Los Angeles Superior Court Judge James Chalfant issued a tentative ruling that transfers of surplus revenue from the Long Beach Water Department’s fund to the city’s General Fund are unconstitutional. Voters approved the practice when they voted to support Measure M in June 2018, but two local residents, Diana Lejins and Angela Kimball, sued the city in an effort to stop it.
“It doesn’t matter how many people vote for it; you still can’t do that. It’s a constitutional issue,” Lejins told the Long Beach Board of Water Commissioners at a hearing on water rates last year. “Technically, you’re breaking the law.” Judge Chalfant agreed.
In his analysis, Chalfant concluded the city’s water and sewer surcharge violates the Proposition 218 amendments to the California Constitution, “because the fee or charge imposed [. . .] exceeds the revenue needed to operate the City’s utilities.” Among other protections noted in Chalfant’s ruling, Prop 218 prohibits local governments from imposing fees on property owners that exceed the cost of providing those services. “The City concedes that its water and sewer charges to customers are inflated to fund Measure M transfers and that the funds transferred do not fund utility-related services,” Chalfant wrote.
The City of Long Beach settled a previous lawsuit on the issue, which was also filed by Lejins, in November 2017. The complaint alleged more than $90 million had been misappropriated over the past decade. In the settlement, the city agreed to return $12 million from the city’s General Fund to the water department, $3 million each year, starting in 2018. As a result of the settlement, water rates dropped in January 2018, but were restored to pre-settlement levels after voters approved Measure M in June of that year.
In FY 2019, the water department transferred $12.3 million to the city’s General Fund, according to a budget presentation. The FY 2020 budget, which was approved by the city council on September 3, 2019, allocated $12.7 million for transfers to the General Fund. During the same meeting, the Long Beach City Council approved a 12% increase in water rates, which went into effect on October 1, 2019.
The city is appealing Chalfant’s decision and a hearing has been set for February 20 at the Stanley Mosk Courthouse in Downtown Los Angeles. “The City of Sacramento has faced a similar challenge and has advanced its case by appealing,” a January 6, 2020 statement by the city noted. “The City believes it has the ability to legally transfer the water and sewer revenue funds to the General Fund and will be appealing the decision.”