Fire Recovery Surcharge

The San Lorenzo Valley Water District (SLVWD) has proposed a 5-year fire recovery surcharge of $9.67 per month for most residential properties beginning in August 2021. More information can be found at:

https://www.slvwd.com/home/news/proposed-czu-wildfire-recovery-surcharge

As required by Proposition 218, community responses to this proposal will be tabulated at the District Board Meeting on August 5, 2021. To ensure that these responses are as well-informed as possible, FSLVW has prepared the following supplementary review of this issue:

NOTE: An updated summary of relevant information can be found at:

https://www.santacruzmountainbulletin.net/2021/07/29/slvwd-czu-fire-recovery-surcharge/

NOTE: The fire-recovery surcharge was discussed and approved at the August 5, 2021 Board meeting.

SLVWD’s CZU Fire Recovery Surcharge

 

Prepared by Friends of San Lorenzo Valley Water (FSLVW)

July 14, 2021

 

The San Lorenzo Valley Water District (SLVWD) has proposed a 5-year fire recovery surcharge of $9.67 per month for most residential properties beginning in August 2021. (Customers with larger meters will pay more than this.  The surcharge can be terminated early if fire recovery costs turn out to be lower than anticipated.)

Proposition 218 requires that any proposed increase in water rates be subject to community review.  Consequently, our organization, Friends of San Lorenzo Valley Water (FSLVW), believes that it is vitally important for all SLVWD customers to have a full and accurate understanding of the SLVWD proposal.  To this end, we have prepared the following FAQ:

 

Why does SLVWD need the CZU Fire Recovery Surcharge?

  • The fire caused more than $20 million in damages to the District’s infrastructure, including melted water pipes, damaged or destroyed storage tanks, and other equipment. The district also faces fire-related costs associated with watershed restoration and fuel reduction.

  • The District anticipates that 75% of the infrastructure damage will be covered by the Federal Emergency Management Agency (FEMA) provided that SLVWD covers the remaining 25%. The surcharge is designed to raise this amount (i.e., $5 million), which will be placed in a special account to ensure that it is only spent on CZU fire recovery costs.

Didn’t the District get a long-term loan to cover these costs?

  • Yes, the District recognized that the FEMA reimbursements will be received only after the repairs are completed, so the loan is being used to allow for work to begin immediately and to replenish the District’s reserve funds.

  • The loan provides very good terms for the District, but it still will need to be repaid.

Why isn’t the District’s insurance covering these costs? 

  • Unfortunately, this is not possible. Private insurers place limits on their insurance coverage for water districts. For example, the District can insure against damage to its above ground water tanks but not the underground pipes that bring water to them. Some of the District’s most expensive losses could not be insured.

  • The District does anticipate some insurance reimbursement. However, under FEMA rules, these reimbursements will reduce FEMA’s portion of the payments, not SLVWD’s. The District’s $5 million share of the costs cannot be reduced with any insurance coverage.

What other options has the District considered?  What would the District do in the absence of the proposed surcharge?

  • The District is facing $5 million in exceptional expenses. It either needs some other source of $5 million in additional revenue, or it needs to find a way to reduce its roughly $9.5 million in annual operating expenses by a cumulative $5 million over some period of time. Neither of these two scenarios is remotely plausible.

  • The District is aggressively pursuing grant opportunities, and it is having some success. However, there is no expectation that grants will come anywhere close to covering the District’s fire-related expenses.

  • Everyone agrees that the SLVWD should operate as cost-efficiently as possible. However, most of the operations budget pays for the District’s staff, and the staff is already under enormous pressure with multiple demands. The fire has resulted in major challenges beyond the infrastructure repair covered by FEMA. In addition, the District is working hard to address the many infrastructure problems caused by the years of deferred maintenance (resulting from artificially low rates). At the same time, regulatory demands and other tasks associated with the drought and climate change are further increasing operations costs for water districts across the state.

  • The Board is reviewing the budget and staffing to determine whether efficiencies and cost savings can be achieved, but these are unlikely to cover much if any of the CZU fire-associated costs.

  • Without the surcharge, immediate, sustained, and draconian spending cuts would be needed, putting the fire response and infrastructure projects in jeopardy, limiting the replenishing of the reserves, and exposing the district to a potential financial crisis should another emergency occur.

What about ratepayers who face their own financial challenges and who are still struggling to cope with previous rate increases?

  • There are two separate issues here. First, everyone should have access to affordable water. Second, there is no magic wand that can somehow allow the District to deliver water at whatever cost the public finds most appealing.

  • There is no question that affordable access to water is a serious problem for some ratepayers in our district. We have many low-income residents, and increasing the cost of water will be a real challenge for them. This challenge has been further exacerbated by the pandemic and losses from the CZU fire.

  • In response to this challenge, the District has implemented a Ratepayer Assistance Program (RAP) on a trial basis. Those in need should inquire whether they qualify. The District works closely with ratepayers with financial problems to find solutions and strategies for paying the bills.

  • FSLVW believes that access to clean, safe water should be treated as a human right. We successfully advocated for the RAP and are currently working to have it expanded.

  • We are also researching the feasibility and desirability of a tiered rate system, so that those using more water (and placing a heavier burden on the infrastructure) pay more per gallon for their excess use. This can help low-income ratepayers, who are more likely to have lower water usage.

How can I support the surcharge and the District?

  • Under the Proposition 218 process, you can support the surcharge without taking any action.  However, the better you understand the relevant issues, and the more active you are in sharing this understanding, the better off we all will be.

  • You can discuss these issues with your neighbors and friends.  Let them know that the surcharge is needed to address the damage caused by the CZU fire.  This is our current reality, independent of any issues that people may have with the District’s past performance.  The surcharge ensures that the District can continue to provide high-quality, reliable, and safe water during these unprecedented times.