Water districts flush out details for a consolidation agreement

Consolidation between Quincy’s two water districts could be close to reality.

Consolidation of the two independent boards could benefit both in seeking grant funding to finance a new wastewater treatment plant, according to Josh Nelson, an attorney with Best, Best and Krieger, a firm hired by both districts to investigate options.Directors of the Quincy Community Services District discussed moving toward consolidation during the Thursday, March 9, district board meeting. Directors of the East Quincy Services District discussed the notion at their Feb. 14 meeting.

Director Ruth Jackson said the QCSD committee of two is very dedicated to working toward consolidation. EQSD Director Mike Beatty told his board that consolidation is the way to go.

Faced with state mandated water quality standards, directors from both districts are seeking ways to finance an anticipated $26 million wastewater treatment plant. Consolidation might gain the plan more grant funding than if the districts remain separate. Currently, QCSD has a treatment plant and contracts with EQSD to provide treatment services.

In providing short answers to some of both districts’ questions, Nelson explained three options for the districts. One, the districts could consolidate into a new district; two, directors could modify the former consolidation agreement or create a new joint powers agency; or three, allow QCSD to obtain financing with EQSD agreeing to pay its share of the new treatment plant costs.

Consolidation

Consolidation could be agreed upon and the details worked out later, according to one plan. Details could include how many directors would be on a single board, who would manage the treatment plant, how many employees would be required, how much individuals would be paid and benefit arrangements. None of these details need to be decided before a consolidation agreement is passed on to the Local Agency Formation Commission for review and approval, according to Nelson.

“There are four different ways that a consolidation could be initiated,” Nelson explained. The districts could approve a joint application, one district could apply for consolidation even if the other district objected, voters could sign a petition for consolidation or LAFCo could act. Nelson explained that the first option with both districts consolidating is the easiest to achieve.

If both districts agreed to consolidate, directors could adopt substantially similar resolutions requesting consolidation, Nelson stated. A formal application could then be submitted to LAFCo along with the necessary processing fees.

With this process underway, the consolidated districts could then negotiate with Plumas County concerning a property tax sharing plan.

“This should not be an issue as the new district would simply receive any existing tax being received by the districts,” Nelson explained.

In the meantime, LAFCo would schedule and provide a notice of a public hearing concerning consolidation. LAFCo would conduct the public hearing and an election would not be required unless there is sufficient opposition to consolidation.

Under this plan, LAFCo would need to wait 30 days to allow for a reconsideration period. LAFCo would then move forward with either consolidation or order an election. If a vote were required, rules and regulations concerning the election would be spelled out and followed. The majority of the votes within each district would be required to approve consolidation, Nelson outlined.

“The benefit of this approach is that it would allow the new district to submit the funding applications for the new WWTP,” Nelson said in his report to the districts. The new district, under whatever name the two districts approve, would own and operate the new wastewater treatment plant.

Timing is the problem with this plan, according to Nelson. Within his structure of events, it could take five months from the application to approval.

However, the plan would need to include time to prepare the application and allow for inevitable delays. Nelson indicated that realistically, it could take 12 to 18 months for the process, not five months.

If QCSD submits an initial application for funding this summer, the new district would need to be in place by July 2018, Nelson said.

In order to do this, Nelson said that it would “require quick action by  both districts and significant staff time to process the effort.” And both districts would need to determine if this is achievable.

JPA

A joint powers agency is the second option in funding the new wastewater treatment plant. This could be permanent or temporary while districts work toward consolidation, Nelson explained.

Under a JPA, the process could only exercise powers that are common to both agencies, Nelson pointed out. Under this plan, the district could reenact agreements under the former American Valley Services Authority or form a new JPA. He said that this could be an interim step while consolidation moves along or a permanent solution if consolidation doesn’t happen.

“The benefit of this approach is its flexibility,” Nelson said. “A JPA can be structured in essentially any way that the parties wish.”

Giving an example of what might be considered, the districts might decide to create a new JPA to operate the new wastewater treatment plant and both districts’ water and wastewater systems, he explained.

Under a JPA, both boards could govern the process. Another advantage, according to Nelson, is that a JPA is easy to establish. Each district must approve a joint powers agreement. That agreement is then filed with the Secretary of State, the controller and LAFCo.

The drawback, according to Nelson, is that the plan lacks stability. “Generally, unless set forth in the joint powers agreement, either agency may withdraw from the JPA at any time.”

A second drawback is the potential for duplication, meaning that the districts would need to retain their existing elected boards.

Status quo

A third plan that both boards could consider is to continue doing what they are now doing. This would mean that QCSD would seek potential funding and continue to operate the new wastewater treatment facility, and EQSD would continue to contract for services.

“Obviously, any contract would need to be structured to remain in place for the full term of any financing for the new WWTP,” Nelson said in his report.

This plan is easy to establish, since each agency would just need to approve an agreement. However, it wouldn’t allow for consolidation or regional cooperation — probably necessary to obtaining any reasonable amount of funding from state Proposition 1. funds.

Prop. 1 was approved by voters in November 2014. It approved more than $7.5 billion in general obligation bonds to fund water projects including surface and groundwater storage, ecosystem and watershed protection and restoration, and drinking water protection. The State Water Resources Control Board administers the funding.

While grant funding might be obtained through Prop. 1, the new wastewater treatment plant is mandated under Proposition 218.

Back to consolidation

Returning to consolidation as a plan, Nelson said the process could begin with a seven-, nine -or 11-member board. Under this plan, all 10 existing directors could serve, leaving an 11th position vacant. Currently, each district has five elected directors. Eventually, the single district would change to a five-member board. This could happen as individual director’s terms expire. Directors could simply be elected at-large, meaning that directors could come from anywhere in Quincy or East Quincy, Nelson explained.

At-large voting is the most common practice for small districts. In by-division or from-division, the new district would be divided into five districts of equal population. In from-division, all voters decide on all the directors, but each director must reside in his or her own district. In the by-division, voters in each district vote on one director who lives in that district. Under either of the by- or from-division processes, the districts must be redrawn after each census to make sure that the population remains relatively the same in each area.

By starting the new district with both existing boards, an election and the expense of that election could be avoided at that time. Using the existing boards also assists with time constraints in consolidation and therefore moving forward with funding applications for the new treatment facility, Nelson spelled out.

Nelson also pointed out that if the districts decide to elect the first board of the new district, they could opt for at-large elections, which are simpler. This would avoid drawing up boundaries after every census.

By voting, however, the district could avoid any claims that might fall under the California Voter Rights Act “where there is a history of ‘racially polarized voting.”

Nelson said that he understood that this really isn’t an issue in this area, but he believed he needed to point out the possibility.

Based on all the information Nelson provided directors as they ponder their decision, a summary of options for structuring the initial board of directors of a new district developed. These include the new district ultimately having five directors; the new board could be elected immediately as part of consolidation and be elected at-large, or from-division or by-division; or finally, as an interim measure, the board could have seven, nine or 11 members.

Employee benefits

In a final area of consideration, Nelson included employee benefits, which at some point will need to be addressed. Currently, employee benefits vary district to district. When and how the districts need to “harmonize its current employee benefits schemes,” is part of the work that needs to be done.

“As the districts know from the last consolidation process, this is a very complicated area of the law, and unique requirements apply to harmonizing pension, retiree health, social security participation, healthcare for current employees and other benefits,” Nelson explained. He added that if the districts move ahead toward consolidation, the consulting attorneys could help with the requirements.

This isn’t the first time the two districts have visited consolidation. In 2008, the districts were within two days of becoming the American Valley Community Services Authority when directors and staff at the East Quincy Services District backed out, Dick Castaldini, a director with QCSD called the incident “a blood bath.” He said the main issue was who would be manager — Larry Sullivan, the general manager of QCSD, or Mary Henrici of EQSD. Henrici has since left that position and Mike Green manages the facility.

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