City of Fortuna Response to Humboldt
County Civil Grand Jury Report
Flowing Forward: Funding the Future of Water and Sewer Systems (Released June 17, 2026)
Introduction
The City of Fortuna appreciates the Humboldt County Civil Grand Jury's attention to the longterm sustainability of water and wastewater utilities throughout Humboldt County. The Report highlights important challenges facing local utility providers, including aging infrastructure, increasing regulatory requirements, inflationary pressures, climate-related risks, workforce limitations, and the difficulty small communities face in maintaining critical public utility systems.
The City generally agrees that long-term financial planning, regular infrastructure investment, and periodic rate evaluations are necessary to maintain safe and reliable water and wastewater services. The City also recognizes that deferred maintenance and inadequate capital investment can increase costs over time and reduce operational flexibility.
At the same time, the City believes additional context is necessary regarding the financial, operational, regulatory, and organizational realities that influenced past policy decisions and the significant corrective actions now underway.
Response to Key Findings
Finding F1
Grand Jury Finding: Both the Fortuna Public Works Department and the McKinleyville Community Services District are working diligently to ensure water and wastewater services continue to be available for users.
Response: Agree.
The City agrees with this finding. The City recognizes and appreciates the efforts of Public Works staff, utility operators, maintenance personnel, administrative staff, consultants, and partner agencies who work daily to maintain safe and reliable water and wastewater service despite increasing regulatory requirements, aging infrastructure, staffing challenges, and financial constraints. The City remains committed to supporting these efforts through capital investment, workforce development, long-term planning, and ongoing operational improvements.
Finding F2
Grand Jury Finding: Despite considerable efforts of many water districts to communicate with users, people are often unaware of rate increases until a larger bill arrives.
Response: Agree.
The City agrees that utility rate structures, capital funding requirements, regulatory obligations, and rate adjustment processes can be difficult for customers to follow. While the City conducted public outreach during the 2024 rate study and Proposition 218 process, the City recognizes that additional communication and public education regarding utility finances, infrastructure needs, and future rate impacts can improve public understanding. The City intends to continue expanding public outreach efforts regarding future utility planning and rate-setting activities.
Finding F3
Grand Jury Finding: Fortuna's infrastructure is aging faster than it is being upgraded, therefore creating greater maintenance costs and deterioration of the system.
Response: Agree.
The City agrees that portions of its water and wastewater infrastructure are aging and require significant rehabilitation, replacement, or modernization. The City's 2024 Water and Wastewater User Rate Study and 2026-2031 Capital Improvement Program identified substantial infrastructure needs throughout both utility systems. Deferred replacement of aging assets can increase maintenance costs, service disruptions, operational risks, and long-term replacement costs. To address these challenges, the City has adopted a Capital Improvement Program identifying more than $60 million in planned water and wastewater investments and continues to pursue grants, financing, and project delivery opportunities to address critical system needs.
Finding F4
Grand Jury Finding: Municipalities and districts which fail to provide adequate funding for water and wastewater systems may incur higher maintenance costs which negatively affects the amount of money available for upgrades.
Response: Agree.
The City agrees that inadequate funding of utility systems can lead to deferred maintenance, increased repair costs, emergency response expenditures, and reduced ability to fund planned capital improvements. Utility rates, reserves, grants, and financing mechanisms must collectively support both current operations and long-term infrastructure replacement needs.
The City has taken corrective action through adoption of updated utility rates, long-term capital planning, and pursuit of external funding sources to improve the financial sustainability of both enterprise funds.
Finding F5
Grand Jury Finding: The City of Fortuna failed to complete a five-year plan during an 18-year period, contributing to insufficient system upgrades and a greater cost burden for maintenance.
Response: Partially disagree.
The City agrees that regular updates to long-range utility planning and financial planning documents are important and that such updates support effective asset management, capital investment, and financial sustainability. The City partially disagrees, however, with any implication that the absence of a single five-year plan was the sole or primary cause of insufficient system upgrades or increased maintenance costs.
The City recognizes that there was a significant period between adoption of the 2006 utility rate study and adoption of the subsequent Water and Wastewater User Rate Study in 2024. The 2006 rate study included a series of scheduled rate adjustments that were implemented through 2011, after which no additional rate study was adopted until 2024. However, during this period the City continued to undertake planning, engineering, budgeting, regulatory compliance, asset management, and capital improvement activities to support operation of its utility systems.
Infrastructure investment decisions during this period were influenced by multiple factors, including available funding, affordability considerations, regulatory requirements, staffing capacity, permitting constraints, inflation, construction cost escalation, and evolving infrastructure priorities. While the absence of an updated rate study may have limited the City's ability to fully evaluate long-term revenue needs and capital funding requirements, it was not the sole factor affecting the timing and implementation of infrastructure improvements.
The City agrees that more frequent updates to utility planning and financial planning documents would have been beneficial and has taken corrective action through completion of the 2024 Water and Wastewater User Rate Study, adoption of the 2026-2031 Capital Improvement Program, initiation of a new Water System Master Plan, and continued long-range wastewater planning efforts.
Finding F6
Grand Jury Finding: The City of Fortuna did not raise its rates for water and wastewater between 2011 and 2024 while operating costs steadily rose, resulting in the City having to delay needed infrastructure improvements.
Response: Agree.
The City agrees that water and wastewater rates remained substantially unchanged during this period despite rising operating costs, inflation, regulatory requirements, construction costs, and infrastructure needs. The 2024 Water and Wastewater User Rate Study concluded that existing revenues were insufficient to support long-term operational, reserve, debt service, and capital improvement needs.
The City agrees that the absence of periodic rate adjustments contributed to financial constraints that affected the timing and implementation of infrastructure improvements. The City has since implemented corrective actions through completion of a comprehensive utility rate study, adoption of multi-year rate adjustments, completion of the Proposition 218 process, adoption of the 2026-2031 Capital Improvement Program, and continued pursuit of grants and low-interest financing.
Response to Recommendations
Recommendation R1
Grand Jury Recommendation: The Fortuna City Council commission a new water rate study to be completed and presented to the City Council no later than April 15, 2029.
Response: Recommendation has not yet been implemented but will be implemented in the future.
The City agrees that periodic utility rate studies are an important component of sound utility financial management. The City completed a comprehensive Water and Wastewater User Rate Study in 2024 and has adopted a multi-year rate adjustment program based on the findings of that study. Consistent with the City's commitment to conduct comprehensive utility rate reviews at least once every five years, the City intends to commission and complete a subsequent comprehensive water and wastewater rate study on a schedule that will allow presentation to the City Council no later than April 15, 2029.
Recommendation R2
Grand Jury Recommendation: The Fortuna City Council communicate to customers that the future rate study may recommend additional rate increases beginning in Fiscal Year 2029-30 to maintain and upgrade water and sewer systems.
Response: Recommendation has been implemented and will continue to be implemented.
The City agrees that proactive communication regarding future utility costs, infrastructure needs, regulatory requirements, and long-term financial planning is important. The City currently communicates this information through public meetings, City Council agenda materials, budget discussions, capital improvement planning documents, utility rate studies, Proposition 218 proceedings when applicable, the City's website, and other public communication channels. The City intends to continue providing information regarding future utility planning, infrastructure needs, and potential rate impacts through these established public processes.
Recommendation R3
Grand Jury Recommendation: Following completion of the 2029 rate study, the Fortuna City Council should undertake enhanced public outreach regarding the study results and the potential need for future rate adjustments.
Response: Recommendation has not yet been implemented but will be implemented in the future.
The City agrees that public understanding of utility finances, infrastructure needs, and ratesetting considerations is important. Following completion of the next utility rate study, the City intends to communicate study results through the City's normal public communication and public meeting processes, consistent with applicable legal requirements and City practices.
Depending on the results of the study and the complexity of any proposed rate adjustments, additional workshops or other public outreach efforts may be conducted as needed to ensure transparency in the rate-setting process. The City anticipates conducting this outreach in connection with the presentation of the next rate study and any related rate-setting process, and in any event before Council consideration of any future rate adjustment arising from that study.
Additional Context
Affordability Considerations
The City recognizes the substantial impact utility costs can have on households, particularly lowincome residents, seniors, and families on fixed incomes.
While infrastructure investment is necessary, utility affordability remains an important consideration in all rate-setting decisions. The City must balance regulatory compliance, infrastructure reliability, financial sustainability, and customer affordability.
The City's 2024 Rate Study evaluated affordability as part of the utility rate-setting process.
Using the representative residential customer consumption assumptions contained in the Rate Study, the combined annual water and wastewater cost for a typical residential customer is approximately $1,705.08. Based on the 2024 American Community Survey estimate of approximately $62,289 median household income for the City of Fortuna, this represents approximately 2.7 percent of median household income.
The City recognizes that affordability is commonly evaluated using household-income-based metrics and that this level exceeds some commonly cited affordability benchmarks. At the same time, both California affordability guidance and industry best practices recognize that affordability metrics are only one factor in evaluating utility rates and must be considered alongside infrastructure replacement needs, regulatory compliance obligations, operational reliability, reserve requirements, and long-term system sustainability. Consistent with American Water Works Association (AWWA) guidance and State Water Resources Control Board affordability considerations, the City evaluates both affordability impacts and the financial resources necessary to provide safe, reliable, and compliant utility service.
Future affordability will also be influenced by the outcome of the NPDES Compliance Project.
The ultimate project cost, final regulatory requirements, and the amount of funding received through State Revolving Fund low-interest loans, principal-forgiveness funding, and other grant sources remain under development. As a result, future rate impacts beyond the 2027 budget year remain uncertain and will depend substantially on the final project scope and funding package. The City will continue to pursue external funding opportunities to minimize the financial impact on ratepayers whenever possible.
This balance is often one of the most challenging responsibilities facing local governments operating public utility systems.
Organizational Capacity Challenges
Like many small and rural communities, the City has experienced employee turnover in key management, engineering, operations, and administrative positions over time. Employee turnover can significantly affect an agency's ability to develop projects, prepare grant applications, complete environmental review and permitting, prepare bid documents, administer construction contracts, and manage complex capital improvement programs.
Recent City Council budget discussions identified workforce recruitment and retention as a significant organizational challenge. Staff presentations reported turnover approaching 30 percent among full-time employees and substantially higher turnover among part-time employees during FY 2024-25 and FY 2025-26. Staff also reported that recruitment, onboarding, and training costs associated with employee turnover exceeded $100,000 during the year.
The City has experienced particular difficulty recruiting and retaining specialized and licensed positions, including public safety, building inspection, engineering, operations, and technical classifications. Staff reports identified compensation disparities relative to neighboring jurisdictions and challenges recruiting qualified candidates for positions requiring professional certifications, licenses, or specialized technical expertise.
As a result, the City has often relied on outside engineers, technical consultants, legal specialists, grant administrators, and construction management professionals to advance critical water and wastewater projects. While these services are frequently necessary to maintain project schedules and meet regulatory requirements, they also increase overall project costs.
The City notes that organizational capacity constraints are an often-overlooked challenge facing smaller local agencies. In addition to inflation, regulatory complexity, and aging infrastructure, limited staffing resources can affect the pace at which projects are developed and delivered.
While inflation and construction market conditions have substantially increased project costs, the City has also experienced periods of turnover in key technical and management positions.
For smaller agencies, the loss of institutional knowledge and project management capacity can delay project delivery, extend project development timelines, and increase reliance on outside professional services. These conditions can affect project costs and may expose deferred projects to additional inflation, changing regulatory requirements, and evolving construction market conditions.
The City continues to build and retain institutional knowledge while strategically utilizing outside expertise when needed to protect public health, maintain compliance, and deliver critical infrastructure projects.
NPDES Compliance Project
A significant portion of the City's wastewater capital needs is associated with the NPDES Compliance Project. Unlike many capital improvement projects that are undertaken primarily to address aging infrastructure or operational deficiencies, this project is driven largely by wastewater discharge requirements established and enforced by state regulatory agencies.
While the City has evaluated multiple alternatives to achieve compliance, the level of treatment ultimately required is governed by state regulatory requirements and permit conditions rather than local policy preferences. Over time, the scope, approach, and estimated cost of the project have changed significantly as regulatory requirements evolved and alternative compliance strategies were evaluated.
A major driver of project cost has been the regulatory framework surrounding the City's summer effluent disposal and discharge options. The existing wastewater treatment facility has consistently met permit requirements applicable at the time they were established. The primary drivers of the current project are evolving regulatory requirements governing effluent management and compliance pathways rather than a failure of the treatment facility to perform its intended function. However, evolving regulatory expectations and interpretations of Clean Water Act requirements and Basin Plan provisions have required the City to evaluate increasingly complex and costly compliance alternatives related to long-term effluent management.
As alternatives were developed, studied, refined, and in some cases rejected because they did not adequately address regulatory requirements, project costs and anticipated ratepayer impacts also changed. Consequently, cost estimates associated with the NPDES Compliance Project have varied substantially over time as the City worked with regulators, engineers, and funding agencies to identify a feasible compliance strategy.
The NPDES Compliance Project is currently projected to cost approximately $50 million and represents the largest single component of the City's wastewater capital program. This estimate primarily reflects the treatment and compliance infrastructure necessary to meet increasingly stringent wastewater effluent requirements related to nitrogen and other constituents. Project costs have increased significantly over time due to construction cost inflation, evolving regulatory requirements, engineering refinement, and changes in project scope resulting from the evaluation of multiple compliance alternatives.
However, the final project cost and ultimate impact on local ratepayers remain uncertain. The amount of project funding that may be provided through State Revolving Fund low-interest loans, principal-forgiveness funding, grants, and other external funding sources has not yet been determined and could significantly affect future rate requirements.
In parallel with the compliance project, the City is pursuing a Basin Plan Amendment to allow continued use of its percolation ponds for summer effluent disposal. Regulatory review to date has determined that continued use of the percolation ponds represents the only feasible summer disposal option currently available to the City. The City has already incurred substantial costs associated with engineering evaluations, technical studies, groundwater monitoring, surface water monitoring, and regulatory coordination conducted over more than a year.
Additional monitoring, permitting, legal, and regulatory compliance costs may still be required and are not included in the current estimate for treatment facility improvements.
As a result, the full cost of achieving long-term compliance and the associated impacts on future utility rates may not be known until project implementation, permitting, construction, regulatory approvals, and financing agreements have been completed. Future rate impacts beyond the 2027 budget year will depend substantially on the final project scope, regulatory requirements, availability of external funding, and the proportion of project costs funded through grants, principal-forgiveness awards, low-interest financing, and local rate revenues.
External Funding Efforts
The City actively pursues grants, principal-forgiveness opportunities, and low-interest financing whenever available.
The adopted Capital Improvement Program relies heavily on successful acquisition of state and federal grants, State Revolving Fund financing, principal-forgiveness programs, FEMA funding opportunities, and other external funding sources. However, even when substantial grant funding is obtained, local rate revenue remains necessary to provide matching funds, support debt service obligations, maintain reserves, and finance infrastructure needs that are not grant eligible.
The City will continue to pursue State Revolving Fund financing, infrastructure grants, resilience funding, and other state and federal funding opportunities to reduce the financial burden on ratepayers whenever possible.
Utility Infrastructure Needs
The City's infrastructure planning documents demonstrate substantial long-term investment needs across both utility systems.
The adopted 2026-2031 Capital Improvement Program identifies approximately $9.83 million in planned water system improvements and more than $50 million in planned wastewater system improvements. These figures exceed those identified in the 2024 Rate Study and reflect the combined effects of inflation, updated engineering cost estimates, continued refinement of project scopes, evolving regulatory requirements, and the identification of additional infrastructure needs during subsequent planning efforts.
Projects include replacement of aging water and sewer infrastructure, modernization of utility systems, treatment facility improvements, capacity upgrades, inflow and infiltration reduction efforts, flood-resiliency improvements, and planning efforts needed to guide future investment.
These infrastructure needs were a primary factor supporting the City's recent utility rate adjustments and long-term financial planning efforts.
Climate Resilience and Regulatory Requirements
The City continues to address increasing regulatory and environmental challenges affecting utility operations, including wastewater discharge requirements, drinking water regulations, sea level rise and flooding considerations, extreme storm events, energy reliability concerns, asset resiliency, and emergency preparedness.
The City's adopted Capital Improvement Program includes several projects intended to improve resiliency and reduce vulnerability to future environmental, regulatory, and infrastructure risks.
Examples include:
• Relocation of critical electrical equipment at the Corrosion Control Facility above the estimated 100-year flood elevation.
• Improvements to the Corrosion Control Facility and construction of a new Well 5 facility to improve reliability and water supply redundancy.
• Preparation of a new Water System Master Plan and Vancil Reservoir assessment. • Replacement of aging and undersized water mains to improve reliability and emergency response capability.
• Modernization of the water meter and radio system to improve system monitoring and leak detection.
• Annual water valve replacement projects to reduce outage impacts during emergencies. • Sewer capacity and inflow/infiltration reduction projects that improve wet-weather performance.
• Ongoing sewer rehabilitation projects that reduce groundwater infiltration and treatment demands.
• The NPDES Compliance Project, which supports compliance with increasingly stringent environmental regulations.
Collectively, these projects improve system redundancy, emergency response capability, flood resilience, operational flexibility, asset reliability, regulatory compliance, water quality protection, and the long-term sustainability of the City's water and wastewater systems.
Actions Already Implemented
The City has already taken the following actions:
1. Completed a comprehensive utility rate study.
2. Adopted multi-year rate adjustments.
3. Increased emphasis on capital improvement planning.
4. Pursued grant and financing opportunities.
5. Continued investment in critical water and wastewater infrastructure.
6. Evaluated reserve funding needs.
7. Incorporated long-term infrastructure needs into financial planning.
8. Updated and adopted the 2026-2031 Capital Improvement Program identifying more than $60 million in planned water and wastewater infrastructure investments.
Conclusion
The City of Fortuna appreciates the Grand Jury's focus on the importance of sustainable water and wastewater systems. The report highlights challenges faced not only by Fortuna but by many communities throughout Humboldt County and California.
The City acknowledges the importance of maintaining adequate revenues, preserving utility assets, planning for future infrastructure needs, and protecting public health and the environment. Through recent rate adjustments, infrastructure planning efforts, adoption of a comprehensive Capital Improvement Program, organizational improvements, and continued pursuit of external funding, the City has already begun implementing many of the measures discussed in the report.
The City remains committed to providing safe, reliable, and financially sustainable water and wastewater services for current and future generations.