Financial issues, primarily the draft fiscal year 2024-25 budget,
dominated the May 16 meeting of the Fern Valley Water District’s Board
of Directors.

The major budget item was about the District’s unfunded liability for
retirement through the California Employers’ Pension Plan Trust Fund.
Other items included the warrants, the General Manager’s Report, and
water consumption’s effect on District revenue.

Draft Budget

The proposed 24-25 budget totals $2.1 million. This is about $450,000,
or 22%, less than the current year budget. This is due to the absence of
a major pipeline project in the capital budget. For example, this year
FVWD invested nearly $1.3 million in capital projects compared to the
estimate of $670,000 in the draft budget.

Even with a smaller capital budget, the District estimates that the
proposed budget will result in a $170,000 deficit. Revenue projections
are only $8,000 less in the future budget.

The operating budget increases about $75,000, to a total of $1.378
million. This would be an increase of 5.6% from the estimated actual
costs, but only 3% from the original approved budget.

Employee salaries and benefits comprise about 75% of the operational
costs, but they are projected to increase about $30,000 from the project
actual costs this year. The other increases are $30,000 for filter and
chlorination equipment, $10,000 for office expenses, and $7,000 for
insurance.

The capital budget will decrease from $1.3 million to less than $670,000
because no major pipeline repair or installation is planned. There will
be work on the pipeline in the Wayne to Tahquitz View area. Its
projected cost is $260,000.

The major capital budget item is replacement of the District’s fleet of
trucks. FVWD plans to acquire three Chevy Trail Bosses, a dump truck and
another loader. The total cost will be about $300,000. The expected
trade-in value of the current equipment should reduce the total cost by
about $122,000.

Director Mike LaFata expressed concern about this expenditure and urged
Jimenez to look for less expensive vehicles with fewer options. In
response, Jimenez explained the need for vehicles with these
capabilities, especially during emergencies. Further, the diesel fueled
vehicles will have a substantial payback, within years, due to the lower
fuel costs. This will accrue because of both price per gallon and
greater mileage per vehicle.

The other major capital project will be the expansion of the District’s
office and conference room area. The estimated cost is $150,000 and much
of the labor will be done by field staff in order to reduce the direct
costs.

Retirement liability

FVWD has three separate employee retirement plans with the California
Employers’ Pension Plan Trust Fund. Their current estimated cost is
slightly more than $950,000. The District makes annual contributions to
the CEPPT. FVWD has built a balance of $275,000.

The difference of about $675,000 accrues interest between 10 and 11%
annually. However, the Board recognizes that its cash balances with the
State’s Local Agency Investment Fund or in commercial certificates of
deposit are earning only 4-5%.

Reducing the accumulating costs by paying off or substantially reducing
the total unfunded liability was the focus of the Board discussion.

“Fern Valley has always budgeted based on cash on hand rather than
financing,” said Board Chair Jon Brown. “The past boards didn’t want to
saddle future boards with debt.”

Director Kevin Scott noted that reserves were used to finance the
capital budgets. “In 25-26 there are no planned projects yet, we could
push the those back to alternate years and in 26-27 have our next big
capital budget.”

Brown shared that he and General Manager Vic Jimenez had met with a
company that lends to public agencies. Once eligibility is established,
the District would essentially have a line of credit that could be used
to fund capital projects. Both he and Jimenez have stressed that the
cost of pipeline projects is growing more quickly in recent years. Fast
enough, completing a project sooner rather than later would yield
significant savings.

After further discussion, the Board asked Assistant Manager Jessica
Priefer to include $500,000 for a CEPPT payment in the budget package
for approval at the next meeting.

With this expenditure, FVWD reserves would be about $736,000 at the end
of fiscal year 24-25, compared to the expected balance of $1.4 million
at the end of this fiscal year.

General Manager’s Report

Jimenez reported, “The wells were doing great. The creeks are up and
turbidity is clear.”

During the March-April billing period, water consumption was 4.2 million
gallons, which was 475,000 gallons, or 10.3%, less than the same period
in 2023. While groundwater was the source of consumption in this period,
raw water storage has increased from zero to 35% of capacity.

Consumption and revenue

This is the third consecutive billing period where water consumption has
declined. Brown stressed that this was not an alarming fact.

“While consumption is down substantially, there is a concern that its
impact will decrease revenue,” he said. “But many of our customers are
part-time residents. Our revenue comes from sales that are also aligned
with generation costs. Expenses go down when sales decline. It shouldn’t
dramatically affect our need for revenue.”

Warrants

During the discussion of the April expenses, Brown noted the $5,900
expense for Well 13. Jimenez explained that the well equipment is under
warranty. However, the ultimate problem was a piece of equipment called
the “variable frequency drive” which was outside the warranty. Well 13
is back online and now producing, he added.

Approval of the budget for fiscal year 2024-25, which begins July 1,
will be on the agenda of the June 20 Board meeting.