SLVWD Board Meeting Summary
May 20, 2021
Mark Dolson
Highlights:
County sues District.
Further review of draft FY 2021-2023 Bi-Annual Budget.
Fire Recovery Surcharge notification discussion.
Discussion of proposed revised Utility Billing Policy.
Past Due Bill policy discussed.
Emergency Intertie with Big Basin Water approved.
Consolidation with Scotts Valley taken off the table.
Next Board meeting is at 6:30 PM on June 3.
Preliminaries:
District Counsel Gina Nicholls opened the meeting by reading a very brief statement unanimously adopted by the Board in its just-completed closed-session meeting. The upshot was that the District’s risk management provider has appointed lawyers to defend the District in the lawsuit filed by the County of Santa Cruz, alleging that the District is responsible for a roadway failure on Bear Creek Road in January of 2020. The District believes it is not at fault, and has submitted a claim to the County for damages to its pipeline.
District Manager Rick Rogers announced that two agenda items (10d and 10e, concerning the District’s Fire Management Plan and its associated contract with Panorama Environmental) were being deferred. Item 11b, concerning the District’s proposed fire-recovery surcharge, was moved to immediately follow item 10a.
Former Director Rick Moran used the opportunity for public comment on non-agenda items to read a prepared statement the usefulness of the new Badger water meters in furthering water conservation. He noted that all 36 homes on California Drive, where he resides, have recently been converted to the new meters which connect to phones and make it easy for ratepayers to monitor their water use. More than 2000 Badger meters are already online with 500 being added per year, and Rick urged increased utilization of these meters.
New Business
Draft Fiscal Year 2021-2023 Biennial Budget
Finance Director Stephanie Hill provided an updated overview of the draft budget. The full package will be presented for official Board approval at the second meeting in June, so her hope was that the Board would use this evening’s meeting to provide feedback on any significant remaining concerns.
The proposed budget assumes that water consumption will decline by 2% per year but that revenue will increase due to the pending fire-recovery surcharge (beginning in August, 2021). Operating expenses will increase due to the addition of a Special Project Manager (badly needed to offload District Manager Rick Rogers), three promotions, a mandated rate study ($100,000) and a Going Digital campaign ($40,000) in 2021, paydowns of the District’s pension liability ($200,000 in the first year and $100,000 in the second – CALPERS charges 7% interest on the pension liability, so the District is utilizing some of its lower-interest loan funds to pay down the balance), and a $26,000 match of the Other Post-Employment Benefits (OPEB) Pay-As-You-Go to fund the trust fund in each year. Spending on capital projects is projected to be $20,750,371 in the first year and $13,304,250 in the second.
Director Henry (Chair of the Budget and Finance Committee) said Stephanie had done a great job and had appropriately explained the increases in operating expenses (7% in the first year and 3.5% in the second year). President Mahood (also on the Budget and Finance Committee) said she appreciated the work to prepare a two-year budget.
Director Ackemann asked about the basis for the projected 2% annual decline in water consumption. Stephanie said this was due to a combination of drought and conservation and was based on data from previous years. Director Ackemann also asked about the impact of loss of customers due to the CZU Fire. Stephanie said there was a loss of $100,000 that was being slowly restored.
Director Fultz commented that consumption had dropped more suddenly and substantially in the previous drought. Rick Rogers said the District is only looking for voluntary outdoor conservation of 10-20% at this point. The second year will see a readjustment unless rainfall increases.
Rick added that the District will also be able to reduce its water use somewhat via its aggressive plan to reduce leakage. A considerable number of underground leaks have been identified, and recent tank replacement has been significant.
Director Smolley said he was glad to see the Capital Improvement Plan factored in across the two-year period. He asked how the $21 million compares to previous years, and Rick said it was significantly more. Director Smolley asked if there was sufficient staff to handle this, and Rick said a lot of the work will be outsourced. The District will be the general contractor on two of the tank-replacement projects to save a few hundred thousand dollars.
Rick noted that the new Special Project Manager will help. This person will also help to get information up on the website and will help a lot with outreach.
Director Fultz asked whether the Special Project Manager will be full time and more than one year. Rick said the plan was to start with a two-year full-time position and then reevaluate. President Mahood asked whether this review would take place in specific committees. Rick said it could be brought to all committees.
President Mahood asked what amount is allocated for fire management in the budget. Environmental Planner Carly Blanchard said there was $50,000 in addition to grants.
Director Fultz asked for clearer accounting that distinguishes between “reserve” funds that are set aside for disaster response and funds being used for debt financing and other purposes. Director Henry and President Mahood echoed this concern. Stephanie said she will work on refining this.
Director Fultz read a statement in which he summarized his position on the proposed budget. He said there were some things that were good and many things that were not so good (including the addition of another headcount and the increased operating expenses). In his view, this is another status-quo budget that fails to address the long-term liabilities that the District has built up. Until the District has a clear picture of all its obligations, it will remain difficult for the Board to understand all this. As things stand, our community can look forward to annual 6% rate increases, and this is not a great legacy.
President Mahood challenged Director Fultz on this position, saying she had heard him make this point many times, but she had yet to hear him make any suggestions on how the operating budget can actually be reduced. She added that Director Fultz voted to accept the 3% across-the-board salary increase in 2020 at a time when other organizations were cutting back. She said she was asking for consistency and for concrete suggestions.
Director Fultz responded by saying that he voted against last year's budget. He argued that it is not the Board's job to direct operations. The Board sets policy. The Board could give Staff a target for a budget increase, and Staff would be obligated to come up with an operating plan that would meet this. He said he would be happy to have the Board do this next year.
Director Ackemann argued that this issue is far more nuanced than Director Fultz is suggesting. Water districts across the state are behind on funding infrastructure, due in part to customers reducing their water use.
Director Fultz agreed that this is an issue that is endemic across the United States. His position was simply that the District’s rates will continue to increase 5-6% per year and that this is unsustainable unless some pot of money magically appears.
Fire Recovery Surcharge
District Manager Rick Rogers and Legal Counsel Gina Nicholls introduced this agenda item with a quick review of relevant background. At the January 21st Board meeting, the Board directed Staff to hire a consultant to prepare a rate study and to develop a plan for a surcharge to recoup the estimated $5 million in CZU-fire-related expenses that the District will be left facing when all FEMA reimbursements are complete. Staff retained NBS to perform an analysis and make recommendations for establishing a surcharge compliant with the legal requirements arising from Proposition 218.
NBS recommended that the District impose an additional monthly fee based on the diameter of the water service line (approximately $10 per month for most customers). This surcharge would be imposed for five years but could end sooner if District costs are less than expected. Proposition 218 requires notices to be sent to all customers with the date, time, and location of a hearing (currently targeting the August 5th Board Meeting). If more than 50% of the parcels submit written protests, the surcharge cannot go forward; otherwise, the Board can vote to approve. The Board packet included a draft of the District’s proposed customer notification letter.
Director Fultz said it wasn’t clear to him how the surcharge revenue would be sequestered in the budget to guarantee that it would be used only for non-FEMA-reimbursed and/or loan repayment. He also wanted the District’s notification letter to include language guaranteeing this separation. He was concerned that the District had misrepresented previous rate increases (advertising these as essential for capital improvements that were ultimately not performed), and he wanted the District to explicitly promise ratepayers that this would not happen again.
President Mahood agreed that it was reasonable to expect a separate account to be established to track the surcharge funds. Director Smolley supported this as well. Finance Director Stephanie Hill eventually said this would be possible; she explained that there would be a lengthy reconciliation process as FEMA reimbursements gradually trickle in. Director Ackemann asked if there was any downside to this tracking, and Rick Rogers said he strongly supported it as well.
Director Henry asked which customers had 4” connections (as these would be subject to a $161 monthly surcharge). Stephanie said this would apply to mobile home parks (where the $161 would be shared across many ratepayers) and schools.
President Mahood suggested that the draft motion in the Board packet be augmented to specify that the District would establish a restricted account for these funds that can be used only to pay for CZU repairs (and recovery). This led to a quite lengthy series of exchanges amongst the Directors, the Staff, and also a few members of the public. Legal Counsel Gina Nicholls initially suggested that any revised resolution be deferred until the next Board meeting so that she would have adequate time to carefully review the new language. However, this request was incompatible with the plan to allow the Board to approve the surcharge on August 5th (due to the Proposition 218 requirement for 45 days of public notice).
Director Fultz argued repeatedly for requiring the Board to approve the final wording of the public notice (at a subsequent Board meeting) to promote increased community trust in the Board. Directors Henry and Ackemann and President Mahood all appreciated Director Fultz’s concern for careful accounting but argued against this level of Board intervention in the District’s communication with the public. Rick Rogers suggested that excessive verbiage and detail in the District notice could end up confusing customers.
Three members of the public offered comments. Mark Lee spoke passionately against moving ahead without further public discussion, but he proved to be largely unaware of recent Board meetings and decisions. Cynthia Dzendzel recounted a recent problem accessing the agenda on the District’s website. Alina Layng said she was a little concerned about the surcharge hitting the local schools.
Director Smolley finally put an end to the discussion by making a motion in favor of President Mahood’s previously proposed resolution. This motion passed 4-1 with Director Fultz opposed.
Utility Billing Policy
The District sought initial Board feedback on a possible revision to its Billing Policy relating to water shutoffs. Finance Director Stephanie Hill explained that the District is seeking a more efficient way to work with customers who fall behind on their payments, especially in light of State Bill 998 having recently made it far more complicated to turn off water for nonpayment. The preferred alternative is to include the past-due balance on the property tax bill. This should lead to improved collection. In order for this to be viable, though, the District will need to stop supporting separate accounts for tenants.
Stephanie further explained that the District had at one time only supported accounts for owners but that it currently has 850 separate tenant accounts. Owner-only accounts simplify the billing process and are also the current practice for many other agencies. In fact, more and more owners are starting to take over tenant accounts on their own. However, some owners will still prefer tenant accounts. The Administration Committee has reviewed the relevant considerations and recommended moving ahead with owner-only accounts that are attached to property tax bills when sufficiently overdue.
As Chair of the Administration Committee, Director Fultz further explained his support for this revision. He said SB 998 was a poor fit for a small district and that the new proposal was superior to turning people’s water off. Multiple owners had already reached out to him saying that they were planning to eliminate tenant accounts themselves.
Director Henry agreed both with billing owners directly and with including past-due accounts on the property tax. Directors Smolley and Ackemann and President Mahood all concurred.
Two members of the public raised questions. Alina Layng asked how this would affect tenants who are currently receiving monthly rebates via the Ratepayer Assistance Program. Stephanie said tenants would still be able to receive their discount.
Elaine Fresco asked what incentive tenants would have to conserve water. Stephanie said the tenants would still end up paying the bill, and it would be up to the owners to communicate with them.
President Mahood moved to direct Staff to develop a formal proposal along the lines just discussed and to bring this back to the Administration Committee for review. The motion passed 5-0.
Past Due Bills
Finance Director Stephanie Hill explained that certain aspects of the District’s Past Due Policy were temporarily suspended at the 4/16/2020 Board meeting due to the COVID-19 pandemic. This suspension was partially updated at the 7/16/2020 Board meeting so as to reinstate late fees. Staff now recommends that the District reinstate the full past due process in its Utility Billing policy and continue to follow any related executive orders by the State. This means that past due tags, turn offs, and past due tenant notifications to owners will remain suspended until the moratorium is lifted, but the District will begin collecting past due balances on the property tax roll this year for long-term past due balances that were owed prior to 12/31/2019. The District will also report past due balances to credit agencies for accounts that have been closed and that have a remaining balance (except for accounts still protected under the State moratorium).
All five Directors approved, and there was no public comment. The motion in support of the staff recommendation passed 5-0.
Emergency Intertie with Big Basin Water
District Manager Rick Rogers introduced this agenda item. On May 10, 2021, Jim Moore, owner of Big Basin Water, made a verbal request for the installation of an emergency potable water interconnection between Big Basin Water and SLVWD. This is a back-up provision mandated for Big Basin Water by the State of California. All costs associated with the installation, engineering, materials, water meter, cross connection device, and labor will be the responsibility of Big Basin Water. Also, because of the difference in elevations, Big Basin Water will be required to furnish temporary power and a pumping station. President Mahood added that Board approval for this intertie would also make it clear that the District won’t be paying for any of this. If water is ever delivered to Big Basin, it is expected to be at a rate similar to the rates charged to District customers.
Director Henry expressed concern, saying that Big Basin has totally ignored the State Water Board and not complied with any of their orders. How can the District be guaranteed that Big Basin will ultimately pay for water the District delivers? She said she wanted to help but had a trust issue given Big Basin’s track record. President Mahood agreed and asked Rick Rogers for further assurances. Rick said the agreement can be structured to require deposits up front or to otherwise strengthen payment provisions.
Director Smolley said the District should receive something in writing in addition to the verbal request. He asked about recovering District Staff costs, and Rick said the District can do this. Director Ackemann also supported these two concerns. In response to another query from Director Smolley, Rick said it will take a month or two to construct the intertie, and the District would be supplying 50 gallons per minute.
There was one public comment. Larry Ford asked what, besides well failure, would constitute an actual emergency for Big Basin. Rick said he would look at other emergency agreements that the District has.
Director Fultz said this would involve roughly 4% of the District’s annual production. He asked if the pipeline would be above-ground and how big the pipe would be. Rick said Operations Director James Furtado would be providing further detail. He was picturing trailer-mounted 4” pipe.
President Mahood made a motion directing Staff to prepare an emergency intertie agreement with Big Basin Water and to proceed with consultation with Big Basin regarding procurement activities. The motion passed 5-0.
Unfinished Business
Exploration of Possible Consolidation with Scotts Valley Water District (SVWD)
The possibility of consolidating the SVLWD and the SVWD was first brought to the Board’s attention in February 2021. In March, the Board directed District Manager Rick Rogers to prepare a brief memo identifying and quantifying potential benefits and drawbacks to such a consolidation. Rick introduced this agenda item by referring the Directors to his completed memo and an accompanying Staff recommendation that the Administration Committee develop a Request for Proposal (RFP) for a public study further exploring the feasibility of consolidation.
President Mahood noted that the Board has already discussed a potential consolidation twice and has heard and received considerable public input. She urged everyone to focus this evening on the memo itself and the accompanying Staff proposal.
Director Smolley praised the memo and agreed that it listed more benefits than risks, but he didn’t think the assessment was simply a matter of counting plusses and minuses. He said that over the past two months he had come to see the risk associated with potential pending Santa Margarita Groundwater Agency (SMGWA) requirements as the most significant. The memo doesn’t address the likely actual project costs. These won't be quantifiable for at least two more years, but they will dwarf the purely administrative savings mentioned in the memo. Scotts Valley’s sole water source is groundwater wells, so SVWD will bear more of the costs associated with bringing the groundwater basin into sustainability than will SLVWD. In a merged District, SLVWD ratepayers could end up paying to remediate the decline in groundwater levels caused largely by Scotts Valley’s history of pumping water out of the ground. Director Smolley described this as the undiscussed big elephant in the memo.
Director Ackemann agreed that this is a really important consideration. She was also looking for some explanation for the implied sense of urgency. She appreciated that funding is available for small-district mergers and that there are potential savings, but she didn't see anything in the memo about why it was important to act immediately. She saw this as something the District should be considering long term.
Director Fultz said the memo lays things out very well and mirrors a lot of what SVWD Manager Piret Harmon presented to her Board, but he was still looking for a compelling motivation to consolidate. He was skeptical of public-sector mergers turning out the way they are advertised, and he noted that the anticipated cost savings are only on the order of 5%. His bigger concern was about the benefit to the SLV community. He said it would be harder for local residents to express public policy preferences in a larger district. Consequently, he saw this as something that the District might or might not want to revisit in two years but not today.
Director Henry said she has always been under the impression that water districts need to grow to survive financially and that SLVWD has been growing and growing. As a result, she was in many ways in favor of considering consolidation but in other ways not. She saw a new District building as a big potential benefit, and a feasibility study made sense to her. In the end, she described herself as not dead set either for or against consolidation but still desiring more information.
President Mahood saw the benefits of consolidation listed in the memo as overstated. Most are related to matters of scale, but the consolidation wouldn’t increase the District’s size that substantially. More importantly, the items listed in the memo as “risks” are actual negatives. Scotts Valley’s water treatment plant needs a serious upgrade that may cost on the order of $20 million. Also, the Lompico aquifer is much more overdrawn in areas utilized by Scotts Valley. The SLVWD can almost solve its own problems by taking advantage of the conjunctive use proposals at a cost of around $5 million. In contrast, the Aquifer Storage and Recovery (ASR) projects emerging from SMGWA are in the $100-200 million range, and some of these costs would be shifted to SLVWD ratepayers. President Mahood didn’t see how the District could undertake a meaningful feasibility study until these numbers are better understood. She also mentioned that, in an informal conversation, Chris Perry, who is a member of the SVWD Board, told her that he opposes spending any money on a feasibility project at this time due to the trauma that SLV residents and SLVWD staff are currently coping with and due to concerns about the financial liabilities for SLVWD and for SVWD. President Mahood said she completely agreed and planned to vote against further investigation of consolidation. She thought this topic should be dropped until the SMGWA conclusions are clear.
Director Fultz suggested that this might imply reconsideration in the fall of 2021 when the SMGWA draft report becomes available, but President Mahood disagreed. She said the January 2022 SMGWA submission will only list possible projects, and none of these will be adequately costed out. Most of these projects will take one to five years to roll out. ASR will require pilot studies because nobody has yet done this in consolidated rocks. Her position was that consideration of consolidation should be put off for years.
Rick Rogers responded to the Board’s critiques by saying these were all great comments, but he didn’t want to simply put this off for a year or two because the District meanwhile needed to move ahead on items like a new facility, and it couldn’t address these with the consolidation question lingering. He was also concerned about what Scotts Valley would do if SLVWD turns them down. Recently, both SVWD and SLVWD had routine LAFCO service reviews, and the executive director stated that a portion of Scotts Valley’s water comes from SLVWD and that this should be looked into. He noted that LAFCO had the authority to change district boundaries.
Director Ackemann said she was not compelled by LAFCO looking at issues with Scotts Valley. She understood Rick’s concern about being left in limbo, but said that if consolidation is taken off the table, he should simply move ahead with other plans. Director Fultz and President Mahood were similarly unalarmed by LAFCO.
Four members of the public offered comment, all in favor of dropping the consolidation proposal. Larry Ford said the District should wait for SMGWA projects to be defined, as the cost to SLVWD would be really high. He recalled Mark Stone saying in 2008 that he wanted Felton to demonstrate that an overwhelming majority of residents wanted consolidation with SLVWD, and he noted that he hasn’t seen anything like this from residents of Scotts Valley.
Former Director Rick Moran read a statement saying that it is the Board’s responsibility to evaluate potential sources of new revenue. His assessment was that the District is developing a conjunctive use plan and will be free to sell water to Scotts Valley. Currently, SLV interests are protected, but consolidation will lead to loss of local control. This is why he opposes consolidation.
Cynthia Dzendzel offered a different reason for opposing consolidation. She said she appreciated the current Board members and wouldn't want to lose any of them. Their understanding of finances, hydrology, etc. are so important to our valley that she wouldn't want to trade away this expertise in the name of "efficiency.”
Jim Mosher reminded the Board that huge numbers of ratepayers attended previous meetings to express their concerns. He didn't feel that the memo adequately reflected the concerns that the community has raised relating to environmental protection, local control, etc. He argued that consolidation is not simply a financial decision, and he hoped that the Board would finally put this to rest. Otherwise, he predicted that it would take over every other issue that the Board faces in terms of ratepayer concerns.
Director Fultz thanked Jim Mosher for his comments about putting this to rest. He said the Board needed to make a commitment to ending this discussion, and he was in favor of saying no permanently.
President Mahood asked if anyone wanted to make a motion in favor of the Staff recommendation (to pursue consolidation further), and nobody volunteered. This ended consideration of the issue, but Rick Rogers requested some direction with regard to notifying Scotts Valley.
The Board spent some time trying to determine the most appropriate wording for a motion and finally settled on a directive that Rick Rogers contact Piret Harmon and say that SLVWD is not interested in moving ahead with considering consolidation. This motion passed 5-0.
District Reports
Director Fultz asked if the District is still on schedule to complete the five-pipeline project in 2021. Rick Rogers said the District was behind schedule on the Quail Hollow Pipeline and the Highway 236 Pipeline. It is hoping to go to bid on the Quail Hollow Pipeline later this year.
Director Smolley said he wanted to make the Board aware that, due to time constraints, two RFPs relating to Fall Creek Fish Ladder Construction will not come before the Engineering Committee prior to their presentation to the Board at the June 3rd meeting.
President Mahood presented an update on Santa Margarita Groundwater Agency (SMGWA) developments. She began with a quick timeline:
· September 2014. The Sustainable Groundwater Management Act mandated that local agencies create a plan for management of groundwater supplies to reach sustainability in 20 years, and created a mechanism for state intervention if needed.
· June 2017. First meeting of Santa Margarita Groundwater Association Board, which now has representatives from City of Santa Cruz, Mt. Hermon, and private well owners in addition to the original representatives from San Lorenzo Valley, Scotts Valley, and Santa Cruz County.
· Early 2019. Guiding principles were developed, and public outreach workshops were held.
· March 2019. A consultant was hired to develop the Groundwater Sustainability Plan (GSP) at a cost of $1.2M, most of which was paid for by a grant from the State. The consultant group, Montgomery and Associates, is the same group that did the GSP for the Mid-County Groundwater Agency.
· July 2021. Complete draft of GSP specifying minimum thresholds and aspirational goals of water levels and water quality in aquifers and creeks, presenting hydrological and climate models, identifying locations of additional monitoring of groundwater and creek flows, and specifying potential projects for moving toward sustainability (with associated rough cost estimates).
· August-September 2021. Public comment period followed by appropriate revisions.
· Mid-November 2021. Public hearing on revised GSP.
· January 2022. Submit final version of GSP.
President Mahood emphasized that the January 2022 GSP will list a number of potential projects but will not commit the districts to pursuing any of these. The projects themselves will take one to five years to develop, between costing them out, obtaining grants, doing environmental studies, and, in some cases, running pilot studies. It will be years before any of this has a significant impact on District budgets or customers’ bills.
She also stressed that most of the capital costs of building the projects will be covered by grants, but the districts will be responsible for ongoing operational costs, some of which will be considerable.
President Mahood and Director Smolley plan to give a full report in a June or July workshop prior to the public comment period.
The meeting was adjourned at 10:30 PM.