MEMORANDUM November 9, 2017 TO: BOARD OF DIRECTORS, CRWCD FROM: ERIC KUHN SUBJECT: RIVER DISTRICT BUDGET ISSUES Directors: As you know, we have received a list of questions related to the River District’s budget and staff from Mesa County Commissioner Rose Pugliese. For the benefit of Board members, I’ve prepared a very detailed response. NOTE: the questions are all important and deserve our attention. For a formal response to the Commissioner, we will work with President Alvey to compose a shorter version. This is to provide you as Directors with the information you may need to discuss with your commissioners or others with similar questions and concerns. For this analysis, I’ve grouped the comments into common themes; staffing, salary costs, benefits, and others. River District Staff The River District has a staff of 25 for 2018, 23 full-time positions and two part-time positions. The total of 25 does not include the full-time Deputy Manager position which will be phased out by February 2018 or the General Manager transition period. NOTE: Andy will still probably have to designate a “deputy” or “next in charge,”but it will be another department head that will have a dual role. The 25 staff members are in the following departments: 10 – Engineering and operations (one part-time). The River District operates and maintains two major reservoirs and has contractual interests for water from other storage projects (Ruedi and Eagle Park). We use these resources to manage a water marketing program with numerous contracts. This program is one of the few sources of new water available for West Slope growth. Additionally, two of the engineering staff are actively engaged in managing and coordinating a program to leverage the $6 million RCPP grant with $40-50 million from state and federal sources for improvements to existing Reclamation projects within the District. The River District also provides legal, engineering, and administrative support to the recently constructed Kobe Pipeline Project which provides water for energy and irrigation needs in Mesa County, and another water resources specialist is actively engaged in regional water quality issues. Page 2 of 5 River District Budget Issues November 8, 2017 In my opinion, the engineering department is about the right size, especially given the major construction projects we’ve managed in recent years plus what is scheduled at Wolford Mountain Reservoir next year (dam crest restoration). One of the River District’s challenges will be replacing several very experienced engineers that will be retiring in the next five (plus or minus) years. 3 – Legal Staff. The River District has two in-house attorneys and a paralegal. In early 1981, the River District Board chose to move legal staff in-house (primarily due to conflict issues). Given the complexity of the cases and workload of the legal staff, it was also a wise financial move. The District’s General Counsel heads the Legal Department and is hired by and reports directly to the Board. One of the long standing roles of both the legal and external affairs staff is to protect existing water rights throughout the District. 4 – External Affairs. The Board identified improving the River District’s public outreach as a strategic goal, so we added one position in mid-2017. The external affairs staff has the outwardlooking mission of the District that includes lobbying efforts in Denver and Washington D.C., local governmental relations, and broad education and outreach responsibilities to the District’s constituents and beyond. In addition to Chris Treese’s time and efforts in Denver, the River District engages a contract lobbyist. Although Chris spends a considerable amount of time at the state legislature during session, it’s far from the full-time presence we often need. To provide ready access to the River District’s positions and resources, we contract with Danny Williams ($22,000 per year) for full-time River District representation and coverage at the Colorado legislature. The $3,000 line item for “lobbying” specifically mentioned by Commissioner Pugliese represents our limited commitment to federal affairs in Washington D.C. This contract is with Water Strategies and is considerably less (less than half) than other Colorado water districts are paying from similar federal representation. 5 – Administrative Staff. The River District has a five member staff that covers human resources management, property management, contract administration (we have numerous water marketing and administrative contracts), management of a complex records storage program, board and management support, daily office operations, fleet vehicle management and maintenance, and other support functions as needed by the departments. 2 – Financial Resources and Accounting (one position vacant). The River District’s outside auditor has repeatedly advised the Board that proper financial controls require more than one accounting position (in addition to an actively engaged treasurer). NOTE: we’ve been struggling to fill the vacant accountant position. There is a high demand and limited supply of qualified accounting personnel in the Roaring Fork Valley. We intend to hire a part-time employee to fill the vacant position. 1 – General Manager. I’ve already noted that we’re phasing out the full-time Deputy Manager position in early 2018. Page 3 of 5 River District Budget Issues November 8, 2017 Staff and Salaries As Commissioner Pugliese noted, staff costs have increased from 2013 to 2019, (NOTE: 2019 is a preliminary budget presented consistent with the District’s practice of two-year budgeting and is not approved by the Board, but since it was used as a reference, I’ll use it as well). We understand that wages and total compensation is always a focus of public scrutiny and concern and, frankly, potential misunderstanding. The River District does not provide set inflationary/cost-of-living salary increases. Rather, the River District adjusts salary ranges for its employees, if warranted, based on salary and wage survey data as reported by the Mountain States Employers Council and adjusted triennially based on findings and recommendations from an independent third-party compensation consultant. The River District Board has a salary policy that it implemented in 1995 (the year before I became general manager). The goals of the policy are to be competitive with similar organizations including those on the Front Range (actually a slight pay leader at the 65th percentile of similar organizations), to award performance, and not be arbitrary. Commissioner Pugliese noted that staff salaries covered by the General Fund has increased from $1,515,230 in 2013 to $2,001,191 in 2019, over 30%. (NOTE, 2019 is a preliminary out year budget that will not be addressed by the Board until September 2018). Both the General Fund and Enterprise Fund budgets cover staff salaries. When we consider the total salary change between 2013 and 2019, it’s still about 30% (29.5%). If we get into the weeds, during the 2013-2019 period, we’ve added four positions including a part-time position at Wolford Mountain Reservoir (and subtracted one), a significant portion of the salary for another of these positions is covered by new revenues that do not rely on River District tax collections (it still must be shown as an expenditure), and we’ve changed the allocation between the General and Enterprise Funds. When we consider these factors, the District’s staff costs have been growing about 2.5% per year on a per employee basis. As I indicated in my September 5, 2017 budget overview memo, the combination of flat revenues since 2013 and increasing staff costs is a long term issue requiring the General Manager’s and Board’s constant attention. The bottom line is that the River District staff capabilities will be limited by the general growth of the West Slope economy. As noted above, the River District Board has an outside consultant conduct a salary survey every three years. The next one will be conducted in the summer of 2018. For 2018, the Mountain States’ Resort Area’s average salary increase was 3.2%. For 2018, I recommended full funding (3.2%) of the salary pool because we will be conducting a salary survey and all indications are that we’re experiencing a very competitive job market for water professionals. While the budget reflects a salary pool increase of 3.2%, individual salary increases are awarded based on performance and the individual’s position within the salary range. NOTE: for the previous two years I’ve recommended a salary pool increase less than the Mountain States increase. For 2017, my recommendation was 2.5% versus 3.1% and for 2016, it was 2.3% versus 3.2%, in part due to the West Slope’s slower recovery from the economic recession and to slow wage growth and bring us more in line with salary ranges. Page 4 of 5 River District Budget Issues November 8, 2017 Housing Assistance The River District has offered an Employee Home Ownership (assistance) Program since 2008. Our program was specifically patterned after a similar program offered by the City of Glenwood Springs. As to the question concerning what other organizations provide this program, the answer is numerous public and private entities along the I-70 corridor east of Glenwood Springs offer a housing assistance program. Our program administrator is Funding Partners. Funding Partners also services programs by the cities of Glenwood Springs, Carbondale, Eagle, and Vail, Eagle and Pitkin Counties, and the Eagle River Water & Sanitation District. Further, other entities administer their own programs – the City of Aspen and Summit County for example. Additionally, local school districts and private employers (notably the ski companies) have generous housing assistance programs to attract and retain quality employees. River District Vehicles The River District has a small vehicle fleet of six cars and one truck in Glenwood Springs that may be signed out by employees for work-related travel. We also have a few trucks and a tractor at Wolford Mountain Reservoir for dam and reservoir operations and maintenance. The River District began buying vehicles in the early 1990s when we began actively constructing Wolford Mountain Reservoir. As you know, the River District covers more than 25% of the geographic area of the State of Colorado, and our employees have significant work-travel requirements both within the River District and onto the Front Range (often in treacherous road conditions). Providing a safe vehicle for those who choose to use them has not been a major financial burden to the District (the alternative being paying mileage for personal vehicle use) and has been reported by employees as an appreciated alternative. River District Office In 2017, the River District, acting through its Enterprise Fund, acquired office space on the first floor of the building in which we own the second floor. We are currently finishing a conference room that will accommodate larger meetings as well as board meetings. The price was $810,000 (within an independent appraised value). What we need to remember is that about two-thirds of the space we acquired came with (up to) a ten year existing lease. When we consider the rate of return we get from the lease revenues, it far exceeds the alternative investment options. It was a good investment decision that the Board adopted unanimously. Given the costs of commercial rental space in Glenwood Springs, the Board’s decision in the late 1990s to purchase its current office space (the second floor) has saved a lot of public money. Notes and Comments from Eric Kuhn In my view, the recent controversies over our hiring and budget actions reflect the challenges we face because of the economic, cultural, and political diversity of our district. A perfect example of this is the housing assistance program. The concept appears to be unheard of in some of our downstream counties, whereas in the recreation/mountain counties, it’s almost impossible to staff Page 5 of 5 River District Budget Issues November 8, 2017 an organization without one. In the last 25 years, water policy has generally been a unifying factor. The CRCA is a good example. Clearly, the challenges associated with maintaining a unified position genuinely reflective of the diverse make-up of the District are becoming more difficult. Second, the River District was never designed by those that proposed and pushed for our statute as an organization that would “do things” for individual counties. In 1937 when the River District was created, its predecessor, the West Slope Protective Association, had just completed negotiations with northeastern Colorado for the Colorado Big-Thompson Project (Senate Document 80). A project for which the impacts were in Grand County, the compensatory reservoir in Summit County, the major water right controlling the river (Shoshone) in Garfield County, and major irrigation demands in Mesa County. The West Slope was facing more proposals for other transmountain diversions and the state was just beginning to grapple with how to move forward with a comprehensive development strategy Thus, the River District was designed to address regional, West Slope and Colorado River basin-wide issues. There are many examples of this including: Addressing transmountain diversion issues for the West Slope as a region. It’s unlikely that there will ever be a transmountain diversion out of Mesa County to the Front Range (although a few years ago one was proposed, the Big Straw Project). However, the impacts of transmountain diversions are felt by water users in downstream counties. Plus, new and expanded diversion impacts is potential in all basins. Addressing regional Colorado River issues (with a West Slope perspective). Examples of this are the endangered fishes recovery program, salinity and selenium control programs, compact issues, water quality, and intrastate water rights administration. Finding region-wide solutions for water development and use on the West Slope. The 1950s example is the 1956 Colorado River Storage Project and Participating Projects Act. Today it’s how do we keep these projects operating and efficient by investing in their refurbishment. It’s going to take a region-wide approach. Litigation and legislation affecting West Slope water use and water rights as a whole. Again, tightrope walking the political diversity within the district has and always will be challenging. It’s still an essential function. There are many other examples, but this memo is already too long. Finally, I have to share with you that to me the most troubling implication of these questions and this controversy is the suggestion that the River District Board is not properly executing its fiduciary responsibilities. I hope my explanations and perspective to the issues raised by Commissioner Pugliese’s questions assures you that neither I nor staff share that perspective, and we are all committed to patiently explaining this to anyone who has concerns. REK/ldp