 of 2023, Holly, would you take the roll, please? President Smalley? Here. Vice President Hill? Here. Director Ackman? Here. Director Fultz? Here. Director Mayhood? I think I did. That's enough. Director Mayhood? Here. Thank you. OK. Any additions or deletions to the agenda? As staff does, I'm sure. OK. Thank you. Oral communications. This portion of the agenda is reserved for oral communications by members of the public for any items that are not on the agenda this evening that are within the jurisdiction of the district. Does? Excuse me. Were there any actions taken in closed session? I'm sorry. No. There were no actions taken. Thank you for that. Any members of the public wishing to address on an item that's not on the agenda? Yes. Please. We ask you to use the mic. Identify yourself in location where you live. Yes, it's working. My name is Masoud. Masoud Hakiki. And we have Boulder Brook Village in Prospect Avenue. And you're making tremendous improvement to the neighborhood in that area by having a new line that is going to the Prospect into the area of out there here. I'm sorry. And morning. Morning and after a year in that area that is including tremendously. And actually, one thing that my wife and I were just like very surprised is when we saw the fire item in the corner of our property. And we were just so, so standing but because we were through the fire. And the fire came like there, you know, maybe 10 feet to our cabins over there. So, and also our house, you know, we saved our house for everybody. And I don't want to get into too much of detail. I just want to say that we are very, very happy with the whole improvement. But at the same time, I was a little disappointed when I see that you're going through out there here and morning and not Prospect itself, our proportion. And I know I made a mistake. I should be involved a little bit sooner in this whole process. But again, you know, when I talk to the people that are involved in this, I just was kind of thinking it's just like going through this much of expenses and you know, all these heavy equipments. And you actually missing the whole area, the area that was affected by the fire and the houses were burned because we didn't have the fire hiding in that area. So I believe there are three, four, five structures that they were burned in the upper portion. And so I just walked through, I just want to say I worked for San Francisco County for 26 years as a health inspector there. And the last two years of my working there, I was in charge of plan check reviewed and part of the amendment doing a lot of stuff there. And I was just like, how could you just not seeing that the whole area would be covered. And then I walked through and I saw this house, the front of it was in a moment and the backside of it was in Prospect. The address is one, two, what was the address? Let me just tell you the exact address. It's one, two, I'm sorry, one, one, nine, five, five, one. And so I will. It's because it's not on the agenda. It's not something that we can discuss this evening. If you have a question as to this, I think you could probably send an email to our general manager. Just wanted to just say that we do have three parcels over there. Right. And we, I mean, we're a good customer. Okay. We appreciate that. Yes, you could make tremendous improvement by just going through someone's backyard and the whole area, everything would be covered. Thank you. Okay. Thank you. Thank you. Moving on then. Oh, okay. All right. And I neglected to remind folks that we do have a three minute limit, but yes, please, if you have something that's not on the agenda. My name is Richard Collier. I am property owner of West Park County. I rise to address the question of the pump house that's going to be installed mostly on West Park and Ridge. Okay. I'm here to request a noise study. By an independent consultant, the study should have four components. The first part of the study should be a baseline study of what exists right now. All the pump houses in your district that are near habitation. So that should be measured with calibrated noise meters done with the pumps on and the backup generators on. So we all get a feel for what's actually happening on the ground. That's the first step. Second would be a paper study that compares the noise reducing qualities of the proposed building materials for destruction and compares those to the calculated max noise generated by pumps and the backup generators while they're running. This will answer the question, is the noise being emitted below or at max thresholds set by state and local networks? That's the second step. The third step is if this structure is built, they set a follow-up real-time study using calibrated noise meters on all four sides of the structure. They've got when the pumps are running and the generator is running. They're searching the real noise level and see how they compare. That is my question. And finally, if this study is conducted, then all resulting data and reports be available, be made available to the public in my redacted form. Okay. Thank you for that. I don't know if you want to comment on. Just real quick, we are expecting the acoustic report and engineering of I&T that they are having consultants do. That report should be here Monday and if we plan, you put that on the environmental engineering committee and you get that out to the public. So as soon as we get that, we'll make sure this is the last, I believe I did have your email, and I'll be able to send you that with the environmental engineering committee agenda for what's the date of that? It's on the 14th at 8.30 a.m. Okay, in this room to discuss that. Now we haven't got a consultant yet. It promises to us by Monday and we have an agenda deadline Monday. So we can let you know either way it's going to make that agenda if we get it. The report's already been commissioned through our consulting engineers to get that acoustic study done by the acoustic engineering committee. Is it involved in any of the things I suggested? Or me? Does anybody have any of the things I suggested? I know they went out and got baseline data of that. I don't want to go into the details of what's in it. I'm here to let you know just here what it was about. This is a pump station, a new proposed pump station on West Park Avenue. What was the day of the new, like you said, the year? How many of you? The next meeting was going to be at 8.30 a.m. On the 14th of September. It's going to be 14, is your 8.40 in the morning? At 8.30 a.m. Thank you. Okay. Thank you. Concluding the oral communications, I do see there's a member of the public online, Alina Lang. Do you have a comment on something that's not on the agenda? Alina? Sorry, I was waiting to be unmuted. I just wanted to say, I believe the E&E committee meeting is actually at 9 a.m. on the 14th. Oh, that's right. It's usually 8.30, but it's at 9 because it's a special meeting. Okay. That's all. Oh, we can have a cup of coffee with you before the meeting starts. Okay. Okay. Seeing no other members of the public with comments now, we'd like to move on then to a new business. The first item is the cost of service analysis and the rate design study. Great. Yes, and then we have the finance manager here to introduce each of the Raft-Ellis and the side. Heather? Okay. So district staff have been working with Raft-Ellis on the 2023 rate study. After providing the requested data and having multiple discussions about the district's goals and feedback from the board and community, Raft-Ellis has prepared the following presentation regarding the district's financial plan for the water and wastewater funds. The 10-year financial plan will ensure sufficient funds for operating that service and capital program costs. The board is soliciting input from the community and the board regarding the different financial plan scenarios for the water and wastewater systems that we will see next. This presentation will also be given at the September 14th special board of directors meeting to allow the opportunity for more members of the public to view the presentation and provide input. So I will hand it over to Raft-Ellis. We have Melissa Elliott, Lindsay Roth and Sudhir Parwala here to present the financial plan. I'm going to present my screen first. I just like to, can you see my screen? Yep. Yes. They're adorable. That's better. Well, I don't know. Good afternoon, President Smolley, members of the board. This is Sudhir Parwala with Raft-Ellis. This thing is moving without my, what we are here today is to present the results of the water and wastewater financial plans, which we've been working on for the last several months. And we have, as Kendra mentioned, we have Melissa Elliott, the project director whom we have met before. Teresa, the project manager is on vacation for the next couple of weeks. And so she would not be, is not able to attend and I'm filling in for her. I, you haven't met me before, but I'm the technical reviewer. I have over 40 years of experience and have worked with several hundred agencies in California or several hundred studies, I should say in California. And you've probably met Linse as well, who has been the lead consultant and done most of the analytical work on this project. Please feel free to ask any questions as I'm going through. We don't have to wait till the end. And so I'm going to start the presentation now, the main presentation. We are here to discuss the financial plans. And since we are doing a multi-year plan, we need to make projections of expenses, revenues, capital projects and so forth. I don't know why this thing is keeping moving. Projections of all the expenses and revenues to ensure that we have reasonable estimates to project the different elements of the financial plan so we can come up with the appropriate revenue adjustments that we need to make to ensure the financial stability of the district. Inflation is one of the biggest issues that we have in terms of projecting the expenses. And so we will have a few slides on, you know, identifying what kind of inflation factors we are going to be using. We will look at some of the key inputs for both the water and the wastewater financial plans, identify what happens if we do not do anything which is a status quo scenario and then come up with the results of the financial plan. Yes, did I hear someone asking a question? No? Okay. Please continue. Okay. So let's start with the financial plan inflation information. So we are looking at the results of inflation in the consumer price index in the San Francisco Oakland Hayward area here for the last eight years. As you can see, the inflation had been fairly consistent over several years except in FY22 when it suddenly shot up and we are back down again in FY23. So this inflation had been used to project the expenses on the operation side. We are using an average of 3% which is what we see basically in FY23. And this is typically what we use for long term projections for expenses. So our general expenses and salaries will be inflated at 3% based on this particular chart. There are other elements of the operating costs which are more significant increases and these are in fuels and utilities and in electricity. As you can see, these are pretty significant in FY23 for both of these elements. The fuel and utilities costs came down in FY23 but what we are using an average of 6.5% on an average for the next five years to project both of these cost elements in our operations. So let's start with the financial plan here's the consumer price construction cost index, engineering news record construction cost index which is typically used to inflate the capital projects that are going to be constructed in future years. As you can see in this one as well we had significant increases in FY21 and also in FY22 but the long-term average of the 10 years is about 4% and that's what we would be using in our projecting our inflation expenses for the capital costs. So let's start with the financial plan for water. Your water system, I think you should be familiar with it mostly we have surface water intakes, well heads, storage tanks, quite a few storage tanks which primarily result maybe from the number of zones that you have 36 zones, which also have 30 booster pump stations also do for the same reason. We have two surface water treatment plans and about 190 miles of pipeline. Our total sales water sales is about 3077 acre feet which translates to about 600,000 cubic hundred cubic feet. Typically we refer to this as 600,000 units of water. Our revenues basically consist of about 85% from rates which is fairly typical of water agencies. 9% comes from taxes and assessments and the remaining 6% from other sources such as interest income, non-operating income for other services that you might be providing and potentially some grants that you might be receiving. Another important element of the financial plan is identifying the growth associated with the projection that we have the five year projections. So in our service area, we are looking essentially at eight accounts per year except in FY24 when we have approximately 150 units from the break and break and forest springs consolidation and the demand that we are using to make projections in the future are basically based on this increase in accounts. We do not change the actual usage per account but just for the increase in accounts. The water usage, it's important to see what the water usage is going to be going forward. And so we have put together this slide here that shows a historical use, water use over the last several 10 years or so. And as we see in 15 and 16 because of the drought we had significant cutbacks in usage, crept back up again in 17 and 18. And then last in FY22 again, we see a significant drop from previous year. To be conservative, the two projections that we are showing for 23 and 24 and beyond, we will assume that it will be approximately the same as the usage in 22. This results primarily from conservation efforts. And there's a new bill in our state legislature right now that is going to be looking at even higher levels of conservation than what we have been seeing right now to account for the severe climate changes that we are seeing. Some of the issues that we'll be looking at in terms of the type of service and the levels of service that we want to provide, which is probably pretty common to other utilities as well is replacing undersized and leaking mains. That is water that is lost basically from and does not provide any revenue. So we want to reduce that water loss, improving the reliability in times of emergency, especially given the issues that associate with fire service and fires that we have been experiencing in the area. And that also requires additional water storage to ensure that you have adequate water available to fight fires. This particular slide shows you our relative distribution of the different expenses that the district encounters. And this is the five year average of your operating expenses. The main expense that you see here is the supply and treatment representing about 29% followed very closely by the distribution system expenses of about 28%. And then the remaining expenses are shared by administrative engineering, watershed and finance. So the bulk of your expenses are basically related to supply and the maintenance of the distribution system representing almost 60% of your total costs. This is not as common because you do not really have to purchase water. So you don't have as much cost in supply as some other agencies might have. Typically the supply cost, supply and treatment costs can range between 50 and 70% of the total system cost. But in your particular case, because you do not have any purchase supply costs, you have the percentages for the other costs appear to be higher than what they would normally be for most other agencies. A significant aspect of the water financial plan is the CIP, the Capital Improvement Program that the district has over the next several years. As you can see in FY24, we have a significant expense. The total length of the bar represents the total CIP that the district will be encountering and the different colors represent the financing associated with the capital improvement in any given year. Starting from the top, in FY24, we have the fire surcharge, which is constant at the current rates for the remaining five years. Then we have proceeds from the gray bar representing proceeds, which is this bar here representing proceeds from the COP issue that we had, the certificates of participation, the revenue bonds that we had, or the $15 million loan, and existing monies that we have received from FEMA. We have grants represented by this bar over here, new FEMA proceeds coming in represented by this bar, and then the rate funded CIP represented by the blue bar. So we can see that in FY24, we have a significant capital expense, almost $27 million, which begin to drop off each year and is funded by FEMA primarily here and here. And then as we get into FY28, we begin to see more of the rate revenue being used to fund the CIP projects. And so we have to make sure that our revenue program or the financial plan that we generate is adequate to fund all of the CIP as well as provide adequate funding for reserves and provide adequate debt coverage. An important element of the program also is to review what kind of fixed and variable expenses we have and compare that to the fixed or variable revenues that we are collecting right now. So you can see because we don't have much by way of supply costs, purchase water costs, even the supply, most of your supply costs and treatment costs is essentially fixed. And therefore over 94% of your costs are essentially fixed costs. And this is again based on a five-year average from FY24 to 28. In terms of the revenue, the way we are collecting the revenue currently, we have about 37% that is collected from fixed charges and the remaining 63% is collected from variable rates. So you can see that the variable rates do include a significant component of your fixed costs. And anytime you have a reduction in your sales, obviously you're going to get impacted because you're not going to be adequately able to cover the fixed costs that the utility faces. Another important element of the financial plan is to identify an appropriate level of reserves. And in this particular case, we are using the district's policy to identify what level of reserves we will need. And we have three different or two different reserves here. One is the operations reserve, which is set at four and a half months of the operating budget, O&M budget. This results in a target of about $3.7 million. The capital improvement reserve is equivalent to 2.5% of your asset replacement cost, which is estimated at $375 million. And therefore the target associated with the capital improvement reserve is approximately 9.4 million. In addition, we have a reserve for compensated absences, which is about one-third the balance on the audited financials. And assuming that to be about $600,000 in FY24, that results in a target requirement of about $200,000, which is small compared to the main two reserves, which is the operations and the capital improvements reserve. The district has faced some significant issues associated with fire. And we are now currently collecting a fire surcharge from all our customers based on the meter size. This is a restricted fund. The funds that we collect on fire services are restricted and can be only used for the CZU projects. The revenue to be collected currently is limited to $5 million based on the initial gross estimation of the net project costs for above-ground pipelines. The fire surcharge would be collected through FY2026, by which time we would have collected $5 million as originally projected. The CZU projects, however, will are expected to be completed only in FY2028. And therefore the rates will have to bear some of the costs associated with the CZU projects. So let's look at the financial plans now. We have developed a couple of scenarios for the financial plan. And the different scenarios are basically having the pipelines above-ground or bearing the pipelines. So scenario one represents the above-ground pipelines, which are primarily the PVINE and the Clear Creek Supply Line. The cost associated with the CZU project cost is about $25 million for the next five years, starting actually in 23 to 28, which is about six years. And we have a reasonable estimate that 90% of these costs will be covered by FEMA through a grant. So this is scenario one. That means that only 10% of the CZU project would need to be recovered from our rates and reserves. If we do not do anything, that is we do not increase our rates or revenues, nor do we get any additional debt funding. Potentially what we would be looking at is the reserves being way under, you'd be operating basically in the red. So in FY24, you would have a reserve of minus 2 million, 0.2 million, $200,000. And you can see that you're brought down to about minus $9 million in 25 and so forth as we go through the five-year program here. This is primarily because we still expect to get the grant funding from FEMA under the status quo scenario. So obviously this line here represents the target and we can see our reserves do not meet the target that the district has established. But we definitely need to do something with our rates. This slide basically shows that to us that we need to increase our rates to make sure that we have adequate reserves to meet the district's policies. The other issue that we face as well is that we do not have adequate funds to meet our coverage requirements in FY26 and beyond. This line here, the blue line represents the target which is 1.25 and this line here represents the actual coverage. Debt coverage basically is the net revenues, your operating revenues minus your operating expenses and divide that by the debt service. So that represents, we are supposed to have a net revenue of 125% of the debt service. And as you can see, we don't meet that criteria starting in FY26. What that would mean essentially that we would be in default, technical default and would reduce our ratings as well and help to or cause us to increase the, any debt issues that we have in the future to be at a much higher rate than would otherwise be required. So given this situation, we have developed a program of revenue adjustments to ensure that we have adequate revenues to meet the operating and capital expenses provide for adequate reserves and meet coverage. So on the scenario one, that we are looking at the $25 million CZU project costs, we are projecting a 9% per year revenue adjustment every year. This also requires that we issue 15 million of debt in FY2024. And we assume that this debt would be issued in early next year calendar year so that the first debt service payment does not occur until 2025. We are assuming that there would be no change in the fire surcharge. It would remain at the existing level and continue until 2026. And it would generate the $5 million that was originally projected. In the, over the five years, we can see basically that this, the reserves are going about our target level here, but we have done actually a 10 year program and we would see that in subsequent years the reserves again are going to be drawn down. So this program essentially is preparing also for future capital expenses. Under scenario two, we have a buried p-vine and clear creek supply line. The project cost associated with this is about $52 million over the six years and includes, as I said, the buried cost of the p-vine and clear creek line. In this particular case, since this has not been explored with FEMA completely yet, we don't know whether we would actually qualify for the 90% reimbursement. And also there are significant environmental concerns associated with bearing this pipeline. And I think if you need some more details on that, I think the general manager would have some better ideas to some of the issues associated with these environmental concerns. So again, without doing anything, we would see some significant, this assumes again that we do get 90% FEMA grants. And so in terms of the additional expense that the district would incur, we are looking at about $25 million, 10% of the $25 million essentially. So $2.5 million over the five year period that would be an additional expense compared to scenario one. And so you would see these reserves that about at the end of five years would be about $2.5 million more than what we had in scenario one. But again, this assumes that you get 90% of your funding from FEMA, which is not guaranteed under this particular scenario, which is status quo, if we do not do anything with your revenue adjustments. The same issue with the coverage, we are going to fall below the target in FY26 and beyond, which is not acceptable. So looking at again, at the proposed revenue adjustments, we are looking at about nine and a half percent per year revenue increase. We need to ensure that we have adequate fund for the CIP. So instead of $15 million that we had in scenario one, we'd be looking at $17 million debt issue in FY24. Again, there is no change in the fire surcharge and we keep the total revenue that we collect from fire surcharge at $5 million. So in this particular case, you would see that your results are slightly lower than we had in scenario one because we have a slightly higher expense associated with the larger project. Any questions on the, before I go on to the waste part of financial plan, any questions on water? I requested you, we have a lot of questions, but I'd like to go ahead and have you finish first and then we can start the question since I'm taking notes throughout. I have a number myself, but please just go ahead and conclude the presentation and then we can go through with questions. Sounds good. So let's start with the financial plan for wastewater. Starting again with the wastewater system, you have a real small system serving only 56 residential customers and primarily consists of 2,600 lines of horse mains and 2,600 feet of force mains and 3,600 feet of gravity sewers and a treatment system, which is a three state trickling the filter system with clarifier tanks. Obviously for a system that is this small, you have pretty significant fixed expenses and pretty high rates associated with maintaining a system of this size. The last upgrades that were completed between 2005 and 2013 and the district is currently operating under a violation of the discharge permit issued in April, 2016. The levels of service goals associated with the wastewater system include obviously the regulatory requirements that drive additional capital needs and the existing collection system that needs improvement before it can be connected to the county service area seven. It's important I think from a long-term perspective to obviously connect these small number of customers to the county service area where they would actually see some benefits from merging with this bigger system. Here is the expense summary associated with the wastewater system. Again, it's a really small system, total of $130,000 in expenses, the bulk of which is in contracts and professional services and salaries. While these percentages appear high simply because it's such a small system, $130,000 overall, which it would be unusual to have such high costs associated with contracts and professional services typically, but because this is a small system, it represents a large percentage. The wastewater CIP essentially, we see a big CIP in 2031. We do not have any expenses going in the next several years. We have a $2.6 million improvement associated with pipelines to be completed so that we can merge with the county service area. It is hoped that we can get some grant funding for this, though we have not shown any grant funding, but hopefully we do get some grant funding for this. So the financial plan right now is based on not having, assuming that there is no grant fund going to be available in the future. The reserve targets are the same as we do for water, essentially 4.4 and a half months of your operating budget, which results in a target of $45,700. And the capital improvement reserve is budgeted at 2.5% of the replacement costs, which is $3.4 million, which results in a target of $90,000. So the total that we need is about $135,000, $136,000 in reserves, which is shown by this black line over here. So if we do not do anything with our wastewater, we do not make any changes to the rates, no revenue adjustments, then as you can see, while we do meet our targets in these years, we have a significant drop-off here in when we have to construct our pipeline. In 2031. And so, we have provided three scenarios in this financial plan. The first scenario, we assume that we have 50% grants and we incur debt of close to $1 million, which is about $900,000 here, 3.5% for 20 years. Under this scenario, we are projecting that you would need rate increases of revenue adjustments of 8% in the first two years, followed by increases of 3% for each subsequent year. You can see that we are gradually building up our reserve here so that we can take care of the capital cost that we have in 2031. In the second situation here, we are looking at 50% grants and assuming that we do not issue any debt that we had over here. So in this particular case, if we do not issue any debt to ensure that we have adequate reserves to fund the CIP, we will need to do revenue adjustments of 15% for seven years, actually, and then drop it down back to 0% after that. You can see you begin to build up reserves with these increases. Potentially, you could even have negative revenue adjustment at that point. You could drop your rates at that point, which is not an ideal scenario. Typically, you would not want to do something like that. But it's an option that we have provided for your consideration. And finally, we are looking at the third scenario, which is an all-cash, assuming that you do not have any grant funding. And in this particular case, you need to have seven years of 25% revenue adjustments, followed by 15% in 2031, and then drop down to zero or you could probably go negative after that. So those are the different scenarios that we have provided for the financial plan. That basically completes the presentation for the financial plans. The next thing that we really need to do is to identify what scenarios we want to pursue in developing the financial plan and make adjustments as needed to meet your requirements. Select the appropriate CZU project scenario, whether it's going to be $25 million about ground pipelines or underground $52 million in underground lines. And then develop the rates based on cost of service analysis for both your water and wastewater. Look at any potential changes to the rate structure and look at alternative water rate structures as well. So that basically completes my presentation. We'll review the project schedule. The last slide is the project schedule. And the idea is that we would have discussion with staff on the rates based on our meeting today by September 28th. Have another discussion with the board identify on October 5th. Prepare a draft report by the 19th. Conduct public outreach in October, November. Prepare a final report by November 20th. Have more discussion on December 7th to get approval for the 218 notice. And then mail the notices out, have the public hearing in January for implementation of your rates on February 1st, 2024. So now with that, we are open to questions that you may have. Okay. Thank you. For the general public, we start questions from the board level first. And then after the board goes through and asks a pertinent questions, we'll open it up to the public or questions and comments. So I'd like to start with- Maybe we have a good question. Is there any chance that we can get a copy of that? Absolutely. This will be posted to the website after tonight's meeting this presentation. We can send one out to Mr. Cowley. Thank you. So I'd like to start with a member of the board who's on the budget finance committee who is here this evening, Jeff Hill. Okay. So having been on the budget finance committee, I've actually spent a lot of time looking at these numbers for the past couple of months. And so I don't have a whole lot of questions about them. But I think it's important that we all recognize that it's not business as usual because we have this big overhead looming to fix the fire damage that we had to our main supply lines of either depending on which scenario, 25 million or 52, maybe more than that hard say by the time we get it all bid and everything. And that's affecting us quite, going to affect our financial numbers quite a bit going forward. And I think that that makes this a more difficult discussion. But we don't really have much choice from what I see but to rebuild those lines. And it's just a matter of time before we would have serious problems if we don't. So that's kind of where I am on it. We were sort of the devil in the deep blue sea here. So I don't really have a question on this. Okay, just a comment. Cause like I said, I've been looking at these numbers for weeks now. And one of our board members is participating remotely this evening who's also on the budget and finance committee that's Gail Mayhood. I'd like to open it up at this point to Gail for any comment or question on this. No, thank you, Mark. I mean, I think that this lays out how dire our circumstances are. And these really comes from both the fact that we've had to deal with the impact of the fire and now the perhaps $5 million of damage from the storms of 2022-23. But we're also in part, one of the reasons we're in bad shape in terms of reserves is that we've essentially sort of went without increases for the last couple of years because we went with the rate study and what was passed in 2017. And so this leads to, so in a sense what's happened is that our rates have actually not kept up with inflation and we know that inflation has actually been pretty ferocious in the last year. So this really gets to a question that I kind of have in a general way and maybe some of the public would have too is the number of 9% or 9.5% is out there and it's a continual number for the next five years. And I don't know if you had put up a 10-year plan whether that would have continued, but how did you arrive at that number and why would we not, for example, think that maybe what we need is some kind of a catch-up situation where we make up for the last two years where we didn't have rate increases and then matching up the value of that is that it would help with our reserve position and then perhaps not have as high rates, rate increases down the road. So that's my first question. And then I have some questions about some of the assumptions that you made about inflation and other things, but those are kind of more nitpicky. Well, they're important, but they're in the details. So maybe you could answer my first question first and then I'll hand it over to other people to ask questions. So one of the things that we look at when we are developing the financial plan is to try to have steady increases, first of all, yeah? So when you do look at actually, I'm gonna share my presentation again. If you look at our, you can see that even with the 9.5%, we are falling below target. Can you see my screen? Not yet. Coming up. It's coming. There you go. Yeah, even with the 9.5% increase, we are not meeting the target in FY 2025. So if you were to try to meet this target, we would need to have higher rate increases than the 9% that we projected here. This is under the first scenario where we're looking at the $25 million cost associated with the CCU project. Our idea typically is to have increases that are relatively constant. So we don't go up and down with the rates. If you were to try to meet the target here, we would actually need to do a higher revenue adjustment than the 9% that we are proposing. That's not my question. Okay, because I think it's perfectly understandable, frankly, that given only the hits we've had with the fire and the storm damage, that we can't expect to dig ourselves out of the reserve hole while we're doing all of that. And I think we have to be realistic that it may take us three or four or five years to meet what the ideal reserves would be. But my question is you said that it's better to have year after year the same percentage increase. And I guess I don't really understand why, I can see why you don't wanna go up and back down again, but I don't quite understand what the reasoning is, why you'd want 9% or any percentage per year going out. Well, it is, we could have higher increases if you would like, but, and the thing is it has a significant impact immediately on your customers. So the idea is to minimize the impacts on customers instead of having a 20% increase, for example, and then leveling off at 5% or 3% per year. If you do a big increase right up front, you're going to have significantly more impact on your customers. So generally you want to try to have increases that are fairly consistent over time. And we can explore that scenario if required. I mean, I can show you what happens if you do that. What kind of adjustments you would need subsequently if you had a much higher increase in that first year to be able to meet this target in this year, then your increases in subsequent years would drop off. But that's not typically how most agencies want to handle their revenue adjustments. Generally, they want to have even increases so that the impacts on customers are moderated every year as opposed to a big jump in one year. But that's an option that you do have if you decide that's what you want to do. Yeah, I just was, it was just that I didn't understand the principle, but you've explained it to me now. I think, however, I guess I would say that I think that our ratepayers understand that we have sort of extraordinary circumstances right now. And what I'm worried about is that if we're out at year five or six and the inflation rate's only 2%, we still have to, and we're asking for a 9% increase, that that's gonna kick up some unhappiness as well. So either way, we could potentially run into resistance. And I guess it's worth, that's why we're doing this in public. So that the public can kind of weigh in and how they feel about it too. But thank you for your explanation. I understand better now. Okay, thanks, Gail. Mark, I may have more questions, but let me go let another board member speak. Okay, you have additional questions, we'll come back then. Okay, Bob, why don't you take a shot at a couple and we'll keep going. Yeah, I have a lot. So we can cover them in tranches if that's what you want to do. That's what I'm proposing at this point, yes. Okay, when was the last rate increase that we had, was it November 2021? So typically the increases would go for the effective for a full year. So the next increase would have been November of 2022 if we had stayed on the same cadence. So we're really only one coming up on one full year where we haven't had a, been under an effective rate increase, right? Am I right? Correct. And I think in general, what the district has done in the past is it's not entertained rate increases during an election year. At least that's been the historic because the last two were 2013 and 2017. I think just to be a little cynical about it, the big increase is what gets people's attention for the Prop 218 process. And since the Prop 218 process is this backwards vote, it's kind of a, from my perspective, an anti-democratic process where you vote against the rate increase. You don't vote for it. And that's what you don't want. That's what he's saying is that by having a big increase like we did in 2017, that gets people's attention. And in 2017, the protest vote didn't succeed, but it was over 20, over 2000 raw votes came in. And that's because it was a 35% increase in that one year, right? So that's being cynical about it. The reason they want it lower and steady is so you don't get people's attention and vote for it or vote against it rather because you don't actually vote for it. One of the other things I'm concerned about here is that we're conflating numbers. So we haven't had a real clear distinction here between operating and capital. Those are two very different buckets. Anybody that's run a business knows or even maintaining your house knows you've got expenses to run your business and you've got capital expenses. This presentation did not cover that distinction at all other than talking about what the revenue increase would be per year. And let's just keep in mind that a 10% increase per year means your bill doubles in seven years. That's the power of compounding or the negative effect of compounding. And I think we need to make sure that we're communicating that in those ways. For example, what is the operating margin per year that we're talking about here for both operating and revenue and non-operating expenses? None of that was covered tonight. So the big question is when do we see the numbers? Unfortunately, the devil is in the details when we start talking about budgets and numbers. When are those spreadsheets gonna be available? I can't make any evaluation of this budget in any substantive fashion without being able to look at the numbers and the formulas. If the numbers have a lot of formulas embedded in them. I don't know how anybody could do that sitting on a board. We have provided the model to the staff so you should be able to see the numbers if you so desire, yeah. When can we have that distributed to the board and even made available to the public? I'm talking about complete transparency here, folks. If we're doing anything other than complete transparency, we're not doing our job in my opinion. So Rick, Kendra, the question's being posed here. I'm not sure we have everything. Okay, we'll look into it and we have, of course, the board is welcome, the finance committee, the board and the public as well. We've been over the model with consultants, but we haven't actually been sent the model yet, suitors. I don't know. Okay. And I have been on vacation, so maybe you have sent it since then, but... I apologize, I thought that model had been shared with you Kendra, I'm sorry. Yeah, that's okay. Of course, if we have any documentation. Okay. Of course, if we get to budget, finance and the board and the public. Well, that hasn't been the case in the past with the rate increases. So I'm glad to hear that we're doing that this time. Last question for this tranche has to do with making sure I understand what was being shown on these slides with respect to the reserves. Were the reserve numbers have shown a combination of debt financing and operating margin or just operating margin? The reserves include the debt financing as well. Without debt financing in the reserves, they would not meet the target. Okay, so that's what I call phantom reserves because our policy today is that whenever we take out a debt tranche and typically to get the low interest rate, you have to make sure that you're spending that money within a set period of time on projects related to the district. You can't use it as sort of general purpose, kind of if another flood or fire or disaster happens. So by conflating those two numbers, you're giving a wildly inaccurate picture of what our true reserve position is. If I take some of those numbers and subtract out the debt, we're sitting at a reserve level of about 2 million. That is half of what we had when the fire came through and we almost ran out of cash because we only had 4 million. We came very close to running out of cash because we only had 4 million in reserve, real reserve, not phantom reserves for stuff that's applied elsewhere. We had debt funding to do that, but that debt funding was allocated to other projects. So I'm really concerned about the fact that the presentation also does a conflation of numbers in a way that does not provide a clear transparent indication of our district's true financial condition. With that, I'll pass on to, I guess it would be Jamie that would be next. I would like to hear you respond to that. Yes, same here. Yeah. The idea basically is that you have this cash available to meet your capital expenses. And so once those funds are used up, you can see what the reserve levels are essentially. So you do have that cash available to meet your expenses. And this is typically how we look at, if you did not use the funds from the debt in the reserves, then you would be looking at much higher revenue adjustments. And then the question is, why would you need to have any debt at all? You would be looking at high revenue adjustments. You would not need any debt. But the problem with that is, is that what happens is again, you're hiding what's happening on the operating expense side. Because if in fact, we're looking at only having 2 million in reserves, and most of that money is coming from debt, that means to me that the rate increase is almost being completely consumed by increases in operating expenses. Historically, our operating expenses have gone up at almost three times inflation. And if we're continuing down that path, that means more of these rate increases are going to operating and not to where it should be going, which is capital. And we can't tell that because the numbers aren't broken out. I think would really happen. I think so too. And I'd be happy to do that as soon as I get it. In fact, I'm eager to do that. So Sudhir, is it appropriate to look at reserves both ways? Appropriate to look at reserves both ways? Is that? That is not typical for us. We basically, we look at revenues, all the revenues including the debt as one bucket of money, and make sure that the district has enough funds to be able to operate appropriately, provide enough money for your capital expenses, provide adequate coverage, and have enough money in the reserves. That when you issue a debt, you have that money available for you to be able to use for your capital expenses. So what we've done in the past is when we've done a trunch, a debt trunch, we have passed a resolution that says this money is going to these projects. So the community knows that we're not taking that money and shuffling it around somewhere else. That's complete transparency. So to say that you can take that debt trunch, that debt money and use it for whatever else you want, other than specific projects, is not in line with what we've done with the last two debt trunches. I would absolutely oppose any debt financing that does not continue to offer that level of transparency. So I think it's appropriate, Jeff. Yes. For the committee to have further discussions with, tell us about this issue. Well, they're going to tell you this is the way that it's done everywhere. I understand it, but I understand your point also, Bob. Let's take a look at it. If the district made a commitment to the community, that's where this 10 million was going to be spent on these four water tanks. Well, we only got three done because we needed two and a half million to go do all of the repairs on the... So they've conflated the expenditures also, though. Of course. Yeah, they've conflated both the sources of cash and the expenses. Absolutely. It is completely non-transparent. It is completely non-transparent in terms of what's been presented tonight. So the model. Yeah. Yeah, okay. I'll have more later. For the questions, Jimmy. So going back to the pie chart that showed the variable versus fixed expenses, I want to say it was like 94% fixed expenses. Can you tell us more about what is categorized as a fixed expense? Yeah, so when you look at this pie chart here, which shows all the different expenses that you have, these are pretty clear that these are fixed costs, essentially these four elements are fixed costs. Generally, we would look at supply costs as also being variable. But in your cases, the supply cost is basically labor. Most of it is salaries. The only variable here is chemicals. And that's why we are looking at about 94% of your costs being fixed and just very small percentage, 6% being variable. The variable costs depend upon the amount of quantity of water that the district is actually processing through the treatment plant. So to clarify, what you're saying is that 94% of our district costs are fixed to us, meaning we have no control over them. We couldn't cut them without cutting water service or eliminating the ability to serve a community. Is that accurate? That's right. So we have 6% to work with in terms of our ability to make, in terms of our ability as a board to make variable decisions about how the budget is structured, right? Okay. Going to my next question, you said that in your scenario one, you were proposing a 9% average annual rate of increase. First, I wanted to respond to the idea that somehow having a steady rate of increases, hiding something or trying to, create some kind of lack of transparency about the costs. Putting everything up front would be a very significant increase all at once for people to absorb immediately in their budget. And a 9% increase, while I understand, would not be something that people on a fixed income or anyone would be able to easily absorb. If you know that you have to plan for a 9% increase every year, as opposed to next year you're gonna have a 35% increase, you can budget differently. So I kind of, I object to the idea that smoothing that rate increases anything, but the right thing to do if we do decide to apply it. But that being said, that 9%, I wonder if we could put some context around that. Kendra, what's our average monthly bill? It's about, for four units of water, it's... $95. There you go. So the average user at a 9% increase would be looking at roughly $9 increase in their bill, $8 increase in their bill if we were to implement this. That's all my questions for now, thanks. Okay, I wanted to follow up also on the fixed versus the variable. So there, you're showing us this, but I don't see any next step. And based on this, what we see with, if we have fixed expenses, and I believe that that includes salaries also, unless we significantly reduce our staff, we can't significantly reduce our expenses. But our revenues are fixed at only 37%. So what's your thought or recommendation on where to go with this? What I consider imbalanced between how our expenses are covered versus our revenues. Okay, so there is a fine balance as to how we, how much we should collect from fixed charges versus variable rates, yeah. The issue that comes up is the, ideally you would like to collect all of your fixed costs from fixed charges. The problem with that is that small customers, typically which are senior citizens, maybe low-income customers, those are the ones that are using very minimal water would wind up with huge bills. And that is the reason why there is a, typically in almost all cases, you will never find all of the fixed costs being recovered from fixed charges. The California Urban Water Conservation Council was recommending that the fixed charges should not exceed 30%. They have gone away from that now because of the drought and so forth. But that was primarily to make sure that the commodity rates or the variable rates stay high enough to promote conservation as well. So there are several factors that have to be balanced to ensure that this fixed variable revenue remains reasonable to provide incentives for conservation as well as minimize impacts on small volume customers that would be unduly impacted by high fixed charges. Does that help you? So shifting more of our rate to fixed versus variable as it is right now is acceptable if that's what the district decides to do. Because what I see is, as we continue to conserve over the last several years, the, great, we're conserving, but then the revenue on the variable continues to go down, continues to go down. So we're not balancing that out. So I think one way to look at this is say, say we, for simplicity's sake, we sell 100 gallons of water. If we only sold 90, it wouldn't save us any money at all on our end based on that. Because the percentage of the cost of that water, the cost of us to provide it, that is the actual gallons of water is very small. It's the cost of electricity to run the pumps and some chemicals to treat it. And I'm not going down to trying to characterize that for the public at this point, but just simply, and I'm not advocating or thinking that we would be going anywhere near attempting to collect 90% in fixed revenues, but somewhere above the 37%. Sudhir, you said that the state had some restrictions previously at 30%, but they've now removed that completely or changed that? Yes, they don't have that. That used to be the California Urban Water Conservation Council. It was a recommendation, it's not a requirement. We haven't yet done the rates per se. So we do have flexibility in terms of how much you want to collect from your fixed charges. This 37% is what you are currently collecting from your current rates. It's not what we are proposing here. Right, okay. You haven't done that yet. So if you want to see a higher percentage of your revenues to be collected from fixed charges, we can certainly do that. And it would be consistent with the cost structure that we have right now. Yes, ma'am. Okay, and let me finish on that then. And what are you seeing other districts do on this? Generally, as you see, first of all, we have, you know, having 94% of your costs from fixed is very unique. There are probably very few cost utilities that have that much in fixed costs. Most utilities are in the range of 50%. You know, they have because they're buying water, expensive water, it could be anywhere between 30 and 50% of their variable, being variable costs and the remaining being fixed. In our case, you know, we are looking at 94% fixed. So that's a very high fixed cost associated with your operations. And then so in that, in most cases, we are in here, we're looking at about 25 to 30% in the fixed revenue collection. Agencies that have lower purchase water costs tend to go a little bit higher. They may go up as high as 40 or in the low 40s, you know, but generally that's about as high as we typically go for the fixed charges. Okay, so agencies that are purchasing a lot of water are at that. But are you saying that we're a fairly unique agency in the fact that we don't purchase much of any and that's why we have such a high fixed cost? That's right. Also, you're not pumping groundwater which would also consume, you know, would be a variable expense, but in our case, we are drawing mostly surface water. And so, as well, we are not incurring any additional, too much significant additional. Surface water, we don't use just surface water. We're at about a 50-50 balance, but we don't purchase water from an outside entity, such as not buying it from Santa Cruz or Wright. Okay, but I gotta challenge this notion of 94% fixed cost. I mean, under an accounting definition, that is not true. And even under an operational definition, I gotta challenge this. Let me just give you an example. We had a gentleman working for us who did probably the most thankless job that we used to have here, which is dealing with turnoffs, tagging, that sort of thing. We changed our policy to get rid of all that. The gentleman was up for retirement anyway. He retired. That would have been a savings that would have been a no-brainer. And yet, we didn't reduce headcount. So the function went away. I can't tell you where that headcount is gone, what's happening. What I can tell you is over the last, since 2013, our operating expenses have gone up by almost double and inflation's gone up 27% in that time period, of which 8% of that was last year. So to say that we have 94% fixed cost assumes that you do nothing to make your operations more efficient. You don't use technology. You don't look for different ways of doing things. You don't do all the things that normal operations do. And instead you just say, well, we can't do anything about it. So we're just gonna consider it a fixed cost. That is completely countered to what we need to be doing for our community. And by the way, the board didn't challenge that headcount reduction. It basically said, oh, nope, we'll just continue having that headcount in there. A perfect opportunity to reduce costs and we chose not to do it. I didn't choose that by the way, but the board did. So we cannot accept that on face value without really understanding what's underneath those numbers. I don't wanna say that we're falsifying something here by saying that these fixed costs are not, the correct we're showing here. Can I ask a question? Sure. So I was the director of communications for San Jose Water. These are entirely consistent fixed and variable costs with every other water system that I've dealt with in the Bay Area. And I do have some particular expertise in dealing with these kinds of questions. So I appreciate that Bob feels based on his private sector budgeting that these are not fixed costs. But I would ask Suder, is that pretty consistent with the rest of the water industry in terms of fixed versus variable costs? Yes, when we look at salaries, I mean, we are providing you these estimates based on the budget that we have right now. If you were to reduce your workforce, yes, that would cause the, obviously the fixed cost to come down. But this is based on your current budget, based on your current salaries, benefits, and so forth. Right, but the question that I'm asking is, Suder, when you compare our fixed costs to other water systems that you deal with, would you say that our fixed costs, well, higher because we provide all of our own water and do not purchase it, are fairly consistent with other systems? That's right. If you were to, as I mentioned, typically, when we look at water production costs, whether it be from wells and our purchases, we would be looking in the range of, as I said, 30 to 50% of the total cost of a utility would be the cost of water. Thank you. So it seems to me that the crux of this is that on the one hand, there are things that are fixed costs that perhaps we could do things about saving money on, which is what Bob is saying. The definition for those is either semi-variable or semi-fixed. Well, in a true accounting sense, yes. But on the other hand, from what we're looking at here is, let's say we had a 10% increase in water sales. That would not necessarily, move our fixed costs or a 10% reduction. Either way. No, our marginal costs for the next gallon of water are very low. Yes. No question about it. That's the point that he's trying to make here. But that's a different point than what he's saying. Here, without looking at the numbers, I mean, let's be really clear. The last staffing study we had done, which we'll cover next, but just as in advance of that, basically increased our staff by 50%. I can't tell you operationally what we get for that, but what I can tell you is our operating costs have doubled over that time, in large part because of that staffing study. And that, and we're delivering less water. That's a cost savings question, but it's not necessarily a relationship between the amount of water and the staffing expense. We should be able to tell people what they're getting for. Their rates haven't gone up 140% in the last 10 years, other than just, hey, you get four units of water. Hi, guys. But we're talking about two different things. But this all folds into whether or not the community should support whatever it is that the board is going to bring to them for a Prop 218 process during the holidays, by the way, which I find unconscionable. Right, so we'll continue. I'd like to give Director Mayhood a chance to comment further since I've seen she's had her hand up for a bit and is not. I'm getting really angry because we're getting badly off track and I think everybody knows that in the utilities like this, when we're talking about fixed, of course it's not absolutely fixed. You can add more people, you can subtract more people, but the point is that your costs do not change if you sell, as Jeff said, 10% more water. And so in that sense, there's the variable in the fix and everybody understands that. So let's not waste a lot of time sort of getting into this semantics about this. We need to be focused tonight on what we're being presented here, which is essentially a budget. It is not the rate study itself. In other words, that's what comes next, right? And so I think Sidir was trying to explain that that whether we wanna go with a higher proportion of our revenue coming from a fixed basic charge is something that I think we probably all expressed that we wanna move in that direction and they can do some modeling to help us understand it. But I think it's important to also remember that you can't change the proportion of variable versus fixed without also bringing in the issue of tiered rates, which is another thing that would be discussed in the next round when they start to come up with a rate study. Because if you're, as Sidir was saying, if you worry about really raising the basic charge, that has the biggest hit on lower income or fixed income people. But if you have tiered rates, where the first amount of water that you use is at a fairly low rate, you combine those two, you can mitigate that. So there are various ways to work on that, but that's really not what we should be talking about tonight or Bob talking about, as he often does, about how operating costs are going up. We should be asking questions about the model that we have here and trying to understand the model. And yet it discussed enough that members of the public can ask questions about it. So I just want to bring us back to the fact that this is essentially a revenue budget. And I don't- We don't have a model or a budget that's been presented. We have a very high level model. That is your opinion, Bob, but I think what we have in front of us. All of the directors have had a chance to comment or ask some questions at this point or at least a first tranche. I'd like to open it up to the public now to see what questions they may have. And again, I'll remind folks of a three minute limit. We'll start with folks here in the audience and then I'll move to virtual. Sorry, please. Hi, I'm Bruce Holloway from Boulder Creek. I'm a little concerned about this debt. All right, this debt in early 2024. It sounds, well, what I remember was the district borrowed about $15 million four years ago. And I don't think it's been spent yet. Then a year and a half later in early 2021, the district borrowed $14 million. And I don't think that money has been spent yet either. And for a long time, we were losing money because the amount of interest we were paying on the long-term debt was more than we were getting on the cash talents in the county treasury. In fact, I think that we've lost about $2 million on the interest rate differential before the district began reinvesting outside the county investment pool. So I'm concerned that we haven't even spent the money that we already borrowed and it's been years. And so I'm concerned if there's this eagerness to go out and borrow more. I mean, I know there's big expenses here, but I guess I just want to make sure that we're gonna spend the money on real capital improvements and not just leave it in the county treasury for years. And years, I mean, it's been four years since that first time it has not been spent yet. Is that correct? That is correct, right? The $15 million is still not completely spent. Not completely, no. It's been four years. It's been spent down. Okay, so I'm concerned about more debt all of a sudden because you can't, it doesn't seem like you can spend it. You've been able to spend the debt that you already got. This thing about to fix two variable costs. When I get my PG and E-bill, there's no basic rate at all. So there's a utility that somehow, I mean, I know they've got fixed costs too, but they don't charge it to me. They don't charge me unless I use a kilowatt hour at all. There is no basic rate at all of the PG and E-bill that I can see. So I'm a little bit, and if I think about all the businesses up and down the street here, there is not one business here that says, oh, you gotta pay this basic rate and then you can buy our product. The gas station, I mean, I saw the gas station was ripped up for months last year because they were putting in new tanks underground. And so I know they've got capital expense. They've got some kind of cost because of that capital improvement that they made. But when I go to buy gas, they don't say, oh, you gotta pay the $500 a year basic rate first and then we'll sell you all the gas and then you want it $2 a gallon instead of $5 a gallon. That's not the way it works. So I don't see that this, I don't see that it happens elsewhere in the economy. Okay, thank you. Other members of the public? Getting harder and harder at 86. This is Bob, I was listening to yours and I- I'm sorry, could you identify yourself please? What do you want me to do? Your name and where you live. You're just- Corporal opposite, Bear Creek States, Boulder Creek, California, 9506 for all of our insurance doubles. That's me. I've been here 50 years. I've worked with gentlemen who's in here and certainly not some of them. Bob, that, those numbers though, I was confused by some of the numbers that he put out also. And where those numbers weighted with the fire and with the storms and all. If they weren't weighted, how the hell is he gonna come out of the number on this study? I'm a little confused. Okay. I can respond. I heard what you said. I believe you. I think the question that you're asking, we should be putting to our presenter. And I'm not sure- I thought I had your answer a lot about you. I'm not sure what you're- Can I ask the chair first? I can't answer your question. It's the presentation that we've been shown tonight that they're asking for comments. I can answer it. I've come before a way- It was adjusted to remove CZU. You didn't mention it. I wasn't sure. Yeah, it was adjusted. I didn't also understand the loss of revenue. First of all, actually, if we can get it on the line, then we can study the numbers a little more. That was a lot often to us real quick, but you've had it for months. Just tonight. No, some of us are seeing it for the first time tonight also. Yeah. Well, I can't help that. Somebody said they've had it for a couple of months. Well, it will be shared. Yeah. It will be shared. So it's my question. I have seen preliminary versions of this and that stuff. That's- It will be shared. Because you're on the budget. Yeah, I'm on the budget finance committee and we've been- I don't understand that loss of the revenue of, I think you said 9% or 10%. And we only had 9% a lot. What does that mean? We lost 9% people in the- Okay, so I- I think we have bad accounts paid. So I'm not following where you are in the presentation right now. So I can't really comment on it. I don't know what- And go ahead and read- I can't really ask questions. No, you can ask questions. I just don't have an answer for it. I can answer that particular question. And that is that that 10% drop was largely a function of conservation by the members in our district. And it was actually something that we, on the budget finance committee were sort of surprised by. And Rick Rogers called around and it was actually kind of a regional thing that both Scots Valley and Santa Cruz saw the same about 10% drop in consumption. And so that's the main thing is that our ratepayers are too good at conserving. Loss of the consumption, so we lost the revenue. Yes. No, I'll be darned. Okay, well, none of these I don't make any sense to all of it. Okay. Thank you. My name is Virginia Rape. I live in Felton, 258 Circle Drive. And I want to thank you for serving. And I want to thank the presenter for clarity. I thought it was really nice to see something that was so clear clearly presented with expertise by the consultants and other folks on the board who understand how water works nationally and especially in California. Because I don't think we can make these decisions without being in the context how it really works in other places. It's just we're in a very bad situation. Water's becoming more expensive. And that's just where we are. And so I basically wanted to thank you. And I have a question from Curious about the presentation, which is there was an increase in the revenue for the water use, but there was also an increase in the wastewater revenue. And I wondered if those were two separate line items in the bill or those are the same? Like what's the, how does that impact the building? Do some people pay for wastewater and some people just pay for water? I didn't think- There's only 56 homes that pay for wastewater. There are only- I'd like Kendra to address that question. Thank you. Yeah. So we have a portion of our customers and Bear Creek Estates that pay for wastewater services. And it's about, it's 56 homes. So that is completely separate from your water bill. Only 56 customers receive that wastewater charge. So those folks would have to double it together. Yeah, that's specific to those 56 customers. Yeah. Thanks again. Okay. Thank you. So that presentation was not wastewater, right? There was two parts. There was water and then wastewater. They were combined on the standard. Yes. Parts of it worked. Did you say, yes, they were combined on the study? There was a presentation by part of it was water, part of it was wastewater. Were the numbers based on the wastewater and the water? That can't be too difficult. Numbers. Did the study include wastewater? Yes, there was a wastewater section and a- They were combined. Freshwater section. And they had separate numbers for each. They didn't have any numbers. They didn't have any numbers. There are two numbers. Another. Yes, hi. My name is Tom Fredericks. I'm a great parent of Delta Timber. And I wanted to kind of like bump folks. I keep track of things for a very long time, almost obsessively. And I kept our last Cal American bill. I think that was 2013. It was $196 to three months. And right now our water bill is just over 100 for one month. Just to say that in Delta, we've just after 14 years have become equal with the other rate there and over Creek in the San Juan Valley. And for me, I love remembering this because when you talk about 9% for five years to address unbelievable capital improvements needed but the pipelines and the CCU fire and the damage in 2023, I think, oh my God, just 9% can get us there. It's like five years from now we'll be paying like just under another 50% of what I'm paying now. I'm very grateful. It sounds very reasonable. And as a fellow residents compared to Cal American, it's a miracle. I want you to know what I'm thinking every time I look at my water bill. Thank you. Not seeing anybody else right now but here in the audience directly, I'll turn it to virtually. Jim Moser. Can you hear me? Yes. I'm Jim Moser. I've been felt that I'm a long time resident in the San Lorenzo Valley. And I first want to echo what Virginia Wright said which is that I so appreciate the hard work of the five of you working on this issue. It was complicated. We're facing a lot of crises. And I just appreciate you taking the time in your lives to help the district and help San Lorenzo Valley address this crisis situation that we're in. My question or comment is that as I understand it Reptiles has essentially combined operation and capital expenses in their model and that Bob Foltz feels that those need to be carefully separated. And I wonder whether that is a real, whether there is an actual clear line between the two. And what makes me wonder about that is we just spent $13 million or we are spending $13 million in capital expenses. Now we're spending a lot of, we have projected a lot of work to do. We cover from the fire and from the floods. And my impression looking at what is actually being done in the field is that a lot of what we're classifying as capital actually has a pretty major impact on operating. So that the idea that we have to be careful about how the operating expenses go up is got to be tempered by the fact that we understand that when we're doing so much recovery that of course operations cannot keep up as if everything was settled. Just thinking about the environmental department, for example, much of what the environmental department does right now is provide a lot of work for the capital improvements because we have to get environmental approvals and do a lot of work to make sure that the permits are issued. None of that is reflected in the capital budget so that those, that staff is working on capital even though they're not being charged to capital. So I think, I just would like a comment about this issue of how we separate operation from capital. I also would urge the board to consider how we can support low-income people. It looks like we're gonna have a significant increase. How do we help low-income housing? I mean low-income households. We have a low-income rate assistance program. It's very modest. Perhaps we need to look at how we can expand that and make it more accessible to low-income households so that they can continue to be serviced by the water district in light with our overall commitment to having water as a human right. I just one last question. I didn't understand when I looked at the slide about reserves, it looks like in the latter years the reserve would be well over the target. We need to have these rate increases be so high that we end up over the target. Is there a way we can moderate the increases so that we're at the target but we're not going way over it? Maybe I misunderstood the presentation. Thank you. Kendra, I'll ask you to the comment on separating operating versus capital. So we, the information we provided, it is separate. What, can you repeat the initial question? What was the? The point that I believe Bob was making and that Jim was following up on also with Jim saying, is there the need to separate the capital versus the operating and how would we do that is what the question that I'm hearing. We do it every budget. Don't you capitalize some of the expenditures that operating personnel? Correct, yeah. And if anyone, if our crew spends time on actual construction or Garrett does his engineering work we do capitalize those costs as part of the total construction. Appropriately so. Do we know if Raph Tellis saw how that works and your materials you gave them? I mean, our numbers include our budgeted total overhead absorption costs, which is the capitalized labor. So I guess that would maybe be a question that they capture. But I mean, it's all in the budget numbers that were provided to them. Something to explore with Raph Tellis. Yeah, I can follow up. Okay, okay. Additional questions from the public. I see Stacy Wilbur. Right, I'm here. Sorry about that. My question has to do with the Bear Creek Estates sewer system. I was wondering the numbers that he used. He mentioned, I think 144,000 or something like that for the cost of the total expenses. Is that correct? That's 130,000. Okay, 130,000. So what'd you do with the other 90,000? What are the 90,000? I think our charges are somewhere around 325 a month times 12 months times 56 homes is 218,000. Is it that high? No, it's like 173. Yeah, I didn't think it was that high. 373,000. Yeah. Did you hear? Kendra, could you respond to Stacy? The total operating revenue for the wastewater is about 173,000 annually. I'm not sure where that, your other numbers coming from. Okay, my monthly bill is like 370 or something like that. So, okay, maybe it's 275 per person then. So the basic charge for the wastewater is 257 per month. So your total bill also includes water charges. Right, so what's 257 times 12 times 56 homes, what's that? 172, 704, so about 173,000. Okay, and is that the number that he used? I thought I said 140 or something like that. We, I can just interrupt. Basically what we are doing here is we are building up the reserves so that you are collecting enough funds in your reserves to be able to meet that big expense that we showed in 2031. So you can see how your reserves are building up here on this chart. You are collecting more than what you need in terms of your total expenses. And that is being put aside in the reserves. And then when you hit that big expense in 2031, the reserves will be drawn down to meet that expense. So how much do we have in reserve now? I can get back to him about that, yeah. It sounds like your question Stacey, you're very specific and Kendra's agreed that she could get back to you with that that's on for the Bear Creek Estates Wastewater System. And the expenses on that. So I'd like to move on to other public comments at this point. Elina Lang. Hi, Elina Lang, Boulder Creek. I just wanted to echo what Jim Mozier said about thank you so much about this presentation and all the work that went into this. And I was shocked to see that since 2016 that the sewer system has been in violation of that wastewater discharge. So hopefully you're spending some money over there and your guys talked about being able to get some grants for that possibly. And I just really wanted to, even though we're doing rate increases, encourage you to continue going for grants, Santa Clara Valley Water. They got since June 2020. So a little over a year, 29 million they've received. They applied for 350 and there's 157 that they million that they have pending. So the money's out there, especially for water districts like you guys. So, you know, please keep applying and thank you for all you guys' work. Thank you. I see no other members of the public right now to comment. So I'd like to go back to the board for final round. A couple, yeah, a couple of quick things. I want to make sure that it's really clear why I'm separating operating from capital. So revenue minus expenses gives you margin, operating margin, right? And the operating margin is what you can use for capital projects. Those capital projects can either be funded out of that money or you can take out debt. And then that money, your margin goes to pay off the debt, right? And so that's why you need to have a very clear understanding of what your operating margin is. So, and you're not operating margin, so that you can understand what kind of debt load you can take or what kind of capital you need to be spending. According to the numbers I put together, we need to be spending about 6 million a year, 5 to 6 million a year in capital. Our current operating margin is three. So we are falling further behind every year because we aren't spending enough even to catch up on the decades of unfunded maintenance that we've done. That's number one. Number two, I want to remind folks that the last two rate increases were sold to the community exclusively around capital improvement projects, which is a very laudable thing to talk about. The reality of what happened because there was no community that happened because there was no committed budget by the board at that time, guaranteeing where the money was going, two thirds of the excess revenue every year, that is the increase from one year to the next, two thirds of that went to operating expenses. Only one third of the excess money went to capital projects. To me, that's reversed. It should be at least two thirds, one third, two thirds capital, particularly given the fact that we have huge unfunded maintenance on a number of areas, including our steel tanks, which every year continue to deteriorate because they're well outside their maintenance window. So when it comes time to vote, and this budget is informing that, the community needs to be very careful and think of themselves as owners, not customers, because you have the right to vote in this. And if that operating margin isn't going towards capital and isn't going to support the capital projects we need, we need to vote it down and try again. Other comments or questions from board? Jamie, Jeff, Gail. I guess I would just respond to Bob, but again, this is kind of off track of the topic that we're on tonight. And also, I think he's kind of focusing on the past and what's happened with previous boards. But in fact, he was a member of a previous board and this board. I was not a member of the previous board that did the previous rating. But you were, you've been on the board now for two terms. And all I'm saying is I think. I'm pushing for this is the time. Well, it is my turn to speak. You've had plenty of time to speak. So I think you can listen to me for just a minute. My point is simply this. I think there's nobody in this room that disputes that we need to spend a lot of money on capital improvements. And of course, we have to repair all the things due to CZU fire and the storms. And many of us campaigned in 2020 and 2022 exactly on this. So I think in a sense you're preaching to the choir trying to make it sound like this board is not concerned about the need for devoting money to capital projects. I think we saw that, for example, that devotion to that when we agreed that the CZU fire surcharge was made into a restricted fund. And I would just simply point out that again, we're talking about the budget tonight or the financial plan that will, tell us what to do for the rate study. There's nothing to stop us when we start constructing the rates to actually make it specific that certain amounts of money are spent on capital projects. We know, for example, that I think Santa Cruz has basically a capital project surcharge that they charge on everything. Marin has a certain percentage of their rates that go to this. So I feel like you're kind of fighting a straw man here because this is, it's a discussion that would happen later and it's not something that I'm gonna oppose you on when we try to make sure that we spend as a significant amount of our money on capital projects. You know, I'm really glad to hear that but I have to say the last budget to them been passed and with your approval of this, the operating expenses continue to go up that basically consume the entire amount of the rate increase or substantial portions of it. And until we get a handle on that, we are limited in how much money we can borrow or how much money we can spend on capital. If that 9% is being consumed entirely by operating expenses, which based on the reserve number seems to be what it is, we can't get ahead. And that's what I'm trying to communicate here tonight relative to the presentation that's been made. I know we all wanna spend more on capital but our behavior around the budgets, the last two or three budgets has not been around that, not been putting us on a path to attenuate the growth and operating expenses so that we can put more money in the capital. And until we do that, we're just on a hamster wheel. Okay. Mr. President, can I? Can I? Yes, please. So I'm showing on the screen right now, what is the net? You're not showing us anything on the screens today. I'm not showing my screen again. No. This is probably, we see you. Sorry. So right here, this is the net revenue that shows our rate revenue minus all the revenues minus the operating expenses. And you can see that every year we are putting aside close to $4 million actually goes up to five, six, seven, eight million dollars. And then this money is used to pay for the debt service that we incur in issuing new debt and for capital expenses going forward. What's the percentage increase in operating expenses every year? I think it is 4% here, 4.6%. Okay, historically we've been doing 4.4, you know, basically about 4.5% per year. Okay, so that would be really good because historically we've been running at about seven since 2013 till now, it's been about 7%. In the last rate increase, the operating margin was set, the operating, excuse me, expenses were set at about 3.5%, which would have been okay except we doubled them because no committed budget was part of the Prop 218 process. And once we had the money, we could spend it any way we wanted and we need to not do that either. So this is an improvement. I'm looking forward to getting this. Okay, Sudhir, I think we've given you input this evening. Kendra, other things to, there's another presentation of this next week, a week from today. Is it the same presentation that we're going to see next week or anybody else that hasn't been here? Are you updating this based on any of what we've said here? Well- What's your plans? We have shown you a couple of scenarios on the water side and three scenarios on the wastewater side. The presentation would basically be the same presentation because we're not looking at rates as yet. Right. Unless we decide which financial scenario you would like to proceed with. So under the water scenario, we have got two different CIP, whether we go with the $25 million CZU project list or we go with the above, below ground or the buried pipeline with the $52 million CIP. So those are the two options that we have for water. Right, but my question is, it's the same presentation next week that we're doing. It's the same presentation. Yes, if we do not make any decision regarding what we want to do with these scenarios, then we would have the same presentation next week. Right. And that's what I expect we're going to see is similar, the same next week. Okay. Okay. Well, with that, I'd like to conclude this item and move on then since we have no motion on this to the next item on our agenda this evening. And that's the compensation study request from proposals. Thank you all. And I think we'll sign off. Thank you, Sidir. Thank you. Sure. Bye-bye. Ready, Mark? Yes. Okay, on May 18, 2023, the board adopted addendum number one to the memorandum of understanding the management supervisor, confidential and classified employee units. The addendums provide very quick and comprehensive salary benchmark study conducted by followed by control. The addendum number eight, six and 12 must be rectified the addendums, which are attached. Staff has prepared a trapped request proposal for the addendum for review to move ahead. And so was Sid's. Staff is recommending that the board of directors authorize the release of the request proposal for compensation study, that's it. Okay. All right. Then I don't believe that anybody on the board, none of the committees have put this together. Okay. All right. Well then, why don't we start with Gail or any comments or questions on this RFP? I didn't really have any comments other than the fact that there's obviously a lot of dates that are wrong, that need to be adjusted and fixed. But other than that, I didn't really have any comments. And we probably need to think about trying to expedite this, I hope. So perhaps our legal counsel or whoever can tell us like what's the minimum time we have to post this so that we can move forward and... So I would ask when you're going through the process to get this out and revise dates, do you check with it? Obviously the dates are... Check the department. All need to be adjusted for when this goes out. I am waiting to hear back from the union to make sure that they didn't have any comments on this RFP. And we want to make sure that I understand Gail's concerns about removing this along because we are a little late. Josh was one of the employee representatives that was working on this. So that the loss of Josh kind of slowed things up a little bit, but we're trying to get back on track. But I want to make sure that we have enough of a proposal tie so we get qualified firms and can get multiple firms to bid on this proposal. Okay, all right. Okay, Bob? Yeah, I'm pretty cynical about these things because it tends to be around Rob and Ratcheting effect on doing these depending on who actually gets examined as comparisons. I'm also concerned I didn't see any, even though the title of this is benchmark, I didn't see actually any benchmarking analysis that was part of the requirements in the proposal. So I'm not exactly sure what benchmarking is proposed to be done. I don't know if that has to do with function or productivity or any other measurement. I just don't know, it's completely silent on it. So I'm not sure I'd really call it a benchmarking study because it looks to be more of, we're just gonna find jobs that are somewhat similar and that's basically the end of the benchmark, which that's really not much of an analysis. I did find it interesting, it had been a while since I looked at this that virtually every employee has their own job classification. I was like, wow, that's a really fascinating thing, 32 job classifications with 37 full-time employees. Now, I'm sure some of these job classifications may be open that not have anybody in them but it's still a tremendous number of job classifications for a district our size. Is there any way to simplify this? To make it a little bit more flexible. Yeah, so then the last thing is I have no bloody idea how we can possibly go into a 2018 process over the holidays without this being completed because this is a fairly major element of the cost structure. I'm highly skeptical about 4% increases on operating expenses, but if the board would commit to that with a five-year budget, then maybe we can run with it. But without this information, I think that 4% number is can't be supported. So I, yeah. For the purposes of releasing this RFP. Can we have a discussion about schedules at the next meeting when we talk about this because I really want to understand what the pro forma schedule is for this with the adjustments, given what the schedule is with the rate increase, we can't do the rate increase in my opinion without having this complete because this factors directly into the cost. And I understand what you're saying on that, but- Can we have that discussion at the next board meeting? But- Not that you understand it, can we discuss it? But I want to talk about this motion that's in front of us because I want to get this going. I don't know that they know, staff knows at this point when we're going to be able to complete the rate study aspects. Well, if you're saying that, well, we have to have this done before we can do a rate study. I'm not ready to say that at this point yet. I don't know. If you're looking at under your model, 94% of the costs are fixed costs and a major component that's being left out of the analysis, okay, and then the last thing is 10% on proposed fee. I basically, we talk it that we want to be cost-conscious and yet the message that we send to the world is we don't care about costs. If only 10% of the evaluation criteria is the proposed fee. I agree with Bob on that. And actually that brings up the one thing I did in the thing I noticed. Sorry to sort of pop in here. Okay. It was that I thought 30% for the executive summary. I mean, basically that just is like how well somebody can write. I would shift a lot of that over to the cost myself because I think it matters. I would disagree with Bob that we need this for the rate study. And the reason I disagree with him is that, I mean, there's a valid question of whether the 4% is the correct assumption and that was something that I would have asked tonight but we got off on other things. And I think the reason is is because the MOU actually limits the rate at which any of the salaries can be adjusted if it turns out that any of them are severely out of whack. And I actually went through the exercise of sort of trying to figure out like how big of an impact could this have on how much we spend on salaries? And it's because of that limit which we negotiated, it is not such that it would actually just blow up the number and you couldn't do the rate study. At least that was my assessment when I calculated the amounts that things potentially could go up. Okay. Rick, do you have this? Are you the author for this RFP? It was a combination of the management team, but we can just pretend it's not ours. Which is significantly increase the waiting for the cost. Can we just have each requirements, experience, cost? I don't know, 40, 20, 40 or something. To simplify, that's much simpler. This is a lot of overhead for something that's what, we're also telegraphing what they need to come in at, that's a number which I find interesting. But yeah, I mean, it's just way too complex for them. Can we do that? Okay. Jeff? Okay, two nets. On paragraph D, firm qualifications, team organization experience and certifications. Second paragraph under that heading, you obviously picked up some cut and paste copy from some other project because it talks to is working with related to grant recovery projects or water systems and this has nothing to do with grant recovery. And then same sort of thing on the next paragraph, staff qualifications. Third line toward the end there with disaster recovery operations. Again, there's nothing about disaster recovery here. These are obviously cut and paste from some prior RFP. Sorry, can I get an answer to the benchmarking question I had, which is what benchmarking is going to be done? Sure, yeah. What is the benchmarking that's being done in this? I don't know the answer to that. Should it even be referenced as a benchmark? Well, actually a staffing study, you would want to do benchmarking if you were actually doing a real one. The last one we did was basically a wish list situation. And that was because no benchmarking was done. It was just adopted whatever the wish list was that just went in. There was no benchmarking to justify or back up why that was valid. I don't see anything here that will result in anything different. Okay, but I got my answer. Thank you. But let me finish. I'm done. Jamie. I mean, I am of the opinion that we do need to address the question of benchmarks. Maybe it doesn't need to be done in the context of the RFP, but I don't know where else it would be done. If it's not in here, it won't get done. Yeah. I agree with that. It should be. We'll look into that a little better and see what the group thinking was. Something from the consultants to tell us how they would do the benchmarking. Yeah, and have a consultant and describe how they would change their positions. Yeah. Show us how you would do this. Do we know who the consultants are to ask? I mean, we're doing an RFP here. Why would they tell us that? And they're not going to increase the scope of work if they're not going to get paid for it. It'll be part of the proposal. The RFP mentions this ad hoc team. Kind of jumps into that. Who is that? I believe that it's the employee representatives, myself and me. And what? Yeah, it's listed. Right, I saw the list. I was just wondering. Yeah, I don't know that was the right terminology, the right terminology to use an ad hoc committee because it was never been established, but that's been the committee that's worked through the MOU negotiations. Yeah, I saw that too. I kind of thought that that probably wasn't the right term because that... So it's an internal... Eternal working group. Working group of staff that's doing this. Okay. Right, and legal counsel. Who evaluates the proposals and then makes, who evaluates the proposals? That would be that group. That group? Right. Okay. So we're giving the unions... Yes. By, say, or by and to... That's the intent. Which of the consultants... The union and the management representatives and legal all the way through. And legal counsel is designated as part of the negotiations of the district. And who's the management representative? I'm a legal counsel. The district manager and legal counsel. Oh, the manager. Okay. You mean the management group? Yeah, for the management group. That was Josh, James, and... You? No. Josh and James, I guess one and a third. Okay. So, and we lost two of the representatives, one for classified, that was Adam, got retired, and of course we lost Josh. So they have some work to do to elect a new representative for them. They haven't done that yet. They have not done that. So... I have not been notified. Get further language in there on the benchmarking of and how that would be done. And then I agree. Waiting for how we evaluate these. Simplify that. It's gonna be on costs. Or most of it on that. Okay. Then let me make a motion first and then I'll go out for any public comments on this. I wanna move that the draft requests for proposal be revised based on comments. Receive this evening from the board and be solicited for a report on requests for proposals to be submitted. Bids be solicited. Isn't that clear enough? No. Okay. Proposals submitted, not requests for proposals. Right. I want to move that we recommended the draft request for proposal as amended with comments from the board be released and the bids be solicited for complete comprehensive salary benchmark study. Second. Okay. Thank you. Any comments from the public on this item? Seeing none here. Seeing none from our virtual attendees. Holly. President Smalley. Yes. Vice President Hill. Yes. Director Ackman. Yes. Director Falls. No. Director Mayhood. Yes. Okay. Motion passes for the one. Okay. The consent agenda. Anybody want to comment on those? One item, the 1723 board minutes. Adding three words to a particular line. Okay. Like to propose on page 26 where it says Director Falls is upset this item was not bid on. I'd like to add the words per board policy. Any objection? I don't have an objection to that. Jeff and I were the other board members in attendance. So. Okay. Right. Thank you. I think we do need to vote on it. So I'd like to move. Oh, we need to vote on the change. Yeah. I'd like to move the change be added to the 1723 board director minutes. The words per board policy added after Director Fultz has upset this item was not bid on. I'll second that. Cut off. Does any comment from the public? Oh, okay. Any comment? Seeing none. President Smalley. Yes. Vice President Hill. Yes. Director Ackman. Yes. Director Falls. Yes. Director Mayford. Same. I wasn't there. Okay. We have no written communications, no other informational items. Based on that, I think we can adjourn. Thank you everybody.