One of the big questions is what happens if Measure P passes. There are those who believe it would not be a huge impact for the city to have Measure P pass, as they would simply be able to pass new water rates. There is a political argument against that viewpoint, but as the city analysis shows, there are fiscal and policy arguments against that, as well.
If Measure P passes, the water rates would be repealed in their entirety. “If repealed, with no other action by the Council, the water rates in effect prior to May 1, 2013 would be reinstated because these were the rates replaced by the (Ordinance) 2405 rates.”
The impartial analysis prepared by the City Attorney states, “If passed, Measure P would not be retroactive and passage would not provide a basis for refund of 2405 rates already paid. Prior to the Measure P vote, the City may consider modifications in water rates, subject to compliance with requirements of the California Constitution (‘Proposition 218’) and without voter approval.”
Harriet Steiner continues, “If Measure P passes, the City Council, after complying with Proposition 218 could propose and, absent a majority protest from ratepayers, could modify and/or increase its water rates in the future without voter approval.”
City staff notes, “On February 26, 2013, the City Council approved the Amended and Restated Woodland-Davis Clean Water Agency Joint Powers Agreement (JPA). The Agreement contains sections regarding Termination (Section 10) that carry significant cost concerns in light of Measure ‘P’.”
The agreement may be terminated, but only by mutual approval of the parties and it cannot be dissolved “until all debts and liabilities of the Agency have been discharged or assumed in accordance with this Agreement and the dissolution agreement. This would include direct, actual and reasonable costs to redesign the Project Facilities to accommodate Woodland, amounts due to the WDCWA [Woodland Davis Clean Water Agency] and construction costs to date. Also, the city has an outstanding obligation to purchase its share of the 10,000 AFA [acre-feet per annum] water right from the Conaway Preservation Group (CPG). Davis’ share of this purchase is $36.5 million.”
Staff notes, “Passage of Measure ‘P’ would limit the ability of the City to meet deadlines stipulated in the agreement and affect the City’s ability to pay its obligations. In effect, passage of Measure ‘P’ can trigger the Termination Sections of the JPA.”
That alone would suggest to both sides that Measure P is a good deal more powerful than some have dismissively suggested.
Staff continues, “City staff has reviewed the fiscal and legal impacts if Measure P were to pass and has determined that the passage of Measure ‘P’ could have several adverse cost impacts. These impacts assume that the City will not be able to timely adopt new water rates that fully cover the upcoming costs of the DWWSP [Davis-Woodland Water Supply Project] and provide this funding within the timelines necessary to avoid a default on the City’s obligations for this project.”
Staff estimates that it would take 75 to 90 days (two and a half to three months) to adopt new water rates.
The city highlights several key impacts. First, “Davis will not be able to proceed with financing of the DWWSP and will not have funds to proceed with the remainder of the Davis Water improvement projects.”
There are huge financial impacts of up to $25 million for the city of Davis, but the bigger problem is that damages to Woodland would be around $50 million.
City staff estimates, “Davis would likely miss the opportunity to finance the DWWSP and other Water improvements at the lowest interest rates. This has the potential to cost Davis residents over $100 million in long term project costs.”
Third, “If the City cannot perform its obligations to fund construction of the DWWSP and foregoes its chances to conjunctively use surface water to meet the demands of its residents, then the City will be mandated to retrofit at least 12 groundwater wells to treat for hexavalent chromium. The construction costs for wellhead treatment are estimated at $1 million per site or a $12 million immediate impact. The City does not have reliable estimated costs for the annual O&M costs for this treatment and removal but it could easily exceed $1 million annually.”
Finally, “If the City cannot perform its obligations to fund construction of the DWWSP and foregoes its chances to conjunctively use surface water to meet the demands of its residents, this will adversely impact the design and operation of the wastewater treatment plant improvement project. The City’s Wastewater NPDES Permit adopted in October 2013 contains water quality standards for Selenium and Electrical Conductivity that can only effectively be met with the City migrating to surface water or conjunctive use (combining surface water and deep wells). There are no viable solutions to meet these water quality standards through improvements at the wastewater treatment plant.”
Staff argues that the water system is an enterprise fund, funded through water rates, and city staff “cannot determine with any certainty the impact on the City’s water rates if Measure P is adopted and the aforementioned default and penalty payments are incurred and Davis no longer participates in the DWWSP.”
In their conclusion, staff writes that they believe, “City must do whatever it takes to avoid the possibility of defaults on the DWWSP and the consequence of penalty payments to either Woodland or the WDCWA. This includes investigating the cost and availability of interim financing to cover the costs that would need to be expended to preserve the City’s participation in the WDCWA and reduce or eliminate the risk of default costs.”
At present, the City has expended over $13 million participating in the project. Staff writes, “The best way to protect this investment and reduce default costs, which would be significant, involve increasing water rates to cover these interim financing costs but also reducing the debt service though one of the scenarios outlined above. This recommendation would require the City to make proactive changes in rates that reduce the revenue generated from those approved in Ordinance 2405 by approximately 8%.”
Staff recommends, “Upon certification of the Measure ‘P’ election results, if necessary, immediately initiate the Prop 218 notification and majority protest process required by state law to implement a series of new rates to go into effect over the next five years. If rates can be reduced pro rata across all rate classes, rate decreases can be considered and adopted without a new Prop 218 notification, which would shorten the time needed for new rates to go into effect by approximately 45-60 days. If a new Prop 218 notice was required, new rates could be effective in 75 to 120 days following the election.”
—David M. Greenwald reporting