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SLVWD Board Meeting Summary
February 15, 2024
Mark Dolson
Highlights:
Public Hearing on Proposed Rate Increase
Compensation Study Professional Services Agreement
Next Board meeting is at 6:30 PM on March 7, 2024
Preliminaries
All five Directors were present.
There was no Closed Session prior to the meeting.
There were four public comments on topics not on the agenda.
Don Dietrich of Scotts Valley recounted a negative experience in which his water was abruptly shut off without notice during ongoing work on a main line a quarter mile away. When the water came back on, it was highly discolored, and neither the website nor a call to the office yielded satisfactory responses. Don gave the District an F minus for their horrible service.
Someone who identified herself as “Karen” said the Board needed a history lesson. She cited a sequence of events dating back over fifteen years but ran out of time before she could connect the dots. She had a handout that she distributed to others in attendance.
Bruce Holloway of Boulder Creek said he appreciated the new meeting seating arrangement with all five Board members in a row at the front of the room.
An unidentified long-time resident of Brookside said he knew the District’s intentions were good, and everyone was nice to him when he called, but he was troubled by unexplained deficiencies in infrastructure work in his neighborhood. He also said that many of his neighbors reported not receiving the District’s Proposition 218 mailer. His time expired before he could deliver a clear conclusion.
Unfinished Business
Public Hearing on Proposed Rate Increase
This agenda item was partitioned into four distinct activities:
Presentations by Staff and the consulting firm Raftelis regarding the proposed new rate structure
A public hearing in which each speaker is limited to three minutes
Final tabulation of votes opposing the proposed new rate structure
Board discussion and possible action regarding the proposed new rate structure
Presentations:
Interim Finance Director Heather Ippoliti briefly reviewed the sequence of actions leading to the proposed new rate structure. The Board approved a contract for Raftelis to conduct a rate study in April of 2023. The process began with the development of a five-year financial plan from which the District’s estimated revenue requirements could be determined. Raftelis conducted a cost-of-service analysis that served as the basis for its subsequent rate design work. The three overarching considerations guiding the rate design were: revenue stability (in the face of variable water consumption), affordability (across the customer base), and conservation.
A rates workshop was held on July 13th. Financial plan presentations were made to the Board on September 7th, September 14th, and October 5th (in addition to presentations to the Budget and Finance Committee). The proposed new rate structure was accepted by the Board on December 7th. Prior to this evening’s meeting, the proposed new rate structure was discussed at eight public meetings.
Heather summarized the financial plan by saying that it provided for a modest level of capital expenditures ($25 million) including new raw water pipelines to replace those destroyed in the CZU Fire and new capital improvement projects. There is no change in the level of staffing, and supplementary funding will need to be sought elsewhere for any additional projects. The plan assumes $19 million of debt financing (via a 20-year loan at a 4.5% interest rate). Heather concluded by reminding everyone that the financial plan is ultimately only an estimate and will likely evolve over time.
Theresa Jurotich of Raftelis provided a summary of the proposed new rate structure similar to that which has been presented at previous Board meetings. The financial plan basically determines the required size of the pie, while the cost-of-service analysis determines the detailed constituents of the pie that can be factored into the development of a rate structure that satisfies the relevant legal constraints on pricing.
Interim General Manager Brian Frus added a few further details. He noted that the District did not necessarily intend to borrow $19 million all at once. He also clarified some of the comparisons in the District’s informational material. He said he had performed further calculations showing that the increase is being shouldered predominantly by the heaviest users. The lowest-consuming 75% of customers are contributing only 55% of the revenue.
President Hill offered Board members an opportunity to seek further clarification of any of the material presented so far. Director Fultz called attention to multiple points that he has repeatedly voiced concern about. He noted that the financial plan was not a committed budget. He distinguished between free cash reserves and reserves funded by committed loans. He noted that Raftelis was using a peaking factor based on monthly averages of usage for each class of user as opposed to measurements of peak usage on an hourly or daily basis. Director Fultz also voiced a new concern: he wondered whether the Raftelis methodology would prove robust against possible future court interpretations of legal requirements. Theresa said the San Juan Capistrano legal case was still the guiding standard.
Heather and then Sudhir Pardiwala of Raftelis each responded to Director Fultz’s concerns about reserve funds. Heather said the District could not and was not conflating borrowed money with reserves. Sudhir said that a Powerpoint slide that Director Fultz was objecting to was a simplification that showed the cash available to fund capital projects. In response to further objections regarding the financial plan, he asked in exasperation whether Director Fultz wanted even higher rates. Director Fultz found this response insulting and inappropriate.
President Hill and Directors Ackemann and Mahood each offered brief statements clarifying the distinction between the five-year financial plan (which is an estimate for the purposes of the rate study) and the District’s budgets (which deal with unforeseen developments and are updated annually based on Board and public input). Their point was that it makes no sense for Director Fultz to try to equate the two.
Hearing:
Twenty-three members of the public offered input.
Vincent Rolfe of Boulder Creek suggested that the proposed rate structure was overly complex and unfair to those who conserve water.
Christopher from Ben Lomond said he uses less than 300 gallons of water per month, and the new rate structure was unfairly charging people for water they don’t use.
Bob from Boulder Creek said the new rate structure was unfair and didn’t encourage conservation.
An individual who identified himself as the owner of multiple rental properties in the Valley, said he has many tenants who don’t pay directly for their water, and he couldn’t afford an increase.
Mark Lee of Ben Lomond said the proposal was inequitable and described himself as outraged. He predicted that the proposed rate structure would be legally challenged, and he urged the District to come back with something more reasonable.
An unidentified individual from Ben Lomond said he supported the plan, as rates approved by previous Boards had been kept artificially low. He predicted that not approving the proposed new rate structure would cost the District and ratepayers more in the end.
An unidentified individual from Ben Lomond said one of his biggest objections was with the initial flyer, which says typical customers will not see much increase. He found this misleading and an insult to customers. He described the proposed new rate structure as inequitable.
An unidentified individual from Scotts Valley said there wasn’t enough transparency to know where the money was going. He urged the District to make it more convenient for people to understand what it is doing. He didn’t want the District freely reaching into his wallet.
An unidentified individual said his water bill was paid for by his landlord. He asked how much of the planned work would be done in-house or by San Lorenzo Valley contractors. He added that he resented being told by the District that he didn’t understand.
George Galt of Boulder Creek said he was an elected official serving on the Boulder Creek Parks and Recreation Board. He complimented SLVWD on providing reliable service but said the 50% increase in water charges for Boulder Creek Parks and Recreation would negatively impact their ability to serve the community.
Ms. Locatelli from Ben Lomond said there had been five rate increases since 2002, that she wasn’t sure this was the way to ensure financial stability, and that she had a lot of concerns.
An unidentified individual from Boulder Creek said his 2012 bill was $87 for two months, and it was now 309% higher (ten times the inflation rate). He said the District always promised that the rate increase would solve everything, but it seemed like he was being taken advantage of, and he wondered when it would end.
An unidentified individual from Felton said the District was doing something wrong. He described the fixed charges and the charge for the 1” meter as outrageous.
An unidentified individual from Boulder Creek said he didn’t understand the District asking for money without a budget.
Deb Loewen from Lompico said 20% of the District’s customers were retired, and there were also a lot of low-income residents. She felt that the consultants simply looked at the median income and felt that people could afford a 58% increase, but they cannot. She argued that six units was far from typical, that Raftelis had offered options that were not as hard on the low-income community, and that the District had rejected them.
Brian from Ben Lomond said he favored an increase but not this much. He asked what exactly the projects were and if there would ever be an end to this.
An unidentified individual who works for the District said he was opposed to the proposed new rate structure, but the age of the infrastructure is ridiculous, and this kind of needs to happen.
Bruce Holloway of Boulder Creek said the District was in a Stage 1 Drought Emergency, and the intake capacity was only at 40% of what it used to be prior to the CZU wildfire. He found it to be kind of crazy to reduce the volume prices of water below the current $12.66 per unit. He also thought the school district should get the best rate the District could offer.
Nancy Lentz agreed that the District had other options for the new rate structure. She also noted that rates are lower in Santa Cruz and Scotts Valley.
Alina Layng from Boulder Creek agreed with comments about giving a break to parks and schools. She wished this would have been addressed differently.
Lew Farris from Felton said that previous commenters had made the problem crystal clear to him: it wasn’t the rate increase, it was the belief that rates will continue to increase forever. He had two suggestions. First, he said over 50 infrastructure projects were listed, but these were focused on delayed maintenance and fixing aging equipment, and he didn’t see a plan to address the future of the District. He argued for starting with a good strategic plan and for following industry best practices, which he said would focus on dramatically reducing the number of tanks. Second, as his time expired, he urged the District to add a quality professional.
Dean from Ben Lomond said nobody wants to see rates go up, but he asked, “Raise your hand if you want to be a Big Basin Water customer right now?” When nobody raised their hand, he went on to say that if the new rate structure were not implemented and if the District doesn’t invest in infrastructure projects, “we will end up like Big Basin.”
Sharlene Cece said she appreciated all the work everybody has done. She knew the District needed the money, but she said she would like to see increased consideration for concerns about inequitable charges.
Vote Tabulation:
President Hill and Legal Counsel Barbara Brenner said all ballots would now be counted. District Secretary Holly Hossack described the chain of custody for protest ballots received prior to the evening’s hearing: As ballots arrived via email, US Mail, or drop box straight to her, each was dated and stored in a fireproof cabinet. Consistent with Proposition 218 procedure, she then counted the ballots received at the meeting prior to the end of the public comments portion of the hearing; these totaled 47 protest ballots.
The total number of protest votes received was 1376 for water service. This was well short of the number of protest votes required to constitute a majority of ratepayer households (3951) and to reject the proposed new rate structure.
For wastewater service (56 households in Bear Creek Estates), a total of 24 protest votes were received. This was just short of the total of 29 that would have been required to reject the proposed new rate structure.
Board Discussion and Action:
Director Fultz provided a very lengthy restatement of his objections to the proposed new rate structure. He focused on four separate categories of concern.
With regard to process, he objected to issues involving the District’s mailer (lack of Board review, inadequate Administrative Committee involvement, confusing text, and reports of non-receipt) and the specific 45-day time window (during the winter). He also complained that the consultant’s final report wasn’t delivered until the previous Friday.
With regard to content, Director Fultz objected to a misleading reference to the “average user” consuming six units of water per month when only 7% of bills in 2023 were at six units. He said he was very sad for seniors, people on fixed incomes, and those who conserve, since they will experience this as a regressive tax.
With regard to spending, Director Fultz complained about the lack of a binding commitment to tie the money raised to specific uses. He said the Board could not be trusted, based on the history of previous Boards. He also argued that the District’s true revenue requirements are much higher than what is currently being assumed.
With regard to legal, Director Fultz suggested that the work by Raftelis might not stand up to legal scrutiny (under the prevailing San Juan Capistrano decision or perhaps under future decisions).
In closing, Director Fultz argued that the current Board and previous Boards had shown no desire for long-term financial planning, and that this could most likely only be remedied by voting for change this November (when two Board seats will be on the ballot).
Director Ackemann was quick to caution that campaigning from the dais is a violation of the Brown Act. As Legal Counsel began to state that this was the case, Director Fultz interrupted, saying, “If so, I withdraw it and apologize profusely to the Board and the public. I will not do it again in this meeting.”
Director Mahood said Director Fultz’s final comment made it pretty clear what was really motivating his remarks, and that he was not interested in substantively addressing the relevant issues. She said his concern about the lack of information about the peaking factors used in calculating rates was hard to understand as Raftelis clearly explained the procedures for determining the peaking factors in their report. They are not complicated and conform to standard industry best practice. The revenue model and financial plan are also consistent with what is being done across the country. She noted that satisfying the legal constraints limits the District’s discretion in setting rates. She said the District would love to give schools and parks a break, but it is legally required to charge more or less what it costs to deliver water to them.
Director Mahood said the use of debt in building reserves had been explained to Director Fultz multiple times. The money obtained via loans is tied to specific capital projects (and can be used for nothing else), but this frees up other money to build up cash reserves. She said Raftelis urged the District to build up reserves even faster, but this would have meant higher rates. Trying to build cash reserves through rate revenue would mean that current customers would pay today to build reserves and fix fire and storm damage, even though future residents will be the major beneficiaries of current infrastructure repairs and upgrades. As an example, she said raising an additional $3 million for reserves, as recommended by Director Fultz, would increase everyone’s rates by about $30 per month next year. The preferable alternative is to take out debt for 20 years, which would result in an increase of about $0.30 per month on the bills of current and future residents.
With regard to the equity of the impact of the rate increase on different categories of users, she explained that a serious constraint on the rate structure is the fact that Valley residents are great at conserving water. As a result, median water consumption is quite low, four units per month. Given that half the customer base consumes little water, it would be impossible for the District to raise the money it needs if the District were to give a break to users of one or two units per month. She said the increase in the bills for low-usage customers was not a failure to address equity but was a consequence of needing to increase the proportion of the fixed rate, and that Director Fultz was well aware of this financial reality. It’s true that low-end users will see a 20% increase in their monthly bills, but this is still less than a dollar per day. She said the current proposal was, in many ways, partially fixing the mistakes made in the last rate increase when, under public pressure, the Board dropped the fixed base rate from 50% to 37%. The unintended consequence was that revenue drastically declined when customers reduced consumption. The resultant under-collection of revenue was a major cause of the District not following through on all its infrastructure promises.
Furthermore, Director Mahood said water rates charges were not just about the amount of water being used; rather they reflect the cost to the District of being “ready to serve” its customers. Customers were essentially paying for the underlying capability to access water, whether or not they used it. They were paying for the ability to turn on the tap and be confident that there will be water; that the water pressure will be high enough to flush toilets and take a shower; that the water will be clean; and that the pressure of system in the neighborhood will be sufficient to allow firefighters to put out a fire at their house. They were also paying for a dedicated staff that responds 24/7 under difficult conditions to fix breaks in the field, so that service is restored quickly. During the CZU Fire, staff manually shifted valves that gave CalFire the water it needed to save downtown Boulder Creek. She said the District hasn’t entirely returned to the pre-2017 base rate (i.e., 45% is still less than 50%), and it would be better if it did, but the District was still trying to respond to concerns about the impact of new rates on low-end users as best it could.
Director Mahood concluded by saying that the Board worked very hard to balance the needs of the District with its concerns about affordability. It pushed back on Raftelis to shift burdens to higher-volume users through steeply tiered residential rates. It actively sought to avoid harming people, and it did the best that it could under the existing constraints.
Director Smolley said he had participated from the Board and the Engineering and Environmental Committee throughout the rate setting process. He said he had seen comments from the Board and public that induced Staff to make positive changes (e.g., comments that led the Board to decrease the proposed waste water charges). He noted that some members of the public asked how debt service can be 25% of expenditures, but this is common for public agencies, and allows the District to begin replacing failing pipelines sooner than it might otherwise be able to. He said the end result was not a perfect plan, but it was nevertheless a good plan, and one that he was supportive of.
Director Ackemann said she used to work for San Jose Water Company, one of the oldest in the state, and she learned there that customers are really paying for the ready-to-serve capability. She said the District’s biggest costs were fixed (i.e., independent of the amount of water consumed). Serving a large geographical area and pumping water up mountains is inherently expensive. Forcing the District to recover revenue based on consumption makes it harder to cover these fixed costs. If the District were to raise rates enough to do everything that Director Fultz advocated for, the increase would in fact be much, much larger. She concluded by saying that she supported the proposed new rate structure.
President Hill said that most of what he had planned to say had already been said, so he would add only one point. Responding to complaints by Director Fultz and members of the public about past failings of the Board, he agreed that mistakes had been made in the past, but he also insisted that it isn’t fair to hold the current Board responsible for these. Rather than focusing on what happened in the past, the Board has to deal with the issues that are facing the District today: pipes need to be replaced, and tanks need to be replaced and maintained. He supported the proposed new rate structure.
Director Mahood moved to accept the final draft report and adopt the resolution approving the proposed new rate structure and rescinding the other resolutions as specified in the Board packet. Director Smolley seconded. The motion passed 4-1 with Director Fultz in opposition.
New Business
At this point, the meeting was nearing the end of its third hour. There were three items of New Business on the agenda, but Director Mahood moved to table the first two of these. She found the memos in the Board packet a little confusing, and she said she thought it would be difficult for the Board to sufficiently resolve these, given the lateness of the hour. The motion was seconded and passed 5-0 without further discussion.
Compensation Study Professional Services Agreement
Interim General Manager Brian Frus introduced this agenda item. He reminded the Board that the MOUs signed in May of 2023 with both the Management Unit and Classified Employees Union specified that a Compensation Study would be conducted to inform the salaries for various District positions. A request for proposals (RFP) was issued for interested consulting firms, and responses were received on October 27, 2023 from three firms: Future Sense, LLC; Ralph Andersen Associates; Koff and Associates (now owned by Gallager Benefit Services).
Brian and the two Directors serving on the Budget and Finance Committee (Director Mahood and President Hill) reviewed the three proposals and found Gallager to be by far the best choice. A subsequent interview with a representative from Gallager confirmed their choice. Brian requested that the Board approve a $37,000 contract with Gallager with an additional $3000 contingency. He also recommended that the study include several potential future positions.
President Hill made a motion to this effect, and Director Ackemann seconded.
Director Mahood said she liked Gallager’s proposed process, and she also liked Brian’s inclusion of additional potential positions. President Hill said Gallager had a long and impressive list of government agencies as clients, including small districts. He said they knew SLVWD’s business much better than the other candidates.
Director Smolley confirmed that Gallager was still okay with the quoted price despite the delay in the Board accepting their proposal. He also ascertained that nobody had checked references or met with the person who would be doing the work (the team interviewed her superior at Gallager).
Director Fultz asked about the competing bids and details of the review process. The other two bids were for $60,000 (Future Sense) and $24,000 (Ralph Andersen). President Hill said Director Mahood and he independently scored the proposals on a scale of 100 and came within five points of one another.
Director Fultz said he was going to vote against this due to his opposition to the entire process from the start. His view was that the study would just contribute to the endless ratcheting up of salaries and operating expenses.
There were three public comments.
An unidentified speaker asked for clarification on the key outcomes. President Hill explained that the District’s labor contract has a clause requiring such a study and a commitment to maintain salaries near the median of the ranges determined by the study.
An unidentified SLVWD employee spoke in favor of the compensation study. He felt that many of the public comments this evening had been misinformed. He said the compensation study had been put off for a number of years, that SLVWD Staff were grossly underpaid compared to any other district, and that the study was very worthwhile.
Lew Farris of Felton said he had undertaken his own comparison with six other districts. He found that SLVWD salaries compare well on the technical side, though they may be a bit low. On the nontechnical side, he found SLVWD to be paying quite a bit more than other districts. For these latter positions, he advocated for simply using an industry-standard benchmark (the Radford survey). He also repeated his recommendation that the District add a quality professional to its Staff.
The motion passed 4-1, with Director Fultz in opposition.
Written Communications
There were two written communications. President Hill indicated that he intended to respond to these the following day, but Director Mahood noted that the Board Policy Manual states that the correct procedure is to refer these to the General Manager. Interim General Manager Frus confirmed that the preferred approach was for staff to deal with letters first.
The meeting adjourned at 9:40 PM.