COMMITTEE AGENDA MEMORANDUM
Agricultural Water Advisory Committee
Government Code § 84308 Applies: Yes ☐ No ☒
(If “YES” Complete Attachment A - Gov. Code § 84308)
SUBJECT: title
Review and Provide Comment to the Board on Staff’s Preliminary Fiscal Year (FY) 2026 - 2027 Groundwater Production Charges.
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RECOMMENDATION: Recommendation
Review staff’s preliminary Fiscal Year 2026 - 2027 Groundwater Production Charges and provide comment to the Board as appropriate.
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SUMMARY:
Summary of Preliminary Groundwater Production Charge Analysis:
Staff has prepared the preliminary Fiscal Year 2026 - 2027 (FY 2026-27) groundwater production charge analysis for Board review. Staff is seeking Committee input on the preliminary analysis to incorporate into the development of the groundwater production charge recommendation.
The groundwater production charge reflects the benefit of District activities to protect and augment groundwater supplies and is applied to water extracted from the groundwater basin in Zones W-2, W-5, W-7, and W-8. Zone W-2 encompasses the Santa Clara groundwater subbasin north of Metcalf Road or the North County. Zone W-5 overlays the Llagas subbasin from northern Morgan Hill south to the Pajaro River. Zone W-7 overlays the Coyote Valley south of Metcalf Road to northern Morgan Hill, and W-8 encompasses the area below Uvas and Chesbro Reservoirs.
The groundwater production charge recommendation will be detailed in the Annual Report on the Protection and Augmentation of Water Supplies that is planned to be filed with the Clerk of the Board on February 27, 2026. The public hearing on groundwater production charges is scheduled to open on April 14, 2026. It is anticipated that the Board would set the FY 2026-27 groundwater production charges by May 12, 2026, that would become effective on July 1, 2026.
The FY 2026-27 groundwater production charge and surface water charge setting process will be conducted consistent with the District Act, and Board resolutions 99-21 and 12-10.
Water Usage Trend
The estimated actual District managed water use for FY 2024-25 is approximately 219,000 acre-feet (AF), which is about 3,000 AF lower than budgeted water use. Lower water use when compared to last year’s budget was likely due to several factors including lower rebound from the 2023 drought than was anticipated combined with milder weather (dry but slightly cooler than usual).
Consistent with last years reduced long-term projections, adopted budget FY 2025-26 water use is 219,000 AF. The water usage forecast may be modified as necessary during the upcoming rate setting process.
The multi-year projection reflects an ongoing moderate growth in District managed water use, returning to around 230,000 AF by FY 2031-32.
Agricultural water use trends remain stable, with agricultural District-managed water use averaging around 28,000 AF per fiscal year. In FY 2026-27, around 26,800 AF is projected for total agricultural water use. This represents about 12.2% of total District-managed water use projected for FY 2026-27.
Groundwater Production Charge Projections
Staff has prepared an initial baseline groundwater production charge projection scenario for Board review. The preliminary groundwater production charge analysis includes an 8.0% increase in the FY 2026-27 Municipal & Industrial (M&I) groundwater production charge for Zone W-8 from $464.00/AF to $501.00/AF. The preliminary agricultural groundwater production charge assumes it will be set at approximately 9.25% of the Zone W-8 M&I rate for FY 2026-27. This translates to a groundwater production charge of about $46.50 per acre foot for agricultural use.
Staff has prepared the following baseline scenario for Board consideration:
Baseline assumptions:
• Agricultural rates remain at 10% or less of lowest groundwater charge zone Municipal & Industrial rate
• District-managed water use projection of around 221,500 acre-feet
• Projects included in the draft FY 27-31 CIP 5-Year Plan
o Anderson Dam Seismic Retrofit with WIFIA loan
o Rinconada Water Treatment Plant Reliability Improvement Project
o Santa Teresa Water Treatment Plant Infrastructure Rehabilitation Project
o Pure Water Silicon Valley (Phase 1 Demonstration Facility & Phase 2 Full-Scale Direct Potable Reuse (DPR) Facility)
o Dam Safety Program: Almaden, Calero, Coyote & Guadalupe
• Water rates will fund 3.23% of Delta Conveyance Project planning costs
• State Water Project (SWP) Tax (excluding Delta Conveyance Project costs) may be needed to pay for all, most, or some SWP costs
• Master Plan Project placeholders: SCADA, Water Treatment Plants & Distribution System
Of note, the majority of capital projects listed above as part of Baseline do not impact the South County Zone W-8 groundwater production charge that the agricultural rate is based upon.
The preliminary analysis does not include unfunded capital projects or additional unfunded operations cost needs identified by staff.
Open Space Credit
The Valley Water Board has historically recognized that agriculture brings value to Santa Clara County in the form of open space and local produce. To help preserve this value, the District Act limits the agricultural charge to be no more than 25% of the M&I charge. In 1999, to further its support for agricultural lands, the Board put a policy in place to further limit the agricultural groundwater production charge to no more than 10% of the M&I charge.
The agricultural community currently benefits from low groundwater charges that are equivalent to about 2% of M&I charges in North County Zone W-2, 7% of M&I charges in South County Zone W-5, 5% of M&I charges in South County Zone W-7, and 9.25% of M&I charges in South County Zone W-8. According to Section 26.1 of the District Act, agricultural water is “water primarily used in the commercial production of agricultural crops or livestock.”
The credit to agricultural water users has become known as an “Open Space Credit.” It is paid for by fungible, non-rate related revenue. To offset lost revenue that results from the difference between the adopted agricultural groundwater production charge and the agricultural charge that would have resulted at the full cost of service, Valley Water redirects a portion of the 1% ad valorem property taxes generated in the Water Utility, General and Watershed Stream Stewardship Funds.
A PowerPoint presentation will be provided at the meeting.
ENVIRONMENTAL JUSTICE IMPACT:
There are no Environmental Justice impacts associated with this item.
ATTACHMENTS:
Attachment 1: PowerPoint
UNCLASSIFIED MANAGER:
Manager
Darin Taylor, 408-630-3068