The Los Angeles City Council voted unanimously Tuesday to conduct a review of Mayor Antonio Villaraigosa's proposed package of electric rate hikes, and took the mayor to task for suggesting that defeat of the plan would plunge the city into bankruptcy.
On a 15-0 vote, the council asserted jurisdiction over the Department of Water and Power board's decision to approve the first of four increases over the next year to help pay for renewable energy and other expenditures.
Several council members said they were especially disturbed by Villaraigosa's warning, sent to them in writing the night before the vote, that a failure to let the rate hikes stand would cause the DWP to renege on its plan to provide $73 million to the city's strained general fund, which pays for basic services such as public safety and parks.
Failure to receive that money over the next four months would cause the general fund to "run out of cash" by June 30, Villaraigosa's briefing paper said.
"I think this kind of statement is irresponsible," said Councilman Ed Reyes, who grilled Villaraigosa Deputy Chief of Staff Matt Szabo over the mayor's warning.
"We don't respond well when we have a gun to our heads," added Council President Eric Garcetti.
Szabo defended the document, telling Reyes that his office had a responsibility to "lay out the actual consequences" if the council fails to support the proposal. The briefing paper warned that a rejection of the rate hikes would be "the most immediate and direct route to bankruptcy the city could pursue."
Moments after Szabo spoke, City Administrative Officer Miguel Santana gave the council a different message, saying he had just met with the mayor and been told that the city "is not going bankrupt."
"Under no circumstance would he ever support bankruptcy for the City of Los Angeles," Santana said.
Villaraigosa's pitch to the council was distinctly less upbeat than the one he made in recent weeks in favor of the increases, which would have residents pay between 9% and 28% more per month for electricity, depending on where they live and how much power they consume.
When the proposal was first discussed two months ago, the mayor and his staff said the increases would be used to wean the DWP off of coal, which makes up 44% of the utility's fuel portfolio. In recent weeks, the mayor has also said that the additional revenue would help the utility cover the cost of coal and renewable-energy contracts signed by his administration over the last five years.
Villaraigosa said part of the increased revenue would go toward renewable energy and aggressive conservation measures, helping to create 18,000 jobs. That pitch has not reassured business leaders, who complain that they would end up experiencing increases of 21% to 22%.
Appearing before the council, some business leaders said they would consider leaving Los Angeles if the measure passes. "We've already looked at alternatives, like moving to Vernon, if that's what we need to do," said Larry Piles, general warehouse manager for Showa Marine & Cold Storage.
While business leaders gave the plan negative reviews, union organizers and environmentalists spoke in favor, saying that the rate increases would help the city reduce its reliance on fossil fuels and avoid state financial penalties that are looming for users of coal power. They praised the mayor's effort to create renewable-energy jobs, such as "green doctors" who would make house calls to assess a home's energy efficiency.
"There is no other issue that my organization sees as more important to vote on," said Gary Parker, an organizer with the International Brotherhood of Electrical Workers Local 11.
In recent weeks, Villaraigosa has warned that the increase is needed to help the DWP avoid a downgrade in its credit rating, which would increase the cost of borrowing. On Monday, he drew the first explicit connection between the rate hike and the city's budget shortfall, which could cause as many as 4,000 city employees to lose their jobs.
Without a $73-million transfer from the DWP, the city would no longer be able to pay its bills, the mayor's briefing paper said. "Failure to meet basic obligations would send the city into a financial tailspin," the document said.
The DWP was scheduled to provide at least $220 million to the general fund for the 2009-10 fiscal year. So far, however, the utility has sent $147 million with a promise of more money.
Asked about that partial payment in February, DWP interim General Manager S. David Freeman told The Times that the utility was "completely committed" to providing the full payment to the city treasury -- and that the payment was in no way connected to its desire for an increase in electric rates.
Freeman made his comment after Controller Wendy Greuel fired off a letter to the mayor and council warning that the DWP could worsen the city's "precarious fiscal situation" if the remainder of the payment is not made.
Last week, however, Freeman warned that the utility would think twice about sending additional transfers to the city budget if the rate hikes are rejected. He made that comment after DWP officials said that a credit downgrade would cost the utility as much as $80 million per year.
"It was clear that when they only gave us part of the money, they were going to hold the $73 million hostage," Councilman Bernard C. Parks said. "And in my opinion, they don't have a basis for doing it."
Freeman has also said that if the hikes were approved, his agency would come up with an extra $20 million in contributions to the city's budget. In a report to the DWP board, he said the utility would find the extra money by reducing its travel costs and paring back other expenses.