A $40 million deal to sell more than 40% of Montecito’s State Water Project rights to a massive North County housing proposal passed a big test Tuesday.
In a 5-0 vote , directors of the Montecito Water District approved a non-binding letter of intent in support of the transaction, paving the way for a Spring 2027 purchase agreement with developers of Solomon Hills, 4,000 homes planned between Orcutt and Los Alamos.
“Our future is local,” said district board President Brian Goebel, stressing a point made repeatedly as officials characterized the potential sale as a way to shore up South Coast sources of water for Montecito. “We’ve got to invest here.”
Added board member and past president Floyd Wicks: “I’m honestly thankful this opportunity came.”
The approval came over objections and concerns raised by residents who recalled tight years of water rationing. Some in the room questioned whether relinquishing 1,400 acre feet, or 42.4%, of the district’s annual State Water interests might weaken its ability to deliver.
More specifically, they questioned whether the district’s increased reliance on desalinated water from Santa Barbara in recent years might become a big liability.
“My immediate thoughts about desalination are earthquakes and tsunamis,” Montecito resident Rick Porter told the board, wondering aloud if Santa Barbara’s Yanonali Street desalination plant could someday become inoperable.
But a counter argument—that State Water delivery is even more uncertain—carried the day.
In the driest of years during the past decade, Montecito has only received 5% of a State Water allocation it fully pays for nonetheless, district General Manager Nicholas Turner told the board, adding on average the agency received less than half its allotment.
Montecito since 2017 has stored more than 5,800 acre feet of surplus water from the state, officials say, adding the district hasn’t used any state water to meet customer demands since 2019.
“State water is unreliable and it’s costing us,” Turner said. “It’s an expense for water we don’t need and don’t use.”
In the proposed deal with Solomon Hills, 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.
That money, officials say, could be invested in future projects that include groundwater banking, additional desalination or more water recycling.
“These actions would further strengthen the district’s water supply reliability,” Turner said.
Developers at Solstra Communities California LLC , the firm behind the housing project, have framed the potential transaction as key to ensuring capacity.
Santa Barbara County planners describe the Solomon Hills proposal as a new community.
Envisioned for 1,902 acres of former oil and gas property west of Highway 101 and two miles east of Highway 135, the project is currently undergoing an environmental impact review.
Solstra purchased Pacific Coast Energy Company and its assets in 2019. The acquisition included the Solomon Hills location.
“Today we’re one step closer to building affordable homes for working families,” Ben Humphrey, Solomon Hills director of community development, said after the vote.
The promised allocation rivals the 1,430 acre feet Montecito now receives yearly through a landmark 50-year water service agreement the district inked with the city of Santa Barbara in 2020.
That’s enough water to sustain an estimated 10,000 to 15,000 California residents a year.
Accounting for shared capital costs, the deal with Santa Barbara relies heavily on desalinated water and 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.
While that agreement relies heavily on desalinated water, district Vice President Cori Hayman said water delivery from Santa Barbara to Montecito isn’t dependent on it.
The terms of its deal with Santa Barbara put the district’s total estimated cost across all five decades at about $200 million at the time of its approval.
Looking ahead, Montecito would retain nearly 60% of its annual State Water allocation, or about 1,900 acre feet.
The proposed water 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.
