Kays Creek Informational Meeting 12/18/19 *HOUR 1*

Kays Creek Irrigation Informational Meeting         12/18/19

Welcome: Scott Green

Opening Remarks:

David Wright: First thing: no reason to be overly concerned, afraid, or panicked.  Water service will continue as it always has, through the same pipes (replaced over time of course), and from the same system.  This is not the first time or last time such a transfer has or will occur. It has been happening all over the State, especially over the past 40 years or so as Utah has grown. Salt Lake City and Sandy City have swallowed up in one way or another and to one degree or another several of the old irrigation and ditch companies.  As you know, the first thing the pioneers did when they got here was to dig a ditch to City Creek and there is a vast network of ditches and canals all over the valley. You don’t see them as much as you used to because they have been piped or rerouted.  As growth has occurred, the city’s have taken over the irrigation and ditch companies and the cities have taken responsibility of the secondary water delivery system.  In Salt Lake City it is all part of the same system.   The water I get is coming out of the same pipes, so this is not new.   We are trying to do this a piece at a time with the piece of the company that makes the most sense which is the pressurized system.  This is a dedicated system with existing infrastructure, but its aging, they have been in the ground since 1963.  This comes with a lot of issues and a lot of repairs.  Every time there is work done on the roads it puts the pipes at risk.  The board of Kays Creek has determined over time, this is something we have been talking about for quite some time along with Layton City, that it makes the most sense for everybody if the entire system would be transferred.  Think of it as an asset but also a liability.  The entire system would be transferred to the city along with all the customers hooked up to the pressurized system, with one exception which we would talk about later.  My role, so far, has been to examine the non-profit corporation code to make sure that this is done correctly and that the shareholders interests are protected, but once it is done, if it gets done, the users on the pressurized system would no longer be Kays Creek shareholders. You would have no connection whatsoever to Kays Creek except that Kays Creek is the source or supplier of water, but actual entity responsible for getting it, once it leaves the reservoirs and gets into the pressurized system, is Layton City.  That is who you would call with complaints, that is who you would pay your bill to, there would be a unified bill that contains your culinary use, your secondary use, and you would simply be Layton customers.  The only remaining Kays Creek customers that we would anticipate would be the remaining agricultural users, the ones who are irrigating on the ditch or ditches, or ag users on the pressurized system, but as ag users we think they would stay as Kays Creek shareholders. Is that still the case?

Scott Green: We’ve talked about that.  The water will be tied to the ground to make sure that it isn’t transferred off of that ground.  We’ve had that problem.  We’ve had guys in parts of Layton and Syracuse sell the water off the ground and Weber Basin has had to come in and buy water and put that back on the ground.  What we want to do is make sure that the water being used is designated for that ground.  You will still hold your certificate, and it you’ve got excess water you’ll have the ability to sell that water.  We will have Gary Crane talk in greater detail about that later. There are a lot of laws coming up on water this year, more than ever before.

David Wright: That is the basic structure of what we are working on.  My job is to develop a couple of resolutions that we anticipate will be voted on at some point.  The first will be a Kays Creek Board resolution where we lay out the plan and the board would simply adopt the resolution and recommend it to the shareholders.  The shareholders would then have a separate resolution where you would vote to approve this transaction.  There is an open question in my mind as to whether the shareholders must approve this resolution, whether their approval is required in order for this to happen.  I think the decision has been made but we thought it was better to get approval rather than just do it.  Whether the shareholders must approve it is still a bit of an open question, in my mind anyway.  I hope to be able answer that, but the decision has been made to seek the approval of the shareholders so that everybody understands exactly what is happening.  Again, your water service isn’t changing.  The same pipes are going to deliver the same water from the same sources during the irrigation season.  Beyond that I am certainly happy to answer any questions.

*SLIDE SHOW PRESENTATION* (The entire slide show as shown in the meeting is on the Kays Creek website as a separate entry.)

Goal: Maintain water supply into the future to agricultural and pressurized users.

Kays Creek would own and operate the reservoirs and open ditches (non-pressurized system)

Layton City would own and operate the pressurized system.

  • This would include all repairs.

Challenges

State Regulations (Presented by Steve Jackson)

  • Metering is being required on all new connections after April 2020.
  • There is a requirement to plan for installation of existing services to have meters but an exact date has not been set for completion – the estimated cost is $4.5 million to meter the existing homes that Kays Creek already has.
  • Regional Conservation goals for drinking water and secondary water. The State wants to see the per capita use number go down so they will enforce metering requirements as well as improvements to the systems for leak detection to ensure the highest and best use of water.
  • In addition there are water use data and reporting requirements that all of the cities have to fill out and submit each year, and now the secondary water companies are being swept into the reporting requirements to meet the State’s growing appetite for the data to know what is actually being used in these systems. All these things cost money and effort to be able to make those things happen.
  • Penalties are associated with not being compliant with state laws.
  • The system it is at least 50 years old and pipes have a 50-year design life so at that point there needs to be serious discussions about replacing the pipe and upgrading the pipe so that the system continues to function. With aging infrastructure there are increased equipment needs and staffing needs because more work is required to keep the system functional and up and running.

Billing (Presented by Scott Green)

  • We bill pressurized users in the spring and ag users in the fall. Collection of bills is a problem.  Our biggest issue is that valves are in the back.  There are dogs, gates are locked, and people don’t want to let us in.  We used a collection agency for a time and that didn’t work, we were successful in getting the secondary water bill on the property taxes for a while, but then someone complained and now only Weber Basin is allowed to assess charges for water on property taxes. It is very difficult to make repairs on the system and collect bills in person at the same time with our limited staff.
  • There are people who refuse to pay and let their lawns die. Double connections are a problem.  If the secondary is on the city bill, they will either be billed monthly or they can go to the city and pay in person on the first of April.  The city will have to decide how they want to do that, but the city will have more leverage for bill collection because they can cut off your culinary if you don’t pay your secondary.
  • Clark Hirschi – One of the questions submitted was whether or not those who have back money due would be zeroed out and the answer is no. They still owe that money and Layton City would collect the money justly because it is still due.

Existing and Future Costs (Presented by Scott Green)

  • We lost one of our employees to Hill Field, we can’t compete with Hill Field. We would need several things in order to run with company properly instead of on a shoestring.  We work out of our homes and use our own equipment.  We have purchased some things to help with repairs like the Mini-X which can dig in backyards but bigger jobs we have to hire out.  It is getting harder to get contractors though because they don’t want to leave a big job to come do a little job that only takes a day or day and a half.  In order to do repairs ourselves we would need a bigger dump truck, and a bigger Mini-X with a trailer to pull it.  We would need 2 employees and one would have to have a CDL.  Wages for these two guys would be $83,000 between the two, which is $41,500 apiece.  The state says that the poverty line for a family of 4 is $51,00.  We would need to cover insurance, Workman’s comp, match social security, provide training, retirement, etc.  We would need to be competitive to keep good employees.  At Thurgood, if they pay $15 an hour, they budget another $15 an hour for benefits, so we took the number of $83,000 and doubled it to estimate the total cost.
  • Some people say we need an office. Joanna works out of her home at no cost.  An office space would be around $20,000 a year to rent.
  • System repair per year is $55,000. This is for major repairs and not for replacement of pipes.  When Gordon was redone, we replaced valves, but we didn’t have $500,000 to replace the pipe.  Our system replacement, as calculated by Bowen and Collins, is $265,000 to $525,000 a year to replace the old lines. The State is beginning to mandate a fund for replacement costs for the big water conservancy districts.  This is why the cost for the water we rent from them has gone from $25,000 a year to $57,000.  It will continue to go up every year until they get to their State mandated savings goal.  Tage Flint at Weber Basin said that this will eventually come to the little irrigation companies as well.
  • If we want to keep Kays Creek Irrigation as it is, we will need to raise rates $75 to pay for the employees and equipment. The next year the bill could increase from $275 to $400 if the State forces us to have a financial reserve and install meters.

Layton City Water Master Plan (presented by Steve Jackson)

  • Bowen and Collins developed a water master plan for Layton City which included a secondary water component.
  • Cost for repair and replace of the secondary system was budgeted at $3.9 million. Average is between $320,000 to $580,000 a year depending on the project, and this would be over the next 7 years.  This is a cost already built into the water master plan and that would be shouldered by the City if the transfer were to take place.
  • There is also a component for improvements and expansion. Over the next ten years the total would be $10.9 million with most of that coming from development but also from Layton City. There would be an opportunity for that money to be recouped after the 10-year window has closed.
  • Total for the next 20 years – estimated $17.8 million for improvement and expansion
  • Rate proposal for Layton City
    • 2020 – $200.00
    • 2021 – $220.00
    • 2022 – $240.00
    • 2023 – $266.20
  • The city has programmed this in and planned for it, and we feel that we can provide a quality service and be able to repair and upgrade the system as we go at a reasonable cost.

Sue Flinders: What about bonding?  Isn’t it better to get a bond than try to absorb all this cost?

Scott Green: If we did get a bond we would still have to raise the rates to pay for the bond.

Sue Flinders: Is that something that we’re looking at or not?

Scott Green: No, we have not looked into a bond. With Layton City doing the maintenance, they can spread the cost through the whole city and not just to those on the pressurized system and the farmers. When they do a road, it might not benefit you directly, but it does benefit the city as a whole, so this is a cost that could be spread.

Todd Nielson: Why would the city spread the cost of the secondary water throughout the city?

  • Steve Jackson: One of the components of the master plan was to look at all the water available in the Layton City boundaries and put it to the most beneficial use.  Our culinary system is taxed mainly by those who use culinary water for outdoor use.  By having a pressurized system for secondary water, we actually build less infrastructure.  Secondary water uses smaller pipes and smaller tanks, so the cost incurred by Layton City is lower by having a secondary system than if we had a full-on culinary system like some cities do.

Todd Nielson: Would the city spread secondary use throughout the city?

Steve Jackson: The city has identified areas where it would be cost effective to expand the system.  These include new subdivisions and areas adjacent to neighborhoods where secondary water is already in use. As roads were being repaired or replaced, we would also look to see if we could expand secondary into new areas.

Brad Eggington: What would stop the city from co-opting the secondary water? At some point they could say that there is not enough water and feed everybody culinary and we would lose our ability to irrigate our lawns.

Steve: I would have to ask Gary Crane, the city attorney, to explain all the legal ramifications of that but in order for us to use secondary water we would have to treat it so that it would meet the standards for culinary.

Brad Eggington: What if you shut off our secondary and use all the water that would have been used for that in the culinary system.

Steve Jackson: That would require us to build water treatment plants which would cost tens of millions of dollars.  As we looked at the water master plan, that is not something Layton City wants to get into the business of doing because those plants would cost much more than installing secondary systems and maintaining them.

Scott Green: Layton City needs the secondary system.  If east Layton went on culinary we would drain their tanks.  Layton City does not want to switch over our system to culinary; that is not even feasible for them.

Sue Flinders: These people are non-stockholders that are coming in and we are giving water to them.

Scott Green: No, there are shares.  When developers buy the ground they buy water.

Sue Flinders: But are they actually holding a certificate?

Scott Green: No, Layton City holds the certificate.

Sue Flinders: And this is part of their 300 shares?

Scott Green: Yes.  When a subdivision is built the city requires the developer to bring in water; so much water for culinary and so much for secondary.  That water is tied to that ground and the homeowner becomes a customer of Layton City.

Clark Hirschi: And Layton City becomes the owner of the shares, both the culinary and the secondary.

Sue Flinders: So, we’re using less water as we pressurize, right? So where is the excess water that we hold going to?

Scott Green: It is sitting in the reservoirs.

Sue Flinders: So somebody else is going to use it?

Scott Green: No, they can’t take anymore water than we have shares to divvy out.  You can’t rob from a bank that’s dry.  Once its dry its dry.

Sue Flinders: I’m just saying that if I own so many shares and I’m using less water because I’m pressurizing, then there’s still my excess shares that somebody else could benefit by.

Scott Green: Not right now because your water is tied to your ground. The only way to really know how much is being used is to meter it, but right now we designate one share to one acre of ground.

Lincoln Adams: Are you saying we would have to connect every house that is now connected to meters?

Scott: I have met with the senator out of Lehi who wants to do this and asked him, “Do you know what your doing to this company?  You are asking us to come up with $4.5 million that we don’t have if you pass this. You need to somehow change this.  You need to take a quarter of a penny in taxes to help pay for it.  You tax everything else.  Put a quarter of a penny toward it so that when your bill gets passed the little companies have help to pay for it.” He tried to say that we’ll get grants, but its actually a loan.  They’ve thrown it out for two years, but the day will come when we will all be metered; farmers, everybody.”

Unknown: Retroactive?

Steve: The actual law states that the irrigation companies and anybody who provides this water will need to provide a plan to the Division of Water Rights that states includes how we are going to meter existing customers and how we are going to pay for it.  This plan needs to be turned in by the end of the year.  The law is not explicit on when the meters need to be installed, and that’s where the question is.  This senator is pushing to change this by creating a hard deadline.  The rumor is ten years.  So, the answer is yes.  Current customers who do not have a meter will have to have a meter.

Clark Hirschi: Organizations like ours and others are saying: Don’t give us an unfunded mandate. If the state pushes for this statewide, which seems likely with our growth and the limited availability of water, then the funding has to come with that.  We’re not alone in asking for that. But that is where this seems to be headed.  All users, both new and existing, will be metered and billed according to usage.

David Wright: All appropriators are already required to measure their diversions from the source where they take their water. This metering of end users is a continuation of an obligation that already exists that you are taking only the amount of water you are entitled to.  As has been alluded, Utah is the second driest state in the country, only following Nevada, so it’s a big deal and the pressure is coming to measure and meter water use.

Lincoln Adams: Right now I don’t have to pay a water bill, I pay for my water shares.  How is that going to work with Layton City?  Will I pay my bill and my water shares?

Scott Green: When we put a meter on your system if you overuse, then you’ll be charged for overuse.  Your shares will still be valuable, but they’ll be tied to that ground.

Clark Hirschi: The bottom line is that you will not be double charged.  If you own shares, you have right to use the water.  If you become a Layton City customer, they become the owner of the shares but you will be billed once, according to how many shares were tied when you became a Layton City customer.  When metering comes, if you use more than the shares tied to your ground, you will be charged for overuse, but you won’t be double charged for shares and water use.

Lincoln Adams: So the city just absorbs my shares?

Scott Green: Do you have a certificate?

Lincoln Adams: Yes.

Scott Green: You would keep your certificate but it would be tied to that ground only.

David Wright: I’m not sure they would keep it.  I’m not sure that is how that would work. It ought to be in the possession of the owner, who in this case is Layton City.  Those are the nuts and bolts that we’re working out.

Sue Flinders: But then you are saying he’s going to lose his certificate?

Steve Jackson: The intent of Layton City is not to take the water away. The intent is to provide enough water in the system to be able to service all the existing users of the system.  If you have 3 shares and you need 3 shares to water your property, then Layton City would honor those 3 shares into perpetuity.  If you decided to sell and use those shares to develop, then those would be a credit to whatever development was built.

Sue Flinders: But would it still be tied to his name?

Scott Green: Yes, it would still be tied to his name.  It would be tied to the ground.

Unkown: If it’s tied to the ground it can’t be transferred to something else.  You can’t sell it.

Steve Jackson: If it’s tied to the ground because its being used on that ground then it needs to be tied to the system that’s providing for that ground.  If you’re using 3 shares on the ground, and then sell those shares, but want to continue to use that water on the ground, that’s not going to work for anybody running a pressurized system.

Terry Tippets: I understand that one share is one-acre foot of water.

Scott Green: No, three-acre feet of water.

Terry Tippets: Okay, three-acre feet of water. That’s not what I understood when I hooked up 50 years ago.  One share was one-acre foot of water.

David Wright: I think you are confusing two different things.  One share represents the ability to water one acre of ground, but the duty of water in the area is three-acre feet to an acre.  It is a different measurement. That is how the state engineer assesses how much water is used on the land.  For example, you might be in a different part of the state where the amount necessary to irrigate is 5-acre feet per acre or 2-acre feet.  It just depends on the soil and weather conditions.  It is pretty typical to have one share equal 3-acre feet.

Terry Tippetts: People who have less than one acre are not capable ever of using that quantity of water.  Where does that extra water go that is supposedly supposed to be used on our property?  You are spreading all this water off of this quarter acre or whatever to everybody else.

Scott Green: How much land do you have?

Terry Tippetts: A quarter acre.

Scott Green: You have a third of a share.  You have a third of an acre.  You don’t have a share.

Terry Tippetts: That’s not what I understood.

Scott Green: Do you have a certificate?

Terry Tippetts: Yes.

Scott Green: What does it say on it?

Terry Tippetts: I don’t know. I’d have to look at it.

Terry Kendrick: It is not mandatory to have secondary water.

Scott Green: No, it’s not.

Terry Kendrick: But if we switch to Layton City, it is going to be mandatory.  Isn’t that right?

Scott Green: No.

Steve Jackson: The current city ordinances do not require you to use secondary water.  If you have secondary water available, the rate structure is such that if you choose not to use it, your culinary rates are higher.  There are tiers.

Terry Kendrick: When Layton takes it over, are they going to make it mandatory?

Steve Jackson: Not at this point.  That is a political decision and I can’t speak for the City Council or the Mayor.  Right now, they’ve had opportunities in the past to do so and have chosen not to.  The rate system that was implemented recently, with the State requirement for the tiered system, was intended to encourage the use of secondary water but not take away your choice.

Clark: The State is talking about doing more of that, where if you had access to secondary and chose not to use it you would be penalized at a higher rate for using culinary water for landscaping.

Terry Tippets: Will the city bill for secondary water use on the city bills?

Scott Green: Yes.

Terry Tippetts: If we choose not to use the secondary water, is that item taken off the bill?

Scott Green: Yes, but then your rate for culinary water will go up immensely.

Terry Tippetts: That’s what we did last year.  I remember that switch over.

Mike: *Read first bullet of informational letter.*  “We propose that Layton City take ownership and responsibility for maintenance of all pressurized portions of the KCIC system and the water shares required to supply that system.” So you are talking about the existing system that is in place.  So the east Layton system are all the shareholders here today, correct? And the west Layton system is water owned by Kays Creek because that’s the shares the developers turned over.

Scott Green: Layton City holds those shares.

Mike: So this 95% is only for that system.

Scott Green: No ditch water at all.

Mike: I have a pending purchase of Kays Creek shares right now.  What will happen to the value of those shares? It won’t be used in the pressurized system.  So what is going to happen?

Scott Green: Are you taking pressurized for flood?

Mike: Right now it is not pressurized. It is flood water.  But if the system comes in, is Layton City going to require me to turn in those shares? I don’t want to spend my donor’s money if I am just going to have to turn my shares back in to Layton City.

Scott Green: Will it ever be a development?

Mike: It will never be a development. Part of it will be impacted by the highway, but it will never be a development.

Scott Green: So you think pressurized will get down that far?

Mike: I don’t know.

Scott Green: I don’t know either unless you tell us where the property is.

Mike: *unintelligible answer*

Jon Green: Mike, that is never going to happen.

Mike: That’s what I want to hear.

Jon Green: That’s never going to happen. The lake is there, the creek is there.  It’s never going to happen.

Mike: If I go and purchase this additional water, I don’t want to be wasting my money.  So, all you’re talking about is pressurized water? Layton City already owns everything on the west side so you are talking about pressurized water on the east side?

Scott Green: Yes.

Lincoln Adams: What value will the shares have after this if Layton City absorbs this?

Scott Green: It will still have the same value.  The water will just be tied to that ground.

Lincoln Adams: Why would I want to tie 3 water shares to half an acre?

Steve Jackson: You wouldn’t want to tie 3 water shares to half an acre.  What you would tie to the land is the half acre needed to irrigate that land.  If you had half an acre and the duty is 3 acre feet to a an acre, then you would need to tie an acre foot and a half to the land.  The extra water you have could be rented or leased or done whatever you want until such time that you choose to sell it to someone else.  But if you have half an acre, then the water for that half acre needs to stay on that half acre.

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