TOWN OF HILLSBOROUGH
San Mateo County
Christine Krolik, Mayor 1600 Floribunda Avenue
Sophie Cole, Vice Mayor Hillsborough, CA 94010
Marie Chuang, Councilmember www.hillsborough.net
Leslie Marden Ragsdale, Councilmember Phone 650-375-7400 Alvin L. Royse, Councilmember
A G E N D A
TUESDAY, FEBRUARY 7, 2023
9:00 A.M. SPECIAL CITY COUNCIL MEETING - CITY COUNCIL GOAL
SETTING
1:00 P.M. CLOSED SESSION
This Special City Council meeting will be conducted pursuant to Government Code Section 54953(e) (and without compliance with section 54953(b)(3)) related to conducting public meetings during the COVID-19 pandemic. The City Council, staff and members of the public may participate in the meeting virtually via Zoom Video Conference or in person at Town Hall.
Members of the public may provide public comments on the agenda item. All members of the public will be limited to one public comment.
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SPECIAL CITY COUNCIL MEETING (9:00 a.m.)
I. CALL TO ORDER
II. ROLL CALL
Special Meeting Agenda – Hillsborough City Council
Tuesday, February 7, 2023
III. CITY COUNCIL GOAL SETTING
Presentation of Foundational Principles and Values Statement Department Presentations
Review of Proposed Work Plan for 2023
Public Comment
Council Discussion and Approval of Work Plan
IV. ADJOURNMENT OF SPECIAL MEETING
CLOSED SESSION (1:00 p.m.)
CALL TO ORDER
ROLL CALL
PUBLIC COMMENT
Members of the public may provide public comments on the Closed Session agenda items. Members of the public participating in person are requested to complete a yellow speaker card and submit it to the City Clerk before addressing the City Council. Members of the public participating via the Zoom platform may use the “raise hand” feature or, if calling in by phone, press *9 on the telephone keypad. Speakers are limited to one comment per Closed Session item.
PUBLIC ANNOUNCEMENT OF CLOSED SESSION ITEMS
A. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(2)
Town as Defendant – One Potential Case (see documents in agenda packet) B. CONFERENCE WITH LEGAL COUNSEL – INITIATION OF LITIGATION Pursuant to Government Code Section 54956.9(d)(4)
Town as Plaintiff – One Potential Case
C. PUBLIC EMPLOYEE PERFORMANCE EVALUATION
Pursuant to Government Code Section 54957(b)(1)
Title: City Manager
ADJOURN TO CLOSED SESSION
RECONVENE OPEN MEETING
CLOSED SESSION REPORT
ADJOURNMENT
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Special Meeting Agenda – Hillsborough City Council
Tuesday, February 7, 2023
ADDRESSING THE CITY COUNCIL:
Members of the public may provide written comments to the City Council regarding any item on the agenda up to two hours before the meeting to [email protected] or by mail/in person at 1600 Floribunda Avenue, Hillsborough, CA 94010. Any writings or documents provided to a majority of the City Council regarding any item on this agenda prior to the deadline, except as exempt from public disclosure under applicable law, will be available for public inspection on the Town website, and in the City Clerk’s Office at 1600 Floribunda Avenue, Hillsborough, CA 94010, during regular business hours.
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1 Lisa Natusch
Subject: FW: Meeting
From: John Lockton
Date: December 16, 2022 at 4:51:48 PM PST
To: Christine Krolik <[email protected]>, Al Royse <[email protected]> Cc: David Marquardt , Kirk & Katie Syme
<[email protected]>
Subject: Fwd: Meeting
Christine and Al,
Thank you again for the meeting and the open discussion. And we applaud your decision to introduce a knowledgeable third party to the discussion. As promised, I will be separately emailing the pages from the Manual that deal with uniform (flat) rates.
Some follow on comments:
We moved off too quickly from the central point we are making.
Hillsborough is basing its rates on an accounting methodology that no court has said is valid and which the courts we are familiar with have said is invalid. We frankly don’t understand why Hillsborough is willing to put its neck and its coffers out to take that risk when virtual no other jurisdiction in California has been willing to take that risk, and those that have, and been sued, have lost.
Al, you mentioned two pending lawsuits dealing with cost of service studies like the one in Hillsborough. Our attorney is unfamiliar with them despite being much involved in prop 218 litigation. Please furnish us more information and we will look at them. The two recent prop 218 cases we are familiar with are KCSTVI, LLC v. Florin County Water District where Florin County lost at the Court of Appeals level, and second, the class action case in Santa Clara County where eighty different water districts, yes eighty, are being sued simultaneously for violating prop 218. I believe Hillsborough would have been a defendant in this second suit had Hillsborough not already been involved in a 218 suit. As we said, Hillsborough is a sitting duck with the highest tiering in California. Class action lawyers are pursuing prop 218 litigation all over California. Check it out. And even if our group doesn't proceed, a class action attorney will have no trouble finding at least one resident to bring suit against Hillsborough, one resident being all that is needed in class action litigation. I can assure you there are about as many people in Hillsborough very angry about their tier IV rates as there are people you mentioned, Al, angry about the fixed rates.
CLOSED SESSION ITEM A
2 Back to the risk Hillsborough is taking in basing water rates on non court approved accounting methodology, when I was on the FAC the goal was always to protect the Town by being as conservative as possible in everything, particularly things financial. What the Town has done in water rates is a vast departure from that, venturing into unproven accounting territory and taking every resident of Hillsborough with it.
This needs to stop now.
Perhaps all that we should have done at the meeting was to point out the risk and said nothing further, let the Town decide on its own whether it wants to take a costly lawsuit to be able to be the first jurisdiction in California to get court approval for the new accounting methodology. All the follow on discussion of the Manual and Cost of Service study was helpful. But in a way irrelevant. Hillsborough will be sued if it does not get off its tiered rates and no amount of discussion will change that.
Having said that I will nonetheless move to some of our discussion. 1) Much of our talk was about whether capacity demands justify tier III and IV rates. However, in large part our lawsuit is going to be focussed on tier I. As the Geo Law letter pointed out it is as illegal to subsidize rates, plug them at below actual cost and spread cost to higher tiers, as to overcharge rates. Tier I has to be justified under prop 218 just like tiers III and IV. And I think you will agree it plainly can not be. We now buy water at $4.10 per unit with this price headed up. We will be charging residents $6.49. As you pointed out, Christine, Hillsborough has a very expensive water system. This very expensive water system could not possibly provide water to anyone at a cost of only $2 over purchase price of water from San Francisco. No court is going to buy this. Look at pricing of water in other municipalities that buy water from San francisco. You will see nobody offers water at anything like as low as the $6 price in Hillsborough and they have less costly water systems.
And to make matters worse for the Town’s court position regarding tier I, in establishing tier I the consultant departed substantially from the Manual. The Manual sets tier I at average annual water use, which for us would have meant a tier I rate of over $9. The consultant instead set tier I not at average water use as required by the Manual but lowest water use in the year, the intent being to have a very low rate for tier I and to shift the cost of subsidizing this very low rate to the higher tiers.
So when this gets to court the Town will not be able to use the Manual to justify its tier I rates.
To cover cost, tier I rates must be set at at least $9 per unit. To make this bitter pill easier to swallow perhaps you could significantly pull back on the fixed rates people are complaining about at same time as increasing the per unit rates to $9.
3 2) I am not going to go back over the discussion of whether tier IV water use in winter causes actual cost to Town of over $18.00 per unit. (The Capistrano case does require “actual" costs on this issue, not costs imputed from the cost of tier IV use in peak periods.) However, there is clear confusion on something else, what you, Al, called excess or extraordinary capacity demand costs. I may not have your terminology correct but I think what you were referring to was the excess cost of infrastructure to meet excess demand that can come when something bad happens like a fire or earthquake. Hillsborough has a right to be proud of the extensive and expensive back‐up it has provided in all parts of the system as a matter of disaster preparedness. The reservoir you mentioned, Christine, is of course part of this. Who should pay the cost of this reservoir? Who should pay the cost of the excess capacity needed for the extraordinary/excess demand that might occur in fire or earthquake?
Consider what happens if Hillsborough does have a forest fire. Two 4000 square foot houses are on a street. One resident has lawns and a pool and has been paying at tier IV rates during the summer. The other resident normally pays at tier I rates. The extra water capacity in the system because of the extra capacity in Christine's reservoir saves both houses. Should the resident in the high water bill house pay three times as much toward the reservoir cost as a penalty for having higher water bills? That’s what the Cost of Service study does. The cost of the well engineered belt and suspenders system Hillsborough has put in to meet disasters is being disproportionally charged to larger users simply because of their larger water use even though every resident is being equally protected, and even though the larger water users day in day out water demands in no way relate to water demands in a disaster.
The larger user is being penalized for being a larger user not just in paying higher rates but in being charged a disproportionate part of the cost of disaster preparedness.
So, Al, in considering the cost to meet the extraordinary/excess demands you mention please break it apart from consideration of the question of costs being driven by large users' summer use. Disaster preparedness costs are to be spread to every resident equally as they benefit equally the small and large water user, not charged to the highest tiers.
3) Christine, we applaud your emphasis on fairness. We want fairness, too, and feel a flat/uniform rate is fair to everyone as pointed out in the pages of the Manual I will be sending you. At one point you said it is all a matter of arithmetic. Large users are using more of the system capacity so they should pay more. I may not have what you said exactly but something like that. The short answer is prop 218 relates to costs rather than determination of large and small user capacity use and you have to examine the capacity use and see if it generates cost. Accordingly we have a cost of service study, not a capacity utilization study. Fortunately 4 or unfortunately the law does not allow us to apply simple arithmetic to capacity use to get to the necessary legal justification for prop 218 rates.
The long answer is that the costs in the system today are not being caused by capacity demands except for the emergency preparedness costs discussed above. It was not always the case. In the 70s and earlier the Town was in a development mode. (Don’t know the date of the last development, probably Sky Farm, but think it was early 70s). At that time infrastructure had to be added to increase system capacity. In fact capacity was overbuilt anticipating further population growth that did not occur, one of the reasons for the present tremendous excess capacity in the system. Anyway, tiered rates were put in in the 70s, and through those tiered rates larger users of water paid a disproportionate amount of the payoff of the cost of the capacity increasing infrastructure, which you would argue they should have because of their greater water demand. All that capacity increasing infrastructure was depreciated a long time ago. An all infrastructure adds since have been to maintain and upgrade the system or for emergency preparedness, nothing to expand the capacity of the system. So when you do the allocation you propose based on relative capacity demands of large and small users on the system you can’t find any costs being caused by large user demands as in the 70s.. With all the excess capacity large users are being served without any increase in costs to the system.
And prop 218 does not allow us to charge large users more unless their use causes “actual" extra costs.
Final point. I believe to pursue your idea of arithmetically determined capacity use based rates would probably require a new cost of service study.
4) Frankly, we feel the Town has been defrauded by its consultant.
When the Town had to consider new rates in the winter of 2016/2017, the earlier rates coming to an end, someone decided you wanted to continue with tiered rates despite the danger posed by the Capistrano case. So the consultant was not asked to consider the best rate approach for the Town (which with a Town with declining water demand would have been a uniform/flat rate.) Instead he was asked to justify the tiered rates of the Town, already the most tiered in California. For money consultants do what they are asked. This consultant took an accounting approach he admits in the Cost of Service study wasn’t designed to determine costs for tiered rates and created a piece of gobbledegook to meet the objective. I can show you that the Study was done to justify the tiers. The tiers were in general decided and then the consultant found a way with a lot of slide of hand to justify those tiers. The evidence is the consultant’s many departures from the Manual where necessary to justify the high tiering. So the Town is relying on an an unproven accounting methodology which in the Study has been rigged to meet a desired outcome of extreme tiering. 5 So where are we? The most similar lawsuit to the lawsuit that will be brought against Hillsborough, the Glendale case, had the Town losing and our attorney is the successful attorney in that case. Next, the Town is clearly violating prop 218 in subsidizing its tier I $6.49 rate as well as in other ways. Next, the experimental accounting methodology being used by the Town has never been accepted by the courts and in fact has been held invalid. Next, the Manual on which the Cost of Service study is based does not cover costing of tiers of service and all the Town has behind its Cost of Service study is the creative accounting of the consultant. If I was still on the FAC I would be advising the Council to get off Cost of Service study based rates as fast as humanly possible.
We hope we can meet very soon with the third party. I will be here the first two weeks of January. We need to get this settled one way or the other very quickly. I say not as a threat but as a fact that the plaintiffs are not going to wait until anything like the June introduction date of the new rates, and once again say we will sue unless there is a move to flat/uniform rates.