ITEM:		DISCUSSION ITEM
16.	DISCUSS AMENDING RULE 28 TO ALLOW MINISTERIAL APPROVAL OF WATER USE CREDIT TRANSFERS
Meeting Date:			October 21, 2013	Budgeted:	N/A
From:			David J. Stoldt	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Stephanie Pintar	Cost Estimate:	N/A
General Counsel Review: N/A
Committee Recommendation: N/A
CEQA Compliance: This ordinance is categorically exempt from CEQA

SUMMARY: The Water Demand Committee asked staff to prepare draft language for Board review that would amend Rule 28-B, Water Credit Transfers to change the approval processs from a discretionary Board decision to a ministerial decision, with the Jurisdiction performing the California Environmental Quality Act (CEQA) review and making the determination that there is no significant environmental impact. Staff has proposed amendments to Rule 28-B to achieve this direction (Exhibit 16-A). Amendment of Rule 28-B will require an ordinance process.

DISCUSSION: The attached ordinance modifies District Rule 28-B, Property-To-Property and Property-To-Jurisdiction Transfers of Water Use Credits for Commercial and Industrial Uses. The proposed ordinance language reverses former Board action requiring the full Board to consider the impacts of the application under consideration, as well as the cumulative impacts of other transfers, on the water supply before approving a transfer.

The proposed amendments would transfer the review process to the Jurisdiction, who would refer the application to District staff for final approval. If this process is adopted, staff would need to work with the Jurisdictions to develop guidelines to ensure that adequate review of the effects on the water supply are conducted before referring the transfer to the District. Once approved by the Jurisdiction, staff would review the application for completion and compliance with the remaining provisions of Rule 28 before completing the transfer.

The proposed process is similar to action considered by the Board in 2004 (see Background). Ordinance No. 117 proposed changes to the approval process (i.e., changing from discretionary to ministerial approval) along with refinements to the approval process. The ordinance was rejected by the Board in September 2004.

RECOMMENDATION: Staff recommends the Board discuss the proposed amendments and determine if it wishes to bring it back for action by the Board, make modifications, take no action, or provide some other direction to staff.

BACKGROUND: Transfers of commercial water credits from an existing commercial use to an expanding commercial use in the same jurisdiction started in December 1993. In September 1995, Ordinance No. 79 modified the transfer rule to allow commercial credits to transfer into a jurisdiction’s allocation. Once the water use credit is assigned to the jurisdiction’s allocation, the water becomes available for use at the jurisdiction’s discretion and can be used for residential and nonresidential uses, new connections, and remodels. All transfers require the authorization of the jurisdiction and the District, and the property owner must agree to transfer the water use credit and must agree to a deed restriction on the property.

Water Credit Transfer Program Limited and Suspended

District Ordinance No. 95 was adopted on June 19, 2000, to allow only commercial-to-commercial water credit transfers of like kind to occur during a 90-day moratorium on water credit transfers. During the 90-day period, the effectiveness of the water credit program was to be reviewed. The proposed ordinance was effective for 90 days and was extended for a second 90-day period on September 18, 2000, to give staff time to have a third party review the findings from its credit analysis. The ordinance expired on December 18, 2000, after consideration of a third extension of the ordinance was continued by lack of a quorum at the December 11, 2000, Board meeting.

Ordinance No. 100, a 90-day ordinance suspending the authority of the Water Management District to receive any water credit transfer applications under District Rule 28-B that were not for “like to like” (identical) commercial-to-commercial or industrial-to-industrial expansions of an existing use, was adopted on March 19, 2001. The ordinance expired on June 18, 2001. The third party analysis of the water savings on commercial sites and sites receiving water from credit transfers was completed on June 1, 2001, and provided to the Board.

On June 18, 2001, the District’s Board of Directors suspended receipt of water credit transfer applications for 60 days (through August 17, 2001). District staff was directed to consider modifications to the water credit transfer process that would incorporate additional safeguards to prevent an increase of water use beyond the original projection at the receiving site, and safeguards that would ensure that accurate estimates of historical water use at the donor site are developed.

Ordinance No. 101

At the August 20, 2001, meeting, District staff presented a number of policy questions to the Board and asked for their feedback. Members of the Board provided individual thoughts on the various issues, and the proposed draft ordinance reflected the consensus of the feedback. The District’s Technical Advisory Committee (TAC) and Policy Advisory Committee (PAC) reviewed Draft Ordinance No. 101 on July 20, 2001, and again on August 29, 2001. The TAC and PAC members agreed with the concept, but objected to the set-aside of a total of 50 percent of the available water credit. The Board’s consensus was that 35 percent of the savings should be set aside as permanent savings. The TAC and PAC members maintained that true equity would only be achieved by allotting 25 percent of the established water credit to the District.

The TAC/PAC reasoned that the 35 percent conservation savings figure is based on the assumption that the commercial water use factors are not accurate and may underestimate historic water use at the transferring site, so that more than 25 percent must be saved in order to compensate for the underestimation of the water credit. Proposed amendments to Rule 28 would base the water credit calculation on both commercial water use factors and actual historic water use at the transferring site. Combining both calculation methods was the District’s way of correcting for the inaccuracy of the commercial water use factors. Therefore, there would be no need to increase the District’s conservation savings to 35 percent, and a 25 percent conservation savings figure would be adequate and also fair to the property owner.

The TAC/PAC was united in its request that no restrictions be placed on use of the 15 percent that would be transferred to the jurisdiction. According to the committee, the jurisdiction should decide whether to allot that water for commercial, residential or affordable housing projects. There were no objections to providing the District with information about the recipients of water originating from a transfer.

Ordinance No. 101 was adopted November 19, 2001. At the following Board meeting, Director Henson submitted a request for reconsideration. Ordinance No. 101 was rejected on December 17, 2001.

Rule 28-B Deleted by Ordinance No. 102

The Board of Directors deleted District Rule 28-B in its entirety on March 26, 2002 by adoption of Ordinance 102 after determining that the water transfer program had not resulted in the anticipated savings of water that originally motivated the program and, in some cases, may have resulted in an increase in water usage. On March 27, 2003, as part of a settlement agreement between the District and the Cities of Seaside, Carmel, Del Rey Oaks, Monterey, Pacific Grove and Sand City, the Board of Directors completed first reading of Ordinance No.107, repealing Ordinance No. 102, thereby effectively reinstating District Rule 28-B. Rule 28-B was immediately modified by the adoption of Ordinance No. 108 on the same evening. Ordinance No. 108 clarified that the Board of Directors will make the decisions concerning water credit transfers after taking into account whether an application would have an adverse impact on the area’s water supply.

CEQA Review of Water Credit Transfer Program(s)

Despite extensive successful conservation efforts, water supply for new construction and remodeling projects on the Monterey Peninsula is extremely limited for a variety of environmental, regulatory and technical reasons. The Water Credit Transfer Program (WCTP) began in 1993 as a means to facilitate commercial expansion within the community while also supporting the District’s conservation goal. Environmental review on the WCTP ordinance was not carried out at that time.

MPWMD Ordinance No. 102, adopted in February 2002, rescinded Rule 28-B and the WCTP as a whole after the Board determined that the program had not resulted in the anticipated water savings that originally motivated the program. Six cities filed suit against the District in May 2002 challenging the rescission of the program on CEQA grounds.

On March 17, 2003, the MPWMD Board approved the first reading of Ordinance No. 107, which rescinds Ordinance No. 102, thereby restoring the WCTP as defined in Rule 28-B prior to Ordinance No. 101. On April 2, 2003, the Board approved the first reading of Ordinance No. 108, which clarifies that approval of a water credit transfer application is a discretionary act by the Board, and such action requires CEQA review. On May 19, 2003, the MPWMD Board adopted on second reading both Ordinances No. 107 and 108; both become effective on June 18, 2003. Finding No. 5 of Ordinance No. 107 stated that it was the Board’s intention to prepare an EIR to address concerns that have been raised about the program. The Board had earlier directed at its February 27, 2003, meeting that applications for water credit transfer approval will not be considered by the Board until after the EIR is certified.

At its February 27, 2003, meeting, the Board directed staff to work with a sole source consultant to develop a scope of work for a focused EIR on the environmental impacts of having or not having a water credit transfer program. The stated goal at that time was completion of the Final EIR no later than September 30, 2003. The Board also directed that all applications for water credit transfer approval shall not be considered by the Board until after the EIR is certified.

At its March 17, 2003, meeting, the Board determined that Turnstone Consultants of San Francisco should be retained to prepare an EIR that evaluates the environmental effects associated with a water credit transfer program. The Board further directed that Directors Henson and Lindstrom should negotiate with Turnstone to refine the scope of work, and address Board concerns about the high cost and extensive reliance on staff work products.

A revised Turnstone scope of work was prepared for the April 21, 2003, Board meeting, but this item was continued until the May 19, 2003, meeting. A significant addition was to include an economic analysis in the scope to address certain concerns raised by litigants. Considerable information also remained to be provided by staff. The cost estimate for Turnstone to produce only a Draft EIR was $155,400; this amount included an estimated $42,200 for a specialist to perform an economic analysis. Negotiations between MPWMD and Turnstone representatives continued in mid-April, but it became evident that a mutually satisfactory result was not forthcoming.

District staff was directed in late April 2003 to prepare an RFP to be transmitted to a variety of environmental consulting firms for an EIR that would focus on termination of the existing WCTP. The overall goals of the EIR were to assess environmental effects associated with terminating the WCTP, and respond to assertions by litigants who challenged Ordinance No. 102 rescinding the WCTP. The emphasis on terminating the WCTP was at the direction of District Special Counsel, Clement Shute. Mr. Shute directed that the EIR should respond to litigant assertions that terminating the WCTP would result in direct and indirect adverse physical effects.

District adoption of Ordinance Nos. 107 and 108 in May 2003 also affected the proposed EIR. Ordinance No. 107 reinstated the water credit transfer program (Rule 28-B). Ordinance No. 108 clarified some of the processes and vague terminology contained in Rule 28-B. Specifically, decisions about water credit transfers will be made by the MPWMD Board of Directors and will be considered to be discretionary decisions subject to CEQA.

On May 19, 2003, the Board approved the RFP drafted by staff with review by the Water Demand Committee, and directed that it be transmitted to a list of 18 non-local consulting firms. The RFP was transmitted electronically on May 21 with a deadline of July 1, 2003. The intent was for staff to review proposals and make a recommendation for consideration by the Administrative Committee on July 15 and the full Board on July 21, 2003. No proposals were submitted by July 1, and the deadline was extended to August 6, 2003.

The Board considered retaining the firm of Resource Design Technology, Inc. (RDT) of Folsom, California, to prepare an Environmental Impact Report (EIR) on the termination of the Water Credit Transfer Program (WCTP). RDT was the only firm to submit a proposal to prepare an EIR in response to the District’s RFP. The full RDT Proposal was reviewed by the District’s Administrative and Water Demand Committees at their respective August 12 and August 21, 2003 meetings, and was also reviewed by Special Counsel. Significant portions of the RDT Proposal were provided to all Board members as part of the Administrative Committee packet. The bound complete proposal is available at the District office for public review.

The RDT proposal originally estimated a total cost of $261,820, which was reduced to an estimate of $255,500 upon further discussion. The proposed EIR costs were more than double the estimated MPWMD budget of $125,000. RDT emphasized that they “do not feel [they] can produce a robust, legally defensible document in the [District] price range due to the unusual nature of the proposed action as well as the legal issues involved.” It is notable that several firms who declined to propose indicated that the District’s budget estimate was too low.

The RDT proposal estimated a total of 36 weeks (roughly nine months) from the Notice of Preparation to completion of the Final EIR, preparation of CEQA Findings and hearings. This time frame was within the estimated schedule in the RFP.

The proposed EIR included project level evaluation of the proposed project to terminate the WCTP, and evaluation of two alternatives at a lesser level of detail. The alternatives include: (1) Rule 28-B is reinstated (No Project alternative pursuant to Ordinances No. 107 and 108); and (2) enact amended water credit transfer program as described in Ordinance 101.

The Board voted on August 28, 2003 not to proceed with the EIR.

On April 8, 2004, staff received the following updated information about the costs of pursuing an EIR on the Water Use Credit Transfer Program from Resource Design Technology, Inc. (RDT) of Folsom, California. RDT is the firm that was considered to do a comprehensive EIR on the transfer program in 2003. RDT reworked the budget for an EIR, addressing enactment of Ordinance No. 101 or a substantially similar ordinance. As expected, the costs are significantly lower at an estimated $80-$150,000 versus the previous estimate of $255,500. A number of previously budgeted tasks (aesthetics, urban blight, population/housing, public services and utilities impact evaluations) would not be evaluated in the EIR. RDT would still address some of these issues in an Initial Study, allowing them to document why these would not be addressed in the EIR. The EIR would be focused on Hydrology, Land Use/ Planning, Agriculture and Biologic Resources. The scope of Alternatives would depend largely on input from the MPWMD.

Alternative Water Credit Transfer Concept Developed in 2004

In January 2004, the Board indicated it might reconsider an EIR on the WCTP. At the January 28, 2004, joint PAC/TAC meeting, the group asked the Board to delay moving forward immediately on an EIR. Discussion of this action was to be considered on January 29, 2004, at the regular Board meeting. Committee members suggested there might be other water credit transfer concepts the TAC should review and possibly recommend for consideration by the Board. The District’s Board agreed to give the TAC thirty days to consider and recommend an alternative transfer program.

The TAC met on February 25, 2004, to discuss an alternative transfer concept submitted by the City of Monterey. Although the TAC did not recommend using Monterey’s proposal, the committee recommended changing Rule 28-B from discretionary approval to ministerial approval. The TAC unanimously supported this recommendation, and staff prepared a draft ordinance to amend District Rule 28-B by clarifying the ministerial review of water use credit transfer applications, setting standard conditions of approval, and setting fees for transfers and the review of new technology for review by the Water Demand Committee on March 9, 2004.

On March 9, 2004, the Water Demand Committee considered both the TAC recommendation and the Board’s original concept of moving forward with an EIR on the water credit transfer program as proposed in Ordinance No. 101. It was agreed that the District needs additional information on the cost and time for preparing a Water Credit Transfer Program EIR and that staff should request this information from Resource Design Technology (RDT), the firm who submitted the original EIR proposal on the Water Credit Transfer Program.

Ordinance No. 117

At the March 15, 2004, Board meeting, the Water Demand Committee unanimously recommended that the Board direct staff to modify the preliminary draft ordinance by incorporating safeguards from Ordinance No. 101 and other standard Conditions of Approval. The Water Demand Committee considered the amended preliminary draft ordinance on April 13, 2004, and reviewed the proposed CEQA process.

On May 17, 2004, the Board approved the recommendation of the Water Demand Committee to complete an Initial Study (Exhibit 16-B) on draft Ordinance No. 117 (Exhibit 16-C) and directed staff to bring the ordinance forward for first reading at the June 21, 2004, Board meeting. An Initial Study and Notice of Intent to Adopt a Negative Declaration was prepared and circulated in compliance with CEQA from June 1 to June 21, 2004. Comments were received from Richard Rosenthal, representing Save Our Peninsula Committee and Ed Leeper, and from Michael Stamp representing The Open Monterey Project. Copies of the responses are attached as Exhibit 16-D. Both responses objected to adoption of a Negative Declaration on the grounds that there was a fair argument that the project may cause a significant impact on the environment.

On July 19, 2004, the Board of Directors postponed the first reading of Ordinance No. 117 and staff was directed to schedule an August 26 Board workshop to discuss the water credit transfer program with the District’s Policy Advisory Committee (PAC), Technical Advisory Committee (TAC) and interested parties.

In postponing action on this item, Chairman Edwards cited the need to discuss with the jurisdictions the potential costs of modifying the water credit transfer program, potential litigation and the jurisdictions’ desire to pursue a revised water credit transfer program. The joint PAC/TAC/Board meeting was intended to provide a forum for this discussion and to provide an opportunity for interested parties to explain their position.

A special meeting attended by the Board, the PAC, and the TAC was held on August 26, 2004. During the discussion, the TAC chairperson informed the Board that the rules established by Ordinance No. 108 were acceptable to the TAC and that was no need to proceed with adoption of the proposed ordinance. The committee no longer supported its position supporting Ordinance No. 117. The TAC also agreed that the jurisdictions will require all applicants for water credit transfers to prepare the environmental analysis needed for CEQA review. PAC members supported this recommendation. No action was taken on the water credit issue and the topic returned to the Board on September 20^th.

At the September 20, 2004, regular meeting, the Board rejected Ordinance No. 117.

Save Our Carmel River (SOCR); Pat Bernardi; and The Open Monterey Project Litigation

On October 18, 2004, the District approved the application of Foursome Development Company for a Property-To-Jurisdiction Water Use Credit Transfer under District Rule 28-B. The application to transfer the water was brought before the District board less than a month before the water credit would have otherwise expired – November 1, 2004 – under operation of District Rules. The District Board approved the requested transfer to the City of Monterey. The City proposed that the transferred water later be returned to the same site for use.

Before the Board acted on the requested transfer, the City of Monterey had acted as Lead Agency under CEQA. The City reviewed the water credit transfer and determined that the proposed water credit transfer could not have a significant effect on the environment and was exempt from the provisions of CEQA. The District acted as a Responsible Agency and followed the recommendation of the City. This determination was made in reliance of the Categorical Exemption under CEQA Guidelines Section 15302 (Class 2). The City of Monterey reasoned that water credit to be released to the originating site in the future would allow construction of a structure in similar size to the one that was demolished, and that Section 15302 allowed an exemption for replacement or reconstruction of existing structures on the same site when the new structure would have substantially the same purpose and capacity as the structure replaced.

Approvals granted to the project by both the City of Monterey and MPWMD were challenged by three parties in a single action by Writ of Mandate: Save Our Carmel River, Patricia Bernardi and The Open Monterey Project. The original matter was heard by Judge Robert O’Farrell, who denied the petition on June 27, 2005, affirming the water credit transfer decisions of both the City and the District. However, the Petitioners appealed this ruling and the Sixth District Court of Appeal reversed Judge O’Farrell’s earlier ruling and instead directed that an order granting the writ of mandate be issued from the Superior Court. Judge O’Farrell issued the Writ of Mandate After Appeal (Exhibit 16-E) on October 16, 2006.

In total, 27 Water Use Credit transfers for 61.286 acre-feet of water have been approved. The last transfer was approved on August 18, 2005.

EXHIITS

16-A Draft Language Amending Rule 28-B

16-B Ordinance No. 117 Initial Study

16-C Draft Ordinance No. 117

16-D Ordinance No. 117 Initial Study Comment Letters

16-E Peremptory Writ of Mandate after Appeal

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