SLVWD Board Meeting Summary
December 7, 2021
Mark Dolson
Highlights:
Water Supply Collaboration Agreement with City of Santa Cruz.
Spending for Consolidations.
Board Policy Manual Updates.
Next Board meeting is at 6:30 PM on January 3rd.
Preliminaries
President Mahood reported that the Board voted unanimously in the just-concluded closed session to authorize the District Manager to sign a water rights protest resolution agreement subject to certain changes. There was no non-agenda-related public comment.
New Business
Draft Water Supply Collaboration Agreement
District Counsel Gina Nicholls presented this item to the Board. In March 2021, the District submitted a protest with the State Water Resources Control Board (“SWRCB”) against water rights petitions filed by the City of Santa Cruz (“City”) requesting certain changes to the City’s water rights permits and licenses. Since that time, the District has been negotiating with the City in an effort to resolve the District’s protest. The District’s protest concerns possible constraints on: (1) the amount of water that it draws from Fall Creek, and (2) its ability to draw the full amount of water from Loch Lomond that it is contractually entitled to. To address these issues, a Draft Water Supply Collaboration Agreement was developed and discussed in the just-concluded closed session. This agreement creates a framework for the District and the City to meet over the few years to exchange information and to use reasonable efforts to enter into an agreement by 2025. The agreement indicates that the District will withdraw its protest. Nothing in the agreement changes the District’s Loch Lomond water rights.
President Mahood expressed concern about some relatively weak assurances by the City in the agreement. She said it didn’t inspire confidence that the Distirct would be able to draw on its contractual water amount during a drought.
The City of Santa Cruz was represented at this meeting by Water Director Rosemary Menard and attorney Ryan Bezzara. Rosemary said the goal of the language as written was to make it clear that the District has a right to the water, and the City's agenda will not affect this. Ryan said the contract defines the right independent of drought conditions. The language in the protest agreement doesn't expressly state the contract right because the City doesn’t want the State Water Board getting involved in its contract. President Mahood called these responses “not entirely satisfactory.”
Director Fultz asked if the State could put in place a water right that would effectively prohibit the District from obtaining its water. Rosemary said she didn’t think so. She said the City has made it clear that its commitment to a certain flow will not get in the way of the District’s access. Ryan added that the major benefit to the District of the contract is being able to access the City's stored water. Gina said her understanding of the intent of the wording is that it confirms that the District's access is unimpeded at any time under any conditions. Rosemary agreed, saying that she was on record saying this.
Two members of the public offered comments. Former Board Member Rick Moran said he was glad to see that some progress was being made with this allotment as this issue had hung over the District for some time. He said he too had a concern, and he was pleasantly reassured that the District can get access during a Stage 4 drought.
Jim Mosher said he was a little surprised by the comments by the City that the agreement couldn’t be confirmed in writing because it would then become involved in the petition to the State Water Board. He said it would be reassuring to have the oral promises stated in writing, and he asked why this couldn’t be done. It looked to him like, even though the City is saying all the right things about being a collaborative partner, it had nevertheless spent tens of thousands of dollars filing an extensive protest to the District’s Mitigated Negative Declaration on its petition to change its water rights to enable conjunctive use, and this made him worry about the assumption of sustained cooperation.
Director Smolley followed up on this comment by asking if the City would provide a separate confirmation in writing. Ryan responded by saying that there were two agreements: the Water Rights Protest Agreement and the Water Rights Collaboration Agreement. The latter is strictly between the City and the District. Both agreements confirm that the District has a right to 314 acre feet per year from Loch Lomond as determined by the Santa Cruz Superior Court in 1981.
President Mahood said her reading of Attachment A is that it largely addresses operational issues but doesn’t address the District’s taking its contractual allotment from Loch Lomond or flow-level constraints on taking water out of Fall Creek. If the District’s priority in taking water out of Loch Lomond is equal to the City’s, it would be reassuring to have this stated explicitly. Rosemary said she would be happy to add a sentence or two to the collaboration agreement acknowledging that the District can take water under any circumstances from Loch Lomond. She didn’t think the City could say anything with regard to Fall Creek.
Director Fultz said the City and the District do want to collaborate and work together, but he would be most comfortable if the City weren’t making it more challenging for the District to move water as desired within its system. He said he wasn’t sure he saw the City’s actions as demonstrating collaborative intent.
Rosemary responded that both the City and the District have the ability to negatively or positively affect one another. The City’s response to the District’s Mitigated Negative Declaration was a notice to the District that the City had concerns about how this might affect it, but that there was insufficient information to assess this. She said she had to protect her ratepayers just as the District wants to protect its ratepayers.
Director Fultz said he appreciated that the City and the District want to work together in a neighborly way, but went on to highlight differences between the two water districts. He said SLVWD and its ratepayers had done unbelievably good work to minimize the community’s impact on the environment by decreasing water consumption by around 40% over the last ten years. This brought SLVWD winter per capita water use far below the State goal. He challenged others to do as well. He also noted that the SLVWD service area is essentially a no-growth zone.
President Mahood said she agreed. She found the asymmetry of the impacts to be pretty striking.
Director Smolley said he would like Rick Rogers to act on Rosemary's offer to amend the document. President Mahood made a motion to this effect, and Director Henry seconded. Gina noted that the agreement needed to be finalized by December 23rd to meet the State deadline.
The motion passed 5-0.
Draft Annual Financial Report for Fiscal Year 2020-21
Acting Finance Manager Kendra Reed introduced this agenda item. The District is required by state law to annually examine its financial records. The firm of Fedak & Brown conducted an independent audit of the District’s financial records for the Fiscal Year 2020-2021 and delivered an “unmodified opinion,” meaning the financial statements fairly present the financial position of the District as of June 30, 2021. The Budget Committee reviewed the financial report and identified some typographical errors which were subsequently corrected. Director Henry, Chair of the Budget Committee noted that the committee recommended that the Board approve the final document.
Andy Beck of Fedak & Brown briefly highlighted the firm’s findings. The net worth of the District is $37,646,318, an increase of $4,197,380. Revenues were $13,190,935, an increase of $508,989. Total expenses increased by $1,520,022.
Director Smolley asked for an explanation of the $4 million increase in net worth. Andy attributed about $3 million of this to grants. Director Smolley wondered why photographs of all the Directors were included in the financial report. Andy said this was customary in audits prepared for public entities, and Director Ackemann agreed.
Director Fultz said he had no doubt that the accounting was as it should be. He requested that the organization chart in the report be revised to include the role of the community, and Rick said this would be done. Director Fultz reminded the Board that this report is a statement of accounting rather than finance strategy, and therefore provides little insight into the District's true financial position. He recommended that the District provide supplemental information to the community to reflect this. He also asked what portion of the reported expense increase will be offset by FEMA reimbursements for CZU Fire recovery. Kendra and Rick said they could provide more detail on this, and Kendra gave a brief summary of fire-related expenses. Director Fultz estimated that the actual increase in expenses might end up being closer to $1 million.
President Mahood moved to accept the revised financial report. Director Henry seconded. There was no further discussion.
The motion passed 5-0.
Grant Approval Funding for Consolidations
District Manager Rick Rogers presented this agenda item. He noted that the Board had previously expressed support for helping the customers of the deeply troubled Bracken Brae and Forest Springs water companies by approving the exploration of possible consolidations with SLVWD. The District has now received funding in the amount of a $3.2 million grant from the State to cover necessary construction, and District Staff and Counsel are working on consolidation agreements. However, the Board has not yet authorized any expenditures, and Staff now wants to move ahead with engineering studies that would be covered by the grant. Rick also mentioned that he has asked Director Smolley, who has relevant technical expertise, to participate in the consolidation process.
Director Fultz asked how much money the District had actually requested in its grant application. Rick acknowledged that the District had estimated its costs at $4.2 million. He said the State Water Resources Board (SWRB) had reviewed the District’s itemized project list and reduced the award to reflect their own estimate of the associated costs. He said that in discussions with the SWRB, the State had indicated a willingness to adjust the grant amount before construction if the received bids are higher than anticipated. However, he also acknowledged that this was not confirmed in writing. Director Fultz noted that this left open the possibility of a scenario in which the District was $1 million short of the required funding, in which case the construction would not proceed.
Gina said the District has talked with Bracken Brae about the possibility that those homeowners will have to put up funds if the grant funding is insufficient. However, there are not yet any formal agreements.
Director Fultz said that everyone wants to proceed but that contracts are written to protect the parties when things don't go well. He wanted to be clear that the District will not proceed with any construction until the full cost is covered. Rick confirmed this. Director Fultz then asked if the State will want its grant money back if the project doesn’t complete in a timely manner. Rick said this would be the case; the time frame for completion was two years.
Director Fultz had a separate concern relating to the proposed role for Director Smolley because it sounded like Rick was saying that Director Smolley would be doing Staff work. Director Fultz agreed that Director Smolley could be helpful, but he said there was other Board expertise that could be helpful as well, and it was important to retain boundaries. Rick said that Board members had previously assisted in similar situations, but the distinction appeared to be between assisting strategically and assisting with engineering assessment. Director Fultz suggested that an ad hoc committee could be created to provide input, but he was very concerned about the precedent that would be created by having Board members doing Staff work.
President Mahood said she had been under the impression that Director Smolley would be involved as a representative of the Board. Rick said this arrangement had worked well in the past, and he didn’t understand the current concern. Director Ackemann said it was up to the Board to decide who its representative(s) would be. She felt that Rick’s plan raised some valid questions.
Director Henry warned that introducing further delays could replicate the Lompico experience of escalating costs. Director Fultz suggested that the Board discuss how it wants Director Smolley to engage as a separate question in January. He saw this situation as different from Lompico because the agreements are not yet in place. He also asked how much money was at issue with the up-front work currently being contemplated.
Director Smolley responded, saying that his review of the grant application suggested that the total was about $320,000. He also noted that the letter from the State referred to a funding agreement being drafted, and he asked whether this was now complete. Rick said that it was not. Director Smolley concluded by saying that he shared many of the concerns that Director Fultz had raised. He noted that the third-most-competitive bid for the Quail Hollow pipeline project (two months ago) matched what the state is allocating just for construction, so he expected the grant amount to be insufficient. He asked if Bracken Brae and/or Forest Springs were prepared for a cost of many hundreds of thousands of dollars. He also asked if the District could take interim draws on the grant and then submit engineering bids. Lastly, he wanted to know when the District would get the funding agreement from the State. Rick said this might be within the next week.
President Mahood asked about the timeline for formal agreements with Bracken Brae and Forest Springs. Rick said this was being worked on, and Gail said it was clear that the District would only do work that it was reimbursed for, but it wasn't clear how this would work.
President Mahood suggested that completing actual agreements was a key next step. Director Fultz asked how far along the District was in this process, and Rick said it was still in the early stages. Gina said she hoped to be able to bring a proposed term sheet to the Board this month.
Given the lack of clarity and the Board’s concerns, President Mahood moved to table this agenda item and bring it back in January. Director Smolley seconded. Director Henry noted that Lompico received a full grant for an intertie to kickstart that consolidation process, and Director Fultz saw this as a good point. He suggested that it would be good to see if the District could be paid for each segment of the project. He also asked if the question of the role of Board members in the project could be placed on the agenda for the next Board meeting. President Mahood said this could be done at his request.
Gina said part of the impetus to get this on the December agenda was to get Board approval to get the process rolling. Rick followed up, saying that all of this was extremely time sensitive. He argued that the District would not receive 100% guarantees and that there would be ongoing uncertainty no matter what. He felt that the course of action that he was recommending reflected his professional expertise, and he said if the Board wasn’t going to accept his recommendations, then he didn’t think he was the right person for the job. He said he understood the risk, but he would rather have a discussion about his ongoing role.
President Mahood suggested an alternative route. She noted that there were two components to the Staff recommendation, and the first part stayed within the District Manager’s purchasing authority and seemed pretty low risk. The Board’s concerns were focused on the second part of the motion, which directed the District Manager to begin construction. She therefore asked if it would be better for the Board to simply approve the first part. Rick said he didn’t know that the answers the Board was seeking for the second part would be available until February or March. He added that the District wanted to spend some time updating its Water Master Plan to include these two neighborhoods as part of its preliminary assessment.
Director Smolley said he would like to see the District proceed with RFPs. He estimated that this would take a month to six weeks and would also allow ample time to receive the funding agreement from the State. He said the current difficulty was with initiating construction activities based only on the information available at this time.
Director Ackemann reassured Rick that she had enormous respect for the challenges he was facing. She said the Board was not questioning Rick’s abilities. Rather, it was the Board’s job to ask these kinds of questions. She also noted that previous Boards had sometimes made questionable decisions under pressure.
Director Fultz strongly agreed. He said the Board had made a commitment to its current customers that it would not put them on the hook financially for these consolidations. He said everyone recognized that there can be a little risk, but he wanted Bracken Brae and Forrest Springs to demonstrate a commitment to moving quickly to a resolution.
President Mahood moved to direct the District Manager to proceed with the initial next steps that were within his purchasing authority. Director Fultz seconded.
The only public comment came from former Director Rick Moran. He asked if Bracken Brae and/or Forest Springs had any assets that will benefit SLVWD. Rick said Bracken Brae and Forrest Springs facilities burnt to the ground; hence, there are no assets.
Director Henry said she felt torn and didn’t know how she wanted to vote. She said Bracken Brae and Forest Springs needed the District’s help, and she wanted the District to move ahead with doing so. She added that she didn’t want to lose the District Manager. President Mahood said she thought all five Directors supported Rick and were simply correctly exercising their fiduciary duty as Directors.
The motion passed 5-0.
Board Policy Manual for 2022
District Counsel Gina Nicholls introduced this agenda item. The Board Manual is reviewed annually every January and ratified by the Directors. Last year the Board conducted a thorough review and overhaul of the Board Manual, which took several months to complete. This year’s review is expected to be more limited with fewer changes. Gina introduced an initial list of changes proposed by the Staff for 2022:
1. Review and update the video-conferencing procedures to reflect the District’s plans to transition to hybrid meetings.
2. Update the section on Minutes to reflect current practice.
3. Combine the District’s Engineering and Environmental Committees into a single committee to save Staff time and reduce meeting overlap.
4. Reinstate the policy of holding regular Board meetings on the first and third Thursday of every month including July, November, and December.
5. Update the Order of Business to reflect current practice (i.e., including the President’s Report).
6. Update the section on Investment Policy to reflect that typically the policy should be reviewed close to the end of each Fiscal Year.
7. Specify that public committee appointments take effect on January 1.
President Mahood said the Board should discuss these recommendations this evening so that Gina could prepare a redline version of a revised Board Policy Manual for the Board to vote on formally in January. In addition, individuals can submit their own proposed changes to Gina within the next ten days, and the Board can initiate discussion of these in January.
Regarding item #3, Director Smolley said, in his experience, engineering projects almost all have some environmental component, and about 70% of Environmental Committee issues arise from construction projects. Director Henry agreed that these two committees go together, and she asked whether Director Fultz would like to be on the combined committee.
Director Fultz declined to answer because he wasn’t in favor of combining these two committees. He said the committees had been combined in the past, and it wasn’t very workable because the non-construction-related environmental issues require very different expertise. He suggested that the District’s current glyphosate and integrated pest management policies would not have emerged from a joint committee.
President Mahood said she took this point, but circumstances had changed. She was in favor of combining the committees because of their substantial overlap. She said public interest had declined because many community-based environmental programs were eliminated in 2019, and the remaining issues were very technical. She suggested that the combined committee could be split again in the future if circumstances dictated.
Director Ackemann said she understood Director Fultz’s point but agreed with President Mahood that the combined committee made the most sense. Director Henry added that she would be willing to give up her seat on the Engineering Committee so that Director Fultz could be on that committee.
Director Fultz said he had an engineering background and would be happy to serve on the combined committee if the Board was committed to this course of action. He recommended that Alina Layng (currently representing the public on the Environmental Committee) be encouraged to participate in the combined committee because of the important expertise regarding fisheries that she brings to committee deliberations. Director Smolley echoed this.
Director Smolley moved to have the District Manager combine the Engineering and Environmental Committees. The motion was seconded, and the floor was opened for further discussion.
Environmental Programs Manager Carly Blanchard voiced her support for combining the committees. Former Director Rick Moran said he had had direct experience with this, and he felt that environmental issues would attract interested participants regardless of the committee structure. He felt that decreasing the number of meetings (by combining the two committees) was a good idea.
The motion passed 4-1 with Director Fultz opposing.
President Mahood asked if anyone wanted to promote further discussion of any of the other items on the Staff list. Director Fultz asked for someone to explain the motivation for item #4. President Mahood said her experience had been that the Board still ended up requiring two meetings per month in July, November, and December simply because of the amount of work it was faced with. It seemed better to her to have these meetings built into the schedule rather than having to schedule special meetings on short notice. Director Fultz said he remained concerned about possible conflicts with holiday travel schedules, and it might turn out that extra meetings were not needed after all.
Director Ackemann said she appreciated the benefit of not having to plan for as many meetings, but she also recognized that the Board seemed to end up having the extra meetings in any event. Director Fultz argued that the Board was successful in not having special meetings in 2019 (the year that the revised meeting calendar was first introduced). Director Smolley said he would prefer to have all meetings on his calendar in advance.
President Mahood moved to reinstate the policy of holding Board meetings twice per month throughout the entire year. Director Smolley seconded. There was no further discussion.
The motion passed 4-1 with Director Fultz opposing.
Old Business
Remote Meeting Authorization Under AB 361
This agenda item concerned the required monthly reaffirmation of the conditions justifying remote Board meetings. President Mahood moved to do so, and Director Henry seconded. There was no further discussion.
The motion passed 5-0.
The meeting was adjourned just before 9:00 PM.