However city management had more to say about the seriousness of the lawsuit's impacts in past of the City's FY18 budget documents. In his July 3, 2017 FY18 budget transmittal letter to the Mayor and Council, City Manager West wrote in pertinent part: "The City has recently been sued by a few of its residents with regard to alleged inappropriate allocation of City funds from the City's utilities. The allegations are that funds from gas, water and sewer operations have been inappropriately used to provide services, such as police, fire, parks, libraries and streets operations. Should this litigation be successful, there could be a significant adverse impact on City services. The cost of addressing this litigation, if it is successful, has not been included in the projections as the result of the litigation is uncertain [and] the timing of the conclusion of the litigation is uncertain." [CM 17-18]
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As indicated in city management's Nov. 8 statement below, management now estimates that reduced revenue at roughly $7 million annually. [We presume unless told otherwise that this sum is in addition to deficits (spending exceeding likely revenue) management has previously predicted for FY19 ($10.4 mil) and FY20 ($8.7 mil) for a cumulative total of $19.1 mil before the further reduction of $7 million.]
Other cities also tried to circumvent Prop 218 in similar ways...and likewise found themselves sued by the same lawfirm hired by Ms. Lejins, who was also represented by co-counsel Gerrie Schipske, a LB Councilwoman from mid-2006 through mid-2014. On joining the Council, Councilwoman Schipske publicly raised the issue of the "pipeline fee" and Prop 218, but her concerns were downplayed and dismissed.
Ms. Lejins (through her attorneys) and City Management issued dueling releases when the settlement was made public. We publish their texts below.
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[Lejins / attorney release]
City of Long Beach Resident Diana Lejins Announces Settlement of Proposition 218 Lawsuit With City
On November 8, 2017, Diana Lejins, a 32-year resident of the City of Long Beach entered into a settlement of a lawsuit she filed against the City of Long Beach in September 2016. Ms. Lejins, a civic activist, claimed that the City's Water Department has been illegally charging its water and sewer customers "Pipeline Permit Fees." The Pipeline Permit Fees, totaling approximately $11 million per year, serve no legitimate purpose and were blatantly designed to bolster general fund revenues on the backs of ratepayers. Proposition 218, passed by People of the State of California in 1996 and enshrined in our State Constitution, prohibits local governments from charging more than it costs to provide utility service and from using utility fees for non-utility purposes.
The settlement requires the City to stop charging the Pipeline Permit Fees when it adopts rates in the future. The City must reduce its water and sewer rates to eliminate the Pipeline Permit Fees from the current rate structure within 60 days. The City will also restore $12 million in previously-transferred Pipeline Permit Fees from the City's general fund to its Water Department over the next four fiscal years.
After the lawsuit was filed, the City commissioned cost-of service studies to ascertain the amount of right-of-way and public safety costs that the general fund pays on behalf of the Water Department. The settlement allows the City to transfer some of the costs identified in the studies, but they are less than half the Pipeline Permit Fees that the City has agreed to eliminate. Utility ratepayers will save millions of dollars in the future as a direct result of the lawsuit.
Ms. Lejins stated, "The Pipeline Permit Fees were bogus from the start. Hard-working citizens don't appreciate it when their government plays games. Hopefully, this lawsuit serves as a warning to those 'money-is-no-object' politicians who so fervently attempt to extract and spend every last dime they can from hard-working taxpayers. This victory transcends the exploitation, validates the people's vigilance and is truly OF the people, BY the people and FOR the people."
Ms. Lejins' attorney Gerrie Schipke said, "This settlement is not only a tremendous win for the water and sewer customers in the City of Long Beach but also for the voters of California who approved Proposition 218, requiring voter and taxpayer control over local fees and taxes. The law is clear: cities, like Long Beach, cannot assess fees merely because they want to raise revenue."
Ms. Lejins was also represented by Eric J. Benink, Esq. of Krause Kalfayan Benink & Slavens, LLP, a San Diego law firm with substantial expertise in Proposition 218 matters.
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The City has reached a settlement regarding litigation concerning a pipeline permit fee
that has been paid by the City's Water and Sewer utilities since 2003. The pipeline
permit fee is a charge for the use of the City's right of way for the water and sewer
pipelines that run through City streets. At issue in the lawsuit is the specific amount
charged by the City to the Water Department. Similar litigation has been faced by other
cities over the past several years, as this fee has been a common method throughout
the state of charging for use of municipal right of way.
"The settlement will resolve this litigation, and provide for a predictable amount of annual support for the City from the Water and Sewer Funds," said Patrick H. West, City Manager. "We support the settlement as the most reasonable solution to this litigation,
which has also been faced by other California cities up and down the coast."
The settlement will set the amount the City can charge to approximately $4.5 million per year, based upon recently completed nexus studies by industry experts and any subsequent updates. This settlement will result in the annual General Fund support and associated revenue being reduced by approximately $7 million per year. The City expects to address this loss of General Fund support through the Fiscal Year 19 budget process. In addition, the City will repay the Water and Sewer Funds an aggregate amount of $12 million over the course of the next four years.
Currently the City enjoys the lowest combined water and sewer fees of any of the ten largest cities in California. As part of the settlement, the Water Department will further lower water and sewer rates, resulting in approximately a $3 per month reduction for the
average water/sewer bill. No direct compensation will be provided to the Plaintiff as part of this settlement.
