They Who Have the Power

The budget situation in Los Angeles just got a whole lot messier. The city is projected to run out of cash on May 5th, and unless a solution is quickly found, Mayor Villaraigosa has announced that he intends to temporarily shut down non-essential city departments and services for two days a week.

The city has known for a while that the budget picture was not looking good. But it was the recent announcement by the city's municipal utility, the Department of Water and Power, that really put the city into crisis mode.

The DWP notified the Los Angeles City Council that it would not be transferring $73 million in "surplus revenue" to the city's general fund. Traditionally, the DWP transfers eight percent of its revenue to the city's general fund. But in February the DWP transferred only $147 million to the city instead of $220 million, which would have been in line with eight percent of the DWP's revenue.

The DWP insists that it is having its own budget troubles and therefore cannot transfer the revenue. According to the Los Angeles Times, DWP General Manager David Freeman stated that 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." Indeed, the DWP just had its bond rating downgraded, meaning that future borrowing will become more expensive.

But the situation gets even messier. Last week the City Council approved a six-cent per kilowatt-hour rate increase. The DWP rejected this increase and requested a seven-cent increase instead. The council declined and both sides went back into their respective corners, fuming.

Is this whole debacle really about politics? It is difficult to tell. The proposed rate increases were part of Mayor Villaraigosa's plan for a Carbon Reduction Surcharge, which the Mayor has tirelessly been promoting, even winning the support of Vice President Al Gore. That plan would have required increases of 2.7 cents per kilowatt-hour. It would have also funneled money into investments in renewable energy and energy efficiency and, according to Villaraigosa, created 18,000 local green jobs over ten years.

The Mayor has stated that he does not have the authority to order the DWP to transfer the $73 million, even though the Mayor appoints the utility's board members.

The LA City Council, by rejecting the DWP's requests for a larger rate increase, was looking to protect residents and businesses from having to absorb higher energy bills. But with the DWP "under-collecting" $6 million a week, and with the city set to run out of cash within the month, it seems that no one will be spared the pain.