Flexing its muscles in an escalating City Hall budget battle, the City Council moved Wednesday to block Mayor Antonio Villaraigosa's city shutdown plan and to seize control over the Department of Water and Power.

The aggressive posturing came amid a flurry of developments over the city's financial crisis, made worse this week by DWP's refusal to transfer $73.5 million to the city budget.

Los Angeles City Hall (Hans Gutknecht/Staff Photographer)

Other actions Wednesday included a downgrade in the city's credit rating; City Controller Wendy Greuel launching an audit of the DWP; and Villaraigosa attempting to wrest $20 million out of the utility to help rescue a city on the verge of running out of cash.

Earlier this week, Villaraigosa had proposed shutting down non-essential city services for two days a week to save money. But the council criticized that proposal Wednesday, even as it continued to negotiate a compromise over DWP power rates.

An angry and frustrated council accused the mayor of developing an "Alice in Wonderland" plan, with Councilman Bill Rosendahl saying the mayor "sounds like the guy shouting, 'the sky is falling, the sky is falling."'

"It is completely irresponsible for the mayor to be saying this," Rosendahl said. "It shows how disorganized the city is. There is no way this is going to happen next week."

Chief Legislative Analyst Gerry Miller said the mayor's shutdown plan requires the council to approve an emergency resolution. Villaraigosa said he was trying to meet some of the council's demands and has asked the Board of Water and Power Commissioners to reconsider the issue to see if it can make the transfer to help balance the city's budget.

"I don't have the power to order them to do it, but I have asked them to look to see if there is any way they can afford to make the transfer," Villaraigosa said in a telephone interview. "It has to be fiscally prudent, but if they can do it, I would like to see it done."

Villaraigosa, who made a series of appearances before the national and local media Wednesday to talk about the city budget, also said he will push the utility to at least make a $20 million transfer to help keep city services running.

He said the utility could make the transfer and continue its normal operations if it made some cuts, but he noted it was contingent on approval by the DWP board.

As for his proposal to shut down non-emergency city services for two days a week, Villaraigosa said it was his response to a statement from Greuel that the city will run out of cash by May 5.

"What am I supposed to do with information like that?" Villaraigosa asked. "To not put a plan forward would be irresponsible. If the council doesn't like it, they can put forth their own plan."

"I am not looking to get in a dispute with the council," he added. "That's not my way. But the problems we face are real."

The ongoing dispute was spurred by the City Council's rejection last week of a DWP rate increase that was higher than the council had recommended.

The council had approved an increase in the Energy Cost Adjustment Factor of .6 cent per kilowatt hour - or about 5.7 percent increase in the average customer bill. But the DWP board instead pushed for a .7 cent increase, and the council shot that down, killing any chance of a hike for at least the next three months.

After the council veto, DWP officials said they could not provide the final $73.5 million of a $220 million transfer to the city's general fund, money the city said it needed to bolster its reserve fund.

The lack of a transfer prompted Moody's Investment Services Inc. to downgrade the city's credit rating from Aa3 to Aa2 on $3.2 billion in debt. A lower credit rating means the city would have to pay more to borrow money.

"This is no surprise," Council President Eric Garcetti said. "Without us getting the $73 million, it means they are looking at what our reserve fund will be. This can all be resolved if the DWP transfers the money it had promised."

DWP officials have said they cannot afford to make the transfer unless they are guaranteed an ongoing rate hike.

Councilwoman Janice Hahn introduced a proposal to renew the .6 cent proposal, but withdrew it in the face of an uncertain fate on the council.

"I don't think it would have got the necessary votes, so I want to work on it further to see what we can do to resolve this," Hahn said. "I want to make sure that we have our people working and not harm the public."

Greuel said she will launch an audit of the DWP to determine if it has the money to make the transfer.

"I want to take the politics out of this process and provide an independent review of the DWP's finance," Greuel said, adding she expected it to be completed within one month.

Councilman Greig Smith also introduced a package of reforms he would like to see placed before voters to give the City Council more authority over DWP.

"We don't even have the power to review their budget," Smith said.

Among his proposals are allowing for the removal of any commissioner by a two-thirds vote of the council, revamping its pension system, and freezing salaries of DWP workers until the pay of city workers caught up.

Also on Wednesday, former DWP Board Chair Nick Patsaouras filed a taxpayer lawsuit against the DWP, arguing the utillity had a fiduciary responsibility to transfer the funds after months of promises to the city that it would make the payment.

In addition, City Attorney Carmen Trutanich said his office will not be affected by any shutdown of city government.

In a memo to deputy city attorneys, Trutanich chief of staff William Carter said the office is exempt from any directive to shut down.

"As you are aware, the mayor issued a directive stating that he intended to shut down certain city services two days a week, starting April 12," Carter wrote. "Please be advised this directive does not apply to this office. As an elected citywide official the City Attorney does not take directives from the mayor. Rather ... we are awaiting budget directives from the City Council."

Carter added that even if such a directive was applied to the office, it would be exempt for its work as a public safety agency and for the revenue it brings to the city.