Tuesday, February 24, 1998

MINUTES OF A REGULAR MEETING
of the
BOARD OF DIRECTORS OF THE MONTECITO WATER DISTRICT
held at the
DISTRICT BOARD ROOM
583 SAN YSIDRO ROAD, MONTECITO, CALIFORNIA
at 3:00 p.m. on TUESDAY, FEBRUARY 24, 1998

The meeting was called to order by President Puddicombe at 3:00 p.m.
Those in attendance were:

Present:	Directors Abel, Campbell, Jones, Puddicombe Wilson
Absent:	None
Also Present:	C. Charles Evans, General Manager/Secretary Chip Wullbrandt, District Counsel Tom Mosby, Engineering Manager Cathy Muneio, Secretary Laura Menahen, Engineering Assistant David Houston, Smith Barney David Yawitz Carol Valentine Mr. & Mrs. Harry Edmonson Don Iselin Sam Frye Jim Buckley, Montecito Journal Dick Nordlund James Langhorne, Montecito Fire District

PUBLIC HEARING ON DISTRICT LONG RANGE PLAN AND
FINANCING AND DISTRICT RATES AND FEES

President Puddicombe introduced Board and staff present and welcomed the public to the hearing to discuss the proposed District long range capital plan and financing and District rates and fees.

The General Manager gave a history of the District’s infrastructure changes and the proposed capital improvement plan. He indicated that the District currently was replacing 10 miles of pipeline and was paying for this under the Water Availability Charge Program. He said that 39 pipeline replacement projects were being constructed along with upgrading and installing several pump stations to deliver State Water and Cachuma water to all areas of the District. Twenty miles of pipeline will be replaced over the next few years and 16 miles of pipe will be replaced in the years 2009-11. He said that 50% of the 90 miles of pipe was installed in the 1920’s which is in need of replacement. He also said that with the replacement of the necessary pipelines, fire protection will be greatly improved throughout the entire District. The proposed financing program will finance the above projects through 2008 plus other necessary projects such as the Bradbury Dam seismic work and the covering of the Ortega Reservoir, which is expected to be required by the State Department of Health by the year 2001. He stated that, because water is much more costly now, it should not be allowed to be lost through leaks and breaks.

The General Manager identified the following capital projects that would be financed by the proposed finance plan.

Dave Houston of Smith Barney presented the financing program for the proposed capital improvement program. He reviewed with the Board graphs on the capital improvement debt and the projected water rate increases. He said that with this program water rate increases will gradually grow into the capital program. He said that the bonds could be retired after ten years and debt could be refinanced at that time. He stated that financing at this time is very favorable because interest rates are at their lowest in 20 years.

The General Manager stated that the current 5.1 million dollar capital program is being funded by Santa Barbara Bank and Trust and that the new program will replace that loan, which financing will be at a lower interest rate.

The General Manager indicated that the two tier domestic rate came about during the drought period, but it has been concluded by a majority of the Board of Directors that the Board would prefer to have a one tier rate. He also said the District was proposing to increase service charges by 15%. This would be an overall increase of 6.3%. Resolution No. 1851 provides for raising the service charges and deleting the first tier water rate and the multi-unit rate. He explained that the hearing was to hear public input and that the Board would consider this resolution at its February 26, 1998 meeting.

Director Campbell spoke on behalf of the Finance Committee. He said that the value of water is now much greater and that losing water through leaky pipes is costly. He also said that water helps in keeping landscaping green which keeps the property values up. He said that when you don’t have water you pay a high price. He said that during the drought the District needed to find water and the public encouraged the District to participate in the emergency desalt plant which was at a costly price. The community also voted on State Water which is expensive. The District needs to find a way to pay for this water. He said that the District has accumulated some reserves but not enough to cover all these expensive costs and those proposed in the capital program. Director Campbell also said that there have recently been substantial environmental costs that were not there in earlier years. The recommendation of the Finance Committee would be to substantially increase the water rates and service charges. Prior to now, supply was the issue most focused on, and now having a satisfactory distribution system to supply this water is the focus. He said that the capital program and finance plan was necessary due to time constraints because the District could not raise rates and charges in such substantial amounts as to be able to pay for the current capital projects. Director Campbell said that he feels that service charges need to be increased more than is currently being proposed. Director Campbell said that the Finance Committee recommended that the Board adopt this program and deal with raising rates and charges annually.

Director Wilson, another member of the Finance Committee, said that the Board had studied several plans. He said that it was a little late for a "pay as you go" plan.

Jim Langhorne of the Montecito Fire District said he was very grateful that the District realized the need for infrastructure improvements and that the discussion was not what needs to be done, but how it is going to get done.

Dan Iselin indicated that the District should emphasize conservation in the future. He also said that he was very impressed with the District’s proposed capital program and felt that the proposed financing was appropriate. He said that perhaps the Board needed to present it to the community, as was done at the public hearing at the school for the Bella Vista Treatment Plant financing.

David Yawitz stated that he was opposed to the financing. He felt that the District should greatly increase District rates and charges immediately and pay for the needed capital projects and other costs on a "pay as you go" basis. He said that the District was in dire straits, and that the District was not well enough protected financially in case of wet years when less water is sold. He said he would like to meet with the Board to further discuss the District debt payments and where the revenue for those payments was earmarked. The Finance Committee indicated it would meet with Mr. Yawitz to discuss this.

Carol Valentine stated that she does not believe in paying interest. She asked for a current level of debt for the District.

Dick Nordlund said that he wondered if the District could not get lower interest, tax exempt financing since the Montecito Union School District recently completed a financing at 4.9 percent, as opposed to the interest rate in the District’s financing of 5.41 percent. Dave Houston said his firm Smith Barney provided the School District’s financing and that the 4.9 percent did not include the financing costs. He also said that estimates were conservative in the District’s financing table, and that a recent West Basin Municipal Water District financing had been at a total of 5.1 percent.

Sam Frye said he was very happy for now with the District’s proposed rate increases because it protects the agricultural water rate, and the 15 percent service charge increase can be planned for and accepted.

Note: The agenda for this meeting was posted at the front counter and outside front wall at the Montecito Water District on February 20, 1998.