Agenda, second session — Hillsborough City Council, June 22, 2026

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 22, 2026
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/84899161277?pwd=aMwoqYU4v7CnRoznOsC6w8XiISdU7j.1 • Dial-in via phone:
+1 669 444 9171 US
Meeting ID: 848 9916 1277
Passcode: 197132
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.

REGULAR CITY COUNCIL MEETING (6:00 p.m.)
I. CALL TO ORDER
II. ROLL CALL
III. PLEDGE OF ALLEGIANCE
IV. TOWN UPDATE
Agenda – Hillsborough City Council
Monday, June 22, 2026

Page 2 ends

V. 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.

VI. 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.

VII. PUBLIC HEARING (CONTINUED FROM JUNE 8, 2026)

1. Resolution Authorizing the Five-Year Rate Series for Water Rate Charges for a FiveYear Period Effective July 1, 2026 and Resolution Making Findings and Determinations Regarding Legal Objections – Continued from June 8, 2026 VIII. NEW BUSINESS

2. Resolution Approving Amendment No. 3 to the Employment Agreement for City Manager Doug Davis Relating to a Compensation Adjustment

3. Resolution Adopting the 2026 Salary Schedule for the Town of Hillsborough IX. 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.

X. ADJOURNMENT
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].

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
1 PUBLIC HEARING

CITY COUNCIL MEETING
JUNE 22, 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 and Resolution Making Findings and Determinations Regarding Legal Objections – Continued from June 8, 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 April 13, 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 -1-
Agenda Staff Report- Hillsborough City Council
June 22, 2026

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Town of Hillsborough with projections for the cost of service and revenue requirements for the rate 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. At the June 8, 2026 meeting, the City Council continued the public hearing to June 22, 2026 in order to consider all public testimony, protests, and objections received, as well as to extend the deadline for submitting legal objections to June 16, 2026 at 4:00 PM. 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.
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Agenda Staff Report- Hillsborough City Council
June 22, 2026

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The Town also implemented an administrative remedy procedure pursuant to Government Code section 53759.1 (added pursuant to AB 2257). This required 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 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. At the June 8, 2026 City Council meeting, the City Council also extended the period for members of the public to submit a legal objection to 4:00 p.m. on June 16, 2026. A postcard regarding the extension was mailed to property owners and accountholders directly responsible for the payment of water charges on June 9, 2026. The Town received 18 objections in total, including one that was not signed by the property owner and one from an individual who is no longer a property owner in the town.

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 the resolution making findings and determinations related to the presentment of objections to the proposed water rates;

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. -3-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH

MAKING 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 extended the deadline for written objections to 4:00 p.m. on June 16, 2026, and provided mailed notice to all property owners and customers of record of such extension; 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
ATTACHMENT 1
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Resolution No. 26-
June 22, 2026
2 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
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. -5-
Resolution No. 26-
June 22, 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 22nd day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
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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 22, 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 opened the 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, after all public testimony was received, the Town determined to continue the public hearing until June 22, 2026, in order to consider all protests and objections submitted thus far, as well as to extend the deadline for legal objections until June 16, 2026; and
WHEREAS, at the continued public hearing on June 22, 2026, the Town considered all remaining testimony, and subsequently closed the public hearing; and WHEREAS, at the close of the continued 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 -8-
Resolution No. 26-
June 22, 2026
3 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 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.

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
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Resolution No. 26-
June 22, 2026
4 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 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:
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
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 22, 2026
5 $6.23 per HCF in FY 2026-27
$6.69 per HCF in FY 2027-28
$6.91 per HCF in FY 2028-29
$7.06 per HCF in FY 2029-30
$7.38 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 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.

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. -11-
Resolution No. 26-
June 22, 2026
6 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 22nd day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-12-

TOWN OF

HILLSBOROUGH
Water Rate Study
April 18, 2026
-13-
ATTACHMENT 3
HF&H Consultants
590 Ygnacio Valley Rd. Suite 105
Walnut Creek, CA 94596
Phone: (925) 977-6950
Web: hfh-consultants.com
April 18, 2026
Jan Cooke
Finance Director
The Town of Hillsborough
1600 Floribunda Avenue
Hillsborough, CA 94010
Sent via email: [email protected]
Subject: Water Rate Study – Final Report
Dear Jan Cooke,
HF&H Consultants (HF&H) is pleased to submit this 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 report documents the uniform rates and calculates bill impacts.
 Revenue Stabilization Factors. The Town currently has Revenue Stabilization Factors which are applied to the Volume Charge rates and can only be implemented 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 -14-
Jan Cooke
April 18, 2026

Page 2 of 2 ends

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 uniform Volume Charge rate structure.
 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 18, 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 Stabilization 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 ............................................................................. 32 Service Charge Design ....................................................................... 32 Volume Charge Design ....................................................................... 35 VI. CUSTOMER BILL IMPACTS ......................................................... 42 Bill Comparison ................................................................................. 42 APPENDIX A. 2026 WATER RATES MODEL
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Water Rate Study
Table of Figures & Glossary
Town of Hillsborough | April 18, 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 .................................................. 7 Figure 1-6. Proposed Revenue Stabilization Factors ........................................................ 7 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) ........................................ 26 Figure 4-2. Revenue Requirement by Service Function .................................................. 28 Figure 4-3. Allocation of Fire Services According to Storage Requirements ....................... 29 Figure 4-4. Service Function Allocations ...................................................................... 30 Figure 4-5. Allocations Factors ................................................................................... 31 Figure 4-6. Cost-of-Service Revenue Summary ............................................................ 31 Figure 5-1. Service Charge Units of Service ................................................................. 33 Figure 5-2. Service Charge Unit Costs ......................................................................... 33 Figure 5-3. Calculation of Proposed Bi-Monthly Service Charge Rates (FY 2026-27) .......... 34 Figure 5-4. Proposed Bi-Monthly Service Charge Rates (FY 2026-27-FY 2030-31) ............ 35 Figure 5-5. Calculation of the Uniform Volume Charge Rate ........................................... 36 Figure 5-6. Proposed Volume Charge Rates ................................................................. 36 Figure 5-7. Calculation of Shortage Reductions by Stage ............................................... 37 Figure 5-8. Revenue Stabilization Factors by WSCP-Defined Shortage Stage .................... 39 Figure 5-9. Water Rates with Revenue Stabilization Factors Included .............................. 40 Figure 6-1. Monthly Residential Customer Bill Impacts .................................................. 42 Figure 6-2. Non-Residential Bill Impacts ...................................................................... 43 Figure 6-3. Mean/Median Bi-Monthly Residential Bill Impacts ......................................... 44 Figure 6-4. Bi-Monthly Residential Customers – Annual Water Bill Comparison ................. 44 Figure 6-5. Bi-Monthly Residential Customer Bills Comparison – 3/4” meter .................... 45 Figure 6-6. Bi-Monthly Residential Customer Bills Comparison – 1” meter ....................... 45 Figure 6-7. Bi-Monthly Residential Customer Bills Comparison – 1 ½” meter .................... 46 Figure 6-8. Bi-Monthly Residential Customer Bills Comparison – 2” meter ....................... 46 Figure 6-9. Bi-Monthly Volume Charge Comparison ...................................................... 47 -17-
Water Rate Study
Table of Figures & Glossary
Town of Hillsborough | April 18, 2026 | Page iv
Glossary
AWWA – American Water Works Association.

BAWSCA – Bay Area Water Supply and Conservation Agency.

CCF – Hundred cubic feet (see HCF below).

CIP - Capital Improvement Program.

COS - Cost of Service.

CY - Calendar Year
EMU – Equivalent Meter Unit.

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.

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.”
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Water Rate Study
Glossary & References
Town of Hillsborough | April 18, 2026 | Page ii
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. -19-
Water Rate Study
Acknowledgements & Limitations
Town of Hillsborough | April 18, 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. -20-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 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 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.
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Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 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 Requirement$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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Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 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 $20,399,837 5.0%
FY 2028-29 5.0% 7/1/2028 $21,420,372 5.0%
FY 2029-30 5.0% 7/1/2029 $22,491,933 5.0%
FY 2030-31 5.0% 7/1/2030 $23,615,444 5.0%
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Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 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. -24-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 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.

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.

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. -25-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 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.

Figure 1-5 summarizes the current and proposed Volume Charge rates. The proposed rate analysis was 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.

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 -26-
Water Rate Study
I. Executive Summary
Town of Hillsborough | April 18, 2026 | Page 7
Figure 1-5. Current and Proposed Volume Charge Rates
Source: Figure 5-6.

Note: All Non-Residential customers are billed monthly

PROPOSED REVENUE STABILIZATION FACTORS
The Town requested HF&H to update the Revenue Stabilization Factors that would be applied to the uniform Volume Charge rate 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 1-6 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.

Figure 1-6. Proposed Revenue Stabilization Factors
Source: Figure 5-8.

The Revenue Stabilization Factors only apply to the Volume Charge rate and not to Service Charge rates, which are independent of water use. 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 1-6 would be applied to the Volume Charge Rate .

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
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
I. Executive Summary
Town of Hillsborough | April 18, 2026 | Page 8
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 uniform Volume Charge rates and not to Service Charge rates, which are independent of water demand.
4 Following Figure 5-7 of this study.
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Water Rate Study
II. Introduction
Town of Hillsborough | April 18, 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 in 2023, 2024, and 2025. To summarize, the rate increases were planned and implemented as follows:

July 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 -29-
Water Rate Study
II. Introduction
Town of Hillsborough | April 18, 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 18, 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
Bi-Monthly Billing Period
Five-year projections
FY 2026-27 to FY 2030-31
Fig. 3-7
Volume Charges - Per Parcel
Uniform rate
$ 11.42/hcf
Fig. 5-5
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
Fig. 6-4
Allocate demand functions to
service levels
Demand
Service
Accounts
Capacity
Fig. 4-4
Determine fire service protection
costs which coincide with demandrelated costs
Fire Protection Storage
Total System Storage Fig. 4-3
Classify costs by function
Demand
Water Supply Demand
Transmission
Pumping
Storage
Distribution
Service
Water Supply Capacity
Customer Service
Customer Capacity
Fig. 4-1
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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% -33-
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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 -34-
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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. 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 water demand. 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.

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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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 -37-
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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 Requirement$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 $20,399,837 5.0%
FY 2028-29 5.0% 7/1/2028 $21,420,372 5.0%
FY 2029-30 5.0% 7/1/2029 $22,491,933 5.0%
FY 2030-31 5.0% 7/1/2030 $23,615,444 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 $13,011,116 $13,662,215 $14,345,868 $15,062,076 Total Gross Rate Revenue $18,339,693 $19,432,079 $20,399,837 $21,420,372 $22,491,933 $23,615,444 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 $3,510,399 $4,015,383 $4,649,110 $5,131,647 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 2.93 3.44 3.92 6.90
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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
Cost of Service Generally
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). The next step in the process is the cost-of-service analysis, which ensures that costs are proportionally allocated to customers based on how they use the system. Costs are allocated based on a uniform volumetric rate, aligning cost allocations with a singular demand service function.

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.

The rates for the Service Charges are not dependent on customer class – an inch of capacity is the same capacity regardless of what kind of customer is connected to it or how much water 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 -42-
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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 recommends that all customers be charged based on a uniform rate structure. The design of rates associated with this recommendation is further discussed in Chapter V of this report. Further, the analysis of customer bill impacts under the proposed rates 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. Water systems provide water service. In order to provide that service, infrastructure must be constructed, operated, and maintained, which must be paid for from cash or debt.

The cost of constructing, operating, and maintaining the system is allocated across all customers’ impact based on system design and utilization.

Analytical Procedure
The cost-of-service analysis in this study involved a series of three 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. Cost function allocations – Costs from Step 1 are allocated across three primary cost allocation categories (See Figure 4-2):
 Demand-related costs, representing water use throughout the Town’s service territory.
 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.

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 4-3).

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 -43-
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eventual cost of service for setting Service Charge rates and Water Use Charge rates in Figure 4-6.

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 water demand 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.

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.

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. 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.

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 demand. Hence, these costs are allocated using the factor 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 larger demands, including fire protection, so that the maximum volume of -44-
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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 using the allocation factor, Demand & Fire Protection9.

Pump Stations – Water is pumped to distribution reservoirs at a rate equal to the maximum day demand, to serve above average conditions, including fire flows. If pump stations were sized to only meet 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 using the allocation factor, Demand & Fire Protection.

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 potable demand and fire flow 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 using the allocation factor, Demand & Fire Protection to the demand service function.

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, including fire 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 using the allocation factor, Demand & Fire Protection..

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 9 A separate allocation factor, Demand & Fire Protection, was developed for demand service functions that support fire flow. This is discussed in further detail in the Fire Protection section of this chapter.
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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.

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 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 $2,928,735 $2,928,735
Debt Service $722,836 $430,450 $88,653 $1,241,939
Subtotal Capital Expenses $0 $0 $0 $0 $722,836 $430,450 $2,928,735 $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 Reserves ($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 $646,242 $941,962 $1,354,481 $1,866,749 $6,458,656 ($1,969) $569,563 $19,432,079 -46-
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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 meet potable demand and fire flow demand of the system. Thus, cost recovery for these projects would occur through a combination of the Fixed Service Charges and the Volume Charge rates.

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.
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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 Demand
Water Quality $975,601 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 Demand & Fire Protection
Pump Stations $994,225 Demand & Fire Protection
Storage $666,691 Demand & Fire Protection
Distribution $1,515,988 Demand & Fire Protection
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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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- 3 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 demand, but also fire flows in the event of an emergency. This analysis is summarized in Figure 4-3. Because storage facilities support both above demand and fire protection, the original allocation for the Demand category was revised to include fire protection for services that also benefit fire flow. Therefore, a new allocation factor, Demand & Fire Protection, was developed so that 19.8% of the Demand allocation was re-allocated to the capacity component in the service charge. This allocation for Demand & Fire Protection is shown in Figure 4-5.

Figure 4-3. 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 4-4. 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 allocated to the demand service function and the Service Charge rates are designed to recover the customer service function 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 -49-
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Figure 4-4. Service Function Allocations
Figure 4-5 summarizes the allocation factors employed in the analysis. To recognize demand service functions which serve fire flow and potable demand, the Demand allocation was modified to distribute 19.8%10 of the overall costs to the portion of the Service Charge that accounts for fire service capacity (Customer Capacity). With this adjustment, this means that

80.2% of costs would be allocated to Demand and 19.8% of costs would be allocated to Customer Capacity, as shown in Figure 4-5.This ensures that the Demand & Fire Protection allocation factor accounts for the proportionate use of the system to accommodate fire flow 10 As determined in Figure 4-3.

FY 2026-27 Allocation Customer Customer
Rev. Requirement Factor Demand Accounts Capacity
O&M Expenses
Water Supply Demand
Purchased Water $7,042,262 Demand $7,042,262 $0 $0
Water Quality $975,601 Demand $975,601 $0 $0
Subtotal - Water Supply Demand $8,017,863 $8,017,863 $0 $0 Water Supply Capacity
SFPUC Service Charge $192,274 Customer Capacity $0 $0 $192,274 BAWSCA Surcharge $377,289 Customer Capacity $0 $0 $377,289 Subtotal - Water Supply Capacity $569,563 $0 $0 $569,563 Transmission $682,097 Demand & Fire Protection $547,325 $0 $134,772 Pump Stations $994,225 Demand & Fire Protection $797,781 $0 $196,444 Storage $666,691 Demand & Fire Protection $534,962 $0 $131,728 Distribution $1,515,988 Demand & Fire Protection $1,216,451 $0 $299,537 Customer Service $3,853,078 Customer Accounts $0 $3,853,078 $0 Total O&M Expenses $16,299,504 $11,114,382 $3,853,078 $1,332,043 O&M Composite 68.2% 23.6% 8.2%
Capital Expenses (Debt and PayGo)
PAYGo projects $2,928,735 PAYGo Composite $979,726 $1,707,763 $241,246 Debt Service $1,241,939 D/S Composite $925,414 $0 $316,525 Total Capital Expenses $4,170,675 $1,905,141 $1,707,763 $557,771 Subtotal - O&M and Capital $20,470,179 $13,019,523 $5,560,841 $1,889,814 100.0% Exp Composite 63.6% 27.2% 9.2%
Non-Operating Revenue
Reconnection Charges ($50,000) Customer Accounts $0 ($50,000) $0 Service Charges ($6,500) Customer Accounts $0 ($6,500) $0 Transfer to/(from) Op Reserves ($981,600) Exp Composite ($624,321) ($266,657) ($90,622) Subtotal - Non-Operating Revenue ($1,038,100) ($624,321) ($323,157) ($90,622) Total Revenue Requirement $19,432,079 $12,395,202 $7,036,877 64% 36%
Volume Charge COS Service Charge COS
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needs, and the proportionate distribution of costs based on the usage of and demand on such facilities.

Figure 4-5. Allocations Factors
Source: Model Table 8. Allocations
Figure 4-6 summarizes the shift in the Volume Charge revenues to Service Charge revenues to align with the cost of service. The exercise performed in Figure 4-6 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 4-6. Cost-of-Service Revenue Summary
Customer Customer
System-Wide Allocation Factors Demand Accounts Capacity Total Demand 100.0% 0.0% 0.0% 100.0%
Demand & Fire Protection 80.2% 0.0% 19.8% 100.0%
O&M Composite 68.2% 23.6% 8.2% 100.0%
Customer Accounts 0.0% 100.0% 0.0% 100.0%
Customer Capacity 0.0% 0.0% 100.0% 100.0%
Exp Composite 63.6% 27.2% 9.2% 100.0%
PAYGo Composite 33.5% 58.3% 8.2% 100.0%
D/S Composite 74.5% 0.0% 25.5% 100.0%
Components of Rate Structure
Volume Charges
Residential $12,584,088 $11,780,116 ($803,972) -6.4%
Non-Residential $471,813 $615,086 $143,273 30.4%
$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. 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 IV, 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 4-4.

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 currently 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.11 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 bi-monthly 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. Chapter VI analyzes the bill impacts that would result from this change. 11 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 -55-
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Figure 5-5 calculates the uniform rate applicable to all customers. The uniform rate is derived by dividing the FY 2026-27 volumetric cost of service, derived in Figure 4-4, by the projected annual demand.

Figure 5-5. Calculation of the Uniform Volume Charge Rate Refer to Figure 4-4 for Volumetric Cost of Service figure.

Volume Charge Rate Summary
The five-year schedule of proposed Volume Charge rates for Residential and Non-Residential customers is shown in Figure 5-6.

Figure 5-6. Proposed Volume Charge Rates
Proposed Rates for FY 2026-27 calculated in Figure 5-5. 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.

Uniform Volume Charge Calculation
Volumetric Cost of Service $12,395,202
Projected demand (HCF) 1,085,164
Uniform Volume Charge per HCF $11.42
Proposed Proposed Rates
Breakpoints FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 (HCF) ($/HCF)
All Customers uniform $11.42 $11.99 $12.59 $13.22 $13.88 -56-
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With the Town’s move 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. 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 5-7 shows the calculation of each customer’s respective shortage reduction required during each shortage stage.

Figure 5-7. 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 rate because fluctuations in water use correlate with fluctuations in variable costs.

The Revenue Stabilization Factors correspond to the desired 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 the Volume Charge rate 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 volume 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
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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V. Rate Design
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Conservation Component = 1/(1 - a), where
a = required percentage reduction by customer.

Variable Cost Component = (b - (c * a))/b, where
a = required percentage reduction per customer.
b = percentage of revenue from total service charges and volumetric rate for all customers that is attributable to volumetric rate, an amount that is 64% based on the cost-of-service analysis.
c = percentage of total revenue requirement covered by service charges and volumetric rate that varies based on fluctuations in demand, an amount that is currently 41%.12
The following example illustrates how the formula determined the 1.090 Revenue Stabilization Factor for a Stage 2 shortage in which an overall conservation goal of 20% is required.

Conservation Component: 1/(1 - a) = 1/(1 - 0.20) = 1.250, where a = required percentage reduction is 20.0% for customers (see Figure 5-7).

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 is shown in Figure 5-8.

The Volume Charge rate in effect under non-shortage conditions would be multiplied by 1.090 to derive the Volume Charge rates to be in effect during a Stage 2 water shortage. Figure 5- 8 shows the Revenue Stabilization Factors that would be applied to the rate that would normally be in effect absent declared shortages.
12 The cost of SFPUC water is the largest example of a variable cost, which varies with water demand.
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V. Rate Design
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Figure 5-8. Revenue Stabilization Factors by WSCP-Defined Shortage Stage Implementation
The recommended Revenue Stabilization Factors in Table 5-8 are implemented only during periods of declared water shortage emergencies. Once a mandatory shortage is declared, the City Council has discretion to enact the Revenue Stabilization Factors corresponding to the level of shortage reduction implemented using the factors provided in Table 5-8 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 rate proposed in the current rate study. The 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 Volume Charge rate 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 rate 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 5-9 shows the Volume Charge rates after applying the Revenue Stabilization Factors to the rates proposed for FY 2026-27 through FY 2030-31. The table shows 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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Figure 5-9. Water Rates with Revenue Stabilization Factors Included Rates calculated by applying factors from Figure 5-8 to proposed rates from Figure 5-6.

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.

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 study13 are as follows:

FY 2026-27 – $6.23
FY 2027-28 – $6.69
13 Rates included in SFPUC presentation to BAWSCA members on February 19, 2026.

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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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 rate charged to all water customers. If the updated SFPUC rate is less than the foregoing rates, the difference should be subtracted from the Town’s volumetric rate. 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 the Volume Charge rate 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.
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VI. Customer Bill Impacts
Town of Hillsborough | April 18, 2026 | Page 42
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 the 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 in relation to what the parcel was billed under the current structure for FY 2024-25. All names were removed for privacy.

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 5-6.

Monthly Current Proposed Uniform Rates
Residential 4-Tiered
Customer Annual Bill Annual Bill $ Difference
A $8,083 $6,827 ($1,256)
B $5,120 $5,331 $211
C $34,039 $23,942 ($10,097)
D $4,589 $5,526 $937
E $2,577 $3,013 $436
F $102,366 $59,565 ($42,801)
G $26,166 $18,506 ($7,660)
H $24,290 $15,915 ($8,375)
I $23,327 $15,872 ($7,455)
J $8,024 $9,431 $1,407
K $2,507 $2,910 $403
L $25,722 $18,498 ($7,224)
Total $266,810 $185,336 ($81,475)
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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 5-6.

Unlike Residential customers billed monthly, under the proposed rate structure, all NonResidential customers would see an annual increase to their water bills. The largest increase for any parcel is $36,311 in additional water bills for the year. In contrast, the smallest annual increase for any parcel would be $535.

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 provides 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. 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 $49.30.

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 $121.62.

Current Proposed Uniform Rates
Non-Residential Uniform
Customer Annual Bill Annual Bill $ Difference
A $249,920 $273,454 $23,534
B $15,596 $16,980 $1,384
C $7,862 $9,489 $1,627
D $13,068 $14,227 $1,160
E $35,644 $38,808 $3,165
F $3,200 $3,813 $613
G $48,134 $52,733 $4,599
H $47,434 $49,014 $1,579
I $2,319 $2,854 $535
J $68,360 $74,422 $6,062
K $146,069 $182,380 $36,311
L $39,513 $43,017 $3,504
M $41,936 $45,655 $3,719
Total $719,054 $806,847 $87,793
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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, 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 Bi-Monthly Residential Bill Impacts Figure 6-4 compares the total annual bills of customers with 1” water meters at various usage levels. The four levels 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 consequently, would see different changes to their overall bill. As shown in Figure 6-4, 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 6-4. 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 6-5 through Figure 6-8 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 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 6-5, 20% represents the percentage of bills that are less than or equal to 10 HCF and greater than 0 HCF. The “$ 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 current Volume Charge rates and the Service Charges.

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
Annual Water Current Proposed Uniform Rate
Water Use Use (HCF) Annual Bill Total Annual Bill Total Annual Change Very Low 78 $1,736.22 $2,465.94 $729.72
Low Use 120 $2,092.12 $2,945.58 $853.46
Average Use 240 $3,446.72 $4,315.98 $869.26
High Use 480 $7,593.12 $7,056.78 ($536.34)
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Figure 6-5. 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.

Figure 6-6. 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. 3/4" meter
% of Bills Proposed Uniform Rate
Within Water Use Current Bi-Monthly
Range (HCF) Total Bill Bill $ Change

2.4% 0 $161.18 $240.82 $79.64

19.8% 10 $237.08 $355.02 $117.94

21.2% 20 $312.98 $469.22 $156.24

13.5% 30 $407.44 $583.42 $175.98

9.6% 40 $506.54 $697.62 $191.08

6.8% 50 $639.96 $811.82 $171.86

5.6% 60 $796.26 $926.02 $129.76

4.6% 70 $952.56 $1,040.22 $87.66

3.5% 80 $1,119.52 $1,154.42 $34.90

2.7% 90 $1,329.12 $1,268.62 ($60.50)

2.2% 100 $1,538.72 $1,382.82 ($155.90)
1" meter
% of Bills Proposed Uniform Rate
Within Water Use Current Bi-Monthly
Range (HCF) Bill Bill $ Change

2.4% 0 $190.70 $262.53 $71.83

19.8% 10 $266.60 $376.73 $110.13

21.2% 20 $342.50 $490.93 $148.43

13.5% 30 $436.96 $605.13 $168.17

9.6% 40 $536.06 $719.33 $183.27

6.8% 50 $669.48 $833.53 $164.05

5.6% 60 $825.78 $947.73 $121.95

4.6% 70 $982.08 $1,061.93 $79.85

3.5% 80 $1,149.04 $1,176.13 $27.09

2.7% 90 $1,358.64 $1,290.33 ($68.31)

2.2% 100 $1,568.24 $1,404.53 ($163.71)
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Figure 6-7. 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.

Figure 6-8. 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 6-9 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. The “$ Change” column compares 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 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.
1 1/2" meter
% of Bills Proposed Uniform Rate
Within Water Use Current Bi-Monthly
Range (HCF) Bill Bill $ Change

2.4% 0 $257.12 $311.38 $54.26

19.8% 10 $333.02 $425.58 $92.56

21.2% 20 $408.92 $539.78 $130.86

13.5% 30 $503.38 $653.98 $150.60

9.6% 40 $602.48 $768.18 $165.70

6.8% 50 $735.90 $882.38 $146.48

5.6% 60 $892.20 $996.58 $104.38

4.6% 70 $1,048.50 $1,110.78 $62.28

3.5% 80 $1,215.46 $1,224.98 $9.52

2.7% 90 $1,425.06 $1,339.18 ($85.88)

2.2% 100 $1,634.66 $1,453.38 ($181.28)
2" meter
% of Bills Proposed Uniform Rate
Within Water Use Current Bi-Monthly
Range (HCF) Bill Bill $ Change

2.4% 0 $345.68 $376.52 $30.84

19.8% 10 $421.58 $490.72 $69.14

21.2% 20 $497.48 $604.92 $107.44

13.5% 30 $591.94 $719.12 $127.18

9.6% 40 $691.04 $833.32 $142.28

6.8% 50 $824.46 $947.52 $123.06

5.6% 60 $980.76 $1,061.72 $80.96

4.6% 70 $1,137.06 $1,175.92 $38.86

3.5% 80 $1,304.02 $1,290.12 ($13.90)

2.7% 90 $1,513.62 $1,404.32 ($109.30)

2.2% 100 $1,723.22 $1,518.52 ($204.70)
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Figure 6-9. Bi-Monthly Volume Charge Comparison
Note: Bills with usage exceeding 100 HCF in a billing period account for 8% of all Residential bills.

Proposed Uniform Rate
% of Water Use Current Bi-Monthly
Bills (HCF) Vol Chg Bill Vol Chg Bill $ Change

2.4% 0 $0.00 $0.00 $0.00

19.8% 10 $75.90 $114.20 $38.30

21.2% 20 $151.80 $228.40 $76.60

13.5% 30 $246.26 $342.60 $96.34

9.6% 40 $345.36 $456.80 $111.44

6.8% 50 $478.78 $571.00 $92.22

5.6% 60 $635.08 $685.20 $50.12

4.6% 70 $791.38 $799.40 $8.02

3.5% 80 $958.34 $913.60 ($44.74)

2.7% 90 $1,167.94 $1,027.80 ($140.14)

2.2% 100 $1,377.54 $1,142.00 ($235.54)
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Appendix A. 2026 Water Rates Model
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Town of Hillsborough
2026 Water Rate Study1a. Summary
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Effective Date: 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 Adopted Adopted Projected Projected Projected Projected Projected Rate Increases: 5.0% 0.0% 6.0% 5.0% 5.0% 5.0% 5.0%
Effective Revenue Increases (Timing, Pass-Through) 0.0% 0.0% 6.0% 5.0% 5.0% 5.0% 5.0% Water Sales Adjustment (YoY): 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SFPUC Water Purchases (HCF): 1,128,571 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 Town Water Sales (HCF): 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 assumes 4% losses Debt coverage 2.33 2.57 2.93 3.44 3.92 6.90
$2.0$4.0$6.0$8.0
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Effective Date 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 Proposed
Revenue
Increases

6.0% 5.0% 5.0% 5.0% 5.0%
Ending Fund Balances (in Millions)
Fund Balance without Rate Adjustments Fund Balance with Proposed Rates (July 2026) Operating Minimum
Target Reserve
HF&H Consultants, LLC4/16/2026 7:03 AM 1 of 23
Hillsborough_2026_Water_Rate_Study_15Apr2026
1a. Summary
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Town of Hillsborough
2026 Water Rate Study1b. Assumptions & Policies
Assumptions FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Notes (1) General Inflation Budget 3.0% 3.0% 3.0% 3.0% 3.0% Town Estimate(2) Salaries & Benefits Budget Budget 3.9% 3.7% 3.3% 3.5% Town Estimate(3) Health Care Budget Budget 5.0% 5.0% 5.0% 5.0%(4) OPEB, RHS Budget Budget 2.2% 2.2% 2.2% 2.2%(5) Materials & Services Budget Budget 2.5% 2.5% 2.5% 2.5%(6) PERS Budget Budget 2.2% 5.2% 1.1% 5.0%(7) Interest on Earnings Budget 3.0% 3.0% 2.0% 2.0% 2.0% Town Estimate(8) Non-rate Revenues Budget 0.0% 0.0% 0.0% 0.0% 0.0% Town Estimate(9) % Change in Demand (cumulative) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% From Tab 3c; increase to Town alloc in FY 23-24(10) SFPUC Water Rates ($/HCF) $5.80 $6.23 $6.69 $6.91 $7.06 $7.38 Rates adjusted July 1; through FYE 2030 provided by SFPUC(11) SFPUC Service Charge 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% % of SFPUC Purchased Water Charge(12) SFPUC Water Purchases (HCF) 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 From Tab 3c; increase to Town alloc in FY 23-24 (13) SFPUC Water Purchase Losses 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Town Estimate(14) SFPUC BAWSCA Bond Surcharge 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Town Budget through FY 2026-27(15) Construction Cost Inflation Budget 3.3% 3.3% 3.3% 3.3% 3.3% From Engineering News-Record; SF CCI, BCI TabReserve Fund Policies Legend Minimum balance input assumption
Purpose For O&M cash flow during the year input approved valueMinimum balance Cannot go negative calculated valueTarget balance 20% of Annual Operating Expenses (includes $375k bond reserve) COS result previous input from past model
Capital Reserve
Purpose For replacement of Equipment/FacilitiesMinimum balance Cannot go negativeTarget balance Average annual capital expenditures Model Tabs
1a. Summary 5. CIP

2. Rev Requirement3a. Rate Revenue Summary3b. Service Charge Revenue3c. Volumetric Revenue

6. Debt Service8. Allocations9a. Service Charge Calcs9b. Volumetric Rates Calcs 3d. Prop Volumetric Revenue 10. Pass Through Costs4. Reserves 11 . Revenue Stabilization Factors HF&H Consultants, LLC4/16/2026 7:03 AM 2 of 23
Hillsborough_2026_Water_Rate_Study_15Apr2026
1b. Assumptions & Policies
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Town of Hillsborough
2026 Water Rate Study2. Rev Requirement
Table 1b Budget Projected
Escalation Factors FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Notes Water
Operating Expenses City budget
SFPUC Water Purchases
Purchased Water (10,12) 6,556,199 7,042,262 7,562,237 7,810,920 7,980,477 8,342,198 Calculated based on Town losses, historic purchases, Town water loss assumption SFPUC Service Charge (11) $187,584 $192,274 $197,080 $202,007 $207,058 $212,234 SFPUC Wholesale Fixed Charge Study; 2.5% annual increase beginning FY 2025-26BAWSCA Surcharge (14) $366,300 $377,289 $388,608 $400,266 $412,274 $424,642 BAWSCA communication, assume 3% annually beginning FY 2025-26 Subtotal, SFPUC Water Purchases $7,110,083 $7,611,825 $8,147,925 $8,413,193 $8,599,808 $8,979,074 to Tab 3 Annual Change 7.1% 7.0% 3.3% 2.2% 4.4%
Subtotal, Salaries & Benefits (2) $1,476,541 $1,680,947 $1,746,455 $1,811,035 $1,871,347 $1,936,795 Town budget FY 26-27 Annual Change 13.8% 3.9% 3.7% 3.3% 3.5%
Subtotal, Materials & Services $3,229,507 $3,151,793 $3,094,038 $3,167,014 $3,241,814 $3,318,484 Town budget FY 26-27 Annual Change -2.4% -1.8% 2.4% 2.4% 2.4%
Other
Replacement - ISF Transfer $317,500 $205,000 $200,000 $200,000 $200,000 $200,000 Town budget FY 26-27Overhead Allocation (2) $3,411,374 $3,648,078 $3,757,521 $3,870,246 $3,986,354 $4,105,944 Town budget FY 26-27 Total Operating Expenses $15,545,005 $16,297,643 $16,945,938 $17,461,488 $17,899,322 $18,540,298 to Tab 3

4.8% 4.0% 3.0% 2.5% 3.6%
Non-Operating Expenses
Transfer to/(from) Operating Reserves $0 $0 $0 $0 $0 $0 From Table 4 Transfer to Capital Reserves $2,000,000 $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 Avg. Annual CIP LOC Interest $0 $0 $0 $0 $166,326 $305,701 Per Town estimateDebt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,186,088 $744,206 from Tab 5 Subtotal, Non-Operating Expenses $ 4,170,675 3,223,604 $ 4,124,948 $ 4,096,710 $ 4,281,148 $ 3,978,642 $

29.4% -1.1% -0.7% 4.5% -7.1%
Subtotal, Non-Operating Revenues ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) to Tab 3; FY 2022-23 and beyond from Town estimate Revenue Requirement (net of Capital Transfers) $16,712,109 $17,483,083 $18,085,650 $18,572,963 $19,195,236 $19,533,705

4.6% 3.4% 2.7% 3.4% 1.8%
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2. Rev Requirement
-71-
Town of Hillsborough
2026 Water Rate Study3a. Rate Revenue Summary
Projected
FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Revenue from Current Rates
$5,283,792 $5,274,493 $5,274,493 $5,274,493 $5,274,493 $5,274,493 from Table 3b $13,055,902 $13,055,902 $13,055,902 $13,055,902 $13,055,902 $13,055,902 from Table 3c $18,339,693 $18,330,395 $18,330,395 $18,330,395 $18,330,395 $18,330,395 ($18,712,109) ($20,411,818) ($21,014,385) ($21,501,698) ($22,123,971) ($22,462,440) from Table 2 ($372,416) ($2,081,423) ($2,683,991) ($3,171,304) ($3,793,576) ($4,132,045)

0.0% 6.0% 5.0% 5.0% 5.0% 5.0% from Table 1a
Service ChargesVolume Charges
Net Revenue from Current RatesRevenue Requirement
To/(From) Reserves before Rate Increases
Proposed Revenue Increases before consumption
Revenue with Increases $18,339,693 $19,430,218 $20,401,729 $21,421,816 $22,492,906 $23,617,552Revenue Requirement ($18,712,109) ($20,411,818) ($21,014,385) ($21,501,698) ($22,123,971) ($22,462,440) from Table 2Surplus/(Shortfall) ($372,416) ($981,600) ($612,656) ($79,883) $368,936 $1,155,112 Service Charge Revenue with Increases $5,283,792 $7,036,877 $7,388,721 $7,758,157 $8,146,065 $8,553,368 from Table 3b Volumetric Charge Revenue with Increases $13,055,902 $12,395,202 $13,011,116 $13,662,215 $14,345,868 $15,062,076 FY 2025-26 from Table 3c, all other values from Table 3d Total with Revenue Increases $18,339,693 $19,432,079 $20,399,837 $21,420,372 $22,491,933 $23,615,444 Revenue Requirement ($18,712,109) ($20,411,818) ($21,014,385) ($21,501,698) ($22,123,971) ($22,462,440) from Table 2 Adjusted Surplus/(Shortfall) ($372,416) ($979,739) ($614,548) ($81,327) $367,962 $1,153,004 to Table 4 HF&H Consultants, LLC4/16/2026 7:03 AM 4 of 23
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3a. Rate Revenue Summary
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Town of Hillsborough
2026 Water Rate Study3b. Service Charge Revenue Note: Services and rates implemented through FY 2024-25, all remaining years are projections.

Source: Meter Size and County Query.xls received from Town on 4/25/22 through FY 2023-24 service levels.Source: Meter Customer Info 030725.xls received from Town on 3/7/25 for for FY 2024-25 service levelsSource: Meter Customer Info Jan2026.xls received from Town on 1/6/25 for all future revenues Meter Counts
Residential - Bi-Monthly Residential - Monthly Non-Residential - Monthly FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Size Size Size3/4" 69 69 69 69 69 69 69 3/4" 000000 0 3/4" 7 777777 1" 3,641 3,639 3,649 3,649 3,649 3,649 3,649 1" 555555 51" 73 73 73 73 73 73 73 1 1/2" 226 226 226 226 226 226 226 1 1/2" 222222 21 1/2" 3 333333 2" 237 239 229 229 229 229 229 2" 12 12 12 12 12 12 12 2" 27 27 27 27 27 27 27 3" 0 000000 3" 000000 03" 00000006" 0 000000 6" 000000 06" 11111118" 0 000000 8" 000000 08" 1111111 Total 4,173 4,173 4,173 4,173 4,173 4,173 4,173 Total 19 19 19 19 19 19 19 Total 112 112 112 112 112 112 112 Meter Rates
Residential - Bi-Monthly Residential - Monthly Non-Residential - Monthly FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Rate Increases COS 5.0% 5.0% 5.0% 5.0% Rate Increases COS 5.0% 5.0% 5.0% 5.0% Rate Increases COS 5.0% 5.0% 5.0% 5.0% 3/4" $161.18 $161.18 $240.82 $252.86 $265.50 $278.78 $292.72 3/4" $80.59 $80.59 $120.41 $126.43 $132.75 $139.39 $146.36 3/4" $80.59 $80.59 $120.41 $126.43 $132.75 $139.39 $146.36 1" $190.70 $190.70 $262.53 $275.66 $289.44 $303.91 $319.11 1" $95.35 $95.35 $131.26 $137.83 $144.72 $151.96 $159.55 1" $95.35 $95.35 $131.26 $137.83 $144.72 $151.96 $159.55 1 1/2" $257.12 $257.12 $311.38 $326.95 $343.30 $360.46 $378.49 1 1/2" $128.56 $128.56 $155.69 $163.47 $171.65 $180.23 $189.24 1 1/2" $128.56 $128.56 $155.69 $163.47 $171.65 $180.23 $189.24 2" $345.68 $345.68 $376.52 $395.34 $415.11 $435.86 $457.66 2" $172.84 $172.84 $188.26 $197.67 $207.55 $217.93 $228.83 2" $172.84 $172.84 $188.26 $197.67 $207.55 $217.93 $228.83 3" $581.83 $581.83 $550.21 $577.72 $606.61 $636.94 $668.78 3" $290.92 $290.92 $275.10 $288.86 $303.30 $318.47 $334.39 3" $290.91 $290.91 $275.10 $288.86 $303.30 $318.47 $334.39 6" $1,585.49 $1,585.49 $1,288.41 $1,352.83 $1,420.47 $1,491.49 $1,566.07 6" $792.75 $792.75 $644.20 $676.41 $710.23 $745.75 $783.03 6" $792.74 $792.74 $644.20 $676.41 $710.23 $745.75 $783.038" $2,471.07 $2,471.07 $1,939.76 $2,036.74 $2,138.58 $2,245.51 $2,357.79 8" $1,235.54 $1,235.54 $969.88 $1,018.37 $1,069.29 $1,122.76 $1,178.89 8" $1,235.54 $1,235.54 $969.88 $1,018.37 $1,069.29 $1,122.76 $1,178.89Residential - Bi-Monthly Residential - Monthly Non-Residential - Monthly FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 # of Mo's Rate Adj. Effective 12 12 12 12 12 12 # of Mo's Rate Adj. Effective 12 12 12 12 12 12 # of Mo's Rate Adj. Effective 12 12 12 12 12 12 3/4" $66,729 $99,699 $104,683 $109,918 $115,414 $121,184 3/4" $0 $0 $0 $0 $0 $0 3/4" $6,769 $10,114 $10,620 $11,151 $11,709 $12,294 1" $4,163,744 $5,747,820 $6,035,211 $6,336,972 $6,653,820 $6,986,511 1" $5,721 $7,876 $8,270 $8,683 $9,117 $9,573 1" $83,527 $114,988 $120,737 $126,774 $133,113 $139,769 1 1/2" $348,655 $422,232 $443,344 $465,511 $488,787 $513,226 1 1/2" $3,085 $3,737 $3,923 $4,120 $4,326 $4,542 1 1/2" $4,628 $5,605 $5,885 $6,179 $6,488 $6,813 2" $495,705 $517,333 $543,199 $570,359 $598,877 $628,821 2" $24,889 $27,109 $28,465 $29,888 $31,382 $32,951 2" $56,000 $60,996 $64,045 $67,248 $70,610 $74,140 3" $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 6" $0 $0 $0 $0 $0 $0 6" $0 $0 $0 $0 $0 $0 6" $9,513 $7,730 $8,117 $8,523 $8,949 $9,396 8" $0 $0 $0 $0 $0 $0 8" $0 $0 $0 $0 $0 $0 8" $14,826 $11,639 $12,220 $12,831 $13,473 $14,147 Total $5,074,832 $6,787,084 $7,126,438 $7,482,760 $7,856,898 $8,249,743 Total $33,695 $38,722 $40,658 $42,691 $44,825 $47,066 Total $175,264 $211,072 $221,625 $232,706 $244,342 $256,559 Grand Total $0 $5,283,792 $7,036,877 $7,388,721 $7,758,157 $8,146,065 $8,553,368 to Table 3a

33.18% 5.00% 5.00% 5.00% 5.00%
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3b. Service Charge Revenue
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Town of Hillsborough
2026 Water Rate Study3b. Service Charge Revenue Note: Services and rates implemented through FY 2024-25, all remaining years are projections.Revenue Check Revenue from 12 months Residential - Bi-Monthly
Residential - Monthly
NonResidential - Monthly
Residential - BiMonthly Residential - Monthly
NonResidential - Monthly
FY 2026-27 FY 2026-27 FY 2026-27 FY 2026-27 FY 2026-27 FY 2026-27 # of Mo's Rate Adj. Effective 12 12 12 12 12 123/4" $99,699 $0 $10,114 $99,699 $0 $10,1141" $5,747,820 $7,876 $114,988 $5,747,820 $7,876 $114,9881 1/2" $422,232 $3,737 $5,605 $422,232 $3,737 $5,6052" $517,333 $27,109 $60,996 $517,333 $27,109 $60,9963" $0 $0 $0 $0 $0 $06" $0 $0 $7,730 $0 $0 $7,7308" $0 $0 $11,639 $0 $0 $11,639 Total $6,787,084 $38,722 $211,072 $6,787,084 $38,722 $211,072 Grand Total $7,036,877 $7,036,877 check
Meter Revenues at Current rates (FY 2025-26)
Residential - Bi-Monthly Residential - Monthly Non-Residential - Monthly FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 # of Mo's Rate Adj. Effective # of Mo's Rate Adj. Effective 12 12 12 12 12 12 # of Mo's Rate Adj. Effective 12 12 12 12 12 12 3/4" $66,729 $66,729 $66,729 $66,729 $66,729 $66,729 3/4" $0 $0 $0 $0 $0 $0 3/4" $6,769 $6,769 $6,769 $6,769 $6,769 $6,7691" $4,163,744 $4,175,186 $4,175,186 $4,175,186 $4,175,186 $4,175,186 1" $5,721 $5,721 $5,721 $5,721 $5,721 $5,721 1" $83,527 $83,527 $83,527 $83,527 $83,527 $83,527 1 1/2" $348,655 $348,655 $348,655 $348,655 $348,655 $348,655 1 1/2" $3,085 $3,085 $3,085 $3,085 $3,085 $3,085 1 1/2" $4,628 $4,628 $4,628 $4,628 $4,628 $4,628 2" $495,705 $474,964 $474,964 $474,964 $474,964 $474,964 2" $24,889 $24,889 $24,889 $24,889 $24,889 $24,889 2" $56,000 $56,000 $56,000 $56,000 $56,000 $56,000 3" $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 3" $0 $0 $0 $0 $0 $0 6" $0 $0 $0 $0 $0 $0 6" $0 $0 $0 $0 $0 $0 6" $9,513 $9,513 $9,513 $9,513 $9,513 $9,513 8" $0 $0 $0 $0 $0 $0 8" $0 $0 $0 $0 $0 $0 8" $14,826 $14,826 $14,826 $14,826 $14,826 $14,826 Total $5,074,832 $5,065,533 $5,065,533 $5,065,533 $5,065,533 $5,065,533 Total $33,695 $33,695 $33,695 $33,695 $33,695 $33,695 Total $175,264 $175,264 $175,264 $175,264 $175,264 $175,264 Grand Total $5,283,792 $5,274,493 $5,274,493 $5,274,493 $5,274,493 $5,274,493 to Table 3aMeter Counts Total Meters FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-313/4" 76 76 76 76 76 761" 3,717 3,727 3,727 3,727 3,727 3,7271 1/2" 231 231 231 231 231 231 2" 278 268 268 268 268 268
3" 0000006" 1111118" 111111
Total 4,304 4,304 4,304 4,304 4,304 4,304
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3b. Service Charge Revenue
-74-
Town of Hillsborough Sales volume actuals from
2026 Water Rate Study From Supplemental Water Sales Analysis (FY 2019-20 - FY 2024-25) Supplemntal Water Sales Analysis Current model projections3c. Volumetric Revenue Consumption Seasonal Water Use Distribution actual actual 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Tier Jul-Dec Jan-Jun
%
Distribution
of Sales FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Tier 1 55.65% 44.35% 37.9% Tier 1 412,412 411,443 411,443 411,443 411,443 411,443 411,443 411,443 Tier 2 69.62% 30.38% 23.6% Tier 2 211,759 255,809 255,809 255,809 255,809 255,809 255,809 255,809Tier 3 77.46% 22.54% 15.4% Tier 3 166,564 167,081 167,081 167,081 167,081 167,081 167,081 167,081Tier 4 81.77% 18.23% 19.0% Tier 4 157,309 205,854 205,854 205,854 205,854 205,854 205,854 205,854Comm 67.41% 32.59% 4.1% Comm 48,789 44,977 44,977 44,977 44,977 44,977 44,977 44,977 Total 68.87% 31.13% Water Sales Volume 996,833 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 Water Purchases (assumes 4% losses) 1,048,142 1,128,571 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 1,130,379 Volumetric Rates - Assuming No Pass-Through Adjustment
Residential - Bi-Monthly Non-Residential - Monthly
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Rate Increases 0%6%5%5%5%5% from tab 1A Rate Increases 0%6%5%5%5%5% from tab 1A Tier 1 $7.11 $7.59 $8.05 $8.45 $8.87 $9.31 $9.78 $10.01 $10.49 $11.12 $11.68 $12.26 $12.87 $13.51Tier 2 $9.43 $9.91 $10.50 $11.03 $11.58 $12.16 $12.77 Tier 3 $15.15 $15.63 $16.57 $17.40 $18.27 $19.18 $20.14Tier 4 $20.48 $20.96 $22.22 $23.33 $24.50 $25.73 $27.02 Water Sales
All Customers
FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Tier Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-JunTier 1 228,980 182,463 228,980 182,463 228,980 182,463 228,980 182,463 228,980 182,463 228,980 182,463 228,980 182,463 Tier 2 178,100 77,709 178,100 77,709 178,100 77,709 178,100 77,709 178,100 77,709 178,100 77,709 178,100 77,709 Tier 3 129,426 37,654 129,426 37,654 129,426 37,654 129,426 37,654 129,426 37,654 129,426 37,654 129,426 37,654 Tier 4 168,329 37,525 168,329 37,525 168,329 37,525 168,329 37,525 168,329 37,525 168,329 37,525 168,329 37,525 Non-Residential 30,318 14,659 30,318 14,659 30,318 14,659 30,318 14,659 30,318 14,659 30,318 14,659 30,318 14,659 Total 735,153 350,011 735,153 350,011 735,153 350,011 735,153 350,011 735,153 350,011 735,153 350,011 735,153 350,011 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 Volumetric Sales Revenue at Proposed Rates - Uniform Increases to Existing Structure All customers# of Mo's Rate Adj. Effective 12121212
Tier 1 $3,122,854 $3,312,117 $3,476,695 $3,649,501 $3,830,536 $4,023,914Tier 2 $2,535,066 $2,685,993 $2,821,572 $2,962,267 $3,110,636 $3,266,679 Tier 3 $2,611,469 $2,768,525 $2,907,202 $3,052,562 $3,204,606 $3,365,003 Tier 4 $4,314,700 $4,574,076 $4,802,574 $5,043,423 $5,296,623 $5,562,175 Non-Residential $471,813 $500,149 $525,336 $551,423 $578,859 $607,645 Total $13,055,902 $13,840,860 $14,533,378 $15,259,175 $16,021,260 $16,825,416 FY 2025-26 to Table 3a Volumetric Sales Revenue at Current Rates (FY 2025-26)
All customers
FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Tier 1 $3,122,854 $3,122,854 $3,122,854 $3,122,854 $3,122,854 $3,122,854 Tier 2 $2,535,066 $2,535,066 $2,535,066 $2,535,066 $2,535,066 $2,535,066 Tier 3 $2,611,469 $2,611,469 $2,611,469 $2,611,469 $2,611,469 $2,611,469 Tier 4 $4,314,700 $4,314,700 $4,314,700 $4,314,700 $4,314,700 $4,314,700 Non-Residential $471,813 $471,813 $471,813 $471,813 $471,813 $471,813 $13,055,902 $13,055,902 $13,055,902 $13,055,902 $13,055,902 $13,055,902 to Table 3a HF&H Consultants, LLC4/16/2026 7:03 AM 7 of 23
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3c. Volumetric Revenue
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Town of Hillsborough
2026 Water Rate Study3d. Prop Volumetric Revenue
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
water sales adjustment 0.0% 0.0% 0.0% 0.0% 0.0%
Bi-Monthly Res 1,018,081 1,018,081 1,018,081 1,018,081 1,018,081 Monthly 13,234 13,234 13,234 13,234 13,234Commercial 53,849 53,849 53,849 53,849 53,849 Total Sales (HCF) 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 Volumetric Rates - Current Rate Structure
Residential - Bi-Monthly, Monthly Non-Residential - Monthly FY 2025-26 FY 2025-26
Rate Increases 0% 0%Tier 1 $7.59 $10.49Tier 2 $9.91Tier 3 $15.63Tier 4 $20.96 Water Sales
All CustomersBi-Monthly FY 2026-27 Monthly FY 2026-27
Tier Jul-Sep Oct-Dec Jan-Jun Tier Jul-Sep Oct-Dec Jan-JunTier 1 125,469 115,043 185,485 Tier 1 479 419 800Tier 2 93,551 68,919 65,773 Tier 2 352 268 394 Tier 3 91,776 52,902 38,748 Tier 3 434 310 422
Tier 4 107,999 43,542 28,874 Tier 4 4,759 1,783 2,814
6,024 2,780 4,430
Non-Residential 26,723 8,768 18,358
Total 451,542 291,954 341,668
Total Water Sales (hcf) 1,085,164Volumetric Rates - Proposed Rate Structure Residential - Bi-Monthly
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
Rate Increases COS 5% 5% 5% 5% from Table 1a
Uniform $11.42 $11.99 $12.59 $13.22 $13.88 from Table 9b Residential - Monthly
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
Rate Increases COS 5% 5% 5% 5% from Table 1a
Uniform $11.42 $11.99 $12.59 $13.22 $13.88 from Table 9b Non-Residential - Monthly
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
Rate Increases COS 5% 5% 5% 5% from Table 1a
Uniform $11.42 $11.99 $12.59 $13.22 $13.88 from Table 9b HF&H Consultants, LLC4/16/2026 7:03 AM 8 of 23
Hillsborough_2026_Water_Rate_Study_15Apr2026
3d. Prop Volumetric Revenue
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Town of Hillsborough
2026 Water Rate Study3d. Prop Volumetric RevenueWater Sales Residential - Bi-Monthly
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
Jul-Sep Oct-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Total 418,795 280,406 318,880 699,201 318,880 699,201 318,880 699,201 318,880 699,201 318,880 1,018,081 1,018,081 1,018,081 1,018,081 1,018,081
Residential - Monthly
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
Jul-Sep Oct-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Total 6,024 2,780 4,430 8,804 4,430 8,804 4,430 8,804 4,430 8,804 4,430 13,234 13,234 13,234 13,234 13,234
Non-Residential - Monthly
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
Jul-Sep Oct-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Jul-Dec Jan-Jun Total 26,723 8,768 18,358 35,491 18,358 35,491 18,358 35,491 18,358 35,491 18,358 53,849 53,849 53,849 53,849 53,849
Total Sales 1,085,164 1,085,164 1,085,164 1,085,164 1,085,164 Volumetric Sales Revenue at Proposed Rates
All customers
FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31
New Structure
12 12 12 12 from Table 3a
$12,395,202 $13,011,116 $13,662,215 $14,345,868 $15,062,076 Water Sales multiplied by Uniform Rate HF&H Consultants, LLC4/16/2026 7:03 AM 9 of 23
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3d. Prop Volumetric Revenue
12 -77-
Town of Hillsborough
2026 Water Rate Study4. Reserves
Proposed Revenue Increases 6.0% 5.0% 5.0% 5.0% 5.0%
Effective Date 7/1/2026 7/1/2027 7/1/2028 7/1/2029 7/1/2030 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Notes Operations Reserve with Rate Increases
Beginning Balance $6,624,010 $6,475,192 $5,627,193 $6,125,371 $5,753,723 $5,426,963 Adjustment Rollover
Operations Surplus/(Deficit) ($372,416) ($979,739) ($614,548) ($81,327) $367,962 $1,153,004 from Table 3a Revenues
Connection Fee Revenue $35,000 $35,000 $35,000 $35,000 $35,000 $35,000 FY 26-27 Town BudgetLong-Term Loan Proceeds $0 $0 $0 $0 $0 $0 Expenses
PayGo Projects ($2,000,000) ($2,495,894) ($2,029,418) ($3,366,873) ($3,764,869) ($2,986,621) From Table 5 Long-Term Loan Payments $0 $0 $0 $0Total Interest on LOC $0 $0 $0 $0 $0 $0LOC Principal Pay Off $0 $0 $0 $0 $0 $0Settlement $0 ($500,000) $0 $0 $0 $0 Per Town estimate Transfers (To)/From:

General Fund $0 $0 $0 $0 $0 $0 per Table 1b
Revenue Requirements $0 $0 $0 $0 $0 $0 to Table 2Revenue Requirements - PayGo Projects $2,000,000 $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 To Table 2Subtotal 6,286,594 5,463,294 5,946,962 5,640,905 5,320,552 6,557,081 Interest Income $188,598 $163,899 $178,409 $112,818 $106,411 $131,142 Ending Balance $6,624,010 $6,475,192 $5,627,193 $6,125,371 $5,753,723 $5,426,963 $6,688,223 O&M Reserve Minimum $3,484,001 $3,484,001 $3,634,529 $3,764,188 $3,867,298 $3,954,864 $4,083,060 20% of Annual OpExp (from Tab 2) + CIP Target Balance $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 $2,928,735 Average annual CIP; from Tab 5 HF&H Consultants, LLC4/16/2026 7:03 AM 10 of 23
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4. Reserves
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Town of Hillsborough
2026 Water Rate Study5. CIPCapital Improvement Projects FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 5-Year Total Funding Source Water Main Replacement Program $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $4,000,000 PAYGoDemolish Forrestview Tanks #1 and #2 $250,000 $400,000 $650,000 PAYGoWater Tank Coating Improvements $500,000 $400,000 $400,000 PAYGoClark Concar Pump Station Generator $200,000 $200,000 $1,200,000 $1,600,000 PAYGoMarlborough Pump Station & Generator $500,000 $700,000 $700,000 PAYGoEarthquake Protection Valves $100,000 $100,000 $100,000 $300,000 PAYGoWater Master Plan Update $0 PAYGoSCADA Improvements $200,000 $200,000 $400,000 PAYGoDarrell Pump Line Rehab and Replacement $300,000 $1,150,000 $800,000 $2,250,000 PAYGo[Reserves contribution] $2,533,000 $2,533,000 PAYGo Average of previous 4 yearsDemolish Major Hayes Tank and Piping $65,000 $300,000 $365,000 PAYGo Total $2,000,000 $2,415,000 $1,900,000 $3,050,000 $3,300,000 $2,533,000 $13,198,000 Total PAYGo Projects $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
$2,928,735 To Table 4
Facilty Type Facility Type Allocation Factor Demand Customer Accts Customer Capacity Total Water Main Replacement Program Distribution Distribution Customer Accounts $0 $4,000,000 $0 $4,000,000Demolish Forrestview Tanks #1 and #2 Storage Storage Customer Accounts $0 $650,000 $0 $650,000Water Tank Coating Improvements Storage Storage Demand and Fire Protect $320,966 $0 $79,034 $400,000 Clark Concar Pump Station Generator Pumping Pumping Demand and Fire Protect $1,283,864 $0 $316,136 $1,600,000 Marlborough Pump Station & Generator Pumping Pumping Demand and Fire Protect $561,690 $0 $138,310 $700,000Earthquake Protection Valves Storage Customer Accounts $0 $300,000 $0 $300,000Water Master Plan Update Customer Accts Customer Accounts $0 $0 $0 $0 Darrell Pump Line Rehab and Replacement Pumping Pumping Demand and Fire Protect $1,805,434 $0 $444,566 $2,250,000 Demolish Major Hayes Tank and Piping Storage Storage Customer Accounts $0 $2,533,000 $0 $2,533,000 Total $4,292,920 $7,483,000 $1,057,080 $12,833,000
PAYGo Composite 33% 58% 8% To Table 8
Base Customer Customer
System-Wide Allocation Factors Demand Accounts Capacity System-wide
Demand 100.0% 0.0% 0.0%Demand and Fire Protection 80.2% 0.0% 19.8% O&M Composite 68.2% 23.6% 8.2%Customer Accounts 0.0% 100.0% 0.0%Customer Capacity 0.0% 0.0% 100.0% HF&H Consultants, LLC4/16/2026 7:03 AM 11 of 23
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5. CIP
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Town of Hillsborough
2026 Water Rate Study6. Debt Service
FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 5 Year Total Revenue Refunding Bonds, Series 2023 APrincipal $803,250 $861,750 $924,750 $942,750 $1,008,000 $616,500 $4,353,750 Interest $354,713 $314,550 $271,463 $225,225 $178,088 $127,706 $1,117,031 Total $1,157,963 $1,176,300 $1,196,213 $1,167,975 $1,186,088 $744,206 $5,470,781 ECE Energy Conservation LoanPrincipal $64,505 $65,150 $0 $0 $0 $0 $65,150 Interest $1,136 $489 $0 $0 $0 $0 $489
Total $65,641 $65,639 $0 $0 $0 $0 $65,639
Total Principal $867,755 $926,900 $924,750 $942,750 $1,008,000 $616,500 $4,418,900Total Interest $355,849 $315,039 $271,463 $225,225 $178,088 $127,706 $1,117,520 Total Existing Debt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,186,088 $744,206 $5,536,420 HF&H Consultants, LLC4/16/2026 7:03 AM 12 of 23
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6. Debt Service
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Town of Hillsborough
2026 Water Rate Study6. Debt ServiceDebt Coverage Ratio Calculation FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31Gross Rate Revenue Service Charges $5,283,792 $7,036,877 $7,388,721 $7,758,157 $8,146,065 $8,553,368 from Table 3b Volume Charges $13,055,902 $12,395,202 $13,011,116 $13,662,215 $14,345,868 $15,062,076 from Table 3d Total Gross Rate Revenue $18,339,693 $19,432,079 $20,399,837 $21,420,372 $22,491,933 $23,615,444 Purchased Water $7,110,083 $7,611,825 $8,147,925 $8,413,193 $8,599,808 $8,979,074 from Table 2Other Operating Expenses $8,434,922 $8,685,818 $8,798,013 $9,048,295 $9,299,514 $9,561,223 from Table 2Non-Operating Revenue ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) from Table 2 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 $3,510,399 $4,015,383 $4,649,110 $5,131,647Debt Service $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,186,088 $744,206 from Row 19 Debt Coverage Ratio 2.33 2.57 2.93 3.44 3.92 6.90
Debt Service with Highline $1,223,604 $1,241,939 $1,196,213 $1,167,975 $1,186,088 $744,206 Revised Debt Coverage Ratio 2.33 2.57 2.93 3.44 3.92 6.90 min. ratio of 1.2 on 2023A and 1.1 on all debt
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6. Debt Service
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Town of Hillsborough
2026 Water Rate Study6. Debt ServiceExisting Water Enterprise Debt Service Category Series 2023A ECE 2012 Total
Water Distribution System 3,317,333 3,317,333
Water Storage System 3,071,605 3,071,605Tank Replacement/Upgrades 1,590,345 908,700 2,499,045 Misc Improvements 683,217 683,217
8,662,500 908,700 9,571,200
original loan amounts
19,250,000 per official statement
8,662,500 water enterprise share of issued debt, 45%, per Town Category Facility Type Allocation Factor Demand Customer Accts Customer Capac Total Water Distribution System Distribution $2,661,878 $0 $655,456 Water Storage System Storage $2,464,702 $0 $606,903
Tank Replacement/Upgrades Storage
Demand & Fire ProtectDemand & Fire ProtectDemand & Fire Protect $2,005,271 $0 $493,774 $3,317,333$3,071,605$2,499,045
Misc Improvements Customer Capacity Customer Capacity $0 $0 $683,217 $683,217 $7,131,850 $0 $2,439,350 $9,571,200
Debt Service Composite 75% 0% 25%
Facility Type Total % of Total
Distribution $3,317,333 35%
Storage $5,570,650 58%
Customer Capacity $683,217 7%
$9,571,200
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6. Debt Service
To Table 8
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Town of Hillsborough
2026 Water Rate Study8. Allocations
FY 2026-27 Allocation Customer Customer
Rev. Requirement Factor Demand Accounts Capacity
O&M Expenses
Water Supply Demand
Purchased Water 7,042,262 Demand $7,042,262 $0 $0
Water Quality 975,601 Demand $975,601 $0 $0
Subtotal - Water Supply Demand 8,017,863 $8,017,863 $0 $0Water Supply Capacity SFPUC Service Charge 192,274 Customer Capacity $0 $0 $192,274 BAWSCA Surcharge 377,289 Customer Capacity $0 $0 $377,289 Subtotal - Water Supply Capacity 569,563 $0 $0 $569,563 Transmission 682,097 Demand & Fire Protection $547,325 $0 $134,772 Pump Stations 994,225 Demand & Fire Protection $797,781 $0 $196,444Storage 666,691 Demand & Fire Protection $534,962 $0 $131,728Distribution 1,515,988 Demand & Fire Protection $1,216,451 $0 $299,537 Customer Service $3,853,078 Customer Accounts $0 $3,853,078 $0 Total O&M Expenses 16,299,504 $11,114,382 $3,853,078 $1,332,043 O&M Composite 68.2% 23.6% 8.2%
Capital Expenses (Debt and PayGo)
PAYGo projects $2,928,735 PAYGo Composite $979,726 $1,707,763 $241,246 Debt Service $1,241,939 D/S Composite $925,414 $0 $316,525 Total Capital Expenses $4,170,675 $1,905,141 $1,707,763 $557,771 Subtotal - O&M and Capital $20,470,179 $13,019,523 $5,560,841 $1,889,814 100.0% Exp Composite 63.6% 27.2% 9.2%
Non-Operating Revenue
Reconnection Charges ($50,000) Customer Accounts $0 ($50,000) $0 Service Charges ($6,500) Customer Accounts $0 ($6,500) $0 Subtotal - Non-Operating Revenue ($1,038,100) ($624,321) ($323,157) ($90,622) Total Revenue Requirement $19,432,079 $12,395,202 $7,036,877 64% 36%
Volume Charge COS Service Charge COS
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8. Allocations
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Town of Hillsborough
2026 Water Rate Study8. Allocations
Customer Customer
System-Wide Allocation Factors Demand Accounts CapacitySystem-wide Demand 100.0% 0.0% 0.0%Demand & Fire Protection 80.2% 0.0% 19.8%O&M Composite 68.2% 23.6% 8.2%Customer Accounts 0.0% 100.0% 0.0% Customer Capacity 0.0% 0.0% 100.0%Exp Composite 63.6% 27.2% 9.2% PAYGo Composite 33.5% 58.3% 8.2%D/S Composite 74.5% 0.0% 25.5% HF&H Consultants, LLC4/16/2026 7:03 AM 17 of 23
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8. Allocations
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Town of Hillsborough
2026 Water Rate Study8. Allocations
Total Existing Storage
Pressure Zones Fire Protection Requirement
Non-Consolidated Zones
Forest View 0.18 0.98Major Hayes 0.18 0.26Crocker 0.18 0.38El Arroyo 0.18 0.93Skyfarm #2 0.18 0.12Vista 0.18 0.35 Zones with Connection from SFPUC
Newhall/Pepper 0 0Sierra 0 0
Consolidated Darrell
Darrell 0.18 1.91Darrell PRV 0 0Crocker PRV 0 0
Consolidated Skyfarm #3
Skyfarm #3 0.18 1.46Skyfarm 3 PRV 0 0Forest View PRV 0 0 Consolidated Marlborough
Marlborough 0.18 1.46Marlborough PRV 0 0Vista PRV 0 0
Zone 4 Consolidated Tournament
Tournament 0.18 1.26Tournament Pressure 0 0Tournament PRV 0 0Clark Concar (PRV) 0 0 Town Wide 1.8 9.11

19.8% to Customer Capacity portion of Extra Capacity allocation factor above HF&H Consultants, LLC4/16/2026 7:03 AM 18 of 23
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8. Allocations
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Town of Hillsborough
2026 Water Rate Study9a. Service Charge Calcs
Services and EMU Summary
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 1,2253" 0 320 9.14 06" 1 1,000 28.57 298" 1 1,600 45.71 46 4,304 7,892
* Capacity multiplier assumes 3/4" meter = 1 EMU = 35 gals/minMeter capacities used in previous study, per AWWA Table B-1.Service count from FY 2026-27 from Table 3b Meter Charge Unit Cost Calculation
Customer Customer
FY 2026-27 Customer Account CapacityService Expenses Component Component Total O&M Expenses $3,853,078 $1,332,043 $5,185,122Capital Expenses $1,707,763 $557,771 $2,265,534Non-Operating Rev. ($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 EMUsServices per EMU
Expenses from Table 8. Allocations
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9a. Service Charge Calcs
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Town of Hillsborough
2026 Water Rate Study9a. Service Charge Calcs
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) Bill period assumed to be Bi-monthly.

Capacity Component
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9a. Service Charge Calcs
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Town of Hillsborough
2026 Water Rate Study9b. Volumetric Rates Calcs
Volume Rate Cost of Service Total Notes
Revenue Requirement Allocations
O&M (net of Non-Op Revenue) $11,114,382 from Table 8Capital $1,905,141 from Table 8 Non-Op Revenue ($624,321) from Table 8
$12,395,202
1 Components of Rate Structure2 Volume Charges3 Residential $12,584,088 $11,780,116 ($803,972) -6.4% 4 Non-Residential $471,813 $615,086 $143,273 30.4%
5 $13,055,902 71% $12,395,202 64% ($660,699) -5.1%
6 Service/Meter Charge $5,274,493 29% $7,036,877 36% $1,762,384 33.4% Uniform Rate Structure for all Customers
Cost-of-Service $12,395,202 from above
Total hcf 1,085,164 from demand projection
Volumetric Rate per hcf $11.42
Current Revenue Cost Difference
(FY 2025-26 rates) of Service COS Minus Current
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9b. Volumetric Rates Calcs
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Town of Hillsborough
2026 Water Rate Study10. Pass Through Costs
Rates highlighted in blue were adopted in the 218 and were based on the SFPUC rates in column DEnter the Actual SFPUC rates when they are adopted by the SFPUC.The difference between the original and adopted SFPUC rates adjust the Town's rates, which are shown in green.

Actual SFPUC Rate SFPUC
Date Rate 218 Notice Adopted Rate
7/1/2026 $6.23 $6.23 $0.00 $11.42
Adjustment for difference $0.00
Adjusted Town rate for SFPUC pass-through $11.42
7/1/2027 $6.69 $6.69 $0.00 $11.99
Adjustment for difference $0.00
Adjusted Town rate for SFPUC pass-through $11.99
7/1/2028 $6.91 $6.91 $0.00 $12.59
Adjustment for difference $0.00
Adjusted Town rate for SFPUC pass-through $12.59
7/1/2029 $7.06 $7.06 $0.00 $13.22
Adjustment for difference $0.00
Adjusted Town rate for SFPUC pass-through $13.22
7/1/2030 $7.38 $7.38 $0.00 $13.88
Adjustment for difference $0.00
Adjusted Town rate for SFPUC pass-through $13.88
Note: SFPUC Rates utilized in 2026 COS Study to set rates through FY 2030-31.

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10. Pass Through Costs
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Town of Hillsborough
2026 Water Rate Study11 . Revenue Stabilization Factors Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 10% 20% 30% 40% 50% 56%
Water Expenses Rev. Stabilization Factors = 1/(1-a)*(b-(c*a))/b Water Purchases $7,042,262 varies a = assumed percentage of reduction in water usage BAWSCA Surcharge $377,289 64% b = proportion of revenue from volumetric rates, from Table 8 Gas & Oil $30,43641% c = proportion of water utility expenses that are variable Utilities $475,298 (see calculation to the right) $7,925,285
FY 2026-27 Rev. Req. $19,432,079
Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 41%
Up to Up to Up to Up to Up to Greater than
Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction All Customers 1.040 1.090 1.155 1.240 1.361 1.459
To be applied to the non-shortage rates in effect at the time of the shortage declaration 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 WSCP- EstimatedWater Use Reduction
10% 20% 30% 40% 50% 55%
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11 . Revenue Stabil Factors
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TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
2 NEW BUSINESS

CITY COUNCIL MEETING
JUNE 22, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Approving Amendment No. 3 to the Employment Agreement for City Manager Doug Davis Relating to a Compensation Adjustment SUMMARY: Doug Davis was appointed to the position of City Manager by the City Council on July 8, 2023. On April 8, 2024, the Town and City Manager entered into Amendment No. 1 to the Agreement to increase the compensation amount and include other clarifying changes to the Agreement. On May 12, 2025, the Town and City Manager entered into Amendment No. 2 to the Agreement to further increase the compensation amount.

The Town and City Manager now seek to further amend the Agreement to provide a 7% compensation adjustment.

The proposed Amendment No. 3 would adjust the City Manager’s salary from $347,302.00 to $371,614.00.

FISCAL IMPACT: The FY 2026-27 budget impact is estimated at $29,743.00 and the budget is sufficient to cover this amount.

ENVIRONMENTAL ISSUES: The City Council’s action in approving the amendment is exempt from environmental review pursuant to the California Environmental Quality Act (CEQA) Guideline 15378 as something that does not constitute a “Project” as defined by CEQA as it is more akin to an administrative action of the City Council related to personnel matters.

ATTACHMENTS: Resolution and Exhibit A Amendment No. 3 to Employment Agreement PREPARED BY: Christopher J. Diaz, City Attorney
RECOMMENDATION: Adopt the resolution approving Amendment No. 3 to the Employment Agreement for City Manager Doug Davis.
-91-
RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH APPROVING AMENDMENT NO. 3 TO THE EMPLOYMENT AGREEMENT FOR CITY

MANAGER DOUG DAVIS RELATING TO A COMPENSATION ADJUSTMENT WHEREAS, Doug Davis was appointed City Manager in the Town of Hillsborough (“Town”) on July 8, 2023 with the City Council also approving an employment agreement (the “Agreement”) with Doug Davis on the same date for him to serve as City Manager; and
WHEREAS, on April 8, 2024, the Town and Manager entered into Amendment No. 1 to the Agreement to increase the compensation amount and include other clarifying changes to the Agreement; and
WHEREAS, on May 12, 2025, the Town and Manager entered into Amendment No. 2 to the Agreement to further increase the compensation amount; and WHEREAS, The Town and Manager now desire to amend the Agreement to provide a 7% compensation adjustment.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby approves Amendment No. 3 to the Employment Agreement for City Manager Doug Davis, 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 22nd day of June 2026, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
-92-
61236.01000\44868035.1
AMENDMENT NO. 3 TO CITY MANAGER EMPLOYMENT AGREEMENT

BETWEEN THE TOWN OF HILLSBOROUGH AND DOUG DAVIS
This Amendment No. 3 is entered into this 1st day of July, 2026 by and between the Town of Hillsborough, a municipal corporation of the State of California (hereafter referred to as "Town"), and Doug Davis (hereafter referred to as "Manager").

RECITALS
A. On July 11, 2023, the Town and Manager entered into an employment agreement for Mr.

Davis to serve as the City Manager of the Town of Hillsborough (the “Agreement”).

B. On April 8, 2024, the Town and Manager entered into Amendment No. 1 to the Agreement to increase the compensation amount and include other clarifying changes to the Agreement.

C. On May 12, 2025, the Town and Manager entered into Amendment No. 2 to the Agreement to further increase the compensation amount.

D. The Town and Manager now desire to amend the Agreement to provide a 7% compensation adjustment.

AMENDMENT
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, the Town and Manager agree to amend the Agreement as follows:

A. Section 3.1, titled “Base Salary” of Section 3, “Compensation” is hereby amended to read as follows:
“3.1. Base Salary – The Manager shall be paid a base salary of $371,614.00 per annum for his services, payable in installments in accordance with applicable law at the same time as other employees of the Town are paid and subject to customary withholding.” B. All other provisions of the Agreement not amended by Amendment No. 1, Amendment No. 2, and this Amendment No. 3 shall remain in full force and effect.

IN WITNESS WHEREOF, the Parties have executed this Amendment No. 3 as of the date first written above.

TOWN OF HILLSBOROUGH MANAGER
___________________________ __________________________
Mayor Doug Davis
-93-

EXHIBIT A

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
3 NEW BUSINESS

CITY COUNCIL MEETING
JUNE 22, 2026

AGENDA STAFF REPORT
ITEM SUBJECT: Resolution Adopting the 2026 Salary Schedule for the Town of Hillsborough
SUMMARY: This resolution memorializes changes to the salary schedule due to contractual obligations. California Public Employees Retirement System requires the pay schedule be adopted at a public meeting of the governing body.

FISCAL IMPACT: There is no fiscal impact associated with the adoption of this resolution.

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): Resolution and Exhibit A Salary Schedule PREPARED BY: William Li, Administrative Services Manager RECOMMENDATION: Adopt the resolution adopting the 2026 Salary Schedule for the Town of Hillsborough.
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RESOLUTION NO. 26-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH ADOPTING THE 2026 SALARY SCHEDULE FOR THE TOWN OF HILLSBOROUGH WHEREAS, the Town of Hillsborough (“Town”) has established compensation rates for all positions in the Town; and
WHEREAS, California Public Employees Retirement System requires a pay schedule be adopted by the governing body of the agency at a public meeting; and WHEREAS, the Town desires to meet the requirements of the Public Employees Retirement System; and
WHEREAS, the salary schedule (attached hereto as Exhibit A) includes contractually obligated changes approved by the City Council on June 22, 2026.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby adopts the Salary Schedule with the changes for the position noted effective June 22, 2026.

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
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Town of Hillsborough - Full-Time Salary Schedule
City Manager: Effective 06/22/2026Unrepresented: 4.0% COLA effective 01/12/2026Public Works & Clerical (PW&C): 4.0% COLA effective 01/12/2026Public Works Supervisors: 4.0% COLA effective 01/12/2026Police Officers Association (POA): 2.5% COLA effective 01/12/2026Unrepresented: 4.0% COLA effective 01/10/2026Resolution 26-02 and Resolution 26-__ (City Manager) Unrepresented Job Classifications FLSA Status Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Accountant Non-Exempt 4,388.21 4,607.46 4,837.94 5,079.67 5,333.76 9,507.23 9,982.82 10,482.02 11,005.95 11,556.86 114,090.17 119,794.96 125,785.32 132,073.64 138,677.88 Administrative Services Manager Exempt 6,002.48 6,302.44 6,617.51 6,948.76 7,295.12 13,005.19 13,654.75 14,337.75 15,055.29 15,807.35 156,056.85 163,860.18 172,053.02 180,654.81 189,688.20 Assistant City Manager Exempt 8,450.37 8,873.12 9,317.22 9,782.69 10,272.89 18,309.52 19,224.71 20,187.13 21,195.64 22,257.00 219,709.73 230,701.06 242,247.80 254,349.96 267,081.74 Assistant Director of Building & Planning Exempt 7,078.71 7,432.87 7,805.02 8,195.15 8,604.41 15,336.82 16,104.73 16,910.87 17,756.35 18,643.44 184,046.36 193,254.52 202,930.40 213,074.00 223,714.55 Assistant Director of Finance Exempt 6,072.44 6,376.01 6,695.31 7,030.36 7,382.27 13,156.77 13,814.50 14,507.08 15,232.26 15,994.55 157,883.48 165,776.19 174,078.16 182,789.37 191,939.07 Assistant Engineer I Non-Exempt 4,023.93 4,225.19 4,436.56 4,658.05 4,890.78 8,719.09 9,154.20 9,612.92 10,093.00 10,596.70 104,622.29 109,854.86 115,350.53 121,109.29 127,160.37 Assistant Engineer II Non-Exempt 4,436.56 4,658.05 4,890.78 5,135.88 5,392.23 9,612.92 10,093.00 10,596.70 11,127.38 11,683.74 115,350.53 121,109.29 127,160.37 133,533.00 140,197.96 Associate Engineer Exempt 5,244.94 5,506.91 5,782.37 6,071.32 6,374.88 11,364.61 11,931.26 12,528.28 13,154.52 13,812.25 136,368.53 143,179.65 150,341.55 157,854.25 165,746.96 Associate Planner Exempt 4,744.62 4,981.85 5,231.45 5,493.42 5,767.75 10,279.64 10,794.58 11,335.37 11,902.03 12,496.79 123,360.17 129,528.18 136,017.74 142,828.86 149,961.53 Budget Analyst Exempt 4,826.70 5,068.43 5,321.40 5,587.86 5,866.69 10,458.41 10,981.21 11,529.88 12,106.66 12,711.54 125,494.13 131,779.06 138,356.32 145,284.37 152,533.97 Building Official Exempt 5,999.36 6,299.55 6,614.36 6,944.91 7,292.33 12,998.24 13,649.22 14,331.68 15,047.87 15,800.04 155,983.38 163,788.40 171,973.43 180,567.72 189,600.49 Chief Building Official Exempt 6,599.75 6,929.17 7,275.46 7,639.74 8,022.01 14,299.08 15,013.02 15,764.06 16,553.33 17,379.71 171,593.41 180,158.47 189,162.01 198,633.26 208,560.99 Chief of Police Exempt 9,079.99 9,534.22 10,010.93 10,511.25 11,036.31 19,673.32 20,657.09 21,690.34 22,774.19 23,912.00 236,079.80 247,889.63 260,284.11 273,292.47 286,943.94 City Clerk Exempt 5,427.08 5,698.04 5,982.50 6,281.56 6,595.25 11,759.24 12,346.14 12,962.26 13,609.87 14,290.08 141,104.16 148,149.13 155,544.90 163,320.68 171,476.48 City Manager ExemptCommunications Manager Exempt 5,541.76 5,818.35 6,109.54 6,415.36 6,735.79 12,007.72 12,606.98 13,237.72 13,899.94 14,594.77 144,085.85 151,276.99 158,848.14 166,799.32 175,130.52 Deputy City Clerk Exempt 4,231.93 4,443.30 4,665.92 4,899.78 5,143.75 9,168.26 9,626.84 10,108.07 10,613.04 11,143.91 110,027.79 115,526.37 121,305.50 127,365.16 133,733.42 Deputy Director of Public Works Exempt 6,558.15 6,886.45 7,230.49 7,592.52 7,972.54 14,209.13 14,920.82 15,666.25 16,451.02 17,274.02 170,511.82 179,047.64 187,992.72 197,405.51 207,286.01 Director of Building and Planning Exempt 8,418.89 8,839.39 9,281.25 9,745.59 10,232.42 18,240.94 19,151.63 20,109.55 21,115.82 22,170.43 218,891.22 229,824.09 241,312.37 253,385.30 266,042.87 Director of Finance Exempt 8,418.89 8,839.39 9,281.25 9,745.59 10,232.42 18,240.94 19,151.63 20,109.55 21,115.82 22,170.43 218,891.22 229,824.09 241,312.37 253,385.30 266,042.87 Director of Public Works - City Engineer Exempt 8,996.79 9,446.52 9,918.73 10,414.56 10,935.12 19,493.43 20,467.08 21,490.21 22,565.06 23,692.75 233,916.61 245,609.52 257,887.07 270,778.50 284,313.04 GIS Coordinator Non-Exempt 4,566.98 4,795.22 5,034.70 5,286.54 5,550.76 9,894.00 10,388.70 10,908.13 11,453.43 12,026.83 118,732.48 124,668.88 130,902.10 137,447.88 144,319.71 HR Manager Exempt 5,767.75 6,055.58 6,358.02 6,676.20 7,010.12 12,496.79 13,120.79 13,776.27 14,465.48 15,188.41 149,961.53 157,445.00 165,308.48 173,581.21 182,263.19 Management Analyst I Exempt 4,231.93 4,443.30 4,665.92 4,899.78 5,143.75 9,168.81 9,627.54 10,109.87 10,615.81 11,146.49 110,030.26 115,525.92 121,313.91 127,394.22 133,751.12 Management Analyst II Exempt 4,655.80 4,888.53 5,132.51 5,388.86 5,658.69 10,087.57 10,592.54 11,120.17 11,675.86 12,260.68 121,050.82 127,101.90 133,445.30 140,110.26 147,126.00 Management Assistant Non-Exempt 3,846.29 4,038.55 4,240.93 4,453.42 4,676.04 8,333.45 8,750.57 9,189.05 9,648.90 10,131.23 100,003.59 105,002.31 110,264.11 115,789.01 121,577.00 Planning Manager Exempt 6,419.86 6,741.41 7,078.71 7,432.87 7,805.02 13,910.06 14,606.02 15,336.82 16,104.73 16,910.87 166,916.25 175,276.68 184,046.36 193,254.52 202,930.40 Police Captain Exempt 7,968.04 8,366.05 8,784.30 9,223.90 9,684.88 17,263.90 18,126.25 19,032.46 19,984.75 20,984.27 207,169.08 217,517.31 228,391.71 239,821.53 251,806.76 Police Lieutenant Exempt 6,780.76 7,120.31 7,476.71 7,851.11 8,243.50 14,691.46 15,427.89 16,199.17 17,010.93 17,860.92 176,299.81 185,127.95 194,394.58 204,128.93 214,330.99 Public Works Superintendent Exempt 6,657.09 6,989.89 7,339.55 7,706.08 8,091.72 14,423.88 15,144.56 15,902.35 16,696.12 17,532.61 173,084.26 181,737.01 190,828.25 200,357.96 210,384.63 Senior Accountant Exempt 4,826.70 5,068.43 5,321.40 5,587.86 5,866.69 10,458.41 10,981.21 11,529.88 12,106.66 12,711.54 125,494.13 131,779.06 138,356.32 145,284.37 152,533.97 Senior Civil Engineer Exempt 6,030.84 6,332.16 6,649.22 6,982.01 7,330.55 13,066.82 13,720.05 14,407.01 15,127.70 15,883.24 156,801.89 164,636.13 172,879.63 181,532.38 190,594.39 Senior Management Analyst Exempt 5,354.00 5,621.59 5,902.67 6,197.24 6,507.55 11,600.71 12,179.74 12,789.12 13,427.73 14,100.07 139,204.06 146,161.34 153,469.41 161,128.26 169,195.24 Senior Planner Exempt 5,456.32 5,729.52 6,016.23 6,317.54 6,633.48 11,822.20 12,413.60 13,035.34 13,688.57 14,371.03 141,864.20 148,967.64 156,421.87 164,256.11 172,455.77 Support Services Manager Exempt 5,354.00 5,621.59 5,902.67 6,197.24 6,507.55 11,600.71 12,179.74 12,789.12 13,427.73 14,100.07 139,204.06 146,161.34 153,469.41 161,128.26 169,195.24 Public Works & Clerical (PW&C): 4.0% COLA effective 01/12/2026 Resolution 26-02
PW&C Job Classifications FLSA Status Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Accounting Technician Non-Exempt 3,471.45 3,644.97 3,827.44 4,018.87 4,219.25 7,521.67 7,897.81 8,292.98 8,707.18 9,141.53 90,257.78 94,769.22 99,513.50 104,490.63 109,700.61 Administrative Assistant Non-Exempt 3,098.67 3,253.16 3,415.48 3,586.76 3,765.87 6,713.42 7,048.14 7,400.77 7,771.31 8,159.76 80,565.48 84,582.11 88,802.48 93,255.70 97,912.67 Building and Planning Technician I Non-Exempt 3,098.67 3,253.16 3,415.48 3,586.76 3,766.99 6,713.42 7,048.14 7,400.77 7,771.31 8,160.88 80,565.48 84,582.11 88,802.48 93,255.70 97,928.34 Building and Planning Technician II Non-Exempt 3,408.76 3,578.92 3,758.04 3,946.11 4,143.13 7,386.21 7,754.52 8,142.97 8,550.45 8,976.97 88,627.85 93,051.96 97,708.93 102,598.74 107,721.40 Building Inspector I Non-Exempt 3,951.70 4,139.77 4,346.87 4,564.05 4,792.42 8,561.65 8,969.13 9,418.04 9,889.33 10,384.13 102,744.27 107,634.08 113,018.70 118,665.26 124,602.89Building Inspector II Non-Exempt 4,346.87 4,564.05 4,792.42 5,031.98 5,283.86 9,418.04 9,889.33 10,384.13 10,902.45 11,448.74 113,018.70 118,665.26 124,602.89 130,831.58 137,380.44 Code Compliance Coordinator I Non-Exempt 3,748.99 3,936.33 4,132.59 4,338.88 4,556.33 8,122.44 8,528.34 8,954.31 9,401.46 9,872.04 97,473.71 102,344.49 107,447.22 112,810.89 118,464.48 Code Compliance Coordinator II Non-Exempt 4,132.59 4,338.88 4,556.33 4,783.81 5,023.56 8,954.31 9,401.46 9,872.04 10,364.92 10,884.56 107,447.22 112,810.89 118,464.48 124,379.00 130,612.45 Lead Facilities Worker Non-Exempt 3,836.40 4,027.83 4,229.33 4,440.91 4,662.56 8,312.01 8,727.33 9,163.92 9,621.78 10,102.03 99,746.35 104,723.48 109,962.56 115,463.60 121,226.59Lead Maintenance Worker Non-Exempt 3,653.93 3,836.40 4,027.83 4,229.33 4,440.91 7,916.84 8,312.01 8,727.33 9,163.92 9,621.78 95,002.07 99,746.35 104,723.48 109,962.56 115,463.60 Maintenance Worker I Non-Exempt 2,815.45 2,949.78 3,097.55 3,252.04 3,414.36 6,099.95 6,391.01 6,711.18 7,045.90 7,397.41 73,201.65 76,694.38 80,536.37 84,553.00 88,773.38 Maintenance Worker II Non-Exempt 3,097.55 3,252.04 3,414.36 3,584.52 3,763.63 6,711.18 7,045.90 7,397.41 7,766.83 8,154.16 80,536.37 84,553.00 88,773.38 93,197.49 97,854.46 Office Assistant Non-Exempt 2,837.84 2,980.01 3,128.90 3,285.62 3,450.18 6,149.21 6,457.06 6,779.46 7,118.66 7,475.77 73,783.77 77,480.24 81,351.34 85,426.18 89,704.77 Public Works Inspector I Non-Exempt 3,653.93 3,836.40 4,027.83 4,229.33 4,440.91 7,916.84 8,312.01 8,727.33 9,163.92 9,621.78 95,002.07 99,746.35 104,723.48 109,962.56 115,463.60 Public Works Inspector II Non-Exempt 4,018.87 4,220.37 4,430.83 4,652.49 4,885.33 8,707.18 9,143.77 9,600.51 10,080.76 10,584.52 104,490.63 109,729.71 115,201.65 120,964.64 127,009.74 Public Works Inspector III Non-Exempt 4,430.83 4,651.57 4,884.63 5,128.49 5,385.29 9,598.78 10,077.86 10,582.83 11,111.54 11,667.23 115,189.72 120,940.79 127,000.46 133,340.66 140,017.51 Senior Accounting Technician Non-Exempt 3,817.37 4,008.80 4,209.18 4,419.64 4,641.29 8,270.59 8,685.91 9,120.26 9,575.88 10,056.13 99,251.55 104,228.68 109,438.65 114,910.59 120,670.22Senior Building and Planning Technician Non-Exempt 3,919.24 4,115.14 4,321.13 4,537.18 4,764.43 8,492.24 8,916.52 9,362.06 9,831.12 10,323.68 101,900.19 106,993.75 112,349.26 117,966.72 123,879.72 Senior Building Inspector/Plan Checker Non-Exempt 4,903.25 5,148.41 5,405.88 5,675.67 5,958.90 10,623.70 11,155.44 11,712.94 12,297.30 12,910.76 127,484.39 133,858.61 140,552.99 147,567.55 154,931.37 Biweekly Monthly Annual
Biweekly Monthly Annual
14,292.85 30,967.83 371,614.00

EXHIBIT A
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Public Works Supervisors: 4.0% COLA effective 01/12/2026 Resolution 26-02
PW Supervisors Job Classifications FLSA Status Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Public Works Assistant Superintendent Exempt 5,294.28 5,559.39 5,836.96 6,129.26 6,436.29 11,471.12 12,045.52 12,647.12 13,280.44 13,945.48 137,651.16 144,544.03 151,760.92 159,360.75 167,343.51 Public Works Supervisor Exempt 4,800.31 5,040.49 5,292.01 5,557.12 5,834.69 10,400.48 10,921.64 11,466.59 12,040.99 12,641.46 124,808.04 131,052.86 137,592.25 144,485.11 151,702.01 Police Officers Association (POA): 2.5% COLA effective 01/12/2026 Resolution 26-02
POA Job Classifications FLSA Status Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Step A Step B Step C Step D Step E Communications Officer I Non-Exempt 3,630.07 3,802.62 3,992.75 4,192.77 4,402.69 7,865.71 8,239.38 8,651.51 9,084.53 9,539.52 94,381.94 98,868.15 103,811.56 109,012.14 114,469.89 Communications Officer II Non-Exempt 3,992.75 4,192.77 4,402.69 4,622.49 4,853.29 8,651.51 9,084.53 9,539.52 10,015.40 10,515.46 103,811.56 109,012.14 114,469.89 120,184.81 126,185.48 Community Service Officer Non-Exempt 2,956.37 3,103.64 3,258.60 3,421.26 3,592.71 6,405.11 6,724.92 7,060.13 7,412.91 7,784.38 76,865.70 80,694.70 84,723.72 88,952.76 93,410.40 Lead Communications Officer Non-Exempt 3,571.72 3,750.09 3,937.21 4,134.18 4,341.00 7,738.73 8,125.01 8,530.98 8,957.75 9,405.31 92,864.74 97,502.29 102,367.44 107,488.66 112,865.94 Police Corporal Non-Exempt 5,022.54 5,273.11 5,536.88 5,813.83 6,105.08 10,882.53 11,425.45 11,996.94 12,597.01 13,227.85 130,585.97 137,100.98 143,958.88 151,159.69 158,731.96 Police Officer Non-Exempt 4,754.38 4,991.76 5,241.24 5,502.81 5,777.57 10,301.15 10,815.49 11,356.21 11,923.31 12,517.88 123,613.76 129,785.88 136,272.31 143,073.07 150,216.72 Police Officer Trainee Non-ExemptPolice Sergeant Non-Exempt 5,794.05 6,084.19 6,388.62 6,708.44 7,043.64 12,554.14 13,182.79 13,842.20 14,534.59 15,261.04 150,645.34 158,189.04 166,104.21 174,419.42 183,134.67 Property Officer Non-Exempt 3,252.01 3,414.67 3,585.01 3,764.16 3,952.09 7,045.84 7,398.63 7,767.90 8,155.85 8,562.49 84,552.27 88,781.31 93,210.38 97,868.04 102,751.00 Records Clerk II Non-Exempt 3,544.35 3,721.29 3,907.03 4,102.65 4,308.17 7,679.98 8,062.44 8,465.78 8,888.90 9,334.01 92,153.12 96,753.63 101,582.74 106,669.02 112,012.47 Records Supervisor Non-Exempt 3,899.34 4,093.86 4,298.28 4,513.69 4,738.99 8,448.19 8,870.22 9,313.12 9,780.21 10,268.18 101,382.72 106,440.42 111,755.30 117,355.92 123,213.72 Minimum Wage Increase: $16.90 effective 01/01/2026
Part-Time Classifications Title FLSA Status Employment Status Rate Type Min Max Laborer - Temporary Non-Exempt Part-Time Hourly 30.00 40.00 Intern I - Temporary Non-Exempt Part-Time Hourly 20.00 30.00 Intern II - Temporary Non-Exempt Part-Time Hourly 25.00 35.00 Intern III - Temporary Non-Exempt Part-Time Hourly 30.00 40.00 Clerical - Temporary Non-Exempt Part-Time Hourly 16.90 35.00 Technician - Temporary Non-Exempt Part-Time Hourly 30.00 40.00 Communications Officer - Temporary Non-Exempt Part-Time Hourly Building Attendant Non-Exempt Part-Time Hourly 16.90 20.00

55.00 Biweekly Monthly Annual
4,379.94 9,490.51 113,878.51
Biweekly Monthly Annual
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Hillsborough City CouncilJune 22, 2026

Hillsborough City Council
June 22, 2026