In Response to Economy, District Cuts Budget by Over 25%

In response to the current economic crisis and customer comments during last November’s public hearing about rates, the District’s Board of Directors has approved reductions to the current fiscal year budget totaling $5.3 million. Both operating costs and capital improvement expenditures for the current fiscal year, which ends on June 30, 2010, were scrutinized and reduced. The goal was to cut at least $4.6 million from the 2009/10 budget to compensate for lower than expected revenues and to avoid borrowing funds to cover capital improvement projects in the near term. The District’s revenue has been impacted by four factors: a 2010 rate increase that was 45% less than proposed (which resulted in a $200,000 revenue impact); water sales below budget for the 2009 calendar year; fewer than budgeted new service connections; and declining interest earnings from investments. An additional $400,000 in budget reductions will be added to the District’s reserves to improve its financial position and ability to secure low-interest debt for major capital improvement projects anticipated within the next five years.

The District’s focus continues to be resolving the ongoing shortage of our only water supply - - groundwater from local aquifers, which cannot sustain current demand. Priority projects are those that conserve, protect and develop adequate water resources to provide a reliable water supply for the communities we serve.

Existing conservation programs were largely untouched by the budget reduction; however, a proposal to implement monthly billing was eliminated and conversion to Automated Read Meters was significantly slowed.

Constructing and connecting two new wells to the District’s system to begin redistributing pumping away from vulnerable coastal areas has been deferred until next year. Also deferred are delivery infrastructure in the form of new transmission mains, pump stations and a new storage tank that are necessary to move water throughout the system to where it is needed.

Several new and replacement monitoring wells to monitor and manage the groundwater basin have been unfunded, and the District will be seeking state grant money for these projects.

Other significant projects that have been deferred are the Moosehead Dr. & Winfield Way Main Replacements and an assessment of the condition and stability of the cast iron main running along Soquel Dr. Maintenance and improvements to District office and equipment storage facilities were also deleted from the budget.

While these cuts have a positive economic impact on the current year’s budget, the deferral of capital improvement projects to balance the budget is a short term solution.  The need for projects to assure a reliable and safe water supply for current and future beneficial use has not abated; so while a number of projects have been deferred, many of these cannot be postponed indefinitely without impacting the level of service the District is able to provide its customers.  It is anticipated that the 2010/11 budget will identify a short list of critical capital projects that can be funded with projected revenues, with a much larger list of high priority, unfunded projects. The decision to borrow funds in the near term must be carefully weighed against the need for additional debt financing over the next several years to fund a supplemental supply project.

It is anticipated that the District will have enough information to adopt a revised long-term finance plan sometime next fall.