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Q&A: A conversation with Santa Fe Irrigation District General Manager Michael Bardin

The Santa Fe Irrigation District lifted mandatory water use restrictions for its customers in May after Gov. Jerry Brown declared an end to California’s drought, but major challenges remain, mostly relating to money.

The district, which provides water to some 20,000 residents of Rancho Santa Fe, Solana Beach and Fairbanks Ranch, is trying to cope with rising water costs while keeping rates under control and maintaining its aging network of pipelines.

The public agency’s territory covers 16 square miles, and its annual budget is just under $21 million. The district is run by a five-member elected board of directors.

Like its fellow water agencies in San Diego County, Santa Fe has raised rates more than 60 percent over the past three to four years, and customers appear to be in for additional rate increases over the next few years.

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In response, the district has faced increased scrutiny from some members of the public who want Santa Fe to do more to cut operating expenses, including employee pensions.

We sat down with Santa Fe general manager Michael Bardin to discuss the issues facing the district as it moves beyond the recent drought and works to continue carrying out its mission of providing water to customers.

Bardin, 53, is an East Coast native who has worked for 30 years in the water and wastewater industry. He came to the Sana Fe District in 2004, and immediately before that worked at the Leucadia Wastewater District.

Bardin attended the State University of New York, where he earned an environmental science degree, and the University of Redlands in California, where he completed a degree in business administration and management.

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When not occupied with his officials duties, Bardin is an avid boater and fisherman. He lives with his wife and three sons in Oceanside.

We met with Bardin on a recent Friday morning at his office at district headquarters in the Rancho Santa Fe village. The responses have been edited for brevity, but the intent and meaning of the comments have been preserved.

Q. What are the significant issues and challenges facing the district?

A. There are a lot of issues in the water industry today, some are common to water agencies, and government agencies in general, and some are specific to us.

In general, pressure on water rates is one of the most significant issues that we’re dealing with. Rising costs are putting pressure on our water rates and our customers’ costs. And the economic conditions out there affect us and the community we serve.

Another big one is aging infrastructure. This agency is 86 years old. We have probably $300 million of assets in the ground…if you put a cost on the water system and treatment plant’s value in today’s dollars, it’s up around $300 million. But a lot of that is old stuff, it’s been in the ground a long time. So aging infrastructure is a big issue not just to us but in the utility industry across the United States. There’s a lot of old infrastructure that needs to be maintained and replaced. That’s a common issue.

And workforce management is a big issue. Obviously today with labor relations and all the hot issues about public pension reform and public compensation, those are topical issues, but regardless of whether those are going on you still have the typical workforce (issues). Succession planning, making sure you have the right talent, and like any industry, the workplace is changing with technology. So we have to be prepared to have our people have the right skill sets to deal with that.

And I guess… something common to us and not to the industry, is managing our local resources, Lake Hodges. We’re one of the few agencies that are fortunate enough to have that local water supply source which is really a low-cost supply. A lot goes into managing that and maximizing the value of it. So managing those local resources is big.

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Also, because water supply is so critical nowadays, the development of local supplies. We do some recycled water, we’re trying to do more recycled water, we were pushing hard and we were involved in the desalination project, we’ve kind of taken a step back from that now.

So, developing those alternate supplies, conservation with our customers, protecting Lake Hodges, pressure on rates, and aging infrastructure, that’s probably… the big ones.

Q. How does today’s pressure on rates compare to other periods in the past?

A. I think these are unprecedented times. The Southwest is an arid region, and in the ‘30s and ‘40s, we built engineering marvels. We tamed the Colorado River, and then in the ‘60s we built the state water project. And those major infrastructure projects allowed the development of the Southwest, and California grew faster than other states.

Globally, and even in our country which is highly developed, particularly in the Southwest, I think there’s been a move from simply an extraction mentality of resources, you build a dam and you take your water and you use it, to around the ‘70s and ‘80s we realized that had an impact on the environment.

Slowly we’ve realized you have these competing needs. You have the growth of the populations in the Southwest, Nevada, Arizona, on the river, then you have agricultural needs, then we have to take care of the environment. And there’s only so much water to go around, which makes the water that we have more precious and more valuable.

But not one of those needs can be met at the complete sacrifice of the other one. As we moved into the 2000s it became really apparent that we have to get smarter about the use of water.

And I think all those things have put pressure on the availability of water as well as the cost of water. That’s on a macro level, then you come down to the micro level and you bring it down to us. Our costs go up, our labor costs go up, our costs of power goes up, just like the average consumer, we’re impacted. All those things come together almost like a perfect storm, to continue to put pressure on us to manage our costs and try to mitigate those costs going forward onto our customers.

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At the end of the day, with all that said, the thing I would really point out, is that, … the Santa Fe Irrigation District, we have one of the lowest water rates in the region. We’re in the bottom third of the cost of water when you compare us to other agencies. But the cost of water has been going up dramatically.

The region, the cost of water has gone up about 60 percent in the last three or four years. That’s not just us, that’s happening to everybody. (The Metropolitan Water District’s) cost is going up, the (San Diego County) Water Authority’s rates have gone up, a lot of that’s pushing down to us. We try to manage the local water supplies. So it’s really the cost and availability of water is just becoming increasingly complex. And more costly.

To put that in context, that’s a half a cent a gallon, it’s still probably one of the best deals in our society, but the cost has been going up and it’s a concern. When the economy is bad and the costs are going up, it’s tough on consumers.

Q. Do you see in the near term, that trend (of rising rates) is going to continue?

A. Unfortunately, I think that’s the case, when we look out at what’s going on, fixing the Bay Delta, that has a huge price tag, that’s going to flow downhill to the consumers of water in Southern California. If and when they can even figure out the solution, it’s going to be in the billions of dollars. That fixing of the delta is really fixing the plumbing in the state. That system’s been in place since the ‘60s… I’m talking about diverting water out of the Bay Delta that goes south to the Central Valley for farming and it comes to Southern California, you know the Bay Delta is a crisis waiting to happen.

Q. How about the protection of local water supplies at Lake Hodges? What needs to be done in that area?

A. It’s almost a microcosm of the bigger macro picture where the states are fighting over the Colorado River, (and the) north and south of California have to divide the water.

But to simplify it, the districts generally have rights to half of the water that comes out of that watershed… us and the San Dieguito Water District. The city of San Diego owns Lake Hodges. When the lake was sold to the city, part of the deal was these districts retained rights to the water that comes out of the lake.

So since the 20s, the districts have been the primary user. The city of San Diego has never had a straw in the lake.

And with the reoperation of the lake where it gets connected to Olivenhein, and connected to the aqueduct system… that will enable the city of San Diego to finally access their portion of the water that comes out of that watershed.

Let me describe what I mean by reoperation. That lake has been an isolated facility. The challenge comes now in integrating that isolated asset into the regional water system. That’s really what the reoperation means. The Water Authority wants to be able to store water in there for emergencies, which benefits the region, they’re going to generate power by moving water back and forth between the Olivenhein reservoir, so there’s this emergency storage component that we’ve all paid for that benefits the region, there’s also the fact now that the city will realize the value from the asset that they purchased in the 20s, and there is the opportunity in the years when there are major rain events, to possibly capture more water than we were able to in the past.

So there’s a lot of opportunity with the reoperation but it’s very complex and there’s a lot of significant issues. Our primary issue is we understand there is a regional benefit for the emergency storage because we’re on the end of the aqueduct. If there’s an earthquake, this region only has the amount of water that’s stored in reservoirs. So being able to connect that and store water there is good for the region. We need to make sure that those new operational aspects don’t compromise our ability to collect and beneficially use the water that comes out of that watershed.

Q. With regard to pension reform, what do you see the district needs to do and where are you heading on that?

A. Obviously the issue of pension reform is a hot issue. We participate in the CalPERS retirement plan. It’s a state retirement system for state employees that probably 50 years ago was expanded to include local governments, cities and districts as well. They don’t pay into Social Security and if you only work here, you would not have built up any credits for Social Security.

The concerns are about fiscal sustainability. Under current law, promises that have been made to employees legally can’t be undone. So we’ve looked at those issues and we understand we have to operate within the confines of the law. So going forward… to try to manage and mitigate those costs, the options that are available to us that we can do are to look at going to second tiers, which really is a reduction in the benefit level going forward…. And what I call risk-sharing and cost-sharing with our employees.

There’s a portion of the retirement plan that the employees can pay for, many agencies in the past have picked up those costs, the trend today is to move in the other direction.

Now what’s happened here, in 2007, we had a retiree health program here. And our board went to a second tier. In 2007, we negotiated with our employees for a second tier and that second tier retirement reduced the annual value of that benefit by $10,000 per employee.

That’s retiree health. So basically we changed that program dramatically. We reduced it down to the minimum amount that it could be per employee.

At the same time we worked with our employees, to go “Look, we need you to start picking up more of the share of this (pension) cost.” Right now they’re paying 2 and a half, were in the middle of a two-year memorandum of understanding and at the end of that they’ll be paying 3 percent.

So what we’re doing is working in a kind of progressive manner towards the full 8 percent, we addressed the retiree health issue, we worked with our employees on our last memorandum to reset all of our salary scales to the average in the region, then in this last MOU, frankly, it was a takeaway for our employees. It was a two year-deal with no cost of living raises but continued contributions to the pension plan.

The second (retirement) tier is something were looking at…There’s concern about the program in general and these are the options that are available to us so, looking at the second tier and looking at employee compensation, contributions are the things that we’re evaluating and we will work with the employees to try to accomplish.

The programs are changing. Everybody knows it. The boards know it, the communities know it, the employees know it, I think there’s a debate about what’s the rate that that change occurs. Does everything happen overnight or does it happen over some period of time?

It’s a significant issue that we need to look at and we need to do it in the context of working with our employees as we have in the past.

Q. Are local water districts, including Santa Fe, looking at consolidation as a way of cutting costs?

A. It’s always a possibility. I don’t think there’s a big push… there’s no major undertaking going on right now to do that. I think the average citizen would be surprised at the amount of collaboration and interagency cooperation that goes on and has always gone on between the agencies.

I think that this agency, as a responsible agency, if there are opportunities to improve our service or reduce our cost to our customers, were going to look at all those opportunities as they come along.

Q. What about recycled water and desalinated water?

A. The only supplies that are available to us are imported water, our Lake Hodges water, recycled water, desal and potentially ground water, although there are limited ground water sources around here and probably pretty expensive to develop. So we have to protect Lake Hodges, we already serve recycled water in Solana beach, our western service area, and we are just finishing a major facilities plan that is going to identify the facilities necessary and the cost to bring recycled water to our eastern service area.

The western service area, we serve recycled water, all the golf courses, the Caltrans median, some of the big (homeowner association) landscaped areas, the schools and the parks, about 500 acre-feet of recycled water in the west, and we’re looking at a project to get from 300 to 700 acre-feet of recycled water in the east. And that report is going to be released over the next couple of months and we’re going to be working with the Rancho Santa Fe golf course and different folks to try to make that a reality out here.

The challenge with recycled water and I’m not going to sugarcoat it is always the cost. That becomes a matter of we can have that reliable drought supply, are we willing to fund that program to build a new distribution system?

There’s the big capital costs, you have to build new pipes and new reservoirs, you have to build a whole other distribution system to serve it because you can’t put it into your regular system.

I think from a water supply perspective, our big concerns are now, we need to protect Lake Hodges and make sure that the reoperation moves forward and we’re not harmed and maybe even we get a greater benefit. We will have to fund recycled water development for the eastern service area because it’s going to be expensive, and do we want to take a second look at the (Carlsbad desalination) project if and when the finances are all clear and everybody understands the true cost?

Q. Any final thoughts?

A. This may be the most difficult time in California water history. On top of the difficulties we’ve had with the economic downturn, these are difficult, challenging times for our nation. And Santa Fe is no different. Whether it’s the water supply challenges, whether it’s the workforce management issues, it’s a difficult time.

We just came through a difficult period with a water shortage, we had water-use restrictions. And I wanted to thank our customers. They did an amazing job. We asked our customers to conserve water and reduce their water consumption during the water shortage, 2009, 2010, and they not only responded, but they exceeded what we asked them to do, and what that meant was, we were able to continue to provide water supply for essential needs, and we avoided financial penalties for exceeding our allocations from Metropolitan.

Across the board, we achieved a 20 percent reduction in water demand, that was truly amazing and people embraced it. One message I would like people to understand, water is so precious today, that we kind of take it for granted living in Southern California. But it’s all of our civic responsibility to use water responsibly. And our customers did that and they continue to do it, and they should be congratulated for a job well done and thanked for being responsible citizens in doing their part and responding to what we asked them to do.

While times are difficult, Santa Fe is a well-run, well-organized agency. We’re a triple A-rated agency. In 2007, we refinanced our only outstanding debt, and when we got a credit rating in 2007, we received a triple A rating. There’s no other public agency in San Diego County that has a triple A rating. There’s only a handful of water agencies in the state that have a triple A rating. So we have one of the lowest rates in the county, triple A rating, local water supply, a commitment to aging infrastructure. I want people to understand when you get down to those big issues, that’s what Santa Fe Irrigation District is.

Are we grappling with the economy? Yes. Are we grappling with workforce issues? Of course we are, everyone is. But this agency has been here 86 years, and were going to continue to be successful. And I think those four or five key points demonstrated at the end of the day as a water utility, we’re as good as you’re going to get. Low rates, commitment to infrastructure. We have talented, hard-working people here who are positioned to do what needs to be done to continue to provide safe, clean water.

Half a cent a gallon, less than half a cent a gallon delivered to your house. For the cost of your Starbucks here… we’re going to give you 750 gallons of water, delivered to your house for probably three bucks, less than a cup of coffee. That’s one of the greatest bargains in our society today. And I think we take it for granted, living in the wonderful place we live and how sophisticated our society is. And that doesn’t just happen, there’s a cost to that, and for that to be reliable, reliability comes with a cost.

So we’re here, we’ve been here a long time, we’re reliable, we plan to be here for a long time, and we’re as successful today as we’ve been in 85 years.


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