L.A. CAN'T GOUGE VALLEY LAFCO STAFF TO CITY: NO RAISING WATER, POWER RATES JUST IN BREAKAWAY TOWNS.

Byline: Harrison Sheppard Staff Writer

The city of Los Angeles can be forced to provide water and electricity to a new San Fernando Valley city at the same rates Los Angeles residents pay, according to a legal opinion issued by the attorney for the agency studying secession.

For Valley cityhood advocates, the decision marks a major victory.

It is one of a number of issues that the legal opinion and a separate report issued by the agency's staff have resolved against claims by Los Angeles officials that would have made secession more difficult to sell to voters.

The Local Agency Formation Commission's staff also has rejected the city's claim that it would be owed $284 million a year in ``stranded costs'' or centralized expenses that could not be divided with the new city but would remain Los Angeles liabilities.

It also recommended that the Valley city's ``alimony'' payments to Los Angeles last for 20 years, starting at $65.8 million a year, but decreasing by 5 percent annually.

Valley secession is likely to be on the November ballot. The issue of water and power for a Valley city and their rates is seen as a key factor on how many Valley voters will approach the matter.

The just-released legal opinion from County Counsel Lloyd W. Pellman said LAFCO has the right to set terms of a split that ``require the city of Los Angeles to charge utility customers in any of the new cities the same rates as customers within the remaining city of Los Angeles.''

``That's exactly what we're looking for,'' said Richard Close, chairman of Valley Voters Organized Toward Empowerment.

``Our attorneys have told us that LAFCO has this ability. The mayor and council members had been arguing that LAFCO didn't have the authority. Once again city officials are wrong and have been misleading the public.''

But Tim McOsker, chief of staff to Mayor James Hahn, said the legal opinion is vague and it admits courts have not weighed in on the issue - a point that comes up frequently in the debate since there is no precedent in California for breaking up a city on this scale.

``It's a very weak opinion,'' McOsker said. ``At least they were honest about how weak their opinion was.''

The city, he said, believes it has the right to set different rates for different customers, as it does now. The city is simply required to cite a rational basis for setting different rates, such as infrastructure requirements and volume of usage, he said.

He did not know how those issues would differ if the Valley's political boundaries changed.

Pellman's opinion also said LAFCO does not have the authority to create a joint powers authority to run the Los Angeles Department of Water and Power, as secessionists had proposed and the city opposed in negotiations.

What that means is Los Angeles would retain legal control of the department but would have to provide service to a Valley city ``on an equal footing with customers within the remaining city of Los Angeles.''

Close said that while secessionists did want political representation on the DWP's governing board, the most important thing was to ensure Valley ratepayers are protected, which the opinion suggests would be the case.

A separate report, issued by LAFCO's staff, rejected other arguments by the city, including that the new Valley city would have to compensate Los Angeles for $284 million a year in ``stranded costs'' or centralized expenses that can't be divided with a new city but would remain Los Angeles liabilities, such as the 911 system and the Central Library's catalog.

The report said the city failed to provide any evidence that those costs could not be reduced, and noted the volume of 911 calls would decrease if the Valley seceded. It went on to say the LAFCO staff might be open to reconsidering the issue if the city makes a stronger case.

McOsker said the city already provided ``a great deal of material'' to prove its case and will consider whether it should provide more.

City officials may also speak directly to LAFCO commissioners on the issue.

``Simply because the LAFCO staff has been unable to understand the argument doesn't mean the LAFCO board won't be able to understand it,'' McOsker said.

Also, the report - a proposed ``terms and conditions'' to be considered by a LAFCO subcommittee today - reaffirmed the ``alimony'' figure for the Valley as $65.8 million, and recommended that the payments continue for 20 years, but decrease every year by 5 percent, so that the 20-year total would be worth $563 million in today's dollars.

Previously there was no specific term set for how long alimony should last. The last financial report by LAFCO's consultants only studied three years, while Valley secessionists have suggested 10 years.

The LAFCO report said that under the 10-year approach, with the payments not decreasing, the total would equal $584 million in today's dollars - a higher figure than the 20-year decreasing approach.

The report also rejected concerns about a $30 million omission from the final financial report, called a Comprehensive Fiscal Analysis, on cityhood.

The CFA did not acknowledge that the city of Los Angeles would lose $30 million in revenue from a documentary transfer tax if the Valley seceded.

The Valley city also, by law, would not be allowed to levy the tax without voter approval. The LAFCO report said essentially that both sides are losing the revenue, so it comes out even and the alimony figure remains at $65.8 million.