When you buy a pair of shoes, you assume that the price you pay
includes the store’s cost for the footwear and a profit margin on
top of that. However, when you pay your water bill to a government
agency, you do not expect a profit margin to be built into the
price. But if you live in Los Angeles, that would be wrong.

The City of Los Angeles has a long-standing practice of skimming
money off the top of the customers’ water bills.

The Howard Jarvis Taxpayers Association has just concluded a legal
case that may put an end to this practice once and for all. In
encouraging news for Los Angeles water customers, on March 25th the
Los Angeles Superior Court issued a tentative ruling in LA vs. All
Persons finding the City’s practice of padding water bills to pay
for unrelated City expenses to be unconstitutional.

The city’s padded water bills created an annual multi-million dollar
surplus in its water fund, while, adding insult to injury, the
city-owned Department of Water and Power (DWP) was seeking rate
increases. For example, in the 2006-07 fiscal year, the city was set
to transfer nearly $30 million from the DWP to the General Fund, to
be spent at the Council’s discretion.

However, in 2006, the Supreme Court ruled in Bighorn-Desert View
Water Agency v. Verjil that the provisions of Proposition 218, the
Right to Vote on Taxes Act — an initiative sponsored by the Howard
Jarvis Taxpayers Association and approved by voters in 1996 — apply
to fees for water service. Proposition 218 requires that fees
charged for a property-related service not exceed the cost of
providing that service and “not be used for any purpose other than
that for which the fee or charge was imposed.”

In an effort to do an end run around the law, in 2007 the City filed
a “validation action,” suing all of its citizens, and seeking a
court order allowing the continued transfer of funds from Department
of Water and Power to the general fund. The city served its suit by
running a small ad in an obscure newspaper, hoping no one would
notice within the three month deadline to respond and they would be
home free — free from future litigation over the issue that is. But
much to the disappointment of city officials, the ad was spotted by
a concerned taxpayer who contacted the Howard Jarvis Taxpayers
Association. HJTA attorneys then jumped to action, appearing in
court on behalf of their members who are Los Angeles water

Judge Kenneth Freeman’s tentative ruling states, “Proposition 218
prohibits the City and its Department of Water and Power from
transferring surplus revenue derived from water service fees to the
City’s Reserve Fund, General Fund, or any other fund for expenditure
on non-water related purposes. The $29,931,300 transfer via
resolution number 007-106 and City Ordinance number 178451 is
unconstitutional and void.” The Judge ordered that the transferred
money be repaid.

The City’s lawyers have 10 days from the issuance of the tentative
decision to challenge it, otherwise the decision becomes final. When
finalized, this decision will save DWP ratepayers more than
$30 million per year at today’s rates … a big win!