SLVWD Board Meeting Summary
August 5, 2021
Mark Dolson
Highlights:
Fire-recovery surcharge approved.
Revised banking signature policy approved.
Next Board meeting is at 6:30 PM on September 2.
Preliminaries
President Mahood had one announcement from the preceding closed session: the Board voted unanimously to report that the District proposed a meeting of principals with the County regarding the January 2020 landslide on Bear Creek Road that the County is suing the District for. This week, the County accepted the District's proposal. The meeting will take place in August.
New Business
Proposition 218 Public Hearing on the District’s Proposed Fire Recovery Surcharge
District Manager Rick Rogers thanked the roughly three dozen public attendees and presented a 20-minute overview of the CZU fire damage and the motivation for the surcharge. He reported that the District’s water system sustained at least $20 million damage, most significantly to the long-distance water transmission pipeline and storage tanks but also to water treatment systems, pumps, water quality monitoring equipment, and other water distributions lines. He explained some of the interim measures currently being pursued and some of the challenges ahead. In addition to repair and replacement costs, the District is also facing fire-related increases in operational costs which are not eligible for FEMA reimbursement. No projects have yet been approved by FEMA, but FEMA has four staff members currently working full-time with the District, and FEMA will ultimately (over the next three years or so) reimburse 75% of FEMA-eligible expenses. CalOES will cover 75% of the remaining 25%, but this will still leave the District responsible for roughly 6% in addition to all of the non-FEMA-eligible expenses that it is incurring. Rick said total out-of-pocket costs for previous disasters around the state have ended up in the range of 20-25% of damages.
Public comment was predominantly in favor of the surcharge. Not all speakers were audible, but roughly 18 out of 28 urged the District to proceed immediately with the surcharge. Some of them praised the District for its work over the past year and worried about the harm that would be done by preventing the District from adequately funding its ongoing responsibilities. Some also noted that nobody welcomes higher prices but that the District does have a Ratepayer Assistance Program to reduce the burden on low-income ratepayers.
A majority of the remaining speakers appreciated the informative presentation but still felt unprepared to support a surcharge at this time. They wanted to understand exactly what the consequences would be if the District failed to enact the surcharge, and they also suggested that it was too soon to make a decision. Some simply wanted another month to become better informed whereas others wanted the District to wait until it had better estimates of its total costs. Some of these speakers expressed concern about increasing the cost burden on ratepayers, and some also worried that the surcharge would become permanent (even though the District had already taken pains to ensure and explain that this would not be possible).
One speaker complained that the Board was ignoring his repeated counsel to enlist relevant politicians in pressuring the federal government to provide 100% reimbursement. Another was concerned about restrictions on the use of aircraft for fire-fighting support. One speaker objected to the substantially higher surcharge for schools (based on their larger meter size), and one speaker wanted the District to wait for potential relief via a pending federal infrastructure initiative.
District Secretary Holly Hossack reported that the District received 547 protests. This is a raw number, meaning that these protests were not subjected to any validation. Under Proposition 218, a minimum of 3866 protests would be required to block the surcharge. District Counsel Gina Nicholls advised that it is considered manifestly apparent that no majority protest exists, so it was not necessary to undertake the validation procedure.
Following the close of public comment, the Board deliberated. Director Ackemann sought to clarify a few points that had come up during the public comment. Some people had asked for more time to reach a decision, but Rick and Gina confirmed that the District had conformed to Proposition 218 requirements to allow at least 45 days between mailing of the notices and the Board hearing. Gina noted that the surcharge had also been discussed at multiple Board meetings. Director Ackemann further emphasized that not all of the fire-recovery work is FEMA-eligible. Rick elaborated, saying that the District will face substantial costs even if it gets 100% of its FEMA-eligible reimbursement. For example, three recent bids for fuel reduction came in at around $20,00 to $25,000. There is also essential fire-hardening work to do. In addition, fired damage increased the District’s operating costs, and the age of the District’s infrastructure will further increase its costs. Rick also mentioned that the District exhausted its $3 million reserve fund rather quickly; he thought the new reserve fund should be targeted at $5 million. Lastly, Director Ackemann reminded everyone that the District will stop collecting revenues at a specified time, so the surcharge is not "never-ending." Gina confirmed that the surcharge can't continue beyond five years.
Director Fultz said everyone agrees that the District has incurred significant new expenses, and everyone also recognizes the issue with burning through the reserve so quickly and with needing to pay for repairs in advance of receiving FEMA reimbursement. This is why the District took out a $15 million loan (about half of which is targeted at additional infrastructure improvement). Director Fultz suggested that the District’s fire-recovery expenses would likely exceed $5 million and that the excess would need to be covered by the loan. Nevertheless, he argued that it was premature to impose a surcharge at the present time. He reminded the Board that operating margin is defined by revenue minus operating costs, and that operating margin (plus property tax income) is what funds infrastructure, pays down debt, and handles other capital obligations. His concern was that operating costs have been increasing relatively rapidly, and he argued that the only way to avoid future rate increases is to decrease this rate of operating-expense increase. He suggested that the District should take another look at the fire-recovery surcharge after it has applied more pressure to operating costs and developed better estimates of its fire-recovery expenses.
Director Henry further responded to some of the public comments. She reminded people that the District has a trial program offering $10/month in assistance for low-income ratepayers involved in the PG&E CARE program, and not very many people have yet signed up for this. If necessary, this program can be expanded and potentially funded via property tax revenue. She added that she supported the fire-recovery surcharge and saw no point in waiting any longer to begin collecting the needed funds. Waiting for the federal government to decide on its infrastructure bill will keep the District up in the air, and deferring repairs will only increase costs as prices continue to escalate.
Director Smolley said he heard tonight from many people in support of the surcharge and also from people in favor of holding off. He said it was important to replenish the District’s reserves and that there was no doubt that the District was facing substantial fire-recovery costs. He therefore made a motion to support the surcharge. Director Henry seconded.
Director Ackemann emphasized the distinction between funding fire recovery and addressing ongoing operating expenses. She stressed that the Board remains committed to increasing operational efficiency. Rick said Staff will evaluate operational costs and see what can be done to reduce these (e.g., by going paperless as much as possible). He added that upgraded infrastructure will itself reduce costs (e.g., by reducing leakage). Director Ackemann also mentioned that, because of Covid, rental relief currently covers utility assistance as well. Rick said the District was working with other water agencies to try to obtain some of these funds (which will come through Santa Cruz).
Director Fultz commented that the amount of the surcharge could be reduced by reducing the increase in operating cost increase. He also noted that the District has already replenished its reserves and is not delaying construction.
President Mahood stated her position as follows: when the District decided to borrow $15 million, about half this amount was supposed to be devoted to deferred maintenance and infrastructure upgrades. In the absence of a fire-recovery surcharge, the District would be forced to give these up, and she was not willing to do this because the District has had longstanding problems with these. She said there was no need to wait longer before enacting the surcharge because the District already knows what it has to do, and it doesn’t want its system to be fragile, especially in anticipation of the next fire. Lastly, she reminded everyone that the Board had taken great care to ensure that this would be a temporary surcharge channeled exclusively into a restricted account. If the money isn’t used for its intended purpose, the District will ultimately have to look at refunding it. She shared Director Fultz's concern about the need to bend the curve on cost increases, but she argued that this is a longer-term issue. The District can’t simply change the operating budget (where 85% is for salaries, and where there are also numerous contracts with consultants) by making cuts in a single year. The District has a short-term problem which it is addressing via the surcharge and a longer-term problem with operating costs which requires planning, negotiation, and time to address.
Director Henry said it was nice to borrow money, but the District can't continue to do this without adequate incoming revenue as this would affect the District’s ability to get good rates.
The motion to approve the surcharge passed 4-1 with Director Fultz opposed.
Note: Rick’s presentation is now available at:
Authorizing Signatures for Banking and Investment Accounts
District Manager Rick Rogers explained that the District would find it more convenient in the future (e.g., the next time that a new Finance Manager is installed) to use titles in place of specific named individuals in its banking documentation.
Director Smolley moved to revise signature designations for checking, savings, and investment accounts. The motion was seconded, and there were no public comments. The motion passed 5-0.
The meeting was adjourned at 8:40 PM.