Water and Wastewater Financial Plan Upda
Final Recommendations
April 12, 2022
2 The previous 5-year financial plans for the water and wastewater enterprises ends on July 1, 2021.
Study Objectives:
1. Update the water and sewer system financial plans to reflect changing conditions and plan for the next 5 years.
2. Determine whether a debt strategy is appropriate
3 Agenda
1. Water Financial Plan
• Financial inputs
• Capital Spending Forecast
• Proposed Rates
• Survey
2. Sewer Financial Plan
• Financial inputs
• Capital Spending Forecast
• Proposed Rates
• Survey
3. Project Schedule
4. Receive direction from Council to mail 218 Notices for Public Hearing.
5. Adopt resolution approving draft financial plan and setting Public Hearing date.
4 Legal Requirements
for Setting Water and Sewer Rates In California
Proposition 218 (Article XIIID, Section 6 of California Constitution) • Revenues shall not exceed funds required to provide service; nor used for another purpose
• Amount shall not exceed the proportional cost of the service attributable to the parcel
• Service must be actually used or immediately available • Approval process includes 45-day notice, public hearing, and written majority protest. Does not require a voting process (unlike taxes). 5 Water Rates
6 Water Cash Balances
Fiscal Year beginning July 1, 2021
7 Proposed Reserve Targets
Reserve policies are important for protecting the utility enterprise against unforeseen circumstances, stabilizing revenue requirements, and contributing towards the City’s credit rating. The following reserve targets are proposed by this Study and are consistent with recent City practices.
Operating Reserve Minimum (City Policy):
Purpose: In the event of sudden increases in operating cost or decreases in revenue.
Target: Equal to 33% of O&M budget
Capital Reserve Target (best practice):
Purpose: For catastrophic failure of critical infrastructure and to manage the inherent volatility of capital spending.
Target: Average annual PayGo capital projects budget
Water Revenue
FY2021/22 Budget
8 Water Operating Expenses
FY2021/22 Budget
9 Projected Water Capital Spending
10 Recent average Capital: $4K Forecasted average Capital:
$780K
Cypress Storage Tank
Water Proposed Capital Funding Strategy
11 Proposed Water Financial Plan
12 13
Water Rate Increase Drivers
• 2017 Study anticipated similar annual rate increases during this period. • Operating costs have increased more than projected by the 2017 study
1. Water purchase costs from Sonoma Water (now expected to increase 6% per year)
2. Utility costs have doubled (PG&E rates + increase in groundwater pumping)
3. Additional emergency operations and vehicle replacement costs
4. Increase in contract and chemical costs
• Balloon payment for debt to Sewer Fund is recommended 14 Proposed 5-Year Water Rate Schedule
15 Example of Water Bill Impacts with Year 1 Rates
16 Sewer Rates
17 Sewer Cash Balances
Fiscal Year beginning July 1, 2021
Sewer Revenue
FY2021/22 Budget
18 Sewer Operating Expenses
FY2021/22 Budget
19 Needs-Based Sewer Capital Plan
20 Recent average Capital:
$307K
Forecasted average Capital:
$517K
Revised Sewer Capital Spending
21 Recent average Capital:
$307K
Forecasted average Capital:
$402K
Proposed Sewer Financial Plan
22 23
Sewer Rate Increase Drivers
• Previous study anticipated similar annual rate increases during this period • Operating costs have increased more than projected by the 2017 study
1. Increase in Subregional costs due to change in meter readings
2. Subregional costs are escalating at 6% per year (previously assumed 5%)
3. Additional emergency operations and vehicle replacement costs
4. Increase in contract and chemical costs
• Keeping pace with streets paving program
24 Proposed Sewer 5-Year Rate Schedule
25 Example of Sewer Bill Impacts with Year 1 Rates
Survey
Combined monthly water & sewer bill for Single Family Homes assumes 3/4” meter, 5 TGAL of monthly water usage and 3 TGAL of sewage 26 27
1. Recommendations to City Council– (today)
2. Mail Prop 218 Notices – No later than April 22
3. Public Hearing– June 14
4. Implement Rates – June 15, 2022
Schedule