Photos: (By Randy Tunnell) Water board chair Kris Lindstrom (left) incurred the wrath of Seaside Mayor Jerry Smith (center) and board critic Bob McKenzie when he voted to ban the sale of water credits.

Judi Lehman says it was no secret that she was running as a conservationist in her successful bid for a seat on the board of the Monterey Peninsula Water Management District.

"I can''t imagine how anybody could not understand what I was campaigning for," she says. "''End Water Credit Transfers'' was on all three of my postcards."

Her opponent, incumbent Ron Chesshire, had the support of practically every city official in District 2, which encompasses Seaside, Monterey and Del Rey Oaks. Chesshire was ardently pro-growth, and therefore had been a big supporter of the plan to build a new dam on the Carmel River--an idea which appears, at least for now, to be dead.

Chesshire also supported the use of a contentious legal instrument known as a "water credit transfer," which can allow businesses, municipalities and individuals to buy and sell water rights. These water credit transfers had turned out to be a boon for developers. Conservationists had come to despise them.

Lehman beat Chesshire, joining water board members Zan Henson, Kris Lindstrom and Molly Erickson to form an anti-dam, anti-transfer, slow-growth majority. In February, the new board passed the controversial Ordinance 102, which abolished water credit transfers.

The move was greeted with open-mouthed shock by developers, city officials and the Chamber of Commerce.

At the water district''s Board of Directors'' meetings, angry spokespeople stormed the podium. The city of Seaside immediately initiated a lawsuit. The city of Monterey moved to abolish the water district entirely.

But Lehman can''t believe anyone was really all that surprised by the vote to ban water credit transfers.

"Certainly the writing was on the wall," she says.

Lehman says that as she walked the precincts campaigning, she spoke with voters about the problems created by what she calls "paper water." She says she didn''t hear any overwhelming support for the transfers.

"Seaside voters in particular were very concerned about the distribution of water," she remembers. "The residents really didn''t trust the cities."

The system works like this: the board assigns a set amount of water from the Carmel River and the Paralta Well in Seaside to each Peninsula city. The cities must then decide how to allocate their share. They may allocate water for affordable housing, for expensive new subdivisions, for boutiques or for golf courses. "It''s not the water board''s decision [to allocate water to particular projects]," Lehman points out, "it''s the cities''."

Water credit transfers enabled cities to continue approving water-intensive uses in spite of the limited water they''d been assigned. When a business closes, moves or changes hands, its water rights become available. Under the water credit transfer system, the business owner could sell the water rights to anyone willing to pay for them; as long as the buyer had approval from the city, any project--golf course, restaurant, car wash--could theoretically get water. Now that the transfers don''t exist, the water reverts back to the district to be reassigned to a city. That, says Lehman, is what the voters wanted.

Lehman says voters would like to see water credits go toward housing, but each city''s leaders seem to favor money-making projects--shopping centers, restaurants and hotels. And that propensity, she believes, was the real undoing of the transfers.

"There''s nothing warm or fuzzy about providing affordable housing," Lehman says, adding sarcastically, "but there''s something wonderful and great about providing shopping, hotels and restaurants." Now that cities such as Monterey are claiming that they can''t possibly build affordable housing because the ban on transfers has stopped the flow of water, Lehman and other supporters consider it crying wolf.

Board member Zan Henson isn''t too worried about the petition to abolish the board because, like Lehman, he feels the voters are on his side.

"I believe this community is split about 55-45 percent in favor of protecting the environment," he says. "That 45 percent is vocal and frustrated that they can''t get a dam and can''t have all the water they want, and that this is an impediment to the free flow of business. And the 55 percent who don''t want a dam, don''t want the overflow of commercial development.

"They recognize that the water district is doing as good a job as possible in managing this scarce resource."

Angry business owners, mayors and developers, however, say the board didn''t listen to the public. "I would call [Ordinance 102] arbitrary, capricious and intended to interfere with all other land-use decisions," says consultant Bob McKenzie.

A dam supporter who led a move to dissolve the water district in 2000, McKenzie is once again spearheading an attack against the board''s environmental majority. He blames the board for failing to solve the Peninsula''s decades-old water problems.

"We still don''t have any water," he says. "The business community needs a little wiggle room."

Blame elected city officials and city planners, says board member Molly Erickson, pointing out that the board does not have additional water to allocate.

"The resource, like a banking account, is in overdraft," Erickson says, adding that the cities know how much water they have available and should have planned for their allocations in advance.

"If a jurisdiction chooses to allocate its water for other purposes, that''s its choice. However, when a jurisdiction uses up its water, then turns to the water district for water for affordable housing, that''s not successful management of their allocation."

The current board majority says that until a new water solution comes online, the only way to "get" more water is to conserve it. But a vocal group of business owners, developers and wealthy homeowners just want more water, Carmel River be dammed, so to speak. And only this board stands between them and that water.

In 1999, when voters chose Erickson, Henson and Kris Lindstrom to sit on the board, the three joined Dave Potter (appointed by the county supervisors) to form the first anti-dam majority. Conservation and alternatives to the dam guided the board majority''s votes.

They pushed "Plan B," a combination of desalination plants, groundwater injection and recycling, and started working to amend or end the water credit transfer system.

The ordinance that allowed the transfers had been adopted in ''93 to allow businesses to move water from one location to another location, to help the local economy stay afloat. The transfers also had a conservation component: each time a credit changed hands, 15 percent of it was to go back to the district.

"This was done to ease the pain for a short period of time while our new water supply project [the dam] was coming online," says Fran Farina, who was on the board back then. At that time she voted to allow the transfer of water credits. Now she supports the current board''s decision to eliminate them.

Farina says that when voters throughout the water district rejected the idea for a new dam once and for all in November 1995, water credit transfers lost their viability.

The new board and its allies say the system had become a virtual black market for water. Credits were sold to the highest bidder and unused credits were passed from commercial enterprises to brand new homes.

In 1994, a family bought the abandoned Grove Laundry site in Pacific Grove, collected water credits from the defunct business, and sold them for more than they''d paid for the property. Another property owner paid $100,000 for an unused water credit and moved it to a vacant lot.

In 2001, the county supervisors approved plans to allow Carmel Valley''s Robles del Rio Lodge to sell water credits to 19 property owners for a record price of $150,000 per acre foot, more than eight times the normal rate. (A water credit is .01 acre feet, or about 3,200 gallons.)

All of this proved to the current board majority that the water credit transfers were taking on a life of their own. The profiteering, combined with the active water credit trade and the district''s inability to enforce actual water use by those who had purchased credits, told some board members it was time to lay the transfers to rest.

"I''m just standing up for the principles I said that I would if elected in ''99," says Kris Lindstrom, chair of the water board. "Credits were intended to be temporary. There isn''t any net water savings, and there''s an increase in demand.

"Until we solve the water supply problem, I don''t see that we have any water to be given away."

"They went too far," says Monterey Mayor Dan Albert. In April, the Monterey City Council voted unanimously to put a resolution on the November ballot directing the state of California to abolish the water management district.

He expects several other cities to take similar action.

"We''ve been waiting for some sort of solution that was going to satisfy the needs of the water management district and that hasn''t happened yet," Albert says.

"Do I think this will dissolve the district?" muses Sand City Mayor David Pendergrass, who sits on the water board and voted against the water transfer ban. "I think it will."

The mayors and many businesspeople say the board has been arrogant in its decision-making.

Before the new majority bloc took on the water credit transfers, they had to kill a compromise law called Ordinance 101 that hadn''t taken effect yet.

"Ordinance 101 took out the price-gouging aspect of the water credit transfers," says Potter, who voted for Ordinance 101 and against 102.

"It made it so that the transfers were like-to-like; so you couldn''t take [water credits] from a funeral home and give it to a restaurant. It gave more water back [by increasing the percentage dedicated to conservation from 15 percent to 25 percent].

"It wasn''t what the cities truly wanted--101 was quite restrictive--but it wasn''t a complete shutting of the door. It gave them something while we try to solve the problem in its entirety."

Henson, an environmental lawyer, says a compromise wouldn''t work. He says the transfers-as-conservation idea didn''t hold water, so to speak.

"A, it''s a fundamentally flawed process, and B, it takes far too much staff and board time for the results, because it is such an unfair process," Henson says. "The problem is, the water that is being sold was basically fallow [unused] water. Nobody is going to sell water that they are actively using. Therefore there is no way to assess that a water credit transfer system is going to conserve water."

In February, while Potter was out of town, the board passed Ordinance 102 by a 4-2 vote.

Potter, who still opposes the dam, and typically votes with Lindstrom, Erickson and Lehman on environmental issues, faults the water district for dragging its feet on finding a solution, and the public for failing to agree on some alternative plan--because they don''t want to pay the economic or environmental costs.

In the case of Ordinance 102, he says the board acted rashly.

"If they were listening to the public, why didn''t they continue it until I came back?" says Potter. "There was no reason not to--they had the votes. I don''t believe we''d see damage to the river in 30 days. Just out of courtesy to the public, to other elected officials, you would have thought that they would have continued it."

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Potter says therein lies the source of much of the current discontent: not the actions of the board but the attitudes of the board members.

"It doesn''t seem a very friendly environment to do business in, in general."

The outcry from public officials and Chamber of Commerce types began immediately. David Pendergrass and Alvin Edwards, the two board members who voted against Ordinance 102, encouraged opponents at a board meeting to recall the vote and dissolve the water district.

"You need the water credits for maneuverability," Pendergrass says. "We have to do something while we are waiting for the [Plan] B projects."

The city of Seaside filed its lawsuit against the water district in April, charging that the ordinance infringes on its municipal authority and strangles its redevelopment plans.

Mayor Jerry Smith says he''ll invite the other Peninsula cities to participate in the litigation. Last week, the Monterey and Pacific Grove city councils took him up on the offer. Now the three cities are waiting to see if others join in. And Monterey Mayor Dan Albert believes other cities will float their own ballots to direct the state to abolish the water district.

A group called Save Our Water, comprised of business owners, Chamber of Commerce members and Hospitality Association officials, circulated a petition under the headline "It''s Your Water! And It''s Being Stolen From You!" Spokeswoman Kathleen Eckerson, who also chairs the Peninsula Chamber of Commerce''s board of directors, says the water board didn''t have a mandate to get rid of water transfers.

"The board members who did pass 102 said to us clearly, ''We know who put us into office, and it certainly isn''t you, the community.'' The idea was they are only on the board by virtue of a, quote, environmental vote," Eckerson says. "There are a lot of people here who love the ocean, the air quality and also want to be able to live here."

The group needed to collect 3,650 signatures in a month''s time. They turned in 2,729, but only 1,437 were valid.

The Save Our Water petition says that Ordinance 102 "limits remodeling that provides for growing families and/or housing for elderly parents; Denies new rental housing for our workforce; Restricts opportunities for new/expansion of day care centers and schools; Impedes DLI and NPS in their national security mission; and obstructs business'' ability to relocate."

It does not mention that in the eight years that they''ve existed, no water credit transfers have been used to build schools, day care centers, affordable rentals or other socially desirable projects.

"The jurisdictions don''t want a case-by-case basis here, they want to control the water," Lindstrom says. "We told the jurisdictions to come forward with a specific proposal. Show us what it is you''re trying to do, and how our rules prohibit that. We''ve told the city of Monterey, if the Naval Postgraduate School has a need [to expand], we welcome them. I met with the mayor of Seaside. We''re trying to listen and understand what their specific concerns are. There are all these claims, but no specific projects."

Seaside Mayor Jerry Smith says his city has an excellent project that justifies the need for water credit transfers--a redevelopment area at the corner of Fremont Boulevard and Broadway Avenue. The city wants to consolidate the 16 lots that cover the area into a single five-acre tract, and build shops, some apartments or condos and maybe even a cafe or two.

Smith says he hoped a bustling retail development on Fremont and Broadway would improve the city''s appearance and economy. He says Ordinance 102 killed those dreams.

"This bill says to the city of Seaside, ''You''re trying to assemble five parcels in the dead center of your city that have the opportunity to provide jobs and a new economic tax base for the city, and we''re going to penalize you.''"

But later, Smith admits he''s had a conversation with Lindstrom. He says he''s been told the development will, after all, be considered all one parcel so the city won''t have any trouble using any and all of the water rights on that property.

"But it was only after we threatened them with a lawsuit that they even wanted to talk about it," he says. "Wouldn''t it have been prudent of them on February 28, when they passed this Ordinance after listening to 60 concerned citizens asking them not to take action that night?"

Lindstrom says Smith hadn''t approached him with the problem before that night. "We read about it in the paper," he says.

With an allocation of almost 76 acre feet of water, Seaside sits on more water than any of the other cities in the water management district. Number two, Sand City, has around 30 acre feet.

But Smith says the water credit transfer ban hurts Seaside in particular, because Seaside has a plethora of legitimate water needs.

"That ordinance affects the city of Seaside more than any other jurisdiction," he says, ticking off the reasons on his fingers. "Other cities are built out--we have vacant land. We have areas considered blighted. Our redevelopment project has the opportunity to provide jobs and to provide an economic tax base for the city of Seaside."

Former water board member Fran Farina remembers visiting Seaside''s redevelopment site at Fremont and Broadway shortly after she was elected in 1991. Seaside city officials told Farina and the board that they needed 100 acre feet of water for the planned redevelopment project.

With one-fourth of its allocation used, Seaside still has no project.

"Those are the land-use decisions they''ve made," Farina says. "You knew about these projects, you had this set water allocation. Why didn''t you put the water towards that?"

Smith says it''s because Seaside residents want the water to benefit a mix of uses--commercial and residential, private development and the city''s projects.

"If you don''t know what''s important to you, then that''s your tough luck," Farina says. "Don''t tell the water district to find water for you that we don''t have."

Smith sees only one real solution--something that will satisfy his city''s needs, allow for economic development and much-needed housing, and make the water credit transfer issue go away for good: Build a dam.

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