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Villaraigosa warns of bankruptcy if L.A. City Council blocks electricity rate hike

March 23, 2010 | 11:24 am

Facing resistance from the City Council over his renewable-energy plans, Los Angeles Mayor Antonio Villaraigosa has warned that any attempt to overturn higher electricity rates approved last week by the Department of Water and Power board would throw the city’s finances into disarray, causing it to run out of money in the next four months.

In a briefing paper sent to council members Monday night, Villaraigosa’s office said the DWP would renege on a promise to transfer $73 million to the city’s general fund budget if its rate proposal is rejected.

Such a move would cause the general fund, which pays for public safety, libraries and other basic services, to “run out of cash” before the end of the fiscal year on June 30, Villaraigosa’s briefing paper said.

“Council rejection of the DWP board’s action [to increase rates] would be the most immediate and direct route to bankruptcy the city could pursue,” the report said.

The council is scheduled to decide on Tuesday whether to conduct its own review of the DWP increase. Villaraigosa’s appointees on the DWP board voted last week to approve the first of four rate hikes between now and April 2011.

Once all four increases are in place, households across the city will see electricity cost increases ranging from 9% to 28%, depending on where they live and how much power they consume. Businesses would experience increases in their bills of 21% to 22%, according to the utility.

Councilman Herb Wesson criticized Villaraigosa for using the possibility of bankruptcy to build support for his plan for installing solar panels. “I don’t think you hold people hostage that way,” he 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 only a portion of that money.

Last week, DWP Interim General Manager S. David Freeman warned that the utility would think twice about sending the rest of the money to the city’s budget accounts if the rate hikes are rejected. At the same time, Freeman said that if the hikes were approved, his agency would come up with an extra $20 million in budget contributions by reducing its travel costs and other expenditures.

Once all of the rate hikes are in place, the city budget would see an additional $38.4 million per year, the mayor’s office said.

Without the planned increases, the general fund would lose out on $93 million and have trouble paying its bills, Villaraigosa warned council members.

“Failure to meet basic obligations would send the city into a financial tailspin, leading to further downgrades and an inability to borrow to meet future financial obligations,” his report said.

-- David Zahniser at Los Angeles City Hall

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