April 2, 2012
VALLEY CENTER MUNICIPAL WATER DISTRICT
Regular Board Meeting
Monday, April 2, 2012
Time: 2:00 P.M.
Place: Board Room
29300 Valley Center Road
Valley Center, CA 92082
The Valley Center Municipal Water District Board of Directors’ meeting was called to order by President Broomell at 2:00 P.M.
APPROVAL OF AGENDA
A modification to the agenda was made at the request of Pardee Homes to remove their item relating to the Request for Annexation of the Proposed Meadowood Development (Agenda Item 6). This item will be rescheduled for a future meeting.
ROLL CALL
Board members present were: Directors Broomell, Polito, Aleshire, and Haskell. Staff members present were: General Manager Arant, General Counsel de Sousa, District Engineer Grabbe, Director of Finance Jeffrey, Director of Operations Hoyle, IT Manager Pilve, Board Secretary Johnson, Accounting Manager Pugh and Project Manager Williams. Spectators present were Mssrs. Hilbig, Flynn, Lewis, Bernsen, and Moriarty – South Village Property Owners’ Committee, Mr. Bunts – Water Synergy, Mr. Ross – Roadrunner Newspaper, and many community members and interested parties (see Exhibit A for complete list).
CONSENT CALENDAR
1. Upon motion by Polito, seconded by Haskell and unanimously carried, the following consent calendar items were approved:
• Minutes of the Board meeting held March 19, 2012
• Audit demand check numbers 131520 through 131640 for the period March 9 through March 22, 2012.
• Board of Director’s request for reimbursement of expenses and report of expenses
• Survey of General Counsel and Auditing Services Costs
ACTION AGENDA
2. South Village Wastewater Expansion Project – Cost Reduction Proposal Analysis Recommendations:
A proposal from the South Village Property Owners’ Committee to reduce costs associated with the Woods Valley Ranch Wastewater Expansion Project was received by the District on March 1, 2012. Additional details of the proposed cost saving measures were requested by General Manager Arant and were received on March 23, 2012. District staff has reviewed the proposal and has broken it down to eleven specific items that require policy direction from the Board.
Mr. Wayne Hilbig, representing the South Village Property Owners’ Committee, recapped the history of high groundwater issues, the County imposed building moratorium, and stressed the need for expanded sewer service in Valley Center. He explained that the committee had reviewed the policies available on the District’s website and found several that support, or are consistent with, items being presented for consideration. These include the District’s mission statement and its responsibilities as a public agency. Mr. Hilbig stated that a public agency generally provides facilities and capacity at agency expense by issuing bonds, and pays it back by charging customers for service.
The Board was reminded that participants have deposited a combined $397,500 towards this project for a total of 350 EDUs. Bell and Butterfield make up 150 EDUs; less than half. The Committee requests that this project be classified as a “community project” and should qualify for District help. The current project budget is estimated at $14,364,500, for a per EDU cost of $41,041. This cost is preventing property owners from participating or forcing them to drop out or lower their EDU count. The Committee was formed to search for options and believes the following measures could save the project as much as $5M and bring the cost per EDU to $26,463:
• Design-Build approach rather than Design-Bid-Build – this would save efforts on the design and contractor portions, remove change order potentials, save on administration costs and minimize contingencies. Savings could reach $3,516,000.
• Reducing design flow rate criteria from 250 gpd to 200 gpd – second seasonal storage site would not be required for this phase. Estimated savings $422,000.
• District staff time should not be charged on this project but provided as a community service, or provided at a reduced cost without markups. Eliminating District staff time could save $776,000.
• Utilizing the District’s unrestricted reserves. The District budget indicates there is $4.5M available for capital improvement projects and wastewater capital reserves at $1.4M.
• The District’s ordinances authorize the District to invest in bonds issued by the District.
• Pursue Federal funding opportunities to help reduce costs to provide wastewater service to existing customers with failing septic systems within the designated area.
• Meeting the District’s strategic goals to “support and pursue the continued development of wastewater reclamation to offset imported water demand”, and “financing for new water and wastewater infrastructure to reliably meet long-term community needs based on the County approved General Plan.”
• Reimbursement to Newland for the existing plant is currently estimated at $6,000 per EDU. The District is still working to define the correct amount and will prorate it. Request that consideration be given to the age of the facilities. Also, money has been collected from the Woods Valley residents to rebuild the facility in the future, leading the Committee to assume that money is being collected twice to reconstruct the facilities. Potential savings $2.1M.
• Who benefits from the expansion? Valley Center citizens who have been waiting over 30 years to develop their properties, Woods Valley Ranch customers who would like to see a reduction in costs and want to be within walking distance of grocery and other stores, all of Valley Center by improvements throughout properties along the town’s main entrance and by saving them a 20 mile round trip to Escondido for basic services. The project also benefits VCMWD by making more treated water available to offset costly imported water, and it will fulfill a strategic goal by providing wastewater service to customers.
• There is a $750,000 charge to the project for master planning of facilities and services for the area. The Committee feels that the planning costs should be spread to all properties in the South Village planning area. Further, several parts of the study cannot be used on this project and the Committee feels it should not be charged for all of it.
Throughout the presentation, several attendees spoke in favor of the project and the need for services in Valley Center. They also voiced the need for reducing costs to make the project more affordable.
The Committee’s presentation was concluded by Mr. Hilbig who thanked the Board for their careful consideration and pleaded for their help.
General Manager Arant gave a brief history of the efforts to bring sewer to Valley Center and affirmed that the District wants this project to be successful. He reminded the group that the $2,500 deposit initially received was for environmental analysis, master planning and preliminary studies with no guarantee there would be a project. As a result of this, a Master Plan was produced, which was amended to save money, and an Environmental Impact Report was completed, which was certified. These two accomplishments allow the project to move forward. A complete Preliminary Facility Agreement with the State Water Resources Control Board was signed which clears the way to provide preliminary approval for a $13.8M loan at 2.2% interest, which was at the request of the proponents and completed by District staff.
The following staff recommendations to the eleven specific requests were provided by the General Manager:
1. Recommend utilizing the Design-Build approach, however, cost savings is uncertain at this time.
2. Recommend changing design criteria from 250 to 200 gallons per day (gpd).
3. Staff time charges are applied to specific projects that benefit specific areas, salary and overhead charges are customary and should not be waived.
4. Capital Reserves are allocated for specific purposes. $12.7M is not enough for a 102 sq. mile service area. Using these reserves for a specific project would result in the water and wastewater ratepayers throughout the district subsidizing this project. To vary from existing policy in this case could possibly set a new precedent for future projects with the same claim of community enhancement. Staff does not recommend changing District policy.
5. The South Village project will be funded by a 2.2% interest loan from the State and will be repaid with the security of an assessment district. There is no reason to issue bonds on this project because they would be at a much higher interest rate.
6. Any federal funding received for a specific project would go to offset the cost of that project and benefit the participants in the project.
7. The Reimbursement Amount of $6,000 per EDU to Newland is a placeholder while the amount is being finalized. Staff will consider all input on the reimbursement amount. Newland will be reimbursed for parts of the existing plant that are utilized for the next phase including the property, larger diameter piping, etc. The Woods Valley reserve account is being accumulated from the rate payers at Woods Valley Ranch for replacement of aging equipment and staff does not recommend it be used for the Phase 2 project.
8. The District agrees that this project will produce ancillary benefits to the community. Unlike a city however, the Valley Center Municipal Water District has limited powers and authorities. Any additional sales tax or property tax produced through development of this project will not benefit the District or its ratepayers, but will go to the County of San Diego. The District is also bound by Propositions 218 and 26 which require that there is a nexus between what is charged and the benefit derived from the charge. Staff sees no legal nexus.
9. Any operating efficiencies derived from implementation of this project will be passed on to all the wastewater subscribers receiving service from the expanded Woods Valley treatment plant.
10. Staff agrees that the appropriate pro-rata share of the master plan costs should be collected through a reimbursement to the Phase II participants at the time that portions of the broader group of benefitted properties connect to the Woods Valley Plant, just as it will be done with the Newland Reimbursement.
11. The original design and cost estimate was prepared by Don Bunts and was used to apply for the $13.8M SRF loan. The Engineer’s estimate will be a factor considered by the bidding contractors. Staff agrees that the costs can be portrayed as a range, as long as the range is realistic. At some point property owners must commit to this project and must be prepared for the higher end amount, not just an optimistic low end amount.
In reference to the request to use District reserves for the project, Board members pointed out the vulnerability of the District in the event of some catastrophe. Their responsibility is to keep the District financially viable by considering carefully how the money is spent.
Mr. Arant conveyed that review of the proposed measures would continue in detail and that an audit of staff time on the project would be performed.
The Board was again asked to reconsider staff time overhead charges on this project by Mr. Hilbig. He stated that $75/hr for the Chief Engineer is reasonable; $167/hr is not. It was explained by Mr. Arant that salary plus overhead is charged on all projects and that the District is participating in the project by purchasing 35 EDUs.
Mr. Lewis reported that there is an anomaly in Valley Center where residential can expand but commercial property cannot, because there is no sewer. Commercial is used for all of Valley Center. His study shows that every household in Valley Center spends $1,000 per year going to the grocery store. He suggests that there is a tremendous value for sewer in Valley Center. Another part of their analysis was to look at a comparison of sewer fees at all the water and sewer districts in the area. The closest fee is $17,500 per EDU which is a long way from $41,000, or even $26,000.
Director Aleshire pointed out that the chart the Committee had shown at a previous meeting was not realistic because of the significant difference in numbers of EDUs in each category. Economies of scale play a considerable role in the cost.
On the issue of this being a community project, Mr. Arant reported that staff has had a number of meetings with the North Village property owners and they say that their project will also provide community benefits. They want to build a shopping center and commercial space for Valley Center. Staff has told them that they must plan and make provisions for a system that will serve the entire North Village. By implication, that will be a community project. The Board must consider if they will waive staff charges on that project. The Accretive project plans to build a school and a commercial center and could make the same argument. Even though the South Village project is not your typical developer project, it will serve a defined area with defined participants who will benefit from it.
Mr. Flynn conveyed that South Village was the only project he knows of that was open to a diverse group of property owners. He believes that the Board should take a look at projects that are open to many property owners as being for the public good and offer special considerations. Not marking up staff time by more than 100% was his suggestion for a good place to start.
It was questioned by Mr. Simpson, at what point will they have to decide on participating. He also asked if the District could be a partner is this and have a bank of EDUs that could be bought into later.
Mr. Arant expressed that the District has wanted to have a public meeting but it has been delayed while the project cost numbers are being refined. Incorporating these new measures will take additional time. At some point, the District will send out a letter saying the cost per EDU is between $XXX and $XXX, do you want to buy any? If commitments for 350 EDUs are received, the project moves forward. If commitments are received for 700 EDUs or more, we have a great project. In this bad economy, the District understands that property owners are faced with making a courageous decision. There is no other source of money or magic bank account to draw on. If the District used some reserves for this project, water rates would have to be raised to replace it and other projects will want the same consideration.
Starting with the Central Valley Sewer Project in the 1980’s, the County’s assessment district project in the late 90’s, and through the South Village expansion project, the District has spent close to $2M in unrecoverable funds trying to facilitate sewer for Valley Center. Mr. Arant expressed that there should be no question as to the District’s commitment to seeing this project succeed. Staff will continue its review of the measures and a public meeting to evaluate a realistic range of numbers will be planned in the next 60 to 90 days.
Upon motion by Aleshire, seconded by Polito, and unanimously carried, staff’s recommendations on the cost saving measures were approved.
GENERAL MANAGER’S AGENDA:
3. San Diego County Water Authority’s Board of Directors’ Meeting:
General Manager Arant reported on the following items from the March 22, 2012 SDCWA Board of Directors’ meeting:
• The Lake Hodges Pumped Hydro Facility is being tested and is close to completion. A five year O&M agreement with ProTrans USA, LLC was approved for $8M. As part of the agreement, Water Authority staff will be trained on this complicated piece of equipment.
• The Special Agricultural water rate was discussed. It has been referred to staff to report on it in April. Eric Larson of the Farm Bureau will make a presentation at the General Manager’s meeting in April.
GENERAL COUNSEL
4. General Counsel de Sousa reported that all water districts essentially operate in terms of cost and recovery. Any agency that has capital needs for new facilities are legally required to operate in this manner.
BOARD OF DIRECTORS’ AGENDA AND REPORTS ON MEETINGS ATTENDED
5. Director Aleshire reported that the JPIA Executive Committee has accepted all members of the Health Benefits Authority (HBA) into JPIA. The HBA board issued two resolutions being mailed this week, along with an explanation to the General Managers and Board Presidents. They are optimistic that the 75% favorable vote needed for the merger will be received.
ADJOURNMENT
6. Upon motion by Aleshire, seconded by Haskell and unanimously carried, the meeting was adjourned at 4:05 p.m.
ATTEST: ATTEST:
____________________________ _______________________________
President Secretary