SLVWD Board Meeting Summary

July 13, 2023

Mark Dolson

Highlights:

  • 2023 California Special Districts Association (CSDA) Board of Directors Election

  • SLVWD Workshop: Rate Study Kickoff Meeting

  • Next Board meeting is at 6:30 PM on July 20th

Preliminaries

There was no Closed Session prior to the meeting.

All Directors were present.

There were no additions or deletions to the agenda.

There were two non-agenda-related public comments.  Former Director Lew Farris asked about an anomalous data point in the reported water quality measurements.   District Manager Rick Rogers promised to follow up with him.

Bruce Holloway from Boulder Creek mentioned that he had once seen a Press Banner op-ed advocating for a bond measure, and he suggested that the District take a closer look at this option for funding essential infrastructure improvement.  He described bonds as more equitable than parcel taxes.

Bruce also praised the District for its current Felton Fish Ladder project.  He described this as an obligation that came with the District’s acquisition of the Felton water system in 2008.  He said he was happy to see that over half the cost was being covered by a grant, but he was unhappy that the District was still having to pay for some of this work itself.

 

New Business

2023 California Special Districts Association (CSDA) Board of Directors Election

Board President Mark Smolley introduced this agenda item.   The Board was being asked to vote for one of three candidates:  Vince Ferrante (incumbent), Brad Imamura, or Ronald Stassi.  President Smolley said he found Brad Imamura’s resume underwhelming, even though Brad had a water background.  He said he would be fine with either of the two other candidates.

Director Mahood said she found Vince Ferrante’s resume to be by far the strongest.  Director Hill favored Vince Ferrante as well, based on him being local and having a lot of experience.  Director Ackemann said she was fine with either Vince Ferrante or Ronald Stassi.  She noted that Ronald Stassi actually does have experience representing water as well.

President Smolley moved to have the Board vote for Vince Ferrante.  The motion was seconded, and there was no public comment.  The motion passed 5-0.

Commentary:  None.

 

SLVWD Workshop: Rate Study Kickoff Meeting

Finance Manager Kendra Reed introduced this agenda item.   She said Staff had already begun working with Raftelis in support of the upcoming rate study.  Three members of the Raftelis team (Melissa Elliot, Project Director; Theresa Jurotich, Project Manager; and Lindsay Roth, Lead Consultant) were (virtually) present to introduce their planned activities.  They planned to cover the following topics:

  • The requirements of funding a utility

  • Steps in conducting a rate study

  • Cost of service analysis is at the core of a rate study

  • Rate design: introduction to rate structures

  • Pricing objectives: What rate structures accomplish

  • San Lorenzo Valley Water District’s pricing objectives

  • Schedule for the rate study and approval process

  • Raftelis’ scope of work and deliverables

  • General Discussion with the Board and the public

Theresa Jurotich provided a 25-minute overview.  She reminded everyone that Proposition 218 requires that rates be based on the direct cost of providing service.  She described a rate study as a financial planning process that considers:

  • Fairness & equity

  • Community values

  • Utility financial viability

  • Operations & maintenance

  • Infrastructure

  • Legal compliance

The rate study is based on the District’s currently anticipated revenues and costs.  Rates are typically split between fixed and variable charges.  Fixed charges are appropriate for recovering baseline costs such as customer service, billing, meters, system operation, and infrastructure maintenance and upgrades.  Variable charges can be based on consumption.  The corresponding rate structure can be uniform or tiered.  It can also distinguish between different customer classes and/or different seasons.  However, each group must “pay its own way.”

In general, flat fixed rates tend to be less equitable and less motivating of conservation.  Conversely, tiered rates can introduce greater revenue instability.  For SLVWD, revenue stability, affordability, and conservation have been identified as the three most important pricing objectives.

Theresa also shared the following rough schedule of activities:

  • Kickoff 5/30

  • Board presentation 7/13

  • Proposition 218 notice mailed 12/1

  • Public outreach workshops in September or October

  • Final report 12/20

  • Public hearing 1/18

  • Rates effective 2/1

Theresa’s presentation was followed by about 80 minutes of Board and public questioning and discussion.

Director Mahood said the Board felt very strongly that outreach to SLVWD ratepayers was an important activity.  Consequently, there might be a need for more than one public workshop (although some workshops could be run by District Staff without Raftellis).  Director Mahood’s concern was that workshops will only generate meaningful public response when there is something to respond to.  She therefore wanted to know when Raftellis expected to have sufficient information for the District to share concrete scenarios with its ratepayers.  She also mentioned that it was still an open question whether SLVWD would address CZU Fire repair costs via rates, financing, or a bond.  Theresa said Raftelis expected to have useful information to share with the public in the August-September time frame.

Directors Ackemann and Fultz agreed that early public engagement was a high priority for the District, and they tried to confirm that the Raftelis rough schedule would adequately address this.  Melissa ultimately responded that the schedule wasn’t cast in stone.

Director Hill said he wanted to make sure there was a sufficient focus on navigating FEMA-related disaster recovery constraints.

Director Fultz expressed a concern about the potential for the resulting revenue to be consumed by expenses other than those it was initially intended to address.   He asked if there was some way to tie some funds explicitly to capital expenditures (e.g., as was done with the Fire Recovery Surcharge).  For example, he described a hypothetical scenario in which $30 of a $100 bill was allocated exclusively to capital expenditures and maintenance.   Director Mahood added that the City of Santa Cruz has a part of its bill with this kind of specification.  Marin County does this as well (and they also have a watershed maintenance fee).

Melissa said this was possible.  Some districts do this, and some do it for a specific period of time, but it does increase the challenge for administration.  Melissa recommended that the District seek guidance from legal counsel regarding whether such designations of revenue were enforceable.

Director Fultz said this specificity could be important because he felt that, even though some ratepayers will oppose any rate increase, many more ratepayers might oppose a rate increase due to a lack of trust in the District’s assurances about how the increased revenue will be spent.  On a related note, he asked if the financial plan that Raftelis puts together can be the basis of a committed five-year budget for the District.  Theresa said this was possible.  Director Fultz then asked how other districts had dealt with the challenges of projecting five years into the future with increasingly unstable costs.  Melissa said this was inherently difficult.  Director Fultz clarified that he was asking about mechanisms that could preserve operating margins in the face of these unpredictable fluctuations.  Melissa said she didn’t think she had seen this.

President Smolley asked if Raftelis would compare the effects of different candidate rate structures for a typical customer.  Melissa said they would.  President Smolley then asked if Raftelis could compare SLVWD rates to those of other districts.  Melissa said this was part of their planned scope of work.  She said it would be up to SLVWD Staff to specify the relevant points of comparison.

Director Mahood sought additional information on tiered rates.  She asked how various tiers were defined when most customers are residential.    She said she didn’t expect much community enthusiasm for fine-grained distinctions based on, say, the source of the water.  However, the big issue could be the incremental effect of large users because increased total demand can be very costly to accommodate.   Melissa said this was how tiered rates were typically justified, and that the tiers usually corresponded to the natural breaks in demand typically observed within residential users.

Director Hill suggested that the District should hold special sessions for specific subgroups of customers (e.g., such as the school district).  He also suggested that the Budget and Finance Committee work with Staff and Miller Maxfield to come up with a schedule and plan.  Director Ackemann said the Administration Committee would be directly involved in this and that a potential workshop with Miller Maxfield had already been budgeted.  She added that Staff support will be needed as well.  However, Rick pushed back on the idea of multiple targeted workshops based on his concern about limited Staff availability.  President Smolley agreed that the Administration Committee should follow up on this, and Director Fultz asked that this be agendized.

Director Fultz brought up a separate concern relating to promoting water conservation.  He said the District was already 20% below the State goal for indoor water use, and he didn’t want to push people to do more than this unless the District could provide them with specific targets.  He also expressed skepticism about the value of comparing SLVWD rates with those of other districts.  He feared that this could encourage rate ratcheting, and he preferred to focus purely on sustaining the required operating margins (which, he argued, based on his own estimates of annualized costs of infrastructure maintenance and upgrades, should be set to $5 or $6 million as opposed to the current $3 million).   Lastly, he sought assurance that the model would be made available to Kendra and her team for ongoing use and adjustment.  Melissa said the model was Excel-based, and that it was fully owned by the District.

Director Fultz added that the Board should have a conversation about a possible bond at some point, and President Smolley asked if Raftelis could cover this in their work.  Theresa replied that while Raftelis was not acting as a financial advisor, it will explore different ways of funding the large costs associated with repairing damages sustained in the 2020 CZU wildfire and the 2022-23 winter storms.

Three members of the public provided comment.  Bruce Holloway from Boulder Creek said the City of Santa Cruz looked pretty good to him.  They have elevation charts, whereas SLVWD has never treated two neighborhoods differently.  He wasn’t personally enthusiastic about paying more based on his elevation, but he also noted that the Santa Cruz rate differences were very small anyway.  He also wanted to make sure that Raftelis was aware of SLVWD’s property tax income.

In a second round of public input, Bruce suggested that revenue instability is exacerbated by seasonal rates.  He also argued that the SLVWD system is sized based on fire protection, not demand.  He added that the Santa Cruz rate study suggests that a typical residential customer might get a bill with five different line items, and he said he would find this confusing.  Also, if he saw a watershed management fee on his bill, he would have questions about where this was coming from.

Jim Mosher from Felton said he was very encouraged by the discussion so far.  He favored moving to tiered rates, but he felt these should be based on heavy use, and he agreed with Director Mahood and with Bruce that all neighborhoods should be treated the same.  He was encouraged that Raftelis seemed knowledgeable about tiered rates, and he agreed that the school district should be considered as a special use.  For him, fixed-income ratepayers were very important to accommodate.  Most importantly, he urged the District to meaningfully engage with the public in a way that wasn’t done in 2017. 

In a second round of public input, Jim said that if the District explicitly ties revenue to capital expenses, it should bear in mind that increased capital spending also impacts the operating budget (e.g., by placing heavier demands on Staff for engineering and environmental support).  In comparing SLVWD to other water districts, Jim urged the selection of similar districts as opposed to neighboring districts.  Lastly, he said the public needs an opportunity to respond to options that are actively under consideration, rather than simply to a final proposal.

A third member of the public, Lew Farris, offered two separate comments.  First, he said he would like to see data comparing SLVWD to other districts with regard to how it is spending its revenue.  Second, he seemed to suggest that the rate increase decision should be postponed until the new District Manager is installed.

Director Fultz and President Smolley had a brief side exchange about the appropriateness of expanding the opportunity for individual members of the public to speak for more than the three minutes allowed for comment on a topic.   President Smolley said he always encouraged the public to send email to the Board.  Director Fultz argued that most people don’t notice agenda items and that public speech generates more interest on the part of the community.  A fourth member of the public, Cynthia Dzendzel, said she would like to hear more from Bruce Holloway and Jim Mosher.  President Smolley then granted each of them a second opportunity to speak.

President Smolley asked if there were any further comments from the Board.  Director Ackemann lightly suggested that the new District Manager would be very happy to have the rate issue resolved in advance.  Director Hill urged the public to distinguish between options the Board was merely in the process of assessing and options that it was committed to pursuing.

Director Fultz clarified a public misstatement about the District’s Ratepayer Assistance Program.  Funding for this comes from a cellular lease.  100% of property tax income is being used for loan payments.  Director Fultz’s view was that low-income support should be provided by the State and that the District still has unaddressed capital needs in the vicinity of $450 million (i.e., about $5 million per year over the life of its infrastructure).

President Smolley asked if there was a way to compare SLVWD to other districts that are similarly spread out.  Director Ackemann added that housing costs should be considered as well, as these may be very different in an otherwise-similar district.  President Smolley agreed, saying that he was particularly concerned about the need to compete with wealthier districts in terms of Staff salary.  Director Fultz cautioned that many members of the SLV community live well under the median income.  Director Ackemann said her point was that comparable districts need to be similar both in terms of operating conditions and cost of living.

Melissa said this was a difficult challenge to address and is also why such a comparison may not make sense.  For example, a different district may be failing to invest adequately.  This led President Smolley to ask whether there was any point to seeking a comparative analysis.  Director Mahood noted that, while a comparison with other districts’ rate structures and typical bills was simple and straightforward, a benchmarking study of the sort desired by Lew Farris was not included in the District’s contract with Raftelis.  On the other hand, Director Hill argued that some member of the public will surely perform their own comparative analysis and publicize it.   Director Fultz said he wasn’t sure the District needed to do an in-depth analysis, but it might be interesting to know if another district is doing something interesting.  He also said he was interested in knowing more about justifications for tiered rates in other studies.

At this point, Director Fultz asked what exactly the District was telling Raftelis to do.  President Smolley asked Melissa to share her current understanding.  Her reply was that Raftelis had taken complete notes on the Board’s input.  One clear conclusion was that outreach is very important.  She said she wanted to develop a schedule with Staff early next week.  As for as a comparison set, Raftelis will await clear direction from Staff.

The meeting adjourned at 7:55 PM.