Hot Topics Summer 2023

Financial Stability

It costs a lot of money to maintain a water utility like SLVWD, and the vast majority of this money comes from SLVWD ratepayers. These ratepayers don’t have the option of decreasing their water bill by simply switching to a competing water provider. Instead, they depend on the elected SLVWD Board of Directors to determine whether rates are being set appropriately. As a last resort, ratepayers can override a Board-recommended rate increase by registering a public objection: Proposition 218 specifies that if more than half the ratepayers submit formal objections, the rate increase cannot take effect.

The community needs ready access to relevant background information in order to assess the Board’s decision regarding any proposed rate increase. Unfortunately, SLVWD’s current budget for community outreach is inadequate to fully meet this need. FSLVW is concerned that a rate increase proposal may become a hot topic in our community late in 2023, and is therefore seeking to provide as much helpful context as possible well before people find themselves being asked to make a last-minute decision about whether to accept or oppose this.

Specifically, FSLVW is working to promote improved community understanding via seminars, newspaper articles, and any other means that we can devise. We intend to provide regular updates and links via this web page. As a starting point, we intend to focus on three facts that are not in serious dispute:

  1. SLVWD water rates are higher than those of neighboring districts. SLVWD ratepayers deserve (and, indeed, have a responsibility) to know why this is the case.

  2. SLVWD water rates have increased dramatically over the past decade. Again, SLVWD ratepayers need to understand why this has happened (and may continue to happen).

  3. SLVWD water rates may need to increase in 2024 in order for SLVWD to responsibly serve the best interests of our community. SLVWD ratepayers have an important role to play in ensuring that SLVWD responds to this need as wisely and popularly as possible.

As of July, 2023, SLVWD has contracted and begun working with Raftelis to perform a required formal rate study. This study will identify various options for revising the District’s rate structure to adequately address its forthcoming revenue needs while appropriately balancing concerns like stability of income and impact on low-income ratepayers. FSLVW believes that both tiered rates and special attention to low-income ratepayers will likely be important components of an effective solution. SLVWD expects to organize public workshops in the fall of 2023 to promote broader community engagement.

Lastly, it is worth noting that SLVWD has had considerable success in the past 18 months both in implementing cost-saving initiatives and in dramatically increasing its funding from State grants. Nevertheless, most current SLVWD Board members appear to anticipate that SLVWD rates will need to increase yet again in 2024. The one Board member whose views stand somewhat apart from the others is Director Fultz. Director Fultz has argued that SLVWD should increase its operating margins by $2 to $3 million per year (beyond its current plan) in order to fully fund needed long-term infrastructure maintenance. This would seem to imply an increase in revenue, but Director Fultz has also argued that SLVWD should impose tighter controls on spending, both to increase resistance to escalating operating expenses and to increase the public’s trust in SLVWD’s promises and spending decisions.

Staffing

It is very much in the interest of our community for SLVWD to be staffed as effectively as possible. This is challenging because SLVWD is a small district with expensive housing, competing with significantly richer neighboring districts. There is not a lot that FSLVW can do to assist SLVWD on this front, but we believe it is important for our community to understand the situation that SLVWD is currently dealing with. The two most notable developments here are:

  1. SLVWD Staff have frequently gone above and beyond over the past few years as they have committed countless extra hours to coping with severe emergencies such as the 2020 CZU Fire and the 2023 winter storms and also to coping with the loss of key personnel.

  2. SLVWD District Manager Rick Rogers intends to retire in 2024, and SLVWD is currently working with the search firm of Ralph Anderson & Associates to find a suitable replacement.

SLVWD has other currently unfilled positions as well. A separate question is whether there are yet other positions, currently unbudgeted, that would strengthen SLVWD’s ability to serve our community. As noted below, the District is addressing substantial infrastructure repairs and upgrades as well as possible consolidations neighboring water districts.  These activities require increased staff time.

In its most recent round of labor negotiations this past May, the SLVWD Board of Directors agreed to a 6% annual Cost of Living Adjustment plus a one-time payment of 7% in recognition of the extraordinary Staff contributions during and in the many months following the CZU Fire. The Board also agreed to conduct a formal salary survey to determine whether any additional adjustments might be warranted.

Consolidation

SLVWD is continuing to progress toward consolidating with Bracken Brae and Forest Springs, two small mutual water companies north of Boulder Creek which sustained substantial fire damage in the August 2020 CZU Fire. As with the staffing issue above, FSLVW has not become directly involved; however, we still believe that it is important for our local community to be well informed.

SLVWD is undertaking these consolidations primarily in support of Bracken Brae and Forest Springs customers, but it is committed to accomplishing this at no additional cost to current SLVWD customers. In 2022 the California Department of Water Resources awarded SLVWD a Small Community Drought Relief Program grant of $3.2 million to make the necessary enhancements to its distribution and storage systems, and work is now getting underway on some of these projects.

Infrastructure

SLVWD infrastructure includes over 190 miles of pipeline, 47 water storage tanks, two water treatment plants, nine stream diversions, one groundwater spring, and eight active groundwater wells. In recent decades, SLVWD revenues have been insufficient to allow for adequate maintenance and updating of this infrastructure, and the resulting deficiencies were dramatically compounded by the damage sustained in the August 2020 CZU Fire and in the winter storms of 2023. SLVWD’s infrastructure challenges have been further compounded over the past year by supply chain issues and associated cost escalations. Responding to these infrastructure issues is currently SLVWD’s greatest long-term challenge.

FSLVW’s goal is to ensure that the SLV community understands the full magnitude of this infrastructure challenge and its corresponding implications. In addition, there may be specific infrastructure questions where the public’s input will be invaluable in helping SLVWD to choose between alternative solutions. For example, SLVWD is still studying different possible strategies for replacing five miles of pipeline on Ben Lomond Mountain that were totally destroyed in the CZU Fire. The total replacement cost could be in the vicinity of $70 million, meaning that, even with SLVWD’s five-year $5 million Special Assessment Fee for CZU Fire Recovery, and even with FEMA covering 90% of the eligible repair costs, there will be a shortfall. Similarly, repair costs for the storms this past winter are currently estimated at nearly $5 million, and FEMA will only cover 75% of eligible repair costs.

Regional Water Management

The Santa Margarita Groundwater Agency (SMGWA) began meeting in 2017 in response to a new state law requiring that local water agencies collaborate to ensure that they have an appropriate long-term plan for protecting and preserving their supply of groundwater. For the Santa Margarita Groundwater Basin, SLVWD, Scotts Valley Water District, and the County of Santa Cruz are the primary responsible agencies with the City of Santa Cruz Water District, the City of Scotts Valley, Mt. Hermon Homeowners Association, and private well owners being interested parties. SMGWA submitted its Groundwater Sustainability Plan in January of 2022, and this plan was approved by the State a few months ago. However, this plan also provides for a number of ongoing activities, so SLVWD’s involvement in this effort is continuing.

A key question for SLVWD is whether its Conjunctive Use Plan, which will allow it to make the best possible use of its available surface water sources, will be approved by the State. SLVWD is currently using a CZU-Fire-related emergency exception to redistribute its water appropriately, but its long-term plan remains in limbo as SLVWD is undertaking a full Environmental Impact Study in response to a formal objection from the City of Santa Cruz. From the perspective of SLVWD and of FSLVW, this action by the City of Santa Cruz was unwarranted and highlights a need for improved collaboration amongst our local agencies.

Conclusion

All of the above issues are important for SLVWD and our community to attend to . However, FSLVW is particularly eager to ensure that ratepayer assessment of the Board’s decision regarding rates is informed by this broader perspective.  To this end, FSLVW believes it is critical that the Board adopt a process that gives adequate notice and opportunity for ratepayers to receive the information they need to be able to participate in the process, comment on the options the board is considering, and offer alternative strategies for addressing the financial needs of the District.   Setting rates is one of the most important decisions that the SLVWD Board will face, and it is critical that it brings the community into the process.

As noted above, ratepayers do have a veto power if they feel the Board has erred in its final rate setting decision.   However, we need to recognize that this veto power comes with great responsibility.  FSLVW believes ratepayers should adopt the veto option only as a last resort, where it can be shown that the Board acted negligently and with poor judgment, such that the proposed rate increase would cause substantial harm to ratepayers and the District.  It is equally important to recognize that the District and the entire community can suffer substantial harm if a rate increase is rejected based on an ill-informed understanding of the District’s financial needs and the Board’s actions.

Two key questions that ratepayers should therefore answer before opposing a rate increase are:

  1. What do I understand about SLVWD’s circumstances that the Board is failing to adequately consider?

  2. How will SLVWD be impacted by having the proposed rate increase rejected, and what should be the next steps for the District to address its financial needs?

Responsible valley citizens should use their vote not merely to “send a message” but to register their support for a concrete course of action that they believe will better serve our community.