It’s easy to take for granted the reliable stream of safe drinking water that flows from our tap when we turn it on. It’s easy, too, to object to increasing water rates simply because they are increasing. Beneath the surface, though, the story is more complicated.

Our continued access to safe and affordable water depends not only on a well-run local water district but also on a Board of Directors and an entire community that understand the deeper issues confronting our local water supply. This document aims to provide the community with a useful starting point for this understanding. It offers both a factual introduction and essential context for assessing current points of contention. We see this as a vital first step in enabling our community to work together to preserve and protect this precious shared natural resource.

Introduction

The San Lorenzo Valley Water District (SLVWD) serves 7900 mostly residential customers, all of whom critically depend on it for reliable access to safe water. Technically, the District is a local government agency governed by a 5-member Board of publicly elected Directors. It is one of roughly 3000 independent water districts in California.

Formed in 1941, the SLVWD currently encompasses approximately 60 square miles (including Boulder Creek, Brookdale, Ben Lomond, Felton, Lompico, Zayante, and parts of Scotts Valley) with 190 miles of pipeline, 39 storage tank sites, and 30 pump stations. Two independent distribution systems provide service at a cost of well under one penny per gallon. This is actually a remarkable achievement given our relatively small district with its challenging, steep terrain; moving water up and down mountains is inherently more costly.

The District relies upon surface water and groundwater, both of which ultimately come from rainfall within the San Lorenzo River watershed. Happily, this supply continues to adequately provide for the District’s needs, with surface water typically sufficing from November thru May, and with groundwater from three separate wellfields supplementing the supply during the dry season. Water quality has reliably met or surpassed all California and US Environmental Protection Agency drinking water health standards (though high mineral levels in water from the Olympia wellfield occasionally affects coloration and taste for a small subset of customers).

One unintended consequence of this generally healthy state of affairs is that SLV residents tend to evaluate the SLVWD’s operation almost exclusively in terms of their satisfaction with customer service and water rates. These are certainly important concerns but only the visible tip of the iceberg. The far more fundamental concern, for SLVWD Directors and, ultimately, for SLV residents as well, involves three key systemic challenges:

• Adequately maintain and modernize infrastructure.

• Protect the watershed and cope with changing environmental conditions and demands.

• Manage systemically rising costs while preserving reliable and affordable access for all.

These issues have not received much public attention, but they are vital for the public to understand.

Infrastructure

Perhaps the single most pressing challenge facing the District today is the need for longoverdue repairs and improvements to its water-delivery infrastructure (e.g., storage tanks, pipes, meters, etc.). Like much of America in recent decades, the District has repeatedly deferred essential investments in infrastructure as an expedient short-term strategy for coping with inadequate financial resources. Being more proactive would have required raising rates significantly, and this proposal evoked heated opposition from some segments of the community. Consequently, SLV residents today are the beneficiaries of water that has been priced below its true cost. This means that the District now needs to spend millions of dollars more than its current revenue can support.

To its credit, in recent years the District has begun to directly confront this challenge. In 2019 the District obtained a loan of $2 million dollars to fund the Probation Tank project and $14.5 million in Certificate of Participation financing to fund other capital projects involving line replacements and improvements. These new revenue sources enable the District to continue providing the SLV with reliable water delivery, but the loan payments also significantly increase the District’s annual operating costs. To address this revenue shortfall, the board in 2017 approved increased water rates spread over a five-year period after holding public hearings that sparked considerable opposition.

In addition to deferred infrastructure maintenance, the District also needs to cope with a wide range of other infrastructure expenses. For example, rainfall during the winter of 2017 triggered a large landslide below the District’s Lyon Tank and Treatment Plant in Boulder Creek, which damaged a portion of the access road. A temporary road is in place, but a long-term solution will cost $12-15 million, mostly provided by FEMA. Most recently, PG&E power shutoffs in the fall of 2019 forced the District to spend $500,000 for emergency power generators to maintain water service.

Lastly, the District also needs to keep pace with evolving communications, monitoring, and billing technologies. For example, the District is currently pushing to convert as many customers as possible to online payment. A diverse set of software tools needs regular renewals, upgrades, and expansions. Most recently, in order to communicate with customers more effectively, the District contracted with Chatterbox PR to manage public relations and its social media accounts. Both projects need ongoing investments.

Environment and Watershed Protection

If infrastructure maintenance is the District’s most urgent challenge, then environmental issues comprise its most under-appreciated long-term challenge. The SLV watershed supports a complex and continually evolving environment, and its long-term health is critical to maintaining a safe, reliable, and adequate water supply. The District is currently under-resourced to manage all of the challenges associated with its environmental stewardship. These challenges run the gamut from preservation (e.g., protecting the watershed and water supply from drought and environmental degradation) through restoration (e.g., reducing the presence of invasive species) to emergency preparedness (e.g., ensuring the water supply in the face of wildfires, landslides, floods and earthquakes).

In particular, effective environmental management requires that the District supplement its “built infrastructure” (e.g., tanks and pipes) with three other forms of infrastructure investment: green infrastructure, social infrastructure, and internal staffing.

Green infrastructure is the environment itself – a natural complement to the District’s built infrastructure, as it provides runoff, percolation, and filtering at minimal cost. This happens because the living and non-living elements of the SLV watershed create a cyclical system in which water ebbs and flows. If managed well, it acts like a sponge that naturally absorbs and cleans water, resulting in significant cost savings. Unfortunately, the climate crisis has added considerable complexity to the district’s ongoing efforts to protect the green infrastructure.

In contrast, social infrastructure connects the SLV community to disparate governmental agencies, non-profit organizations, and citizens’ groups engaged in watershed and environmental protection in the SLV region. This is a key part of the District’s environmental challenge because environmental issues are too multifaceted for the District to address singlehandedly. For example, the district needs to ensure that streams and rivers are not being degraded. To do this, the District must not only manage its own watershed lands but also work with landowners near rivers and streams, the County Public Works Department conducting road repairs, and the other individuals, groups and organizations that impact the watershed to ensure that waterways are free of unwanted debris and pollutants. Similarly, preparation for a catastrophic wildfire requires detailed scenario planning across multiple agencies and associated public education campaigns.

Lastly, the District invests in staff to manage these environmental programs. In the past, the District had an Environmental Department to help plan long-range water supply, regulatory compliance, water conservation, sustainable groundwater management, and conjunctive use. This department also helped permit capital improvement projects, manage land and stewardship projects, and plan for disaster response. It provided expert answers to environmental questions raised by the Board of Directors and the public, stewarded financial resources through grant programs, and networked with other agencies to share resources and maximize regional impact. This department was scaled back in 2019 to work primarily on capital-improvement projects, leaving the department understaffed and much of the work unaddressed.

Rising Operating Costs

Water rates have increased dramatically across the entire state of California (and the nation) in the past 15 years. A state-issued report (released in 2020 in conjunction with Assembly Bill 401) highlighted three reasons for this:

• Water has been historically underpriced, which has left infrastructure underfunded.

• Water quality standards have grown increasingly stringent, which drives up costs.

• Federal financial support for water utilities has fallen substantially in recent decades.

An additional contribution comes from increases in costs associated with staffing. The District requires a certain staffing level to deliver its services, and salaries and benefits account for two thirds of operating expenses. All told, the District has 35 full-time-equivalent employees, 62% of which work primarily in the field. Staffing levels have flattened across recent years, but associated expenses still increased by 7% in 2020 over the previous year.

A key contributing factor to increased staffing costs involves the retirement benefits provided via CalPERS. The District is in the same boat as a great many other pension plans, which were overfunded in the 1990s and then hammered by the economic downturns in 2000 and 2008. In 2013, the District switched from the Classic plan to the PEPRA plan which is less favorable to employees, but all current retirees still utilize the Classic plan. The District is pursuing multiple strategies to lessen its CalPERS obligations, but its baseline liability will increase as CalPERS continues to lower its benchmark return on its investment.

Lastly, there are a variety of expenses associated with addressing the climate crisis (e.g. droughts, PG&E power shutoffs, increased fire risks). Small districts such as the SLVWD have a harder time addressing many of these increased costs because they don’t have the economies of scale that larger districts have. In addition, the SLVWD must cope with steep, mountainous terrain and with relatively few options for increasing revenue via the typical water district route of simply adding new connections as new neighborhoods come online.

On the other side of the ledger, 89% of the District’s revenue comes from the fees that it charges its customers. However, as a result of Proposition 218 (passed in 1996), the District is highly constrained in how it sets these rates. Increases can be potentially blocked by voters, and rates must be strictly tied to delivery costs. This latter requirement creates a conundrum: the state of California has recognized access to water as a basic human right, but it has not yet provided any state funds to ensure this access for financially-distressed ratepayers.

This places the onus on individual water districts to find some way to reconcile inevitable cost increases with the needs of ratepayers ill-equipped to pay more. Proposition 218 essentially prohibits districts from establishing any kind of reduced “hardship” rate unless the associated rebate can be funded via some source of revenue other than the rates themselves.

Fortunately, the SLVWD (normally) receives about $800,000 in property taxes and $25,000 in rental income. This opens the door for a Low Income Ratepayer Assistance (LIRA) program similar to those devised by other California water districts. As of this writing, the District is in the process of implementing a pilot program that should be operational by the end of July.

Additional Challenges

In addition to these acute challenges involving infrastructure, the environment, and inexorably rising costs, the District also faces the ongoing challenge of planning for long-term stability in the face of short-term unpredictability and disruption. Ironically, one potential source of disruption involves the elected Board itself – the District has been fortunate over the years to have many dedicated public servants on its Board, but each new election cycle inevitably introduces the possibility of significant changes in direction.

One concern raised by the current Board has been that, just as the District’s past revenues were inadequate for essential infrastructure maintenance, the same may be true of its future revenues. This could necessitate yet further rate increases, but the current Board and the staff are having difficulty pulling together all the relevant data and arriving at a consensus assessment of the situation. Moreover, rate increases also require a substantial level of public support, and the public has yet to be properly included in this discussion.

Similarly, the District’s last Strategic Plan was drafted in 2016, and nobody today believes that this document still provides effective guidance. The current Board began grappling with this in early 2019, but progress has been quite slow and contentious. As of this writing, the target completion date for a new Strategic Plan is October, 2020, but it will not have been developed using standard best practices, so there is a risk that it may receive inadequate public vetting.

Lastly, the District is continuing to adapt to myriad disruptions resulting from the Covid-19 pandemic. The District promptly suspended water shutoffs for delinquent payment but has otherwise maintained much of its normal operation. However, Board meetings, committee meetings, planned trainings, and revenue projections have all been impacted. The pandemic has also complicated and slowed the strategic planning process.

Summary

The bottom line is this: the SLVWD continues to generally serve our community well, and this is a testament to the expertise and commitment of both staff and Board members. However, the District also faces important ongoing challenges. Ultimately, the District’s success in addressing these challenges depends on the entire community and on the extent to which we become well informed about these issues, supportive of the District’s efforts, and willing to recognize and pay the true cost of water.