Spurred by a desire to further localize the community’s water supply and bolster the Montecito Water District’s coffers, the board of directors on Tuesday took an early step toward selling roughly 40% of the district’s State Water rights to a North County housing development.

The board unanimously authorized a letter of intent that outlines the terms of a transaction between the district and Solstra Communities California LLC, the development team behind the proposed 4,195-acre Solomon Hills project west of Highway 101 near Orcutt.

Staff will now begin negotiations with Solstra for a purchase and sale agreement.

But district staff warned that the matter is still very early in the process.

It may be several years before the sale is fleshed out and finally approved, given that the massive residential project still has to obtain all the necessary permits and approvals. 

Where Does Montecito’s Water Come From?

Between 2013 and 2021, five sources made up Montecito’s water: State Water (35%), Cachuma Project (33%), Jameson Lake (14%), Doulton Tunnel (7%) and groundwater (11%). 

Between 2022 and 2025, water allocations from the Cachuma Project, groundwater, the Doulton Tunnel, and Jameson Lake largely stayed the same.

But a 2020 ocean desalination agreement with the city of Santa Barbara has now essentially replaced Montecito’s State Water usage, according to District Manager Nick Turner. 

The district hasn’t used State Water to meet customer needs since 2019. The excess State Water has been banked or sold, and the district currently has enough supply banked to meet a year and a half of customer needs.

State Water costs the district $5 million per year, or roughly 20% of operating costs. 

Turner said the district has been focused on enhancing the area’s local water supply for a decade, calling State Water increasingly “unreliable” and “costly.”

State Water is dependent on snowpack and rainfall from Northern California. Under the agreement with the state, the district is entitled to a certain percentage of the available State Water each year — not a specific volume of water. 

Because of that, it has sometimes not been available when the district needs the supply the most, Turner said.

He pointed to two recent drought years — 2021 and 2022 — when the state only supplied 5% of Montecito’s State Water allotment: 165 acre feet of its 3,300 acre-feet contract.

Recent district studies looked at more than a dozen scenarios for the future of Montecito’s water, taking “negative assumptions” such as heavy drought and substantial population growth as the baseline. 

They indicate “that there is limited to no use for State Water even under severe drought conditions,” Turner said. 

Under the early terms discussed, the district would sell 1,400 acre feet to the Solomon Hills development. The district would keep the remaining 1,900 acre feet.

That agreement also includes the sale of 550 acre feet of groundwater storage rights in the Semitropic Groundwater Banking Program, and 1,650 acre feet of water stored in the Semitropic. 

Solomon Hills would pay $36.5 million in 2026 upfront costs, which would be inflated annually through closing. 

Forty percent of the district’s fixed and variable costs related to State Water would also now fall to Solomon Hills, amounting to roughly $1.8 million in savings for the district per year. 

The developers would also fund $600,000 in transaction fees, which they are still on the hook for even if the development ultimately isn’t built.  

Case Against (and For) Selling State Water Rights

The handful of community members in the room and on Zoom on Tuesday were largely skeptical. (“This is the fullest the boardroom’s been in 10 years,” Board President Brian Goebel joked.)

Most argued against selling off parts of Montecito’s State Water rights.

Marshall Miller, a fourth-generation Montecito resident and a member of the Montecito Planning Commission, said he was “deeply concerned” about selling off State Water. 

Others argued that having as diverse a water supply as possible is critical, while some questioned what would happen if the Solmon Hills development wasn’t built. 

(If the development team does default and the project isn’t built, the Central Coast Water Authority would easily be able to divert the water back to Montecito, per Turner.)

But there was next to no debate at this point on the board’s end.

They agreed that selling off part of Montecito’s State Water rights will allow them to use that money — and the $1.8 million in yearly savings — to invest more in local water sources, such as possibly storing water in Carpinteria’s groundwater basin. 

The sale may also help offset future rate increases by opting out of parts of expensive State Water projects, including canal repair and golden mussel mitigation, and reduce district debt.

Director Tobe Plough said the district has come a long way in the past decade with water reliability.

While State Water is a “valuable resource,” he said, it’s now become unreliable and “oversubscribed.”

Selling off part of the district’s State Water rights deals with those issues “in a modest way,” he said. 

Board Vice President Cori Hayman said she was initially against a possible sale when talks began two years ago.

But she came around to supporting it after realizing that in the worst-case scenario, Montecito “may not get a drop of water from the state.” 

The most important thing to do, she said, is support the area’s local water supplies.

“If we want to have water security for the future, for our kids and grandkids, we’ve got to invest here, not up there,” Goebel said.