san bernardino valley municipal water district 380 e....

SAN BERNARDINO VALLEY MUNICIPAL WATER DISTRICT 380 E. Vanderbilt Way, San Bernardino, CA 92408

BOARD OF DIRECTORS WORKSHOP

AGENDA

3:00 PM Tuesday, September 12, 2017

CALL TO ORDER

1. INTRODUCTIONS

2. PUBLIC COMMENT

Any person may address the Board on matters within its jurisdiction.

3. SUMMARY OF PREVIOUS MEETING

A. Summary of August 8, 2017, Meeting (Page 2)

4. DISCUSSION ITEMS

A. Consider Contribution to Southern California Water Committee California

B.

WaterFix Education & Outreach Program (Page 4)

Presentation on California WaterFix Cost Allocation and Affordability (2)

5. ADJOURNMENT

PLEASE NOTE:

Materials related to an item on this Agenda submitted to the Board after distribution of the agenda packet

are available for public inspection in the District’s office located at 380 E. Vanderbilt Way, San

Bernardino, during normal business hours. Also, such documents are available on the District’s website

at www.sbvmwd.com subject to staff’s ability to post the documents before the meeting. The District

recognizes its obligation to provide equal access to those individuals with disabilities. Please contact

Lillian Hernandez at (909) 387-9214 two working days prior to the meeting with any special requests for

reasonable accommodation.

Page 1

http://www.sbvmwd.com/

DATE: September 12, 2017 TO: Board of Directors Workshop FROM: Douglas Headrick, General Manager

Cindy Saks, Finance Manager Bob Tincher, Manager of Water Resources

SUBJECT: Board of Directors’ Workshop Meeting August 8, 2017

The Board of Directors’ met in a workshop on Tuesday August 8, at the offices of the San

Bernardino Valley Municipal Water District. President Longville chaired the meeting and

Directors Bulot, Copelan, Hayes and Navarro participated in the meeting. Douglas Headrick,

Cindy Saks, and Bob Tincher of staff also attended the meeting.

The summary notes from the July 11, 2017 Board Workshop were reviewed with no additional

comments.

The meeting agenda contained the following items for discussion:

A. Quarterly Investment Portfolio Update with PFM Asset Management

Cindy Saks introduced the District’s financial advisor Richard Babbe from PFM Asset

Management who reviewed the quarterly investment portfolio activity. Richard reported

on current interest rates, earnings and trends, current diversity of the District’s portfolio

and trades made during the quarter.

B. Presentation on California WaterFix Operations

Douglas Headrick gave a presentation on the future operations of the California

WaterFix. This was the second in a three-part series of documents prepared by

Metropolitan Water District of Southern California in anticipation of the final approval

process for the project.

C. Consider Proposed Wall Display for the SAWPA Board Room

Staff presented a proposal for a new wall display at SAWPA. Those Board members in

attendance preferred the multi-layered option and asked for the following

enhancements: 1) include the Directors names and photographs, 2) increase the size of

the city names within Valley District and 3) include the General Manager’s name and

Valley District telephone number next to the website. Staff will incorporate these

changes and have the display manufactured and installed.

Staff Recommendation:

Receive and file.

DATE: September 12, 2017 TO: Board of Directors’ Workshop FROM: Douglas Headrick, General Manager SUBJECT: Collaborative Project with the Southern California Water Committee Regarding

the California WaterFix

Background

Valley District has been a member of the Southern California Water Committee (SCWC) for

many years. SCWC was formed after the failure of Proposition 9 in 1982 that would have

authorized the Peripheral Canal. The mission and purpose of the organization, taken from the

SCWC website, is stated below.

The Southern California Water Committee (SCWC) - established in 1984 - is a nonprofit,

nonpartisan public education partnership dedicated to informing Southern Californians

about our water needs and our state's water resources. Through measured advocacy,

SCWC works to ensure the health and reliability of Southern California's water supply.

Spanning Los Angeles, Orange, San Diego, San Bernardino, Riverside, Ventura, Kern

and Imperial counties, SCWC's approximately 200 member organizations include

leaders from business, regional and local government, agricultural groups, labor unions,

environmental organizations, water agencies, as well as the general public.

The diversity of our membership sets SCWC apart and enhances our influence, giving

us the unique ability to take an all-inclusive approach to our efforts as we facilitate

productive dialogue and build consensus to solve California's most critical water issues.

Most recently, the SCWC has performed extensive California WaterFix promotional programs

among their other activities. The attached letter from the SCWC requests that Valley District

consider a $30,000 contribution to a $500,000 Phase II program to get California WaterFix

“across the finish line”. Staff believes the goal of this education and outreach program is both

worthy and timely.

As you may recall, the promotion of the California WaterFix has been a major component of the

local iEfficient campaign since its inception. However, during the Board discussion leading up

to the latest iEfficient professional services contract, Staff was asked to remove the California

WaterFix promotion goal out of iEfficient and consider funding that effort through the SCWC. As

mentioned above, the SCWC is experienced at this type of promotion and is already engaged in

a region-wide education & outreach program.

Using iEfficient funding allocations from previous years, approximately $120,000 of the

$400,000 ($100,000 services + $300,000 advertising) iEfficient Fiscal Year 2017-2018 budget

would have been assigned to California WaterFix. Now that we plan to remove the California

WaterFix promotion from iEfficient, a certain amount of these funds could be assigned to the

SCWC program instead.

If the Board agrees to participate in the SCWC program at the requested $30,000 level, there

are two possible choices available in regards to the funding source. First, as stated above, the

Board could use $30,000 of the remaining $300,000 of budgeted funds for iEfficient, leaving

$270,000 for advertising. If the advertising proposal comes back greater than $270,000, the

Board would have to reduce the advertising program or augment the iEfficient budget. The

second option for funding the SCWC program is to increase the Fiscal Year 2017-2018 General

Fund Budget by $30,000 to cover the SCWC program. This would keep the iEfficient budget at

the current $300,000.

Charley Wilson, SCWC Executive Director, plans to be in attendance at the workshop to discuss

the program in more detail and answer any questions from the Board.

Staff Recommendation

Direct Staff to place an item on an upcoming Board meeting agenda to consider a $30,000

contribution to the Southern California Water Committee California WaterFix Education &

Outreach Program – Phase II

Attachments

1. Letter from Southern California Water Committee

2. SCWC California WaterFix Education & Outreach Material

September 8, 2017 TO: Doug Headrick, General Manager FROM: Charley Wilson & Fiona Hutton RE: California WaterFix Education & Outreach Program – Phase II Funding

Thank you for your interest and participation in Southern California Water Committee’s (SCWC) education and outreach program on California WaterFix. Those of you that provided seed funding for Phase I were instrumental in getting our integrated program up and successfully off the ground. You can check out our early work on SCWC’s website, http://www.socalwater.org/waternext, and on our social media channels. We hope you are finding the program effective in stimulating interest and informative as we near key milestones that have been many years in the making. As a reminder, SCWC’s Board of Directors and Strategic Planning Task Force made the decision in early 2017 to primarily focus on getting California WaterFix across the finish line. Our organization was founded on this mission and we are committed to assisting the governor and our public water agencies in achieving this objective. Accordingly, we spent the last few months developing a comprehensive education and outreach program that launched two weeks ago and hit the ground running. We have now successfully completed Phase I of our program – the research and creative components. We’ve conducted public opinion research (a press release on our poll results was distributed earlier this month) and opinion leader surveys to inform our messaging, and have developed a creative campaign with state-of-the-art digital elements such as animations, whiteboard videos and social content. SCWC has the opportunity and ability to communicate with regional stakeholders in an engaging and thought-provoking manner and to drive the discussion and actively motivate stakeholders on the project. We’ve now shifted our focus to Phase II of the program, which includes additional creative campaign elements, paid advertising and most importantly direct stakeholder engagement and outreach. This scope of work is forecasted for the next six months – August 2017 through January 2018.

To do so, SCWC is seeking Phase II financial support from the water community and is requesting a $30,000 sponsorship from your agency. Your contribution will be coupled with additional funding that we secure from labor, municipalities, engineering companies, contractors, and business and industry. In total, we’re looking to raise just over $500,000 and have nearly raised half that amount already. As you are well aware, Southern California hadn’t mounted a coordinated and sophisticated outreach program to support California WaterFix – clearly our program is needed and well-timed. Our leaders had been rightly focused on process and the development of the environmental documents but we’ve reached a natural pivot point and now need active engagement. For too long, opponents have dominated the narrative and SCWC intends to aggressively educate and mobilize stakeholders. If you have any questions regarding our sponsorship request or require additional information on the specifics of the scope of work, please don’t hesitate to reach out. Thank you again for your interest in California WaterFix and our outreach program. We look forward to working with you directly to make this project a reality.

###

CA WATER FIXEducation & Outreach Program

WATERNEXT: WEBSITE

WATERNEXT: SUPPORTER TOOLKIT

WATERNEXT: SOCIAL OUTREACH

DATE: September 12, 2017 TO: Board of Directors’ Workshop FROM: Douglas Headrick, General Manager

SUBJECT: California WaterFix Costs and Affordability

Summary

The following is the third in a series of Staff presentations concerning the California WaterFix

(CWF). The first two presentations described the facilities and operations for the CWF. The

focus of this document is the allocation, payment, and affordability of costs for Valley District’s

participation in the CWF.

Background

Valley District signed a contract with the State of California on December 30, 1960 for a water

supply from what would later become known as the State Water Project (SWP). The District

has used this contract to supply over 1 million acre-feet of imported water since deliveries

started in the early 1970s. However, starting in the mid-1990s and accelerating in the late

2000s, the reliability of the SWP has been reduced due primarily to endangered and threatened

species issues in and around the Sacramento – San Joaquin Delta. In response to this

continuing water supply reduction, the California Department of Water Resources (DWR) in

cooperation with the United States Bureau of Reclamation (USBR) on behalf of the Central

Valley Project (CVP), has been developing a project to increase water supply reliability for the

State. Originally called the Bay Delta Conservation Plan (BDCP), California WaterFix is the

preferred project to resolve many of the current and future conflicts in the Delta.

A total of 29 agencies throughout California, including Valley District, receive water from the

SWP to supply 26 million Californians and about 3 million acres of agricultural production. The

SWP accounts for approximately 25 percent of Valley District’s water supply. The reliability and

continued supply of high quality water through the Delta faces many issues, including fishery

declines, earthquakes, floods, subsidence, and rising sea levels. Despite previous actions and

efforts by state, local, and federal entities to address these issues, as well as others, the Delta

ecosystem has continued to decline. The proposed California WaterFix addresses these long-

standing issues by providing reliable water supplies with infrastructure that is designed to

withstand earthquakes, flood, and rising sea levels, while protecting the fragile Delta habitat.

California WaterFix has undergone an extensive planning process with an unprecedented level

of public review, comment, and scientific input. In addition, risk assessments have been

conducted to better understand and mitigate risks commonly associated with infrastructure

projects of this size. Further, environmental permits from State and Federal resource agencies

have been secured and the EIR/EIS has been certified. As expected, numerous lawsuits

objecting to the environmental certifications have already been filed. These legal actions will

likely be consolidated and litigated together.

Cost Allocation

Once the litigation issues are resolved, DWR will have the authority to design and construct the

California WaterFix, which is currently estimated to cost $16.7 billion including design,

construction, and mitigation and almost $4 billion in contingency. The previous cost estimate

was developed in 2014 and those numbers have been escalated to 2017 dollars. The table

below breaks out the CWF costs by category.

The CWF has been developed under the cost allocation principles of 1) beneficiary pays, and 2)

costs follow the water supply. Based on these principles, the first cost allocation is between the

two main North-South water supply systems, SWP and CVP. The current estimate for the

allocation between the two systems is 55% for the SWP and 45% for the CVP. However, if the

CVP Contractors later choose to purchase less than the assumed 45%, additional water supply,

at an additional cost, would be made to the SWP Contractors. But for now the 55/45 split is the

assumption being used by all contractors. This split would allocate $9.2 billion (55% of $16.7

billion) to the SWP Contractors.

Of the 29 SWP Contractors, only 24 are participating in CWF. This is because the other 5 SWP

Contractors are located North of the Delta and do not benefit from the CWF facilities. However,

the remaining 24 SWP Contractors represent over 97% of the SWP Table A allocation of water

from the project. These 24 South of Delta Contractors will be apportioned their share of the

water from the CWF based on their respective percentage allocation of Table A. For Valley

District this works out to 2.5% of the SWP share of CWF or 1.3% of the total CWF. Therefore,

the total construction and mitigation cost of CWF allocated to Valley District is $230 million

(2.5% of $9.2 billion). It is important to remember that these costs will continue to escalate at

the construction related price index throughout the 15-18 year design and construction phase.

The cost of California WaterFix would be paid for under the existing contracts— and each

Contractor would decide their level of financial involvement. If a SWP Contractor decides that

they need more/less than their allocated percentage, they will be able to purchase/sell their

capacity in the CWF on terms that meet their needs. These purchases and sales could take

many forms including permanent sales to short-term transfer or lease arrangements. A poll has

been conducted of all participating SWP Contractors and preliminary results show that there are

enough buyers to purchase any available CWF capacity that is not wanted by other SWP

Contractors. For Valley District, Staff continues to recommend that the Board maintain its

existing Table A allocation.

In addition to construction related costs as shown in the table above, there will also be ongoing

operational expenses for the CWF. These estimated costs are shown in the table below and

would also be allocated based on the 55/45 SWP/CVP split. Of the $64.4 million per year in

operational, power, and mitigation related costs, the SWP will be responsible for $35.4 million

on an ongoing basis. Further, Valley District would be responsible for approximately $900,000

per year (2.5% of $35.4 million)

1. When project is fully operational

Financing and Affordability

The construction and operational costs can now be combined to determine the complete

financial impact of the CWF to Valley District taxpayers and ratepayers. Several financing

strategies are available to fund the $230 million in construction related costs of the CWF. Long-

term public debt financing is one option that can be employed. However, Staff continues to

recommend that the Board consider paying cash for the costs using the ongoing tax proceeds

derived from the dissolution of redevelopment agencies throughout the Valley District service

area. This option would result in $100s of millions in interest savings over the life of the project.

Further, based on the results of our financial model, this cash financing option would also retain

substantial cash reserves for repair and replacement of the District’s facilities.

One way to evaluate the affordability of the CWF is to normalize the costs at the household

level. Using current population estimates of 670,000, 3.5 people per household, and a 70/30

split between residential and commercial/industrial assesses valuation, the cost per residential

unit is $1,200 for construction and mitigation costs. Adding in the ongoing operational costs of

$900,000 per year ($3.30 per household per year) and assuming a 50-year amortization period,

although these facilities are expected to perform much longer, a cost per household per month

can be calculated. Under the no interest, cash financing, option the cost per month per

household is $2.28. Depending on the interest rate and term of available debt options at the

time of construction, these costs would increase between 50% and 150% to $3.40 - $5.70 per

month per household if the District chooses to debt finance the costs. This simple analysis does

not take into account the time value of the funds, but is appropriate for this evaluation purpose.

Another method to evaluate the CWF is to look at the cost per acre-foot of water supply

provided. As was presented during the second presentation in this series, an additional 1.3

million acre-feet of water per year will be available for delivery to SWP and CVP Contractors on

average as compared to the no-project alternative. Again using the principle that the beneficiary

pays and the costs follow water, Valley District’s additional water made available by CWF is

16,900 af (1.3% of 1,300,000 af total water available). Again, using a conservative 50-year

project life, the cost per acre-foot of supply from CWF for Valley District is $325 per acre-foot

($230 million (construction) + $45 million (50 years of operations)/16,900*50). This cost does

not include the transportation costs of $200 to $300 per acre-foot that would be paid

independent of the supply source.

This analysis does not include the added value provided by CWF in water quality benefits and

the ability to move additional non-SWP water (i.e. Sites Reservoir) through the facility when

capacity exists. These benefits could be as valuable in the long-term as the base water supply

increase and further add to the attractiveness of the CWF for Valley District.

Conclusion

Based on the cost analysis described above, supplemented by the facility and operational

information presented in the two previous workshops, Staff continues to support the California

WaterFix as the only viable project to retain the value of the significant investment in the SWP

made by our taxpayers. Further, when compared to other water supply options available to

Valley District, the CWF represents a competitive alternative based on its cost.

Staff Recommendation

Direct Staff to place an item on an upcoming Board agenda to consider:

1. Adopting a Resolution supporting California WaterFix and Valley District’s participation

in the project

2. Stating the Board’s intent to pay the construction costs of the California WaterFix with

District cash financial resources.

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