With Santa Barbara's $70 million desal plant about a week from completion, Montecito Water District's board is thinking twice about buying in after heavy February rains.

Santa Barbara’s new waterfront desalination plant is expected to go online as early as next week, but behind the scenes, negotiations over a 40 percent share for Montecito have stalled, raising the possibility that the wealthy community will opt out of the $70 million project.

The two sides, represented by staff employees, began weekly talks in October but haven’t met since January. In February, the Montecito Water District board requested a face-to-face meeting with the city council to hash out their differences. The city declined.

Then, in March, amid complaints that the city was “exacting a pound of flesh,” the Montecito board publicly aired its opposition to a number of key points, including the 20-year term of the agreement. Board directors also objected to a $237,500 annual fee that the city wanted to impose, on top of Montecito’s $1.7 million annual share of capital costs and up to $1.6 million in operational costs. Was this any way to treat a prospective partner? the directors wanted to know.

In the end, the board balked at making a $250,000 payment to the city this spring to cover half the cost of designing the pipeline to carry desalinated water uphill to the city’s transmission mains near the Mission. That payment would have been on top of $190,000 that the district paid the city last year for legal and engineering costs incurred during negotiations.

“It’s tabled for the time being, unless the city would like to present alternate terms,” Floyd Wicks, a newly elected Montecito water board director, said in a recent interview. During 30 years as a water company executive, he said, “I don’t remember anytime where I had to pay to sit at the table. That doesn’t make a lot of sense.”

Joshua Haggmark, city water resources manager, said Thursday that the city never had a “pay-to-play” arrangement with Montecito. The city had already hired a contractor to begin designing the pipeline and had agreed to pay half the $500,000 cost, but has halted the work now, he said.

“We understood it was a priority for the district to get desalinated water,” Haggmark said. “The city has invested a lot of resources in trying to meet their water supply needs. It’s frustrating to have them hit the brakes when we get a little rain.”

The city began building its desalination plant in September 2015, four years into the worst drought on record here. Effectively, the project represents a complete overhaul of the plant that was built at the same location in 1991 to turn seawater into drinking water. On the heels of the “March Miracle” storms of 1991, the original plant was never used. As fate would have it, the new plant is expected to begin operations by mid-May, on the heels of a very wet winter. The cost of construction, initially estimated at $55 million, will be $70 million. For now, Haggmark said, the city will use desalinated water in place of pumping from its depleted groundwater basins.

Back in January, representatives of both the Montecito Water District and the city had seemed upbeat and optimistic about reaching an agreement in a matter of weeks. But the district is no longer viewing a deal with Santa Barbara as a panacea for drought. The pressure on this community of big estates and small groundwater basins has eased considerably after the heavy rains — enough so that penalties for over-watering have been lifted.

Now that both Cachuma and Jameson lakes are more than half full and there’s plenty of state aqueduct water, district officials say they have enough supplies on hand for the next three years, even if it doesn’t rain.

“We have to look at what’s best for Montecito, and the city has to do what’s best for them,” said Wicks, who campaigned last fall as an advocate of recycled water. “I think we should put things on hold for awhile and study the alternatives. There could be other locations for a desal plant somewhere near Montecito.”

At the staff level, Haggmark said, Montecito had been “very much in concurrence” with the city during negotiations.

“I think, if we hadn’t had that one storm on February 17, their board would have arrived at a different conclusion,” he said. “Any agreement has elements of give and take, and I thought the current draft terms reached at staff level came close to striking that balance. It really is fair and reasonable. And I’m not ruling out that it won’t still happen.”

One of the main sticking points for the Montecito water board has been the 20-year term that the city set for the agreement, with the possibility of three 10-year extensions. The city charter limits all contracts to 50 years. But Montecito directors said they wanted a guaranteed long-term share of desalinated water; they were afraid the city would shut down the plant.

“We were looking to make it a source forever on into the future, because it’s not rainfall-dependent,” Wicks said. “The city has other sources — a lot more well water, for example. We didn’t want to get into a big dispute about how long desal should be a big source of water.”

Haggmark said it simply wouldn’t make sense for the city to walk away from the plant after investing so much money in it.

“I would welcome an example of why we would do that,” he said. “It seemed to be a red herring in my mind. Their logic did not hold water — pun intended. I’m confident we could resolve this under further negotiations, unless this is just an excuse for Montecito to delay participating in desal ‘til the next drought.”

The plant has been sized to produce 3,125 acre-feet of water yearly. The Montecito board had requested a 40 percent share, or 1,250 acre-feet — enough water to meet the a third of the yearly demand in Montecito and Summerland. The district would pay 40 percent of the $4.2 million yearly capital cost of the project, plus 40 percent of operational costs, ranging from a yearly $1.5 million with the plant in standby mode to $4.1 million at full production.

In a major concession to Montecito during negotiations, the city agreed to reduce the district’s 40 percent share of the capital cost proportionate to its actual share of the water, should the plant capacity be expanded for the city or other districts.

At the same time, there was friction over whether Montecito was the city’s partner or its customer. Montecito wanted the option to double its share in the plant. The city wanted to charge the district $37,500 yearly for the right to be first in line for that option — another condition that the Montecito board didn’t like. The city insists that plant capacity is city property and cannot be reserved for free.

Another point of contention is whether the city can sell Montecito well water or even, hypothetically, recycled water — that is, wastewater that is purified to drinking water standards — to meet its obligations under the desalination agreement.

“That’s a real deal killer,” said Tobe Plough, who joined the Montecito board with Wicks in January as an advocate of recycled water. “They were putting in a condition where the city could give us any kind of water they had available.

“We told our staff, ‘We’re not interested. No one’s banging the table. We’re just presenting facts to each other. The city’s always welcome to come back and offer new terms.”

Haggmark said that any city water delivered to Montecito would meet or exceed all state and federal standards. Santa Barbara customers will not be drinking pure desalinated water, he said; it will be blended in the system with reservoir supplies. Haggmark expressed surprise that the Montecito directors had doubts about recycled water when it is a proven technology.

“I will not limit the city’s ability to diversify our water supplies in the future to use it because of their current fear,” he said.

Finally, the parties are at odds over a $237,500 annual fee that the city wanted Montecito to pay to cover a portion of past development costs. Montecito and Goleta had been partners in the city’s original desalination plant in 1991, but they dropped out in 1995, leaving the city to pay millions of dollars to buy the land, maintain the plant in standby mode, and keep the permits current.

“We had to come up with a small amount of money that attempted to compensate the city for costs that we have incurred to make desal even a possibility at this point,” Haggmark said.

Despite the breakdown in negotiations, Montecito board President Dick Shaikewitz believes there is a 50-50 chance that the two sides can still come to an agreement.

“If it can work, it’s a benefit to both of us,” he said. “If it doesn’t happen, there is a chance that we will build our own facility.”

That’s fine with the city. Haggmark is reminded of the fable in which the hardworking ant works through the summer storing up grain against the coming winter while the grasshopper plays the fiddle.

“The city is the ant, and Montecito is the grasshopper,” he said. “It rains, and they’re, like, ‘Oh, we’re good.’ ”


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