SLVWD Board Meeting Summary
November 19, 2020
Mark Dolson
Note: This was a special meeting originally announced 11/16/20 to review the annual audit. A revised agenda was posted 11/17/20 to add a follow-up to the Board action of 11/10/20 relating to the vacant seat on the Board. The Board decided at the start of the meeting to address these two agenda items in reverse order so that the auditor would not be forced to wait through the other agenda item in order to answer questions about the audit.
New Business
Review of Draft Fiscal Year 2019-2020 Comprehensive Annual Financial Report
Andy Beck (from the firm Fedak & Brown LLP) summarized the results of the audit. As in previous years, the District received an “unmodified opinion,” meaning that its financial statements fairly present the financial position of the District as of June 30, 2020.
Operating revenues increased nearly 10% to $11.1 million, primarily due to increased sales revenue.
Operating expenses increased nearly 8% to $7.9 million, driven primarily by increases related to pension, salary, and benefits.
Non-operating revenues increased roughly 18% to $1.5 million, due to increases in interest earned on investments associated with remaining loan balances.
Non-operating expenses increased roughly 50% to $1.2 million, mainly due to interest expense payments and debt issuance costs.
The District’s overall net position increased by $2.2 million.
Director Farris asked whether reserves were the same as the “unrestricted net position” in the audit. Stephanie Hill (Finance Director) explained that they are not, and that the next step will now be for the Budget and Finance Committee to present the full view of the past fiscal year. This will include a comparison with the approved budget for that year. (All of these results obviously pre-date the August CZU Lightning Complex Fire.)
Director Fultz took this opportunity to offer an extended commentary on the District’s evolving financial condition. He said he was very comfortable with the audit but wanted to make sure that the community understands the gap between the audit results and the District’s true financial picture, as the audit picture is much narrower than what the Board has to deal with. He pointed out that the District has accrued a very lengthy list of financial obligations over the past few decades; these will have to be dealt with via a series of lengthy and painful conversations, and Director Fultz was hopeful that the next year will bring some clarity to this.
Unfinished Business
Board of Directors Vacancy
Gina Nicholls (Legal Counsel) reviewed the recent history relating to this agenda item. The Board voted 3-1 at its 11/5/20 meeting to declare President Swan’s seat vacant, overriding his attempt to resign effective 12/31/20. The Board decided at its 11/10/20 meeting that this vacancy would not be filled, as has been customary, by appointment; rather, it would be filled by a special election to be held in November, 2021 and paid for by the District. Everyone understood that this left the Board with only four members for the next twelve months and also forced any replacement candidates to commit to a costly campaign for a Board seat with a duration of only one year.
On 11/16/20, the County Clerk notified the District that the Board’s 11/10/20 motion was insufficient to order a special election and provided the District with a template for the required formal resolution. This would have been a mere formality, but Director Moran – who argued passionately at the November 10th Board meeting for a special election – now announced that he was having second thoughts. He said he always tried to be pragmatic and, after serious consideration, he now realized that: (1) there is election fatigue, (2) there is a worsening pandemic, and (3) the District is recovering from a severe wildfire. He still believed that the District should be willing to pay for a special election, but he was frustrated that this election could not be held sooner than a year from now. He therefore suggested that he would be willing to rescind his approval of an election if the vacant seat could be filled by appointment in a way consistent with voter intent. Since the voters elected former President Swan in 2018 as part of a specific platform (on a slate shared with current Directors Fultz and Henry), Director Moran proposed that the vacancy should be filled by someone who supports this same platform. To ensure that this would occur, he suggested that there be a formal joint decision between the two continuing Board members and the two incoming members (Gail Mahood and Tina To) to appoint someone unanimously. In effect, he proposed a compromise (for which there was no legal mechanism) in which the Board could avoid the downside of a special election if Director Fultz could be allowed to veto any appointment not to his liking.
Director Henry commented that Directors Moran and Farris were unanimously appointed by the Board in 2019 so she expected that it would be feasible to achieve unanimity for a December, 2020 appointment as well.
Director Fultz characterized this as an “interesting idea” consistent with Director Moran’s record of contributing very creative ideas for reducing potential conflict around Board operation.
Director Farris expressed the hope that this issue could be conclusively resolved at the current Board meeting.
Public input was unanimously appreciative of Director Moran’s willingness to reconsider the special election since all commenters regarded the election as a very poor solution. Fifteen public members were present, and twelve of them ended up speaking.
Beth Thomas said she, as a Quaker, was very supportive of consensus, but she was unclear on precisely how Director Moran’s proposal could be formally implemented at this meeting. Larry Ford and Kelly Sanford each urged the Board to rescind the election. Karen Holl agreed and added that she supported collegiality, as do Gail and Tina. Christina Wise said she would like to hear what Gail and Tina have to say.
Gail Mahood said she didn’t see any legal precedent for Tina and her to participate in the Board’s current discussion, and she asked District Counsel Gina Nicholls to comment. Gail said she couldn’t be held hostage to a promise to make a unanimous appointment as her responsibility would be to choose the most qualified person.
Gina said newly elected Directors have no say in what the Board decides at this meeting. Director Moran’s proposal could not be legally binding.
Director Moran responded by saying, “I'm trying to voice that a large number of people supported Fultz, Henry, and Swan, and these people expect that this platform be followed through. These people need some sort of verbal commitment, just like a campaign promise, that [all future Directors] support the process of trying to find a consensus to approve the next vacancy. I'm trying to find a way out of a very difficult situation that still protects the interest of those persons who supported that platform.” Director Moran said the platform entails the following commitments: infrastructure building, financial responsibility, transparency, stopping the use of glyphosate, and expanding the number of citizens on committees.
Director Fultz offered some further thoughts, including all of the following: “There are some uncomfortable points that we need to reckon with. There was a real lack of transparency around Steve Swan's situation. His home sale happened at a point in time where we wouldn't be having this conversation if it had been properly dealt with. Steve used a clause in the water code to continue representing people even though he had no intention of living here. We should have dealt with this in September … I'm a big believer in elections and especially when there is a philosophical split on the Board. My 2018 slate was opposed by the people who supported Gail and Tina. We have a question within our community about where the emphasis needs to be. This can only be addressed via an election. Of course, there is a cost to this. In my opinion, we have overpaid on other things [such as consultants] … Others may disagree. I'm intrigued by Rick's proposal even though it's not legally binding. Short of this, we need an election.” Lastly, Director Fultz said the “qualifications” he was looking for in an appointment were very different from what others might seek. He was not concerned about the Board’s ability to find a qualified person to appoint; he felt that almost any member of the community could serve on the Board. He added that it would be preferable to recruit newer and younger members of the community to serve on the Board.
Director Farris recommended that the public input be completed prior to further Director discussion. Director Fultz said this was generally a good process but that Director Moran’s proposal demanded a little more interactivity. President Henry reopened public comment, including those who had spoken previously.
Cynthia Dzendzel said, in observing many Board meetings, she had seen many resolutions accepted where one person was not in agreement. She did not think it was reasonable to let one person have a veto over the majority. She expected all new Board members to have the same values that Director Moran spoke to.
Jim Mosher said that as someone who was very active in the 2018 election, his goal since then has been to build consensus and move forward. He agreed with all the platform planks that Director Moran referred to. He felt that it is in the interest of the community to find ways to heal, and he noted that the newly elected Board members had nothing to do with the 2018 election. He said the goal in the process of appointment is consensus, but there should not be a campaign promise of unanimity.
Elaine Fresco said she believed it entirely possible that the new Board could all agree on a replacement for Steve Swan as the new Board members all believe strongly in collaboration. She said Steve's decision to leave had nothing to do with the newly elected Board members and that Gail Mahood was not involved in the election of 2018. Gail ran a very positive campaign in 2020, and it was hard to imagine that Directors Fultz or Moran would disagree with any of her statements on her campaign website or in her response to the Press Banner. She said she didn’t know why the Board was engaging in such drama.
Gail Mahood regretted that Director Fultz wanted to put Tina To and her in an "us" vs "them" framework. She noted that Director Henry was part of the 2018 slate, and she endorsed Gail in 2020. Gail said she supports all of Director Moran’s platform points (including the glyphosate issue which she considered “settled law” based on the 2018 vote). She also stated that she totally agrees with Director Fultz on a lot of things including decreasing use of consultants. Lastly, she did not see evidence in the 2020 election results that the voters supported the “us” vs. “them” mentality emphasized by Director Fultz.
The three remaining public comments all expressed support for the appointment process. Joni Martin applauded Director Moran’s courage and creativity and said elections are important, but if there is ever a year to forego a special election, this is it. Paul Machlis agreed and added that he didn’t think we should set up a false dichotomy between spending money on consultants and on elections. Laura said she didn’t think it was reasonable to require a 4-0 vote, but that it seemed clear that all Board members were committed to an open and transparent process.
Both Legal Counsel Gina Nicholls and District Manager Rick Rogers spoke up in a way that they had declined to at the previous meeting. Gina said as the District's lawyer looking down the road, she saw the potential for a lot of turmoil if this didn’t get resolved tonight. She also expressed concerns about a 4-member Board in terms of 2-2 deadlocks and quorum requirements. She said Director Moran’s proposal cannot be legally binding, but it was a reasonable way to get the decision-makers on board to mutually reach a solution and to have a full complement of Board members.
Rick Rogers echoed Gina’s remarks. He revealed that he had been approached by Director Moran and appreciated his contribution. Rick said this is a Board decision, but he had concerns about going to an election as this would place the Board in a much more contentious state and distract it with campaign considerations throughout 2021. He pointed out that the District has very major pressing concerns, and he expressed confidence that the Board can come together to select a new individual who will work for everyone as “there is a lot of governing to do.”
Director Moran said he appreciated everyone’s comments. He said he had learned to not necessarily listen to the most numerous voices in the room. His summary was that there is both risk here and trust that is needed as well, and he had now heard enough people speak in terms of consensus and collegial proceedings that he felt satisfied. He said he planned to walk his proposal through the approval process as slowly as necessary to ensure that it was clear and clean.
Director Fultz offered some further comments. He agreed with Director Moran that there are more voices in our community than those who attend our meetings. He said his job is to represent a much broader set of people with a much broader set of concerns, and promises are very, very important to him. He still viewed an election as a better way to go. He noted that the School Board is going to an election in March, 2021, and the District could have participated in this election if it had acted by 10/24. He was extremely disappointed that the District didn’t do this. He reiterated his belief that a four-person Board would be fine and would very rarely deadlock. Lastly, he said he still wasn’t completely comfortable with Director Moran’s proposal and would like to hear from Directors Farris and Henry.
Director Farris said he had asked Rick Rogers to comment at the previous meeting, and he understood why Rick had basically declined. However, he was very glad that Rick was willing to comment at the present time because Rick’s comments went a long way toward changing Director Farris’s decision. He noted, though, that the timeline for an appointment would be quite tight, as the Board would be required to take action by 1/4/21 or else the decision would be out of the Board’s hands.
Director Henry said she believed the appointment process had worked well in the past. It was transparent. She never tried to get people to apply, and she would not do so this time either. She feels a loyalty to Board members and therefore only endorsed Gail after Director Moran decided not to run. Director Henry said she couldn’t see putting people through the election expense to serve in office for a single year.
Director Moran asked District Counsel Gina Nicholls to assist in formulating a motion to rescind the election and to proceed with an appointment. This led to a certain amount of back and forth which culminated in the drafting of a motion to this effect, introduced by Director Moran and seconded by President Henry. The deadline for receipt of applications for the vacant Board seat was set at 3:00 PM on 12/9/20. Director Fultz asked, “There is nothing in the motion that can obligate anyone to the consensus process that the approval be by a 4-0 vote. You are comfortable that Gail has committed to this?” Director Moran expressed his satisfaction, but Gail had already explicitly stated that she was making no such commitment.
Director Fultz shared some further reflections including all of the following: “This is an interesting situation for me. I want to make some comments that have the definite potential of upsetting one or more of the attendees … It is important for us to recognize reality. When the new Board is seated, I will be the sole member who did not support the election of Gail and Tina. [Director Moran] is encouraging me to take a huge leap of faith and trust that we have four people who have as their objective to serve the community in the best way possible and who haven't guaranteed a 4-0 vote but who are very hopeful that we can achieve a 4-0 vote … This is creative and interesting … It has interesting potential. If we can all walk into it with that kind of commitment to try to achieve a 4-0 vote, I will be willing to do this. I hope that Lois, Gail, and Tina will join me in this. I hope we get some new blood that will continue to advance this District on the path that it needs to go … I hope [Director Moran] will continue to be present to remind the new Board that his expectation was that people will vote 4-0.”
Director Moran applauded Director Fultz’s commitment to this community and the Water District. He said the motion required a leap of faith and was potentially filled with some risk, but he was hoping for the best, and he indeed intended to still be around.
The formal motion was separated into two parts (first to rescind the election and then to fill the vacancy by appointment). Both motions passed 4-0.