Agenda, closed session, second session — Hillsborough City Council, June 8, 2026 (part 1 of 2)

TOWN OF HILLSBOROUGH
San Mateo County
Sophie Cole, Mayor Town Hall
Leslie Marden Ragsdale, Vice Mayor 1600 Floribunda Avenue Laurie Davies Adams, Councilmember Hillsborough, CA 94010 Marie Chuang, Councilmember www.hillsborough.net
Christine Krolik, Councilmember 650-375-7400

A G E N D A
MONDAY, JUNE 8, 2026
3:30 PM CLOSED SESSION
6:00 PM CITY COUNCIL MEETING
Council Chambers
Meetings of the City Council are held in-person in Council Chambers. As a courtesy and technology permitting, the meeting will also be held virtually via Zoom Video Conference. However, the Town cannot guarantee that the public’s access to the Zoom virtual platform will be uninterrupted, and technical difficulties may occur from time to time. In those instances, so long as the public may still attend the meeting in person, the meeting will continue.

In the event a Councilmember is participating remotely under the alternative teleconferencing provisions in the Brown Act (Government Code Section 54953.8), the Town will stop the meeting if there is any technology disruption consistent with the Brown Act’s requirements.

To attend the meeting in person: 1600 Floribunda Avenue, Hillsborough, CA 94010 To provide Public Comment in person: Members of the public wishing to speak on the agenda item are requested to complete a yellow speaker card and submit it to the City Clerk. Speakers may speak for up to three minutes.

To participate in the meeting via Zoom Video Conference:
• Log in to the meeting at https://us06web.zoom.us/j/87141370081?pwd=f8GUpS5EkPyWcOTsDIBuzLGEekPbAa.1 • Dial-in via phone:
+1 669 444 9171 US
Meeting ID: 871 4137 0081
Passcode: 797001
To provide Public Comment via Zoom Video Conference: Live verbal public comments may be made by requesting to speak using the “raise hand” feature in Zoom or, if calling in by phone, by pressing *9 on the telephone keypad prior to the close of the public comment period for the item. In response, the Town will unmute the speaker and allow them to speak for up to three minutes.

CLOSED SESSION (3:30 p.m.)

CALL TO ORDER

ROLL CALL

ANNOUNCEMENT OF CONFLICT OF INTEREST ON CLOSED SESSION ITEM(S) This portion of the agenda is for Councilmembers to disclose any conflict of interest related to the item(s) on the Closed Session agenda. Any Councilmember who has confirmed a conflict of interest or has reason to believe they have a conflict of interest should disclose the conflict for the record and abide by the disqualification requirements contained in FPPC regulations.

Agenda – Hillsborough City Council
Monday, June 8, 2026

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PUBLIC ANNOUNCEMENT OF CLOSED SESSION ITEM(S)
A. CONFERENCE WITH LEGAL COUNSEL – EXISTING LITIGATION
Pursuant to Government Code Section 54956.9(d)(1)
Town of Hillsborough v. All Persons Interested in the Matter of the Proceedings for Resolution No. 22-83 Adopting Maximum Rates for Water Service Charges San Mateo Superior Court Case No. 23CIV01028
B. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(2)
Town as Defendant – One Potential Case
John Lockton’s and David Marquardt’s March 5, 2026 email suggesting that the Town will be sued on a new potential two-tiered rate water structure (email available upon request to the City Clerk) and Town’s receipt of objection letters
C. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(2)
One or More Potential Cases
D. CONFERENCE WITH LEGAL COUNSEL-EXISTING LITIGATION
Pursuant to Government Code Section 54956.9(d)(1)
County of San Mateo, Town of Hillsborough, et al. v. State of California San Francisco Superior Court Case No. CPF-25-519270
Lawsuit Regarding Vehicle License Fees
E. PUBLIC EMPLOYEE PERFORMANCE EVALUATION
Pursuant to Government Code Section 54957(b)(1)
Title: City Manager
F. CONFERENCE WITH LABOR NEGOTIATORS
Pursuant to Government Code Section 54957.6
Unrepresented employee: City Manager
G. PUBLIC EMPLOYEE PERFORMANCE EVALUATION
Pursuant to Government Code Section 54957(b)(1)
Title: City Attorney

PUBLIC COMMENT ON CLOSED SESSION ITEM(S)
Members of the public may provide public comments on the item(s) on the Closed Session agenda. Members of the public participating in person are requested to complete a yellow speaker card and submit it to the City Clerk before addressing the City Council. Members of the public participating via the Zoom platform may use the “raise hand” feature or, if calling in by phone, press *9 on the telephone keypad. Speakers are limited to one comment per Closed Session item.

ADJOURN TO CLOSED SESSION IN ADMINISTRATIVE CONFERENCE ROOM

ADJOURN CLOSED SESSION
Agenda – Hillsborough City Council
Monday, June 8, 2026

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REGULAR CITY COUNCIL MEETING (6:00 p.m.)
I. CALL TO ORDER
II. ROLL CALL
III. PLEDGE OF ALLEGIANCE
IV. REPORT FROM CLOSED SESSION
V. PROCLAMATIONS
• Pride Month – June 2026
• Juneteenth – June 19, 2026
• National Mosquito Control Awareness Week – June 21-27, 2026 VI. PRESENTATIONS
• PG&E Enhanced Powerline Safety Settings (EPSS)
• Mayor’s Applause
VII. TOWN UPDATE
VIII. PUBLIC COMMENT ON ITEMS NOT ON THE AGENDA
This portion of the meeting is reserved for persons wishing to address the City Council on any matter not on the agenda.

Members of the public participating in person are requested to complete a yellow speaker card and submit it to the City Clerk before addressing the City Council. Members of the public may provide comments via the Zoom platform by using the “raise hand” feature or, if calling in by phone, by pressing *9 on the telephone keypad. In response, the Town will unmute the speaker and allow them to speak on any topic for up to three minutes. If there appears to be a large number of speakers, speaking time may be reduced to no less than 2 minutes, at the discretion of the Mayor. Members of the public are limited to one comment at this time. State law prohibits the Council from discussing or acting on non-agenda items, and generally limits the ability of the Council to respond to any public comments made regarding non-agenda items.

IX. ANNOUNCEMENT OF CONFLICT OF INTEREST
This portion of the agenda is for Councilmembers to disclose any conflict of interest related to any item on the agenda. Any Councilmember who has confirmed a conflict of interest or has reason to believe they have a conflict of interest should disclose the conflict for the record and abide by the disqualification requirements contained in FPPC regulations.

X. CONSENT CALENDAR
The Consent Calendar includes routine items which generally do not require discussion. A Councilmember may remove an item for discussion, and any member of the public may request a Councilmember to remove an item for discussion. The items are approved in one motion.

1. Monthly Claims: May 1 through May 31, 2026

2. Resolution Authorizing the City Manager to Execute an Amendment to the Professional Services Agreement with HF&H Consultants, LLC in the Amount of $15,236.35 for a Total Not-to-Exceed Agreement of $107,786.35
Agenda – Hillsborough City Council
Monday, June 8, 2026

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3. Resolution Establishing the Town of Hillsborough’s Appropriation Limit for Fiscal Year 2026-27

4. Resolution Approving New Town Policy No. 409B: General Fund Reserve Policy and Amending Existing Town Policy No. 409: Budget and Fiscal Policies

5. Receive May 2026 Legislative Update

6. Resolution Calling for the Holding of a General Municipal Election to be Held on Tuesday, November 3, 2026 for the Election of Two Members of the City Council

7. Resolution Requesting the Board of Supervisors of the County of San Mateo to Consolidate a General Municipal Election to be Held in the Town of Hillsborough on Tuesday, November 3, 2026 with the Statewide General Election and Provide Election Services

8. Resolution Adopting Regulations for Candidates for Elective Office Pertaining to Candidates’ Statements Submitted to the Voters at the General Municipal Election to be Held on Tuesday, November 3, 2026

9. Resolution Approving and Authorizing the City Manager to Execute a Third Amendment to the Information Technology Managed Services Agreement with Eaton & Associates for Comprehensive Information Technology Managed Services in the Amount of $409,560.00 for a Total Contract Amount of $1,976,880.00

10. Resolution Approving the Town of Hillsborough City Council Handbook

11. Biennial Review of the Town’s Conflict of Interest Code

12. Resolution Adopting a List of Projects for Fiscal Year 2026-27 Funded by SB 1: The Road Repair and Accountability Act of 2017, and Authorizing the Submittal of Applications for SB 1 Transportation Funding Under CEQA Guideline 15378

13. Resolution Approving and Authorizing the City Manager to Execute a Three-year Agreement with Carahsoft Technology Corp. for Samsara Inc. GPS, Vehicle Telematics, and Multi-Camera Fleet Safety Equipment and Software in a Not to Exceed Amount of $84,200.78 and Approve a FY 2025-26 Budget Amendment in the Asset Replacement Fund 601 in the Amount of $84,200.78

14. Resolution Awarding to and Authorizing the City Manager to Execute a Contract with Michael Glynn Construction for the Macadamia Access Roads Repairs – Phase 2 (West) Project in the Amount of $679,940.00, with a 10% Contingency in the Amount of $67,994.00, for a Total Not-to-Exceed Cost of $747,934.00, Under CEQA Guideline 15301

15. Resolution Awarding to and Authorizing the City Manager to Execute a Contract with Con-Quest Contractors, Inc. for the Parkside Avenue Bridge Replacement Project in the Agenda – Hillsborough City Council
Monday, June 8, 2026

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Amount of $976,446.00, with a 10% Contingency in the Amount of $97,644.60, for a Total Not-to-Exceed Cost of $1,074,090.60, and Approve a FY 2025-26 Budget Amendment in the Capital Fund (CIP #809) in an Amount up to $1,700,000.00, Under CEQA Guideline 15301

16. Resolution Adopting a Residential Two-Inch Water Meter Rebate Policy XI. PUBLIC HEARING

17. Resolution Authorizing the Five-Year Rate Series for Water Rate Charges for a FiveYear Period Effective July 1, 2026

18. Resolution Adopting the Proposed FY 2026-27 Operating and Capital Budget

19. Resolution Approving the Category III Grading Permit Application for the Construction of Private Improvements at 101 Robin Road Under CEQA Guideline 15303 XII. OLD BUSINESS

20. Tobin Clark Housing Site Update and Authorization for Implementation of Phase II of the Project
XIII. CITY COUNCIL ITEMS
This section of the agenda provides the City Council an opportunity to report their participation in activities related to any intergovernmental committee assignments.

XIV. ADJOURNMENT TO THE HILLSBOROUGH PUBLIC IMPROVEMENT CORPORATION (HPIC) MEETING
SPECIAL ACCOMMODATIONS:

If you need a disability-related modification or accommodation, including auxiliary aids or services, to participate in the City Council meeting, or if you need an agenda in an alternate form, please contact the City Clerk’s Office at 650-375-7412 at least 24 hours before the scheduled City Council meeting.

ADDRESSING THE CITY COUNCIL:

Members of the public may provide written comments to the City Council regarding any item on the agenda up to two hours before the meeting to [email protected] or by mail/in person at 1600 Floribunda Avenue, Hillsborough, CA 94010. Any writings or documents provided to a majority of the City Council regarding any item on this agenda prior to the deadline, except as exempt from public disclosure under applicable law, will be available for public inspection on the Town website, and in the City Clerk’s Office at 1600 Floribunda Avenue, Hillsborough, CA 94010, during regular business hours. All oral comments made at public meetings, including a speaker’s name, are recorded and included as part of the public record in the meeting minutes. Meeting minutes are publicly accessible via the Town website and via various internet search engines. Written comments, including a commenter’s name, are a public record and subject to disclosure on the Town website and/or upon request under the California Public Records Act (with personal contact information including personal email addresses and personal phone numbers redacted).

AUDIO / VISUAL ADVISORY:

Those persons who wish to use PowerPoint or other mediums when presenting to the City Council will be required to submit media items to the City Clerk by 12:00 p.m. on the day of the meeting. Media items can be emailed to [email protected].

AUDIO OR VIDEO RECORDINGS:

Please be advised that under the Brown Act, any person has the right to record the City Council meeting, including the audience in attendance, using an audio or video recording device subject to certain exceptions. Please be aware that by attending a City Council meeting, you may be audio or video recorded.

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
1 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Monthly Claims: May 1 through May 31, 2026 SUMMARY: The monthly claims for the month of May 2026 in the amount of $4,723,127.09 are submitted for approval.

FISCAL IMPACT: Claims have been expended pursuant to the approved budget.

ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review under California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) as ongoing administrative or organizational activities that will not result in direct or indirect physical changes in the environment.

ATTACHMENT(S): Monthly Claims Listing
PREPARED BY: Rich Santiago, Assistant Finance Director
RECOMMENDATION: Approve the monthly claims for May 2026 as submitted. -1-
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
2 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Approving and Authorizing the City Manager to Execute Amendment No. 2 to the Professional Services Agreement with HF&H Consultants, LLC in the Amount of $15,236.35 for a New Total Not-To-Exceed Amount of $107,786.35 SUMMARY: The Town’s professional services agreement with HF&H Consultants, LLC for the Town of Hillsborough Water Rate Cost of Service Study is on a time and materials basis, with a not to exceed amount of $65,550.00. A first amendment of $27,000.00 was approved on April 7, 2026, increasing the total not-to-exceed amount to $92,550.00. A second amendment of $15,236.35 is proposed for the final phase of the water rate project for new total not-to-exceed amount of $107,786.35 and requires City Council approval due to the purchasing policy threshold. The scope of services on the project has expanded due to its complexity and the number of meetings and presentations for the rate study.

FISCAL IMPACT: The FY 2025-26 adopted budget includes a $65,550.00 estimate for the water rate study. There are sufficient reserves in the Water Fund to cover the unbudgeted amount of $42,236.35. No budget amendment is required for this item.

ATTACHMENT(S):

1. Resolution

2. HF&H Consultants, LLC. Fee Estimate Letter
PREPARED BY: Jan Cooke, Finance Director
RECOMMENDATION: Adopt the resolution approving and authorizing the City Manager to execute Amendment No. 2 to HF&H Consultants, LLC. professional services agreement in the amount of $15,236.35 for a total not-to-exceed amount of $107,786,23. -8-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

APPROVING AND AUTHORIZING THE CITY MANAGER TO EXECUTIVE AMENDMENT NO. 2 TO THE PROFESSIONAL SERVICES AGREEMENT WITH HF&H CONSULTANTS, LLC. IN THE AMOUNT OF $15,236.35 FOR A NEW TOTAL NOT-TO EXCEED AMOUNT OF $107,786.35
WHEREAS, the Town of Hillsborough is conducting a water rate cost of service study utilizing the professional services provided by HF&H Consultants, LLC., as awarded under a Request for Proposal process; and
WHEREAS, the scope of services has changed due to complexity on the rate study project; and
WHEREAS, the final estimated services needed to complete the project will exceed the original time and materials agreement that included a not-to exceed amount of $65,550, along with Amendment No. 1 that included a not to exceed amount of $92,000; and
WHEREAS, Staff is now proposing that the City Council approve and authorize the City Manager to execute a new Amendment No. 2 in the amount of $15,236.35 , the amount that s required to complete the water cost of service study for a new not-to-exceed total amount of $107,786.35.

NOW, THEREFORE, BE IT RESOLVED THAT the City Council of the Town of Hillsborough hereby approves and authorizes the City Manager to execute Amendment No. 2 to the professional services agreement with HF&H Consultants, LLC in the amount of $15,236.25 for a new total not-to-exceed amount of $107,786.35.

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
ATTACHMENT 1
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HF&H Consultants
590 Ygnacio Valley Rd. Suite 105
Walnut Creek, CA 94596
Phone: (925) 977-6950
Web: hfh-consultants.com
May 26, 2026
Doug Davis
City Manager
Town of Hillsborough
1600 Floribunda Ave
Hillsborough, CA 94010
Subject: 2026 Water Rate Study – Amendment #2
Dear Doug Davis:

At the Town’s request, we have prepared this second amendment to our existing contract to perform a cost-of-service water rate study. The objective of future work is to support the Town to successfully enact new rates for July 1, 2026. Our proposal describes the background, work plan, staffing, schedule, and budget for the remaining term of the project.

Background
The Town hired HF&H to conduct a cost-of-service water rate study in 2025. The analysis confirmed the previously adopted rates for January 1, 2026 would generate sufficient revenues to address cost projections for FY 2025-26. However, for legal reasons the Town has postponed adopting any previously adopted water rates. Therefore, the Town has continued to charge rates that were last implemented January 1, 2025.

Beginning in December 2025, the Town began conducting a supplemental analysis to establish new rates in 2026, as part of the existing contract. Per request of the Town, HF&H began conducting a cost-of-service water rate study to establish new rates for July 1, 2026. To date, we have developed a financial model, conducted the cost-of-service analysis, designed rates under two rate scenarios, met with Town staff, and presented to City Council via a study session held on February 9, as well as in a Council presentation on April 13.

At this time we have finalized a report documenting the chosen rate scenario by City Council, which has been published on the Town’s website for rate payers. The Town has begun the AB 2257 objection procedure process and Proposition 218 process to enact new rates on July 1, 2026. Notices of the public hearing, set for June 8, have been mailed.

Supplemental Scope of Services
To successfully implement new water rates by July 1, 2026, the Town has requested HF&H to provide supplemental analysis around rates, provide edits to documents which support the public hearing for the water rates to be held on June 8, respond to any objections raised through the AB 2257 process, and meet with staff in preparation for the public hearing.

In addition to future work, there has been supplemental effort required - beyond the original scope of work – in order to finalize the report and Proposition 218 notice. This additional effort is attributed to the revision of the final report to reflect only the uniform rate option, which City Council approved at the April 13 meeting. Corresponding edits to the final report were ATTACHMENT 2
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Doug Davis
May 26, 2026

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required in the Proposition 218 notice to reflect the rates chosen by City Council. This work was completed in April, but has not been billed.

Consultant Staffing
The project will continue to be staffed by me, Gabe Sasser (Project Manager), with assistance from other well-qualified staff.

Supplemental Fee Estimate
The original scope of work to perform a 2025 cost-of-service study has been conducted with an original not-to-exceed budget of $65,550. With the first amendment, the original contract was increased to a total value of $92,550. As of this letter, HF&H has billed a total $92,493.75.

This total accounts for all work performed through March 31, 2026. Therefore, of the total contract value of $92,550, the remaining project budget is $56.25.

With the inclusion of the supplemental tasks identified in this amendment, we estimate an additional $16,000 will be necessary to perform the full scope. With this transmittal, we are requesting a change order of $16,000 to complete the 2026 water rate study for the Town and provide the requested services. This change would increase the total contract from $92,550 to $108,550. All work would be performed under a new project task, Water Rates Support.

The Town will continue to be billed on a time-and-expenses basis according to our 2025 schedule of hourly rates in the attachment.
* * *
I hope this amendment is responsive to the Town’s additional request. Please let me know if any revisions are needed. Thank you very much for this opportunity to support the Town.

Please call me on (925) 977-6957 if you have any questions or require additional information.

Respectfully, Accepted on behalf of the Town of Hillsborough HF&H Consultants, LLC this _______ day of __________ 2026 ___________________________________
Rick Simonson Doug Davis
Senior Vice President City Manager
Attachments:

1. Standard Hourly Rates and Billing Arrangements
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Standard Hourly Rates and
Billing Arrangements
(Effective January 1, 2025)
HF&H Consultants, LLC Page 1 of 2

ATTACHMENT A

PROFESSIONAL FEES
Hourly rates for professional and administrative personnel are as follows:

Position Rate
Executive $330 - $365
Senior Project Manager $305 - $325
Project Manager $275 - $285
Senior Associate $225 - $270
Associate Analyst $185 - $205
Assistant Analyst $160 - $180
Administrative Staff $135 - $170

DIRECT EXPENSES
Standard charges for common direct expenses are as follows:

Automobile Travel...............................................Prevailing IRS mileage rate Airfare and Public Transit...........................................................Actual Cost

BILLING POLICIES
Our policy is to bill for our services based on the standard hourly rates of the staff member assigned, multiplied by the time required to perform the client-related tasks, plus the direct expenses as described above. In implementing this policy, we adhere to the following practices:
• It is our standard practice to e-mail invoices to our clients, although hard copies of invoices can be sent to clients on request.
• We round to the nearest one-quarter hour (e.g., if two hours and 55 minutes are spent on a task, it is recorded as three hours, if two hours and 5 minutes are spent on a task, it is recorded as two hours). A minimum charge of one-quarter hour is charged for any client work performed in a day.
• We do not markup out-of-pocket expenses; however, we may charge administrative or professional time related to the provision of the goods and services associated with these charges.
• If subcontractors are used, HF&H reserves the right to charge a 10% markup. • Mileage fees are based on the round-trip distance from the point of origin. • If a client's change to a previously scheduled meeting results in penalties being assessed by a third party (e.g., airline cancellation fee), then the client will bear the cost of these penalties.
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HF&H Consultants, LLC
Standard Hourly Rates and Billing Arrangements
HF&H Consultants, LLC Page 2 of 2
While no minimum fee for a consulting engagement has been established, it is unlikely (given the nature of our services) that we can gain an understanding of a client's particular requirement, identify alternatives, and recommend a solution in less than twenty-four consulting hours.

INSURANCE
We maintain the following policies of insurance with carriers doing business in California:
• Commercial General Liability Insurance ($2,000,000 Occurrence/$4,000,000 Aggregate)
• Workers’ Compensation ($1,000,000)
• Professional Liability Insurance ($2,000,000 Occurrence/$2,000,000 Aggregate) • Hired and Non-Owned Auto Liability1 ($2,000,000)
• Umbrella Liability ($3,000,000 Occurrence/$3,000,000 Aggregate) • Cyber Liability ($1,000,000 Each Claim)
All costs incurred in complying with additional coverages or limits (excluding additional insured and waiver of subrogation endorsements) become the responsibility of the client and are not included in the fees for services or direct charges but are billed in addition to the contract at cost, plus any professional or administrative fees.

INVOICES AND PAYMENT FOR SERVICES
Our time reporting and billing system has certain standard formats that are designed to provide our clients with a detailed invoice of the time and charges associated with their engagement and we typically discuss these with our clients at our kick-off meeting. We are also pleased to provide our clients with a custom invoice format, but we will have to bill the client for time spent conforming our invoices to their unique requirements.

Billings for professional services and charges are submitted every month, in order that our clients can more closely monitor our services.
1 HF&H Consultants does not own any company automobiles. -13-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
3 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Establishing the Town of Hillsborough’s Appropriation Limit for Fiscal Year 2026-27
SUMMARY: The Town of Hillsborough ("Town") is required to annually adopt an appropriations limit based on its adopted budget pursuant to Article XIIIB of the California Constitution.

Proposition 111, which subsequently changed the method of calculating the appropriations limit, provided options to determine growth and required an annual election and recorded vote for the growth factor to be used in the calculation.

Exhibit A to the resolution includes the supporting document calculating the appropriations limit for the fiscal year (FY) 2026-27 based on a percentage increase in per capita personal income and San Mateo County’s population growth.

The appropriations limit for FY 2026-27 is $25,649,138.00. The portion of the budget subject to limitation is $23,753,044.00, leaving an excess appropriations limit of $1,896,094.00.

FISCAL IMPACT: There is no fiscal impact associated with this agenda item.

ATTACHMENT(S): Resolution and Exhibit A
PREPARED BY: Rich Santiago, Assistant Finance Director
RECOMMENDATION: Adopt the resolution establishing the appropriations limit for FY 2026-27. -14-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH ESTABLISHING THE APPROPRIATIONS LIMIT FOR FISCAL YEAR 2026-27 WHEREAS, the Town of Hillsborough (“Town”) is required to annually adopt an appropriations limit pursuant to Article XIIIB of the California Constitution (Propositions 4 and 111); and
WHEREAS, the Town annually receives data from the State Department of Finance regarding the change in Town population and change in the State per capita income which provides the basis for calculating the annual appropriations limit; and
WHEREAS, under Proposition 111, a city can elect to choose the increase in the nonresidential assessed valuation due to new construction within the city and the county’s population growth as alternative factors in the allowed growth formula; and
WHEREAS, the Town elects to use the percentage increases in per capita personal income and the Town’s population growth to calculate the appropriations limit for fiscal year (FY) 2026-27.

WHEREAS, fifteen days prior to the meeting, the determination of the appropriations limit and other necessary determinations were made available to the public.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby determines that the appropriations limit for FY 2026-27 is $25,649,138.00, up from $24,439,388.00 in the previous year. The portion of the adopted FY 2026-27 budget subject to limitation is $23,753,044.00; the estimated remaining excess appropriations limit for FY 2026-27 is $1,896,094.00, per attached Exhibit A.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
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Resolution No. 26-
June 8, 2026
2 ABSENT: Councilmembers
ABSTAIN: Councilmembers
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EXHIBIT A
Tax Proceeds Non-Tax PY Reserves Total
Taxes
Property Tax 24,636,303
Excess ERAF 3,450,000
Fire & Police Special Tax 2,246,910
Sales and Use Tax 143,451
Business License Tax 971,375
Real Property Transfer Tax 502,962
Public Safety Sales Tax (Prop 172) 175,151
Unitary Revenue Tax 212,889
Grants 5,000
Motor Vehicle Tax 1,599,996
HOPTR 56,525
All Others 7,113,363
Prior Years Reserves 26,864,767
Sub-total 34,000,562 7,113,363 26,864,767 67,978,692
Interest Allocation 579,520
Total 34,580,081 7,113,363 26,864,767 67,978,692
Less Court Order Program Costs:

Library 1,206,331
Less Transfer of Responsibilities:

EMS Program 5,908,168
Property Tax Admin Cost 187,779
County Shared Contracts/Booking Fees 87,720
Recreation Services 182,000
Animal Control Services 62,999
Less Federal Mandates:

FLSA 114,672
FICA & Medicare 825,984
Premium Portion of Overtime 456,758
Premium Portion of Accrued CTO 40,225
Less Qualified Capital:

General Government 554,400
Storm Drains 1,200,000
Subtotal-Exclusions 10,827,037
Net Taxes Subject to Limitations 23,753,044
Calculated Limitation:

Adjusted Prior Year Limit 24,439,388
Current Year Index:

Annual % Change in Per Capita Personal Income* 1.0495
Annual % Change in Town Population (Annual Election)* 1.0000 Current Year Factor 1.0495
Current Year Limitation 25,649,138
Over (Under) Appropriations Limit (1,896,094)
*Source: Department of Finance
2026-27 Appropriations Limit Calculation
Town of Hillsborough
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
4 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Approving New Town Policy 409B: General Fund Reserve Policy and Amending Existing Town Policy 409: Budget and Fiscal Policies SUMMARY: This agenda item is to consider adoption of the proposed modification to the Town’s General Fund Reserve Policy, which is being removed from Policy No. 409 and added as a separate standalone Town Policy No. 409B.

A general fund reserve, or “rainy day fund” ensures a government’s ability to maintain vital services to the community during times of economic uncertainty and to help with negative impacts of extraordinary risk such as natural disasters.

The reserve level in the proposed revision was evaluated using a risk-based approach and is in line with Government Finance Officers’ Association best practices and is comparable with the approach in other cities. Each city is unique in its profile, and the Town’s was evaluated based on its revenue and risk profile. The revisions provide more clarity regarding the intended purpose and use of each type of reserve. The policy addresses the uses and replenishment of reserves to policy level, should monies go below target level. The proposed policy will provide greater clarity on how the Town operates with the reserves based on risk. Feedback from the city council study session on this proposal has been incorporated into the written policy.

The current General Fund Reserve Policy is included in the broader, comprehensive Town Policy 409: Budget and Fiscal Policies. Staff proposes separating the General Fund Reserve Policy into a separate Town Policy 409B. Attachment 1 is the proposed General Fund Reserve Policy.

Attachment 2 is Town Policy No. 409 redlined as amended to exclude the General Fund Reserve language from the existing policy since it will now become a separate policy. The revision to Policy No. 409 is only updated for the General Fund Reserve policy change and is not intended to be a full refresh of the entire policy.

FISCAL IMPACT: There is no fiscal impact associated with approving these policies.

ATTACHMENT(S): Resolution and Exhibit A: Town Policy 409B and Exhibit B: Town Policy 409 PREPARED BY: Jan Cooke, Finance Director
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Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

RECOMMENDATION: Adopt a resolution approving new Town Policy 409B: General Fund Reserve Policy and amending existing Town Policy No. 409: Budget and Fiscal Policies. -19-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH APPROVING NEW TOWN POLICY NO. 409B – GENERAL FUND RESERVE POLCIY AND AMENDING EXISTING TOWN POLICY NO. 409- BUDGET AND FISCAL

POLICIES
WHEREAS, Town of Hillsborough Policy No. 409- Budget and Fiscal Policies includes the General Fund Reserve Policy; and
WHEREAS, the Town has reviewed the General Fund Reserve Policy and now desires to modify the policy and separate it as a separate stand-alone Town policy; and
WHEREAS, the changes were reviewed by City Council at its study session on May 11, 2026; and
NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby approves Exhibit A, new Town Policy No. 409B, titled General Fund Reserve Policy and hereby amends Exhibit B, existing Town Policy No. 409- Budget and Fiscal Policies, to remove the General Fund Reserve language.

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
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POLICY 409 1 BUDGET AND FISCAL POLICIES

T O W N O F H I L L S B O R O U G H

P E R S O N N E L P O L I C Y
POLICY 409 PROPOSED REVISION 06/08/2026
SUBJECT: BUDGET AND FISCAL POLICIES

FINANCIAL PLAN PURPOSE AND ORGANIZATION
A. Financial Plan Objectives. Through its budget or financial plan, the Town will link resources with results by:

1. Identifying community needs for essential services.

2. Organizing the programs required to provide these essential services.

3. Establishing program policies and goals that define the nature and level of program services required.

4. Identifying activities performed in delivering program services.

5. Proposing objectives for improving the delivery of program services.

6. Identifying and appropriating the resources required to perform program activities and accomplish program objectives.

B. Three-Year Extended Financial Outlook. Following the Town’s favorable experience over the utilization of a multiple-year budget, the Town will continue using a three-year extended financial outlook, emphasizing long-range planning and effective program management. Appropriations continue to be made annually under this process, but the preliminary budget for the next two years serves as the foundation for preparing the subsequent budgets. The following benefits were identified with the multiple-year budget:

1. Reinforcing the importance of long-range planning in managing the Town’s fiscal affairs.

2. Concentrating on developing and budgeting for the accomplishment of significant objectives.

3. Establishing realistic timeframes for achieving objectives.

4. Creating a pro-active budget that provides for stable operations and assures the Town’s long-term fiscal health.

5. Promoting more orderly spending patterns.

6. Reducing the amount of time and resources allocated to preparing annual budgets.

C. Measurable Objectives. The financial plan will establish measurable program objectives and allow reasonable time to accomplish those objectives.

EXHIBIT A
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POLICY 409 1 BUDGET AND FISCAL POLICIES
D. Operating Carryover. Operating program appropriations not spent during the prior year for major projects may be carried over for specific purposes into the following fiscal year with the approval of the City Manager.

E. Goal Status Reports. The status of major program objectives will be formally reported to the Council on an ongoing, periodic basis.

F. Mid-Year Budget Reviews. The Council will formally review the Town’s fiscal condition and amend appropriations, if necessary, at mid-year.

G. Balanced Budget. The Town will maintain a balanced budget in the General Fund which means the following:

1. Operating revenues must fully cover operating expenditures, including debt service.

2. It is allowable for total expenditures to exceed revenues in a given year to fund capital improvement plan projects, or other “one-time” nonrecurring expenditures, subject to the Fund Balance minimum level of reserves as fully discussed in the FUND BALANCE DESIGNATIONS AND RESERVES section of this document.

3. Budgeting for all other governmental funds will be project specific and will be subject to the available individual fund balances.

4. Budgeting for the water and sewer funds will be subject to the policies set forth under the “Enterprise Fund Fees and Rates” paragraph of this policy document.

FINANCIAL REPORTING AND BUDGET ADMINISTRATION
A. Annual Reporting. The Town will prepare annual financial statements as follows:

1. The Town will contract for an annual audit by a qualified, independent certified public accountant. The Town will strive for an unqualified auditors’ opinion.

2. The Town will use generally accepted accounting principles in preparing its annual financial statements, and will strive to meet the requirements of the Governmental Finance Officers Association (GFOA)’s Award for Excellence in Financial Reporting program.

3. The Town will issue audited financial statements within 180 days after yearend.

B. Interim Reporting. The Town will prepare and issue timely interim reports on the Town’s fiscal status to the Council, the Financial Advisory Committee and staff.

This includes: monthly reports to program managers; quarterly reports to the Council, the Financial Advisory Committee and Department Heads; midyear budget reviews; and interim annual reports.
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POLICY 409 1 BUDGET AND FISCAL POLICIES
C. Budget Administration. The Council may amend or supplement the budget at any time after its adoption by a majority vote of the members. The City Manager may make administrative adjustments to the budget as long as those changes will not have a significant policy impact nor affect budgeted year-end fund balances.

GENERAL REVENUE MANAGEMENT
A. Diversified and Stable Base. The Town will seek to maintain a diversified, to the extent possible given the nature of the community, and stable revenue base.

B. Long-Range Focus. To emphasize and facilitate long-range financial planning, the Town will maintain current projections of revenues for the succeeding five years.

C. Current Revenues for Current Uses. The Town will make all current expenditures with current revenues, avoiding procedures that balance current budgets by postponing needed expenditures, accruing future revenues, or rolling over short-term debt.

D. Interfund Transfers and Loans. Transfers between funds for operating purposes can only be made in accordance with an adopted budget.

From time-to-time, interfund borrowing, which is specifically distinguished from interfund transfers and is intended to be repaid in the near-term, may be appropriate; however, this is subject to the following criteria to ensure that the fiduciary purpose of the fund is met:

1. The Finance Director is authorized to approve temporary interfund borrowings for cash flow purposes whenever the cash shortfall is expected to be resolved within 45 days.

2. Any other interfund borrowings for cash flow or other purposes require caseby-case approval by the Council.

USER FEE COST RECOVERY GOALS
A. Ongoing Review. Fees will be reviewed and updated on an ongoing basis to ensure that they keep pace with changes in the cost-of-living as well as changes in methods or levels of service.

B. User Fee Cost Recovery Levels. In setting user fees and cost recovery levels, the following factors will be considered:

1. Community-wide versus Special Benefit. This level of user fee cost recovery should consider the community-wide versus special service nature of the program or activity. The use of general purpose revenues is appropriate for community-wide services, while user fees are appropriate for -23-
POLICY 409 1 BUDGET AND FISCAL POLICIES
services that are of special benefit to easily identified individuals or groups.

2. Service Recipient versus Service Driver. After considering community-wide versus special benefit of the service, the concept of service recipient versus service driver should also be considered. Example: While an applicant may not be the ultimate beneficiary of the Town’s development review efforts, the applicant is the driver of development review costs, and as such, cost recovery from the applicant is appropriate.

3. Feasibility of Collection and Recovery. The feasibility of assessing and collecting charges should also be considered in developing user fees, as there might be instances where it is impractical or too costly to establish a system to identify and charge the user.

C. General Concepts regarding the use of Service Charges.

The following general concepts will be used in developing and implementing service charges:

1. Revenues should not exceed the reasonable cost of providing the service.

2. Cost recovery goals should be based on the total cost of delivering the service, including direct costs, departmental administration costs, and organizationwide support costs such as accounting, personnel, data processing, vehicle maintenance and insurance.

3. The method of assessing and collecting fees should be as simple as possible in order to reduce the administrative cost of collection.

4. Rate structures should be sensitive to the “market” for similar services as well as to smaller, infrequent users of the service.

5. A unified approach should be used in determining cost recovery levels for various programs based on the factors discussed above.

D. Development Review Programs
The following cost recovery policies apply to the development review programs:

1. Services provided under this category include but are not limited to:
a) Planning (rezonings, general plan amendments, variances, design review). b) Building and safety (building permits, structural plan checks, inspections). c) Engineering (tentative tract and parcel maps, public improvement plan checks, inspections, subdivision requirements, encroachments). d) Fire plan check.

2. Cost recovery for these services should be 100% except in instances where a process is clearly intended to serve the broader community as well as the applicant.
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POLICY 409 1 BUDGET AND FISCAL POLICIES

ENTERPRISE FUND FEES AND RATES
A. Water and Sewer. The Town will set fees and rates at levels which fully cover the total direct and indirect costs – including operations, capital outlay and debt service – of the water and sewer operations.

B. Ongoing Rate Review. The Town will review and adjust enterprise fees and rate structures as required to ensure that they remain appropriate and equitable.

INVESTMENTS
A. Responsibility. Investments and cash management are the responsibility of the Town Treasurer or designee.

B. Investment Objective. The Town’s primary investment objective is to achieve a reasonable rate of return while minimizing the potential for capital losses arising from market changes or issuer default.

Accordingly, the following factors will be considered in priority order in determining individual investment placements:

1. Safety

2. Liquidity

3. Yield
C. Selecting Maturing Dates. The Town will strive to keep all idle cash balances fully invested through daily projections of cash flow requirements. To avoid forced liquidations and losses of investment earnings, cash flow and future requirements will be the primary consideration when selecting maturities.

D. Diversification. As the market and the Town’s investment portfolio change, care will be taken to maintain a healthy balance of investment types and maturities.

E. Authorized Investments. The Town will invest only in those instruments as authorized in the Town’s adopted investment policy. The Town will not invest in stock, will not speculate and will not deal in futures or options.

F. Authorized Institutions. Current financial statements will be maintained for each institution in which cash is invested and the amount of investments in each institution will be as authorized in the Town’s adopted policy.

G. Consolidated Portfolio. In order to maximize yields from its overall portfolio, the Town will consolidate cash balances from all funds for investment purposes, and will allocate investment earnings to each fund in accordance with generally accepted accounting principles.
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POLICY 409 1 BUDGET AND FISCAL POLICIES
H. Safekeeping. Ownership of the Town’s investment securities will be protected through third-party custodial safekeeping.

I. Investment Management Plan. The Town Treasurer will develop and maintain an Investment Management Plan that addresses the Town’s administration of its portfolio, including investment strategies, practices and procedures.

J. Reporting. The Town Treasurer will develop and maintain an investment reporting system pursuant to Government Code Section 53607.

APPROPRIATIONS LIMITATION
A. The Council will annually adopt a resolution establishing the Town’s appropriations limit calculated in accordance with Article XIII-B of the Constitution of the State of California, Section 7900 of the State of California Government Code, and any other related voter approved amendments or state legislation.

B. The supporting documentation used in calculating the Town’s appropriations limit and projected appropriations subject to the limit will be available for public and Council review at least 10 days before Council consideration of a resolution to adopt an appropriations limit. The Council will generally consider this resolution in connection with final approval of the budget.

C. The Town will seek voter approval to amend its appropriation limit at such time that tax proceeds are in excess of allowable limits.

FUND BALANCE DESIGNATIONS AND RESERVES
A. Minimum Fund and Working Capital Balances. The Town will strive to maintain fund or working capital balances in accordance with Policy xxx for General Fund reserve and 20% in the water and sewer enterprise funds. This is considered the minimum level necessary to maintain the Town’s credit worthiness and to adequately provide for:

1. Economic uncertainties, local disasters, and other financial hardships or downturns in the local or national economy.

2. Contingencies for unseen operating or capital needs.

3. Cash flow requirements.

B. Equipment Replacement. The Town will establish and maintain an Equipment Replacement Fund to provide for the timely replacement of vehicles and capital equipment with an individual replacement cost of $10,000 or more. The Town will maintain a minimum fund balance in the Equipment Replacement Fund of at least 20% of the original purchase cost of the items accounted for in this fund. -26-
POLICY 409 1 BUDGET AND FISCAL POLICIES
The annual contribution to this fund will generally be based on the annual use allowance which is determined based on the estimated life of the vehicle or equipment and its original purchase cost. Interest earnings and sales of surplus equipment as well as any related damage and insurance recoveries will be credited to the Equipment Replacement Fund.

C. Future Capital Project Designations. The Council may designate specific fund balance levels for future development of capital projects that it has determined to be in the best long-term interests of the Town.

D. Other Designations and Reserves. In addition to the designations noted above, fund balance levels will be sufficient to meet funding requirements for projects approved in prior years which are carried forward into the new year; debt service requirements; reserves for encumbrances; and other reserves or designations required by contractual obligations, state law, or generally accepted accounting principles.

E. Use of One-Time Revenues and Fund Balance in Excess of Minimum Levels of Reserves. The Town will strive to strategically use one-time revenues such as sale of surplus property, and fund balance in excess of the minimum levels of reserves, for one-time expenditures and non-recurring costs only and not to be used to fund ongoing service improvements.

F. Fund Balance Reporting. Pursuant to the requirements of the Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions, the following categories describe the components that make up a fund balance are as follows:

Nonspendable Fund Balance That portion that includes amounts that cannot be spent because they are either (a) not in a spendable form, such as prepaid items, inventories of supplies, or loans receivable; or (b) legally or contractually required to be maintained intact, such as the principal portion of an endowment. This was traditionally reports as a “reserved” fund balance under the old standard.

Restricted Fund Balance That portion that reflects constraints placed on the use of resources (other than nonspendable items) that are either (a) externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments; or (b) imposed by law through constitutional provisions or enabling legislation. This category was traditionally reports as a “reserved” fund balance under the old standard.

Committed Fund Balance That portion that includes amounts that can only be used for specific purposes pursuant to constraints imposed by formal action of the government’s highest level of decision making authority, and remain binding unless removed in the same manner. This category was traditionally reported as a “designated” fund balance under the old standard.
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POLICY 409 1 BUDGET AND FISCAL POLICIES
Assigned Fund Balance That portion that includes amounts that are constrained by the government’s intent to be used for specific purposes but that are neither restricted nor committed. Such intent needs to be established at either the highest level of decision making, or by an official designated for that purpose. This category was traditionally reports as a “designated” fund balance under the old standard.

Unassigned Fund Balance That portion that includes amounts that do not fall into one of the above four categories. This category was traditionally reported as an “undesignated” fund balance under the old standard.

CAPITAL IMPROVEMENT MANAGEMENT
A. CIP Projects - $10,000 or More. Construction projects which cost $10,000 or more will be included in the Capital Improvement Plan (CIP) as well as minor capital outlays for equipment and furnishings.

B. CIP Purpose. The purpose of the CIP is to systematically plan, schedule, and finance capital projects to ensure cost-effectiveness as well as conformance with established policies. The CIP is a five-year plan organized into the same functional groupings used for the operating programs. The CIP will reflect a balance between capital replacement projects that repair, replace or enhance existing facilities, equipment or infrastructure; and capital facility projects that significantly expand or add to the Town’s existing fixed assets.

C. CIP Appropriation. The Town’s annual CIP appropriation for study, design, acquisition and/or construction is based on the projects designated by the Council through adoption of the Financial Plan. Adoption of the Financial Plan CIP appropriation does not automatically authorize funding for specific project phases.

This authorization generally occurs only after the preceding project phase has been completed and approved by the Council and costs for the succeeding phases have been fully developed.

Accordingly, project appropriations are generally made when contracts are awarded. If project costs at the time of bid award are less than the budgeted amount, the balance will be returned to the fund balance or allocated to another project. If project costs are greater than the budgeted amounts, appropriation of additional resources must be identified and approved by the Council.

D. CIP Budget Carryover. Appropriations for CIP projects lapse three years after budget adoption. Projects which lapse from lack of project account appropriations may be resubmitted for inclusion in a subsequent CIP. Project accounts which have been appropriated will not lapse until completion of the project phase. -28-
POLICY 409 1 BUDGET AND FISCAL POLICIES

CAPITAL FINANCING AND DEBT MANAGEMENT
A. Capital Financing

1. The Town will consider the use of debt financing only for one-time capital improvement projects and only under the following circumstances:
a) When the project’s useful life will exceed the term of the financing. b) When project revenues or specific resources will be sufficient to service the long-term debt.

2. Debt financing will not be considered appropriate for any recurring purpose such as current operating and maintenance expenditures.

3. The Town will use the following criteria to evaluate pay-as-you-go versus long-term financing in funding capital improvements:

Factors favoring pay-as-you-go financing
a) Current revenues and adequate fund balances are available or project phasing can be accomplished.
b) Existing debt levels adversely affect the Town’s credit rating. c) Market conditions are unstable or present difficulties in marketing.

Factors favoring long-term financing
a) Revenues available for debt service are deemed sufficient and reliable so that long-term financing can be marketed with investment grade credit ratings.
b) The project securing the financing is of the type which will support an investment grade credit rating.
c) A project is mandated by state or federal requirements, and resources are insufficient or unavailable.
d) The project is immediately required to meet or relieve capacity needs and current resources are insufficient or unavailable.
e) The life of the project or asset to be financed is 5 years or longer.

B. Debt Management

1. The Town will not obligate the General Fund to secure long-term financings except when marketability can be significantly enhanced.

2. A feasibility analysis will be prepared for each long-term financing which analyzes the impact on current and future budgets for debt service and operations. This analysis will also address the reliability of revenues to support debt service.

3. The Town will generally conduct financings on a competitive basis. However, negotiated financings may be used due to market volatility or the use of an unusual or complex financing or security structure.

4. The Town will seek an investment-grade rating (Baa/BBB or greater) on any direct debt and will seek credit enhancements such as letters of credit or -29-
POLICY 409 1 BUDGET AND FISCAL POLICIES
insurance when necessary for marketing purposes, availability and costeffectiveness.

5. The Town will monitor all forms of debt annually coincident with the Town’s financial plan preparation and review process and report concerns and remedies, if needed, to the Council.

6. The Town will diligently monitor its compliance with bond covenants and ensure its adherence to federal arbitrage regulations.

7. The Town will maintain good, ongoing communications with bond rating agencies about its financial condition. The Town will follow a policy of full disclosure on every financial report and bond prospectus.

8. When interest rate products are utilized, they will be issued in accordance to Section 5922(a) of the Government Code and the Town’s Interest Rate Risk Mitigation Policy (Swap Policy) adopted in January 2006.

C. Debt Capacity

1. General Purpose Debt Capacity. The Town will carefully monitor its level of general-purpose debt. Because the Town’s general purpose debt capacity is limited, it is important that only general purpose debt financing is used for highpriority projects where other financing methods cannot reasonably be used.

In evaluating debt capacity, general-purpose annual debt service payments should generally not exceed 10% of the General Fund revenues; and in no case should they exceed 15%.

2. Enterprise Fund Debt Capacity. The Town will set enterprise fund rates at levels needed to fully cover debt service requirements as required by the debt covenants, as well as operations, maintenance, administration and capital improvement costs. The ability to afford new debt for enterprise operations will be evaluated as an integral part of the Town’s rate review and setting process.

HUMAN RESOURCE MANAGEMENT
A. Regular Staffing

1. The budget will fully appropriate the resources needed for authorized regular staffing and will limit programs to the regular staffing authorized.

2. Regular employees will be the core work force and the preferred means of staffing ongoing, year-round program activities. The Town will strive to provide competitive compensation and benefit schedules for its authorized regular work force.

3. To manage the growth of the regular work force and overall staffing costs, the Town will follow these procedures:
a. The Council will authorize all regular positions, preferably in conjunction -30-
POLICY 409 1 BUDGET AND FISCAL POLICIES
with the budget process.
b. The City Manager’s office will coordinate and approve the hiring of all regular and temporary employees.
c. All requests for additional regular positions will include evaluations of:
i. The necessity, term and expected results of the proposed activity. ii. Staffing and materials costs including salary, benefits, equipment, uniforms, clerical support and facilities.
iii. Additional revenues or cost savings, which may be realized.

B. Temporary Staffing

1. The hiring of temporary employees will not be used as an incremental method for expanding the Town’s regular work force.

2. Temporary employees include all employees other than regular employees, elected officials and volunteers. Temporary employees will generally augment regular Town staffing as extra-help employees, seasonal employees, contract employees, interns and work-study assistants.

3. The City Manager and department heads will encourage the use of temporary rather than regular employees to meet peak workload requirements, fill interim vacancies, and accomplish tasks where less than full-time, year-round staffing is required. Under this guideline, temporary employee hours will generally not exceed 1,000 hours annually. Limited circumstances where the use of temporary employees on an ongoing basis in excess of this target due to unique programming or staffing requirements, must be approved by the City Manager.

4. Contract employees are defined as temporary employees with written contracts approved by the City Manager. Contract employees will generally be used for medium-term (generally between six months and two years) projects, programs or activities requiring specialized or augmented levels of staffing for a specific period. The services of contract employees will be discontinued upon completion of the assigned project, program or activity.

5. Utilize retired management employees, when available to temporarily fill budgeted positions as a means of maintaining service level at reduced costs.

This is intended as a cost-effective method to retain professional expertise and institutional knowledge and is strictly subject to meeting all the conditions listed below.
• Will in no way add to the Town’s short-term or long-term retirement liability or cost
• Will result in specific, measurable and quantifiable savings to the Town • Will be subject to compliance with all CalPERS policies and procedures
• Will require written documentation of the above conditions and subject -31-
POLICY 409 1 BUDGET AND FISCAL POLICIES
to the approval of the City Manager for management employees or the Mayor for the City Manager.

C. Independent Contractors
Independent contractors are not Town employees and may be used in the following situations:

1. Short-term, peak workload assignments to be accomplished using personnel contracted through an outside temporary employment agency. In this situation, Town staff will closely monitor the work of these employees and minimal training will be required. However, they will always be considered the employees of the employment agency and not the Town. All placements will be coordinated with the City Manager’s Office and subject to the approval of the City Manager or designee.

2. Construction of public works projects and delivery of operating, maintenance or specialized professional services not routinely performed by Town employees. Such services will be provided without close supervision by Town staff, and the required methods, skills and equipment will generally be determined and provided by the contractor. Contract awards will be guided by the Town’s purchasing policies and procedures.

PRODUCTIVITY
The Town will constantly monitor and review its methods of operation to ensure that services continue to be delivered in the most cost-effective manner possible. This review process encompasses a wide range of productivity issues, including:

1. Analyzing systems and procedures to identify and remove unnecessary review requirements.

2. Evaluating the ability of new technologies and related capital investments to improve productivity.

3. Developing the skills and abilities of all Town employees.

4. Developing and implementing appropriate methods of recognizing and rewarding exceptional employee performance.

5. Evaluating the ability of the private sector to perform the same level of service at a lower cost.

6. Periodic formal reviews of operations on a systematic, ongoing basis.

CONTRACTING FOR SERVICES
General Policy Guidelines

1. Contracting with the private sector for the delivery of services provides the Town with a significant opportunity for cost containment and productivity -32-
POLICY 409 1 BUDGET AND FISCAL POLICIES
enhancements. As such, the Town is committed to using private sector resources in delivering municipal services as a key element in the continuing efforts to provide cost-effective programs.

2. Private sector contracting approaches under this policy include construction projects, professional services, outside employment agencies and ongoing operating and maintenance services.

3. In evaluating the costs of private sector contracts compared with in-house performance of the service, indirect, direct and contract administration costs of the Town will be identified and considered.

4. For programs and activities currently provided by Town employees, conversions to contract services will generally be made through attrition, reassignment or absorption by the contractor.

Previous revisions: 1/9/2006, 5/10/2004
Created: 4/28/1997
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1 GENERAL FUND RESERVE POLICY

T O W N O F H I L L S B O R O U G H

P E R S O N N E L P O L I C Y
POLICY 409B PROPOSED FOR ADOPTION 06/08/2026
SUBJECT: GENERAL FUND RESERVE POLICY
PURPOSE: To establish designated reserves within the General Fund to provide guidance for the prioritization and utilization of available (unassigned) fund balance.

STATEMENT OF POLICY:

General Fund reserves are a key component of financial stability and resiliency for the Town, allowing it to mitigate risk and maintain services during emergencies or economic downturns. The Town has three reserve designations in the General Fund to create clarity around its intent for reserve funding and utilization:

1. Contingency Reserve – The intended use of this reserve is for extraordinary onetime events, including but not limited to, natural disasters, public health crises, major infrastructure failures, or other unforeseen emergencies or disasters as determined by Council. The targeted funding for this reserve is 25% of General Fund budgeted operating expenditures, and this reserve is intended to be the highest priority for funding with unassigned fund balance.

2. Budget Stabilization Reserve – The intended use of this reserve is to maintain services during economic downturns or other adverse financial circumstances such as the loss of a major revenue source. The targeted funding for this reserve is 15% of General Fund budgeted operating expenditures. When this reserve is below its target level, the following year’s operating budget will articulate an operational plan to return the reserve back to the target level within three years.

This reserve is intended to be the second priority for funding with unassigned fund balance and should be funded after the Contingency Reserve is funded.

3. Infrastructure Reserve – The intended use of this reserve is to fund infrastructure needs that arise during the fiscal year that were not budgeted or planned for in the near term. This reserve is not intended to supplant the existing capital and infrastructure program. The targeted funding for this reserve is $3 million annually, and it should be funded after the Contingency Reserve and Budget Stabilization Reserve are funded.

Any remaining funds after the three designated reserves are funded at targeted levels are considered undesignated fund balance. These funds are available for appropriation at the discretion of Council. Any available undesignated fund balance should be considered one-time funding and thus prioritized for one-time expenditures; however, these funds are not limited to this purpose.

EXHIBIT B
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1 GENERAL FUND RESERVE POLICY
The funds available for the General Fund reserves are those designated as unassigned fund balance in the Town’s Annual Comprehensive Financial Report. Other General Fund balance designations (non-spendable, restricted, assigned, and committed) are not considered available for the General Fund reserves and are not included in the reserve calculations. When calculating the Contingency Reserve and the Budget Stabilization Reserve, the operating expenditures component of the calculation should include all recurring expenditures, including any annual transfers.

The funded status of each of the reserves will be included as a part of the presentation of the annual budget and any subsequent financial updates such as the mid-year budget update.

Because the reserve calculations only factor unassigned fund balance in the General Fund, these reserve funds remain at the discretion of the City Council and are not otherwise restricted. This policy establishes reserves in the General Fund to create clarity and define intended utilization, but it does not preclude the Council from appropriating these funds for other purposes.
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
5 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Receive May 2026 Legislative Update
SUMMARY: The Town’s legislative consultant, California Public Policy Group (CPPG), has provided a Legislative Summary for May 2026 (Attachment 1).

Attachment 2 includes an advocacy letter submitted by the Town since the May 11, 2026 City Council meeting.

Attachment 3 is a Summary of Governor Newsom’s Revised Budget for Fiscal Year 2026-27 provided by CPPG.

FISCAL IMPACT: There is no fiscal impact associated with this agenda item.

ATTACHMENT(S):

1. May 2026 CPPG Legislative Summary

2. Advocacy Letter Submitted Since May 11, 2026 City Council Meeting

3. Summary of Governor Newsom’s Revised Budget for Fiscal Year 2026-27 PREPARED BY: Lisa Natusch, City Clerk
RECOMMENDATION: Receive the May 2026 Legislative Update. -36-

TOWN OF HILLSBOROUGH
California
Town Hall
Phone: 650-375-7400 | Fax: 650-375-7475 | 1600 Floribunda Avenue, Hillsborough, CA 94010 | www.hillsborough.net May 27, 2026
The Honorable Sean Duffy
Secretary
U.S. Department of Transportation
1200 New Jersey Avenue, S.E.

Washington D.C. 20590
Re: FY 2025-2026 Railroad Crossing Elimination (Crossing Safety) Program, Caltrain – Burlingame Broadway Grade Separation Project
Dear Secretary Duffy:

On behalf of the Town of Hillsborough, I am writing to express strong support for Caltrain’s FY 2025-2026 Railroad Crossing Elimination (Crossing Safety) Program grant application for the Burlingame Broadway Grade Separation Project. The grade separation project aligns closely with program goals to improve American rail infrastructure to enhance rail safety, improve the health and safety of American communities, and improve the mobility of people and goods.

With over 10,000 at-grade railroad crossings throughout the State of California, the Broadway at-grade railroad crossing in Burlingame remains the number one priority on the California Public Utilities Commission’s current Grade Separation Priority List. In January 2024, a passenger train struck an occupied vehicle stopped on the train tracks – one of many such accidents that have occurred at this dangerous grade crossing, several of which have resulted in fatalities.

As Burlingame’s closest neighbor to the west, Hillsborough’s approximately 12,000 residents and hundreds of employees utilize the Broadway intersection to access the freeway, San Francisco Airport, and Burlingame businesses on a daily basis. Improvements to the crossing will significantly enhance safety, reduce traffic congestion, and improve train service for our residents and employees.

With the support of the U.S. Department of Transportation, this new critical infrastructure will improve public safety at a heavily used crossing. Thank you for your consideration of this application. Please contact City Manager Doug Davis at [email protected] with any questions.

Sincerely,
Dr. Sophie Cole
Mayor
ATTACHMENT 1
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1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 1 Date: June 4, 2026
To: Doug Davis, City Manager
Town of Hillsborough
From: Dane Hutchings
Founder + CEO
California Public Policy Group
Re: CPPG Legislative Summary: May 2026

LEGISLATIVE UPDATE
Lawmakers Work to Meet Legislative and Fiscal Deadlines Governor Gavin Newsom released the May Revision of his January budget proposal for fiscal year 2026-27 on May 14. Policy committees had until May 8 to advance non-fiscal bills, while Appropriations Committees held Suspense File hearings on May 15, during which some fiscal bills were moved to the Floor and others were held. Budget committees then held final hearings in late May to finalize budget language and ensure passage of the primary budget bill by June 15. During the final week of May, legislators spent long hours debating hundreds of bills on the Floor ahead of the May 29 house of origin deadline. Committee hearings resumed on June 1, and the Legislature will adjourn for summer recess on July 2 before reconvening on August 3. Bills must pass both houses by August 31 to reach the Governor’s desk, where they must be signed or vetoed by September 30.

As of June 4, about 1,450 bills remain active. As the session progresses, more measures are expected to be held in policy and fiscal committees or fail to move forward on the Floor.

Budget Update
In a press release on May 14, Governor Newsom announced that the revised budget includes a $1.8 billion reduction in General Fund spending and projects a balanced budget with no deficit in the current fiscal year or the next fiscal year. The press release further stated that, “The revised Budget does not propose significant new ongoing General Fund spending commitments.” The revised budget proposes total state spending of $349.4 billion. This includes $246.6 billion from the General Fund, $95.5 billion from special funds, and $7.3 billion from bond funds. The proposal also includes $29.9 billion in total reserves.

On May 18, the LAO released its initial report of the Governor’s revised Budget proposal. The report indicates that the state’s current fiscal condition is highly unusual. Despite strong revenue growth, the budget remains overextended due to a structurally higher spending baseline, reduced reserves, a significant accumulation of debt, and an ongoing operating deficit. At the same time, the state may face future revenue volatility, as its revenue outlook is increasingly dependent on AI-driven equity valuations that are approaching levels last seen during the height of the dot-com bubble.

High Speed Rail Authority Tax Increment Financing Proposal The California High-Speed Rail Authority continues to advocate for inclusion of a proposal in this year’s budget that would authorize the Authority to cap and capture property and sales tax revenues and exercise land use authority within a half-mile of high-speed rail stations through stateATTACHMENT 2 -38-
1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 2 administered tax increment financing (TIF) districts. The Authority argues in its 2026 Business Plan that it should be granted the ability to establish land value capture districts relying on TIF to help fund rail construction and operations. The proposal would represent a significant expansion of state authority and would require constitutional amendments to grant the Authority independent taxing and land use powers.

A local government association opposition letter can be found here.

More information on the proposal can be found here and here. 2026 ELECTIONS UPDATE
Governor’s Race
California’s top-two primary was held on June 2, but significant shifts are still possible as laterarriving vote-by-mail ballots continue to be counted. The Secretary of State has until July 10 to certify the results, and in close races it may take days or even weeks before winners are officially determined.

With Governor Gavin Newsom termed out, a crowded field of roughly 60 candidates competed for a spot on the November ballot. Three candidates emerged as the leading contenders: Republican Steve Hilton, Democrat Xavier Becerra, and Democrat Tom Steyer. Early returns show Hilton and Becerra holding the top two positions, with Steyer running third. Under California’s top-two primary system, the two highest vote-getters advance to the general election regardless of party affiliation.

Voters also weighed in on all Assembly seats and the even-numbered Senate districts. The results will influence the legislative committees and member relationships most relevant to local government priorities. A combination of retirements, redistricting, and open seats is expected to bring new lawmakers to Sacramento and reshape committee assignments in the coming year.

ADMINISTRATION ACTIONS UPDATE
On May 27, Governor Gavin Newsom held a press conference and issued a press release announcing that he had signed SB 73 (Cervantes) [Chapter 10, Statutes of 2026] into law. The bill restricts law enforcement agencies and officers from engaging in certain conduct related to elections. The bill also clarifies that a person who is observing the processing of vote by mail ballots is prohibited from challenging whether signatures compare. In his press release, the Governor stated that the legislation is about “strengthening California’s existing election safeguards in response to growing threats of election interference and intimidation, including efforts by allies of President Donald Trump to undermine confidence in elections and disrupt lawful election administration.”

ACTIVE POSITIONED BILLS
• AB 1337 (Ward) Information Practices Act of 1977.
o Location: Senate Privacy, Digital Technologies, And Consumer Protection o Position: Oppose
• AB 1569 (Davies) Pupil safety: electric bicycle: safety and training program. o Location: Senate Education
o Position: Support
• AB 1614 (Dixon) Vehicles: bicycles.
o Location: Senate Transportation
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1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 3 o Position: Support
• AB 1621 (Wilson) Planning and Zoning Law: postentitlement phase permits: Housing Accountability Act.
o Location: Senate Local Government
o Position: Watch
• AB 1761 (Rogers) Electricity: calculation methodology: data disclosure. o Location: Senate Rules
o Position: Support
• AB 1903 (Wicks) Construction defects.
o Location: Senate Judiciary
o Position: Watch
• AB 1942 (Bauer-Kahan) Electric bicycles: registration and special license plates. o Location: Assembly Appropriations Suspense File
o Position: Support
• AB 2111 (Papan) Electricity: transmission planning and transmission facilities. o Location: Senate Energy, Utilities And Communications o Position: Support
• AB 2180 (Ward) Local government: Proposition 218 Omnibus Implementation Act:
proportional cost of service.
o Location: Senate Local Government
o Position: Support
• AB 2296 (Papan) Planning and zoning: housing element: regional housing needs allocation. o Location: Senate Rules
o Position: Support
• AB 2433 (Alvarez) Housing development: density bonus. o Location: Senate Rules
o Position: Watch
• AB 2595 (Papan) Vehicles: electric bicycles.
o Location: Senate Transportation
o Position: Support
• SB 968 (Becker) Community colleges: San Mateo County Community College District. o Location: Assembly Higher Education
o Position: Support
• SB 1138 (Padilla) Load-serving entities: resource adequacy requirements. o Location: Assembly Utilities And Energy
o Position: Support

LOOKING FORWARD
• June 15: Legislature must pass the primary budget bill • June 30: Governor must sign the primary budget bill
• July 2: Summer Recess begins upon adjournment
• August 3: Legislature reconvenes from Summer Recess
• August 31: Last day for the Legislature to pass bills; end of the session • September 30: Last day for the Governor to sign or veto bills -40-
1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 1 Date: May 18, 2026
To: Doug Davis, City Manager
Town of Hillsborough
From: Dane Hutchings
Founder + CEO
California Public Policy Group
Re: CPPG Summary of Governor Newsom’s Revised Budget for Fiscal Year 2026-27

OVERVIEW
Background
The following provides a topline summary of Governor Gavin Newsom’s revised state Budget proposal for fiscal year 2026-27 (FY 26-27), with an emphasis on issues and programs of particular interest to the Town of Hillsborough. In addition to the summary below, you will also see occasional line items that have a “CPPG Note.” These notes highlight specific Budget items identified through both our internal “Deep Dive” review process and ongoing discussions with agency staff. The notes are intended to identify potential fiscal or policy opportunities for the Town of Hillsborough that may align with the Administration’s proposal. If you have questions regarding other Budget areas or line items not specifically discussed below, please feel free to contact our team for additional information or further analysis. An overview of Budget areas that directly impact local agencies begins here.

The Governor’s Budget can be found here.

May Revision by the Numbers
• $349.4 billion total Budget (~8.0% increase in total state spending compared with FY 25-26) o $246.6 billion General Fund
o $95.5 billion in special funds
o $7.3 billion in bond funds
• $29.9 billion in total reserves
o $4.5 billion in the Special Fund for Economic Uncertainties o $10.3 billion in the Public School System Stabilization Account o $15.1 billion in the Budget Stabilization Account
Budget Summary
In a press release on May 14, Governor Newsom announced that the revised Budget includes a $1.8 billion reduction in General Fund spending and projects a balanced Budget with no deficit in the current fiscal year or the next fiscal year. It also projects no structural deficit through July 2028. The press release further stated that, “The revised Budget does not propose significant new ongoing General Fund spending commitments. Instead, the Governor’s plan prioritizes fiscal restraint, longterm sustainability, and protecting the state against future economic volatility.” ATTACHMENT 3
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1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 2 Governor Newsom’s presentation of his final May Revise focused heavily on framing a narrative, seemingly geared for a national audience, highlighting the accomplishments of his Administration and urging California’s critics to “update their talking points.” “California dominates!” he proclaimed, touting examples of how the state leads in Fortune 500 companies, research and development, agriculture, manufacturing, new business creation and other fields, while contrasting this against other states and nations. Sharp criticisms were levied by the Governor against President Trump and his Administration.

When focusing on the details of his proposed May Revise, the Governor announced that revenue projections increased $16.5 billion over January’s estimates. Instead of proposing new spending, he is seeking approval of a two-year balanced Budget, that he maintains would reduce the state’s structural deficit (estimated by the Legislative analyst to range between $20-$30 billion) to zero by July of 2028, with additional out-year structural deficits cut in half.

In order to accomplish this the Governor is proposing to:
• Set aside $9.74 billion in a state surplus holding account to use for the FY 2027-28 Budget. • Approve three separate tax increases:
o Renewing the Managed Care Organization Tax, yielding between $2.3 and $1.7 billion annually
o Establishing a cap on corporate tax credits of $5 million, or 50 percent of tax liability, yielding $1.7 billion annually when fully implemented.
o Expanding the sales tax to apply to (non-streaming) digital prewritten software purchases. This proposal would yield $900 million annually for the state, and $1.1 billion for local governments when fully implemented.
• Reduce state costs of Medi-Cal by:
o Increasing the monthly premium for adults with unsatisfactory immigration status from $30 to $50, which will yield $427 million in state savings in FY 2027-28, and reduced amounts in out years.
o Reinstating prior Medi-Cal asset tests for senior and disabled recipients, yielding nearly $500 million annually in savings.

However, significant new funding for housing and homelessness programs remains limited. There are no new funding proposals, nor did the Governor mention the potential of an affordable housing bond. Aside for a $100 million proposal to assist LA fire victims rebuild their homes, the Governor focused on the familiar theme of local governments. On housing, he proposes to exempt state funded affordable housing projects from paying local impact fees, which he says will save about $10,000 per unit. On homelessness, he wants local governments to have HCD’ Prohousing designations and offer matching funds to be eligible for state allocations. As in past years, the effort to boost affordable housing and homeless funding will need to come from legislators negotiating amendments to the Governor’s Budget.

AREAS OF INTEREST TO LOCAL GOVERNMENT
CPPG has identified several items in the Budget revision that may be of interest to the Town of Hillsborough, either because of their direct impact on the Town or for broader situational awareness regarding California’s overall budget outlook. As budget negotiations continue, we will closely -42-
1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 3 monitor developments and provide updates on potential funding opportunities, policy changes, and any proposed restrictions that could affect the Town of Hillsborough. • Sales Tax Expansion to Digital Software
• Housing and Homelessness
• Natural Resources and Environment
• Economic Development
• Transportation
• Public Safety
• General Government
CPPG Note: As expected, the May Revision does not include any information regarding VLF Shortfall backfill funding for local governments. This issue was previously discussed in Assembly Budget Subcommittee No. 5 and Senate Budget Subcommittee No. 4 earlier this year. CPPG will continue coordinating with county partners and other stakeholders to advocate for the City’s interests and will provide updates as discussions progress.

Sales Tax Expansion to Digital Software
It is not often that a Governor’s May Revise includes a proposal that would boost local government discretionary revenues by $1.1 billion annually. Unlike the income tax or other state revenue sources, a proposed expansion of the applicability of the sales tax also benefits local governments.

In his press conference, the Governor stated that the proposal to expand the sales tax to downloads of prewritten digital software (non-streaming) also includes Software as Service (SaaS). The Governor stated the proposal promotes equity between the way that brick and mortar vs online purchases are treated, mirrors the practices of 35 other states, and mostly applies to business-tobusiness transactions.

Housing and Homelessness
In his presentation of the Budget, the Governor emphasized that the state has made significant progress towards meeting its housing goals with the help of local governments across the state, but that considerable work still must be done to solve the housing crisis. While several new investments are proposed, the Budget does not include significant new ongoing expenditures.

Specifically, the May Revision proposes the following:
• Prohibit Application & Encourage Waivers of Local Fees:
o Prohibit local impact fee imposition on state-funded projects: As a condition of receiving state funding, local governments serving as lead- or co-applicants would be prohibited from imposing development impact fees on projects receiving state funding. o Encourage local fee waivers by allowing development fee waivers granted by local governments to count as a “local contribution” in state affordable housing programs.

CPPG Note: The document is explicit that this does not require local jurisdictions to change their underlying fee structures overall; it applies only when a local government is a participant in a state-funded program. The stated goal is to “direct state investments toward building affordable housing rather than offsetting locally imposed costs.” The draft language of this Budget trailer bill can be viewed HERE. -43-
1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 4 • Improve State Agency Coordination: In furtherance of the Governor’s goal to improve coordination between state housing agencies, the May Revision proposes transferring positions, including communications capacity for the California Housing and Homeless Agency (CHHA), information technology and administrative support for the Department of Housing and Community Development, leadership for the Housing Development and Finance Committee.
• Assist Disaster Recovery: To expedite rebuilding in the wake of emergency declarations, the Governor proposes the creation of a $100 million Disaster Rebuilding Fund to expand access to construction and renovation financing for disaster-impacted homeowners. This investment will be used to reduce borrowing costs and facilitate access to private financing through a combination of a loan loss guarantee program and an interest rate buydown program, facilitated by philanthropic contributions, non-profits, and lenders who have committed to participate in the fund.
• Infill Infrastructure: $7 million is proposed to be reappropriated to the Infill Infrastructure Grant Program.

Natural Resources and Environment
In the area of natural resources and environment, the May Revision proposes several allocations:
• State Parks:
o $125 million to purchase the 161-acre Golden Gate Fields property, so it can be converted to a park.
• Recycling: Allocates the following from the Beverage Container Recycling Fund:
o $100 million to the Beverage Container Quality Infrastructure Grant Program to upgrade sorting and processing infrastructure and produce cleaner, higher-quality material streams.
o $50 million to the Rural Recycling Incentive Payments Program to support locally driven solutions that increase participation in underserved areas and promote equitable access to California Redemption Value refunds. • CalEPA: Shifts $9.6 million of various ongoing General Fund appropriations for boards, departments, and offices within the California Environmental Protection Agency to alternative fund sources. These shifts will include emergency response for the Department of Toxic Substances Control, operational costs for the Office of the Secretary for Environmental Protection, and administrative activities at the California Air Resources Board.

Economic Development
The economic development proposals in the Governor’s January Budget continue, including the proposed five-year extension of the Cal-Competes program. The May Revise builds upon those with several additional proposals that promote economic opportunities:
• Reducing Cost of Establishing a New Business: The Governor proposes to bolster new business formation by cutting in half the state tax that new businesses (limited liability companies, limited partnerships, and limited liability partnerships) formed in 2027, 2028, or 2029 must pay in their first year in operation from $800 to $400. • Remanufacturing of Recycled Products: $75 million from the Beverage Container Recycling Fund is proposed to be allocated over three years to expand in-state remanufacturing for recycling products.
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1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 5 Transportation
In the area of transportation, the May Revision proposes the following allocations:
• Incorporating GenAI: $16.4 million is allocated from the State Highway Account to fund engagement, governance, and implementation of innovative GenAI solutions to enhance safety for vulnerable roadway users and to gain traffic mobility insights on the state highway system.

Public Safety
In the area of public safety, the May Revision includes the following:
• Department of Corrections and Rehabilitation: The May Revise reports total funding allocated to CDCR will be approximately $14.6 billion. The state prison population, which is getting increasingly older, is estimated at 87,611 in FY 2026-27, and projected to decline to 85,210 by 2030. Prop. 36 is expected to contribute 1,547 to this population upon full implementation. The May Revise proposes numerous additional expenditures for CDCR ranging from increased compensation for incarcerated firefighter pay, food costs, medical, staffing and other expenses.
• Board of State and Community Corrections:
o Combatting Human Trafficking: $10 million is allocated to the BSCC to administer a competitive Vertical Prosecution grant program aimed at preventing human trafficking.
• Emergency Response:
o Unified 911 System: $141.9 million is allocated to the State Emergency Telephone Number Account to continue the NG 9-1-1 deployment and transition the architecture from a regional model to a unified statewide system model. • Nonprofit Security: $40 million is allocated to support physical security enhancements to nonprofit organizations that have historically been targets of hate-motivated violence. • Crime Victim Assistance: $25 million is proposed to offset decreasing federal funding supporting a variety of services for victims of crime.
• Legal Services: $10.8 million is proposed to be allocated ongoing to the Legal Services Revolving Fund to maintain current service levels and address increased demand for legal services from client agencies.
• Organized Retail Crime: $2.2 million one-time General Fund is allocated to the Department of Justice to resolve 27 organized retail criminal enterprise existing cases stemming from the original funding provided in 2022-23.

General Government
In the area of general government, the May Revision includes:
• Supporting Media Engagement: $10 million is proposed to be allocated annually to the California Civic Media Program, a public-private partnership, to support the work of California’s newsrooms, increase access to information, and strengthen community engagement statewide.
• Cannabis Allocations:
o Dispersing Cannabis Revenue: $414.1 million is estimated to be available for cannabis fund allocations in 2026-27 as follows:
▪ Education, prevention, and treatment of youth substance use disorders and school retention—60 percent ($248.5 million)
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1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 6 ▪ Clean-up, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation—20 percent ($82.8 million) ▪ Public safety-related activities—20 percent ($82.8 million) o Industrial Hemp: $8.4 million General Fund is proposed to offset lower than expected fee revenues in recent years for the implementation of the Industrial Hemp Program.

THE LEGISLATIVE ANALYST’S OFFICE WEIGHS IN
On May 18, the LAO released its initial report of the Governor’s revised Budget proposal. The report indicates that the state’s current fiscal condition is highly unusual. Despite strong revenue growth, the budget remains overextended due to a structurally higher spending baseline, reduced reserves, a significant accumulation of debt, and an ongoing operating deficit. At the same time, the state may face future revenue volatility, as its revenue outlook is increasingly dependent on AI-driven equity valuations that are approaching levels last seen during the height of the dot-com bubble.

Recent LAO Budget Update
The LAO’s most recent Budget update finds that California’s General Fund spending has grown by more than $100 billion since 2019-20, rising from $146 billion to a proposed $248 billion in 2026-27.

Spending increased by approximately 70 percent over this period while revenues grew by only 60 percent, producing structural deficits the LAO estimates at $20 billion to $30 billion annually. About 70 percent of the spending growth went to maintaining existing services, driven largely by rising costs in Medi-Cal, Developmental Services, IHSS, K-14 education, and child care.

The LAO further notes that health and human services commitments have expanded faster than revenues can sustain, and that constitutional requirements under Propositions 98 and 2 dedicate roughly half of any new revenue to specific purposes. As a result, closing a $20-$30 billion gap through new taxes alone would require raising $30-$60 billion, making substantial spending reductions likely unavoidable.

Cap-and-Invest
On May 6, the LAO released a report analyzing CARB’s proposed amendments to California’s capand-invest program and their potential impact on Greenhouse Gas Reduction Fund (GGRF) revenues. Under SB 840 (2025), GGRF revenues flow through a four-tier structure where Tier 3 programs, including affordable housing, transit, wildfire resilience, and clean drinking water, receive funding only after higher tiers are satisfied. These programs have been critical funding sources for local agencies, with combined commitments of nearly $2 billion annually.

CARB’s April 2026 proposal would increase free industry allowances and create a new Manufacturing Decarbonization Incentive program, adding up to 118 million allowances above the existing cap. The LAO projects this would cut auction revenues to roughly $2 billion annually, about half of recent levels, leaving Tier 3 programs with little or no funding after Tier 2 obligations are met.

TIMING AND NEXT STEPS
• Budget Negotiations: Before Democrats gained supermajorities in both houses, the Assembly and Senate typically convened a Budget conference committee to reconcile differences between their spending plans. In recent years, however, Budget agreements have more commonly been negotiated privately between the Administration and legislative leadership.
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1127 11TH STREET, SUITE 300, SACRAMENTO, CA 95814 • 916.974.9270 • PUBLICPOLICYGROUP.COM PAGE 7 • June 15 Deadline: The Legislature must pass and send a Budget bill to the Governor by June 15 in order to comply with the constitutional deadline. • June 25 Deadline: This is the deadline for the Legislature to place items on the November ballot.

CPPG Note: This is a significant date in the effort to reform the real property transfer tax (also known as the documentary transfer tax), as a legislative compromise—likely through the budget process—may be reached. If no agreement is made, the measure will remain on the November ballot.
• June 30 Fiscal Deadline and Federal Uncertainty: The Governor must sign the Budget before July 1, the start of the new fiscal year, and retains authority to line-item veto specific appropriations. Numerous budget trailer bills move alongside the main Budget bill, with others advancing before summer recess or by end of session. Notably, the May Revision does not account for potential federal budget or policy changes that could significantly affect health, welfare, and other state-funded programs. If federal actions materially impact state finances, the Legislature may need to revisit and revise the Budget later in the year through the trailer bill process.
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
6 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Calling for the Holding of a General Municipal Election to be Held on Tuesday, November 3, 2026 for the Election of Two Members of the City Council SUMMARY: The Town of Hillsborough will hold a General Municipal Election on Tuesday, November 3, 2026 for the purpose of filling elective offices of two members of the City Council.

Under the California Elections Code, the City Council must adopt a resolution calling the election.

FISCAL IMPACT: The estimated total cost of the election is approximately $45,000.00 which includes estimated costs from the County of San Mateo, supplies, and required legal advertising.

Funds are included in the proposed FY 2026-27 budget.

ATTACHMENT(S): Resolution
PREPARED BY: Lisa Natusch, City Clerk
RECOMMENDATION: Adopt the resolution calling a General Municipal Election to be held in the Town of Hillsborough on Tuesday, November 3, 2026 for the election of two members of the City Council.
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RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

CALLING FOR THE HOLDING OF A GENERAL MUNICIPAL ELECTION TO BE HELD ON TUESDAY, NOVEMBER 3, 2026 FOR THE ELECTION OF TWO MEMBERS OF

THE CITY COUNCIL
WHEREAS, under the provisions of the laws relating to general law cities in the State of California, a General Municipal Election shall be held on November 3, 2026, for the election of Municipal Officers.

NOW, THEREFORE, THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH,

CALIFORNIA, DOES RESOLVE, DECLARE, DETERMINE AND ORDER AS FOLLOWS:

SECTION 1. That per the requirements of the laws of the State of California relating to General Law cities, there is called and ordered to be held in the Town of Hillsborough, California, on Tuesday, November 3, 2026, a General Municipal Election for the purpose of electing two Members of the City Council for the full term of four years.

SECTION 2. That the ballots to be used at the election shall be in form and content as required by law.

SECTION 3. That the City Clerk is authorized, instructed and directed to coordinate with the County of San Mateo Chief Elections Officer to procure and furnish any and all official ballots, notices, printed matter and all supplies, equipment and paraphernalia that may be necessary in order to properly and lawfully conduct the election.

SECTION 4. That the vote center locations and hours of operations, ballot drop box locations and hours of operations, vote-by-mail procedures and timing, the election officers, and all other persons and procedures for the General Municipal Election shall be the same as those utilized by the County of San Mateo and in compliance with the Elections Code of the State of California. In addition, the polls/vote centers for the election shall be open at seven o’clock a.m. of the day of the election and shall remain open continuously from that time until eight o’clock p.m. of the same day when the polls shall be closed, per Elections Code Section 10242, except as provided in Elections Code Section 14401.

SECTION 5. That in all particulars not recited in this resolution, the election shall be held and conducted as provided by law for holding municipal elections.

SECTION 6. That notice of the time and place of holding the election is given and the City Clerk is authorized, instructed and directed to give further or additional notice of the election, in time, form and manner as required by law. -49-
Resolution No. 26-
June 8, 2026
2 SECTION 7. That in the event of a tie vote (if two or more persons receive an equal and the highest number of votes for an office) as certified by the County of San Mateo Chief Elections Officer, the City Council, in accordance with Elections Code Section 15651(a), shall set a date and time and place and summon the candidates who have received the tie votes to appear and will determine the tie by lot.

SECTION 8. That the City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

SECTION 9. The City Council authorizes the City Clerk to administer said election and all reasonable and actual election expenses shall be paid by the Town upon presentation of a properly submitted bill.

SECTION 10. This resolution shall be printed and posted upon the three official bulletin boards of the Town of Hillsborough.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026 by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
7 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Requesting the Board of Supervisors of the County of San Mateo to Consolidate a General Municipal Election to be Held in the Town of Hillsborough on Tuesday, November 3, 2026 with the Statewide General Election and Provide Election Services
SUMMARY: This resolution requests the consolidation of the Town’s General Municipal Election with the Statewide General Election to be held on November 3, 2026 and requests County election services. Two seats on the City Council are to be filled. Consolidating the Town’s election with the Statewide General Election is consistent with standard practice for cities in the County of San Mateo and reduces the cost to the Town of conducting a separate election. Upon adoption, a certified copy of this resolution will be filed with the County of San Mateo Board of Supervisors.

FISCAL IMPACT: The estimated total cost of the election is approximately $45,000.00 which includes estimated costs from the County of San Mateo, supplies, and required legal advertising.

Funds are included in the proposed FY 2026-27 budget.

ATTACHMENT(S): Resolution
PREPARED BY: Lisa Natusch, City Clerk
RECOMMENDATION: Adopt the resolution requesting the Board of Supervisors of the County of San Mateo to consolidate a General Municipal Election to be held in the Town of Hillsborough on Tuesday, November 3, 2026 with the Statewide General Election and provide election services. -51-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

REQUESTING THE BOARD OF SUPERVISORS OF THE COUNTY OF SAN MATEO

TO CONSOLIDATE A GENERAL MUNICIPAL ELECTION TO BE HELD ON TUESDAY, NOVEMBER 3, 2026 WITH THE STATEWIDE GENERAL ELECTION AND PROVIDE

SERVICES
WHEREAS, the City Council of the Town of Hillsborough called a General Municipal Election to be held on Tuesday, November 3, 2026 for the purpose of the election of two members of the City Council; and
WHEREAS, it is desirable that the General Municipal Election be consolidated with the Statewide General Election to be held on the same date and that within the Town the precincts, vote centers and election officers of the two elections be the same, and that the county election department of the County of San Mateo (“County”) canvass the returns of the General Municipal Election and that the election be held in all respects as if there were only one election.

NOW, THEREFORE, THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH,

CALIFORNIA, DOES RESOLVE, DECLARE, DETERMINE AND ORDER AS FOLLOWS:

SECTION 1. That per the requirements of Elections Code Section 10403, the Board of Supervisors of the County of San Mateo is hereby requested to consent and agree to the consolidation of a General Municipal Election with the Statewide General Election on Tuesday, November 3, 2026, for the purpose of the election of two members of the City Council.

SECTION 2. That the county election department is authorized to canvass the returns of the General Municipal Election. The election shall be held in all respects as if there were only one election, and only one form of ballot shall be used.

The election will be held and conducted in accordance with the provisions of law regulating the statewide election.

SECTION 3. That the Board of Supervisors is requested to issue instructions to the county election department to take any and all steps necessary for the holding of the consolidated election.

SECTION 4. That the City Manager is approved and authorized to enter into a Service Agreement for the Provision of Election Services between the Town and the San Mateo County Chief Elections Officer & Assessor-County ClerkRecorder.

SECTION 5. That the Town of Hillsborough recognizes that additional costs will be incurred by the County by reason of this consolidation and agrees to reimburse the County for any costs.
-52-
Resolution No. 26-
June 8, 2026
2 SECTION 6. That the City Clerk is hereby directed to file a certified copy of this resolution with the Board of Supervisors and the county election department of the County of San Mateo.

SECTION 7. That the City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

SECTION 8. This resolution shall be printed and posted upon the three official bulletin boards of the Town of Hillsborough.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers

-53-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
8 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Adopting Regulations for Candidates for Elective Office Pertaining to Candidate Statements Submitted to the Voters at the General Municipal Election to be Held on Tuesday, November 3, 2026
SUMMARY: Per California Elections Code Section 13307, this proposed resolution outlines regulations for candidates for City Council pertaining to candidate statements for the General Municipal Election to be held on Tuesday, November 3, 2026. The regulations include a 200-word maximum for candidate statements, a requirement for candidates to pay a deposit toward the cost of the statement, and a refund or bill from the Town of Hillsborough for the actual cost of the statement within 30 days of receipt of the final election invoice from the County of San Mateo.

FISCAL IMPACT: There is no fiscal impact associated with this agenda item. Candidates shall be required to pay for the cost of the candidate statements.

ATTACHMENT(S): Resolution
PREPARED BY: Lisa Natusch, City Clerk
RECOMMENDATION: Adopt the resolution adopting regulations for candidates for elective office pertaining to candidate statements submitted to the voters at the General Municipal Election to be held on Tuesday, November 3, 2026.
-54-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

ADOPTING REGULATIONS FOR CANDIDATES FOR ELECTIVE OFFICE PERTAINING TO CANDIDATES’ STATEMENTS SUBMITTED TO THE VOTERS AT THE GENERAL MUNICIPAL ELECTION TO BE HELD ON TUESDAY, NOVEMBER 3, 2026
WHEREAS, Section 13307 of the Elections Code of the State of California provides that the governing body of any local agency adopt regulations pertaining to materials prepared by any candidate for a municipal election, including costs of the candidate’s statement.

NOW, THEREFORE, THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH,

CALIFORNIA, DOES RESOLVE, DECLARE, DETERMINE AND ORDER AS FOLLOWS:

SECTION 1. GENERAL PROVISIONS. Under Section 13307 of the Elections Code of the State of California, each candidate for elective office to be voted for at an election to be held in the Town of Hillsborough on Tuesday, November 3, 2026 may prepare a candidate statement on an appropriate form provided by the City Clerk. The statement may include the name, age and occupation of the candidate and a brief description of no more than 200 words of the candidate’s education and qualifications expressed by the candidate himself or herself. The statement shall not include party affiliation of the candidate, nor membership or activity in partisan political organizations. The statement shall be filed in typewritten form in the office of the City Clerk at the time the candidate’s nomination papers are filed.

The statement may be withdrawn, but not changed, during the period for filing nomination papers and until 5:00 p.m. of the next working day after the close of the nomination period.

SECTION 2. FOREIGN LANGUAGE POLICY.

A. Under the Federal Voting Rights Act, candidate statements will be translated into all languages required by the County of San Mateo (“County”). The County is required to translate candidate statements into the following languages: Chinese, Spanish and Filipino.

B. The County will print and mail separate voter information guides in Chinese, Spanish and Filipino to only those voters who are on the County voter file as having requested a voter information guide in a particular language. The County will make the voter information guides and candidates’ statements in the required languages available at all vote centers, on the County’s website, and in the Election Official’s office.

SECTION 3. PAYMENT.
-55-
Resolution No. 26-
June 8, 2026
2 A. Translations: The candidate shall be required to pay for the cost of translating the candidate’s statement into any required foreign language as specified in (A) and/or (B) of Section 2 above under federal and/or state law.

B. Printing:

1. The candidate shall be required to pay for the cost of printing the candidate’s statement in English in the voter information guide.

2. The candidate shall be required to pay for the cost of printing the candidate’s statement in a foreign language required in (A) of Section 2 above, in the voter information guide.

The City Clerk shall estimate the total cost of printing, handling, translating, and mailing the candidate statements filed pursuant to this section, including costs incurred as a result of complying with the Voting Rights Act of 1965 (as amended), and require each candidate filing a statement to pay in advance to the Town of Hillsborough his or her estimated pro rata share as a condition of having his or her statement included in the voter information guide. The estimate is just an approximation of the actual cost that varies from one election to another election and may be significantly more or less than the estimate, depending on the actual number of candidates filing statements. Accordingly, the City Clerk is not bound by the estimate and may, on a pro rata basis, bill the candidate for additional actual expense or refund any excess paid depending on the final actual cost. In the event of underpayment, the City Clerk may require the candidate to pay the balance of the cost incurred. In the event of overpayment, the City Clerk shall prorate the excess amount among the candidates and refund the excess amount paid within 30 days of receipt of the final invoice from the County of San Mateo.

SECTION 4. That this resolution shall apply at the next ensuing municipal election and at each municipal election after that time.

SECTION 5. That the City Clerk shall provide each candidate or the candidate’s representative a summary of the information contained in the resolution at the time nominating papers are issued.

SECTION 6. That the City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.

Mayor of the Town of Hillsborough

Attest: City Clerk
-56-
Resolution No. 26-
June 8, 2026
3 This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-57-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
9 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Approving and Authorizing the City Manager to Execute a Third Amendment to the Information Technology Managed Services Agreement with Eaton & Associates for Comprehensive Information Technology Managed Services in the Amount of $409,560.00 for a Total Contract Amount of $1,976,880.00 SUMMARY: The Town of Hillsborough (“Town”) maintains a comprehensive Information Technology (IT) environment that aims to ensure continuity of essential services for the community. These services include maintaining a robust technological infrastructure, implementing business enterprise and software applications, and establishing a reliable and secure network mainframe in accordance with the Town’s IT Strategic Plan.

From 2003 to 2021, the City of South San Francisco’s IT Department (SSF IT) provided the Town with IT Managed Services through a Memorandum of Understanding. In late 2020, SSF IT indicated to the Town that they would no longer be able to continue providing comprehensive IT services, resulting in the Town issuing a Request for Proposals (RFP) in June 2020. After an extensive selection process, the Town selected Eaton & Associates (Eaton) as the most qualified firm and entered into an IT Managed Services Agreement in June 2021, after approval by the City Council. The Agreement utilized the Town’s Professional Services Agreement (PSA) template with additional language that covers IT-specific services such as security management, digital policies and procedures, and confidentiality, similar to other agency IT Agreements such as the City of Sunnyvale and the City of Irvine.

In June 2024, the Town and Eaton entered into an Amendment to the original Agreement. During the current contract year, the Town conducted a comprehensive review of its IT service needs to examine if changes to the Scope of Services are needed to continue providing proper IT coverage for all departments. A second Amendment was approved in June 2025 and incorporated a second on-site day per week as a pilot.

The proposed third Amendment’s increased amount is the result of maintaining the two on-site days per week schedule with a 2.9% increase to the engineer’s hourly rate. Additionally, workstation and server monitoring and maintenance include an increase of $5 monthly per device.

Eaton has maintained consistent contract rates since the original contract, with only one previous rate increase built into Year 3 of the original Agreement.

Currently, the Town is updating its IT Strategic Plan to assess existing technology systems, evaluate the effectiveness of the current managed IT services model, and identify future operational and infrastructure needs. The plan will formulate a new five-year technology roadmap outlining implementation priorities, staffing considerations, timelines, and resource needs to -58-
Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

support the Town’s long-term technology planning and service delivery objectives. Town staff will present the roadmap and any proposed recommendations to the City Council at a later date.

FISCAL IMPACT: The cost of the proposed Amendment is $409,560.00 for a total agreement amount of $1,976,880.00. Funding for IT services and improvements is included as part of the proposed FY 2026-27 budget.

ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review pursuant to the California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) as ongoing administrative or organizational activities that will not result in direct or indirect physical changes in the environment.

ATTACHMENT(S): Resolution
PREPARED BY: William Li, Administrative Services Manager RECOMMENDATION: Adopt the resolution approving and authorizing the City Manager to execute a third Amendment to the Agreement with Eaton & Associates for comprehensive IT managed services in the amount of $409,560.00 for a total contract amount of $1,976,880.00. -59-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

APPROVING AND AUTHORIZING THE CITY MANAGER TO EXECUTE A THIRD

AMENDMENT TO THE INFORMATION TECHNOLOGY MANAGED SERVICES

AGREEMENT WITH EATON & ASSOCIATES FOR COMPREHENSIVE

INFORMATION TECHNOLOGY MANAGED SERVICES IN THE AMOUNT OF $409,560.00 FOR A TOTAL CONTRACT AMOUNT OF $1,976,880.00 WHEREAS, the Town of Hillsborough (“Town”) utilizes a complex and comprehensive information technology (IT) environment to deliver essential Town services; and
WHEREAS, in 2021, the Town sought a qualified IT firm to provide comprehensive IT managed services through a competitive Request for Proposal (RFP) process; and
WHEREAS, Eaton & Associates (Eaton) was determined to possess the expertise necessary to serve as the Town’s IT managed services provider and entered into a Professional Services Agreement (Agreement) for three (3) years; and
WHEREAS, the Town and Eaton entered into an Amendment No. 1 in June 2024 to extend the original Agreement for one (1) year; and
WHEREAS, the Town and Eaton entered into an Amendment No. 2 in June 2025 to extend the original Agreement for one (1) year; and
WHEREAS, the Town proposes to amend the current Agreement with Eaton to maintain continuity of IT services.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby approves and authorizes the City Manager to execute a third amendment to the Information Technology Managed Services Agreement with Eaton & Associates for comprehensive Information Technology Managed Services in the amount of $409,560.00 for a total contract amount of $1,976,880.00.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:
-60-
Resolution No. 26-
June 8, 2026
2 AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-61-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
10 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Approving the Town of Hillsborough City Council Handbook SUMMARY: The Hillsborough City Council Handbook contains information about the functions and operations of the City Council. It serves as a reference document outlining the roles, responsibilities, and operational guidelines for the Mayor and Councilmembers. The handbook is reviewed in election years to ensure alignment with applicable laws, Town policies, and governance best practices. As part of the 2026 City Council Goal Setting process, City Council identified review and update of the handbook as a priority for the coming year. Staff conducted a review of the handbook, incorporating input from individual Councilmembers and administrative edits, and included those recommendations in the draft handbook.

The City Council Handbook was created in 2005 to document standards of Council operations and relevant regulations and has been distributed to new Councilmembers upon election to the City Council. Since the handbook has not been adopted by City Council, there is a desire to formally approve the document by resolution.

Staff solicited feedback from Councilmembers and incorporated the feedback into the revised draft document. A summary of changes is listed below:
• Added full list and reference to the relevant City Council policies • Added information related to Councilmember compensation/benefits • Added administrative information related to processes such as travel reimbursements, business cards, and the processing of mail
• Updated references to current State law
• Added hyperlinks to relevant codes and reference materials throughout the document • Updated the ability to amend public comment speaker time from three minutes to no less than one minute at the discretion of the Mayor (Section 6.2) Some suggestions provided may be addressed in a separate policy or document. In those instances, staff will return at a later date with the relevant document and proposed changes for City Council consideration.

FISCAL IMPACT: There is no fiscal impact associated with this agenda item.

Page 2 ends

ATTACHMENTS: Resolution and Exhibit A City Council Handbook PREPARED BY: Mandy Brown, Assistant City Manager and Lisa Natusch, City Clerk RECOMMENDATION: Adopt the resolution approving the Town of Hillsborough City Council Handbook, which incorporates the updates and edits recommended by the City Council and aligns with current policies and practices.
-63-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

APPROVING THE TOWN OF HILLSBOROUGH CITY COUNCIL HANDBOOK WHEREAS, a City Council Handbook was developed in 2005 to commit to writing the basic standards of Council operations, and to make such information readily available to all, not just through “past practice” or institutional memory; and
WHEREAS, the City Council Handbook was last updated administratively in 2024 has never formally been approved by City Council; and
WHEREAS, the revised City Council Handbook was reviewed by staff and includes input from individual Councilmembers; and
WHEREAS, the City Manager recommends its approval.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby approves the Town of Hillsborough City Council Handbook, attached hereto as Exhibit A, and authorizes staff to update the handbook administratively as necessary for consistency with Council-adopted policies or new State law.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-64-
Town of
Hillsborough
City Council
Handbook

EXHIBIT A
-65-
Adopted by City Council ____, 2026, Resolution No. ___
Table of Contents
Introduction.............................................................................................................................. 1

1. Local Government in Hillsborough ................................................................................... 2

1.1 Council-Manager Form of Government..................................................................... 2

1.2 Mayor and City Councilmembers .............................................................................. 3

1.3 City Council Compensation and Benefits .................................................................. 3

1.4 Responsibilities ......................................................................................................... 3

2. General Rules of Procedure............................................................................................. 4

2.1 Brown Act.................................................................................................................. 4

2.2 Hillsborough Municipal Code (HMC) ......................................................................... 4

2.3 Public Meetings......................................................................................................... 5

2.4 Location of Meetings ................................................................................................. 5

2.5 Teleconferencing....................................................................................................... 5

2.5 Quorum ..................................................................................................................... 7

2.6 Councilmember Attendance...................................................................................... 7

2.7 Minutes of Proceedings............................................................................................ 7

2.8 Rules of Order.......................................................................................................... 7

2.9 City Manager............................................................................................................ 7

2.10 City Attorney............................................................................................................. 8

2.11 City Clerk.................................................................................................................. 8

3. Types of Meetings ............................................................................................................ 9

3.1 Regular Meetings ...................................................................................................... 9

3.2 Adjourned Meetings .................................................................................................. 9

3.3 Special Meetings....................................................................................................... 9

3.4 Closed Session Meetings.......................................................................................... 9

3.5 Study Session Meetings.......................................................................................... 10

3.6 Emergency Meetings............................................................................................... 10

4. Mayor, Vice Mayor, Presiding Officer – Duties ............................................................... 11

4.1 Mayor ...................................................................................................................... 11

4.2 Vice Mayor .............................................................................................................. 11

4.3 Presiding Officer...................................................................................................... 11

4.4 Call to Order............................................................................................................ 11

4.5 Preservation of Order.............................................................................................. 11

4.6 Point of Order.......................................................................................................... 11

4.7 Motion to be Stated; Roll Call Vote ......................................................................... 12

4.8 Proclamations ......................................................................................................... 12

5. Order of Business / Preparation of Agenda and Packet ................................................. 12

5.1 Order of Business.................................................................................................... 12

5.2 Agenda Preparation and Availability of Agenda Materials....................................... 12 -66-
Adopted by City Council ____, 2026, Resolution No. ___

5.4 Public Hearing......................................................................................................... 13

5.5 Written Communications ......................................................................................... 13

5.6 Document Review ................................................................................................... 14

6. Conduct of the Meeting .................................................................................................. 15

6.1 Consent Calendar ................................................................................................... 15

6.2 Public Comment on Items not on the Agenda......................................................... 15

6.3 Actions Limited to Posted Agenda .......................................................................... 15

6.4 Ordinances.............................................................................................................. 16

6.5 Resolutions ............................................................................................................. 16

6.6 Motions.................................................................................................................... 16

6.7 Majority Vote Required............................................................................................ 17

6.8 Rights of the Public ................................................................................................. 17

6.9 City Council Items Section of the Agenda ............................................................... 18

7. Public Hearing Procedures............................................................................................. 19

7.1 Introduction ............................................................................................................. 19

7.2 Staff and Written Material Presentation................................................................... 19

7.3 Public Hearing......................................................................................................... 19

7.4 City Council Deliberations and Action ..................................................................... 19

8. Miscellaneous Meeting Rules......................................................................................... 21

8.1 Right of Floor........................................................................................................... 21

8.2 Roll Call Votes......................................................................................................... 21

8.3 Voice Votes ............................................................................................................. 21

8.4 Continuance of an Item ........................................................................................... 21

8.5 Record Regarding Dissent ...................................................................................... 22

8.6 Motion to Reconsider .............................................................................................. 22

8.7 Mayor’s Rights ........................................................................................................ 22

8.8 Appeals ................................................................................................................... 22

8.9 Amendments of Motion ........................................................................................... 22

9. Commissions and Committees....................................................................................... 23

9.1 Appointments to Town and Regional Assignments ................................................. 23

9.2 Committees and Boards.......................................................................................... 23

9.3 Standing Subcommittees and Ad Hoc Subcommittees of the City Council ............. 23

9.4 Local Appointments List .......................................................................................... 23

10. Statutory Requirements and Regulations ................................................................... 25

10.1 Political Reform Act................................................................................................. 25

10.2 Levine Act – Conflicts of Interest Related to Campaign Contributions .................... 25

10.3 Fair Political Practices Commission (FPPC) Filing Requirements........................... 26

10.4 Ethics Training for Public Officials (AB 1234).......................................................... 27

10.5 Sexual Harassment Prevention Training (AB 1661)................................................ 27

10.6 Fiscal and Financial Training (SB 827).................................................................... 27 -67-
Adopted by City Council ____, 2026, Resolution No. ___

11. Communications ......................................................................................................... 27

11.1 All Written Communications are Public Records ..................................................... 27

11.2 Speaking on Behalf of “the Town”........................................................................... 27

11.3 Speaking as an Individual ....................................................................................... 28

11.4 Use of Email............................................................................................................ 28

11.5 Business Cards and Name Badges ........................................................................ 28

11.6 Mail Processing and Councilmember Mailboxes..................................................... 28

12. Administrative Items.................................................................................................... 29

12.1 Conferences and Travel.......................................................................................... 29

12.2 Councilmember Photographs.................................................................................. 29 References......................................................................................................................... 30 -68-
Adopted by City Council ____, 2026, Resolution No. ___ 1 Introduction
This handbook has been prepared to provide a convenient source of information about the functions and procedures of the City Council. It is also intended to assist Councilmembers in carrying out their roles. The information in this handbook is in summary form. For specific details and more complete information, the appropriate sources should be referenced. See References page for source links. -69-
Adopted by City Council ____, 2026, Resolution No. ___ 2

1. Local Government in Hillsborough
The Town of Hillsborough was incorporated in 1910, governed by a City Council. The Town established the Council-Manager form of government. Hillsborough is a General Law city and the City Council is the governing body. The City Council is vested with all the regulatory and corporate powers of a municipal corporation provided for by state law governing general law cities.

The Hillsborough City Council is composed of five Councilmembers directly elected by the voters in the Town to serve a four-year term. The City Council selects the Mayor and Vice Mayor annually. Although not granted special decision-making powers, the Mayor does represent the Town in all ceremonial and official affairs. The Town’s municipal elections are held the first Tuesday after the first Monday in November of even-numbered years. There are no term limits for Councilmembers.

The purpose of the City Council is to establish local laws, set policies, approve or reject programs and projects, allocate funds, approve fees and provide direction to Town staff to implement its policy and administer to the needs of the Town organization. The City Council has the authority to appoint the City Manager, the City Attorney and members to various local and regional committees, commissions and other boards.

Since the Town of Hillsborough is a general law city, as opposed to a charter city, its City Council, as the governing body, must act within the framework of limitations and procedures established by state law such as the California Government Code and the Elections Code. Local laws are established by ordinance and are compiled in the Hillsborough Municipal Code. These laws are enforceable by the Town, and violations can constitute a misdemeanor or an infraction. Other directives and policies of the City Council are recorded in City Council resolutions and City Council minutes.

The City Council meets regularly on the second Monday of the month, or the day after that if the second Monday is a holiday.

1.1 Council-Manager Form of Government
Under the Council-Manager form of government, Hillsborough voters elect the City Councilmembers, who make decisions which determine the policy of the Town.

The City Council is the governing body of the Town responsible for establishing policies and programs. The City Council is responsible to the citizens of the community to see that local policies and laws address both short- and long-term needs, and that citizens receive a return on their tax investment in terms of adequate town services.

While the City Council establishes policies and programs, it is the responsibility of the City Manager to apply and administer those policies to the day-to-day operations of -70-
Adopted by City Council ____, 2026, Resolution No. ___ 3 the Town. The City Manager oversees the total Town operations and is the liaison between the City Council and Town staff.

Teamwork between the City Council and the City Manager is a key element of the Council-Manager form of government. The pooling of skills is essential to resolve the many complex problems that face the Town. The Council-Manager form of government seeks to enhance the effectiveness of local policy-making and municipal operations by bringing together skilled lawmakers, community representatives, and experts in municipal administration and management.

1.2 Mayor and City Councilmembers
The Town of Hillsborough is governed by a five-member City Council elected to fouryear terms on a staggered basis. City Councilmembers are elected in the general election in November of even-numbered years. Each year in December, the City Council selects a Mayor and Vice Mayor from its own membership.

The Mayor is the presiding officer of the City Council. As presiding officer, the Mayor calls City Council meetings to order, announces the order of business as detailed on the agenda, states motions, calls for a vote and announces the results, facilitates and monitors discussions, maintains order, and enforces the City Council’s rules and parliamentary procedure. The Mayor also signs all ordinances, resolutions, and other records of proceedings approved by the City Council.

1.3 City Council Compensation and Benefits
Councilmembers receive no direct compensation for serving on the City Council.

Councilmembers are eligible to receive health insurance coverage (medical, dental, vision) while serving on the City Council, if they elect to do so.

1.4 Responsibilities
The City Council is the elected legislative and policy-making body of the town government. The City Council is responsible to the residents for:

A. Establishing community-wide goals that address short- and long-range needs.

B. Formulating policies that define a course of action that shape town operations.

C. Providing quality services within available resources.

D. Acting as a link between staff and residents.

Strategic planning and goal setting are the tools that enable the City Council to define their vision and determine methods for accomplishing their goals. -71-
Adopted by City Council ____, 2026, Resolution No. ___ 4

2. General Rules of Procedure

2.1 Brown Act
The Ralph M. Brown Act (found in Government Code Sections 54950 through 54963) applies to the Town, the City Council and the Town’s various boards and committees and governs meetings and their procedures. The purpose of the Brown Act is to ensure that almost all aspects of the decision-making process of legislative bodies of local agencies are conducted in public and open to public scrutiny. The Brown Act prohibits closed or secret meetings, except under very special circumstances (i.e.

Closed Sessions).

Councilmembers must be wary of “serial meetings” which violate the Brown Act. A serial meeting occurs under the Brown Act when there is a series of individual meetings, discussions, communications, or contacts with other Councilmembers for the purpose of developing collective concurrence on a topic within the jurisdiction of the legislative body/regarding agency business. Serial meetings can occur when there is an exchange of ideas through an intermediary or through the use of technological devices such as telephone answering machines, e-mail or voicemail.

The Brown Act also establishes requirements for advance notice and a posted agenda before regular meetings take place. The Brown Act requires that the agendas for regular meetings be posted 72 hours before the regular meeting and the agendas for special meetings be posted at least 24 hours before the special meeting. The agenda posting must include the date, time, place, and brief general description of each item of business and must be posted on the Town’s three bulletin boards and on the Town website. (See Section 5.3) Every agenda for regular meetings must provide an opportunity for the public to address the City Council. Furthermore, no action may be taken on an item at any meeting without a quorum present.

2.2 Hillsborough Municipal Code (HMC)
The Hillsborough Municipal Code is available on the Town website and sets forth the regulatory laws of general application to the Town. Local ordinances adopted by the City Council are codified in the municipal code. These laws are enforceable by the Town, and violation constitutes a misdemeanor or infraction. The municipal code is divided into the following categories:
 Title 1: General Provisions
 Title 2: Administration and Personnel
 Title 3: Revenue and Finance
 Title 4: Franchises
 Title 5: Business Taxes, Licenses and Regulations
 Title 6: Animals
 Title 8: Health and Safety
 Title 9: Public Peace, Morals and Welfare
-72-
Adopted by City Council ____, 2026, Resolution No. ___ 5  Title 10: Vehicles and Traffic
 Title 12: Matters Affecting the Right-of-Way – Visibility – Outdoor Fixtures  Title 13: Public Services
 Title 14: Trees
 Title 15: Buildings and Construction
 Title 16: Subdivisions
 Title 17: Zoning
Other directives and policies of the City Council are recorded in City Council resolutions, policies, or by minute action of the City Council.

Chapter 2.04 of the Hillsborough Municipal Code sets the times and places for City Council meetings, study sessions, the Mayor’s and Vice Mayor’s terms, and the procedure for selecting a Mayor Pro Tempore.

A hard copy Hillsborough Municipal Code book is also available in the City Clerk’s office.

2.3 Public Meetings
All meetings (except Closed Sessions as provided by state law) of the City Council are subject to the Brown Act and must be open to the public. Meetings are recorded and the videos are posted on the Town website within one business day.

2.4 Location of Meetings
The City Council shall meet in the City Council Chambers in Town Hall for all meetings except as otherwise noticed as allowed by the Brown Act. Types of meetings are set forth in Sections 3.1 – 3.6 of this handbook.

2.5 Teleconferencing

Under the traditional teleconferencing rules in the Brown Act (Government Code Section 54953(b)), one or two Councilmembers may participate in a City Council meeting from a location outside of the Town, by audio or video connection or both, provided that:

A. The teleconference location is made accessible to the public; B. Any members of the public attending at the teleconference location are able to address the City Council;
C. The posted agenda for the City Council meeting identifies the teleconference location precisely;
D. An agenda is posted at each teleconference location; and -73-
Adopted by City Council ____, 2026, Resolution No. ___ 6 E. All votes must be by roll call vote.

F. At least a quorum of the body participates within the agency’s jurisdiction.

For example, if a Councilmember is participating in a City Council meeting from a hotel in another city, the Councilmember must conduct the meeting from a location in the hotel that is publicly accessible (lobby, business center, or hotel room if the public can access that location), the agenda must be posted at a place in the hotel where the public is likely to see it, such as on the events board in the hotel lobby, and the agenda must identify the exact location in the hotel where the teleconferencing is to take place.

The telephone must have speaker phone capacity so that if any member of the public does attend the meeting from the teleconference/hotel location, the member of the public as well as the Councilmember will be able to hear the proceedings and participate in them.

As an alternative under more recent teleconferencing legislation, a Councilmember may participate in a City Council meeting remotely under the “just cause” provisions as that term is defined in the Brown Act. Under this legislation, the teleconference location does not need to be made publicly accessible, an agenda does not need to be posted at the teleconference location, and the teleconference location does not need to be identified on the agenda. In order for a Councilmember to use this legislation to attend remotely, they would need to have a just cause basis to do so. “Just cause” is defined in the Brown Act to mean:

1. Childcare or caregiving need of a child, parent, grandparent, grandchild, sibling, spouse, or domestic partner that requires them to participate remotely. “Child,” “parent,” “grandparent,” “grandchild,” and “sibling” have the same meaning as those terms do in Section 12945.2.

2. A contagious illness that prevents a member from attending in person.

3. A need related to a physical or mental condition that is not subject to subdivision (c) of Section 54953.

4. Travel while on official business of the legislative body or another state or local agency.

5. An immunocompromised child, parent, grandparent, grandchild, sibling, spouse, or domestic partner of the member that requires the member to participate remotely.

6. A physical or family medical emergency that prevents a member from attending in person.

7. Military service obligations that result in a member being unable to attend in person because they are serving under official written orders for active duty, drill, annual training, or any other duty required as a member of the California National Guard or a United States Military Reserve organization that requires the member to be at least 50 miles outside the boundaries of the local agency. -74-
Adopted by City Council ____, 2026, Resolution No. ___ 7 Effective January 1, 2026, a member of a legislative body with a disability may participate in any meeting of the legislative body by remote participation as a reasonable accommodation under any applicable law.

Use limits, additional requirements and disclosures apply; Councilmembers should consult with the City Clerk and the City Attorney when planning to use any teleconferencing option.

2.5 Quorum
Three members of the City Council shall constitute a quorum necessary to transact business. In the event that a quorum is not in attendance, those Councilmembers attending will be named in the minutes, and they (or the City Clerk, if all Councilmembers are absent) shall adjourn the meeting to a later date and deliver notice of that fact under Government Code Section 54955.

2.6 Councilmember Attendance
Councilmembers are expected to make every effort to attend City Council meetings.

Occasionally, due to business, vacation, family commitments, illness or other unavoidable personal matters, a Councilmember will be unable to attend a City Council meeting. In such cases, the Councilmember shall notify the Mayor or City Manager, or, if neither is available, the City Clerk, prior to the meeting, preferably at least two weeks in advance. If the Councilmember has notified the City Clerk, the City Clerk shall notify the Mayor and the City Manager. Such an absence shall be deemed an excused absence. Any other absence shall be deemed an unexcused absence.

Under Government Code Section 36513(b), the seat of a Councilmember with two consecutive unexcused absences from the regular monthly City Council meeting becomes vacant and shall be filled as any other vacancy.

2.7 Minutes of Proceedings
An account of all public proceedings of the City Council shall be taken by the City Clerk and entered into the official minute books of the City Council. These minutes shall be available to the public following approval by the City Council.

2.8 Rules of Order
To the extent this handbook does not address an issue of parliamentary procedure for legislative body meetings, Robert’s Rules of Order shall apply.

2.9 City Manager
The City Manager shall attend all meetings of the City Council, except as the City Manager otherwise notifies the Mayor. In the City Manager’s absence, the Assistant City Manager or his or her designee shall attend. The City Manager, Assistant City -75-
Adopted by City Council ____, 2026, Resolution No. ___ 8 Manager, or his or her designee, may make recommendations and shall have the right to take part in all discussions of the City Council.

2.10 City Attorney
The City Attorney shall attend all meetings, unless the City Attorney has otherwise notified the Mayor or City Manager. In the absence of the City Attorney, the City Attorney’s designee shall attend. Upon request of the City Council or authorized staff members, the City Attorney or City Attorney’s designee shall give opinions, either written or oral, on questions of law.

2.11 City Clerk
The City Clerk or Deputy City Clerk shall attend all meetings of the City Council. The City Clerk shall file, prepare, and maintain the official record of the City Council and perform other related duties as prescribed by the City Manager. -76-
Adopted by City Council ____, 2026, Resolution No. ___ 9

3. Types of Meetings

3.1 Regular Meetings
Under Hillsborough Municipal Code Section 2.04, regular City Council meetings are held at Town Hall on the second Monday of each month, or the day after if the second Monday is a holiday. Regular meetings begin at 6:00 p.m., but may be called earlier for study sessions, closed sessions, or ceremonial events with the regular business commencing at 6:00 p.m. In the event that a second regular meeting of the City Council is required in any given month, that meeting shall be held on the fourth Monday of the month. Meeting dates, times, and places can be changed further as set forth in the Brown Act and the Hillsborough Municipal Code.

3.2 Adjourned Meetings
Any meeting of the City Council may be adjourned to a later date, place, and time that is before the next regularly scheduled meeting date. This fact needs to be clearly stated at the time of adjournment and a “Notice of Adjournment” must be posted near the door to the meeting room within 24 hours of adjourning the meeting, indicating the facts of the adjournment. If the subsequent meeting occurs within five days of the original meeting, original agenda items may be considered without reposting the agenda. If the subsequent meeting occurs more than five days after the original meeting, a new agenda must be prepared and posted.

3.3 Special Meetings
Special meetings may be called by the Mayor or by a majority of the City Council to review and discuss specific topics as authorized by the Brown Act. The call for a special meeting shall specify the day, hour, and place of the meeting and the subject(s) to be considered. At least 24 hours’ notice shall be given prior to the meeting in the manner prescribed by law. Only matters specified in the notice may be discussed at the special meeting; only urgency ordinances may be adopted at such meetings. Special meetings are open to the public.

3.4 Closed Session Meetings
Under certain specific circumstances, set forth in the Brown Act, the City Council may hold Closed Session meetings. These are noted on the formal agenda in the manner prescribed by the Brown Act. Closed Session meetings are closed to the public, but staff persons/consultants with information relevant to the Closed Session matter may attend as determined by the City Attorney and City Manager. For litigation-based closed sessions, the City Attorney is required to attend as those closed sessions require that legal advice be provided which can only be provided by the City Attorney’s Office. Closed Sessions may be held to discuss certain matters specified by law, including:
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Adopted by City Council ____, 2026, Resolution No. ___ 10 A. Personnel matters;
B. Labor negotiations;
C. Real estate negotiations; and
D. Pending and existing litigation.

Matters discussed during Closed Sessions are confidential and are not to be discussed with anyone outside of the Closed Session. While Closed Sessions are not open to the public, the City Council may be required to report on the votes and actions taken based on what is required in the Brown Act.

3.5 Study Session Meetings
The City Council may meet informally in Study Sessions called by the Mayor or a majority of Councilmembers. The purpose of a Study Session is to give the City Council the opportunity to review items that require more in-depth study than time allows on the regular meeting agenda, and to receive informational reports/items that require no formal action. Study Sessions are open to the public and are subject to the Brown Act. The City Council may not take any formal action at a Study Session and minutes of the discussion shall not be taken. Study Sessions are special meetings, for purposes of the Brown Act, and must comply with the Brown Act’s rules for special meetings.

3.6 Emergency Meetings
In the case of an emergency situation involving matters upon which prompt action is necessary due to the disruption or threatened disruption of public facilities, the City Council may hold an emergency meeting without complying with the 24-hour notice and posting requirements applicable to special meetings. Emergency meetings are open to the public. An “emergency situation” is:

A. An emergency, defined as a work stoppage, crippling activity, or other activity that severely impairs public health, safety or both, as determined by a majority of the Councilmembers, or
B. A dire emergency, defined as a crippling disaster, mass destruction, terrorist act, or threatened terrorist activity that poses a peril so immediate and significant that requiring a legislative body to provide a one-hour notice, which is otherwise required for newspapers and radio and television stations that request notice of special meetings, before holding an emergency meeting may endanger the public health, safety, or both, as determined by a majority of the Councilmembers.
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Adopted by City Council ____, 2026, Resolution No. ___ 11

4. Mayor, Vice Mayor, Presiding Officer – Duties

4.1 Mayor
The Mayor is the presiding officer of the City Council. As presiding officer, the Mayor calls City Council meetings to order, announces the order of business as detailed on the agenda, states motions, calls for a vote and announces the results, facilitates and monitors discussions, maintains order, and enforces the City Council’s rules and parliamentary procedure. The Mayor also signs all ordinances, resolutions, and other records of proceedings approved by the City Council. The Mayor shall be elected annually by a majority vote of Councilmembers for a one-year term. Councilmembers may serve as Mayor for two consecutive terms.

4.2 Vice Mayor
The Vice Mayor shall be elected annually by a majority vote of Councilmembers for a one-year term. Councilmembers may serve as Vice Mayor for two consecutive terms.

4.3 Presiding Officer
The Mayor, if present, shall preside at the meeting of the City Council. In the Mayor’s absence, the Vice Mayor shall preside. In the absence of both, the Mayor Pro Tempore, as defined in Hillsborough Municipal Code Section 2.04.040, shall preside.

The Mayor’s duties during City Council meetings shall apply to the Vice Mayor or the Mayor Pro Tempore when either is conducting the meeting in the Mayor’s absence.

4.4 Call to Order
The Mayor shall call the meeting to order at the hour appointed and when a quorum is present.

4.5 Preservation of Order
The Mayor shall preserve order and decorum and shall confine debate to the item under discussion.

4.6 Point of Order
A motion to raise a point of order (or to call for agenda adherence, or to call for the orders of the day) does not require a second, is not amendable, and is not debatable.

The purpose of the motion is to question whether a matter being discussed is adhering to the agenda item being considered. The custom and practice of the City Council is that the Mayor will sense the consensus of the City Council to take agenda items out of order, in order to expedite the efficient conduct of the meeting. A formal motion to change the agenda order of business or a formal motion to call for City Council agenda adherence is intended to be used when there is no apparent consensus. The -79-
Adopted by City Council ____, 2026, Resolution No. ___ 12 Mayor shall determine all points of order, subject to the right of any Councilmember to appeal to the entire City Council. If an appeal is taken, the question shall be simply whether the decision of the Mayor should be sustained.

4.7 Motion to be Stated; Roll Call Vote
If requested by a Councilmember, or if needed for clarity, the Mayor shall state any motion submitted for a vote and shall announce the result. When any Councilmember is attending the meeting by teleconference, all votes shall be taken by roll call as required by the Brown Act. A roll call vote shall be taken at the request of any Councilmember or as otherwise required by law.

4.8 Proclamations
Proclamations recognizing special events, achievements, or service to the community or Town shall be made at the discretion of the Mayor in accordance with the criteria specified in Policy 420: Flag Flying, Proclamations, and Public Awareness Campaigns Policy.

5. Order of Business / Preparation of Agenda and Packet

5.1 Order of Business
I. Call to Order
II. Pledge of Allegiance
III. Roll Call
IV. Announcement of Conflicts of Interest
V. Public Comment on Items not on the Agenda
VI. Presentations
VII. Proclamations
VIII. Recognition
IX. Consent Calendar
X. Public Hearing
XI. Old Business
XII. New Business
XIII. Discussion
XIV. Informational
XV. City Council Items
XVI. Adjournment

5.2 Agenda Preparation and Availability of Agenda Materials The agenda shall be prepared by the City Clerk under direction of the City Manager according to the procedure that he or she directs. The City Manager may adjust the agenda at his or her discretion. Councilmembers may submit an item for the agenda through the City Manager. The agenda packet, which includes the agenda, staff -80-
Adopted by City Council ____, 2026, Resolution No. ___ 13 reports, supporting documents, and public comments (if available), shall be delivered to the City Council on the Thursday preceding the Monday meeting. Most items on the agenda require City Council action or direction, although informational items and other items are also included, as indicated in Section 5.1 above.

Printed materials contained in the agenda packets, except as exempt from public disclosure, will be available on the Town website on the Thursday before the regular meeting, in the City Clerk’s Office, and in Council Chambers at the meeting. If paper copies are requested, there may be a copy charge, based on the Town’s current copy fee, at the discretion of the Town.

If Councilmembers have questions regarding items on the agenda, they are requested to ask questions in advance of the meeting whenever possible. This allows staff time to research the answer and provide a response in a timely manner.

5.3 Agenda Posting
The City Clerk shall post an agenda at least 72 hours before a regular meeting on the Town website and at the following locations:

A. Town Hall, 1600 Floribunda Avenue
B. Fire Station 32, 330 Ascot Drive
C. Fire Station 33, 835 Chateau Drive
The agenda shall specify the date, time and location of the meeting and contain a brief description and a proposed action, if applicable, of each item of business to be transacted or discussed at the meeting.

5.4 Public Hearing
Items requiring a Public Hearing shall be noticed as required by law. The adoption of proposed ordinances generally occurs at the City Council meeting following the meeting at which the proposed ordinance was introduced.

5.5 Written Communications
Any person may submit written comments to the City Council on an agenda item through the City Clerk or via [email protected] and may request that the City Council receive copies in the agenda packet, if such written comments are received by 5 p.m. on the Wednesday prior to the scheduled City Council meeting.

Written comments can be filed with the City Clerk up to two hours before the meeting for distribution to the City Council. Items distributed to the City Council will be made available on the Town website and in Council Chambers at the meeting. -81-
Adopted by City Council ____, 2026, Resolution No. ___ 14

5.6 Document Review
All ordinances, resolutions, and contracts shall, before being placed on the agenda, be approved as to form and legality by the City Attorney, except that where timing so requires, an item may be placed on the agenda prior to the City Attorney’s final review, and any action taken with respect to the item shall be subject to the City Attorney’s approval as to form and legality.
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Adopted by City Council ____, 2026, Resolution No. ___ 15

6. Conduct of the Meeting

6.1 Consent Calendar
Items listed under the Consent Calendar are those items that staff believes will not require City Council discussion and that are routine in nature. The consent items are typically approved in one motion. A Councilmember may remove an item from the Consent Calendar for discussion and/or clarification. Also, any member of the public may request a Councilmember to remove an item from the Consent Calendar to provide comments, for discussion and/or clarification.

6.2 Public Comment on Items not on the Agenda
During the Public Comment period, any person may address the City Council on any matter that is within the subject matter jurisdiction of the City Council and that is not on the agenda. In addition, any member of the public has the right to comment, either before or during the City Council’s consideration of the item, regarding any matter on the agenda. Anyone wishing to address the City Council is asked to fill out a Speaker Form and limit comments to three minutes. If there appears to be a large number of speakers, speaking time may be reduced to no less than 1 minute, at the discretion of the Mayor. Speaking time must be applied equitably to all speakers.

6.3 Actions Limited to Posted Agenda
The City Council shall not take action on any item not appearing on the posted agenda except as set forth in Government Code Section 54954.2(b)(1) regarding emergency, sudden need to take immediate action, and any item continued from a recent past meeting. In addition, the following is allowed:

A. Members of the City Council or staff may briefly respond to statements made or questions posed by persons exercising their right to make a public comment.

B. Councilmembers on their own initiative or in response to questions posed by the public, another Councilmember or staff, may ask a question for clarification, make a brief announcement, or make a brief report on his or her own activities.

C. A Councilmember or the entire City Council may provide a reference to staff or other resources for factual information, request staff to report back to the City Council at a subsequent meeting concerning any matter, or take action to direct staff to place a matter of business on a future agenda. -83-
Adopted by City Council ____, 2026, Resolution No. ___ 16

6.4 Ordinances
Ordinances are the laws of a municipality enacted by the City Council. Under state law, ordinances are adopted via two readings. At one meeting, staff will present the ordinance, answer questions, and the City Council will be asked to discuss and to introduce the ordinance (first reading). After that meeting, the ordinance will return at the next regularly scheduled meeting and be placed on consent for formal adoption (second reading). If the ordinance is an urgency ordinance, i.e., an ordinance needed for the immediate preservation of public peace, health or safety, and containing a declaration of the facts constituting the urgency, introduction and adoption can occur at the same meeting, which may either be a regular or special meeting. Except for urgency ordinances, there must be at least five days between introduction and adoption of an ordinance. If a proposed ordinance is changed (other than to correct typographical or clerical errors) at the second meeting where it is scheduled for adoption, i.e., after the ordinance has been introduced, it must be reintroduced in its changed form at that same meeting and cannot be passed until at least five days have elapsed since reintroduction. However, a proposed ordinance changed prior to initial introduction is simply introduced in its changed form and no reintroduction is necessary. Following adoption of an ordinance, the City Clerk will assign a number to the ordinance and post according to law.

With a few exceptions, an ordinance becomes effective 30 days after adoption. The 30-day time frame is known as a referendum period. A referendum period is required by state law and is a time frame in which any citizen can file a petition challenging the legality of a recently adopted ordinance. An ordinance can be repealed or amended by a subsequent ordinance. It is the most binding form of action taken by the City Council.

Ordinances adopted by the City Council are codified in the Hillsborough Municipal Code. (See Section 2.2)

6.5 Resolutions
A resolution may be adopted expressing the policy of the City Council on directing certain types of procedural or administrative actions. They are generally used for approving agreements, procedures, or fund appropriations. Resolutions become effective immediately upon adoption.

6.6 Motions
A motion requires majority City Council approval for a procedural or administrative action. Motions are usually used for disposition of business items on the agenda.

When the City Council is not prepared to take a definite action, or when further study or information is needed, the City Council may refer the matter to staff, an advisory body, or a citizens’ group for study or report.
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Adopted by City Council ____, 2026, Resolution No. ___ 17

6.7 Majority Vote Required
A recorded affirmative vote of at least a majority of the City Council, i.e., at least three affirmative votes, shall be necessary to adopt an ordinance, resolution, or order for the payment of money. Urgency ordinances require the affirmative vote of at least four Councilmembers for adoption. Motions and any other matters (not including certain eminent domain actions) may be adopted by a majority of those Councilmembers present.

6.8 Rights of the Public
Any person may address the City Council during Public Comment (see Sections 5.1 and 6.3), as part of a Public Hearing (see Sections 5.4 and 7.3), and before or during the City Council’s consideration of any other agenda item and prior to any vote by the City Council on that item. The following procedures shall be observed when addressing the City Council:

A. Each person addressing the City Council shall step to the podium and is requested, but not required, to state his or her name and address for the record.

B. Speakers may speak for up to 3 minutes. If there appears to be a large number of speakers, speaking time may be reduced to no less than 1 minute, at the discretion of the Mayor.

C. All remarks shall be directed to the Mayor and the City Council as a body and not to any particular member.

D. No person, other than members of the City Council and the person having the floor, shall be permitted to enter into the discussion, except as otherwise permitted by the Mayor.

E. Remarks should be focused on the issue at hand. Any person who is disrupting the meeting and stopping the City Council or staff from proceeding with the meeting may be directed by the Mayor to leave the meeting. The Mayor shall discourage demonstrations such as applauding or sounds of disapproval. Unlawful or disruptive behavior shall be dealt with according to law. If necessary, the Mayor shall direct the Police Department to restore order.

Under the requirements of Senate Bill 707, the City Council adopted Policy 421:

Disruption of Telephonic or Internet Service During Meetings to address how the Town will respond to disruptions in telephonic or internet service that prevent members of the public from participating in meetings remotely via Zoom. The policy establishes procedures for responding to a disruption in the telephonic or internet services that provide two-way remote public access to meetings of the City Council to ensure -85-
Adopted by City Council ____, 2026, Resolution No. ___ 18 transparency, public participation, and the continuation of meetings during technological disruptions.

6.9 City Council Items Section of the Agenda
The City Council Items section of the agenda provides an opportunity for the Council Members to make a brief announcement or report on their participation in activities related to any intergovernmental committee assignments they have been assigned. -86-
Adopted by City Council ____, 2026, Resolution No. ___ 19

7. Public Hearing Procedures

7.1 Introduction
The Mayor announces the subject of the Public Hearing.

7.2 Staff and Written Material Presentation
A. The staff member presents the staff summary report. If any written material was received after completion of the agenda packet, staff gives copies of that material to the Councilmembers and to the City Clerk.

B. Councilmembers ask any questions of staff and staff responds.

C. The Mayor declares the Public Hearing open.

7.3 Public Hearing
A. The purpose of the Public Hearing is to hear from any applicant, and allow members of the public to testify in support of, or in opposition to, the matter being heard.

B. The applicant or representative typically speaks first.

C. All other interested persons speak following the applicant or representative.

D. The Mayor instructs members of the public to:

1. Speak from the podium;

2. Provide their name and address (optional) before speaking;

3. Adhere to the designated time limit - up to three minutes, or reduced to one minute at the discretion of the Mayor, if there are a large number of speakers; and

4. Avoid repetition.

E. The applicant or representative is allowed rebuttal time after public comment.

F. The Mayor declares the Public Hearing closed.

7.4 City Council Deliberations and Action
A. The matter is returned to the City Council for deliberation. -87-
Adopted by City Council ____, 2026, Resolution No. ___ 20 B. The City Council may ask questions of speakers and/or staff for clarification.

C. A Councilmember may make a motion to:

1. Approve or not approve the agenda item.

2. Continue the matter to a later date in order to verify information received before or during the Public Hearing.

3. Remand the matter to the Architecture and Design Review Board or other committee or commission, as applicable, for reconsideration.

4. Re-open and continue the Public Hearing to a later date in order to receive new information (e.g. an additional staff report on an issue).

D. The City Council will debate the motion, if seconded, and vote on the motion.
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Adopted by City Council ____, 2026, Resolution No. ___ 21

8. Miscellaneous Meeting Rules

8.1 Right of Floor
Any Councilmember desiring to speak shall first be recognized by the Mayor and shall, with the exception of responding to public comments, confine any remarks to the subject under consideration.

8.2 Roll Call Votes
Upon demand by any Councilmember, made before the “Nays” are called for, a roll call vote shall be taken on the motion before the City Council. The City Clerk shall call the roll. Councilmembers shall not give explanations for their vote during roll call. As noted in Section 4.7, roll call votes are also required when any Councilmember is attending the meeting by teleconference. Roll call votes shall also be taken regarding appeals from a ruling by the Mayor, as set forth in Section 8.8.

8.3 Voice Votes
If a roll call vote is not requested or required, votes shall be by voice (“Ayes”, “Nays”, or “Abstain”).

8.4 Continuance of an Item
A. Continuance by a Councilmember: Any Councilmember may, with the consent of the City Council, request to continue an item, not subject to a deadline, to the next (or later) scheduled meeting. If the Councilmember will not be in attendance at a meeting, the request to continue an item from that meeting to the next (or later) meeting should be personally conveyed to the Mayor or City Manager prior to the meeting.

B. Continuance requested by someone not a Councilmember: Anyone may request a continuance of an item by the City Council. A request for a continuance may be granted by vote of the City Council only if it finds the following:

1. The circumstances necessitating the continuance were beyond the control of the person requesting it; and

2. The need for the continuance arose after:
a. The date of the notice of the Public Hearing was published if the item is subject to a Public Hearing, or
b. The time the City Council agenda was posted for items not subject to a Public Hearing.
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Adopted by City Council ____, 2026, Resolution No. ___ 22

8.5 Record Regarding Dissent
Any Councilmember shall have the right to enter into the public record reasons for dissent or protest against any action carried by the majority.

8.6 Motion to Reconsider
A motion to reconsider any action taken by the City Council may be made in accordance with the following:

A. The motion must be made by a member of the prevailing side although it may be seconded by any Councilmember.

B. The motion must be made prior to the adjournment of the meeting at which the original action was taken or, if the motion has not already been implemented or relied upon in any way, at the next meeting of the City Council.

C. The motion is debatable and has precedence over a pending motion.

8.7 Mayor’s Rights
The Mayor may move, second, and debate from the chair and shall not be deprived of any rights and privileges of a Councilmember.

8.8 Appeals
Any ruling of the Mayor may be appealed at the request of a Councilmember. The Mayor shall call for a roll call vote to determine if the ruling is upheld.

8.9 Amendments of Motion
If a Councilmember wishes to amend a motion that is on the floor, he or she may propose the amendment and ask the Councilmembers who made and seconded the original motion if they will accept the amendment. If the answer is “Yes”, the motion as amended shall be debated and voted upon.
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Adopted by City Council ____, 2026, Resolution No. ___ 23

9. Commissions and Committees

9.1 Appointments to Town and Regional Assignments
At the regular meeting in December or January, the Mayor shall appoint Councilmembers to serve on the various community committees that require a City Council representative. The Mayor shall also appoint two Councilmembers to serve on the Central County Fire Department Joint Powers Agency Board and Hillsborough Recreation Commission Joint Powers Authority Board, and shall appoint a Councilmember as commissioner for each of the following five departments, under Policy 411: City Council Commissioners:
• Finance and Administrative Services
• Building and Planning
• Police
• Fire
• Public Works (Water, Sewer and Streets)
• Communications
• Sustainability

9.2 Committees and Boards
Advisory Committees and Boards may be created and appointed in accordance with Policy 412: Committees and Boards Policy, the Hillsborough Municipal Code, and applicable state law. The Town has four Committees and Boards advisory to the City Council: Administrative Hearing Panel, Architecture and Design Review Board, Citizens Communication Advisory Committee and Financial Advisory Committee.

9.3 Standing Subcommittees and Ad Hoc Subcommittees of the City Council City Council subcommittees shall be subject to the same rules of procedure as the City Council. Each subcommittee shall consist of two Councilmembers appointed by the City Council at a City Council meeting and shall be staffed by the appropriate staff members. Standing committees having a continuing subject matter jurisdiction or a fixed meeting schedule are subject to the Brown Act, even though the committee has only two Councilmembers. Temporary subcommittees, often referred to as ad hoc subcommittees, serve a limited or single purpose, are not perpetual, and will be dissolved once their specific task is completed and are not subject to the Brown Act.

9.4 Local Appointments List
On or before December 31st of each year, the City Council shall prepare and disseminate, in compliance with Government Code Section 54972, an appointment list of all regular and ongoing boards, commissions, and committees that are appointed by -91-
Adopted by City Council ____, 2026, Resolution No. ___ 24 the City Council. The City Clerk brings this list to the City Council as a Consent Calendar item at the December City Council meeting.
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Adopted by City Council ____, 2026, Resolution No. ___ 25

10. Statutory Requirements and Regulations

10.1 Political Reform Act
The main purpose of the Political Reform Act is to prevent financial conflicts of interest on the part of public officials. The Political Reform Act requires that every public official disclose all financial interests, such as investments, interests in real estate or sources of income, which the official may possibly affect by the exercise of his or her official duties. If a Councilmember has a conflict of interest, the Political Reform Act may require the Councilmember to recuse himself or herself from making or participating in a governmental decision or using his or her official position to influence a governmental decision. Any Councilmember who is required to recuse him or herself should abide by the formal recusal requirements in the Political Reform Act. This generally means the Councilmember should avoid influencing anyone at the Town regarding the matter (i.e. avoid discussing the matter with any Town staff or officials and recusing themselves from any vote on the dais regarding the matter). When recusing from an actual vote on the dais, the Councilmember must orally state the conflict of interest for the public, indicate they are recusing themselves under the Political Reform Act, and then step off the dais and leave the room until the vote is concluded.

A conflict of interest is where an official makes, participates in, or uses his or her official position to influence a governmental decision; it is foreseeable that the decision will affect the official’s financial interest; the effect of the decision on the official’s financial interest will be material; the effect of the decision on the official’s financial interest will be distinguishable from its effect on the public generally. Public officials, whether elected or appointed, should perform their duties in an impartial manner, free from bias caused by their own financial interests or the financial interests of persons who have supported them.

The Political Reform Act regulates the receipt, disclosure, reporting and valuation of gifts by public officials. The Act imposes limits on gifts, prohibits honorarium payments, and imposes limits and other restrictions on the receipt of travel payments by public officials. If you receive a gift with a fair market value of $50 or more from a single source, it must be disclosed on the Fair Political Practices Commission Form 700 Statement of Economic Interests. Gifts totaling more than $630 (calendar year 2026) from a single source during a calendar year are strictly prohibited.

The Political Reform Act of 1974 is available at the California Fair Political Practices Commission’s website, www.fppc.ca.gov.

10.2 Levine Act – Conflicts of Interest Related to Campaign Contributions The Levine Act (California Government Code Section 84308) prohibits Councilmembers from taking part in a proceeding for a license, permit, contract, or other entitlement for use if that Councilmember has received a campaign contribution -93-
Adopted by City Council ____, 2026, Resolution No. ___ 26 in excess of $500 within the prior 12 months from any “party” or “participant” to the proceeding. If a Councilmember has a Levine Act conflict of interest, formal recusal is required where the Councilmember prior to the proceeding, publicly identifies the campaign contribution and who it was from, and then indicates they are formally stepping out of the proceeding.

A Councilmember can return the contribution amount that creates an issue under the Levine Act prior to the proceeding so long as the Councilmember does so within 30 days from the time the official knowns, or should have known, about the contribution and the proceeding, and may thereafter participate.

In addition, a Councilmember cannot accept, solicit, or direct a contribution of more than $500 from a party or participant to the proceeding while the proceeding is pending and for 12 months following the date of the final decision. The Levine Act allows a Councilmember to initiate a cure if they receive a disqualifying contribution from a party or participant to the proceeding while the proceeding is pending or within 12 months following the date of the final decision. The cure provision would require the Councilmember to return any disqualifying contribution amount within 30 days of receiving it and only if they did not accept, solicit, or direct the prohibited contribution knowingly or willfully and if they maintain records of curing the violation.

As the Levine Act is quite complex, consultation with the City Attorney is recommended if a Councilmember believes they may have a Levine Act issue.

10.3 Fair Political Practices Commission (FPPC) Filing Requirements A. Form 460 and 470 – Financial Campaign Statements
If required, Financial Campaign Statements must be filed annually (Form 470) in July; or semi-annually (Form 460) in January and July as required by the FPPC. Form 460 and 470 are filed with the City Clerk’s office.

B. Form 700 – Statement of Economic Interests
The statutes (the Political Reform Act of 1974) provide that certain municipal officers must disclose their “economic interests” periodically on forms provided by the FPPC. The Statement of Economic Interests are due April 1, cover the previous calendar year, or from the last filing period, as required. The City Clerk and the FPPC will notice the obligation, and Councilmembers will file the Statement of Economic Interests electronically with the FPPC using the FPPC’s electronic filing system.

Policy 418: Form 700 Review Policy provides an initial internal February 1 deadline for a draft Form 700 to be submitted to the Filing Officer/City -94-
Adopted by City Council ____, 2026, Resolution No. ___ 27 Clerk to allow City Attorney review of any potential conflicts of interest that could arise with regard to future governmental decisions based on pending Town matters, and to advise these filers of those potential conflicts of interest.

10.4 Ethics Training for Public Officials (AB 1234)
Effective January 1, 2006, State Assembly Bill 1234 requires that Councilmembers receive two hours of Ethics Training every two years. Newly elected Councilmembers must receive their first ethics training within six months of assuming office, then every two years thereafter. The original Certificate of Completion of Ethics Training must be filed with the City Clerk.

10.5 Sexual Harassment Prevention Training (AB 1661)
This bill requires local agency officials, as defined, to receive sexual harassment prevention training and education if the local agency provides any type of compensation, salary, or stipend to those officials, and would allow a local agency to require employees to receive sexual harassment prevention training or information.

Officials must receive at least two hours of training within six months of taking office, then every two years thereafter.

10.6 Fiscal and Financial Training (SB 827)
Effective January 1, 2026, this bill requires local agency officials, as defined, to receive training to provide local officials with the knowledge necessary to properly oversee public funds. Required topics include financial administration and short- and long-term fiscal management, capital financing and debt management, general fiscal and financial planning, and prudent investing and ethics related to public resources, among others. Officials must receive at least two hours of training within six months of taking office, then every two years thereafter.

11. Communications

11.1 All Written Communications are Public Records
All letters, memoranda, email communications, texts and other social media platform writing involving Councilmembers and members of boards and committees, the subject of which relate to the conduct of government or the performance of any governmental function, with a few exceptions as outlined in the Public Records Act, are public records.

11.2 Speaking on Behalf of “the Town”
When Councilmembers are requested to speak to groups or are asked for the City Council’s position on an issue, the response should reflect the position of the City -95-
Adopted by City Council ____, 2026, Resolution No. ___ 28 Council as a whole. Of course, a member may clarify their vote on a matter by stating, for example, “While I voted against X, the City Council voted in support of it.” When representing the Town at meetings or other venues, it is important that those in attendance gain an understanding of the City Council’s position rather than that of an individual member.

11.3 Speaking as an Individual
On occasion, Councilmembers may wish to transmit correspondence on an issue upon which the City Council has yet to take a position or about an issue for which the City Council has no position. In these circumstances, members should clearly indicate in their communications that they are not speaking for the City Council as a whole, but for themselves as an individual member of the Council.

11.4 Use of Email
Each member of the City Council will be provided with an email account on the Town’s network. The Town’s website provides the public with a link to these email accounts, and the business cards of each Councilmember include the Town email address.

The Town retains all incoming and outgoing email messages from the City Council email accounts on the Town’s server. These email messages are public records and are subject to disclosure under the Public Records Act, with rare exception. In addition, emails or texts related to Town business conducted on a personal email account or device are subject to disclosure under the Public Records Act.

11.5 Business Cards and Name Badges
Councilmembers will be provided with Town business cards and name badges following their election.

11.6 Mail Processing and Councilmember Mailboxes
Each Councilmember has a labeled mail slot (“mailbox”) in the copy/mail room at Town Hall. Postal mail and other materials addressed to Councilmembers will be left in Councilmember mailboxes for pick up and any materials in Councilmembers mailboxes on City Council agenda packet preparation day will be delivered with the Councilmember’s agenda packet.
-96-
Adopted by City Council ____, 2026, Resolution No. ___ 29

12. Administrative Items

12.1 Conferences and Travel
The Town has an annual budget for City Council attendance at conferences and meetings for training, development, and professional networking. The City Clerk coordinates registration and hotel reservations. Councilmembers are responsible for making their own flight reservations. Councilmember reimbursement for transportation, meals, lodging, mileage and other approved travel costs must be requested using the Town’s Reimbursement Request for Travel Costs Paid by a City Councilmember form with receipts attached. A per diem reimbursement will be made for meals based on the U.S. General Services Administration per diem rate for the travel destination zip code.

Mileage will be reimbursed at the IRS standard mileage rate for business use.

12.2 Councilmember Photographs
Following Councilmember election, the City Clerk will coordinate with the Councilmember for an official Councilmember photograph per the Town’s specifications for placement on the City Council photo wall at Town Hall and for use on the Town website, with costs to be paid for by the Town. -97-
Adopted by City Council ____, 2026, Resolution No. ___ 30 References

1. Ralph M. Brown Act (California Government Code Section 54950 et seq.)

2. Open & Public VI: A Guide to the Ralph M. Brown Act

3. California Public Records Act (California Government Code Section 7920 et seq.)

4. The People’s Business: A Guide to the California Public Records Act

5. Hillsborough Municipal Code

6. Council Policies:
401 - Change of Address
402 - Amicus
404 - Site Visits
405 - Charitable Grants
407 - Fundraising Events
408 - Purchasing
408 B - Environmental Purchasing
409 - Fiscal
410 - Investments
411 - City Council Commissioners
412 - Council Committee and Boards
413 - Cable - Government and Education Channel
414 - Disposition of Surplus Equipment and Vehicles
415 - Settlement of Claims
416 - Art in Public Places
417 - Federal Emergency and Federal Grant Procurement Procedures 418 - Form 700 Review Policy
419 - Memorial and Donation Policy
420 - Flag Flying Proclamation and Public Awareness Campaigns Policy 421 - Disruption of Telephonic or Internet Service During Meetings -98-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
11 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Biennial Review of the Town’s Conflict of Interest Code SUMMARY: The proposed action is pursuant to the requirements set forth in Section 87306.5 of the Political Reform Act and placed upon the City Council as the Town’s code-reviewing body.

The Political Reform Act of 1974, Government Code Section 81000 et seq. (the “Act”), requires all public agencies to adopt and maintain a Conflict of Interest Code ("Code"). The Code establishes disclosure requirements for various government positions involved in the requisite level of decisionmaking as set forth in the Act. The Act requires each agency to adopt a local Conflict of Interest Code designating Town positions not otherwise designated in the Act itself, that are involved in making or participating in the making of Town decisions at all levels of Town government.

The Act further requires that agencies, including cities and towns, regularly review and update their codes as necessary as directed by their code-reviewing bodies or when change is necessitated by changed circumstances. (Gov. Code §§ 87306, 87306.5.)
The Act states that no later than July 1 of each even-numbered year, code-reviewing bodies must direct review of their agency Code and requires that the agency head, no later than October 1, file a statement regarding the results of that review. The City Council is the code-reviewing body for the Town’s Code, and on or before July 1 it must direct the biennial review of the Code. (Gov.

Code § 82011(c), 87306.5)
As the agency head, the City Manager must file a statement regarding the results of the review no later than October 1 of the same year. If a change in the Code is necessitated by this review, it must be submitted to the City Council for approval within 90 days of the filing of the Local Agency Biennial Notice with the City Clerk. (Gov. Code § 87303, 87306.5) FISCAL IMPACT: There is no fiscal impact associated with this agenda item.

ATTACHMENT(S):

1. Current Town of Hillsborough Conflict of Interest Code

2. FPPC 2026 Conflict of Interest Code Biennial Notice Instructions for Local Agencies

3. 2026 Local Agency Biennial Notice
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Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

PREPARED BY: Lisa Natusch, City Clerk
RECOMMENDATION: Direct the review of the Town’s Conflict of Interest Code and the filing of a Biennial Notice with the City Clerk regarding the review, as required by the Political Reform Act. -100-
BBK – October 2024

CONFLICT OF INTEREST CODE
OF THE

TOWN OF HILLSBOROUGH
ATTACHMENT 1
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1 BBK – October 2024

CONFLICT OF INTEREST CODE
OF THE

TOWN OF HILLSBOROUGH
(Amended October 14, 2024)
The Political Reform Act (Gov. Code § 81000, et seq.) requires state and local government agencies to adopt and promulgate conflict of interest codes. The Fair Political Practices Commission has adopted a regulation, (tit. 2 Cal. Code of Regs, § 18730), that contains the terms of a standard conflict of interest code which can be incorporated by reference in an agency’s code. After public notice and hearing, Regulation 18730 may be amended by the Fair Political Practices Commission to conform to amendments in the Political Reform Act. Therefore, the terms of 2 California Code of Regulations section 18730 and any amendments to it duly adopted by the Fair Political Practices Commission are hereby incorporated by reference. This incorporation page, Regulation 18730 and the attached Appendix designating positions and establishing disclosure categories, shall constitute the Conflict of Interest Code of the Town of Hillsborough (“Town”).

The Mayor, Members of the City Council and Planning Commission, the City Manager, the City Attorney, the City Treasurer and Finance Director, shall electronically file their annual statements of economic interests directly with the Fair Political Practices Commission. All other officials and designated positions required to submit a statement of economic interests shall file their statements with the City Clerk as the Town’s Filing Officer. All officials and designated positions required to submit a statement of economic Interests shall file their statements with the City Clerk as the Town’s Filing Officer. The City Clerk shall make and retain a copy of all statements filed by the Mayor, members of the City Council, the City Manager, the City Attorney and the City Treasurer, and forward the originals of these statements to the Fair Political Practices Commission. The City Clerk shall retain the original statements filed by all other officials and designated positions and will make all retained statements available for public inspection and reproduction during regular business hours. (Gov. Code § 81008) -102-
App. A-1 BBK – October 2024

APPENDIX

CONFLICT OF INTEREST CODE
OF THE

TOWN OF HILLSBOROUGH
(Amended)
PART “A”
The Mayor, members of the City Council, the City Manager, the City Attorney, the City Treasurer, and all other Town Officials who manage public investments, as defined by Title 2, California Code of Regulations, section 18700.3(b), are NOT subject to the Town’s Conflict of Interest Code but must file disclosure statements under Government Code section 87200, et seq. [Regs. § 18730(b)(3).]

OFFICIALS WHO MANAGE PUBLIC INVESTMENTS
It has been determined that the positions listed below are other Town officials who manage public investments1
. These positions are listed here for informational purposes only.

Finance Director
Financial Advisory Committee
Investment Consultant
1 Individuals holding one of the above-listed positions may contact the Fair Political Practices Commission for assistance or written advice regarding their filing obligations if they believe that their position has been categorized incorrectly. The Fair Political Practices Commission makes the final determination whether a position is covered by § 87200. -103-
App. A-2 BBK – October 2024

DESIGNATED POSITIONS

GOVERNED BY THE CONFLICT OF INTEREST CODE
DESIGNATED POSITIONS’ DISCLOSURE CATEGORIES

TITLE OR FUNCTION ASSIGNED
City Attorney’s Office
Assistant City Attorney 1, 2
City Manager’s Office
Assistant City Manager 1, 2
Human Resources Manager 5
City Clerk 5
Deputy City Clerk 5
Management Analyst I/II 5
Senior Management Analyst 5
Building & Planning Department
Assistant Director of Building & Planning 2, 3, 5, 6
Assistant Planner 2, 3, 6
Associate Planner 2, 3, 6
Building Inspector (All) 6
Building Official 2, 3, 5, 6
Chief Building Official 2, 3, 5, 6
Consulting Planner 1, 2
Director of Building and Planning 1, 2
Planning Manager 2, 3, 5, 6
Senior Planner 2, 3, 6
Finance Department
Assistant Finance Director 4
Budget Analyst 4
Senior Accountant 5
Police Department
Communications Manager 5
Management Analyst I/II 5
Police Captain (2) 5
Police Chief 5
Police Lieutenant 5
Records Supervisor 5
-104-
App. A-3 BBK – October 2024
Public Works Department
Associate Civil Engineer 2, 3, 5
City Engineer 1, 2
Deputy Director of Public Works 1, 2
Director of Public Works 1, 2
GIS Coordinator 5
Senior Civil Engineer 2, 3, 5
Management Analyst I/II 2, 5, 7
Public Works Assistant Superintendent 5
Public Works Inspector 6
Public Works Superintendent 5
Public Works Supervisor (All) 5
Members of Boards, Committees
& Commissions
Architecture and Design Review Board 2, 3, 4
Administrative Hearing Panel 2, 3, 5
Consultants & New Positions 2
2 Individuals serving as a consultant as defined in FPPC Reg 18700.3(a) or in a new position that makes or participates in making decisions must file under the broadest disclosure set forth in this Code subject to the following limitation:

The City Manager may determine that, due to the range of duties or contractual obligations, it is more appropriate to assign a limited disclosure requirement. A clear explanation of the duties and a statement of the extent of the disclosure requirements must be in a written document. (Gov. Code Sec. 82019; FPPC Regulations 18219 and 18734.). The City Manger’s determination is a public record and shall be retained for public inspection in the same manner and location as this Conflict of Interest Code. (Gov.

Code Sec. 81008.)
-105-
App. B-1 BBK – October 2024
PART “B"

DISCLOSURE CATEGORIES
The disclosure categories listed below identify the types of economic interests that the designated position must disclose for each disclosure category to which the designated is assigned.3 “Investment” means financial interest in any business entity (including a consulting business or other independent contracting business) and are reportable if they are either located in, doing business in, planning to do business in, or have done business during the previous two years in the jurisdiction of the Town.

Category 1: All investments and business positions in business entities, and sources of income, including gifts, loans and travel payments.

Category 2: All interests in real property which is located in whole or in part within, or not more than two (2) miles outside, the boundaries of the Town, including any leasehold, beneficial or ownership interest or option to acquire property.

Category 3: All investments and business positions in business entities, and sources of income, including gifts, loans and travel payments, that are engaged in land development, construction or the acquisition or sale of real property within the jurisdiction of the Town.

Category 4: All investments and business positions in business entities, and sources of income, including gifts, loans and travel payments, that provide services, products, materials, machinery, vehicles or equipment of a type purchased or leased by the Town.

Category 5: All investments and business positions in business entities, and sources of income, including gifts, loans and travel payments, that provide services, products, materials, machinery, vehicles or equipment of a type purchased or leased by the designated position’s department, unit or division.

Category 6: All investments and business positions in business entities, and sources of income, including gifts, loans and travel payments, subject to the regulatory, permit, or licensing authority of the designated employee's department, unit or division.

Category 7: All investments and business positions in business entities, and sources of income, including gifts, loans and travel payments, or income from a nonprofit organization, if the source is of the type to receive grants or other monies from or through the Town or its subdivisions.
3 This Conflict of Interest Code does not require the reporting of gifts from outside this agency’s jurisdiction if the source does not have some connection with or bearing upon the functions or duties of the position. (Reg. 18730.1)
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[email protected] 1.866.275.3772 or 916.322.5660
www.fppc.ca.gov FPPC • 076-04.2026 • Page 1 of 1

FAIR POLITICAL PRACTICES COMMISSION
2026 Conflict of Interest Code
Biennial Notice Instructions for Local Agencies
The Political Reform Act requires every local government agency to review its conflict of interest code biennially. A conflict of interest code tells public officials, governmental employees, and consultants what financial interests they must disclose on their Statement of Economic Interests (Form 700).

By July 1, 2026: The code reviewing body must notify agencies and special districts within its jurisdiction to review their conflict of interest codes.

By October 1, 2026: The biennial notice must be filed with the agency’s code reviewing body.

The FPPC has prepared a 2026 Local Agency Biennial Notice form for local agencies to complete or send to agencies within its jurisdiction to complete before submitting to the code reviewing body. The City Council is the code reviewing body for city agencies. The County Board of Supervisors is the code reviewing body for county agencies and any other local government agency whose jurisdiction is determined to be solely within the county (e.g., school districts, including certain charter schools). The FPPC is the code reviewing body for any agency with jurisdiction in more than one county and will contact them.

The Local Agency Biennial Notice is not forwarded to the FPPC.

If amendments to an agency’s conflict of interest code are necessary, the amended code must be forwarded to the code reviewing body for approval within 90 days. An agency’s amended code is not effective until it has been approved by the code reviewing body.

If you answer yes, to any of the questions below, your agency’s code probably needs to be amended.
• Is the current code more than five years old?
• Have there been any substantial changes to the agency’s organizational structure since the last code was approved?
• Have any positions been eliminated or re-named since the last code was approved? • Have any new positions been added since the last code was approved? • Have there been any substantial changes in duties or responsibilities for any positions since the last code was approved?
If you have any questions or are still not sure if you should amend your agency’s conflict of interest code, please contact the FPPC. Additional information including an online webinar regarding how to amend a conflict of interest code is available on FPPC’s website.

ATTACHMENT 2
-107-
www.fppc.ca.gov
FPPC Advice: [email protected] (866.275.3772)

Page 1 of 1 ends

2026 Local Agency Biennial Notice
Name of Agency:

Mailing Address:

Contact Person: Phone No.

Email: Alternate Email:

Accurate disclosure is essential to monitor whether officials have conflicts of interest and to help ensure public trust in government. The biennial review examines current programs to ensure that the agency’s code includes disclosure by those agency officials who make or participate in making governmental decisions.

This agency has reviewed its conflict of interest code and has determined that (check one BOX):

An amendment is required. The following amendments are necessary:
(Check all that apply.)
Include new positions
Revise disclosure categories
Revise the titles of existing positions
Delete titles of positions that have been abolished and/or positions that no longer make or participate in making governmental decisions
Other (describe)
The code is currently under review by the code reviewing body.

No amendment is required. (If your code is over five years old, amendments may be necessary.)
Verification (to be completed if no amendment is required) This agency’s code accurately designates all positions that make or participate in the making of governmental decisions. The disclosure assigned to those positions accurately requires that all investments, business positions, interests in real property, and sources of income that may foreseeably be affected materially by the decisions made by those holding designated positions are reported. The code includes all other provisions required by Government Code Section 87302.
__________________________________________ _________________________ Signature of Chief Executive Officer Date
All agencies must complete and return this notice regardless of how recently your code was approved or amended. Please return this notice no later than October 1, 2026, or by the date specified by your agency, if earlier, to:
(PLACE RETURN ADDRESS OF CODE REVIEWING BODY HERE)
PLEASE DO NOT RETURN THIS FORM TO THE FPPC.

ATTACHMENT 3
-108-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
12 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Adopting a List of Projects for Fiscal Year 2026-27 Funded by SB 1: The Road Repair and Accountability Act of 2017, and Authorizing the Submittal of Applications for SB 1 Transportation Funding Under CEQA Guideline 15378 SUMMARY: On April 28, 2017, the Governor signed Senate Bill 1 (SB 1), which is known as the Road Repair and Accountability Act of 2017. SB 1 establishes the Road Maintenance and Rehabilitation Program (RMRP) to address deferred maintenance on the state highway and local street and road systems. The bill provides that funds shall be used for projects that include, but are not limited to, the following:
• Road maintenance and rehabilitation
• Safety projects
• Railroad grade separations
• Complete streets components, including active transportation purposes, pedestrian and bicycle safety projects, transit facilities, and drainage and stormwater capture projects in conjunction with any other allowable project
• Traffic control devices
On November 1, 2017, the State Controller (Controller) began to deposit various portions of this new funding into the newly created Road Maintenance and Rehabilitation Account (RMRA).

Although the exact amount has not been determined by the Controller for Fiscal Year 2026-2027, the projected revenue for Fiscal Year 2026-2027 will include an estimated $319,110.00 of RMRA funds that will be expensed per SB 1 Accountability and Transparency Guidelines, adopted on August 15, 2018.

SB 1 eligibility procedures require, among other things, the applicant's governing body to submit to the California Transportation Commission a list of projects that are proposed with RMRA funds, including roadways with limits identified. The list of the projects is considered flexible, which allows for substitutions, additions, or removal of roadways in the future. The approval of this resolution will identify the list of the roadways to be included in future projects and make these projects eligible for RMRA funding.

This is the tenth year requesting authorization for the submittal of applications for SB-1 funding, which will enable the Town to continue essential maintenance and rehabilitation of roadways for the segments selected for the 2027 Street Resurfacing Project.

FISCAL IMPACT: The Town will be eligible to receive SB 1 transportation funding for the 2027 Street Resurfacing Project.
-109-
Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

ATTACHMENT(S):

1. Resolution

2. Project List
PREPARED BY: Paul Willis, Director of Public Works
RECOMMENDATION: Adopt the resolution adopting the list of projects for Fiscal Year 2026-27 funded by SB 1, authorizing the submittal of applications for SB 1 transportation funding, and authorizing the City Manager on behalf of the Town to execute all funding documents and implement the approved funding programs under CEQA Guideline 15378. -110-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH ADOPTING A LIST OF PROJECTS FOR FISCAL YEAR 2026-2027 FUNDED BY SB 1: THE ROAD REPAIR AND ACCOUNTABILITY ACT OF 2017, AND AUTHORIZING THE SUBMITTAL OF APPLICATIONS FOR SB 1 TRANSPORTATION FUNDING UNDER CEQA GUIDELINE 15378
WHEREAS, Senate Bill 1 (SB 1), the Road Repair and Accountability Act of 2017 (Chapter 5, Statutes of 2017) was passed by the Legislature and Signed into law by the Governor in April 2017 to address the significant multimodal transportation funding shortfalls statewide; and WHEREAS, SB 1 includes accountability and transparency provisions that will ensure the residents of our Town are aware of the projects proposed for funding in our community and which projects have been completed each fiscal year; and
WHEREAS, the Town must adopt by resolution a list of projects proposed to receive fiscal year funding from the Road Maintenance and Rehabilitation Account (RMRA), created by SB 1, which must include a description and the location of each proposed project, a proposed schedule for the project’s completion, and the estimated useful life of the improvement; and WHEREAS, the Town, will receive an estimated $319,110.00 in RMRA funding in Fiscal Year 2026-27 from SB 1; and
WHEREAS, this is the tenth year in which the Town is receiving SB 1 funding and will enable the Town to continue essential road maintenance and rehabilitation projects, safety improvements, repairing and replacing aging bridges, and increasing access and mobility options for the traveling public that would not have otherwise been possible without SB 1; and
WHEREAS, the Town has undergone a robust public process to ensure public input into our community’s transportation priorities/the project list; and WHEREAS, the Town used a Pavement Management System to develop the SB 1 project list to ensure revenues are being used on the most high-priority and cost-effective projects that also meet the communities priorities for transportation investment; and
WHEREAS, the funding from SB 1 will help the Town maintain and rehabilitate approximately 27 miles of roadway throughout the Town this year and many similar projects in the future; and
WHEREAS, the 2023 California Statewide Local Streets and Roads Needs Assessment found that the Town’s streets and roads are in a very good condition and this revenue will help us increase the overall quality of our ATTACHMENT 1
-111-
Resolution No. 26-
June 8, 2026
2 road system and over the next decade will bring our streets and roads into an excellent condition; and
WHEREAS, the SB 1 project list and overall investment in our local streets and roads infrastructure with a focus on basic maintenance and safety, investing in complete streets infrastructure, and using cutting-edge technology, materials and practices, will have significant positive co-benefits statewide.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby:

1. Finds the foregoing recitals are true and correct.

2. Finds the following list of newly proposed projects will be funded in-part or solely with Fiscal Year 2026-27 Road Maintenance and Rehabilitation Account revenues:

Project Title: 2027 Street Resurfacing Project
Project Description: This project consists of street resurfacing, maintenance, and rehabilitation work for approximately 27 miles of the Town’s roadways, including rubberized hot mix asphalt (RHMA) overlay, hot mix asphalt (HMA) overlay, microsurfacing, scrubseal microsurfacing, and crack sealing. The primary factor for choosing the roadway segments included for rehabilitation is the Pavement Condition Index (PCI) of each roadway. PCI is a measurement of a street’s condition derived through field inspections that utilize scoring criteria developed by the Metropolitan Transportation Commission’s (MTC) pavement management program. Field inspections were conducted in the winter of 2024, and the roads with the lowest PCI rating were included in this project.

Project Location: Various streets throughout Town.

Estimated Project Schedule: The is anticipated to begin in May 2027 and is expected to be completed by October 2027.

Estimated Project Useful Life: Resurfacing and rehabilitation work will extend life expectancy of these streets as shown below:
• 2-3” R/HMA Overlay – 10-15 years
• Microsurfacing – 5 to 7 years
• Crack Sealing – 3 to 5 years

3. Authorizes project funding with Road Maintenance and Rehabilitation Account revenues.

4. Directs submittal of a project list for the SB-1 Transportation Funding to California Transportation Commissions.
-112-
Resolution No. 26-
June 8, 2026
3 Mayor of the Town of Hillsborough
Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-113-
Road Name Beg Location End Location Section Length Section Width Section Area (SF) Section ID Treatment CROCKET LANE FOREST VEIW AVENUE END 685 18 12330 10 2 IN AC Overlay BROMFIELD ROAD CITY LIMIT CITY LIMIT 1223 16 19568 10 2 IN AC Overlay BARBARA WAY HAYNE ROAD DENISE DRIVE 1720 20 34400 45 2 IN AC Overlay ERICSON ROAD ROBLAR AVENUE RANELAGH ROAD 552 16 8832 10 2 IN AC Overlay FAWN COURT SUMMIT DRIVE END 286 21 6006 10 2 IN AC Overlay WINDEMERE ROAD WEDGEWOOD DRIVE END 1040 20 20800 10 2 IN AC Overlay OAK RIM DRIVE WINDEMORE END 275 20 5500 10 2 IN AC Overlay BERRYESSA WAY LAKEVIEW DRIVE END 871 20 17420 10 2 IN MILL AND AC OVERLAY COUNTRY CLUB DRIVE HILLSBOROUGH BLVD DR HILLSBOROUGH BLVD DR 1971 20 39420 10 2 IN MILL AND AC OVERLAY SHELDON WAY FAGEN DRIVE END 598 20 11960 10 2 IN MILL AND AC OVERLAY GLENGARRY WAY TARTAN TRAIL ROAD TARTAN TRAIL ROAD 1803 20 36060 10 2 IN MILL AND AC OVERLAY GREVILLEA COURT BUTTERNUT DRIVE END 527 20 10540 10 2 IN MILL AND AC OVERLAY CITRUS COURT JACARANDA DRIVE END 508 20 10160 10 2 IN MILL AND AC OVERLAY KNIGHTWOOD LANE FOREST VIEW AVE END 705 20 14100 10 2 IN MILL AND AC OVERLAY SUMMIT DRIVE DELMONTE OAKDALE 2402 24 57648 25 2.5 IN MILL AND AC OVERLAY CARMELITA AVENUE CITY LIMIT OAKSDRIVE 1071 24 25704 10 2.5 IN MILL AND AC OVERLAY HILLSBOROUGH BOULEVARD BROMFIELD RD W SANTA INEZ AVE 2177 22 47894 10B 2 IN AC Overlay RHMA WEST SANTA INEZ AVE BLACK MOUNTAIN ROAD GLENDALE ROAD 1795 20 35900 20 2 IN AC Overlay RHMA BLACK MOUNTAIN ROAD SOUTHDOWN (N) LINK 1419 24 34056 20 MICROSURFACING DEL MONTE DRIVE BELLA VISTA DRIVE SUMMIT DRIVE 635 20 12700 10 MICROSURFACING ROBLAR AVENUE RICHMOND ROAD EL CERRITO AVENUE 2503 26 65078 20 MICROSURFACING SOUTHDOWN ROAD BLACK MOUNTAIN VIEWHAVEN 1792 21 37632 20 MICROSURFACING TOURNAMENT DRIVE BELAIRE COURT VERANO CT 5340 24 128160 25 MICROSURFACING WEST SANTA INEZ AVE ROBLAR 90' E SEVERN 2581 24 61944 15 MICROSURFACING CHURCHILL DRIVE BELLAVISTA PRIVET 2756 24 66144 20 MICROSURFACING JACKLING DRIVE BAILEYANA OAKDALE 895 16 14320 15 MICROSURFACING MOUNTAIN WOOD LANE CITY LIMIT MOUNTAIN WOOD CT 774 20 15480 20 MICROSURFACING PARROTT DRIVE CITY LIMIT TOURNAMENT WAY 1926 20 38520 15 MICROSURFACING RALSTON AVENUE PULLMAN PROVIDENT 1780 24 42720 25 MICROSURFACING WEDGEWOOD DRIVE LAKEVIEW JOYCE 1767 20 35340 15 MICROSURFACING CRYSTAL SPRINGS ROAD WOODRIDGE CRYSTAL SPRING TERR 1704 26 44304 20 MICROSURFACING PINEHILL ROAD RALSTON AVE 240 PINEHILL ROAD 1630 18 29340 10 MICROSURFACING SAN RAYMUNDO ROAD EL ARROYO RD EL CENTRO 671 19 12749 15 MICROSURFACING LINK ROAD RIDGE WAY ROAD BLACK MOUNTAIN ROAD 647 16 10352 10 SCRUBSEAL MICROSURFACING OAKDALE ROAD JACKLING (N) OAKS DR 943 19 17917 10 SCRUBSEAL MICROSURFACING RALSTON AVENUE PROVIDENT ROBIN 2350 20 47000 35 SCRUBSEAL MICROSURFACING RIZAL DRIVE TARTAN TRAIL ROAD BRAEMAR DRIVE 1533 21 32193 10 SCRUBSEAL MICROSURFACING SUMMIT DRIVE SKYLINE CL 300' N PATTON 2672 22 58784 30 SCRUBSEAL MICROSURFACING WEDGEWOOD DRIVE BLACKMOUNTIAN LAKEVIEW 1473 20 29460 20 SCRUBSEAL MICROSURFACING CHURCHILL DRIVE PRIVET PRIVET 1868 24 44832 15 SCRUBSEAL MICROSURFACING FOREST VIEW AVENUE MCCEREERY EUCALYPTUS 2383 22 52426 20 SCRUBSEAL MICROSURFACING SAN RAYMUNDO ROAD EL CENTRO RD HILLSBOROUGH BLVD 1440 19 27360 16 SCRUBSEAL MICROSURFACING CHILTERN ROAD LINK VISTA Road 866 18 15588 15 SCRUBSEAL MICROSURFACING 2027 Street Resurfacing Project: Tentative Street List
ATTACHMENT 2
-114-
ANNESCOURT DRIVE FOREST VIEW AVE ANNESCOURT PL 238 20 4760 10 SEAL CRACKS BATES ROAD BLACK MOUNTAIN ROAD END 830 20 16600 10 SEAL CRACKS CARLTON ROAD MARLBOROUGH ROAD MARLBOROUGH ROAD 887 19 16853 10 SEAL CRACKS MACADAMIA LANE BUTTERNUT SKYFARM 1327 24 31848 15 SEAL CRACKS NEW PLACE ROAD EUCALYPTUS COUNTRY CLUB ENTERANCE 2078 20 41560 20 SEAL CRACKS RANELAGH ROAD ERICSON RD EL CERRITO AVE. 859 18 15462 10 SEAL CRACKS SIERRA DRIVE REDWOOD DRIVE EL CERRITO AVENUE 1860 20 37200 10 SEAL CRACKS WEDGEWOOD DRIVE LAKEVIEW JOYCE 1767 20 35340 15 SEAL CRACKS WEST SANTA INEZ AVE GLENDALE BRENTWOOD 1149 23 26427 30 SEAL CRACKS ACORN DRIVE DOWNEY WAY CARMELITA AVENUE 439 20 8780 10 SEAL CRACKS BELLA VISTA DRIVE SUMMIT AVENUE SUMMIT AVENUE 2249 21 47229 10 SEAL CRACKS BELLEVUE AVENUE PEPPER AVENUE OCCIDENTAL 804 22 17688 10 SEAL CRACKS FAIRWAY CIRCLE FLORIBUNDA AVENUE FAIRWAY CIRCLE 1597 21 33537 10 SEAL CRACKS FALKIRK LANE INVERNESS WAY BRAEMAR DRIVE 1257 20 25140 10 SEAL CRACKS FLORIBUNDA AVENUE EUCALYPTUS HILLSBOROUGH 1866 20 37320 20 SEAL CRACKS FOREST VIEW AVENUE EUCALYPTUS NEW HALL ROAD 1877 23 43171 15 SEAL CRACKS FOREST VIEW AVENUE END MCCEREERY 1979 21 41559 25 SEAL CRACKS GERI LANE BRIDGE END 339 20 6780 10B SEAL CRACKS
HAYNE ROAD SANDRA RD BLACK MOUNTAIN RD 3823 23 87929 25 SEAL CRACKS LIVE OAK LANE TIPTOE LANE END` 461 20 9220 10 SEAL CRACKS MARLBOROUGH ROAD BLACK MOUNTAIN LOOKOOUT 2192 24 52608 20 SEAL CRACKS MILFORD ROD ROBLAR AVENUE W SANTA INEZ AVENUE 485 19 9215 10 SEAL CRACKS OAKS DRIVE FORREST VIEW AVENUE OAKDALE ROAD 1235 21 25935 10 SEAL CRACKS PRIVET DRIVE BUTTERNUT DRIVE SUMMIT DRIVE 2185 24 52440 10 SEAL CRACKS RIDGEWAY ROAD CRYSTAL SPINGS ROAD CHILTERN 3676 21 77196 10 SEAL CRACKS STONEHEDGE ROAD EL CERRITO ROAD CRYSTAL SPRINGS 2070 24 49680 10 SEAL CRACKS SUGAR HILL DRIVE PARROTT DRIVE TOURNAMENT 1765 20 35300 10 SEAL CRACKS TOURNAMENT DRIVE VERANO COURT WOODLAND DRIVE 1864 24 44736 10 SEAL CRACKS TOURNAMENT DRIVE BROOK COURT BELAIRE 2264 24 54336 75 SEAL CRACKS BROOKE COURT TOURNAMENT DR END 1146 20 22920 10 SEAL CRACKS CHELMSFORD ROAD W SANTA INEZ AVENUE EL PORTAL AVENUE 1182 18 21276 10 SEAL CRACKS CHILTERN ROAD CULEBRA LINK 603 18 10854 20 SEAL CRACKS
DENISE DRIVE BLACE MTN ROAD ROBINWOOD LANE 2273 20 45460 10 SEAL CRACKS GERI LANE EUCALYPTUS DR BRIDGE 1326 20 26520 10A SEAL CRACKS HAMPTON COURT BUCKINGHAM WAY END 139 20 2780 10 SEAL CRACKS HAYNE ROAD SKYLINE BLVD ROUNDABOUT 549 21 11529 15A SEAL CRACKS HORSESHOE COURT TOURNAMENT DRIVE END 232 20 4640 10 SEAL CRACKS JACARANDA CIRCLE CHATEAU DRIVE CHATEAU DRIVE 2357 24 56568 10 SEAL CRACKS LA CANADA ROAD LA CUMBRE END 1276 16 20416 10 SEAL CRACKS LAURELDALE ROAD BRIDGE ROAD END 283 18 5094 10 SEAL CRACKS MANOR DRIVE SHARON AVENUE END 631 26 15144 10 SEAL CRACKS MARGO LANE FAGEN DRIVE END 179 20 3580 10 SEAL CRACKS
MOSELEY ROAD HAYNE ROAD RALSTON AVENUE 1571 20 34820 20 SEAL CRACKS RAVENSCOURT ROAD EL PORTAL AVENUE WOODSTOCK 1043 16 16688 1O SEAL CRACKS -115-
VISTA ROAD BLACK MOUNTAIN ROAD CULEBRA 1969 18 35442 20 SEAL CRACKS WALNUT AVENUE FLORIBUNDA AVUNUE 243' W/O FLORIBUNDA (CL) 243 20 4860 10 SEAL CRACKS WILLOW COURT WILLOW ROAD END 248 19 4712 10 SEAL CRACKS ARMSBY DRIVE CARMILITA AVENUE JACKLING DRIVE 1255 20 25100 10 SLURRY SEAL & CRACK SEAL BUCKEYE COURT RIDGEWAY ROAD END 885 21 18585 10 SLURRY SEAL & CRACK SEAL DENHAM COURT FOREST VIEW AVENUE END 330 20 6600 10 SLURRY SEAL & CRACK SEAL HOMEPLACE COURT BARROILHET AVENUE END 449 20 8980 10 SLURRY SEAL & CRACK SEAL IRWIN COURT EUCALYPTUS DRIVE END 999 20 19980 10 SLURRY SEAL & CRACK SEAL ANNESCOURT PLACE END END 500 20 10000 10 SLURRY SEAL & CRACK SEAL BAILEYANA ROAD OAKDALE ROAD JACKLING DRIVE 1846 17 31382 10 SLURRY SEAL & CRACK SEAL BUCKINGHAM WAY HARDCOURT WAY END 1370 20 27400 20 SLURRY SEAL & CRACK SEAL DEVON DRIVE EL ARROYO ROAD END 299 16 4784 10 SLURRY SEAL & CRACK SEAL ENCINA COURT WILLOW ROAD END 230 20 4600 10 SLURRY SEAL & CRACK SEAL ENDFIELD WAY VISTA ROAD END 482 18 8676 10 SLURRY SEAL & CRACK SEAL ESSEX LANE LONGVEIW ROAD END 257 18 4626 10 SLURRY SEAL & CRACK SEAL KINDER LANE BELLE VISTA DRIVE END 216 20 4320 10 SLURRY SEAL & CRACK SEAL KINGSWOOD DRIVE WEDGEWOOD DR END 2418 20 74571 10 SLURRY SEAL & CRACK SEAL LA HONDA ROAD SAN RAYMUNDO ROAD END 397 20 7940 10 SLURRY SEAL & CRACK SEAL NEWHALL ROAD SANCHEZ END 1800 36 64800 10 SLURRY SEAL & CRACK SEAL PATTON PLACE SUMMIT ROAD END 555 20 11100 10 SLURRY SEAL & CRACK SEAL SANTA MARIA COURT W SANTA INEZ AVENUE END 293 20 5860 10 SLURRY SEAL & CRACK SEAL SHERWOOD COURT DE SABLA ROAD END 208 18 3744 10 SLURRY SEAL & CRACK SEAL WAVERLY PLACE EL CERRITO AVENUE END 255 20 5100 10 SLURRY SEAL & CRACK SEAL WICKHAM PLACE EL CERRITO ROAD END 286 21 6006 10 SLURRY SEAL & CRACK SEAL GLENBROOK DRIVE PARROTT DRIVE END 1153 20 23060 10 SLURRY SEAL & CRACK SEAL JEWELL PLACE SAN RAYMUNDO DRIVE END 262 20 58020 10 SLURRY SEAL & CRACK SEAL MCKENZIE COURT WOODSTOCK ROAD END 247 20 4940 10 SLURRY SEAL & CRACK SEAL ROBERTS WAY ALBERTA WAY END 1060 20 21200 10 SLURRY SEAL & CRACK SEAL STACEY COURT REDINGTON ROAD END 539 20 10780 10 SLURRY SEAL & CRACK SEAL -116-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
13 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Approving and Authorizing the City Manager to Execute a Three-year Agreement with Carahsoft Technology Corp. for Samsara Inc. GPS, Vehicle Telematics, and Multi-Camera Fleet Safety Equipment and Software in a Not to Exceed Amount of $84,200.78 and Approve a FY 2025-26 Budget Amendment in the Asset Replacement Fund 601 in the Amount of $84,200.78
SUMMARY: The Public Works Department operates a fleet of vehicles and equipment used for daily maintenance, field operations, emergency response, and service delivery throughout Town.

The vehicles are currently outfitted with Verizon Connect Reveal technology for GPS and a single outward facing dash camera. The Town utilizes this technology for field service verification, incident response, and staff and vehicle safety.

Samsara Inc. (“Samsara”) from Carahsoft Technology Corp. offers these same basic components with a more robust fleet maintenance program with broader safety visibility on the roadway for the staff and vehicles. The proposed Samsara system would equip the same designated high-use Public Works vehicles with GPS, forward-facing front cameras, rear cameras, left and right-side cameras, and vehicle telematics. All cameras are outward facing. The system will provide staff with improved vehicle visibility, operational data, driver safety and event review, incident documentation, and access to video footage from multiple angles around the vehicle.

The Samsara system provides a vehicle telematics platform which will support fleet management and maintenance functions by providing real-time GPS vehicle location, vehicle utilization information, engine diagnostics, preventative maintenance schedules, and alerts. These features will assist staff in monitoring vehicle use to identify maintenance needs, reducing downtime, and improving documentation for field operations and reporting.

The Samsara platform streamlines the Town's CARB Clean Truck Check compliance for nongasoline heavy-duty vehicles. Using CARB-certified Samsara gateways, the Clean Truck Check Manager automatically tracks testing deadlines, monitors vehicle emission status, and remotely submits data directly to CARB. This eliminates manual tracking, ensures timely compliance, and helps staff quickly identify vehicles needing corrective action before deadlines.

Carahsoft Technology Corp., Contract No. 102924-SAM / 102924, is part of the Sourcewell cooperative pricing agreement for which the Town participates in. Sourcewell provides competitively solicited cooperative purchasing contracts for public agencies.

FISCAL IMPACT: There are existing funds in the Asset Replacement Fund 601 to replace the equipment and provide software licensing. The total three-year cost for the proposed agreement is $84,200.78. This total includes the Town accepting $7,493.00 in Joint Powers Authority Pooled -117-
Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

Liability Assurance Network Grant Funding. It is recommended that City Council approve a FY 2025-26 budget amendment for the cost of the project.

ENVIRONMENTAL ISSUES: The proposed action is categorically exempt from environmental review under California Environmental Quality Act (CEQA) Guideline Section 15301, Existing Facilities, because the project involves the installation and operation of minor GPS, telematics, and camera equipment on existing Town fleet vehicles, with negligible or no expansion of the existing use.

ATTACHMENT(S): Resolution
PREPARED BY: Rick Pina, Superintendent
RECOMMENDATION: Adopt the resolution approving and authorizing the City Manager to execute a three-year agreement with Carahsoft Technology Corp. for Samsara Inc. GPS, Vehicle Telematics, and Multi-Camera Fleet Safety Equipment and Software in a not to exceed amount of $84,200.78 and approve a FY 2025-26 budget amendment in the Asset Replacement Fund 601 in the amount of $84,200.78.
-118-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH APPROVING AND AUTHORIZING THE CITY MANAGER TO EXECUTE A THREEYEAR AGREEMENT WITH CARAHSOFT TECHNOLOGY CORP. FOR SAMSARA INC. GPS, VEHICLE TELEMATICS, AND MULTI-CAMERA FLEET SAFETY EQUIPMENT AND SOFTWARE IN A NOT TO EXCEED AMOUNT OF $84,200.78 AND APPROVE A FY 2025-26 BUDGET AMENDMENT IN THE ASSET
REPLACEMENT FUND 601 IN THE AMOUNT OF $84,200.78
WHEREAS, the Town of Hillsborough (“Town”) Public Works Department operates a fleet of vehicles and equipment used for daily maintenance, field operations, emergency response, and service delivery throughout Town; and
WHEREAS, the vehicles are currently outfitted with Verizon Connect Reveal technology for GPS and a single outward facing dash camera utilized for field service verification, incident response, staff and vehicle safety; and WHEREAS, Samsara Inc. (“Samsara”) from Carahsoft Technology Corp. offers a more robust fleet maintenance program with broader safety visibility on the roadway for the staff and vehicles utilizing GPS, forward-facing front cameras, rear cameras, left and right-side cameras, and vehicle telematics for fleet management and maintenance with engine diagnostics, preventative maintenance schedules, and reporting for California Air Resources Board Clean Truck Check requirements.; and WHEREAS, Carahsoft Technology Corp. can provide the Samsara platform and equipment, and installation through the Sourcewell cooperative purchasing program; and
WHEREAS, the total three-year cost of the Samsara platform from Carahsoft Technology Corp. is $84,200.78, including $32,513.38 for FY 2025-26, of which $12,146.60 is for software subscription costs to be funded through a General Fund 100 budget amendment to IT Subscriptions, and $20,366.78 is for equipment, shipping, and installation costs to be funded through a Fund 601 Equipment budget amendment, offset by $7,493.00 in Joint Powers Authority Pooled Liability Assurance Network grant funding; and
WHEREAS, the remaining subscription costs total is $51,687.40, consisting of $25,843.70 for FY 2026-27 and $25,843.70 for FY 2027-28, with the FY 2026-27 amount requiring a General Fund 100 budget amendment because the cost was not included in the proposed FY 2026-27 budget; and
NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby:
-119-
Resolution No. 26-
June 8, 2026
2 1. Finds the Project to be categorically exempt from CEQA under Section 15301, Existing Facilities.

2. Approves and authorizes the City Manager to execute a three-year agreement with Carahsoft Technology Corp. for Samsara Inc. GPS, vehicle telematics, and multi-camera fleet safety equipment and software in an amount not to exceed $84,200.78, subject to approval as to form by the City Attorney.

3. Accepts $7,493.00 in Joint Powers Authority Pooled Liability Assurance Network grant funding to offset eligible project costs, and authorizes the City Manager, or designee, to execute any grant agreement and all related documents necessary to carry out the intent of this resolution, subject to approval as to form by the City Attorney.

4. Approves a FY 2025-26 budget amendment in the Capital Fund – Equipment Replacement Fund 601 in the amount of $20,366.78 for equipment, shipping, and installation costs.

5. Approves budget amendments for the agreement as follows: FY 2025-26 Capital Fund – Equipment Replacement Fund 601 in the amount of $20,366.78; FY 2025-26 General Fund – IT Subscription Fund 100 in the amount of $12,146.60; FY 2026-27 General Fund – IT Subscription Fund 100 in the amount of $25,843.70; and FY 2027-28 General Fund – IT Subscription Fund 100 in the amount of $25,843.70.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-120-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
14 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Awarding to and Authorizing the City Manager to Execute a Contract with Michael Glynn Construction for the Macadamia Access Roads Repairs – Phase 2 (West) Project in the Amount of $679,940.00, with a 10% Contingency in the Amount of $67,994.00, for a Total Not-to-Exceed Cost of $747,934.00, Under CEQA Guideline 15301
SUMMARY: This project repairs the remaining three out of nine observed slip-outs along the Macadamia access roads within the Macadamia and Crocker open space areas. The first six slipouts were completed earlier this fiscal year as part of Phase 1. Phase 2 stabilizes a utility access road that hosts an essential Town owned and maintained sewer main that serves nearby private properties. The scope of work includes cast-in-drilled-hole concrete pilings with steel piles, wood lagging, and minor drainage. Because the project is located adjacent to a creek, creek bank restoration and environmental stewardship measures are required in accordance with regulatory permits, and in-water work is restricted to the dry-weather construction window.

This project was advertised in accordance with the Public Contract Code. A total of nine bids were received and opened on May 27, 2026. The bid results were announced in the City Council Chambers, in accordance with the Town’s policies and procedures. The bid summary is as follows:

LVI Engineering $665,965.00 (non-responsive)
Michael Glynn Construction $679,940.00
Farallon Company Engineering $700,940.00
Redgwick Construction $713,180.00
Ace Drilling Engineering $788,060.00
JDB & Sons Construction $797,979.00
Valentine Corp $867,369.00
WR Forde Associates $938,158.00
Brannon Construction $976,554.00
Of the bids received for this project, Michael Glynn Construction was confirmed by staff to be the lowest responsible bidder submitting a responsive bid. Based on staff analysis of the low bid and reference checks, it was determined that Michael Glynn Construction’s qualifications and experience levels are satisfactory to perform all work associated with this project.

FISCAL IMPACT: It is recommended that funding be allocated from the approved budget for the Macadamia Winter Storm (CIP #719) in the amount of $679,940.00, including a 10% contingency in the amount of $67,994.00 if needed, for a total not-to-exceed project allocation of $747,934.00.

Sufficient funds are available within the approved budget to fully cover this project. -121-
Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review under California Environmental Quality Act (CEQA) Guidelines sections 15301 ATTACHMENT(S): Resolution
PREPARED BY: Natalie Gribben, Deputy Director of Public Works RECOMMENDATION: Adopt the resolution awarding to and authorizing the City Manager to execute a contract with Michael Glynn Construction for the Macadamia Access Roads Repairs – Phase 2 (West) Project in the amount of $679,940.00, with a 10% contingency of $67,994.00 if needed, for a total not-to-exceed cost of $747,934.00, under CEQA Guideline 15301. -122-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

AWARDING TO AND AUTHORIZING THE CITY MANAGER TO EXECUTE A

CONTRACT WITH MICHAEL GLYNN CONSTRUCTION FOR THE MACADAMIA ACCESS ROADS REPAIRS – PHASE 2 (WEST) PROJECT IN THE AMOUNT OF $679,940.00, WITH A 10% CONTINGENCY IN THE AMOUNT OF $67,994.00, FOR A TOTAL NOT-TO-EXCEED COST OF $747,934.00, UNDER CEQA GUIDELINE 15301 WHEREAS, Town of Hillsborough (“Town”) maintains the Town’s system of sanitary sewer system; and
WHEREAS, plans and specifications were developed for the Macadamia Access Roads Repairs – Phase 2 (West) Project (“Project”) to stabilize a utility access road in three locations that hosts an essential Town owned and maintained sewer main; and
WHEREAS, the Project was publicly bid and advertised according to the Public Contract Code and the Town received nine bids for the Project; and WHEREAS, staff reviewed the bids and determined Michael Glynn Construction was the lowest responsible bidder submitting a responsive bid in the amount of $679,940.00; and
WHEREAS, staff conducted an analysis of the bid and verified that Michael Glynn Construction’s qualifications and experience levels are satisfactory; and WHEREAS, funding will be allocated from the approved budget for the Macadamia Winter Storm (CIP #719).

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby awards and authorizes the City Manager to execute the contract with Michael Glynn Construction for the Macadamia Access Roads Repairs – Phase 2 (West) in the amount of $679,940.00 with a 10% contingency of $67,994.00 if needed, for a total not-to-exceed cost of $747,934.00 under CEQA Guideline 15301, allocating funds from the approved budget for the Macadamia Winter Storm (CIP #719).

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:
-123-
Resolution No. 26-
June 8, 2026
2 AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-124-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
15 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Awarding to and Authorizing the City Manager to Execute a Contract with Con-Quest Contractors, Inc. for the Parkside Avenue Bridge Replacement Project in the Amount of $976,446.00, with a 10% Contingency in the Amount of $97,644.60, for a Total Not-to-Exceed Cost of $1,074,090.60, and Approve a FY 2025-26 Budget Amendment in the Capital Fund (CIP #809) in an Amount up to $1,700,000.00, Under CEQA Guideline 15301
SUMMARY: The roadway on Parkside Avenue is failing due to deterioration of the existing storm drain culvert located beneath the roadway. The project will replace the failed culvert and roadway with a precast concrete free-span bridge. Improvements also include creek restoration, new retaining walls, rock slope protection for creek bank stabilization, and utility relocations.

Because the project is located within and across a creek corridor, creek bank restoration and environmental stewardship measures are required in accordance with regulatory permits, and inwater work is restricted to the dry-weather construction window.

Con-Quest Contractors, Inc. $ 976,446.00
Synergy Construction & Dev $1,057,858.50
Farallon Company Engineering $1,118,397.50
GSW Construction, Inc. $1,163,970.00
Marinship Development Interest $1,251,202.80
Gordan N. Ball, Inc. $1,252,510.00
Granite Rock Company $1,450,888.00
McGuire and Hester $1,458,997.50
Valentine Corporation $1,613,369.00
Of the bids received for this project, Con-Quest Contractors, Inc. was confirmed by staff to be the lowest responsible bidder submitting a responsive bid. Based on staff analysis of the low bid and reference checks, it was determined that Con-Quest Contractors’ qualifications and experience levels are satisfactory to perform all work associated with this project.

FISCAL IMPACT: It is recommended that funding be allocated from the approved budget for the Parkside Avenue Culvert Replacement (CIP #809) in the amount of $976,446.00, including a 10% contingency in the amount of $97,644.60, if needed, for a total not-to-exceed project allocation of $1,074,090.60. To meet budget compliance in FY 2025-26, it is recommended that City Council approve a budget amendment for the cost of construction, professional services needed for -125-
Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

construction support, and prior design costs incurred, with a transfer from the General Fund to the Capital Fund for up to $1,700,000.00.

ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review under California Environmental Quality Act (CEQA) Guidelines sections 15301.

ATTACHMENT(S): Resolution
PREPARED BY: Natalie Gribben, Deputy Director of Public Works RECOMMENDATION: Adopt the resolution awarding to and authorizing the City Manager to execute a contract with Con-Quest Contractors, Inc. for the Parkside Avenue Bridge Replacement Project in the amount of $976,446.00, with a 10% contingency of $97,644.60 if needed, for a total not-to-exceed cost of $1,074,090.60, and approve a FY 2025-26 budget amendment in the Capital Fund (CIP #809) in an amount up to $1,700,000.00, under CEQA Guideline 15301. -126-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

AWARDING TO AND AUTHORIZING THE CITY MANAGER TO EXECUTE A CONTRACT WITH CON-QUEST CONTRACTORS, INC. FOR THE PARKSIDE AVENUE BRIDGE REPLACEMENT PROJECT IN THE AMOUNT OF $976,446.00, WITH A 10% CONTINGENCY IN THE AMOUNT OF $97,644.60, FOR A TOTAL NOTTO-EXCEED COST OF $1,074,090.60, AND APPROVE A FY 2025-26 BUDGET AMENDMENT IN THE CAPITAL FUND (CIP #809) IN AN AMOUNT UP TO $1,700,000.00, UNDER CEQA GUIDELINE 15301
WHEREAS, the Town of Hillsborough (“Town”) maintains the Town’s storm drain system; and
WHEREAS, plans and specifications were developed for the Parkside Avenue Bridge Replacement Project (“Project”) to replace a failing storm drain culvert with a new free-span concrete bridge and associated infrastructure; and WHEREAS, the Project was publicly bid and advertised according to the Public Contract Code and the Town received nine bids for the Project; and WHEREAS, staff reviewed the bids and determined Con-Quest Contractors, Inc. was the lowest responsible bidder submitting a responsive bid in the amount of $976,446.00; and
WHEREAS, staff conducted an analysis of the bid and verified that Con-Quest Contractors’ qualifications and experience levels are satisfactory; and WHEREAS, funding will require approval of a budget amendment for FY 2025-26 in the Capital Fund (CIP #809) in an amount up to $1,700,000.00.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby awards to and authorizes the City Manager to execute a contract with Con-Quest Contractors, Inc. for the Parkside Avenue Bridge Replacement Project in the amount of $976,446.00 with a 10% contingency of $97,644.60 if needed, for a total not-to-exceed cost of $1,074,090.60 under CEQA Guideline 15301, and approving a FY 2025-26 budget amendment in the Capital Fund (CIP #809) in an amount up to $1,700,000.00.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:
-127-
Resolution No. 26-
June 8, 2026
2 AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-128-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
16 CONSENT CALENDAR

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Adopting a Residential Two-Inch Water Meter Rebate Policy SUMMARY: City Council directed staff to develop a policy for reduced charges on residential twoinch residential water meters. This topic has been discussed in prior water rate setting processes at both the Financial Advisory Committee and City Council level. Staff reviewed the feasibility of implementing a policy, including the anticipated fiscal impact.

BACKGROUND
Water meter design flows require some residential properties to have a two-inch meter. In rare cases, a two-inch meter is larger than what is necessary for day-to-day water use needs, and these customers’ water use is low enough that they would be serviced adequately by a one-inch meter. Therefore, these properties are paying more for the potential higher water use of a two-inch meter, though it is not being utilized. City Council direction had been to explore how to right-size these customers to be more in line with what is actually being used.

Current Remedy – Without any modifications to the policy, the only solution to the higher fixed meter charge for a two-inch water meter is to re-pipe their private side water service meter connection and pipes to allow for the installation of a new one-inch meter. In many instances this would be cost prohibitive.

Proposed Remedy - To provide a more practical solution, the proposed Residential Two-Inch Water Meter Rebate Policy allows users that exhibit one-inch water usage from their two-inch meter to apply for a rebate on their water bill. The process would be:
• Town water customer submits a rebate application between August 1 and October 1 • Town staff, upon receipt of the application, would review the customer’s prior fiscal year usage to determine eligibility for a rebate
o Eligibility - To be eligible for the rebate, the residential customer’s meter measured usage must meet the following criteria: (1) average annual usage is at or below the annual usage of a 1-inch meter, and (2) there was no peak hour flow that exceeded a 1-inch meter peak flow during the measurement period.
• If determined to be eligible, Town staff would issue a rebate for the difference between the customer’s two-inch meter and the one-inch meter fixed charge for the entire previous fiscal year
• If not eligible, Town staff would notify the customer of the reasons. The following types of two-inch meters do not qualify for the rebate:
o Commercial meters
o Properties under construction
o Partial/seasonal use occupancy homes
o Properties with multiple meters
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Agenda Staff Report – Hillsborough City Council
June 8, 2026

Page 2 ends

FISCAL IMPACT: There are 250 two-inch meters in Town, though not all will be eligible for the rebate. Staff estimates less than 60 would be eligible for the rebate, based on eligibility requirements denoted in the policy, though not all may apply. Based on this, the anticipated fiscal impact is estimated to be between $25,000.00 and $50,000.00 in annual revenue loss based on current fixed meter fee rates and analysis of actual usage data compared to the Residential TwoInch Water Meter Rebate Policy criteria.

ATTACHMENT(S): Resolution and Exhibit A Residential Two-Inch Water Meter Rebate Policy PREPARED BY: Paul Willis, Director of Public Works
RECOMMENDATION: Adopt the resolution adopting a Residential Two-Inch Water Meter Rebate Policy.
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RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

ADOPTING A RESIDENTIAL TWO-INCH WATER METER REBATE POLICY WHEREAS, the Town of Hillsborough (“Town”) has fixed water meter charges that increase according to meter size; and
WHEREAS, in some cases, the two-inch water meter installed at a residential property may be larger than what is necessary for their day-to-day water use; and WHEREAS, a property owner in this situation would have to re-pipe their private side water service meter connection and pipes to allow for the installation of a new one-inch meter; and
WHEREAS, in such cases a reduction in the customer’s fixed meter fee rate may be appropriate; and
WHEREAS, staff recommends a Residential Two-Inch Water Meter Rebate Policy by which residential water customers in this situation may apply and qualify for a rebate.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby adopts a Residential Two-Inch Water Meter Rebate Policy, as attached hereto as Exhibit A.

Mayor of the Town of Hillsborough

Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-131-

T OWN OF H ILLSBOROUGH

RESIDENTIAL TWO-INCH WATER METER

REBATE POLICY
POLICY CREATED 6/8/2026
PURPOSE: The Residential Two-Inch Water Meter Rebate Policy establishes criteria to allow for a rebate for water customers served by a two-inch meter with low water use. The intended purpose of the policy is to ensure that low water users that have installed a two-inch meter have an alternative to replacing the water pipes during years of low water usage and are charged based on actual usage.

STATEMENT OF POLICY: Water meter design flows require some residential properties to have a two-inch meter. In rare cases, a two-inch meter is larger than what is necessary for their day-to-day water use needs. In these cases, water use may be low enough that the property would be serviced adequately by a one-inch meter. For these situations, a rebate using the following criteria is available via application on the Town’s website at www.hillsborough.net.

1. Water Usage Criteria - A residential customer’s two-inch water meter shall meet the following water usage criteria for the evaluation period, which is the prior fiscal year (July 1 – June 30):
a. Maximum hourly water usage does not exceed 50 gallons per minute (GPM), and
b. Annual water consumption remains below the average annual usage for a 1-inch meter during the same usage period.

If the two-inch meter exceeds either evaluation criterion at any time during the evaluation period, the application will not qualify for a rebate.

2. Ineligible Applications - Applications will be considered ineligible if the property is:
a. A commercial property
b. Under construction during the evaluation period.
c. A partial/seasonal occupancy property.
d. Serviced by more than one water meter.

3. Rebate Application and Award
a. The Property owner must submit a rebate application between August 1 – October 1 each year.
b. If the application qualifies, the Town will issue a rebate equal to the difference in fixed monthly charges between a two-inch and a one-inch meter for the evaluation period.

EXHIBIT A
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Page 2 ends

POLICY ___ RESIDENTIAL TWO-INCH WATER METER REBATE POLICY c. Eligible applicants will receive the rebate in their account within 60 days on their next qualifying water billing.
d. If the application does not qualify for a rebate, the property owner will be notified by the Town within 60 days of receipt of the application. e. Rebates must be applied for annually.
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
17 PUBLIC HEARING

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Authorizing the Five-Year Rate Series for Water Rate Charges for a Five-Year Period Effective July 1, 2026
SUMMARY: The Town of Hillsborough (Town) undertook a water rate study to determine the rates necessary to fund the revenue requirement for the water fund for the next five years, beginning July 1, 2026. The water rate cost of service analysis and proposed rates were reviewed and presented to City Council at a public study session on February 9, 2026. At the April13, 2026 City Council meeting, the City Council accepted the Water Rate Study (Study) report and authorized the implementation of the recommendations.

Background
The Town of Hillsborough is an almost entirely residential city located in San Mateo County, California. The Town operates and maintains a potable water distribution system to serve its residents and water users. It is a complex system with varying topography and 19 separate but interconnected pressure zones. The infrastructure network includes 108 miles of water mains, 18 water tanks, 14 water pump stations and over 7,500 various assets, such as water meters, fire hydrants, and valves. The San Francisco Public Utilities Commission (SFPUC) delivers treated wholesale water to the Town from its Hetch Hetchy system. This water is delivered through ten master meter locations from the SFPUC’s 42-inch and 60-inch transmission pipelines. The Town purchases treated water from the San Francisco Water Department’s (SFWD) Hetch-Hetchy system under a long-term supply contract last renewed on July 1, 2009, and Amended December 1, 2018, with a 25-year term through June 30, 2034. From these connections, the Town pumps and delivers water to approximately 4,014 accounts, of which nearly all are singlefamily residential. The system’s customer base is comprised primarily of single-family residential units. Several public and private schools and three private clubs represent the balance of the customer base. The Town operates and maintains its own water distribution facilities. Most of the Town’s water customers are billed on a bi-monthly basis.

The current water rate series was implemented and took effect on November 14, 2022, with annual reviews conducted each year to determine if the rate increase was necessary for that year. Rates from the adopted rate series were implemented effective July 1, 2023, and were increased in accordance with the pre-approved schedule on January 1, 2024, and January 1, 2025. The new cost of service study was prepared using the latest legal, legislative and financial projections.

Rate Study
The Town’s water rate revenues are used to fund provision of potable water to the customers of the Town’s water system. HF&H performed a cost of service analysis as part of the Study for the Town of Hillsborough with projections for the cost of service and revenue requirements for the rate -134-
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June 8, 2026

Page 2 ends

years effective July 2026 through 2030. The study indicates an overall, annual revenue requirement increase ranging from 5% to 6% over the five-year period.

Purchased Water Cost
A key component of the operations and maintenance cost (“O&M”), the purchased water cost per unit is increasing between 3.0% and 8.6% annually over the next five years, as communicated by the SFPUC. The SFPUC rates can vary within the five-year period from what was recently communicated to the water agencies. To maintain user rates, should the SFPUC rates vary from what is assumed in the rate study assumptions, a “pass through adjustment” can be implemented for the difference in the per unit charge.

Capital Improvement Plan
Another key component in the development of the Town’s water revenue requirement was properly funding capital improvement needs. The Town’s capital improvement plans include an average annual expense of $2.9 million over the projection period, demonstrating the Town’s priority to continue to invest in its water system, which must be sized and maintained to meet the Town’s highest levels of water demand. Improvements include aging infrastructure that has exceeded its useful life, including water mains, storage and pumping systems, and seismic protection valves, and software improvements to the Town’s system which monitors, controls and protects infrastructure operations from natural and cybersecurity threats.

Analysis
The proposed rates are needed to keep revenues aligned with long-term funding needs, including:
• Recovering current and long-term projected costs of operating and maintaining the water system, including 23% increases in the costs of the wholesale water the Town purchases from the SFPUC over the next five years;
• Funding $14.6 million in capital improvement projects over the next five years to repair and update the Town’s aging water system;
• Maintaining the operational and financial stability of the water utility; • Complying with State mandated drinking water regulatory requirements; Process for Implementation
The adoption of any new increases in any existing water charges is subject to the public hearing, notice and majority protest requirements of Proposition 218. At the April 13, 2026, meeting, City Council accepted the Proposition 218 process which outlines the procedures that Council will follow for providing the notice and receiving and tabulating written protest to any property-related fees and charges it is proposing to consider adopting. In accordance with Proposition 218, the Town mailed a notice of public hearing to be held on June 8, 2026, to consider the adoption of the proposed increase and changes to its water charges. The notice was mailed to property owners and account holders directly responsible for the payment of water charges, The tally of the number of written protests to the proposed rates received by the Town will be presented by the City Clerk at the conclusion of the public hearing.

The Town also implemented an administrative remedy procedure pursuant to Government Code section 53759.1 (added pursuant to AB 2257). This requires that members of the public submit a legal objection to the Town prior to 4:00 p.m. on June 1, 2026, in order to preserve their right to -135-
Agenda Staff Report- Hillsborough City Council
June 8, 2026

Page 3 ends

bring a legal challenge against the Town’s rates. In order to be valid, and as explained in detail in the Proposition 218 notice, the legal objection must include the name, address or parcel number, and signature of the property owner or tenant directly liable for payment of the water rates.

Additionally, the legal objection must include information sufficient to allow the Town to determine whether any changes to the proposed water rates are required. To date, the Town received 7 objections in total, including one that was not signed by the property owner.

FISCAL IMPACT: Water service costs in Hillsborough are covered by the water rates paid by residential and commercial accounts. The costs of these services are not paid for by the Town’s General Fund budget.

ENVIRONMENTAL ISSUES: In accordance with the California Environmental Quality Act (CEQA) and the CEQA Guidelines, the increases in the water service charges are exempt from CEQA pursuant to Section 15378 and Section 15273 of the CEQA Guidelines and Public Resources Code Section 21080(b)(8) because (a) the increased charges are for the purpose of meeting operational and maintenance expenses of the aforementioned services and (ii) the charges constitute the creation of a funding mechanism/other governmental fiscal activity which does not involve any commitment to any specific project that may result in potential significant physical impact on the environment.

ATTACHMENT(S):

1. Resolution making findings and determinations regarding legal objections

2. Resolution adopting maximum rates for water service charges and authorizing the implementation of revenue stabilization factors to the volume charge rates, as necessary, and taking other actions relating thereto

3. HF&H Water Rate Study Report
PREPARED BY: Jan Cooke, Finance Director
RECOMMENDATION:

1. Adopt resolution making findings and determinations regarding legal objections;

2. Open the public hearing and receive comments;

3. Close the public hearing;

4. Acknowledge information on protests received and presented by the City Clerk at the conclusion of the public hearing;

5. If a majority protest does not exist, adopt the resolution adopting maximum rates for water service charges and authorizing the implementation of revenue stabilization factors to the volume charge rates, as necessary, and taking other actions relating thereto. -136-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

ADOPTING FINDINGS AND DETERMINATIONS RELATED TO THE PRESENTMENT

OF OBJECTIONS TO THE PROPOSED WATER RATES
WHEREAS, section 6 of Article XIII D of the California Constitution (“Proposition 218”) and the Proposition 218 Omnibus Implementation Act (Government Code § 53750, et seq.) require that, prior to imposing any increase to the water rates, the Town of Hillsborough (“Town”) shall provide written notice by mail of: (1) the proposed increases to such rates and charges to the record owner of each parcel upon which the rates and charges are proposed for imposition (record owners); (2) the amount of the rates and charges proposed to be imposed on each parcel; (3) the basis upon which the rates and charges were calculated; (4) the reason for the rates and charges; and (5) the date, time, and location of a public hearing (“Hearing”) on the proposed rates and charges; and
WHEREAS, pursuant to Proposition 218, such written notice is required to be provided to the record owners not less than forty-five days (45) prior to the Hearing on the proposed rates and charges; and
WHEREAS, the Town provided written notice (“Notice”) to record owners and to customers of record who are not the property owner (e.g., a tenant) in compliance and consistent with Proposition 218; and
WHEREAS, the Notice included a prominently displayed statement that contained the information that all written objections to a proposed fee or assessment must be submitted within the written objection period and that a failure to timely object in writing bars any right to challenge the proposed fees or charges through a legal proceeding and that contained all substantive and procedural requirements for submitting an objection to the proposed fee, including the requirement that a valid legal objection must be signed by the record owner or customer of record of the identified parcel; and WHEREAS, the Town established a written objection period with a deadline of 4:00 p.m. on June 1, 2026, to submit an objection; and
WHEREAS, the Town made available to the public the proposed fees no less than 45 days prior to the deadline to submit an objection; and
WHEREAS, the Town posted on its internet website a written basis for the proposed fees and charges and included a link to the internet website in the Notice; and
WHEREAS, the Town mailed the written basis to a property owner upon request or, if not such request were made, would have mailed the written basis to a property owner upon request; and
ATTACHMENT 1
-137-
Resolution No. 26-
June 8, 2026
2 WHEREAS, the Town provided at least 45 days for a property owner or customer of record (e.g., a tenant), to review the proposed fees and to timely submit a written objection to the proposed fees or charges that specifies the grounds for alleging noncompliance, and includes the name, service address or assessor’s parcel number of the identified parcel, and signature of the record owner or customer of record; and WHEREAS, the Town considered and responded in writing, including the grounds for which a challenge is not resulting in amendments to the proposed water rates, to any timely submitted written objections prior to the close of the Hearing; and
WHEREAS, timely submitted written objections and agency responses were presented to the City Council for consideration prior to or during the Hearing; and WHEREAS, the City Council now desires to make findings and determinations related to the proposed water rates.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby finds that the matters set forth in the Recitals to this Resolution are true and correct statements and are made legislative findings and determinations of the City Council, and by this reference made an operative part of this Resolution.

BE IT FURTHER RESOLVED that the City Council has found and has determined that that the valid written objections and the Town’s responses do not warrant clarification to the proposed water rates; no reduction in any proposed fee or charge is warranted; no further review is needed before making a determination on whether clarification or reduction of the proposed rates is needed; and to proceed with the Hearing.

BE IT FURTHER RESOLVED that the City Clerk shall certify to the adoption of this Resolution.

BE IT FURTHER RESOLVED that this Resolution shall become effective immediately upon adoption unless otherwise specifically stated herein.

BE IT FURTHER RESOLVED that this Resolution shall take effect immediately, and that all resolutions, ordinances, or administrative actions by the City Council, or parts thereof that are inconsistent or in conflict with any provision of this Ordinance are hereby superseded only to the extent of such inconsistency or conflict.

Mayor of the Town of Hillsborough
Attest: City Clerk
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Resolution No. 26-
June 8, 2026
3 This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-139-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

ADOPTING MAXIMUM RATES FOR WATER SERVICE CHARGES

AND AUTHORIZING THE IMPLEMENTATION OF REVENUE STABILIZATION

FACTORS TO THE VOLUME CHARGE RATES, AS NECESSARY,

AND TAKING OTHER ACTIONS RELATING THERETO
WHEREAS, the Town of Hillsborough (“Town”) provides water service to properties within the Town’s service area, and is authorized under Health and Safety Code section 5471 et seq. as well as other applicable law to impose fees and charges for such service; and
WHEREAS, the Town engaged HF&H Consultants, LLC (HF&H) to perform an independent cost of service and water rate study (Study) and evaluate the infrastructure, programs, and operations and maintenance costs of the Town’s water services and the rates necessary to recover the costs of those services for the next five years; and
WHEREAS, the Study, a copy of which is on file with the City Clerk, forms the basis for the water rates and charges to be adopted by the City Council pursuant to this resolution, indicates the need to increase the existing rates for the Town’s water rates and charges and to provide authority to adjust the rates and charges, when mandatory water conservation measures are in effect by a formula, (revenue stabilization factors), when necessary to safeguard against significant financial losses resulting from greater than projected reductions in water usage by Town customers to enable the water utility to meet its projected operations and maintenance costs, including debt service obligations, and capital repair and replacement costs; and
WHEREAS, the proposed water rate structure has two components—a water service charge and a volume charge; and
WHEREAS, the water service charge is a fixed charge calculated to recover a portion of the Town’s fixed costs of operating and maintaining the water system, and delivering water. The rates for the water service charge are established on the basis of the size of the meter (in inches) serving a property to recover the incremental costs of sizing and maintaining facilities to sufficiently deliver water to properties served by larger meters; and
WHEREAS, the volume charge is a variable charge imposed per unit of delivered water, with one unit equal to one hundred cubic feet (HCF), or 748 gallons, and is calculated to recover a portion of the Town’s fixed costs and its variable costs of providing water service; and
WHEREAS, the water rate structure is designed to proportionately allocate the cost of service to each parcel, will generate sufficient revenue to provide water ATTACHMENT 2
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Resolution No. 26-
June 8, 2026
2 service, and such revenues will be used only for providing water service to parcels within the Town; and
WHEREAS, the City Council determined to hold a public hearing to consider the adoption of the water rates and charges and revenue stabilization factors, and notices of the public hearing were mailed to the record owner of any parcel upon which the water rates and charges are proposed for imposition, and any tenant who is directly liable for the payment of water rates and charges (i.e., a customer of record who is not a property owner); and
WHEREAS, the notices were mailed on April 20, 2026, more than 45 days before the public hearing on June 8, 2026 on the proposed water rates and charges; and
WHEREAS, the City Council held a public hearing on June 8, 2026, to consider the proposed water rates and charges, and at the public hearing the City Council considered the Study, heard all oral testimony and considered all written materials and written protests concerning the adoption and imposition of, and the proposed adjustments and increases to the rates for the water rates and charges and the revenue stabilization factors; and WHEREAS, at the close of the public hearing, the Town did not receive written protests against the establishment and imposition of the proposed rates and charges and revenue stabilization factors from a majority of the record owners of the parcels upon which the rates and charges are proposed for imposition or tenants directly liable for the payment of the water rates and charges; and
WHEREAS, the City Council is authorized and has determined to approve the proposed water rates and charges and act accordingly on the matter.

BE IT FURTHER RESOLVED that the City Council has evaluated and hereby approves the maximum rates and charges for water service and the revenue stabilization factors to be applied to the rates of the volume charge as set forth below, and adopts such rates in accordance with the authority of Health and Safety Code section 5471 et seq.

BE IT FURTHER RESOLVED that the Town may impose the water service charge on or after the dates and at or below the adopted maximum rates set forth for each year in the tables below. The rates for the water service charge are established on the basis of the size of the meter (in inches) serving a property. Each year the City Council will review the need to increase the rates for the water service charge based on the prevailing financial requirements of the water utility. The rate increases will only occur if -141-
Resolution No. 26-
June 8, 2026
3 it is determined that the need still exists and in no event will they exceed the maximum rates set forth in the following table. The table below reflects the rates for the water service charge that will be billed bi-monthly for residential customers or monthly for nonresidential customers. The finance director has the authority to change the billing from bi-monthly to monthly upon written notice to the ratepayers. The rates shall be in effect for services provided on and after July 1, 2026, and shall be similarly imposed and increased on or after each July 1 thereafter, through and including July 1, 2030, up to the maximum increased rates set forth below.

Service Charge Bi-Monthly Rates
Service Charge Monthly Rates
BE IT FURTHER RESOLVED that the Town may impose the volume charge on or after the dates and at or below the adopted maximum rates set forth for each year in the table below. The volume charge is a variable charge imposed per unit of delivered water, with one unit equal to one hundred cubic feet (HCF), or 748 gallons. The rates for all customers are uniform. The table below reflects the rates for the volume charge that will be billed bi-monthly for residential customers or monthly for non-residential customers.

Volume Charge Rates per HCF
BE IT FURTHER RESOLVED that, during locally declared water shortages, state mandated reductions in the level of potable water usage, or other natural disaster or event that requires reductions in water usage, the City Council may implement revenue stabilization factors to adjust the rates of the volume charge. The revenue stabilization Service Size 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 3/4" $240.82 $252.86 $265.50 $278.78 $292.72
1" $262.53 $275.66 $289.44 $303.91 $319.11
1 1/2" $311.38 $326.95 $343.30 $360.47 $378.49
2" $376.52 $395.35 $415.12 $435.88 $457.67
3" $550.21 $577.72 $606.61 $636.94 $668.79
6" $1,288.41 $1,352.83 $1,420.47 $1,491.49 $1,566.06
8" $1,939.76 $2,036.75 $2,138.59 $2,245.52 $2,357.80
Service Size 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 3/4" $120.41 $126.43 $132.75 $139.39 $146.36
1" $131.26 $137.83 $144.72 $151.96 $159.56
1 1/2" $155.69 $163.48 $171.65 $180.24 $189.25
2" $188.26 $197.68 $207.56 $217.94 $228.84
3" $275.10 $288.86 $303.31 $318.47 $334.40
6" $644.20 $676.42 $710.24 $745.75 $783.03
8" $969.88 $1,018.38 $1,069.30 $1,122.76 $1,178.90
7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030
All Customers $11.42 $11.99 $12.59 $13.22 $13.88
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Resolution No. 26-
June 8, 2026
4 factors to be implemented will be determined on the basis of the level of potable water use reduction required and the revenue required by the water utility to ensure that it recovers sufficient revenue to meet its expenditures and debt obligations. The City Council may terminate the revenue stabilization factor if it is no longer required. If implemented by the City Council, the revenue stabilization factors will be applied to the rates of the volume charge.

The formula for the revenue stabilization factors is comprised of a conservation and a variable cost component. The conservation component adjusts the volume charge rates to account for the reduction in water usage caused by conservation. The variable component adjusts the rates for the volume charge to account for the Town’s specific water shortage conditions. The rates for the volume charge then in effect will be multiplied by the applicable revenue stabilization factor to derive the volume charge rates to be in effect until changed by the City Council. The maximum revenue stabilization factors are set forth in the table below:

Rates with Maximum Revenue Stabilization Factors
The rates with the maximum revenue stabilization factors by water shortage stage are set forth in the table below:

Rates per HCF.

BE IT FURTHER RESOLVED that the proposed rates are based on the rates imposed on the Town by the San Francisco Public Utilities Commission (SFPUC), the Town’s wholesale water provider. SFPUC’s projected increases in its wholesale water rates on July 1 of each year from the current cost of $5.80 per HCF in FY 2025-26 are:
$6.33 per HCF in FY 2026-27
$6.52 per HCF in FY 2027-28
$6.72 per HCF in FY 2028-29
$6.92 per HCF in FY 2029-30
$7.12 per HCF in FY 2030-31
The Town is proposing to pass through any additional increases or decreases in the SFPUC wholesale water rates that are above or below these projected SFPUC wholesale water rates. A pass-through will be implemented by increasing or decreasing the Town’s proposed Volume Charge rates by the amount of the SFPUC wholesale Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction

1.040 1.090 1.155 1.240 1.361 1.459
Stage 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030
Stage 1 $11.88 $12.47 $13.09 $13.75 $14.44
Stage 2 $12.45 $13.07 $13.73 $14.41 $15.13
Stage 3 $13.18 $13.84 $14.54 $15.26 $16.03
Stage 4 $14.17 $14.87 $15.62 $16.40 $17.22
Stage 5 $15.54 $16.31 $17.13 $17.99 $18.89
Stage 6 $16.66 $17.49 $18.37 $19.29 $20.25
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Resolution No. 26-
June 8, 2026
5 water rate increase or decrease in cents per HCF in excess of or below the projected SFPUC wholesale rate. Prior to increasing the volume charge because of a pass through of an increase in the SFPUC wholesale water rate above what is already included in the volume charge, the Town will send written notification to all customers at least 30 days prior to the effective date. Any pass-through shall not cause the impacted rate to increase by more than 20% in any year.

BE IT FURTHER RESOLVED that if any section, subsection, sentence, clause, phrase, or portion of this Resolution is for any reason held to be unconstitutional or otherwise invalid by the decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Resolution. The City Council of the Town of Hillsborough hereby declares that it would have adopted the remainder of this ordinance, including each section, subsection, sentence, clause, phrase, or portion irrespective of the invalidity of any other article, section, subsection, sentence, clause, phrase, or portion.

BE IT FURTHER RESOLVED that, in accordance with the California Environmental Quality Act (CEQA) and the CEQA Guidelines, the City Council has determined that the increases in the water service charges are exempt from CEQA pursuant to Section 15378 and Section 15273 of the CEQA Guidelines and Public Resources Code section 21080(b)(8) because: (i) the increased charges are for the purpose of meeting operational and maintenance expenses of the aforementioned services; and (ii) the charges constitute the creation of a funding mechanism/other governmental fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. The documents and materials that constitute the record of proceedings on which these findings have been based are located in the Office of the City Clerk located at Hillsborough Town Hall, 1600 Floribunda Ave., Hillsborough, CA 94010. The custodian for these records is the City Clerk.

Mayor of the Town of Hillsborough
Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 8th day of June 2026, by the following vote of the members thereof:
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Resolution No. 26-
June 8, 2026
6 AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-145-

TOWN OF

HILLSBOROUGH
Water Rate Study
April 10, 2026
ATTACHMENT 3
-146-
HF&H Consultants
590 Ygnacio Valley Rd. Suite 105
Walnut Creek, CA 94596
Phone: (925) 977-6950
Web: hfh-consultants.com
April 10, 2026
Jan Cooke
Finance Director
The Town of Hillsborough
1600 Floribunda Avenue
Hillsborough, CA 94010
Sent via email: [email protected]
Subject: Water Rate Study – Draft Report
Dear Jan Cooke,
HF&H Consultants (HF&H) is pleased to submit this draft cost-of-service report for updating the Town of Hillsborough’s (Town’s) water rates for Fiscal Years (FYs) 2026-27 through 2030-

31. The previous rate study was completed in 2022. The current study makes the following recommendations.
• Revenue increases. Rate increases are recommended due to increases in the cost of purchased water from the San Francisco Public Utilities Commission (SFPUC) and the need to fund capital improvements, including ongoing repairs and replacements of aging infrastructure. Infrastructure and capital improvements must be sized to accommodate all levels of water demand, including average and above average usage.

In addition, rate increases are needed to allow the Town’s Water Fund to continue compliance with debt service requirements and to avoid operational deficits and depletion of reserves. Over the next five years, the revenue increases average approximately 5.2% per year.
• Service Charge rates. The proposed rates are adjusted to reflect a greater percentage of fixed than variable costs attributed to service charges. There are two reasons for the increased proportion of fixed costs. The Town has higher overhead costs, distributed to every account regardless of meter size. In addition, the Town plans to fund several capital projects that will provide an equal benefit to customers system wide. Thus, the costs for these projects are also distributed to each account through the service portion of the calculation fixed Service Charge. • Volume Charge rate structure modifications. The Town is planning to unify all water customers under a single rate structure. The Town is considering two alternatives: 1) A two-tiered, increasing block rate structure; and 2) A uniform rate structure. Rates under both scenarios are calculated and bill impacts have been analyzed to provide City Council with information to determine their preferred alternative.
• Revenue Stabilization Factors. The Town currently has Revenue Stabilization Factors which are applied to the Volume Charge rates and can only be implemented -147-
Jan Cooke
April 10, 2026

Page 2 of 2 ends

during locally declared water shortages, State mandated reductions in the level of potable water usage, or other natural disaster or event that requires reductions in water usage. During times of declared water shortage and demand reduction, the Town continues to incur fixed costs even though revenue from water purchases decreases.

The Revenue Stabilization Factors are designed to allow the Town to recover its fixed costs and continue providing safe and reliable water service. The recommended update to the Revenue Stabilization Factors will align with the Volume Charge rate structure chosen by City Council.
• Pass-through Adjustment. We recommend that the Town incorporate annual passthrough adjustments of the SFPUC water purchase cost into its Volume Charge rates.

Volume Charge rates can be adjusted to track any difference between the SFPUC rates that were included in the model and the actual rates adopted each year by SFPUC.

Pursuant to California Government Code Section 53756, the Town would pass through any additional increases in the SFPUC wholesale water rates that are above or below these projected SFPUC wholesale water rates, provided that the impacted Volume Charge will not be increased in any year by more than 20%.

The rates proposed in this report reflect the current and projected cost of providing service for the next five years. If the proposed rates are adopted, the rates are the maximum allowable rates that can be charged for that year, however, a lower rate may be implemented by City Council in that year if circumstances have changed. We greatly appreciate your assistance in developing the cost-of-service analysis.

Sincerely,

HF&H CONSULTANTS, LLC
Rick Simonson
Senior Vice President
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Water Rate Study
Table of Figures & Glossary
Town of Hillsborough | April 10, 2026 | Page ii
Table of Contents
I. EXECUTIVE SUMMARY ...................................................................1 Background ........................................................................................ 1 Revenue Requirements......................................................................... 2 Current Rate Structure ......................................................................... 4 Proposed Rate Structure....................................................................... 5 Proposed Revenue Stablization Factors................................................... 7 II. INTRODUCTION...........................................................................9 Study Purpose..................................................................................... 9 Study Process ..................................................................................... 9 Report Organization...........................................................................10 III. REVENUE REQUIREMENTS........................................................12 Demand Projections ...........................................................................12 Revenue Requirement Assumptions and Projections ...............................13 Reserves ..........................................................................................18 Revenue Increases ............................................................................19 Debt Coverage ..................................................................................20 Reserve Fund Balance ........................................................................21 IV. COST-OF-SERVICE ANALYSIS....................................................22 General Approach ..............................................................................22 Cost-of-Service Allocations ................................................................. 23 V. RATE DESIGN .............................................................................38 Service Charge Design .......................................................................38 Volume Charge Design .......................................................................41 VI. CUSTOMER BILL IMPACTS.........................................................51 Bill Comparison .................................................................................51 -149-
Water Rate Study
Table of Figures & Glossary
Town of Hillsborough | April 10, 2026 | Page iii
Figures
Figure 1-1. Total Revenue Requirement Projections 2
Figure 1-2. Projected Revenue Increases 3
Figure 1-3. Projected Fund Balance 4
Figure 1-4. Proposed Bi-Monthly Service Charge Rates 6
Figure 1-5. Current and Proposed Volume Charge Rates – Scenario 1 7 Figure 1-6. Current and Proposed Volume Charge Rates – Scenario 2 7 Figure 1-7. Proposed Revenue Stabilization Factors 8
Figure 2-1. Summary of Rate Analysis 11
Figure 3-1. Projection Assumption 13
Figure 3-2. Historical and Projected SFPUC Wholesale Rate 14 Figure 3-3. Projected Administrative and O&M Expenses 15 Figure 3-4. Projected Capital Improvement Program 16
Figure 3-5. Original Debt-Funded Capital Projects 17
Figure 3-6. Projected Debt Service Requirements 17
Figure 3-7. Total Revenue Requirement Projections 18
Figure 3-8. Rate Increase Calculations 19
Figure 3-9. Projected Revenue Increases 20
Figure 3-10. Debt Service Coverage 20
Figure 3-11. Projected Year-End Fund Balance 21
Figure 4-1. Revenue Requirements by Function (FY 2026-27) 29 Figure 4-2. Revenue Requirement by Service Function 30
Figure 4-3. Service Level Demands and Load Factors 32
Figure 4-4. Comparison of Water Use 33
Figure 4-5. Pipeline Capacity Needed for Demand Service Levels 34 Figure 4-6. Demand Related Allocation Percentages 34
Figure 4-7. Allocation of Fire Services According to Storage Requirements 35 Figure 4-8. Service Function Allocations 36
Figure 4-9. Allocations Factors 37
Figure 4-10. Cost-of-Service Revenue Summary 37
Figure 5-1. Service Charge Units of Service 39
Figure 5-2. Service Charge Unit Costs 39
Figure 5-3. Calculation of Proposed Bi-Monthly Service Charge Rates (FY 2026-27) 40 Figure 5-4. Proposed Bi-Monthly Service Charge Rates (FY 2026-27-FY 2030-31) 41 Figure 5-5. Tier Breakpoint Analysis 42
Figure 5-6. Incremental Unit Cost 43
Figure 5-7. Calculation of Proposed Volume Charge Rates 44 Figure 5-8. Proposed Volume Charge Rates 44
Figure 5-9. Calculation of the Uniform Volume Charge Rate 44 Figure 5-10. Proposed Volume Charge Rates 45
Figure 5-11. Calculation of Shortage Reductions by Stage 46 Figure 5-12. Revenue Stabilization Factors by WSCP-Defined Shortage Stage 48 Figure 5-13. Water Rates with Revenue Stabilization Factors Included - Scenario 1 49 Figure 5-14. Water Rates with Revenue Stabilization Factors Included – Scenario 2 49 Figure 6-1. Monthly Residential Customer Bill Impacts 51 Figure 6-2. Non-Residential Bill Impacts 52
Figure 6-3. Mean/Median Bill Impacts – Scenario 1 (Two-Tier Rate Structure) 53 -150-
Water Rate Study
Table of Figures & Glossary
Town of Hillsborough | April 10, 2026 | Page iv
Figure 6-4. Mean/Median Bill Impacts – Scenario 2 (Uniform Rate Structure) 53 Figure 6-5. Bi-Monthly Residential Customers – Annual Water Bill Comparison 54 Figure 6-6. Bi-Monthly Residential Customer Bills Comparison – 3/4” meter 54 Figure 6-7. Bi-Monthly Residential Customer Bills Comparison – 1” meter 55 Figure 6-8. Bi-Monthly Residential Customer Bills Comparison – 1 ½” meter 55 Figure 6-9. Bi-Monthly Residential Customer Bills Comparison – 2” meter 56 Figure 6-10. Bi-Monthly Volume Charge Comparison 56
Glossary
AWWA – American Water Works Association.

Above-Average Demand – Amount of water use above the average water use of all customers.

Average Demand – Amount of water use at or below the average water use of all customers.

BAWSCA – Bay Area Water Supply and Conservation Agency.

Breakpoint – The volume of water per billing period separating tiers in tiered rate structures.

CCF – Hundred cubic feet (see HCF below).

CIP - Capital Improvement Program.

COS - Cost of Service.

CY - Calendar Year
EMU – Equivalent Meter Unit.

Extra-Capacity – Rate-of-use in excess of average annual rate-of-use requirements.

FY - Fiscal Year.

Flat rates - Fixed charges per account that do not vary based on metered water use. Flat rates are found in unmetered water systems and in wastewater rates. Flat rates are not uniform rates (see below).

GPD - Gallons Per Day.

HCF - Hundred cubic feet of metered water; 748 gallons; a cube of water 4.6 feet on edge.

One HCF per month is about 25 gallons per day.

MG – Million Gallons
O&M - Operating and Maintenance, in reference to the costs of running facilities. -151-
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Glossary & References
Town of Hillsborough | April 10, 2026 | Page ii
PAYGo - Pay-As-You-Go, in reference to funding capital improvements from cash rather than from borrowed sources such as bonds or loans.

Revenue Stabilization Factors –Factors that are applied to Volume Charge rates to stabilize revenue to meet the Town’s water revenue requirement during periods of conservation when there are significant reductions in water usage, and hence in water revenues.

Meter Charges – One-time charges for the purchase of a meter. Meter charges are not Service Charges (see below).

SCADA – Supervisory Control and Data Acquisition.

Service Charges – Fixed charges paid per account regardless of the amount of water used.

The charge is proportionate to the capacity of the customer’s service, which is the capacity of the pipe connecting from the main to the meter, or the meter, whichever is smaller. Service Charges are not meter charges (see above). The Town’s Service Charges are called “Fixed Service Charges.”
SFPUC - San Francisco Public Utilities Commission.

Uniform rates - Constant charges per unit of consumption that do not change depending on the amount of water used. Uniform rates are not flat rates (see above).

Volume Charges – The product of rates per unit of metered water consumption multiplied by a customers metered water use during the billing period.

WSCP – Water Shortage Contingency Plan.

WSIP – Water Supply Improvement Plan, which is prepared by the SFPUC.

References

1. Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2025.

2. Water Shortage Contingency Plan. Town of Hillsborough. July 2020. -152-
Water Rate Study
Acknowledgements & Limitations
Town of Hillsborough | April 10, 2026 | Page i
Acknowledgements
City Council
Sophie Cole, Mayor
Leslie Marden Ragsdale, Vice Mayor
Laurie Davies Adams, Councilmember
Marie Chuang, Councilmember
Christine Krolik, Councilmember
Town Staff
Jan Cooke, Finance Director
Richard Santiago, Assistant Finance Director
Paul Willis, Director of Public Works / City Engineer
Doug Davis, City Manager
Mandy Brown, Assistant City Manager
Best Best & Krieger LLP
Lutfi Kharuf
HF&H Consultants, LLC
Rick Simonson, Senior Vice President
Gabe Sasser, PE, Project Manager
Alex Santos, Senior Associate
La Velda Peterson, Assistant Analyst
Limitations
This document was prepared solely for the Town of Hillsborough in accordance with the contract between the Town and HF&H and is not intended for use by any other party for any other purpose.

In preparing this study, we relied on information from the Town, which we consider accurate and reliable. Our analysis is based on the best available information at the time of the study.

Rounding differences caused by stored values in electronic models may exist.

This document represents our understanding of relevant laws, regulations, and court decisions but should not be relied upon as legal advice. Questions concerning the interpretation of legal authorities referenced in this document should be referred to a qualified attorney. -153-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 1
I. Executive Summary

BACKGROUND
The Town operates and maintains a potable water distribution system to serve its residents and water users. It is a complex system with varying topography and 19 separate but interconnected pressure zones. The infrastructure network includes 108 miles of water mains, 18 water tanks, 14 water pump stations and over 7,500 various assets, such as water meters, fire hydrants, and valves. The San Francisco Public Utilities Commission (SFPUC) delivers treated wholesale water to the Town from its Hetch Hetchy system. This water is delivered through ten master meter locations from the SFPUC’s 42-inch and 60-inch transmission pipelines. From these connections, the Town pumps and delivers water to approximately 4,270 customers, of which nearly all are single-family residential.

The water rates in this study were developed to meet the mandates of article XIII D, section 6 of the California Constitution. To achieve this goal, HF&H used rate-making principles set forth by the American Water Works Association in Principles of Water Rates, Fees and Charges (M1 Manual) insofar as such principles are consistent with California’s constitutional limitations on rate-setting. This Manual’s cost-of-service principles endeavor to distribute costs to customer classes (also referred to as classes) and to individual customers in proportion to the way customers use the water system. Pursuant to the M1 Manual, rate studies generally contain three elements: (1) a revenue requirements analysis, which determines how much revenue is needed from rates to recover a utility’s projected costs; (2) a cost-of-service analysis, which allocates the revenue requirements to the rate components; and (3) a rate design analysis, which aligns the rate structure with the cost of service.

A cost-of-service analysis is typically only conducted periodically. It is recommended that a cost-of-service analysis be conducted at least every five years to account for any material differences in the costs of providing service and in the water usage among customer classes, which will affect their respective shares of the cost of service. In the interval between costof-service studies, revenue requirements may be updated to determine how much to increase rates annually without modifying the rate structure. The Town has updated the revenue requirement and reviewed its water rates annually since the previous adoption of the cost-ofservice study in 2022.

Since the previous cost-of-service analysis, changes in demand patterns have occurred, which affects the factors that are used to allocate costs to each customer class. The costs to which the allocation factors are applied also change. Hence, there will be differences between the previous and current cost-of-service analyses. Adjustments are made to reflect the differences and rates are set accordingly.

The cost-of-service analysis proportionately allocates the revenue that is required from rates to the components of the rate structure and to the customer classes. Costs are classified corresponding to the function they serve. Each function’s costs are further allocated to each component of the rates in proportion to the level of service required by customers. The levels of service are related to volumes of Average and Above-Average Demand, infrastructure capacity, and customer service. Ultimately, a cost-of-service analysis ensures that the rates yield charges that are proportional to the cost of providing service to each customer. -154-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 2
The following discussion summarizes HF&H’s findings and recommendations.

REVENUE REQUIREMENTS
The revenue requirements were updated to reflect projected customer demands and the costs associated with meeting those demands. The five-year projections are shown in Figure 1-1.

Over the projected five-year study period, the Town’s revenue requirement is driven by increases to water purchase costs and capital improvement expenditures. The Town’s water supply source, SFPUC, intends to raise rates by 7.4% from $5.80 per hundred cubic feet (HCF)1 to $6.23 per HCF on July 1, 2026. Thereafter, SFPUC has projected increases will continue such that the wholesale water rate will be $7.38 per HCF by July 1, 2030. The Town’s capital improvement plans include an average annual expense of $2.9 million over the projection period, demonstrating the Town’s priority to continue to invest in its water system.

The bulk of project expenditures are planned to support water main replacement, as well as storage and pumping infrastructure.

Figure 1-1. Total Revenue Requirement Projections
Source: Figure 3-7.
1 HCF (Hundred Cubic Feet) = 748.052 gallons
Fiscal Years FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Purchased Water Costs $7,110,083 $7,611,825 $8,147,925 $8,413,193 $8,599,808 $8,979,074 Admin & O&M Costs $8,434,922 $8,685,818 $8,798,013 $9,048,295 $9,299,514 $9,561,223 Debt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,352,413 $1,049,907 Capital Projects $2,000,000 $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 Total Revenue Requiremen$18,768,609 $20,468,318 $21,070,885 $21,558,198 $22,180,471 $22,518,940 Year over Year Increase % 9.1% 2.9% 2.3% 2.9% 1.5%
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I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 3
The rate and revenue increases are shown in Figure 1-2. The rate increases would become effective every July 1, beginning July 1, 2026.

In FY 2026-27, after recommended increases, the total revenue increases by 6.0%. However, the percentage by which Service Charges and Volume Charge rates change will vary due to rate structure modifications. Beginning July 1, 2027, the revenue increases are applied as equal percentages across the board to all rates.

Figure 1-2. Projected Revenue Increases
Source: Figure 3-9.

As shown in Figure 1-3, the projected increases in the revenue requirements include the replenishment and maintenance of adequate reserves. The Town’s reserve policy states that the minimum Operating Reserve balance (red line) will equal 20% of annual O&M expenses.

The bond reserve of $375,000 is added to the 20% Operating Reserve. An allowance for capital project reserves is added to the minimum operating reserve to develop the total reserve target. This capital project component is recommended to provide working capital for timing of pay-as-you-go (PAYGo) construction projects. The sum of the Operating and Capital Reserve components equals the Target Balance (blue line). The projected fund balance shows the use of reserves over the first year of the rate study period. The use of reserves balances the need for charging larger rate increases to customers. The projected fund balance (solid, green line) is replenished to reach the Target Balance by the end of the proposed five-year rate series. With these proposed rate increases, debt service coverage remains strong and improves during the five-year period.

Effective Date Revenue Fiscal Year
Rate of Rate After Rate Increase in
Fiscal Year Adjustments Adjustments Adjustments Revenue Revenue at 2025 Rates $18,339,693
FY 2026-27 varies 7/1/2026 $19,432,079 6.0%
FY 2027-28 5.0% 7/1/2027 $20,402,331 5.0%
FY 2028-29 5.0% 7/1/2028 $21,425,264 5.0%
FY 2029-30 5.0% 7/1/2029 $22,497,070 5.0%
FY 2030-31 5.0% 7/1/2030 $23,625,175 5.0%
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I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 4
Figure 1-3. Projected Fund Balance
Source: Model Table 1a. Summary.

CURRENT RATE STRUCTURE
The Town’s current rate structure is composed of three components: Service Charges, Volume Charges, and Revenue Stabilization Factors.

Service Charges
The Service Charges are fixed monthly rates that are graduated in proportion to the capacity of the service provided. Some of the Service Charge rates vary by customer class. The Town’s Service Charges are called “Fixed Service Charges.” For ease of discussion, we refer to them as simply “Service Charges.” 2
Volume Charges
The Volume Charges are the product of rates per unit of metered water consumption multiplied times the metered water consumption during the billing period. Water is metered in “units” of HCF. Volume Charge rates are charged to two separate customer classes, singlefamily residential customers (Residential), and non-single family customers consisting of 2 The service is the connection between the public water system and the property served. The service includes the pipes, valves, and meter set (i.e., box, lid, yoke, meter, valve); in some cases, there are multiple meters. The service is installed at the property owner’s expense.

After the meter is purchased and installed, customers pay Service Charge rates. It is the Town’s practice to charge a Service Charge for each meter. The terminology in this report refers to the capacity of the service and the capacity of the meter interchangeably. -157-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 5
municipal, school, country clubs, and other customers (Non-Residential). For Residential customers, the current Volume Charge rates consist of four tiers that charge higher rates as the level of consumption increases. For the Non-Residential customer class (a small number of customers), the Volume Charge rate is a uniform rate3 per unit of metered water consumption.

Revenue Stabilization Factors
The Revenue Stabilization Factors are combined with the Volume Charges and are designed to ensure there is sufficient revenue to meet the Town’s water revenue requirement during periods of conservation when there are significant reductions in water usage, and hence in water revenues. These factors are not utilized to meet the projected revenue requirement in the rate study. If drought conditions vary from the assumptions used in the study and revenue is impacted, the factors can be implemented during the period needed to stabilize revenue.

All components of the rate structure were reviewed, including the composition of the customer classes, the structures of the Service Charges and Volume Charges, and the need for the Revenue Stabilization Factors.

Pass-Through Adjustment
The cost of SFPUC water is the single largest component of the Town’s revenue requirements.

The pass-through adjustment acts similarly to the Revenue Stabilization Factors, which was incorporated into the Proposition 218 notice in the previously adopted cost-of-service study.

PROPOSED RATE STRUCTURE
This section of the chapter summarizes our findings and recommendations related to the rate increases for the water fund.
3 This report distinguishes between uniform rates and flat rates. Uniform rates are constant charges per unit of consumption that do not change depending on the amount used. Flat rates are fixed amounts that do not vary based on metered water use. Flat rates are most commonly used in unmetered water systems and for residential wastewater rates. -158-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 6
Proposed Service Charge Rates
Currently, about 29% of the rate revenue is generated by the current Service Charges. For a bill of average monthly water use (i.e., 21 units of metered water use per month), and the most common meter size of 1”, the Service Charge represents slightly more than one-third of the total bill.

The current rates for the Service Charges have been set according to the capacity of the service, regardless of what class of customer is connected. The capacity provided by services (i.e., water meters) of the same size is the same regardless of how much water is used and for what purpose. We recommend the Town continue with this same structure. Adjustments in FY 2026-27 are recommended to re-align the Service Charge rates with the cost-of-service, which would shift rate revenues so that the proposed Service Charges generate 36% of the overall rate revenue, which provides adequate revenue stability when combined with the relatively fixed revenue from non-seasonal water demand.

Summary of Service Charge Rates
Figure 1-4 summarizes the current rates and proposed rates to re-align with the cost of service. The “Proposed” rates are calculated for adoption July 1 of each year.

Figure 1-4. Proposed Bi-Monthly Service Charge Rates
Source: Figure 5-4.

Proposed Volume Charge Rates
About 64% of the current water rate revenue is generated by the Volume Charges.

Summary of Volume Charge Rate Scenarios
As part of this study, a change is recommended from the existing rate structures to unify all water customers under a single rate structure. Therefore, a customer would be charged the same rates independent of the use of the parcel as a residence or for a non-residential purpose. Currently, the Town is considering two alternatives: 1. A two-tiered increasing block rate structure, and 2. A uniform rate structure.

Figure I-5 and Figure I-6 summarize the current and proposed Volume Charge rates for consideration. The proposed rate analyses were derived using calendar year FY 2024-25 water demand patterns. More detail is discussed in the Demand Projections section of Chapter III of this report.

Note: All Non-Residential customers are billed monthly
Figure 1-6. Current and Proposed Volume Charge Rates – Scenario 2 Source: Figure 5-10.

Note: All Non-Residential customers are billed monthly

PROPOSED REVENUE STABLIZATION FACTORS
The Town requested HF&H to update the Revenue Stabilization Factors that would be applied to the rates for the Volume Charge rates and implemented during declared water shortage stages in accordance with the Town’s Water Shortage Contingency Plan (WSCP), state mandated reductions in the level of water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand that requires reductions in water use.

Figure 1-7 summarizes the Revenue Stabilization Factors that could be applied when the Town requires its customers to reduce water use as part of a declared water emergency. At such times, the Revenue Stabilization Factor applicable to the stage of reduction would be multiplied by the normal-year Volume Charge rates proposed in the current rate study. For example, if the water shortage of 20% was in place (Stage 2 water shortage), a Revenue Stabilization Factor of 1.090 would be applied to the normal-year water rate. The Town can choose to enact Revenue Stabilization Factors when the water emergency demand levels will fall short of the respective year of modeled demand.

Current Current Proposed Proposed Rates
Breakpoints Rates Breakpoints FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 (HCF) ($/HCF) (HCF) ($/HCF)
Bi-Monthly Residential Bi-Monthly Residential
Tier 1 0 to 22 $7.59 Tier 1 0 to 42 $9.24 $9.70 $10.19 $10.70 $11.24 Tier 2 23 to 44 $9.91 Tier 2 42+ $14.69 $15.42 $16.19 $17.00 $17.85 Tier 3 45 to 78 $15.63
Tier 4 79+ $20.96 Monthly Residential/Non-Residential
Tier 1 0 to 21 $9.24 $9.70 $10.19 $10.70 $11.24
Non-Residential uniform $10.49 Tier 2 21+ $14.69 $15.42 $16.19 $17.00 $17.85 Current Current Proposed Proposed Rates
Breakpoints Rates Breakpoints FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 (HCF) ($/HCF) (HCF) ($/HCF)
Bi-Monthly Residential All Customers uniform $11.42 $11.99 $12.59 $13.22 $13.88 Tier 1 0 to 22 $7.59
Tier 2 23 to 44 $9.91
Tier 3 45 to 78 $15.63
Tier 4 79+ $20.96
Non-Residential uniform $10.49
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Water Rate Study
I. Executive Summary
Town of Hillsborough | April 10, 2026 | Page 8
Figure 1-7. Proposed Revenue Stabilization Factors
Source: Figure 5-14.

The Revenue Stabilization Factors only apply to Volume Charge rates and not to Service Charge rates, which are independent of water demand. The Revenue Stabilization Factors would be adopted as part of the rate notification in the Proposition 218 implementation process. Once adopted, the Town could apply the Revenue Stabilization Factors as needed during conservation stages. The values shown in Figure 1-7 would be applied to both Volume Charge Rate scenarios.

The formula4 for calculating Revenue Stabilization Factors corresponding to other levels of cutback is provided in Chapter V of this study. The Revenue Stabilization Factors only apply to the tiered and uniform Volume Charge rates and not to Service Charge rates, which are independent of water demand.
4 Following Figure 5-13 of this study.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction

1.040 1.090 1.155 1.240 1.361 1.459
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Water Rate Study
II. Introduction
Town of Hillsborough | April 10, 2026 | Page 9
II. Introduction

STUDY PURPOSE
The purpose of this study is to conduct a cost-of-service analysis that will determine rates that proportionally recover the cost of providing the Town’s water service. Toward that end, the cost-of-service analysis determines how much revenue should be generated by each component of the rate structure so that rate payers within each customer class are charged for their proportionate share of the cost of providing service on a parcel basis. The cost-ofservice analysis is tailored specifically to the Town’s customer classes and the rate structures that are appropriate for each class.

STUDY PROCESS
HF&H Consultants (HF&H) completed a water rate study for the Town in September 2022. At a public hearing on November 14, 2022, the City Council adopted the recommended rates from the study. The study projected the Water Enterprise’s operating and capital expense projections, for a five-year planning period, and recommended restructuring the Town’s fixed service charges and tiered volume charges for water service. The restructuring included changing the volume associated with the four-tiered volumetric rates charged to Residential customers. In addition, Revenue Stabilization Factors, which only may be applied during Citydeclared water shortages, were revised to account for changes in water consumption driven by the water shortage in place when rates were set. The Proposition 218 notice included a pass-through adjustment so that the Town could pass through the costs of greater-thananticipated SFPUC wholesale water rate increases to customers.

The Town conducted annual reviews of the adopted rate increases. The first three (of five) increases were implemented, taking effect on January 1 each year of 2023, 2024, and 2025.

To summarize, the rate increases were planned and implemented as follows:

January 1, 2023 – various rate changes; 6% revenue increase overall (implemented) January 1, 2024 – 6% (implemented)
January 1, 2025 – 5% (implemented)
Previously adopted rate increases for January 1, 2026 were not implemented and the Town requested HF&H to update the cost-of-service study for 2026 to ensure that rates continue to reflect the current cost of providing water service. A comprehensive rate study comprises three steps: 1) revenue requirement projections; 2) cost-of-service analysis; and 3) rate design. Revenue requirement projections identify how much revenue is needed from rates.

The cost-of-service analysis determines how much of the revenue should come from the fixed and variable charges. This step also confirms the proportionate amount to be paid by each customer class. The final step, rate design, establishes the structure of the fixed service charges and the variable volumetric charges for each customer class.

The cost-of-service analysis was conducted within the constraints of constitutional limitations on rates. To establish rates reflecting the proportional cost of service, HF&H followed industry -162-
Water Rate Study
II. Introduction
Town of Hillsborough | April 10, 2026 | Page 10
practices promulgated by the American Water Works Association to the extent such practices are consistent with the California Constitution.5 At the outset of the analysis, the types of customer classes were reviewed, as were the types of rate structures that are appropriate to the Town’s customer class.

REPORT ORGANIZATION
Figure 2-1 on the following page diagrams the rate-making analysis beginning with the revenue projections, followed by the cost-of-service analysis, rate design, and analysis of bill impacts. The diagram identifies the key figures in the report to guide the reader to specific parts of the analysis.

An appendix contains a copy of the rate model. A Glossary of technical terms and acronyms is provided following the Table of Contents. The major documents cited in this report are listed in the References or are on file with the Town.
5 Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2025.
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Water Rate Study
II. Introduction
Town of Hillsborough | April 10, 2026 | Page 11
Figure 2-1. Summary of Rate Analysis

MULTI-YEAR REVENUE REQUIREMENT PROJECTIONS

COST-OF-SERVICE ALLOCATIONS
FY 2026-27 Revenue Requirement

RATE DESIGN
Monthly Billing Period
Five-year projections
FY 2026-27 to FY 2030-31
Fig. 3-7
Classify costs by function
Demand
Water Supply Demand
Transmission
Pumping
Storage
Distribution
Service
Water Supply Capacity
Customer Service
Customer Capacity
Fig. 4-1
Allocate demand functions to
service levels
Demand
Average Demand
Above Average Demand
Service
Accounts
Capacity
Fig. 4-8
Develop allocation percentages
for demand service levels
Average Demand
Above Average Demand
Fig. 4-6
Volume Charges - Scenario 1
Two-tiers (Bi-Monthly)
0 - 42 hcf $ 9.24/hcf
42 hcf + $ 14.63/hcf
Fig. 5-7
Volume Charges - Scenario 2
Uniform un-tiered
$ 11.42/hcf
Fig. 5-9
Service Charges - Per Account
3/4" $ 240.82
1" $ 262.53
1 1/2" $ 311.38
2" $ 376.52
3" $ 550.21
6" $ 1,288.41
8" $ 1,939.76
Fig. 5-3
Bill Impacts - Residential
Very Low
Low
Average
High
Determine fire service protection
costs met through Above Average
Demand
Fire Protection Storage
Total System Storage
Fig. 4-7
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III. Revenue Requirements
The revenue requirements analysis starts by determining the FY 2026-27 revenue requirements based on the budgeted O&M and capital expenditures. Revenue requirements for each fiscal year are then projected over a five-year planning period.6 Revenue increases
needed to cover the projected revenue requirements are then determined. Over a five-year period, it is possible to derive a relatively smooth series of rate increases that minimize annual fluctuations.

DEMAND PROJECTIONS
The revenue requirements projected during the study period are based on the Town’s unique circumstances. Projected customer demand is particularly significant because it affects certain variable expenses such as the cost of purchased water as well as the revenue from water sales. Customer demand depends on the types of customers, the nature of their demands, the trends in their water use, growth, and climate, among others.

The Town consists almost entirely of single-family residences built on large parcels. There are no significant residential developments in process at the time of this writing. The Town has public schools, private schools, a golf course, small public parks, and a Caltrans rest stop. The Town has no commercial, industrial, or institutional parcels planned for new development. The service area is largely developed, and population growth is expected to be very low even considering the state mandated housing increases required under the Regional Housing Needs Allocation (“RHNA”) for the Town. For purposes of this rate study, it is assumed that there will be no growth in accounts or in water demand.

Water demand projections are an important consideration in the study, as the cost to purchase water is 37% of the annual costs to operate the Town’s water system. Assumptions of projected water use directly affect the level of revenue increase needed. Over the study period, the Town has assumed water demand projections will follow the pattern of demand exhibited in FY 2024-25, as this level of demand approximates the most recent historical sixyear average for FY 2019-20 through FY 2024-25.

Water demand projections used in this study are shown in Figure 3-1. If demand over the next five years is higher than projected, the Town may find that it does not need to implement the proposed maximum rates in any given year. The Town does not need to implement maximum rates in any year if they will generate revenues in excess of cost of service. If, on the other hand, demand continues below projected level of demand, the Town would run a 6 Demand projections are a key driver in determining both expenditures and revenues from water sales.
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deficit, the consequences of which are problematic. The Town’s reserves could be depleted unless and until it increased rates that are higher than the proposed maximum rates.7

REVENUE REQUIREMENT ASSUMPTIONS AND PROJECTIONS
Expense projections combined with contributions to reserves become the revenue requirements. The Town’s operating and capital budgets were relied on for the majority of FY 2026-27 expenses in the first-year revenue requirement. The assumptions shown in Figure 3-1 were used to project revenue requirements through FY 2030-31.

Figure 3-1. Projection Assumption
SFPUC Purchased Water Costs
The Town is entirely reliant on the SFPUC for its water supply. As a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), the vast majority of the Town’s water supply expenses are driven by the usage-based rate set by SFPUC. Figure 3-2 plots the SFPUC wholesale rates since FY 2013-14. In February 2026, SFPUC signaled their intent to increase the current wholesale rate of $5.80 per HCF to $6.23 per HCF beginning July 1, 2026.

Further, the SFPUC’s recent communications forecasted rates would increase to $7.38 per HCF by FY 2030-31, a cumulative 19% increase from the rates that will go into effect on July 1, 2026.

Since 1984, the SFPUC’s wholesale rates have been set in compliance with rate-making agreements. The agreements contain provisions that annually reconcile projected expenses and demands with actual expenses and demands. The difference is rolled forward into the 7 If a reduction in demand is the result of mandatory water use restrictions during a Councildeclared water shortage stage, the Town may offset revenue losses by implementing the Revenue Stabilization Factors.

Assumptions FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 General Inflation Budget 3.0% 3.0% 3.0% 3.0% 3.0%
Salaries & Benefits Budget Budget 3.9% 3.7% 3.3% 3.5%
Health Care Budget Budget 5.0% 5.0% 5.0% 5.0%
OPEB, RHS Budget Budget 2.2% 2.2% 2.2% 2.2%
Materials & Services Budget Budget 2.5% 2.5% 2.5% 2.5%
PERS Budget Budget 2.2% 5.2% 1.1% 5.0%
Interest on Earnings Budget 3.0% 3.0% 2.0% 2.0% 2.0%
Non-rate Revenues Budget 0.0% 0.0% 0.0% 0.0% 0.0%
% Change in Demand (cumulative) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SFPUC Water Rates ($/HCF) $5.80 $6.23 $6.69 $6.91 $7.06 $7.38 SFPUC Service Charge 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%
SFPUC Water Purchases (HCF) 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 SFPUC Water Purchase Losses 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% SFPUC BAWSCA Bond Surcharge 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Construction Cost Inflation Budget 3.3% 3.3% 3.3% 3.3% 3.3% -166-
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ensuing year’s rates. However, it also means that the annual adjustment can either increase or decrease rates, which leads to some short-term volatility in the wholesale rates that can accentuate annual rate fluctuations.

Figure 3-2. Historical and Projected SFPUC Wholesale Rate Beginning FY 2013-14, the BAWSCA bond surcharge rate was added so that each agency could pay its proportionate share of debt issuance based on purchased water. The bond surcharge rate has been assumed to increase by 3.0% until FY 2030-31 in the revenue requirement projections.

The SFPUC also charges a fixed service charge, currently projected as 2.5% of total purchased water costs for FY 2026-27, which is not impacted by the amount of water the Town purchases.

The rising SFPUC wholesale rate, service charge rate, and current BAWSCA bond surcharge rate were built into the revenue requirement projections. The cost of SFPUC water is 37% of the annual revenue requirement in FY 2026-27 – the largest single item. The impact of these significant increases in wholesale rates on the revenue requirements over the study period cannot be overstated.

Operating Expenses
In addition to SFPUC Water Purchases, Figure 3-3 includes three other administrative and Operating and Maintenance (O&M) categories: 1) Salaries & Benefits; 2) Materials & Services; and 3) Administrative & Other Costs. Collectively, these three groups of expenses are projected to increase by an average of 2.5% per year from approximately $8.6 million in FY -167-
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2026-27 to $9.5 million in FY 2030-31. Salaries & Benefits costs are increasing by approximately 3.8% per year. No additional headcount is contemplated in the projections.

Materials & Services costs are increasing by an average of 1.3% annually, from $3.1 million to $3.3 million during the five-year period. The Town’s Administrative & Other Costs (e.g., legal, human resources, finance, city manager’s office) shown in Figure 3-3 comprise the largest share of costs within this category of operating expenses and are increasing at an average of 2.9% annually.

Figure 3-3. Projected Administrative and O&M Expenses
Source: Model Table 2. Revenue Requirements.

Contributions to Capital Reserves
Rates need to generate enough revenue to cover unfunded annual operating and capital expenses. However, rates are not set to exactly match cash expenditures because the timing of cash expenditures can fluctuate. If rates were set to exactly match expenditures, rates would also fluctuate. To avoid increasing and decreasing rates from year to year, reserves are used to cover the difference so that rate increases are smooth and gradual. In order to maintain adequate reserves to help modulate rates, the revenue requirements include contributions to reserves. The contributions to reserves represent additional revenue from rates that is needed to maintain adequate operating and capital reserves.

The Town’s current level of reserves has enabled it to maintain a strong credit rating, which reduces its financing costs.8 The Town uses its reserves to stabilize rates against annual fluctuations in capital expenditures, variances between projected and actual water demands, and unanticipated expenditures and other expenditure variances. In some years, there is surplus revenue that is available to replenish reserves. In other years, reserves are drawn down to cover the cost of service.

Rates are set to generate a constant level of revenue to maintain reserves at adequate levels.

At the same time that revenue from rates is added to reserves, reserves are drawn down to fund capital projects whose costs vary from year to year. In effect, reserves are used to buffer rates from varying levels of capital expenditures and unforeseen variances in operating expenditures. For the most part, however, the variances are due to capital projects (see Figure 3-4).
8 See Figure 3-11 and adjoining text for additional discussion of the policies and assumptions related to minimum and target balances for the reserves.

Budgeted Projected
Fiscal Years FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 SFPUC Water Purchases $7,110,083 $7,611,825 $8,147,925 $8,413,193 $8,599,808 $8,979,074 Salaries & Benefits $1,476,541 $1,680,947 $1,746,455 $1,811,035 $1,871,347 $1,936,795 Materials & Services $3,229,507 $3,151,793 $3,094,038 $3,167,014 $3,241,814 $3,318,484 Administrative & Other Costs $3,728,874 $3,853,078 $3,957,521 $4,070,246 $4,186,354 $4,305,944 Total $15,545,005 $16,297,643 $16,945,938 $17,461,488 $17,899,322 $18,540,298 % Change 5% 4% 3% 3% 4%
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Even though the Town has constructed facilities to provide water service, these facilities will depreciate and eventually need to be replaced. It is unrealistic to think that the system has already been built and paid for and that there will be no future capital costs. Tanks need to be recoated and rust and corrosion removed, pumps need to be repaired and calibrated, and generators maintained as the water system must continue to work regardless of PG&E electrical availability. When such facilities are repaired and replaced, they must maintain sufficient capacity to meet all levels of water demand. This means that the cost to operate, maintain, repair and replace water storage facilities, distribution lines, pipes, and other infrastructure is driven by the Town’s largest water users. The Town has in place a Water Master Plan and in 2014 prepared an updated thirty-year Capital Improvement Project Plan to prioritize and address long-term capital projects. Based on this Plan, the revenue requirement projections show an increase in the contribution to reserves in FY 2026-27 needed to fund the capital improvement program, which contains approximately $14.6 million in cash-funded capital projects over the next five years as shown in Figure 3-4. An average annual expenditure of $2.9 million is the amount that is contributed to reserves from revenue requirements beginning in FY 2026-27.

Figure 3-4. Projected Capital Improvement Program
Source: Model Table 5. CIP.

Debt Service
The Town has an outstanding bond obligation totaling $17.1 million as of June 30, 2025 that the Water Fund contributes to. The total annual debt service is approximately $2.6 million of which the Water Fund’s share is $1.2 million. The bonds were issued to fund the projects that are summarized in Figure 3-5. The majority of these capital projects are storage and distribution facilities that are needed to meet above-average demands. Although these projects were constructed and are in service, the debt service on these bonds will not be repaid for many years. Thus, it is not the case that the system has been built and already paid for, and with the exception of miscellaneous improvement projects, the costs are driven by the size and total capacity of the facilities funded through the debt. The projects funded through debt issuance, summarized in Figure 3-5, addressed the Town’s distribution system, storage system, and storage tanks. These assets were designed to address the highest demand scenarios to ensure service could be maintained at all times. Above average use creates the periods of maximum demand on the system for which the assets were designed.

Capital Improvement Projects FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 5-Year Total Water Main Replacement Program $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $0 $4,000,000 Demolish Forrestview Tanks #1 and #2 $0 $250,000 $0 $400,000 $0 $0 $650,000 Water Tank Coating Improvements $500,000 $400,000 $0 $0 $0 $0 $400,000 Clark Concar Pump Station Generator $0 $0 $200,000 $200,000 $1,200,000 $0 $1,600,000 Marlborough Pump Station & Generator $500,000 $700,000 $0 $0 $0 $0 $700,000 Earthquake Protection Valves $0 $0 $100,000 $100,000 $100,000 $0 $300,000 SCADA Improvements $0 $0 $0 $200,000 $200,000 $0 $400,000 Darrell Pump Line Rehab and Replacement $0 $0 $300,000 $1,150,000 $800,000 $0 $2,250,000 Demolish Major Hayes Tank and Piping $0 $65,000 $300,000 $0 $0 $0 $365,000 Future Capital Projections $0 $0 $0 $0 $0 $2,533,000 $2,533,000 Subtotal $2,000,000 $2,415,000 $1,900,000 $3,050,000 $3,300,000 $2,533,000 $13,198,000 Construction Cost Index 1.000 1.033 1.068 1.104 1.141 1.179 Escalated Total CIP $2,000,000 $2,495,894 $2,029,418 $3,366,873 $3,764,869 $2,986,621 $14,643,676 ÷ 5 years
Average Annual PAYGo-Funded CIP $2,928,735
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For example, the Town’s storage system accommodates three days of average daily water use, a value that is higher than communities of a similar size, due to the extraordinary water use demands of a small subset of customers. The storage system meets the needs of all users, although the ultimate sizing serves to meet the highest level of use. Currently, the Town’s system accommodates 9.0 million gallons (MG). However, the sizing for the duration of water use to accommodate average daily demand is 3.0 MG to 6.0 MG, depending on the season.

Thus, average demand only accounts for between 33-66% of the total storage needs of the system, while the remaining storage serves Above-Average Demand. If water by the highest users was less, and more similar in output to that of the rest of the Town’s customers, the overall average demand would be less, resulting in smaller tanks, reducing costs. Therefore, the investment the Town made and continues to re-pay ensures above-average and lesser levels of demand are met.

Figure 3-5. Original Debt-Funded Capital Projects
The Town also has an Energy Conservation Loan that is scheduled to be paid off after FY 2026-

27. The original loan funded Supervisory Control and Data Acquisition (SCADA) sensor upgrades, which provide water pumping efficiencies to the Town’s system. The current debt service for all existing obligations is summarized in Figure 3-6.

Figure 3-6. Projected Debt Service Requirements
The major expenses described above that comprise the revenue requirements are shown in Figure 3-7. The graph indicates that Administrative and O&M Expenses comprise the largest category of expenses, making up 42% of the overall revenue requirement. However, wholesale water purchases are the largest individual cost line item of the FY 2026-27 revenue requirement, and this expense will vary in direct proportion to demand.

Category Series 2023A ECE 2012 Total
Water Distribution System $3,317,333 $3,317,333
Water Storage System $3,071,605 $3,071,605
Tank Replacement/Upgrades $1,590,345 $908,700 $2,499,045 Miscellaneous Improvements $683,217 $683,217
$8,662,500 $908,700 $9,571,200
FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Series 2023 A $1,157,963 $1,176,300 $1,196,213 $1,167,975 $1,186,088 $744,206 ECE Energy Conservation Loan $65,641 $65,639 $0 $0 $0 $0 Total Existing Debt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,186,088 $744,206 -170-
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Figure 3-7. Total Revenue Requirement Projections

RESERVES
Reserves are required to stabilize rates and to provide for contingencies. Reserves can be drawn on in years when the Town’s Water Fund experiences above average costs and augmented during years when costs are below average. The Town’s reserves are used for operating and capital purposes. Each of these purposes has its own requirements that lead to minimum and optimum target balance. Rates should be set so that the fund balance achieves the target balance.

Operating Reserve Component
The operating component of the reserves provides working capital for month-to-month O&M expenses. With sufficient working capital, the Town can operate without cash flow constraints.

The Town’s reserve policy states that the minimum operating reserve balance will equal 20% of annual O&M expenses. As in past years, a bond reserve of $375,000 was added to this amount. This reserve policy tracks with HF&H’s recommendation of a minimum operating Fiscal Years FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Purchased Water Costs $7,110,083 $7,611,825 $8,147,925 $8,413,193 $8,599,808 $8,979,074 Admin & O&M Costs $8,434,922 $8,685,818 $8,798,013 $9,048,295 $9,299,514 $9,561,223 Debt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,352,413 $1,049,907 Capital Projects $2,000,000 $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 Total Revenue Requiremen$18,768,609 $20,468,318 $21,070,885 $21,558,198 $22,180,471 $22,518,940 Year over Year Increase % 9.1% 2.9% 2.3% 2.9% 1.5%
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reserve that is equal to at least 1.5 times the billing frequency (or three months in the Town’s case). The Town’s reserves should never drop below this minimum balance.

Capital Improvement Reserve Component
The capital improvement component of the reserves provides cash funding for the Town’s capital improvement program. The fund balance needs to be sufficient to pay contractors and purchase materials without delays caused by cash flow limitations. HF&H has assumed a fiveyear average annual amount for this reserve component. The cash-funded capital amount, $2,928,735, was derived in Figure 3-4 and accounts for planned capital expenditures between FY 2026-27 and FY 2030-31.

REVENUE INCREASES
Rates are set to generate sufficient revenue to cover annual expenses. In addition, rates are set to maintain adequate reserves. The revenue from rates does not need to match each year’s revenue requirement. For example, the annual increases in the revenue requirements shown at the bottom of Figure 3-7 are different from the revenue increases in Figure 3-8.

Annual fluctuations in revenue requirements are typically uneven because they are harder to control (for example, variations in water usage and timing of PAYGO capital payments), whereas it is desirable to have smooth annual increases in rates. The annual differences cause the fund balance to fluctuate from year to year.

Revenue increases were derived to cover the Town’s Water Fund costs and to maintain adequate reserves. Figure 3-8 summarizes the projected revenue from current rates, annual revenue requirements, annual variances, and the rate increases necessary to cover the Town’s costs.

Figure 3-8. Rate Increase Calculations
Rate increases account for rate revenue, growth, and future revenue requirements. The revenue requirement (shown in greater detail in Figure 3-7) increases primarily due to increasing water supply costs. Figure 3-9 summarizes the resulting annual increases in rates and revenues from the proposed Service and Volume Charge rates. In FY 2026-27, the percentage rate adjustment varies by charge because of the rate structure modifications, discussed in further detail in Chapter IV and Chapter V. However, beginning FY 2027-28, the rate increases are applied as equal percentages across the board to all rates.

Projected
FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Revenue From Current Rates $18,339,693 $18,330,395 $18,330,395 $18,330,395 $18,330,395 $18,330,395 Revenue Requirement ($18,768,609) ($20,468,318) ($21,070,885) ($21,558,198) ($22,180,471) ($22,518,940) Non-Operating Revenue $56,500 $56,500 $56,500 $56,500 $56,500 $56,500 Net Revenue Requirement ($18,712,109) ($20,411,818) ($21,014,385) ($21,501,698) ($22,123,971) ($22,462,440) Revenue Surplus/(Shortfall) ($372,416) ($2,081,423) ($2,683,991) ($3,171,304) ($3,793,576) ($4,132,045) Proposed Rate Increase 0.0% 6.0% 5.0% 5.0% 5.0% 5.0%
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Figure 3-9. Projected Revenue Increases
It is assumed that the rate increases will occur July 1 of each year. Hence, the revenue from each year’s rate increase is generated for the full 12 months of the fiscal year.

The rates are derived in Chapter V. With these rate increases, the Water Fund is able to cover its annual O&M and capital expenses, maintain adequate debt service coverage, and maintain adequate reserves, as further discussed below.

DEBT COVERAGE
Figure 3-10 shows the debt service coverage provided by the revenue increases in Figure 3-9. The Town is required to maintain a minimum coverage ratio of 1.20. A higher ratio provides a greater margin of safety to bondholders and enhances the credit rating on bonds.

This is particularly true with water utilities whose revenues are vulnerable to periods of conservation, such as the Town recently experienced. The Town’s long-term rating is currently AAA with S&P, which is partially attributable to a coverage ratio that is well above the minimum required by the bonds. Again, a higher credit rating benefits rate payers by reducing the cost of borrowing.

Figure 3-10. Debt Service Coverage
Effective Date Revenue Fiscal Year
Rate of Rate After Rate Increase in
Fiscal Year Adjustments Adjustments Adjustments Revenue Revenue at 2025 Rates $18,339,693
FY 2026-27 varies 7/1/2026 $19,432,079 6.0%
FY 2027-28 5.0% 7/1/2027 $20,402,331 5.0%
FY 2028-29 5.0% 7/1/2028 $21,425,264 5.0%
FY 2029-30 5.0% 7/1/2029 $22,497,070 5.0%
FY 2030-31 5.0% 7/1/2030 $23,625,175 5.0%
Debt Coverage Ratio Calculation FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Gross Rate Revenue
Service Charges $5,283,792 $7,036,877 $7,388,721 $7,758,157 $8,146,065 $8,553,368 Volume Charges $13,055,902 $12,395,202 $13,013,610 $13,667,107 $14,351,005 $15,071,807 Total Gross Rate Revenue $18,339,693 $19,432,079 $20,402,331 $21,425,264 $22,497,070 $23,625,175 Operating Expenses
Purchased Water $7,110,083 $7,611,825 $8,147,925 $8,413,193 $8,599,808 $8,979,074 Other Operating Expenses $8,434,922 $8,685,818 $8,798,013 $9,048,295 $9,299,514 $9,561,223 Non-Operating Revenue ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) Net Operating Expenses $15,488,505 $16,241,143 $16,889,438 $17,404,988 $17,842,822 $18,483,798 Net Available Revenues $2,851,188 $3,190,936 $3,512,893 $4,020,276 $4,654,247 $5,141,377 Debt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,186,088 $744,206 Debt Coverage Ratio 2.33 2.57 2.94 3.44 3.92 6.91
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RESERVE FUND BALANCE
Figure 3-11 shows the annual fluctuations (solid green line) in the fund balance that are caused by the differences between the revenue requirement and revenue from rates with the rate increases; the dashed green line is the projected fund balance without rate increases.

The revenue and rate increases in Figure 3-9 were derived to achieve the target reserves balance by FY 2030-31. Maintaining a fund balance close to the present level helps to protect the Town’s credit rating, which lowers the cost of financing, thereby benefiting rate payers.

Figure 3-11 contains two reserve lines. First, the Town has a minimum Operating Reserve balance (red line) to cover O&M expenses and a bond reserve. Second, the Town has a capital reserve component. Just as working capital is needed to pay salaries and ongoing O&M expenses, working capital is also needed to fund construction of cash-funded (i.e., as opposed to debt-funded) capital projects. When added to the minimum Operating Reserve this establishes the Target Reserve (blue line).

As shown in Figure 3-11, the projected year-end fund balance with rate increases initially dips below the blue line, as the Town uses reserves to fund the projected revenue requirement, which includes major capital projects. After FY 2026-27, the Town begins adding to reserves in most years, increasing the fund balance to meet the Target Reserve by the end of FY 2030-31.

Figure 3-11. Projected Year-End Fund Balance
The recommended rate increases are balanced with the use of reserves. Reserves help offset the increased costs projected, reducing the potential for larger increases to be borne by ratepayers.
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IV. Cost-of-Service Analysis

GENERAL APPROACH
Base/Extra Capacity Method
The revenue requirement analysis establishes how much revenue is required from rates. The next step in the analysis is determining the cost of service (see Figure 2-1). Cost-of-service analysis is used to derive rates that proportionally allocate the cost of service. The cost-ofservice analysis performed in this study follows a procedure described by the American Water Works Association (AWWA), which is referred to as the “base/extra capacity method.” This method allocates the revenue requirements to the components of the rate structure.

For purposes of this study, the base/extra capacity method is first used for allocating the cost of service to the fixed and variable rate components. It is also used for determining the tiered Volume Charge rates that are proportional to the cost of providing service.

Customer Classes
The cost-of-service analysis distributes the revenue requirements among customer classes in proportion to their service requirements. The Town currently has two customer classes:

Residential and Non-Residential. These classes were adopted as part of a previous cost-ofservice study in 2016 to differentiate single-family customers from non-residential customers.

The customer classes were reviewed and kept in place as part of the most recent cost-ofservice study conducted in 2022. However, the Town plans to merge all existing customer classes in this rate study. Therefore, the cost-of-service analysis distributes the revenue requirements among all customers as one class.

Rate Structure
Proposition 218 does not mandate a specific rate structure, and allows utilities to structure rates in any manner that reflects the proportional cost of service.

In the Town’s case, its water rate structure consists of a fixed Service Charge component and a variable Volume Charge component. This structure allows the Town to recover fixed costs from fixed charges that do not fluctuate based on water usage, and variable costs (including costs that have been incurred in order to meet varying levels of demand) from consumptionbased charges. There is no recommendation to change this practice.

The fixed monthly Service Charge rates are billed per meter on each account. The charge is graduated in proportion to the capacity of the service (i.e., meter-size), in order to reflect the increased potential maximum demand placed on the water system as meters increase in size.

Not all fixed costs vary based on the size of the meter. For example, customer service costs are applied uniformly to all meter sizes, because the size of the meter does not change the cost for providing customer service. Only those costs that are related to relative demand on the system are increased based on meter size.

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is used at what time. The cost-of-service analysis determines how much of the revenue requirement should be recovered from the Service Charge.

The Volume Charge rates are billed based on metered water use during the billing period. In the Town’s case, water is metered in hundred cubic feet (HCF or CCF, see the Glossary at the beginning of this report). As such, the charge will vary from bill to bill depending on the amount of water used. The Town has two types of Volume Charge rates that are charged to its two customer classes. The cost-of-service analysis also determines how much of the revenue requirement should be recovered from the Volume Charge rates for each customer class.

The Town currently charges tiered Residential and uniform Non-Residential Volume Charge rates.

This study examines two scenarios for future Volume Charge rates. One scenario is to charge all customers based on a two-tiered rate structure. The second scenario is to charge all customers based on a uniform rate structure. The design of rates associated with each scenario is further discussed in Chapter V of this report. Further, the analysis of customer bill impacts for each of these scenarios is discussed in Chapter VI.

COST-OF-SERVICE ALLOCATIONS
As the name implies, cost-of-service analysis is a process of determining how much services cost. The service that water systems provide is obviously water. In order to provide that service, infrastructure must be constructed, operated, and maintained, which must be paid for from cash or debt. The type and size of infrastructure depends on how much service customers require. Examples of water system infrastructure where above-average demand shapes design include transmission pipelines, distribution pipelines, pump stations, and storage reservoirs. Pipelines must be able to convey sufficient water volumes that customers require. The largest volume of use collectively demanded by the Town’s customers must be able to flow through the pipelines at adequate pressure and velocity to ensure service is not interrupted or compromised. Therefore, pipelines are designed to accommodate the largest volume of use. Similarly, pump stations ensure there is sufficient energy available to move water to the distribution reservoirs so that it may be conveyed through distribution pipelines to reach the customers that expect water each time a faucet is turned on. Pump stations are built to address the worst-case scenario when water use demand is at its highest to ensure water may still be moved efficiently through the system without compromising delivery of the water to each customer. Storage reservoirs accommodate daily demand as an intermediate point between water received from the Town’s metered deliveries from the SFPUC meters and the water reaching individual customers at the meter. Conveying water through the system is not instantaneous and reservoirs provide temporary storage for water to be used in the near future in the distribution system. In turn, the transmission and pumping systems supply water to re-fill the reservoir as it empties. During periods of Above-Average Demand, water use being conveyed from the reservoirs may exceed the rate at which water is replenished in the reservoir. Therefore, each reservoir is designed so that collectively there is sufficient storage capacity to meet Above-Average Demands. These are some examples of how water systems are designed to provide sufficient capacity to meet customer demands for service wherever, whenever, and for as long as demanded.
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Although each customer places unique demands on the system, water system design is based on the maximum demand for service placed on the system by all customers during the maximum demand period. The size of the infrastructure that is needed will depend on the maximum demand. Higher demands require larger, more costly infrastructure as well as increased operating and O&M costs.

In 2022 a Grand Jury Report was published that determined which Bay Area water agencies would have sufficient water storage in the event of a significant earthquake. The Town’s water system was evaluated to determine whether it had three days of water storage to meet supply needs in the event of a catastrophic event. The evaluation relied upon three days of average day use. To meet the Town’s supply needs for such an event, the average use of year-round water demand for three days, would require 9 million gallons per day. This amount of water is significant for a community of its size. This volume of water highlights how the high water use patterns of a small customer subset increases the overall system design requirements.

At the time of the report, the Town did not have sufficient storage to meet this scenario and built the Darrel Tank in order to meet the recommendations of the report. Consequently, this required the Town to invest in a larger storage system than communities of its size in order to serve all users, including high water use customers. Along with a larger tank, the Town’s SCADA system for monitoring the pumping and refilling of the storage reservoirs was required to be more intricate and more costly to meet the monitoring needs for its system. In these examples, the Town system was built to accommodate the highest water users demand patterns.

In addition to the capital investment, the Town pays more to maintain a larger system due to higher levels of water use, too. Larger tanks to accommodate supply needs require more time and materials to re-paint and re-coat tanks. In addition, the Town must attend to sedimentation and turbidity issues that result when larger volumes of water are not used.

This happens because the tank is built to provide storage for above-average periods of use.

However, during periods of lower water use, less supply is emptied from the tanks leading to settling of particles in the tank that must be cleaned out. Turbidity and nitrification issues result from stale water supply remaining in the storage vessels. Both issues affect water quality, if unaddressed. These are examples of how the system accommodating for aboveaverage water use creates supplemental maintenance costs.

The Town’s SCADA system sets thresholds for pumping and refilling based on the forecasted temperature and time of year. The Town spends more labor hours during the summer to address the setpoints of the SCADA system due to the fluctuations of the water system driven by above-average use. This is done to avoid on-demand pumping, which is a costly alternative, to supplying water during high demand periods. Between periods of high water use and lower water use, the Town works to balance its system and pays for supplemental expenses to address the system. The system, built to accommodate the highest periods of water use, causes the Town to pay more for operations during the summer to address the SCADA system setpoints and it pays more to address sedimentation and turbidity issues during lower use periods when supply far surpasses demand.

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infrastructure. This means that customers that place greater demands on the infrastructure – customers with greater service needs (i.e., higher demands) – will be apportioned a greater share of the operating and capital costs of the infrastructure required to meet that demand.

It is important to realize that once the maximum demand is used to design the infrastructure, the capacity is available at all times, not just during maximum demand periods. However, such infrastructure also serves average demand levels. As such, costs for such facilities must be allocated in proportion to usage of and demand on such facilities. The capacity is available for the potential maximum period when it occurs. During average and below-average demand periods, the same facilities are being used, but the capital cost of the facilities is determined by the highest demand only. Note that the costs are not allocated only to those who create this highest level of demand. Those who do not contribute to this highest level of demand as much are also using the same facilities. Average users are allocated a share of the costs of the facilities in proportion to their demand on such facilities, and above average costs are allocated to above average users. The goal with this methodology is two-fold, and based on the fact that sizing, maintaining, operating, repairing and replacing infrastructure sized to meet maximum demand is more expensive than infrastructure sized to meet average demand.

First, this ensures that above-average users do not subsidize average and below-average users by paying for a larger share of infrastructure than their level of demand requires.

Second, this methodology ensures that average and below-average users do not pay for facilities and capital investments that their level of usage does not require. In other words, this methodology ensures proportional allocation of the costs of service.

Analytical Procedure
The cost-of-service analysis in this study involved a series of four steps that allow for reasonable cost allocations (see Figure 2-1). Costs must first be classified according to the associated function. Functions provide the level of service required by customers. The cost of functions can be allocated in proportion to the service provided.

1. Service function cost classification – Revenue requirements need to be converted into service function cost categories, which conversion is needed for allocating costs that will be used for calculating rates. (See Figure 4-1.)

2. Demand service function allocation percentages –Average Demand and AboveAverage Demand allocation factors are needed to apportion costs related to the demand service functions and to customer classes. (See Figure 4-6, and Figure 4-9.)

3. Fire protection allocations – Fire protection demand allocation factors are needed to apportion costs from Step 2 that are also related to providing public fire protection service functions (See Figure 4-7).

4. Cost function allocations – Costs from Step 1 are allocated across four primary cost allocation categories (See Figure 4-8):
• Average Demand-related costs, representing average water use across the customer base.
• Above Average Demand-related costs, representing above average water use and demands that are placed on the system across the customer base. -178-
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• Customer service costs, associated with billing, meter reading, and account management.
• Capacity-related costs, which reflect the infrastructure required to meet systemwide needs, including fire protection services.

This sequence of steps is further explained below. The steps constitute the cost-of-service analysis, which converts the revenue requirement for FY 2026-27 in Figure 4-2 into the eventual cost of service for setting Service Charge rates and Water Use Charge rates in Figure 4-10.

Service Function Cost Classification
After determining a utility’s revenue requirements, the cost-of-service analysis begins by aligning the budget items with the associated function. For example, some cost items are related to functions that support the ability to meet Average Demand and Above Average demands while other costs are incurred to provide customer service. In other words, “function” refers to the type of operational activity or capital cost needed to provide service.

Organizing the budget by functions correlates budget items with the rate that will fund the cost.

For average and above average water use, customers expect water to be available when they want it. The service they receive ranges from average demand for essential indoor uses (Average Demand) to discretionary peak hour outdoor water use and irrigation demands (Above Average Demand). To provide this “readiness to serve,” the Town’s water system needs to have pipes, pumps, and storage reservoirs that are sized and operated to transmit and distribute water whenever it is needed. As previously mentioned, the capacity required to provide the required flows for facilities as well as the elevation differentials within the pressure zone determine how reservoirs, valves, and appurtenances are designed. Water main design is also influenced by the number of connections along a pipeline. Above-Average Demands create larger flows for which larger and more costly infrastructure is needed and for which there are more operations and maintenance costs. As previously described, the presence of storage facilities requires supplemental maintenance costs during both periods of high demand and lower, winter water use periods.

The Town’s water system is complex for a system of its size. The steep topography results in numerous pressure zones that require more storage reservoirs and pumps whose operations must be coordinated with sophisticated instrumentation and staff. Moreover, the Town’s studies indicate that the lot size in Hillsborough is more than twice as large as neighboring communities. Sparser development means that there is more infrastructure required per connection, which raises the cost per service connection. Moreover, the higher cost of service must be borne by fewer customers.

These facts increase costs for all customers. However, Hillsborough is also unique in the disparity between customer demands on the water system. Although the vast majority of -179-
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Hillsborough customers are residential on single family residential parcels, the way these customers use water is very different9
.

The service functions for each cost category determine how the capital and O&M costs are allocated. The service functions fall into two categories:

Demand service function - functions related to delivering water to customers at varying levels of demand. These costs will be recovered from the proposed Volume Charges.

Customer service function - functions related to customer service. These costs will be recovered from the proposed Service Charges.

Demand Service Function
There is a sequence of five demand service functions beginning with the origin of the water through pipelines that convey the water to pumps that lift the water for storage until customers demand it. In describing each of these demand service functions, the corresponding allocation factors are indicated. The definition of each demand service function allocation factor is provided below in the discussion under Demand Service Function Allocation Factors.

Water Supply Demand – The Town does not have its own surface water or groundwater resources; the Town is not supplied by lakes, river diversions, or wells. Instead, the Town purchases treated water from the SFPUC. Other than the cost of the master meters at the SFPUC’s turnouts, the Town has very little of its own capital cost for its water supply. The cost of its water supply is included in the cost paid to SFPUC, which is the Town’s single largest O&M expense. In addition to the cost of water, this category also includes the Town’s water quality O&M expenses related to personnel. Costs tied to the SFPUC wholesale water rates and water quality are allocated to customers in proportion to their Average Demand. Average Demand costs vary with the total quantity of water used and are independent of rates of demand.

Transmission – Pipelines 12” and larger in diameter convey water from the SFPUC’s master meters to the Town’s pumps, which lift the water to distribution reservoirs. These 12” or larger pipes are sized for Above-Average Demands so that the maximum volume of water may be conveyed throughout the year from the storage tanks to the distribution lines and distribution reservoirs. Both capital and O&M costs are allocated in proportion to Above Average Demand10.

Pump Stations – Water is pumped to distribution reservoirs at a rate equal to the maximum day demand, to serve above average conditions. If pump stations were sized to only meet 9 Further evidence is cited in the subsection, Demand Service Function Allocation Factors. 10 Allocations to Above-Average Demand require cost sharing among customers in proportion to system-wide average use and above average use. Therefore, demand service functions assigned to Above Average Demand are not recovered solely through costs allocated to above average users. This is discussed in further detail in the subsection, Load Factors. -180-
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average demand, there would not be sufficient energy to move water through the system on days to meet above-average demand and service would be compromised. Both the capital and O&M costs are allocated in proportion to Above-Average Demand.

Storage – Distribution reservoirs are located at high points in the system so that water can flow to customers by gravity as demanded. Water fills the reservoirs from pump stations at a fairly steady rate compared to the outflow to customers. These reservoirs must be sized to accommodate Above-Average Demand to ensure there is adequate water available on the days throughout the year when water use is highest. Hence, both the capital and O&M costs are allocated in proportion to Above Average Demand.

Distribution – Water flows out of reservoirs under gravity to the customer tap through distribution pipelines (less than 12” inches in diameter). The distribution system is sized for maximum flows to ensure water reaches each customer meter at the adequate pressure and flow rate once a customer turns on their tap, regardless of the time of day or overall usage throughout the system. Therefore, the capital and O&M costs are allocated in proportion to Above Average Demand.

Customer Service Function
There are three customer service functions. Each of these functions includes costs that are not related to rates of flow.

Water Supply Capacity – Costs associated with the SFPUC service charge and BAWSCA surcharge are allocated by customer capacity. These costs do not vary based on flow but are assessed to the Town based on their respective share of capacity among BAWSCA agencies.

Therefore, costs to recover the Town’s portion of costs are recovered based on customer capacity served.

Customer Service – This category includes costs that related to customer accounts, processing meter reads for billing, billing activities, and general administration. These costs are independent of rates of flow and are apportioned on the basis of the number of accounts.

Customer Capacity – The type of costs included in this category are related to the capacity of a service connection. These costs include the capacity required in the infrastructure to meet fire protection service needs, through the Town’s public fire hydrants. Fire flow demands on a system influence the design and capacity sizing of pumping, pipeline, and storage assets of a water system. The capacity is built into the system to provide a benefit to all customers in the event of a fire emergency. The portion of capacity attributable to fire protection within each demand service function is recovered through a fixed service component of all service charges calculated. The costs in this category are apportioned in proportion to the capacity of each meter.

The cost of these service functions is derived from the Town’s FY 2026-27 projection. The projection is formatted using the Town’s chart of accounts, which is different from the service function cost categories that are needed for the cost-of-service analysis. It is possible, however, to convert the budget’s chart of accounts into the service function categories. Figure 4-1 shows the classification of the budgeted operating and capital expenses and nonoperating revenues by function. -181-
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Figure 4-1. Revenue Requirements by Function (FY 2026-27) Source: Model Table 8. Allocations
Some expenses, like Purchased Water, SFPUC Service Charge, BAWSCA Surcharge, fall within a single functional category. Others were classified by the Town across multiple functional categories:

Salaries and Benefits – These costs were classified based on the function performed by personnel to operate facilities or to manage and administer the system.

Materials and Services – The classification of these costs followed the associated personnel.

Debt Service - The classification of debt service was based on the functions performed by the facilities that were debt funded. The Town has existing debt to fund capital projects. Some of the facilities funded through the existing debt service were categorized as customer service functions and assigned to customer capacity so that customers reserving a greater capacity within the system would pay proportionately more via the Fixed Service Charge.

Capital Expenses (PAYGo Projects) – Investments in the Water Enterprise infrastructure are necessary to ensure existing levels of service are maintained. This category of costs reflects only the projects to be funded through reserves and rate revenues on a PAYGO basis.

The classification of these PAYGo capital costs was based on the functions performed by the facilities budgeted in the five-year capital improvement program. Projects identified serve a range of functions, as some are assigned to customer accounts, while others were assigned to extra capacity to meet peaking demands of the system. Thus, cost recovery for these projects would occur through a combination of the Fixed Service Charges and the Volume Charge rates.

Customer Service
Water Supply Water Customer Customer Water Supply
Demand Quality Transmission Pumping Storage Distribution Accounts Capacity Capacity Total O&M Expenses
Purchased Water $7,042,262 $7,042,262
SFPUC Service Charge $192,274 $192,274
BAWSCA Surcharge $377,289 $377,289
Salaries & Benefits $439,077 $89,374 $147,019 $175,498 $702,315 $1,553,283 Materials & Services $536,524 $592,723 $847,206 $491,193 $813,672 $3,281,318 Interal Service Fund Transfer $205,000 $205,000
Overhead Allocation $3,648,078 $3,648,078
Subtotal - O&M Expenses $7,042,262 $975,601 $682,097 $994,225 $666,691 $1,515,988 $3,853,078 $0 $569,563 $16,299,504 Capital Expenses
PAYGo Projects $91,288 $1,038,397 $91,288 $1,707,763 $2,928,735 Debt Service $722,836 $430,450 $88,653 $1,241,939
Subtotal Capital Expenses $0 $0 $91,288 $1,038,397 $814,124 $430,450 $1,707,763 $88,653 $0 $4,170,675 Non-Operating Revenue
Reconnection Charges ($50,000) ($50,000)
Service Charges ($6,500) ($6,500)
Transfer to/(from) Op Reserve ($370,185) ($51,284) ($35,855) ($52,263) ($35,045) ($79,690) ($266,657) ($90,622) ($981,600) Subtotal Non-Op Revenue ($370,185) ($51,284) ($35,855) ($52,263) ($35,045) ($79,690) ($323,157) ($90,622) $0 ($1,038,100) Net Revenue Requirement $6,672,078 $924,317 $737,529 $1,980,359 $1,445,769 $1,866,749 $5,237,684 ($1,969) $569,563 $19,432,079 -182-
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Transfers (from) Reserves – The use of reserves to fund the revenue requirement was divided among the demand and service functions according to the ratio of each functions portion of the revenue requirement to the overall O&M and Capital revenue requirement.

Figure 4-2 summarizes the costs by service function, organizing them into O&M and capital categories.

Figure 4-2. Revenue Requirement by Service Function

Source: Model Table 8. Allocations.

Once the costs are organized by service function, it is possible to allocate them based on the allocation percentages that correspond to each service function. The allocation percentages are derived from the units of service associated with each service function.

FY 2026-27 Allocation
Rev. Requirement Factor
O&M Expenses
Water Supply Demand
Purchased Water $7,042,262 Average Demand
Water Quality $975,601 Average Demand
Subtotal - Water Supply Demand $8,017,863
Water Supply Capacity
SFPUC Service Charge $192,274 Customer Capacity
BAWSCA Surcharge $377,289 Customer Capacity
Subtotal - Water Supply Capacity $569,563
Transmission $682,097 Above Average Demand
Pump Stations $994,225 Above Average Demand
Storage $666,691 Above Average Demand
Distribution $1,515,988 Above Average Demand
Customer Service $3,853,078 Customer Accounts
Total O&M Expenses $16,299,504
O&M Composite
Capital Expenses (Debt and PayGo)
PAYGo projects $2,928,735 PAYGo Composite
Debt Service $1,241,939 D/S Composite
Total Capital Expenses $4,170,675
Subtotal - O&M and Capital $20,470,179
100.0% Exp Composite
Non-Operating Revenue
Reconnection Charges ($50,000) Customer Accounts
Service Charges ($6,500) Customer Accounts
Transfer to/(from) Operating Reserves ($981,600) Exp Composite Subtotal - Non-Operating Revenue ($1,038,100)
Total Revenue Requirement $19,432,079
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Demand Service Function Allocation Factors
A cost-of-service analysis categorizes costs between the demand and customer service functions. Within the demand service function, further allocations are made to varying levels of service to account for average and above average water use. With these further allocations, rates can be designed for level of demand.

The costs allocated to the customer service function are differentiated between those that are related to accounts and those that are related to capacity. Those two categories are used in deriving Service Charge rates.

As described below, there are two levels of demand used for the demand service function cost-of-service analysis.

Average Demand
This level of use includes necessary indoor water use and average seasonal peaking. The value is the average of FY 2024-25 customer billing data.

Above Average Demand
Above-Average Demand includes use beyond Average Demand, to accommodate for irrigation and seasonal water needs. The total value is based on systemwide flow data maintained by the Town based on the maximum daily water delivery from the Town’s water supply meters.

Allocation percentages were calculated for each demand service level using load factors derived from customer billing data for FY 2024-25 for Average Demand and system-wide flow delivery data for Above-Average Demand. Load factors are the ratio of higher levels of demand to the Average Demand. Figure 4-3 summarizes the units of service and load factors for each of the service levels based on FY 2024-25 data.

Load Factors
Water systems are designed to accommodate maximum demand that is specific to the community served. By meeting maximum demand, the system is also serving average demands, which place lesser burdens on the system. Load factors describe the ratio of this maximum demand to more common, average demand. The load factors represent how much higher Above-Average Demand flows are compared with average demand and these factors provide the nexus to distribute system costs to both Average Demand and Above-Average demand. Because water system assets support average and above-Average Demand, these load factors fairly and proportionately allocate costs associated with operating, maintaining, building, repairing and replacing infrastructure necessary to meet each level of demand.

In Figure 4-3, the maximum daily delivery of water volume, 5,920 HCF, is compared to average daily demand, 2,973. The Load factor for Above-Average Demand indicates that this threshold of water use is 1.99 times that of Average Demand. In terms of daily water demand, Above-Average Demand is equal to 2,947 HCF (5,920 – 2,973), or the volume of water supplied beyond Average Demand.
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This is not surprising given the wide disparity amongst Hillsborough customer usage patterns.

For example, average water use of 42 HCF per bi-monthly period is 252 HCF per year. This volume ranks in the 61st percentile of water use for Residential customers for FY 2024-25 among 3,988 residential parcels billed bi-monthly. This means that 60% of parcels used less than or equal to this average amount. However, the 90th percentile of water use was 470 HCF, the 95th percentile of water use was 588 HCF, and the 99th percentile of water use was 1,047 HCF. These statistics demonstrate the Above-Average Demand patterns of a small minority in contrast to the majority of customers, whose annual water use is less than or equal to Average Demand. In the case of customers in the 95th percentile of annual water use, their water use is 2.33 times (588 ÷ 252) that of the average water user.

Figure 4-3. Service Level Demands and Load Factors

Average Demand reflects annual volume of FY 2024-25 water sales divided by 365 days.

Above-Average Demand reflects maximum 24-hour cycle volume delivered from SFPUC during FY 2024-25.

Figure 4-4 compares average water use (252 HCF per year) to that of a parcel that uses 588 HCF per year and is considered in the 95th percentile of water users. The average water use pattern includes a maximum period of use between the four-month period of July through October, where usage is between 60 and 62 units. The 95th percentile water use pattern includes a maximum period of use over these same months where usage is between 170-179 units. The increase in demand for the 95th percentile user during the systemwide two highest summer billing periods of July to August and September to October is significantly more than the average water user. The ratio of usage by the 95th percentile user in comparison to the average user for July through August was 2.74 (170 units versus 62 units). The ratio of usage by 95th percentile user in comparison to the average user for September through October was

2.98 (179 units versus 60 units). These figures illustrates the difference between average and Above-Average Demand that are in-line with the load factors calculated in Figure 4-3.

Demand Characteristics
Average Above Average
Demand Demand
All (Total Daily Demand HCF) 2,973 5,920
Load Factor Calculation
Total Demand 2,973 5,920
÷Average Demand 2,973 2,973
Load Factors 1.00 1.99
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Figure 4-4. Comparison of Water Use
The load factors indicate how much additional capacity is required to supply higher levels of service. Above-Average Demand flows are almost two times the Average Demand. Pipeline diameters are used as an example in Figure 4-5 to underscore and visually illustrate how much more infrastructure is needed to meet peak demands at significantly greater cost to the utility. The supplemental capacity required to serve only the portion exceeding Average Demand due to higher levels of water use may be determined by the difference between the figure and the Average Demand figure. In the case of Figure 4-5, this is the difference of 5,920 HCF and 2,973 HCF. The cost differential of system assets designed to meet the Town’s Above Average Demand versus system assets designed to meet the Town’s Average Demand may be compared to identify the difference in infrastructure costs to construct and install, as well as to repair and replace. For assets such as storage tanks, pumps, and transmission lines, which must be designed to meet Above-Average Demand, the marginal difference between the Town’s Above-Average Demand impacts the cost of the infrastructure such that as the ratio between Above-Average Demand and Average Demand increases, so too does the cost to construct the infrastructure required to meet the Above-Average Demand. The Town’s SCADA system, built to accommodate uniquely high storage volumes for emergency planning, required an initial $2.5 million investment that was driven by the additional pumping and refilling setpoints required to ensure the Town always has sufficient water stored and available for delivery.
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Figure 4-5. Pipeline Capacity Needed for Demand Service Levels Not Drawn to Scale
The load factors are the source of the allocation percentages that are needed to allocate costs for costs within the revenue requirement that are required to serve Above-Average Demand.

The percentages for use in the allocation exercise are derived in Figure 4-6. The load factors from Figure 4-3 represent the ratio of water demand relative to Average Demand. The Above-Average Demand load factor for the system is 1.99, which means Above-Average Demand is nearly two times that of Average Demand, as illustrated in seasonal water use fluctuations in Figure 4-5 and a comparison of high annual water use to average annual water use. Of the total 1.99 load factor, 0.99 is in excess of Average Demand and is related to the incremental demand beyond average use, just like Figure 4-3 identified that 2,947 HCF per day is beyond the average use of 2,973 HCF per day. The portion in excess, 2,947 HCF per day, is 49.78% of the total Above-Average Demand load (i.e., 0.99/1.99 = 49.78%, or 2,947/5,920 = 49.78%). For purposes of allocating costs associated with meeting AboveAverage Demands, 49.8% is allocated to the Above-Average Demand service and the remaining 50.22% is allocated to the Average Demand service. While system capacity is essentially designed to meet peak demands, and peak users should assume cost responsibility for the capacity required to serve this peak demand, it is important to understand that the cost of facilities that are sized for peak demands is not borne by only customers that peak.

Figure 4-6. Demand Related Allocation Percentages
Load Factors derived in Figure 4-3 using FY 2024-25 water sales and meter delivery data.

Using distribution pipelines as an example, they are sized to meet Above-Average Demands.

Even though they are sized for a higher level of service, Average Demands are also Daily Demand Demand Service Levels
Allocation Basis (hcf) Load Factor Average Above Average Total % Average 2,973 1.00 1.00
Allocation % 100.00% 100.00%
Above Average 5,920 1.99 1.00 0.99
Allocation % 50.22% 49.78% 100.00%
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accommodated by these pipelines. Hence, the cost of the pipelines is not allocated 100% to the Above-Average Demand service level. The cost is apportioned across the lower service level, too. Therefore, Average Demand would be apportioned 50.22% of the distribution pipeline expense and Above-Average Demand would be apportioned 49.78% of the distribution pipeline expense. Thus, the costs of Above-Average Demand are shared by all customers and not exclusively allocated to those who use the most.

Fire Protection
The distribution system also includes hydrants for public fire protection. Thus, a portion of the assets and demand services are also attributable to fire protection. As such, a portion of the demand service functions of pumping, storage, transmission, and distribution, are allocated to fire protection to be recovered through the Customer Capacity service function. Figure 4- 7 determines the proportion of demand service costs applicable to fire protection based on the ratio of storage requirements for fire protection. to overall storage requirements of the system. The Town looked to each of its storage facilities needed to serve fire flow demands, and reviewed hydraulic models and capacity evaluations to identify the portion of such facilities needed to meet fire flow demand. Next, the Town evaluated the portion of such facilities in total as a ratio of total existing storage, and identified that 19.8% of storage capacity was required to provide fire service. Thus, storage facilities are not only designed to support Above-Average Demand, but also fire flows in the event of an emergency. This analysis is summarized in Figure 4-7.Because storage facilities support both above average demand and fire protection, the original allocation for the Above-Average Demand category was revised to include fire protection. Therefore,19.8% of the Above-Average Demand allocation was re-allocated to the capacity component in the service charge. This allocation for Above-Average Demand is shown in Figure 4-9.

Figure 4-7. Allocation of Fire Services According to Storage Requirements Source: Town of Hillsborough Hydraulic Model Development and Capacity Evaluation.

Rounding of values to nearest tenth of a percent.

Service Function Allocations
The revenue requirements in Figure 4-2 are allocated to the demand and customer service functions in Figure 4-8. The resulting allocations indicate that about 64% of the revenue requirement is attributable to the demand service function and 36% to the customer service function. As previously mentioned, the Volume Charge rates are designed to recover the costs Total Existing
Fire Storage
Pressure Zones Protection Requirement
Non-Consolidated Zones 1.08 3.02
Consolidated Darrell 0.18 1.91
Consolidated Skyfarm #3 0.18 1.46
Consolidated Marlborough 0.18 1.46
Zone 4 Consolidated Tournament 0.18 1.26
Town Wide 1.80 9.11
Portion attributable to Fire Strorage 19.8% to Customer Capacity -188-
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allocated to the demand service function and the Service Charge rates are designed to recover the customer service function costs.

Figure 4-8. Service Function Allocations
Figure 4-9 summarizes the allocation factors employed in the analysis. The Above-Average Demand allocation percentages initially derived from Figure 4-6 were modified to distribute

19.8%11 of the overall costs to the portion of the Service Charge that accounts for fire service capacity (Customer Capacity). With this adjustment to the Above-Average Demand allocation factor, this meant that the remaining 80.2% of the Above-Average Demand allocation factor not assigned to Customer Capacity was re-calculated. As a result, 50.22% of the remaining

80.2% allocation was reapportioned to Average Demand (40.3% of the overall factor in Figure 4-9) and 49.78% of the remaining 80.2% allocation was reapportioned to Above11 As determined in Figure 4-6.

FY 2026-27 Allocation Base Extra Customer Customer
Rev. Requirement Factor Demand Capacity Accounts Capacity O&M Expenses
Water Supply Demand
Purchased Water $7,042,262 Average Demand $7,042,262 $0 $0 $0 Water Quality $975,601 Average Demand $975,601 $0 $0 $0 Subtotal - Water Supply Demand $8,017,863 $8,017,863 $0 $0 $0 Water Supply Capacity
SFPUC Service Charge $192,274 Customer Capacity $0 $0 $0 $192,274 BAWSCA Surcharge $377,289 Customer Capacity $0 $0 $0 $377,289 Subtotal - Water Supply Capacity $569,563 $0 $0 $0 $569,563 Transmission $682,097 Above Average Demand $274,869 $272,456 $0 $134,772 Pump Stations $994,225 Above Average Demand $400,649 $397,131 $0 $196,444 Storage $666,691 Above Average Demand $268,661 $266,302 $0 $131,728 Distribution $1,515,988 Above Average Demand $610,908 $605,544 $0 $299,537 Customer Service $3,853,078 Customer Accounts $0 $0 $3,853,078 $0 Total O&M Expenses $16,299,504 $9,572,950 $1,541,433 $3,853,078 $1,332,043 O&M Composite 58.7% 9.5% 23.6% 8.2%
Capital Expenses (Debt and PayGo)
PAYGo projects $2,928,735 PAYGo Composite $492,023 $487,703 $1,707,763 $241,246 Debt Service $1,241,939 D/S Composite $464,748 $460,667 $0 $316,525 Total Capital Expenses $4,170,675 $956,771 $948,370 $1,707,763 $557,771 Subtotal - O&M and Capital $20,470,179 $10,529,720 $2,489,803 $5,560,841 $1,889,814 100.0% Exp Composite 51.4% 12.2% 27.2% 9.2%
Non-Operating Revenue
Reconnection Charges ($50,000) Customer Accounts $0 $0 ($50,000) $0 Service Charges ($6,500) Customer Accounts $0 $0 ($6,500) $0 Transfer to/(from) Op Reserves ($981,600) Exp Composite ($504,928) ($119,393) ($266,657) ($90,622) Subtotal - Non-Operating Revenue ($1,038,100) ($504,928) ($119,393) ($323,157) ($90,622) Total Revenue Requirement $19,432,079 $10,024,792 $2,370,410 $7,036,877 $12,395,202 $7,036,877
64% 36%
Volume Charge COS Service Charge COS
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IV. Cost-of-Service Analysis
Town of Hillsborough | April 10, 2026 | Page 37
Average Demand (39.3% of the overall factor in Figure 4-9). This ensures that the AboveAverage Demand allocation factor accounts for the proportionate use of the system to accommodate fire flow needs, and the proportionate distribution of costs based on the usage of and demand on such facilities.

Figure 4-9. Allocations Factors
Source: Model Table 8. Allocations
Figure 4-10 summarizes the shift in the Volume Charge revenues to Service Charge revenues to align with the cost of service. The exercise performed in Figure 4-10 indicates that Service Charge revenues will increase from 29% to 36%, while Volume Charge revenues will decrease from 71% to 64%. The right-hand columns summarizing the difference between the cost of service and current revenues include both the impacts of the realignment of rates through the cost allocation process and the overall revenue increases proposed.

Figure 4-10. Cost-of-Service Revenue Summary
Average Above Average Customer Customer
System-Wide Allocation Factors Demand Demand Accounts Capacity Total System-wide
Average Demand 100.0% 0.0% 0.0% 0.0% 100.0%
Above Average Demand 40.3% 39.9% 0.0% 19.8% 100.0%
O&M Composite 58.7% 9.5% 23.6% 8.2% 100.0%
Customer Accounts 0.0% 0.0% 100.0% 0.0% 100.0%
Customer Capacity 0.0% 0.0% 0.0% 100.0% 100.0%
Exp Composite 51.4% 12.2% 27.2% 9.2% 100.0%
PAYGo Composite 16.8% 16.7% 58.3% 8.2% 100.0%
D/S Composite 37.4% 37.1% 0.0% 25.5% 100.0%
Components of Rate Structure
Volume Charges
Residential $12,584,088 $11,757,458 ($826,631) -6.6%
Non-Residential $471,813 $637,744 $165,931 35.2%
$13,055,902 71% $12,395,202 64% ($660,699) -5.1%
Service/Meter Charge $5,274,493 29% $7,036,877 36% $1,762,384 33.4% Total $18,330,395 100% $19,432,079 100% $1,101,685 6.0% Current Revenue Cost Difference
(FY 2025-26 rates) of Service COS Minus Current
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V. Rate Design
The Town has historically charged water customers the combination of a fixed Service Charge and a variable Volume Charge based on metered water use. This approach and structure remains appropriate given Hillsborough’s costs of service and customer base, and HF&H recommends no changes to that structure. This chapter explains the derivation of the Volume and Service Charge rates that reflect the projected cost of service.

SERVICE CHARGE DESIGN
Service Charge rates are fixed rates charged per account that are billed each billing period to recover the cost of the customer service function. The Service Charge rates are graduated in proportion to the capacity of the service (i.e., water meter) serving a property. Service Charge rates are also independent of customer classes because the capacity of a service does not change depending on what class of customer that is connected to the water system.

The cost-of-service analysis determined how much of the revenue requirement is attributable to the customer service function. The function has two components – customer accounts and customer capacity – each of which is itemized in the cost-of-service analysis in Figure 5-12.

Costs attributable to customer accounts are allocated to customers in proportion to the number of accounts. Costs attributable to customer capacity, including fire service capacity, as detailed in Chapter V and Figure 4-6, are allocated to customers in proportion to the capacity of their services. The sum of the two components equals the Service Charge rate per connection.

Figure 5-1 lists the units of service corresponding to each of the cost components. The 4,304 accounts are used for apportioning the customer accounts cost component.

Capacity costs associated with the distribution system are apportioned among the connections in proportion to the capacity associated with each connection. Accounts are converted to Equivalent Meter Units (EMUs) to apportion the customer capacity cost component. An EMU represents the number of 3/4-inch meters to which a larger meter is equivalent. For example, a 1-inch meter provides 1.57 times as much capacity as a ¾-inch meter. The capacity multipliers are based on the manufacturer’s nominal capacity of the Town’s new meters that were installed in 2016. The 3,727 1-inch meters equal 5,857 EMUs. There are 7,892 total EMUs. In effect, the 4,304 services of assorted sizes have the equivalent capacity as 7,892 ¾-inch meters.
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Figure 5-1. Service Charge Units of Service
*Capacity multiplier assumes 3/4" meter = 1 EMU = 35 gallons per minute.

Meter capacities used in previous study, per AWWA M1, Table B-1.

Number of Services provide by Town of Hillsborough as of January 2025.

Figure 5-2 derives the unit costs for the customer accounts and customer capacity cost components. Each account is allocated $202.82 for the customer account cost component.

That amount represents the costs the Town incurs to maintain an account regardless of the capacity of the service. Each account is also allocated $38.00 per EMU. That amount represents a portion of the cost of providing distribution system capacity for each account, and increases based on the capacity of the meter.

Figure 5-2. Service Charge Unit Costs
Customer Account and Customer Capacity components derived in Figure 4-7.

Units of Service provided from Figure 5-1.

Figure 5-3 combines the customer service and capacity components into a single Service Charge for each size of service and compares proposed rates to the current rates.

Service # of Meter Capacity
Size Services Ratings (gpm) Multiplier* EMUs
a b c = b ÷ 35 a x c
3/4" 76 35 1.00 76
1" 3,727 55 1.57 5,857
1-1/2" 231 100 2.86 660
2" 268 160 4.57 1,225
3" 0 320 9.14 0
6" 1 1,000 28.57 29
8" 1 1,600 45.71 46
4,304 7,892
Customer Customer
FY 2026-27 Customer Account Capacity
Service Expenses Component Component Total
O&M Expenses $3,853,078 $1,332,043 $5,185,122
Capital Expenses $1,707,763 $557,771 $2,265,534
Non-Operating Revenue ($323,157) ($90,622) ($413,779)
Total FY 2022-23 $5,237,684 $1,799,193 $7,036,877
Units of Service 4,304 7,892
Services EMUs
Unit Cost (Bi-Monthly) $202.82 $38.00
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Figure 5-3. Calculation of Proposed Bi-Monthly Service Charge Rates (FY 2026-27) Refer to Figure 5-2 for values in columns a and b.

Refer to Figure 5-1 for values in column c.

Rounding due to stored values in the model may exist.

All meters 3” and larger would receive a rate decrease, while customers with smaller meters would see a rate increase. The allocation of the majority of the Town’s capital program to customer accounts is driving a larger increase to the fixed account component portion of the calculated meter charge. Such costs were allocated uniformly to each service for projects that benefit each account uniformly for such projects as the Water Main Replacement Program and demolition of two storage tanks that will no longer be required. As a result, a larger portion of the proposed service charge is fixed, while less of the charge is attributable to the capacity component of the service charge. For reference, under the previous cost-of-service study, the customer account unit rate was $98.40 per account and the customer capacity component was $46.41 per EMU. This meant for a 3/4-inch meter, the customer account unit rate made up 68% of the overall charge. In contrast, the proposed $202.82 per account is the equivalent of 84% of the overall service charge. A reduced capacity component creates a smaller increment in service charges across the spectrum of available meter sizes.

Figure 5-4 shows the proposed five-year schedule of Service Charge rates.

Account Total Current
Service Component Capacity Meter Charge Meter Charge $ Change Size ($/bill period) $/EMU Multiplier Total ($/bill period) ($/bill period) ($/Bill period) a b c d = b x c e = a + d
3/4" $202.82 $38.00 1.00 $38.00 $240.82 $161.18 $79.64
1" $202.82 $38.00 1.57 $59.71 $262.53 $190.70 $71.83
1 1/2" $202.82 $38.00 2.86 $108.56 $311.38 $257.12 $54.26 2" $202.82 $38.00 4.57 $173.69 $376.52 $345.68 $30.84
3" $202.82 $38.00 9.14 $347.39 $550.21 $581.83 ($31.62) 6" $202.82 $38.00 28.57 $1,085.58 $1,288.41 $1,585.49 ($297.08) 8" $202.82 $38.00 45.71 $1,736.93 $1,939.76 $2,471.07 ($531.31) Capacity Component
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Figure 5-4. Proposed Bi-Monthly Service Charge Rates (FY 2026-27-FY 2030-31) Proposed Rates for FY 2026-27 calculated in Figure 5-3. Rates calculated for FY 2027-28 – FY 2030-31 were calculated by applying the increases shown in Figure 3-8.

Values rounded to nearest cent each year.

VOLUME CHARGE DESIGN
As previously discussed, the Town’s Volume Charge rates are different for its two customer classes, Residential and Non-Residential. The Town’s Residential customers are currently charged a four-tier increasing block rate structure.12 The structure is a series of blocks of water whose unit cost increases with each block. The structure is “progressive” in the sense that water is billed sequentially by block up to the highest block. It is not the case that all of the water is billed at the rate for the highest block. All metered water use is at least billed the Tier-1 rate. Water use beyond Tier-1 is only billed the Tier-2 rate for the volume of water allocated to Tier-2, and water use beyond the volume of water allocated to Tier-2 is billed at the Tier-3 rate, and so forth. Most of the Town’s residential customers are charged on a bimonthly basis. However, the Town has a small group of parcels who are billed on a monthly basis, such that the volume applicable to each tier is half that of the tier volume established for Residential customers billed bi-monthly. In turn, all Residential customers are charged the same rate per tier of water use, regardless of the frequency of their billing.

In contrast, Non-Residential customers are currently billed via a uniform rate structure. The rate charged does not vary, regardless of the volume of water use.

As part of this study, a change is recommended from the existing rate structures to unify all water customers under a single rate structure. Therefore, a customer would be charged the same rates independent of the use of the parcel as a residence or for a non-residential purpose. Currently, the Town is considering two alternatives: 1) a two-tiered increasing block rate structure; and. 2) a uniform rate structure.

The following subsections calculate the rates associated with these alternatives. Chapter VI analyzes the bill impacts from both alternatives.
12 For simplicity, we use the term “tiered rates” synonymously with “increasing block rates.” “Inclining block rates” is commonly used for “increasing block rates.” However, because an incline can slope both up or down, it is ambiguous in this context and therefore is not used in this study.

Current Proposed Bi-Monthly Service Charge
Service Size Charge FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 3/4" $161.18 $240.82 $252.86 $265.50 $278.78 $292.72
1" $190.70 $262.53 $275.66 $289.44 $303.91 $319.11
1 1/2" $257.12 $311.38 $326.95 $343.30 $360.47 $378.49
2" $345.68 $376.52 $395.35 $415.12 $435.88 $457.67
3" $581.83 $550.21 $577.72 $606.61 $636.94 $668.79
6" $1,585.49 $1,288.41 $1,352.83 $1,420.47 $1,491.49 $1,566.06 8" $2,471.07 $1,939.76 $2,036.75 $2,138.59 $2,245.52 $2,357.80 -194-
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Scenario 1: Two-Tiered Volume Charge Rates
When increasing block rates are implemented, the number of tiers must be determined. The base/extra capacity cost-of-service analysis leads to two distinct services defined by the functions performed by facilities that are designed to provide the services. Each service has an average flow that can be used as the division (i.e., “breakpoint”) between each service, as shown in Figure 5-5.

Figure 5-5. Tier Breakpoint Analysis
Average demand reflects annual volume of FY 2024-25 water sales divided by 365 days.

Above-average demand reflects maximum 24-hour cycle volume delivered from SFPUC during FY 2024-25.

The average flows for Average Demand and Above-Average Demand yield the following breakpoint:

Tier-1/Tier-2 breakpoint – 42 HCF (524 gallons per day) per bi-monthly period.

Note, a bi-monthly period is assumed to be 60 days. The breakpoints calculated were rounded up to the nearest even integer to facilitate monthly billing for a small portion of the Town’s Residential customer base and the Town’s Non-Residential customer base. Bills for these customers utilize the same rates but the breakpoint is halved to compensate for the onemonth billing period. The proposed monthly bill subscriptions have a Tier-1/Tier-2 breakpoint of 21 HCF.

Rates Per Tier
With breakpoints that correspond to the service levels in the cost-of-service analysis, it is possible to calculate the rate per tier by dividing the cost of service per tier by the water demand in each tier. The resulting rates represent the unit cost of service for each tier.13 13 In this report, “rates” and “unit costs” are synonymous.

Flow Per Customer (HCF monthly) Average Above Avg.

All Customers Demand Demand
HCF per Day 2,973 5,920
HCF/Monthly period 89,192 177,600
Proposed Breakpoints
Monthly Bills 4,304 4,304
Average flow per Monthly Bill 21 41
Average gallons per day 524 1,022
Average flow per Bi-Monthly Bill 42 82
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Figure 5-6 shows the calculations of the incremental cost per tier. Using the Average Demand service function as an example, it can be seen how much of the revenue requirement is recovered from Tier-1. The $10,024,792 includes the costs that were directly attributable to the Average Demand service function plus the Average Demand service function’s share of costs attributable to higher levels of service. The Average Demand cost of service is 81% of the aggregated amount of $12,395,202. All of the water sold, including water in Tier-2 benefits from the Tier-1 costs and shares in paying them. Dividing the Average Demand costs by the total demand of 1,085,164 HCF in Figure 5-6 yields a Tier-1 rate of $9.24 per HCF.

The Town calculated that the average user does not exceed 42 HCF per billing cycle, or 21 HCF per month. As such, 42 HCF is used as the tier breakpoint, because this reflects the point at which the Town has incurred and continues to incur costs to serve above-average usage.

These costs include facilities that are sized to meet above-average usage, and all related operating, maintenance, replacement, and repair costs.

Bi-monthly demand that does not exceed the 42 HCF Tier-1 breakpoint is only charged the Tier-1 rate. Demand that does not exceed Tier-1 is not responsible for the additional costs incurred by the Town to meet above-average demands. These additional costs are both the initial capital cost, the subsequent rehabilitation and renewal costs, and the operations and maintenance costs for larger pipelines, additional pumps, and larger reservoirs. Bills that exceed Tier-1 pay an additional rate increment. The additional increment of demand is responsible for the costs allocated to Above-Average Demand service, $2,370,410. This increment of cost is divided by the demand that exceeds Tier-1, 434,881 HCF, resulting in an incremental Tier-2 rate of $5.45 per HCF (Figure 5-6).

Figure 5-6. Incremental Unit Cost
Refer to Figure 4-7 for Volumetric Cost of Service figures.

Demand per Tier found by applying proposed tier breakpoints to FY 2024-25 water sales data.

The incremental rates are additive. In other words, demand in Tier-1 only pays the Average Demand rate. Demand in Tier-2 pays the Average Demand rate plus the Above-Average Demand increment. Adding the increments yields the rates per tier, which are summarized in Figure 5-7. Clearly, as demand progresses beyond the first tier, the additional costs of peaking are allocated to recover the cost of the higher levels of service.

Average Above Avg.

Demand Demand Total
Volumetric Cost of Service $10,024,792 $2,370,410 $12,395,202 Demand per Tier (HCF)
Tier-1 (0-42 hcf) 650,283
Tier-2 (42+ hcf) 434,881 434,881
Total HCF per Tier 1,085,164 434,881
Additional Unit Cost for Above Avg. Demand $9.24 $5.45
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Figure 5-7. Calculation of Proposed Volume Charge Rates Unit costs calculated in Figure 5-6.

The five-year schedule of proposed Volume Charge rates for all customers is shown in Figure 5-8.

Figure 5-8. Proposed Volume Charge Rates
Proposed Rates for FY 2026-27 calculated in Figure 5-7. Rates calculated for FY 2027-28 – FY 2030-31 were calculated by applying the increases shown in Figure 3-8.

Values rounded to nearest cent each year.

Scenario 2: Uniform Volume Charge Rates
If the Town seeks to move to a uniform rate structure for all customers, the demand service costs allocation in Figure 4-7 would be distributed based on system demand. The uniform rate is derived by dividing the FY 2026-27 volumetric cost of service by the projected annual demand in Figure 5-9.

Figure 5-9. Calculation of the Uniform Volume Charge Rate Refer to Figure 4-7 for Volumetric Cost of Service figure.

Average Above Avg.

Demand Demand Total
Proposed Rates
Tier-1 (0-42 hcf) $9.24 $9.24
Tier-2 (42+ hcf) $9.24 $5.45 $14.69
Proposed Proposed Rates
Breakpoints FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 (HCF) ($/HCF)
Bi-Monthly Residential
Tier 1 0 to 42 $9.24 $9.70 $10.19 $10.70 $11.24
Tier 2 42+ $14.69 $15.42 $16.19 $17.00 $17.85
Monthly Residential/Non-Residential
Tier 1 0 to 21 $9.24 $9.70 $10.19 $10.70 $11.24
Tier 2 21+ $14.69 $15.42 $16.19 $17.00 $17.85
Uniform Volume Charge Calculation
Volumetric Cost of Service $12,395,202
Projected demand (HCF) 1,085,164
Uniform Volume Charge per HCF $11.42
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Volume Charge Rate Summary
The five-year schedule of proposed Volume Charge rates for Residential and Non-Residential customers is shown in Figure 5-10.

Figure 5-10. Proposed Volume Charge Rates
Proposed Rates for FY 2026-27 calculated in Figure 5-9. Rates calculated for FY 2027-28 – FY 2030-31 were calculated by applying the increases shown in Figure 3-8.

The proposed Volume Charge rate design is reflected as a single row for all customers. The proposed cost-of-service rate would reduce the rate that Residential customers pay for water use which falls within current Tier-3 and Tier-4 levels, while increasing the rate that Residential customers pay for water use falling within Tier-1 or Tier-2. Under this proposed rate structure, all Non-Residential customers would see an 8.9% increase to the current rate they pay. Further analysis of customer bill impacts is included in Chapter VI.

Revenue Stabilization Factors
During prolonged shortages, customers are required to conserve or even ration their water use. The magnitude of the water savings can significantly reduce water sales revenue from quantity charges.

The Town requested HF&H to update the Revenue Stabilization Factors that would be applied to the rates for the Volume Charge rates and implemented during declared water shortage stages in accordance with the Town’s Water Shortage Contingency Plan (WSCP), state mandated reductions in the level of water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand that requires reductions in water use.

If the Town decides to transition to a single Volume Charge rate structure, the Town no longer needs to apply separate Revenue Stabilization Factors across different customer classes.

Instead, the Revenue Stabilization Factors will be tied directly to defined stages of water use reduction. As described in more detail under “Implementation” at this end of this chapter, the calculated factors will be applied to each Volume Charge rate, regardless of whether the Town selects Scenario 1 or Scenario 2. The higher rates will generate the revenue which was lost due to conservation and have been calculated to keep the Town revenue neutral so they can cover the portion of fixed costs which have been paid through the Volume Charge Rates.

Analysis
Based on FY 2024-25 metered consumption data, Figure 5-11 shows the calculation of each customer class’s respective shortage reduction required during each shortage stage. The annual demand for each class is separated into indoor and outdoor water use where indoor Proposed Proposed Rates
Breakpoints FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 (HCF) ($/HCF)
All Customers uniform $11.42 $11.99 $12.59 $13.22 $13.88 -198-
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water use is defined as the period from February through March multiplied by 6 to get the annualized indoor water use over 12 months. Subtracting indoor water use from the total annual water use determines the seasonal outdoor water use.

The percentage reductions required to achieve the overall reduction for a particular stage are derived so that outdoor consumption is reduced 4.0 times indoor consumption. In a Stage 1 shortage, a 3.5% reduction in indoor water use and a 14.0% reduction in outdoor water use are required to achieve an overall 10% reduction. In each stage reduction all customers are required to conserve by the same percentages, reflecting the single approach to Volume Charge rate setting as part of this study.

Figure 5-11. Calculation of Shortage Reductions by Stage Source: Model tab 11. Revenue Stabilization Factors.

The service charges are fixed and generate 36% of the total rate revenue regardless of shortages. The remaining 64% of revenue is generated by the volumetric rates. In deriving the Water Shortage Revenue Stabilization Factors, the factors will only apply to the Volume Charge rates because fluctuations in water use correlate with fluctuations in variable costs.

Each customer class has its own set of Revenue Stabilization Factors corresponding to its reduction in each stage of shortage.

The formula for the Revenue Stabilization Factors comprises conservation and variable cost components. The conservation component adjusts to account for the required reduction in water demand. A portion, not all, of the costs (e.g., power, water purchases) covered by Volume Charge rates are variable and will not be incurred when less water is used. To ensure the Revenue Stabilization Factors do not result in excess revenue collection, the variable cost component of the calculation reduces the factor to account for the portion of variable costs, which is covered by the quantity charges, and will not be incurred when demand decreases.

The Revenue Stabilization Factors are the product of the conservation component multiplied by the variable cost component. Each component is defined as follows:

Revenue Stabilization Factor = Conservation Component multiplied times Variable Cost Component, where
Conservation Component = 1/(1 - a), where
Shortage Total % Water
Stage Reduction Sales (hcf)
Stage 0 0% 1,085,164
Stage 1 10% 976,648
Stage 2 20% 868,131
Stage 3 30% 759,615
Stage 4 40% 651,098
Stage 5 50% 542,582
Stage 6¹ >50% 477,472
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a = required percentage reduction, which varies by customer class.

Variable Cost Component = (b - (c * a))/b, where
a = required percentage reduction, which varies by customer class. b = percentage of revenue from total service charges and volumetric rates for all customer classes that is attributable to volumetric rates, an amount that is 64% based on the cost-of-service analysis.
c = percentage of total revenue requirement covered by service charges and volumetric rates that varies based on fluctuations in demand, an amount that is currently 41%.14
The following example illustrates how the formula determined the 1.090 Revenue Stabilization Factor in Figure 5-12 for a Stage 2 shortage in which an overall conservation goal of 20% if required.

Conservation Component: 1/(1 - a) = 1/(1 - 0.20) = 1.250, where a = required percentage reduction is 20.0% for customers (see Figure 5-11 where a rounded 20% is shown).

Variable Cost Component: (b - (c * a))/b = (0.64 - (0.41 * 0.20))/0.64 = 0.872, where
a = 20.0% reduction for customers in a Stage 2 shortage. b = 64% of total rate revenue is generated by quantity charges; and c = 41% of revenue requirement is related to variable costs.

Revenue Stabilization Factor = 1.250 * 0.872 = 1.090, as it is shown in Figure 5-

12. The Residential Volume Charge rates in effect under non-shortage conditions would be multiplied by 1.090 to derive the quantity charge rates to be in effect during a Stage 2 water shortage. Figure 5-12 shows the Revenue Stabilization Factors that would be applied to the rates that would normally be in effect absent declared shortages. 14 The cost of SFPUC water is the largest example of a variable cost, which varies with water demand.
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Figure 5-12. Revenue Stabilization Factors by WSCP-Defined Shortage Stage Implementation
The recommended Revenue Stabilization Factors in Table 5-12 are implemented only during periods of declared water shortage emergencies. Once a mandatory shortage is declared, the City Council has discretion to enact Revenue Stabilization Adjustments corresponding to the level of shortage reduction implemented using the factors provided in Table 5-12 or calculated using the formula for a specific level of reduction. The adjustments can go in either direction from stage to stage depending on whether the level of reduction is increasing or decreasing during the shortage. At least 30 days prior to making the adjustment, notice must be provided to rate payers, which can be included in the customer’s bills. No protest process is required. These adjustments would be temporary, and rates would return to the regular schedule at the conclusion of the water shortage emergency.

The Revenue Stabilization Factors could be applied when the Town requires its customers to reduce consumption. At such times, the Revenue Stabilization Factors would be multiplied by the Volume Charge rates proposed in the current rate study. These proposed Volume Charge rates are based on FY 2024-25 demand. The specific demand projections for each year are listed in Figure 3-1. The Town can choose to enact Revenue Stabilization Factors when the water emergency demand levels will fall short of the respective year of modeled demand.

The Revenue Stabilization Factors only apply to the chosen structure of Volume Charge rates and not to Service Charge rates, which are independent of water demand. The Revenue Stabilization Factors are multiplied times the non-water shortage, normal-year Volume Charge rates proposed in this report. The Revenue Stabilization Factors would be adopted as part of the rate notification in the Proposition 218 implementation process. Once adopted, the Town could apply the Revenue Stabilization Factors as needed during conservation stages.

As a further example, Figure 5-13 and Figure 5-14 have Volume Charge rates after applying the Revenue Stabilization Factors to the rates proposed for FY 2026-27 through FY 2030-31, under both scenarios (i.e., a two-tiered rate structure and a uniform rate structure).

The tables show the proposed rates followed by the rates that correspond to each stage of conservation.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction

1.040 1.090 1.155 1.240 1.361 1.459
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Water Rate Study
V. Rate Design
Town of Hillsborough | April 10, 2026 | Page 49
Figure 5-13. Water Rates with Revenue Stabilization Factors Included - Scenario 1 (Two-Tier Rate Structure)
Rates calculated by applying factors from Figure 5-12 to proposed rates from Figure 5-8.

Figure 5-14. Water Rates with Revenue Stabilization Factors Included – Scenario 2 (Uniform Rate Structure)
Rates calculated by applying factors from Figure 5-12 to proposed rates from Figure 5-10.

Note that if reductions in water use are higher or lower than the specified stages set in the WSCP due to state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand, the Revenue Stabilization Factors will be adjusted in accordance with the formula above. 2-Tiered Scenario FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Proposed Rates ($/HCF) - Before Revenue Stabilization Factors Tier 1 $9.24 $9.70 $10.19 $10.70 $11.24
Tier 2 $14.69 $15.42 $16.19 $17.00 $17.85
Rates ($/HCF) at each Water Shortage Stage
Stage 1
Tier 1 $9.61 $10.09 $10.60 $11.13 $11.69
Tier 2 $15.28 $16.04 $16.84 $17.68 $18.57
Stage 2
Tier 1 $10.07 $10.57 $11.11 $11.66 $12.25
Tier 2 $16.01 $16.81 $17.65 $18.53 $19.46
Stage 3
Tier 1 $10.67 $11.20 $11.76 $12.35 $12.98
Tier 2 $16.96 $17.80 $18.69 $19.63 $20.61
Stage 4
Tier 1 $11.46 $12.03 $12.64 $13.27 $13.94
Tier 2 $18.22 $19.13 $20.08 $21.09 $22.14
Stage 5
Tier 1 $12.57 $13.20 $13.86 $14.56 $15.29
Tier 2 $19.99 $20.98 $22.03 $23.13 $24.29
Stage 6
Tier 1 $13.48 $14.15 $14.87 $15.61 $16.40
Tier 2 $21.43 $22.50 $23.62 $24.80 $26.04
Uniform Scenario FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Proposed Rates ($/HCF) - Before Revenue Stabilization Factors All Water Use $11.42 $11.99 $12.59 $13.22 $13.88
Rates ($/HCF) at each Water Shortage Stage
Stage 1 $11.88 $12.47 $13.09 $13.75 $14.44
Stage 2 $12.45 $13.07 $13.73 $14.41 $15.13
Stage 3 $13.18 $13.84 $14.54 $15.26 $16.03
Stage 4 $14.17 $14.87 $15.62 $16.40 $17.22
Stage 5 $15.54 $16.31 $17.13 $17.99 $18.89
Stage 6 $16.66 $17.49 $18.37 $19.29 $20.25
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Water Rate Study
V. Rate Design
Town of Hillsborough | April 10, 2026 | Page 50
Pass-Through Adjustment
The cost of SFPUC water is the single largest component of the Town’s revenue requirements.

Because the Town has no control over the SFPUC’s wholesale water rate, this cost is simply passed through to the Town’s customers. The SFPUC provides projections of its future wholesale water rates, which are built into the rate projections in this study. The SFPUC updates its projections each year as part of the rate-making process legally prescribed in the wholesale Water Supply Agreement. California Government Code Section 53756 authorizes water suppliers to adjust their rates in response to changes in pass-through costs. We recommend that the Town incorporate annual pass-through adjustments in its volumetric rates so that the Town would pass through any additional increases in the SFPUC wholesale water rates that are above or below these projected SFPUC wholesale water rates, provided that the impacted Volume Charge will not be increased in any year by more than 20%.

Each year the Town should determine how much, if any, pass-through adjustment is required as soon as the SFPUC submits its updated wholesale rates, which is typically in April or May each year. The wholesale rate used for the projections in this study should be compared with the updated rate and the difference either added or subtracted from the Town’s Volume Charge rates for Residential and Non-Residential customers. The wholesale rates per HCF used in this study15 are as follows:

FY 2026-27 – $6.23
FY 2027-28 – $6.69
FY 2028-29 – $6.91
FY 2029-30 – $7.06
FY 2030-31 – $7.38
For example, if the updated SFPUC rate for FY 2027-28 is $6.79, the $0.10 difference should be added to the Volume Charge rates charged to Residential and Non-Residential water customers. If the updated SFPUC rate is less than the foregoing rates, the difference should be subtracted from the Town’s volumetric rates. In other words, the adjustment should be made in either direction.

The pass-through adjustment acts similarly to the Revenue Stabilization Factors, which was incorporated into the Proposition 218 notice in the previously adopted cost-of-service study.

The pass-through adjustment allows the Town to adjust volumetric rates to track any difference between the SFPUC rates that were included in the model and the actual rates adopted each year by SFPUC. The pass-through adjustment can also be made by providing 30-day notice in the customer bills without triggering the need for a Proposition 218 protest process.
15 Rates included in SFPUC presentation to BAWSCA members on February 19, 2026. -203-
Water Rate Study
VI. Customer Bill Impacts
Town of Hillsborough | April 10, 2026 | Page 51
VI. Customer Bill Impacts
In the previous chapter, the Volume and Service Charge structures were compared for the current and proposed rates. A further understanding of the differences between the current structure and the two proposed structure alternatives can be gained by comparing bills based on both rate structures.

BILL COMPARISON
Bills Under Proposed and Approved Rates
There are twelve residential parcels that are billed on a monthly basis. Figure 6-1 and Figure 6-2 below illustrate the difference between the current and proposed rate structures for these customers by comparing water use from FY 2024-25. Thus, an annual bill is the sum of twelve monthly billing periods of water use, and twelve fixed charges per meter size for each meter that serves the parcel. The red highlighted value in each differential column ($ Difference) indicates the maximum decrease for the proposed rates scenario in relation to what the parcel was billed under the current structure for FY 2024-25. The green highlighted value indicates the maximum increase for the proposed rate scenario in relation to what the parcel was billed under the current structure for FY 2024-25. All names were removed for privacy.

Comparing the annual bill results and bill differential results between the Proposed Two-Tiered Rates and the Proposed Uniform Rates provides additional context. For example, the total amount for the annual bills that would be paid by all twelve parcels under the proposed twotiered rate structure, $214,261, will be greater than the total annual bills paid under the proposed uniform rates structure, $185,336. While both annual amounts are less than the annual amount under the current, four-tiered rate structure, the overall reduction for the bills paid using the uniform rate structure would be greater than under the proposed two-tiered rate structure.

Figure 6-1. Monthly Residential Customer Bill Impacts
Annual bills calculated using water sales reported from FY 2024-25.

Bills based on proposed rates reflect FY 2026-27 rates from Figure 5-8 and Figure 5-10.

Monthly Current Proposed 2-Tiered Rates Proposed Uniform Rates Residential 4-Tiered
Customer Annual Bill Annual Bill $ Difference Annual Bill $ Difference A $8,083 $7,323 ($760) $6,827 ($1,256)
B $5,120 $5,208 $88 $5,331 $211
C $34,039 $27,625 ($6,414) $23,942 ($10,097)
D $4,589 $5,405 $816 $5,526 $937
E $2,577 $2,869 $292 $3,013 $436
F $102,366 $74,262 ($28,103) $59,565 ($42,801)
G $26,166 $21,304 ($4,862) $18,506 ($7,660)
H $24,290 $18,918 ($5,373) $15,915 ($8,375)
I $23,327 $18,505 ($4,822) $15,872 ($7,455)
J $8,024 $8,941 $916 $9,431 $1,407
K $2,507 $2,786 $279 $2,910 $403
L $25,722 $21,115 ($4,607) $18,498 ($7,224)
Total $266,810 $214,261 ($52,549) $185,336 ($81,475)
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VI. Customer Bill Impacts
Town of Hillsborough | April 10, 2026 | Page 52
In addition, when comparing the minimum and maximum differentials, the bills under the proposed uniform rates exhibit a wider array of impacts. The largest increase for annual bills under uniform rates structure is greater than the annual bills under the proposed two-tiered rate structure. Also, the largest decrease for annual bills under uniform rates structure is greater than the annual bills under the proposed two-tiered rate structure.

A comparison of the Non-Residential annual bill results and bill differential results between the Proposed Two-Tiered Rates and the Proposed Uniform Rates in Figure 6-2 provides similar findings as those in Figure 6-1 for the Residential customers billed monthly. For example, the total amount for the annual bills that would be paid under the proposed two-tiered rate structure, $933,709, will be greater than the total annual bills paid under the proposed uniform rates structure, $806,847. However, both annual amounts are greater than the annual total for bills paid under the current uniform rate structure charged to Non-Residential customers.

Figure 6-2. Non-Residential Bill Impacts
Annual bills calculated using water sales reported from FY 2024-25.

Bills based on proposed rates reflect FY 2026-27 rates from Figure 5-8 and Figure 5-10.

Unlike Residential customers billed monthly, under either proposed rate structure, all NonResidential customers would see an annual increase to their water bills. The largest increase for any parcel under either proposed rate structure would be under the two-tiered rate structure, totaling $81,073 in additional water bills for the year. In contrast, the smallest annual increase for any parcel would be $246 under the two-tiered rate structure. Thus, for Non-Residential customers, bills under the proposed, two-tiered rate structure would exhibit a broader range of impacts in comparison to the proposed, uniform rate structure.

Current Proposed 2-Tiered Rates Proposed Uniform Rates
Non-Residential Uniform
Customer Annual Bill Annual Bill $ Difference Annual Bill $ Difference A $249,920 $330,993 $81,073 $273,454 $23,534
B $15,596 $19,821 $4,225 $16,980 $1,384
C $7,862 $8,716 $854 $9,489 $1,627
D $13,068 $16,281 $3,213 $14,227 $1,160
E $35,644 $42,815 $7,172 $38,808 $3,165
F $3,200 $3,446 $246 $3,813 $613
G $48,134 $62,436 $14,302 $52,733 $4,599
H $47,434 $59,461 $12,027 $49,014 $1,579
I $2,319 $2,675 $356 $2,854 $535
J $68,360 $93,712 $25,351 $74,422 $6,062
K $146,069 $183,281 $37,212 $182,380 $36,311
L $39,513 $53,363 $13,850 $43,017 $3,504
M $41,936 $56,708 $14,772 $45,655 $3,719
Total $719,054 $933,709 $214,655 $806,847 $87,793
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Water Rate Study
VI. Customer Bill Impacts
Town of Hillsborough | April 10, 2026 | Page 53
Capturing the annual impacts across all 3,988 Residential parcels billed on a bi-monthly basis in a similar table to Non-Residential customers is not feasible. Instead, Figure 6-3 and Figure 6-4 provide a statistical overview from comparing the monthly bill impacts across all 3,988 residential parcels billed in the Town’s service area in FY 2024-25. Over this span of parcels, 24,019 bills were analyzed to develop the values shown in Figure 6-3 and Figure 6-4. In a given year, each parcel billed bi-monthly will receive six bills for the year. The monthly amounts are included to give customers a sense of how bill impacts could affect their monthly expenses.

The mean increase represents the average impact across all bills compared in the data set.

A percentile represents the percentage of bills in ascending order that are equal to or less than the associated value. For example, in Figure 6-3 the 25th percentile means that of the 24,019 bills analyzed, 25%, or 6,004 bills, would have an increase less than or equal to $43.08.

The median increase could also be presented as the 50th percentile change, meaning that half of the bills have would result in an increase that is equal to or less than the named value. For example, in Figure 6-3, the median value is $91.13.

The 75th percentile means that of the 24,019 bills analyzed, this value is the 18,015th in the sequence. Thus, 18,014 bills have an increase that is equal to or less than this figure, and only 6,004 bills would have an increase equal to or larger than this value. In Figure 6-3 and Figure 6-4, the majority of bi-monthly Residential bills have an impact that is smaller than the 75th percentile increases presented below.

Figure 6-3. Mean/Median Bill Impacts – Scenario 1 (Two-Tier Rate Structure) Figure 6-4. Mean/Median Bill Impacts – Scenario 2 (Uniform Rate Structure) Figure 6-5 Compares the total annual bills of customers with 1” water meters at various usage levels. The four scenarios of water use reflect the usage patterns and bills applicable to four specific Residential parcels billed bi-monthly. In general, for each customer, more water was used in the summer months than in the winter months. However, the water use patterns are unique to the demands of the parcel and have not been modified from what was billed in FY 2024-25. As a result, customers using the same annual volume of water in FY 2024-25, but with different patterns of peaking throughout the year could have paid more or less and Bill Increases: Old vs. New Tiers
Bi-Monthly Monthly
Mean Increase $43.08 $21.54
25th Percentile Increase $77.03 $38.52
Median Increase $91.13 $45.57
75th Percentile Increase $100.53 $50.27
Bill Increases: Old vs. New Uniform
Bi-Monthly Monthly
Mean Increase $49.30 $24.65
25th Percentile Increase $87.15 $43.58
Median Increase $121.62 $60.81
75th Percentile Increase $159.11 $79.55
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VI. Customer Bill Impacts
Town of Hillsborough | April 10, 2026 | Page 54
consequently, would see different changes to their overall bill. As shown in Figure 6-5, only users with high water use will see a decrease in their total annual bill, as these customers will pay less under either proposed water rate structure for water that is currently billed using Tier-3 or Tier-4 rates. High water use customers who have more bills with usage occurring in Tier-3 or Tier-4, they will see a greater reduction to their bill than a customer who consistently uses less water and only demands bi-monthly water use volumes within the current Tier-1 and Tier-2 ranges.

Figure 6-5. Bi-Monthly Residential Customers – Annual Water Bill Comparison Source: FY 2024-25 water sales for bi-monthly residential customers.

In place of annual comparisons, Figure 6-6 through Figure 6-9 provide specific bill impacts by incremental water use and meter size for bi-monthly Residential customers. Each figure compares current bills and bills under the proposed rate structure alternatives using a defined meter size. The majority of bi-monthly Residential customers are served by a 1” meter. The column, “% of Bills Within Range,” indicates the quantity of bills that report water use between the water use specified in that row and the previous row in relation to the total quantity of bills for all bi-monthly Residential customers, independent of meter size. For example, in Figure 6-6, 20% represents the percentage of bills that are less than or equal to 10 HCF and greater than 0 HCF. Each “$ Change” column compares the bill under the proposed rate structure to the current bill. Therefore, the change calculated reflects the potential adjustment made to both the Volume Charge rates and the Service Charges.

Figure 6-6. Bi-Monthly Residential Customer Bills Comparison – 3/4” meter Note: Bills with usage exceeding 100 HCF in a billing period account for 8% of all Residential bills.

Annual Water Current Proposed 2-Tiers Rates Proposed Uniform Rate Water Use Use (HCF) Annual Bill Total Annual Bill Total Annual Change Annual Bill Total Annual Change Very Low 78 $1,736.22 $2,295.90 $559.68 $2,465.94 $729.72 Low Use 120 $2,092.12 $2,683.98 $591.86 $2,945.58 $853.46 Average Use 240 $3,446.72 $4,016.23 $569.51 $4,315.98 $869.26 High Use 480 $7,593.12 $7,389.23 ($203.89) $7,056.78 ($536.34) 3/4" meter
% of Bills Proposed 2-Tiered Rates Proposed Uniform Rate Within Water Use Current Bi-Monthly Bi-Monthly
Range (HCF) Total Bill Bill $ Change Bill $ Change

2.4% 0 $161.18 $240.82 $79.64 $240.82 $79.64

19.8% 10 $237.08 $333.22 $96.14 $355.02 $117.94

21.2% 20 $312.98 $425.62 $112.64 $469.22 $156.24

13.5% 30 $407.44 $518.02 $110.58 $583.42 $175.98

9.6% 40 $506.54 $610.42 $103.88 $697.62 $191.08

6.8% 50 $639.96 $746.42 $106.46 $811.82 $171.86

5.6% 60 $796.26 $893.32 $97.06 $926.02 $129.76

4.6% 70 $952.56 $1,040.22 $87.66 $1,040.22 $87.66

3.5% 80 $1,119.52 $1,187.12 $67.60 $1,154.42 $34.90

2.7% 90 $1,329.12 $1,334.02 $4.90 $1,268.62 ($60.50)

2.2% 100 $1,538.72 $1,480.92 ($57.80) $1,382.82 ($155.90) -207-
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VI. Customer Bill Impacts
Town of Hillsborough | April 10, 2026 | Page 55
Figure 6-7. Bi-Monthly Residential Customer Bills Comparison – 1” meter Note: Bills with usage exceeding 100 HCF in a billing period account for 8% of all Residential bills.

Figure 6-8. Bi-Monthly Residential Customer Bills Comparison – 1 ½” meter Note: Bills with usage exceeding 100 HCF in a billing period account for 8% of all Residential bills. 1" meter
% of Bills Proposed 2-Tiered Rates Proposed Uniform Rate Within Water Use Current Bi-Monthly Bi-Monthly
Range (HCF) Bill Bill $ Change Bill $ Change

2.4% 0 $190.70 $262.53 $71.83 $262.53 $71.83

19.8% 10 $266.60 $354.93 $88.33 $376.73 $110.13

21.2% 20 $342.50 $447.33 $104.83 $490.93 $148.43

13.5% 30 $436.96 $539.73 $102.77 $605.13 $168.17

9.6% 40 $536.06 $632.13 $96.07 $719.33 $183.27

6.8% 50 $669.48 $768.13 $98.65 $833.53 $164.05

5.6% 60 $825.78 $915.03 $89.25 $947.73 $121.95

4.6% 70 $982.08 $1,061.93 $79.85 $1,061.93 $79.85

3.5% 80 $1,149.04 $1,208.83 $59.79 $1,176.13 $27.09

2.7% 90 $1,358.64 $1,355.73 ($2.91) $1,290.33 ($68.31)

2.2% 100 $1,568.24 $1,502.63 ($65.61) $1,404.53 ($163.71) 1 1/2" meter
% of Bills Proposed 2-Tiered Rates Proposed Uniform Rate Within Water Use Current Bi-Monthly Bi-Monthly
Range (HCF) Bill Bill $ Change Bill $ Change

2.4% 0 $257.12 $311.38 $54.26 $311.38 $54.26

19.8% 10 $333.02 $403.78 $70.76 $425.58 $92.56

21.2% 20 $408.92 $496.18 $87.26 $539.78 $130.86

13.5% 30 $503.38 $588.58 $85.20 $653.98 $150.60

9.6% 40 $602.48 $680.98 $78.50 $768.18 $165.70

6.8% 50 $735.90 $816.98 $81.08 $882.38 $146.48

5.6% 60 $892.20 $963.88 $71.68 $996.58 $104.38

4.6% 70 $1,048.50 $1,110.78 $62.28 $1,110.78 $62.28

3.5% 80 $1,215.46 $1,257.68 $42.22 $1,224.98 $9.52

2.7% 90 $1,425.06 $1,404.58 ($20.48) $1,339.18 ($85.88)

2.2% 100 $1,634.66 $1,551.48 ($83.18) $1,453.38 ($181.28) -208-
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VI. Customer Bill Impacts
Town of Hillsborough | April 10, 2026 | Page 56
Figure 6-9. Bi-Monthly Residential Customer Bills Comparison – 2” meter Note: Bills with usage exceeding 100 HCF in a billing period account for 8% of all Residential bills.

Figure 6-10 compares the volume charge at each specified level of water use. This provides information for what a bi-monthly Residential customer would pay per volume of water used each billing period, independent of the meter or meters serving their parcel. Each “$ Change” column compares the solely the volume charge of each bill under the proposed rate structure to the volume charge of the current bill. Therefore, the change calculated reflects the potential adjustment made to only the Volume Charge rates. This comparison identifies that under the two-tiered rate structure, a bi-monthly Residential customer would see a reduced volume charge per bill for water use that is 90 HCF or more. In turn, under the uniform rate structure, a bi-monthly Residential customer would see a reduced volume charge per bill for water use that is 80 HCF or more.

Figure 6-10. Bi-Monthly Volume Charge Comparison
Note: Bills with usage exceeding 100 HCF in a billing period account for 8% of all Residential bills. 2" meter
% of Bills Proposed 2-Tiered Rates Proposed Uniform Rate Within Water Use Current Bi-Monthly Bi-Monthly
Range (HCF) Bill Bill $ Change Bill $ Change

2.4% 0 $345.68 $376.52 $30.84 $376.52 $30.84

19.8% 10 $421.58 $468.92 $47.34 $490.72 $69.14

21.2% 20 $497.48 $561.32 $63.84 $604.92 $107.44

13.5% 30 $591.94 $653.72 $61.78 $719.12 $127.18

9.6% 40 $691.04 $746.12 $55.08 $833.32 $142.28

6.8% 50 $824.46 $882.12 $57.66 $947.52 $123.06

5.6% 60 $980.76 $1,029.02 $48.26 $1,061.72 $80.96

4.6% 70 $1,137.06 $1,175.92 $38.86 $1,175.92 $38.86

3.5% 80 $1,304.02 $1,322.82 $18.80 $1,290.12 ($13.90)

2.7% 90 $1,513.62 $1,469.72 ($43.90) $1,404.32 ($109.30)

2.2% 100 $1,723.22 $1,616.62 ($106.60) $1,518.52 ($204.70) Proposed 2-Tiered Rates Proposed Uniform Rate
% of Water Use Current Bi-Monthly Bi-Monthly
Bills (HCF) Vol Chg Bill Vol Chg Bill $ Change Vol Chg Bill $ Change

2.4% 0 $0.00 $0.00 $0.00 $0.00 $0.00

19.8% 10 $75.90 $92.40 $16.50 $114.20 $38.30

21.2% 20 $151.80 $184.80 $33.00 $228.40 $76.60

13.5% 30 $246.26 $277.20 $30.94 $342.60 $96.34

9.6% 40 $345.36 $369.60 $24.24 $456.80 $111.44

6.8% 50 $478.78 $505.60 $26.82 $571.00 $92.22

5.6% 60 $635.08 $652.50 $17.42 $685.20 $50.12

4.6% 70 $791.38 $799.40 $8.02 $799.40 $8.02

3.5% 80 $958.34 $946.30 ($12.04) $913.60 ($44.74)

2.7% 90 $1,167.94 $1,093.20 ($74.74) $1,027.80 ($140.14)

2.2% 100 $1,377.54 $1,240.10 ($137.44) $1,142.00 ($235.54) -209-

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
18 PUBLIC HEARING

CITY COUNCIL MEETING
JUNE 8, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Adopting the Proposed FY 2026-27 Operating and Capital Budget
SUMMARY: The Town will conduct a public hearing for consideration of adopting the resolution approving the proposed FY 2026-27 Operating and Capital Budget.

The Town’s proposed Operating and Capital Budget for Fiscal Year (FY) 2026-27 is $82.3 million for all funds, representing an 8% decrease from the FY 2025-26 projection. The decrease is primarily due to prior year’s capital spending, offset by increases in operating expenditure.

The Proposed Budget complies with the Town’s policies and guidelines. Additionally, the General Fund, Water and Sewer Enterprise Funds, and the Asset Replacement Fund reserves comply with the Town's reserve policies and debt covenants.

Overview
A key factor in setting the FY 2026-27 budget is the stability of the property tax assessment roll.

Property tax, the Town’s largest General Fund revenue source, is projected to grow 5% based on the FY 2026-27 tax assessment roll and other sources. In-lieu Vehicle License Fees (VLF) revenue presents a risk to FY 2026-27 revenues and is budgeted using the latest estimates.

General Fund revenue also increases significantly because of the comprehensive Building and Planning Fee study that was reviewed by the City Council with a target date of July 1 for implementation. The fees are set to recover costs of the Building and Planning Department services, not to make a profit.

The Town’s goal-setting session identified and prioritized the goals for the coming year, and resources to accomplish these goals are included in the FY 2026-27 budget. Many of the goals are long-term projects that will continue in future years.

The Water and Sewer Fund fees and charges and cost/capital projections reflect the recent rate studies that are under way for review and adoption by the City Council in the coming months, to be implemented effective July 1, 2026.

The Town conducted a Long-Range Financial Funding Plan review as set out in the FY 2025-26 City Council goals. The study indicated a need for additional revenue and other operational enhancements. As mentioned above, a comprehensive fee study was conducted for building and planning services.
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June 8, 2026

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Hillsborough City CouncilJune 8, 2026

Hillsborough City Council
June 8, 2026