City voters adopted Article VII of the City Charter in 1950 to authorize the transfer of utility revenues to the General Fund after other obligations are paid, such as operating and maintenance expenses, debt payments, capital expenditures and reserve funding. Under this authority, the City Council has for decades approved yearly transfers of natural gas utility revenue to the General Fund. The transfer provides approximately $7 million each year toward City services maintained by the General Fund, such as roads, parks, libraries, climate change reduction, police, fire, emergency medical and 9-1-1 response. About half of the transfer is paid by the gas utility’s commercial customers, and half is paid by residential customers.
The City designs its natural gas rates so the utility will have enough money to cover its expenses as well as the General Fund transfer. In 2015, a lawsuit challenged this longstanding practice. In 2021, the Santa Clara Superior Court ruled that a portion of the natural gas transfer is a tax that requires voter approval to continue. Both sides appealed and are exploring a settlement that would likely cover 2015 to 2022. This measure, if approved, will apply prospectively, from 2023 onward.
The measure would amend the Municipal Code to authorize the City’s current practice of yearly transfers of up to 18% of the revenues of the natural gas utility to the General Fund to support general City services. The cost of the transfer will be incorporated into customers’ gas rates, as it is now, and it will be a general tax.
Source: City Attorney's Impartial Analysis of Measure L