SLVWD Board Meeting Summary
February 2, 2021
Mark Dolson
Highlights:
Fire Recovery Surcharge.
Loan Analysis.
Next Board meeting is at 6:30 PM on February 4.
Preliminaries:
There were no actions to report from closed session. There were no non-agenda-related public oral communications.
New Business
Fire Recovery Surcharge
Finance Manager Stephanie Hill introduced a Staff memo recommending an approximately $10 monthly surcharge on customer bills over the next five years to recover the estimated $5 million in unreimbursed costs resulting from the CZU fire in August, 2020. The memo noted that the District had responded similarly to past natural disasters by enacting a surcharge tied directly to the event, typically with a set amount and/or sunset date. It further advised that failure to recover this revenue would cause the District to suffer significant setbacks in reaching the goals associated with its previously-approved 2017 rate increase.
This proposal led to a long and wide-ranging discussion involving both Board members and extensive public comment. The following summary accurately captures these inputs, but readers are strongly advised to consult the Commentary below for a more coherent description.
Director Henry asked whether the surcharge was needed in order to get a loan. Stephanie replied that it was not. Director Henry then said she saw no alternative to the surcharge.
Director Smolley asked what other potential non-FEMA funding sources the District might pursue. District Manager Rick Rogers said the District has explored various options but with no success to date. Other grants may still be available, but there is nothing firm. Director Smolley then asked what projects would not be pursued without additional funding. Rick did not cite specific examples but said it is very important that the District start to replenish its emergency reserve fund.
Director To expressed a hope that the District would find some additional funding sources. She asked if it would keep looking, and she also suggested that the District expand its Ratepayer Assistance Program funding. Rick Rogers said the District has put out an RFP for a grant writer. It is also working with the County on securing some grant funds from the federal government for helping folks having difficulty with payments due to Covid. In addition, the District applied for a grant to offset the cost of generator installation to cope with power outages.
President Mahood reported that Representative Anna Eshoo previously had a bill to raise the FEMA reimbursement percentage from 75% to 90%, but this didn't go anywhere. President Mahood has requested an update now that the situation in Washington has changed.
Director Fultz asked whether (and how) the proposed surcharge would benefit all SLVWD customers. Rick Rogers said the District’s interties enable it to move water between all three regions in emergency situations. Director Fultz interpreted this as meaning that, given the current constraints on transferring water between District regions, one group of customers will benefit directly and another group will benefit indirectly. Rick saw this differently. He said the District is working on being able to move water from north to south when the CEQA process is completed and water rights issues are resolved in June, 2021.
Director Fultz said the past year has been pretty devastating for large portions of our community and that an additional $120 per year will be quite daunting for many people. He further suggested that the District’s Ratepayer Assistance Program would not provide consequential relief unless the state steps in to assist with funding. He then repeated an argument that he has made at numerous past Board meetings about the dramatic increase in water rates, in tandem with operating expenses, over the past ten years. He stated that he is not in favor of continuing to raise people’s bills because the District cannot demonstrate the increased value it is delivering in return. He argued that it is premature to initiate a Proposition 218 process when the District has not worked out a long-term financial plan for the next 5-to-7 years. The District needs to put together a plan first and then take this plan to the community, explaining that this is why the surcharge is needed.
There was a lot of public comment. Larry Ford agreed that it is very unpopular to raise rates and said his own family income has been reduced substantially due to the pandemic. Nevertheless, he viewed this as an important and essential expense. He suggested that Ratepayer Assistance be provided to the specific people who will have the hardest time coping with the surcharge. Absent the surcharge, he said, the consequences would be very unwelcome.
Former Board Member Rick Moran read a statement expressing his deep concern for the issue of fairness. He argued that the surcharge should be tied to income level and that a graduated fee is the fairest way to raise money for repairing fire-damaged infrastructure.
Cynthia Dzendzel requested that Staff elaborate on the increase in operating expenses and also provide information about rates of delinquency over the past year and utilization of the District’s Ratepayer Assistance Program. She said she can afford the increase but would hope that low-income neighbors can receive assistance.
Stephanie Hill, Rick Rogers, and Operations Manager James Furtado all responded. Stephanie said about 30 people have been approved for Ratepayer Assistance (the program is budgeted to support over 200 participants). Past-due accounts have been steady at around $500,000. A few hundred thousand dollars is seriously delinquent.
Rick said the District’s costs have increased, and spending is closely tied to operational costs that are out of the District’s control. As examples, he cited both power outages and increased operational duties due to fire damage. He also mentioned that the Operations Department recently reduced lease-line bills by around $3000 per month. James added that costs necessarily increased due to consolidation with Lompico and to increased staffing.
Beth Thomas advocated for a better picture of the operating expense increases and the community’s ability to pay. She viewed the $10/month benefit of the Ratepayer Assistance Program as negligible, and she noted that community opposition to rate increases grew over the past two increases. She argued that a rate increase might not survive the Proposition 218 process, and she asked what the District would do then. The answer to this question should be part of the surcharge decision process.
Jim Mosher agreed that this is a hard decision. He argued that if the District were to have another disaster without an adequate reserve fund, it would be in serious trouble. He said the District must ensure its ability to maintain adequate operations. He noted that Rick Moran’s proposal, while attractive, was not legal. In contrast, the Ratepayer Assistance Program provides a legal alternative. He was puzzled by the assertion that a $10/month rebate wouldn’t help people to cope with a $10/month surcharge, and he further suggested that the rebate could easily be increased to $20/month.
Elaine Fresco shared many of the previously expressed sentiments. She said reserve funds have proven to be vital, that the Ratepayer Assistance Program can be strengthened, and that there is community support that the District can tap into.
Public input was followed by another round of Director comment. President Mahood stated that this is not a rate increase but a surcharge for a fixed time. She likened the fire to a car crash which left the District with increased expenses that are wholly independent of any concern about increasing operating costs. Events outside the system impinged on the District and forced it to spend down all of its reserve funds. A surcharge is an appropriate response.
Director Smolley said Staff does need to help the Board and the public to better understand why operating expenses have increased, but he saw no reason that this couldn’t be done in parallel with approving the surcharge.
Director To said the average family of four in California pays $113 per month for water. A comparable district (St. Helena) pays $112 per month. Water rates across the state have tripled over the past ten years. This strongly suggested that SLVWD rates are not out of line. She argued that the District needs the surcharge and can improve its Ratepayer Assistance Program.
Director Fultz asked how the surcharge-derived funds will be managed (e.g., will they be sequestered and not be used for any kind of operating expenses?). Stephanie said the Board could choose to make some amount restricted in various ways. Director Fultz pressed her for a more detailed response, but Stephanie said only that the intention is to recoup the $5 million.
Director Fultz went on to offer a number of rebuttals and further comments. He dismissed any comparison with water rates for other California water districts as inappropriate, and he dismissed various examples of externally-driven expense increases as extraneous. He seemed to suggest that the surcharge was not essential to replenishing the reserve fund because the reserve fund would not be immediately replenished via the surcharge and because the surcharge was not exclusively tied to the reserve fund. More generally, he argued that the District is staffing to handle disasters internally rather than relying upon a disaster contingency plan. He said the District should be able to quantify the benefit of this permanently higher staffing level to customers. He also argued that customers won’t care about the distinction between a surcharge and a rate increase and that the surcharge itself won’t have any fundamental impact on the District’s ability to handle the next disaster. He concluded that the District still needs to develop a comprehensive plan. Managing on a year-to-year basis or on an event basis does the District’s customers no good. He argued that the District can do better and that it must make a better case to the community.
Director Henry said a reserve fund is very important to her, and she spent some time seeking to relate this to her past experience.
Rick Rogers took strong exception to Director Fultz’s recurring lectures on increasing operating expenses. He said there have been conversations every two months at Board level about a reduction in staff. This is demoralizing for the staff that have been working seven days a week for months. The Board needs to take responsibility to stop this cycle.
James Furtado added that operating costs increased in large part due to past Boards not approving staff increases and maintenance expenses until budget increases finally became unavoidable.
President Mahood spoke in support of Rick Rogers, saying that if Director Fultz proposed it, the Board could agendize the question of whether to hire a consultant to conduct a staffing study in order to achieve some productive resolution of this issue. Director Fultz did not respond.
Director Fultz offered a brief rebuttal to Rick’s statement, insisting that his focus on operating expenses has nothing to do with how these get managed (e.g., staffing). He said the Board is working for the community, and the Board owes it to the community to be more diligent. He suggested that Proposition 218 would allow the Board to ram something down people’s throats (because it requires the community to essentially opt out, thereby biasing the outcome toward passive acceptance), but he wanted the Board to build a stronger case.
Director Henry moved to direct Staff to initiate a Proposition 218 process, including hiring a rate consultant, to prepare a rate study and present a fire recovery surcharge for Board review and approval. Director To seconded this. The motion passed 4-1 with Director Fultz opposing it.
Old Business
Loan Analysis
The goal of this agenda item was to approve an optimal loan strategy to finance fire-related construction projects over the next three years. Staff had presented their initial thinking at the previous Board meeting, but Director Fultz had urged them to explore additional possibilities. He argued that historically low interest rates made it potentially attractive for the District to borrow a much larger sum than originally contemplated and to undertake some non-fire-related infrastructure-improvement projects as well. President Mahood had agreed with the idea of taking advantage of the low interest rates.
In response, Staff presented a plan to borrow $15 million on attractive terms from CoBank with $7 million of this targeted for other capital improvement projects. District Manager Rick Rogers explained that five additional projects had been identified as feasible for the District to complete over the next three years (e.g., replacing undersized and/or leaking mains and improving fire-flow into Lompico Canyon). As an ancillary detail, the larger loan also meant that the District would need to pay an increased fee for the associated Bond Counsel.
Director Fultz asked whether the entire $15 million was being issued at once. Chris Perlitz of Municipal Capital Markets Group, working for the District as a Municipal Advisor on this initiative, said the District will not take the entire $15 million in one shot, and he further explained some of the advantageous terms. Director Fultz also wanted to know whether the District had ruled out the capital markets as an alternative funding source. Chris said there wasn’t time for this, as the District is running very low on funds, and this loan can be issued within a week. Director Fultz complimented Chris, Stephanie, and Rick on their good work on this project. He added that one of the reasons for his interest in the larger loan amount was that he feared the District’s $5 million estimate for the total unreimbursed cost of fire recovery could be off by a substantial percentage. The larger loan gives the District flexibility if the amount needed for fire recovery ends up being significantly more than $5 million.
Director Henry asked whether the interest rate will increase at any point. Chris said the interest rate is locked in for 20 years.
President Mahood said the initial reluctance to borrow more than $5 million was due to the limited staff bandwidth for managing additional projects, and she credited Director Fultz for suggesting the inclusion of shovel-ready projects in configuring a loan to take advantage of low interest rates.
There was one public comment expressing appreciation for District Staff.
Rick Rogers said this was a group effort, and he called special attention to the work of District Counsel Gina Nicholls who negotiated a lower rate with the Bond Counsel. Stephanie Hill added that once the loan goes through, the District will be putting some of the money into the reserve fund.
Director Fultz moved to approve the motion in the Board packet, and Director Henry seconded. The following motion passed 5-0:
Authorize and direct Staff to proceed with securing financing for infrastructure projects consisting of repairs and improvements to the District’s water system resulting from the CZU wildfires plus additional projects identified by staff, consisting of approximately $15 million in new borrowing based on the most favorable terms offered to the District for tax exempt, long-term, fixed-rate borrowing. Also authorize and direct the District Manager to execute the amended and restated fee letter with Best, Best & Krieger.
District Reports
Director Fultz commented to Finance Director Stephanie Hill that it might be helpful to break out some of the items on the Accounts Payable listing of paid bills into a different format in order to explicitly distinguish between ordinary operating expenses and extraordinary (e.g., fire-related) ones.
The meeting was adjourned at 8:00 PM.