Since 2000, nearly $35 million in water service revenues have been transferred to the General Fund. Another $153 million has been transferred from the utility's electricity revenues in the same period.
Critics have for years blasted the transfers as illegal and artificially inflating utility rates. City officials have defended the transfers, which they say make up for Proposition 13, which left it with a below-average stake in property tax revenues.
The annual transfers have been an important revenue source for the General Fund, which has been buckling under the weight of spiking employee health-care and pension costs and plummeting revenues during the protracted recession.
Next year, the absence of the $4.2 million in water revenues will add to a projected $10-million General Fund deficit, officials said.
“As you can imagine, this issue has a tremendous impact on the General Fund …” City Manager Jim Starbird said Tuesday. “An additional challenge like this is not going to be an easy one to try to surmount.”
In contrast, it will mean more funds for the water utility, which has seen major budget cuts during the recession and increased water conservation.
“We are still operating in a reduced economic position,” General Manager Glenn Steiger said Tuesday.
The constitutional issues surrounding the revenue transfer stem from Proposition 218 — passed by California voters in 1996 — which required voter approval for any increase of property-related assessments, and stated that fees could not be used “for any purpose other than that for which the fee was imposed.” Electrical services are exempt from the provision.