PASADENA AGREES TO RESTORE $7.2 MILLION AND CEASE PRACTICE OF TRANSFERRING FLAT 6% OF WATER FEE REVENUES TO ITS GENERAL FUND

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San Diego, CA:  Krause, Kalfayan, Benink & Slavens, LLP (“KKBS”) is proud to announce another successful Prop. 218 action that will benefit all water utility ratepayers in the City of Pasadena for years to come.

On September 30, 2013, a resident of Pasadena, represented by KKBS attorneys Vincent D. Slavens and Eric J. Benink, sued the City of Pasadena alleging violations of Prop. 218 (XIII D, Section 6 of the California Constitution) called the “Right to Vote on Taxes Act.”  Specifically, plaintiff sought a court order directing Pasadena to (a) cease the transfer of funds from its Water Utility Enterprise Fund (“Water Fund”) to its General Fund and (b) restore all transfers made from September 30, 2010 (three years prior to the filing of the lawsuit) to the present.

Plaintiff alleged that Pasadena operates Pasadena Water and Power (“PWP”) a department within the city.  Through PWP, Pasadena provides water services to persons and business within and outside the city limits.  It imposes fees and charges on such customers of PWP for water service.  Plaintiff contended that the water services Pasadena provides are property-related services and the fees and charges are imposed by it upon parcels and persons as an incident of property ownership.

Water utility revenues and expenses are accounted for in a segregated fund called the Water Utility Enterprise Fund.  According to Section 1404 of Pasadena’s charter, water utility funds “are to be kept separate and shall be limited to the use of that utility.”  Pasadena’s general tax and fee revenues and general expenses are accounted for in the General Fund.

The 6% Transfer Allegations

Plaintiff alleged that for decades Pasadena transferred millions of dollars from its Water Fund to its General Fund.  The funds transferred were not earmarked for any specific purpose (i.e. for reimbursement of water utility costs paid by the General Fund), but instead were commingled with general funds and used for general municipal purposes.   Pasadena transferred these funds from the Water Fund to the General Fund based upon Section 1408 of its charter, which reads in relevant part,

“Each fiscal year the City Council shall transfer . . . from the Water Fund an amount equal to six percent (6%) of the gross income of the water works received during said preceding fiscal year from the sale of water at rates and charges fixed by ordinance. . . The amounts thus transferred may be expended for any municipal purpose.

The amount to be so transferred from . . . the Water Fund shall not exceed the net income of said Fund as shown on the books of account of the water utility after payment of the maintenance and operating expenses of the water works, the expenses of conducting the water utility, depreciation, and the principal, interest and premiums, if any, upon the redemption thereof, of water works revenue bonds.”

Plaintiff alleged that Pasadena’s practice of transferring 6% of the water utility revenue from the Water Fund to the General Fund violated Prop. 218.

The Settlement

After nearly a year of litigation, the parties agreed to attend a mediation in Los Angeles.  After a full day of mediation, a settlement was reached subject to the approval of Pasadena’s City Council.  Shortly after the mediation, its City Council approved the settlement.

Under the terms of the Settlement, Pasadena agreed to reimburse the Water Fund a total of $7.2 million over seven years and cease its prior practice of transferring a flat 6% of water utility revenues from the Water Fund to the General Fund to be used for any municipal purpose.

“I believe this is an outstanding result that will benefit Pasadena residents for years to come,” said Vincent Slavens, one of the attorneys handling the case.

Krause, Kalfayan, Benink & Slavens, LLP is a boutique San Diego law firm that represents citizens, ratepayers and taxpayers in fee-related litigation against municipalities.  Contact: Vincent D. Slavens (vslavens@kkbs-law.com), and Eric J. Benink (eric@kkbs-law.com), with any questions or for a consultation about a potential case.