SANTA BARBARA COUNTY GRAND JURY 1995-96

THE CITY OF SOLVANG AND STATE WATER

Released: June 17, 1996

Looking Back

Looking back, City Council members of that time told the Grand Jury that they had thought that all of ID #1 would "share equally" in the water, not that Solvang would be responsible for 75% of the costs. One said that it "never dawned on (him) that there would be a contract until August 26." He told the Grand Jury that he had "assumed (there was) full disclosure (of all the costs), but there wasn't." He also informed the Grand Jury that he thought the vote was based on emotion and in reliance on the General Counsel for ID #1."54 Another told the Grand Jury that there were a "million opportunities to be forthcoming (and that) over the years (Solvang) had a great deal of confidence in the attorney for ID #1."

Council members of that time told the Grand Jury that they thought that Solvang could afford the annual $1,500,000 they had agreed to pay.55 Not one said that he or she had factored in inflation and other costs. When asked when he first found out about the higher costs, a former Council member said, "I read it in the papers, just like everybody else. We were shocked. If anybody would have told us those numbers in open meeting, we would never have voted for it (in Council.)" He told the Grand Jury that he had estimated the cost to be "about $800 per acre-foot." The Grand Jury was also informed by him that the problem was that Solvang had no full-time legal representation. Another 1991 Council member said that there was no financial analysis done by the newly hired City Manager and that "the staff failed us."56

In January 1995, a citizen of Solvang presented to the City Council the results of his study that showed that instead of $13.8 million plus interest, the costs would be in excess of $66 million, which, with the DWR bond payments, would bring the cost to $81.6 million. The Council consulted with CCWA and discovered that the costs carried through 2035 would be $84.5 million. Council members told the Grand Jury that they had not realized until 1993 that the DWR bond payments would be part of their annual State water bills.

The Grand Jury was told that in 1993 the city had received from ID #1 a copy of the bond schedule. The schedule showed only CCWA costs. In August 1993, the city received a copy of an invoice that had attached to it a five-year projection showing DWR costs. All ID #1 representatives interviewed by the Grand Jury said they knew that the DWR payments were included and that Solvang also should have known.

All Solvang officials and citizens interviewed told the Grand Jury they did not believe that the K91 Ballot measure asked for an ID #1 total commitment for anything more $18.4 million plus interest for local facilities, or approximately $1,000/year costs per acre foot for each of Solvang's 1,500 AF. Representatives from ID #1 were equally vehement that the present estimated costs to Solvang should not have been a surprise, given inflation, the withdrawal of San Luis Obispo, and the construction of the Polonio Pass filtration plant. Because of the opposite views expressed, the Grand Jury decided to examine ballot measure K91 and the process of putting the bond measure to a public vote.

THE K 91 BALLOT MEASURE

History

The purpose of the June 4, 1991 election was for the voters in each water purveyor district to decide whether to adopt various ordinances that had been drawn up by the water districts. The ordinances would authorize participation in the State Water Project, as allowed by the State Water Contract. This contract was adopted by Santa Barbara County Flood and Water Control District on February 26, 1963 after the pro state water vote in 1960.

Proposition 1 was on the November 8, 1960 ballot after a long campaign by Governor Edmund G. "Pat" Brown to bring Northern California water to Southern California. The 51.3% state-wide favorable vote set in motion the construction of the State Water Project. The water users were to pay for the bonds and interest; the state was to build the joint use facilities to store and transport the water. The 1960 ballot measure read as follows:

Close to 90% of eligible voters voted in that presidential election year. Santa Barbara County voted 33,714 (58.46%) in favor to 23,960 opposed. In 1963, the county signed the Water Supply Contract with the state, formalizing its entitlement to 57,700 AF, an amount based on the projected future needs and the state's estimate of the County groundwater overdraft. County water users paid 4% interest on the bonds to hold the option to participate in the State Water Project.57

On March 6, 1979, there was a county-wide election to decide whether to participate in the State Water Project. The ballot measure, Measure A, read in its entirety as follows:

Along with the Impartial Analysis written by the County Counsel, there were ballot Arguments in favor and in opposition to the measure. The Santa Barbara County Flood Control and Water Conservation District paid for a Special Report on the State Water Project that was distributed as an advertising supplement to the County newspapers during the week of February 18, 1979.58 This four-page 11" x 14" Special Report provided maps, spreadsheets and descriptions of Measure A. Included were Measure A's background, its description, costs to individual water users (if the measure should pass), and a description of the 1979 and future predicted water shortages.

According to that Report, had Measure A passed, ID #1 would have received 2,100 AF in the year 2000. Increases for individual municipal users in 2000 would have increased by 115% if all the costs were spread equally, or 375% if the then - and now - current rate structure of low rates for agricultural users were maintained.59 No such county-wide or individual district-wide report was issued in 1991.

In 1979, almost 70% of Santa Barbara County said "No," with 43.6% of the registered voters voting. Santa Barbara City voted 74.7% "No"; in both Lompoc and Santa Maria, slightly more than 74% voted "No." In the Solvang Municipal Improvement District, voters said "No" by a margin of 63.9% to 34.8% with 49.4% of registered voters voting.

Measure A called for too much water for too much money and those who were opposed to growth prevailed, a water specialist told the Grand Jury. In the late 1980's, the water purveyors consulted various studies to determine the extent of the groundwater overdraft. County-wide, the estimates ranged from 60,000 AF to approximately 85,000 AF. Stetson Engineering estimated the overdraft in the Santa Ynez Uplands Basin to be 4,400 AF.60 In 1983, the County Flood Control District put together the Water Supply Retention Agreement that formalized the allotments to the various purveyors. For the cost at that time of $20 or $30 an acre-foot, ID #1 was to receive from the County Flood Control District an option to obtain 2,000 AF, relinquishing its earlier requests for 3,000 AF and then 2,100 AF. And in return for the option, ID #1, along with the 17 other water and services districts, would agree to "assume the future costs for the delta water charge to maintain the State Water Contract for such requested retention."61

Between 1982 and 1989, County property owners continued to pay on their property tax bills a county-wide tax for a portion of the State water contract. During that period county water purveyors discussed how to bring State water to Santa Barbara County. In 1989, the entitlement rights and county contractual rights were transferred to the water purveyors. With the ending of the proposed and preferred enlargement of Lake Cachuma because of environmental concerns, ID #1 decided to participate in the State Water Project. The Water Supply Retention Agreement required that any district planning to build local facilities with revenue bonds should have an election so as to be able to participate in the State Water Project.

In 1991, 13 separate water district elections were scheduled to authorize water districts to issue bonds of varying amounts depending upon the amount of their water allotments. Only the ballot measures for Santa Barbara City and four other water districts include the complete Ordinance. All the elections were advisory except Santa Barbara City's Measure T1, directing participation for 3,000 AF. Santa Maria, whose City Council had decided in April to take State water without a city-wide vote, did not participate. All except three, Lompoc, Mission Hills, and Vandenberg Village, received favorable votes with margins ranging from 55% in Santa Barbara City to 75% in Buellton. There was only a 38% voter turnout in Solvang for the June 4 election, and the bond measure received a 74.5% (1726 voters) favorable vote, while 25.5% (591 voters) said "No."62

The June 4, 1991 Election

K91 was the ballot measure for ID #1. The Grand Jury was informed that it was written jointly by the General Counsel for ID #1 and the bond counsel. It is one sentence of 232 words in 10 point bold face type. No part of the measure is italicized or otherwise emphasized. The Grand Jury found that the Microsoft Word 6.0 "grammar check" notes that a reader should have between a 10.7 and 13.3 grade education, and that 60.4% of the readers should be able to understand the ballot measure.63 K91 asks whether Ordinance No. 91-1 of ID #1 should be passed, but nowhere with the ballot is there a copy of the complete Ordinance. The Grand Jury was told that the Ordinance was not available in the polling places. However, it had been available by mail from the Santa Barbara County Elections Division and that was stated at the end of the Impartial Analysis.

The 1991 ballot measure read as follows, with a box on the side to check Yes or No:

The Impartial Analysis was signed by the General Counsel to ID #1, as provided for in the Election Code 9314 for Special Districts. The Impartial Analysis states that approval by the voters "will not compel the District to participate in the State Water Project. Its purpose is to authorize the District to participate...."64

The Santa Barbara County Elections Division told the Grand Jury that the ballot and the Impartial Analysis should be written in layperson terms, and, based on the legislative analysis of Election Code 9087 (see end note 64), ballot and analysis should be able to be read by an average voter, one with a 6th to 8th grade reading ability. The Grand Jury ran the K91 Impartial Analysis through the Microsoft Word 6.0 "grammar check." Using the same Microsoft tests mentioned above, the Grand Jury found it requires a reading level of grades 11.5 to 13.9, and that 38.7% of the readers can be expected to understand it.

The following is the 478 word Impartial Analysis that accompanied the K91 ballot measure:

Issues And Processes

An Argument in Favor of Measure K91 accompanied the Impartial Analysis. It was signed by the President of the ID #1 Board, the Manager of ID #1, the Mayor of Solvang, and the Vice-President of the California Farm Bureau "Formation." Although it does not state that the Mayor is speaking for the City of Solvang, it also does not note the officially expressed concern of a Council member at the May 13, 1991 City Council meeting that "the Ballot argument written by (the Mayor) ... could be perceived as an official action of the Council when it was not."65

The Grand Jury interviewed the Santa Barbara County Clerk-Recorder-Assessor in his role as head of the Elections Division to learn the Election Code requirements for a revenue bond election. The Grand Jury learned that there are a series of steps to be followed, with specified time periods for specific materials to be filed for an election. The Grand Jury was informed that all the steps required by the Election Code were followed for the K91 ballot measure election.66

On January 31, the General Counsel for ID #1 wrote the Manager of the Elections Division, asking for an election to include K91. On February 21, 1991 he wrote a letter to the Secretary of the Board of Supervisors requesting that the matter be placed on the agenda of the Board of Supervisors. He subsequently included the Impartial Analysis, which the Elections Code requires to be no more than 500 words long. He included a copy of relevant sections of the 1963 Water Supply Retention Agreement.

The Board of Supervisors called for arguments. The dates allowed for those arguments, including rebuttal arguments, were between March 14 and April 2, 1991. Publication of the legal ad was on Thursday, March 21, 1991, in the Santa Ynez Valley News, which appears every Thursday and is a newspaper fitting the Election Code description of being the one most likely to be read in the area. The headline of the ad was "Notice of Date Fixed for Submitting Arguments on Proposed Measure." At the end of the ad, there was the following notice: "Arguments for or against this measure may be submitted to the office of the County Clerk-Recorder, Elections Division, County Courthouse, Santa Barbara, California not later than 5:00 PM, March 22, 1991, which has been determined by the County Clerk-Recorder to be a reasonable date based upon the time necessary to prepare and print the arguments. No argument shall exceed 300 words in length."67 There was no argument submitted in opposition to K 91 by the time limit of 5 PM on March 22. Opposing arguments were submitted in Lompoc, Vandenberg Village, Mission Hills, but not in Buelleton.68

From March 14 to March 22, direct arguments could be submitted. From March 23 to April 2, rebuttal arguments could be submitted. The legal ads announcing the various water district elections with a copy of the proposed ballot measure, the formal notice to the public required by the Election Code, appeared in other area newspapers on Monday, March 18, with the same 5 PM March 22 closing date. Santa Ynez Valley had only one weekly newspaper, The Santa Ynez Valley News, published every Thursday. Only for the K91 election was there just one day to submit a Direct Argument in opposition.

From April 3 to April 13, there was a public examination period during which the voters were able to examine the election materials. They were posted in the Elections Division offices and at that time, a voter could have brought suit in Superior Court. Although there were three time periods for formal objections to be made, none was made and no Opposing Argument to K91 was submitted.

All 1991 City Council members told the Grand Jury in interviews that at the time of the election, they did not think they were voting for anything more than $18.4 million plus interest. All said there was no mention of the "senior debt," the DWR costs. They told the Grand Jury they thought they were voting for local facilities to bring in water to ID #1. One said, "The problem was simple. We on the Council and the public misinterpreted the statements. (To us) the limit was $18.4 million." According to a 1991 Council member, "There was nothing about the hidden portion of the debt, and that didn't appear until the bond book (in 1992). ...It is insupportable at this amount and it was hidden." Yet another said, "No one said anything about all the other payments. No one brought it up. If I had known what it would cost, I would not have supported it."

On October 26, 1992, responding in open City Council meeting to an October 22nd News-Press article, titled "Why Solvang Took the Plunge," a Council member read from a prepared statement, "I was and am a supporter of State Water, both as a public official and as an individual. However, I can not emphasize strongly enough that I would not have supported state water either officially or personally if I had had any inkling that my actions would ultimately result in Solvang changing its water policy from state water going from supplemental to primary supply status and assuming 75% of the cost."

Other Council members in interviews with the Grand Jury used the words, "misled" and "deceived" about the costs of State water and the fact that the senior Department of Water Resources debt is part of the cost.

During interviews with Solvang staff, one employee said there was a study done in 1991 by the Director of Public Works and the Mayor, which showed that the cost of filtering Lake Cachuma water would be approximately $900 per AF. As a result, he said, the choice was between spending $900 per AF and getting no new water or spending about $1,000 per AF, an "all-inclusive" figure, he thought, and getting new (State) water. Another, who told the Grand Jury that he never saw the EIR and didn't understand the August 1 contract when he first saw it, explained to the Grand Jury that the Coastal Branch was what was always talked about, that is, the pipeline from Devils Gate to Cachuma, not the state DWR costs. He said that it wasn't until the bonds were going to be refinanced in late 1993-1994 that "the shock hit."

ID #1 representatives equally consistently told the Grand Jury that they believed the Solvang City Council and staff did understand the costs. They stated to the Grand Jury there should have been no confusion because the EIR was available showing the cost of approximately $1,000 AF. The Grand Jury was informed there was information "all over the community," including the EIR and public presentations. The Grand Jury was also told Solvang had been making DWR payments regularly: $18.4 million was never described as a "cap," the jury was told, but that it was "the authorized bond limitation for the intracounty distribution facilities."69

The Grand Jury interviewed a former member of many Santa Barbara water agencies and commissions. The Grand Jury was informed there were many pre-election informational sessions. It was also informed there had been a public presentation at the Solvang Veterans' Memorial Building sometime in the spring with overhead charts and bar graphs, which explained the costs. Approximately 50 people attended the informational meeting, including a News-Press reporter.

The Grand Jury reviewed all the Santa Ynez Valley News issues of that period and found only one advance notice mention of such a meeting on May 30, five days before the election, sponsored by the Santa Ynez Valley Board of Realtors. There was no other newspaper coverage of it. The News-Press reporter told the Grand Jury that because of the great number of similar meetings throughout the county in the spring of 1991, he did not remember attending that particular one. In an attempt to ascertain how much public knowledge of the costs there should have been in Solvang, the Grand Jury requested copies of the bar graphs and projections, which were shown at the Veterans' Memorial Building. It was advised that all the computer files relating to the EIR had been deleted in October 1995.

The Grand Jury researched newspaper articles in both the Santa Ynez Valley News and the Santa Barbara News-Press for the months preceding the June 4, 1991 election to find any news story stating what would be the projected costs or explaining that the costs would include payments to the DWR. It found none. Nor did it find any projection of costs, similar to that in the 1979 Santa Barbara County Flood Control's Special Report on the State Water Project, explaining to Solvang voters what their water bills would be if they voted in favor of K91.

SOLVANG'S CHALLENGE

State water should begin flowing to Solvang in fiscal year 1996 when 470 AF are scheduled to arrive.70 The 1996 payment will be $1,428,075, which includes $563,541 to the DWR. By the year 2,000, Solvang ratepayers will be required to pay $2,804,807 of which $1,109,076 will be DWR charges.71 Because the water charges result from the "pass-through" take-or-pay contract, they are not recorded as a liability on the city's Comprehensive Annual Financial Report.72 In addition to increased water costs, the Boyle Draft Master Plan shows needed improvements to the existing water system are estimated to cost $3,956,000 of which $745,000 is for necessary and specific improvements to receive State water.73

Because of its tourism base and because it has relatively large house lots for its predominately single-family residences, Solvang's per capita water consumption is approximately 281-320 gallons per day, as compared with the California average of 125-160 gallons/day/capita.74 However, even as population has increased, consumption has dropped.

The present cost of water to Solvang from its three river wells is approximately $300 AF, the Grand Jury was informed. In 1994, the most recent consumption figures available from Boyle Engineering, 875 AF were produced from its wells and 773 AF were purchased from ID #1; consumption was 1,607 AF and residential use accounted for 58.9% of that total. Commercial use accounts for 18%; the remainder is used by Public Authority (2.9%) and for irrigation, including agriculture, golf courses, and parks (9.5%).75

The 1992 Bond Prospectus listed the Alisal Golf Course as the city's largest customer, using 76,499 hundred cubic feet (hcf), paying then more than $37,700 annually. In 1995, it went off line, using its own well water, except when the Alisal well needs repair or is insufficient. The 1996 proposed bond refinancing listed the golf course as consuming 11,243 hcf through June 30, 1995.76 Another large user, the Old Mission Santa Ines, also has developed its own well.

In 1990, the water department became a self-sufficient Enterprise Fund, operating in the manner of a private business outside the city budget. In 1995, Solvang went to a single tier rate for water, with different meter charges for the different sized meters for single-family and other dwellings, and commercial establishments. Now the per unit cost is the same, no matter how much water an individual customer uses, the Grand Jury was told.

In 1995, the city established a Supplemental Water Fund, using excess revenues over expenditures from the General Fund to assist in water expenditures. By deferring road work and other maintenance, the city projects to deposit $450,000 in the Supplemental Fund in 1996.77

At the present time, the Grand Jury was told, Solvang's water rates are in the middle range of the water rates of other Santa Barbara cities and towns. They are lower than Buelleton's but one third higher than those in Santa Ynez.78 However, because the city agreed to take the most water per capita of any Santa Barbara County entity, 3.838% of the total Santa Barbara County entitlement allotment for its 1.313% of the County's population, its rate increases are expected to be correspondingly higher than those areas taking proportionately less.

The Grand Jury asked all Council members and staff how Solvang intended to pay the increased costs. It received responses but no firm answers. The last full rate study was done in March 1990 by Bartle Wells Associates, and that did not take into consideration the possibility of State water. As of the date of this report, the Grand Jury was informed, the Public Works Department has not factored State water costs into that study.

From 1992-1994, there was a Water Pricing Task Force composed of City Council members and citizens. As a result of studies by that group, the City Council approved a 100% increase in meter charges and a 60% increase in water quantity charges. That increase came in the middle of summer, always a high water consumption period, and it jolted homeowner ratepayers with effects felt in the November 1994 city election. In 1995, there were additional increases, 140% for meter charges and 17% for water quantity charges.79 The Grand Jury was told that the City Council has approved in principle a new rate study, but it has not yet begun and rate consultants have not been hired.

City Council members told the Grand Jury that Solvang has a range of possibilities from bankruptcy to "creative things." All include raising the water rates, and all Council members expressed concern about the effect on Solvang's fixed income seniors. The city has a 10% Transient Occupancy Tax (TOT).80 Business license fees were discontinued in 1992. New domestic water connection fees increased from $2,800 in 1994 to the present $5,000; commercial connection fees vary.81 City employees, most of whom are at the top of their pay scales, no longer receive cost of living raises and there are mandatory furloughs for most employees of 12 days a year.

A possibility that remains to be explored is selling the State water. The Grand Jury was informed that the staff asked for direction from the City Council and met with two possible South Coast purchasers who expressed interest. On their return to the City Council, the staff received "mixed signals," the Grand Jury was told. However, Solvang has no proprietary interest in the section of the pipeline that traverses the city land. In addition, Section 17 of the Water Supply Agreement between Solvang and Improvement District No.1 states, "The City may not assign its rights under this Agreement."82

A recent article in the Santa Barbara News-Press noted that the price of water alone is relatively low. The Metropolitan Water District serving Southern California paid $175/AF to purchase water this year from the State-operated water bank in the Sacramento Delta. It paid farmers $135/AF not to plant crops. Noting the low prices, the Director of the Santa Barbara County Water Agency commented that if local agencies sell excess water, they would be "still better off than selling zero acre-feet. They're trying to cut their losses. They're not trying to make a profit."83 If there were such loss-cutting sales by the city for a specified number of years, the Grand Jury was told by another water specialist, having State water available would be "insurance" for Solvang in times of drought.

In 1995, the California Society of Municipal Finance Officers awarded Solvang a Certificate of Award for Outstanding Financial Reporting for its Comprehensive Annual Financial Report (CAFR) for the 1994 fiscal year.84 In budget sessions in 1995, the City Council pared General Fund expenditures by 15% to $2,602,204, and included a transfer of $76,719 to the Water Fund. All areas of General Fund expenditures were cut.

Solvang strives to be a full service city with expenditures for tourism, community resources, human services, parks and recreation. Administration and contract services jointly eat up 41.8% of the total budgeted General Fund expenditures. The on call fire service with a paid staff fire chief was 9.3% and the law enforcement contract with the Santa Barbara County Sheriff's Department was 20.7% of the General Fund. Planning was budgeted for 5.6% of the expenditures; Recreation, 8%; and Parks were allocated 9.7%. Tourism and contributions to the Solvang Conference and Visitors' Bureau were budgeted for 13.8% of the budget for a total of $360,088.85

In 1995-1996, the Enterprise Fund expenditure for water was budgeted at $1,947,839. Subsequently, the estimated revenue for Fiscal Year 1995/1996 was increased but, because of "a refund through a legal settlement," actual collections through the end of March were only approximately 70% of the estimated amount.86 The 1995/1996 budget showed $592,867 in the Supplemental Water Fund, an increase of $164,941 from the previous year. As of the writing of this report, budget discussions for 1996-1997 were underway. The Grand Jury does not have the budget numbers for 1996-1997. Enterprise and General Fund budgeting is done annually with no projections of future expenditures and revenues.

Solvang's challenge is to plan ahead to meet the capital expenses required to upgrade its water system, to fulfill the budgetary requirements of the General Plan, and to decide how it will pay its water bills. Council members expressed concern that the city will be a city in name only. Council members noted to the Grand Jury varying degrees of confidence that "we will handle it some way," but all agreed that there is no single way. All Council members told the Grand Jury that they did not think that the City and its ratepayers can afford the 1,500 AF of State water and related costs that are being projected. On Monday, May 13, CCWA provided the Grand Jury with the most recent State water estimated charges. For the next four years, State water delivered quantities and prices are expected to be as follows:

                                        Fiscal years:
                            1996/97:  $1,428,075 -    470 AF;
	          	    1997/98:  $2,358,389 -   975 AF;
	                    1998/99:  $2,370,633 -   995 AF;
	              	    1999/00:  $2,384,280 - 1,015 AF.87 

Report Continued


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