Special Notice / Hearing: Complied with Required Notification/
Public Hearing Required
Vote Required: Majority
To: Honorable Board of Supervisors, Acting as the Governing Board of County Service Area No. 11
From: Ann M. Stillman, Director of Public Works
Subject: Adoption of Proposed Water Rates and Charges for County Service Area No. 11 (CSA 11), Pescadero Area
RECOMMENDATION:
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Acting as the Governing Board of County Service Area No. 11 (CSA 11), conduct a public hearing:
A) Open public hearing
B) Close public hearing
C) Adopt a resolution authorizing the imposition of the water rates and charges for County Service Area No. 11 for the next five (5) years.
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BACKGROUND:
County Service Area No. 11 (CSA 11) was established in 1988 to finance the development of a public groundwater source and to provide service as the water provider for the Pescadero community.
Water for CSA 11 customers is provided from an underground aquifer and is delivered to 102 water service connections through approximately 3.5 miles of water mains.
On December 8, 1992, this Board adopted Resolution No. 056747 establishing regulations and rate schedules to meet the anticipated financial obligations for CSA 11.
On September 9, 2003, this Board adopted Resolution No. 066229 amending the water service rates and charges for CSA 11.
On June 26, 2012, this Board adopted Resolution No. 072027 setting the current tiered bi-monthly water service rates and monthly meter service charges for CSA 11. Revenue generated from these rates is no longer sufficient to adequately operate, maintain, and administer CSA 11.
On April 8, 2025, staff presented a proposed increase to water rates and charges to this Board during the public hearing. As part of the Proposition 218 process, a total of 29 valid protests were received out of 87 parcels in CSA 11. Although this number did not constitute a majority protest, this Board expressed concerns about community outreach and public understanding of the proposed increases. As a result, this Board took no action on the proposed rate adjustments and directed staff to re-engage with the CSA 11 ratepayers to provide additional information, gather further input, and return with an updated recommendation at a future meeting.
On May 20, 2025, this Board adopted Resolution No. 081160, which executed a five-year agreement with Bracewell Engineering, Inc. (Bracewell), based on a competitive request for proposal process, for operation and maintenance services to the two small County governed water systems, County Service Area No. 7 (La Honda water system) and CSA 11.
On January 13, 2026, this Board adopted Resolution No. 081612, which set March 24, 2026, at 9:00 A.M., at this regularly scheduled Board meeting as the time and place for a public hearing to consider water rates and charges for County Service Area No. 11 and directed the Director of Public Works to send the necessary Proposition 218 Notices for said hearing.
The process to be followed for adopting the water rates and charges includes:
1. Hold a public hearing and receive testimony on the proposed water rates and charges.
2. After considering all written objections to the proposed water rates and charges for CSA 11, close the public hearing and determine if there is a majority protest to the proposed water rates and charges.
3. If there is a majority protest, terminate this Board’s consideration of imposing the increases to the water rates and charges.
4. If there is not a successful majority protest, adopt the resolution and set the water rates and charges for the next 5 years beginning with the July billings for each year (July 2026, July 2027, July 2028, July 2029 and July 2030).
DISCUSSION:
The January 13, 2026 Board Report prepared by the Department of Public Works (Department) explained the need for the increase to the water rates and charges. Proposition 218 Notices were sent to the CSA 11 property owners and active account holders informing them of the proposed rate increases, the reason for the increases, and the date and time that this Board would consider the proposed water rates and charges. The Proposition 218 Notice, dated January 28, 2026, in English and Spanish is attached. The mailing complied with Articles XIII C and XIII D of the State Constitution by individually noticing each property owner of record and active account holders directly liable for payment of the proposed increases in the property related fee and a mechanism for rejecting the fees via a “majority protest” during the public hearing.
The Department has been communicating with customers, property owners, and representatives of the Pescadero Municipal Advisory Council (PMAC) regarding the need for a rate increase and the proposed rates. These communications have taken place through letters, emails, phone conversations, and meetings, including a virtual presentation at the October 14, 2025 PMAC meeting, an in-person public meeting on October 29, 2025 at the Pescadero Middle/High School, and a second in-person meeting on November 17, 2025 at the Pescadero Elementary School. Staff posted informational documents regarding the proposed rate increases on its website at: <https://www.smcgov.org/publicworks/water-services/CSA11_Rates>. Property owners and active account holders were informed of this link and had the opportunity to submit questions. At the time this report was prepared, the Department has not received any written protests to the proposed water rates and charges. Staff will report to this Board on any written protests that are received up to and including the date of the public hearing.
Alternates to Consider
After the close of the hearing, if there is not a majority protest, this Board can approve the proposed water rates and charges as recommended by the Department or reduce the water rates and charges as the Board may determine appropriate. However, reducing the proposed rates would require identifying a source of funding, such as a loan or grant, to support CSA 11 operations as the rates would not be sufficient to adequately support CSA 11 expenditures. Additional impacts to CSA 11 could include reduced maintenance, deferred repairs and replacement of existing facilities, or CSA 11 not meeting State and Federal water quality requirements that could result in possible fines against CSA 11, all of which would negatively impact CSA 11 water system and residents.
Based on the Department’s comparison of water rates for other water providers, the current CSA 11 water rates and charges are significantly lower. The proposed rate increases would result in CSA 11 water rates and charges continuing to be low compared to comparison water providers.
The County Attorney has reviewed and approved the Resolution as to form, and we will provide an alternate form of resolution if the Board determines reducing the water rates and charges is appropriate.
COMMUNITY IMPACT:
Adoption of the water rates and charges will provide CSA 11 with the necessary revenue for the continued provision of potable water service to its customers, provide reliable water, invest in system improvements, and ensure the long-term sustainability of the water system.
FISCAL IMPACT:
The proposed rates are anticipated to generate annual revenues between $110,000 to $212,000 over the five rate years. This is an estimated increase in revenue of approximately $35,000 to $137,000 over the current rates. The increases are necessary to fund all routine and non-emergency operations and maintenance activities to meet current Federal and State regulations for FY 2026-27 through FY 2030-31 with small amounts allocated for reserves and loan repayment. However, rate evaluations will need to be conducted periodically to determine the adequacy of the proposed rates. The proposed rates are not sufficient to fund for any capital improvement projects.
There is no direct impact to the General Fund. However, water service charges are levied on County leased/owned properties that are provided water by CSA 11, including the existing County Fire Station Number 59 on Pescadero Creek Road.