Background
Since 2010, due to various Compliance Orders, the North Davis Meadows CSA has been working toward a permanent solution for their community water system’s water quality issues related to nitrate, aluminum and iron in excess of maximum contaminant levels (MCL), and hexavalent chromium prior to the court’s rescinding of the MCL. After evaluating a variety of options for providing a potable water supply that meets all drinking water standards, the CSA concluded consolidating with the City of Davis public water system was the most reliable and cost-effective method to comply with California drinking water regulations and to ensure the health and safety of the residents of North Davis Meadows.
On May 31, 2016, a Proposition 218 hearing was held, resulting in an increase in the CSA's water fee in an amount necessary to repay an anticipated 20-year State Revolving Fund (SRF) planning loan to cover the cost of design of the water consolidation project for just indoor uses (irrigation and fire suppression were to remain on the community's wells). While design commenced in December of 2016, it was discovered that SRF planning loans must be repaid within 5 years. As such, the revenue collection over 20 years from the May 2016 fee increase would be inadequate to repay an SRF planning loan. On behalf of the CSA, staff changed course and proceeded with applying for a low-interest 30-year SRF construction loan to cover all expenses related to the project, including planning, and obtained an interim loan from the County of $430,000 for the design work which was already under way.
The design of the project is now complete with costs expended to date of approximately $640,000. Besides staff and consultant time to facilitate the design and apply for the SRF loan, design costs increased due to a change in course to connect all water uses to the City of Davis to ensure fire suppression capability, per a recommendation of the Fire Chief which was also supported by the community. Subsequently, additional design was conducted following an agreement with the City that allowed North Davis Meadows to have reduced fire flow capability. This additional design change resulted in significantly lower construction cost estimates.
Meanwhile, staff and consultants made progress in obtaining the low-interest SRF construction loan to allow for construction to begin this year. Regrettably, the State chose to hold off consideration of the community's application while there is pending litigation; Wolstoncroft v. County of Yolo. The litigation seeks to invalidate the March 20, 2018 water fee increase which has been pledged to repay a 30-year SRF construction loan that is anticipated to reimburse the CSA for all upfront water connection project costs.
On February 19, the CSA Advisory Committee met and was notified that the CSA no longer collects enough revenue to provide the current services related to water, landscaping, street lighting and stormwater. This was further outlined in a letter sent to all property owners on February 21. The fees that provide the revenue necessary to provide these services have not been revised since fiscal year 2008-09. This shortfall was expected to be resolved with fund balance that was available at the time and ultimately by this summer with the connection to the City of Davis water system since the connection would eliminate the bulk of the costs which are associated with operating the community’s aging wells. As the project is now stalled due a lack of financing options, the County can no longer provide all of these services without additional funds.
The CSA's current revenue is only sufficient to provide water service. These costs have increased in recent years due to failing wells and increased PG&E rates. The revenue collected is no longer sufficient to also fund landscaping, street lighting and stormwater services, where costs have also increased over the years. As the County cannot provide services that the CSA cannot fund, additional revenue must be generated if the community is to continue to receive landscaping, street lighting and stormwater services.
On April 30, a letter was sent to all property owners notifying them that Proposition 218 proceedings would be initiated for the CSA to support or oppose new landscape, street lighting and stormwater fees. Prop. 218 imposes certain requirements before local entities can impose fees, such as the requirement of public notice of proposed new charges and how a property owner can support or oppose the charges. Property-related fees other than water, sewer and refuse collection require a two-step Prop 218 process: 1) protest proceedings and then, if a given fee is not successfully protested; 2) a mail ballot election. On May 21, the Board of Supervisors initiated the Prop. 218 proceedings and on May 24, public notification of the first step -- protest proceedings -- was mailed to all property owners.
Also on May 21, the Board of Supervisors received a presentation concerning the CSA's operating deficit and unauthorized borrowing outlined in a May 9 letter from the Chief Financial Officer. Government Code 29806 requires the County Treasurer (part of Chief Financial Officer duties) not to pay warrants (checks) if funds are insufficient to pay those warrants and, as such, the Chief Financial Officer instructed staff to hold all payments related to the CSA's water fund until additional deposits were made or additional borrowing capacity was authorized. Staff estimated that to pay all the bills to the end of the fiscal year (June 30, 2019) related to water, landscaping, street lighting and stormwater, an additional $250,000 would need to be borrowed. The Board of Supervisors approved a $275,000 loan to fund services to July 9, 2019, the conclusion of the first step in the Prop. 218 process.
Recommended Action
Today's action is to receive a staff presentation on County loans to the North Davis Meadows CSA and related impacts; consider the public comment and protests in the preceding Prop. 218 protest ballot proceedings, as well as related community input via community conversation, correspondence and/or the June 18 CSA Advisory Committee meeting; and consider whether to loan the CSA additional County general funds to continue landscaping, street lighting and stormwater services in the North Davis Meadows CSA to September 10, 2019 at which time the community's support for or opposition to the new fees will be known.
Operating Deficit
As mentioned above, the CSA no longer collects revenue adequate to fund water, landscaping, street lighting and stormwater services. This gap began in 2017-18 with an operating deficit of $37,409. In 2018-19, the operating deficit grew to $72,885. The deficit is largely due to expenses related to the wells. Well expenses went from $90,385 in 2016-17 to $163,025 in 2017-18 (55% increase) due to repairs and emergency work on the aging wells along with escalating PG&E rates. This operating deficit was planned to be addressed with the water connection project and discontinuation of well operations.
County Loans
County Service Areas must fully fund their CSA services. If needed, County general fund may be loaned to CSAs for no longer than four years. As described above, in early 2017, the CSA found itself in a situation in which it needed to borrow funds to complete design of the water connection project which was already underway. On June 27, 2017, the Board of Supervisors authorized a $430,000 County loan. (Note an additional County loan of $92,081 was also extended to the CSA's sewer fund which was also planned to be resolved with completion of the water project and direct billing by the City of Davis to property owners in North Davis Meadows for sewer service. With changes in operation, the sewer fund's deficit has been reduced significantly and is anticipated to be resolved by the end of this fiscal year.)
With changes in the water connection project and staff/consultant time to pursue an SRF construction loan, project costs grew to $640,000. The CSA's fund balance was utilized for the water project (and the CSA's operating expenses) until exhausted. By May 9, 2019, the CSA had exceeded its borrowing authority by $153,000. On May 21, 2019, the Board of Supervisors authorized an additional loan of County general fund of $275,000 to continue CSA services to July 9, 2019 for a total amount loaned of $705,000 (sewer loan not included). Of this second County loan, approximately $128,000 is estimated to be spent on CSA services with the remaining $147,000 going toward the water connection project costs incurred to date.
The CSA currently collects just enough to provide water service. Therefore, Prop 218 proceedings have been initiated for proposed new fees for the continuation of landscaping, street lighting and stormwater service. The County will not know until the conclusion of the mail ballot election on September 10, 2019, whether the North Davis Meadows CSA will support new fees to continue landscaping, street lighting and stormwater services in 2019-20 and beyond. To continue services to September 10, additional funds of $9,000 are projected to be needed.
All costs related to the water connection project, with the exception of interest due on the County loans and litigation costs ($52,344 in 2018-19 and an additional $51,000 in 2019-20), will likely be reimbursed with award of an SRF construction loan, which will again be pursued should the County prevail in the litigation. Until completion of the water connection project, projected revenue and expenses related to water service in 2019-20 is as follows:
Projected Water Service Revenue/Expenses for 2019-20
| Revenue |
|
|
Water Service Charge
|
$182,392 |
| Expense |
|
|
Water Service
|
$158,052 |
|
Administration
|
$20,000 |
|
Litigation
|
$31,000 |
|
Interest on County Loans
|
$20,000 |
| Expense Sub-Total |
$229,052 |
| Net |
($46,660) |
The cost of CSA water service in 2019-20 would be reimbursed with the portion of the existing water fee meant for operations (note: the portion of the water fee dedicated to repay an SRF loan for the water connection project has been impounded).
Should the Board authorize the additional loan of $9,000, the Chief Financial Officer would work with County Counsel to complete a loan agreement with the same terms that were extended in the prior two loans. Should the North Davis Meadows community support the proposed new fees, the cost of those services should be fully reimbursed with the associated revenue collected over the course of the 2019-20 fiscal year. Should the new fees not be supported, it will be challenging for the County to recoup costs related to providing landscaping and street lighting services in 2019-20 that were provided by the loaned funds (stormwater service will not be needed until the fall). If the loan is not authorized, the services cannot be provided during the time period where there is insufficient funds and services may be required to cease between July 9 and September 10.
Thus the Board is requested to consider the public comment and community input regarding the upcoming CSA fees to determine whether appropriate to extend the additional loan of $9,000. |