The refusal of the Los Angeles Department of Water and Power to release over $70 million of anticipated revenues to the general fund could jeopardize the city’s ability to pay its employees as soon as April 19th, warned City Controller Wendy Greuel.
Greuel informed the City Council Monday, April 5th that DWP is resisting the funds transfer, which could leave the city government with a negative balance in its general fund.
“The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?’” the controller wrote in an urgent cash flow update. “Unfortunately, we finally have the answer.
“Without the full Power Revenue Transfer, I now project that if the city remains on its current path, the city’s general fund will be out of money — in fact it will be negative $10 million — on May 5th.”
The refusal to release the funds is the latest action in a budget-related showdown between the utility company’s board of directors and the council, which rejected a rate increase of 5.7 percent that the board requested last month. The council offered a 4.5-percent increase as a compromise, but DWP turned down that offer.
Greuel, who came to Del Rey last month to discuss the fiscal impact that the budget deficit could have on rollover funds and neighborhood council subsidies, urged the council to tap the city’s reserve funds in order to allow her to pay the municipal workers and vendors.
“This is the most urgent fiscal crisis that the city has faced in recent history, and it is imperative that you act now. That is why I am asking you to immediately transfer $90 million from the city’s reserve fund to the general fund so I can continue to pay the city’s bills, and to ensure the fiscal solvency of the city,” Greuel implored in her report.
“City employees are paid two weeks in arrears and we cannot legally permit them to work when there are not sufficient funds to pay them.”
Greuel said if the use of the emergency fund was not authorized, beginning April 19th, her office may not be able to pay the salaries of all city employees and/or make payments to vendors.
“We have two weeks to address this crisis, which is why you must act immediately,” she stated.
Responding to Greuel’s warning Tuesday, April 6th, Mayor Antonio Villaraigosa announced his proposal to shut down general fund departments two days a week.
“Today we are facing the consequences of the city’s failure to enact the necessary rate increases with Fitch Ratings, a major credit rating agency, withdrawing the DWP’s AA-bond rating, thereby costing the ratepayers more in the long run,” Villaraigosa, who appoints DWP’s commissioners, said. “There are no easy decisions or simple ways to solve this budget crisis. But as the CEO of this great city, it is my responsibility to make these difficult, but necessary decisions to steer the city out of this crisis and onto solid financial ground.”
The Fitch Group is an international credit agency that provides the world’s credit markets with independent and prospective credit opinions, research, and data.
The mayor accused the council of playing politics at a time when the city is facing a $212 million deficit.
“The politics of ‘no’ is no more sustainable than the DWP’s over-reliance on coal,” Villaraigosa asserted. “Instead of acting in the tradition of past city councils, where progressives put partisanship aside and positioned Los Angeles as a national leader, this council leadership has demonstrated what we’ve already seen at the national level: they have shown the results of the politics of ‘no.’”
City Councilman Bill Rosendahl said the original presentation by DWP for its rate increase was sloppy, and its discussions about the rate hike grew increasingly frustrating for all parties.
“We did not want to assault our constituents with another huge rate increase without any justification,” Rosendahl told The Argonaut. “I believe that we’re going to work this out. How much we will get (from the DWP) is the question.”
City employees, already facing the possibility of being among the 4,000 that Villaraigosa called to eliminate from the city’s payroll, could be in even greater jeopardy if the stalemate between the council and the DWP continues. Neighborhood centers like the Oakwood Recreation Center in Venice could face even further reductions in staff and programs.
“(Oakwood) is already supposed to lose one full-time employee in July,” said Carolyn Rios, a member of the Venice Neighborhood Council who lives across the street from the center and has worked with other volunteers to refurbish the neighborhood. “We’ve just started to turn our community around, and the recreation center is a big part of that turnaround.”
Mark Redick, president of the Del Rey Neighborhood Council, says the DWP board is too insulated from the public, and given the DWP’s refusal to transfer the money to the general fund, he would call for a referendum for a charter revision to restructure how the utility company functions.
“What they are doing is irresponsible and unconscionable,” Redick said.
The Del Rey council president said the utility company’s action was a threat that should not go unheeded by the City Council.
“They should look above their heads and realize what’s hanging by the thin horsehair is the Sword of Damocles,” he said.
Rosendahl reiterated his belief that DWP would eventually transfer the money to the general fund coffers. Until then, he said, the council will authorize using the reserve fund as a stopgap measure.
“We will make it through this fiscal year, but we’re going to need to use our reserves,” the councilman said.
Rosendahl acknowledged that the DWP’s action has exacerbated a situation where municipal employees are concerned with the reality of layoffs, and without the $73 million from the utility company, the elimination of neighborhood council rollover funds, cuts to local council budgets and the possible sale of city properties are definite possibilities.
“We cannot have the mayor and the council conflicting with each other now,” he said. “We won’t have to discuss neighborhood council budgets and rollover (money) for another two weeks, but it’s a very difficult time for the entire city and we’re going to have to make some very tough choices very soon.”
Westchester and Mar Vista have city-owned buildings that the mayor has considered selling in the past for budget-related purposes, and Mar Vista, Del Rey and Westchester-Playa neighborhood councils collectively could lose approximately $160,000 in rollover funds, which are funds that each council has saved over a period of years from their $45,000 yearly city allotment.
Calls to DWP for comment were not returned by Argonaut press time.