BOARD OF WATER SUPPLY
COUNTY OF MAUI
PUBLIC HEARING


Held at the Skybridge Conference Room, Maui Community
College, Wailuku, Maui, Hawaii, commencing at 6:00
p.m. on June 19, 2000.
 
REPORTED BY:  LYNANN NICELY, RPR/RMR/CSR #354
IWADO COURT REPORTERS, INC.

A P P E A R A N C E S
 
Members Present:
Peter Rice
Clark Hashimoto
Howard Nakamura
Bob Takitani
Orlando Tagorda
Adolph Helm (on Molokai)
 
Staff Present:
David Craddick, Director
Fran Nago, Secretary
Mike Quinn, Fiscal Officer
Jacky Carroll, Public Relations Director
Punie Barrows (on Molokai)

IWADO COURT REPORTERS, INC.
TRANSCRIPT OF PROCEEDINGS
Public Hearing
June 19, 2000, 6:00 p.m.
 
MR. RICE:  Let's open the public hearing.  The
hearing is now in session.  This public hearing has
been called to obtain public input for the proposed
Operating and CIP Budgets for the fiscal year
2000-2001.  I would like to take this opportunity to
welcome all of you to this hearing.  Those of you who
took time out of your busy schedules, we appreciate
your interest.  Is there anyone?
 
Present at the Maui office is co-chairs of the
finance and the CIP committee, Peter Rice and Howard
Nakamura.  We have directors Orlando Tagorda, Clark
Hashimoto and Bob Takitani; director David Craddick;
board secretary Fran Nago; Mike Quinn, fiscal
director; Jacky Carroll, public relations director.  I
believe on Molokai we have director Adolph Helm and
Punie Barrows.  There is a lot of people in that room,
Adolph.  Who did I miss?  Anybody?  And the court
reporter.
 
Notice of the public hearing was published in
the appropriate journals, state and county, and the
Maui News, both on June 5th, 2000.  Copies of the
budget are available for review.
 
We have one written testimony presented before
the meeting by the Kula Community Association which
we'll put into the record.  Are there any other
testimonies to be given today?
 
MS. NAGO:  No others.
 
MR. RICE:  No other testimony from Maui.  How
about from Molokai?  Any testimony from Molokai?
 
MR. HELM:  No, none here.
 
MR. RICE:  Thank you.  Okay.  So we don't have
to worry about the orderly handling of the
testimonies.  I'm going to turn this over to Mike
Quinn to do the presentation.
 
MR. QUINN:  Good evening, board members and
interested members of the community.  My name is Mike
Quinn.  I'm the fiscal officer for the Department of
Water Supply.  Sitting next to me is Jacky Carroll.
She's the administrative assistant to the director of
the Department of Water Supply.
 
We are pleased to bring to you tonight, present
to you tonight fiscal year 2001 budget.  The
Department's mission statement is to provide clean
water efficiently, and we believe this budget tonight
that we will present reflects the theme of that
mission statement.

The proposed budget for fiscal year 2001
consists of two parts, the Operating Budget and the
Capital Improvements Budget.  Generally the Operating
Budget provides for continuing service to our
customers by funding operations, maintenance and
equipment expenses.  In addition, the Operating Budget
provides for debt service payments and revenue
transfers for system replacement due to the
depreciation of our current system.
 
The capital improvements portion of the budget
outlines the projects for system replacement and
system expansion or additions.  Expansion and
operating revenues are accounted for separately.
 
The proposed budget projects total receipts to
be $28.6 million, which is an increase of
approximately $1.2 million, or 4.3 percent over the
estimated current fiscal year total receipts.
 
Direct operating expenditures are projected to
be about $25 million, which is $1.9 million or 8.2
percent over the estimated current year-end expenses.
 
Operating revenues are primarily derived from
water sales.  In fact, 98 percent of our operating
revenues come from water sales and this slide that you
have in front of you basically outlines the major
sources of our funding.  We have water delivery which
essentially are metered sales, we have monthly charges
which are service charges that we charge our
customers, we have a small amount that comes from fire
flow -- providing fire flow protection, and we also
have a small amount for installation and jobbing
revenue.  And these funds are used for funding
operations expenses, maintenance expenses, equipment
expenses, debt service expense, and system
replacement.  If there is any money in addition, we
will transfer that for system replacement expenses and
projects.
 
Revenue from water sales is a function of water
consumption and water rates.  Fiscal year 2001 will
represent the fourth year of a five-year increasing
rate schedule.  And what you have on your screen now
is the water rates that will be in effect July 1st,
2000 for this upcoming fiscal year 2001.  And as you
can see, there is a separate tier for agricultural
consumers.  In our continued effort to support our
farming community, we have a preferential rate for our
ag consumers.
 
We are projecting that water rates will increase
about 5 percent in fiscal year 2001 and that we will
have an increase in revenue of about 7 percent from
water sales over the current fiscal year.  We
anticipate water consumption to increase between 1.6
percent and 2 percent.
 
Interest income is projected to be about
$1 million, which is about $0.6 million or $600,000
less than this year.  Interest income is directly
affected by the spend down of our cash balances,
primarily on CIP projects.
 
The Operating Budget is comprised of three large
expense items:  Payroll, debt service, and electricity
expenses.  The electricity expenses will come under
the services portion of the budget and we will discuss
these very shortly.
 
Payroll expenses are projected to be about
$6.9 million for an increase of $0.8 million over the
current fiscal year-end estimate.  The fiscal year
2001 projection includes a provision for 27 vacant
positions which have been funded to reflect the
expected date that they will be filled.  It should be
noted that for the past few years, actual payroll
expenses have been below budget primarily because of
unfilled vacant positions.  There are no provisions
for bargaining unit pay increases in this upcoming
fiscal year budget.
 
Materials and supplies expenses are projected to
be $2.5 million, which is about $0.1 million or
$100,000 over the current fiscal year 2000 estimate.
 
We anticipate spending about $200,000 more on
chemicals due to a new cleaning regime for our
membrane filters in the treatment facilities.
 
The services portion of our budget, we are
projecting expenses of $7.1 million or an increase of
$0.9 million, which is 14 percent over the current
year's estimated expenses.  The primary reason for
this increase is electricity costs.  We anticipate
continued high energy use adjustments to our
electrical bills.  In addition, we are anticipating a
possible electric rate increase in the second half of
fiscal year 2001.  Also, we have allowed for increased
pumping costs due to dry weather conditions,
particularly upcountry.
 
Electricity costs are projected to be
$5.4 million, an increase of $0.7 million over current
year estimates.  This is an area of great concern that
we will be focusing on that particular expense item in
the upcoming fiscal year.
 
Also included in this segment of the Operating
Budget expenses is a total of $248,000 for
professional services.  In addition, in our continued
effort to protect our water resources, we have
allocated $236,000 for watershed protection and
monitoring.  A schedule of these items appears on page
7 of the proposed budget.
 
Debt service is another significant expense that
we are faced with.  Currently the Department has
$54.6 million of outstanding long-term debt.  Debt
service for fiscal year 2001 is projected to be
$5.6 million.  However, it should be noted that
$426,734 of debt service on the $5.1 million portion
of the 1993 refunding bond issue is being paid out of
a Water System Development fund.
 
Equipment expenses are projected to be about
$0.7 million, of which $317,000 is projected for
eleven vehicles in our continuing effort to replace
our aging fleet.  A detailed listing of equipment
requests is included in the budget packages on pages
11 and 12.
 
Finally we have the Other Costs category.  We
have no significant increases that we anticipate in
this category.  However, we have allowed for $85,435
in rental expenses for the NASCA baseyard facility.
It should be noted, however, that we have not paid
these expenses to date and that we have contested
these charges.
 
We have also budgeted in this category $100,000
for potential claims and judgments, although to date
we have not charged any expenses to this category.
 
And for the purposes of this particular
presentation, slide presentation, we have included in
the Other Costs category a county overhead expense of
$500,000, an employee benefit expense of $1.7 million,
and an insurance premium of $75,000.
 
Again, I would like to re-emphasize our concern
about the electricity costs.  We are projecting
$5.4 million for this upcoming fiscal year.  It's an
area of great concern and we will be focusing very
closely on this particular expense item in the
upcoming fiscal year.
 
Another item I would like to re-emphasize is our
watershed protection and monitoring commitment of
$236,000 for such things as miconia removal, watershed
partnerships in West Maui, East Maui, and Molokai, and
Iao Aquifer monitoring.
 
The proposed Operating Budget projects a
$4 million transfer to the Capital Replacement Fund to
be utilized for replacement projects and/or
contingencies that might arise during the course of
the year.  In that sense, we have to be flexible to
allow for unforeseen circumstances.  In fact, we also
have a line item of about $3.4 million for working
capital and an emergency fund.
 
Over the past three years, we have had the
benefit of an increasing water rate schedule.  We have
two more years remaining on this five-year rate
schedule.  If we had not had these rate increases, we
would have been in jeopardy of not having been able to
cover our operating expenses, including debt service.
Our infrastructure replacement needs are substantial
and even with the rate increase, we are not able to
generate sufficient revenues to cover our depreciation
expenses which are on the order of $8 million a year.
 
In addition to the challenge of funding
replacement requirements, we face other challenges in
the following fiscal years.  We will be faced with
increases in the employee -- our contribution to the
employee retirement system, impending bargaining unit
payroll increases.  Also as stated earlier, we only
have two more years remaining on our five-year rate
schedule, so we face some pretty serious challenges in
the upcoming fiscal years.  But at least for this
budget, we are proud to be able to transfer $4 million
for CIP projects, which leads us to the capital
improvements portion of the budget.  And Jacky Carol,
the administrative assistant to the director, will
proceed with that portion of the budget.
 
MS. CARROLL:  Now we are going to focus on the
capital budget.  As compared to the Operating Budget,
these are the tangible things such as pipes and
tanks.  The capital improvement program is for
infrastructure replacement and expansion.  CIP also
provides for an efficient organization and for the
protection of our precious water resources.
 
The capital improvement program is funded one
year at a time and we also maintain a five-year plan
and a long-term project list.  These are discussed and
adjusted by staff every quarter in preparation for the
annual updates.
 
The proposed budget projects spending
$15 million for 64 projects.  The CIP budget consists
of both replacement and expansion projects, each with
a separate source of funding.  Money for capital
improvement comes from revenues, bond issues,
development fees, outstanding balances, and
contribution from federal, state, or county entities.
 
System replacement projects will be funded
primarily from the capital reserve fund and the
proceeds from the 1998 General Obligation Bond funds.
The expansion projects will be funded with Water
System Development fees paid by new services to cover
source, storage, and transmission, and also with the
Central Maui Source funds.
 
In addition, we have anticipated funding from
the state of $2 million which is to be used for the
Lower Kula reservoir design.
 
The source of funding for regulatory compliance
projects varies depending on the requirements.  And
like system replacement, money for improvement and
efficiency comes mainly out of revenue or bond funds.
 
The Department of Water Supply has $15,014,000
in projects planned for fiscal year 2001.  Funding for
these projects comes from various sources:  From the
capital reserves, $5.73 million; from the 1998 General
Obligation Bond fund, $1.9 million; from the Water
System Development fee, $4.12 million; $1.69 million
from the source fund; and $1.5 million from state
funding.
 
The largest sources of funds this year is the
capital reserve, followed by the Water System
development fund.  It is important to note that the
Water System Development fees are the primary source
of system expansion funding.  We estimate receiving
about $1.4 million in the upcoming fiscal year from
which about $0.4 million is need for debt service;
thus on an annual basis, only about $1 million is
available in additional revenues for projects.  The
Department is currently reviewing the Water System
Development fee.
 
The source fund, the $1.69 million, is a
restricted fund that predates the Water System
Development fee which was implemented in April 1993.
We are spending down the final balance in the source fund.
 
In selecting projects, we consider community
input and we also look at regulatory requirements and
resource issues.  We consider problem areas and demand
trends, also the needs for source and storage to
sustain system reliability through drought and other
high demand times.  We consider system operations and
consistency with the community plans, and of course
the Board of Water Supply's priorities.  We take into
consideration trends in demand and system growth and
also anticipated impacts of community plan and zoning 
decisions.
 
Note that the Department of Water Supply system
is made up of five separate systems:  West Maui,
Central Maui, Upcountry, East Maui, and Molokai.  By
far the largest system is the Central Maui system
which has about half of our services, approximately
15,600 services in Central Maui.  The next largest
system is the Upcountry system with about 8,800 water
services.  The third largest in size is Lahaina, the
West Maui system, with about 2,800 services, then
Molokai with 1,500 services, and Hana with 500
services.  Keep this map -- this idea of the five
systems in mind because later on in the presentation
we'll show you a summary of the capital improvement
program by area.
 
The Department of Water Supply has several
program priorities and these are what the capital
improvement program funds will be used for:  Ensuring
compliance with federal and state safe drinking water
regulations, reducing withdrawals from the Iao
Aquifer.  We are currently at 18.2 mgd for the monthly
moving average.  Also reducing the effects of drought,
particularly upcountry.  Replacement and construction
of transmission and distribution pipelines where
needed.  Pump replacement, reliability facilities
management, and efficiency in automation.
 
One of the Board of Water Supply's priorities is
compliance with the EPA Safe Drinking Water Act.  That
includes $100,000 for the lead and copper compliance
program.
 
Another board priority is to plan, organize, and
control activities necessary to reduce the draw on the
Iao Aquifer.  One of the steps in achieving this goal
is utilizing North Waihee as a new source.  $600,000
is devoted to North Waihee source development.
 
The board will implement and develop plans to
reduce the impacts of drought on our customers,
especially in the Upcountry area.  $200,000 is
allocated to repair the Waikamoi flume which was built
in 1923 and is in dire need of repair.  Staff
Completed an emergency repair job in February when
part of the flume washed out and had to be rebuilt
from the ground up.  Two other trestles are scheduled
for repair next fiscal year.
 
Fourth priority on the list is developing and
implementing a storage development plan to upgrade
critical areas of Maui.  As part of this priority,
$1,050,000 is dedicated to the replacement of the Alae
tank in Kula.
 
These are just some examples of the projects
we'll be working on next fiscal year.  Take a look at
the capital improvement program handout for the entire
list of projects.  You'll probably see some projects
in your own community.

The following categories and dollar amounts
represents the major areas of focus and prioritization
for the proposed CIP budget:  $280,000 for projects
necessary to ensure compliance with EPA Safe Drinking
Water Regulations; $1.5 million for projects necessary
to reduce the draw on Iao Aquifer; $3.5 million for
drought mitigation; $3.4 million for storage
development; $4 million for pipeline replacement;
$110,000 for pump repair and replacement; $1.3 million
for new system elements and reliability projects;
$325,000 for property and facilities maintenance; and
$700,000 for conservation, automation, and efficiency
efforts.
 
Funding for these projects will come from
operating revenues, expansion funds, and from the bond
issue.
 
So you can see many good things are coming down
the pipeline next fiscal year for all areas of our
community.  This shows how much is going where.  You
can see our first priority is Upcountry, nearly
$9 million will be going to the Upcountry area.
Second is Central Maui, approximately $2.5 million
going for Central Maui.  The third largest dollar
amount goes to projects that will improve the water
system in all areas and that is $1.85 million.  Fourth
is East Maui with $.68 million, then West Maui with
$0.51 million, and Molokai with $0.15 million.
You can see we've got a busy year ahead, but all
these things are going to bring us back to that 
mission statement:  To provide clean water
efficiency.  Thank you.
 
MR. RICE:  Adolph?
 
MR. HELM:  Yes.
 
MR. RICE:  Do you have anyone enter the hearing
there on Molokai that would like to give testimony?
 
MR. HELM:  No, we don't, Mr. Rice.
 
MR. RICE:  Thank you, Adolph.  We have Melissa
Prince here walked in during the presentation who
would like to give a testimony and we are going to
turn it over to her.
 
MS. PRINCE:  Hello and good evening, everyone.
I'm here to make a presentation because I'm concerned
about the drought and the effect that the -- how it's
connected do the Kahului power plant.
 
Before I start that, I just wanted to review
some things.  The first one is on the water cycle.
 
When it rains, water falls to the earth.  Some is
absorbed and used by plants and animals.  Some rain
falls on the ground.  Some falls in the ocean.  When
the sun warms the earth, evaporation occurs.  When
water vapor rises into the atmosphere and cools,
clouds form through condensation.
 
Clouds are made up of millions of tiny water
droplets.  When the water droplets grow so large that
they can no longer stay suspended in clouds, then rain
occurs.

Okay.  I have another picture.  Acid rain occurs
when moisture from the air combines with sulphur
dioxide and nitrogen oxides from power plants, car
exhaust, volcano vog and forest fires such as cane
burning, to form acid compounds.  The burning of
fossil fuels such as natural gas, petroleum and coal
increases the amount of carbon dioxide in the
atmosphere, which contributes to the green house
effect.  The green house effect occurs when gases in
our atmosphere trap heat.
 
Global warming means that global terms are
rising.  One reason is the increase of green house
gases in our atmosphere.
 
I'm concerned about the smoke coming from the
Kahului power plant.  According to a Check It Out
article in the Maui News on May 22, 2000, the smoke
coming from the stack is exhaust from 50-year-old
electric generators.  These were installed between
1948 and 1954, and there was a law passed that any
generators installed before 1977 were not required to
have scrubbers on them.  This means that these
generators are pouring out pure unfiltered pollution
into the air.  This is blowing over shopping centers,
residential areas, schools, and the hospital, and can
cause many health problems.
 
It is my belief that this pollution is not only
going to cause acid rain, but is also contributing to
our droughts.  If pollution causes the temperature to
rise, how can clouds form since they need cool air for
condensation?  Iao Valley, the source of much of the
island's water supply, is right in the path of this
pollution.  My opinion is that the water cycle in Iao
Valley and the West Maui mountains is being damaged by
the pollution from this power plant.  I call for the
Kahului water plant's immediate closure.  Thank you.

MR. RICE:  Thank you, Melissa.  Is there any
other testimony?
The director has raised his hand.
 
MR. CRADDICK:  What I would like to say is that
we have three jobs that bid in this last week and I
think we have two more jobs that will bid in this next
week.  The last three jobs were three quarters of a
million under-funded for what they bid at, so we will
have to address that issue in this upcoming budget
because we are not going to be able to award those
jobs.  And if it keeps going with the jobs that are
going to be bidding in this next week, it may go above
that three-quarters of a million number that we are
short on right now.
 
MR. RICE:  Those are CIP projects?
 
MR. CRADDICK:  Yes.  One is the Kanoa 1 and 2
outfitting wells for North Waihee aquifer; one is the
pipeline on Molokai, Kamehameha 5 Highway; and the
other one is Puuomalei Triangle road up in Makawao.
 
MR. RICE:  Okay, we have a joint finance
committee and CIP meeting I think scheduled sometime
next week.
 
Adolph, is that all from Molokai?
 
MR. HELM:  Yeah, that's fine over here, Peter.
 
MR. RICE:  Okay.  There appears to be no other
testimony, so unless there is something else to be
said from this room, this hearing is closed and the
meeting is adjourned.
 
(WHEREUPON, the meeting was adjourned at 6:40 p.m.)