The Cambria Community Services District may be teetering on a financial precipice: According to General Manager Jerry Gruber’s “worst case scenario,” the district could run out of operating cash in about three months, thanks to an ongoing lawsuit and another set of glitches in the district receiving a promised $4.3 million state grant.
“If we don’t get the grant funding,” he said in an Aug. 17 phone interview, “from a cash-flow perspective, it will be extremely challenging for the district.”
The CCSD was to have received Proposition 84 grant money, part of a county application for Proposition 84 funds for drought-related projects, to help offset expenses for building and doing initial tests on a $13 million emergency water supply project (EWS). That project received an emergency permit from the county, and the plant was constructed and test-operated for three months earlier this year.
But in the past few weeks, according to district and county representatives, state officials have raised several concerns about the district’s grant, including the reported lack of a water management plan required by the Department of Water Resources (DWR) and LandWatch of San Luis Obispo County’s legal challenge to the project’s environmental compliance and permitting.
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Gruber was to have presented those topics during a special meeting Wednesday, Aug. 19, a session he and Board President Gail Robinette set less than a week earlier after learning about the problems. The meeting’s agenda also includes some issues originally scheduled for the board’s meeting the following day Thursday, Aug. 20.
(The earlier meeting was held after The Cambrian’s press deadline; coverage of its results will be available online at www.thecambrian.com and in the paper’s Aug. 27 issue.)
The Aug. 19 meeting agenda also includes a potential vote by directors on having Gruber “execute an indemnity agreement … or provide the county with other assurances” that if the state were to demand repayment of the grant later, the district would assume that responsibility.
County Administrative Officer Dan Buckshi said Monday, Aug. 17, there are two pieces to the problematic puzzle: The lawsuit itself, and if the lawsuit is successful, the $4.3 million in grant “funds would have to be repaid. And if CCSD would have to repay them, how would they do that?”
Gruber said Dean Florez, the district’s lobbyist for the EWS project, had told him the state “is willing to release the funds. But it’s my understanding that county counsel has recommended to (Supervisor Bruce) Gibson and Buckshi that those funds should not be released.”
Gruber said the entire board of supervisors should consider the risk and make the decision, because that body supported CCSD’s grant application.
“My desire is to continue to work closely with county,” Gruber added. “We’ve had a good working relationship on so many fronts. I don’t want this to be divisive; I don’t want to point fingers at anybody.”
Still, if the grant funding is withheld or substantially delayed while the glitches are ironed out, Gruber wrote in his report, “staff projects that the district will have slightly more than $1 million in cash by the end of August, and cash-flow projections indicate that the CCSD has approximately three months of operating cash on hand.”
Gruber has already told staff to take several steps to reduce current and future expenditures, including deferring all nonemergency projects, not filling current vacancies, postponing any East Ranch park improvements and capital improvement infrastructure projects, and working with vendors to allow deferral or relief from invoices.
Gruber said in the interview that among the latter requests could be asking the firm that built the emergency water-supply project to write off a $560,000 retainer.
According to documents from Patrick O’Reilly, CCSD’s finance officer, the district already has spent or allocated $12,321,256 toward the project, based on having received an $8,939,000 loan, or “installment sale,” and anticipating receipt of the $4.3 million grant funds approved by the state and allocated by the county late last year.
Project costs include: Planning, design, permitting and fees; environmental; construction; additions and modifications required so far by regulators; start-up and general costs; professional services (including $122,561 in legal costs for the LandWatch lawsuit); and expenditures toward the regular coastal development permit, including for the environmental impact report and dechlorination and aeration processes. The total includes $1 million for future mitigation measures, plus nearly $40,000 for public outreach and more than $97,000 worth of CSD staff labor.
The CSD board also was to consider on Aug. 19 approving a Bartle Wells proposal for water and wastewater financial plans and rate studies, which could lead to more rate increases as early as January.
Lawsuit costs and an offer
Meanwhile, Gruber estimates the district already has spent $160,000 on legal fees and other expenses defending the lawsuit brought by Deborah Sivas of the Stanford Law Clinic, who filed on behalf of LandWatch of San Luis Obispo County. Gruber said the district’s eventual cost could be close to a quarter of a million dollars.
If the plaintiffs in the lawsuit should prevail, said district spokesman Tom Gray, “the worst case would be we couldn’t operate the EWS until the regular permit is granted. While that would be a negative impact, we wouldn’t have to tear up the plant and throw it out.”
Sivas said she has offered another option — to set aside and eventually withdraw the action — but to date that offer reportedly has drawn no response from the district or its outside attorney, Rob Bower of Rattan and Tucker in Orange County.
Sivas said Monday that the plaintiff never intended to stop the project, but simply wants CCSD “to do the environmental review, which the district says it’s going to do, and to get the proper coastal permit. … We’re not asking for them to tear down the project or not use it during a true emergency situation.”
A project built in the coastal zone under an emergency permit must subsequently get a full coastal development permit.
Sivas also said she had told Bower that the plaintiff might be “willing to put all this on hold, not spending everybody’s time and money. … We’d put the case in abeyance and (if the district meets the conditions it’s already said it plans to meet) potentially dismiss it.”
Sivas said, “I’m not interested in litigating if there’s no reason to do so …, but I never heard back from them.”
The next court dates, according to CCSD Administrative Assistant Monique Madrid, are a case management conference Monday, Aug. 24, and a “motion for leave to amend” on Tuesday, Sept. 1. Each is to start at 9 a.m. in Superior Court Department 2 in Paso Robles.
The Cambrian asked Gruber and other CSD officials to comment on Sivas’ offer (and the reported lack of a water management plan), but received no reply by press deadline.
There also was no response to requests made of DWR officials.
Even with all that somber news, some local and regional officials remained cautiously upbeat.
Supervisor Gibson said Monday, Aug. 17, “We think we have part of it worked out with the Department of Water Resources. We’re going to try to get the CSD paid for their so-called ‘soft costs’ of about $1 million. That will be progressing this week. We’re still discussing how to get them paid for their construction costs” as allocated in the original grant (about $3.3 million of the grant).
He raised the issue of the groundwater management plan that was a requirement of the original grant process. Conversations are continuing with DWR, he said, about “that report not being immediately available and approved. It’s not clear when that (the report) is going to happen.”
Gibson seemed sympathetic to the district’s woes. “This is a big load for a little district. I know they’re working hard on it. We’re going to try to keep this moving forward. We’re just not at the finish line yet.”
CAO Buckshi said Monday that “it’s really up to the Department of Water Resources, what they’re able to accept. … We’re seeking clarity from DWR why this is coming up now, when everybody’s been very up front about it being an emergency project” and that challenges certainly could be filed. “We’re trying to get the money from the state” while trying to determine “what kinds of new strings the state is attaching to these funds.”
The county coordinates the grant paperwork from various applicant agencies countywide, he said, “because the state wants to deal with a regional entity, not individual districts. We’re trying to help CCSD work this through so they can get their money without these previously unknown conditions.”
Buckshi said this situation “certainly seems like it’s a new interpretation of the grant.” If those conditions were included in the original requirements, “I don’t know that it was made clear anywhere that if a lawsuit was filed, it may jeopardize the grant funding.”
Gruber, too, expressed some optimism in his report and in an Aug. 17 phone interview. “I remain optimistic that we can resolve this matter with the county in a relatively short period of time,” he wrote.