.Weighing a Merger of Scotts Valley and San Lorenzo Valley Water Districts

The San Lorenzo Valley Water District (SLVWD) and Scotts Valley Water District (SVWD) are weighing whether to join forces in a potential consolidation.

Both boards have hosted Joe Serrano, the Local Agency Formation Commission (LAFCO) executive officer, who presented a roadmap for the potential consolidation process. SLVWD hosted an impassioned—and at times vitriolic—meeting about the merger on Feb. 4, and SVWD hosted its own meeting a week later, passing a conditional motion that staff should begin analysis of consolidation if, and only if, SLVWD also directs staff to explore the possibility. 

SLVWD revisited the subject in its meeting on March 4, during which Director Bob Fultz presented a motion giving SLVWD General Manager Rick Rogers no more than two months to clearly lay out to the public the cost-benefit analysis of a potential merger. While there was still pushback from the public on the overall concept of marrying the two districts, the call for transparency from the board seemed to have a calming effect on the dozens present.

At the Feb. 11 SVWD meeting, Director Wade Leishman equated the situation to a leap of faith.

“It feels like we’re both strapped up to bungee cords at the end of the bridge, holding hands, saying, ‘You jump first,’ ‘No you,’ he said. “The first person might jump, and the second person could stand there and change his mind ….  If we jump first, then we are the aggressor. We are trying to take over; that’s the message. Until we’re really sure they’re a willing participant, I worry about jumping off the bridge first. I’d like to be hand-in-hand.”

Stream Systems

While the districts share boundaries, aquifers and priorities, each has carved out its own means of serving its residents. The SLVWD was established in 1941 as an independent special district. The SVWD wasn’t formed until 20 years later, under the County Water District Act. Both districts are governed by a five-member board of directors, elected at-large from within the district’s service area, but each has vastly different geographical makeups. 

SLVWD covers 60 square miles of challenging, mountainous terrain, providing service to approximately 7,900 connections. SVWD is only six square miles and services its population through 4,200 service connections. The Mañana Woods neighborhood and the Vista Del Lago and Spring Lakes Mobile Home Parks, all located in Scotts Valley, are served by SLVWD.

Both districts share water from the Santa Margarita Groundwater Agency (SMGA). Established in 2017, the agency covers a 30-square-mile geographical area, including parts of Boulder Creek, Brookdale, Lompico, Zayante, Ben Lomond, Mount Hermon and Scotts Valley. Although SMGA is the most easily accessible aquifer in the region, there are three other layered aquifers beneath it, each providing water support to area customers, including those on well water. The deepest water deposit, the Butano aquifer, is only accessed by SVWD.

Water fight

SLVWD is no stranger to drama around mergers. FLOW (Friends of Locally Owned Water), a Felton-based advocacy group, was born in 2002 after New Jersey utility company American Water Works—which was under the control of overseas conglomerate RWE from 2001-08—purchased the Felton Water system. Cal-Am Water, an American Water subsidiary based in California, attempted to increase Felton water rates by 74%. After six years of working with local leaders, including then-Felton Representative Mark Stone, FLOW saw Cal-Am Water and SLVWD come to an agreement in 2008 for the town’s water to, once again, be controlled locally.

Then came the merger with the Lompico County Water District (LCWD) in June 2016. The result was an increase of 500 water hookups for SLVWD, and a $2.75 million bond that would be paid via property taxes over a 30-year term. LCWD had no general manager, and the district was run by then-Board President Lois Henry (who recently finished her term as SLVWD Board President). The troubled utility discovered a raft of issues with its bookkeeper (arrested for embezzlement in 2010) and its director, who was fired in early 2010 for “mismanagement.” The only option to keep Lompico residents “in water” at a reasonable price was the SLVWD merger.

On Feb. 2, SLVWD threw its ratepayers for yet another loop when the utility issued a press release regarding their intent to begin a conversation around a potential merger with SVWD. A day later, an online petition was circling, and in less than 24 hours nearly 1,500 residents had added their names in opposition to the proposal.

In the tense, two-and-a-half-hour meeting on Feb. 4 that included more than 100 attendees, the response to the merger from those who attended the Zoom meeting was anything but subtle: the majority opposed the idea, and representatives of SLVWD found themselves back on their heels from the opening salvo.

The longtime rivalry between the two valleys was on full display, as residents from both regions did not mince words when it came to vilifying their neighbors. San Lorenzo Valley attendees spoke of the cultural differences, citing a chasm between the values of the two areas, and shared concerns about stolen water, a lack of local control and a fierce resistance to supporting what many see as Scotts Valley’s attempt to acquire water for its expanding population. However, Rogers says Scotts Valley’s demand has remained the same—their pumping has actually decreased by 40% from their historical highs in the 1990s.

An SVWD employee called in to say he was opposed to the merger, and one attendee called it “the worst idea since the pet rock.” Two days later, SLVWD board member Tina To released a statement in an effort to tamp down the rhetoric, but the damage had been done. The statement has since been taken down on advice by the district’s legal counsel.

Merging minds

For the past five years, SVWD General Manager Piret Harmon and Rogers have had regular monthly meetings in which they discuss the direction of their districts and share best practices. Rogers says the inter-district collegiality was a refreshing new approach considering the previous rivalry, and it’s been a benefit to each district.

“Scotts Valley was the lead agency on the Regional Intertie Project back in 2013 that resulted in a $3.917 million grant benefitting five different local water agencies, including SLV,” Rogers says. “Currently, we’re working on the joint Urban Water Management Plan document, and we’re seeing that there are significant savings by combining the districts and using one consultant.”

When the topic of merging the two districts came up, both Harmon and Rogers agreed to take the idea to their boards. Both boards agreed to add the idea to their respective meeting agendas, and that’s when things started rocking.

“Neither of us wanted to appear as the aggressor in this situation, so we tried to roll it out at the same time,” Rogers said. “We had talked about this before the CZU August Lightning Complex fire began, so the idea had been on hold since early August. I know people were questioning the timing of introducing the merger, but we’d been sitting on it for six months.”

As for the reaction from SLV residents at the Feb. 4 board meeting, Rogers says he wasn’t surprised. Rogers says that he, Harmon, and several key members of Harmon’s staff are knocking on retirement’s door. By looking at consolidating the districts, Rogers sees the financial benefit of slimming down operations.

“Think about the savings of running one administrative building, only having one manager/director, and reducing overhead costs,” he says. 

While residents are concerned about the impacts of a merger, Rogers says he is worried about what happens if the consolidation evaporates and another, larger agency such as Santa Cruz or San Jose merges with Scotts Valley.

“We already have over 1,000 water connections in Scotts Valley; ultimately, combining the two districts strengthens our position with groundwater and surface water. It gives us greater control, and I think it’s a good fit,” he says. “We’ll need surveys done, and we’ll need data reports from our engineers, and that information will help answer a lot of the residents’ questions. The best way to control our water supply is to have local management of it, so I see a lot of positives.”

At the March 4 meeting, Rogers said he is still undecided about the merger and made reference to “back of the napkin” math that would exhibit a cost savings for ratepayers in SLV.

“No decisions have been made; no actions have been taken,” he tells GT. “It’s strictly exploratory. We’re looking at a minimum of two years of board meetings to get information to our ratepayers, and it’s up to both boards as to whether they want to move forward with that exploration.”

Harmon echoed Rogers at the SVWD Feb. 11 meeting, saying that the meeting was “the first step of the first step, just to see if the board is interested in giving staff direction.”

“Let’s see if there is merit to this proposal. I’m not convinced there is,” she said. “We may come out of this study and find that there are as many downsides as merits. But I am a person of facts, and I need to look at something tangible and quantifiable to bring a recommendation to the board.”

During public comment, participants voiced concerns over the cost of conducting analysis, differing consumption rates between the two valleys and employee representation. Harmon struggled to see a disadvantage in considering consolidation.

“I’m too much of an engineer for that; everything should be evaluated for efficiency, unless it’s too expensive or our partner is unwilling from the get-go,” she said.

According to Serrano, if both boards direct staff to begin analysis, LAFCO would fund one-third of the fee for an outside consultant hired to conduct a detailed analysis.

Harmon originally proposed consolidation to Rogers because of the potential increases in efficiency of both districts. According to Harmon, consolidation could allow for the elimination of many redundancies such as top executive positions, support services (legal counsels, auditors, public outreach, web hosting) and professional services (integrated regional water management agencies, LAFCO, engineering consulting, hydrogeological consulting). Consolidation could also reduce time spent on regulatory reports, lead to better use of assets, and larger departments would provide better customer service coverage, Harmon says.

“All of this is expected to result in increased efficiency, reduced operating expenses, lower rate increases, improved customer service, increased job satisfaction, and productivity,” she says.

“Based on what they heard from us, I hope that the [SLVWD Board] will decide to act,” Harmon said. “For now, it’s a waiting game.”