Fiscal Year 2008-2009
Adopted Budget

The FY 2008-09 Adopted budget was reviewed by the Santa Clara Valley Water District Board of Directors in its work study sessions of May and June, and it was adopted on the session of June 24, 2008. Key highlights include:

Streamline and Sustain
Valley Water is confronting a challenge familiar to many in the current economic climate: How can we pursue our mission and maintain excellent service levels while facing rising costs in an uncertain state and national economy? Our response is to “streamline and sustain” – constrain internal costs
and shift existing resources toward core business work that directly benefits the community.
By eliminating 28 vacant positions, cutting overtime by half and making numerous operational changes, the District has kept FY 2008-09 operating outlays at approximately the same level as prior year.

Priorities and Challenges
Like other water agencies in California, the District must respond to several critical industry trends and challenges, all of which are reflected in the adopted FY 2008-09 budget:

Local, state and national economic impacts
As a partial response to California’s budget crisis, the state Legislative Analyst is proposing a permanent shift of $2.5 million from water and wastewater agencies in Santa Clara County. For the District, this could mean an estimated loss of annual property tax revenue in the range of $2.5–9 million. Should this shift occur the District could be forced to increase groundwater charges to continue to provide critical water supply services.

Scarcity of water supplies
In 2007, dry conditions throughout the state and pumping restrictions in the Bay-Delta resulted in a reduced imported water supply. At the same time, with little rainfall, local water use increased by six percent, and groundwater basins are only now recovering from additional pumping. Although rains in early 2008 promised to restore hydrologic conditions to near average, we experienced the driest March and April of record; locally and statewide, 2008 is shaping up to be another dry year. Compounding these issues, the District’s imported water deliveries continue to be subject to increasing risks and uncertainty, including cutbacks from regulatory actions in the Delta. Despite these uncertainties and challenges, indicators point to our ability to meet current demand for FY 2008-09.

Infrastructure maintenance and construction needs
Valley Water owns and operates a vast array of infrastructure, some of which was built in the 1930s. This infrastructure–including treatment plants, dams, pipelines, canals, pumps and levees–is aging, and requires funding for maintenance and refurbishment. The threat of damage from earthquakes and from invasive species such as zebra and quagga mussels further highlight the importance of this issue.

Included in FY 2008-09 infrastructure maintenance is completion of an ongoing seismic stability evaluation for the Almaden, Calero, Guadalupe and Anderson dams. Two major portions of the pipeline systems on the Santa Clara Conduit will be shut down for inspection and repair. Funding is proposed to increase $0.9 million for the Total Watershed Asset Management program, which will improve our ability to plan and invest strategically in needed maintenance, refurbishment or asset replacement projects. Previously deferred maintenance throughout the Guadalupe watershed is funded in  FY 2008-09 to strengthen the safety and critical capacity of creeks and waterways. And levees countywide will benefit from maintenance repair allocated at $0.7 million, mainly to address damage from burrowing animals.

Repairing and upgrading aging infrastructure is a primary purpose for the District’s Capital Improvement Program, or CIP. The FY 2008-09 budget includes CIP funding of $256 million, including unspent funds carried forward from the current fiscal year. FY 2008-09 CIP highlights for the water utility include work at the Pacheco Pump Station, which pumps imported water to the county from the federal Central Valley Project via the San Luis Reservoir. A large regulation tank is planned to be taken off-line and relined, followed by seismic analysis and evaluation of the existing corrosion protection system. Also at the station, funding is allocated for rebuilding two huge pumps that are critical to the District’s imported water supply. Several projects grouped together under the Facility Renewal Program will upgrade infrastructure at the Rinconada Water Treatment Plant, with FY 2008-09 funding of $20.3 million.

Flood protection capital highlights for FY 2008-09 include partnering with the U.S. Army Corps of Engineers (Corps) for planning and design of a project to protect more than 2,900 parcels from flooding along Berryessa Creek in San Jose. Construction will be completed along Lower Silver Creek on a project in partnership with the Natural Resource Conservation District that will protect properties from flooding, enhance habitat and fisheries potential, and improve pedestrian bridges and access to future trails. Design of a restoration project along Jacques Gulch, a tributary to Almaden Reservoir, will be completed in FY 2008-09, allowing removal of mercury calcine deposits, restoring habitat and stabilizing stream banks.

Rising capital costs
Bringing needed capital projects from planning to construction is rapidly becoming more expensive. This increase in capital costs is driven by global raw material demand, and by rising delivery, fuel and labor costs. Based on a study of these costs, the District will incorporate a 7 percent inflation rate for its construction projects in FY 2008-09. This composite rate of material, equipment and labor costs corresponds to the Engineering News-Record (ENR) San Francisco Area Construction Cost Index for percent change over the last fiscal year.

Planning for ongoing climate change impacts
Acknowledging that climate change impacts are real and must be accounted for in planning, the District is studying how to incorporate climate change modeling into its activities. This is particularly important in a region that can face drought, stream flooding and tidal flooding in the space of a few years. In FY 2007-08, the District Board amended its governance policies to reflect a commitment to achieving carbon neutrality, including the following: The District will strive to minimize its greenhouse gas emissions, work with the community to reduce its greenhouse gas emissions related to utilization and management of water resources and enhance community understanding of climate change and how it challenges the District’s mission. Planning activities for climate change response are funded in the FY 2008-09 adopted budget.

Succession planning
Nationally, the water industry is facing the impending retirement of many highly-trained employees and a concurrent shortage of highly skilled staff to take their place. At Valley Water, a pilot program is allocated $0.5 million in the FY 2008-09 adopted budget to address staff retirements and develop a systematic process for evaluating future staffing needs.

Rising healthcare costs
Health care inflation is outpacing the growth of general inflation. That’s a problem for many public agencies with employees reaching retirement age. To meet significantly higher post-retirement health care costs, the District is “pre-funding” its payment obligations via a multi-year plan, allocating
approximately $2 million for FY 2008-09.