CITY COUNCIL
SPECIAL MEETING AGENDA
Tuesday, March 4, 2025
5:00 PM
City Council Chamber
200 Old Bernal Avenue
Pleasanton, CA 94566
The meeting will be held in-person, broadcast live on Channel 29 and at https://www.tri- valleytv.org and streamed at https://www.youtube.com/user/TheCityofPleasanton.
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In Person at Council Chamber:
• Submit a physical speaker card to the City Clerk at the meeting. When your name is called, please provide comment at the podium.
CALL TO ORDER
• Roll Call
1. Public Comment - Speakers are limited to 3 minutes and to only those items listed on the agenda.
WORKSHOP
2. Accept the Water Enterprise financial analysis and approve the Enhance scenario
ADJOURNMENT
Notice
Under Government Code §54957.5, any writings/documents regarding an open session item on this agenda and items received by the City Clerk’s Office by 12:00 p.m. on the day of the meeting provided to a majority of the City Council after distribution of the agenda packet will be available for public inspection on the City’s website https://www.cityofpleasantonca.gov/ and also at the Pleasanton Library located at 400 Old Bernal Ave., Pleasanton, CA 94566.
There is a 90-day limit for the filing of a challenge in the Superior Court to certain City administrative decisions and orders, which require a hearing by law, the receipt of
City Council Agenda Page 2 of 2 March 4, 2025
evidence, and the exercise of discretion. The 90-day limit begins on the date the decision is final (Code of Civil Procedure § 1094.6). Further, if you challenge an action taken by the City Council in court, you may be limited, by California law, including but not limited to Government Code §65009, to raising only those issues you or someone else raised in the public hearing, or in written correspondence delivered to the City Council prior to or at the public hearing. The City Council may be requested to reconsider a decision if the request is made prior to the next City Council meeting, regardless of whether it is a regular or special meeting.
Accessible Public Meetings
The City of Pleasanton can provide special assistance for persons with disabilities to participate in public meetings. To make a request for a disability-related modification or accommodation (e.g., an assistive listening device), please contact the City Clerk’s Office at 123 Main Street, Pleasanton, CA 94566 or (925) 931-5027 at the earliest possible time. If you need translation or interpretation assistance, please provide at least two working days’ notice prior to the meeting date.
Item #2
CITY COUNCIL AGENDA REPORT
March 4, 2025
Public Works - Utilities Division
TITLE: ACCEPT THE WATER ENTERPRISE FINANCIAL ANALYSIS AND APPROVE
THE ENHANCE SCENARIO
SUMMARY
In 2023, the City conducted a water rate study, which resulted in Council approval of a 30 percent water rate increase in January 2024 and a 12 percent increase in 2025. During the study, staff identified the need for a comprehensive Water System Management Plan (WSMP) to guide future water rate studies. Following this, on January 21, 2025, the City Council adopted the WSMP, a long-term planning document that provides a detailed assessment of the City’s water system assets, capital improvement needs, and operations and maintenance requirements over the next 20 years. The WSMP serves as the foundational document for this rate study.
To support this effort, on September 3, 2024, the City awarded a contract to Water Resources Economics, LLC (WRE) to conduct water and sewer rate and connection fee studies. WRE has now completed a financial plan analysis which is the first step in a three-step process. This step is focused on the revenue increase that is needed to support WSMP CIP implementation; it is not adoption of water rate increases as that is the final step which will be considered by the City Council in June. This report presents the analysis results based on which three primary scenarios were developed: Stabilize, Enhance, and Accelerate. Staff, and the Pleasanton Water Advisory Group, recommend the City Council accept the financial analysis findings and approve the Enhanced scenario as the preferred approach for the 2026-2029 water rate study.
RECOMMENDATION
Accept the Water Enterprise Financial Analysis and approve the Enhance scenario.
BACKGROUND
A financial plan within a water rate study is an essential tool for ensuring the long-term sustainability, reliability, and affordability of a municipality’s water system. It evaluates the financial health of the water utility and determines necessary revenue adjustments—typically through rate changes—to cover operational, maintenance, and capital improvement costs.
Key Objectives of the Financial Plan:
• Revenue Sufficiency – Ensures the utility generates adequate revenue to cover daily operations, debt service, and capital investments while maintaining financial stability • Capital Planning & Infrastructure Investment – Identifies funding strategies for necessary system upgrades, replacements, and expansions to maintain service reliability and regulatory compliance
• Cost-of-Service Analysis – Allocates costs among customer classes (residential, commercial, industrial) to ensure fair and equitable rate structures
• Rate Structure Optimization – Evaluates rate structures (fixed vs. variable charges, tiered rates, conservation-based pricing) to balance revenue stability, affordability, and conservation goals
• Reserves & Emergency Preparedness – Establishes appropriate reserve funds for emergencies, unforeseen expenses, and future capital projects to prevent financial shortfalls
• Debt Management – Analyzes existing and potential debt obligations to determine sustainable funding strategies, including bond issuances or low-interest loans • Regulatory & Policy Compliance – Aligns financial planning with state and federal regulations, including cost-of-service principles outlined by the American Water Works Association (AWWA) and other governing agencies
• Long-Term Financial Sustainability – Forecasts future rate adjustments needed to support system operations and avoid sudden, steep rate increases.
A well-structured financial plan provides a strategic framework for covering the full scope of operational and capital costs, ensuring that water customers receive reliable service while maintaining financial sustainability.
Components of a financial plan are developed to address:
o Cost Analysis – A comprehensive evaluation of current and future operational expenses, including maintenance, staffing, infrastructure upgrades, and water treatment o Revenue Requirements – The total funding necessary to support system operations, capital improvements, and contingency planning
o Long-Term Financial Stability – Establishing reserves and financial policies to ensure the system remains financially viable without sudden or excessive rate increases.
The financial plan typically presents multiple scenarios that will deliver the needed revenues, thereby allowing the City Council to select an approach that balances financial responsibility, infrastructure investment, and ratepayer impacts. As proposed in this report, the three scenarios are characterized as Stabilize, Enhance, and Accelerate. The selected scenario will serve as the foundation for proposed water rate adjustments over the 2026-2029 study period.
The adoption of water rate increases will be considered by the City Council in a later step of the process, scheduled for June 2025.
As noted, this comprehensive Water Rate Study is intended to ensure financial sustainability, equitable cost distribution, and compliance with legal requirements, including prescribed notification to ratepayers (e.g., Proposition 218).
The study is currently in the first phase - Financial Plan Analysis - where staff and consultants evaluate revenue needs, expenses, reserve recommendations, and funding scenarios to determine the revenues needed for financial sufficiency. Based on City Council feedback and acceptance of the Financial Plan Analysis, staff will proceed to the next phase of the water rate study: Cost-of-Service and Rate Calculations. That step is scheduled for City Council consideration in April/May to solicit feedback and determine direction for the water rate structure, a proposed water rate based on the recommended structure, and an evaluation of financial impacts on ratepayers. Once the Cost-of-Service and Rate Calculations are accepted
by the City Council, staff will proceed to the Documentation and Adoption phase, which includes documenting the rate study methodology and presenting a final report to be considered by the City Council in June, conducting the ratepayer notification process from July-September, and recommending City Council approval for final water rates adoption in October 2025.
DISCUSSION
Financial Plan Analysis Assumptions
The financial plan analysis made two major assumptions from the recent City year-end report on the water fund reserve target and the industrial standard practice of debt coverage requirements.
The operating reserve policy adopted by the City Council on June 6, 2023, requires reserves between 30.0-40.0 percent of operating expenses with a target of 35.0 percent. The current
20.9 percent reserve level is significantly below the recommended target. In the financial plan analysis, staff set an operating and capital reserve target of 35 percent of annual operating expenses aligned with the City Council's direction; this is equivalent to about $15 million. The purpose of the reserve fund is to set aside funds to pay for unexpected operating costs, cost increases, emergencies and similar unexpected, unplanned costs.
The financial plan also assumed a minimum of 125 percent of annual debt service. Under this assumption, the net revenue must be 1.25 times the annual debt service. This goal aims to avoid technical default, maintain debt rating, and preserve the ability to issue debt in the future.
Similar to other water retailers, the City could elect to choose its own internal policy of 150, 175, or 200 percent to secure better bond ratings and interest rates; however, collectively WRE, staff and the Water Advisory Group recommend 125 percent, based on where the water fund is currently and industry standard.
Implementation Scenarios and Analysis Results
The financial plan analysis conducted is driven by the needs identified and cost estimated in the WSMP. Three implementation scenarios were analyzed in this process: Stabilize, Enhance and Accelerate. The scenarios represent three levels of investment in the City’s water system to enhance water service level reliability, rehabilitate aging infrastructure, improve distribution system and fire flow capacity, etc. The three proposed financial plan scenarios evaluate various levels of rate revenue adjustments and capital financing strategies, including potential debt financing. These scenarios are designed to ensure the water enterprise meets its financial performance targets, funds essential system improvements, and supports the selected WSMP CIP alternative.
As an overview, the 5-year WSMP costs for each scenario are:
• Stabilize: reduced near-term costs, deferred projects for infrastructure rehabilitation, higher long-term costs – $63.0 million
• Enhance: slightly reduced near-term costs, deferred some projects for infrastructure rehabilitation, higher long-term costs – $73.2 million
• Accelerate: invest in infrastructure rehabilitation, increased near-term costs, lower long- term costs, more difficult for staff to implement – $108.0 million
Further details on each scenario are described below.
No Revenue Increases Scenario
As a reference point, the financial plan also includes a No Revenue Increases scenario. This scenario illustrates the financial implications of maintaining current rate revenues without adjustments while implementing the CIP in the Stabilize scenario described further in this report. It serves as a baseline to assess the City’s ability to fund operating and capital expenses, meet debt coverage requirements, and maintain adequate reserve balances over the long term.
The No Revenue Increases scenario assumes no water rate adjustments and only implements the minimum capital improvements necessary to stabilize the water system over a 20-year period. This scenario does not include any additional debt issuance. Based on the financial analysis, the following key findings were observed:
• Revenue Requirement: Without an increase in rate revenue, the City will experience an operating deficit starting in FY 2026/27
• Fund Balance: The water enterprise fund balance is projected to become negative beginning in FY 2026/27 without a rate adjustment
• Debt Coverage: The City will be in technical default starting in FY 2026/27, failing to meet minimum debt coverage requirements
• Capital Projects: All water system capital improvement projects (CIP) would need to be cash-funded, limiting the City's ability to address necessary system upgrades.
As shown in Figure 1 below, and in Attachment 1, the analysis indicates that a rate increase is essential to prevent operating deficits, maintain adequate reserve balances, and meet the City's debt coverage requirements.
Figure 1 – No Revenue Increases Model Results
Proposed Approach to Address Financial Shortfalls
To avoid financial deficits in FY 2026/27, the City must increase total water and recycled water
rate revenues annually and issue new debt to fund critical capital improvement projects (CIP) identified in the WSMP. This combined approach—incremental rate adjustments and debt issuance—will help stabilize the City's water and recycled water utility funds over the study period (2026-2029).
Issuing debt to fund CIP project provides several advantages, including: reducing the need for large, immediate rate increases by spreading costs over time; stabilizing ratepayer impacts by smoothing out rate adjustments over a longer horizon; and promoting generational equity, ensuring that costs are shared by both current and future beneficiaries of the infrastructure investments. However, debt issuance also comes with considerations, including increasing overall project costs due to interest payments and requiring additional financial management policies to maintain debt coverage and prepare for future borrowing capacity.
It is common practice for agencies to issue debt to fund critical capital improvements. Through the financial plan analysis, staff recommends issuance of debt to minimize the magnitude of future rate adjustments while ensuring long-term financial stability for the City’s water and recycled water enterprise funds. The financial model assumes 6% interest rate, 30-year term, and 2% issuance cost (capitalized). Although it is possible the City could get a lower rate in the future, WRE has been using 6% as a more conservative estimate.
Stabilize Scenario
The Stabilize Scenario evenly distributes water fund capital investments over the 20-year Capital Improvement Plan (CIP), with some but not all of the WSMP Priority A projects - such as emergency back up generator replacements and fire flow projects - completed in the first five years. This approach helps minimize near-term infrastructure costs and balances resource demands, simplifying implementation. However, it defers certain critical infrastructure rehabilitation projects, leading to higher long-term costs. Compared to the Enhance and Accelerate scenarios, the Stabilize Scenario has the least impact on reducing long-term infrastructure costs and provides only average performance in maintaining water service levels over the 20-year period.
Under this scenario, the minimum recommended water revenue increases to meet the needs are:
• 12 percent in FY 2025/26 and FY 2026/27
• 8 percent in FY 2027/28 and FY 2028/29
Additionally, the City would issue new debt totaling $30 million over the four-year study period:
• $10 million in FY 2020/26
• $10 million in FY 2026/27
• $10 million in FY 2027/28
• No new debt in FY 2028/29
This combination of rate increases and debt issuance ensures the City meets all financial performance targets, including maintaining reserve balances and a minimum 125 percent debt coverage ratio. By evenly distributing capital investments, the City can fund essential CIP
projects while maintaining financial stability.
The results are presented in Figure 2 below and in Attachment 2.
Figure 2 – Stabilize Scenario Model Results
Enhance Scenario
The Enhance scenario completes more critical projects within the first five years of CIP implementation as compared to the Stabilize scenario, so that additional emergency backup generators and fire flow projects can be completed. While it requires a slightly higher upfront investment, it is more effective in reducing long-term infrastructure costs. Although this approach demands slightly greater resources in the early years, it performs better in maintaining water service levels over the 20-year period and is expected to result in fewer near-term emergency mitigation needs as compared to the Stabilize scenario.
Under this scenario, the minimum recommended water revenue increases to meet the needs are:
• 15 percent in FY 2025/26 and FY 2026/27
• 8 percent in FY 2027/28 and FY 2028/29
Additionally, the City would issue $35 million in new debt over the four-year study period:
• $15 million in FY 2025/26
• $10 million in FY 2026/27
• $10 million in FY 2027/28
• No new debt in FY 2028/29
This combination of rate adjustments and debt issuance ensures that the City meets all financial performance targets, including maintaining reserve balances and a minimum 125
percent debt coverage ratio. By front-loading critical capital projects, the Enhanced Scenario helps mitigate unplanned emergency repairs and enhances system resilience, reducing operational risks over the long term. This scenario also allows for a more balanced staff approach to operating the system and managing implementation of the capital projects.
The results are presented in Figure 3 below and in Attachment 3.
Figure 3 – Enhance Scenario Model Results
Accelerate Scenario
The Accelerated Scenario frontloads capital investments, completing all WSMP Priority A projects within the first five years. While this scenario requires the highest near-term investment, it also delivers the greatest reduction in long-term infrastructure costs and provides the highest level of service to customers. However, the aggressive project timeline places significant demands on resources and will impact residents by increasing traffic and other disruptions due to simultaneous large-scale infrastructure work.
Under this scenario, the minimum recommended water revenue increases to meet the needs are:
• 24 percent in FY 2025/26 and FY 2026/27
• 7 percent in FY 2027/28 and FY 2028/29
The City would also issue $45 million in new debt over the four-year study period:
• $5 million in FY 2025/26
• $20 million in FY 2026/27
• $20 million in FY 2027/28
• No new debt in FY 2028/29
This combination of rate adjustments and debt issuance ensures the City meets all financial
performance targets, including maintaining reserve balances and a minimum 125 percent debt coverage ratio. By accelerating Priority A projects, this scenario proactively addresses critical infrastructure risks, minimizing the likelihood of system failures. However, this approach demands immediate staffing increases, requiring the City to recruit additional engineers and planners to meet project delivery timelines. The concentration of major construction activities within the first five years will likely cause significant traffic disruptions and temporary inconveniences for residents. While this scenario offers long-term system stability and risk reduction, it requires careful coordination and public outreach to mitigate near-term community impacts.
The results are presented in Figure 4 below and in Attachment 4.
Figure 4 – Accelerate Scenario Model Results
Water Advisory Group Review
Financial plan scenarios were presented to the Water Advisory Group on Feburary 10. After discussion with WRE and staff to address details about the development, the projects that are included in each scenario, and the benefits and consequences of each scenario, the group asked for a scenario somewhere in between Stabilize and Accelerate; this resulted in the development of the Enhance scenario as follow up to that meeting. The Enhance Scenario is supported by the Water Advisory Group and is in alignment with staff's recommendation.
Summary
The table below summarizes the financial analysis for the three scenarios—Stabilize, Enhance, and Accelerate—along with the minimum recommended water revenue increases to meet the water system's needs and the new debt issuance required to support each approach.
• The Stabilize Scenario has the lowest revenue increase and the least debt issuance.
This approach allows for a minimal level of capital improvement, stabilizing Pleasanton’s water system but deferring some critical infrastructure projects. • The Enhance Scenario requires a slightly higher revenue increase and additional debt issuance as compared to the Stabilize Scenario. However, this scenario takes a proactive approach by accelerating infrastructure improvements, reducing the likelihood of emergency repairs, and further stabilizing the system against water loss, leaks, and power reliability issues.
• The Accelerate Scenario results in the highest revenue increases and debt issuance.
While this approach aggressively front-loads investments to complete all Priority A projects within the first five years, it significantly increases upfront costs and demands substantial resources. Additionally, the concentration of multiple concurrent projects is expected to cause significant roadway disruptions and service interruptions.
Balancing risk, benefits, financial impact on residents, return on investment, economic growth, quality of life, service reliability, and emergency preparedness, staff recommend the Enhance Scenario as the preferred approach as this scenario strikes a balance between financial feasibility and long-term infrastructure stability while minimizing service disruptions.
EQUITY AND SUSTAINABILITY
As a full-service municipality, the City provides a wide range of services and programs to meet the needs of all community members, including as the city's water retailer. Completing the water rate and connection fee studies will provide information intended to support the fiscal sustainability of the City's water enterprise fund.
OUTREACH
The City has proactively shared information about water projects and programs. Particularly, the City has provided water-focused updates in the Pleasanton Progress newsletter and the Pleasanton Pipeline e-newsletter to share timely information about water initiatives, including those related to the water rate and connection fee studies. These are shared with the community via direct email and the City’s social media platforms. The City also has created a Water Advisory Group (WAG) to provide input and feedback on water initiatives. The WAG
consists of members who reflect a broad spectrum of community interests and perspectives.
As noted, the financial plan scenario development process and findings from the draft report were presented and discussed ar the February WAG meeting.
STRATEGIC PLAN ALIGNMENT
Approval of this action advances the ONE Pleasanton strategic plan goal of Funding our Future, Strategy 3 - Evaluate and update enterprise revenue sources, including utility rates, and connection and user fees to address growth and meet current needs.
FISCAL IMPACT
This item has no fiscal impact at this time as this is the first step in a three-step process.
However, funding requirements to support the implementation of the WSMP will be determined as part of later stages of these water rate and connection fee studies. Staff will propose necessary budget adjustments based on these rate studies in future budget cycles for City Council consideration and approval.
Prepared by: Submitted by: Approved by:
Ryan Smith, Assistant Dir. of
Public Works - Utilities
Siew-Chin Yeong, Director of Public
Works
Gerry Beaudin, City
Manager
Attachments:
1. No Revenue Increases Model Results
2. Stabilize Scenario Model Results
3. Enhance Scenario Model Results
4. Accelerate Scenario Model Results
5. Presentation
Attachment 1 - No Revenue Increases Scenario Model Results
The No Revenue Increases scenario assumes no water rate adjustments and a CIP implementation plan the same as Stabilize, which spreads out capital costs over 20 years as outlined in the WSMP. In this scenario, the debt coverage dips below the required levels and the fund balance becomes negative in FY 2027. Therefore, this scenario is not feasible.
Attachment 2 – Stabilize Scenario Model Results
In this scenario, debt coverage ratios are maintained above required levels, and the fund balance remains positive through FY 2029. This scenario also assumes debt funded CIP in FY 2026 through 2028 totaling $30 Million, and the 5- year CIP costs total $63 Million. Accordingly, this Stabilize scenario corresponds with needed revenue increases of 12% in FY 2026 and FY 2027 and 8% in FY 2028 and FY 2029, with $30M in debt proceeds.
Attachment 3 – Enhance Scenario Model Results
In this scenario, debt coverage ratios are maintained above required levels, and the fund balance remains positive through FY 2029. This scenario also assumes debt funded CIP in FY 2026 through 2028 totaling $35 Million, and the 5- year CIP costs total $73 Million. Accordingly, this Enhance scenario corresponds with needed revenue increases of 15% in FY 2026 and FY 2027 and 8% in FY 2028 and FY 2029, with $35M in debt proceeds.
Attachment 4 – Accelerate Scenario Model Results
In this scenario, debt coverage ratios are maintained above required levels, and the fund balance remains positive through FY 2029. This scenario also assumes debt funded CIP in FY 2026 through 2028 totaling $45 Million, and the 5- year CIP costs total $108 Million. Accordingly, this Accelerate scenario corresponds with needed revenue increases of 24% in FY 2026 and FY 2027 and 7% in FY 2028 and FY 2029, with $45M in debt proceeds.
City of Pleasanton
City Council Meeting – Water Financial Plan Scenarios
March 4, 2025
1 Agenda
•Rate Study Overview
•Water System Management Plan
•Financial Plan Scenarios
•No Revenue Increase
•Stabilize
•Enhance
•Accelerate
•Next Steps and Schedule
2 ATTACHMENT 5
Rate Study Overview
3 Documentation
and Adoption
Document rate study
methodology and
results in report
(“administrative
record”)
Adopt rates via
Proposition 218
process
Financial Plan
Analysis
Project revenues,
expenses, and
reserves
Evaluate WSMP
funding scenarios
Determine rate
revenues needed for
financial sufficiency
Cost-of-Service
and Rates
Allocate costs of
water system
between customers
Calculate proposed
water rates
Evaluate financial
impacts to
customers
We are here
Water System Management Plan
•The financial plan is largely driven by the costs of the WSMP •WSMP can be implemented through three alternatives:
•Stabilize
•Enhance
•Accelerate
•Each alternative supports different policy objectives:
4 WSMP
Alternative
Minimize Near-Term
Infrastructure Costs
Reduce Long-Term
Infrastructure Costs
Maintain Water
Service Level
Reduce Implementation
Complexity
Stabilize★★★★★★★★★
Enhance★★★★★★★★
Accelerate★★★★★★★★
WSMP (Year 1-5 Projects Only)
5 Near-Term WSMP Stabilize Enhance Accelerate
Water Supply ReliabilityIncrease reliability and cost
efficiency of water supply sources
Increase reliability and cost
efficiency of water supply sources
Increase reliability and cost
efficiency of water supply sources
Water Delivery ReliabilityImprove piping to increase reliability of water deliveries to customers
Defer some projects to address
critical fire deficiencies
Improve piping to increase reliability
of water deliveries to customers
Defer some projects to address
critical fire deficiencies
Improve piping to increase reliability
of water deliveries to customers
Address critical fire flow
deficiencies
Infrastructure ReliabilityDefer more projects to rehabilitate facilities that are at high risk of
service level interruptions
Increase reliability of emergency
power systems
Defer some projects to rehabilitate
facilities that are at high risk of
service level interruptions
Increase reliability of emergency
power systems
Rehabilitate facilities that are at high
risk of service level interruptions
Increase reliability of emergency
power systems
Total Near-Term (Yrs 1-5) $63.0 million $73.2 million $108.0 million Total Mid-Term (Yrs 6-10) $89.4 million $77.4 million $78.9 million Total Long-Term (Yrs 11-20) $214.6 million $214.6 million $158.1 million Total Term (Years 1-20) $367.1 million $365.2 million $345.0 million WSMP (Year 1-5 Projects Only)
•What WSMP scenario is most appropriate to meet the City’s policy goals? To meet the City’s financial objectives?
1. Stabilize:reduced near-term costs, deferred projects for infrastructure rehabilitation, higher long-term costs –$63.0 million
2. Enhance: slightly reduced near-term costs, deferred some projects for infrastructure rehabilitation, higher long-term costs –$73.2 million
3. Accelerate: invest in infrastructure rehabilitation, increased near-term costs, lower long-term costs, more difficult for staff to implement –$108.0 million 6
Financial Plan Scenarios
Financial Performance Targets
8 Financial PolicyWhat is it?How much is it?What is it for? Operating and Capital
Reserve Target
35% of annual
operating expensesApproximately $15M
Pay for unexpected
operating cost
increases,
emergencies, etc.
Debt Coverage
Requirement
125% of annual debt
service
Net revenues
(revenues minus
operating expenses)
must be 1.25x annual
debt service
Avoid technical
default, maintain debt
rating to issue debt in
the future
Financial Plan – No Revenue Increase
Revenue Requirement
•Stacked bars are
expenses
•Lines are current/
proposed revenues
(current = proposed for
status quo scenario)
•Without increasing rate
revenues, there is an
operating deficit
starting in FY 2027
9 Financial Plan – No Revenue Increase
Fund Balance
•Bars are total operating
and replacement
reserves
•Dashed line is reserve
policy target (35% of
annual O&M expenses)
•Without increasing rate
revenues, fund
balances are negative
starting in FY 2027
10
Financial Plan – No Revenue Increase
Debt Coverage
•Blue line is calculated
debt coverage
•Dashed line is debt
coverage requirement
(125% of debt service)
•Without increasing rate
revenues, City is in
technical default
starting in FY 2027
11 Financial Plan – No Revenue Increase
Capital Project Funding
•Assumes “Stabilize”
WSMP scenario
•Black bars are grant
funded projects
•Blue bars are debt
funded projects (no new
debt for status quo)
•Green bars are cash
funded projects
12
Financial Plan – No Revenue Increase
•Operating deficit
starting in FY 2027
•Fund balances are
negative starting in FY
2027
•Debt coverage
requirements not met
starting in FY 2027
13 Fiscal
Year
Revenue
Increase
Debt
Proceeds
2026 0% $0M
2027 0% $0M
2028 0% $0M
2029 0% $0M
Financial Plan Scenarios
•The City needs to increase its rate revenues to:
•Avoid operating deficits
•Maintain adequate reserve balances
•Meet debt coverage requirements
•All financial plan scenarios include costs for groundwater well projects, but water supply cost savings will not materialize until after the study period when project comes online
14
Financial Plan Scenarios
•How do we “solve” the financial plan for each WSMP alternative? •Revenue adjustments – increase total water/recycled water rate revenues each year
•Issue new debt – issue debt to fund CIP , reduces amount of CIP funded by cash/rates
•Goal is to stabilize water and recycled water utility and enterprise fund by the end of study period (FY 2029)
15 Debt Financing
•What are the benefits of issuing new debt to fund CIP? •Reduces need for larger revenue adjustments
•Smooths out rates and customer impacts over a longer horizon •Addresses generational equity concerns
•What are the disadvantages of issuing debt to fund CIP? •Increases overall project costs (paying interest)
•Requires additional financial management policies (debt coverage, future debt capacity) •Most utility agencies issue debt to fund CIP; to minimize revenue adjustments, debt should be issued for each WSMP alternative
16
Financial Plan – Stabilize
•Meets financial
performance targets
•Funds costs associated
with Stabilize scenario
•$30M in new debt
proceeds to fund CIP
17 Fiscal
Year
Revenue
Increase
Debt
Proceeds
2026 12% $10M
2027 12% $10M
2028 8% $10M
2029 8% $0M
Financial Plan – Enhance
•Meets financial
performance targets
•Funds costs associated
with Enhance scenario
•$35M in new debt
proceeds to fund CIP
18 Fiscal
Year
Revenue
Increase
Debt
Proceeds
2026 15% $15M
2027 15% $10M
2028 8% $10M
2029 8% $0M
Financial Plan – Accelerate
•Meets financial
performance targets
•Funds costs associated
with Accelerate
scenario
•$45M in new debt
proceeds to fund CIP
19 Fiscal
Year
Revenue
Increase
Debt
Proceeds
2026 24% $5M
2027 24% $20M
2028 7% $20M
2029 7% $0M
Financial Plan Summary
20 Financial PlanStabilize Enhance Accelerate
Revenue Adjustments12% for two years /
8% for two years
15% for two years /
8% for two years
24% for two years /
7% for two years
New Debt to Fund CIP$30M $35M $45M
5-Year CIP Costs $63M $73M $108M
Objective
Mostly stabilized
service level and
infrastructure
Enhanced service
level and
infrastructure
Accelerated
investment in
infrastructure
Next Steps and Schedule
Next Steps
•Begin cost-of-service analysis, rate development, and connection fee calculation Schedule
•March 20, PWAG meeting – preliminary water rates and connection fees •April 15, Council meeting – preliminary water rates and connection fees 21 ContactInformation
Sanjay Gaur
Founder / President
[email protected]
Nancy Phan
Principal Consultant
[email protected]
22