DATE: March 23, 2026
TO: President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, District Manager
Marlene Subhashini, Assistant District Manager
FROM: Andrew Brozyna, Public Works Director/City Engineer Nate Cruz, Finance Director
DEPARTMENT: Public Works
Finance
SUBJECT: FIFTEEN YEAR WATER AND WASTEWATER FUNDS CAPITAL
IMPROVEMENT PROJECTS PROGRAM AND FUNDING PLAN
FOR THE PREPARATION OF THE DISTRICT’S FISCAL YEAR
2026-2027 AND 2027-2028 BUDGET AND FIVE-YEAR
FINANCIAL PLAN
RECOMMENDATION
It is recommended that the EMID Board of Directors receive and accept the District’s 15-year Water and Wastewater Funds Capital Improvement Projects Program and its funding plan for the preparation of the District’s Fiscal Year 2026-2027 and 2027-2028 budget and 5-year financial plan.
EXECUTIVE SUMMARY
In 2010, the EMID Board approved a funding strategy for its Water and Wastewater Capital Improvement Projects (CIP) in the form of a Long-Term CIP Funding program.
The current model uses a 15-year capital expenditure forecast and funds those forecasted needs on an annual basis. The District also generally refrains from using debt to finance its capital projects unless it is necessary because of the magnitude of the project (e.g., the Wastewater Treatment Plant project (WWTP).
The Capital Improvement Reserve balances, inclusive of the minimum $2.0 minimum emergency reserves in both the Water Fund and Wastewater Fund, are projected to be $7.16 million and $2.58 million respectively on June 30, 2026.
Based on the 15-year Water CIP assessment, City staff identified an annual funding need of $2.6 million in year 1 through 3, $1.8 million in year 4, then leveling off at $1.5 million for the remainder of the 15-year plan. In addition, a loan of $4.0 million may be needed in year 2 to fund the new Water Tank Lining and Structural Retrofit CIP. It is anticipated that the loan will be an interfund loan to the Water Enterprise Fund in order to minimize borrowing costs compared to debt issuance.
In the Wastewater Enterprise, staff has identified an annual funding need of $9.8 million in year 1, then $3.6 million for the next 5 years, and levelling off at $2.5 million for the remainder of the 15-year CIP Plan.
BACKGROUND
The EMID Board of Directors has made it a priority to ensure that the District’s infrastructure is well maintained on an ongoing basis. Such proactive maintenance, repair, and replacement of infrastructure ensures that key systems are operating at peak levels, promotes safety, provides for a continuity of services to the community, maintains property values, and maintains the quality of life that the community has come to expect.
In the District’s early years, capital improvement efforts were primarily focused on the construction of new infrastructure. Now that the District is at build-out, there has been a transition from new construction to infrastructure maintenance and replacement (e.g. the WWTP project). This affects how the District characterizes and funds future CIP programs.
Maintenance vs. CIP
Managing the District’s infrastructure manifests itself in the following ways:
Proactive Maintenance Activities – The preventative maintenance efforts of the District’s Maintenance crews on an ongoing basis reduce the overall future costs of District infrastructure. These ongoing operating costs offset the magnitude and expense of future infrastructure replacement projects.
Recurring Capital Improvement Projects (CIP) – Some CIPs are considered “recurring” and amount to significant repair work, such as pipe repairs, water valve replacements, and water tank lining and coating projects. The underlying infrastructure is still usable, but these larger maintenance efforts help to extend the useful lives of the underlying infrastructure.
Infrastructure Replacement/Construction Projects – Other CIPs are considered so significant in nature that the entire infrastructure is replaced or built anew. An example of this are the Lift Station rehabilitation projects and the WWTP project.
The District has historically considered the latter two categories (Recurring CIPs and Infrastructure Replacement/Construction) as Capital Improvement Projects, and has funded these projects out of specifically designated CIP funds within each respective Enterprise fund. The District has also incorporated long-term CIP projects in its rate models so that the burden of such projects can be planned for and incorporated into the rate structure to mitigate the impact on customers over a longer period.
ANALYSIS
Approach
The District hired Bartle Wells Associates (BWA) to confirm the water and wastewater rate model to include the fiscal impacts of the WWTP project on the Long-Term CIP funding analysis and in light of current maintenance efforts, assessment of replacement requirements, and replacement costs in the following categories:
Water System
Fire Hydrants – these important safety amenities are included in the water operations
Water Infrastructure – this includes pipes, valves, seismic retrofits, water tank improvements (not replacement), and other elements of the delivery of water from the point of the District’s water structures to delivery at customers’ properties Water Structures – this includes the four (4) water tanks and the booster pump station located at the Corporation Yard
Wastewater System
Pipelines – the primary means of collecting wastewater from customers and transporting it to the Wastewater Treatment Plant in San Mateo Valves – which serve as critical junction and shutoff points within the system Lift Stations – since Foster City is relatively flat, Lift Stations and their accompanying generators assist wastewater to flow through the system to the wastewater treatment plant where gravity would otherwise serve this purpose Parallel Force Mains – critical elements at key points that connect the wastewater system
Next, District staff considered the level of maintenance and serviceability of capital assets in order to determine the appropriate estimated useful lives of each asset. District staff also considered the relative costs associated with such maintenance to evaluate the cost- effectiveness of such maintenance efforts.
The Capital Improvement Plan has been updated to best reflect the recommended projects needed in the 15-year term. Changes include the addition of one (1) new water project and one (1) new wastewater project not previously included in the plan. Specific and detailed information about the calculations performed and the 15-year projects are found in Attachments 1 to 4 to this report.
Assumptions
Funding Sources
In each category of capital projects, initial assumptions were made about the funding sources of the various assets (typically enterprise operating fund transfers to the enterprise CIP Fund, equipment replacement fund, and/or development capacity fees).
If an asset’s replacement value was considered so significant that the only effective funding option was to use debt financing (in the form of bonds, federal and state programs, bank loans, etc.) those assets were excluded. The asset categories and their typical funding sources for the Water and Wastewater enterprise are as follows:
Water System
Fire Hydrants – hydrants do not typically call for replacement; operating funds are used to replace hydrants which are damaged or require repair Pipes and Valves – CIP funding is needed to replace, rehabilitate or repair various infrastructure elements such as pipes, valves, and other elements when necessary; system wide replacement of each element type is not anticipated short of a catastrophic event
Water Structures – water tanks have very long lives; lining in the three steel tanks requires CIP funding approximately every 15 years
Water Meters – funding for meters that are replaced as part of CIPs is included in the analysis. Some water meter replacements that are in the Equipment Replacement Fund or replaced during maintenance operations are not considered as part of this analysis
Wastewater System
Pipes – CIP funding for pipes requiring rehabilitation or repair; system-wide replacement of pipes is not anticipated short of a catastrophic event Valves – valve replacement costs are included in CIP plans. Lift Stations – lift station rehabilitation projects require CIP funding; generators, their transfer switches, and portable generators that are funded through Equipment Replacement funds and are not considered as part of this analysis Parallel Force Mains – force main replacement requires CIP funding Wastewater Treatment System (WWTP) – rehabilitation that San Mateo is undertaking under its 10-year integrated Wastewater Master Plan (Clean Water Program) for which the District will be responsible for its proportionate share of costs. Much of its costs are funded through debt financing with surplus working capital providing the balance of funding.
Expenditure Assumptions
Replacement values were reviewed and updated from the prior analysis as necessary.
All values were expressed in terms of future replacement, taking into consideration factors such as inflation, project size, timing and construction contingency funding.
Revenue Assumptions
In both the cases of Water and Wastewater rates, CIP funding is considered as part of the “fixed costs” of each system and is included in the existing rate model which projects costs over a 10-year period using a “pay-as-you-go” philosophy. The rate model does not reflect the actual expenditures on CIPs; rather it reflects the annual planned funding from this 15-Year analysis.
15-Year Funding Methodology
The District generally uses a funding methodology that looks at the total replacement value of assets that are scheduled to be replaced in the next 15-year window, and then averages the replacement amount over the 15-years. The Public Works Department prepared the 15-year project list considering replacement value, timing, and necessity.
This funding need is then compared to the available fund balance reserves, and those reserves are compared to the cash flow requirements to fund projects in the 15-year forecast. The EMID Board of Directors' minimum emergency reserve requirement for capital improvement projects is $2.0 million each for the Water Capital Improvement Projects Fund and the Wastewater Capital Improvements Project Fund. The 15-Year Fund Balance analysis then reduces the 15-Year Average CIP funding to maintain the Capital Projects Fund Reserves in each fund above the $2 million minimum reserve threshold over the 15-year forecast.
CEQA
Not Applicable
FISCAL IMPACT
Staff seeks EMID Board comments on District’s 15-year capital improvement projects as well as direction to implement the following funding plan as shown in the analysis in the attachments to this report. If approved, the FY 2026-2027 and 2027-2028 Preliminary Enterprise Budget and Five-Year Financial Plan will be prepared.
Water Capital Improvement Plan: $2.6 million in years 1-3, $1.8 million in year 4, then leveling off at $1.5 million for the remainder of the 15-year plan.
Wastewater Capital Improvement Plan: $9.8 million in year 1, then $3.6 million for the next 5 years, and levelling off at $2.5 million for the remainder of the 15-year plan.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Fiscal Sustainability
ATTACHMENTS:
Attachment 1 – Water Enterprise CIP Funding Strategy
Attachment 2 – Wastewater Enterprise CIP Funding Strategy Attachment 3 – Water and Wastewater 15-Year CIP Comparison Attachment 4 – Capital Improvement Program Fiscal Year 2026-2027 through Fiscal Year 2040-2041