An early test of Mayor-elect Antonio Villaraigosa on a business issue could come in the form of a revamped proposal mandating affordable housing set-asides that goes before the Los Angeles City Council.


Councilmen Eric Garcetti and Ed Reyes are expected to introduce a revised "inclusionary zoning" proposal this week or next, which would put it on track for full council review right around the time Villaraigosa takes office July 1.


The measure, which would require most new projects to contain some below-market rate housing, pits progressives against development interests.


So far, Villaraigosa has stuck to a middle path, saying that he favors mandated set-asides but that "builders must not be financially harmed."


Last summer's proposal by Garcetti and Reyes would have required developers to either build affordable units or pay a fee to the city. It was withdrawn after developers and Mayor James Hahn argued that the ordinance would only drive developers outside city limits.


The revised proposal keeps the mandates, but will add density incentives for developers and is also expected to give neighborhoods more say in whether projects with affordable set-asides can be located in their communities.


Developers and business advocates are expected to raise objections to the new plan. However, as of last week, it was unclear whether they would oppose it outright.


One opponent of the original proposal, Central City Association President and Chief Executive Carol Schatz, said she was waiting to see whether the measures she supports, such as boosting the city's affordable housing fund and targeting affordable units to certain neighborhoods, make it into the plan.


Water Rates
Ron Deaton, the new general manager for the Los Angeles Department of Water and Power, defended his agency's call for another water rate hike last week.


Earlier this month, the DWP said in budget documents that it was looking for a "revenue boost" of 4.7 percent for the 2006 calendar year to generate $28 million for water infrastructure projects. That's on top of last year's 11 percent rate hike, which was whittled down from 18 percent after a public outcry.


Speaking before the Current Affairs Forum downtown, Deaton said the call for a "revenue boost" does not translate into a rate hike of the exact amount. "We're still working out just how much of a rate hike is necessary and how much revenue we can obtain from other sources," he said.


He said the revenue boost was needed because of new federal water-quality regulations requiring hundreds of millions of dollars in additional expenditures over the next several years. As an example, he said that covering the Los Angeles Reservoir near Sylmar would cost nearly $100 million.


This explanation does not sit well with critics, who point out that the DWP is scheduled to transfer $190 million to the city's general fund for the 2005-06 fiscal year beginning July 1. This annual transfer (higher in some years, lower in others) is then used to fund other city services, like repaving roads or hiring more police officers.


Homeowners argue that the transfer is an indirect tax on ratepayers to subsidize other city services, and should therefore be subject to a vote of the people under requirements of Proposition 218.


When asked why the DWP couldn't simply tap into this surplus to cover its costs, Deaton said the transfer was in lieu of taxes that utilities pay to other cities.


"The DWP pays no taxes and pays no return (to shareholders)," he said. "As I have repeatedly explained, ratepayers do not own the Department of Water and Power. The citizens of Los Angeles own the Department of Water and Power. The transfer is a return on their investment as far as I'm concerned and it is an appropriate use of the money."


He added that the practice, in place for 75 years, has been litigated three times and is the practice of other municipalities.


Separately, Deaton said the DWP is learning to do without outside public relations help, which was terminated after Fleishman-Hillard came under fire for allegedly overbilling the city. (Fleishman reached a $5.9 million settlement with the city last month, and one former company executive has been indicted.)


"In a way, the public relations incident that got us into trouble was an opportunity. We're now taking our issues directly to the neighborhood councils and to the people," Deaton said.


Workers' Comp Talks
Gov. Arnold Schwarzenegger, Senate President-pro-tempore Don Perata and Assembly Speaker Fabian Nu & #324;ez plan to meet this week to discuss revising controversial workers' compensation regulations.


Last year's reform law ordered new regulations for permanent disability payments, but the rules came under attack from labor, applicants' attorneys and injured workers for cutting the benefits too far.


Last month, Perata said he would support Schwarzenegger appointee Andrea Hoch as director of the workers' compensation division, but only if regulations were reopened. A report showing that insurers were saving about $500 million a year also helped pressure Schwarzenegger to reopen negotiations. Readjusting the formulas could limit the savings to businesses on workers' comp premiums.


*Staff reporter Howard Fine can be reached by phone at (323) 549-5225, ext. 227, or by e-mail at hfine@labusinessjournal.com .

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