by Mark Dolson
Regular readers of my “On the WaterFront” summaries of San Lorenzo Valley Water District (SVLWD) Board meetings already know about an important agenda item on the upcoming August 5th Board meeting. As part of the Proposition 218 mandated citizen review process for all proposed water district rate increases, the Board will be tabulating ratepayer objections to the proposed 5-year CZU fire-recovery surcharge (roughly $10 per month for typical customers). If a sufficient number of customers (roughly 3950) register formal objections, the proposed surcharge will not take effect, and the District will be effectively back to square one in confronting the financial impact of the fire. A key assumption of the Proposition 218 review process is that citizens will take the time to adequately inform themselves of the relevant underlying facts. Our community will be very poorly served if ratepayers object to the surcharge simply because of something they heard on the radio, read in a newspaper opinion piece, or heard from a neighbor. It will be equally tragic if people object to the surcharge purely to “send a message” (e.g., because they think their water rates are “too high” or because they have complaints with the way the SLVWD has operated in the past). The goal of this article is to provide valley ratepayers with a full and accurate understanding of our current predicament so that they can decide for themselves what response makes the most sense. The following facts are not in dispute (but also not widely known): last year’s CZU Fire caused more than $20 million in damages to the District’s infrastructure, including melted water pipes, damaged or destroyed water diversion facilities and storage tanks, and other equipment. The District also faces fire-related costs associated with watershed restoration and fuel reduction. The Federal Emergency Management Agency (FEMA) will ultimately reimburse the District for 75% of the cost for a prescribed set of infrastructure repairs, but this will still leave SLVWD to cover the remaining 25% (i.e., at least $5 million because not all costs will be reimbursed by FEMA). Happily, it appears that the state of California will likely reimburse the District for some of this 25%, and the Board has specified that the surcharge can end early if it turns out the District doesn’t need the full $5 million. On the other hand, there are good reasons to fear that the $5 million figure may turn out to be an underestimate. Unfortunately, SLVWD has not been able to identify any other significant source of revenue. The District does have insurance that covers some of its losses, but FEMA requires that any insurance payments reduce its own 75% portion of the payments, not SLVWD’s 25%. The District is also aggressively seeking (and, in some cases, receiving) grants, but these will do very little to reduce the $5 million in infrastructure-related expenses that the District is currently facing. There has been some public speculation about possible property sales or some other innovative way of generating additional revenue, but these ideas have received substantial Board attention in the past two years, and they have yet to prove viable. This is why the proposed surcharge was approved by the Board by a vote of 4-1. The only remaining question is whether the surcharge should be designed (as is currently the case) to raise the full $5 million or whether the District could somehow manage with a lower surcharge amount. The only scenario in which a lower surcharge would be conceivable is one in which the District’s operating expenses are reduced (both immediately and for the foreseeable future). Unfortunately, the lion’s share of the operating budget goes to salaries, and a rapid reduction in staffing levels is simply not feasible. The current staff is already under enormous pressure due to the added workload imposed by fire recovery responsibilities (including increased oversight of contractors and intensified pursuit of grants). Consequently, nobody on the Board has yet been able to suggest an actionable plan for meeting the Valley’s fire recovery and ongoing water needs with a significantly reduced SLVWD operating budget. Absent a dramatic reduction in operating expenses, a lower surcharge would inevitably force the District to cannibalize a portion of its recently secured $15 million low-interest loan. The District obtained this loan to restore its reserve funds and pay for capital projects and long-deferred maintenance. Repurposing this resource would constitute poor financial planning in its own right because it would once again defer investment in the District’s infrastructure to cover current costs. This is the relevant background that may not be apparent to valley residents who have not been closely following the SLVWD Board meetings. Both the surcharge and the District’s budget have been extensively discussed in recent Board meetings, and no viable alternative scenario has been identified. The Board has already taken the precautionary step of ensuring that surcharge revenues can only be spent on fire-related recovery costs (by placing these funds in a restricted account). The District has also committed to renewing its Ratepayer Assistance Program so that those ratepayers who are least able to afford the surcharge are entitled to a comparable monthly rebate. This is the current reality that our District is contending with. It is absolutely true that water rates have risen dramatically in recent years, but this has been happening across the state, and it has been primarily driven by two distinct factors: (a) the heightened costs of aging infrastructure with decades of inadequate maintenance (resulting, in part, from insufficient funding due to artificially low water rates), and (b) increased operating costs driven by increasing regulatory demands and other issues associated with climate change. The fire recovery surcharge is addressing a completely independent expense driven exclusively by the catastrophic CZU fire. The bottom line is that the Board is unanimous in wanting the District to operate as cost-efficiently as possible, and it has been actively pushing for new ways to promote this outcome. But the suggestion that the District can somehow avoid the proposed 5-year, $10-per-month fire recovery surcharge is simply wishful thinking. A separate and deeper concern is that the promulgation of this purely hypothetical scenario in local media is detrimental both to the effective operation of the Board and to the well-being of the District because it rejects the Board’s established and informed deliberative process in favor of a public campaign rife with misleading suggestions and personal opinions.
Appreciate the article. Personally, I have a number of issues with the district’s proposed surcharge. Number one, since moving to the valley in November of 2018, I have seen the Basic Charge go from $30.24 to $33.66, an 11.3% increase. Can the district promise not to raise that again in the five years the surcharge will be in effect? Unit costs to water in that same time frame have increased from $10.83 to $12.06, an 11.4% increase. Again, will the district promise not to raise the unit cost over the next five years should this surcharge be implemented? Question: does the district carry insurance on their infrastructure like we all must on our homes and if not, why not. If they do, why is it not covering the cost to rebuild like many are doing who are rebuilding their homes. Lastly, if they must do the surcharge, why for only five years? If this is tied to a bond, they should do a bond for 20, 25 or 30 years. Why? Of course it would cost in interest, however, it should not only be those of us living in the the valley and using the infrastructure for the next five years who pay. It should be those who come after in the next 20, 25 or 30 years because otherwise, those who come later benefit off of what we today must pay and that is not fair.
Thank you for a very informative article. It should also be considered that some of the ratepayers have suffered losses as the well. Piling on another $10 may not sound like much, but this increase pushes my monthly water bill to $100. And looking at the October rate increases will be added on top of that.
Historically the SLWD received approvals for rate increases with the promise of repairs to the infrastructure. Water tanks were never repaired and leaked for years and years.
Given that we, the rate payers, are being asked again for more money, I hope that the District continues to avoid any donations to the local community so that they can focus on the issues at hand.