Construction material costs jumped at the fastest year-over- year rate according to a report issued by the U.S. Bureau of Labor Statistics (BLS) released in mid-February.

Construction input prices collectively rose by one percent on a monthly basis and 3.8 percent on a year-over-year basis, according to analysis of the BLS data by Associated Builders and Contractors. Nonresidential input prices rose 0.9 percent for the month and are up 4 percent year over year.

The rise in input prices is largely attributable to natural gas prices, which expanded 23.6 percent for the month and are up 81.8 percent year over year. Crude petroleum prices slipped 5.5 percent for the month, but are up 77.5 percent for the year.

“Despite a still-strong U.S. dollar, input prices have continued to rise in recent weeks,” said Anirban Basu, ABC chief economist. “There are a number of factors at work, including some evidence that global demand for various materials has begun to firm, including in China.”

Chinese economic growth was solid last year and ended 2016 on a strong note. There are also indications that U.S. economic growth is set to accelerate due in part to an expected pickup in business investment based on anticipation of an improved business climate out of Washington, D.C.

“While demand has been firming, certain suppliers have been taking active steps to suppress supply,” said Basu. “OPEC reached an agreement late last year to curb output, helping to bring oil prices above $50/barrel, where they have remained. Concerns regarding trade wars and tariffs may have also helped to push commodity prices higher.

Judge Rules $57M Repayment

In a late January decision a Los Angeles Superior Court judge ruled that the City of Glendale had violated the state constitution in 2013 when it illegally raised utility rates and transferred funds from the utility company without voter approval.

The court ordered the city to repay almost $57 million to residents as well as return over $1.7 million of illegally transferred funds back to Glendale Water and Power utility fund and out of the city’s general fund.

If the decision by Judge James C. Chalfant is sustained through the inevitable appeals process it could open the door to similar actions across the state, seriously disrupting the revenue flows through local utilities, which could lead to a slowdown in pending water, sewer and other utility projects.

The case started when a group of Glendale businessmen started challenging the city council over its rate increases for electricity. The group, called the Glendale Coalition for Better Government, was persistent in questioning the Council about rate hikes in 2013 which led a frustrated then-Mayor, Dave Weaver, to strike back, saying: “We’ve been over this before if you don’t like it — sue.”

So they did, February 25, 2014, claiming that the city was, among other things, violating the provisions of Proposition 26, (passed, November 2, 2010), which requires the government to take tax increases to the people and get a two-thirds majority support to be enacted, rather than disguising them as utility rates which are then shoveled into the city’s general fund for non-utility purposes.

In its lawsuit, the Coalition accused the city of “illegally siphoning off Glendale Water & Power (GWP) revenues to pay for things unconnected with supplying ratepayers with electricity or water.” The Coalition also alleged the city had illegally transferred funds to “maintain lavish and unsustainable benefits and retirement to city employees at the expense of Glendale Utility rate payers.”

On January 27th, Judge Chalfant ruled:

  • The City of Glendale’s rate increase adopted August 13, 2013, violated article XIII C of the California Constitution (Proposition 26).
  • The City of Glendale has a Duty to Comply with the City Charter, article XI, Section 17, 20 and 22, which stipulates how rate-payer funds are to be use—“only for the repair, replacement, betterment and extensions of the plants and equipment of the waterworks or electric works,”
  • The City is enjoined from applying the electric rates adopted on August 13, 2013, in the future based on the annual transfer required by Glendale City Charter section 22 of article XI without submitting to a vote of the electorate.
  • Within 60 days of entry of judgment, the City shall begin to apply credits of $56,949,600 plus interest to the electric portion of the utility bills of active customers.
  • Peremptory Writ of Mandate is issued for the return of monies transferred from the Waterworks in the amount of $1,733,333.35

“The transfer cannot fairly be described as the cost of providing electric service,” Judge Chalfant said in his decision. “Any contrary conclusion would defeat the purpose of Proposition 26 by permitting a city to drain monies from its public utility as an alleged cost and then impose that cost on the utility’s customers without a vote from the electorate.”

Many other cities use the same utility rate piggy bank approach as well as adding on a Utility User’s Tax (UUT), which increases as rates go up, then transferring those taxes into their general operating funds just as the city of Glendale did in this case. Refunding these UUT transfers would deeply impact city revenues across the state and force city officials to address local spending.