Long Beach may be barred from transferring surplus money from its utilities fund to its general fund — despite voters approving the practice in June 2018.
A Los Angeles Superior Court judge tentatively ruled last week that those transfers, authorized when 54% of Long Beach voters OK’d Measure M, are unconstitutional.
Though the ruling is tentative, Deputy City Attorney Rich Anthony said Monday, Jan. 6, “we have no reason to think it won’t be final.”
The decision, issued Thursday, Jan. 2, came after Long Beach residents Diana Lejins and Angela Kimball filed a lawsuit in October arguing the city’s process of passing funds from the Water Department to Long Beach’s general fund violated Proposition 218 in the state constitution; that proposition prohibits local governments from charging more than the revenues required to provide a utility service, using utility fees for non-utility purposes and using utility fees to pay for general governmental services.
The ruling would impact the Water Department ruling; the Energy Resources (natural gas) transfer will continue.
Anthony said the city is “disappointed with the ruling of the judge.”
“We think that the ballot Measure M was legal and valid under Prop. 218,” he said.
Long Beach will appeal the decision, Anthony said. The City Council on Sept. 3 authorized the City Attorney’s office to move ahead with an appeal, should the judge rule against Long Beach, Anthony added.
This isn’t the first time Long Beach has had to rethink the practice.
The city settled a lawsuit in 2017, also filed by Lejins, that argued the city had to obtain voter approval before imposing special taxes, including utility rate hikes.
“It seems like every time we citizens turn around, this city’s mayor and council are asking for more money,” Lejins said Monday. “And the worst part of it is that their spending is often very frivolous and self serving. The time has come for this runaway city government to be reined in.”
Although cities are allowed to recover the cost of providing services such as water, any charges above those costs — which resulted in the Water Department surpluses — are considered a tax, which voters must approve.
So the city agreed to pay back the Water Department, stop the transfers and lower water rates accordingly. But, the following year, Long Beach brought the idea to voters. After Measure M’s passage, the city resumed the procedure and later raised water rates.
City documents show Long Beach transferred $12 million in surplus funds from the Water Department to the city’s coffers in fiscal year 2019.
The city has said it believed itself to be legally in the clear to continue the long-held practice because it had voter approval. But Judge James Chalfant said in his Jan. 2 ruling that was not the case.
Chalfant said that Proposition 218 bars cities from imposing general taxes “as an incident of property ownership,” and Long Beach failed to prove how water rates providing more revenue than needed to cover the cost of the service did not amount to that type of tax.
Long Beach, for its part, acknowledged throughout the case that rate hikes that resulted in Water Department surpluses qualified as a general tax.
The judge also wrote that, among other violations, Long Beach could not charge a tax on water services and then use that money for general purposes that would benefit people who did not pay the tax.
By moving the money to the general fund and using it for things like police, fire and paramedic staffing — which Long Beach city officials have listed as the uses for Measure M funds — Chalfant said the money constituted an illegal tax.
Voters’ approval in this case, Chalfant wrote, doesn’t supersede those provisions in the state constitution.
Chalfant, though, acknowledged that Proposition 218 allows for special taxes — which require two-thirds of voters’ approval for passage — to be imposed for a “property-related service.”
“This is true,” he wrote, “and the short answer is, ‘So what?’
“One of Prop. 218’s stated purposes is to limit local government revenue and its provisions are to be construed liberally to accomplish this purpose,” Chalfant wrote. “Setting the voter approval bar at two-thirds, rather than majority, furthers this goal.”
Anthony said his office will discuss the case with the City Council in closed session at its Tuesday, Jan. 14, meeting. Appealing the decision — which, Anthony reiterated, the city has the authority to do — would allow Long Beach to continue the practice as the case continues to be litigated.