MINUTES OF THE BOARD OF DIRECTORS
ZONE 7
ALAMEDA COUNTY FLOOD CONTROL AND WATER CONSERVATION DISTRICT

________________________________________________________________

REGULAR MEETING

June 15, 2016

The following were present:

DIRECTORS: SANDS FIGUERS

JOHN GRECI

JIM McGRAIL

SARAH PALMER

RICHARD QUIGLEY

ANGELA RAMIREZ HOLMES

BILL STEVENS

DIRECTORS ABSENT: NONE

ZONE 7 STAFF: JILL DUERIG, GENERAL MANAGER

KURT ARENDS, ASSISTANT GENERAL MANAGER, ENGINEERING

OSBORN SOLITEI, ASSISTANT GENERAL MANAGER, FINANCE

CAROL MAHONEY, MANAGER, INTEGRATED WATER RESOURCES

LINDA VAN BUSKIRK, BOARD SECRETARY

COUNSEL: DAVID ALADJEM, DOWNEY BRAND

Item 2 -

OPEN SESSION AND REPORT OUT OF CLOSED SESSION The Board came out of Closed Session at 6:58 p.m. and President Palmer said that there were two issues out of closed session:

The first item was regarding negotiations with the Alameda County Management Employees Union. The proposal was for a 3% COLA increase as of July 3, 2016, a 2% increase as of July 2, 2017, and 2% as of July 1, 2018.

Director Quigley moved to approve the item, and Director McGrail seconded. There being no discussion or comment from the public on the matter, the motion passed by a roll call vote of 7-0.

Resolution No. 16-136 Authorized MOU between Zone 7 & Alameda County Management Employees Association (ACMEA) effective 7/3/2016 - 6/29/2019, 3%, 2%, 2%

The second item was regarding the unrepresented employees, which does not include the General Manager, for a COLA increase of 3% as of July 3rd, of 2% as of July 2, 2017, and of 2% effective July 1, 2018.

Director Greci moved to approve the item, and Director Ramirez Holmes seconded. There being no discussion or comment from the public on the matter, the motion passed by a roll call vote of 7-0.

Resolution No. 16-137 Approved Salary Adjustments for Unrepresented Classification in Zone 7 for 2016 at 3%, 2017 at 2% and 2018 at 2%

Item 3 -

CALL TO ORDER / PLEDGE OF ALLEGIANCE

President Palmer called the regular meeting to order at 7:02 p.m.

Item 4 - Pledge of Allegiance

President Palmer led the Salute to the Flag.

President Palmer congratulated Directors Figuers, Ramirez Holmes and Quigley, who were all re-elected to the Zone 7 Board. She announced that their current term will end this month and they will then be sworn in for their new terms at the next board meeting.

Item 5 -

CITIZENS FORUM: None.

Item 6 -

MINUTES OF THE REGULAR MEETINGS OF MAY 18, 2016

Director Quigley moved that the minutes of May 18, 2016 be accepted and approved, and Director Figuers seconded the motion. The minutes were approved by a voice vote of 7-0.

Item 7 -

CONSENT CALENDAR :

a. Request for "Out-of-State" Travel to Attend the American Water Works Association Annual Conference & Exposition

b. Contract Proposal for Environmental Assistance with ICF International

c. Contract with Stantec Consulting Service, Inc., for Electrical Engineering Services

d. Contract Amendment with LanLogic, Incorporated, for Information Technology Services

President Palmer asked to pull Item 7(b) for discussion.

Director Quigley moved to approve Items 7(a), (c), and (d) and Director Stevens seconded the motion. The items were passed by a roll call vote of 7-0.

Resolution No. 16-138 Authorized Out-of-State Travel Reimbursement for Colter Andersen to attend the AWWA ACE 2016 Conference (Item 7a)

Resolution No. 16-139 Approved Electrical Engineering Support Services Contract with Stantec Consulting Service, Inc. (Item 7c)

Resolution No. 16-140 Approved Amendment to Contract A13-56-LAN with LanLogic, Incorporated (Item 7d)

Item 7(b) Contract Proposal for Environmental Assistance with ICF International

In response to President Palmer's question about whether or not changing an approval for a contract from Trihey Associates to ICF would create any legal issues for the agency, David Aladjem, Counsel, advised that because the assignment was for the benefit of that specific professional who has now moved on to ICF, there is not a problem in revising the assignment from Trihey to ICF.

Director Greci moved to approve Items 7(b) and Director Figuers seconded the motion. The item was passed by a roll call vote of 7-0.

Resolution No. 16-141 Authorized Contract with ICF International to Provide Specialized Environmental Analysis (Item 7b)

Item 8 -

STAFFING UPDATE

Item 8(a) New Employee Introduction - Dane Wilkins

General Manager, Jill Duerig, introduced Dane Wilkins who was present in the audience. Dane joined Zone 7 as an Instrument Technician in the Maintenance Department reporting to Tim Brown. The board welcomed and applauded Mr. Wilkins.

Item 8(b) April Employee of the Month Recognition - Joe Seto

Ms. Duerig introduced Joe Seto, Principal Engineer overseeing the Flood Control Section. The agency received two letters from outside agencies, LARPD and the City of Pleasanton, telling management how wonderful it is to work with Joe. He embodies what Zone 7 likes to see in customer service. The board applauded Joe Seto for his accomplishments.

Item 9 -

PROPOSING END TO LOCAL DROUGHT EMERGENCY

Ms. Duerig introduced Carol Mahoney, Manager of Integrated Water Resources, who gave a brief summary of the drought situation. Ms. Mahoney's presentation highlighted Zone 7's three-year drought analysis based on SWRCB guidelines along with some slides that were also presented at a recent San Ramon City Council meeting which she attended with Dan McIntyre of DSRSD. After Governor Brown issued Executive Order B-36-15 in November 2015 extending water use restrictions until October 2016, a significant amount of rain and snow up in the northern Sierra then allowed the governor to issue another Executive Order that asked the State Water Resources Control Board to look at a more local way of dealing with drought conservation. The presentation concluded that the amount of supply minus demand projections indicate a surplus. Based on that information, the findings were that the agency would have no shortage in dry years similar to the ones we have just experienced, and it is estimated that there will be no need for a mandatory water conservation percentage. The recommendation from Staff is to lift the local drought state of emergency and to then further set the conservation target at a voluntary 10%. Zone 7 did reach out to the retailers to confirm that this is in line with what they will be doing as well.

President Palmer asked for questions from the Board.

In response to Director Figuers question about the baseline used for the voluntary reduction of 10%, Ms. Mahoney said the baseline used was from 2013.

Director McGrail asked if a drought surcharge would still be charged if a declaration was made to end the drought emergency. Staff responded the Water Shortage Surcharge would be discussed with Item 11 "Proposed Budget FY 2016-18" and that it is outlined in detail in the accompanying staff report on page 5. A water shortage surcharge gets adopted at the same time that a new emergency is declared according to the agency's Urban Water Management Plan. The temporary conservation surcharge is to financially recover from significant revenue shortfalls due to abundant conservation over the last few years. A discussion with the retailers of a better fixed charge component that everybody can buy into is planned for this summer.

Director Ramirez Holmes raised a question regarding if this "new normal" will help achieve the 20% by 2020. Will a voluntary 10% be adequate for meeting that target? Ms. Mahoney indicated that the voluntary 10% along with continuing efforts as suggested by the state and the recommendations of our retailers regarding ongoing conservation is going to be adequate to meet the 20x2020. Ms. Duerig added that much of the 20% reduction in per capita use by 2020 is being accomplished by hard engineering-type changeovers, such as Pleasanton's big purple pipe project that is going to greatly reduce the per capita use. Additionally, new buildings going in have a much lower demand because of the new and efficient plumbing fixtures being used. The retailers have indicated that reaching the 20x2020 will not be a problem. This 10% voluntary is a tool to encourage using water wisely and not wasting it. Director Ramirez Holmes and President Palmer urged staff to ensure that the message gets out to the public that there are still restrictions on us all and that we must pay attention to the local water agencies so that the guidelines are understood.

Director Quigley thanked the public and the retailers for their great conservation efforts during the drought. He stressed the importance of public knowledge regarding our vulnerability for state-delivered water. The state said this year they can deliver 60% of our allocation and has returned local control to us to regulate the drought locally. He is in favor of going forward with the 10% voluntary conservation target.

Dan McIntire with Dublin San Ramon Services District (DSRSD) spoke regarding the fact that the DSRSD board will also consider a recommendation for a similar action as this one before the Zone 7 board tonight - a 10% voluntary conservation and calling an end to the drought emergency for this year. He reminded the Board and staff that the community expressed support for taking some action to make our water supply more resilient and they expressed support for economically supporting that.

A.J. Machaevich, a Livermore resident, stated that in the past Zone 7 had done a very good job of purchasing water at low cost to recharge the aquifers and other resources. He urged the Board to continue looking at cost-effective ways to purchase more water to recharge the aquifers. He further encouraged the Board to continue conservation and get the word out that even though the drought is over -- we do have a goal to conserve 20% by 2020.

Director Palmer asked for any further comments. There were none.

Director Figuers moved to approve Item 9 and Director Quigley seconded the motion. The item was passed by a roll call vote of 7-0.

Resolution No. 16-142 Declared an End to the Local Drought Emergency

Item 10 -

SITES RESERVOIR PROJECT - PHASE 1 PARTICIPATION

Carol Mahoney, Manager of Integrated Water Resources, gave a presentation on Phase 1 Participation in the Sites Reservoir Project. Ms. Duerig commented that the Water Resources Committee heard a more detailed presentation from the General Manager of the Sites Reservoir Joint Powers Authority on May 24, 2016 and that is summarized in committee notes that are included in the agenda package. The Water Resources Committee recommended bringing this forward to the Board for consideration and recommends that we should authorize the General Manager to submit the Letter of Intent which the Sites JPA is calling the Proposal to Participate and staff is recommending to adopt the attached resolution authorizing the General Manager to submit that by July 29, 2016. Ms. Mahoney pointed out that the Phase 1 participation is estimated not-to-exceed $600,000 or $60/AF at 10,000 AF to get our hat into the ring.

President Palmer commented that of all the proposals the Board has heard, this is one of the few that actually has new water. Since this water is coming out of the other side of the valley as opposed to the Sierras, it would be essentially new water to the agency. She also found it interesting that this is one of the few proposals where she has seen ecological benefits really taking a major position.

Director Figuers concurred with President Palmer. This is new water and of the 500,000 AF about half of it will go to the environment and the fish. Although they are still working out the kinks, this proposal is extremely well thought out, and he urged the Board to support it.

Director Greci commented that he also had the opportunity to sit in on the Sites Reservoir presentation during the Water Resources Committee meeting and never in his career at Zone 7 has he been so excited. This project will provide water to float down the Delta and keep the Delta flush going, where there has not been water to do it before. The ecological benefits should please the environmentalists. Director Greci continued that based on the information given to the committee the other day and this evening, this is such a pragmatic decision. He expressed his support of this very positive project as a source of new water which the agency has not had before.

Director Stevens pointed out that this source is still slightly higher than the twin tunnels but is the next costliest alternative that we have. Although it makes sense to participate, it is expensive at $600,000. Director Stevens feels that the agency may get prorated down to 10% of the amount it requests, so why not ask for 20,000 or 30,000 AF? Ms. Duerig responded that the initial thought was that the agency should ask for between 2,000 to 5,000 to make up what is being lost from the BBID. After much discussion, staff doubled that amount because of the exact situation that Director Stevens mentioned.

In response to questions from Director Ramirez Holmes regarding the size of Sites Reservoir and the costs of Phase 1 and beyond, Staff responded that the capacity of Sites is estimated at about 1.8 million AF. For comparison purposes, Shasta is about 4.9MAF, Oroville is close to 4MAF and Folsom is about a million, so Sites is almost twice the size of Folsom Reservoir. The source for filling would be the watershed in the Antelope Valley in Colusa County from rain, and runoff. The project is estimated to cost $3 to $4.4B to construct; funding from Proposition 1 could potentially cover a large portion of this cost if the application for grant funding is successful, reducing costs to participants. Ms. Duerig added that the cost could go up to $6M if the agency gets up to 10,000 AF, although there are a lot of caveats right now. Director Ramirez Holmes asked where the money would come from. Ms. Duerig responded it will probably be built into the purchase cost of the water as we purchase it. The JPA would most likely go out for a bond and then they anticipate that they would charge us $600 for every acre foot that we purchase from them. And that includes their bond payments to get this built. In response to Director Ramirez Holmes' question about who the known contractors are in the JPA, Ms. Duerig responded that there are approximately 10-12 members of existing participants largely from the Sacramento Valley area.

Director Quigley concurs with President Palmer and Director Greci's comments. He mentioned that he has seen the site of the project during a regional meeting with the Association of California Water Agencies and it has the blessing of water agencies north of the Delta along with the rice farmers in that area. This will potentially be a big reservoir which can give the agency more water all the time once it has been built. Additionally, a piece of Proposition 1 grant money has been earmarked for this project. This is very important for our community and to him as a Director. He expressed his enthusiasm with the recommendation of the Water Resources Committee and Staff, and urged the Board to approve putting in Zone 7's bid for a claim of 10,000 AF or more of this new water.

In response to questions by Director McGrail regarding the proposed water delivery system and where this project has been for the last 10 years, Ms. Duerig replied that the proposed delivery system would come down the Sacramento River then use existing infrastructure to go through or under the Delta and be picked up south of the Delta by the existing pumps including the South Bay Pumping Plant. She explained that DWR has been doing work on this on and off over the last 50 or 60 years. The Joint Power Authority was formed in part due to a certain frustration that this project wasn't moving fast enough. Local interests in the valley also wanted to make sure they had some local control over the way it was built and the way it was operated. Proposition 1 was a huge boon to this, as Director Quigley said. Director McGrail urged the Board to participate as soon as possible.

President Palmer asked if there were any comments from the audience.

Dan Martin with the City of Pleasanton expressed Pleasanton's support for this project. Although this new source of water is not the ideal scenario in that it's not directly local control, which is part of the diversification portfolio agencies are looking for, it is certainly one of the very best alternatives. He recommended that the Board consider a higher participation level as Director Stevens suggested if there is an opportunity.

Director Greci moved to approve Item 10 and Director Quigley seconded the motion. The item was passed by a roll call vote of 7-0.

Resolution No. 16-143 Authorized submitting a Proposal to Participate form to the Sites JPA with a desired level of participation at 10,000 AF of the Sites Reservoir Project - Phase 1

Item 11 -

PROPOSED BUDGET FY 2016-2018

Osborn Solitei, Assistant General Manager of Finance, presented the staff report on the Proposed Two-Year Budget for Fiscal Years 2016-17 and 2017-18 which contains an appropriation of $273M, with $125.8M the first year and $147.2M in the second year. His presentation focused on major factors affecting the budget, revenue and expense highlights by fund, and actual and projected reserve balances. He then responded to questions from the Board.

Director Greci complimented staff for creating a two-year budget which paints a good picture about the importance of reserves. He expressed his support for doing whatever possible to rebuild the reserve funds.

Director Figuers commented that he is not against reserves as they are necessary, especially the Emergency reserves and the Operating reserves. However, he expressed strong distaste for the Rate Stabilization and the Drought Contingency funds, stating those funds are pure political reserves which serve no real purpose to the agency.

Director Figuers moved that the Rate Stabilization Fund and the Drought Contingency Fund be eliminated. The motion failed for lack of a second.

Director Stevens disagreed with Director Figuers, stating that the agency needs to keep those reserves because they are used and they function exactly the way they were designed. Instead of proposing large increases in one period, having the reserves allows it to be spread out over time.

Director Ramirez Holmes suggested that the Finance Committee schedule a meeting to discuss the reserve policy to be able to confirm key amounts that are needed, especially now that the agency has worked through a drought. Additionally, it makes sense that coming out of a drought that reserve category would show a shortage. The money in the additional reserve funds, such as in the 300 funds, are only in separate funds by Board vote, and at any time the Board can vote to put them somewhere else.

Mr. Solitei emphasized that there was a time when the agency had about $30 million in reserves, but that it was spent down to $16 million in one year, $9 million in another year, to end around $6.4 million this year based on last quarter projections. The bottom line is the reserves that we have are not sufficient for this agency.

Director Quigley stated that he strongly disagrees with Director Figuers and Ramirez Holmes. He complimented Staff as the experts for putting together a budget plan that makes sense. Bolstering up the reserves that have been drawn down from $30 million to $6 million should be done as soon as possible. The Board must give Staff the tools they need to go to the banking community and go out for debt financing for needed projects. The agency needs a triple A credit rating.

President Palmer noted that while the agency still has a temporary surcharge it should not be using it to increase the drought contingency fund. She agrees that the agency must have a certain amount in the reserves in order to get approved for debt.

Director McGrail complimented staff on putting together a great budget presentation. He would like to see the agency revisit the temporary surcharge as it is expected to do in the Fall. He agreed that when issuing bonds, the agency has to have a good credit rating.

Mr. Solitei confirmed that staff will come back to the Board in the Fall to look at the rates and reserves again. He explained that the bond rating agencies or credit rating agencies look at the agency's history - the history of the reserves, the history of your management, and the history of policy making when it comes to rates, especially when issuing water bonds. This budget is a step in that direction, to help tell the story of where the agency has been and where it will be going. When issuing multimillion dollar bonds, you must get your house in order. If you have a reserve policy, you stick with it. Last year for the first time we issued a Comprehensive Annual Financial Report for the agency, which was a step in this process.

Director Figuers returned to the Rate Stabilization Fund and asked what risk is it managing, and what would be the alternate action the agency would take if the Rate Stabilization Fund did not exist? Mr. Solitei responded that the agency just came through the biggest risk ever - the drought, which affected everything the agency has. Should the agency experience a system failure, $6M is not enough to mitigate potential risk. Director Figuers concluded that the alternate action would be for the agency to raise rates - he sees no risk.

[NOTE: Director Figuers left the meeting at 8:55 p.m.]

President Palmer asked for comments from the public.

A.J. Machaevich, former Zone 7 Director, and former member of the Finance Committee explained that when he was on the Board, there were deliberate decisions made to help keep rate hikes down during the drought. At that time, the Board chose to use some of the reserve funds to help take the pressure off the public, and now the funds need to be rebuilt for emergencies and infrastructure breaks. He concurs with Mr. Solitei's direction in recommending the agency move forward.

John Archer, DSRSD, said that his board has developed tight policies over the years regarding what accounts are in the reserves, how to handle them, and what to do if/when certain things are happening. Not only is this good for staff moving forward, but it is also good for the rating agencies because they know how an agency is going to react going forward. When creating a rate policy, longer term planning should take into consideration all the uncertainties out there. He suggested a gradual rate increase so that the rate payers can see it and understand the plan. Reviewing the surcharge at the end of the year is consistent with Zone 7's own policy and is good for the retailers. He suggested keeping it as simple as possible for the rate payers so they are not getting hit with shocks one year at a time.

[NOTE: Director Figuers returned to the meeting at 9:02 p.m.]

Director Stevens moved to approve Item 11 and Director Quigley seconded the motion. The item was passed by a roll call vote of 6-1, with Director Figuers voting no.

Resolution No. 16-144 Approved the 2-Year Budget for FY 2016-17 and 2017-18.

Item 12 -

COMMITTEES-WATER RESOURCES COMMITTEE MEETING-MAY 24, 2016-NOTES

President Palmer pointed out that the notes of the Water Resources Committee Meeting had already been discussed earlier in the meeting.

Item 13 -

REPORTS - DIRECTORS a. Verbal comments by President

b. Verbal reports

David Aladjem, Counsel, advised President Palmer that when the Board addressed the ACMEA contract, the footnotes of that agreement were not included. Staff requested the Board continue that discussion. President Palmer agreed to complete the Closed Session, come back again, and then vote on the footnotes.

Director Figuers noted that he will be attending the July 19th Alameda County Board of Supervisors meeting about fracking because he views the deepening of the quarries to be the most potentially damaging item to Zone 7, and he wishes to start the public discussion on basically his objections to doing that. He will share his personal views, not those as a representative of the Zone 7 Board.

Director Quigley urged the Board to read the articles he brought along to share, stating that they are very interesting and unbiased. The first article, "The Delta at a Crossroads" out of Western Water Magazine, and two others entitled, "Partners in the Future of Water in California" and "Ask the Experts: How Can Boards Get Political and When Should They?"

Director McGrail reported that he attended the May meeting of the Livermore Valley Winegrowers' Association meeting where Carol Mahoney from Zone 7 gave a presentation. Although the subject seemed to him like a sales pitch for the twin tunnels, which he is not in concurrence with, he stated that Ms. Mahoney is very professional and did a great job.

Director McGrail also reported that Tim Hunt, principal of Hunt Enterprises, was also present at the Winegrowers' Association meeting. In response to Director McGrail's questions regarding the agency's contract with Hunt Enterprises, Ms. Duerig explained that Mr. Hunt provides support in interfacing with both Gualco, who is our lobbying firm in Sacramento, and overseeing some of our local outreach efforts because of his existing contacts from his days on the newspaper. The agency has found him to be very supportive to our communications staff. The current contract sunsets the end of this month, and at present there is no intention to extend because the new contract that starts on July 1st with ICF folds in a lot of the same kinds of outreach support that Mr. Hunt has been doing up until now.

Item 14 -

ITEMS FOR FUTURE AGENDA-DIRECTORS

None.

Item 15 -

STAFF REPORTS (Information items. No action will be taken.)

a. General Manager's Report

b. Legislative Update

c. Outreach Activities

d. Drought Update

e. Water Inventory Update (May 2016)

f. Update Related to the Cal WaterFix (former Bay Delta Conservation Plan)

g. Verbal Reports

Item 16 -

ADJOURNMENT

The Open Session meeting was adjourned at 9:10 p.m.

Open Session and Report Out of Closed Session

The Board came out of Closed Session at 9:40 p.m. and President Palmer said no reportable actions had been taken. She asked for a motion. Director Figuers moved to adopt the following four resolutions, with Director Greci seconding the motion. The motion passed on a 7-0 vote.

Resolution No. 16-145 Approved the Side Letter of Agreement between Zone 7 and ACMEA for a "Me Too Clause" (ACMEA)

Resolution No. 16-146 Approved Amendment to Appendix A, Footnotes to Salary Schedule 9.1 - Cell Phone (ACMEA)

Resolution No. 16-147 Approved Amendment to Appendix A, Footnotes to Salary Schedule 7.4 effective July 1, 2016 - Professional Engineer License Fee (unrepresented)

Resolution No. 16-148 Approved Amendment to Appendix A, Footnotes to Salary Schedule 9.3 effective July 1, 2016 - Cell Phone Reimbursement (unrepresented)

ADJOURNMENT - The meeting was adjourned at 9:45 p.m.

Board Secretary