B.        CONSIDER ADOPTION OF URGENCY ORDINANCE NO. 97 -- AN ORDINANCE OF THE BOARD OF DIRECTORS OF THE MONTEREY PENINSULA WATER MANAGEMENT DISTRICT AMENDING WATER CREDIT TRANSFER RULES

SUMMARY:  The Board will consider the first reading and adoption of urgency Ordinance No. 97 (Draft-3 shown as Exhibit 1), which revises Rule 28-B of the District Rules and Regulations regarding water use credit transfers.  The Draft-3 version makes changes to the existing Rule 28-B, paragraphs 9 and 10, shown in bold italics.   Specifically, a water credit transfer is not allowed for which money or other valuable consideration has been given in exchange for the transfer in an amount greater than the District's then-current connection charge (currently $18,492 per acre-foot).  The ordinance was originally prepared by District Counsel at the direction of the Chairperson, based on a November 8, 2000 written request by Director Lindstrom (Exhibit 2).

A Draft-1 version, which had made several substantive restrictive changes to Rule 28, was circulated for 30-day CEQA review on December 15, 2000 via an Initial Study/proposed Negative Declaration.  Following discussion at the PAC/TAC meeting of December 19, 2000, at which concerns were raised by jurisdiction representatives, substantive modifications were made to  Draft-1 which removed all charges, except for the monetary issue.  With these changes, Ordinance No. 97 no longer meets the definition of a CEQA project, and adoption of a Negative Declaration is not needed.  Ordinance No. 97 was discussed by TAC/PAC at their February 8, 2001 meeting at which time the committees agreed to support the limit on the sale price of transferred water credits (Exhibit 3).

Five affirmative votes are needed for an urgency ordinance to be adopted; in this case, Ordinance No. 97 would become effective at 12:01 A.M. on March 20, 2001.  If only four affirmative votes are cast, the ordinance will be heard for a second reading at the April 16, 2001 meeting.  Assuming a majority approval at that time, Ordinance No. 97 would become effective 30 days after the second reading and adoption. 

RECOMMENDATIONS: Staff recommends that the Board take the following action regarding Ordinance No. 97:

1. Determine that Draft-3 of Ordinance No. 97 is not a project under CEQA in that it only refines monetary/reimbursement amounts under existing rules and regulations that does not result in a physical change to the environment.
   
   
2. Determine whether or not to adopt Ordinance No. 97 as an urgency ordinance (five affirmative votes are needed) or approve as a standard ordinance to be adopted at second reading in March 2001 (four affirmative votes needed).  Staff does not have a position on the ordinance as the primary issue is of a policy nature; that is, whether or not the District should control the amount of profit made on a water credit transfer.

PRIOR BOARD ACTION: Rule 28 was created with MPWMD Ordinance No. 1 in 1980 and has been refined over the years, most recently via Ordinance No. 79 adopted in September 1995.  In the previous year, there have been extensive discussions about the water credit transfer program as part of deliberations associated with Ordinance No. 95.

A public hearing was held on this item at the February 22, 2001 board meeting.  No action was taken, and board discussion on the item was postponed to permit the entire board to be present.

DISCUSSION: The following changes from the Draft-1 text circulated in early December 2000 to the current Draft-3 version (January 8, 2001) include:

Draft-1, Finding #4 is changed in Draft-3 to remove all text but the first sentence, to be identical to the existing language of Rule 28-B:

4.         Existing Water Management District rules also allow transfer of water credits directly into a jurisdiction's water allocation.  This ordinance extends limitations that apply to direct transfer of credit from one site to another so that those limitations apply equally to the use of increments of water that were first transferred into and later used from a jurisdiction=s allocation.

Finding 9 has been added to indicate the Board's intention to periodically review the rule.

Draft-1, Section Three, Rule 28-B, paragraph #4, lines 3-5: The text shown as strike out in Draft-1 has been restored in Draft-3 to be identical to the existing language of Rule 28-B:

Other than transfers which add to a jurisdiction's allocation, transfer credits shall not originate from, or be transferred to any residential use.  Transfer credits shall not derive from any prior open space water use.

Draft-1, Section Three, Rule 28-B, paragraph #5, lines 1 and 3: The bold italic underlined text shown in Draft-1 has been removed in Draft-3, and the words "property-to-property" that were in strike out are restored so that text is identical to the existing language of Rule 28-B:

5.         Property-to-property and property-to-jurisdiction water use credit transfers shall only be used for intensification purposes.  New water connections shall not be issued based upon a property-to-property any transferred water use credit.

Draft-1, Section Three, Rule 28-B, paragraph #7, is changed to remove all text but the first sentence, so Draft-3 is identical to the existing language of Rule 28-B:

7.         The use of credits resulting from a property-to-jurisdiction transfer shall be at the discretion of the jurisdiction.  However, use of credits from a property-to-jurisdiction commercial water use credit transfer shall only enable intensification of water use capacity for an existing commercial or industrial connection at the time that credit is released from the jurisdiction=s allocation.  Such credits shall not provide water use capacity for new commercial or industrial connections.

Section Three, Rule 28-B, paragraph #9, has text added to require a declaration under penalty of perjury by the owners of the originating and receiving sites as to the compensation received for the water credits:

9 .         All transfers of water use credits shall occur only by the written and recorded agreement of (1) the owner of record for each parcel from which the transfer originates, and (2) the owner of record for each parcel receiving a transferred water credit.  This The originating site agreement shall confirm that the transfer of water credit is irrevocable, shall quantify remaining water use capacity required by the originating parcel(s), and acknowledge that any intensification of water use capacity on the originating site thereafter shall result in additional connection charge fees.  The agreements recorded on both the originating site and the receiving site shall contain a declaration made by the owner of record under penalty of perjury that, other than reimbursement for the Rule 24 connection fee that would apply to the water use capacity, no money or other valuable consideration has been given or received in exchange for the water credit transfer.  If all prior water use capacity is transferred from a site (due to demolition of all structures on that site), the recorded agreement and notice shall consent to permanent removal of the meter connection from the originating site, and acknowledge that the placement of a new meter shall be limited due to unavailability of water.

Draft-1, Section Three, Rule 28-B, paragraph #10, last sentence: The bold italic underlined text shown in Draft-1 that allowed reimbursement of connection fees previously paid to the District has been modified in Draft-3 to state: "These limitations shall nonetheless allow the recipient of a water credit transfer to reimburse the donor of that credit for Rule 24 connection fees that would apply to the water use capacity."

Finally, the following two subsections of paragraph #10 have been added to Draft-3:

10A.    Violation of the prohibition on the transfer of water credit for money or other valuable consideration shall result in immediate revocation of the transfer credit. 

10B.    Violation of the prohibition on the transfer of water credit for money or other valuable consideration is a misdemeanor as provided in Section 256 of the Monterey Peninsula Water Management District Law.

IMPACT ON STAFF/RESOURCES: Ordinance No. 97 could possibly reduce staff work load if fewer transfers go forward due to lack of a profit incentive.  However, workload could increase if extraordinary activity by staff were required to investigate or document the financial arrangements surrounding transfers. 

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