikailian