Agenda Item No: L.2
AGENDA REPORT
DATE: November 4, 2025
TO: Mayor and Council
FROM: David Gassaway, City Manager
SUBJECT: Resolution 2025 -217 PW Approving and Establishing Water Rates Effective January 1, 2026, January 1, 2027, January 1, 2028, January 1, 2029, and January 1, 2030
Conduct Public Hearing and Majority Protest Relating to Proposed Increases and Modifications to the City’s Water Rates in Accordance with Article XIII D of the California Constitution and the Proposition 218 Omnibus Implementat ion Act ; and Resolution 2025 -217 Approving and Establishing Water Rates Effective January 1, 2026, January 1, 2027, January 1, 2028, January 1, 2029, and January 1, 2030
Funding Source: N/A
Contact: Michael Hether, (707) 428-7493
RECOMMENDED ACTION
Hold Public Hearing and, in the absence of a majority protest, adopt resolution and receive and file the water rate study prepared by the City’s consultant, Bartle Wells Associates, presented to the City Council at this meeting and on file in the office of the City Clerk.
STATEMENT OF ISSUE
Fairfield Municipal Utility (FMU) provides water to the City of Fairfield on a continuous basis and is responsible for operating the existing water system, as well as ensuring that it is maintained to meet adequate service levels. On May 6, 2025, the council approved and adopted Resolution No. 2025-70, the completed comprehensive w ater system plan that will serve as a guidance document for near -term investment and long -term planning. This resolution implemented the Public Utility Master Plan (PUMP) the PUMP, which evaluate s the existing water system and develop a comprehensive water system capital improvement program (CIP).
The FMU is primarily funded by fees received from the ratepayers. In conjunction with producing PUMP, the City retained Bartle Wells Associates (BWA) to prepare a water rate study using PUMP as the baseline guidance document for repair and replacement projects within FMU’s CIP. An
overview of the water rates study was presented by City and BWA staff at the council meeting on June 17, 2025, where City staff were directed to initiate the Propo sition 218 process for establishing a new water rates fee schedule.
Adoption of the resolution approves the water rates in the amounts and on the effective dates as shown in Exhibit A, and a pass through of increases for purchases of untreated wholesale water supply from the Solano County Water Agency and Solano Irrigation District in excess of 4% per year. In addition, the resolution approves a pass through of the City’s cost of providing water service to customers in the Willotta Oaks Subdivision includi ng future increases to the charges billed to the City by the City of Vallejo for water service to the customers in the Willotta Subdivision.
DISCUSSION
FMU provides water to the City of Fairfield on a continuous basis and employs staff who are responsible for maintaining a system valued at over $500 million dollars. This system compromises of 2 water treatment plants, 12 storage facilities, 17 pump stations, nearly 400 miles of pipelines and various fixtures such as hydrants and valves, and over 30,000 wat er services. For these extremely valuable community assets to remain in good condition, on -going investment in the proper maintenance and repair of the water infrastructure is critical.
To prioritize future water system CIP projects and maintenance programs, analysis of the physical condition and operating capabilities of current water system assets were summarized in PUMP.
This analysis gives a clearer picture and informs decision making regarding risk level and criticality. In conjunction with producin g PUMP, the City retained BWA to prepare a water rate study using PUMP as the baseline guidance document for repair and replacement projects within FMU’s CIP.
The water rate study that was conducted in conjunction with PUMP was intended to ensure that FMU can generate enough revenue to carry out minimum prudent CIP needs while meeting all operations and maintenance expenses, debt service and reserve requirements. Water rate increases are subject to Article XIII D of the California Constitution (Proposition 218) public hearing and majority protest procedures. To date, the following has been conducted:
May 6, 2025: The council adopted PUMP.
June 17, 2025: The council directed staff to initiate the Notice and Majority Protest proceedings required by Proposition 218 and the optional Exhaustion of Administrative Remedies proceedings as authorized by Assembly Bill No. 257 (AB 2257).
August 27, 2025: A deadline established by the City for submitting written objections pursuant to AB 2257 which requires a written objection to specify grounds alleging noncompliance of the proposed water rates with Proposition 218 in order to exhaust the administrative remedies of the person submitting the objection.
October 21, 2025: The council adopted Resolution 2025-196 declaring that none of the written communications received by the City by the August 27th deadline for submittal of written objections specified grounds for alleging noncompliance of the proposed water rates with Proposition 218, as required by AB 257.
Fairfield’s water service charges for a typical single-family home are currently among the lowest in the region, based on a survey of 16 regional agencies. The last water rate increases were implemented January 1, 2018, through January 1, 2021, at four percent annually. The City’s past practice of routine, modest rate increases to avoid large rate spikes has served the community well. Historically, FMU provided strong financial management with small annual rate adjustments to keep revenues in line with the cost of providing service while maintaining healthy fund reserves. While staff have worked hard to ensure efficient operations and continued improvement in controlling costs, FMU has experienced substantial increases in operating and maintenance expenses over the last four and half years, most of which are market driven.
Since rates were last adjusted on January 1, 2021, FMU has experienced significant cost increases in electricity, chemicals, materials, professional services and public employee’s retirement system (PERS) funding requirements. Generally, utilities face higher inflationary increases than the consumer pri ce index (CPI), which measures consumer inflation. Due to the increase in operating expenses over the past several years, current water rates barely cover the annual operating expenses and debt service and only generate minimal funding for capital improvements.
On June 17, 2025, the council was presented with three draft financial and rate scenarios differentiated by the level of water system capital improvement funding. All scenarios assumed projected rate increases phased in over five years (each January 1, from 2026 through 2030) to help minimize the annual impact on ratepayers. The Fairfield Water Rate Study is shown in Exhibit B. The draft financial and rate scenarios included the following:
Support Water Master Plan: a combination of 12% increases for three consecutive years and 10% increases for two years thereafter (five years total). After full phase -in of rate increases, the City’s water rates would support approximately $10 million (current dollar amount) per year of annual funding needed to address ongoing, longer -term capital funding needs as recommended in PUMP.
Reduced Rate Increases: 10% annual rate increases for each of the next five years. After full phase -in of rate increases, the City’s water rates would support approximately $8 million (current dollar amount) per year of annual funding needed to address ongoing, longer-term capital funding needs as recommended in PUMP.
Further Reduced Rate Increases: 8% annual rate increases for each of the next five years.
After full phase -in of rate increases, the City’s water rates w ould support only approximately $5 million (current dollar amount) per year of annual funding needed to address ongoing, longer-term capital funding needs. While this is substantially lower than the average annual funding levels recommended in PUMP, additional rate increases could be phased in in future years to support long-term capital needs.
Based on the options outlined above, in the absence of a majority protest, staff recommend an 8% annual rate increase for the next five years. If the council approves the proposed increases and modifications to the water rates, the new water rates will become effective on January 1, 2026, with rate increases on each subsequent January 1 through January 1, 2030 and the rates will be subject to water rate adjustments and pass-throughs as described above through January 1, 2030 without the requirement to conduct additional majority protest proceedings pursuant to Proposition 218.
The proposed water rates also include a number of rate structure modifications design ed to simplify and standardize the City’s water rates and realign rates with the cost of providing service.
These modifications were presented at the June 17, 2025, council meeting and are detailed in the water rate study.
At the conclusion of the publ ic hearing, the city clerk will complete the tabulation of all written protests received from record property owners receiving water service and water customers, including any received during the public hearing. Only one protest will be counted per parcel in determining the existence of a majority protest. The city clerk will then report on the results to the council.
If, according to the final tabulation, the written protests submitted against the proposed water rates represent more than 50% of all the parcels in the City receiving water service, a majority protest exists, and the council shall not impose the proposed water rates. In the absence of a majority protest, the council may adopt the resolution establishing the new water rates.
FINANCIAL IMPACT
If the 8% annual rate increases are adopted, the high priority water system improvements identified in PUMP would be partially deferred and spread over approximately nine to ten years.
The current rates generate minimal revenue to conduct any capital improvement projects and leaves the enterprise fund in an operational deficit if no rate increases are implemented. A fter the five-year phase-in of rate increases, the 8% rate increases will enable the City to fund its projected operating and debt service expenses, and enable the City to accomplish annual rate revenues of approximately $16 million per year for existing and new debt service, and ongoing capital funding needs, leaving approximately $5 million per year to help fund ongoing capital needs such as funding approximately half of ongoing future capital funding needs. Without rate increases, the water enterprise f unds (Fund 461 and 462) are projected to have annual deficits ranging from $12 million to $24 million and a negative working capital by fiscal year 2027-28.
PUBLIC CONTACT/ADVISORY BODY RECOMMENDATION
On October 16, 2025, and October 28, 2025, staff invited the public to learn about the water system and how the proposed adjustments will impact the residents and have questions answered.
ALTERNATIVE ACTION
The council may choose not to adopt the resolution, but doing so would undermine FMU’s future financial security.
COORDINATED WITH
City Attorney’s Office and Finance Department
STAFF CONTACT
Michael Hether, Assistant Public Works Director - Utilities (707) 428-7493
[email protected]
ATTACHMENTS
Attachment 2: Proposed Resolution
Attachment 3: Exhibit A – Water Rates Schedule
Attachment 4: Exhibit B – Fairfield Water Rate Study