minutes

South Bay Irrigation District

May 17, 2004

The Board of Directors of South Bay Irrigation District held a regular meeting on Monday, May 17, 2004, at the Sweetwater Authority Administrative Office, 505 Garrett Avenue, Chula Vista, California. President Welsh called the meeting to order at 3:30 p.m.

ROLL CALL

Directors Present: Alkire, Doud, Pocklington, Reynolds, and Welsh.

Directors Absent: None.

Others Present: General Manager Bostad, Operations Manager Rogers, Legal Counsel Strand, Treasurer Avery, and Board Secretary Marisa Farpón-Friedman.

PLEDGE OF ALLEGIANCE TO THE FLAG
Director Reynolds conducted the pledge of allegiance to the flag.

OPPORTUNITY FOR PUBLIC COMMENT (Government Code Section (54954.3)
There was no comment from the public.

PRESIDENT'S PRESENTATION

Director Welsh presented a scholarship award to Kristen Booth, a Senior at Hilltop High School. Kristen maintains a GPA of 3.9, and she is active in the water polo swim team, the Hilltop Academy of Information Technology program, and the Spanish program. She is also a student aide at Bonita Learning Academy and Olympic View Elementary Schools and tutors middle school students. Kristen will be attending Arizona State where she plans to study architecture. Kristen said it was a great honor to receive the award and thanked the Board for it.

ACTION AGENDA

1. PRESENTATION BY SHIRLEY ANDERSON, CHIEF OF POLICY RESEARCH, LOCAL AGENCY FORMATION COMMISSION
South County Municipal Service Review

Ms. Anderson thanked the members of the Board for their continued interest in LAFCO and its Municipal Service Review. She knows that Director Pocklington has kept the Board informed on all the issues that LAFCO deals with. She said it was gratifying to hear that the scholarship winner knows what a special district is. One of the issues that LAFCO deals with is the fact that the public is not very engaged in what local government, including special districts, does.

The Municipal Service Review came about through a long process starting back in 1997 with the Commission on Local Governance for the 21st Century, which is a committee put together by the Governor at the time. There was much San Diego County representation on this commission, with then Mayor Susan Golding as Chair. There were many meetings held in San Diego as well as around the state. Representatives from San Diego LAFCO and Special Districts in San Diego County made presentations before this commission. The outcome of the commission's finding came down to four concepts:
1) The future will be shaped by phenomenal growth; 2) California does not have a plan for that growth; 3) all government budgets are perennially under siege; and 4) the public is not engaged.

The commission recommended that LAFCO's powers be strengthened, that regular reviews of Spheres of Influence be conducted, and that the Municipal Service Review (MSR) be conducted to help insure that there is efficient service provision throughout the state.

The outcome of the MSR legislation is to provide regional perspective on services to assist in understanding the growth issues, to provide a forum for dialogue, to promote efficiencies, and to identify ways to eliminate waste. The legislation requires that LAFCO make nine determinations when they conduct a Municipal Service Review. Infrastructure needs or efficiencies, growth and population projections, costs avoidance opportunities, opportunities for shared facilities, evaluation of management efficiencies, and local accountability and governance. The Governor's office of Policy Research was tasked with putting together guidelines that would give some substance to these statements. They had a deadline, which was missed first at six months, then at a year, and then at eighteen months. People were getting a little antsy because there is a timeline attached to the Municipal Service Reviews. Part of the Cortese Knox Hertzberg legislature said that LAFCO would review all Spheres of Influence by 2006 and would update spheres as necessary. Because OPR was not forthcoming with guidelines, San Diego LAFCO adopted guidelines that the commission thought were adequate, as well as a strategy for conducting Municipal Service Reviews for San Diego County. The strategy guides emphasized that municipal service reviews are macro-level reviews that focus on service delivery issues; they depend on cooperation and voluntary participation; they are not ongoing studies; they may require different levels of study; and they require accurate data to develop meaningful determinations. LAFCO staff needs to incorporate the expertise of professionals in conducting these service reviews to guarantee that the data collected is indeed accurate.

Ms. Anderson said that the seven agencies incorporated in this MSR were Sweetwater Authority, Helix Water, Otay Water, Padre Dam, City of Chula Vista Sewer Service Deparment, the Lemon Grove Sanitation District, and the Spring Valley Sanitation District, some of which provide water, some provide water and sewer services, and some provide only sewer services. The study did not incorporate the City of El Cajon, the City of La Mesa, or the City of Lemon Grove, although it incorporated Lemon Grove Sanitation District, which is a subsidiary district of Lemon Grove.

Some of the broader concepts that came out in the review are that within the limits of state law, each local government has the power to make decisions. She noted that many constituents do not understand this concept. Local agencies are autonomous within the constraints of state law and are able to make decisions independently. Cooperative efforts between different agencies are for the most part voluntary.

Planning is the basic function of the local government. In order to provide the efficient services demanded by constituents, planning is incorporated into all local government functions. Planning, however, is not enough. It is just a piece of paper unless it is put into action and the only way it can be put into action is by timely funding mechanisms. The government structure in revenue sources of the different agencies that were in this review varies because of the different types of government that we have represented. The City of Chula Vista is a general-purpose government with broad powers and services that it can provide, and it has more revenue sources than the limited purpose special districts. The Lemon Grove Sanitation District and the Spring Valley Sanitation District are not independent special districts. They are subsidiary districts.

The Sweetwater Authority gives LAFCO special pause because it is not a local government. National City is a local government and South Bay Irrigation District is a local government, but not Sweetwater Authority. LAFCO has no jurisdiction over the boundaries of the services provided by Sweetwater Authority. A Sphere of Influence was assigned to National City and to South Bay Irrigation District and LAFCO would oversee consolidation, expansion, etc., of the boundaries of those two agencies. Throughout the MSR, the language shifts back and forth between Sweetwater Authority and South Bay Irrigation District.

Generally, the primary source of revenue for these service agencies, including the City of Chula Vista's sewer service department, are enterprise fees. The City of Chula Vista testified that it does not merge general fund monies with sewer funds, but enterprise fees are by far the largest source of revenue for service districts. Enterprise agencies may impose service fees provided that the rates are related to the cost of delivering the service. The proceeds must be used exclusively to recover the costs of providing services. Some of the issues that LAFCO reviewed were how the agencies are getting the revenue, and how that revenue is spent.

Ms. Anderson displayed a chart depicting the percentage of enterprise revenue of all seven agencies in Fiscal-Year 2001-2002 showing a range from 70 to 94 percent. Otay Water District at 94 percent and Padre Dam at 70 percent. Both of those agencies get a small increment of the property tax revenue.

Water rates are set to reflect local, fiscal, conservation, and political goals. Any higher rate structures were confined to geographically specific zones where specific customers were assessed higher or lower rates depending on individual circumstances in that area. The purpose of the MSR is not to compare those agencies, but to present the rate structure as some platform. Another issue that LAFCO reviewed was the reserves, which is an important issue with the public, and which has been investigated by the Hoover Commission, the Grand Jury, and multiple different agencies. Orange County, having very large reserves, has been an issue under scrutiny. The constitution, statutes, state controller, or county auditors do not provide any directive as to how reserves should be set aside, and managing reserves without a model is problematic. However, agencies such as the Government Finance Offices Association and the different leagues involved recommended that decisions concerning reserves should be shaped like policy to guide the creation, maintenance, and use of its reserve funds.

All the agencies within the MSR use rate stabilization funds. They can be used to depress rates, or to issue a credit towards billing, or issue direct cash refunds. But all these mechanisms do is lower the effective commodity rate and stabilize the exposure to rate increases over time. Any unrestricted net asset can be used to moderate consumer rates. Many agencies do not have specifically designated "rate" stabilization funds. As long as they are unrestricted net assets, it is up to the legislative bodies' discretion to use the funds to stabilize rates. This was an area of interest in this MSR because the Otay Water District is under scrutiny concerning its reserve rates, and great effort went in the reports to make this clear.

Legal costs also came under great scrutiny because of the Otay Water District. Clearly, it is essential for local agencies to rely on the advice of general counsel, and the legal requirements of individual agencies can be exceedingly varied. It was decided that LAFCO staff would look at anomalies in an interagency legal activity rather than across the scope of the different agencies involved. It is not appropriate to compare legal costs in one agency to legal costs in another agency because of the breadth of experience and legal actions that may have occurred within the individual agencies. Within the reporting period, Helix and Padre had rather stable legal costs. Chula Vista, Lemon Grove and Spring Valley had unusually low costs. Sweetwater Authority had a cost spike in 2000/2001, which was explained in the MSR, and the Otay Water District's cost doubled in 2000/2001, it remained high for the entire period of the MSR, and it is still high.

There were 95 determinations that came out of the study. The determinations do not speak to an action that will occur. The MSR is not a report that culminates in LAFCO taking an action. The MSR is a report that can be used as a resource in future actions to verify or give notions of what services are provided. Ms. Anderson said she had selected a few determinations that are pertinent to the Sweetwater Authority.

Those determinations are that the region's potable water infrastructure appears adequate to provide efficient service; it includes adequate provisions for emergency service; the region's water agencies pursue a long-term strategy to reduce reliance on imported water; overall planning for infrastructure appears adequate; funding options appear adequate; enterprise fees relate to the cost of producing and delivering water services; the region's water rates are structured to reward low water consumption; discretionary funds are used to periodically stabilize consumer rates; the region's water agencies participate in sharing facilities through system interconnections; sphere of influence updates for South Bay ID, Otay WD, and the City of Chula Vista should include conclusions regarding appropriate boundaries for water services providers. All Sphere of Influence will be reviewed and, if necessary, updated by 2006.

Proposals submitted to LAFCO for reorganization of the Otay Water District would need to examine alternative reorganizations. The City of Chula Vista put forward some statements suggesting that the Otay Water District be truncated and the City of Chula Vista take over water service using the central section of the Otay Water District. If a formal proposal were to come forward, it would need to examine not only that alternative but other alternatives. Sweetwater Authority also provides water to the City of Chula Vista. Various permutations of reorganizations could be examined, such as dismantling South Bay, merging it with Otay, merging them with the City, merging just South Bay with the City. There could be four or five different permutations.

Another determination is that the region's agencies should review and update their policies for retention and use of reserve funds. Agencies are encouraged to adopt policy to guide official decisions and disclose reserve fund actions.

Helix, Otay, Padre Dam, and Sweetwater should refine policies outlining the roles of elected officials and the communications between elected officials and employees to include enforcement mechanisms to address misconduct. These agencies all have policies that say how elected officials will interact with employees. However, most of them did not include enforcement mechanisms if indeed some malfeasance occurred. Therefore the suggestion is that those policies be renewed and maybe tweaked. Sweetwater Authority should evaluate communication protocols within its board committees. There is potential that there could be undue pressure between the board committees and certain employees. LAFCO thinks it is worthwhile looking at this issue just to make sure that it is very clean.

One of the chief notions of the commission is that agencies need to maintain outreach programs to engage the public in their processes.

Helix and Otay both have very public situations about officials who were elected and did not meet either residency or, in the case of Irrigation districts in California, landownership requirements. LAFCO's recommendation, which was not well received, was that somehow the board subpolice themselves. What LAFCO is recommending is to have a call once a year verifying that everybody is a landowner or resident to validate that everything is above board. The Registrar of Voters requires signing an affidavit about residency and, since about 2001, a signed affidavit for ownership is also required.

Another determination is that the organization of water service under Sweetwater Authority is not generally understood. LAFCO encourages Sweetwater Authority to work towards getting the message and promoting the understanding of the organization's structure and responsibility.

Ms. Anderson thanked the members of the Board for their interest. She said that the MSR was a long process and part of the reason was because OPR was not forthcoming with its guidelines. LAFCO finally gave up and adopted its own. They had an appointed working group that was helpful in pointing out issues and verifying information, but it took a long a time to cycle information through the working group. The whole process approached two years, and she hoped it was worth it. She said that Director Pocklington was instrumental in helping them through the process, and she thanked everyone for their patience during that time. She restated that LAFCO staff are generalists in government. They are not engineers, CPAs, or attorneys, and they had to rely very heavily on the information of the working group and other professionals.

2. ITEMS TO BE ADDED, WITHDRAWN OR REORDERED TO THE AGENDA
(Government Code Section 54956.5)

There were none.

3. APPROVAL OF MINUTES

Director Pocklington made a motion, seconded by Director Alkire, that the Board approve the minutes of the regular meeting of April 19, 2004. The motion carried.

4. APPROVAL OF DEMANDS AND WARRANTS

Director Doud made a motion, seconded by Director Reynolds, that warrant numbers 10113 through 10122 be approved. The motion carried.

5. PRELIMINARY BUDGET FOR FISCAL YEAR 2004-2005

Board Secretary Farpón-Friedman referred to the memorandum included in the agenda. She provided a breakdown of the current investments, maturity dates, interest rates, and foreseeable revenue income from investments throughout next fiscal year. She estimated that the total revenue for fiscal year 2004-05 would be about $19,800, or $2,000 less than the estimated revenue for the year ending June 30, 2004.

She also gave a report on the estimated expenses. She noted that Account 59413, Licenses & Fees, Elections, Public Notices, and Public Information, would have a considerable increase due to the fact that four of the District's directors will be running for reelection. She reported that the Registrar of Voters had estimated the cost for the elections to double the last elections' costs.

Director Doud made a motion, seconded by Director Pocklington, that the Governing Board adopt the Preliminary Budget as presented, with the deletion of $1,000 expense from Account 59415, Conference and Meetings, to host trips for Government representatives, and with Account 59411, Directors' Fees, based on an average attendance of two meetings a month per director. The motion carried.

6. APPROVAL OF DIRECTORS' ATTENDANCE AT MEETINGS & FUTURE AGENDA ITEMS

There were none to be considered.

7. CALL FOR NOMINATIONS FOR THE LOCAL AGENCY FORMATION COMMISSION AND THE SPECIAL DISTRICT ADVISORY COMMITTEE

Director Pocklington said that he intended to submit his paperwork to be presented to LAFCO before June 18th for election of the regular member position. He was hoping that one other director would be interested in presenting nomination papers for the position on the Special Districts Advisory Committee left vacant by the late Director Wolniewicz. President Welsh said that, if Director Alkire were interested in the position, she would nominate him. Director Doud made a motion, seconded by Director Welsh, that the Governing Board approve the nomination of Directors Pocklington and Alkire for the regular LAFCO member and the Special District Advisory Committee member positions respectively. The motion carried.

8. REPORT OF TREASURER

Treasurer Avery reported that interest rates might go up in June or August. She noted that the Local Agency Investment Fund (LAIF) is usually slow in picking up changes and suggested to take $100,000 out of LAIF to invest with some other financial institution that would give us a higher interest rate.

9. REPORT OF LAFCO SPECIAL DISTRICTS REGULAR MEMBER

Director Pocklington said he did not attend the LAFCO meeting earlier this month but he had reviewed the information with Michael Ott and there were no major decisions or controversial issues. He commented on the petition submitted to dissolve the Tiajuana Valley County Water District. Howard Freelove, who has spearheaded the efforts of the citizens for the dissolution of the Tiajuana County Valley Water District, said this week that his group had collected 975 signatures on petitions calling for the district's dissolution, which is over 300 more than required to place the matter before LAFCO. This issue will probably be heard by LAFCO in July.

10. REPORT OF SAN DIEGO COUNTY WATER AUTHORITY REPRESENTATIVE

Director Pocklington said that the CWA would not meet until next month. He commented on the 35-year agreement that the Metropolican Water District signed with a start-up cost of $100 million. This agreement calls for farmers in the Palo Verdes Irrigation District to receive steady payment for rotating their crops and making the water from the Colorado River available to 18 million customers from Ventura County to the US/Mexican border.

He also commented on the letter to Sweetwater Authority from Valley Center Municipal Water District asking for a Resolution in support of desalination. He abstained in voting because the Resolution contains some inaccuracies. He said they had a desalination meeting today at the CWA and the indications are that Carlsbad is considering not doing it. He said that the CWA might get involved in the issue again in June and request that staff and management resume the EIR.

11. DIRECTORS' COMMENTS

Director Alkire said he had attended the first two sessions of the Special Districts Governance Series in Sacramento and he has two more to go. It is a new series of four that they started last year He found it very informative and worthwhile attending.

Director Pocklington commented on the suggestion from Shirley Anderson to respond to LAFCO regarding Sweetwater Authority, and asked the General Manager if he was planning on bringing the issue to one of the committees.

Director Doud said he had comments but would try to follow the advice that a University President once gave a prospective commencement speaker: "And think of myself as a body at an Irish wake: They need me in order to have the party, but nobody expects me to say very much."

12. CLOSED SESSION

There was no need for one.

13. ADJOURNMENT

With no further business before the Board, President Welsh adjourned the meeting at 4:59 p.m., to the hour of 3:30 p.m., on June 21, 2004.