Item 02 2024-01954 City Auditor’s Department of Utilities’ Water and Wastewater Funds Review — Budget and Audit Committee, January 28, 2025

City of Sacramento
Budget and Audit Committee Report
915 I Street Sacramento, CA 95814
www.cityofsacramento.org
File ID: 2024-01954 1/28/2025 Discussion Item 2.

City Auditor’s Department of Utilities' Water and Wastewater Funds Review File ID: 2024-01954
Location: Citywide
Recommendation: Pass a Motion: 1) accepting the City Auditor’s Department of Utilities' Water and Wastewater Funds Review; and 2) forwarding to City Council for approval.

Contact: Farishta Ahrary, City Auditor, (916) 808-7266, [email protected]; Jordan Sweeney, Principal Fiscal Policy Analyst, (916) 808-2310, [email protected]; Office of the City Auditor
Presenter: Farishta Ahrary, City Auditor, (916) 808-7266, [email protected]; Jordan Sweeney, Principal Fiscal Policy Analyst, (916) 808-2310, [email protected]; Office of the City Auditor
Attachments:
1-Description/Analysis
2-City Auditor’s Department of Utilities’ Water and Wastewater Funds Review - Water Fund Report 3-City Auditor’s Department of Utilities’ Water and Wastewater Funds Review - Wastewater Fund Report
Description/Analysis
Issue Detail: This project was approved as part of the City Auditor’s fiscal year (FY) 2023/24 and FY2024/25 Work Plans. According to the City Council Rules of Procedures, the Budget and Audit Committee shall receive, review, and forward to the Council as appropriate, reports, recommendations, and updates from the City Auditor. This report documents the City Auditor’s Department of Utilities’ Water and Wastewater Funds Review.

Policy Considerations: None.

Economic Impacts: None.

Environmental Considerations: None.

Page 1 of 2 ends

File ID: 2024-01954 1/28/2025 Discussion Item 2.

Sustainability: None.

Commission/Committee Action: None.

Rationale for Recommendation: This staff report provides the Budget and Audit Committee with information that may be used to meet its responsibility to provide oversight and supervision of the City Auditor and other City departments.

Financial Considerations: The cost of the City Auditor’s Department of Utilities’ Water and Wastewater Funds Review was funded out of the Department of Utilities budget.

Local Business Enterprise (LBE): None.

Page 2 of 2 ends

CITY OF SACRAMENTO
Office of the City Auditor – Research and Analysis Division Report# 2024/25-07 | January 2025
Water and Wastewater
Fund Review
Water Fund Report
FINAL REPORT / December 18 , 2024
City of Sacramento, CA / Water Fund Review Report

Contents

1. Executive Summary ..................................................................... 9

1.1. Study Objectives ........................................................................................................... 9

1.2. Conclusion ..................................................................................................................... 9

2. Introduction ................................................................................ 12

2.1. Objective, Scope, and Methodology .......................................................................... 12

2.2. Background ................................................................................................................. 12

3. Benchmarking ............................................................................ 14

3.1. Benchmarking of Peer Communities ........................................................................ 14

3.2. Staffing Levels ............................................................................................................. 15

3.3. Operational Comparisons .......................................................................................... 18

3.4. Water Loss Comparisons ........................................................................................... 20

3.5. Water Rate Comparisons ............................................................................................ 21

3.6. Benchmarking Summary ............................................................................................ 24

4. Expense, Revenue, and Funding History ................................... 26

4.1. Operating Expenses ................................................................................................... 26

4.1.1. Budgeted Operating Expenses ........................................................................................ 26

4.1.2. Actual Operating Expenses ............................................................................................. 27

4.2. Capital Expenses ........................................................................................................ 29

4.2.1. Budgeted Capital Expenses............................................................................................. 29

4.2.2. Actual Capital Expenses .................................................................................................. 30

4.3. Debt Service History ................................................................................................... 31

4.3.1. Budgeted Debt Service .................................................................................................... 31

4.3.2. Actual Debt Service ......................................................................................................... 31

4.4. Revenues ..................................................................................................................... 33

4.4.1. Budgeted Revenues ........................................................................................................ 33

4.4.2. Actual Revenues .............................................................................................................. 33

4.5. Capital Improvement Funding History ...................................................................... 34

4.6. Historical Water Rates ................................................................................................ 35

4.7. Regulatory Requirement Changes ............................................................................ 36

4.7.1. California Legislation ....................................................................................................... 36

4.7.2. Water Regulations ........................................................................................................... 37 City of Sacramento, CA / Water Fund Review Report

4.8. Weather Impacts ......................................................................................................... 39

4.9. Summary ...................................................................................................................... 40

5. Service Level and Water System Capacity ................................ 42

5.1. Current Capacity of Water Infrastructure .................................................................. 42

5.1.1. Water System Infrastructure ............................................................................................ 45

5.1.2. Recommendations for Water Infrastructure ..................................................................... 47

5.2. Risks of Catastrophic Failure and Extent of Deferred Capital Investment ............. 50

5.2.1. Water System Infrastructure Deferred Capital Needs ...................................................... 51

5.3. Extent of Deferred O&M of Water Infrastructure ...................................................... 52

6. Valuation .................................................................................... 54

6.1. Value, Age, and Remaining Useful Life of Water Infrastructure ............................. 54

6.2. Risks and Costs to Replace Aging Water Infrastructure ......................................... 55

7. Fiscal Forecasting ...................................................................... 57

7.1. Assumptions ............................................................................................................... 57

7.1.1. Customer Demand and Account Growth ......................................................................... 57

7.1.2. Revenue Escalation Factors ............................................................................................ 57

7.1.3. Expenditures Escalation Factors ..................................................................................... 58

7.2. Projected Water Demand ............................................................................................ 58

7.3. Projected Water Revenues ......................................................................................... 59

7.4. Projected Water O&M Expenses ................................................................................ 60

7.5. Debt Service ................................................................................................................ 60

7.6. Capital Improvement Projects .................................................................................... 61

7.7. Status Quo without Rate Increases ........................................................................... 62

7.8. Development Impact Fee Fund for All Scenarios ..................................................... 65

7.9. Financial Plan 1 with 30-year CIP and MYOP ............................................................ 66

7.10. Financial Plan 2 with Costs to Address Deficiencies and Gaps ............................. 72

7.10.1. Additional Operating Costs ................................................................................. 72

7.10.2. Additional Capital Costs ...................................................................................... 72

7.10.3. Financial Plan 2 with Additional Operating and Capital Costs ............................ 72

7.11. Financial Plan 3 with Renewal and Replacement Costs .......................................... 78

8. Conclusion .................................................................................. 84

City of Sacramento, CA / Water Fund Review Report

Tables
Table 1-1: Financial Plan Descriptions ..................................................................................................... 10 Table 1-2: Comparison of Projected Water Rate Increases ...................................................................... 10 Table 3-1: Benchmark Organization Information1 ..................................................................................... 15 Table 4-1: Budgeted Expenses from FY 2014 through FY 2018 (in thousands) ...................................... 26 Table 4-2: Budgeted Expenses from FY 2019 through FY 2023 (in thousands) ...................................... 27 Table 4-3: Budgeted Expenses CAGR from FY 2014 through FY 2023 ................................................... 27 Table 4-4: Actual Expenses from FY 2014 through FY 2018 (in thousands) ............................................ 28 Table 4-5: Actual Expenses from FY 2019 through FY 2023 (in thousands) ............................................ 28 Table 4-6: Actual Expenses CAGR from FY 2014 through FY 2023 ........................................................ 29 Table 4-7: Budgeted Capital Expenses from FY 2014 through FY 2018 (in thousands) .......................... 29 Table 4-8: Budgeted Capital Expenses from FY 2019 through FY 2023 (in thousands) .......................... 30 Table 4-9: Actual Capital Expenses from FY 2014 through FY 2018 (in thousands) ................................ 30 Table 4-10: Actual Capital Expenses from FY 2019 through FY 2023 (in thousands) .............................. 31 Table 4-11: Budgeted Debt Service History from FY 2014 through FY 2018 (in thousands) ................... 31 Table 4-12: Budgeted Debt Service History from FY 2019 through FY 2023 (in thousands) ................... 31 Table 4-13: Actual Debt Service History from FY 2014 through FY 2018 (in thousands) ......................... 32 Table 4-14: Actual Debt Service History from FY 2019 through FY 2023 (in thousands) ......................... 32 Table 4-15: Budgeted Revenues from FY 2014 through FY 2018 (in thousands) .................................... 33 Table 4-16: Budgeted Revenues from FY 2019 through FY 2023 (in thousands) .................................... 33 Table 4-17: Budgeted Revenues CAGR from FY 2014 through FY 2023 ................................................ 33 Table 4-18: Actual Revenues from FY 2014 through FY 2018 (in thousands) ......................................... 34 Table 4-19: Actual Revenues from FY 2019 through FY 2023 (in thousands) ......................................... 34 Table 4-20: Actual Revenues CAGR from FY 2014 through FY 2023 ...................................................... 34 Table 4-21: Capital Improvement Funding History for FY 2014 through FY 2023 .................................... 35 Table 4-22: Historical Water Rate Increases for FY 2014 through FY 2023 ............................................. 36 Table 5-1: City of Sacramento General Plan Key Goals and Policies for Water Infrastructure ................ 42 Table 5-2: Water System Infrastructure Summary of Deferred Capital Investments ................................ 51 Table 5-3: Description of Asset Renewal and Replacement Needs ......................................................... 51 Table 6-1: Water Assets Remaining Useful Life ....................................................................................... 55 Table 7-1: Customer Demand and Account Growth Projections .............................................................. 57 Table 7-2: Revenue Escalation Factors .................................................................................................... 58 Table 7-3: Expenditures Escalation Factors ............................................................................................. 58 Table 7-4: Projected Water Accounts and Billed Consumption (CCF) ...................................................... 59 Table 7-5: Projected Water Revenues without Rate Increases ................................................................ 59 City of Sacramento, CA / Water Fund Review Report

Table 7-6: Projected Water Development Impact Fee Revenues ............................................................. 60 Table 7-7: Projected Water O&M Expenses ............................................................................................. 60 Table 7-8: Existing Water Debt Service Schedules .................................................................................. 61 Table 7-9: 30-year CIP – Summary of Total Costs ................................................................................... 61 Table 7-10: 30-year growth-related CIP – Summary of Total Costs ......................................................... 62 Table 7-11: Water Proforma for Status Quo ............................................................................................. 63 Table 7-12: DIF Proforma ......................................................................................................................... 65 Table 7-13: Financing Plan with 30-year CIP Schedule and MYOP ......................................................... 66 Table 7-14: Financial Plan 1 with 30-year CIP Schedule and MYOP ....................................................... 67 Table 7-15: Additional Water Operating Costs .......................................................................................... 72 Table 7-16: Additional Water Capital Costs .............................................................................................. 72 Table 7-17: Financial Plan 2 with Additional Operating and Capital Costs ............................................... 73 Table 7-18: Financial Plan 3 with Additional Operating, MYOP, Capital, and R/R Costs ......................... 79 Table 8-1: Water Financial Plan Descriptions ........................................................................................... 85 Table 8-2: Comparison of Projected Water Rate Increases ...................................................................... 85

Figures
Figure 3-1:Total Water and Wastewater Accounts per FTE ..................................................................... 16 Figure 3-2: Water Accounts per FTE ........................................................................................................ 17 Figure 3-3: Water Produced (MGD) per FTE ............................................................................................ 18 Figure 3-4: Annual Water Operations and Maintenance Expenditures per Customer Account ................ 19 Figure 3-5: Annual Water Operations and Maintenance Costs per 100 Miles of Water Pipeline .............. 20 Figure 3-6: Non-Revenue Water Loss Rate .............................................................................................. 21 Figure 3-7: Monthly Residential Water Bill – 5 ccf .................................................................................... 22 Figure 3-8: Monthly Residential Water Bill – 10 ccf .................................................................................. 23 Figure 7-1: Status Quo – Ending Balances and Reserve Targets ............................................................ 64 Figure 7-2: Status Quo – Debt Service Coverage Ratio ........................................................................... 64 Figure 7-3: DIF Fund Ending Cash Balance ............................................................................................. 65 Figure 7-4: Financial Plan 1 ...................................................................................................................... 68 Figure 7-5: Financial Plan 1 – Capital Financing Plan .............................................................................. 68 Figure 7-6: Financial Plan 1 – Ending Balances and Reserve Targets ..................................................... 69 Figure 7-7: Financial Plan 1 – Debt Service Coverage Ratio .................................................................... 69 Figure 7-8: Financial Plan 1 – Days of Cash on Hand .............................................................................. 70 Figure 7-9: Financial Plan 1 – Annual Water Bill as Percentage of Lowest Quintile Income .................... 71 City of Sacramento, CA / Water Fund Review Report

Figure 7-10: Financial Plan 2 .................................................................................................................... 74 Figure 7-11: Financial Plan 2 – Capital Financing Plan ............................................................................ 74 Figure 7-12: Financial Plan 2 – Ending Balances and Reserve Targets ................................................... 75 Figure 7-13: Financial Plan 2 – Debt Service Coverage Ratio .................................................................. 75 Figure 7-14: Financial Plan 2 – Days of Cash on Hand ............................................................................ 76 Figure 7-15: Financial Plan 2 – Annual Water Bill as Percentage of Lowest Quintile Income .................. 76 Figure 7-16: Financial Plan 3 .................................................................................................................... 80 Figure 7-17: Financial Plan 3 – Capital Financing Plan ............................................................................ 80 Figure 7-18: Financial Plan 3 – Ending Balances and Reserve Targets ................................................... 81 Figure 7-19: Financial Plan 3 – Debt Service Coverage Ratio .................................................................. 81 Figure 7-20: Financial Plan 3 – Days of Cash on Hand ............................................................................ 82 Figure 7-21: Financial Plan 3 – Annual Water Bill as Percentage of Lowest Quintile Income .................. 82

Appendix
Appendix: Tables and Figures for the 25-year Study Period

Department Response
Department of Utilities Response to the Water and Wastewater Funds Review

City of Sacramento, CA / Water Fund Review Report

Abbreviations
AACE Association for the Advancement of Cost Engineering AC Asbestos Cement
Act Water Shutoff Protection Act
AWWA American Water Works Association
BRE Business Rick Exposure
CAAP Climate Action and Adaptation Plan
CAGR Compound Annual Growth Rate
CIP Capital Improvement Program
City City of Sacramento COF Consequence of Failure
CPI Consumer Price Index
CSOs Combined System Overflows
CSS Combined Sewer System
DIF Development Impact Fee
DOU Department of Utilities
FTE Full-Time Equivalent
FWTP Fairbairn Water Treatment Plant
GAAS Generally Accepted Auditing Standards
LOF Likelihood of Failure
LQI Lowest Quintile Income
LTCP Long-Term Control Plan
MCL Maximum Contaminant Level
MG Million Gallons
MGD Million Gallons per Day
MYOP Multi-Year Operating Projects
O&M Operation and Maintenance
PLCs Programmable Logic Controller
R/R Renewal/Replacement
RCM Reliability Centered Maintenance
Report Water Fund Review
SRWTP Sacramento River Water Treatment Plant
USEPA United States Environmental Protection Agency
USGS US Geological Survey
VFDs Variable Frequency Drive
WMP Water Master Plan
ZEVs Zero-Emission Vehicles
CCF Hundred Cubic Feet

City of Sacramento, CA / Water Fund Review Report

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City of Sacramento, CA / Water Fund Review Report 9

1. Executive Summary

1.1. Study Objectives
Raftelis is pleased to provide the Water Fund Report (Report) for the City of Sacramento (City) to assess the fiscal stability of the Water Fund. The Water Fund accounts for the operation and maintenance of the City’s water treatment and water transmission and distribution systems, which are run by the Department of Utilities (DOU).

The major study objectives include a detailed review and analysis of:
• Fiscal policies and procedures;
• Expense, revenue, and funding history;
• Service level and capacity of the water system;
• Relationship and impact of deferred maintenance and capital investments on the value of water infrastructure; and
• Fiscal forecasting by developing financial plans for the Water Fund to ensure financial sufficiency and funds to meet operation and maintenance (O&M) costs, the capital improvement program (CIP), multi-year operating projects (MYOP), capital replacement and refurbishment recommendations, and operating and capital gaps identified by DOU staff across several Divisions while improving the financial health of the Water Fund and mitigating the burden that substantial rate increases could have on the City’s most vulnerable customers.

The report summarizes the key findings and recommendations related to the DOU Water Fund review and the development of financial plans for the Water Fund in the following sections:
• Benchmarking – Section 3
• Expense, Revenue, and Funding History – Section 4
• Service Level and System Capacity – Section 5
• Valuation – Section 6
• Fiscal Forecasting – Section 7

This analysis and report are primarily based on data provided from FY 2024 instead of the approved budget for FY 2025 due to timing. There are often differences between actual and projected data. Some of the assumptions used in this report may not be realized, and unanticipated events and circumstances may occur.

Therefore, there are likely to be differences between the data or results projected in the report and the actual results achieved. Nevertheless, this report provides valuable information and analysis for the City to consider in its strategic and financial planning for the Water Fund.

1.2. Conclusion
The objectives of this review were achieved by combining current operating and capital revenue requirements with different levels of revenue requirements identified by City personnel and recommended revenue requirements aligned with utility best practices to address additional and necessary renewal/replacement (R/R) for deferred and high-risk assets capital investments. An analysis of the current conditions of the fund (status quo) shows that if the water utility does not implement rate increases, it will not meet its capital reserve target beginning in FY 2028. It will not meet its minimum operating reserve target beginning in FY 2029. It City of Sacramento, CA / Water Fund Review Report 10

will also not be able to meet its required absolute floor parity lien debt service coverage ratio beginning in FY 2030. Thus, a cash flow analysis for three scenarios was completed to determine the projected rate increases necessary for the Water Fund to have sufficient funds to meet the water utility’s operating and capital revenue requirements, achieve operating and capital reserve targets, and achieve the absolute floor parity lien debt service coverage ratio
1 required per debt covenants for a fiscally stable Water Fund. These needed investments will require additional capital dollars than currently included in the Water Fund and future rate increases are necessary. The following tables are summaries comparing the descriptions and proposed rate increases for each scenario. Financial Plan 3 has the highest total of proposed rate increases as it is the most holistic representation of the water utility’s operational and capital needs.

Table 1-1: Financial Plan Descriptions
Scenario Description 30-year

CIP MYOP
Additional &
Necessary
O&M
Additional &
Necessary
MYOP
Additional &
Necessary
Capital
Additional &
Necessary
R/R
1 Financial
Plan 1 Yes Yes No No No No
2 Financial
Plan 2 Yes Yes Yes Yes Yes No
3 Financial
Plan 3 Yes Yes Yes Yes Yes Yes

Table 1-2: Comparison of Projected Water Rate Increases Fiscal Year Financial Plan 1 Financial Plan 2 Financial Plan 3 FY 2025 0% 0% 0%
FY 2026 0% 0% 0%
FY 2027 0% 0% 0%
FY 2028 22% 22% 45%
FY 2029 20% 22% 15%
FY 2030 7% 22% 12%
FY 2031 6% 5% 6%
FY 2032 6% 4% 4%
FY 2033 5% 4% 4%
FY 2034 – FY
2049 4% (34, 35) 3% (34) 4% (34)
Total 74% 82% 90%

While the water utility requires rate increases to meet its fiscal requirements to keep the status quo, the results of the three financial planning scenarios demonstrate that additional water rate increases will also be needed to implement the 30-year CIP, MYOP, as well as additional and necessary O&M, MYOP, capital, and R/R.

1 DOU must strive for a coverage ratio that is consistent with the applicable credit rating category for the water and wastewater systems.

City of Sacramento, CA / Water Fund Review Report 11

However, we recognize that it may not be feasible to implement the full projected water rate increases in Table 1-2. Therefore, it is likely that the DOU will need to prioritize the most critical, highest-risk, and regulatory projects as full funding for the water utility’s comprehensive needs may not be available.

City of Sacramento, CA / Water Fund Review Report 12

2. Introduction
In accordance with the City Auditor’s 2023/2024 Audit Plan, we have completed the Department of Utilities’ Water and Wastewater Funds Review. We believe this report meets our objective of reviewing the fiscal sustainability of the Water Fund. We did not seek to test internal controls, such as those related to the department’s evaluation of the water infrastructure or the fund’s revenue and expenses.

We would like to thank the Department of Utilities staff for their time, effort, and transparency to enable our completion of a thorough and independent review of the Water Fund.

2.1. Objective, Scope, and Methodology
Raftelis is pleased to provide the Water Fund Report (Report) for the City of Sacramento (City) to assess the fiscal stability of the Water Fund. The Water Fund accounts for the operation and maintenance of the City’s water treatment and water transmission and distribution systems, which are run by the Department of Utilities (DOU).

The major study objectives include a detailed review and analysis of:
• Fiscal policies and procedures;
• Expense, revenue, and funding history;
• Service level and capacity of the water system;
• Relationship and impact of deferred maintenance and capital investments on the value of water infrastructure; and
• Fiscal forecasting by developing financial plans for the Water Fund to ensure financial sufficiency and funds to meet operation and maintenance (O&M) costs, the capital improvement program (CIP), multi-year operating projects (MYOP), capital replacement and refurbishment recommendations, and operating and capital gaps identified by DOU staff across several Funds while improving the financial health of the Water Fund and mitigating the burden that substantial rate increases could have on the City’s most vulnerable water customers.

The report summarizes the key findings and recommendations related to the DOU Water Fund assessment and developing financial plans for the Water Fund. It is primarily based on data provided from the end of calendar year 2023. There are often differences between actual and projected data. Some of the assumptions used in this report may not be realized, and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the data or results projected in the report and the actual results achieved. Nevertheless, this report provides valuable information and analysis for the City to consider in its strategic and financial planning for the Water Fund.

2.2. Background
Sitting at the confluence of the Sacramento and American Rivers, the City of Sacramento was founded in 1849, and the water system began providing service to the area in 1854. Today, the City has a population of roughly 525,000 and a water service area that covers approximately 63,182 acres and approximately 147,150 accounts. Between the two treatment facilities, there are 5 distributed storage tanks (clearwells). The City has City of Sacramento, CA / Water Fund Review Report 13

an additional 11 distributed storage tanks located throughout the City. Among the 16 water storage facilities, the City has a distribution system storage capacity of 45 million gallons (MG).

In addition to treating surface water from the Sacramento and American Rivers, the City has maintained and operated groundwater wells for over 50 years. Currently, the City is permitted to operate 30 municipal groundwater wells. Twenty-six of these wells are north of the American River while the remaining four are south of the American River. Today, 10 of these wells are active and the City has a groundwater production capacity of 20 million gallons per day (MGD).

For transmission and distribution, the City has approximately 160 miles of transmission mains and 1,479 miles of distribution mains.

City of Sacramento, CA / Water Fund Review Report 14

3. Benchmarking

3.1. Benchmarking of Peer Communities
Benchmarking can be a useful tool to assess a utility’s operations to similar organizations. Comparing operations to other organizations can help the City understand if it is in line with peer communities or if there is an area that needs more attention or investment. Although this comparison is helpful, benchmarking does not include an evaluation of how well organizations are providing services; this is where knowledge of best practices is useful. Understanding best practices allows the City to better provide context to the comparison made with peer utilities.

As part of the review of the structure and staffing of the DOU, Raftelis conducted benchmarking research regarding staffing, organization, and functions. Apples-to-apples comparisons are often difficult given the geographic, operational, political, economic, and other differences between communities and regions. With the collaboration of City staff, fourteen peer organizations, including ten from California, were identified.

Peers were selected based on the number of accounts, services provided, similar regulatory environments, and similar operating functions. Regional data from the American Water Works Association’s (AWWA) most recent utility benchmarking survey is also included for comparison when available and applicable.2

The project team collected data from publicly available sources such as budget documents, annual financial reports, and organization websites. Nine of the peer organizations are municipalities, and eight of the organizations provide both water and wastewater services. Five peer organizations operate as independent authorities, and three also provide stormwater services3. Table 3-1 presents information about each benchmark organization including retail customers, FY 2024 operating budget, and full-time equivalent (FTE) employees.4 Although this report focuses on water, information about all utility services (water, wastewater, and stormwater) offered by each organization is included.

2 AWWA survey data are not acquired from a random sample and may not represent the industry. Regional data contains data from AWWA’s Region V, which includes survey responses from utilities in California, Oregon, Washington, Alaska, Montana, Nevada, Hawaii, Guam, American Samoa, and the seven westernmost Canadian provinces. 3 The City of Sacramento also provides stormwater services. Stormwater services are only included in Table 3-1 where the data was combined with another service and could not be separated. 4 When possible, information is obtained from the current (FY24) budget. However, some data (such as the number of accounts) is obtained from the peers’ most recent Annual Comprehensive Financial Report.

City of Sacramento, CA / Water Fund Review Report 15

Table 3-1: Benchmark Organization Information1
Utility Utility Type
Wastewater
C or CT4 Total FTEs Water
Accounts
Wastewater
Accounts
Total
Operating
Budget ($
millions)
Boston Water and
Sewer Commission
Combined
Wastewater,
Water,
Wastewater
C 502 88,215 88,172 $369.9
City of Bakersfield Wastewater CT 51 N/A 1,054,0722 $14.4 City of Folsom Water,
Wastewater C 105 23,770 25,498 $35.8
City of Modesto Water,
Wastewater CT 283 74,527 62,162 $93.3
City of Roseville
Water,
Wastewater,
Stormwater
CT 178 47,000 51,000 $105.6
City of Sacramento Water,
Wastewater CT 416 147,150 79,114 $123.8
City of Santa Rosa
Water,
Wastewater,
Stormwater
C 478 53,000 49,000 $111
City of Seattle
Water,
Combined
Wastewater,
Wastewater
C 1,132.10 Not found Not found $272.7
City of Stockton
Water,
Wastewater,
Stormwater
CT 398.013 50,000 116,000 $116.2
Portland Water
Bureau
Water,
Combined
Wastewater,
Wastewater
CT 1,337.70 194,938 194,938 $532.4
Sacramento Area
Sewer District Wastewater CT 294 N/A 427,616 $146.6
Sacramento County
Water Agency Water N/A 147 63,803 N/A $135.1
Sacramento
Suburban Water
District
Water N/A 73 47,680 N/A $24.8
San Juan Water
District Water N/A 49 11,896 N/A $22.8
Truckee Meadows Water N/A 254 138,412 N/A $125
1 When possible, information is obtained from the current (FY24) budget. However, some data (such as the number of accounts) is obtained from the peers’ most recent Annual Comprehensive Financial Report.
2 Parcels served, rather than the number of accounts.
3 Total FTEs for Municipal Utilities Department, including Stormwater. 4 C is collection, CT is collection and treatment.

accounts per FTE. AWWA defines an FTE as the allocation of employee time equal to 2,080 hours per year based on 40 hours per week and 52 weeks per year. For combined water and wastewater utilities, this is expressed as the sum of water customer accounts and wastewater customer accounts divided by the total number of FTEs (226,264 accounts divided by 416 FTEs equals 544 accounts per FTE).

The preferred ranking is above the AWWA 75
th percentile of 576 accounts per FTE. As seen in Figure 3-1, the City serves 544 customer accounts per FTE, which falls below the preferred AWWA 75th percentile.5 However, in comparison with the selected benchmark organizations, the City is grouped on the higher end of its peers.
6 Figure 3-1:Total Water and Wastewater Accounts per FTE

Note: We excluded the City of Seattle due to insufficient data regarding the number of accounts served and the City of Bakersfield because they charge on a parcel basis multiplied by a Revised Single-Family Dwelling Equivalent (SFDE) ratio, which is not equivalent to accounts.

5 AWWA reports its benchmarking survey results in terms of 25th percentile, median, and 75th percentile. However, the 25th percentile does not always indicate the lowest value, and the 75th percentile does not always indicate the highest numerical value. Usually, AWWA ascribes the 75th percentile to the perceived “most-efficient” quartile (e.g, most customer accounts served per FTE, lowest operating cost per million gallons, etc.).
6 We excluded the City of Seattle due to insufficient data regarding the number of accounts served and the City of Bakersfield from the per account comparison since they charge on a parcel basis multiplied by a Revised Single-Family Dwelling Equivalent (SFDE) ratio, which is not equivalent to accounts.
126 146 176
213 243 263 264
434 469
544 545
583
653
0 100
200
300
400
500
600
700Accounts per FTE
AWWA 75th Percentile - Preferred Ranking (576) AWWA Median (461) AWWA 25th Percentile (331) City of Sacramento, CA / Water Fund Review Report 17

The comparison of water accounts served per FTE is shown in Figure 3-2. The Water Fund serves 522 water accounts per FTE (147,150 accounts divided by 282 FTEs equals 522 accounts per FTE), which is more than the AWWA median but less than the AWWA 75th percentile, and approximately in the middle of the benchmarked peers. The preferred ranking is above the AWWA 75th percentile of 657 accounts per FTE.

There are numerous open FTE positions for the water utility that the City is trying to fill, with a total staffing cost need of $1.1 million over the next 5 years. Finding qualified staff has been difficult and a Citywide classification and compensation study is currently underway.

Figure 3-2: Water Accounts per FTE

A common metric used by the AWWA to show relative staffing levels is the amount of treated water produced per FTE (82.55 MGD of average water treatment divided by 282 FTEs equals 0.29 MGD per FTE).

Figure 3-3 shows the water produced per FTE across the benchmarked organizations with the preferred ranking above the AWWA 75
th percentile of 0.29 MGD per FTE. Four of the five peers produce more water per FTE than the AWWA 75th percentile, while one of the peers produces at the AWWA 25th percentile. The City of Sacramento generally produces less water per treatment and distribution FTE than the selected peers, but is at the AWWA 75
th percentile. It is important to note that Sacramento maintains overlapping capacity to serve customers with surface water or switch to groundwater when needed; this resiliency could account for Sacramento’s lower MGD per FTE ratio.

248 291
434
522 545 587 634 653
943
0 100
200
300
400
500
600
700
800
900
1,000Accounts per FTE
AWWA 75th Percentile - Preferred Ranking (657) AWWA Median (470) AWWA 25th Percentile (335) City of Sacramento, CA / Water Fund Review Report 18

Figure 3-3: Water Produced (MGD) per FTE

Note: Sacramento County Water Agency, Sacramento Suburban Water District, City of Roseville, City of Santa Rosa, San Juan Water District, City of Seattle, and Boston Water and Sewer Commission are excluded from this figure due to a lack of average water treatment data found.

3.3. Operational Comparisons
To examine the relative cost of service across different organizations, a common industry metric is to calculate the annual operations and maintenance (O&M) expenditures per customer account 7 (FY 2024
Water Operating Budget of $88.2 million divided by 147,150 water accounts equals $599 per account). The preferred ranking is below the AWWA 75
th percentile.

Figure 3-4 shows water operations and maintenance expenditures per customer account across the benchmarked organizations. The City of Sacramento appears to spend less per account than most of the peer communities and kept O&M costs down, except for Sacramento Suburban Water District which operates a field of groundwater wells that are lower in cost to operate and maintain. The City is higher than the AWWA median and the AWWA 75
th percentile of Region V data.

As discussed in later sections of this report, Raftelis identified that the City has a deferred capital investment of $739.2 million in R/R needs for its existing water assets. However, DOU has had limited capital budget funding available for several years, due to a lack of water rate increases in FY 2021 through FY 2023, so sufficient asset R/R has been deferred due to lack of funding. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of O&M costs to keep the existing assets functional. These reasons are likely why the City’s O&M costs are above the AWWA 75
th percentile.

7 Operations and maintenance costs generally consist of labor (e.g., wages and benefits), services (e.g., repair services, janitorial services, etc.), and consumables (e.g., chemicals, utilities, office supplies) that need to be expended on a periodic or ongoing basis to operate a utility. Operations and maintenance costs exclude the costs of debt service and capital.

0.14 0.29 0.34 0.41

0.52 0.57

0.00 0.20

0.40 0.60
Portland Water
Bureau
City of
Sacramento
City of Modesto City of Folsom Truckee
Meadows
City of Stockton

MGD/FTE
AWWA 75th Perecentile - Preferred Ranking (0.29)
AWWA Median (0.22)
AWWA 25th Percentile (0.14)
City of Sacramento, CA / Water Fund Review Report 19

Figure 3-4: Annual Water Operations and Maintenance Expenditures per Customer Account

To examine another aspect of the cost of providing water service, the annual water operations and maintenance cost is calculated using pipeline length rather than the number of customer accounts. Figure 3-5 presents the annual water operating cost per 100 miles of water pipeline (FY 2024 Water Operating Budget of $88.2 million divided by 16.35 (100 miles of pipe) equals $5.4 million per 100 miles of pipe). The preferred ranking is below the AWWA 75th percentile. The City of Sacramento does not compare favorably against the communities surveyed by the AWWA and is above the 25th percentile. However, the City has lower O&M costs for this metric in comparison to the benchmarked peer communities. The same reasons discussed above are likely why O&M costs are above the AWWA 75th percentile.

$521 $599
$875 $903 $1,015 $1,045 $1,152
$1,920
$2,119
$0
$500
$1,000
$1,500
$2,000
$2,500
$ / Account
AWWA 75th Percentile - Preferred Ranking ($321) AWWA Median ($454) AWWA 25th Percentile ($667) City of Sacramento, CA / Water Fund Review Report 20

Figure 3-5: Annual Water Operations and Maintenance Costs per 100 Miles of Water Pipeline

Note: Sacramento Suburban Water District, City of Santa Rosa, Truckee Meadows, City of Modesto, and Boston Water and Sewer Commission are excluded from this figure due to insufficient pipeline data.

3.4. Water Loss Comparisons
The State of California requires that every water utility conduct and submit an annual water loss audit using free software from the AWWA which is then posted on the state’s Department of Water Resources website.

This provides a useful, standardized collection of data regarding water loss and system integrity. One of the metrics provided by the audit is the rate of non-revenue water loss, which is composed of three sub-categories:
real losses (leakage on mains and service connections, leakage, and overflows on water storage tanks); apparent losses (unauthorized consumption, customer metering inaccuracies); and authorized unbilled consumption (water used for activities such as firefighting or metered unbilled consumption). Figure 3-6 presents the non-revenue water loss rate from the most recent available 2021 water loss audit. The City of Sacramento reported its non-revenue water loss rate as 10.1% with six benchmarked peers at a lower rate and three peers with a higher rate.

$5.39 $5.93 $6.23 $6.91 $7.83
$9.98 $10.29
$15.65
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0$ million / 100 mi.

AWWA 75th Percentile - Preferred Ranking ($2.16) AWWA Median ($2.71) AWWA 25th Percentile ($4.12) City of Sacramento, CA / Water Fund Review Report 21

Figure 3-6: Non-Revenue Water Loss Rate

Note: Only California-based peers are included in this figure, due to state reporting requirements.

3.5. Water Rate Comparisons
Comparing rates between peers is not always a straightforward process. Given different rate structures between utilities, one utility may have relatively lower bills at one usage level and relatively higher bills at another usage level. Moreover, the rates that a utility charges reflect many factors, some of which are often outside of a community’s control (e.g., source water quality, topography, environmental regulations, etc.).

This benchmarking effort presents calculated monthly bills at 5 hundred cubic feet (ccf) and 10 ccf consumption levels to provide an average range of residential consumption. In addition to the benchmarked peers, rates from the AWWA Rate Survey are included. As before, AWWA reports the 25th percentile, median, and 75th percentile of bills. Note that the rate data from the benchmarked peers is current; however, the AWWA Rate Survey collected its data in July 2022. Below the 25th percentile is preferred.

Figure 3-7 shows the calculated monthly residential water bill for the benchmarked peers and AWWA data at 5 ccf of usage. The City’s water bill at 5 ccf well exceeds the 25th percentile among AWWA respondents and is towards the higher end of the benchmarked peers.

City of Sacramento, CA / Water Fund Review Report 22

Figure 3-7: Monthly Residential Water Bill – 5 ccf

Figure 3-8 shows the calculated monthly water bill at 10 ccf for residential users. In this figure, it is seen that the City’s water bill at 10 ccf is still above the AWWA 25th percentile, but does not exceed the AWWA’s 75th percentile as 5 ccf of consumption does, and is in the middle of its benchmarked peers.

$21.47 $21.84 $28.02 $31.62 $35.54 $37.58 $38.73 $41.43 $43.01 $48.40 $49.44 $84.33 $85.95
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Monthly Residential Water Bill - 5 ccf
AWWA 75th Percentile ($37.19) AWWA Median ($28.34) AWWA 25th Percentile - Preferred Ranking ($21.47) City of Sacramento, CA / Water Fund Review Report 23

Figure 3-8: Monthly Residential Water Bill – 10 ccf

As discussed in later sections of this report, Raftelis identified that DOU has significant additional capital investment needs over the next 10 years that need to be funded and addressed to efficiently operate and maintain the water system. The associated rate increases are summarized in the Conclusions section of this report.

$21.84 $29.82 $37.70 $45.53 $45.64 $46.48 $50.31
$59.12 $62.52 $63.24
$77.20
$90.90
$119.36
$0
$20
$40
$60
$80
$100
$120
$140Monthly Residential Water Bill - 10 ccf
AWWA 75th Percentile ($59.16) AWWA Median ($44.89) AWWA 25th Percentile - Preferred Ranking ($33.46) City of Sacramento, CA / Water Fund Review Report 24

3.6. Benchmarking Summary
A summary of the benchmarking section is presented below. Rankings based on FTEs, O&M costs, and residential bills are in the order of highest to lowest compared to the City’s benchmarked peers:

• The comparison of water accounts per FTE shows that the City serves 522 water accounts per FTE, which is more than the AWWA median but less than the AWWA 75 th percentile, and approximately
in the middle of benchmarked peers. The preferred ranking is above the AWWA 75th percentile of 657 water accounts per FTE. There are numerous open FTE positions for the water utility that the City is trying to fill, with a total staffing cost need of $1.1 million over the next 5 years. Finding qualified staff has been difficult and a Citywide classification and compensation study is currently underway.

• A common metric used by the AWWA to show relative staffing levels is the amount of treated water produced per FTE. This is expressed in MGD per FTE. The preferred ranking is above the AWWA 75th percentile of 0.29 MGD per FTE. The City generally produces less water per treatment and distribution FTE than the benchmarked peers, but is at the AWWA 75th percentile. It is important to note that Sacramento maintains overlapping capacity to serve customers with surface water or switch to groundwater when needed; this resiliency results in a lower MGD per FTE ratio.

• The O&M costs for providing services are compared by normalizing the data and dividing the O&M costs by the number of accounts served. The preferred ranking is below the AWWA 75th percentile.

The City appears to spend less per account than most of the benchmarked peer communities and kept O&M costs down. The City is higher than the AWWA median and the preferred AWWA 75th percentile. As discussed in later sections of this report, Raftelis identified that the City has a deferred capital investment of $739.2 million in R/R needs for its existing water assets. However, DOU has had limited capital budget funding available for several years, due to a lack of water rate increases in FY 2021 through FY 2023, so sufficient asset R/R has been deferred due to lack of funding. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of O&M costs to keep the existing assets functional. These reasons are likely why the City’s O&M costs are above the AWWA 75 th percentile.

• Another method to normalize O&M costs is to divide the O&M costs by the length of pipe maintained. The preferred ranking is below the AWWA 75th percentile. The City does not compare favorably against the communities surveyed by the AWWA and is above the 25th percentile. However, the City has lower O&M costs for this metric in comparison to the benchmarked peer communities The same reasons discussed above are likely whey O&M costs are above the AWWA 75th percentile.

• The non-revenue water loss rate is a metric used to measure water loss and evaluate system integrity.

The City’s non-revenue water loss rate is 10.1% with six benchmarked peers at a lower rate and three peers with a higher rate.

• The City’s water bill at 5 ccf well exceeds the 25th percentile among AWWA respondents and is towards the higher end of the benchmarked peers. The City’s water bill at 10 ccf is still above the AWWA 25th percentile, but does not exceed the AWWA’s 75th percentile as 5 ccf of consumption does, and is in the middle of its benchmarked peers. As discussed in later sections of this report, City of Sacramento, CA / Water Fund Review Report 25

Raftelis identified that DOU has significant additional capital investment needs over the next 10 years that need to be funded and addressed to efficiently operate and maintain the water system. The associated rate increases are summarized in the Conclusions section of this report.

City of Sacramento, CA / Water Fund Review Report 26

4. Expense, Revenue, and Funding
History

4.1. Operating Expenses
Raftelis reviewed the budgeted and actual expenses for water from FY 2014 through FY 2023. Budgets were compared to actuals to evaluate the accuracy of budget assumptions and projections and to identify escalation factors that could be used in the fiscal forecast. Revenues were compared to expenses to determine if past rate revenue increases have been sufficient to meet operating and capital revenue requirements.

The budgeted and actual expenses and revenues analyzed for this review were provided by the DOU and are based on cash monitored by the DOU. Therefore, these numbers vary from audited financial statements that are reported by Generally Accepted Auditing Standards (GAAS) and Government Auditing Standards. The DOU, like most utilities, uses a cash basis to identify total revenues required to meet its annual cash expenditures and to set rates needed to meet fiscal requirements and targets. This is different than accrual accounting cash basis that recognizes revenues as earned when cash is received, and expenses charged when cash is distributed.
8 4.1.1. Budgeted Operating Expenses
The budgeted expenses and Compound Annual Growth Rate (CAGR) for each line item in the Water Fund are shown in the following tables. Interfund expenses on lines 2 through 4 are related to various activities for the Water Fund including but not limited to the General Fund Tax, annual Water Forum share of costs, interfund loans, central services mail, annual citywide cost plan, project labor and indirect cost reimbursements, grant labor reimbursements, and interdepartmental reimbursements or expenses for services provided or received.

Table 4-1: Budgeted Expenses from FY 2014 through FY 2018 (in thousands) Line
No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Employee Services $23,690 $24,780 $27,259 $37,646 $40,394 2 Interfund Reimbursement $2,069 ($1,211) ($125) ($10,450) ($9,022) 3 Interfund Provided &
Used $25 $25 $25 $25 $25
4 Interfund Transfer $10,751 $10,858 $10,902 $11,935 $24,094 5 Other Objects $1,610 $948 $944 $962 $970
6 Property $857 $969 $942 $1,067 $857
7 Services and Supplies $19,404 $19,434 $19,832 $21,666 $19,981 8 MYOP $2,432 $2,065 $6,602 $146 $1,744
9 Budgeted Expenses
Total $60,839 $57,868 $66,380 $62,997 $79,045

8 American Water Works Association, M1: Principles of Water Rates, Fees, and Charges, Seventh Edition City of Sacramento, CA / Water Fund Review Report 27

Table 4-2: Budgeted Expenses from FY 2019 through FY 2023 (in thousands) Line
No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Employee Services $42,649 $46,383 $44,995 $46,670 $47,111 2 Interfund Reimbursement ($9,286) ($10,889) ($8,409) ($9,646) ($9,011) 3 Interfund Provided &
Used $27 $27 $26 $21 $20
4 Interfund Transfer $3,048 $15,631 $15,711 $14,907 $14,980 5 Other Objects $1,100 $1,179 $1,754 $1,925 $1,510
6 Property $850 $1,296 $6,134 $1,838 $1,964
7 Services and Supplies $20,695 $22,240 $22,200 $24,601 $26,563 8 MYOP $3,538 $2,775 $3,959 $3,877 $3,008
9 Budgeted Expenses
Total $62,620 $78,640 $86,371 $84,193 $86,146

Table 4-3: Budgeted Expenses CAGR from FY 2014 through FY 2023

Line No. Description CAGR
1 Employee Services 7.9%
2 Interfund Reimbursement -217.8%
3 Interfund Provided & Used -2.2%
4 Interfund Transfer 3.8%
5 Other Objects -0.7%
6 Property 9.7%
7 Services and Supplies 3.6%
8 MYOP 2.39%
9 Budgeted Expenses Total 4.0%

4.1.2. Actual Operating Expenses
The actual expenses and CAGR for each line item in the Water Fund are shown in the following tables.

Actual expenses had a higher CAGR of 4.9% compared to 4.0% for budgeted expenses from 2014 to 2023.

Since the percentage increase difference is less than a percentage, it indicates that the DOU is accurately budgeting for operating expenses.

Inflation as measured by the Consumer Price Index (CPI)9 was 2.8% from 2014 to 2023. Employee services, other objects, property, and services and supplies had CAGRs for actual expenses in Table 4-6 that were higher than inflation. However, there were planned increases during this period due to approved rate increases that do not have a relationship to inflation.

9 Bureau of Labor Statistics Data, Series ID CUUR0000SA0, U.S. City Average, All urban customers, Unadjusted.

City of Sacramento, CA / Water Fund Review Report 28

Table 4-4: Actual Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Employee Services $24,107 $24,144 $25,765 $34,795 $34,731 2 Interfund Reimbursement ($488) ($944) ($616) ($8,613) ($6,963) 3 Interfund Provided & Used $40 $42 $37 $39 $28
4 Interfund Transfer $10,372 $11,356 $10,998 $12,118 $24,297 5 Other Objects $696 $725 $606 $581 $739
6 Property $708 $532 $280 $2,309 $1,033
7 Services and Supplies $14,942 $16,440 $18,166 $17,119 $18,384 8 MYOP $692 $873 $1,572 $1,508 $2,016
9 Actual Expenses Total $51,068 $53,168 $56,807 $59,856 $74,265

Table 4-5: Actual Expenses from FY 2019 through FY 2023 (in thousands) Line
No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Employee Services $37,211 $41,712 $39,925 $40,982 $42,467 2 Interfund Reimbursement ($6,887) ($10,003) ($6,829) ($6,698) ($7,717) 3 Interfund Provided &
Used $15 $12 $8 $9 $9
4 Interfund Transfer $2,865 $15,465 $15,317 $14,945 $14,420 5 Other Objects $716 $617 $1,240 $1,110 $1,172
6 Property $2,229 $1,607 $3,959 $1,393 $2,004
7 Services and Supplies $18,306 $20,798 $19,757 $21,343 $23,382 8 MYOP $2,564 $2,936 $3,007 $4,144 $2,919
9 Actual Expenses Total $57,019 $73,143 $76,384 $77,228 $78,656

City of Sacramento, CA / Water Fund Review Report 29

Table 4-6: Actual Expenses CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Employee Services 6.5%
2 Interfund Reimbursement 35.9%1
3 Interfund Provided & Used -15.5%
4 Interfund Transfer 3.7%
5 Other Objects 6.0%
6 Property 12.3%
7 Services and Supplies 5.1%
8 MYOP 17.34%
9 Actual Expenses Total 4.9%

4.2. Capital Expenses

4.2.1. Budgeted Capital Expenses
The budgeted capital expenses for the Water Fund are shown in the following tables. The average annual cash funded capital was $16.4 million. Some years have more of an impact on the average expense than others.

For example, bond proceeds were awarded in FY 2017 for $62.6 million, and a Drinking Water State Revolving Fund Load was awarded for $173.1 million in FY 2018, which resulted in a total average capital budget expense of $42.5 million.

Table 4-7: Budgeted Capital Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Water Development
Fees $0 $0 ($90) $4,200 $4,882
2 Water Fund $4,312 $10,050 $18,235 $7,960 $6,957
3 Water Grant Fund $560 $231 $1,749 $628 ($14)
4 Water Revenue Bonds
2013 $0 $0 $17 ($17) $0
5 Water Revenue Bonds
2017 $0 $0 $0 $62,600 $0
6 Drinking Water State
Revolving Fund Loan $0 $0 $0 $0 $173,142
7 Total Budgeted
Capital Expenses $4,872 $10,281 $19,911 $75,370 $184,967

City of Sacramento, CA / Water Fund Review Report 30

Table 4-8: Budgeted Capital Expenses from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Water Development
Fees ($2,460) $4,600 $2,650 $6,200 $3,000
2 Water Fund $13,869 $9,772 $29,860 $23,784 $30,308
3 Water Grant Fund $196 $0 $2,522 $59 $0
4 Water Revenue Bonds
2013 $0 $0 $4,234 $41 $0
5 Water Revenue Bonds
2017 $0 $0 $602 $7 $0
6 Drinking Water State
Revolving Fund Loan $0 $0 $0 $0 $0
7 Total Budgeted
Capital Expenses $11,605 $14,372 $39,868 $30,091 $33,308

4.2.2. Actual Capital Expenses
The actual capital expenses for the Water Fund are shown in the following tables. The average annual actual capital expenses were $56.7 million, which was approximately $14.2 million higher than the budgeted capital expenses. Capital projects have multi-year funding. Carryover funding was available in the CIP to support the annual variance of approximately $14.2 million.

Table 4-9: Actual Capital Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Water Development
Fees $730 $269 $68 $5,618 $8,070
2 Water Fund $4,560 $6,914 $6,289 $11,244 $5,105
3 Water Grant Fund $6 $652 $1,275 $1,774 ($398)
4 Water Revenue Bonds
2013 $52,638 $90,018 $84,468 $9,558 $1
5 Water Revenue Bonds
2017 $0 $0 $0 $5,992 $48,953
6 Drinking Water State
Revolving Fund Loan $0 $0 $0 $0 $17,877
7 Total Actual Capital
Expenses $57,934 $97,853 $92,100 $34,186 $79,608

City of Sacramento, CA / Water Fund Review Report 31

Table 4-10: Actual Capital Expenses from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Water Development
Fees $3,293 $1,778 $2,265 $2,128 $1,747
2 Water Fund $13,439 $11,429 $13,176 $7,892 $11,326
3 Water Grant Fund $1,762 $418 $6 $419 $147
4 Water Revenue Bonds
2013 $1 $0 $1 $4,275 $0
5 Water Revenue Bonds
2017 $7,657 $0 ($2) $609 $0
6 Drinking Water State
Revolving Fund Loan $65,175 $32,873 $20,193 $2,991 $92
7 Total Actual Capital
Expenses $91,327 $46,498 $35,638 $18,314 $13,313

4.3. Debt Service History

4.3.1. Budgeted Debt Service
The budgeted debt service history for water is shown in the following tables. The total debt service the water utility budgeted to pay from FY 2014 through FY 2023 was approximately $293.4 million.

Table 4-11: Budgeted Debt Service History from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Debt Service Transfer
out $9,769 $14,059 $14,066 $14,357 $14,066
2 Principal Payments $5,424 $5,685 $5,961 $5,821 $6,062 3 Interest Payment $7,657 $7,389 $7,108 $6,565 $6,317
4 Budgeted Debt
Service Total $22,849 $27,133 $27,135 $26,743 $26,445

Table 4-12: Budgeted Debt Service History from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Debt Service Transfer
out $17,440 $17,431 $17,426 $26,670 $22,960
2 Principal Payments $6,323 $6,614 $6,911 $7,198 $6,906 3 Interest Payment $6,044 $5,747 $5,436 $5,140 $4,820
4 Budgeted Debt
Service Total $29,807 $29,792 $29,773 $39,007 $34,686

4.3.2. Actual Debt Service
The actual debt service history paid from FY 2014 through FY 2023 was $295.3 million. The actual expenditures for debt services aligned with the budgeted amounts and are shown in the following tables.

City of Sacramento, CA / Water Fund Review Report 32

Table 4-13: Actual Debt Service History from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Debt Service Transfer out $9,769 $14,019 $13,956 $14,291 $15,887 2 Principal Payments $5,424 $5,685 $416 $5,821 $6,062
3 Interest Payment $7,657 $7,389 $6,086 $6,565 $6,364
4 Actual Debt Service Total $22,849 $27,092 $20458 $26,677 $28,312

Table 4-14: Actual Debt Service History from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Debt Service Transfer
out $17,438 $18,080 $16,096 $26,670 $24,311
2 Principal Payments $6,323 $6,614 $6,911 $7,198 $6,906 3 Interest Payment $6,044 $5,747 $5,436 $5,140 $4,820
4 Actual Debt Service
Total $29,806 $30,441 $28,443 $39,007 $36,037

City of Sacramento, CA / Water Fund Review Report 33

4.4. Revenues

4.4.1. Budgeted Revenues
The budgeted revenues and CAGR for the Water Fund are shown in the following tables.

Table 4-15: Budgeted Revenues from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Interest and Investment
Income $400 $400 $400 $400 $400
2 Miscellaneous $276 $76 $105 $114 $114
3 User Fees and Charges $95,386 $95,882 $94,752 $105,529 $115,297 4 Total Budgeted
Revenues $96,063 $96,358 $95,258 $106,043 $115,811

Table 4-16: Budgeted Revenues from FY 2019 through FY 2023 (in thousands) Line
No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Interest and
Investment Income $400 $400 $400 $400 $865
2 Miscellaneous $114 $114 $4,673 $1,000 $1,100
3 User Fees and
Charges $126,709 $139,262 $135,861 $134,052 $134,127
4 Total Budgeted
Revenues $127,223 $139,776 $140,934 $135,452 $136,092

Table 4-17: Budgeted Revenues CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Interest and Investment
Income 8.9%
2 Miscellaneous 16.6%
3 User Fees and Charges 3.9%
4 Budgeted Revenues Total 3.9%

4.4.2. Actual Revenues
The actual revenues and CAGR for the Water Fund are shown in the following tables.

City of Sacramento, CA / Water Fund Review Report 34

Table 4-18: Actual Revenues from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Interest and Investment Income $535 $627 $856 $1,213 $1,878 2 Miscellaneous $581 $4,756 $314 $243 $304
3 User Fees and Charges $94,470 $100,468 $98,645 $108,998 $119,552 4 Total Actual Revenues $95,587 $105,851 $99,816 $110,454 $121,734

Table 4-19: Actual Revenues from FY 2019 through FY 2023 (in thousands) Line
No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Interest and
Investment Income $3,108 $3,435 $2,000 $1,657 $4,101
2 Miscellaneous $2,791 $400 $4,613 $1,829 $5,945
3 User Fees and
Charges $127,982 $141,793 $139,896 $134,914 $129,187
4 Total Actual
Revenues $133,881 $145,628 $146,509 $138,400 $139,233

Table 4-20: Actual Revenues CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Interest and Investment
Income 25.4%
2 Miscellaneous 29.5%
3 User Fees and Charges 3.5%
4 Actual Revenues Total 4.3%

Budgeted revenues for water averaged $116.8 million annually, and actual revenues averaged slightly higher at $117.7 million annually from FY 2014 through FY 2023. Actual revenues had a higher CAGR of 4.3% compared to 3.9% for budgeted revenues from FY 2014 to FY 2023. The CAGR for actual revenues of 4.3% was close to the CAGR for actual expenses of 4.6%. Since the growth in actual revenues was higher than budgeted revenues and approximately the growth of actual expenses, it indicates that the City is accurately budgeting for water revenues.

As previously discussed, inflation as measured by the CPI was 2.8% from FY 2014 to FY 2023. The following revenue categories had increases higher than inflation over the same period: interest and investment income, miscellaneous, and user fees and charges. However, the approved rate increases for rate revenues do not have a relationship to inflation.

4.5. Capital Improvement Funding History
The water capital improvement projects funded from FY 2014 through FY 2023 were analyzed to determine the ratio of cash-funded, grant, and debt-financed projects. The cash-funded projects include cash from rate City of Sacramento, CA / Water Fund Review Report 35

revenues and revenues from water development fees10. The debt-financed projects include proceeds from revenue bonds and State Revolving Loan Funds.

Table 4-21 includes carryover funding from prior years that included the 2013 Water Revenue Bonds for $239 million. However, the budgeted amounts for capital improvement funding show a more even mix of cash and debt funding.

Table 4-21: Capital Improvement Funding History for FY 2014 through FY 2023 Line No. Description Budget Percentage Actual Percentage 1 Cash funded capital $178,088,617 41.9% $117,339,127 20.7% 2 Grants $5,931,363 1.4% $6,061,627 1.1%
3 Debt financing $240,625,768 56.7% $443,368,880 78.2%
4 Total $424,645,748 100.0% $566,769,635 100.0%

4.6. Historical Water Rates
The City implemented the water rate increases, as approved by City Council, shown in the following table for a 60% total increase between FY 2014 and FY 2023. However, actual rate revenues from User Fees and Charges, which is less than total revenues, have only increased by 37% over the same period. Ideally, if rates were increased by 60%, then revenues generated from those rates should increase by the same proportion.

The total number of water accounts in 2014 was 135,590. The total number of accounts in 2023 was 148,237, which is an increase of 9.3%. However, the total amount of water distributed was 34,896 MG in 2014, but only 25,884 MG in 2023, which is a decrease of 25.8%. This decrease is likely related to the City’s meter program and water conservation efforts.

All water customers are metered. These customers are charged a monthly fixed fee that varies by meter size and a uniform commodity rate for all water consumption. The monthly fixed fee accounts for approximately 59% of rate revenues and 41% of consumption charges. Since consumption has declined over the years and accounts for a significant portion of revenues, it partially explains why the proportion of rate increases does not match the total increase in rate revenues from FY 2014 to FY 2023. However, the rate structure used for recovering revenues should still be investigated to help resolve this issue. This type of in-depth investigation is part of a cost-of-service analysis to ensure rates are adequate and have a nexus to water costs.

10 Water development fees are restricted revenues that can only be used for development-related projects City of Sacramento, CA / Water Fund Review Report 36

Table 4-22: Historical Water Rate Increases for FY 2014 through FY 2023 Line No. Year Rate Increase
1 2014 10%
2 2015 10%
3 2016 0%
4 2017 10%
5 2018 10%
6 2019 10%
7 2020 10%
8 2021 0%
9 2022 0%
10 2023 0%
11 Total 60%

4.7. Regulatory Requirement Changes
The water utility sector has experienced several changes in regulatory requirements over the previous five years. For example, the State Water Board adopted Making Conservation a California Way of Life on July 3, 2024. The framework aims to give each water agency an objective, or budget, for residential and outdoor water use and contains three major components that affect urban retail water suppliers: 1) a unique urban water use objective; 2) commercial, industrial, and institutional performance measures; and 3) annual reporting. These cost impacts have not yet been identified.

This section of the report presents key changes in California legislation and regulatory requirements. This is not a legal review or a comprehensive list of all legal changes in California and should not be used as legal guidance. The details of compliance would need to be reviewed by the City’s legal counsel.

4.7.1. California Legislation
Senate Bill 200
Senate Bill 200 was passed in 2019. The bill addresses drinking water needs for water systems providing services to disadvantaged communities. It provides funding to small community water systems not achieving safe drinking water standards. Funds appropriated from this bill are transferred from the Greenhouse Gas Reduction Fund to establish the Safe and Affordable Drinking Water Fund. This fund is administered by the California State Water Board. Senate Bill 200 does not appear to have any financial impact on the City.

Senate Bill 323
Senate Bill 323 was passed in 2021. The bill requires lawsuits challenging water or wastewater rates to be filed within 120 days of the effective date. Utilities must include a statement of the 120-day statute of limitations to challenge any new, increased, or extended fee or rate in their proposed rate notification. It also mandates that challenges be brought through a reverse validation action. Senate Bill 323 does not appear to have any financial impact on the City.

City of Sacramento, CA / Water Fund Review Report 37

Senate Bills 606 and 1668
Senate Bills 606 and 1668 became effective in 2019. These bills require the State of California to establish new efficiency standards for water use by 2022. The bills also require local agencies to create drought and water- shortage plans. The bills set indoor residential water use at 55 gallons per person per day, and water usage is incrementally reduced after January 1, 2025. These changes impact water use efficiency and drought planning for the City. Senate Bills 606 and 1668 could potentially have a relatively minor financial impact on the City.

Senate Bill 974
Senate Bill 974 was passed in 2020. This bill enables communities providing drinking water services to disadvantaged communities to apply for exemption from some state environmental review requirements. The exemption lasts until 2028 and applies to projects that install or repair water infrastructure. The exemption will allow disadvantaged communities to complete water projects that are necessary to improve water quality. Senate Bill 974 does not appear to have any financial impact on the City.

Assembly Bill 1572
Assembly Bill 1572 was passed in 2023. This bill builds upon previous legislation restricting wasteful water use on nonfunctional turf or purely decorative grass such as grass in parking lots and within rights-of-way. It applies to common areas of residential homeowner’s associations, commercial, industrial, municipal, and institutional properties. The City must revise its ordinances to implement the restrictions outlined in this bill by 2027.

Senate Bill 3
Senate Bill 3 was passed in 2023. Under the previous Water Shutoff Protection Act (Act), water service providers were exempt from requirements if the providers had less than 200 service connections. This bill removed the exemption, and the requirements of the Act apply to providers with at least 15 service connections. Senate Bill 3 does not appear to have any financial impact on the City.

Senate Bill 122
Senate Bill 122 was passed in 2023. This bill designates aquifers as “natural infrastructure,” which allows more funds to be available for groundwater recharge projects. It will also enable floodplain expansion and wetland restoration projects to qualify for funding allocated to groundwater recharge. Senate Bill 122 could potentially have a financial impact on the City if or when eligible projects exist.

Senate Bill 389
Senate Bill 389 was passed in 2023. This bill grants the California State Board oversight authority of appropriative rights to surface water and riparian rights established before 1914. Senate Bill 389 does not appear to have any financial impact on the City.

Assembly Bill 755
Assembly Bill 755 was passed in 2023. This bill requires a water usage demand analysis to be conducted as part of a cost-of-service analysis for water service. The cost-of-service and the average annual volume of water consumed by high-water users must be identified in the analysis. This information must also be made publicly available. High water users are defined as users with the top 10% of water volume consumption. Senate Bill 755 could potentially have a relatively minor financial impact on the City.

4.7.2. Water Regulations
The City is subject to regulations adopted by the United States Environmental Protection Agency (USEPA) under the Safe Drinking Water Act of 1974 and the State Water Board under the California Safe Drinking City of Sacramento, CA / Water Fund Review Report 38

Act. California’s Health and Safety Code is intended to improve upon the federal regulations by establishing standards that are more protective of public health by exceeding federal minimums.

PFAS
The USEPA issued the first-ever national drinking water standard to address per- and polyfluoroalkyl (PFAS) contamination in 2024. The USEPA is setting a non-enforceable health-based goal of zero for PFOA and PFOS. It set an enforceable maximum contaminant level (MCL) of 4 parts per trillion for PFOA and PFOS.

It set an MCL goal of 10 parts per trillion for PFNA, PFHxS, and HFPO-DA.

The requirements of the USEPA’s new rules state that public water systems must conduct initial and ongoing compliance monitoring for regulated PFAS; implement solutions to reduce regulated PFAS in drinking water if levels exceed the MCLs; and inform the public of the levels of regulated PFAS measured in the drinking water if an MCL is exceeded. The initial monitoring must be completed within three years or by 2027.

Starting three years after the rule promulgation (2027 - 2029) the results of initial monitoring must be included in Consumer Confidence Reports; regular monitoring for compliance must commence; and public notices must be issued for monitoring and test violations. Commencing in 2029, utilities must comply with all MCLs and issue public notices for MCL violations.
11 Utilities are faced with increased operating and capital costs to monitor and reduce PFAS contaminants and are still struggling to estimate the true cost. The USEPA estimates water system monitoring, treatment, disposal, and administration will cost the water industry approximately $1,548,000,000 per year.12

Hexavalent Chromium
The State Water Board established a drinking water standard in 2024 in the form of an MCL of 10 µg/L (micrograms per liter) or 10 parts per billion as defined in 22 California Code of Regulations, section 64400.34.

The State Water Board estimates the annual costs for treated monitoring for communities to be approximately $390,000. It estimates the cost to prepare compliance and operations plans and to review those plans for hexavalent chromium as $1,220,000 and $510,000, respectively. It estimates the annual cost of treatment for an MCL of 10 µg/L for a community with more than 10,000 connections, such as Sacramento, to be $3,440,000.
13 Perchlorate
California changed the detection limit for reporting in 2021 by decreasing the limit from 4 µg/L to 2 µg/L and it decreases again in 2024 to 1 µg/L. Perchlorate is considered an acute toxic substance with damaging effects on the thyroid. The MCL is set at the public health goal of 6 parts per billion. This is the maximum concentration of perchlorate that could be ingested in drinking water without posing a significant risk to human health. The State Water Board estimated modest cost increases to monitoring because of the rule change.

11 USEPA. Final PFAS National Primary Drinking Water Regulation Presentation by the Office of Water. https://www.epa.gov/system/files/documents/2024-04/general-overview-webinar-presentation-final-pfas-ndpwr.pdf 12 USEPA. Benefits and Cost of Reducing PFAS in Drinking Water Fact Sheet. 13 California Water Boards (2023). Initial Statement of Reasons for the Hexavalent Chromium Maximum Contaminant Level (MCL) Regulation, Title 22, California Code of Regulations.

City of Sacramento, CA / Water Fund Review Report 39

4.8. Weather Impacts
Raftelis was asked to answer the following question based on available information from the City:

How have changes in the frequency and severity of weather events in the previous twenty years affected the water system costs?

The City has recognized that global warming is posing risks to human health and property due to hotter average daytime temperatures, increased rainfall, and more extreme weather events. The City has prepared both the Sacramento 2040 General Plan and the Climate Action & Adaptation Plan (CAAP) to not only preserve and enhance environmental resources in and around the City but also provide protection from natural hazards and to build community-wide resilience to climate change.

The City recognizes the urgent need for bold action to reduce greenhouse gas (GHG) emissions. The City’s CAAP lays out strategies and specific measures for achieving a pathway to carbon neutrality by 2045, with bold actions that will cut waste, pollution, and carbon emissions community-wide and commit to building resilience for all its communities from the effects of climate change, especially the most vulnerable.

Climate change is affecting DOU’s water infrastructure as well as the associated capital costs. For example, DOU will be required to convert its fleet vehicles to zero-emission vehicles (ZEVs) by 2045. It is estimated that the cost of purchasing some vehicles, such as heavy-duty vehicles, could double. Additionally, the City does not currently have sufficient infrastructure in place, such as charging stations, to accommodate the increase in ZEVs. DOU is in the process of determining what the required costs will be, including the limitations of meeting this requirement for heavy excavation equipment and trucks. These costs have not yet been included in the 30-year capital plans prepared for the water system infrastructure but are expected to have a significant financial impact.

Using global climate model projections, DOU has evaluated and analyzed changes to rainfall amounts, designed storm distribution analysis, and changes to designed storms to account for climate change effects on the water system infrastructure. DOU has also incorporated the findings from the 2022 American River Basin Study into their climate change impacts analysis. DOU’s work and findings to date on climate change impacts on the water system are discussed below.

• Projected temperature increases over the coming decades and their negative impacts on snowpacks, and the surface water levels used for freshwater supply have driven DOU to focus on the groundwater program in its 30-year CIP. To meet increasing drinking water demands, the City may need to increase groundwater supply wells in areas that the City may not have otherwise located them.

Groundwater quality conditions will likely also require increased levels of treatment. These climate change impacts will drive both capital and O&M costs. The full costs of these impacts on the groundwater supply have not yet been determined, however, the 30-year water CIP (FY 2024 through FY 2054) includes $206.3 million for the well rehabilitation program which includes well improvements, new wells, and treatment. These costs are likely to be insufficient to address the full scope of climate change impacts; DOU is actively working to evaluate and determine those additional costs.

• The RiverArc project, which aims to augment the currently pressured water supply from the American River with increased supply access to the Sacramento River is being largely driven by City of Sacramento, CA / Water Fund Review Report 40

climate change impacts with only a small portion of the increased capacity being tied to Development Impact Fees. The 30-year water CIP includes $229.2 million for the RiverArc project.

• Increased investment in more advanced water treatment technology (e.g., using ozone) at the treatment plants is required to address changing raw water quality. Long-term cost projections for this program are estimated to be approximately $466.0 million (Water+ Resiliency projects in the CIP).

• From a water conservation perspective, the City ensured the recently adopted CAAP acknowledged the need for living landscapes as a buffer against heat island effects with increasing temperatures; however, these cost impacts have not yet been identified.

• Additional investments in the Water Forum to support ecosystem improvements in the face of increasingly unsuitable water temperatures are likely. These cost impacts have not yet been identified.

• Increased water temperature can be harmful to upstream reservoir and hydroelectric operation. The City does not generate electricity directly, but DOU is a significant user of electricity, and if the electric supply is impacted, that will likely increase DOU's electric costs. These cost impacts have not yet been identified.

• Additional investment into finished water storage is required to adapt to the compressed irrigation schedule. The pressure for more water conservation overall is statewide and is related to growth and climate change projections. DOU is preparing a study to best understand the investments needed to meet the new water conservation regulations. However, the need for water, even with conservation measures in place, will grow by 7-8% due to more prolonged and hotter summers. 14 It is clear from DOU’s analyses to date that climate change is currently impacting and highly likely to continue to impact the water system infrastructure needs and capital costs. The current 30-year water system CIP doesn’t currently reflect the full cost impacts of climate change as DOU is actively working to evaluate and determine those additional costs.

4.9. Summary
A summary of the expense, revenue, and funding history is as follows:

• Actual operating and capital expenses were higher than their budgeted projections. Actual expenses had a higher CAGR of 4.6% compared to 4.0% for budgeted expenses from 2014 to 2023. Also, additional operations budget is needed for critical operating needs; these costs have been included as part of Financial Plans 1 and 2 later in this report.

• The average annual budgeted capital expenses were $42.5 million. The average annual actual capital expenses were $56.7 million, which was approximately $14.2 million higher than the budgeted expenses. This is because capital projects have multi-year funding, and carryover funding was available in the CIP to support the annual variance of approximately $14.2 million.

14 U.S. Department of the Interior, American River Basin Study, Interior Region 10 – California Great Basin, August 2022.

City of Sacramento, CA / Water Fund Review Report 41

• Budgeted revenues averaged $116.8 million annually, and actual revenues averaged slightly higher at $117.7 million annually from FY 2014 through FY 2023. Actual revenues had a higher CAGR of

4.3% compared to 3.9% for budgeted revenues from FY 2014 to FY 2023. This indicates that the City is accurately budgeting for water revenues.

• Actual revenues (4.3% CAGR) increased at approximately the same pace as expenses (4.6% CAGR) from FY 2014 to FY 2023.

• Capital projects were funded as follows: cash-funded capital (20.7%), grants (1.1%), and debt (78.2%).

However, this does not indicate that the City typically issues debt to fund projects. During this time, the City Council required and approved the DOU to accelerate the installation of water meters, which required additional debt funding.

• The City implemented rate increases totaling 60% from FY 2014 to FY 2023. However, actual rate revenues from User Fees and Charges have only increased by 37% over the same period. This indicates rate revenues have been impacted by different factors such as declining consumption, non- revenue water, climate change, conservation, and the water meter program. Growth alone is not enough to sustain and DOU should consider evaluating the water rates with a comprehensive rate cost-of-service analysis.

• While the full scope of additional costs due to regulatory changes and weather impacts has not been determined, the overall financial impact is likely to be significant. DOU is actively working to determine these additional costs.

City of Sacramento, CA / Water Fund Review Report 42

5. Service Level and Water System
Capacity

5.1. Current Capacity of Water Infrastructure
Raftelis was asked to answer the following question based on available information from the City:

What is the current capacity of the water infrastructure and how does that compare to stated policies and levels of service?

The City provides domestic water treatment and distribution, wastewater collection, and stormwater systems services. These systems are complemented by other regional agencies and organizations that provide additional sewage and stormwater collection and treatment. The City’s General Plan states that “ensuring that this infrastructure operates in ways that minimize adverse impacts on the environment, protect public health, and optimize benefit to the community is essential for a sustainable and equitable city.”

The City has developed policies included in the General Plan to provide for proactive planning and maintenance of utility systems, with investments made strategically to ensure that built capacity matches demand and that improvements to accommodate new development are balanced with the need to maintain quality services for existing residents and businesses.

The City’s policies are also intended to improve the sustainability, resilience, and energy efficiency of its facilities, infrastructure, and operations consistent with the goal to achieve carbon neutrality by 2045. The City’s goals, policies, and levels of service included in the General Plan for the water system infrastructure are provided in Table 5-1 below.

Table 5-1: City of Sacramento General Plan Key Goals and Policies for Water Infrastructure

City of Sacramento General Plan Key Goals and Policies for Water Infrastructure Goal PFS-3 – Efficient, high-quality utility infrastructure and services to meet the needs of residents and businesses throughout the City.

Goal PFS-4 – A reliable supply of high-quality water that meets projected needs within the City’s place of use.

Goal ERC-1 – Responsible management of water resources that preserves and enhances water quality and availability.

Goal PFS-1 – Responsive police and fire services that ensure a high level of public safety.

Policy Number Policy
PFS-3.1 - Provision of Adequate
Utilities
The City shall continue to provide reliable water, wastewater, and stormwater drainage utility services.

City of Sacramento, CA / Water Fund Review Report 43

Goal PFS-4 – A reliable supply of high-quality water that meets projected needs within the City’s place of use.

Goal ERC-1 – Responsible management of water resources that preserves and enhances water quality and availability.

Goal PFS-1 – Responsive police and fire services that ensure a high level of public safety.

Policy Number Policy
PFS-3.2 – Utility Sustainability
Standards
The City shall continue to improve the sustainability, resilience, and energy efficiency of its facilities, infrastructure, and operations consistent with the CAAP and the goal of achieving carbon neutrality by 2045.

PFS-3.3 – Development Impacts Through the development review process, including through development impact fees and offsite improvements constructed by new development, the City shall ensure that adequate public utilities and services are available to serve new development.

PFS-3.4 – Water Distribution
System Management
The City shall maintain and periodically update the Water Distribution System Master Plan to guide the rehabilitation, replacement, and management of the potable water distribution system.

PFS-3.5 – Water
Treatment Capacity and
Infrastructure
The City shall plan, secure funding for, and procure sufficient water treatment capacity and infrastructure to meet projected maximum daily water demands. Options to explore may include the following:
• Expansion or rehabilitation of existing treatment plant infrastructure;
• Development and management of groundwater wells; and
• Collaboration on regional water supply solutions.

PFS-3.7 – Rate and Fee Studies The City shall periodically conduct rate and fee studies to ensure adequate funds are collected to maintain and
expand utility systems as needed to support projected
growth, implementing rate and fee increases as needed.

City of Sacramento, CA / Water Fund Review Report 44

Goal PFS-4 – A reliable supply of high-quality water that meets projected needs within the City’s place of use.

Goal ERC-1 – Responsible management of water resources that preserves and enhances water quality and availability.

Goal PFS-1 – Responsive police and fire services that ensure a high level of public safety.

Policy Number Policy
PFS-3.8 – Capital Improvement
Programming
The City shall give high priority in capital improvement programming to funding the rehabilitation or replacement of critical infrastructure that has reached the end of its useful life, considering the probability and risk of infrastructure failure. In prioritizing R/R projects for inclusion in the CIP, the City shall consider the potential for projects and locations to support inclusive economic development and climate adaptation objectives and serve to build healthy, climate-resilient, sustainable, and inclusive communities.

PFS-3.10 – Meet Projected
Needs
The City shall foster the orderly and efficient expansion of facilities and infrastructure to adequately meet projected needs, comply with current and future regulations, and maintain public health, safety, and welfare. Infrastructure and facility planning should discourage oversizing of infrastructure that could induce growth at the edges of the city beyond what is anticipated in the General Plan.

PFS-3.11 – Joint-Use Facilities Wherever feasible, the City shall pursue the development of joint use water, stormwater quality, flood control and other utility facilities as appropriate in conjunction with schools, parks, bike paths, golf courses, and other suitable uses to achieve economy and efficiency in the provision of services and facilities.

PFS-3.12 – Safe and Compatible
Utility Design
The City shall ensure that public utility facilities are designed to be safe and compatible with adjacent uses.

PFS-3.13 – Impacts to
Environmentally Sensitive Lands
The City shall consider the impacts on environmentally sensitive areas and habitats when locating and designing municipal utilities.

PFS-4.1 – Exercise and Protect
Water Rights
The City shall exercise and protect its water rights and entitlements in perpetuity.

PFS-4.2 – Water Supply
Sustainability
The City shall maintain a surface water/groundwater conjunctive use program, which uses more surface water when it is available and more groundwater when surface water is limited.

City of Sacramento, CA / Water Fund Review Report 45

Goal PFS-4 – A reliable supply of high-quality water that meets projected needs within the City’s place of use.

Goal ERC-1 – Responsible management of water resources that preserves and enhances water quality and availability.

Goal PFS-1 – Responsive police and fire services that ensure a high level of public safety.

Policy Number Policy
PFS-4.3 – Surface Water Supply The City shall continue to explore and advance options for diverting, treating, and conveying surface water to be able to continue fully meeting potable supply demand.

PFS-4.4 – Groundwater
Infrastructure
The City shall maintain investment in groundwater infrastructure to provide for water supply reliability. Groundwater sustainability, cost-effectiveness, and the quality of the resource shall be factored into groundwater investments.

PFS-4.5 – Comprehensive Water
Supply Planning
The City shall prepare and implement an Urban Water
Management Plan, updating it on a 5-year cycle, to ensure a reliable, long-term water supply and service under projected future conditions.

PFS-4.7 – Water Supply During
Emergencies
The City shall, to the extent feasible, maintain adequate water supply during emergencies in accordance with the water master plan (WMP) and the Urban Water Management Plan.

PFS-4.8 – New Development The City shall ensure that water supply capacity is in place prior to granting building permits for new development.

ERC-1.6 – Groundwater
Management

The City shall promote sustainable groundwater management practices through continued participation in regional initiatives and relevant Groundwater Sustainability Agencies.

PFS-1.7 – Water Supply for Fire
Suppression
The City shall ensure that adequate water supplies are available for fire suppression throughout the city and shall require development to construct all necessary fire suppression infrastructure and equipment.

5.1.1. Water System Infrastructure
DOU maintains two water treatment plants, 30 active ground water wells, storage facilities, and approximately 1,645 miles of water mains. The water system currently serves a resident population of about 525,000 in approximately 203,000 housing units.

make up approximately 70% of the City’s system. The age of the City’s pipelines appears to range from new to over 100 years old in the older parts of the City, with approximately 46% of the City’s pipelines aged over 50 years old.

The City has about 673 miles of asbestos cement (AC) pipe (37% of total length) that was installed from 1950 to 1980 in the older parts of the City (including North Sacramento, Arden-Arcade, South Natomas, Land Park/Pocket/Meadowview, South Sacramento and the eastern parts of East Sacramento). AC pipe can fail catastrophically and has the potential to leach asbestos into the water system over time. Most utilities with a significant quantity of AC pipe have a focused program to replace the pipe; the DOU’s pipe replacement program is currently in development

The North Sacramento and Arden-Arcade areas have steel pipes installed from 1920 to 1960. East Broadway and Land Park have areas with 50- to 100-year-old steel and cast-iron pipe. The oldest pipes, located in Central Sacramento, are cast iron pipes estimated to range in age from 70 to 130 years old.

DOU completed a water master plan (WMP) in January 2023. The WMP recommended the following improvements to the water system.

Supply Capacity Improvements
• No specific peak supply capacity improvements were identified. • Nearly all the City’s groundwater facilities/wells are beyond the recommended useful life of 50 years.

Continue to rehabilitate and replace aging wells so that sufficient active groundwater facilities are available to meet the City’s needs, particularly in areas where groundwater supply and/or system pressures could be improved.

Storage Capacity Improvements
• A new ground-level storage reservoir be constructed in the Northeast region in the near term. • Continue to increase access to groundwater supply/storage at new and rehabilitated wells during an emergency by installing plug-in adapters and transfer switches for portable generators during power outages.
• Implement improvements at the City’s existing storage facilities to promote mixing within the tank.

Pumping Capacity Improvements
• No additional pumping capacity improvements have been identified besides the pumping capacity associated with new groundwater wells and storage capacity.

Transmission System Improvements
• Replace existing identified transmission mains or provide additional transmission capacity in the near term.
• Perform condition assessment studies to determine if the identified existing transmission mains should be replaced and upsized, or can remain and be paralleled with new mains to provide additional capacity.

Distribution System Improvements
• Prioritize approximately 228 miles of pipelines for renewal/replacement (R/R) with low available fire flow and pressures caused by older and smaller pipelines, starting with areas of known leak history to minimize water loss, as part of the City’s ongoing R/R efforts. • Add approximately 30 new sampling stations and develop/expand the City’s flushing program for areas in the distribution system that have average velocities less than 0.1 ft/s or known areas with low City of Sacramento, CA / Water Fund Review Report 47

chlorine residuals.

Other Improvements
• Continue to update the hydraulic model to add additional junctions to improve hydrant location representation to refine the available fire flow results and to reflect operational changes associated with new groundwater wells, storage facilities, and transmission mains. • Perform a comprehensive review of the City’s SCADA system and verify the integrity of the recorded system data.

The WMP incorporates the City’s General Plan goals, policies, and desired levels of service. DOU appears to have included $2.65 billion in funding in the 30-year CIP for all of the above-recommended improvements, as summarized below. Costs shown are the total over the 30-year CIP period from FY 2024 through FY 2054:

• Distribution System Improvements - $326 million
• Drinking Water Quality/Sampling Stations - $8.7 million • FWTP Assets Improvements - $75.8 million
• SRWTP Assets Improvements - $179 million
• Transmission Main Improvements - $423 million
• Water+ Program (RiverArc, Water+ & SRWTP Expansion) - $1.26 billion* • Groundwater Well Rehab program - $206 million
• Reservoir Storage Rehab Program - $160 million
• SCADA - $10.9 million

*The second expansion project may extend beyond FY 2054.

Based on our review, DOU appears to have incorporated the City’s General Plan goals, policies, and desired levels of service considerations into their water 30-year CIP.

5.1.2. Recommendations for Water Infrastructure
DOU has developed an extensive and detailed 30-year CIP for its water utility. Additionally, they have performed detailed studies and evaluations of their future water needs with additional studies ongoing. As DOU is still developing and maturing their water asset management program, the linear and facilities asset R/R costs in the 30-year CIP likely does not reflect the full cost needs for ongoing linear and facilities assets R/R. In addition, DOU has had limited capital budget funding available for several years, due to the lack of water rate increases in FY 2021 to FY 2023, so sufficient asset R/R has been deferred due to lack of funding.

This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of asset R/R funding in the next 5 to 10 years to “catch up” on the deferments.

To help address these issues, the following recommendations are offered for consideration.

1. DOU indicated they do not have current Business Risk Exposure (BRE) scores developed for their water linear and facility assets. To develop BRE scores, each asset is assessed for condition and given a likelihood of failure (LOF) score and then assessed for its consequence(s) of failure (COF) and given a COF score. BRE scores are then calculated as LOF × COF. Assets are typically categorized as Extreme, High, Medium, and Low risk based on the BRE scores. The higher the BRE score the higher City of Sacramento, CA / Water Fund Review Report 48

the priority for investment for asset renewal or replacement. (i.e., addressing all the Extreme risk assets first, High-risk assets second, etc.) Developing these BRE scores will allow Sacramento to prioritize which assets should be renewed or replaced first, the level of investments needed, and the timeframes for completing those investments. DOU indicated they are currently working on a water asset management plan that will be completed at the end of the 2024 calendar. The plan includes identifying risk scores for the water assets.

2. If asset condition or COF data is not available, DOU should first determine COF scores for the missing assets, and then collect and develop the missing asset condition data; this should take 2 to 3 years based on DOU currently developing their asset management plan. When considering asset condition data, inspections or physical condition data of the asset should be collected and used. Age, material, and assumed useful life data could be used for initial future projections of asset renewal needs, but this approach can often oversimplify the estimations and lead to higher estimated capital cost needs, especially for timeframes beyond 5 years, compared to a BRE-based approach. Age, material, and assumed useful life data could also be used for initial future projections of asset renewal needs, but should be appropriately qualified and BRE scores updated routinely as asset condition data gaps are filled from collected data.

3. For linear water assets, i.e., distribution and transmission pipelines:

A. A target annual R/R rate by total system length should be selected and tailored to Sacramento. An R/R rate of 1% represents an average asset renewal timeframe of once every 100 years for renewing or replacing the asset. This R/R rate is used by many utilities in the industry.

Utility best practices are to tailor the utility’s R/R rate depending on the actual condition of the linear assets and the consequences of failure. Utilities moving from reactive to proactive asset renewal may need to “catch up” on renewing existing Extreme or High-risk assets, thus increasing the R/R rate to greater than 1%, i.e. 2 – 3%, by total system length. Other utilities that are more proactive with R/R may find that achieving a 1% or less R/R rate is sufficient to mitigate risks of failures.

For example, DOU has approximately 1,800 miles of water pipelines. A 1% annual R/R rate would be 18 miles per year which at an average cost of $300/ft 15 equals a potential R/R budget need of $28.5
million per year for linear asset renewal. It appears the distribution main improvements budget included in the 30-year CIP equals about $10.9 million per year on average. This is a great start but may reflect less than a 1% R/R rate and therefore DOU may want to revisit these budget needs based on a BRE prioritization approach. Again, the needed annual rate of investment may need to be lower or higher per year based on the actual assets BRE scores.

B. A BRE prioritization approach will allow the City to perform a deeper dive into the linear assets conditions, COF, and available BRE data to help develop more defensible and data-driven annual linear assets R/R investment rates and capital budgets for the water infrastructure. The R/R rate should be linked to actual assets and condition assessment data, and an intentional balancing of risk and COF. Utilities that have invested in R/R for some time, or have newer pipeline assets, may find that 1% is too high because the pipeline condition does not warrant the need for that much R/R.

15 While the WMP appeared to use $235/ft, Raftelis increased the amount to $300/ft to account for inflation based on the Engineering News-Record (ENR) index.

City of Sacramento, CA / Water Fund Review Report 49

Therefore, it is important to consider these details when selecting and tailoring an annual R/R rate for the utility.

C. The selected asset's annual R/R rate also may not be able to be completed in Year 1 and may take several years to ramp up to the selected rate. For example, if a 1% annual R/R rate is selected, ramping up to that rate of R/R over 3 to 5 years considering available funding, staff, and capital project delivery capabilities may be necessary.

D. Projects
should be selected from BRE scores developed for each asset to address Extreme and High- risk assets first.

E. Accurate costs for the R/R projects should be developed based on recent bid costs or recent cost estimates. Engineering and construction costs should be calculated and used to develop a total project cost following the Association for the Advancement of Cost Engineering (AACE) Class 5 estimates or better.

F. For Extreme and High-risk assets, it may be too expensive or not possible from a capital delivery standpoint to renew or replace all Extreme risk (and/or High-risk) assets in 5 years, or even in 10 years. A balance of costs and priority for asset renewal and replacement should be developed with the available funding and available condition assessment and BRE scores data.

4. For water facilities assets, i.e., equipment, pumps, valves, etc. at treatment facilities, storage facilities, groundwater well facilities and other system facilities:

A. Projects
should be selected primarily from BRE scores developed for each asset (see Item 1 above for the explanation of how BRE scores are developed) to address Extreme and High-risk assets. If there is a backlog of existing projects or assets that need improvements, those projects should be prioritized for implementation based on the asset BRE score.

B. Selecting an annual R/R rate for facilities assets should be tailored to Sacramento’s asset needs and BRE scores. This rate may need to be 1%, 2%, or higher of the asset replacement value depending on the amount of asset renewal that has been deferred and the number of current Extreme and High-risk assets. Achieving the selected annual R/R rate by ramping up to that R/R rate over 3 to 5 years considering available funding, staff, and capital project delivery capabilities may be necessary.

C. In 2022, the reconstruction cost value of the City’s two water treatment facilities was estimated to be $2.35 billion and their ground and elevated storage tanks were estimated to have a reconstruction cost value of $362 million. Using 0.5% to 1% of the water treatment facilities reconstruction value as a potential annual R/R investment rate equates to $12 million to $24 million for these water facilities. The 30-year water CIP budget appears to include about $10.7 million of annual facilities R/R. Therefore, there is potentially about a $1.3 million to $13.3 million shortfall in water facilities assets annual R/R investment.

Again, this annual rate of investment may need to be lower or higher based on the actual assets’ BRE scores. A BRE prioritization approach will allow the City to perform a deeper dive into the facilities assets conditions and available BRE data to help develop more defensible and data- driven annual facilities R/R investment rates and capital budgets for the water infrastructure.

City of Sacramento, CA / Water Fund Review Report 50

D. If asset condition or COF data is not available, DOU should first determine COF scores for the missing assets, and then collect and develop the missing asset condition data. When considering asset condition data, inspections or physical condition data of the asset should be collected and used. Using age, material, and assumed useful life data can be used for initial future projections of asset renewal needs, but this approach can often oversimplify the estimations and lead to higher estimated capital cost needs, especially for timeframes beyond 5 years, compared to a BRE based approach. Age, material, and assumed useful life data can be used for initial future projections of asset renewal needs but should be appropriately qualified and BRE scores updated routinely as asset condition data gaps are filled from collected data.

E. Implement reliability-centered maintenance (RCM) approaches for all treatment and facilities primary assets to inform ongoing asset O&M and triggers for asset replacement. Evaluate if the current computerized maintenance management system (CMMS) software is sufficient for recording the necessary RCM data and adjust as necessary to efficiently record the needed data.

F. Use the collected data to monitor asset performance and proactively rehabilitate or replace worn components of the assets, when O&M costs become excessive, or performance drops below allowable levels.

G. Record O&M costs at the asset level and review annual asset O&M costs to compare to replacement costs for critical assets. Use this data to determine which assets should be prioritized to be replaced through a capital investment versus continuing to maintain. A good metric is when annual maintenance cost divided by asset replacement cost exceeds 4% to 5%, the asset should be evaluated for replacement. For example, if a pump costs $100,000 to replace and is costing $4,000 - $5,000 annually to maintain (4% - 5%), then the pump should be evaluated for replacement. Use the RCM data and the BRE scores to inform the asset life cycle and the priority for inclusion of the asset renewal or replacement in the capital budget.

5.2. Risks of Catastrophic Failure and Extent of
Deferred Capital Investment
Raftelis was asked to answer the following questions based on available information from the City:

What are the risks of catastrophic system failure?
What is the extent of any deferred capital investment of water infrastructure? How does the deferred capital investment impact infrastructure capacity and valuation?

These three questions are best answered together because they are inextricably linked. DOU has developed an extensive and detailed 30-year CIP for their water utility. DOU has performed detailed studies and evaluations of their future water needs with additional studies ongoing. In addition, DOU has had limited capital budget funding available for several years, so sufficient asset R/R has been deferred. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of asset R/R funding in the next 5 to 10 years to “catch up” on the deferments.

From a financial perspective, the assets’ book value is also lower because many assets are at or beyond their remaining useful lives; meaning little to no residual value because they haven’t been renewed or replaced.

City of Sacramento, CA / Water Fund Review Report 51

5.2.1. Water System Infrastructure Deferred Capital Needs DOU conducted a review of existing asset information and has identified significant deferred maintenance needs for the water system infrastructure. The water system infrastructure and facilities require routine maintenance and repair to keep them in acceptable condition and to preserve and extend their useful lives.

This includes preventative maintenance, replacement of parts, systems, or components, and other activities needed to preserve or maintain the various assets. Deferred maintenance refers to necessary maintenance and repairs that have accumulated, typically due to a lack of dedicated funding to perform non-routine replacements, upgrades, or preventative maintenance, and were therefore delayed.

Deferred maintenance also includes equipment and infrastructure components that need to be replaced as they are past the end of their useful life and can no longer be repaired. For example, in the Central City, underground infrastructure can be more than or close to 100 years old. Deferred maintenance is a critical issue as it can result in failures in infrastructure and services (e.g., broken water mains or treatment facilities, leaking roofs, electrical outages, insufficient water supply, unsafe water, and violations of drinking water permits and water quality limits), often results in increased costs due to the need for major emergency repairs or replacements, can increase risks and liability, and can result in sub-optimal services to users of City facilities and infrastructure.

DOU provided the following deferred capital R/R costs and descriptions by asset category. These costs represent DOU’s current cost investment needs for the listed assets.

Table 5-2: Water System Infrastructure Summary of Deferred Capital Investments Asset Category 30-Year Deferred Capital Investment Amount Water Facilities Electrical Switchgear,
Instrumentation and SCADA
$12.3 million
Water Supply Projects (Groundwater Well
Program)
$111.6 million
Water Supply Projects (Water Treatment
Plants)
$342.7 million
Water Distribution/Transmission Main
Replacement projects
$272.6 million
Total $739.2 million

The asset R/R needs descriptions for each water asset category are provided below:

Table 5-3: Description of Asset Renewal and Replacement Needs Asset Category Need Description
Water Facilities Electrical Switchgear,
Instrumentation and SCADA
The City maintains 45 water facilities that provide clean and environmentally friendly water to the citizens of
Sacramento. Every water facility contains electrical
switchgear which is used to power each facility. As this gear ages it needs to be replaced . The industry
recommendation is to replace electrical switchgear after 30 years of service. Currently, the City has a backlog of City of Sacramento, CA / Water Fund Review Report 52

Asset Category Need Description
$8.8 million of electrical switchgear which needs
replacing due to age or equipment becoming obsolete. In addition, other electrical, instrumentation, and SCADA
unmet needs at water facilities entail the replacement of Programmable Logic Controllers (PLCs ) and Variable
Frequency Drives (VFDs).

Water Supply Projects (Groundwater Well
Program)
The Groundwater Well Replacement Program will build
replacement groundwater wells as recommended by
DOU’s completed 2017 Groundwater Master Plan.

Most of the City’s groundwater wells were built in the
1950s and are at the end of their useful lives. This project supports City policies related to maintaining both a
surface water and groundwater supply (conjunctive use).

Water Supply Projects (Water Treatment
Plants)
Resiliency projects at the SRWTP and FWTP include
adding ozone, installing sodium hypochlorite to replace gaseous chlorine, replacement of aged-out infrastructure such as filters, and reservoirs, and replacement of
electrical and maintenance shops.

Water Distribution/Transmission Main
Replacement projects
This program will replace water mains that have
exceeded their useful life. Cast iron mains within the
downtown and midtown neighborhoods are over 100
years old, have reduced pipe capacity, sometimes don’t
meet fire flow standards, contain lead joints, and are more suspectable to leaks than all other water mains in the system. Much of the older Asbestos Cement (AC)
pipe (also called transite pipe) has lost most of its
structural integrity and needs replacement.

Given the deferred investments listed above, the need for BRE scores for the assets, and the historical lack of funding experienced by DOU, the risks of catastrophic water system asset failure appear to be high.

In addition to the recommendations Raftelis provided under section 5.1, we offer the following for consideration:

1. Additional capital funding for the water system is needed to address the $739 million 16 of water system
deferred capital investments to-date.

2. When these funds are provided, performing a capital projects delivery assessment of DOU is recommended for potential project management process improvements and staffing needs to spend the additional water system capital and efficiently convert the increased funding into completed projects.

5.3. Extent of Deferred O&M of Water Infrastructure
Raftelis was asked to answer the following questions based on available information from the City:

What is the extent of any deferred operations and maintenance of the water infrastructure? How does the deferred O&M maintenance impact infrastructure capacity and valuation?

16 Note that the $739 million will continue to increase as DOU seeks additional funding.

City of Sacramento, CA / Water Fund Review Report 53

While DOU indicated that the water facilities and linear assets can be operated and maintained within the approved annual operating budgets,, with the deferred capital investment discussed above, keeping the existing assets functioning and running efficiently and at necessary distribution and treatment capacities is becoming increasingly difficult. And because many assets are older, finding spare parts to keep the assets running is a challenge, often requiring custom parts to be fabricated at increased costs. Additionally, DOU has also identified an additional $7.03 million in O&M funding needs over the next 5 years associated with the deferred capital investments. These costs are summarized in Table 7-11 in Section 7 of this report.

The deferred capital investment is increasing the risk of assets failing catastrophically, increasing the consequences of failure and increasing the need for higher levels of asset R/R funding in the next 5 to 10 years to “catch up” on the deferments. In addition, by not renewing and replacing the existing assets they become harder to keep operational and properly maintained, the capacity of the infrastructure decreases, it is significantly less reliable and resilient, and the value of the assets decreases.

Another potential concern is recruiting and hiring qualified staff to operate and maintain the existing assets.

Historically, as assets have been added, the necessary staffing to maintain and operate those assets has not kept pace. As stated previously,
there are numerous open FTE positions for the water utility that the City is trying to fill, with a total staffing cost need of $1.1 million over the next 5 years. Finding qualified staff has been difficult and a Citywide classification and compensation study is currently underway.

In addition to the recommendations Raftelis provided under sections 5.1.2 and 5.2.1, we offer the following for consideration:

1. Perform a staffing study and organizational assessment for the Water Utility to: a) evaluate the number, positions, and experience of current staff; b) confirm the staffing needs for the City’s current and future water infrastructure needs, and the needed increase in O&M spending; and c) recommend necessary improvements. This assessment would build upon the benchmarking work discussed in this report.

City of Sacramento, CA / Water Fund Review Report 54

6. Valuation

6.1. Value, Age, and Remaining Useful Life of Water
Infrastructure
Raftelis was asked to determine the valuation, age, and remaining useful life of the water infrastructure based on available information from the City.

DOU maintains two water treatment plants (WTP), 30 active groundwater wells, storage facilities, and approximately 1,645 miles of water mains. DOU hired outside engineering consultants to prepare asset valuations for the WTPs, reservoirs, and wells in 2022. The consultants estimated reconstruction cost value of the two water treatment facilities was $2.35 billion and the reconstruction cost value of the ground and elevated storage tanks was $362 million. The consultants estimated the current (2022) value for all wells was $40.4 million and an individual well replacement cost was $5,060,500. With 32 wells, the approximate replacement cost in 2022 was $161.9 million.

In May 2022, DOU staff prepared a time and materials (TM) for transmission mains valuation which indicated a replacement cost of $569.2 million. In 2024, DOU staff also estimated the replacement cost for cast iron pipes within the distribution system to be $1.19 billion. Raftelis reviewed each of the valuation reports and the valuations methods and costs appear reasonable and appropriate. The total replacement/reconstruction cost value of the water system assets, based on the above numbers, equals in excess of $4.6 billion.

The City’s water transmission and distribution system pipelines range in size from two inches to 72 inches in diameter. There are about 159 miles of transmission main (larger than 12-inch pipes), 1,484 miles of distribution pipe (12 inches and less), and 1.8 miles of supply pipe. Six and eight-inch diameter pipelines make up approximately 70% of the City’s water system. The data indicates the age of the City’s water pipelines ranges from new to over 100 years old in the older parts of the City, with approximately 46% of the City’s pipelines over 50 years old. The average age of the water distribution system and transmission system is 46 years old and 43 years old, respectively.

The City has about 673 miles of AC pipe (37% of total length) that was installed from 1950 to 1980 in the older parts of the City (including North Sacramento, Arden-Arcade, South Natomas, Land Park/Pocket/Meadowview, South Sacramento and the eastern parts of East Sacramento). AC pipe can fail catastrophically and has the potential to leach asbestos into the water system over time. Most utilities with a significant quantity of AC pipe have a focused and targeted program to replace the pipe; the DOU’s pipe replacement program is currently in development.

The North Sacramento and Arden-Arcade areas had steel pipes installed from 1920 to 1960. East Broadway and Land Park have areas with 50- to 100-year-old steel and cast-iron pipe. The oldest pipes, located in Central Sacramento, are cast iron pipes estimated to range in age from 70 to 130 years old. Steel and cast-iron pipes typically have a useful life of 50 to 75 years, meaning many of these pipes need to be replaced. DOU indicated that a detailed breakdown of the remaining useful life for the linear water assets by size and material type has not yet been developed.

City of Sacramento, CA / Water Fund Review Report 55

This data indicates the majority of the water distribution and transmission systems have reached the end of their useful life or have less than 10 to 15 years of useful life remaining. Approximately 248 miles, out of the approximately 1,645 miles of the water distribution and transmission systems have been renewed or replaced since 2008.

DOU provided a water assets lifecycle and replacement cost list that included a register of 7,324 separate assets associated with the water system. This information shows that about 68% of the assets (4,946 out of the 7,324) have 20 years or less of remaining useful life and about 38% of the assets (2,770 out of 7,324) have 10 years or less of remaining useful life.

There are about 9% of the water assets (695 out of 7,324) that have 5 years or less of remaining useful life and should be assessed for immediate replacement. Table 6-1 summarizes the remaining useful life of the water system’s assets based on the available information from DOU.

Table 6-1: Water Assets Remaining Useful Life
Number of Water Assets Remaining Useful Life (years)
169 0
526 3 - 5
2,075 6 - 10
1,106 12 - 15
1,070 17 - 20
1,793 25 - 30
585 >30
Total = 7,324

By not renewing and replacing the existing assets, the capacity of the infrastructure decreases, it is significantly less reliable and resilient, and the value of the assets decreases. From a financial perspective, the asset's book value is also lower because many assets are at or beyond their remaining useful lives, meaning little to no residual value because they haven’t been renewed or replaced. DOU indicated they do not have an asset register list for all of their linear and facility water system assets that includes original installed cost, remaining useful life, depreciation, and current asset values, so a comprehensive list of these asset values was not available.

6.2. Risks and Costs to Replace Aging Water
Infrastructure
The current risks of catastrophic water system assets failure appear to be high. DOU has identified $739.2 million in needed capital investments into the water system infrastructure that have been deferred (see Section

5.2.1 of this report). Catastrophic failure of the water system could be a major transmission or distribution line breaking, or one of the treatment facilities failing, causing a water outage to large portions of the population.

These types of failures are very expensive and can take considerable time to fix, resulting in a significant risk to public health.

As discussed in Section 5, DOU has performed detailed studies and evaluations of their future water needs with additional studies ongoing. DOU is still developing and maturing their water asset management program City of Sacramento, CA / Water Fund Review Report 56

so the linear and facilities asset R/R costs in the 30-year CIP likely does not reflect the full cost needs. In addition, DOU has had limited capital budget funding available for several years, so sufficient asset R/R has been deferred. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of asset R/R funding in the next 5 to 10 years to “catch up” on the deferments.

In addition to the recommendations Raftelis provided under sections 5.1.2, 5.2.1, and 5.3, we offer the following for consideration:

1. The DOU has completed a financial asset register for all of the linear and facility water system assets based on available data. For assets that may not have original installed cost data available, these assets should still be included in the asset register, and an engineering estimate developed for the current replacement costs. Remaining useful life should also be estimated based on available condition data.

City of Sacramento, CA / Water Fund Review Report 57

7. Fiscal Forecasting
This section of the report details financial plans developed for the Water Fund based on the projected revenues, expenses, debt service, and capital project costs from the City’s 30-year CIP schedule and multi-year operating projects (MYOP). Raftelis modeled the current conditions of the fund (status quo) without any proposed rate increases as well as three different financial planning scenarios. Financial Plan 1 includes the existing 30-year CIP and MYOP without any additional operating and capital costs. Financial Plan 2 includes everything from Financial Plan 1 and additional operating and capital costs to address aging infrastructure, deficiencies, and gaps not included in the 30-year CIP. Financial Plan 3 includes everything from the first two financial plans and additional linear and facilities renewal and replacement costs from the recommendations outlined in Section 5.

7.1. Assumptions
The assumptions outlined below were utilized to project the number of customer accounts, revenues, and expenses for future years.

7.1.1. Customer Demand and Account Growth
Water customer demand is used for growth in billed consumption, and account growth is the increase or decrease in the total number of accounts. Customer demand and account growth projections for each customer class are shown below and are based on historical trends and data provided by the City. Demand and account growth factors are applied to the previous year’s estimate of billed consumption and number of accounts.

Table 7-1: Customer Demand and Account Growth Projections Line No. Description Demand Growth
Factor
Account Growth
Factor
1 All meter sizes -- 0.2%
2 Consumption 0.2% --

7.1.2. Revenue Escalation Factors
Table 7-2 shows the revenue escalation factors used to project future water revenues and calculate investment income. The reserve interest rate is used to calculate the investment income based on projected fund balances and uses an estimated interest earnings rate of 1.0%.

City of Sacramento, CA / Water Fund Review Report 58

Table 7-2: Revenue Escalation Factors
Line
No. Description Escalation Factors
1 Miscellaneous and
Non-Rate Revenues 1.75% (FY 2025), 0.0% (thereafter)
2 Interest Earnings 1.0%

7.1.3. Expenditures Escalation Factors
Table 7-3 shows the expense escalation factors used to project future operating expenses for the study periods.

These factors were determined based on a review of City data.

Table 7-3: Expenditures Escalation Factors
Line No. Description Escalation
Factors
1 Non-inflated 0.0%
2 Employee Services 2.0%
3 Interfund Reimbursement 3.0%
4 Interfund Service Provided and Used 3.0%
5 Interfund Transfer 3.0%
6 MYOP 2.5%
7 Other Objects17 2.5%
8 Property 2.5%
9 Service and Supplies 2.5%

7.2. Projected Water Demand
City staff provided the number of accounts served and billed consumption for FY 2023. Raftelis forecasted future accounts and billed consumption using the growth factors presented in Table 7-1. Table 7-4 shows the assumed growth in the number of accounts and billed consumption for the next five years. The projections for the total forecast period are shown in the Appendix.

17 Examples of other objects include chemicals, fuel, and utilities.

City of Sacramento, CA / Water Fund Review Report 59

Table 7-4: Projected Water Accounts and Billed Consumption (CCF) Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 5/8-in 185 185 186 186 186
2 3/4-in 194 194 194 195 195
3 1-in 144,206 144,495 144,784 145,073 145,364
4 1-1/2-in 4,271 4,279 4,288 4,296 4,305
5 2-in 4,751 4,761 4,770 4,780 4,789
6 3-in 870 872 874 875 877
7 4-in 776 777 779 780 782
8 6-in 255 255 256 256 257
9 8-in 120 120 120 120 121
10 10-in 20 20 20 20 20
11 12-in 0 0 0 0 0
12 Total Accounts 155,646 155,958 156,270 156,582 156,895 13 Billed
Consumption
(CCF)
36,760,276 36,833,797 36,907,465 36,981,280 37,055,242

7.3. Projected Water Revenues
City staff provided the actual revenues for FY 2014 through FY 2023 and budgeted FY 2024 revenues for the water utility, which were used to confirm calculated rate revenues and project miscellaneous revenues for the study periods. Table 7-5 shows the projected revenues without rate increases for the first five years of the study period; the remaining years are shown in the Appendix. Rate revenues on line 1 were calculated using the units of service in Table 7-4 and the existing rates.

The City expects increases in water rate revenues for all years of the study as a result of increases in customer accounts and demand. The interest earning (line 2) is calculated using the reserve interest rate (Table 7-2, line 2). The interest earning calculations reflect lower fund balances since there are no revenue adjustments from rate increases. The remaining revenues are escalated using the non-rate revenue escalation factor (Table 7-2, line 1).

Table 7-5: Projected Water Revenues without Rate Increases Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Rate Revenue $133,775,046 $134,042,596 $134,310,681 $134,579,302 $134,848,461 2 Interest Earnings $1,275,398 $1,158,168 $928,452 $651,138 $337,103 3 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 4 Total Revenue $138,792,444 $138,942,764 $138,981,133 $138,972,441 $138,927,564

The projected development impact fees (DIF) revenues were provided by the City and are shown in the following table. DIF revenues are restricted for growth-related capital improvement projects.

City of Sacramento, CA / Water Fund Review Report 60

Table 7-6: Projected Water Development Impact Fee Revenues Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 DIF Revenue $5,336,141 $6,605,384 $8,382,324 $9,397,719 $9,444,708 2 Interest Earnings $546,615 $579,789 $650,526 $735,931 $827,503 3 Total Revenue $5,882,756 $7,185,173 $9,032,850 $10,133,650 $10,272,210

7.4. Projected Water O&M Expenses
City staff provided the actual O&M expenses for FY 2014 through FY 2023 and budgeted FY 2024 O&M expenses for the water utility, based on expense function. Table 7-7 shows the projected O&M expenses for the first five years of the study period summarized by expense function, and the remainder of the study period is shown in the Appendix. Each line is escalated based on the expense escalation factors in Table 7-3.

The City also includes MYOP in its budget and forecast. The projected MYOP expenses for water were provided by the City for the next five years. MYOP expenses after FY 2029 are based on the annual average of MYOP expenses from FY 2024 through FY 2029, escalated by an escalation factor of 2.5%, and include additional MYOP identified by the DOU. The water MYOP projected expenses are shown on line 8.

Table 7-7: Projected Water O&M Expenses
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Employee Services $50,061,431 $51,062,660 $52,083,913 $53,125,591 $54,188,103 2 Interfund Reimbursement ($10,666,269) ($10,986,257) ($11,315,845) ($11,655,320) ($12,004,980) 3 Interfund Provided &
Used $16,747 $17,249 $17,767 $18,300 $18,849
4 Interfund Transfer $15,464,992 $15,928,941 $16,406,810 $16,899,014 $17,405,984 5 Other Objects $1,390,116 $1,424,869 $1,460,491 $1,497,003 $1,534,428 6 Property $2,002,826 $2,052,896 $2,104,219 $2,156,824 $2,210,745 7 Service And Supplies $28,790,659 $29,510,426 $30,248,186 $31,004,391 $31,779,501 8 MYOP $3,630,130 $4,949,005 $6,488,914 $6,873,781 $5,257,829 9 Total $90,690,632 $93,959,789 $97,494,454 $99,919,584 $100,390,459

7.5. Debt Service
The City currently has several existing debt issuances for the water utility. Table 7-8 shows the annual payments for the existing debt service.

City of Sacramento, CA / Water Fund Review Report 61

Table 7-8: Existing Water Debt Service Schedules
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Series 2006 Revenue
Bond, Series E $11,071,460 $11,062,328 $11,047,941 $11,041,888 $11,028,257 2 2003 Cirbs + 2006
Refinancing $33,631 $33,621 $33,820 $34,064 $35,474 3 Series 2013 Water
Revenue Bonds $2,859,259 $0 $0 $0 $0
4 Series 2017 Water
Revenue Bonds
$3,375,663 $3,376,288 $3,379,038 $3,378,788 $3,375,538 5 Series 2020 Water
Revenue Bonds $5,200,307 $9,091,004 $10,066,377 $10,714,974 $12,117,505 6 Series 2023 Water
Revenue Bonds
$1,259,100 $3,282,000 $2,304,625 $1,654,250 $824,000 7 American Recovery
and Reinvestment Act
Loan
$638,529 $638,529 $638,529 $638,529 $638,530
8 Water State
Revolving Fund Loan
$8,239,514 $8,239,514 $8,229,514 $8,239,514 $8,239,514 9 Total $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818

7.6. Capital Improvement Projects
City staff provided a 30-year CIP for the water utility for the study period. Table 7-9 shows a summary of the CIP costs for the first five years of the study period on line 1. CIP costs significantly increase in FY 2030 because of the City’s water resiliency projects. The entire CIP plan with project-level detail is provided in the Appendix. Projects are funded through a combination of water rate revenues, cash reserves, water development impact fees (DIF), and bond proceeds.

Due to the extent of capital improvement planned, the CIP cannot be entirely funded with pay-go from water operations; therefore, debt is needed to fund a portion of the capital program beginning in FY 2030

18. The
terms for this debt issue are assumed to be a 20-year bond at 4% interest with a 0.85% issuance cost. It is assumed an additional reserve fund would not need to be created for the debt. Future debt will be included in the debt service coverage requirement as shown in the financial planning sections 7.7, 7.8, and 7.9. The proposed annual debt service is also shown in the financial planning section.

Table 7-9: 30-year CIP – Summary of Total Costs
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 30-year CIP Costs $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851

The growth-related capital projects are separate from the CIP projects listed in the previous table and are funded with DIF revenues. The following table provides a summary of the growth-related CIP.

18 Debt issuance begins in FY 2030 due to timing of the projects included in the 30-year CIP.

City of Sacramento, CA / Water Fund Review Report 62

Table 7-10: 30-year growth-related CIP – Summary of Total Costs Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Growth-related CIP
Costs $5,400,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000

7.7. Status Quo without Rate Increases
The current conditions of the fund (status quo) without rate increase was modeled to show when the water utility will no longer be able to meet its required absolute floor parity lien debt service coverage ratio of 1.20 for parity obligations and bonds, minimum operating reserve target of 120 days of O&M, and capital reserve target of next year’s pay-go19. If the water utility does not implement rate increases, it will not meet its capital reserve target beginning in FY 2028. It will not meet its minimum operating reserve target beginning in FY 2029. It will not be able to meet its absolute floor debt service coverage ratio requirement beginning in FY 2030.

Table 7-11 shows the proforma through FY 2029. Rate revenues on line 2 are derived from the projected baseline revenues in Table 7-5 (line 1). Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 6 are derived from projected O&M expenses in Table 7-7. Existing debt service on lines 8 and 9 are from the annual debt service payments for outstanding debt in Table 7-8. Cash funded capital projects on line 12 are from the capital financing plan in Table 7-9.

The total revenue requirements on line 13 are a sum of the operating expenses, debt service payments, and cash-funded capital. Net cash flow on line 14 is calculated by subtracting the total revenue requirements from the total revenues. Net operating revenue on line 21 is equal to total revenues less O&M expenses. The parity lien debt service coverage ratio on line 22 is calculated by dividing the net operating revenue by the senior lien debt service on line 8. The projected ending fund balance with reserves, ending balance less reserves, operating reserve, and capital reserve are shown on lines 16 through 19.

19 Pay-go is cash funded capital.

City of Sacramento, CA / Water Fund Review Report 63

Table 7-11: Water Proforma for Status Quo
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 0% 0%
2 Rate Revenues $133,775,046 $134,042,596 $134,310,681 $134,579,302 $134,848,461 3 Interest Earnings $1,275,398 $1,158,168 $928,452 $674,977 $417,043 4 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 5 Total Revenues $138,792,444 $138,942,764 $138,981,133 $138,996,279 $139,007,504 Revenue Requirements
6 Operating Expenses $90,690,632 $93,959,789 $97,494,454 $99,919,584 $100,390,459 Debt Service
7 Existing Debt Service (Parity
lien) $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 8 Existing Debt Service
(Unsecured) $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 9 Proposed Debt Service $0 $0 $0 $0 $0
10 Total Debt Service $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 11 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851 12 Total Revenue Requirements $141,910,156 $159,388,273 $164,708,545 $164,217,393 $165,631,129 13 Net Cash Flow ($3,117,712) ($20,445,510) ($25,727,412) ($25,221,114) ($26,623,625) 14 Beginning Balance with Reserves $129,736,340 $126,618,628 $106,173,118 $80,445,707 $55,224,593 15 Ending Balance with Reserves $126,618,628 $106,173,118 $80,445,707 $55,224,593 $28,600,968 16 Ending Cash Balance less
Reserves $68,297,330 $44,967,982 $20,996,933 ($5,407,533) ($42,082,854) 17 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $32,850,274 $33,005,082 18 Capital Reserve $28,505,200 $30,314,247 $27,395,802 $27,781,851 $37,678,739 Debt Coverage Section
19 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $39,076,695 $38,617,044 20 Parity Lien Debt Service
Coverage Ratio 2.23 1.82 1.68 1.58 1.53
Notes: Other revenues include service fees, other agency payments, and miscellaneous revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor parity lien debt service coverage ratio of 1.20 is required for parity obligation per the water utility’s existing bond covenants.

This financial plan is based on data from FY 2024 instead of the FY 2025 approved budget due to timing.

Figure 7-1 shows the ending cash balance compared to the operating and capital reserve targets. If the water utility does not implement rate increases, it will not meet its capital reserve target beginning in FY 2028 nor its operating reserve in FY 2029.

City of Sacramento, CA / Water Fund Review Report 64

Figure 7-1: Status Quo – Ending Balances and Reserve Targets

Figure 7-2 shows the parity lien debt service coverage ratio compared to its requirement. The required absolute floor parity lien debt service coverage ratio is met during the first five years. However, if the water utility does not implement rate increases, it will not meet its required absolute floor parity lien debt service coverage ratio of 1.20 for parity lien debt in FY 2030.

Figure 7-2: Status Quo – Debt Service Coverage Ratio

Without rate increases, the water utility will soon not be able to meet its fiscal requirements. Specifically, it will not meet its capital reserve target beginning in FY 2028, it will not meet its minimum operating reserve target beginning in FY 2029, and it will not be able to meet its absolute floor parity lien debt service coverage ratio requirement beginning in FY 2030. Additionally, this does not account for the 30-year CIP, additional MYOPs, additional operating and capital needs, and R/R to efficiently and effectively operate the water utility. Sections 7.9 through 7.11 below offer proposed financial plans that incorporate these needs while also meeting fiscal requirements.

City of Sacramento, CA / Water Fund Review Report 65

7.8. Development Impact Fee Fund for All Scenarios
Table 7-12 shows the development impact fee (DIF) fund for the status quo, financial plan 1, financial plan 2, and financial plan 3. The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

The projection of DIF funds and growth-related CIP are the same for each scenario. The projection of DIF funds for the first four years were provided by the City, and the remaining years were escalated by 0.2 percent each year to match the assumption used for account growth.

The City plans to reevaluate DIF fees in the future with another DIF nexus study. Projects are delayed for three years in FY 2033 and again in FY 2041 through the end of the study period due to inadequate DIF funds.

Table 7-12: DIF Proforma
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Development Impact Fee
Revenues $5,336,141 $6,605,384 $8,382,324 $9,397,719 $9,416,514 2 Interest Earnings $546,615 $579,789 $650,526 $735,931 $827,362 3 Total Revenues $5,882,756 $7,185,173 $9,032,850 $10,133,650 $10,243,876 4 Growth-related CIP $5,400,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 5 Net Cash Flow $482,756 $6,185,173 $8,032,850 $9,133,650 $9,243,876 6 Beginning Balance $54,693,468 $55,176,224 $61,361,397 $69,394,247 $78,527,897 7 Ending Balance $55,176,224 $61,361,397 $69,394,247 $78,527,897 $87,771,773

Figure 7-3: DIF Fund Ending Cash Balance

City of Sacramento, CA / Water Fund Review Report 66

7.9. Financial Plan 1 with 30-year CIP and MYOP
Table 7-13 shows the proposed capital financing plan for the water utility. The City will need to fund its 30- year water CIP with a mix of pay-go and debt financing. This plan assumes 100% of the projects will be completed within the funding schedule as noted in the 30-year CIP. The escalated capital costs (line 2) are the result of applying a capital escalation factor of 3% to the uninflated total capital costs from Table 7-7 (line 3).

The proposed debt funding (line 6) uses the assumptions outlined in the previous section. The remainder will be funded with pay-go from rates and capacity fees.

Table 7-13: Financing Plan with 30-year CIP Schedule and MYOP Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Uninflated Capital Costs $18,002,000 $28,000,000 $28,840,000 $25,407,000 $25,000,000 2 Escalated Capital Costs $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851 3 Capital Spending Factor 100% 100% 100% 100% 100%
4 Total Funded Capital $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851 Capital Financing Plan
5 Proposed Debt Funding $0 $0 $0 $0 $0
6 Pay-go $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851 7 Total $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851

Table 7-14 shows the projected water financial plan with the 30-year CIP and water MYOP. Rate increases needed to meet fiscal targets and requirements are shown on line 1 and applied to the projected baseline revenues in Table 7-5 (line 1) to derive the rate revenues shown on line 2. Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 6 are derived from projected O&M expenses in Table 7-7.

Existing debt service on lines 8 and 9 are from the annual debt service payments for outstanding debt in Table 7-8. The proposed debt service on line 10 is for debt-financed capital projects and will begin in FY 2030. Cash funded capital projects on line 12 are from the capital financing plan in Table 7-9. This scenario assumes capital projects are funded with a mix of pay-go and debt financing.

Net cash flow is negative in FY 2025 through FY 2027 in Figure 7-10, which means that the Water Fund is using unrestricted cash to fund some of its revenue requirements. The projected ending fund balance with reserves, ending balance less reserves, operating reserve, and capital reserve are shown on lines 16 through 19.

The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

City of Sacramento, CA / Water Fund Review Report 67

Table 7-14: Financial Plan 1 with 30-year CIP Schedule and MYOP Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 22% 20%
2 Rate Revenues $133,775,046 $134,042,596 $134,310,681 $164,186,749 $197,418,147 3 Interest Earnings $1,275,398 $1,158,168 $928,452 $823,014 $1,027,446 4 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 5 Total Revenues $138,792,444 $138,942,764 $138,981,133 $168,751,763 $202,187,593 Revenue Requirements
6 Operating Expenses $90,690,632 $93,959,789 $97,494,454 $99,919,584 $100,390,459 Debt Service
7 Existing Debt Service (Parity
Lien) $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 8 Existing Debt Service
(Unsecured) $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 9 Proposed Debt Service $0 $0 $0 $0 $0
10 Total Debt Service $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 11 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851 12 Total Revenue Requirements $141,910,156 $159,388,273 $164,708,545 $164,217,393 $165,631,129 13 Net Cash Flow ($3,117,712) ($20,445,510) ($25,727,412) $4,534,370 $36,556,464 14 Beginning Balance with Reserves $129,736,340 $126,618,628 $106,173,118 $80,445,707 $84,980,077 15 Ending Balance with Reserves $126,618,628 $106,173,118 $80,445,707 $84,980,077 $121,536,541 16 Ending Cash Balance less
Reserves $68,297,330 $44,967,982 $20,996,933 $24,347,951 $50,852,719 17 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $32,850,274 $33,005,082 18 Capital Reserve $28,505,200 $30,314,247 $27,395,802 $27,781,851 $37,678,739 Debt Coverage Section
19 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $68,832,179 $101,797,134 20 Parity Lien Debt Service
Coverage Ratio 2.23 1.82 1.68 2.79 4.03
Notes: Other revenues include service fees, other agency payments, and miscellaneous revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor parity lien debt service coverage ratio of 1.20 is required for parity obligation per the water utility’s existing bond covenants.

This financial plan is based on data from FY 2024 instead of the FY 2025 approved budget due to timing.

City of Sacramento, CA / Water Fund Review Report 68

Figure 7-4 shows Financial Plan 1 in a graphical format based on the proforma shown in Table 7-14.

Figure 7-4: Financial Plan 1

Figure 7-5 shows the capital financing plan for Financial Plan 1 in graphical format. Capital projects are funded with a mix of debt and cash. Debt funding is used for projects beginning in FY 2030.

Figure 7-5: Financial Plan 1 – Capital Financing Plan

Figure 7-6 shows the water operating funds ending cash balance in comparison to the reserve targets. The ending cash balance exceeds the minimum operating balance and the minimum capital reserve target in each year. The minimum operating reserve target is shown with the solid line. The sum of the minimum operating and capital reserve target is shown with the dashed line.

City of Sacramento, CA / Water Fund Review Report 69

Figure 7-6: Financial Plan 1 – Ending Balances and Reserve Targets

Figure 7-7 shows the calculated parity lien debt service coverage ratio with bars. The required absolute floor parity lien debt service coverage ratio of 1.20 is achieved each year and shown with the black dashed line.

Fitch issued an AA- rating for the City’s water utility in 2023. The median debt service coverage ratio for water utilities with a similar rating reported by Fitch is equal to 1.97 and shown with the red solid line. The median reported by S&P Global is equal to 2.00 and is shown with the yellow dotted line.

Figure 7-7: Financial Plan 1 – Debt Service Coverage Ratio

City of Sacramento, CA / Water Fund Review Report 70

Figure 7-8 shows the days of cash on hand for Financial Plan 1. The ending cash balance is divided by the operating expenses and then divided by 365. It is an indicator of financial flexibility to fund near-term obligations. The median days of cash on hand for water utilities with a similar rating reported by Fitch is equal to 390 days and shown with the red solid line. The median reported by S&P Global is equal to 534 days and is shown with the yellow dotted line. The days of cash on hand for Financial Plan 1 are below the S&P Global median each year and below the Fitch median in FY 2027 and FY 2028.

Figure 7-8: Financial Plan 1 – Days of Cash on Hand

Figure 7-9 shows the annual water bill as a percentage of the lowest quintile income (LQI). The USEPA uses the annual bill as a percentage of median household income (MHI) for the residential indicator in its Financial Capability Assessment Guidance.
20 However, MHI does not account for the variability of income distribution between communities, therefore LQI is used in this study to assess the potential impact of rate increases. It is commonly inferred by many utilities that annual water bills as a percentage of LQI of 3% or higher are considered to place a burden on those households. This threshold is represented with the dashed line.

The City estimated that an average residential water customer uses approximately 11.7 hundred cubic feet (CCF) per month. The estimated annual water bill for a residential customer with this consumption equals $633.62. The estimated annual water bill increases by the proposed rates for that fiscal year. The US Census Bureau reported that the LQI for Sacramento, CA was $31,769 in 2022. The LQI was escalated by 3% each year of the study period to account for inflation and was assumed to be approximately $34,715 in 2025. The annual water bill as a percentage of LQI is calculated by dividing the estimated water bill as the numerator by the LQI as the denominator. The water bills as a percentage of LQI are below the 3 percent affordability threshold each year.

20 Clean Water Act Financial Capability Assessment Guidance, USEPA, February, 2023.

City of Sacramento, CA / Water Fund Review Report 71

Figure 7-9: Financial Plan 1 – Annual Water Bill as Percentage of Lowest Quintile Income

The following are key takeaways for Financial Plan 1:

Key Takeaways for Financial Plan 1 (First Five Years):
• Rate increases are as follows: 0% (FY 2025 through FY 2027), 22% (FY 2028), and 20% (FY 2029). • The average cash funded capital for the first five years is $27.5 million annually. • The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The required absolute floor parity lien debt service coverage ratio is achieved each year. • Annual water bills as a percentage of LQI are below the 3% affordability threshold. • The days of cash on hand do not exceed the S&P Global median during the first five years and do not exceed the Fitch median in FY 2027 and FY 2028.

Key Takeaways for Financial Plan 1 (Years 6 through 25):
• Rate increases are as follows: 7% (FY 2030), 6% (FY 2031 and FY 2032), 5% (FY 2033), 4% (FY 2034 and FY 2035), and 0% for the remainder of the study period. • The average cash funded capital throughout the study period is $59.5 million annually. • The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The required absolute floor parity lien debt service coverage ratio is achieved each year. • Annual water bills as a percentage of LQI remain below the 3% affordability threshold. It reaches a maximum point of 2.7% in FY 2035.
• The days of cash on hand exceed the Fitch median for water utilities with an AA- rating each year and exceeds the median reported by S&P Global in FY 2035 through the end of the study period.

City of Sacramento, CA / Water Fund Review Report 72

7.10. Financial Plan 2 with Costs to Address Deficiencies and Gaps
Raftelis coordinated with City staff to identify additional FTE staffing, operating, MYOP, and capital needs to address aging infrastructure, deficiencies, and gaps. The needs included in this section are not in the City’s current budget, projections, or 30-year CIP schedule. Financial Plan 2 includes these additional operating, MYOP, and capital needs along with everything from Financial Plan 1.

7.10.1. Additional Operating Costs
The DOU provided a schedule of additional operating costs that are one-time and recurring expenditures.

The additional operating and MYOP costs for the next five years are shown in the table below, and the additional operating and MYOP costs for the remainder of the study period are shown in the Appendix. They were included in this financial scenario and not escalated above the DOU’s estimates.

Table 7-15: Additional Water Operating Costs
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Additional Operating Costs $0 $0 $0 $1,488,550 $1,507,435 2 Additional MYOP $0 $0 $0 $4,767,654 $6,405,005

7.10.2. Additional Capital Costs
The additional capital costs for the next five years are shown in the following table, and the additional capital costs for the remainder of the study period are shown in the Appendix. They were included in this financial scenario and escalated using the CIP escalation factor.

Table 7-16: Additional Water Capital Costs
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Additional Capital $0 $0 $0 $5,875,363 $5,060,842

7.10.3. Financial Plan 2 with Additional Operating and Capital Costs Table 7-17 shows Financial Plan 2 with funding for the 30-year CIP, MYOP, additional operating expenses, additional MYOP, and additional capital costs. Rate increases needed to meet fiscal targets and requirements are shown on line 1 and applied to the projected baseline revenues in Table 7-5 (line 1) to derive the rate revenues shown on line 2. Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 6 are derived from projected O&M expenses in Table 7-7 and include additional costs from Table 7-15.

Existing debt service on lines 8 and 9 are from the annual debt service payments for outstanding debt in Table 7-8. The proposed debt service on line 10 is for debt-financed capital projects and will begin in FY 2030. Cash funded capital projects on line 12 are from the capital financing plan in Table 7-9 and additional costs from Table 7-16. This scenario assumes capital projects are funded with a mix of pay-go and debt financing.

the total revenues. Net operating revenue on line 20 is equal to total revenues less O&M expenses. The parity lien debt service coverage ratio on line 22 is calculated by dividing the net operating revenue by the parity lien debt service on lines 8 and 10 and is well over the absolute floor debt service coverage ratio of 1.20. Net cash flow is negative in FY 2025 through FY 2028 in Figure 7-10, which means that the Water Fund is using unrestricted cash to fund some of its revenue requirements. The projected ending fund balance with reserves, ending balance less reserves, operating reserve, and capital reserve are shown on lines 16 through 19.

The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

Table 7-17: Financial Plan 2 with Additional Operating and Capital Costs Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 22% 22%
2 Rate Revenues $133,775,046 $134,042,596 $134,310,681 $164,186,749 $200,708,449 3 Interest Earnings $1,275,398 $1,158,168 $928,452 $758,669 $845,667 4 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 5 Total Revenues $138,792,444 $138,942,764 $138,981,133 $168,687,418 $205,296,117 Revenue Requirements
6 Operating Expenses $90,690,632 $93,959,789 $97,494,454 $106,175,787 $108,302,899 Debt Service
7 Existing Debt Service (Parity
Lien) $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 8 Existing Debt Service
(Unsecured) $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 9 Proposed Debt Service $0 $0 $0 $0 $0
10 Total Debt Service $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 11 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $35,208,575 $34,848,754 12 Total Revenue Requirements $141,910,156 $159,388,273 $164,708,545 $177,086,369 $179,410,471 13 Net Cash Flow ($3,117,712) ($20,445,510) ($25,727,412) ($8,398,951) $25,885,646 14 Beginning Balance with Reserves $129,736,340 $126,618,628 $106,173,118 $80,445,707 $72,046,755 15 Ending Balance with Reserves $126,618,628 $106,173,118 $80,445,707 $72,046,755 $97,932,401 16 Ending Cash Balance less
Reserves $68,297,330 $44,967,982 $14,384,160 $3,490,893 $18,595,854 17 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $34,907,108 $35,606,433 18 Capital Reserve $28,505,200 $30,314,247 $34,008,575 $33,648,754 $43,730,114 Debt Coverage Section
19 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $62,511,631 $96,993,218 20 Parity Lien Debt Service
Coverage Ratio 2.23 1.82 1.68 2.53 3.84
Notes: Other revenues include service fees, other agency payments, and miscellaneous revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

City of Sacramento, CA / Water Fund Review Report 74

The absolute floor parity lien debt service coverage ratio of 1.20 is required for parity obligation per the water utility’s existing bond covenants.

This financial plan is based on data from FY 2024 instead of the FY 2025 approved budget due to timing.

Figure 7-10 show Financial Plan 2 in a graphical format based on the proforma shown in Table 7-17.

Figure 7-10: Financial Plan 2

Figure 7-11 shows the financing plan for Financial Plan 2 in graphical format. Capital projects are funded with a mix of debt and cash. Debt funding is used for projects beginning in FY 2030.

Figure 7-11: Financial Plan 2 – Capital Financing Plan

Figure 7-12 shows the water operating funds ending cash balance in comparison to the reserve targets. The ending cash balance exceeds the minimum operating balance and capital reserve targets each year. The minimum operating reserve target is shown with the solid line. The sum of the minimum operating and capital reserve target is shown with the dashed line.

City of Sacramento, CA / Water Fund Review Report 75

Figure 7-12: Financial Plan 2 – Ending Balances and Reserve Targets

Figure 7-13 shows the calculated parity lien debt service coverage ratio with bars. The required absolute floor parity lien debt service coverage ratio of 1.20 is achieved each year and shown with the black dashed line.

Figure 7-13: Financial Plan 2 – Debt Service Coverage Ratio

City of Sacramento, CA / Water Fund Review Report 76

Figure 7-14 shows the days of cash on hand for Financial Plan 2. The ending cash balance is divided by the operating expenses and then divided by 365. It is an indicator of financial flexibility to fund near-term obligations. The median days of cash on hand for water utilities with a similar rating reported by Fitch is equal to 390 days and shown with the red solid line. The median reported by S&P Global is equal to 534 days and is shown with the yellow dotted line. The days of cash on hand for Financial Plan 2 are below the S&P Global median each year and below the Fitch median in FY 2027 through FY 2029.

Figure 7-14: Financial Plan 2 – Days of Cash on Hand

Figure 7-15 shows the annual water bill as a percentage of the LQI. The water bills as a percentage of LQI are below the 3% affordability threshold each year.

Figure 7-15: Financial Plan 2 – Annual Water Bill as Percentage of Lowest Quintile Income

City of Sacramento, CA / Water Fund Review Report 77

The following are key takeaways for Financial Plan 2:

Key Takeaways for Financial Plan 2 (First Five Years):
• Rate increases are as follows: 0% (FY 2025 through FY 2027) and 22% (FY 2028 and FY 2029). • The average cash funded capital for the first five years is $30.0 million annually, which is $2.5 million more than the average for Financial Plan 1.
• The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year except for FY 2029. • The required absolute floor parity lien debt service coverage ratio is achieved each year. • Annual water bills as a percentage of LQI remain below the 3% affordability threshold each year. • The days of cash on hand do not exceed the S&P Global median during the first five years and do not exceed the Fitch median in FY 2027 through FY 2029.

Key Takeaways for Financial Plan 2 (Years 6 through 25):
• Rate increases are as follows: 22% (FY 2030), 5% (FY 2031), 4% (FY 2032 and FY 2033), 3% (FY 2034), and 0% for the remainder of the study period.
• The average cash-funded capital throughout the study period is $68.7 million annually, which is $9.2 million more than the average for Financial Plan 1.
• The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The required absolute floor parity lien debt service coverage ratio is achieved each year. • Annual water bills as a percentage of LQI hit the 3% affordability threshold in FY 2033 and FY 2034 and are below it in other years. It reaches the maximum point of 3.0% in FY 2033 and FY 2034. • The days of cash on hand exceed the Fitch median for water utilities with an AA- rating beginning in FY 2033 and exceeds the median reported by S&P Global in FY 2035 through the end of the study period.

City of Sacramento, CA / Water Fund Review Report 78

7.11. Financial Plan 3 with Renewal and Replacement
Costs
Raftelis provided additional linear and facilities renewal and replacement costs in Section 5 of this Report.

Financial Plan 3 includes everything from Financial Plans 1 and 2 and additional linear facilities renewal and replacement costs. The renewal and replacement costs for linear assets are gradually included in the projections beginning in FY 2028 and are fully included by FY 2031. The renewal and replacement costs for facilities are fully included beginning in FY 2028. The renewal and replacement costs were not escalated beyond the recommended values in Financial Plan 3.

Table 7-18 shows Financial Plan 3 with funding for the 30-year CIP, MYOP, additional operating expenses, additional MYOP, additional capital costs, and the renewal and replacement costs. Rate increases needed to meet fiscal targets and requirements are shown on line 1 and applied to the projected baseline revenues in Table 7-5 (line 1) to derive the rate revenues shown on line 2. Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 6 are derived from projected O&M expenses in Table 7-7 and include additional costs from Table 7-15. Existing debt service on lines 8 and 9 are from the annual debt service payments for outstanding debt in Table 7-8. The proposed debt service on line 10 is for debt-financed capital projects and will begin in FY 2030. Cash funded capital projects on line 12 are from the capital financing plan, additional capital costs, and renewal and replacement costs. This scenario assumes capital projects are funded with a mix of pay-go and debt financing.

The total revenue requirements on line 13 are a sum of the operating expenses, debt service payments, and cash-funded capital. Net cash flow on line 14 is calculated by subtracting the total revenue requirements from the total revenues. Net operating revenue on line 20 is equal to total revenues less O&M expenses. The parity lien debt service coverage ratio on line 22 is calculated by dividing the net operating revenue by the parity lien debt service on lines 8 and 10 and is well over the absolute floor debt service coverage ratio of 1.20. Net cash flow is negative in FY 2025 through FY 2027 in Figure 7-10, which means that the Water Fund is using unrestricted cash to fund some of its revenue requirements. The projected ending fund balance with reserves, ending balance less reserves, operating reserve, and capital reserve are shown on lines 16 through 19.

The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

City of Sacramento, CA / Water Fund Review Report 79

Table 7-18: Financial Plan 3 with Additional Operating, MYOP, Capital, and R/R Costs Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 45% 15%
2 Rate Revenues $133,775,046 $134,042,596 $134,310,681 $195,139,989 $224,859,809 3 Interest Earnings $1,275,398 $1,158,168 $928,452 $868,985 $1,132,210 4 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 5 Total Revenues $138,792,444 $138,942,764 $138,981,133 $199,750,974 $229,734,019 Revenue Requirements
6 Operating Expenses $90,690,632 $93,959,789 $97,494,454 $106,175,787 $108,302,899 Debt Service
7 Existing Debt Service (Parity
Lien) $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 8 Existing Debt Service
(Unsecured) $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 9 Proposed Debt Service $0 $0 $0 $0 $0
10 Total Debt Service $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 11 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $44,098,575 $46,038,754 12 Total Revenue Requirements $141,910,156 $159,388,273 $164,708,545 $185,976,369 $190,600,471 13 Net Cash Flow ($3,117,712) ($20,445,510) ($25,727,412) $13,774,604 $39,133,548 14 Beginning Balance with Reserves $129,736,340 $126,618,628 $106,173,118 $80,445,707 $94,220,311 15 Ending Balance with Reserves $126,618,628 $106,173,118 $80,445,707 $94,220,311 $133,353,859 16 Ending Cash Balance less
Reserves $68,297,330 $44,967,982 $5,494,160 $14,474,449 $40,104,912 17 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $34,907,108 $35,606,433 18 Capital Reserve $28,505,200 $30,314,247 $42,898,575 $44,838,754 $57,642,514 Debt Coverage Section
19 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $93,575,187 $121,431,120 20 Parity Lien Debt Service
Coverage Ratio 2.23 1.82 1.68 3.79 4.81
Notes: Other revenues include service fees, other agency payments, and miscellaneous revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor parity lien debt service coverage ratio of 1.20 is required for parity obligation per the water utility’s existing bond covenants.

This financial plan is based on data from FY 2024 instead of the FY 2025 approved budget due to timing.

City of Sacramento, CA / Water Fund Review Report 80

Figure 7-16 shows Financial Plan 3 in a graphical format based on the proforma shown in Table 7-18.

Figure 7-16: Financial Plan 3

Figure 7-17 shows the financing plan for Financial Plan 3 in graphical format. Capital projects are funded with a mix of debt financing and cash. Debt funding is used for projects beginning in FY 2030.

Figure 7-17: Financial Plan 3 – Capital Financing Plan

Figure 7-18 shows the water operating funds ending cash balance in comparison to the reserve targets. The ending cash balance exceeds the minimum operating and capital reserve target each year. The minimum operating reserve target is shown with the solid line. The sum of the minimum operating and capital reserve targets is shown with the dashed line.

City of Sacramento, CA / Water Fund Review Report 81

Figure 7-18: Financial Plan 3 – Ending Balances and Reserve Targets

Figure 7-18 shows the calculated parity lien debt service coverage ratio with bars. The required absolute floor parity lien debt service coverage ratio of 1.20 is achieved each year and shown with the black dashed line.

Figure 7-19: Financial Plan 3 – Debt Service Coverage Ratio

City of Sacramento, CA / Water Fund Review Report 82

Figure 7-19 shows the days of cash on hand for Financial Plan 3. The ending cash balance is divided by the operating expenses and then divided by 365. It is an indicator of financial flexibility to fund near-term obligations. The median days of cash on hand for water utilities with a similar rating reported by Fitch is equal to 390 days and shown with the red solid line. The median reported by S&P Global is equal to 534 days and is shown with the yellow dotted line. The days of cash on hand for Financial Plan 3 are below the S&P Global median each year and below the Fitch median in FY 2027 and FY 2028.

Figure 7-20: Financial Plan 3 – Days of Cash on Hand

Figure 7-20 shows the annual water bill as a percentage of the LQI. The water bills as a percentage of LQI are below the 3% affordability threshold each year.

Figure 7-21: Financial Plan 3 – Annual Water Bill as Percentage of Lowest Quintile Income

City of Sacramento, CA / Water Fund Review Report 83

The following are key takeaways for Financial Plan 3:

Key Takeaways for Financial Plan 3 (First Five Years):
• Rate increases are as follows: 0% (FY 2025 through FY 2027), 45% (FY 2028), and 15% (FY 2029). • The average cash-funded capital for the first five years is $34.0 million annually, which is $6.5 million more than the average for Financial Plan 1 and $4.0 million more than the average for Financial Plan

2. • The minimum operating target is achieved each year. • The minimum capital reserve target is achieved each year except for FY 2029. • The absolute floor parity lien debt service coverage ratio is achieved each year. • Annual water bills as a percentage of LQI remain below the 3% affordability threshold each year. • The days of cash on hand do not exceed the S&P Global median during the first five years and do not exceed the Fitch median in FY 2027 through FY 2029.

Key Takeaways for Financial Plan 3 (Years 6 through 25):
• Rate increases are as follows: 12% (FY 2030), 6% (FY 2031), 4% (FY 2032 through FY 2034), and 0% for the remainder of the study period.
• The average cash-funded capital throughout the study period is $89.2 million annually, which is $29.7 million more than the average for Financial Plan 1 and $20.5 million more than the average for Financial Plan 2.
• The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The absolute floor parity lien debt service coverage ratio is achieved each year. • Annual water bills as a percentage of LQI exceed the 3% affordability threshold in FY 2031 through FY 2035 and is below for the remainder of the study period. It reaches the maximum point of 3.1% in FY 2034.
• The days of cash on hand exceed the Fitch median for water utilities with an AA- rating beginning in FY 2030 and exceeds the median reported by S&P Global in FY 2035 through the end of the study period.

City of Sacramento, CA / Water Fund Review Report 84

8. Conclusion
The primary objective of this review was to assess the fiscal stability of the Water Fund. An analysis of the status quo consisting of the 30-year CIP and MYOP shows that if the water utility does not implement rate increases, it will not meet its capital reserve target beginning in FY 2028. It will not meet its minimum operating reserve target beginning in FY 2029. It will also not be able to meet its required absolute floor parity lien debt service coverage ratio beginning in FY 2030.

Additionally, the analysis of status quo does not account for the 30-year CIP, MYOPs, additional operating and capital needs, and R/R to efficiently and effectively operate the water utility. About 68% of water assets have 20 years or less of remaining useful life, about 38% have 10 years or less of remaining useful life, and about 9% have 5 years or less of remaining useful life. The current risks of catastrophic water system assets failure appear to be high. DOU has identified $739.2 million in needed capital investments into the water system infrastructure that have been deferred. Catastrophic failure of the water system could be a major transmission or distribution line breaking, or one of the treatment facilities failing, causing a water outage to large portions of the population. These types of failures are very expensive and can take considerable time to fix, resulting in a significant risk to public health.

Other financial impacts that have and will continue to increase costs are regulatory requirements and increased frequency and severity of weather events. For example, the City will be required to convert its fleet vehicles to zero-emission vehicles (ZEVs) by 2045. It is estimated that the cost of purchasing some vehicles, such as heavy-duty vehicles, could double. Additionally, the City does not currently have sufficient infrastructure in place, such as charging stations, to accommodate the increase in ZEVs. DOU is in the process of determining what the required costs will be, including the limitations of meeting this requirement for heavy excavation equipment and trucks. These costs have not yet been included in the 30-year capital plans prepared for the water system infrastructure but are expected to have a significant financial impact.

The last approved water rate increase took effect in 2020. Thus, a cash flow analysis for three scenarios was completed to determine the projected rate increases necessary for the Water Fund to have sufficient funds to meet the water utility’s operating and capital revenue requirements, achieve operating and capital reserve targets, and achieve the absolute floor parity lien debt service coverage ratio 21 required per debt covenants for
a fiscally stable Water Fund. These needed investments will require more capital dollars than currently included in the Water Fund and would make future rate increases necessary. The following tables are summaries comparing the descriptions and proposed rate increases for each scenario. Financial Plan 3 has the highest total of proposed rate increases, 90%, as it is the most wholistic representation of the water utility’s operational and capital needs.

21 DOU must strive for a coverage ratio that is consistent with the applicable credit rating category for the water and wastewater systems.

City of Sacramento, CA / Water Fund Review Report 85

Table 8-1: Water Financial Plan Descriptions
Scenario Description 30-year

Table 8-2: Comparison of Projected Water Rate Increases Fiscal Year Financial Plan 1 Financial Plan 2 Financial Plan 3 FY 2025 0% 0% 0%
FY 2026 0% 0% 0%
FY 2027 0% 0% 0%
FY 2028 22% 22% 45%
FY 2029 20% 22% 15%
FY 2030 7% 22% 12%
FY 2031 6% 5% 6%
FY 2032 6% 4% 4%
FY 2033 5% 4% 4%
FY 2034 – FY
2049 4% (34, 35) 3% (34) 4% (34)
Total 74% 82% 90%

However, we recognize that it may not be feasible to implement the full projected water rate increases in Table 8-2. Therefore, it is likely that the DOU will need to prioritize the most critical, highest-risk, and regulatory projects as full funding for the water utility’s comprehensive needs may not be available.

This analysis and report are primarily based on data provided from FY 2024. There are often differences between actual and projected data. Some of the assumptions used in this report may not be realized, and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between the data or results projected in the report and the actual results achieved. Nevertheless, this report provides valuable information and analysis for the City to consider in its strategic and financial planning for the Water Fund.

City of Sacramento, CA / Water Fund Review Report 86

APPENDIX:

Tables and Figures for the 25-
year Study Period

Wastewater Fund:

Development Impact Fees

Line Description FYE 2025 FYE 2026 FYE 2027 FYE 2028 FYE 2029 FYE 2030 FYE 2031 FYE 2032 FYE 2033 FYE 2034 FYE 2035 102 Water Development Impact Fee Fund
103 Beginning Cash Balance $54,693,468 $55,176,224 $61,361,397 $69,394,247 $78,527,897 $87,771,773 $83,950,460 $47,104,694 $5,890,478 $15,488,916 $25,202,417 104
105 Sources of Funds
106 Transfers (to)/from
107 Cash Funded CIP and CIP Related Expenses (Labor)
108 Development Impact Fee Revenues $5,336,141 $6,605,384 $8,382,324 $9,397,719 $9,416,514 $9,435,347 $9,454,218 $9,473,127 $9,492,073 $9,511,057 $9,530,079 109 Miscellaneous Revenues
110 Interest Income $546,615 $579,789 $650,526 $735,931 $827,362 $854,339 $652,016 $263,658 $106,365 $202,444 $299,675 111 Capacity Fees
112 Total - Source of Funds $5,882,756 $7,185,173 $9,032,850 $10,133,650 $10,243,876 $10,289,687 $10,106,234 $9,736,784 $9,598,438 $9,713,501 $9,829,754 113
114 Use of Funds
115 Water CIP $5,400,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $14,111,000 $46,952,000 $50,951,000 $0 $0 $0 116 Total - Use of Funds $5,400,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $14,111,000 $46,952,000 $50,951,000 $0 $0 $0 117
118 Net Cash Balance $482,756 $6,185,173 $8,032,850 $9,133,650 $9,243,876 ($3,821,313)($36,845,766)($41,214,216) $9,598,438 $9,713,501 $9,829,754 119
120 Ending Balances $55,176,224 $61,361,397 $69,394,247 $78,527,897 $87,771,773 $83,950,460 $47,104,694 $5,890,478 $15,488,916$25,202,417 $35,032,171 Line Description FYE 2036 FYE 2037 FYE 2038 FYE 2039 FYE 2040 FYE 2041 FYE 2042 FYE 2043 FYE 2044 FYE 2045 FYE 2046 FYE 2047 FYE 2048 FYE 2049 102 Water Development Impact Fee Fund
103 Beginning Cash Balance $35,032,171 $7,864,727 $9,870,199 $3,294,066 $8,961,589 $18,222,595 $28,098,060 $38,091,665 $48,204,632 $58,438,193 $68,793,592 $79,272,087 $89,874,948 $100,603,459 104
105 Sources of Funds
106 Transfers (to)/from
107 Cash Funded CIP and CIP Related Expenses (Labor)
108 Development Impact Fee Revenues $9,549,139 $9,568,238 $9,587,374 $9,606,549 $9,625,762 $9,645,013 $9,664,303 $9,683,632 $9,702,999 $9,722,405 $9,741,850 $9,761,334 $9,780,856 $9,800,418 109 Miscellaneous Revenues
110 Interest Income $213,417 $88,233 $65,494 $60,973 $135,245 $230,451 $329,302 $429,335 $530,561 $632,994 $736,645 $841,528 $947,654 $1,055,037 111 Capacity Fees
112 Total - Source of Funds $9,762,557 $9,656,471 $9,652,868 $9,667,522 $9,761,007 $9,875,464 $9,993,606 $10,112,967 $10,233,561 $10,355,399 $10,478,495 $10,602,861 $10,728,510 $10,855,455 113
114 Use of Funds
115 Water CIP $36,930,000 $7,651,000 $16,229,000 $4,000,000 $500,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 116 Total - Use of Funds $36,930,000 $7,651,000 $16,229,000 $4,000,000 $500,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 117
118 Net Cash Balance ($27,167,443) $2,005,471 ($6,576,132) $5,667,522 $9,261,007 $9,875,464 $9,993,606 $10,112,967 $10,233,561 $10,355,399 $10,478,495 $10,602,861 $10,728,510 $10,855,455 119
120 Ending Balances $7,864,727 $9,870,199 $3,294,066 $8,961,589 $18,222,595 $28,098,060 $38,091,665 $48,204,632 $58,438,193 $68,793,592 $79,272,087 $89,874,948 $100,603,459 $111,458,914 $0$20$40$60$80$100$120FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Development Impact Fee Fund Ending Cash Balance

Water Fund:

Financial Plan 1

Cash Flow
Line Description FYE 2025 FYE 2026 FYE 2027 FYE 2028 FYE 2029 FYE 2030 FYE 2031 FYE 2032 FYE 2033 FYE 2034 FYE 2035 1 POTABLE WATER REVENUE
2 Rate Revenue from Existing Rates $133,775,046$134,042,596$134,310,681$134,579,302$134,848,461$135,118,158$135,388,394$135,659,171$135,930,489$136,202,350 $136,474,755 3 Proposed Revenue Adjustments
4 Revenue Months Months
5 Fiscal Year Adjustment Effective Effective
6 FYE 2024 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 FYE 2025 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FYE 2026 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
9 FYE 2027 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0
10 FYE 2028 22.0% July 12 $29,607,447 $29,666,661 $29,725,995 $29,785,447 $29,845,018 $29,904,708 $29,964,517 $30,024,446 11 FYE 2029 20.0% July 12 $32,903,025 $32,968,831 $33,034,768 $33,100,838 $33,167,039 $33,233,374 $33,299,840 12 FYE 2030 7.0% July 12 $13,846,909 $13,874,603 $13,902,352 $13,930,157 $13,958,017 $13,985,933 13 FYE 2031 6.0% July 12 $12,724,993 $12,750,443 $12,775,944 $12,801,495 $12,827,098 14 FYE 2032 6.0% July 12 $13,515,469 $13,542,500 $13,569,585 $13,596,724 15 FYE 2033 5.0% July 12 $11,962,542 $11,986,467 $12,010,440 16 FYE 2034 4.0% July 12 $10,068,632 $10,088,769
17 FYE 2035 4.0% July 12 $10,492,320
18 FYE 2036 0.0% July 12
19 FYE 2037 0.0% July 12
20 FYE 2038 0.0% July 12
21 FYE 2039 0.0% July 12
22 FYE 2040 0.0% July 12
23 FYE 2041 0.0% July 12
24 FYE 2042 0.0% July 12
25 FYE 2043 0.0% July 12
26 FYE 2044 0.0% July 12
27 FYE 2045 0.0% July 12
28 FYE 2046 0.0% July 12
29 FYE 2047 0.0% July 12
30 FYE 2048 0.0% July 12
31 FYE 2049 0.0% July 12
32 Total Revenue Adjustments $0 $0 $0 $29,607,447 $62,569,686 $76,541,734 $89,419,810 $103,114,119 $115,282,889 $125,582,087 $125,833,251 33 34 Rate Revenue (including Revenue Adjustments) $133,775,046 $134,042,596 $134,310,681 $164,186,749 $197,418,147 $211,659,892 $224,808,205 $238,773,290 $251,213,379 $261,784,438 $262,308,007 35 Interest Earnings $1,275,398 $1,158,168 $928,452 $823,014 $1,027,446 $1,222,981 $1,224,329 $1,194,023 $1,254,403 $1,444,685 $1,704,171 36 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 37 TOTAL REVENUE $138,792,444$138,942,764$138,981,133$168,751,763$202,187,593$216,624,873$229,774,534$243,709,313$256,209,782$266,971,123 $267,754,178 38 39 O&M EXPENSES
40 Water Operating Expenses $90,690,632 $93,959,789 $97,494,454 $99,919,584 $100,390,459 $102,477,305 $105,026,265 $107,583,301 $109,995,995 $112,211,652 $114,428,218 41 Additional Expenditures Identified by the City
42 FTE Expenditures $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
43 Additional Operating from the Divisions $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 44 TOTAL O&M EXPENSES $90,690,632 $93,959,789 $97,494,454 $99,919,584$100,390,459$102,477,305$105,026,265$107,583,301$109,995,995$112,211,652 $114,428,218 45 46 DEBT SERVICE
47 Existing Debt Service - Senior Lien $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 $24,720,867 $28,103,493 $25,556,689 $25,237,328 $26,683,488 $24,828,617 48 Existing Debt Service - Subordinate $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 $11,011,061 $10,998,844 $10,985,268 $10,969,043 $0 $0 49 Proposed Debt Service $0 $0 $0 $0 $0 $36,790,875 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 50 TOTAL DEBT SERVICE $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 $72,522,803 $90,609,562 $88,049,182 $87,713,596$78,190,714 $76,335,842 51 52 Transfers (from)/to
53 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $28,595,802 $28,981,851 $38,878,739 $36,613,648 $51,693,526 $42,747,059 $54,075,163 $47,327,040 54 Toal Revenue Requirements $141,910,156$159,388,273$164,708,545$164,217,393$165,631,129$213,878,847$232,249,475$247,326,009$240,456,650$244,477,529 $238,091,101 55 56 NET CASH FLOW ($3,117,712)($20,445,510)($25,727,412) $4,534,370 $36,556,464 $2,746,026 ($2,474,941) ($3,616,696)$15,753,132$22,493,594 $29,663,077 57 58 TOTAL BEGINNING CASH BALANCE WITH RESERVES$129,736,340$126,618,628$106,173,118 $80,445,707 $84,980,077$121,536,541$124,282,567$121,807,625$118,190,929$133,944,061 $156,437,654 59 60 ENDING CASH BALANCE INCLUDING RESERVES $126,618,628$106,173,118 $80,445,707 $84,980,077$121,536,541$124,282,567$121,807,625$118,190,929$133,944,061$156,437,654 $186,100,732 61 Ending Cash Balance $68,297,330 $44,967,982 $20,996,933 $24,347,951 $50,852,719 $55,177,750 $36,784,916 $41,274,018 $44,905,830 $73,419,112 $99,520,902 62 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $32,850,274 $33,005,082 $33,691,169 $34,529,183 $35,369,852 $36,163,067 $36,891,502 $37,620,236 63 Capital Reserve $28,505,200 $30,314,247 $27,395,802 $27,781,851 $37,678,739 $35,413,648 $50,493,526 $41,547,059 $52,875,163 $46,127,040 $48,959,594 64 65 Minimum Operating Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 66 Minimum Capital Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 67 68 DEBT COVERAGE
69 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $68,832,179 $101,797,134 $114,147,568 $124,748,269 $136,126,012 $146,213,787 $154,759,471 $153,325,959 70 Parity Lien Debt Service Coverage Ratio 2.23 1.82 1.68 2.79 4.03 1.86 1.57 1.77 1.91 1.98 2.01 71 Required Absolute Floor Parity Lien Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 72 Required Debt Coverage Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Cash Flow
Line Description FYE 2036 FYE 2037 FYE 2038 FYE 2039 FYE 2040 FYE 2041 FYE 2042 FYE 2043 FYE 2044 FYE 2045 FYE 2046 FYE 2047 FYE 2048 FYE 2049 1 POTABLE WATER REVENUE
2 Rate Revenue from Existing Rates $136,747,705 $137,021,200$137,295,242$137,569,833$137,844,973$138,120,663$138,396,904$138,673,698$138,951,045 $139,228,947 $139,507,405 $139,786,420 $140,065,993 $140,346,125 3 Proposed Revenue Adjustments
4 Revenue Months Months
5 Fiscal Year Adjustment Effective Effective
6 FYE 2024 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 FYE 2025 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FYE 2026 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9 FYE 2027 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 10 FYE 2028 22.0% July 12 $30,084,495 $30,144,664 $30,204,953 $30,265,363 $30,325,894 $30,386,546 $30,447,319 $30,508,213 $30,569,230 $30,630,368 $30,691,629 $30,753,012 $30,814,518 $30,876,147 11 FYE 2029 20.0% July 12 $33,366,440 $33,433,173 $33,500,039 $33,567,039 $33,634,173 $33,701,442 $33,768,845 $33,836,382 $33,904,055 $33,971,863 $34,039,807 $34,107,886 $34,176,102 $34,244,454 12 FYE 2030 7.0% July 12 $14,013,905 $14,041,933 $14,070,016 $14,098,156 $14,126,353 $14,154,605 $14,182,915 $14,211,281 $14,239,703 $14,268,183 $14,296,719 $14,325,312 $14,353,963 $14,382,671 13 FYE 2031 6.0% July 12 $12,852,753 $12,878,458 $12,904,215 $12,930,024 $12,955,884 $12,981,795 $13,007,759 $13,033,774 $13,059,842 $13,085,962 $13,112,134 $13,138,358 $13,164,635 $13,190,964 14 FYE 2032 6.0% July 12 $13,623,918 $13,651,166 $13,678,468 $13,705,825 $13,733,237 $13,760,703 $13,788,224 $13,815,801 $13,843,433 $13,871,119 $13,898,862 $13,926,659 $13,954,513 $13,982,422 15 FYE 2033 5.0% July 12 $12,034,461 $12,058,530 $12,082,647 $12,106,812 $12,131,026 $12,155,288 $12,179,598 $12,203,957 $12,228,365 $12,252,822 $12,277,328 $12,301,882 $12,326,486 $12,351,139 16 FYE 2034 4.0% July 12 $10,108,947 $10,129,165 $10,149,423 $10,169,722 $10,190,062 $10,210,442 $10,230,863 $10,251,324 $10,271,827 $10,292,371 $10,312,955 $10,333,581 $10,354,248 $10,374,957 17 FYE 2035 4.0% July 12 $10,513,305 $10,534,332 $10,555,400 $10,576,511 $10,597,664 $10,618,859 $10,640,097 $10,661,377 $10,682,700 $10,704,065 $10,725,474 $10,746,924 $10,768,418 $10,789,955 18 FYE 2036 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 19 FYE 2037 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 20 FYE 2038 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 21 FYE 2039 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 22 FYE 2040 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 23 FYE 2041 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0
24 FYE 2042 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0
25 FYE 2043 0.0% July 12 $0 $0 $0 $0 $0 $0 $0
26 FYE 2044 0.0% July 12 $0 $0 $0 $0 $0 $0
27 FYE 2045 0.0% July 12 $0 $0 $0 $0 $0
28 FYE 2046 0.0% July 12 $0 $0 $0 $0
29 FYE 2047 0.0% July 12 $0 $0 $0
30 FYE 2048 0.0% July 12 $0 $0
31 FYE 2049 0.0% July 12 $0
32 Total Revenue Adjustments $126,084,918 $126,337,088 $126,589,762 $126,842,942 $127,096,627 $127,350,821 $127,605,522 $127,860,733 $128,116,455 $128,372,688 $128,629,433 $128,886,692 $129,144,465 $129,402,754 33 34 Rate Revenue (including Revenue Adjustments) $262,832,623 $263,358,288 $263,885,004 $264,412,774 $264,941,600 $265,471,483 $266,002,426 $266,534,431 $267,067,500 $267,601,635 $268,136,838 $268,673,112 $269,210,458 $269,748,879 35 Interest Earnings $1,955,943 $2,211,843 $2,438,132 $2,606,495 $2,522,572 $2,392,633 $2,421,808 $2,403,693 $2,349,461 $2,405,216 $2,532,126 $2,623,492 $2,635,621 $2,543,076 36 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 37 TOTAL REVENUE $268,530,566 $269,312,131$270,065,136$270,761,270$271,206,172$271,606,116$272,166,234$272,680,124$273,158,961 $273,748,851 $274,410,964 $275,038,604 $275,588,079 $276,033,955 38 39 O&M EXPENSES
40 Water Operating Expenses $117,006,005 $119,614,010 $122,231,637 $124,863,514 $127,541,294 $130,308,385 $133,174,106 $136,082,813 $139,048,630 $142,078,502 $145,181,319 $148,360,909 $151,614,030 $154,936,312 41 Additional Expenditures Identified by the City
42 FTE Expenditures $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 43 Additional Operating from the Divisions $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 44 TOTAL O&M EXPENSES $117,006,005 $119,614,010$122,231,637$124,863,514$127,541,294$130,308,385$133,174,106$136,082,813$139,048,630 $142,078,502 $145,181,319 $148,360,909 $151,614,030 $154,936,312 45 46 DEBT SERVICE
47 Existing Debt Service - Senior Lien $28,914,597 $25,595,761 $25,549,141 $25,493,013 $25,445,955 $25,391,949 $25,340,427 $17,101,488 $3,374,406 $3,375,688 $3,374,225 $3,374,625 $3,376,363 $0 48 Existing Debt Service - Subordinate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 49 Proposed Debt Service $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 50 TOTAL DEBT SERVICE $80,421,823 $77,102,987 $77,056,366 $77,000,238 $76,953,180 $76,899,174 $76,847,652 $68,608,713 $54,881,631 $54,882,913 $54,881,450 $54,881,850 $54,883,588 $51,507,225 51 52 Transfers (from)/to
53 Cash Funded Capital $50,159,594 $42,102,475 $55,785,716 $50,047,834 $102,429,904 $54,798,180 $65,880,635 $67,893,651 $90,224,160 $54,585,322 $71,041,316 $56,738,245 $81,710,050 $75,572,403 54 Toal Revenue Requirements $247,587,422 $238,819,472$255,073,719$251,911,586$306,924,379$262,005,739$275,902,393$272,585,177$284,154,422 $251,546,737 $271,104,085 $259,981,004 $288,207,668 $282,015,940 55 56 NET CASH FLOW $20,943,144 $30,492,658 $14,991,417 $18,849,684($35,718,206) $9,600,377 ($3,736,159) $94,947 ($10,995,461) $22,202,114 $3,306,880 $15,057,599 ($12,619,588) ($5,981,985) 57 58 TOTAL BEGINNING CASH BALANCE WITH RESERVES$186,100,732 $207,043,876$237,536,534$252,527,951$271,377,635$235,659,429$245,259,806$241,523,647$241,618,594 $230,623,133 $252,825,247 $256,132,127 $271,189,726 $258,570,138 59 60 ENDING CASH BALANCE INCLUDING RESERVES $207,043,876 $237,536,534$252,527,951$271,377,635$235,659,429$245,259,806$241,523,647$241,618,594$230,623,133 $252,825,247 $256,132,127 $271,189,726 $258,570,138 $252,588,153 61 Ending Cash Balance $127,673,673 $143,625,664 $163,494,373 $129,096,712 $140,129,864 $137,738,057 $131,046,729 $107,854,879 $131,523,193 $136,273,191 $152,863,038 $141,903,487 $134,352,027 $127,277,785 62 Operating Reserve $38,467,728 $39,325,154 $40,185,744 $41,051,018 $41,931,384 $42,841,113 $43,783,268 $44,739,555 $45,714,618 $46,710,740 $47,730,845 $48,776,189 $49,845,708 $50,937,966 63 Capital Reserve $40,902,475 $54,585,716 $48,847,834 $101,229,904 $53,598,180 $64,680,635 $66,693,651 $89,024,160 $53,385,322 $69,841,316 $55,538,245 $80,510,050 $74,372,403 $74,372,403 64 65 Minimum Operating Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 66 Minimum Capital Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 67 68 DEBT COVERAGE
69 Net Operating Revenue $151,524,561 $149,698,120 $147,833,499 $145,897,756 $143,664,878 $141,297,731 $138,992,129 $136,597,311 $134,110,331 $131,670,349 $129,229,646 $126,677,694 $123,974,050 $121,097,643 70 Parity Lien Debt Service Coverage Ratio 1.88 1.94 1.92 1.89 1.87 1.84 1.81 1.99 2.44 2.40 2.35 2.31 2.26 2.35 71 Required Absolute Floor Parity Lien Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 72 Required Debt Coverage Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes $0$50$100$150$200$250$300FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Operating and Capital Funds Ending Cash BalanceEnding Cash BalanceOperating Reserve Minimum (120 days of O&M)Operating and Capital Reserve Minimum (Next year's Pay-go) - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Parity Lien Debt Service Coverage RatioParity Lien Debt Service Coverage RatioRequired Absolute Floor Parity Lien Debt Service Coverage Ratio (1.20)Median for AA- Fitch-Rated Utilities (1.97)Median for AA- S&P Global-Rated Utilities (2.00)DSC Ratio $0$100$200$300$400$500$600FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsCapital Financing PlanCash Funded CapitalDebt Funded Capital -$100-$50$0$50$100$150$200$250$300$350FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Financial PlanO&M ExpensesDebt ServiceCash Funded CapitalRevenue to/from ReservesCurrent RevenueProposed Revenue 0100200300400500600700800900FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Days of Cash on HandDays of Cash on HandMedian for AA- Fitch-Rated Utilities (390 days)Median for AA- S&P Global-Rated Utilities (534 days)Days

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Annual Water Bill as Percentage of Lowest Quintile IncomeAnnual Bill as a Percentage of LQILQI Threshold of Affordability

Water Fund:

Financial Plan 2

Cash Flow
Line Description FYE 2025 FYE 2026 FYE 2027 FYE 2028 FYE 2029 FYE 2030 FYE 2031 FYE 2032 FYE 2033 FYE 2034 FYE 2035 1 POTABLE WATER REVENUE
2 Rate Revenue from Existing Rates $133,775,046$134,042,596$134,310,681$134,579,302$134,848,461$135,118,158$135,388,394$135,659,171$135,930,489$136,202,350 $136,474,755 3 Proposed Revenue Adjustments
4 Revenue Months Months
5 Fiscal Year Adjustment Effective Effective
6 FYE 2024 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 FYE 2025 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FYE 2026 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
9 FYE 2027 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0
10 FYE 2028 22.0% July 12 $29,607,447 $29,666,661 $29,725,995 $29,785,447 $29,845,018 $29,904,708 $29,964,517 $30,024,446 11 FYE 2029 22.0% July 12 $36,193,327 $36,265,714 $36,338,245 $36,410,922 $36,483,743 $36,556,711 $36,629,824 12 FYE 2030 22.0% July 12 $44,244,171 $44,332,659 $44,421,324 $44,510,167 $44,599,187 $44,688,386 13 FYE 2031 5.0% July 12 $12,292,237 $12,316,822 $12,341,455 $12,366,138 $12,390,871 14 FYE 2032 4.0% July 12 $10,346,130 $10,366,823 $10,387,556 $10,408,331 15 FYE 2033 4.0% July 12 $10,781,495 $10,803,058 $10,824,665 16 FYE 2034 3.0% July 12 $8,426,386 $8,443,238
17 FYE 2035 0.0% July 12 $0
18 FYE 2036 0.0% July 12
19 FYE 2037 0.0% July 12
20 FYE 2038 0.0% July 12
21 FYE 2039 0.0% July 12
22 FYE 2040 0.0% July 12
23 FYE 2041 0.0% July 12
24 FYE 2042 0.0% July 12
25 FYE 2043 0.0% July 12
26 FYE 2044 0.0% July 12
27 FYE 2045 0.0% July 12
28 FYE 2046 0.0% July 12
29 FYE 2047 0.0% July 12
30 FYE 2048 0.0% July 12
31 FYE 2049 0.0% July 12
32 Total Revenue Adjustments $0 $0 $0 $29,607,447 $65,859,988 $110,235,879 $122,748,588 $133,340,215 $144,388,391 $153,103,554 $153,409,761 33 34 Rate Revenue (including Revenue Adjustments) $133,775,046 $134,042,596 $134,310,681 $164,186,749 $200,708,449 $245,354,037 $258,136,982 $268,999,387 $280,318,881 $289,305,904 $289,884,516 35 Interest Earnings $1,275,398 $1,158,168 $928,452 $758,669 $845,667 $1,069,003 $1,184,283 $1,226,060 $1,363,114 $1,615,400 $1,915,283 36 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 37 TOTAL REVENUE $138,792,444$138,942,764$138,981,133$168,687,418$205,296,117$250,165,040$263,063,265$273,967,447$285,423,995$294,663,305 $295,541,799 38 39 O&M EXPENSES
40 Water Operating Expenses $90,690,632 $93,959,789 $97,494,454 $104,687,238 $106,795,464 $110,244,583 $112,586,978 $110,137,018 $112,551,640 $115,161,692 $117,825,913 41 Additional Expenditures Identified by the City
42 FTE Expenditures $0 $0 $0 $522,188 $537,340 $2,492,187 $3,481,976 $4,366,607 $4,634,830 $4,632,408 $5,151,859 43 Additional Operating from the Divisions $0 $0 $0 $966,361 $970,095 $970,607 $5,366,434 $6,270,177 $6,663,237 $7,170,013 $7,723,426 44 TOTAL O&M EXPENSES $90,690,632 $93,959,789 $97,494,454$106,175,787$108,302,899$113,707,376$121,435,388$120,773,803$123,849,707$126,964,113 $130,701,199 45 46 DEBT SERVICE
47 Existing Debt Service - Senior Lien $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 $24,720,867 $28,103,493 $25,556,689 $25,237,328 $26,683,488 $24,828,617 48 Existing Debt Service - Subordinate $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 $11,011,061 $10,998,844 $10,985,268 $10,969,043 $0 $0 49 Proposed Debt Service $0 $0 $0 $0 $0 $36,790,875 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 50 TOTAL DEBT SERVICE $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 $72,522,803 $90,609,562 $88,049,182 $87,713,596$78,190,714 $76,335,842 51 52 Transfers (from)/to
53 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $35,208,575 $34,848,754 $44,930,114 $46,851,770 $60,913,777 $50,543,468 $62,116,188 $55,620,673 54 Toal Revenue Requirements $141,910,156$159,388,273$164,708,545$177,086,369$179,410,471$231,160,293$258,896,720$269,736,762$262,106,771$267,271,015 $262,657,714 55 56 NET CASH FLOW ($3,117,712)($20,445,510)($25,727,412) ($8,398,951)$25,885,646 $19,004,747 $4,166,545 $4,230,685 $23,317,224$27,392,289 $32,884,085 57 58 TOTAL BEGINNING CASH BALANCE WITH RESERVES$129,736,340$126,618,628$106,173,118 $80,445,707 $72,046,755 $97,932,401$116,937,148$121,103,693$125,334,378$148,651,602 $176,043,891 59 60 ENDING CASH BALANCE INCLUDING RESERVES $126,618,628$106,173,118 $80,445,707 $72,046,755 $97,932,401$116,937,148$121,103,693$125,334,378$148,651,602$176,043,891 $208,927,976 61 Ending Cash Balance $68,297,330 $44,967,982 $14,384,160 $3,490,893 $18,595,854 $33,902,131 $21,465,952 $36,284,454 $47,017,702 $79,881,592 $109,246,027 62 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $34,907,108 $35,606,433 $37,383,247 $39,923,963 $39,706,456 $40,717,712 $41,741,626 $42,970,257 63 Capital Reserve $28,505,200 $30,314,247 $34,008,575 $33,648,754 $43,730,114 $45,651,770 $59,713,777 $49,343,468 $60,916,188 $54,420,673 $56,711,692 64 65 Minimum Operating Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 66 Minimum Capital Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 67 68 DEBT COVERAGE
69 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $62,511,631 $96,993,218 $136,457,664 $141,627,877 $153,193,644 $161,574,289 $167,699,191 $164,840,599 70 Parity Lien Debt Service Coverage Ratio 2.23 1.82 1.68 2.53 3.84 2.22 1.78 1.99 2.11 2.14 2.16 71 Required Absolute Floor Parity Lien Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 72 Required Debt Coverage Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Cash Flow
Line Description FYE 2036 FYE 2037 FYE 2038 FYE 2039 FYE 2040 FYE 2041 FYE 2042 FYE 2043 FYE 2044 FYE 2045 FYE 2046 FYE 2047 FYE 2048 FYE 2049 1 POTABLE WATER REVENUE
2 Rate Revenue from Existing Rates $136,747,705 $137,021,200$137,295,242$137,569,833$137,844,973$138,120,663$138,396,904$138,673,698$138,951,045 $139,228,947 $139,507,405 $139,786,420 $140,065,993 $140,346,125 3 Proposed Revenue Adjustments
4 Revenue Months Months
5 Fiscal Year Adjustment Effective Effective
6 FYE 2024 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 FYE 2025 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FYE 2026 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9 FYE 2027 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 10 FYE 2028 22.0% July 12 $30,084,495 $30,144,664 $30,204,953 $30,265,363 $30,325,894 $30,386,546 $30,447,319 $30,508,213 $30,569,230 $30,630,368 $30,691,629 $30,753,012 $30,814,518 $30,876,147 11 FYE 2029 22.0% July 12 $36,703,084 $36,776,490 $36,850,043 $36,923,743 $36,997,591 $37,071,586 $37,145,729 $37,220,020 $37,294,461 $37,369,049 $37,443,788 $37,518,675 $37,593,712 $37,668,900 12 FYE 2030 22.0% July 12 $44,777,762 $44,867,318 $44,957,053 $45,046,967 $45,137,061 $45,227,335 $45,317,789 $45,408,425 $45,499,242 $45,590,240 $45,681,421 $45,772,784 $45,864,329 $45,956,058 13 FYE 2031 5.0% July 12 $12,415,652 $12,440,484 $12,465,365 $12,490,295 $12,515,276 $12,540,306 $12,565,387 $12,590,518 $12,615,699 $12,640,930 $12,666,212 $12,691,545 $12,716,928 $12,742,361 14 FYE 2032 4.0% July 12 $10,429,148 $10,450,006 $10,470,906 $10,491,848 $10,512,832 $10,533,857 $10,554,925 $10,576,035 $10,597,187 $10,618,381 $10,639,618 $10,660,897 $10,682,219 $10,703,584 15 FYE 2033 4.0% July 12 $10,846,314 $10,868,006 $10,889,742 $10,911,522 $10,933,345 $10,955,212 $10,977,122 $10,999,076 $11,021,075 $11,043,117 $11,065,203 $11,087,333 $11,109,508 $11,131,727 16 FYE 2034 3.0% July 12 $8,460,125 $8,477,045 $8,493,999 $8,510,987 $8,528,009 $8,545,065 $8,562,155 $8,579,280 $8,596,438 $8,613,631 $8,630,858 $8,648,120 $8,665,416 $8,682,747 17 FYE 2035 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 18 FYE 2036 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 19 FYE 2037 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 20 FYE 2038 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 21 FYE 2039 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 22 FYE 2040 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 23 FYE 2041 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0
24 FYE 2042 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0
25 FYE 2043 0.0% July 12 $0 $0 $0 $0 $0 $0 $0
26 FYE 2044 0.0% July 12 $0 $0 $0 $0 $0 $0
27 FYE 2045 0.0% July 12 $0 $0 $0 $0 $0
28 FYE 2046 0.0% July 12 $0 $0 $0 $0
29 FYE 2047 0.0% July 12 $0 $0 $0
30 FYE 2048 0.0% July 12 $0 $0
31 FYE 2049 0.0% July 12 $0
32 Total Revenue Adjustments $153,716,580 $154,024,013 $154,332,061 $154,640,726 $154,950,007 $155,259,907 $155,570,427 $155,881,568 $156,193,331 $156,505,717 $156,818,729 $157,132,366 $157,446,631 $157,761,524 33 34 Rate Revenue (including Revenue Adjustments) $290,464,285 $291,045,213 $291,627,304 $292,210,558 $292,794,980 $293,380,570 $293,967,331 $294,555,265 $295,144,376 $295,734,665 $296,326,134 $296,918,786 $297,512,624 $298,107,649 35 Interest Earnings $2,199,344 $2,518,342 $2,840,167 $3,105,327 $3,116,575 $3,080,138 $3,200,235 $3,271,536 $3,306,348 $3,449,174 $3,659,915 $3,831,736 $3,923,156 $3,908,620 36 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 37 TOTAL REVENUE $296,405,628 $297,305,555$298,209,471$299,057,886$299,653,555$300,202,708$300,909,566$301,568,801$302,192,723 $302,925,839 $303,728,049 $304,492,522 $305,177,780 $305,758,269 38 39 O&M EXPENSES
40 Water Operating Expenses $120,545,571 $123,442,465 $125,656,422 $128,300,305 $131,005,007 $133,771,954 $136,745,108 $139,498,465 $142,461,057 $145,491,952 $148,820,756 $151,907,615 $155,010,713 $158,331,274 41 Additional Expenditures Identified by the City
42 FTE Expenditures $5,147,303 $5,147,303 $5,200,332 $5,199,867 $5,257,131 $5,256,629 $5,256,629 $5,309,658 $5,309,193 $5,366,457 $5,365,955 $5,365,955 $5,418,984 $5,475,281 43 Additional Operating from the Divisions $8,167,141 $1,543,148 $1,479,296 $1,479,964 $1,480,652 $1,481,361 $1,546,591 $1,482,843 $1,483,617 $1,484,415 $1,485,237 $1,550,583 $1,486,954 $1,487,852 44 TOTAL O&M EXPENSES $133,860,015 $130,132,915$132,336,051$134,980,136$137,742,790$140,509,944$143,548,328$146,290,966$149,253,867 $152,342,824 $155,671,948 $158,824,153 $161,916,652 $165,294,407 45 46 DEBT SERVICE
47 Existing Debt Service - Senior Lien $28,914,597 $25,595,761 $25,549,141 $25,493,013 $25,445,955 $25,391,949 $25,340,427 $17,101,488 $3,374,406 $3,375,688 $3,374,225 $3,374,625 $3,376,363 $0 48 Existing Debt Service - Subordinate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 49 Proposed Debt Service $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 50 TOTAL DEBT SERVICE $80,421,823 $77,102,987 $77,056,366 $77,000,238 $76,953,180 $76,899,174 $76,847,652 $68,608,713 $54,881,631 $54,882,913 $54,881,450 $54,881,850 $54,883,588 $51,507,225 51 52 Transfers (from)/to
53 Cash Funded Capital $57,911,692 $50,163,088 $64,036,690 $58,560,749 $111,213,496 $63,861,501 $75,306,268 $77,544,908 $100,184,324 $64,864,838 $81,651,016 $67,774,227 $93,014,236 $87,241,744 54 Toal Revenue Requirements $272,193,530 $257,398,990$273,429,107$270,541,124$325,909,466$281,270,619$295,702,248$292,444,588$304,319,822 $272,090,575 $292,204,414 $281,480,230 $309,814,476 $304,043,376 55 56 NET CASH FLOW $24,212,099 $39,906,566 $24,780,365 $28,516,762($26,255,912)$18,932,089 $5,207,317 $9,124,213 ($2,127,099) $30,835,264 $11,523,635 $23,012,292 ($4,636,696) $1,714,893 57 58 TOTAL BEGINNING CASH BALANCE WITH RESERVES$208,927,976 $233,140,075$273,046,640$297,827,005$326,343,767$300,087,855$319,019,945$324,227,262$333,351,476 $331,224,377 $362,059,640 $373,583,275 $396,595,567 $391,958,871 59 60 ENDING CASH BALANCE INCLUDING RESERVES $233,140,075 $273,046,640$297,827,005$326,343,767$300,087,855$319,019,945$324,227,262$333,351,476$331,224,377 $362,059,640 $373,583,275 $396,595,567 $391,958,871 $393,673,764 61 Ending Cash Balance $140,168,215 $167,426,526 $196,958,513 $171,953,239 $192,141,054 $198,718,626 $200,688,383 $186,271,492 $218,489,774 $231,523,312 $255,829,230 $252,565,170 $252,684,255 $253,288,653 62 Operating Reserve $44,008,772 $42,783,424 $43,507,743 $44,377,031 $45,285,301 $46,195,050 $47,193,971 $48,095,660 $49,069,765 $50,085,312 $51,179,818 $52,216,160 $53,232,872 $54,343,367 63 Capital Reserve $48,963,088 $62,836,690 $57,360,749 $110,013,496 $62,661,501 $74,106,268 $76,344,908 $98,984,324 $63,664,838 $80,451,016 $66,574,227 $91,814,236 $86,041,744 $86,041,744 64 65 Minimum Operating Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 66 Minimum Capital Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 67 68 DEBT COVERAGE
69 Net Operating Revenue $162,545,613 $167,172,640 $165,873,421 $164,077,749 $161,910,765 $159,692,764 $157,361,238 $155,277,835 $152,938,856 $150,583,015 $148,056,101 $145,668,369 $143,261,129 $140,463,863 70 Parity Lien Debt Service Coverage Ratio 2.02 2.17 2.15 2.13 2.10 2.08 2.05 2.26 2.79 2.74 2.70 2.65 2.61 2.73 71 Required Absolute Floor Parity Lien Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 72 Required Debt Coverage Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes $0$50$100$150$200$250$300$350$400$450FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Operating and Capital Funds Ending Cash BalanceEnding Cash BalanceOperating Reserve Minimum (120 days of O&M)Operating and Capital Reserve Minimum (Next year's Pay-go) - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Parity Lien Debt Service Coverage RatioParity Lien Debt Service Coverage RatioRequired Absolute Floor Parity Lien Debt Service Coverage Ratio (1.20)Median for AA- Fitch-Rated Utilities (1.97)Median for AA- S&P Global-Rated Utilities (2.00)DSC Ratio $0$100$200$300$400$500$600FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsCapital Financing PlanCash Funded CapitalDebt Funded Capital -$50$0$50$100$150$200$250$300$350FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Financial PlanO&M ExpensesDebt ServiceCash Funded CapitalRevenue to/from ReservesCurrent RevenueProposed Revenue 01002003004005006007008009001,000FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Days of Cash on HandDays of Cash on HandMedian for AA- Fitch-Rated Utilities (390 days)Median for AA- S&P Global-Rated Utilities (534 days)Days

Water Fund:

Financial Plan 3

Cash Flow
Line Description FYE 2025 FYE 2026 FYE 2027 FYE 2028 FYE 2029 FYE 2030 FYE 2031 FYE 2032 FYE 2033 FYE 2034 FYE 2035 1 POTABLE WATER REVENUE
2 Rate Revenue from Existing Rates $133,775,046$134,042,596$134,310,681$134,579,302$134,848,461$135,118,158$135,388,394$135,659,171$135,930,489$136,202,350 $136,474,755 3 Proposed Revenue Adjustments
4 Revenue Months Months
5 Fiscal Year Adjustment Effective Effective
6 FYE 2024 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 FYE 2025 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FYE 2026 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
9 FYE 2027 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0
10 FYE 2028 45.0% July 12 $60,560,686 $60,681,807 $60,803,171 $60,924,777 $61,046,627 $61,168,720 $61,291,058 $61,413,640 11 FYE 2029 15.0% July 12 $29,329,540 $29,388,199 $29,446,976 $29,505,870 $29,564,881 $29,624,011 $29,683,259 12 FYE 2030 12.0% July 12 $27,037,143 $27,091,218 $27,145,400 $27,199,691 $27,254,090 $27,308,599 13 FYE 2031 6.0% July 12 $15,171,082 $15,201,424 $15,231,827 $15,262,291 $15,292,815 14 FYE 2032 4.0% July 12 $10,742,340 $10,763,824 $10,785,352 $10,806,923 15 FYE 2033 4.0% July 12 $11,194,377 $11,216,766 $11,239,200 16 FYE 2034 4.0% July 12 $11,665,437 $11,688,768
17 FYE 2035 0.0% July 12 $0
18 FYE 2036 0.0% July 12
19 FYE 2037 0.0% July 12
20 FYE 2038 0.0% July 12
21 FYE 2039 0.0% July 12
22 FYE 2040 0.0% July 12
23 FYE 2041 0.0% July 12
24 FYE 2042 0.0% July 12
25 FYE 2043 0.0% July 12
26 FYE 2044 0.0% July 12
27 FYE 2045 0.0% July 12
28 FYE 2046 0.0% July 12
29 FYE 2047 0.0% July 12
30 FYE 2048 0.0% July 12
31 FYE 2049 0.0% July 12
32 Total Revenue Adjustments $0 $0 $0 $60,560,686 $90,011,348 $117,228,514 $132,634,053 $143,641,661 $155,123,321 $167,099,005 $167,433,203 33 34 Rate Revenue (including Revenue Adjustments) $133,775,046 $134,042,596 $134,310,681 $195,139,989 $224,859,809 $252,346,672 $268,022,447 $279,300,832 $291,053,811 $303,301,355 $303,907,958 35 Interest Earnings $1,275,398 $1,158,168 $928,452 $868,985 $1,132,210 $1,388,618 $1,419,973 $1,359,642 $1,395,314 $1,563,674 $1,795,234 36 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 37 TOTAL REVENUE $138,792,444$138,942,764$138,981,133$199,750,974$229,734,019$257,477,290$273,184,420$284,402,474$296,191,125$308,607,029 $309,445,191 38 39 O&M EXPENSES
40 Water Operating Expenses $90,690,632 $93,959,789 $97,494,454 $104,687,238 $106,795,464 $110,244,583 $112,586,978 $110,137,018 $112,551,640 $115,161,692 $117,825,913 41 Additional Expenditures Identified by the City
42 FTE Expenditures $0 $0 $0 $522,188 $537,340 $2,492,187 $3,481,976 $4,366,607 $4,634,830 $4,632,408 $5,151,859 43 Additional Operating from the Divisions $0 $0 $0 $966,361 $970,095 $970,607 $5,366,434 $6,270,177 $6,663,237 $7,170,013 $7,723,426 44 TOTAL O&M EXPENSES $90,690,632 $93,959,789 $97,494,454$106,175,787$108,302,899$113,707,376$121,435,388$120,773,803$123,849,707$126,964,113 $130,701,199 45 46 DEBT SERVICE
47 Existing Debt Service - Senior Lien $21,606,004 $24,660,956 $24,651,903 $24,660,120 $25,230,562 $24,720,867 $28,103,493 $25,556,689 $25,237,328 $26,683,488 $24,828,617 48 Existing Debt Service - Subordinate $11,071,460 $11,062,328 $11,047,941 $11,041,887 $11,028,256 $11,011,061 $10,998,844 $10,985,268 $10,969,043 $0 $0 49 Proposed Debt Service $0 $0 $0 $0 $0 $36,790,875 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 50 TOTAL DEBT SERVICE $32,677,464 $35,723,284 $35,699,843 $35,702,007 $36,258,818 $72,522,803 $90,609,562 $88,049,182 $87,713,596$78,190,714 $76,335,842 51 52 Transfers (from)/to
53 Cash Funded Capital $18,542,060 $29,705,200 $31,514,247 $44,098,575 $46,038,754 $58,842,514 $67,241,770 $81,603,777 $71,433,468 $82,806,188 $76,510,673 54 Toal Revenue Requirements $141,910,156$159,388,273$164,708,545$185,976,369$190,600,471$245,072,693$279,286,720$290,426,762$282,996,771$287,961,015 $283,547,714 55 56 NET CASH FLOW ($3,117,712)($20,445,510)($25,727,412)$13,774,604 $39,133,548 $12,404,597 ($6,102,300) ($6,024,288)$13,194,354$20,646,014 $25,897,477 57 58 TOTAL BEGINNING CASH BALANCE WITH RESERVES$129,736,340$126,618,628$106,173,118 $80,445,707 $94,220,311$133,353,859$145,758,456$139,656,156$133,631,868$146,826,222 $167,472,236 59 60 ENDING CASH BALANCE INCLUDING RESERVES $126,618,628$106,173,118 $80,445,707 $94,220,311$133,353,859$145,758,456$139,656,156$133,631,868$146,826,222$167,472,236 $193,369,713 61 Ending Cash Balance $68,297,330 $44,967,982 $5,494,160 $14,474,449 $40,104,912 $42,333,439 $19,328,416 $23,691,945 $24,502,322 $50,419,937 $72,797,764 62 Operating Reserve $29,816,098 $30,890,890 $32,052,971 $34,907,108 $35,606,433 $37,383,247 $39,923,963 $39,706,456 $40,717,712 $41,741,626 $42,970,257 63 Capital Reserve $28,505,200 $30,314,247 $42,898,575 $44,838,754 $57,642,514 $66,041,770 $80,403,777 $70,233,468 $81,606,188 $75,310,673 $77,601,692 64 65 Minimum Operating Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 66 Minimum Capital Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 67 68 DEBT COVERAGE
69 Net Operating Revenue $48,101,812 $44,982,975 $41,486,679 $93,575,187 $121,431,120 $143,769,915 $151,749,032 $163,628,671 $172,341,418 $181,642,916 $178,743,992 70 Parity Lien Debt Service Coverage Ratio 2.23 1.82 1.68 3.79 4.81 2.34 1.91 2.12 2.25 2.32 2.34 71 Required Absolute Floor Parity Lien Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 72 Required Debt Coverage Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Cash Flow
Line Description FYE 2036 FYE 2037 FYE 2038 FYE 2039 FYE 2040 FYE 2041 FYE 2042 FYE 2043 FYE 2044 FYE 2045 FYE 2046 FYE 2047 FYE 2048 FYE 2049 1 POTABLE WATER REVENUE
2 Rate Revenue from Existing Rates $136,747,705 $137,021,200$137,295,242$137,569,833$137,844,973$138,120,663$138,396,904$138,673,698$138,951,045 $139,228,947 $139,507,405 $139,786,420 $140,065,993 $140,346,125 3 Proposed Revenue Adjustments
4 Revenue Months Months
5 Fiscal Year Adjustment Effective Effective
6 FYE 2024 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 7 FYE 2025 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FYE 2026 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9 FYE 2027 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 10 FYE 2028 45.0% July 12 $61,536,467 $61,659,540 $61,782,859 $61,906,425 $62,030,238 $62,154,298 $62,278,607 $62,403,164 $62,527,970 $62,653,026 $62,778,332 $62,903,889 $63,029,697 $63,155,756 11 FYE 2029 15.0% July 12 $29,742,626 $29,802,111 $29,861,715 $29,921,439 $29,981,282 $30,041,244 $30,101,327 $30,161,529 $30,221,852 $30,282,296 $30,342,861 $30,403,546 $30,464,353 $30,525,282 12 FYE 2030 12.0% July 12 $27,363,216 $27,417,942 $27,472,778 $27,527,724 $27,582,779 $27,637,945 $27,693,220 $27,748,607 $27,804,104 $27,859,712 $27,915,432 $27,971,263 $28,027,205 $28,083,260 13 FYE 2031 6.0% July 12 $15,323,401 $15,354,048 $15,384,756 $15,415,525 $15,446,356 $15,477,249 $15,508,203 $15,539,220 $15,570,298 $15,601,439 $15,632,642 $15,663,907 $15,695,235 $15,726,625 14 FYE 2032 4.0% July 12 $10,828,537 $10,850,194 $10,871,894 $10,893,638 $10,915,425 $10,937,256 $10,959,130 $10,981,049 $11,003,011 $11,025,017 $11,047,067 $11,069,161 $11,091,299 $11,113,482 15 FYE 2033 4.0% July 12 $11,261,678 $11,284,201 $11,306,770 $11,329,383 $11,352,042 $11,374,746 $11,397,496 $11,420,291 $11,443,131 $11,466,017 $11,488,950 $11,511,927 $11,534,951 $11,558,021 16 FYE 2034 4.0% July 12 $11,712,145 $11,735,569 $11,759,041 $11,782,559 $11,806,124 $11,829,736 $11,853,395 $11,877,102 $11,900,856 $11,924,658 $11,948,508 $11,972,405 $11,996,349 $12,020,342 17 FYE 2035 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 18 FYE 2036 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 19 FYE 2037 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 20 FYE 2038 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 21 FYE 2039 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 22 FYE 2040 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 23 FYE 2041 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0 $0
24 FYE 2042 0.0% July 12 $0 $0 $0 $0 $0 $0 $0 $0
25 FYE 2043 0.0% July 12 $0 $0 $0 $0 $0 $0 $0
26 FYE 2044 0.0% July 12 $0 $0 $0 $0 $0 $0
27 FYE 2045 0.0% July 12 $0 $0 $0 $0 $0
28 FYE 2046 0.0% July 12 $0 $0 $0 $0
29 FYE 2047 0.0% July 12 $0 $0 $0
30 FYE 2048 0.0% July 12 $0 $0
31 FYE 2049 0.0% July 12 $0
32 Total Revenue Adjustments $167,768,069 $168,103,605 $168,439,812 $168,776,692 $169,114,245 $169,452,474 $169,791,379 $170,130,962 $170,471,224 $170,812,166 $171,153,790 $171,496,098 $171,839,090 $172,182,768 33 34 Rate Revenue (including Revenue Adjustments) $304,515,774 $305,124,805 $305,735,055 $306,346,525 $306,959,218 $307,573,136 $308,188,283 $308,804,659 $309,422,269 $310,041,113 $310,661,195 $311,282,518 $311,905,083 $312,528,893 35 Interest Earnings $2,009,568 $2,258,424 $2,510,687 $2,705,871 $2,646,725 $2,538,474 $2,586,322 $2,585,935 $2,548,627 $2,618,898 $2,755,644 $2,853,016 $2,870,530 $2,782,636 36 Other Revenue $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 $3,742,000 37 TOTAL REVENUE $310,267,342 $311,125,230$311,987,742$312,794,396$313,347,944$313,853,611$314,516,604$315,132,595$315,712,896 $316,402,012 $317,158,839 $317,877,534 $318,517,613 $319,053,529 38 39 O&M EXPENSES
40 Water Operating Expenses $120,545,571 $123,442,465 $125,656,422 $128,300,305 $131,005,007 $133,771,954 $136,745,108 $139,498,465 $142,461,057 $145,491,952 $148,820,756 $151,907,615 $155,010,713 $158,331,274 41 Additional Expenditures Identified by the City
42 FTE Expenditures $5,147,303 $5,147,303 $5,200,332 $5,199,867 $5,257,131 $5,256,629 $5,256,629 $5,309,658 $5,309,193 $5,366,457 $5,365,955 $5,365,955 $5,418,984 $5,475,281 43 Additional Operating from the Divisions $8,167,141 $1,543,148 $1,479,296 $1,479,964 $1,480,652 $1,481,361 $1,546,591 $1,482,843 $1,483,617 $1,484,415 $1,485,237 $1,550,583 $1,486,954 $1,487,852 44 TOTAL O&M EXPENSES $133,860,015 $130,132,915$132,336,051$134,980,136$137,742,790$140,509,944$143,548,328$146,290,966$149,253,867 $152,342,824 $155,671,948 $158,824,153 $161,916,652 $165,294,407 45 46 DEBT SERVICE
47 Existing Debt Service - Senior Lien $28,914,597 $25,595,761 $25,549,141 $25,493,013 $25,445,955 $25,391,949 $25,340,427 $17,101,488 $3,374,406 $3,375,688 $3,374,225 $3,374,625 $3,376,363 $0 48 Existing Debt Service - Subordinate $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 49 Proposed Debt Service $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 $51,507,225 50 TOTAL DEBT SERVICE $80,421,823 $77,102,987 $77,056,366 $77,000,238 $76,953,180 $76,899,174 $76,847,652 $68,608,713 $54,881,631 $54,882,913 $54,881,450 $54,881,850 $54,883,588 $51,507,225 51 52 Transfers (from)/to
53 Cash Funded Capital $78,801,692 $71,053,088 $84,726,690 $79,450,749 $131,903,496 $84,951,501 $95,996,268 $98,434,908 $120,874,324 $85,754,838 $102,541,016 $88,664,227 $113,704,236 $107,931,744 54 Toal Revenue Requirements $293,083,530 $278,288,990$294,119,107$291,431,124$346,599,466$302,360,619$316,392,248$313,334,588$325,009,822 $292,980,575 $313,094,414 $302,370,230 $330,504,476 $324,733,376 55 56 NET CASH FLOW $17,183,812 $32,836,240 $17,868,636 $21,363,272($33,251,523)$11,492,992 ($1,875,644) $1,798,007 ($9,296,926) $23,421,436 $4,064,425 $15,507,304 ($11,986,863) ($5,679,846) 57 58 TOTAL BEGINNING CASH BALANCE WITH RESERVES$193,369,713 $210,553,526$243,389,766$261,258,401$282,621,673$249,370,151$260,863,143$258,987,499$260,785,505 $251,488,579 $274,910,016 $278,974,441 $294,481,744 $282,494,881 59 60 ENDING CASH BALANCE INCLUDING RESERVES $210,553,526 $243,389,766$261,258,401$282,621,673$249,370,151$260,863,143$258,987,499$260,785,505$251,488,579 $274,910,016 $278,974,441 $294,481,744 $282,494,881 $276,815,035 61 Ending Cash Balance $96,691,665 $117,079,652 $139,499,909 $107,541,146 $120,333,349 $119,871,824 $114,558,620 $93,015,522 $117,863,976 $123,483,687 $140,330,395 $129,761,348 $122,530,266 $115,739,924 62 Operating Reserve $44,008,772 $42,783,424 $43,507,743 $44,377,031 $45,285,301 $46,195,050 $47,193,971 $48,095,660 $49,069,765 $50,085,312 $51,179,818 $52,216,160 $53,232,872 $54,343,367 63 Capital Reserve $69,853,088 $83,526,690 $78,250,749 $130,703,496 $83,751,501 $94,796,268 $97,234,908 $119,674,324 $84,554,838 $101,341,016 $87,464,227 $112,504,236 $106,731,744 $106,731,744 64 65 Minimum Operating Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 66 Minimum Capital Reserve Target Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 67 68 DEBT COVERAGE
69 Net Operating Revenue $176,407,327 $180,992,315 $179,651,692 $177,814,260 $175,605,154 $173,343,667 $170,968,276 $168,841,628 $166,459,029 $164,059,188 $161,486,892 $159,053,381 $156,600,962 $153,759,123 70 Parity Lien Debt Service Coverage Ratio 2.19 2.35 2.33 2.31 2.28 2.25 2.22 2.46 3.03 2.99 2.94 2.90 2.85 2.99 71 Required Absolute Floor Parity Lien Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 72 Required Debt Coverage Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes $0$50$100$150$200$250$300$350FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Operating and Capital Funds Ending Cash BalanceEnding Cash BalanceOperating Reserve Minimum (120 days of O&M)Operating and Capital Reserve Minimum (Next year's Pay-go) - 1.00 2.00 3.00 4.00 5.00 6.00FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Parity Lien Debt Service Coverage RatioParity Lien Debt Service Coverage RatioRequired Absolute Floor Parity Lien Debt Service Coverage Ratio (1.20)Median for AA- Fitch-Rated Utilities (1.97)Median for AA- S&P Global-Rated Utilities (2.00)DSC Ratio $0$100$200$300$400$500$600FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsCapital Financing PlanCash Funded CapitalDebt Funded Capital -$100-$50$0$50$100$150$200$250$300$350$400FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049MillionsWater Financial PlanO&M ExpensesDebt ServiceCash Funded CapitalRevenue to/from ReservesCurrent RevenueProposed Revenue 0100200300400500600700800900FY2025FY2026FY2027FY2028FY2029FY2030FY2031FY2032FY2033FY2034FY2035FY2036FY2037FY2038FY2039FY2040FY2041FY2042FY2043FY2044FY2045FY2046FY2047FY2048FY2049Days of Cash on HandDays of Cash on HandMedian for AA- Fitch-Rated Utilities (390 days)Median for AA- S&P Global-Rated Utilities (534 days)Days

MEMORANDUM

DATE: January 10, 2025

TO: Farishta Ahrary, City Auditor

FROM: Pravani Vandeyar, Director Department of Utilities

CC: Yvette Rincon, Assistant Director

SUBJECT: Department of Utilities Response to Auditor’s Water & Wastewater Funds Review

This memo serves as the Department of Utilities (DOU) response to the Auditor’s Water & Wastewater Funds Review.

We want to thank the Auditor and their team for their diligent work on this review. DOU agrees with the findings and conclusions in this report.

CITY OF SACRAMENTO
Office of the City Auditor – Research and Analysis Division Report# 2024/25-08 | January 2025
Water and Wastewater
Fund Review
Wastewater Fund Report
FINAL REPORT / December 18 , 2024
City of Sacramento, CA / Wastewater Fund Review Report

Contents

1. Executive Summary ..................................................................... 9

1.1. Study Objectives ........................................................................................................... 9

1.2. Conclusion ..................................................................................................................... 9

2. Introduction ................................................................................ 12

2.1. Objective, Scope, and Methodology .......................................................................... 12

2.2. Background ................................................................................................................. 12

2.2.1. Wastewater System ......................................................................................................... 13

3. Benchmarking ............................................................................ 14

3.1. Benchmarking of Peer Communities ........................................................................ 14

3.2. Staffing Levels ............................................................................................................. 15

3.3. Operational Comparisons .......................................................................................... 18

3.4. Wastewater Rate Comparisons .................................................................................. 20

3.5. Benchmarking Summary ............................................................................................ 22

4. Expense, Revenue, and Funding History ................................... 24

4.1. Operating Expenses ................................................................................................... 24

4.1.1. Budgeted Operating Expenses ........................................................................................ 24

4.1.2. Actual Operating Expenses ............................................................................................. 25

4.2. Capital Expenses ........................................................................................................ 27

4.2.1. Budgeted Capital Expenses............................................................................................. 27

4.2.2. Actual Capital Expenses .................................................................................................. 28

4.3. Debt Service History ................................................................................................... 29

4.3.1. Budgeted Debt Service .................................................................................................... 29

4.3.2. Actual Debt Service ......................................................................................................... 29

4.4. Revenues ..................................................................................................................... 30

4.4.1. Budgeted Revenues ........................................................................................................ 30

4.4.2. Actual Revenues .............................................................................................................. 31

4.5. Capital Improvement Funding History ...................................................................... 32

4.6. Historical Wastewater Rates ...................................................................................... 33

4.7. Regulatory Requirement Changes ............................................................................ 34

4.7.1. California Legislation ....................................................................................................... 34 City of Sacramento, CA / Wastewater Fund Review Report

4.7.2. Wastewater Regulations .................................................................................................. 34

4.8. Weather Impacts ......................................................................................................... 35

4.9. Summary ...................................................................................................................... 36

5. Service Level and Wastewater System Capacity ...................... 37

5.1. Current Capacity of Wastewater Infrastructure ........................................................ 37

5.1.1. Wastewater System Infrastructure ........................................................ 39

5.1.2. Recommendations for Wastewater Infrastructure ............................................................ 41

5.2. Risks of Catastrophic Failure and Extent of Deferred Capital Investment ............. 44

5.2.1. Wastewater System Infrastructure Deferred Capital Needs ............................................ 44

5.3. Extent of Deferred O&M of Wastewater Infrastructure ............................................ 46

6. Valuation .................................................................................... 48

6.1. Value, Age, & Remaining Useful Life of Wastewater Infrastructure ....................... 48

6.2. Risks and Costs to Replace Aging Wastewater Infrastructure ............................... 49

7. Fiscal Forecasting ...................................................................... 51

7.1. Assumptions ............................................................................................................... 51

7.1.1. Customer Demand and Account Growth ......................................................................... 51

7.1.2. Revenue Escalation Factors ............................................................................................ 51

7.1.3. Expenditures Escalation Factors ..................................................................................... 52

7.2. Projected Demand ....................................................................................................... 52

7.3. Projected Revenues .................................................................................................... 53

7.4. Projected O&M Expenses ........................................................................................... 54

7.5. Debt Service ................................................................................................................ 55

7.6. Capital Improvement Projects .................................................................................... 55

7.7. Status Quo without Rate Increases ........................................................................... 57

7.8. Development Impact Fee Fund for All Scenarios ..................................................... 60

7.9. Financial Plan 1 with 30-year CIP and MYOP ............................................................ 60

7.10. Financial Plan 2 with Costs to Address Deficiencies and Gaps ............................. 67

7.10.1. Additional Operating Costs ................................................................................. 67

7.10.2. Additional Capital Costs ...................................................................................... 67

7.10.3. Financial Plan 2 with Additional Operating and Capital Costs ............................ 67

7.11. Financial Plan 3 with Renewal and Replacement Costs .......................................... 74

8. Conclusion .................................................................................. 80 City of Sacramento, CA / Wastewater Fund Review Report

Tables
Table 1-1: Wastewater Financial Plan Descriptions.................................................................................. 10 Table 1-2: Comparison of Projected Wastewater Rate Increases ............................................................ 10 Table 3-1: Benchmark Organization Information1 ..................................................................................... 15 Table 4-1: Budgeted Expenses from FY 2014 through FY 2018 (in thousands) ...................................... 24 Table 4-2: Budgeted Expenses from FY 2019 through FY 2023 (in thousands) ...................................... 25 Table 4-3: Budgeted Expenses CAGR from FY 2014 through FY 2023 ................................................... 25 Table 4-4: Actual Expenses from FY 2014 through FY 2018 (in thousands) ............................................ 26 Table 4-5: Actual Expenses from FY 2019 through FY 2023 (in thousands) ............................................ 26 Table 4-6: Actual Expenses CAGR from FY 2014 through FY 2023 ........................................................ 27 Table 4-7: Budgeted Capital Expenses from FY 2014 through FY 2018 (in thousands) .......................... 27 Table 4-8: Budgeted Capital Expenses from FY 2019 through FY 2023 (in thousands) .......................... 28 Table 4-9: Actual Capital Expenses from FY 2014 through FY 2018 (in thousands) ................................ 28 Table 4-10: Actual Capital Expenses from FY 2019 through FY 2023 (in thousands) .............................. 29 Table 4-11: Budgeted Debt Service History from FY 2014 through FY 2018 (in thousands) ................... 29 Table 4-12: Budgeted Debt Service History from FY 2019 through FY 2023 (in thousands) ................... 29 Table 4-13: Actual Debt Service History from FY 2014 through FY 2018 (in thousands) ......................... 30 Table 4-14: Actual Debt Service History from FY 2019 through FY 2023 (in thousands) ......................... 30 Table 4-15: Budgeted Revenues from FY 2014 through FY 2018 (in thousands) .................................... 30 Table 4-16: Budgeted Revenues from FY 2019 through FY 2023 (in thousands) .................................... 31 Table 4-17: Budgeted Revenues CAGR from FY 2014 through FY 2023 ................................................ 31 Table 4-18: Actual Revenues from FY 2014 through FY 2018 (in thousands) ......................................... 31 Table 4-19: Actual Revenues from FY 2019 through FY 2023 (in thousands) ......................................... 32 Table 4-20: Actual Revenues CAGR from FY 2014 through FY 2023 ...................................................... 32 Table 4-21: Capital Improvement Funding History for FY 2014 through FY 2023 .................................... 33 Table 4-22: Historical Wastewater Rate Increases for FY 2014 through FY 2023 ................................... 34 Table 5-1: City of Sacramento General Plan Key Goals and Policies for Wastewater Infrastructure ....... 37 Table 5-2: Wastewater System Infrastructure Summary of Deferred Capital Investments ....................... 45 Table 5-3: Description of Asset Renewal and Replacement Needs ......................................................... 45 Table 6-1: Wastewater Assets Remaining Useful Life .............................................................................. 49 Table 7-1: Wastewater Customer Demand and Account Growth Projections .......................................... 51 Table 7-2: Wastewater Revenue Escalation Factors ................................................................................ 52 Table 7-3: Wastewater Expenditures Escalation Factors ......................................................................... 52 Table 7-4: Projected Wastewater Accounts and Billed Usage for Metered Customers (CCF) ................. 53 Table 7-5: Projected Revenues without Rate Increases ........................................................................... 54 City of Sacramento, CA / Wastewater Fund Review Report

Table 7-6: Projected Development Impact Fee Revenues ....................................................................... 54 Table 7-7: Projected O&M Expenses ........................................................................................................ 55 Table 7-8: Existing Debt Service Schedules ............................................................................................. 55 Table 7-9: 30-year CIP– Summary of Total Costs .................................................................................... 56 Table 7-10: 30-year Growth-related CIP – Summary of Total Costs ........................................................ 56 Table 7-11: Proforma for Status Quo ........................................................................................................ 58 Table 7-12: DIF Proforma ......................................................................................................................... 60 Table 7-13: Financing Plan with 30-year CIP Schedule and MYOP ......................................................... 61 Table 7-14: Financial Plan 1 with Original 30-year CIP Schedule and MYOP .......................................... 62 Table 7-15: Additional Operating Costs .................................................................................................... 67 Table 7-16: Additional Capital Costs ......................................................................................................... 67 Table 7-17: Financial Plan 2 with Additional Operating and Capital Costs ............................................... 69 Table 7-18: Financial Plan 3 with Additional Operating, Capital, and R/R Costs ...................................... 75 Table 8-1: Wastewater Financial Plan Descriptions.................................................................................. 81 Table 8-2: Comparison of Projected Wastewater Rate Increases ............................................................ 81

Figures
Figure 3-1: Total Water and Wastewater Accounts per FTE .................................................................... 16 Figure 7-1: Status Quo – Ending Balance and Reserve Targets .............................................................. 59 Figure 7-2: Status Quo – Debt Service Coverage Ratio ........................................................................... 59 Figure 7-3: DIF Fund Ending Cash Balance ............................................................................................. 60 Figure 7-4: Financial Plan 1 ...................................................................................................................... 63 Figure 7-5: Financial Plan 1 – Capital Financing Plan .............................................................................. 63 Figure 7-6: Financial Plan 1 – Ending Balances and Reserve Targets ..................................................... 64 Figure 7-7: Financial Plan 1 – Debt Service Coverage Ratio .................................................................... 64 Figure 7-8: Financial Plan 1 – Days of Cash on Hand .............................................................................. 65 Figure 7-9: Financial Plan 1 – Annual Wastewater Bill as Percentage of Lowest Quintile Income ........... 66 Figure 7-10: Financial Plan 2 .................................................................................................................... 70 Figure 7-11: Financial Plan 2 – Capital Financing Plan ............................................................................ 70 Figure 7-12: Financial Plan 2 – Ending Balances and Reserve Targets ................................................... 71 Figure 7-13: Financial Plan 2 – Debt Service Coverage Ratio .................................................................. 71 Figure 7-14: Financial Plan 2 – Days of Cash on Hand ............................................................................ 72 Figure 7-15: Financial Plan 2 – Annual Wastewater Bill as a Percentage of Lowest Quintile Income ...... 72 Figure 7-16: Financial Plan 3 .................................................................................................................... 76 Figure 7-17: Financial Plan 3 – Capital Financing Plan ............................................................................ 76 City of Sacramento, CA / Wastewater Fund Review Report

Figure 7-18: Financial Plan 3 – Ending Balances and Reserve Targets ................................................... 77 Figure 7-19: Financial Plan 3 – Debt Service Coverage Ratio .................................................................. 77 Figure 7-20: Financial Plan 3 – Days of Cash on Hand ............................................................................ 78 Figure 7-21: Financial Plan 3 – Annual Wastewater Bill as a Percentage of Lowest Quintile Income ...... 78

Appendix
Appendix: Tables and Figures for the 25-year Study Period

Department Response
Department of Utilities Response to the Water and Wastewater Funds Review

City of Sacramento, CA / Wastewater Fund Review Report

Abbreviations
AACE Association for the Advancement of Cost Engineering AWWA American Water Works Association
BRE Business Risk Exposure
CAAP Climate Action and Adaptation Plan
CAGR Compound Annual Growth Rate
CCF Hundred Cubic Feet
CIP Capital Improvement Program
City City of Sacramento
CMMS Computerized Maintenance Management System
COF Consequence of Failure
CPI Consumer Price Index
CSO Combined System Overflows
CSS Combined Sewer System
CWTP Combined Wastewater Treatment Plant
DIF Development Impact Fee
DOU Department of Utilities
FTE Full-Time Equivalent
FY Fiscal Year
GAAS Generally Accepted Auditing Standards
LQI Lowest Quintile Income
LOF Likelihood of Failure
LTCP Long-Term Control Plan
MGD Million Gallons per Day
MYOP Multi-Year Operating Projects
NMC Nine Minimum Controls
NPDES National Pollutant Discharge Elimination System O&M Operation and Maintenance
RCM Reliability Centered Maintenance
Report Wastewater Fund Review
R/R Renewal/Replacement
SacSewer Sacramento Area Sewer District
SRWTP Sacramento River Water Treatment Plant
SSS Separate Sewer System
USEPA United States Environmental Protection Agency
ZEV Zero-Emission Vehicles

City of Sacramento, CA / Wastewater Fund Review Report

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City of Sacramento, CA / Wastewater Fund Review Report 9

1. Executive Summary

1.1. Study Objectives
Raftelis is pleased to provide the Wastewater Fund Report (Report) for the City of Sacramento (City) to assess the fiscal stability of the Wastewater Fund. The Wastewater Fund accounts for the operation and maintenance of the City’s wastewater system, which is run by the Department of Utilities (DOU).

The primary objectives of the study include a detailed review and analysis of:
• Fiscal policies and procedures;
• Expense, revenue, and funding history;
• Service level and system capacity of the wastewater system; • Relationship and impact of deferred maintenance and capital investments on the value of wastewater infrastructure; and
• Fiscal forecasting by the development of financial plans for the Wastewater Fund to ensure financial sufficiency and funds to meet operation and maintenance (O&M) costs, the capital improvement program (CIP), multi-year operating projects (MYOP), capital replacement and refurbishment recommendations, and operating and capital gaps identified by DOU staff across several Divisions while improving the financial health of the Wastewater Fund and mitigating the burden that substantial rate increases could have on the City’s most vulnerable Wastewater customers.

This report summarizes the key findings and recommendations related to the DOU Wastewater Fund review and the development of financial plans for the Wastewater Fund in the following sections:
• Benchmarking – Section 3
• Expense, Revenue, and Funding History – Section 4
• Service Level and System Capacity – Section 5
• Valuation – Section 6
• Fiscal Forecasting – Section 7

1.2. Conclusion
The objectives of this review were achieved by combining current operating and capital revenue requirements with different levels of revenue requirements identified by City personnel and recommended revenue requirements aligned with utility best practices to address additional and necessary renewal/replacement (R/R) for deferred and high-risk assets capital investments. An analysis of the current conditions of the fund (status quo) shows that if the wastewater utility does not implement rate increases, it will not meet its capital reserve target beginning in FY 2028. It will also not be able to meet its absolute floor debt service coverage ratio and minimum operating reserve targets and requirements beginning in FY 2029. Thus, a cash flow City of Sacramento, CA / Wastewater Fund Review Report 10

analysis for three scenarios was completed to determine the projected rate increases necessary for the Wastewater Fund to have sufficient funds to meet the utility’s operating and capital revenue requirements, achieve operating and capital reserve targets, and achieve the absolute floor debt service coverage ratio1 required per debt covenants for a fiscally stable Wastewater Fund. These needed investments will require additional capital dollars than currently included in the Wastewater Fund and future rate increases are necessary. The following tables are summaries comparing the descriptions and proposed rate increases for each scenario. Financial Plan 3 has the highest total of proposed rate increases as it is the most holistic representation of the wastewater utility’s operational and capital needs.

Table 1-1: Wastewater Financial Plan Descriptions
Scenario Description
30-
year
CIP
MYOP
Additional &
Necessary
O&M
Additional &
Necessary
MYOP
Additional &
Necessary
Capital
Additional &
Necessary
R/R
1 Financial Plan 1 Yes Yes No No No No
2 Financial Plan 2 Yes Yes Yes Yes Yes No
3 Financial Plan 3 Yes Yes Yes Yes Yes Yes

Table 1-2: Comparison of Projected Wastewater Rate Increases Fiscal Year Financial Plan
1 Financial Plan
2 Financial Plan
3 FY 2025 0% 0% 0%
FY 2026 0% 0% 0%
FY 2027 0% 0% 0%
FY 2028 32% 50% 65%
FY 2029 30% 50% 65%
FY 2030 7% 5% 50%
FY 2031 7% 5% 3%
FY 2032 7% 5% 3%
FY 2033 7% 5% 0%
FY 2034 4% 3% 0%
FY 2035 – FY 2039 3% 3% (35 – 37),
5% (38,39) 0%
FY 2040 – FY 2042 7% 5% 0%
FY 2043 – FY 2046 7% (43, 44), 3%
(45) 5% (43 – 45) 5%
Total 147% 172% 206%

1 DOU must strive for a coverage ratio that is consistent with the applicable credit rating category for the water and wastewater systems.

City of Sacramento, CA / Wastewater Fund Review Report 11

While the wastewater utility requires rate increases to meet its fiscal requirements to keep the status quo, the results of the three financial planning scenarios demonstrate that additional wastewater rate increases will also be needed to implement the 30-year CIP, MYOP, as well as additional and necessary O&M, MYOP, capital, and R/R. However, we recognize that it may not be feasible to implement the full projected wastewater rate increases in Table 1-2. Therefore, it is likely that the DOU will need to prioritize the most critical, highest- risk, and regulatory projects as full funding for the wastewater utility’s comprehensive needs may not be available.

City of Sacramento, CA / Wastewater Fund Review Report 12

2. Introduction
In accordance with the City Auditor’s 2023/2024 Audit Plan, we have completed the Department of Utilities’ Water and Wastewater Funds Review. We believe this report meets our objective of reviewing the fiscal sustainability of the Wastewater Fund. We did not seek to test internal controls, such as those related to the department’s evaluation of the wastewater infrastructure or the fund’s revenue and expenses.

We would like to thank the Department of Utilities staff for their time, effort, and transparency to enable our completion of a thorough and independent review of the Wastewater Fund.

2.1. Objective, Scope, and Methodology
Raftelis is pleased to provide the Wastewater Fund Report (Report) for the City of Sacramento (City) to assess the fiscal stability of the Wastewater Fund. The Wastewater Fund accounts for the operation and maintenance of the City’s wastewater system, which is run by the Department of Utilities (DOU).

The major objectives of the study include a detailed review and analysis of:
• Fiscal policies and procedures;
• Expense, revenue, and funding history;
• Service level and system capacity of the wastewater system; • Relationship and impact of deferred maintenance and capital investments on the value of wastewater infrastructure; and
• Fiscal forecasting by the development of financial plans for the Wastewater Fund to ensure financial sufficiency and funds to meet operation and maintenance (O&M) costs, the capital improvement program (CIP), multi-year operating projects (MYOP), capital repair and replacement recommendations, and operating and capital gaps identified by DOU staff across several Funds while improving the financial health of the Wastewater Fund and mitigating the burden that substantial rate increases could have on the City’s most vulnerable wastewater customers.

This report summarizes the key findings and recommendations related to the DOU Wastewater Fund review and the development of financial plans for the Wastewater Fund. It is primarily based on data provided from the end of calendar year 2023. There are often differences between actual and projected data. Some of the assumptions used in this report may not be realized, and unanticipated events and circumstances may occur.

2.2. Background
The City of Sacramento, founded in 1849, is located at the confluence of the Sacramento and American Rivers. Today, the City has a population of roughly 525,000 and provides wastewater collection and conveyance to approximately 79,114 accounts

City of Sacramento, CA / Wastewater Fund Review Report 13

2.2.1. Wastewater System
It is important to note that the wastewater collection in Sacramento is provided by both the City and Sacramento Area Sewer District (SacSewer), with SacSewer maintaining about 40% of the system.

Additionally, SacSewer operates the publicly operated treatment works (POTW) for wastewater in the Sacramento Region while the City of Sacramento does not. The City’s wastewater system has a combined sewer system (CSS)2, a separated sewer system (SSS), wet weather detention and primary treatment facilities, and pumping facilities.

The CSS receives wastewater and stormwater flows from approximately 7,545 acres in the central City area with about 275 miles of pipeline. In addition to this, the CSS also receives wastewater flows from the eastern parts of the City of approximately 3,700 acres. The CSS has two primary pump stations (Pump Station 1/1A and Pump Station 2/2A) where wastewater and stormwater flows are collected. Flows are then pumped to select locations depending on weather conditions. Pump station 2A is divided into two separate operating functions, a wet weather pumping side of the facility and a dry weather pumping side of the facility. The dry weather pumping side of the station is owned by SacSewer, however, it is operated and maintained by the City. The remaining pump stations in the CSS are owned and operated by the City. The dry weather side of Pump Station 2A is operated continuously throughout the year, and the wet weather side of 2A along with Pump Stations 1/1a and 2 are only used during wet periods or when system diversions are needed for maintenance purposes. With this, DOU maintains an agreement with SacSewer which permits DOU to send up to 60 MGD of wastewater and stormwater runoff from the CSS to the SacSewer POTW.

The SSS serves an area of roughly 20,750 acres with about 570 miles of pipeline and conveys wastewater into interceptor sewer lines that are owned and operated by SacSewer. The City maintains the pump stations in the SSS. In total, the City has 40 sewer pump stations being fed by 40 of 55 sewer basins. The remaining basins flow into SacSewer interceptor pipes.

The City also has two combined wastewater treatment facilities, a Combined Wastewater Treatment Plant (CWTP) and Pioneer Treatment Reservoir Facility (Pioneer). Though the CWTP was originally constructed in 1954 as a treatment plant, today it is operated as a wet weather facility. Pioneer was originally constructed as a temporary storage facility but was converted to add disinfection as well. CWTP and Pioneer are needed when flows from the CSS exceed the established 60 MGD to SacSewer POTW. CWTP and Pioneer can be operated to provide temporary storage during wet weather or provide primary treatment to overflows to the Sacramento River during larger storm events.

2 Of note, Sacramento has one of two combined sewer systems (CSS) in the state of California; the other CSS is located in San Francisco. Based on the EPA, there are approximately 700 combined sewer systems in the United States.

City of Sacramento, CA / Wastewater Fund Review Report 14

3. Benchmarking

3.1. Benchmarking of Peer Communities
Benchmarking can be a useful tool to assess a utility’s operations in relation to similar organizations.

Comparing operations to other organizations can help the City understand if it is in line with peer communities or if there is an area that needs more attention or investment. Although this comparison is helpful, benchmarking does not include an evaluation of how well organizations are providing services; this is where knowledge of best practices is useful. Understanding best practices allows the City to better provide context to the comparisons made with peer utilities.

Peers were selected based on the number of accounts, services provided, similar regulatory environments, and similar operating functions, including if the peer operated a combined sewer system. Regional data from the American Water Works Association’s (AWWA) most recent utility benchmarking survey is also included for comparison when available and applicable.3

The project team collected data from publicly available sources such as budget documents, annual financial reports, and organization websites. Nine of the peer organizations are municipalities, and eight of the organizations provide both water and wastewater services. Five peer organizations operate as independent authorities, and three also provide stormwater services4. Table 3-1 presents information about each benchmark organization including retail customers, FY 2024 operating budget, and number of full-time equivalent (FTE) employees.5 Although this report focuses on wastewater, information about all utility services (water, wastewater, and storm) offered by each organization is included.

3 AWWA survey data are not acquired from a random sample and may not represent the industry. Regional data contains data from AWWA’s Region V, which includes survey responses from utilities in California, Oregon, Washington, Alaska, Montana, Nevada, Hawaii, Guam, American Samoa, and the seven westernmost Canadian provinces. 4 The City of Sacramento also provides stormwater services. Stormwater services are only included in Table 3-1 where the data was combined with another service and could not be separated. 5 When possible, information is obtained from the current (FY24) budget. However, some data (such as the number of accounts) is obtained from the peers’ most recent Annual Comprehensive Financial Report.

City of Sacramento, CA / Wastewater Fund Review Report 15

Table 3-1: Benchmark Organization Information1
Utility Utility Type Wastewater
C or CT4
Total
FTEs
Water
Accounts
Wastewater
Accounts
Total Operating
Budget ($
millions)
Boston Water and
Sewer Commission
Combined
Wastewater,
Water,
Wastewater
C 502 88,215 88,172 $369.9
City of Bakersfield Wastewater CT 51 N/A 1,054,0722 $14.4 City of Folsom Water,
Wastewater C 105 23,770 25,498 $35.8
City of Modesto Water,
Wastewater CT 283 74,527 62,162 $93.3
City of Roseville
Water,
Wastewater,
Stormwater
CT 178 47,000 51,000 $105.6
City of Sacramento Water,
Wastewater CT 416 147,150 79,114 $123.8
City of Santa Rosa
Water,
Wastewater,
Stormwater
C 478 53,000 49,000 $111
City of Seattle
Water,
Combined
Wastewater,
Wastewater
C 1,132.10 Not found Not found $272.7
City of Stockton
Water,
Wastewater,
Stormwater
CT 398.013 50,000 116,000 $116.2
Portland Water Bureau
Water,
Combined
Wastewater,
Wastewater
CT 1,337.70 194,938 194,938 $532.4
Sacramento Area Sewer
District Wastewater CT 294 N/A 427,616 $146.6
Sacramento County
Water Agency Water N/A 147 63,803 N/A $135.1
Sacramento Suburban
Water District Water N/A 73 47,680 N/A $24.8
San Juan Water District Water N/A 49 11,896 N/A $22.8
Truckee Meadows Water N/A 254 138,412 N/A $125
1 When possible, information is obtained from the current (FY24) budget. However, some data (such as the number of accounts) is obtained from the peers’ most recent Annual Comprehensive Financial Report. 2 Parcels served, rather than the number of accounts.
3 Total FTEs for Municipal Utilities Department, including Stormwater. 4 C is Collection, CT is collection and treatment.

3.2. Staffing Levels
Benchmarking attempts to use a variety of metrics to piece together a picture of how utilities compare. One of the common performance metrics used by AWWA to show relative staffing levels is the number of customer accounts per FTE. AWWA defines an FTE as the allocation of employee time equal to 2,080 hours per year based on 40 hours per week and 52 weeks per year. For combined water and wastewater utilities, this is City of Sacramento, CA / Wastewater Fund Review Report 16

expressed as the sum of water customer accounts and wastewater customer accounts divided by the total number of FTEs (226,264 accounts divided by 416 FTEs equals 544 accounts per FTE).

The preferred ranking is above the AWWA 75th percentile of 576 accounts per FTE. As seen in Figure 3-1, the City serves 544 customer accounts per FTE, which falls below the AWWA’s 75th percentile6 However, in comparison with the selected benchmark organizations, the City is grouped on the higher end of its peers.7

Figure 3-1: Total Water and Wastewater Accounts per FTE

The comparison for wastewater accounts served per FTE is shown in Figure 3-2. The Wastewater Division serves 590 wastewater accounts per FTE (79,114 accounts divided by 134 FTEs equals 590 accounts per FTE), which is less than most of its peers and just below the AWWA 75th percentile. The preferred ranking is above the AWWA 75th percentile of 600 accounts per FTE.

6 AWWA reports its benchmarking survey results in terms of 25th percentile, median, and 75th percentile. However, the 25th percentile does not always indicate the lowest value, and the 75th percentile does not always indicate the highest numerical value. Usually, AWWA ascribes the 75th percentile to the perceived “most-efficient” quartile (e.g., most customer accounts served per FTE, lowest operating cost per million gallons, etc.).
7 We excluded the City of Seattle due to insufficient data regarding the number of accounts served and the City of Bakersfield from the per account comparison since they charge on a parcel basis multiplied by a Revised Single-Family Dwelling Equivalent (SFDE) ratio, which is not equivalent to accounts.
126 146 176
213 243 263 264
434 469
544 545
583
653
0 100
200
300
400
500
600
700Accounts per FTE
AWWA 75th Percentile - Preferred Ranking (576) AWWA Median (461) AWWA 25th Percentile (331) City of Sacramento, CA / Wastewater Fund Review Report 17

There are numerous open FTE positions for the wastewater utility that the City is trying to fill, with a total staffing cost need of approximately $1.7 million over the next five years. Finding qualified staff has been difficult, and a Citywide classification and compensation study is currently underway.

Figure 3-2: Wastewater Accounts per FTE

A common metric used by the AWWA to show relative staffing levels is the amount of wastewater treated per treatment and collections FTE. Wastewater is generally more labor intensive and the volume per FTE is typically lower compared to drinking water treatment. Figure 3-3 shows the wastewater MGD treated per FTE across benchmarked organizations. The preferred ranking is above the AWWA 75th percentile of 0.22.

The City treats approximately 0.12 MGD per wastewater FTE (16.55 MGD average wastewater treatment divided by 134.0 FTEs equals 0.12 MGD per FTE). For the City of Sacramento, wastewater is only treated during large storm events, which is why this metric is low. Of note, most of the benchmarked peers do not operate a large CCS, which may account for some of the difference between Sacramento and the benchmarked peers.

292
398
590
674 708 766
1,185 1,244
0 200
400
600
800
1,000
1,200
1,400Accounts per FTE
AWWA 75th Percentile - Preferred Ranking (600) AWWA Median (473) AWWA 25th Percentile (314) City of Sacramento, CA / Wastewater Fund Review Report 18

Figure 3-3: Wastewater Treated (MGD) per FTE

Note: City of Santa Rosa, City of Modesto, City of Seattle, and Boston Water and Sewer Commission are excluded from this figure due to the lack of average wastewater treatment data found.

3.3. Operational Comparisons
To examine the relative cost of service across different organizations, a common industry metric is to calculate the annual operations and maintenance (O&M) expenditures per customer account8 (FY 2024 Wastewater Operating Budget of $35.6 million divided by 79,114 wastewater accounts equals $450 per account). The preferred ranking is below the AWWA 75th percentile.

Figure 3-4 shows wastewater operations and maintenance expenditures per customer account across the benchmarked organizations. The City of Sacramento appears to be approximately in the middle of its peers and has kept O&M costs down but still higher than the preferred AWWA 75th percentile. The City comes in between the median and AWWA 25th percentile of AWWA’s Region V, falling within regional industry standards.

As discussed in later sections of this report, Raftelis identified that the City has a deferred capital investment of $1.1 billion in R/R needs for its existing wastewater assets. However, DOU has had limited capital budget funding available for several years, due to a lack of wastewater rate increases in FY 2021 through FY 2023, so sufficient asset R/R has been deferred due to lack of funding. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of O&M costs to keep the existing assets functional. These reasons are likely why the City’s O&M costs are above the AWWA 75th percentile.

8 Operations and maintenance costs generally consist of labor (e.g., wages and benefits), services (e.g., repair services, janitorial services, etc.), and consumables (e.g., chemicals, utilities, office supplies) that need to be expended on a periodic or ongoing basis to operate a utility. Operations and maintenance costs exclude the costs of debt service and capital.

City of Sacramento, CA / Wastewater Fund Review Report 19

Figure 3-4: Annual Wastewater O&M Expenditures per Customer Account

Note: City of Santa Rosa and City of Modesto are excluded from the figure since their operations and maintenance budget is not separated out by water and wastewater divisions.

To examine another aspect of the cost of providing wastewater service, the annual wastewater operations and maintenance cost is calculated on the basis of pipeline length rather than the number of customer accounts.

Figure 3-5 presents the annual wastewater operating cost per 100 miles of wastewater pipeline (FY 2024 Water Operating Budget of $35.6 million divided by 19.67 (100 miles of pipe) equals $1.8 million per 100 miles of pipe). The preferred ranking is below the AWWA 75th percentile. For annual wastewater O&M cost per 100 miles of pipeline, Sacramento is lower than the AWWA 75th percentile and is the second lowest of the benchmarked agencies, with only the City of Bakersfield spending less.

While this may appear to contradict the previous metric, the City of Sacramento has the third highest amount of piping compared to its peers. Thus, the previous metric helps to provide more of a contextual background that O&M costs are likely high due to the need for more R/R.

$343 $431 $450
$625
$1,136
$1,579
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Sacramento
Area Sewer
District
City of Folsom City of
Sacramento
City of Stockton City of
Roseville
Portland Water
Bureau
$ / Account
AWWA 75th Percentile - Preferred Ranking ($323)
AWWA Median ($402)
AWWA 25th Percentile ($632)
City of Sacramento, CA / Wastewater Fund Review Report 20

Figure 3-5: Annual Wastewater O&M Costs per 100 Miles of Pipeline

Note: City of Santa Rosa, City of Modesto and Boston Water and Sewer Commission are excluded from this figure due to insufficient data.

3.4. Wastewater Rate Comparisons
Comparing rates between peers is not always a straightforward process. Given different rate structures between utilities, one utility may have relatively lower bills at one usage level and relatively higher bills at another usage level. Moreover, the rates that utilities charges reflect many factors, some of which are often outside of a community’s control (e.g., source water quality, topography, environmental regulations, etc.).

This benchmarking effort presents calculated monthly bills at 5 hundred cubic feet (ccf) and 10 ccf usage levels. In addition to the benchmarked peers, rates from the AWWA Rate Survey are included. As before, AWWA reports the 25th percentile, median, and 75th percentile of bills. Note that the rate data from the benchmarked peers is current; however, the AWWA Rate Survey collected its data in July 2022. Below the 25th percentile is preferred.

Figure 3-6 shows that the City’s monthly 5 ccf residential wastewater bill for wastewater collection service lies roughly halfway between the AWWA 25
th percentile and median, and that it is generally less than most benchmarked peers’ bills. It is important to note that the City’s wastewater rates do not include a volume component (which is a common wastewater rate structure), and therefore appear increasingly “affordable” at higher consumption levels.

$1.30 $1.81
$3.90 $4.56
$7.87
$9.41 $9.89 $9.90
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0$ million / 100 mi.

AWWA 75th Percentile - Preferred Ranking ($2.32) AWWA Median ($3.28) AWWA 25th Percentile ($4.56)
City of Sacramento, CA / Wastewater Fund Review Report 21

Figure 3-6: Monthly Residential Wastewater Bill – 5 ccf

Figure 3-7 shows that the City’s 10 ccf wastewater bills continue to be among the lowest of the benchmarked peers, as it does not have a volume component, and is less than the AWWA 25th percentile.

Figure 3-7: Monthly Residential Wastewater Bill – 10 ccf

$19.25 $19.85 $25.43
$31.65
$41.29 $42.84 $43.17
$50.42 $55.68
$91.50 $96.35
$0
$20
$40
$60
$80
$100
$120
Monthly Residential Wastewater Bill - 5 ccf
$19.25 $19.85 $25.43 $31.65 $42.84 $43.17
$55.68
$71.08 $82.58
$161.15
$183.00
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Monthly Residential Wastewater Bill - 10 ccf
AWWA 75th Percentile ($73.10)
AWWA Median ($54.56)
AWWA 25th Percentile - Preferred Ranking ($41.26)
City of Sacramento, CA / Wastewater Fund Review Report 22

As discussed in later sections of this report, Raftelis identified that DOU has significant additional capital investment needs over the next 10 years that need to be funded and addressed to efficiently operate and maintain the wastewater system. The associated rate increases are summarized in the Conclusions section of this report.

3.5. Benchmarking Summary
A summary of the benchmarking section is presented below. Rankings based on FTEs, O&M costs, and residential bills are in order of highest to lowest compared to the City’s benchmarked peers:

• The Wastewater Division serves 590 wastewater accounts per FTE, which is less than most of its benchmarked peers and just below the AWWA 75th percentile of 600 wastewater accounts per FTE.

• A common metric used by the AWWA to show relative staffing levels is the amount of wastewater treated per treatment and collections FTE. Wastewater is generally more labor intensive and the volume per FTE is typically lower compared to drinking water treatment. The preferred ranking is above the AWWA 75
th percentile of 0.22. The City treats 0.12 MGD per wastewater FTE and is below the AWWA 25th percentile. For the City of Sacramento, wastewater is only treated during large storm events, which is why this metric is low. Of note, most of the benchmarked peers do not operate a large CCS, which may account for some of the difference between Sacramento and the benchmarked peers.

• The O&M costs for providing services are compared by normalizing the data and dividing the O&M costs by the number of accounts served. The preferred ranking is below the AWWA 75th percentile.

The City spends slightly more than its peers at $450 per account and has kept O&M costs down but is still higher than the preferred AWWA 75th percentile of $323. The City ranks in the middle of its benchmarked peers. As discussed in later sections of this report, Raftelis identified that the City has a deferred capital investment of $1.1 billion in R/R needs for its existing wastewater assets. However, DOU has had limited capital budget funding available for several years, due to a lack of wastewater rate increases in FY 2021 through FY 2023, so sufficient asset R/R has been deferred due to lack of funding. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of O&M costs to keep the existing assets functional. These reasons are likely why the City’s O&M costs are above the AWWA 75 th
percentile.

• Another method to normalize O&M costs is to divide the O&M costs by the length of pipe maintained. The preferred ranking is below the AWWA 75th percentile. The City is $1.81 million per 100 miles of pipe and is lower than the AWWA 75th percentile of $2.32 million per 100 miles of pipe.

Ranking second lowest amongst its peers, the City’s wastewater O&M expenditures are relatively low compared with benchmark peers. While this may appear to contradict the previous metric, the City of Sacramento has the third highest amount of piping compared to its peers. Thus, the previous metric helps to provide more of a contextual background that O&M costs are likely high due to the need for more R/R.

City of Sacramento, CA / Wastewater Fund Review Report 23

• The City’s monthly residential wastewater bill for 5 and 10 ccf per month ranks fourth lowest at both levels compared to its peers. As discussed in later sections of this report, Raftelis identified that DOU has significant additional capital investment needs over the next 10 years that need to be funded and addressed to efficiently operate and maintain the wastewater system. The associated rate increases are summarized in the Conclusions section of this report.

City of Sacramento, CA / Wastewater Fund Review Report 24

4. Expense, Revenue, and Funding
History

4.1. Operating Expenses
Raftelis reviewed the budgeted and actual expenses for wastewater from FY 2014 through FY 2023. Budgets were compared to actuals to evaluate the budget assumptions and projections and to identify escalation factors that should be used in the fiscal forecast. Revenues were compared to expenses to determine if past rate revenue increases have been sufficient to meet operating and capital revenue requirements.

4.1.1. Budgeted Operating Expenses
The budgeted expenses and Compound Annual Growth Rate (CAGR) for each line item in the Wastewater Fund are shown in the following tables. Interfund expenses on lines 2 through 4 relate to various activities for the Wastewater Fund including, but not limited to, the General Fund Tax, central services mail, annual citywide cost plan, project labor and indirect cost reimbursements, grant labor reimbursements, and interdepartmental reimbursements or expenses for services provided or received.

Table 4-1: Budgeted Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Employee Services $8,637 $8,566 $8,637 $10,971 $9,910 2 Interfund Reimbursement $3,261 $5,654 $7,063 $4,315 $6,647 3 Interfund Provided & Used $0.14 $0.14 $0.14 $0.14 $0.14 4 Interfund Transfer $2,854 $3,311 $3,311 $3,629 $3,953 5 Other Objects $916 $346 $346 $196 $201
6 Property $132 $65 $66 $417 $393
7 Services and Supplies $4,617 $4,617 $4,617 $4,617 $4,004 8 MYOP $4,018 $3,866 $4,770 $2,233 $3,359
9 Budgeted Expenses
Total $24,436 $25,501 $27,892 $25,753 $28,525

9 American Water Works Association, M1: Principles of Water Rates, Fees, and Charges, Seventh Edition City of Sacramento, CA / Wastewater Fund Review Report 25

Table 4-2: Budgeted Expenses from FY 2019 through FY 2023 (in thousands) Line
No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Employee Services $10,608 $11,294 $13,312 $13,565 $13,569 2 Interfund
Reimbursement $8,369 $9,549 $7,349 $7,890 $7,189
3 Interfund Provided &
Used $0.05 $0.05 $0.07 $0.07 $0.06
4 Interfund Transfer $4,315 $4,706 $4,727 $4,576 $4,598 5 Other Objects $194 $194 $393 $394 $195
6 Property $144 $144 $153 $147 $155
7 Services and Supplies $4,107 $4,235 $4,494 $4,792 $5,653 8 MYOP $2,579 $2,474 $165 $853 $981
9 Budgeted Expenses
Total $30,316 $32,595 $30,593 $32,216 $32,520

Table 4-3: Budgeted Expenses CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Employee Services 5.1%
2 Interfund Reimbursement 9.2%
3 Interfund Provided & Used -8.9%
4 Interfund Transfer 5.4%
5 Other Objects -15.8%
6 Property 1.8%
7 Services and Supplies 2.3%
8 MYOP -14.51%
9 Budgeted Expenses Total 3.2%

4.1.2. Actual Operating Expenses
The actual expenses and CAGR for each line item in the Wastewater Fund are shown in the following tables.

Actual expenses had a higher CAGR of 3.7% compared to 3.2% for budgeted expenses from FY 2014 to FY 2023. Since the percentage increase difference is less than a percentage, it indicates that the DOU is accurately budgeting for operating expenses.

Inflation as measured by the consumer price index (CPI) 10 was 2.8% from FY 2014 to FY 2023. Employee
services, other objects, and services and supplies had CAGRs for actual expenses in Table 4-6 that were

10 Bureau of Labor Statistics Data, Series ID CUUR0000SA0, U.S. City Average, All urban customers, Unadjusted.

City of Sacramento, CA / Wastewater Fund Review Report 26

higher than inflation. However, there were planned increases during this period due to approved rate increases that do not have a relationship to inflation.

Table 4-4: Actual Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Employee Services $7,937 $6,180 $8,002 $10,503 $9,724 2 Interfund Reimbursement $5,484 $5,721 $7,279 $4,289 $5,913 3 Interfund Provided & Used $0.16 $0.03 $0.03 $0.05 $0.11 4 Interfund Transfer $3,002 $3,645 $3,326 $3,503 $3,922 5 Other Objects $281 $175 $195 $172 $116
6 Property $76 $82 $98 $433 $322
7 Services and Supplies $3,447 $3,807 $3,599 $4,219 $4,078 8 MYOP $1,860 $2,389 $629 $1,945 $1,759
9 Actual Expenses Total $20,227 $19,611 $22,499 $23,119 $24,075

Table 4-5: Actual Expenses from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Employee Services $9,701 $10,172 $11,827 $12,339 $12,997 2 Interfund Reimbursement $8,141 $8,074 $5,358 $6,653 $5,502 3 Interfund Provided & Used $0.05 $0.02 $0.00 $0.01 $0.00 4 Interfund Transfer $4,167 $4,570 $4,604 $4,657 $4,557 5 Other Objects $93 $6 $167 $97 $50
6 Property $191 $74 $203 $161 $131
7 Services and Supplies $4,833 $4,542 $4,809 $4,741 $6,038 8 MYOP $989 $1,058 $1,407 $883 $1,261
9 Actual Expenses Total $28,115 $28,496 $28,374 $29,530 $30,536

City of Sacramento, CA / Wastewater Fund Review Report 27

Table 4-6: Actual Expenses CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Employee Services 5.6%
2 Interfund Reimbursement 0.04%
3 Interfund Provided & Used -43.1%
4 Interfund Transfer 4.8%
5 Other Objects -17.4%
6 Property 6.2%
7 Services and Supplies 6.4%
8 MYOP -4.23%
9 Actual Expenses Total 3.7%
Note: Interfund transfers vary based on the City’s internal methods and accounting procedures.

4.2. Capital Expenses

4.2.1. Budgeted Capital Expenses
The budgeted capital expenses for the Wastewater Fund are shown in the following tables. The average annual cash funded capital was $4.8 million. Some years have more of an impact on the average expense than others. For example, bond proceeds were awarded in FY 2019 for $32.0 million, and a Wastewater Grant Fund was awarded in FY 2019 for $14.5 million, which resulted in a total average capital budget expense of $11.0 million.

Table 4-7: Budgeted Capital Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Sewer Development Fees $147 $0 $0 $601 $0
2 Wastewater Fund $531 $1,200 $8,928 $10,409 $3,123
3 Wastewater Grant Fund $0 $0 $0 $0 $0
4 Wastewater Revenue
Bonds 2013 $0 ($132) ($509) $35 $0
5 Wastewater Revenue
Bonds 2019 $0 $0 $0 $0 $0
6 Total Budgeted Capital
Expenses $678 $1,068 $8,419 $11,045 $3,123

City of Sacramento, CA / Wastewater Fund Review Report 28

Table 4-8: Budgeted Capital Expenses from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Sewer Development
Fees $3,762 $0 $16,086 $1,550 $0
2 Wastewater Fund $10,380 $178 $4,740 $7,396 $2,557
3 Wastewater Grant Fund $14,558 $298 ($14,525) $3,475 $1,973 4 Wastewater Revenue
Bonds 2013 $0 $0 $423 $63 $0
5 Wastewater Revenue
Bonds 2019 $32,005 $0 $178 $0 $0
6 Total Budgeted Capital
Expenses $60,704 $476 $6,902 $12,484 $4,530

4.2.2. Actual Capital Expenses
The actual capital expenses for the Wastewater Fund are shown in the following tables. The average annual actual capital expenses were $14.0 million. Capital projects have multi-year funding. Carryover funding was available in the CIP to support the annual variance of approximately $3.0 million.

Table 4-9: Actual Capital Expenses from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Sewer Development
Fees $733 $208 ($222) $279 $517
2 Wastewater Fund $1,705 $1,101 ($28) $4,448 $5,758
3 Wastewater Grant Fund $610 $2,465 $823 $236 $1,726
4 Wastewater Revenue
Bonds 2013 $11,719 $3,165 $11,150 $2,695 $0
5 Wastewater Revenue
Bonds 2019 $0 $0 $0 $0 $0
6 Total Actual Capital
Expenses $14,767 $6,939 $11,723 $7,658 $8,001

City of Sacramento, CA / Wastewater Fund Review Report 29

Table 4-10: Actual Capital Expenses from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Sewer Development
Fees $394 $1,562 $17,425 $2,391 $110
2 Wastewater Fund ($2,527) $14,124 $8,807 $5,716 $2,123 3 Wastewater Grant
Fund $611 $7,426 ($7,118) $306 $3,889
4 Wastewater Revenue
Bonds 2013 $0 $0 $423 $63 $0
5 Wastewater Revenue
Bonds 2019 $13,502 $1,335 $6,312 $9,069 $1,938
6 Total Actual Capital
Expenses $11,980 $24,447 $25,849 $17,544 $8,059

4.3. Debt Service History

4.3.1. Budgeted Debt Service
The budgeted debt service history for wastewater is shown in the following tables. The total debt service the wastewater utility budgeted to pay from FY 2014 through FY 2023 was approximately $31.3 million.

Table 4-11: Budgeted Debt Service History from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Debt Service Transfer
out $51 $1,468 $2,022 $2,020 $2,021
2 Principal Payments $720 $736 $899 $921 $789
3 Interest Payment $140 $123 $114 $92 $70
4 Budgeted Debt Service
Total $910 $2,327 $3,035 $3,033 $2,880

Table 4-12: Budgeted Debt Service History from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Debt Service Transfer
out $2,436 $3,167 $3,298 $3,911 $3,908
2 Principal Payments $766 $783 $716 $0 $0
3 Interest Payment $52 $34 $16 $0 $0
4 Budgeted Debt Service
Total $3,254 $3,985 $4,031 $3,911 $3,908

4.3.2. Actual Debt Service
The actual debt service history paid from FY 2014 through FY 2023 was $29.9 million. The actual expenditures for debt service aligned with the budgeted amounts and are shown in the following tables.

City of Sacramento, CA / Wastewater Fund Review Report 30

Table 4-13: Actual Debt Service History from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Debt Service Transfer
out $51 $1,460 $1,965 $2,020 $2,021
2 Principal Payments $857 $878 $899 $738 $789
3 Interest Payment $157 $135 $114 ($1,500) $70
4 Actual Debt Service
Total $1,064 $2,473 $2,978 $1,258 $2,880

Table 4-14: Actual Debt Service History from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Debt Service Transfer
out $2,433 $3,521 $3,091 $3,911 $3,909
2 Principal Payments $766 $783 $716 $0 $0
3 Interest Payment $52 $34 $16 $0 $0
4 Actual Debt Service
Total $3,251 $4,339 $3,823 $3,911 $3,909

4.4. Revenues

4.4.1. Budgeted Revenues
The budgeted revenues and CAGR for the Wastewater Fund are shown in the following tables.

Miscellaneous and other agency revenues are excluded due to being immaterial.

Table 4-15: Budgeted Revenues from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Charge to Regional
Sanitation District $768 $715 $715 $1,013 $1,013
2 Interest and
Investment Income $392 $392 $392 $392 $392
3 User Fees and
Charges $27,178 $30,463 $30,488 $33,230 $36,216
4 Total Budgeted
Revenues $28,338 $31,570 $31,595 $34,634 $37,620

City of Sacramento, CA / Wastewater Fund Review Report 31

Table 4-16: Budgeted Revenues from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Charge to Regional
Sanitation District $1,013 $1,013 $800 $800 $1,000
2 Interest and
Investment Income $392 $392 $392 $392 $392
3 User Fees and
Charges $39,471 $43,019 $42,118 $42,118 $42,115
4 Total Budgeted
Revenues $40,875 $44,423 $43,310 $43,310 $43,545

Table 4-17: Budgeted Revenues CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Charge to Regional
Sanitation District 3.0%
2 Interest and Investment
Income 1.0%
3 User Fees and Charges 5.0%
4 Budgeted Revenues Total 4.8%

4.4.2. Actual Revenues
The actual revenues and CAGR for the Wastewater Fund are shown in the following tables. Miscellaneous and other agency revenues are excluded due to being immaterial.

Table 4-18: Actual Revenues from FY 2014 through FY 2018 (in thousands) Line No. Description FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 1 Charge to Regional
Sanitation District $948 $1,018 $1,030 $1,006 $860
2 Interest and
Investment Income $217 $224 $294 $445 $643
3 User Fees and
Charges $27,822 $31,207 $30,685 $33,464 $36,834
4 Total Actual
Revenues $28,987 $32,449 $32,009 $34,915 $38,337

City of Sacramento, CA / Wastewater Fund Review Report 32

Table 4-19: Actual Revenues from FY 2019 through FY 2023 (in thousands) Line No. Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 1 Charge to Regional
Sanitation District $1,090 $1,032 $1,192 $1,186 $1,737
2 Interest and
Investment Income $963 $1,168 $537 $385 $1,028
3 User Fees and
Charges $41,273 $43,479 $42,800 $43,235 $43,120
4 Total Actual
Revenues $43,326 $45,679 $44,529 $44,806 $45,885

Table 4-20: Actual Revenues CAGR from FY 2014 through FY 2023 Line No. Description CAGR
1 Charge to Regional
Sanitation District 7.0%
2 Interest and Investment
Income 19.0%
3 User Fees and Charges 5.0%
4 Actual Revenues Total 5.2%

Budgeted revenues for wastewater averaged $37.9 million annually, and actual revenues averaged slightly higher at $39.1 million annually from FY 2014 through FY 2023. Actual revenues had a higher CAGR of

5.2% compared to 4.8% for budget revenues from FY 2014 to FY 2023. The CAGR for actual revenues of

5.2% was also higher compared to 4.2% for actual expenses. Since the growth in actual revenues and expenses were higher than budgeted revenues and expenses, it indicates that the City is accurately budgeting for wastewater revenues and expenses.

As previously discussed, inflation as measured by the CPI was 2.8% from FY 2014 to FY 2023. The following revenue categories had increases higher than inflation over the same period: charges to Regional Sanitation District, interest on investment income, and user fees and charges. This is due to increased costs in O&M for maintaining the facilities, as well as approved rate increases that do not have a relationship to inflation.

4.5. Capital Improvement Funding History
The wastewater capital improvement projects funded from FY 2014 through FY 2023 were analyzed to determine the ratio of cash-funded, grant, and debt-financed projects. The cash-funded projects include cash from rate revenues and revenues from wastewater development fees11. The debt-financed projects include proceeds from revenue bonds and State Revolving Loan Funds.

Table 4-21 shows the DOU has a balanced mix of cash and debt funding for its wastewater capital projects.

11 Wastewater development fees are restricted revenues that can only be used for development-related projects City of Sacramento, CA / Wastewater Fund Review Report 33

Table 4-21: Capital Improvement Funding History for FY 2014 through FY 2023 Line No. Description Budget Percentage Actual Percentage 1 Cash funded capital $71,587,722 65.4% $64,626,215 47.2% 2 Grants $5,779,362 5.3% $10,972,872 8.0%
3 Debt financing $32,061,835 29.3% $61,371,04412 44.8% 4 Total $109,428,919 100.0% $136,970,131 100.0%

4.6. Historical Wastewater Rates
The City implemented the wastewater rate increases shown in the following table for a 65% total increase between FY 2014 and FY 2023. However, the actual revenue generated from customer rates, which is less than total revenues, only increased by 55% over the same period. Ideally, if rates were increased by 65%, then revenues generated from those rates should increase by the same proportion.

The City has both metered and unmetered wastewater customers. Metered customers are charged a fixed monthly fee that varies by meter size, and a uniform commodity rate for the volume of pumped wastewater.

The revenue from the commodity rate only represents about 7% of wastewater rate revenues. Unmetered customers are charged a flat rate that varies by customer classification.

Approximately 93% of wastewater revenues are generated by multiplying the number of accounts times the rates and the billing period. The total number of wastewater accounts in FY 2014 was 76,657. The total number of accounts in FY 2023 was 79,287, which is an increase of 3.4%. Since the number of customer accounts billed for wastewater service has increased and it represents the majority of the rate revenues, the rate structure used for the recovering revenue should be investigated. This type of in-depth investigation is part of a cost-of-service analysis to ensure rates are adequate and have a nexus to wastewater costs.

12 The difference in debt financing is due to a 2013 wastewater revenue bond that was budgeted in 2013 but spent in subsequent years.

City of Sacramento, CA / Wastewater Fund Review Report 34

Table 4-22: Historical Wastewater Rate Increases for FY 2014 through FY 2023 Line No. Year Rate Increase
1 2014 15%
2 2015 14%
3 2016 0%
4 2017 9%
5 2018 9%
6 2019 9%
7 2020 9%
8 2021 0%
9 2022 0%
10 2023 0%
11 Total 65%

4.7. Regulatory Requirement Changes
The wastewater utility sector has experienced some changes in regulatory requirements over the previous five years. This section of the report presents key changes in regulatory requirements including California legislation and regulations. This is not a legal review or a comprehensive list of all legal changes in California and should not be used as legal guidance. The details of compliance would need to be reviewed by the City’s legal counsel.

4.7.1. California Legislation
Senate Bill 323
Senate Bill 323 was passed in 2021. The bill requires lawsuits challenging water or wastewater rates to be filed within 120 days of the effective date. Utilities must include a statement of the 120-day statute of limitations to challenge any new, increased, or extended fee or rate in their proposed rate notification. It also mandates that challenges be brought through a reverse validation action. Senate Bill 323 does not appear to have any financial impact on the City.

4.7.2. Wastewater Regulations
Water Quality Order No. 2022-0103-DWQ
California adopted revised regulations in 2022 for sanitary sewer systems waste discharge requirements (SSS WDR). The regulations supersede the previous ones issued in 2006. The regulations require utilities to develop and implement sewer system management plans and report all sanitary sewer spills to the California State Water Resources Control Board. The intent of the regulatory update is to provide a more consistent approach to sanitary sewer spills. The financial impact to the City of Sacramento was not assessed by Raftelis.

Water Quality Order No. 2020-0039-DWQ
The City’s CSS and discharge to the Sacramento River are regulated by the Central Valley Regional Water Quality Control Board (Central Valley Water Regional Board) which issued the City’s National Pollutant City of Sacramento, CA / Wastewater Fund Review Report 35

Discharge Elimination System (NPDES) Permit specifying Waste Discharge Requirements for the City’s Combined Wastewater Collection and Treatment System (i.e., currently the 2020 Permit R5-2020-0039). The 2020 Permit implements federal and state regulations, including requirements to meet the Combined Sewer Overflow Policy. The permit specifies minimum control measures and the requirement to implement a Long- Term Control Plan. The financial impact to the City of Sacramento was not assessed by Raftelis.

4.8. Weather Impacts
Raftelis was asked to answer the following question based on available information from the City.

How have changes in the frequency and severity of weather events in the previous twenty years affected the wastewater system costs?

The City has recognized that global warming is posing risks to human health and property due to hotter average daytime temperatures, increased rainfall, and more extreme weather events. The City has prepared both the Sacramento 2040 General Plan and the Climate Action & Adaptation Plan (CAAP) to not only preserve and enhance environmental resources in and around the City, but to also provide protection from natural hazards and to build community-wide resilience to climate change.

Climate change is affecting DOU’s wastewater infrastructure and associated capital cost needs. For example, DOU will be required to convert its fleet vehicles to zero emission vehicles (ZEVs) by 2045. It is estimated that the cost of purchasing some vehicles, such as heavy-duty vehicles, could double. Additionally, the City does not currently have sufficient infrastructure in place, such as charging stations, to accommodate the increase in ZEVs. DOU is in the process of determining the costs required to convert to ZEVs, including the limitations of meeting this requirement for heavy excavation equipment and trucks. These costs have not yet been included in the 30-year capital plans prepared for the wastewater system infrastructure but are expected to have a significant financial impact.

Using global climate model projections, DOU has evaluated and analyzed changes to rainfall amounts, and changes to storm durations and intensities used for designing wastewater system infrastructure to account for climate change effects on the wastewater systems. Storm events used for designing wastewater system infrastructure are called design storms. This analysis determined that there will be an increasing trend in rainfall amounts and intensities into the future, which will likely increase costs. Work to-date indicates the percent changes in rainfall intensities (e.g., how much rain falls in a given time period) will increase with return period (e.g., 1-year, 5-year, 10-year, etc. storm events). A 1-year storm is defined as a design storm event that has a 100% chance of occurring in any given year; 5-year design storm has a 20% chance of occurring in any given year; 10-year design storm has a 10% chance of occurring in any given year, etc.

While Raftelis did not quantitatively determined how the frequency and severity of weather events in the previous twenty years has affected the wastewater system costs, DOU has observed increased rainfall and increased operations of the CSS treatment facilities system during storm events; the exact volumes have not been formally quantified.

City of Sacramento, CA / Wastewater Fund Review Report 36

DOU has modeled the impacts on the combined wastewater system from the updated regional hydrology and rainfall data to meet the requirement of the Water Quality Order No. 2020-0039-DWQ and has input available climate change data to allow for the assessment of climate change on combined system improvements. Currently, the climate change data is comprised of worst-case scenario for atmospheric greenhouse gas concentrations limiting what assessments are done and the further evaluation of wastewater system projects to address future capacity and overflow volumes will be dependent on regionally accepted climate change levels and on upcoming requirements due to be issued in 2025. Therefore, the capital and associated operations costs from the climate change modified rainfall data have not yet been determined for the combined or separated wastewater infrastructure but it is likely there will be an impact on the projected costs for addressing climate change forecasts. As such, the current 30-year wastewater system CIP doesn’t reflect the full cost impacts from climate change as DOU is actively working to evaluate and determine those additional costs.

4.9. Summary
A summary of the expense, revenue, and funding history is as follows:
• Actual operating and capital expenses were higher than their budgeted projections. Actual operating expenses had a higher CAGR of 3.7% compared to 3.2% for budgeted operating expenses from 2014 to 2023. Since the percentage increase difference is less than a percentage, it indicates that the DOU is accurately budgeting for operating expenses. Also, additional operations budget is needed for critical operating needs; these costs have been included as part of Financial Plans 1 and 2 later in this report. • The average annual budgeted capital expenses were $11.0 million. The average annual actual capital expenses were $14.0 million. Capital projects have multi-year funding. Carryover funding was available in the CIP to support the annual variance of approximately $3.0 million. • Budgeted revenues for wastewater averaged $37.9 million annually, and actual revenues averaged slightly higher at $39.1 million annually from FY 2014 through FY 2023. Actual revenues had a higher CAGR of 5.2% compared to 4.8% for budget revenues from FY 2014 to FY 2023. This indicates that the City is accurately budgeting for wastewater revenues. • Actual revenues (5.2% CAGR) increased at approximately the same pace as expenses (5.4% CAGR) over these ten fiscal years.
• The analysis of the funding history shows the DOU has a very balanced mix of cash and debt funding for its capital projects. Capital projects were funded as follows: cash-funded capital (47.2%), grants (8.0%), and debt (44.8%).
• The City implemented rate increases for the wastewater utility, authorized by the Sacramento City Council, totaling 65% from FY 2014 to FY 2023. However, the actual revenue generated from customer rates, which is less than total revenues, have only increased by 55% over the same period.

Ideally, if rates were increased by 65%, revenues generated from those rates should increase by the same proportion. This indicates that DOU should consider evaluating the wastewater rates with a comprehensive rate cost-of-service analysis.
• While the full scope of additional costs due to regulatory changes and weather impacts has not been determined, the overall financial impact is likely to be significant. DOU is actively working to determine these additional costs.

City of Sacramento, CA / Wastewater Fund Review Report 37

5. Service Level and Wastewater
System Capacity

5.1. Current Capacity of Wastewater Infrastructure
Raftelis was asked to answer the following question based on available information from the City:

What is the current capacity of the wastewater infrastructure and how does that compare to stated policies and levels of service?

The City provides domestic water treatment and distribution, wastewater collection, combined wastewater treatment, and stormwater systems services. These systems are complemented by other regional agencies and organizations that provide additional sewage and stormwater collection and treatment. The City’s General Plan states that, “ensuring that this infrastructure operates in ways that minimize adverse impacts on the environment, protect public health, and optimize benefit to the community is essential for a sustainable and equitable city.”

The City’s policies are also intended to improve the sustainability, resilience, and energy efficiency of its facilities, infrastructure, and operations consistent with the goal of achieving carbon neutrality by 2045. The City’s goals, policies, and levels of service included in the General Plan for the wastewater system infrastructure are provided in Table 5-1 below.

Table 5-1: City of Sacramento General Plan Key Goals and Policies for Wastewater Infrastructure

City of Sacramento General Plan Key Goals and Policies for Wastewater Infrastructure under Public Facilities & Safety (PFS)
Goal PFS-3 – Efficient, high-quality utility infrastructure and services to meet the needs of residents and business throughout the City.

Policy Number Policy
PFS-3.1 - Provision of Adequate
Utilities
The City shall continue to provide reliable water, wastewater, and stormwater drainage utility services.

PFS-3.2 – Utility Sustainability
Standards
The City shall continue to improve the sustainability, resilience, and energy efficiency of its facilities, infrastructure, and operations consistent with the CAAP and the goal of achieving carbon neutrality by 2045.

City of Sacramento, CA / Wastewater Fund Review Report 38

Policy Number Policy
PFS-3.3 – Development Impacts Through the development review process, including through development impact fees and offsite improvements constructed by new development, the City shall ensure that adequate public utilities and services are available to serve new development.

PFS-3.6 – CSS Rehabilitation and
Improvements
In keeping with its CSS LTCP, the City shall continue to rehabilitate and improve the CSS to decrease flooding, CSS outflows, and Combined System Overflows (CSOs). Through these improvements and requirements for new development, the City shall also ensure that development in the CSS area does not result in increased flooding, CSS outflows or CSOs or reduce the overall percentage of flow routed to SacSewer.

PFS-3.8 – Capital Improvement
Programming
The City shall give high priority in capital improvement programming to funding the rehabilitation or replacement of critical infrastructure that has reached the end of its useful life, considering probability and risk of infrastructure failure. In prioritizing R/R projects for inclusion in the CIP, the City shall consider the potential for projects and locations to support inclusive economic development and climate adaptation objectives and serve to build healthy, climate-resilient, sustainable, and inclusive communities.

PFS-3.9 – Methane Recovery The City shall support the efforts of SacSewer to develop and maintain methane recovery facilities and coordinate efforts to evaluate and minimize methane emissions.

PFS-3.10 – Meet Projected
Needs
The City shall foster the orderly and efficient expansion of facilities and infrastructure to adequately meet projected needs, comply with current and future regulations, and maintain public health, safety, and welfare. Infrastructure and facility planning should discourage oversizing of infrastructure that could induce growth at the edges of the City beyond what is anticipated in the General Plan.

City of Sacramento, CA / Wastewater Fund Review Report 39

Policy Number Policy
PFS-3.11 – Joint-Use Facilities Wherever feasible, the City shall pursue the development of joint- use water, stormwater quality, flood control and other utility facilities as appropriate in conjunction with schools, parks, bike paths, golf courses, and other suitable uses to achieve economy and efficiency in the provision of services and facilities.

PFS-3.12 – Safe and Compatible
Utility Design
The City shall ensure that public utility facilities are designed to be safe and compatible with adjacent uses.

PFS-3.13 – Impacts to
Environmentally Sensitive Lands
The City shall consider the impacts on environmentally sensitive areas and habitats when locating and designing municipal utilities.

5.1.1. Wastewater System Infrastructure
The components and capacities of the City’s wastewater infrastructure, regulatory compliance requirements and associated costs are described below.

DOU’s wastewater system includes:
• 2 primary treatment wastewater facilities
• 4 wastewater storage facilities
• 41 separated wastewater Sump stations
• 9 combined wastewater Sump stations
• Approximately 840 miles of wastewater collection sewers ranging from 6” to 114” in diameter • Serves approximately 80 thousand accounts
The CSS National Pollutant Discharge Elimination System (NPDES) Permit requires system improvements to manage existing system deficiencies. The City was required to update the CSS Long Term Control Plan (LTCP) by September 30, 2024, and submit it to the Central Valley Regional Water Quality Control Board.

Moving forward, the LTCP will include the process for demonstrating compliance, and details of projects and associated costs will no longer be included. However, DOU has committed to updating the Combined Sewer System Improvement Plan (CSSIP) which will contain a more comprehensive project list of improvement projects needed.

DOU’s current combined wastewater capacity-related programs and costs to meet the LTCP and the Nine Minimum Controls (NMC) requirements are listed below:

• Rainfall Dependent Inflow & Infiltration Program to reduce stormwater entering the wastewater system and free up system capacity - Cost estimate as of FY 2018 was $125 million City of Sacramento, CA / Wastewater Fund Review Report 40

• Green Infrastructure Program - Cost estimate as of FY 2018 was $25 million • Storage and Conveyance Improvement Projects - Cost estimate as of FY 2018 was $263.6 million • Four of the six CSS LTCP Phase 1 (Top 20%) projects have been completed, and two of the remaining Phase 1 storage projects are in design. One of the remaining Phase 1 projects is at 90% design and on hold for construction funding to be allocated in upcoming years, and the other project has been put on hold for re-evaluation due to Caltrans right-of-way impacts. • Sump 1 R/R, Pioneer R/R, CWTP capacity improvement and R/R to meet the NMC requirements - Cost estimate as of FY 2018 was $146 million
• DOU’s current capacity-related program in the SSS has identified 14 separated sewer basins needing improvements for existing system capacity deficiencies identified in the 2023 Development Impact Fee Nexus Report - Cost estimate as of FY 2023 was $86.5 million

The CSS has two treatment facilities for primary treatment of excess CSS flows that exceed the agreed upon maximum flows that can be sent to the Sacramento Area Sewer District’s (SacSewer) Wastewater Treatment Plant. The City‐owned and operated treatment facilities first provide wet‐weather storage, and if storage at the facilities and large‐diameter pipes are exceeded, then treated overflows through the two treatment facilities are permitted for the following flow rates:

• Pioneer Reservoir Treatment Plant: 250 MGD
• CWTP: 130 MGD
If those flows are exceeded, and storage is maximized, then excess flow may be discharged from Pioneer Reservoir Treatment Plant and/or untreated overflows are permitted, which typically occur from Sump 2.

There has been no change in the CSS’s treatment capacity since 1997 and there are currently no plans to increase or decrease treatment capacity.

DOU also is regulated under the Separated Sewer System Waste Discharge Requirements (SSS WDR) which requires the City have a proactive CIP and maintenance program to prevent sewage spills. DOU has included the following separate and combined wastewater system renewal and replacement (R/R) costs associated with the collection system assets (pump stations and treatment facility assets not included) in the 30-year CIP.

Costs shown are the total R/R costs over the 30-year CIP period from FY 2024 through FY 2054 for a grand total of $137 million:
• On-Call Urgent Sewer Repair Program - $6.85 million
• Separate Sewer System Annual Pipe and Manhole Critical R/R - $12.7 million • Separate Sewer System Annual Pipe and Manhole Essential R/R - $6 million • Sump 85 Force Main Replacement - $3 million
• Separated Sewer Annual Pipe Best Practices - Rainfall Derived Inflow & Infiltration (RDII) Improvements - $11 million
• Force Main R/R - $24 million
• CSS Annual Pipe and Manhole Critical R/R - $49.5 million • CSS Annual Pipe and Manhole Essential R/R - $24 million Based on our review, DOU appears to have incorporated the City’s General Plan goals, policies, and desired City of Sacramento, CA / Wastewater Fund Review Report 41

levels of service considerations into their wastewater 30-year CIP.

5.1.2. Recommendations for Wastewater Infrastructure
DOU has developed an extensive and detailed 30-year CIP for their wastewater utility. Additionally, they have performed detailed studies and evaluations of their future wastewater needs with additional studies ongoing. As DOU is still developing and maturing their wastewater asset management program, the linear and facilities asset R/R costs in the 30-year CIP likely does not reflect the full cost needs for ongoing linear and facilities assets R/R. In addition, DOU has had limited capital budget funding available for several years, due to the lack of wastewater rate increases in FY 2021 through FY 2023, so sufficient asset R/R has been deferred due to lack of funding. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of asset R/R funding in the next 5 to 10 years to “catchup” on the deferments.

To help address these issues, the following recommendations are offered for consideration.

1. DOU developed risk scores in 2019 for their sanitary and combined sewer linear asset and is in the process of updating those risk scores and developing more formal Business Risk Exposure (BRE) scores for both their wastewater linear and facility assets. To develop BRE scores, each asset is assessed for condition and given a likelihood of failure (LOF) score and then assessed for its consequence(s) of failure (COF) and given a COF score. BRE scores are then calculated as LOF × COF. Assets are typically categorized as Extreme, High, Medium and Low risk based on the BRE scores. The higher the BRE score the higher the priority for investment for asset renewal or replacement (i.e., addressing all the Extreme risk assets first, High-risk assets second, etc.). Developing these BRE scores will allow Sacramento to prioritize which assets should be renewed or replaced first, the level of investments needed, and the timeframes for completing those investments.

2. As DOU updates its risk scores and develops BRE scores, if asset condition or COF data is not available, DOU should first determine COF scores for the missing assets, and then collect and develop the missing asset condition data; this should take 2 to 3 years to complete based on DOU’s current progress. When considering asset condition data, inspections or physical condition data of the asset should be collected and used. Age, material, and assumed useful life data could be used for initial future projections of asset renewal needs, but this approach can often oversimplify the estimations and lead to higher estimated capital cost needs, especially for timeframes beyond 5 years, compared to a BRE based approach. Age, material, and assumed useful life data could also be used for initial future projections of asset renewal needs, but should be appropriately qualified and BRE scores updated routinely as asset condition data gaps are filled from collected data.

3. For linear wastewater assets, i.e., separated and combined wastewater and force mains (pressurized wastewater pipes):

A. A target annual R/R rate by total system length should be selected and tailored to Sacramento. A R/R rate of 1% represents an average asset renewal timeframe of once every 100 years for renewing or replacing the asset. This R/R rate is used by many utilities in the industry.

Utility best practices are to tailor the utility’s R/R rate depending on the actual condition of the linear assets and consequences of failure. Utilities moving from reactive to proactive asset renewal may need City of Sacramento, CA / Wastewater Fund Review Report 42

to “catchup” on renewing existing Extreme or High-risk assets, thus increasing the R/R rate to greater than 1% (i.e., 2 – 3%) by total system length. Other utilities who are more proactive with R/R may find that achieving a 1% or less R/R rate is sufficient to mitigate risks of failures.

For example, DOU has about 840 miles of wastewater collection sewers. A 1% annual R/R rate would be 8.4 miles per year which at an average cost of $940/ft13 equals a potential R/R budget need of $41.7 million per year for linear asset renewal. There appears to be about $136.2 million budgeted over 30-years for wastewater system R/R; that is, $4.5 million per year on average. This is a great start but may reflect less than a 1% R/R rate and therefore DOU may want to revisit these budget needs based on a BRE prioritization approach. Again, the necessary annual rate of investment may need to be lower or higher per year based on the actual assets’ BRE scores.

A BRE prioritization approach will allow the City to perform a deeper dive into the linear assets conditions, COF, and available BRE data to help develop more defensible and data driven annual linear assets R/R investment rates and capital budgets for the wastewater infrastructure.

B. The R/R rate should be linked to actual assets and condition assessment data, and an intentional balancing of risk and COF.

Utilities that have invested in R/R for some time, or have newer wastewater linear assets, may find 1% is too high because the condition does not warrant the need for that much R/R. Therefore, it is important to consider these details when selecting and tailoring an annual R/R rate for the utility.

C. The selected asset annual R/R rate also may not be able to be completed in Year 1 and may take several years to ramp up to the selected rate. For example, if a 1% annual R/R rate is selected, ramping up to that rate of R/R over 3 to 5 years considering available funding, staff, and capital project delivery capabilities may be necessary.

D. Projects
should be selected from BRE scores developed for each asset to address Extreme and High- risk assets first.

F. For Extreme and High-risk assets, it may be too expensive or not possible from a capital delivery standpoint to renew or replace all Extreme risk (and/or High-risk) assets in a 5-year period or even in a 10-year period. A balance of costs and priority for asset renewal and replacement should be developed with the available funding and available condition assessment and BRE scores data.

4. For wastewater facilities assets, i.e., equipment, pumps, valves, etc. at treatment facilities, pump stations, and other system facilities:

13 From the Basin G354 Sewer Master Plan report dated June 2022 – average cost of Cured in Place Pipe (CIPP), open- cut replace, & trenchless replace escalated to 2024$
City of Sacramento, CA / Wastewater Fund Review Report 43

a backlog of existing projects or assets that need improvements, those projects should be prioritized for implementation based on the asset BRE score.

B. Selecting an annual R/R rate for facilities assets should be tailored to Sacramento’s asset needs and BRE scores. This rate may need to be 1%, 2% or higher of the asset replacement value depending on the amount of asset renewal that has been deferred and the number of current Extreme and High-risk assets. Achieving the selected annual R/R rate by ramping up to that R/R rate over 3 to 5 years considering available funding, staff, and capital project delivery capabilities may be necessary.

C. DOU indicated the replacement/reconstruction cost values for the wastewater facilities have not yet been determined. The wastewater asset replacement cost spreadsheet indicates a total replacement cost of only $95.4 million for the wastewater system, which doesn’t appear to account for all of the system assets. Given the size and capacities of the wastewater facilities, it is reasonable to assume that the reconstruction cost for the wastewater facilities is similar to the water facilities reconstruction cost value of $2.35 billion (estimate in 2022 dollars). Using 0.5% to 1% of the of the reconstruction value of $2.35 billion, as a potential annual R/R investment rate equates to a potential annual R/R investment rate need of $12 million (0.5%) - $24 million (1%) for the wastewater facilities. The 30-year wastewater CIP budget appears to include about $11.0 million of annual facilities R/R. Therefore, there is potentially about a $1 million to $13 million shortfall in wastewater facilities assets annual R/R investment.

Again, this annual rate of investment may need to be lower or higher based on the actual assets BRE scores. A BRE prioritization approach will allow the City to perform a deeper dive into the facilities assets conditions and available BRE data to help develop more defensible and data-driven annual facilities R/R investment rates and capital budgets for the wastewater infrastructure.

D. If asset condition or COF data is not available, DOU should first determine COF scores for the missing assets and then collect and develop the missing asset condition data. When considering asset condition data, inspections or physical condition data of the asset should be collected and used, Using age, material, and assumed useful life data can be used for initial future projections of asset renewal needs, but this approach can often oversimplify the estimations and lead to higher estimated capital cost needs, especially for timeframes beyond 5 years, compared to a BRE based approach. Age, material, and assumed useful life data can be used for initial future projections of asset renewal needs but should be appropriately qualified and BRE scores updated routinely as asset condition data gaps are filled from collected data.

E. Implement reliability centered maintenance (RCM) approaches for all treatment and facilities primary assets to inform ongoing asset O&M and triggers for asset replacement. Evaluate if the current computerized maintenance management system (CMMS) software is sufficient for recording the necessary RCM data and adjust as necessary to efficiently record the needed data.

through a capital investment versus continuing to maintain. A good metric is when annual maintenance cost divided by asset replacement cost exceeds 4% to 5%, the asset should be evaluated for replacement. For example, if a pump costs $100,000 to replace and is costing $4,000 - $5,000 annually to maintain (4% - 5%), then the pump should be evaluated for replacement. Use the RCM data and the BRE scores to inform the asset life cycle and the priority for inclusion of the asset renewal or replacement in the capital budget.

5.2. Risks of Catastrophic Failure and Extent of Deferred Capital Investment
Raftelis was asked to answer the following questions based on available information from the City:

What are the risks of catastrophic system failure?
What is the extent of any deferred capital investment of wastewater infrastructure? How does the deferred capital investment impact infrastructure capacity and valuation?

These three questions are best answered together because they are inextricably linked. DOU has developed an extensive and detailed 30-year CIP for their wastewater utility. DOU has performed detailed studies and evaluations of their future wastewater needs with additional studies ongoing. Due to limited capital budget funding of the wastewater utility over the last several years, asset R/R has been deferred. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of asset R/R funding in the next 5 to 10 years to “catch up” on the deferments. From a financial perspective, the assets’ book value is also lower because many assets are at or beyond their remaining useful lives; meaning little to no residual value because they haven’t been renewed or replaced.

5.2.1. Wastewater System Infrastructure Deferred Capital Needs DOU conducted a review of existing asset information and has identified significant deferred maintenance needs for the wastewater system infrastructure. The wastewater system infrastructure and facilities require routine maintenance and repair to keep them in acceptable condition and to preserve and extend their useful lives. This includes preventative maintenance, replacement of parts, systems, or components, and other activities needed to preserve or maintain the various assets. Deferred maintenance refers to necessary maintenance and repairs that have accumulated, typically due to lack of dedicated funding to perform non- routine replacements, upgrades, or preventative maintenance, and were therefore delayed.

Deferred maintenance also includes equipment and infrastructure components that need to be replaced as they are past the end of their useful life and can no longer be repaired. For example, in the Central City, underground infrastructure can be more than or close to 100 years old. Deferred maintenance is a critical issue as it can result in failures in infrastructure and services (e.g., broken sewers or treatment facilities, leaking roofs, electrical outages, increased overflow volumes and water quality pollution), often results in increased costs due to the need for major emergency repairs or replacements, can increase risks and liability, and can result in sub-optimal services to users of City facilities and infrastructure.

DOU provided the following deferred capital R/R costs and descriptions by asset category. These costs represent DOU’s current cost investment needs for the listed assets.

City of Sacramento, CA / Wastewater Fund Review Report 45

Table 5-2: Wastewater System Infrastructure Summary of Deferred Capital Investments Asset Category 30-Year Deferred Capital Investment Amount CSS Sump R/R Program $54.2 million
CSS Pipe R/R Program $152.5 million
CSS Treatment Facilities Rehabilitation and
Improvement Program
$157.2 million
CSS NPDES Permit Compliance Program $298.5 million
SSS Sump and Pipe R/R Program $455.9 million
Total $1.1 billion

The asset R/R needs descriptions for each wastewater asset category are provided below:

Table 5-3: Description of Asset Renewal and Replacement Needs Asset Category Description
CSS Sump R/R Program This program will rehabilitate and improve sewer sumps in the CSS that are extended past their useful
life. This includes operational, reconstruction, pump
replacement electrical, SCADA, c ivil, mechanical
and/or facility improvements
CSS Pipe R/R Program This annual program will rehabilitate and improve sewer pipes in the CSS that are past their useful life.

Most of the infrastructure in the CSS is close to 100
years old and pipe size s range from 6 inches to 114
inches.

CSS Treatment Facilities Rehabilitation and
Improvement Program
The City CSS has two primary treatment facilities
that remove sedimentation, screen solids/floatable s,
and disinfect using chlorine. The CWTP has a
treatment capacity of 130 MGD and Pioneer
Treatment Reservoir has a treatment capacity of 250
MGD. This program will rehabilitate and improve
CSS Treatment Facilities in the CSS that are
extended past their useful life. This includes
operational
, reconstruction, pump replacement,
electrical, SCADA, c ivil, structural, treatment,
capacity, mechanical and/or facility improvements.

CSS NPDES Permit Compliance Program The CSS area of the City of Sacramento consists of Downtown, East Sacramento, Land Park, and Oak
Park areas. These areas have historically been subject to flooding or sewer outflows during heavy storm
events due to insufficient conveyance capacity. This
program is in place per the
NPDES permit to
construct capacity improvement project to the CSS to
reduce flooding and capacity surcharges.

SSS Sump and Pipe R/R Program This program will rehabilitate, replace, and improve sewer sumps and pipes in the separated sewer that are
extended past their useful life. This includes
operational, reconstruction, pump replacement,
electrical, SCADA, civil, mechanical and/or facility
City of Sacramento, CA / Wastewater Fund Review Report 46

improvements, and sewer pipes from 6 inches to 42
inches.

As noted in Section 5.1.2, DOU is in the process of updating its BRE scores for their wastewater assets. Given the deferred investments listed above, the need for current BRE scores for the wastewater assets to be developed, and the historical lack of funding experienced by DOU, the risks of catastrophic wastewater system assets failure appear to be high.

In addition to the recommendations Raftelis provided under section 5.1, we offer the following for consideration:

1. Additional capital funding for the wastewater system is needed to address the $1.1 billion14 of wastewater system deferred capital investments to-date.

2. When these funds are provided, performing a capital projects delivery assessment of DOU is recommended for potential project management process improvements and staffing needs in order to spend the additional wastewater system capital and efficiently convert the increased funding into completed projects.

5.3. Extent of Deferred O&M of Wastewater
Infrastructure
Raftelis was asked to answer the following questions based on available information from the City:

What is the extent of any deferred operations and maintenance of the wastewater infrastructure? How does the deferred O&M maintenance impact infrastructure capacity and valuation?

While DOU indicated that the wastewater facilities and linear assets are currently able to be operated and maintained within the approved annual operating budgets, with the deferred capital investment discussed above, keeping the existing assets functioning and running efficiently and at the necessary conveyance and treatment capacities is becoming increasingly difficult. And because many assets are older, finding spare parts to keep the assets running is a challenge, often requiring custom parts to be fabricated at increased costs.

Additionally, DOU has also identified an additional $5.52 million in O&M funding needs over the next 5 years associated with the deferred capital investments. These costs are summarized in Table 7-11 in Section 7 of this report.

The deferred capital investment is increasing the risk of assets failing catastrophically, increasing the consequences of failure, and increasing the need for higher levels of asset R/R funding in the next 5 to 10 years to “catchup” on the deferments. In addition, by not renewing and replacing the existing assets, they become harder to keep operational and properly maintained, the capacity of the infrastructure decreases, it is significantly less reliable and resilient, and the value of the assets decrease.

Another potential concern is recruiting and hiring qualified staff to operate and maintain the existing assets.

Historically, as assets are added, the necessary staffing to maintain and operate those assets has not kept pace.

As stated previously,
there are numerous open FTE positions for the wastewater utility that the City is

14 Note that the $1.1 billion will continue to increase as DOU seeks additional funding.

City of Sacramento, CA / Wastewater Fund Review Report 47

trying to fill, with a total staffing cost need of approximately $1.7 million over the next five years.

Finding qualified staff has been difficult, and a Citywide classification and compensation study is currently underway.

In addition to the recommendations Raftelis provided under sections 5.1.2 and 5.2.1, we offer the following for consideration:

1. Perform a staffing study and organizational assessment for the Wastewater Utility to: a) evaluate the number, positions, and experience of current staff; b) confirm the staffing needs for the City’s current and future wastewater infrastructure needs, and the needed increase in O&M spending; and c) recommend necessary improvements. This assessment would build upon the benchmarking work discussed in this report.

City of Sacramento, CA / Wastewater Fund Review Report 48

6. Valuation

6.1. Value, Age, & Remaining Useful Life of Wastewater
Infrastructure
Raftelis was asked to determine the valuation, age and remaining useful life of the wastewater infrastructure based on available information from the City.

The City’s wastewater system includes:
• 2 primary treatment wastewater facilities
• 4 wastewater storage facilities
• 41 separated wastewater Sump stations
• 9 combined wastewater Sump stations
• Approximately 840 miles of wastewater collection sewers ranging from six inches to 114 inches in diameter
The two primary treatment facilities remove sedimentation, screen solids/floatables, and disinfect using chlorine. The Combined Wastewater Treatment Plant (CWTP) has a treatment capacity of 130 MGD and Pioneer Treatment Reservoir has a treatment capacity of 250 MGD.

The wastewater collection system consists of about 48 miles of interceptor sewers, 149 miles of trunk sewers, 312 miles of collector sewers, and 333 miles of branch sewers. The CSS area of Sacramento consists of Downtown, East Sacramento, Land Park, and Oak Park areas. These areas have historically been subject to flooding or sewer outflows during heavy storm events due to insufficient conveyance capacity.

Most of the wastewater pipes infrastructure in the CSS is close to 100 years old with the average age over 50 years old, which means the majority of the sewers have reached the end of their useful life or have less than 20 years of useful life remaining. Useful life in this context is defined as the expected number of years that an asset will function properly before failing; remaining useful life is defined as the number of years left before the asset is expected to fail. The number of wastewater pipes assets with one year of remaining useful life, five years, or ten-years remaining was not currently available. However, this information would be available when DOU completes the recommended BRE analysis discussed in Section 5.1.2 of this report. Due to budget restrictions DOU has primarily focused on reactive renewal and repairs to the wastewater system.

While the DOU has not yet developed a valuation of the current wastewater system assets, DOU did provide a wastewater assets lifecycle and replacement cost spreadsheet that indicates a total replacement cost of $95.4 million for the wastewater system; however, this doesn’t appear to account for all of the system assets. Given the size and capacities of the wastewater facilities and the wastewater system assets, we would expect the wastewater system assets to have a replacement or reconstruction cost similar to or in excess of the water system assets ($4.6 billion). The City’s wastewater assets lifecycle and replacement cost spreadsheet includes a register of 8,190 separate assets associated with the wastewater system. Based on this information, about 74% of the assets (6,100 out of the 8,190) have 20-years or less of remaining useful life and about 53% of the assets (4,323 out of 8,190) have 10-years or less of remaining useful life.

City of Sacramento, CA / Wastewater Fund Review Report 49

There are about 30% of the wastewater assets (2,457 out of 8,190) that appear to have no useful life remaining and should be assessed for immediate replacement. Table 6-1 summarizes the remaining useful life of the wastewater system’s assets based on the available information from DOU.

Table 6-1: Wastewater Assets Remaining Useful Life
Number of Wastewater Assets Remaining Useful Life (years) 2,457 0
866 3 - 5
1,000 6 - 10
869 12 - 15
908 17 - 20
1,717 25 - 30
Total = 8,190

By not renewing and replacing the existing assets, the capacity of the infrastructure decreases, it is significantly less reliable and resilient, and the value of the assets decreases. From a financial perspective, the asset's book value is also lower because many assets are at or beyond their remaining useful lives, meaning little to no residual value because they haven’t been renewed or replaced. DOU indicated they do not have an asset register list for all of their linear and facility wastewater system assets that includes original installed cost, remaining useful life, depreciation, and current asset values, so a comprehensive list of these asset values was not available.

6.2. Risks and Costs to Replace Aging Wastewater
Infrastructure
The current risks of catastrophic wastewater system assets failure appear to be high. DOU has identified $1.1 billion in needed capital investments into the wastewater system infrastructure that have been deferred (see Section 5.2.1 of this report). Catastrophic failure of the wastewater system could be a major trunk sewer line breaking or one of the treatment facilities or pump stations failing, spilling hundreds of thousands or millions of gallons of sewage into the streets and waterways within the City. These types of failures are very expensive and can take considerable time to fix, resulting in a significant risk to public health.

As discussed in Section 5, DOU has performed detailed studies and evaluations of their future wastewater needs with additional studies ongoing. DOU is still developing and maturing their wastewater asset management program so the linear and facilities asset R/R costs in the 30-year CIP likely does not reflect the full cost needs. In addition, DOU has had limited capital budget funding available for several years, so sufficient asset R/R has been deferred. This lack of funding increases the risk of assets failing catastrophically, increases the consequences of failure, and increases the need for higher levels of asset R/R funding in the next 5 to 10 years to “catchup” on the deferments.

In addition to the recommendations Raftelis provided under sections 5.1.2, 5.2.1 and 5.3, we offer the following for consideration:

City of Sacramento, CA / Wastewater Fund Review Report 50

1. Develop a financial asset register for all of the linear and facility wastewater system assets that includes original installed cost, remaining useful life, depreciation, and current asset values. For assets that may not have original installed cost data available, these assets should still be included in the asset register, and an engineering estimate developed for the current replacement costs. Remaining useful life should also be estimated based on available condition data.

City of Sacramento, CA / Wastewater Fund Review Report 51

7. Fiscal Forecasting
This section of the report details financial plans developed for the Wastewater Fund based on the projected revenues, expenses, debt service, and capital project costs from the City’s 30-year CIP schedule and multi-year operating projects (MYOP). Raftelis modeled the current conditions of the fund (status quo) without any proposed rate increases as well as three different financial planning scenarios. Financial Plan 1 includes the existing 30-year CIP and MYOP without any additional operating and capital costs. Financial Plan 2 includes everything from Financial Plan1 and additional operating and capital costs to address aging infrastructure, deficiencies, and gaps not included in the 30-year CIP. Financial Plan 3 includes everything from the first two financial plans and additional linear and facilities renewal and replacement costs from the recommendations outlined in Section 5.

This analysis and report are primarily based on data provided from FY 2024 instead of the approved budget foy FY 2025 due to timing. There are often differences between actual and projected data. Some of the assumptions used in this report may not be realized, and unanticipated events and circumstances may occur.

7.1. Assumptions
The assumptions outlined below were utilized to project the number of customer accounts, revenues, and expenses for future years.

7.1.1. Customer Demand and Account Growth
Wastewater customer demand is used for growth in billed usage, and account growth is the increase or decrease in the total number of accounts. Customer demand and account growth projections for each customer class are shown below and are based on historical trends and data provided by the City. Demand and account growth factors are applied to the previous year’s estimate of billed usage and number of accounts.

Table 7-1: Wastewater Customer Demand and Account Growth Projections Line No. Description Demand Growth
Factor
Account Growth
Factor
1 Unmetered
accounts -- 0.2%
2 Metered accounts 0.2% --

7.1.2. Revenue Escalation Factors
Table 7-2 shows the revenue escalation factors used to project future wastewater revenues and calculate investment income. The reserve interest rate is used to calculate the investment income based on projected fund balances and uses an estimated interest earnings rate of 1.0%.

City of Sacramento, CA / Wastewater Fund Review Report 52

Table 7-2: Wastewater Revenue Escalation Factors
Line
No. Description Escalation Factors
1 Miscellaneous and
Non-Rate
Revenues

1.5% (FY 2025), 0.0% (thereafter)
2 Interest Earnings 1.0%

7.1.3. Expenditures Escalation Factors
Table 7-3 shows the expense escalation factors used to project future operating expenses for the study periods.

These factors were determined based on a review of City data.

Table 7-3: Wastewater Expenditures Escalation Factors
Line No. Description Escalation
Factors
1 Non-inflated 0.0%
2 Employee Services 2.0%
3 Interfund Reimbursement 3.0%
4 Interfund Service Provided and Used 3.0%
5 Interfund Transfer 3.0%
6 MYOP 2.5%
7 Other Objects15 2.5%
8 Property 3.0%
9 Service and Supplies 3.0%

7.2. Projected Demand
City staff provided customer account data for metered and unmetered accounts for FY 2023. Raftelis forecasted future account growth using the growth factors presented in Table 7-1. Table 7-4 shows the assumed growth in the number of accounts and billed usage for the next five years. Customers are only billed for exceeding the threshold associated with each meter. The total projected consumption exceeding the threshold is shown in line 13 below. The projections for the total forecast period are shown in the Appendix.

15 Examples of other objects include chemicals, fuel, and utilities.

City of Sacramento, CA / Wastewater Fund Review Report 53

Table 7-4: Projected Wastewater Accounts and Billed Usage for Metered Customers (CCF) Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 5/8-in 137 138 138 138 138
2 3/4-in 108 108 109 109 109
3 1-in 1,855 1,858 1,862 1,866 1,870
4 1-1/2-in 875 876 878 880 882
5 2-in 1,273 1,275 1,278 1,280 1,283
6 3-in 287 287 288 288 289
7 4-in 229 230 230 231 231
8 6-in 102 102 103 103 103
9 8-in 21 21 21 21 21
10 10-in 6 6 6 6 6
11 12-in 0 0 0 0 0
12 Total Metered Accounts 4,893 4,902 4,912 4,922 4,932 13 Billed Consumption
(CCF) 2,194,042 2,198,431 2,202,827 2,207,233 2,211,648

The total number of units for unmetered accounts charged the flat rates equaled 104,551 in FY 2023. There were approximately 95 variations of billing codes applied to those units. The units are escalated by the growth factors in Table 7-1.

7.3. Projected Revenues
City staff provided the actual revenues for FY 2014 through FY 2023 and budgeted FY 2024 revenues for the wastewater utility, which were used to confirm calculated rate revenues and project miscellaneous revenues for the study periods. Table 7-5 shows the projected revenues without rate increases for the first five years of the study period; the remaining years are shown in the Appendix. Rate revenues on line 1 were calculated using the units of service shown in Table 7-4 and the units associated with each unmetered account times the existing rates.

The City expects increases in wastewater rate revenues for all years of the study as a result of increases in customer accounts and demand. The projection of development impact fee revenues (line 2) were provided by the DOU. The interest earnings (line 3) are calculated using the reserve interest rate (Table 7-2, line 2). The interest earnings calculations reflect lower fund balances since there are no revenue adjustments from rate increases. Other revenues (line 4) are escalated using the non-rate revenue escalation factor (Table 7-2, line 1).

City of Sacramento, CA / Wastewater Fund Review Report 54

Table 7-5: Projected Revenues without Rate Increases
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Rate Revenue $43,243,191 $43,328,984 $43,414,948 $43,501,084 $43,587,392 2 Interest Earnings $339,755 $339,928 $299,768 $228,857 $148,160 3 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 4 Total Revenue $44,848,651 $44,934,617 $44,980,421 $44,995,646 $45,001,257

The projected development impact fees (DIF) revenues were provided by the City and are shown in the following table. DIF revenues are restricted for growth-related capital improvement projects.

Table 7-6: Projected Development Impact Fee Revenues
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 DIF Revenue $2,238,243 $2,497,502 $2,861,983 $3,068,631 $3,074,768 2 Interest Earnings $107,266 $122,347 $136,829 $152,377 $164,381 3 Total Revenues $2,345,509 $2,619,849 $2,998,812 $3,221,008 $3,239,149

7.4. Projected O&M Expenses
City staff provided the actual O&M expenses for FY 2014 through FY 2023 and budgeted FY 2024 O&M expenses for the wastewater utility, based on expense function. Table 7-7 shows the projected O&M expenses for the first five years of the study period summarized by expense function, and the remainder of the study period is shown in the Appendix. Each line item is escalated based on the expense escalation factors in Table 7-3.

The City also includes MYOP in its budget and forecast. The projected MYOP expenses for wastewater were provided by the City for the next five years. MYOP expenses after FY 2029 are based on the annual average of MYOP expenses from FY 2024 through FY 2029, escalated by an escalation factor of 2.5%, and include additional MYOP identified by the DOU. The wastewater MYOP projected expenses are shown on line 8.

City of Sacramento, CA / Wastewater Fund Review Report 55

Table 7-7: Projected O&M Expenses
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Employee Services $14,099,718 $14,381,712 $14,669,347 $14,962,734 $15,261,988 2 Interfund Reimbursement $7,845,724 $8,081,096 $8,323,529 $8,573,235 $8,830,432 3 Interfund Provided &
Used $62 $64 $66 $68 $70
4 Interfund Transfer $4,775,389 $4,918,651 $5,066,210 $5,218,196 $5,374,742 5 Other Objects $200,736 $205,754 $210,898 $216,171 $221,575 6 Property $159,135 $163,909 $168,826 $173,891 $179,108 7 Service And Supplies $6,271,554 $6,459,700 $6,653,491 $6,853,096 $7,058,689 8 MYOP $3,340,815 $3,492,323 $4,128,160 $4,097,882 $5,736,207 9 Total $36,693,133 $37,703,209 $39,220,527 $40,095,272 $42,662,810

7.5. Debt Service
The City currently has several existing debt issuances for the wastewater utility. Table 7-8 shows the annual payments for the existing debt service.

Table 7-8: Existing Debt Service Schedules
Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Wastewater Revenue
Bonds, Series 2019 $2,116,375 $2,116,375 $2,118,750 $2,118,375 $2,115,250 2 2003 Cirbs + 2006
Refinancing $44,842 $44,828 $45,094 $45,418 $47,299 3 Wastewater Revenue
Bonds, Series 2020 $1,749,241 $1,751,954 $1,747,365 $1,745,246 $1,745,614 4 Total $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163

7.6. Capital Improvement Projects
City staff provided a 30-year CIP for the wastewater utility for the study period. Table 7-9 shows a summary of the CIP costs for the first five years of the study period on line 1. The entire CIP plan with project-level detail is provided in the Appendix. Projects are funded through a combination of wastewater rate revenues, cash reserves, wastewater development impact fees (DIF), and bond proceeds.

Due to the extent of capital improvement planned, the CIP cannot be entirely funded with pay-go from wastewater operations; therefore, debt is needed to fund a portion of the capital program beginning in FY 203016. The terms for this debt issue are assumed to be a 20-year bond at 4% interest with a 0.85% issuance cost. It is assumed an additional reserve fund would not need to be created for the debt. Future debt will be included in the absolute floor debt service coverage ratio requirement as shown in the financial planning sections 7.7, 7.8, and 7.9. The proposed annual debt service is also shown in the financial planning section.

16 Debt issuance begins in FY 2030 due to timing of the projects included in the 30-year CIP.

City of Sacramento, CA / Wastewater Fund Review Report 56

Table 7-9: 30-year CIP– Summary of Total Costs
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 30-year CIP Costs $3,588,305 $3,873,500 $8,197,500 $10,733,500 $6,467,100

The growth-related capital projects are separate from the CIP projects listed in the previous table and are funded with DIF revenues. The following table provides a summary of the growth-related CIP.

Table 7-10: 30-year Growth-related CIP – Summary of Total Costs Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Growth-related CIP
Costs $773,665 $1,160,497 $1,547,330 $1,547,330 $2,500,000

City of Sacramento, CA / Wastewater Fund Review Report 57

7.7. Status Quo without Rate Increases
The current condition of the fund (status quo) without rate increase was modeled to show when the wastewater utility will no longer be able to meet its absolute floor debt service coverage ratio requirement of

1.20, minimum operating reserve target of 120 days of O&M, and capital reserve target of next year’s pay- go17. If the wastewater utility does not implement rate increases, it will not meet its absolute floor debt service coverage ratio requirement in FY 2029. It will not meet its capital reserve target beginning in FY 2028 and its minimum operating target in FY 2029.

Table 7-11 shows the proforma through FY 2029. Rate revenues on line 2 are derived from the projected baseline revenues Table 7-5 (line 1). Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 6 are derived from projected O&M expenses in Table 7-7. The existing debt service on line 8 is from the annual debt service payments for outstanding debt in Table 7-8. Cash-funded capital projects on line 11 are from the capital financing plan in Table 7-9.

The total revenue requirements on line 12 are a sum of the operating expenses, debt service payments, and cash funded capital. Net cash flow on line 13 is calculated by subtracting the total revenue requirements from the total revenues. Net operating revenue on line 20 is equal to total revenues less O&M expenses. The total debt service coverage ratio on line 21 is calculated by dividing the net operating revenue by the total debt service.

17 Pay-go is cash funded capital.

City of Sacramento, CA / Wastewater Fund Review Report 58

Table 7-11: Proforma for Status Quo
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 0% 0%
2 Rate Revenues $43,243,191 $43,328,984 $43,414,948 $43,501,084 $43,587,392 3 Interest Earnings $339,755 $339,928 $299,768 $228,857 $148,160 4 Other Revenue $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 5 Total Revenues $44,848,651 $44,934,617 $44,980,421 $44,995,646 $45,001,257 Revenue Requirements
6 Operating Expenses $36,693,133 $37,703,209 $39,220,527 $40,095,272 $42,662,810 Debt Service
7 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 8 Proposed Debt Service $0 $0 $0 $0 $0
9 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 10 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 11 Total Revenue
Requirements $44,565,766 $45,182,612 $52,804,678 $51,424,425 $54,792,646 12 Net Cash Flow $282,885 ($247,995) ($7,824,257) ($6,428,779) ($9,791,390) 13 Beginning Balance $34,003,924 $34,286,809 $34,038,814 $26,214,557 $19,785,778 14 Ending Balance with
Reserves $34,286,809 $34,038,814 $26,214,557 $19,785,778 $9,994,389 15 Ending Cash Balance less
Reserves $18,657,067 $11,970,297 $5,900,023 ($1,617,902) ($5,471,671) 16 Operating Reserve $12,063,496 $12,395,576 $12,894,420 $13,182,007 $14,026,129 17 Capital Reserve $3,566,246 $9,672,941 $7,420,114 $8,221,673 $1,439,930 Debt Coverage Section
18 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $4,900,374 $2,338,446 19 Total Debt Service
Coverage Ratio 2.09 1.85 1.47 1.25 0.60
Notes: Other revenues include service fees, sewer permits, and proprietary revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor debt service coverage ratio of 1.20 is required for parity obligation and bonds per wastewater’s existing revenue bonds.

This financial plan is based on data from FY 2024 and not the FY 2025 approved budget due to timing.

Figure 7-1 shows the ending cash balance compared to the operating and capital reserve targets.

City of Sacramento, CA / Wastewater Fund Review Report 59

Figure 7-1: Status Quo – Ending Balance and Reserve Targets

Figure 7-2 shows the debt service coverage ratio compared to its absolute floor. If the wastewater utility does not implement rate increases, it will not meet its absolute floor 1.20 debt coverage ratio in FY 2029.

Figure 7-2: Status Quo – Debt Service Coverage Ratio

Without rate increases, the wastewater utility will soon not be able to meet its fiscal requirements.

Specifically, it will not meet its absolute floor debt service coverage ratio requirement in FY 2029, it will not meet its capital reserve target beginning in FY 2028, and it will not meet its minimum operating target in FY 2029. Additionally, this does not account for the 30-year CIP, additional MYOPs, additional operating and capital needs, and R/R to efficiently and effectively operate the wastewater utility. Sections 7.9 through 7.11 below offer proposed financial plans that incorporate these needs while also meeting fiscal requirements.

City of Sacramento, CA / Wastewater Fund Review Report 60

The City plans to reevaluate DIF fees in the future with another DIF nexus study.

Table 7-12: DIF Proforma
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Development Impact Fee
Revenues $2,238,243 $2,497,502 $2,861,983 $3,068,631 $3,074,768 2 Interest Earnings $107,266 $122,347 $136,829 $152,377 $164,381 3 Total Revenues $2,345,509 $2,619,849 $2,998,812 $3,221,008 $3,239,149 4 Growth-related CIP $773,665 $1,160,497 $1,547,330 $1,547,330 $2,500,000 5 Net Cash Flow $1,571,844 $1,459,352 $1,451,482 $1,673,678 $739,149 6 Beginning Balance $9,994,355 $11,566,199 $13,025,550 $14,477,032 $16,150,710 7 Ending Balance $11,566,199 $13,025,550 $14,477,032 $16,150,710 $16,889,860

Figure 7-3: DIF Fund Ending Cash Balance

7.9. Financial Plan 1 with 30-year CIP and MYOP
Table 7-13 shows the proposed capital financing plan for the wastewater utility. The City will need to fund its 30-year wastewater CIP with a mix of pay-go and debt financing. This plan assumes 100% of the projects will

City of Sacramento, CA / Wastewater Fund Review Report 61

be completed within the funding schedule as noted in the 30-year CIP. The escalated capital costs (line 2) are the result of applying a capital escalation factor of 3% to the uninflated total capital costs from Table 7-8 (line 3). The proposed debt funding (line 6) uses the assumptions outlined in the previous section. The remainder will be funded with pay-go from rates.

Table 7-13: Financing Plan with 30-year CIP Schedule and MYOP Line No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Uninflated Capital Costs $3,773,500 $3,297,500 $8,683,500 $6,467,100 $6,957,000 2 Escalated Capital Costs $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 3 Capital Spending Factor 100% 100% 100% 100% 100%
4 Total Funded Capital $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 Capital Financing Plan
5 Proposed Debt Funding $0 $0 $0 $0 $0
6 Pay-go $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 7 Total $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673

Table 7-14 shows Financial Plan 1 with the 30-year CIP and wastewater MYOP. Rate increases needed to meet fiscal targets and requirements18 are shown on line 1 and applied to the projected baseline revenues.

Table 7-5 (line 1) to derive the rate revenues shown on line 2. Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 7 are derived from projected O&M expenses in Table 7-7. Existing debt service on line 9 is from the annual debt service payments for outstanding debt in Table 7-8. The proposed debt service on line 10 is for debt-financed capital projects and will begin in FY 2030. Cash-funded capital projects on line 11 are from the capital financing plan in Table 7-9. This scenario assumes capital projects are funded with a mix of pay-go and debt financing.

The total revenue requirements on line 12 are a sum of the operating expenses, debt service payments, and cash-funded capital. Net cash flow on line 13 is calculated by subtracting the total revenue requirements from the total revenues. Net operating revenue on line 20 is equal to total revenues less O&M expenses. The total debt service coverage ratio on line 21 is calculated by dividing the net operating revenue by the total debt service. The projected ending fund balance with reserves, ending balance less reserves, operating reserve, and capital reserve are shown on lines 16 through 19.

The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

18 Fiscal targets and requirements include the absolute floor debt service coverage ratio requirement of 1.20, minimum operating reserve target of 120 days of O&M, and capital reserve target of next year’s pay-go.

City of Sacramento, CA / Wastewater Fund Review Report 62

Table 7-14: Financial Plan 1 with Original 30-year CIP Schedule and MYOP Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 32% 30%
2 Rate Revenues $43,243,191 $43,328,984 $43,414,948 $57,421,430 $74,795,964 3 Interest Earnings $339,755 $339,928 $299,768 $298,459 $444,102 4 Other Revenue $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 5 Total Revenues $44,848,651 $44,934,617 $44,980,421 $58,985,594 $76,505,772 Revenue Requirements
6 Operating Expenses $36,693,133 $37,703,209 $39,220,527 $40,095,272 $42,662,810 Debt Service
7 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 8 Proposed Debt Service $0 $0 $0 $0 $0
9 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 10 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 11 Total Revenue Requirements $44,565,766 $45,182,612 $52,804,678 $51,424,425 $54,792,646 12 Net Cash Flow $282,885 ($247,995) ($7,824,257) $7,561,170 $21,713,125 13 Beginning Balance with
Reserves $34,003,924 $34,286,809 $34,038,814 $26,214,557 $33,775,727 14 Ending Balance with Reserves $34,286,809 $34,038,814 $26,214,557 $33,775,727 $55,488,852 15 Ending Cash Balance less
Reserves $18,657,067 $11,970,297 $5,900,023 $12,372,046 $40,022,792 16 Operating Reserve $12,063,496 $12,395,576 $12,894,420 $13,182,007 $14,026,129 17 Capital Reserve $3,566,246 $9,672,941 $7,420,114 $8,221,673 $1,439,930 Debt Coverage Section
18 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $18,890,322 $33,842,961 19 Total Debt Service Coverage
Ratio 2.09 1.85 1.47 4.83 8.66
Notes: Other revenues include service fees, sewer permits, and proprietary revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor debt service coverage ratio of 1.20 is required for parity obligation and bonds per the wastewater’s existing revenue bonds.

This financial plan is based on data from FY 2024 instead of the approved budget for FY 2025 due to timing.

City of Sacramento, CA / Wastewater Fund Review Report 63

Figure 7-4 shows Financial Plan 1 in a graphical format based on the proforma shown in Table 7-14.

Figure 7-4: Financial Plan 1

Figure 7-5 shows the capital financing plan for Financial Plan 1 in graphical format. Capital projects are funded with a mix of cash and debt. New debt funding is used for projects beginning in FY 2030.

Figure 7-5: Financial Plan 1 – Capital Financing Plan

Figure 7-6 shows the wastewater operating and capital funds ending cash balance in comparison to the reserve targets. The ending cash balance exceeds the minimum operating balance and capital reserve target each year.

The minimum operating reserve target is shown with the solid line. The minimum capital reserve target is shown with the dashed line.

City of Sacramento, CA / Wastewater Fund Review Report 64

Figure 7-6: Financial Plan 1 – Ending Balances and Reserve Targets

Figure 7-7 shows the calculated all-in debt service coverage ratio with bars. The required absolute floor of 1.20 is achieved in each year and shown with the black dashed line. Fitch issued an AA rating for the City’s wastewater utility in 2023. The median debt service coverage ratio for wastewater utilities with a similar rating reported by Fitch is equal to 2.4 and shown with the red solid line. The median reported by S&P Global is equal to 2.3 and is shown with the yellow dotted line. The total debt service coverage ratio exceeds the median thresholds of similar-rated wastewater utilities in FY 2028 and FY 2029.

Figure 7-7: Financial Plan 1 – Debt Service Coverage Ratio

City of Sacramento, CA / Wastewater Fund Review Report 65

Figure 7-8 shows the days of cash on hand for Financial Plan 1. The ending cash balance is divided by the operating expenses and then divided by 365. It is an indicator of financial flexibility to fund near-term obligations. The median days of cash on hand for wastewater utilities with a similar rating reported by Fitch is equal to 621 days and shown with the red solid line. The median reported by S&P Global is equal to 584 days and is shown with the yellow dotted line. The days of cash on hand for Financial Plan 1 are below the medians of similarly rated utilities in each year.

Figure 7-8: Financial Plan 1 – Days of Cash on Hand

Figure 7-9 shows the annual wastewater bill as a percentage of the lowest quintile income (LQI). The USEPA uses the annual bill as a percentage of median household income (MHI) for the residential indicator in its Financial Capability Assessment Guidance19. However, MHI does not account for the variability of income distribution between communities, therefore LQI is used in this study to assess the potential impact of rate increases. It is commonly inferred by many utilities that annual wastewater bills as a percentage of LQI of 3% or higher are considered to place a burden on those households. This threshold is represented with the dashed line.

The highest concentration of residential wastewater customers are billed the single-family residence flat rate for 6 to 7 rooms. The estimated annual wastewater bill for this residential customer equals $379.80. The estimated annual wastewater bill increases by the proposed rates for that fiscal year. The US Census Bureau reported that the LQI for the City of Sacramento, CA was $31,769 in 2022. The LQI is escalated by 3% each year of the study period to account for inflation and was assumed to be approximately $34,715 in 2025. The annual wastewater bill as a percentage of LQI is calculated by dividing the estimated wastewater bill as the numerator by the LQI as the denominator. The wastewater bills as a percentage of LQI are below the 3% affordability threshold.

19 Clean Water Act Financial Capability Assessment Guidance, USEPA, February, 2023.

City of Sacramento, CA / Wastewater Fund Review Report 66

Figure 7-9: Financial Plan 1 – Annual Wastewater Bill as Percentage of Lowest Quintile Income

The following are key takeaways for Financial Plan 1:

Key Takeaways for Financial Plan 1 (First Five Years):
• Rate increases are as follows: 0% (FY 2025 through FY 2027), 32% (FY 2028), and 30% (FY 2029). • The average cash-funded capital for the first five years is $6.6 million annually. • The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The total absolute floor debt service coverage ratio requirement is achieved each year. • The total debt service coverage ratio exceeds the medians for Fitch and S&P Global in FY 2028 and FY 2029.
• Annual wastewater bills as a percentage of LQI are less than the 3% affordability threshold each year. • The days of cash on hand are below the medians for Fitch and S&P Global each year.

Key Takeaways for Financial Plan 1 (Years 6 through 25):
• Rate increases are as follows: 7% (FY 2030 – FY 2033), 4% (FY 2034), 3% (FY 2035 – FY 2039), 7% (FY 2040 – FY 2044), 3% (FY 2045) and 0% for the remainder of the study period. • The average cash funded capital throughout the study period is $54.7 million annually. • The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The total absolute floor debt service coverage ratio requirement is achieved each year. • The total debt service coverage ratio exceeds the medians for Fitch and S&P Global each year except FY 2032 and FY 2034 – FY 2038.
• The annual wastewater bills as a percentage of LQI remain below the 3% affordability threshold. • The days of cash on hand exceed the medians for Fitch and S&P Global each year.

City of Sacramento, CA / Wastewater Fund Review Report 67

7.10. Financial Plan 2 with Costs to Address Deficiencies and Gaps
Raftelis coordinated with City staff to identify additional FTE staffing, operating and capital needs to address aging infrastructure, deficiencies, and gaps. The needs identified by these divisions are not included in the City’s current budget, projections, or 30-year CIP. Financial Plan 2 includes 100 percent of these additional operating, MYOP, and capital needs along with everything from Financial Plan 1.

7.10.1. Additional Operating Costs
The DOU provided a schedule of additional operating costs that are one-time and recurring expenditures.

The additional operating and MYOP costs for the next five years are shown in the table below, and the additional operating costs and MYOP costs for the remainder of the study period are shown in the Appendix.

They were included in this financial scenario and were not escalated above the DOU’s estimates.

Table 7-15: Additional Operating Costs
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Additional Operating Costs $0 $0 $0 $2,837,352 $4,343,528 2 MYOP $0 $0 $0 $6,235,706 $6,754,461

Table 7-16: Additional Capital Costs
Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 1 Capital $0 $0 $0 $8,836,691 $7,518,543

7.10.3. Financial Plan 2 with Additional Operating and Capital Costs Table 7-17 shows Financial Plan 2 with funding for the 30-year CIP, MYOP, additional operating expenses, additional MYOP, and additional capital costs. Rate increases needed to meet fiscal targets and requirements
20 are shown on line 1 and applied to the projected baseline revenues. Table 7-5 (line 1) to derive the rate revenues shown on line 2. Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 7 are derived from projected O&M expenses in Table 7-7. Existing debt service on line 9 is from the annual debt service payments for outstanding debt in Table 7-8. The proposed debt service on line 10 is for debt-financed capital projects and will begin in FY 2030. Cash funded capital projects on line 11 are

20 Fiscal targets and requirements include the absolute floor debt service coverage ratio requirement of 1.20, minimum operating reserve target of 120 days of O&M, and capital reserve target of next year’s pay-go.

City of Sacramento, CA / Wastewater Fund Review Report 68

from the capital financing plan in Table 7-9. This scenario assumes capital projects are funded with a mix of pay-go and debt financing.

The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

City of Sacramento, CA / Wastewater Fund Review Report 69

Table 7-17: Financial Plan 2 with Additional Operating and Capital Costs Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 50% 50%
2 Rate Revenues $43,243,191 $43,328,984 $43,414,948 $65,251,625 $98,071,631 3 Interest Earnings $339,755 $339,928 $299,768 $241,550 $346,178 4 Other Revenue $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 5 Total Revenues $44,848,651 $44,934,617 $44,980,421 $66,758,881 $99,683,514 Revenue
Requirements
6 Operating Expenses $36,693,133 $37,703,209 $39,220,527 $49,168,330 $53,760,799 Debt Service
7 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 8 Proposed Debt Service $0 $0 $0 $0 $0
9 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 10 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $17,559,009 $17,106,969 11 Total Revenue
Requirements $44,565,766 $45,182,612 $52,804,678 $70,636,378 $74,775,931 12 Net Cash Flow $282,885 ($247,995) ($7,824,257) ($3,877,498) $24,907,584 13 Beginning Balance with
Reserves $34,003,924 $34,286,809 $34,038,814 $26,214,557 $22,337,059 14 Ending Balance with
Reserves $34,286,809 $34,038,814 $26,214,557 $22,337,059 $47,244,643 15 Ending Cash Balance
less Reserves $18,657,067 $11,970,297 ($4,238,872) ($10,934,840) $24,120,557 16 Operating Reserve $12,063,496 $12,395,576 $12,894,420 $16,164,931 $17,674,783 17 Capital Reserve $3,566,246 $9,672,941 $17,559,009 $17,106,969 $5,449,303 Debt Coverage
Section
18 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $17,590,550 $45,922,715 19 Total Debt Service
Coverage Ratio 2.09 1.85 1.47 4.50 11.75
Notes: Other revenues include service fees, sewer permits, and proprietary revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor debt service coverage ratio of 1.20 is required for parity obligation and bonds per the wastewater’s existing revenue bonds.

This financial plan is based on data from FY 2024 instead of the approved budget for FY 2025 due to timing.

Figure 7-10 shows Financial Plan 2 in a graphical format based on the proforma shown in Table 7-17.

City of Sacramento, CA / Wastewater Fund Review Report 70

Figure 7-10: Financial Plan 2

Figure 7-11 shows the financing plan for Financial Plan 2 in graphical format. Capital projects are funded with a mix of cash and debt. New debt funding is used for projects beginning in FY 2030.

Figure 7-11: Financial Plan 2 – Capital Financing Plan

Figure 7-12 shows the wastewater operating ending cash balance in comparison to the reserve targets. The ending cash balance exceeds the minimum operating balance each year and is below the capital reserve target in FY 2027 and FY 2028. The minimum operating reserve target is shown with the solid line. The minimum capital reserve target is shown with the dashed line.

City of Sacramento, CA / Wastewater Fund Review Report 71

Figure 7-12: Financial Plan 2 – Ending Balances and Reserve Targets

Figure 7-13 shows the calculated total debt service coverage ratio with bars. The required absolute floor of

1.20 is achieved each year and shown with the black dashed line. Fitch issued an AA rating for the City’s wastewater utility in 2023. The median debt service coverage ratio for wastewater utilities with a similar rating reported by Fitch is equal to 2.4 and shown with the red solid line. The median reported by S&P Global is equal to 2.3 and is shown with the yellow dotted line. The total debt service coverage ratio exceeds the median thresholds of similar-rated wastewater utilities in FY 2028 and FY 2029.

Figure 7-13: Financial Plan 2 – Debt Service Coverage Ratio

City of Sacramento, CA / Wastewater Fund Review Report 72

Figure 7-14 shows the days of cash on hand for Financial Plan 2. The ending cash balance is divided by the operating expenses and then divided by 365. It is an indicator of financial flexibility to fund near-term obligations. The median days of cash on hand for wastewater utilities with a similar rating reported by Fitch is equal to 621 days and shown with the red solid line. The median reported by S&P Global is equal to 584 days and is shown with the yellow dotted line. The days of cash on hand for Financial Plan 2 are less than the medians of similarly rated utilities each year.

Figure 7-14: Financial Plan 2 – Days of Cash on Hand

Figure 7-15 shows the annual wastewater bill as a percentage of the LQI. The wastewater bills as a percentage of LQI is below the 3% affordability threshold each year.

Figure 7-15: Financial Plan 2 – Annual Wastewater Bill as a Percentage of Lowest Quintile Income

City of Sacramento, CA / Wastewater Fund Review Report 73

The following are key takeaways for Financial Plan 2:

Key Takeaways for Financial Plan 2 (First Five Years):
• Rate increases are as follows: 0% (FY 2025 through FY 2027) and 50% (FY 2028 and FY 2029). • The average cash-funded capital for the first five years is $10.4 million annually, which is $3.8 million more than the average for Financial Plan 1.
• The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year except FY 2027 and FY 2028. • The total absolute floor debt service coverage ratio requirement is achieved each year. • The total debt service coverage ratio exceeds the medians for Fitch and S&P Global in FY 2028 and FY 2029.
• Annual water bills as a percentage of LQI are less than the 3% affordability threshold each year. • The days of cash on hand are below the medians for Fitch and S&P Global each year.

Key Takeaways for Financial Plan 2 (Years 6 through 25):
• Rate increases are as follows: 5% (FY 2030 – FY 2033), 3% (FY 2034 – FY 2037), 5% (FY 2038 – FY 2045), and 0% for the remainder of the study period.
• The average cash-funded capital throughout the study period is $67.9 million annually, which is $13.2 million more than the average for Financial Plan 1.
• The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The total absolute floor debt service coverage ratio requirement is achieved each year. • The total debt service coverage ratio exceeds the medians for Fitch and S&P Global each year. • The annual wastewater bills as a percentage of LQI remain below the 3% affordability threshold. • The days of cash on hand exceed the medians for Fitch and S&P Global each year beginning in FY 2030.

City of Sacramento, CA / Wastewater Fund Review Report 74

7.11. Financial Plan 3 with Renewal and Replacement
Costs
Raftelis provided additional linear and facilities renewal and replacement costs in Section 5 of this Report.

Financial Plan 3 includes everything from Financial Plans 1 and 2 and additional linear and facilities renewal and replacement costs. The renewal and replacement costs for linear assets are gradually included in the projections by 25% beginning in FY 2028 and are fully included by FY 2031. The renewal and replacement costs for facilities are fully included beginning in FY 2028. The renewal and replacement costs were not escalated beyond the recommended values in Financial Plan 3.

Table 7-5 (line 1) to derive the rate revenues shown on line 2. Interest earnings and other revenues are shown on lines 3 and 4. O&M expenses on line 7 are derived from projected O&M expenses in Table 7-7. Existing debt service on line 9 is from the annual debt service payments for outstanding debt in Table 7-8. The proposed debt service on line 10 is for debt-financed capital projects and will begin in FY 2028. Cash-funded capital projects on line 11 are from the capital financing plan in Table 7-9. This scenario assumes capital projects are funded with a mix of pay-go and debt financing.

The tables and figures for the first five years are included in this section. The tables and figures for years 6 through 25 are in the Appendix.

21 Fiscal targets and requirements include the absolute floor debt service coverage ratio requirement of 1.20, minimum operating reserve target of 120 days of O&M, and capital reserve target of next year’s pay-go.

City of Sacramento, CA / Wastewater Fund Review Report 75

Table 7-18: Financial Plan 3 with Additional Operating, Capital, and R/R Costs Line
No. Description FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 Revenues
1 Rate Increase 0% 0% 0% 65% 65%
2 Rate Revenues $43,243,191 $43,328,984 $43,414,948 $71,776,788 $118,666,674 3 Interest Earnings $339,755 $339,928 $299,768 $184,709 $298,586 4 Other Revenue $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 5 Total Revenues $44,848,651 $44,934,617 $44,980,421 $73,227,202 $120,230,965 Revenue
Requirements
6 Operating Expenses $36,693,133 $37,703,209 $39,220,527 $49,168,330 $53,760,799 Debt Service
7 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 8 Proposed Debt Service $0 $0 $0 $650,514 $650,514
9 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $4,559,553 $4,558,677 10 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $24,841,892 $43,639,602 11 Total Revenue
Requirements $44,565,766 $45,182,612 $52,804,678 $78,569,776 $101,959,078 12 Net Cash Flow $282,885 ($247,995) ($7,824,257) ($5,342,574) $18,271,888 13 Beginning Balance with
Reserves $34,003,924 $34,286,809 $34,038,814 $26,214,557 $20,871,983 14 Ending Balance with
Reserves $34,286,809 $34,038,814 $26,214,557 $20,871,983 $39,143,871 15 Ending Cash Balance
less Reserves $18,657,067 $11,970,297 ($11,521,755) ($38,932,549) ($18,981,402) 16 Operating Reserve $12,063,496 $12,395,576 $12,894,420 $16,164,931 $17,674,783 17 Capital Reserve $3,566,246 $9,672,941 $24,841,892 $43,639,602 $40,450,490 Debt Coverage
Section
18 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $24,058,872 $66,470,167 19 Total Debt Service
Coverage Ratio 2.09 1.85 1.47 5.28 14.58
Notes: Other revenues include service fees, sewer permits, and proprietary revenues.

The minimum operating target of 120 days of O&M is a policy set by the DOU.

The absolute floor debt service coverage ratio of 1.20 is required for parity obligation and bonds per the wastewater’s existing revenue bonds.

This financial plan is based on data from FY 2024 instead of the approved budget for FY 2025 due to timing.

City of Sacramento, CA / Wastewater Fund Review Report 76

Figure 7-16 shows Financial Plan 3 in a graphical format based on the proforma shown in Table 7-18.

Figure 7-16: Financial Plan 3

Figure 7-17 shows the financing plan for Financial Plan 3 in graphical format. Capital projects are funded with a mix of cash and debt.

Figure 7-17: Financial Plan 3 – Capital Financing Plan

Figure 7-18 shows the wastewater operating and capital funds ending cash balance in comparison to the reserve targets. The ending cash balance exceeds the minimum operating balance each year and is below the minimum capital reserve target in FY 2027 through FY 2029. The minimum operating reserve target is shown with the solid line. The minimum capital reserve target is shown with the dashed line.

City of Sacramento, CA / Wastewater Fund Review Report 77

Figure 7-18: Financial Plan 3 – Ending Balances and Reserve Targets

Figure 7-19 shows the calculated total debt service coverage ratio with bars. The required absolute floor of

1.20 is achieved in each year and shown with the black dashed line. Fitch issued an AA rating for the City’s wastewater utility in 2023. The median debt service coverage ratio for wastewater utilities with a similar rating reported by Fitch is equal to 2.4 and shown with the red solid line. The median reported by S&P Global is equal to 2.3 and is shown with the yellow dotted line. The total debt service coverage ratio exceeds the median thresholds of similar-rated wastewater utilities in FY 2028 and FY 2029.

Figure 7-19: Financial Plan 3 – Debt Service Coverage Ratio

City of Sacramento, CA / Wastewater Fund Review Report 78

Figure 7-20 shows the days of cash on hand for Financial Plan 3. The ending cash balance is divided by the operating expenses and then divided by 365. It is an indicator of financial flexibility to fund near-term obligations. The median days of cash on hand for wastewater utilities with a similar rating reported by Fitch is equal to 621 days and shown with the red solid line. The median reported by S&P Global is equal to 584 days and is shown with the yellow dotted line. The days of cash on hand for Financial Plan 3 are less than the medians of similarly rated utilities each year.

Figure 7-20: Financial Plan 3 – Days of Cash on Hand

Figure 7-21 shows the annual wastewater bill as a percentage of the LQI. The wastewater bills as a percentage of LQI is below the 3% affordability threshold each year.

Figure 7-21: Financial Plan 3 – Annual Wastewater Bill as a Percentage of Lowest Quintile Income

City of Sacramento, CA / Wastewater Fund Review Report 79

The following are key takeaways for Financial Plan 3:

Key Takeaways for Financial Plan 3 (First Five Years):
• Rate increases are as follows: 0% (FY 2025 – FY 2027) and 65% (FY 2028 and FY 2029). • The average cash-funded capital for the first five years is $17.1 million annually, which is approximately $10.5 million more than the average for the wastewater Financial Plan 1 and $6.7 million more than the average for the wastewater Financial Plan 2. • The minimum operating target is achieved each year.
• The minimum capital reserve target is not achieved FY 2027 – FY 2029. • The total absolute floor debt service coverage ratio requirement is achieved each year. • The total debt service coverage ratio exceeds the medians for Fitch and S&P Global in FY 2028 and FY 2029.
• Annual wastewater bills as a percentage of LQI are less than the 3% affordability threshold each year. • The days of cash on hand are below the medians for Fitch and S&P Global each year.

Key Takeaways for Financial Plan 3 (Years 6 through 25):
• Rate increases are as follows: 50% (FY 2030), 3% (FY 2031 and FY 2032), 0% (FY 2033 – FY 2042), 5% (FY 2043 – FY 2046), 0% for the remainder of the study period. • The average cash-funded capital throughout the study period is $112.5 million annually, which is $57.8 million more than the average for the Financial Plan 1 and $44.6 million more than the average for Financial Plan 2.
• The minimum operating target is achieved each year.
• The minimum capital reserve target is achieved each year. • The total absolute floor debt service coverage ratio requirement is achieved each year. • The total debt service coverage ratio exceeds the medians for Fitch and S&P Global each year. • The annual wastewater bills as a percentage of LQI exceed the 3% affordability threshold from FY 2030 through FY 2040, FY 2045, and FY 2046. It reaches a maximum point of 3.9% in FY 2030 – FY 2032.
• The days of cash on hand exceed the medians for Fitch and S&P Global each year.

City of Sacramento, CA / Wastewater Fund Review Report 80

8. Conclusion
The primary objective of this review was to assess the fiscal stability of the Wastewater Fund. An analysis of the status quo consisting of the 30-year CIP and MYOP shows that if the wastewater utility does not implement rate increases, it will not meet its absolute floor debt service coverage ratio requirement in FY 2029. It will not meet its capital reserve target beginning in FY 2028 and its minimum operating target in FY 2029.

DOU has identified $1.1 billion in needed capital investments into the wastewater system infrastructure that have been deferred. Catastrophic failure of the wastewater system could be a major trunk sewer line breaking or one of the treatment facilities or pump stations failing, spilling hundreds of thousands or millions of gallons of sewage into the streets and waterways within the City. These types of failures are very expensive and can take considerable time to fix, resulting in a significant risk to public health.

Other financial impacts that have and will continue to increase costs are regulatory requirements and increased frequency and severity of weather events. For example, the City will be required to convert its fleet vehicles to zero-emission vehicles (ZEVs) by 2045. It is estimated that the cost of purchasing some vehicles, such as heavy-duty vehicles, could double. Additionally, the City does not currently have sufficient infrastructure in place, such as charging stations, to accommodate the increase in ZEVs. DOU is in the process of determining what the required costs will be, including the limitations of meeting this requirement for heavy excavation equipment and trucks. These costs have not yet been included in the 30-year capital plans prepared for the wastewater system infrastructure but are expected to have a significant financial impact.

The last approved wastewater rate increase took effect in 2020. Thus, a cash flow analysis for three scenarios was completed to determine the projected rate increases necessary for the Wastewater Fund to have sufficient funds to meet the utility’s operating and capital revenue requirements, achieve operating and capital reserve targets, and achieve the absolute floor debt service coverage ratio 22 required per debt covenants for a fiscally
stable Wastewater Fund. These needed investments will require additional capital dollars than are currently included in the Wastewater Fund and future rate increases are necessary. The following tables are summaries comparing the descriptions and proposed rate increases for each scenario. Financial Plan 3 has the highest total of proposed rate increases, 206%, as it is the most holistic representation of the water utility’s operational and capital needs.

22 DOU must strive for a coverage ratio that is consistent with the applicable credit rating category for the water and wastewater systems.

City of Sacramento, CA / Wastewater Fund Review Report 81

Table 8-1: Wastewater Financial Plan Descriptions
Scenario Description
30-
year
CIP
MYOP
Additional &
Necessary
O&M
Additional &
Necessary
MYOP
Additional &
Necessary
Capital
Additional &
Necessary
R/R
1 Financial Plan 1 Yes Yes No No No No
2 Financial Plan 2 Yes Yes Yes Yes Yes No
3 Financial Plan 3 Yes Yes Yes Yes Yes Yes

Table 8-2: Comparison of Projected Wastewater Rate Increases Fiscal Year Financial Plan
1 Financial Plan
2 Financial Plan
3 FY 2025 0% 0% 0%
FY 2026 0% 0% 0%
FY 2027 0% 0% 0%
FY 2028 32% 50% 65%
FY 2029 30% 50% 65%
FY 2030 7% 5% 50%
FY 2031 7% 5% 3%
FY 2032 7% 5% 3%
FY 2033 7% 5% 0%
FY 2034 4% 3% 0%
FY 2035 – FY 2039 3% 3% (35 – 37),
5% (38,39) 0%
FY 2040 – FY 2042 7% 5% 0%
FY 2043 – FY 2046 7% (43,44), 3%
(45) 5% (43 – 45) 5%
Total 147% 172% 206%

While the wastewater utility requires rate increases to meet its fiscal requirements to keep the status quo, the results of the three financial planning scenarios demonstrate that additional wastewater rate increases will also be needed to implement the 30-year CIP, MYOP, as well as additional and necessary O&M, MYOP, capital, and R/R. However, we recognize that it may not be feasible to implement the full projected wastewater rate increases in Table 8-2. Therefore, it is likely that the DOU will need to prioritize the most critical, highest- risk, and regulatory projects as full funding for the wastewater utility’s comprehensive needs may not be available.

City of Sacramento, CA / Wastewater Fund Review Report 82

APPENDIX:

Tables and Figures for the 25-
year Study Period

Wastewater Fund:

Development Impact Fees

City of Sacramento - Sewer Rate Model FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 98 Sewer Development Impact Fee Fund
99 Beginning Cash Balances $35,549,662 $39,038,824 $42,569,144 $46,109,892 $48,215,995 $50,349,465 $54,018,086 $57,729,724 $61,484,822 $65,283,825 $69,127,188 $73,015,365 $76,948,817 $74,898,011 100
101 Sources of Funds
102 Transfers from/(to)
103 Operating Reserve $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 104 Development Impact Fee Revenues $3,118,074 $3,124,310 $3,130,559 $3,136,820 $3,143,094 $3,149,380 $3,155,679 $3,161,990 $3,168,314 $3,174,651 $3,181,000 $3,187,362 $3,193,737 $3,200,124 106 Interest Income $371,087 $406,010 $441,189 $469,283 $490,375 $519,242 $555,959 $593,107 $630,690 $668,712 $707,177 $746,090 $755,457 $762,231 109 Total - Source of Funds $3,489,161 $3,530,320 $3,571,748 $3,606,103 $3,633,469 $3,668,622 $3,711,638 $3,755,097 $3,799,004 $3,843,362 $3,888,177 $3,933,453 $3,949,194 $3,962,355 110
111 Use of Funds
112 Wastewater CIP $0 $0 $31,000 $1,500,000 $1,500,000 $0 $0 $0 $0 $0 $0 $0 $6,000,000 $550,000 113 Total - Use of Funds $0 $0 $31,000 $1,500,000 $1,500,000 $0 $0 $0 $0 $0 $0 $0 $6,000,000 $550,000 114
115 Net Cash Balance $3,489,161 $3,530,320 $3,540,748 $2,106,103 $2,133,469 $3,668,622 $3,711,638 $3,755,097 $3,799,004 $3,843,362 $3,888,177 $3,933,453 ($2,050,806) $3,412,355 116
117 Ending Cash Balance $39,038,824 $42,569,144 $46,109,892 $48,215,995 $50,349,465 $54,018,086 $57,729,724 $61,484,822 $65,283,825 $69,127,188 $73,015,365 $76,948,817 $74,898,011 $78,310,366 City of Sacramento - Sewer Rate Model FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 98 Sewer Development Impact Fee Fund
99 Beginning Cash Balances $9,994,355 $11,566,199 $13,025,550 $14,477,032 $16,150,710 $16,889,860 $20,155,081 $23,459,147 $25,964,289 $29,036,364 $32,208,705 100
101 Sources of Funds
102 Transfers from/(to)
103 Operating Reserve $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
104 Development Impact Fee Revenues $2,238,243 $2,497,502 $2,861,983 $3,068,631 $3,074,768 $3,080,918 $3,087,080 $3,093,254 $3,099,440 $3,105,639 $3,111,851 106 Interest Income $107,266 $122,347 $136,829 $152,377 $164,381 $184,303 $216,986 $245,888 $273,635 $304,702 $337,106 109 Total - Source of Funds $2,345,509 $2,619,849 $2,998,812 $3,221,008 $3,239,149 $3,265,221 $3,304,066 $3,339,142 $3,373,076 $3,410,341 $3,448,957 110
111 Use of Funds
112 Wastewater CIP $773,665 $1,160,497 $1,547,330 $1,547,330 $2,500,000 $0 $0 $834,000 $301,000 $238,000 $108,000 113 Total - Use of Funds $773,665 $1,160,497 $1,547,330 $1,547,330 $2,500,000 $0 $0 $834,000 $301,000 $238,000 $108,000 114
115 Net Cash Balance $1,571,844 $1,459,352 $1,451,482 $1,673,678 $739,149 $3,265,221 $3,304,066 $2,505,142 $3,072,076 $3,172,341 $3,340,957 116
117 Ending Cash Balance $11,566,199 $13,025,550 $14,477,032 $16,150,710 $16,889,860 $20,155,081 $23,459,147 $25,964,289 $29,036,364 $32,208,705 $35,549,662 $0$10$20$30$40$50$60$70$80$90MillionsWastewater Development Impact Fee Funds Ending Cash Balance

Wastewater Fund:

Financial Plan 1

1 Financial Plan FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 2 Revenues
3 Revenues from Existing Rates $43,243,191 $43,328,984 $43,414,948 $43,501,084 $43,587,392 $43,673,873 $43,760,526 $43,847,353 $43,934,354 $44,021,529 $44,108,878 4 5 Revenue Adjustments
6 Year Effective% Adjustment
7 FY 2024 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
8 FY 2025 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
9 FY 2026 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
10 FY 2027 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0
11 FY 2028 July 32% $13,920,347 $13,947,965 $13,975,639 $14,003,368 $14,031,153 $14,058,993 $14,086,889 $14,114,841 12 FY 2029 July 30% $17,260,607 $17,294,854 $17,329,168 $17,363,552 $17,398,004 $17,432,525 $17,467,116 13 FY 2030 July 7% $5,246,106 $5,256,514 $5,266,944 $5,277,395 $5,287,866 $5,298,358 14 FY 2031 July 7% $5,624,470 $5,635,630 $5,646,812 $5,658,017 $5,669,244 15 FY 2032 July 7% $6,030,124 $6,042,089 $6,054,078 $6,066,091 16 FY 2033 July 7% $6,465,035 $6,477,863 $6,490,717
17 FY 2034 July 4% $3,960,751 $3,968,610
18 FY 2035 July 3% $3,095,516
19 FY 2036 July 3%
20 FY 2037 July 3%
21 FY 2038 July 3%
22 FY 2039 July 3%
23 FY 2040 July 7%
24 FY 2041 July 7%
25 FY 2042 July 7%
26 FY 2043 July 7%
27 FY 2044 July 7%
28 FY 2045 July 3%
29 FY 2046 July 0%
30 FY 2047 July 0%
31 FY 2048 July 0%
32 FY 2049 July 0%
33 Total Revenue Adjustments $0 $0 $0 $13,920,347 $31,208,573 $36,516,598 $42,213,522 $48,327,404 $54,888,329 $58,957,989 $62,170,491 34 35 Rate Revenue (including Revenue Adjustments)$43,243,191 $43,328,984 $43,414,948 $57,421,430 $74,795,964 $80,190,471 $85,974,048 $92,174,757 $98,822,683$102,979,518$106,279,369 36 37 Other Revenues
38 Interest Income $339,755 $339,928 $299,768 $298,459 $444,102 $434,886 $1,266,490 $980,350 $2,171,301 $1,896,656 $2,726,434 39 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 40 Total - Revenues $44,848,651 $44,934,617 $44,980,421 $58,985,594 $76,505,772 $81,891,062 $88,506,243 $94,420,812$102,259,690$106,141,879$110,271,508 41 42 O&M Expenses
43 Wastewater Operating Expenses $36,693,133 $37,703,209 $39,220,527 $40,095,272 $42,662,810 $41,480,515 $42,460,127 $43,465,986 $44,498,816 $45,559,362 $46,648,389 44 Additional Expenditures Identified by the City
45 FTE Expenditures $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Additional Operating from Divisions $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 46 Total - O&M Expenses $36,693,133 $37,703,209 $39,220,527 $40,095,272 $42,662,810 $41,480,515 $42,460,127 $43,465,986 $44,498,816 $45,559,362 $46,648,389 47 48 Debt Service
49 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 $3,910,738 $3,442,675 $3,470,175 $3,489,175 $3,524,550 $3,556,050 50 Proposed Debt Service $0 $0 $0 $0 $0 $7,155,658 $7,155,658 $16,913,373 $16,913,373 $24,069,031 $24,069,031 51 52 Capital Projects
53 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 $0 $7,199,651 $0 $0 $0 $0 54 55 Total - Revenue Requirements $44,565,766 $45,182,612 $52,804,678 $51,424,425 $54,792,646 $52,546,911 $60,258,111 $63,849,534 $64,901,364 $73,152,943 $74,273,470 56 57 Net Annual Cash Flow $282,885 ($247,995) ($7,824,257) $7,561,170 $21,713,125 $29,344,151 $28,248,132 $30,571,278 $37,358,325 $32,988,936 $35,998,038 58 59 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $18,890,322 $33,842,961 $40,410,547 $46,046,116 $50,954,826 $57,760,873 $60,582,517 $63,623,119 60 61 Debt Service Coverage Ratio 2.09 1.85 1.47 4.83 8.66 3.65 4.34 2.50 2.83 2.20 2.30 62 Required Absolute Floor Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 63 64 Fund Balance Projections FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 65 66 Total Beginning Cash Balance With Reserves$34,003,924 $34,286,809 $34,038,814 $26,214,557 $33,775,727 $55,488,852$141,483,329$113,081,135$233,369,279$203,062,320$287,725,516 67 68 Sources of Funds
69 Total Revenues from Rates $43,243,191 $43,328,984 $43,414,948 $57,421,430 $74,795,964 $80,190,471 $85,974,048 $92,174,757 $98,822,683 $102,979,518 $106,279,369 70 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 71 Interest Income $339,755 $339,928 $299,768 $298,459 $444,102 $434,886 $1,266,490 $980,350 $2,171,301 $1,896,656 $2,726,434 72 Debt Proceeds $0 $0 $0 $0 $0 $109,560,000 $0 $149,400,000 $0 $109,560,000 $0 73 Total - Source of Funds $44,848,651 $44,934,617 $44,980,421 $58,985,594 $76,505,772$191,451,062 $88,506,243$243,820,812$102,259,690$215,701,879$110,271,508 74 75 Use of Funds
76 Total O&M Expenses $36,693,133 $37,703,209 $39,220,527 $40,095,272 $42,662,810 $41,480,515 $42,460,127 $43,465,986 $44,498,816 $45,559,362 $46,648,389 77 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 $11,066,396 $10,598,333 $20,383,548 $20,402,548 $27,593,581 $27,625,081 78 Debt-funded CIP $0 $0 $0 $0 $0 $52,909,674 $56,650,326 $59,683,134 $67,665,284 $57,885,740 $63,435,843 79 Pay-go funded CIP $3,962,175 $3,566,246 $9,672,941 $7,420,114 $8,221,673 $0 $7,199,651 $0 $0 $0 $0 80 Total - Use of Funds $44,565,766 $45,182,612 $52,804,678 $51,424,425 $54,792,646$105,456,585$116,908,437$123,532,669$132,566,648$131,038,683$137,709,314 81 82 Net Cash Balance $282,885 ($247,995) ($7,824,257) $7,561,170 $21,713,125 $85,994,477($28,402,194)$120,288,143($30,306,959)$84,663,196($27,437,805) 83 84 Ending Cash Balance With Reserves $34,286,809 $34,038,814 $26,214,557 $33,775,727 $55,488,852$141,483,329$113,081,135$233,369,279$203,062,320$287,725,516$260,287,711 85 Ending Cash Balance $18,657,067 $11,970,297 $5,900,023 $12,372,046 $40,022,792 $120,646,248 $87,739,775 $194,283,817 $151,264,761 $220,852,840 $188,041,923 86 Operating Reserve 33% of O&M $12,063,496 $12,395,576 $12,894,420 $13,182,007 $14,026,129 $13,637,430 $13,959,494 $14,290,187 $14,629,748 $14,978,420 $15,336,457 87 Minimum Capital Reserve (Years of pay-go: 1)$3,566,246 $9,672,941 $7,420,114 $8,221,673 $1,439,930 $7,199,651 $11,381,866 $24,795,275 $37,167,811 $51,894,256 $56,909,331 88 91 Minimum Operating Reserve Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 92 Minimum Operating and Capital Reserve Met?Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 1 Financial Plan FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 2 Revenues
3 Revenues from Existing Rates $44,196,402 $44,284,101 $44,371,975 $44,460,025 $44,548,251 $44,636,653 $44,725,233 $44,813,989 $44,902,923 $44,992,035 $45,081,325 $45,170,794 $45,260,442 $45,350,268 4 5 Revenue Adjustments
6 Year Effective% Adjustment
7 FY 2024 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FY 2025 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9 FY 2026 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 10 FY 2027 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 11 FY 2028 July 32% $14,142,849 $14,170,912 $14,199,032 $14,227,208 $14,255,440 $14,283,729 $14,312,074 $14,340,477 $14,368,935 $14,397,451 $14,426,024 $14,454,654 $14,483,341 $14,512,086 12 FY 2029 July 30% $17,501,775 $17,536,504 $17,571,302 $17,606,170 $17,641,107 $17,676,115 $17,711,192 $17,746,340 $17,781,558 $17,816,846 $17,852,205 $17,887,634 $17,923,135 $17,958,706 13 FY 2030 July 7% $5,308,872 $5,319,406 $5,329,962 $5,340,538 $5,351,136 $5,361,755 $5,372,395 $5,383,056 $5,393,739 $5,404,443 $5,415,169 $5,425,916 $5,436,684 $5,447,474 14 FY 2031 July 7% $5,680,493 $5,691,765 $5,703,059 $5,714,376 $5,725,715 $5,737,078 $5,748,463 $5,759,870 $5,771,301 $5,782,754 $5,794,231 $5,805,730 $5,817,252 $5,828,797 15 FY 2032 July 7% $6,078,127 $6,090,188 $6,102,273 $6,114,382 $6,126,515 $6,138,673 $6,150,855 $6,163,061 $6,175,292 $6,187,547 $6,199,827 $6,212,131 $6,224,460 $6,236,813 16 FY 2033 July 7% $6,503,596 $6,516,501 $6,529,432 $6,542,389 $6,555,372 $6,568,380 $6,581,415 $6,594,476 $6,607,562 $6,620,675 $6,633,815 $6,646,980 $6,660,172 $6,673,390 17 FY 2034 July 4% $3,976,485 $3,984,375 $3,992,281 $4,000,204 $4,008,141 $4,016,095 $4,024,065 $4,032,051 $4,040,052 $4,048,070 $4,056,104 $4,064,154 $4,072,219 $4,080,301 18 FY 2035 July 3% $3,101,658 $3,107,813 $3,113,979 $3,120,159 $3,126,350 $3,132,554 $3,138,771 $3,145,000 $3,151,241 $3,157,495 $3,163,761 $3,170,040 $3,176,331 $3,182,635 19 FY 2036 July 3% $3,194,708 $3,201,047 $3,207,399 $3,213,763 $3,220,141 $3,226,531 $3,232,934 $3,239,350 $3,245,778 $3,252,220 $3,258,674 $3,265,141 $3,271,621 $3,278,114 20 FY 2037 July 3% $3,297,078 $3,303,621 $3,310,176 $3,316,745 $3,323,327 $3,329,922 $3,336,530 $3,343,151 $3,349,786 $3,356,434 $3,363,095 $3,369,770 $3,376,458 21 FY 2038 July 3% $3,402,729 $3,409,482 $3,416,247 $3,423,027 $3,429,820 $3,436,626 $3,443,446 $3,450,280 $3,457,127 $3,463,988 $3,470,863 $3,477,751 22 FY 2039 July 3% $3,511,766 $3,518,735 $3,525,718 $3,532,714 $3,539,725 $3,546,749 $3,553,788 $3,560,841 $3,567,908 $3,574,989 $3,582,084 23 FY 2040 July 7% $8,456,693 $8,473,474 $8,490,290 $8,507,138 $8,524,021 $8,540,937 $8,557,887 $8,574,872 $8,591,890 $8,608,942 24 FY 2041 July 7% $9,066,618 $9,084,610 $9,102,638 $9,120,703 $9,138,803 $9,156,940 $9,175,113 $9,193,322 $9,211,567 25 FY 2042 July 7% $9,720,533 $9,739,823 $9,759,152 $9,778,519 $9,797,925 $9,817,370 $9,836,854 $9,856,377 26 FY 2043 July 7% $10,421,610 $10,442,292 $10,463,015 $10,483,780 $10,504,586 $10,525,434 $10,546,324 27 FY 2044 July 7% $11,173,253 $11,195,427 $11,217,645 $11,239,907 $11,262,214 $11,284,566 28 FY 2045 July 3% $5,133,903 $5,144,091 $5,154,300 $5,164,530 $5,174,780 29 FY 2046 July 0% $0 $0 $0 $0
30 FY 2047 July 0% $0 $0 $0
31 FY 2048 July 0% $0 $0
32 FY 2049 July 0% $0
33 Total Revenue Adjustments $65,488,562 $68,915,589 $72,455,070 $76,110,613 $84,718,339 $93,953,073 $103,860,052$114,487,771$125,888,226$131,271,960$131,532,479$131,793,519$132,055,081$132,317,167 34 35 Rate Revenue (including Revenue Adjustments)$109,684,964$113,199,690$116,827,045$120,570,638$129,266,590 $138,589,727 $148,585,284$159,301,760$170,791,149$176,263,995$176,613,804$176,964,313$177,315,523$177,667,435 36 37 Other Revenues
38 Interest Income $2,444,537 $2,164,605 $1,932,242 $1,689,218 $1,426,706 $1,256,332 $1,158,941 $1,122,447 $1,141,514 $1,217,613 $1,341,756 $1,439,324 $1,478,839 $1,473,186 39 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 40 Total - Revenues $113,395,206$116,630,000$120,024,992$123,525,560$131,959,001 $141,111,763 $151,009,930$161,689,912$173,198,368$178,747,313$179,221,265$179,669,342$180,060,067$180,406,326 41 42 O&M Expenses
43 Wastewater Operating Expenses $47,766,686 $48,915,062 $50,094,351 $51,305,408 $52,549,114 $53,826,374 $55,138,122 $56,485,313 $57,868,933 $59,289,995 $60,749,540 $62,248,641 $63,788,398 $65,369,945 44 Additional Expenditures Identified by the City
45 FTE Expenditures $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Additional Operating from Divisions $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 46 Total - O&M Expenses $47,766,686 $48,915,062 $50,094,351 $51,305,408 $52,549,114 $53,826,374 $55,138,122 $56,485,313 $57,868,933 $59,289,995 $60,749,540 $62,248,641 $63,788,398 $65,369,945 47 48 Debt Service
49 Existing Debt Service $3,583,550 $3,621,925 $3,660,800 $3,704,925 $3,749,175 $1,630,000 $1,675,000 $1,720,000 $0 $0 $0 $0 $0 $0 50 Proposed Debt Service $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 51 52 Capital Projects
53 Cash Funded Capital $56,909,331 $67,067,044 $61,862,680 $73,632,225 $75,170,487 $72,252,830 $79,036,818 $77,841,751 $89,001,786 $82,350,951 $82,487,275 $85,656,002 $91,955,760 $92,350,548 54 55 Total - Revenue Requirements $132,328,598$143,673,062$139,686,862$152,711,588$155,537,806 $151,778,236 $159,918,971$160,116,095$170,939,750$165,709,977$167,305,846$171,973,674$179,813,189$181,789,524 56 57 Net Annual Cash Flow ($18,933,392)($27,043,062)($19,661,870)($29,186,028)($23,578,805)($10,666,472) ($8,909,041) $1,573,817 $2,258,619 $13,037,336 $11,915,419 $7,695,668 $246,877 ($1,383,198) 58 59 Net Operating Revenue $65,628,520 $67,714,937 $69,930,641 $72,220,153 $79,409,887 $87,285,389 $95,871,809 $105,204,599 $115,329,436 $119,457,318 $118,471,725 $117,420,701 $116,271,669 $115,036,381 60 61 Debt Service Coverage Ratio 2.37 2.45 2.52 2.60 2.85 3.40 3.72 4.08 4.79 4.96 4.92 4.88 4.83 4.78 62 Required Absolute Floor Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 63 64 Fund Balance Projections FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 65 66 Total Beginning Cash Balance With Reserves$260,287,711$231,064,321$204,021,258$184,359,388$155,173,360 $131,594,555 $120,928,082$112,019,042$113,592,859$115,851,477$128,888,814$140,804,233$148,499,901$148,746,778 67 68 Sources of Funds
69 Total Revenues from Rates $109,684,964 $113,199,690 $116,827,045 $120,570,638 $129,266,590 $138,589,727 $148,585,284 $159,301,760 $170,791,149 $176,263,995 $176,613,804 $176,964,313 $177,315,523 $177,667,435 70 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 71 Interest Income $2,444,537 $2,164,605 $1,932,242 $1,689,218 $1,426,706 $1,256,332 $1,158,941 $1,122,447 $1,141,514 $1,217,613 $1,341,756 $1,439,324 $1,478,839 $1,473,186 72 Debt Proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 73 Total - Source of Funds $113,395,206$116,630,000$120,024,992$123,525,560$131,959,001 $141,111,763 $151,009,930$161,689,912$173,198,368$178,747,313$179,221,265$179,669,342$180,060,067$180,406,326 74 75 Use of Funds
76 Total O&M Expenses $47,766,686 $48,915,062 $50,094,351 $51,305,408 $52,549,114 $53,826,374 $55,138,122 $56,485,313 $57,868,933 $59,289,995 $60,749,540 $62,248,641 $63,788,398 $65,369,945 77 Total Debt Service $27,652,581 $27,690,956 $27,729,831 $27,773,956 $27,818,206 $25,699,031 $25,744,031 $25,789,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 78 Debt-funded CIP $10,289,998 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 79 Pay-go funded CIP $56,909,331 $67,067,044 $61,862,680 $73,632,225 $75,170,487 $72,252,830 $79,036,818 $77,841,751 $89,001,786 $82,350,951 $82,487,275 $85,656,002 $91,955,760 $92,350,548 80 Total - Use of Funds $142,618,596$143,673,062$139,686,862$152,711,588$155,537,806 $151,778,236 $159,918,971$160,116,095$170,939,750$165,709,977$167,305,846$171,973,674$179,813,189$181,789,524 81 82 Net Cash Balance ($29,223,390) ($27,043,062) ($19,661,870) ($29,186,028) ($23,578,805) ($10,666,472) ($8,909,041)$1,573,817 $2,258,619 $13,037,336 $11,915,419 $7,695,668 $246,877 ($1,383,198) 83 84 Ending Cash Balance With Reserves $231,064,321$204,021,258$184,359,388$155,173,360$131,594,555 $120,928,082 $112,019,042$113,592,859$115,851,477$128,888,814$140,804,233$148,499,901$148,746,778$147,363,580 85 Ending Cash Balance $148,293,161 $126,076,914 $94,257,787 $63,135,342 $42,065,303 $24,194,922 $16,049,689 $6,020,559 $14,475,124 $26,908,937 $35,175,779 $36,078,834 $35,424,703 $33,521,544 86 Operating Reserve 33% of O&M $15,704,116 $16,081,664 $16,469,376 $16,867,531 $17,276,421 $17,696,342 $18,127,602 $18,570,514 $19,025,403 $19,492,601 $19,972,452 $20,465,307 $20,971,528 $21,491,489 87 Minimum Capital Reserve (Years of pay-go: 1)$67,067,044 $61,862,680 $73,632,225 $75,170,487 $72,252,830 $79,036,818 $77,841,751 $89,001,786 $82,350,951 $82,487,275 $85,656,002 $91,955,760 $92,350,548 $92,350,548 88 91 Minimum Operating Reserve Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 92 Minimum Operating and Capital Reserve Met?Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes $0$50$100$150$200$250$300$350MillionsWastewater Operating and Capital Funds Ending Cash BalanceEnding Balance - Operating ReserveMinimum Operating (120 days of O&M)Minimum Operating and Capital (1-year of Pay-go)0.002.004.006.008.0010.00Debt Service Coverage RatioDebt Service Coverage RatioRequired Absolute Floor Debt Service Covereage Ratio (1.20)Median for AA Fitch-Rated Utilities (2.4)Median for AA S&P Global-Rated Utilities (2.3)DSC Ratio $0$20$40$60$80$100MillionsCapital Financing PlanCash Funded CapitalDebt Funded ($50)$0$50$100$150$200MillionsWastewater Financial PlanO&M ExpensesDebt ServiceCash Funded CapitalRevenue to/from ReservesCurrent RevenueProposed Revenue

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%Annual Wastewater Bill as Percentage of Lowest Quintile IncomeAnnual Bill as % of LQILQI Threshold of Affordability 05001000150020002500Days of Cash on HandDays of Cash on HandMedian for AA Fitch-Rated Utilities (621 days)Median for AA S&P Global-Rated Utilities (584 days)Days

Wastewater Fund:

Financial Plan 2

1 Financial Plan FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 2 Revenues
3 Revenues from Existing Rates $43,243,191 $43,328,984 $43,414,948 $43,501,084 $43,587,392 $43,673,873 $43,760,526 $43,847,353 $43,934,354 $44,021,529 4 5 Revenue Adjustments
6 Year Effective% Adjustment
7 FY 2024 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
8 FY 2025 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
9 FY 2026 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0
10 FY 2027 July 0% $0 $0 $0 $0 $0 $0 $0 $0
11 FY 2028 July 50% $21,750,542 $21,793,696 $21,836,936 $21,880,263 $21,923,677 $21,967,177 $22,010,764 12 FY 2029 July 50% $32,690,544 $32,755,404 $32,820,395 $32,885,515 $32,950,766 $33,016,147 13 FY 2030 July 5% $4,913,311 $4,923,059 $4,932,827 $4,942,615 $4,952,422 14 FY 2031 July 5% $5,169,212 $5,179,469 $5,189,746 $5,200,043 15 FY 2032 July 5% $5,438,442 $5,449,233 $5,460,045
16 FY 2033 July 5% $5,721,695 $5,733,048
17 FY 2034 July 3% $3,611,820
18 FY 2035 July 3%
19 FY 2036 July 3%
20 FY 2037 July 3%
21 FY 2038 July 5%
22 FY 2039 July 5%
23 FY 2040 July 5%
24 FY 2041 July 5%
25 FY 2042 July 5%
26 FY 2043 July 5%
27 FY 2044 July 5%
28 FY 2045 July 5%
29 FY 2046 July 0%
30 FY 2047 July 0%
31 FY 2048 July 0%
32 FY 2049 July 0%
33 Total Revenue Adjustments $0 $0 $0 $21,750,542 $54,484,240 $59,505,651 $64,792,929 $70,359,930 $76,221,231 $79,984,289 34 35 Rate Revenue (including Revenue Adjustments)$43,243,191 $43,328,984 $43,414,948 $65,251,625 $98,071,631$103,179,524$108,553,456$114,207,283$120,155,585$124,005,818 36 37 Other Revenues
38 Interest Income $339,755 $339,928 $299,768 $241,550 $346,178 $362,466 $1,190,540 $904,931 $2,116,513 $1,853,826 39 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 40 Total - Revenues $44,848,651 $44,934,617 $44,980,421 $66,758,881 $99,683,514$104,807,695$111,009,701$116,377,920$123,537,803$127,125,349 41 42 O&M Expenses
43 Wastewater Operating Expenses $36,693,133 $37,703,209 $39,220,527 $46,330,978 $49,417,271 $49,569,658 $51,602,241 $47,365,000 $48,359,547 $49,517,611 44 Additional Expenditures Identified by the City
45 FTE Expenditures $0 $0 $0 $315,805 $1,402,497 $1,669,802 $2,136,656 $2,276,986 $2,310,815 $2,310,672 Additional Operating from Divisions $0 $0 $0 $2,521,547 $2,941,031 $2,070,543 $2,974,220 $2,423,303 $2,910,632 $2,656,154 46 Total - O&M Expenses $36,693,133 $37,703,209 $39,220,527 $49,168,330 $53,760,799 $53,310,002 $56,713,117 $52,065,289 $53,580,993 $54,484,438 47 48 Debt Service
49 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 $3,910,738 $3,442,675 $3,470,175 $3,489,175 $3,524,550 50 Proposed Debt Service $0 $0 $0 $0 $0 $7,155,658 $7,155,658 $16,913,373 $16,913,373 $24,069,031 51 52 Capital Projects
53 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $17,559,009 $17,106,969 $0 $27,246,516 $0 $0 $0 54 55 Total - Revenue Requirements $44,565,766 $45,182,612 $52,804,678 $70,636,378 $74,775,931 $64,376,398 $94,557,965 $72,448,838 $73,983,542 $82,078,019 56 57 Net Annual Cash Flow $282,885 ($247,995) ($7,824,257) ($3,877,498)$24,907,584 $40,431,297 $16,451,736 $43,929,082 $49,554,262 $45,047,330 58 59 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $17,590,550 $45,922,715 $51,497,693 $54,296,584 $64,312,630 $69,956,810 $72,640,911 60 61 Debt Service Coverage Ratio 2.09 1.85 1.47 4.50 11.75 4.65 5.12 3.16 3.43 2.63 62 Required Absolute Floor Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 63 64 Fund Balance Projections FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 65 66 Total Beginning Cash Balance With Reserves$34,003,924 $34,286,809 $34,038,814 $26,214,557 $22,337,059 $47,244,643$135,170,941$104,127,675$227,163,540$198,255,660 67 68 Sources of Funds
69 Total Revenues from Rates $43,243,191 $43,328,984 $43,414,948 $65,251,625 $98,071,631 $103,179,524 $108,553,456 $114,207,283 $120,155,585 $124,005,818 70 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 71 Interest Income $339,755 $339,928 $299,768 $241,550 $346,178 $362,466 $1,190,540 $904,931 $2,116,513 $1,853,826 72 Debt Proceeds $0 $0 $0 $0 $0 $109,560,000 $0 $149,400,000 $0 $109,560,000 73 Total - Source of Funds $44,848,651 $44,934,617 $44,980,421 $66,758,881 $99,683,514$214,367,695$111,009,701$265,777,920$123,537,803$236,685,349 74 75 Use of Funds
76 Total O&M Expenses $36,693,133 $37,703,209 $39,220,527 $49,168,330 $53,760,799 $53,310,002 $56,713,117 $52,065,289 $53,580,993 $54,484,438 77 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 $11,066,396 $10,598,333 $20,383,548 $20,402,548 $27,593,581 78 Debt-funded CIP $0 $0 $0 $0 $0 $62,064,999 $47,495,001 $70,293,218 $78,462,141 $68,939,658 79 Pay-go funded CIP $3,962,175 $3,566,246 $9,672,941 $17,559,009 $17,106,969 $0 $27,246,516 $0 $0 $0 80 Total - Use of Funds $44,565,766 $45,182,612 $52,804,678 $70,636,378 $74,775,931$126,441,396$142,052,967$142,742,055$152,445,683$151,017,677 81 82 Net Cash Balance $282,885 ($247,995) ($7,824,257) ($3,877,498)$24,907,584 $87,926,298($31,043,266)$123,035,864($28,907,880)$85,667,672 83 84 Ending Cash Balance With Reserves $34,286,809 $34,038,814 $26,214,557 $22,337,059 $47,244,643$135,170,941$104,127,675$227,163,540$198,255,660$283,923,332 85 Ending Cash Balance $18,657,067 $11,970,297 ($4,238,872) ($10,934,840) $24,120,557 $90,397,850 $63,013,868 $171,768,532 $127,530,222 $232,449,582 86 Operating Reserve 33% of O&M $12,063,496 $12,395,576 $12,894,420 $16,164,931 $17,674,783 $17,526,576 $18,645,408 $17,117,355 $17,615,669 $17,912,692 87 Minimum Capital Reserve (Years of pay-go: 1)$3,566,246 $9,672,941 $17,559,009 $17,106,969 $5,449,303 $27,246,516 $22,468,399 $38,277,652 $53,109,768 $33,561,058 88 91 Minimum Operating Reserve Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 92 Minimum Operating and Capital Reserve Met?Yes Yes No No Yes Yes Yes Yes Yes Yes 1 Financial Plan FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 2 Revenues
3 Revenues from Existing Rates $44,196,402 $44,284,101 $44,371,975 $44,460,025 $44,548,251 $44,636,653 $44,725,233 $44,813,989 $44,902,923 $44,992,035 $45,081,325 $45,170,794 $45,260,442 $45,350,268 4 5 Revenue Adjustments
6 Year Effective% Adjustment
7 FY 2024 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FY 2025 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9 FY 2026 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 10 FY 2027 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 11 FY 2028 July 50% $22,098,201 $22,142,050 $22,185,987 $22,230,012 $22,274,125 $22,318,327 $22,362,616 $22,406,995 $22,451,462 $22,496,018 $22,540,663 $22,585,397 $22,630,221 $22,675,134 12 FY 2029 July 50% $33,147,301 $33,213,075 $33,278,981 $33,345,019 $33,411,188 $33,477,490 $33,543,925 $33,610,492 $33,677,192 $33,744,026 $33,810,994 $33,878,095 $33,945,331 $34,012,701 13 FY 2030 July 5% $4,972,095 $4,981,961 $4,991,847 $5,001,753 $5,011,678 $5,021,624 $5,031,589 $5,041,574 $5,051,579 $5,061,604 $5,071,649 $5,081,714 $5,091,800 $5,101,905 14 FY 2031 July 5% $5,220,700 $5,231,059 $5,241,440 $5,251,840 $5,262,262 $5,272,705 $5,283,168 $5,293,652 $5,304,158 $5,314,684 $5,325,232 $5,335,800 $5,346,390 $5,357,000 15 FY 2032 July 5% $5,481,735 $5,492,612 $5,503,512 $5,514,432 $5,525,375 $5,536,340 $5,547,327 $5,558,335 $5,569,366 $5,580,418 $5,591,493 $5,602,590 $5,613,709 $5,624,850 16 FY 2033 July 5% $5,755,822 $5,767,243 $5,778,687 $5,790,154 $5,801,644 $5,813,157 $5,824,693 $5,836,252 $5,847,834 $5,859,439 $5,871,068 $5,882,720 $5,894,395 $5,906,093 17 FY 2034 July 3% $3,626,168 $3,633,363 $3,640,573 $3,647,797 $3,655,036 $3,662,289 $3,669,556 $3,676,839 $3,684,135 $3,691,447 $3,698,773 $3,706,113 $3,713,469 $3,720,839 18 FY 2035 July 3% $3,734,953 $3,742,364 $3,749,790 $3,757,231 $3,764,687 $3,772,158 $3,779,643 $3,787,144 $3,794,659 $3,802,190 $3,809,736 $3,817,297 $3,824,873 $3,832,464 19 FY 2036 July 3% $3,847,001 $3,854,635 $3,862,284 $3,869,948 $3,877,627 $3,885,322 $3,893,032 $3,900,758 $3,908,499 $3,916,256 $3,924,028 $3,931,816 $3,939,619 $3,947,438 20 FY 2037 July 3% $3,970,274 $3,978,152 $3,986,046 $3,993,956 $4,001,882 $4,009,823 $4,017,781 $4,025,754 $4,033,744 $4,041,749 $4,049,770 $4,057,807 $4,065,861 21 FY 2038 July 5% $6,829,161 $6,842,713 $6,856,292 $6,869,897 $6,883,530 $6,897,191 $6,910,878 $6,924,593 $6,938,335 $6,952,105 $6,965,903 $6,979,728 22 FY 2039 July 5% $7,184,849 $7,199,106 $7,213,392 $7,227,707 $7,242,050 $7,256,422 $7,270,823 $7,285,252 $7,299,711 $7,314,198 $7,328,714 23 FY 2040 July 5% $7,559,061 $7,574,062 $7,589,092 $7,604,153 $7,619,243 $7,634,364 $7,649,515 $7,664,696 $7,679,908 $7,695,150 24 FY 2041 July 5% $7,952,765 $7,968,547 $7,984,360 $8,000,205 $8,016,082 $8,031,991 $8,047,931 $8,063,903 $8,079,907 25 FY 2042 July 5% $8,366,974 $8,383,578 $8,400,216 $8,416,886 $8,433,590 $8,450,327 $8,467,098 $8,483,903 26 FY 2043 July 5% $8,802,757 $8,820,226 $8,837,730 $8,855,270 $8,872,844 $8,890,453 $8,908,098 27 FY 2044 July 5% $9,261,238 $9,279,617 $9,298,033 $9,316,486 $9,334,976 $9,353,503 28 FY 2045 July 5% $9,743,598 $9,762,935 $9,782,310 $9,801,725 $9,821,178 29 FY 2046 July 0% $0 $0 $0 $0
30 FY 2047 July 0% $0 $0 $0
31 FY 2048 July 0% $0 $0
32 FY 2049 July 0% $0
33 Total Revenue Adjustments $87,883,976 $92,028,638 $99,040,414$106,421,795$114,192,038 $122,371,408 $130,981,223$140,043,910$149,583,067$159,623,519$159,940,304$160,257,722$160,575,776$160,894,465 34 35 Rate Revenue (including Revenue Adjustments)$132,080,378$136,312,738$143,412,389$150,881,819$158,740,289 $167,008,062 $175,706,456$184,857,899$194,485,990$204,615,554$205,021,629$205,428,516$205,836,217$206,244,734 36 37 Other Revenues
38 Interest Income $2,421,409 $2,155,337 $1,953,485 $1,774,367 $1,586,429 $1,477,209 $1,423,965 $1,417,629 $1,450,139 $1,549,205 $1,715,847 $1,850,779 $1,923,753 $1,948,343 39 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 40 Total - Revenues $135,767,492$139,733,780$146,631,579$153,921,892$161,592,423 $169,750,976 $178,396,126$187,541,234$197,201,834$207,430,465$208,003,181$208,545,000$209,025,675$209,458,781 41 42 O&M Expenses
43 Wastewater Operating Expenses $51,832,475 $53,177,921 $54,102,682 $55,464,141 $56,640,705 $58,101,811 $59,493,418 $59,914,590 $61,402,117 $62,711,272 $64,182,052 $65,844,565 $67,180,947 $68,855,367 44 Additional Expenditures Identified by the City
45 FTE Expenditures $2,366,898 $2,366,898 $2,401,315 $2,401,172 $2,438,336 $2,438,183 $2,438,183 $2,472,599 $2,472,457 $2,509,621 $2,509,467 $2,509,467 $2,543,883 $2,543,741 Additional Operating from Divisions $2,914,184 $3,152,736 $3,108,385 $3,109,053 $3,109,741 $3,110,450 $3,156,180 $3,111,932 $3,112,706 $3,113,504 $3,114,326 $3,160,172 $3,116,043 $3,116,941 46 Total - O&M Expenses $57,113,557 $58,697,556 $59,612,382 $60,974,366 $62,188,783 $63,650,444 $65,087,781 $65,499,120 $66,987,280 $68,334,396 $69,805,845 $71,514,204 $72,840,874 $74,516,050 47 48 Debt Service
49 Existing Debt Service $3,583,550 $3,621,925 $3,660,800 $3,704,925 $3,749,175 $1,630,000 $1,675,000 $1,720,000 $0 $0 $0 $0 $0 $0 50 Proposed Debt Service $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 51 52 Capital Projects
53 Cash Funded Capital $78,780,939 $79,046,261 $74,160,583 $86,304,971 $88,229,681 $85,710,448 $92,957,282 $92,133,684 $103,730,415 $97,529,860 $98,130,485 $101,838,343 $108,571,459 $109,475,385 54 55 Total - Revenue Requirements $163,547,077$165,434,773$161,502,796$175,053,293$178,236,670 $175,059,923 $183,789,094$183,421,836$194,786,726$189,933,287$192,005,361$197,421,578$205,481,363$208,060,465 56 57 Net Annual Cash Flow ($27,779,585)($25,700,994)($14,871,217)($21,131,401)($16,644,247) ($5,308,947) ($5,392,968) $4,119,398 $2,415,108 $17,497,177 $15,997,820 $11,123,422 $3,544,311 $1,398,316 58 59 Net Operating Revenue $78,653,935 $81,036,224 $87,019,197 $92,947,526 $99,403,640 $106,100,532 $113,308,345 $122,042,113 $130,214,554 $139,096,068 $138,197,336 $137,030,796 $136,184,801 $134,942,732 60 61 Debt Service Coverage Ratio 2.84 2.93 3.14 3.35 3.57 4.13 4.40 4.73 5.41 5.78 5.74 5.69 5.66 5.61 62 Required Absolute Floor Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 63 64 Fund Balance Projections FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 65 66 Total Beginning Cash Balance With Reserves$257,241,405$229,461,820$203,760,826$188,889,609$167,758,208 $151,113,961 $145,805,014$140,412,046$144,531,444$146,946,552$164,443,729$180,441,550$191,564,972$195,109,284 67 68 Sources of Funds
69 Total Revenues from Rates $132,080,378 $136,312,738 $143,412,389 $150,881,819 $158,740,289 $167,008,062 $175,706,456 $184,857,899 $194,485,990 $204,615,554 $205,021,629 $205,428,516 $205,836,217 $206,244,734 70 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 71 Interest Income $2,421,409 $2,155,337 $1,953,485 $1,774,367 $1,586,429 $1,477,209 $1,423,965 $1,417,629 $1,450,139 $1,549,205 $1,715,847 $1,850,779 $1,923,753 $1,948,343 72 Debt Proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 73 Total - Source of Funds $135,767,492$139,733,780$146,631,579$153,921,892$161,592,423 $169,750,976 $178,396,126$187,541,234$197,201,834$207,430,465$208,003,181$208,545,000$209,025,675$209,458,781 74 75 Use of Funds
76 Total O&M Expenses $57,113,557 $58,697,556 $59,612,382 $60,974,366 $62,188,783 $63,650,444 $65,087,781 $65,499,120 $66,987,280 $68,334,396 $69,805,845 $71,514,204 $72,840,874 $74,516,050 77 Total Debt Service $27,652,581 $27,690,956 $27,729,831 $27,773,956 $27,818,206 $25,699,031 $25,744,031 $25,789,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 $24,069,031 78 Debt-funded CIP $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 79 Pay-go funded CIP $78,780,939 $79,046,261 $74,160,583 $86,304,971 $88,229,681 $85,710,448 $92,957,282 $92,133,684 $103,730,415 $97,529,860 $98,130,485 $101,838,343 $108,571,459 $109,475,385 80 Total - Use of Funds $163,547,077$165,434,773$161,502,796$175,053,293$178,236,670 $175,059,923 $183,789,094$183,421,836$194,786,726$189,933,287$192,005,361$197,421,578$205,481,363$208,060,465 81 82 Net Cash Balance ($27,779,585) ($25,700,994) ($14,871,217) ($21,131,401) ($16,644,247) ($5,308,947) ($5,392,968)$4,119,398 $2,415,108 $17,497,177 $15,997,820 $11,123,422 $3,544,311 $1,398,316 83 84 Ending Cash Balance With Reserves $229,461,820$203,760,826$188,889,609$167,758,208$151,113,961 $145,805,014 $140,412,046$144,531,444$146,946,552$164,443,729$180,441,550$191,564,972$195,109,284$196,507,600 85 Ending Cash Balance $131,638,499 $110,302,416 $82,986,047 $59,482,160 $44,957,885 $31,921,558 $26,879,639 $19,267,072 $27,393,477 $43,847,142 $55,653,340 $59,481,994 $61,686,214 $62,533,788 86 Operating Reserve 33% of O&M $18,777,060 $19,297,827 $19,598,591 $20,046,367 $20,445,627 $20,926,173 $21,398,722 $21,533,957 $22,023,216 $22,466,103 $22,949,867 $23,511,519 $23,947,684 $24,498,427 87 Minimum Capital Reserve (Years of pay-go: 1)$79,046,261 $74,160,583 $86,304,971 $88,229,681 $85,710,448 $92,957,282 $92,133,684 $103,730,415 $97,529,860 $98,130,485 $101,838,343 $108,571,459 $109,475,385 $109,475,385 88 91 Minimum Operating Reserve Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 92 Minimum Operating and Capital Reserve Met?Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes $0$50$100$150$200$250$300MillionsWastewater Operating and Capital Funds Ending Cash BalanceEnding Balance - Operating ReserveMinimum Operating (120 days of O&M)Minimum Operating and Capital (1-year of Pay-go)0.002.004.006.008.0010.0012.0014.00Debt Service Coverage RatioDebt Service Coverage RatioRequired Absolute Floor Debt Service Covereage Ratio (1.20)Median for AA Fitch-Rated Utilities (2.4)Median for AA S&P Global-Rated Utilities (2.3)DSC Ratio $0$20$40$60$80$100$120MillionsCapital Financing PlanCash Funded CapitalDebt Funded ($50)$0$50$100$150$200$250MillionsWastewater Financial PlanO&M ExpensesDebt ServiceCash Funded CapitalRevenue to/from ReservesCurrent RevenueProposed Revenue

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%Annual Wastewater Bill as Percentage of Lowest Quintile IncomeAnnual Bill as % of LQILQI Threshold of Affordability 0500100015002000Days of Cash on HandDays of Cash on HandMedian for AA Fitch-Rated Utilities (621 days)Median for AA S&P Global-Rated Utilities (584 days)Days

Wastewater Fund:

Financial Plan 3

1 Financial Plan FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 2 Revenues
3 Revenues from Existing Rates $43,243,191 $43,328,984 $43,414,948 $43,501,084 $43,587,392 $43,673,873 $43,760,526 $43,847,353 $43,934,354 $44,021,529 $44,108,878 4 5 Revenue Adjustments
6 Year Effective% Adjustment
7 FY 2024 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
8 FY 2025 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
9 FY 2026 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
10 FY 2027 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0
11 FY 2028 July 65% $28,275,704 $28,331,805 $28,388,017 $28,444,342 $28,500,780 $28,557,330 $28,613,994 $28,670,771 12 FY 2029 July 65% $46,747,478 $46,840,228 $46,933,165 $47,026,287 $47,119,595 $47,213,090 $47,306,772 13 FY 2030 July 50% $59,451,059 $59,569,017 $59,687,210 $59,805,640 $59,924,306 $60,043,210 14 FY 2031 July 3% $5,361,211 $5,371,849 $5,382,508 $5,393,188 $5,403,889 15 FY 2032 July 3% $5,533,004 $5,543,983 $5,554,983 $5,566,006 16 FY 2033 July 0% $0 $0 $0
17 FY 2034 July 0% $0 $0
18 FY 2035 July 0% $0
19 FY 2036 July 0%
20 FY 2037 July 0%
21 FY 2038 July 0%
22 FY 2039 July 0%
23 FY 2040 July 0%
24 FY 2041 July 0%
25 FY 2042 July 0%
26 FY 2043 July 5%
27 FY 2044 July 5%
28 FY 2045 July 5%
29 FY 2046 July 5%
30 FY 2047 July 0%
31 FY 2048 July 0%
32 FY 2049 July 0%
33 Total Revenue Adjustments $0 $0 $0 $28,275,704 $75,079,282$134,679,305$140,307,735$146,119,129$146,409,055$146,699,561$146,990,647 34 35 Rate Revenue (including Revenue Adjustments)$43,243,191 $43,328,984 $43,414,948 $71,776,788$118,666,674$178,353,177$184,068,261$189,966,483$190,343,409$190,721,089$191,099,525 36 37 Other Revenues
38 Interest Income $339,755 $339,928 $299,768 $184,709 $298,586 $474,962 $1,646,426 $1,664,119 $3,155,402 $3,129,992 $4,172,840 39 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 40 Total - Revenues $44,848,651 $44,934,617 $44,980,421 $73,227,202$120,230,965$180,093,844$186,980,392$192,896,307$194,764,516$195,116,787$196,538,070 41 42 O&M Expenses
43 Wastewater Operating Expenses $36,693,133 $37,703,209 $39,220,527 $46,330,978 $49,417,271 $49,569,658 $51,602,241 $47,365,000 $48,359,547 $49,517,611 $50,584,983 44 Additional Expenditures Identified by the City
45 FTE Expenditures $0 $0 $0 $315,805 $1,402,497 $1,669,802 $2,136,656 $2,276,986 $2,310,815 $2,310,672 $2,367,132 Additional Operating from Divisions $0 $0 $0 $2,521,547 $2,941,031 $2,070,543 $2,974,220 $2,423,303 $2,910,632 $2,656,154 $3,216,188 46 Total - O&M Expenses $36,693,133 $37,703,209 $39,220,527 $49,168,330 $53,760,799 $53,310,002 $56,713,117 $52,065,289 $53,580,993 $54,484,438 $56,168,303 47 48 Debt Service
49 Existing Debt Service $3,910,458 $3,913,157 $3,911,209 $3,909,039 $3,908,163 $3,910,738 $3,442,675 $3,470,175 $3,489,175 $3,524,550 $3,556,050 50 Proposed Debt Service $0 $0 $0 $650,514 $650,514 $7,806,172 $7,806,172 $17,563,887 $17,563,887 $24,719,545 $24,719,545 51 52 Capital Projects
53 Cash Funded Capital $3,962,175 $3,566,246 $9,672,941 $24,841,892 $43,639,602 $0 $108,181,032 $0 $89,579,625 $4,491,791 $119,938,174 54 55 Total - Revenue Requirements $44,565,766 $45,182,612 $52,804,678 $78,569,776$101,959,078 $65,026,912$176,142,996 $73,099,352$164,213,681 $87,220,324$204,382,072 56 57 Net Annual Cash Flow $282,885 ($247,995) ($7,824,257) ($5,342,574)$18,271,888$115,066,932 $10,837,396$119,796,955 $30,550,835$107,896,463 ($7,844,002) 58 59 Net Operating Revenue $8,155,518 $7,231,408 $5,759,893 $24,058,872 $66,470,167 $126,783,842 $130,267,275 $140,831,018 $141,183,523 $140,632,349 $140,369,768 60 61 Debt Service Coverage Ratio 2.09 1.85 1.47 5.28 14.58 10.82 11.58 6.70 6.71 4.98 4.96 62 Required Absolute Floor Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 63 64 Fund Balance Projections FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 65 66 Total Beginning Cash Balance With Reserves$34,003,924 $34,286,809 $34,038,814 $26,214,557 $20,871,983 $39,143,871$165,883,421$165,048,199$318,839,803$315,395,989$423,292,452 67 68 Sources of Funds
69 Total Revenues from Rates $43,243,191 $43,328,984 $43,414,948 $71,776,788 $118,666,674 $178,353,177 $184,068,261 $189,966,483 $190,343,409 $190,721,089 $191,099,525 70 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 71 Interest Income $339,755 $339,928 $299,768 $184,709 $298,586 $474,962 $1,646,426 $1,664,119 $3,155,402 $3,129,992 $4,172,840 72 Debt Proceeds $0 $0 $0 $9,960,000 $0 $109,560,000 $0 $149,400,000 $0 $109,560,000 $0 73 Total - Source of Funds $44,848,651 $44,934,617 $44,980,421 $83,187,202$120,230,965$289,653,844$186,980,392$342,296,307$194,764,516$304,676,787$196,538,070 74 75 Use of Funds
76 Total O&M Expenses $36,693,133 $37,703,209 $39,220,527 $49,168,330 $53,760,799 $53,310,002 $56,713,117 $52,065,289 $53,580,993 $54,484,438 $56,168,303 77 Total Debt Service $3,910,458 $3,913,157 $3,911,209 $4,559,553 $4,558,677 $11,716,910 $11,248,847 $21,034,062 $21,053,062 $28,244,095 $28,275,595 78 Debt-funded CIP $0 $0 $0 $9,960,000 $0 $97,887,382 $11,672,618 $115,405,351 $33,994,649 $109,560,000 $0 79 Pay-go funded CIP $3,962,175 $3,566,246 $9,672,941 $24,841,892 $43,639,602 $0 $108,181,032 $0 $89,579,625 $4,491,791 $119,938,174 80 Total - Use of Funds $44,565,766 $45,182,612 $52,804,678 $88,529,776$101,959,078$162,914,294$187,815,614$188,504,703$198,208,330$196,780,324$204,382,072 81 82 Net Cash Balance $282,885 ($247,995) ($7,824,257) ($5,342,574)$18,271,888 $126,739,550 ($835,222)$153,791,604 ($3,443,814)$107,896,463 ($7,844,002) 83 84 Ending Cash Balance With Reserves $34,286,809 $34,038,814 $26,214,557 $20,871,983 $39,143,871$165,883,421$165,048,199$318,839,803$315,395,989$423,292,452$415,448,450 85 Ending Cash Balance $18,657,067 $11,970,297 ($11,521,755) ($38,932,549) ($18,981,402) $40,175,814 $78,822,258 $212,142,822 $293,288,529 $285,441,586 $273,089,087 86 Operating Reserve 33% of O&M $12,063,496 $12,395,576 $12,894,420 $16,164,931 $17,674,783 $17,526,576 $18,645,408 $17,117,355 $17,615,669 $17,912,692 $18,466,291 87 Minimum Capital Reserve (Years of pay-go: 1)$3,566,246 $9,672,941 $24,841,892 $43,639,602 $40,450,490 $108,181,032 $67,580,532 $89,579,625 $4,491,791 $119,938,174 $123,893,072 88 91 Minimum Operating Reserve Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 92 Minimum Operating and Capital Reserve Met?Yes Yes No No No Yes Yes Yes Yes Yes Yes 1 Financial Plan FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 2 Revenues
3 Revenues from Existing Rates $44,196,402 $44,284,101 $44,371,975 $44,460,025 $44,548,251 $44,636,653 $44,725,233 $44,813,989 $44,902,923 $44,992,035 $45,081,325 $45,170,794 $45,260,442 $45,350,268 4 5 Revenue Adjustments
6 Year Effective% Adjustment
7 FY 2024 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 8 FY 2025 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 9 FY 2026 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 10 FY 2027 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 11 FY 2028 July 65% $28,727,661 $28,784,665 $28,841,784 $28,899,016 $28,956,363 $29,013,825 $29,071,401 $29,129,093 $29,186,900 $29,244,823 $29,302,861 $29,361,016 $29,419,287 $29,477,674 12 FY 2029 July 65% $47,400,641 $47,494,698 $47,588,943 $47,683,377 $47,777,999 $47,872,811 $47,967,812 $48,063,003 $48,158,385 $48,253,958 $48,349,721 $48,445,676 $48,541,824 $48,638,163 13 FY 2030 July 50% $60,162,352 $60,281,732 $60,401,351 $60,521,209 $60,641,307 $60,761,644 $60,882,223 $61,003,043 $61,124,104 $61,245,408 $61,366,954 $61,488,743 $61,610,776 $61,733,053 14 FY 2031 July 3% $5,414,612 $5,425,356 $5,436,122 $5,446,909 $5,457,718 $5,468,548 $5,479,400 $5,490,274 $5,501,169 $5,512,087 $5,523,026 $5,533,987 $5,544,970 $5,555,975 15 FY 2032 July 3% $5,577,050 $5,588,117 $5,599,205 $5,610,316 $5,621,449 $5,632,604 $5,643,782 $5,654,982 $5,666,204 $5,677,449 $5,688,717 $5,700,006 $5,711,319 $5,722,654 16 FY 2033 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 17 FY 2034 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 18 FY 2035 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 19 FY 2036 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 20 FY 2037 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 21 FY 2038 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
22 FY 2039 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
23 FY 2040 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
24 FY 2041 July 0% $0 $0 $0 $0 $0 $0 $0 $0 $0
25 FY 2042 July 0% $0 $0 $0 $0 $0 $0 $0 $0
26 FY 2043 July 5% $9,707,719 $9,726,984 $9,746,288 $9,765,630 $9,785,011 $9,804,431 $9,823,889 27 FY 2044 July 5% $10,213,334 $10,233,602 $10,253,912 $10,274,262 $10,294,652 $10,315,084 28 FY 2045 July 5% $10,745,282 $10,766,607 $10,787,975 $10,809,385 $10,830,838 29 FY 2046 July 5% $11,304,938 $11,327,374 $11,349,854 $11,372,380 30 FY 2047 July 0% $0 $0 $0
31 FY 2048 July 0% $0 $0
32 FY 2049 July 0% $0
33 Total Revenue Adjustments $147,282,316$147,574,568$147,867,404$148,160,826$148,454,835 $148,749,432 $149,044,619$159,048,115$169,577,081$180,658,897$192,322,366$192,704,050$193,086,498$193,469,710 34 35 Rate Revenue (including Revenue Adjustments)$191,478,718$191,858,668$192,239,379$192,620,851$193,003,086 $193,386,086 $193,769,852$203,862,104$214,480,005$225,650,932$237,403,691$237,874,844$238,346,939$238,819,979 36 37 Other Revenues
38 Interest Income $4,071,658 $3,939,183 $3,819,408 $3,654,153 $3,407,395 $3,161,962 $2,890,147 $2,626,184 $2,408,145 $2,264,311 $2,247,565 $2,254,329 $2,198,497 $2,093,638 39 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 40 Total - Revenues $196,816,081$197,063,556$197,324,492$197,540,709$197,676,186 $197,813,753 $197,925,704$207,753,993$218,153,854$229,180,949$240,916,961$241,394,878$241,811,141$242,179,322 41 42 O&M Expenses
43 Wastewater Operating Expenses $51,832,475 $53,177,921 $54,102,682 $55,464,141 $56,640,705 $58,101,811 $59,493,418 $59,914,590 $61,402,117 $62,711,272 $64,182,052 $65,844,565 $67,180,947 $68,855,367 44 Additional Expenditures Identified by the City
45 FTE Expenditures $2,366,898 $2,366,898 $2,401,315 $2,401,172 $2,438,336 $2,438,183 $2,438,183 $2,472,599 $2,472,457 $2,509,621 $2,509,467 $2,509,467 $2,543,883 $2,543,741 Additional Operating from Divisions $2,914,184 $3,152,736 $3,108,385 $3,109,053 $3,109,741 $3,110,450 $3,156,180 $3,111,932 $3,112,706 $3,113,504 $3,114,326 $3,160,172 $3,116,043 $3,116,941 46 Total - O&M Expenses $57,113,557 $58,697,556 $59,612,382 $60,974,366 $62,188,783 $63,650,444 $65,087,781 $65,499,120 $66,987,280 $68,334,396 $69,805,845 $71,514,204 $72,840,874 $74,516,050 47 48 Debt Service
49 Existing Debt Service $3,583,550 $3,621,925 $3,660,800 $3,704,925 $3,749,175 $1,630,000 $1,675,000 $1,720,000 $0 $0 $0 $0 $0 $0 50 Proposed Debt Service $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 51 52 Capital Projects
53 Cash Funded Capital $123,893,072 $124,158,394 $119,272,716 $131,417,104 $133,341,814 $130,822,581 $138,069,415 $137,245,817 $148,842,548 $142,641,993 $143,242,618 $146,950,476 $153,683,592 $154,587,518 54 55 Total - Revenue Requirements $209,309,724$211,197,421$207,265,443$220,815,940$223,999,318 $220,822,570 $229,551,741$229,184,483$240,549,374$235,695,934$237,768,008$243,184,225$251,244,011$253,823,113 56 57 Net Annual Cash Flow ($12,493,644)($14,133,865)($9,940,951)($23,275,231)($26,323,131)($23,008,817)($31,626,037)($21,430,490)($22,395,519)($6,514,986) $3,148,953 ($1,789,347) ($9,432,869)($11,643,791) 58 59 Net Operating Revenue $139,702,524 $138,366,000 $137,712,110 $136,566,343 $135,487,403 $134,163,310 $132,837,923 $142,254,873 $151,166,574 $160,846,552 $171,111,116 $169,880,674 $168,970,268 $167,663,272 60 61 Debt Service Coverage Ratio 4.94 4.88 4.85 4.80 4.76 5.09 5.03 5.38 6.12 6.51 6.92 6.87 6.84 6.78 62 Required Absolute Floor Debt Service Coverage Ratio1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 63 64 Fund Balance Projections FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 65 66 Total Beginning Cash Balance With Reserves$415,448,450$402,954,806$388,820,942$378,879,991$355,604,760 $329,281,628 $306,272,812$274,646,774$253,216,284$230,820,765$224,305,779$227,454,732$225,665,385$216,232,516 67 68 Sources of Funds
69 Total Revenues from Rates $191,478,718 $191,858,668 $192,239,379 $192,620,851 $193,003,086 $193,386,086 $193,769,852 $203,862,104 $214,480,005 $225,650,932 $237,403,691 $237,874,844 $238,346,939 $238,819,979 70 Other Revenues $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 $1,265,705 71 Interest Income $4,071,658 $3,939,183 $3,819,408 $3,654,153 $3,407,395 $3,161,962 $2,890,147 $2,626,184 $2,408,145 $2,264,311 $2,247,565 $2,254,329 $2,198,497 $2,093,638 72 Debt Proceeds $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 73 Total - Source of Funds $196,816,081$197,063,556$197,324,492$197,540,709$197,676,186 $197,813,753 $197,925,704$207,753,993$218,153,854$229,180,949$240,916,961$241,394,878$241,811,141$242,179,322 74 75 Use of Funds
76 Total O&M Expenses $57,113,557 $58,697,556 $59,612,382 $60,974,366 $62,188,783 $63,650,444 $65,087,781 $65,499,120 $66,987,280 $68,334,396 $69,805,845 $71,514,204 $72,840,874 $74,516,050 77 Total Debt Service $28,303,095 $28,341,470 $28,380,345 $28,424,470 $28,468,720 $26,349,545 $26,394,545 $26,439,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 $24,719,545 78 Debt-funded CIP $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 79 Pay-go funded CIP $123,893,072 $124,158,394 $119,272,716 $131,417,104 $133,341,814 $130,822,581 $138,069,415 $137,245,817 $148,842,548 $142,641,993 $143,242,618 $146,950,476 $153,683,592 $154,587,518 80 Total - Use of Funds $209,309,724$211,197,421$207,265,443$220,815,940$223,999,318 $220,822,570 $229,551,741$229,184,483$240,549,374$235,695,934$237,768,008$243,184,225$251,244,011$253,823,113 81 82 Net Cash Balance ($12,493,644) ($14,133,865) ($9,940,951) ($23,275,231) ($26,323,131) ($23,008,817) ($31,626,037) ($21,430,490) ($22,395,519) ($6,514,986)$3,148,953 ($1,789,347) ($9,432,869) ($11,643,791) 83 84 Ending Cash Balance With Reserves $402,954,806$388,820,942$378,879,991$355,604,760$329,281,628 $306,272,812 $274,646,774$253,216,284$230,820,765$224,305,779$227,454,732$225,665,385$216,232,516$204,588,725 85 Ending Cash Balance $260,019,352 $250,250,399 $227,864,295 $202,216,578 $178,013,420 $147,277,223 $116,002,234 $82,839,779 $66,155,557 $58,597,059 $57,554,389 $48,470,274 $37,697,314 $25,502,780 86 Operating Reserve 33% of O&M $18,777,060 $19,297,827 $19,598,591 $20,046,367 $20,445,627 $20,926,173 $21,398,722 $21,533,957 $22,023,216 $22,466,103 $22,949,867 $23,511,519 $23,947,684 $24,498,427 87 Minimum Capital Reserve (Years of pay-go: 1)$124,158,394 $119,272,716 $131,417,104 $133,341,814 $130,822,581 $138,069,415 $137,245,817 $148,842,548 $142,641,993 $143,242,618 $146,950,476 $153,683,592 $154,587,518 $154,587,518 88 91 Minimum Operating Reserve Met? Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes 92 Minimum Operating and Capital Reserve Met?Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes $0$100$200$300$400$500MillionsWastewater Operating and Capital Funds Ending Cash BalanceEnding Balance - Operating ReserveMinimum Operating (120 days of O&M)Minimum Operating and Capital (1-year of Pay-go)0.002.004.006.008.0010.0012.0014.0016.00Debt Service Coverage RatioDebt Service Coverage RatioRequired Absolute Floor Debt Service Covereage Ratio (1.20)Median for AA Fitch-Rated Utilities (2.4)Median for AA S&P Global-Rated Utilities (2.3)DSC Ratio $0$20$40$60$80$100$120$140$160$180MillionsCapital Financing PlanCash Funded CapitalDebt Funded ($50)$0$50$100$150$200$250$300MillionsWastewater Financial PlanO&M ExpensesDebt ServiceCash Funded CapitalRevenue to/from ReservesCurrent RevenueProposed Revenue

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%Annual Wastewater Bill as Percentage of Lowest Quintile IncomeAnnual Bill as % of LQILQI Threshold of Affordability 050010001500200025003000Days of Cash on HandDays of Cash on HandMedian for AA Fitch-Rated Utilities (621 days)Median for AA S&P Global-Rated Utilities (584 days)Days

MEMORANDUM

DATE: January 10, 2025

TO: Farishta Ahrary, City Auditor

FROM: Pravani Vandeyar, Director Department of Utilities

CC: Yvette Rincon, Assistant Director

SUBJECT: Department of Utilities Response to Auditor’s Water & Wastewater Funds Review

This memo serves as the Department of Utilities (DOU) response to the Auditor’s Water & Wastewater Funds Review.

We want to thank the Auditor and their team for their diligent work on this review. DOU agrees with the findings and conclusions in this report.

Budget and Audit CommitteeJanuary 28, 2025

Budget and Audit Committee
January 28, 2025