COUNCIL AGENDA REPORT
TO: Mayor and City Council
FROM: David W. Rowlands, City Manager
DATE: August 4, 2026
SUBJECT: Adoption of a Resolution Approving Modifications to the City’s Surplus Water Sale Policy
Description:
The City Council will consider a Resolution approving modifications to the current framework for future supplemental water sales (“Surplus Water”).
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
RECOMMENDATION:
Adopt a Resolution rescinding Resolutions Nos. 2003-150 and 2004-137 modifying and approving the City’s Surplus Water sale policy.
BACKGROUND:
Since 2003, the City has provided Surplus Water to Golden State Water Company (“Golden State") for the benefit of developers to serve new projects in Golden State's service area in Orcutt, as provided for within the Santa Barbara County Orcutt Community Plan, and later, as provided for within the Santa Maria Groundwater Litigation Settlement.
The City Council authorized up to 900 acre-feet per year (AFY) of available water supply for new urban use development in Orcutt (Resolutions 2003-150 and 2004-137). To date, approximately 654 AFY has been committed, with approximately 246 AFY available under the existing authorization.
The City Council has periodically adjusted the price of Surplus Water to reflect updated California Department of Water Resources reliability estimates for State Water and historical State Water costs. The current rate adjustment, established in 2021, is $64,688/AFY.
DISCUSSION:
The proposed Resolution maintains the City's existing authorization to provide up to 900 AFY of Surplus Water for eligible development while preserving all previously executed water purchase agreements.
2 The Resolution revises the City’s policy governing Surplus Water sales for projects outside the City limits. All projects will be subject to City Council approval. New commercial projects must also enter into a property tax exchange agreement between the City and Santa Barbara County before Surplus Water may be provided.
The property tax exchange requirement helps ensure that commercial development benefiting from City water also provides an ongoing fiscal benefit to the City. By allowing the City to receive a share of the property tax revenues generated by those developments, the framework creates an opportunity f or recurring General Fund revenue while recognizing the long-term value of the City's water resources.
The resolution also continues to authorize the City Council to establish the market value for future Surplus Water sales. This allows future pricing adj ustments to be considered independently by the City Council without requiring amendments to the resolution. The proposed action does not establish or modify the current rate.
If adopted, staff from the Utilities Department, City Manager’s Office, and City Attorney's Office will work collaboratively to implement the framework established by the resolution.
This will include updating administrative procedures, application materials, agreement templates, and internal review processes to ensure consistent administration of future surplus water requests.
Alternatives
The City Council may:
1. Direct staff to revise provisions of the proposed resolution, including eligibility requirements, approval processes, allocation limits, or other policy direction.
2. Decline to adopt the resolution. Staff will continue administering the program under the existing framework, which does not incorporate the proposed updates or clarifications.
Fiscal Considerations
Any future Surplus Water sales will continue to generate revenue in accordance with City Council-approved pricing in effect at the time of sale, which is attributed to the Water Enterprise Fund. All revenue from the tax exchange agreements will be attributed to the General Fund.
Impact to the Community
Requiring a property tax exchange agreement for eligible commercial projects outside the City limits creates an opportunity for additional General Fund revenues that can help support City services for residents.
ATTACHMENT(S)
A. Resolution