L.A.‘s Green Energy Push Costly

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A grim assessment of L.A.'s finances

City Controller Wendy Greuel declares an 'urgent financial crisis' and says the only way to continue paying bills in the short term is to begin draining the city's already limited emergency reserve.

By Phil Willon and Maeve Reston

April 6, 2010


The city's top financial official issued a grim assessment of the escalating budget crisis Monday, warning that Los Angeles could be unable to pay its bills in just over four weeks.

City Controller Wendy Greuel declared an "urgent financial crisis" and said the only way to continue paying bills in the short term was to begin to drain the city's already limited emergency reserve.

Greuel's announcement was the latest development in an increasingly bitter standoff between the City Council and the city's Department of Water and Power over how much the municipal utility should charge ratepayers and how much it should contribute to the city's treasury.

DWP officials have proposed rate increases that would range from roughly 9% for most users to as high as 28% for some. The council has blocked those increases, responding to irate reactions from constituents. DWP officials have said that without the extra money, they cannot meet their commitment to send the city an additional $73.5 million on which budget officials say they have been counting.

Interim DWP General Manager S. David Freeman, in a letter sent to Greuel Monday morning, said that he would urge the utility's board of commissioners -- all appointees of Mayor Antonio Villaraigosa -- to withhold the $73.5-million payment. Without the rate increase, he said, the DWP would not have "surplus revenue" to contribute to the city while still paying its own bills.

Angry council members said they were skeptical of Freeman's assertion and accused the giant agency -- the nation's largest municipal utility -- of trying to use the payment to force through the rate increase.

"It seems they are holding the whole city of Los Angeles hostage because of their inability to hold up to their word," council President Eric Garcetti said.

The mayor, in response, reiterated his order for agencies to cut spending and expedite bill collection.

Greuel said the city would need to pull money from its $191 million in reserve funds immediately to pay its bills next month. She expects the city to be out of money, and probably in the red, by June 30.

"This is the most urgent fiscal crisis that the city has faced in recent history, and it is imperative that you act now," Greuel told the mayor and council members. "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."

Acting City Administrative Officer Ray Ciranna, the city's top financial analyst, said that using the reserve funds, plus agency spending freezes and other savings could reap enough money to cover Los Angeles' bills through the end of the fiscal year, June 30. Some officials fear that using that money would not only leave the city without reserves in case of emergencies, it would also probably trigger another downgrade in its Wall Street credit ratings.

"We think we could probably cover the current year deficit without the $73 million. But it leaves us with no reserves, which is not good," Ciranna said.

Even with that extra money, several council members remained concerned that the city would be in desperate financial straits at the end of the budget year, especially if tax revenue continues to drop. They also characterized Freeman's recommendation to withhold the money as retribution for the council's rejection of the rate increases, saying DWP's stance would require adding to the 4,000 city job cuts already authorized.

"I think we have folks who are over in the DWP that are playing games with people's lives," said Councilman Bernard C. Parks, who heads the city's budget committee.

Parks continued to question assertions by DWP officials that the agency's financial situation had deteriorated. In March, DWP officials assured the council that the utility would transfer a total of $220 million to the city's general fund by June 30 -- the utility has paid only $147 million thus far.

Councilman Greig Smith said the city has few, if any, options to recoup the remaining money before July 1. Even additional layoffs could not be processed that quickly, in part because many employees are protected by a labor agreement through the end of the current fiscal year.

"Our reserve fund was already very marginal to begin with; this could push it over the edge," Smith said. "That would mean we would have nothing in the tank on June 30," at the end of the fiscal year.

The fight with the DWP escalated in late March, when the council rejected the Villaraigosa-backed plan to raise rates for households.

When the proposal was first mentioned two months ago, Villaraigosa and his staff pitched it as an environmentally friendly initiative that would wean the DWP off dirtier coal. Weeks later, the mayor said the extra revenue also would help the utility cover rising coal costs and renewable energy contracts signed by his administration since 2005

To address concerns about the utility's fiscal health, the council approved a smaller electric rate increase of 4.5% last week and sent it back to the DWP board for approval.

But instead of approving the council's more modest rate increase, Villaraigosa's appointees on the DWP board voted for a 5.7% increase over three months, which was swiftly vetoed late that night by the council.

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Mayor threatens broad city shutdown

By Rick Orlov Staff Writer

04/06/2010

Escalating his dispute with the City Council, Mayor Antonio Villaraigosa said Tuesday he is preparing to shut down large parts of city government for two days a week starting Monday because of the city's budget crisis.

The shutdown will focus on departments not involved in emergency response or revenue generation. That is likely to include libraries, parks, city clerk, planning and public works, among others. Those staying open would include police, fire and sanitation.

The mayor's announcement came a day after the Department of Water and Power refused to make a $73.5 million transfer to the city's general fund because the City Council had rejected a rate hike for the utility.

City Controller Wendy Greuel warned Monday that the city is likely to run out of cash by May 5 without the transfer.

Villaraigosa blamed the shutdown on the City Council and lashed out at council members for engaging in what he called "The politics of no."

"I do not have the luxury of being in a debating society," Villaraigosa said. "I can't stand up and be a demagogue. I have to run this city.

"The politics of no is no more sustainable than the DWP's reliance on coal. 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 Council members said Villaraigosa's new tactic would not help resolve the issue and they would not support the shutdown, no matter how limited.

"Who's playing chicken with this now?" asked Councilman Bernard Parks, chairman of the Budget and Finance committee. "The real issue is the public will lose in this. The public always loses when services are cut."

The City Council passed a resolution Tuesday asking the DWP to transfer the funds, but does not have the authority to force the utility to act.

City Council members peppered DWP interim general manager S. David Freeman with questions over the utility's financial situation. They noted that at an earlier point Freeman had said the city could receive a $93 million transfer - $20 million more than initially promised - if the higher rate increase was approved.

"Mr. Freeman, your logic is inconsistent," Parks said at one point. "How can us approving a $40 million increase for you mean you would give us $93 million?"

Without the rate increase, Freeman said, the utility faces the prospect of a reduced bond rating.

"We can't transfer money we don't have," Freeman said.

Villaraigosa said he has asked the City Administrative Office to prepare the shutdown plans for April 12.

The Coalition of L.A. City Unions, which represents most city employees, blasted the mayor's proposal, saying city employees and residents were "about to become collateral damage" in a battle between the city and the DWP.

"This is playing brinkmanship and city residents will pay the price," the union said in a written statement. "This is not a game. It shouldn't be treated as a game.

Villaraigosa also said he would call a meeting of the Executive Employee Relations Commission - on which he sits with City Council members - to discuss the plan.

The DWP announced on Monday it would not be able to make the $73.6 million transfer, its final payment out of a promised $220 million this year, because of the council's refusal to increase the Energy Cost Adjustment Factor charged residents. The utility wanted to see it increased by 0.8 cents per kilowatt hour in April and increasing over the next year by a total of 2.7 cents per kwh. The series of increases would have boosted some customers' bills by up to 28 percent.

The council had authorized a 0.6 cent increase, which the Board of Water and Power Commission rejected and suggested a 0.7 cent increase. That was rejected by the City Council, meaning no increase can take effect before July 1.

Parks said when city officials budgeted the $220 million last year, there was no mention from DWP at the time that it was contingent on a rate increase.

Parks and Councilwoman Jan Perry pointed out the amount of money being discussed was 0.2 of one percent of the DWP's overall budget and the agency has nearly $1 billion in reserves that it could use to make the promised payment to the city.

Freeman, who is being replaced next week as interim general manager of the DWP, said there was always an assumption the department would receive some kind of increase.

Assistant DWP General Manager Raman Raj said his staff is preparing an alternative proposal for the commission to consider in coming weeks with a goal of having something in place by July 1.

One area expected to be reviewed is changing all the factors that go into the Energy Cost Adjustment Factor so that it would be limited solely to the cost of purchasing fuel to general electricity. It currently includes funds for renewable energy and energy efficiency programs.

Villaraigosa said he also wants to remove a cap on the fund, and have it fluctuate based on the actual costs of fuel.

Perry said she also plans to begin conducting public hearings on a consultant's report to develop a plan acceptable to the City Council.

DWP Board Chairman Lee Kanon Alpert said he and the other commissioners had been sincere and thoughtful when they pushed for a higher increase last week than the council had approved.

"We did what we felt we had to do and what was in the best interests for this department and the city," Alpert said. "I hope, in the future, we are able to reach some kind of agreement with our elected officials."

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Mayor calls for agency shutdowns

Villaraigosa, battling with the City Council over a growing fiscal crisis, seeks to slash city services starting Monday.

By Phil Willon, Maeve Reston and David Zahniser

April 7, 2010

Los Angeles Mayor Antonio Villaraigosa called for shutting down non-essential agencies two days a week Tuesday as he and City Council members remained locked in a standoff over the intertwined issues of electricity rates and the city's worsening budget shortfall.

Villaraigosa's action topped another day of threats and name-calling at City Hall.

During a morning news conference, the mayor said the council had caused the latest financial crisis by engaging in the "politics of 'no' " and accused it of "the kind of demagoguery you see in the Congress."

Those were "the kind of scare tactics you saw around the healthcare debate," he said.

Councilman Bernard C. Parks, who chairs the Budget Committee, brushed aside the mayor's assertions and said city leaders should be focused on stabilizing city finances.

"I think we have to get beyond the issues of name calling and get to the issue of financial stability of the city," Parks said. He added: "I'm not going to trade names with the mayor. He can call us whatever he wants."

The latest escalation of the financial crisis began Monday when the Department of Water and Power took steps to withhold a promised $73.5-million payment to the city's depleted treasury.

Villaraigosa blamed the action on the council's rejection of an electricity rate increase, which DWP officials said was necessary to cover the DWP's fluctuating fossil fuel costs and the mayor's renewable energy agenda.

City Controller Wendy Greuel has warned that, without the DWP payment, Los Angeles could run out of money to pay its bills and employees within weeks.

The political feud between Villaraigosa and the council -- and the threat to shut down services and stop paying employees -- flabbergasted some officials. Councilman Paul Koretz called the mayor's threat "bizarre" and warned that Villaraigosa and the council were engaging in "a crazier and crazier game of chicken."

"It's absolutely a manhood contest. That's what it's been from the very beginning," said Koretz, who represents much of the Westside.

The mayor directed acting City Administrative Officer Ray Ciranna to prepare to shut down parks, libraries and other general fund services starting Monday. Public safety, trash collection and revenue-generating agencies would be exempt.

"I am duty bound to make sure that I'm not in a position to make people work if we don't have the cash to pay them," Villaraigosa said. Union leaders questioned whether the mayor had the authority to enact what amounts to a furlough program in which thousands of city workers would see their paychecks cut by two-fifths.

"We take this absolutely seriously," said Julie Butcher, regional director for Service Employees International Union Local 721, which represents more than 10,000 city employees. "The mayor's endangering services and people's lives."

As Villaraigosa was addressing the media at City Hall, a few doors away the council was voting unanimously to ask DWP board members to "honor their commitment" to hand over the promised $73.5 million. They also called on the mayor to work with board members, whom he appoints, to find the money within the DWP's cash reserves.

Council members grilled interim DWP head S. David Freeman about the agency's refusal to transfer money from the utility's Power Revenue Fund. Several members noted that as recently as March 1, DWP officials promised to make the $73.5 million payment of "surplus revenue" -- which ultimately comes from ratepayers. At the time, they did not link that payment to a rate increase.

The council agreed last week to allow the DWP to increase bills by 0.6 cents per kilowatt hour of electricity consumed. DWP board members rejected that, however, and said they wanted an increase of 0.7 cents per kilowatt hour instead. The council then killed that proposal.

Both proposals would have provided DWP with 0.5 cents per kilowatt hour to pay for the utility's existing financial obligations. Any additional money -- 0.1 cents under the council's proposal, 0.2 cents from the DWP board's proposal -- would have been directed toward new energy conservation and renewable power initiatives.

Council members said Tuesday that they could not understand how the standoff over the rate increase was preventing the DWP from making the transfer to the general fund. The council's proposal would have provided $30 million over the next three months to help the DWP pay its bills. The proposed transfer is more than twice that amount.

"The numbers just don't add up," Council President Eric Garcetti said.

Freeman told council members that the failure to approve an electricity rate increase had "decimated our financial future."

He noted that on Monday, one of the nation's top bond-rating agencies withdrew a AA rating on two DWP bonds worth $720 million, which could increase the agency's borrowing costs.

Freeman said the utility's board "has a responsibility for DWP not to get in a situation where we can't borrow money and where our bond rating goes down, down, down." The agency is not collecting enough money to cover its costs, he said.

"I don't see how you can expect the department to declare a surplus when we have a deficit on our hands," Freeman said.

Villaraigosa said, despite calls by the council, that he does not have the authority to order the DWP to turn over the $73.5 million. The utility's board has a fiduciary responsibility to make sure the DWP remains solvent.

Hours after Villaraigosa announced his plan to scale back services, the DWP board held off on a pair of expenses that had been planned by the utility. The board postponed a decision to use open positions to hire 11 tree surgeons in line to be laid off from the Bureau of Street Services -- a move that would have saved their jobs and provided relief to the city's struggling general fund budget.

The DWP board also tabled a plan to purchase renewable power from a wind farm based in Utah at an estimated cost of $9.5 million in the 2010-11 budget year. Both items are being delayed because the utility did not get its rate increase, said Raman Raj, the DWP's chief operating officer.

Raj said he would also develop a cost-cutting plan to help the utility avert a bond-rating downgrade in the next two weeks.

"None of us enjoy what's going on, least of all certainly me," said DWP Commission President Lee Kanon Alpert.