SLVWD Board Meeting Summary
June 30, 2021
Mark Dolson
Highlights:
Urban Water Management Plan approved.
FY 2021-2023 Biennial Budget approved.
Next Board meeting is at 6:00 PM on July 8.
Preliminaries
This was a continuation of the June 17th Board meeting which was adjourned prematurely due to a power outage.
There were two non-agenda-related public comments. Beth Thomas said she understood that these are unprecedented times and that some of the recent technical problems disrupting Board meetings were unavoidable. Still, she hoped that the Board would place an item on the agenda to address the limited options for public access to meetings. She felt that, particularly in anticipation of future power outages and other technology glitches, there should be a policy to make public access more robust.
President Mahood noted that the public can still join meetings by phone when Zoom access is unavailable, but she agreed that Beth’s point was well taken. She suggested that the Administration Committee assume responsibility for this, and Director Fultz (Chair of the Administration Committee) agreed to address this.
Joe Serrano of the Local Agency Formation Commission (LAFCO) said he wanted to personally invite Board members and Staff to join the California Special Districts Association (CSDA) for a free online educational workshop August 11th from 10:00 AM to noon. This workshop will be tailored specifically for Santa Cruz special districts to discuss best practices (e.g., what to do when a meeting is cancelled due to a power outage), the Brown Act, and ethics. It is billed as covering “the essential best practices of serving as a board member of a special district: the roles of board members and staff, policies and procedures the district should consider to ensure effective governance, and general ethics principles related to special districts including an overview of the laws affecting special districts.”
District Manager Rick Rogers said the District had received the LAFCO invite and was already planning to bring it to all committees and to the Board.
Unfinished Business
Urban Water Management Plan (UWMP)
Water districts are required by the Urban Water Management Planning Act of 1983 to file a UWMP every five years to support long-term water supply and drought planning. The SLVWD and Scotts Valley Water District (SVWD) decided to develop a joint UWMP for 2020 and contracted with Water Systems Consulting, Inc. (WSC) to prepare the document. Environmental Planner Carly Blanchard introduced Spencer Waterman of WSC to present the draft plan:
https://www.slvwd.com/conservation/pages/urban-water-management-plan
Spencer explained that the District was required to submit both a UWMP and a Water Shortage Conservation Plan (WSCP). The UWMP assesses the potential for shortfalls whereas the WSCP provides a roadmap for responding as needed to an actual shortage. The WSCP also provides an outline for staff to complete an Annual Assessment which is due each year, starting in July of 2022. The UWMP uses long-term population projections from the Association of Monterey Bay Area Governments and assumes that the District will need to produce 85 gallons per capita per day (GPCD). The UWMP concludes that the District will be able to meet long-term demands, and the report is anticipated to meet all Department of Water Resources (DWR) requirements.
Director Smolley called attention to multiple discrepancies and/or confusions in the details of the UWMP. President Mahood agreed, pointing both to discrepancies within the report and, even more importantly, to differing conclusions between this report and the Groundwater Sustainability Plan (GSP) from the Santa Margarita Groundwater Agency (SMGWA). Director Ackemann asked why the report did not consider multiple scenarios to show a range of possible outcomes. Spencer replied that only one scenario was allowed. President Mahood advised that sensitivity modeling to date has shown that usage assumptions are not that critical – the primary determinant is the climate model.
Director Fultz had two principal questions. First, he asked whether the 85 gallons referred to water produced or water actually sold. Spencer said it referred to production. Consumption can be significantly lower due to leakage in the storage and distribution system. Director Fultz wanted to be sure that the public understood this distinction. According to his personal best estimate (based on dividing winter water consumption by available population figures), SLVWD customers are using between 38 and 42 GPCD for indoor needs. This is well below the current state conservation target of 50 GPCD for indoor use. [NOTE: Director Fultz’s figure is an underestimate because perhaps 10% of homes get their water from private wells; also, it ignores arguably essential outdoor usage.] In a subsequent comment, President Mahood noted that people have historically used between 70 and 106 GPCD, with usage since the 2016 drought hewing closer to 70 GPCD. Director Fultz also noted that he expects the District to undergo a demographic shift toward more young families. The implications for future water requirements are unclear.
Second, Director Fultz asked about the practical consequences of the UWMP conclusions for the District. The UWMP concluded that the anticipated water supply is sufficient (but see challenges to this conclusion below). Director Fultz said that if the anticipated water supply turned out to be insufficient, the District would either need to promote increased conservation or develop new water sources. [NOTE: This omits a third option: in-lieu recharge facilitated by conjunctive use.] Director Fultz pointed to Loch Lomond as the only augmentation option, but he guessed that this would cost $15-20 million to develop. [NOTE: This omits the possibility of drilling additional wells.] Director Fultz asked District Manager Rick Roger what operational changes he anticipated making in response to the report. Rick said the system doesn’t allow for many operational changes. The obvious opportunity lies in continuing to reduce unaccounted-for water (e.g., using leak detection to determine where water loss is greatest). The other goal is to maximize use of surface water (possibly including Loch Lomond). Director Fultz suggested monitoring unaccounted-for water on an annual basis, and Rick agreed that this merited ongoing attention. He noted huge strides in the past year with tank replacements in Lompico and a couple of other facilities. He expects a full report to be presented to the Board soon.
Director Henry said she wished there were more members of the public present. She saw the UWMP as a great document, full of information and easy to read (but she thought it would be helpful to give people a more intuitive understanding of “acre feet”). Rick Rogers said Staff is talking about pulling out some sections of the report to present to the public over time through local media or on the District’s website.
President Mahood found the side-by-side comparison of SVWD and SLVWD to be very helpful. However, her primary comment was that she disagreed with the claim that the UWMP aligned with the SMGWA GSP. Her view was that the overall message (i.e., that everything is fine) is simply wrong. This can be traced to the use of purely historical climate data used for modeling in the UWMP versus forward-looking climate estimates used in the GSP. As a result, the main conclusion from SMGWA is that the District needs to increase its groundwater levels, particularly in Lompico, to establish a drought buffer. The assumptions that the groundwater basin will recover no matter the extent of pumping during drought intervals or that the amount of surface water diverted by SLVWD would remain unchanged even in a 5-year drought are not justified. She found it puzzling that the two reports could be so different, particularly when the same consultant (Montgomery and Associates) was involved in developing both reports. Spencer’s response was that there were some differences between the two reports, but that both Montgomery and a hydrologist had reviewed the UWMP. President Mahood found it mind-boggling that Montgomery and Associates was being paid to produce two different reports with two different conclusions. She said she had additional technical questions which she would submit in writing.
Director Ackemann said she was concerned that the report looked at how much rainfall the District would receive without considering how much could be captured. President Mahood elaborated on this, saying that rainfall is expected to be the same on average but with more variability, so the problem will lie in how to store it. This is why she was advocating for a realistic climate model for projecting to 2045. [NOTE: A related point, partially noted by President Mahood above, is that the report falsely assumes that the aquifers can recharge no matter how much water is extracted in a drought. Also, if the aquifers decline, the District will be in violation of state law. In addition, the District would have to deepen its wells to reach the deeper water table.]
Director Fultz recalled that one of the arguments for contracting with WSC (which was the more expensive option) was that they would work with Montgomery and Associates with the expectation that this would lead to harmony between the two studies. He added that the evolution of new technologies over the next two decades may substantially alter what is possible. He also objected to the idea that the SLVWD is “urban.”
Two members of the public offered contributions. Cynthia Dzendzel expressed appreciation for the Board’s clarification of the 85 GPCD assumption and the visualization of acre feet. She approved of the plan to put articles in the paper (and she recommended including links to the District’s website). She also wanted to know whether Loch Lomond will be required to release water into the river during an extended drought (meaning that this water might not then be available to the District). [NOTE: The District’s allotment of 313 acre feet per year is not subject to any drought restrictions (and is only a small fraction of the approximately 9,000 acre foot capacity of Loch Lomond).]
Mark Lee agreed with Director Fultz that actual water use is much lower than being assumed, and he recommended revising the report using a lower estimate. President Mahood agreed that this might make sense but said it would only make the reported outcome more optimistic and more at odds with the SMGWA GSP.
District Counsel Gina Nicholls advised that the Board should clearly specify its requested changes prior to introducing a motion to approve the UWMP and WSCP. Spencer summarized the planned revisions as follows: All reported typos will be addressed. In section 8.1.1.2, the first paragraph will be deleted. Sections 10.2.9.1 and 10.2.9.2 will be revised to reflect the District’s contract for raw water with the City of Santa Cruz (not treated water, as is stated in the report) and language about the Loch Lomond supply potential. There will be some discussion of model sensitivity. There will be some discussion of produced GPCD vs. sold GPCD.
Director Smolley moved to approve the WSCP and the UWMP subject to the stated changes. Director Ackemann seconded. The motion ultimately passed 4-1. Director Fultz voted in favor when he rejoined the meeting after a technical glitch. President Mahood voted against.
Fiscal 2021-2023 Biennial Budget
Finance Manager Stephanie Hill introduced the FY 2021-2023 budget. Much of this was a review of previous presentations, but there were some new tables that provided increased clarity.
Director Ackemann sought clarification on two points and then congratulated Stephanie on her work on this. She cautioned her to continue referring to the fire recovery surcharge as subject to approval. Director Henry similarly thanked Stephanie, saying she had made the budget much easier for the average person to understand.
Director Smolley said that he too appreciated Stephanie’s work on this. He asked about the implications of the debt service coverage ratio declining from 2.23 to 1.51. Stephanie said the District had previously been running around 3 and would ideally stay above 2. The minimum acceptable number is 1.25. The only way to improve this number is to either increase revenue or decrease expenditures.
Director Fultz said the budget was good in terms of its format and the long-term view that it provides; this is very important in a capital-intensive business. However, he also saw things not to like: the increased headcount and the increased operating expenses. His calculations showed that the District’s operating expenses had increased at an annual compound rate of 5% since 1997 while inflation has been relatively constant at 2%. During the past eight years, he found that a 4-unit bill has increased at an annual compound rate of 11.6% compound (from $35 to $95). He also pointed to $10 million in pending tank maintenance and a pension obligation greater than currently projected. Taken together, these considerations led him to oppose the proposed budget as not adequately responsive to the District’s financial challenges.
Cynthia Dzendzel, commenting as a member of the public, said she would like to hear Director Fultz's suggestions for how the operating budget can be reduced. Director Fultz repeated the answer that he has previously provided: it is the Board’s responsibility to establish policy, not to determine operational details. He suggested that the Board should establish a policy on the rate of growth of operating expenses. By his calculation, limiting increased operating expenses to only 3.5% per year over the past 25 years would have provided the District with an additional $30 million.
Director Ackemann asked Rick Rogers for his perspective on Director Fultz’s numbers. Rick said the past budgets were all approved by past Boards, that there were reasons for the expenditures, and that it was also important to look at everything the District had gone through. He said he would strongly recommend a staffing and compensation study if the Board wants to pursue this further. Director Ackemann said she had reservations about a restrictive budget policy, but she did think it was important to tell the story of the District’s expenditures more clearly. President Mahood added that the annualized numbers obscure the consequences of two substantial mergers that occurred during this same time period.
Director Smolley observed that this is the second time he has heard Rick recommend this staffing study, and he asked whether the District should proceed with it. Rick said the District was entering into a time frame in which it might be looking at opening up negotiations with all employees. He recommended holding off for now. Director Smolley asked when the appropriate time would be, and Rick said “very soon.”
Director Henry commented that there was a very long time during which the District did not raise rates as Boards generally don't like doing this. Also, she noted that the District sold a big piece of property at some point in the past and didn't do much with the resulting $10.5 million.
Director Fultz defended his financial analysis, saying that the trends are the trends, and the Board needs this long-term historical perspective. He also expressed serious concerns about the methodology employed in the staffing study conducted in 2016; he pointed in particular to the lack of benchmarking. He further argued that if the District is going to staff at a level determined by peak resource requirements, then the District needs to make it clear to the community what this means in terms of cost. When bills increase from $35 to $95 in just eight years, the District needs to explain why this happened and where things are headed.
President Mahood expressed concern about how the very aggressive capital improvement plan for the coming year will be completed with the available staff. Rick said the District will rely heavily on consultants; Staff will focus more on project facilitation and on maintaining service during the transition. He agreed that it was a heavy lift but said he worried more about access to critical materials in view of increasing shortages (e.g., water treatment chemicals, steel, contractors) and increasing material costs. He said the Soquel District was advised to put things off, if possible, for precisely this reason. President Mahood said this spoke to the importance of having a five-year plan so that different options could be assessed. Rick volunteered to discuss this more with the Engineering Committee. He argued that the District is currently missing a significant amount of its surface water supply and therefore relying on the aquifer to make up for the shortfall. It therefore needs to address this deficiency as rapidly as it can.
Director Henry asked if there were deadlines for completing the FEMA projects. Rick said this was true of certain projects in certain categories. The District is currently meeting emergency project deadlines. A bigger concern is with deadlines for the loan projects which are supposed to completed in a three-year period. This is why the 5-mile pipeline project was not included on this list. These deadlines are required for the loan to remain tax exempt.
Director Fultz asked if the District was currently leveraging Fall Creek. Rick said that water is being moved from Fall Creek into the North System while the District continues to monitor the bypass requirements at Fall Creek. The District has notified the State Water Resources Control Board of these transfers and is waiting to hear back.
In a second round of public comment, Beth Thomas said that there was still a fundamental problem facing the District in that it can’t continually increase rates by 5% per year. She suggested that the Board might need to make some tougher decisions like imposing a 3.5% ceiling.
Cynthia Dzendzel asked what happens if the pending rate study and the proposed staffing study conclude that staff are undercompensated? She also wondered whether anyone has compared the District’s rates to those of the City of Santa Cruz (which is talking about increases of 10% per year). She noted that home prices in the SLV have soared, and that residents can’t arbitrarily assert that they aren’t willing to pay more than some target amount for water.
Director Fultz said the SLV is not a wealthy community like most of Santa Cruz and Scotts Valley. About 30% of the SLV lives on an income that is 30% below the household median, and these people still need water. He raised and dismissed the argument that water is cheap compared to dirt.
President Mahood expressed appreciation for Director Fultz’s point about the valley’s income distribution. This led her to feel strongly that the District needs to revisit the idea of tiered rates. Heavy users who are driving infrastructure investment should pay for more of the cost.
Director Ackemann suggested that the missing context is the question of how the SLVWD compares to its peers and other water districts of similar size. She also noted that past Boards had underinvested and that operating costs are increasing partly because aging infrastructure requires more labor to maintain. Climate change and increasing regulatory requirements are also affecting costs.
Director Fultz agreed that context is very important, but he argued that part of the relevant context concerns the way the community was sold on previous rate increases. Lots of promises were made in the past two Prop 218 processes to justify rate increases, and not a single 2013 infrastructure promise was followed through on. Meanwhile, there was no mention that the majority of the increase would go to operating expense increases. He suggested that the District could have decreased its fire recovery surcharge by 15% if it had not increased headcount.
Director Smolley moved to adopt the budget, and Director Ackemann seconded. The motion passed 4-1 with Director Fultz in opposition.
The meeting was adjourned at 8:40 PM.