A deal on the table Tuesday would promise more than 40% of Montecito’s State Water Project rights to a massive North County development proposal.
The $40 million sale would put Solomon Hills—4,000 homes planned between Orcutt and Los Alamos—a big step closer to securing a critical ingredient needed for that project to move forward.
The Montecito Water District Board at its monthly meeting Tuesday will consider a non-binding letter of intent to forever relinquish 1,400 acre feet, or 42.4%, of the agency’s annual State Water Project interests.
That’s enough water to sustain an estimated 10,000 to 15,000 California residents a year.
“We are able to divest,” Floyd Wicks, board member and past president, said. “We have been building this plan for years… Our board and staff planned very strategically.”
Developers at Solstra Communities California LLC , the firm behind the project, described the potential sale as key to ensuring capacity.
“For any new community, water comes down to two questions—where it comes from and how it gets here,” Solomon Hills CEO Klaus Hasbo said.
If the district board backs the transaction, next steps would include creating a purchase agreement, a process officials say could take six months.
The deal by the numbers
If the new deal goes through, nearly 20 years after Montecito joined the State Water Project in 1997, district customers would experience no impacts to water reliability, officials say.
The district would receive $36.5 million upfront, with the terms escalating monthly based on the Consumer Price Index until closing at an estimated $40 million total in 2028, officials say.
The promised allocation would rival the 1,430 acre feet Montecito now receives yearly through a landmark 50-year desalination deal the district inked with the city of Santa Barbara in 2020.
Accounting for shared capital costs, the desalination deal costs Montecito $4.57 million annually through approximately 2037. After that, initial capital debt service obligations disappear, and the district transitions to paying primarily for ongoing operations and maintenance.
The terms of the desalination deal put the district’s total estimated cost across all five decades at about $200 million at the time of its approval.
“Wet water, not paper water’
While the desalinated water delivery is guaranteed, State Water shipments are notoriously far from certain.
State Water participants pay full costs each year, regardless of whether the state delivers all or none of an allocation.
That sticker shock tends to hit hardest in dry years.
Santa Barbara County planners describe the Solomon Hills proposal as a new community.
An adequate supply tops the list of requirements needed for it to be approved, said Bob Nelson, chair of the Santa Barbara County Board of Supervisors.
Envisioned for 1,902 acres of former oil and gas property west of Highway 101 and two miles east of Highway 135, the project currently undergoing an environmental impact review is proposed for Nelson’s Fourth District.
Solstra purchased Pacific Coast Energy Company and its assets in 2019. The acquisition included the Solomon Hills location.
“Like all State Water Project participants, it’s one thing to have an allocation and it’s another thing to receive it,” Nelson said. “They need to make sure they have wet water, not paper water.”
Project approval still years away
In the water transfer deal, Montecito would retain nearly 60% of its annual State Water allocation, or about 1,900 acre feet.
“The partial sale has substantial financial benefits for the District without risking long-term water security,” according to an agency report that anticipates $1.8 million annual State Water cost reduction.
Montecito since 2017 has stored more than 5,800 acre feet of surplus state water, officials say, adding the district hasn’t used any state water to meet customer demands since 2019.
“Over the past decade, the costs of State Water have increased while reliability has decreased,” according to the district. “This partial sale would provide the district with an upfront payment for the portion permanently transferred and substantially reduce its future operational and capital infrastructure costs related to State Water.”
In addition to the State Water allocation, the deal would include rights to 550 acre feet, or 36%, of the district’s participation in the the Central Valley-based Semitropic Groundwater Banking Program serving water agencies statewide, as well as 1,650 acre feet of water already stored there.
In June, the district board in its balanced fiscal year 2027-28 budget approved $27.09 million in expenses with an estimated $29.84 million in anticipated revenue. Budget documents show the agency with a positive total net position of $59.9 million.
The sale will close only after the development wins full approval, a process that could take several years.
In addition to new housing, the developers of Solomon Hills say they envision enough commercial and office space to accommodate 2,000 jobs and enough infrastructure for a grocery store, school, fire station, parks and more than 18 miles of trails.
