Introduction

On February 1, 2021 the San Lorenzo Valley Water District (SLVWD) unexpectedly revealed that it was interested in the possibility of consolidating with the neighboring Scotts Valley Water District (SVWD).  This quickly ignited a firestorm of concern on SLV social media, and over a hundred valley residents showed up for the SLVWD Board meeting on February 4th to learn more.  Roughly two dozen of these attendees provided public input, which ranged from strongly opposed to skeptical and worried about the road ahead.  The Board attempted to partially defuse this response by announcing before discussion began that they were revising their plan and would not take any immediate action whatsoever.  They deferred any decision on next steps to their February 18th meeting and then, more recently, to their March 4th meeting.  However, concern on social media continues to run high.

The top priority for the Friends of San Lorenzo Valley Water (FSLVW), for this issue as with all issues involving our valley’s water system and watershed, is to provide our community with an objective and authoritative description of the relevant facts.  In particular, there are two key questions that we need answers to as a prelude to any further collective deliberation:

• When, why, and how might any two water districts decide for or against consolidation?

• What are the relevant facts and important open issues relating to the possibility of a consolidation between the SLVWD and the SVWD?

The second question is ultimately the one that matters most to our community, but district consolidations are such an unusual undertaking that it is helpful to first have a little more general context for the specific events that have recently transpired.

Water District Consolidation: An Overview

Water in California is locally supplied, either by private companies or by publicly operated water districts.  These latter entities are Special Districts, meaning that they are locally elected governments operating within some defined boundary to deliver some essential service to their community.  Special Districts are similar to private water companies in that they are in the business of providing their customers with a satisfactory service at an acceptable cost.  But they also must be responsive to the broader concerns of the communities they serve (e.g., in deciding how to prioritize environmental preservation, manage wildfire risks, respond to distressed subcommunities, etc.).  When Special Districts think about redrawing their boundaries, both of these dimensions come into play because the changes will affect not only their business operation but also the identity of the community they serve.

Both SLVWD and SVWD are Special Districts, and both have previous experience with consolidation.  SLVWD, originally formed in 1941, expanded in 2008 to include the community of Felton and expanded again in 2016 to include the community of Lompico.  SVWD was formed in 1961 and began acquiring and consolidating small local water supply systems in 1962.

In general, there are two common scenarios in which a Special District may contemplate a revision of its boundaries.  The first of these occurs when a neighboring community encounters a problem with its current water supplier and explicitly seeks to be acquired.  This was the scenario that ultimately led the SLVWD to acquire both Felton and Lompico, and it could conceivably someday lead the SVLWD to consider acquiring the Big Basin water system.  These acquisitions are typically driven more strongly by community sentiment than by pure business calculations.

The second scenario arises when two adjacent Special Districts identify potential benefits to consolidating their business operations.  These benefits can come in the form of improved synergies and/or enhanced operating efficiencies (and related advantages associated with an increase in size).  In principle, this latter set of benefits can be quite extensive:

• Eliminating overhead / redundancy (e.g., for staff roles such as Director, Outreach, Professional Services, etc.)

• Reducing duplication of regulatory burdens

• Reducing duplication of memberships and subscriptions

• Reducing duplication of assets (e.g., sharing heavy equipment)

• Improving and streamlining in-house activities

• Gaining stronger negotiating power and better pricing for purchases

• Improving cross-training opportunities and customer-service coverage (especially when current departments consist of a single person with no back-up)

• Attracting a highly-qualified workforce by offering more diverse opportunities and career paths

• Enhancing customer messaging

• Improving infrastructure management

All other things being equal, larger Special Districts can operate more efficiently and robustly than smaller ones.

An important caveat here, however, is that “all other things” are frequently not equal.  This is because the two constituent communities may have issues and concerns that are independent of the purely operational considerations listed above.  How can we ensure that this community perspective is adequately incorporated into the consolidation assessment?

The State of California provides two mechanisms for ensuring that communities have an appropriate voice in consolidation decisions made by Special Districts.  The first of these is the Brown Act (and the recent Assembly Bill 992) which essentially forbids elected officials from collectively discussing policy matters anywhere other than in an official Board meeting.  In practice, this means that the only way for a Special District Board to even contemplate the possibility of a consolidation is for them to simultaneously invite public questioning and critiquing of this idea.

As a second protective measure, the state has established an entire bureaucracy, the Local Agency Formation Commission (LAFCO), and tasked it with ensuring that consolidations only come to fruition (if they ever do) by following a process that allows for sustained analysis, careful attention to detail, substantial community review, and appropriate resolution of identified open issues.  Each of California’s 58 counties has its own LAFCO, and all proposed Special District consolidations in Santa Cruz County must pass through three distinct stages:

1. Before engaging in the formal LAFCO process, the two districts first complete a back-of-the-envelope assessment of the potential benefits and downsides.  If both districts feel encouraged by this, they must form a stakeholder group with representatives from each district and hire an outside consultant to conduct a detailed analysis and feasibility study.

2. If the two districts decide to continue, they then formally engage LAFCO.  The districts must submit all required documents, notify affected and interested agencies, and continue outreach to their communities.  Also, LAFCO holds a public meeting.

3. If LAFCO approves the proposed consolidation, there is a 30-day reconsideration period and a 21-to-60-day protest period.  The consolidation will be rejected if over half the registered voters (totaled across both districts) submit written protests.  A special election will be held if 25-to-50% of the registered voters submit written protests.  Independent of this, a special election will be held if at least 25% of the landowners submit written protests, provided that these landowners also own at least 25% of the assessed land value (which is different from property value).

LAFCO as an agency is pro-consolidation, but the above three-stage process is designed to promote effective consolidation and to weed out ill-conceived consolidations as early as possible (for example, the SLVWD’s Felton and Lompico acquisitions were each successful and overseen by LAFCO).  No ballpark figures have yet been made available for either the total cost or the total duration of this process, but LAFCO has stated that its direct involvement can range from one to seven years.  Some SLV residents expressed concerns at the February 4th Board meeting about how LAFCO operates behind the scenes, but they did not provide any specifics.

Consolidating SLVWD with SVWD?

With this background, we can now turn to the specifics of the SLVWD/SVWD consolidation proposal that is currently attracting so much public attention.

Origin of the Proposal

SVWD manager Piret Harmon first broached the subject of consolidation in a routine meeting with SLVWD manager Rick Rogers.  Piret suggested that it might make sense for the two districts to consider consolidating, and Rick agreed.  According to Piret, her suggestion arose spontaneously from three distinct trains of thought: (1) consolidations are a standard business tool for improving operating efficiency, (2) SLVWD and SVWD have broad similarities, complementary strengths, and have recently been working well together, and (3) both districts are facing ever-increasing pressure as they struggle to deal with aging infrastructure, intensifying regulatory constraints, and climate change.  Piret has stated that this was not something the SVWD Board directed her to pursue but rather something that she independently identified as a possibility worth exploring.  She has also said that there is no way for her to determine whether a consolidation really makes sense unless the two districts undertake some further analysis.

Rick Rogers first relayed Piret’s suggestion to the SLWVD Board in a closed session meeting devoted to Rick’s annual employment review.  The only way to discuss this further was to place the proposal on the Board’s agenda for its next meeting, but the description of this agenda item in the public Board packet (and in an associated press release) created a strong and immediate public impression that Rick was favorably disposed to this idea and might actively promote it.

Initial SLV Community Response

News of a potential consolidation spread rapidly on social media and incited considerable alarm among valley residents.  A heretofore unknown group calling itself “Friends of the San Lorenzo River Watershed” (not to be confused with FSLVW!) promptly initiated an opposing petition on change.org.  The petition, as of this writing, has accumulated nearly 1,500 signatures.

A few days later, over one hundred valley residents attended the February 4th SLVWD Board meeting, and roughly two dozen voiced their concerns.  These comments can be roughly summarized as follows:

• A few people described consolidation as such an obviously bad idea that it should receive no further consideration whatsoever.

•  Multiple people argued that further analysis makes sense in principle but pleaded that the severe stress of the past year (due to pandemic, fire, and debris flows) makes it overwhelmingly difficult for SLV residents to contemplate this change at this time. They strongly urged the Board to defer further consideration to some future date. (Rick Rogers dismissed this objection, stating “There is never a good time.”)

• Multiple people argued that the SLV and Scotts Valley communities are too culturally dissimilar for consolidation to be viable. (The SLVWD’s Felton and Lompico acquisitions did not present this same challenge.) This objection explicitly distinguished between the potential business-related benefits of consolidation and the confounds that it would create for a new Special District trying to be responsive to two incompatible constituencies.  To emphasize this, some stated that they might prefer higher water rates to a consolidation.

• There was widespread suspicion that a consolidation would severely threaten the SLV’s autonomy and that the assessment process would be insufficiently attentive to this concern.  (Many speakers feared that the staff of the two districts (and also LAFCO) would be biased in favor of consolidation).  Multiple SLV residents argued that Scotts Valley’s differing values, political strengths, superior financial resources, and potential for disproportionate future growth would introduce insurmountable long-term biases into the process of joint governance.  They worried that this incompatibility would persist even if Board elections were revised to be per-district (as opposed to today’s at-large seating).

There were also a few specific questions about more detailed implications of a potential consolidation.  These were either adequately answered or deferred.

SLVWD and SVWD Board Responses

It is unclear at present what the SLVWD Board’s response will be to the current consolidation proposal.  No action was taken at the February 4th meeting, and this was an implicit acknowledgment of the highly negative public reaction.  Director To initially posted a lengthy letter arguing in favor of further assessment, but she subsequently removed this letter from social media.  Other Directors have so far expressed varying degrees of cautious interest.  Nobody has yet determined what the possible annual financial savings might amount to nor what it might cost the District to prepare a formal application to LAFCO (nor has anyone yet determined how burdensome it would be for Staff to develop useful estimates of these numbers).

The SVWD Board meeting the following Thursday February 11th attracted far fewer public attendees and was very different in overall tone.  Piret provided a much more thorough introduction to her proposal than Rick did, and there were only a few public questions and/or comments.  There was some understandable unease on the part of the staff, and the Board assured them that it would be attentive to their concerns.  In the end, the SVWD Board took note of the tepid reaction from the SLVWD Board and voted to proceed with further analysis only if the SLVWD votes to do so as well.

Assessing the Pros and Cons of Moving Forward

At this point, the next step is up to the Directors of SLVWD.  Both Boards have noted that consolidation would be likely to result in efficiencies and cost savings as described above.  They have also agreed that the two districts have been collaborating successfully, share the Santa Margarita groundwater basin, and bring complementary assets to the table.  These are all reasons that the SLVWD Board might be initially inclined to proceed with further analysis.

There has been speculation that SVWD may have additional ulterior motives (perhaps involving increased control over their water supply or perhaps involving a plan to consolidate with the City of Santa Cruz if they are rejected by the SLVWD), but no concrete evidence has yet emerged to support these suggestions.  The two districts share a common groundwater basin, but they differ in that the SVWD relies on groundwater for all of its water needs whereas the SLVWD normally relies upon groundwater for only about half its needs (primarily in the drier summer months when surface water flow is diminished).  Contrary to public perception, however, the SVWD has been very successful in recent decades in decreasing its groundwater pumping (e.g., by 46% since 2000).  Scotts Valley uses recycled water for suitable commercial, industrial, and institutional applications such as landscape irrigation.  Both districts are projecting only moderate demand increases in the years ahead (0.26% per year for SVWD vs. 0.18% per year for SLVWD).

As things stand today, the SLVWD is the larger district in all respects: it has roughly twice as many customers (8,600 vs. 4,400) and roughly twice as many employees (35 vs. 20).  It also answers to more than twice as many voters (18,000 vs. 7,600).  Consequently, a consolidation would not immediately transform the SLV into a powerless minority faction.

The SLVWD Board could potentially conclude from the above observations that there is no downside to gathering more information and conducting further analysis.  But this is not necessarily the case.   In practice, even a minimal further investigation will incur real (but as yet unquantified) costs in terms of both staff time and ongoing public reaction.  If the Board is mindful of this potential downside, there are at least three possibilities that it should carefully consider before taking any action at all.  If the Board finds any of these concerns to be sufficiently compelling, it could logically conclude that the immediate costs of further consolidation discussion are too high and that it would be wiser to proceed no further:

• The SLVWD Board could conclude that the proposed consolidation is fundamentally at odds with its responsibility to serve the needs of its SLV constituents.  This could be the case, for example, if the Board concludes that the Scotts Valley community is sufficiently different from the San Lorenzo Valley community that it will be impractical for a single Special District to serve both communities.  If so, further analysis of the potential financial benefits would be irrelevant.

• The SLVWD Board could conclude that the proposed consolidation is so politically unpopular with its SLV constituents that its potential upside is irrelevant.  This differs from the scenario above in that the Board members might sincerely believe that a consolidation could be in the best interest of their constituents, but they might nevertheless conclude that they lack the ability to successfully sell this proposal to the residents they represent.  In this case, further analysis would again be irrelevant.

• The SLVWD Board could conclude that the proposed consolidation has the potential to win the community’s support and succeed in benefitting both valleys, but it might nevertheless conclude that: (a) it is impractical for the SLVWD and the SLV community to grapple with this assessment in the wake of all the recent trauma that they have experienced, and (b) the question can be placed back on the table in 2022 with no significant penalty for the intervening delay.  In this case, any further analysis would simply be placed on hold.

The above list is by no means exhaustive.  The SLVWD is one of only two public bodies specifically accountable to SLV residents and the only one that includes in its mission protection of the SLV watershed.  This special relationship would be difficult to maintain in a consolidated Special District.

The Board could also include explicitly political calculations in its assessment.  Three SLVWD Board seats are up for election in November 2022, and the consolidation is unlikely to be completed before new members are seated.  Given the negative and emotional initial response to the proposal from SLV residents, the Board could conclude that a proposed consolidation would be likely to dominate the election campaigns with a high likelihood that an anti-consolidation slate would be elected with a mandate to end the process. 

In other words, the question currently before the SLVWD Board is more nuanced than it might initially appear.  Logically speaking, the Board would vote to immediately proceed with further analysis only if it determined that none of the above concerns render the analysis irrelevant.  It follows that the first order of business for the SLVWD Board is to undertake this determination.