SLVWD Board Meeting Summary
October 5, 2023
Mark Dolson
Highlights:
Revenue Model to be Used in 2023 Rate Study
Public Assistance and Disaster Management Services Contract
Next Board meeting is at 6:30 PM on October 19th
Preliminaries
There were no actions to report from the Closed Session prior to the meeting.
All five Directors were present.
There were no additions or deletions to the agenda.
President Smolley made an opening statement in which he indicated that, in response to both Board and public frustration with the contentious, overlapping, and rambling nature of discussions at recent Board meetings, he was planning to be more diligent in following Board Policy Manual guidelines for controlling Board deliberation. The manual stipulates that each Director will receive one initial opportunity for comment, that this will be followed by public comment, and then an additional opportunity for Board comment. Perhaps most importantly, each Director must be recognized by Chair before speaking.
District Manager Rick Rogers then made a special announcement of his own. He said Finance Manager Kendra Reed had unexpectedly given notice that October 13th would be her last day with the District. He said she will be greatly missed, and he thanked her for her service.
Kendra said she had been with the District for eight years and deeply valued it. She said she had decided to accept a less public and less Board-facing position that will be better for her mental health. In particular, she said disrespectful behavior from Director Fultz had taken a toll on her, and she added that she would hate to see another Staff member depart for similar reasons.
Director Mahood, Chair of the Budget and Finance Committee, thanked Kendra saying that Director Hill and she had been really impressed by Kendra’s hard work and increasing mastery of her position, and that losing her is a real blow to the District. She also praised Kendra’s bravery for publicly sharing the background leading to her departure. She said Rick Rogers had advanced his retirement date to early November due to the negative impact that Director Fultz was having on his health. Lastly, Director Mahood said Director Fultz’s treatment of Staff has been a long-standing problem that threatens the future of the District, and she therefore felt compelled to formally request that this issue be placed on the agenda for the Board’s next meeting.
There were two public comments on items not on this evening’s meeting agenda.
Mark Dolson from Ben Lomond said he attended all Board meetings but rarely offered public comment. He was making an exception partly to express appreciation for President Smolley’s revised commitment to promoting more orderly meetings and for Kendra’s outstanding service, but primarily to comment on a statement made by a Director at the last Board meeting which deeply concerned him. He said this statement reflected a serious misunderstanding of the purpose of Board meetings, and he urged the Board to agendize and address this confusion. The claim was made on September 14th that repetitious and tangential remarks by Board members serve to inform the public and that this is part of what Board meetings are intended to accomplish. Mark argued that the sole purpose of Board meetings is for the Board to expeditiously provide the District with essential guidance and oversight that is as well-informed as possible. He said the public was free to witness these deliberations and to provide oral or written input, but there was no legitimate basis for Directors to treat Board meetings as a stage from which to address the public. This distracts the Board from its mission, and it makes the meetings longer and more tedious for Board members and the public alike.
Cynthia Dzendzel of Felton endorsed the preceding comments. She further said she had been wondering why Rick Rogers had accelerated his retirement, and learning that it had to do with discomfort with the attitude of one of the Directors made her feel even worse. She was about to say more, but President Smolley [improperly] intervened, saying that he would like to defer comment on this topic to the next Board meeting.
Unfinished Business
Revenue Model to be Used in 2023 Rate Study
Finance Manager Kendra Reed introduced this agenda item. She said the financial plan to be used in the Raftelis revenue model for the rate study was first discussed at the September 7th Board meeting. It was refined at the September 12th Budget and Finance Committee meeting and again publicly reviewed at the September 14th Board meeting. Staff subsequently worked with Raftelis to produce this evening's presentation.
For water service, the proposed final financial plan uses the above-ground pipeline replacement solution (“Scenario 1”) recommended by Staff because it allows for smaller revenue increases (10% in the first two years and 7% in the remaining three years), also allows for healthier reserve accumulations, and recognizes that capital spending is ultimately likely to be limited by Staff bandwidth. This scenario assumes that the District will spend $25 million over the five years covered by the rate study, both for replacing the raw water pipelines destroyed in the CZU Fire and for undertaking unanticipated capital projects that will inevitably arise as a result of major storms and other natural disasters or currently unforeseen repairs and maintenance. Since $25 million is likely to be insufficient to cover all these costs, reserves will need to be used for emergency projects, and alternative methods will need to be pursued for funding larger and more expensive projects.
It is also worth noting that this financial plan does not include any increase in headcount during the study period, and that people will initially still be coming up to speed in key positions such as District Manager, District Engineer, and Finance Manager. The relatively large capital expenditure ($24 million) shown in the financial plan for Fiscal year 2024 is due to the fact that numerous projects that were contracted during and after the COVID pandemic shutdown were delayed by year-long supply-chain backlogs for construction materials.
It should further be noted that the actual decision on how to replace the raw water pipelines destroyed in the CZU Fire is still, at best, many months away. It cannot be made until there are refined estimates of the costs of different alternatives, initial assessments of the environmental impacts of the alternatives, and information on the extent to which FEMA will reimburse expenses incurred if the raw water pipelines are rebuilt in a manner different from their state prior to the CZU Fire. There will also need to be adequate community input.
Lastly, this financial model assumes that the District will acquire $19 million in new debt in 2024 to support a planned $24 million in capital spending that year. The goal is: (1) to provide sufficient cash-flow coverage to account for the significant time lag between expenditures on CZU Fire and 2023 storm capital projects and their partial reimbursement from FEMA, and (2) to avoid placing the entire cost of recovery from these natural disasters on current ratepayers by spreading out the costs over the 20-year repayment period of the loan. The model conservatively assumes a 20-year market loan at 4.5% interest as opposed to a bond, given the uncertainty of the electorate approving a bond. When the District seeks funding for the loan it will do so at the most advantageous terms then available.
For wastewater service (exclusively for a small number of customers in Bear Creek Estates), the proposed financial plan deviates significantly from that discussed previously. Recognizing that these customers already pay quite substantial rates and that the essential infrastructure improvements are not needed until 2032, the new plan calls for annual revenue increases of only 3%, driven purely by the need to match inflation and to replenish reserves.
Rick Rogers said the long-term plan is to incorporate this wastewater service into a County plan to serve downtown Boulder Creek and areas along Big Basin Way. This should lower monthly maintenance costs by 50%. However, the County is currently estimating 10-12 years for completion of this project, so there is no need for the necessary District work to begin in the next five years. Also, this will give the District ample time to try to find grant funding. It’s true that the District’s current wastewater system is technically out of compliance, but everyone knows that the District is working toward a solution.
Staff recommended that the above proposed final financial plans for water and wastewater service be approved by the Board.
Director Mahood, Budget and Finance Committee Chair, offered two further clarifications. First, she emphasized that the financial plan and associated revenue model were merely tools to enable decisions to be made based on the information currently available. She said experimentation had shown that various plausible modifications to the model did not have a significant effect on the required revenue, so there was no point to quibbling about possible minor adjustments. Second, she reminded everyone that actual rate changes will only be addressed in the next phase of the Raftelis study. A 10% increase in revenue won’t automatically translate into a 10% increase in rates because there are various options still to be explored (including tiered rates). The Board can also still decide whether to assign parts of the revenue to restricted accounts (and whether these allocations should be reflected on customer bills).
Director Fultz expressed some dissatisfaction with limitations to the amount of detail being made available to him.
Director Ackemann asked whether being out of compliance for wastewater posed additional risks for the District (e.g., lawsuits). Rick Rogers said anything is possible. Bear Creek flows into the San Lorenzo River. The resulting increase in nitrogen levels is negligible, but it’s true that the District is not formally meeting the reduction requirement. The District has been reporting this quarterly, and the State response has been generally understanding. Director Ackemann added that she was also sensitive to the District’s environmental stewardship responsibility.
President Smolley said he liked the revised wastewater revenue plan. He commented that the District had done a lot since inheriting the wastewater system, but it hadn’t been completely successful. President Smolley also asked how the District was balancing the fact that it is low on reserves, yet it is planning to use reserves for emergency projects. Kendra said, since FEMA reimbursements take multiple years, the District needs to issue debt to ensure coverage for capital expenditures.
Director Fultz asked if the recommended motion could be split into two so that the Board could vote separately on the water service revenue plan and the wastewater revenue plan. There was some confusion over whether or how this could be done (according to Roberts Rules of Order), and Director Fultz ended up making a separate motion which nobody seconded.
President Smolley opened the floor for public comment, and Bruce Holloway of Boulder Creek criticized the District for borrowing money years in advance of spending it.
Eric Martin of Boulder Creek briefly expressed his agreement.
Mark Lee attempted to comment as well, but he had problems with his remote connection.
Director Ackemann asked if there were project financing rules that require the District to demonstrate cash on hand to proceed with projects. Rick said the District didn’t move ahead on projects until it had received the loans. Some of these projects were held up over a year by supply chain issues, but that money is now being spent in large quantities. The District does want to be sure it has the money before committing to projects. Director Fultz added that there was some optimism for the last two loans that the project ramp-up time would be much shorter. Progress was delayed by Covid and then the CZU Fire.
Director Fultz restated two longstanding objections to the current revenue plan. First, he said classifying reserves as debt was insane, but he understood that this is what is typically done. It wasn’t clear to him whether the $19 million loan was required up front to cover cash flow (due to the extreme delays in receiving FEMA reimbursements). He said he had previously requested a more granular cash flow projection.
Second, Director Fultz argued that the financial model should more closely reflect the likely reality. The last model assumed a 3.5% annual increase in operating expenses, but the actual increase was 3% higher than this. This made him skeptical that the 4.5% annual increase in the current model is in any way realistic. He said he would be willing to bet that budget increases will be in the 6-7% range. He understood that not underestimating operating expenses in this way would force higher rates, but he predicted that the result of the proposed revenue plan will be that operating margin will suffer. He concluded that, since this plan was not based in reality, it did a real disservice to the community, and he could not support it.
President Smolley sought clarification on when the District would take out the $19 million loan. Kendra said it was needed early in the first year to cover the large capital expenditures in Fiscal Year 2024. The previously obtained funds are already dedicated to specific projects.
President Smolley’s motion to approve the two proposed final revenue plans was approved by a vote of 4-1. Director Fultz voted against it, but he said he would have voted in favor of the wastewater plan if he had been allowed to vote separately on this.
New Business
Public Assistance and Disaster Management Services Contract
Environmental Planner Carly Blanchard introduced this agenda item. She explained that the Federal Emergency Management Agency (FEMA), in addition to covering some percentage of project costs, reimburses management cost claims (up to 5% of the total project cost). The District decided in August to take advantage of this and to seek the assistance of a consultant with the expertise and bandwidth to help the District to better cope with FEMA reporting and compliance requirements. The District has only been reimbursed for $475,000 to date.
The District’s RFP closed on August 4, 2023, and two proposals were received, one from APTIM ($365,121 for two years) and one from Berquist Recovery Consulting ($877,170 for one year). After efforts to reconcile some of the major differences between these two responses, Staff concluded that APTIM was the superior option. Their proposal clearly defined objectives, outlined a clear schedule, and laid out hours that more realistically reflected the scope of work. BRC’s proposal did not reflect the District’s specific needs, was vague on schedule, and had projected hours that were unrealistic to achieve in the proposed one-year time frame.
President Smolley pointed out that he had been asking for three years whether the District needed this kind of assistance. He also noted that this RFP was not reviewed by the Budget and Finance Committee, and he suggested that the District was ultimately likely to need more than the 2000 hours of support (equivalent to one individual half-time for two years) that APTIM was committing to. Lastly, he asked whether Staff had checked references for APTIM. Rick said that Staff was relying on a recommendation received from Paradise.
Director Hill agreed that the District doesn’t have personnel with the time and specific expertise to manage the FEMA claim process in house. The District expects to be reimbursed more quickly and perhaps more richly via the consultants. Director Mahood added that the only downside was the need to pay the consultants up front.
Director Ackemann moved that the District enter into a contract with APTIM. President Smolley seconded this and asked for public comment. There was none.
Director Fultz asked if there was some forecast (or some example based on previous clients) as to how APTIM’s assistance might impact the District’s cash flow. Rick said there was not. He said APTIM helped Paradise to receive full replacement from FEMA. Director Ackemann said it would be foolish for APTIM to commit to a timeline they do not control.
The motion passed 5-0.
Consent Agenda
These items are deemed adopted if nobody pulls any of them for further discussion. There were no requests for further review.
District Reports
Engineering
Director Fultz asked about the status of the Fall Creek Fish Ladder. District Engineer Garrett Roffe said the District was requesting a one-week extension from Fish and Wildlife. Carly added that the Water Resources Control Board had already given their approval.
Director Fultz asked about the status of the Felton Heights project. Garrett said the District had received proposals and just needed to enter into a contract.
President Smolley asked when Sandis Engineering will have a final cost estimate for their nearly completed work in support of the Bracken Brae and Forest Springs consolidation. He added that he would like the Engineering and Environmental Committee to review this. Garret said the estimate was expected very soon.
There were two public comments, both concerning a project in Boulder Creek being handled by JMB Construction. The two speakers identified a long list of serious problems with JMB’s performance. President Smolley apologized on behalf of the District. Rick Rogers said he was aware of these issues, had spoken with neighbors, and agreed that the contractor was extremely messy. He said Staff had been on site, and he did not think the public commenters were exaggerating. He said the District would ensure that things are properly restored. In response to further public comment, he added that there were actually multiple projects, and he suggested that, as a last resort, the District would need to issue a stop-work order to get the contractor’s attention. He agreed to speak with the District’s Legal Counsel about this.
Bruce Holloway of Boulder Creek complained that the minutes of the Engineering and Environmental Committee meeting failed to mention the discussion of the trees along the Peavine Pipeline. President Smolley said the minutes don’t necessarily reflect everything.
Environmental
Director Fultz sought further clarification regarding the status of various grants listed in the report. Carly provided this.
The meeting adjourned at 8:15 PM.