LAFCO considers all aspects of detachment

Joe Naiman

Village News Reporter

The Local Agency Formation Commission decision about allowing the Fallbrook Public Utility District and the Rainbow Municipal Water District to detach from the San Diego County Water Authority and join the Eastern Municipal Water District has been deferred to LAFCO’s Aug. 7 meeting.

A 5-3 LAFCO vote June 5 approved a motion to continue the hearing for 60 days. County Supervisor Joel Anderson, Solana Beach City Council Member Kristi Becker, Vista Irrigation District Board Member Jo MacKenzie, public member Andy Vanderlaan, and San Diego City Council Member Stephen Washburn voted to delay the vote by two months. County Supervisor Jim Desmond, Escondido Mayor Dane White, and Alpine Fire Protection District Board Member Barry Willis opposed the continuance.

LAFCO staff presented five options, including approving detachment (conditional upon approval by FPUD and Rainbow voters) with an exit fee. The recommendation did not provide a specific number for the exit fee amount.

“We were just given one option. I like to make decisions when I have more than one option,” MacKenzie said.

The LAFCO meeting began at 8 a.m. and the vote to continue the hearing was after 3 p.m. Vanderlaan expressed preference for a delay rather than a hasty decision. “We have too many items that came up in the discussion,” he said.

The LAFCO staff options will include specific amounts and also address whether FPUD and Rainbow past payments for an Emergency Storage Project facility serving those areas which would not be built should be credited towards the exit fee. The number of years FPUD and Rainbow would be paying the exit fee will also be discussed with options provided.

The delay in the vote until August will also allow consideration of the San Diego County Water Authority rate increase. A May 25 SDCWA board vote set a June 22 hearing date for the SDCWA to approve rates and charges for calendar year 2024.

FPUD has been part of the San Diego County Water Authority since the SDCWA was formed in 1944. Rainbow was formed in 1953 and received CWA membership in 1954. The Metropolitan Water District of Southern California began delivering water to San Diego County in 1947.

MWD's San Diego Aqueduct conveys water to a delivery point six miles south of the Riverside County line, which allowed MWD and the CWA to provide equal contributions for the connection between MWD's Colorado River Aqueduct and the San Vicente Reservoir in Lakeside. The CWA northern boundary is the county line. All but one of FPUD's connections are from MWD pipelines rather than from CWA pipelines, and four of Rainbow's eight connections are to the MWD portion of the pipeline.

The CWA's supply rate is a melded rate which melds the cost of water delivered from MWD, water purchased from the Imperial Irrigation District under the Quantification Settlement Agreement (QSA), and water produced by the Claude "Bud" Lewis Carlsbad Desalination Plant in Carlsbad.

The CWA also has transportation, storage, and customer service charges along with fees and charges for fixed expenditures which are incurred even when water use is reduced. FPUD and Rainbow believe they can reduce their cost of purchasing water – and thus their rates – by detaching from the CWA and becoming part of another MWD member agency.

The Eastern Municipal Water District is a member of MWD and purchases imported water directly from MWD. The Western Municipal Water District is an MWD member and provides retail water sales of MWD supply to the Elsinore Valley Municipal Water District as well as to the Rancho California Water District.

If FPUD and Rainbow detach from the CWA and join Eastern, their status would be similar to that of the two water districts which obtain MWD water from Western. The Eastern Municipal Water District currently covers 555 square miles and includes Hemet, Menifee, Murrieta, Perris, Romoland, San Jacinto, Temecula, and Winchester.

FPUD and Rainbow filed LAFCO applications in 2020 after beginning discussions about the reorganization in 2019. Although the two applications are separate, the LAFCO hearings address the reorganization for both agencies. Each county in California has a LAFCO which handles jurisdictional boundary changes including incorporations, annexations, consolidations, and detachments within that county.

Eastern is in Riverside County, but in October 2019, San Diego County’s LAFCO approved a memorandum of understanding with Riverside County LAFCO which delegated the potential reorganization entirely to San Diego LAFCO.

Under state legislation regulating LAFCO agencies, a LAFCO board has the option of requiring a public vote on a reorganization and a protest vote may also take place if petitions signed by at least 25% of an affected agency's ratepayers or registered voters are received by LAFCO (if the petition includes a majority of the electorate the reorganization is denied without a vote).

The County Water Authority Act requires a majority vote of the electorate of an agency which detaches from the CWA. The May 2020 LAFCO meeting included a stipulation for a public vote, and the motion also created a technical advisory committee.

In May 2020, the CWA voted to oppose detachment unless it can be demonstrated that FPUD and Rainbow can guarantee that all obligations promised to their own ratepayers are met, that the detachment will not adversely affect the other 22 CWA member agencies or the county as a region, that the detachment and annexation into the Eastern Municipal Water District will not increase reliance on the Bay-Delta, and that the detachment will not reduce the CWA's voting power at MWD board meetings.

LAFCO’s June 2020 meeting approved a detachment advisory committee consisting of one representative from FPUD, one representative from Rainbow, one representative from the SDCWA, two board or staff members from other CWA member agencies, one representative from LAFCO's Special Districts Advisory Committee, one representative from LAFCO's Cities Advisory Committee, one at-large member from the County of San Diego with expertise, one at-large member from the San Diego Association of Governments with expertise, and one member from the Eastern Municipal Water District.

The committee was tasked with reviewing key assumptions, documenting the differences in proposals, identifying key stakeholders, topics and firms for LAFCO consultants, and legal topics. The potential terms included compensation, infrastructure improvements, and special taxes or other assessments, and the committee was allowed to identify and consider alternative options.

Michael Hanemann was selected as the consultant for the committee. Hanemann began identifying water supply reliability, water rate impacts, and potential departure payments.

Hanemann’s report concluded that the CWA’s supply of QSA and desalinated water made the CWA a more reliable supplier than Eastern, whose local sources would not be able to serve FPUD and Rainbow, but that reliance entirely on MWD water would mean higher costs for FPUD and Rainbow rather than an elimination of water during drought periods.

During the June 5 hearing, Hanemann addressed why CWA wholesale rates have increased more than MWD wholesale rates. “Water is very infrastructure-dependent,” he said.

Reduced water sales result in rates being raised to cover fixed costs. He noted that growth in the EMWD territory and reduced usage in the SDCWA area made rate increases less likely for Eastern than for the CWA.

Hanemann concluded that the annual savings based on 2022 data – he was reluctant to address future years due to continued declines in CWA usage – would be $4.8 million for Rainbow and $2.9 million for FPUD. That would equate to savings of 35% for FPUD and 21% for Rainbow. The CWA would lose $12.6 million of annual revenue from the detachments, which would be a loss of about 2%.

Hanemann rejected both the CWA’s request that FPUD and Rainbow pay an exit fee of $1 billion and the FPUD and Rainbow request that no exit fee be assessed. “It’s not payment for water delivered,” he said. “It’s payment for water that was received in the past.”

LAFCO staff recommended exit fee payments for five years. Hanemann supported a term between three and 10 years. “It’s meant to be a transitionary payment,” he said.

The LAFCO staff proposal would allow the exit fee totaling $24,305,000, which would equate to $4,861,000 annually. Rainbow would pay 65% while FPUD would pay 35%.

The average monthly savings for FPUD and Rainbow households would be $23.50. The average cost per SDCWA household would be $2.20 per month, and the exit fee amount proposed by LAFCO staff would cover that cost for the next five years.

LAFCO staff also noted that the CWA would lose more revenue from potable reuse projects by agencies which have no plans to leave the regional water agency. The City of San Diego, East County (Helix and Padre Dam), and Oceanside projects would reduce demand by 50,000 acre-feet annually by fiscal year 2028-29 based on the CWA’s own estimates. That would result in annual lost revenue of $47 million, or 9.4% of CWA revenue.

The LAFCO staff report also noted that the CWA would save approximately $38.6 million if the Emergency Storage Project’s North County Pump Station doesn’t need to serve FPUD and Rainbow.

If FPUD and Rainbow detached, the CWA would lose approximately 0.3%of its MWD weighted vote to Eastern. LAFCO staff reviewed recent MWD votes, and out of more than 900 votes, only three were decided within or close to the 0.3% margin. Two were procedural votes and one was for the contract of the MWD general manager which was close to but not less than a difference of 0.3%.

LAFCO staff also concluded that MWD and EMWD emergency response plans would allow continued provision of water during a catastrophic event. Additionally, Rainbow and FPUD have a combined storage of more than 2,000 acre-feet which would allow for 73 days of average use should other supplies be unavailable.

The Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 establishes procedures for local government reorganization. The CWA requested non-district status under that act, so between the County Water Authority Act and the non-district status, LAFCO staff concluded that a detachment vote could not cover the entire CWA service area although LAFCO has the authority to include EMWD territory in the detachment election.

LAFCO initially adopted a policy on preservation of open space and agricultural lands in November 1978 and most recently amended that policy in October 2020. LAFCO analyst Priscilla Mumpower noted that the high cost to purchase water from the CWA jeopardizes agriculture in the FPUD and Rainbow districts. “The proposal will significantly enhance and protect agriculture,” she said. “These detachments will provide an appropriate and needed lifeline.”

“It’s really about the cost of water,” said FPUD General Manager Jack Bebee. “That differential is significant and it’s growing.”

FPUD water demand has decreased from approximately 20,000 acre-feet during fiscal year 2006-07 to approximately 7,000 acre-feet. “This trend is pretty clear,” Bebee said. “Declining demand creates a real challenge for water agencies.”

Bebee noted that most of FPUD is north of the SDCWA delivery point. “Water is really about infrastructure, not county lines,” he said.

Although the County Water Authority Act allows detachment only by a vote of the agency desiring to detach and does not stipulate an exit fee, Bebee believes a five-year exit fee which covers the impact to the other 22 agencies is a fair compromise. “With that exit fee they’ve come up with a way to mitigate that impact for five years,” he said.

Bebee also noted that the Quantification Settlement Agreement doesn’t reflect CWA infrastructure costs. “The QSA is a contract. They didn’t build a bunch of facilities,” Bebee said. (Some of the QSA activity involved canal lining so that water wasn’t lost into the ground.)

Rainbow General Manager Tom Kennedy noted that the savings rounded up to $40 million from not building the Emergency Storage Project’s North County Pump Station to serve FPUD and Rainbow are likely now greater than that amount. “That was $40 million years ago,” he said.

Kennedy also noted that reliability only applies for actual users. “If the cost of that reliability puts you out of business what good does it do?” he said.

“We’ve lost tens of thousands of acres of groves,” Kennedy said. “Delays in detachment will mean more groves will be lost.”

The SDCWA does not cover all of San Diego County. Some parts of the county are east of the CWA boundaries, and California American Water serves Imperial Beach, Coronado, and part of Chula Vista. The CWA’s 24 member agencies provide water to approximately 3.3 million county residents.

“The detachment would harm San Diego County by raising rates for more than three million ratepayers, businesses, and farmers,” said SDCWA general manager Sandy Kerl.

Kerl noted that the CWA avoided mandatory water cuts other areas experienced due to the CWA’s investment in supply. “Water reliability is the defining issue for our time,” she said. “We must plan in advance and spend billions of dollars.”

Mark Hattam was the CWA’s general counsel before transitioning into a special counsel role. He noted that FPUD and Rainbow have 12,618 acres of agricultural land while 29,028 acres in the other 22 agencies are agricultural and would be impacted by the loss of FPUD and Rainbow revenue. “There is no analysis of effects on ag,” he said.

“Detachment will affect all of the 24 water agencies,” said Helix Water District general manager Brian Olney. “We do not feel that it should be approved.”

CWA board vice-chair Nick Serrano is one of the City of San Diego representatives on the CWA board. Serrano noted that the CWA weighted vote at MWD would be transferred to a Riverside County agency. “If detachment is approved collectively, LA and Riverside will have an even greater say over San Diego,” he said. “The interests of San Diego County versus LA are very different.”

Jennifer Jeffries has lived in Fallbrook for 32 years and told LAFCO that the CWA had been successful for decades. “Times have changed. Issues have changed. We need to change,” she said.

“Our interests are not being served,” Jeffries said. “We should not be required to be in a one-way suicide pact.”

Suzanne Walton had approximately 400 trees on her property before removing them due to high water costs. She noted that the trees attracted wildlife and beneficial insects including bees in her grove. “I haven’t seen that in a long time. My neighbors have to rent hives now,” she said.

“Our avocado farmers, other growers in ag, are disappearing,” said Fallbrook Community Planning Group Chair Eileen Delaney. “This will be one more region in our country where farming and local food supply would be lost.”

Delaney is willing to support an exit fee to cover the five-year impacts to the other 22 agencies. “That option is fair, reasonable, and equitable,” she said

“All agriculture is water. If you want to grow crops, you need to water them,” said second-generation farmer Duane Urquhart.

Urquhart noted that farmers have already become more water-efficient and can no longer reduce use through additional efficiency with current technology. He also noted that farmers going out of business would reduce CWA revenues. “Without the water cost savings there is going to be a decline in additional water sales,” Urquhart said.

Urquhart added that environmental and farmworker safety standards would be better if crops were grown in the United States than abroad. “The bulk of our produce and fresh fruit isn’t grown in the U.S. any more,” he said.

Jon Frandell noted that the 2% impact to the other agencies is less than the CWA’s expected rate increases for 2024 and 2025. “That is a fairly insignificant impact on the Water Authority,” he said.

California Avocado Commission vice-president for industry affairs and operations Ken Melban told LAFCO that FPUD and Rainbow have 20% of all California Avocado Commission growers and account for approximately 10% of total market value. “Our growers are hurting,” he said. “What you have is an opportunity to address the hurt they’re feeling.”

Melban told LAFCO that California produces approximately 90% of avocados grown in the United States including 100% of Hass avocados. “They’re not looking for a handout,” he said.

Rainbow board member Miguel Gasca noted that the CWA emergency water supply wouldn’t reach Rainbow’s elevation levels. “That’s not reliability,” he said. “We’re paying. We’re not getting the benefit.”

Farmer Kurt Bantle noted that Fallbrook’s soil and slope conditions limit the ability to grow crops which require less water. “We don’t have the option to just transition to other crops,” he said.

Bantle noted an environmental benefit of the trees being able to be retained. “We sequester a lot of carbon,” he said.

“The Fallbrook region has already lost thousands of acres and millions of trees that sequester carbon,” said Stephani Baxter.

“The cost of water is just sinking the region’s economy,” Baxter said. “We were encouraged to conserve. Now we are being punished.”

FPUD board member and protea grower Dave Baxter noted that he has been able to reduce water usage by 31%. “Our rates, however, have gone up 48%. It’s not sustainable,” he said.

“The skyrocketing costs of water from the San Diego County Water Authority have had devastating impacts,” said second-generation farmer Jason Kendall.

“It is important to save us from escalating costs,” Kendall said. “This is something we must do to ensure the survival of agriculture.”

Tim O’Leary noted that Fallbrook and Rainbow have more in common with Riverside County than with San Diego County. “We as North County residents are joined at the hips of Southwest Riverside County,” he said.