An End to Padded Water Bills?

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 customers.

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 $29931300 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!

Jon Coupal is President of the Howard Jarvis Taxpayers Association — California’s largest taxpayer organization — which is dedicated to the protection of Proposition 13 and promoting taxpayers’ rights.