Item No. 1.
TO:HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM:OFFICE OF THE CITY MANAGER
BY:MATTHEW BAUMGARDNER, DIRECTOR OF PUBLIC WORKS/CITY ENGINEER DATE:JANUARY 13, 2026
SUBJECT:ADOPTION OF A RESOLUTION TO ADJUST THE CITY OF DOWNEY WATER RATES
EXECUTIVE SUMMARY
The City Council will consider adopting Resolution No. 26-8329 (Attachment A) to adjust the City of Downey water rates effective January 14, 2026. This report serves as an update to the City Council on the water rates analysis, which includes the proposed increases to the rates, staff's outreach efforts to the community, and next steps required by the City Council to adopt new rates.
RECOMMENDATION
That the City Council:
Adopt Resolution No. 26-8329, approving the adjustments to the City of Downey water rates and making them effective January 14, 2026.
BACKGROUND
At its meeting of October 28, 2025, the City Council was provided a summary of efforts taken to date to analyze the City of Downey's water rates. As part of this analysis, staff provided background information on the system and a summary of efforts taken to determine the required revenue and appropriate rate structure to maintain the water system. The City Council adopted Resolution No. 25-8326 at its meeting of November 18, 2025 to initiate the Proposition 218 proceedings following a presentation of the comprehensive study completed by Raftelis Financial Consultants (Raftelis).
City of Downey Water System
The City of Downey's water system serves approximately 24,000 residential and commercial customers by extracting ground water from 19 active wells dispersed throughout the City. The demand on the system on an average day is 13,000 gallons per minute (gpm). This can be met by operating 9 of the 19 wells. Following the power outage of December 24, 2024, staff took steps to get backup generation available at 9 wells to ensure that the system can remain operational during an extended power outage.
Downey's water is unique in that it does not require any sort of disinfection and currently does not need to be treated. As as result, it can be pumped from the ground, directly put into the distribution system, and delivered to customers. Once the groundwater is pumped from the wells, it is delivered to customers through a system of approximately 258 miles of water mains. Service connections that tap into the water mains bring water to the individual customers. The system is maintained by 19 full-time field employees. An additional nine administrative and engineering staff members focus on the planning, engineering, regulatory compliance, and customer service needs that are required to keep the system functioning at its high level.
Over the last 10 years, the various costs associated with operating and maintaining the water system has grown from approximately $13 million to $18 million on an annual basis. This is due to cost increases in labor, materials, equipment, electricity, regulatory compliance, and the assessment that is paid each year to the Water Replenishment District for pumping groundwater. During this same period, revenues have reduced from $18 million to $17 million a year, mainly as a result of reduced usage from conservation. As a result, the difference between annual revenues and expenses have gone from approximately $5 million each year down to zero. In the past, the difference between the revenues and expenses was added to the Water Fund - unrestricted fund balance each year to fund all of the necessary equipment purchases, as well as critical construction projects that are incorporated in the Capital Improvement Program (CIP) to provide for necessary system replacements and upgrades. In previous years, the difference between revenues and expenditures was able to support annual improvements to the system without significant reduction to the unrestricted reserve balance. However, as this difference has been approaching zero over the last several years, equipment and CIP projects needed each year to keep the system operational have reduced the unrestricted reserve balance to approximately $4 million at the start of Fiscal Year 2025-2026.
Following an update on the water system at its meeting of February 25, 2025, the City Council directed staff to continue its efforts to analyze the need for an increase to the water rates. It should be noted that the City has not undergone any effort to analyze the water rates since Fiscal Year 2015-2016. This was the last time there was an increase in water rates. As stated earlier, ten years ago there was an approximate $5 million difference between revenues and expenses to keep ahead of the costs of operating the system. It was determined at that time that the City could continue to operate its water system under its then current revenue structure. However, in the ensuing ten years, inflation has driven all of the water system's operational costs up to the point where the water fund has just enough revenues to cover expenses each year, leaving no contribution for capital projects available. In addition to increased operational costs, the City has to stay ahead of an aging water system. The CIP projects that are undertaken each year focus on upgrading water mains, service connections, hydrants, meters, and all the equipment used to maintain them. Other vital projects include adding back-up power generation at the well sites to ensure the system can stay operational during a major power outage. Staff has secured portable back-up generation at sufficient wells to meet demand, but is taking steps to provide permanent back-up power generation and automatic restart of the wells so that there is very little delay in restoring the system during a power outage.
Another critical component of the annual CIP is the rehabilitation of the City's water wells. Failure to stay on top of this effort would impact the ability to keep up with residential and commercial water demand. Finally, water systems across the State are now required to develop treatment systems for per- and poly-fluoroalkyl substances (PFAS) down to a level of parts per trillion (ppt). The City hired Tetratech to complete a feasibility study that looked at various options for PFAS treatment that included treatment directly at each well site, blending the water imported from MWD, and creating two treatment plants in the north and south of the City. The two-plant option proved to be the most effective from an engineering and cost perspective. The cost estimate to develop a PFAS treatment system for the City of Downey is approximately $127 million. The current deadline for Downey and all other water systems in the State is to have a treatment system operational is by April 2031.
ANALYSIS
Current and Proposed Water Rates
The City of Downey has long enjoyed the lowest water rates in the region. A lot of this can be attributed to the fact that its water quality has been so good over the years and that no disinfection of the water is necessary before it enters the distribution system. Currently, the average single-family residence in Downey pays $29.95 for the water it consumes on a monthly basis. The new proposed rates will increase this monthly average to $44.86. These rate increases are necessary in order to pay for growing inflation costs, building capital reserves to pay for the ongoing upgrades and critical back-up generation projects, and for the new PFAS treatment system. The chart below shows how the City compares with other agencies in the region for an average single-family residential household charge for water consumption:
As evident in the chart, while increasing $14.91 per month, the average single family residence in Downey will still have the lowest rates in the region. It should also be noted that the closest agency, the City of Paramount, is currently going through a process to increase its rates. This is an important fact as the City is able to maintain its low cost position within the region even though rates have not been adjusted for inflation for more than a decade, and while adding a new, mandated water treatment facility at a cost of approximately $127 million. Going forward, staff recommends that yearly increases be reviewed to make sure that the water program rates are keeping up with inflation in the economy. This will prevent large increases from needing to be implemented, which are more alarming and problematic for the public when rate increases have to recover multiple years of skipped program inflationary costs.
Developing the Water Rate Model
The City engaged Raftelis, a consultant hired by many water agencies around the State, to review the water fund's financial outlook and prepare a rate model proposal that would address the program's operational and capital needs over the next five years (Attachment A). By taking a look at the City's starting balance in Fiscal Year 2025- 2026 and looking ahead at what is needed, Raftelis worked with staff to look at all the ways the City could meet all of its financial and operational requirements while keeping the overall cost increase to customers as close to the lowest in the region as possible. The increases in needed revenues focused on the following cost drivers:
Annual Inflation calculated at a minimum of 3% each year $5 million annual CIP contribution for ongoing system repairs and upgrades Build a $127 million PFAS treatment system
Staff went through several iterations of the rate model. At first, the City was exploring financing for the PFAS treatment system from municipal bonds. Initially, it appeared as if the City would be looking at approximate financing terms of 5 percent over a 30-year period. The repayment of principal on that financing, whether through a low-interest bank loan or a municipal bond, would need to start in the same year the funds are received. As Raftelis presented the model with these financing terms, the team agreed that more work would need to be done to bring the rates down further. Staff reached out to the State Water Board, who oversees the State Revolving Fund (SRF), and found that the Board provides financing for water treatment projects up to $50 million a project at a rate currently near 2 percent over a 30-year period.
One other key advantage in working with the SRF program is that it does not require payment on the principal of the loan until the construction is complete. They also provide the funds on a reimbursable basis, so the City would be approved up to $50 million on a project and only charged for what it used to complete the work. Staff devised a way to break the project into two separate phases - each phase qualifying for its own $50 million low-interest loan.
By doing this, staff has applied for and will receive up to $100 million at a low-interest rate near 2 percent. These funds will not require principal payments and only interest payments will need to be made during the construction period of the PFAS treatment system.
Available funds secured by City staff
In working with the SRF, staff was also able to secure a $25 million principal-forgiveness loan, which is essentially a grant that the City does not need to pay back. The City, along with many other water agencies, is also receiving approximately $15 million over time through settlements with manufacturing companies like Du Pont, Tyco, and BASF for lawsuits brought forward against them regarding PFAS chemicals used in their manufacturing processes.
This all resulted in costs savings within the projected rates.
Additional steps to keep increases as low as possible
Staff focused on only the most essential water CIP projects over the next five years. Instead of looking at $5 million in CIP projects annually, staff worked with Raftelis to develop a model that only considers up to 60% of that amount each year. In reviewing its most critical projects, staff feels this reduction to $3 million a year is feasible and will keep the system running optimally while keeping down the overall costs to customers in the near term.
By taking steps to find lower rate financing with more favorable payment terms; reducing annual CIP projects to only essential upgrades; and securing approximately $40 million in funds ($25 million from SRF and $15 million from PFAS settlements) to reduce the PFAS financing down closer to $85 million, staff and Raftelis have worked over the last several months to prepare a rate model that keeps up with operational and capital improvement needs for the next five years, all at the lowest possible cost. It is important to note that as part of these capital improvements, the City is taking important steps to add permanent back-up power generation at groundwater well sites, which is a critical aspect of the City's emergency preparedness during natural disasters and large-scale power outages. As stated earlier, while the rates will be increasing, Downey water customers will still experience the lowest water rates in the region, while staying compliant with PFAS treatment standards and maintaining a high-functioning, optimized water system into the future, which will remain resilient during both normal and emergency operational periods.
It is important to institute these rate increases at this time. As mentioned previously, the difference between annual revenue and expenditures each year is approaching zero. Annual inflation is going to drive these annual expenditures up to $20 million a year at the end of this next 5-year period. The rate increase will ensure that revenues are able to cover the annual operational costs of the system. The rate increases will also address staff's ability to continue with its CIP program and to make critical upgrades to the water system each year and address back-up power generation at the well sites to ensure resiliency. Finally, in order to be prepared to make payments on the financing the City will need to make starting in 2031, sufficient debt reserves will need to be built up over the next few years to satisfy the State Water Board that the City is in a position to cover the two low-interest loans taken out to cover the cost of the PFAS treatment system.
Initiation of the Proposition 218 process
In order to implement the proposed water rates, the City Council adopted Resolution No. 25-8326 at its meeting of November 18, 2025 to initiate the Proposition 218 process. Following this action, staff prepared and sent notices to all customers in the City of Downey that explained the reasons for the need to adjust the water rates to maintain operations and to continue making capital upgrades that are vital to providing its current level of service. These upgrades include continued replacement of water mains, rehabilitation of water wells, installing permanent and automatic back-up generation at water wells, and the development and construction of a PFAS treatment system.
The notices provided key information on the customers' rights to submit a written protest to the rate adjustments. In addition to this opportunity, customers were allowed to submit a detailed written legal objection through AB 2257, a new state law that allows rate payers to more substantively challenge the new rates being proposed. Staff must provide written responses to these written legal objections for City Council's consideration during the public hearing to consider the new rates.
Staff mailed out the Proposition 218 notices on November 24, 2025 in order to provide a minimum of 45 days for property owners to submit a written objection under AB 2257. The written legal objections were due by January 8, 2026. A total of 10 written legal objections were received by the due date and staff has included the written responses provided to those customers in Attachment B. In addition to the written legal objections, a total of 7 written protests have been submitted. The written protests, which are distinguished from the objections in that they do not require a legal challenge to the proposed rate change, can be submitted up until the conclusion of the public comment portion of the public hearing. Proposition 218 requires that a simple majority of customers (50 percent plus one) protest the proposed rate changes in order to suspend moving forward with the adoption of the new rates. Staff adds up the total number of objections that were submitted by January 8, 2026 with the total number of protests that were submitted by close of the public hearing comment period and provides this to the City Clerk. If the simple majority protest is not achieved, and if approved by the City Council, the new rates would take effect as of January 14, 2026 and would be reflected in the next billing cycle that includes water usage effective January 14, 2026. For most customers, this would be sent out in March for water usage in the bi-monthly billing period for January through February.
Community Outreach
In addition to the above mentioned notices, staff provide several avenues for the Community to learn more about the need for the water rate adjustments. These included:
A virtual meeting was held online with the Community on December 8, 2025.
An in-person meeting was held at the Barbara J. Riley Community Center on January 7, 2026.
A dedicated web page that provided information on the need to adjust the water rates, a copy of the comprehensive water rate study, a recording of the virtual meeting, and a copy of Frequently Asked Questions (FAQ)
City's social media outlets
Educational Materials - handouts and counter cards
Staff also conducted two community outreach events held at the Barbara J. Riley Community Center on November 6 and November 10, 2025, prior to the initiation of the Proposition 218 hearings.
CITY COUNCIL PRIORITIES
Fiscal Responsibility
Quality of Life, Safety & Infrastructure
FISCAL IMPACT
No fiscal impact associated with this report.
Attachments
ATT A - Resolution No . 26-8329 - Adopting New Water Rates - JMF atf.pdf ATT B - Objection_Protest Letters & Responses to Written Objections - Mailed.pdf
RESOLUTION NO. 26-8329
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DOWNEY
ADJUSTING RATES FOR WATER SERVICES PROVIDED BY THE CITY
WHEREAS, the City of Downey operates a municipal water utility that provides water services to customers within its service area and is required to recover the costs of providing such services through water rates and charges; and
WHEREAS, the City’s water rates were last adjusted in Fiscal Year 2015-2016, and since that time, the costs of providing water service, including water supply, energy, treatment, operations, maintenance, and capital replacement, have increased; and
WHEREAS, the City’s current water rates are insufficient to meet ongoing operational and capital needs without compromising service levels; and
WHEREAS, the City prepared, with the assistance of Raftelis Financial Consultants, a comprehensive Cost of Service and Water Rate Study (“Study”) to determine the revenue requirements and appropriate rate structure needed to maintain the financial stability of the water utility and ensure continued compliance with State and Federal regulations; and
WHEREAS, based on the Study, increases to the City’s rates for water, recycled water, and private fire protection services are necessary (collectively, the “Charges”); and
WHEREAS, the Charges consist of four components: (1) fixed service charges for potable and recycled water customers that are based on meter size; (2) tiered potable water volumetric rates; (3) tiered recycled water volumetric rates, and (4) private fire protection charges; and
WHEREAS, the proposed rate structure is for a period of five years annually and will take effect with the start of a water customer’s next service cycle on or after January 14, 2026; and
WHEREAS, the Charges are property-related fees within the meaning of Article XIII D of the California Constitution; and
WHEREAS, the revenues derived from the Charges will not exceed the funds required to provide the services for which the Charges are imposed, and will be used exclusively for the operation and maintenance of the City’s water system; and
WHEREAS, the Charges are equitable to all customer classes; and
WHEREAS, the amount of the Charges will not exceed the proportional cost of the service attributable to each parcel upon which they are proposed for imposition; and
WHEREAS, the Charges will not be imposed on a parcel unless the service for which such Charge is imposed is actually used by, or immediately available to, the owner of the parcel; and
WHEREAS, the Charges will not be imposed for general governmental purposes but only for the cost of operation and maintenance of the City’s water system; and
ATTACHMENT A
Resolution No. 26-8329
WHEREAS, Section 6 of Article XIII D of the California Constitution requires that prior to imposing any increase to the Charges, the City shall provide written notice (the “Notice”) by mail of the new or increased Charges to the record owner of each parcel upon which the Charges are proposed for imposition and any tenant directly liable for payment of the Charges, the amount of the Charges proposed to be imposed on each parcel, the basis upon which the Charges were calculated, the reason for the Charges, and the date, time and location of a public hearing on the proposed Charges; and
WHEREAS, pursuant to Article XIII D, such Notice is required to be provided to the affected property owners and any tenant directly liable for the payment of the Charges not less than forty-five (45) days prior to the public hearing on the proposed Charges, and the City provided such notice in compliance with Article XIII D, including additionally the procedures relating to the exhaustion of remedies requirement that are defined and described in Government Code Section 53759.1; and
WHEREAS, on January 13, 2026, the City Council held the public hearing on the proposed Charges; and
WHEREAS, at the public hearing, the City Council heard and considered all oral testimony, written materials, and written protests concerning the establishment and imposition of the proposed rate increases for the Charges, and at the close of the hearing, the City did not receive written protests against the establishment and imposition of the proposed rate increases for the Charges from a majority of the affected property owners subject to Charges; and
WHEREAS, prior to the close of the public hearing, the City Council was presented with and considered any timely submitted written objections and agency responses as defined and required by Government Code Section 53759.1(c); and
WHEREAS, the City has otherwise complied with the procedures described in Government Code Section 53759.1(c); and
WHEREAS, the City Council now desires to establish and impose the proposed Charges effective January 14, 2026, as set forth in Exhibit A.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF DOWNEY DOES HEREBY RESOLVE AS FOLLOWS:
SECTION 1. The City Council finds and determines that the foregoing Recitals are true and correct and incorporates the Recitals herein.
SECTION 2. The City Council hereby adopts the Charges, to be effective on the dates, in the amounts, and at the rates set forth in Exhibit A, attached hereto and incorporated herein by this reference. The approved and scheduled adjustments may be made by the City Manager or designee, without conducting another public hearing or any further action by the City Council.
SECTION 3. The adoption of this Resolution falls within a statutory exemption from environmental review pursuant to Section 15273 of the State Guidelines for Implementation of the California Environmental Quality Act (CEQA), which pertains to the establishment, modification, structuring, restructuring, or approval of rates and charges by public agencies which the public agency finds are for the purpose of meeting operating expenses. The subject
Resolution No. 26-8329
of this Resolution will not result in a direct or reasonably foreseeable indirect change to the environment and is not defined as a project under CEQA.
SECTION 4. If any section, subsection, clause or phrase in this Resolution or the application thereof to any person or circumstances is for any reason held invalid, the validity of the remainder of this Resolution or the application of such provisions to other persons or circumstances shall not be affected thereby. The City Council hereby declares that it would have passed this Resolution and each section, subsection, sentence, clause, or phrase thereof, irrespective of the fact that one or more sections, subsections, sentences, clauses or phrases or the application thereof to any person or circumstance be held invalid.
SECTION 5. This Resolution shall become effective upon its adoption.
SECTION 6. The City Clerk shall certify to the adoption of this Resolution.
APPROVED AND ADOPTED this 13th day of January, 2026.
_____________________________
CLAUDIA M. FROMETA, Mayor
ATTEST:
______________________________
MARIA ALICIA DUARTE, CMC
City Clerk
APPROVED AS TO FORM:
_______________________________
JOHN M. FUNK
City Attorney
I HEREBY CERTIFY that the foregoing Resolution was adopted by the City Council of the City of Downey at a Regular meeting held on the 13th day of January, 2026, by the following vote, to wit:
AYES: Council Members:
NOES: Council Members:
ABSENT: Council Members:
ABSTAIN: Council Members:
_____________________________
MARIA ALICIA DUARTE, CMC
City Clerk
EXHIBIT “A”
CITY OF DOWNEY WATER RATE SCHEDULE
Meter Size Jan 2026 Jan 2027 Jan 2028 Jan 2029 Jan 2030 5/8"$29.03 $32.22 $35.76 $39.69 $44.06
3/4"$37.47 $41.59 $46.16 $51.24 $56.88
1"$54.35 $60.33 $66.97 $74.34 $82.52
1.5"$113.41 $125.89 $139.74 $155.11 $172.17
2"$147.16 $163.35 $181.32 $201.27 $223.41
3"$307.48 $341.30 $378.84 $420.51 $466.77
4"$543.73 $603.54 $669.93 $743.62 $825.42
6"$1,193.42 $1,324.70 $1,470.42 $1,632.17 $1,811.71
8"$2,037.19 $2,261.28 $2,510.02 $2,786.12 $3,092.59
10"$3,218.45 $3,572.48 $3,965.45 $4,401.65 $4,885.83
12"$4,230.97 $4,696.38 $5,212.98 $5,786.41 $6,422.92
Notes:
1) Accounts with compound water meters shall be billed one fixed bi-monthly meter charge associated with the larger side of the compound meter
Customer Class
Bi-Monthly Tier
Breakpoint
(HCF)Jan 2026 Jan 2027 Jan 2028 Jan 2029 Jan 2030
Single Family Residential
Tier 1 15 $2.464 $2.735 $3.036 $3.370 $3.741
Tier 2 30 $2.636 $2.926 $3.248 $3.605 $4.002
Tier 3 70 $2.805 $3.114 $3.457 $3.837 $4.259
Tier 4 >70 $3.830 $4.251 $4.719 $5.238 $5.814
Multi-Family Residential - tiers breakpoints are per dwelling unit* Tier 1 8 $2.453 $2.723 $3.023 $3.356 $3.725
Tier 2 14 $2.473 $2.745 $3.047 $3.382 $3.754
Tier 3 32 $2.512 $2.788 $3.095 $3.435 $3.813
Tier 4 >32 $2.748 $3.050 $3.386 $3.758 $4.171
Commercial / Public (Multi-Family Hotel-Motel, Commercial, Public, Churches) Tier 1 330 $2.485 $2.758 $3.061 $3.398 $3.772
Tier 2 3906 $2.583 $2.867 $3.182 $3.532 $3.921
Tier 3 27340 $2.763 $3.067 $3.404 $3.778 $4.194
Tier 4 >27,340 $5.546 $6.156 $6.833 $7.585 $8.419
Industrial / Irrigation (Irrigation, Industrial, City, Hydrant/Construction, Fire Service) Tier 1 23416 $2.973 $3.300 $3.663 $4.066 $4.513
Tier 2 39112 $3.451 $3.831 $4.252 $4.720 $5.239
Tier 3 58786 $3.888 $4.316 $4.791 $5.318 $5.903
Tier 4 >58,786 $4.444 $4.933 $5.476 $6.078 $6.747
Notes:
1) Each unit of water flow is equal to 100 cubic feet (HCF) or one Consumption Unit (CU) 2) Accounts with compound water meters shall be billed one bi-monthly volumetric charge equal to the sum of the water usage associated with both the smaller and larger sides of the compound meter Bi-Monthly Fixed Service Charge ($/meter)
Potable Water Volumetric Rates
1 EXHIBIT A
CITY OF DOWNEY WATER RATE SCHEDULE
Tier
Bi-Monthly Tier
Breakpoint
(HCF)Jan 2026 Jan 2027 Jan 2028 Jan 2029 Jan 2030
Tier 1 1000 $1.496 $1.661 $1.844 $2.047 $2.272
Tier 2 5500 $2.374 $2.635 $2.925 $3.247 $3.604
Tier 3 >5,500 $2.933 $3.256 $3.614 $4.012 $4.453
Notes:
1) Each unit of water flow is equal to 100 cubic feet (HCF) or one Consumption Unit (CU) 2) Accounts with compound water meters shall be billed one bi-monthly volumetric charge equal to the sum of the water usage associated with both the smaller and larger sides of the compound meter Connection
Size
(inches)Jan 2026 Jan 2027 Jan 2028 Jan 2029 Jan 2030
1"$1.01 $1.12 $1.24 $1.38 $1.53
1.5"$2.93 $3.25 $3.61 $4.01 $4.45
2"$6.24 $6.93 $7.69 $8.54 $9.48
3"$18.13 $20.12 $22.33 $24.79 $27.52
4"$38.64 $42.89 $47.61 $52.85 $58.66
6"$112.25 $124.60 $138.31 $153.52 $170.41
8"$239.21 $265.52 $294.73 $327.15 $363.14
10"$430.18 $477.50 $530.03 $588.33 $653.05
12"$694.86 $771.29 $856.13 $950.30 $1,054.83
Notes:
1) Connection size is the size of the fire service lateral connected to the City's water main Recycled Water Volumetric Rates
Bi-monthly Fixed Private Fire Protection Charges ($/connection size) 2 ATTACHMENT B