of debt and the procedures for levying and imposing any related taxes, assessments, rates, and charges.
B. Delegation of Authority: The City Council has assigned duties to the Finance Director for authorizing, managing, and coordinating activities related to the structure, issuance, and administration of the City’s long-term and short-term debt. No debt obligations shall be presented to the City Council, including capital leases, for their authorization without a joint assessment and approval by the City Manager and Finance Director. No department shall directly issue debt and departments planning debt-financed capital programs or equipment acquisitions will work in close coordination with the Finance Department and the City Manager’s Office to provide information and facilitate the issuance and ongoing administration of debt.
C. Point of Contact: The Finance Director shall be responsible for maintaining good communication with rating agencies, investors, other service providers, and the general public regarding the City’s financial condition, and will enforce a policy of full disclosure.
D. Policy Approval and Review: This Debt Management Policy is an official policy of the City, approved by the City Manager as an Administrative Procedure Order. The Finance Department shall conduct an annual review of this policy and recommend amendments deemed necessary and appropriate.
E. Annual Debt Report: The Finance Department shall prepare an annual report to the City Council containing a summary of the City’s current credit ratings, and outstanding and newly issued debt. This report shall be presented either separately or within another financial report.
F. Professional Assistance: The Finance Director shall have the authority to periodically select service providers as necessary to meet legal requirements and minimize debt costs. Such services may include financial advisory, underwriting, trustee, verification agent, escrow agent, arbitrage consulting, special tax consulting, and bond counsel. To achieve appropriate balance between service and cost, the Finance Director is authorized to select such service providers through sole source selection or a competitive process using a Request for Proposals.
G. Method of Sale: Except to the extent a competitive bidding process is required by law, the Finance Director shall determine the most appropriate manner in which to offer any securities to investors. The City’s preferred method of sale is by competitive bid. However, other methods such as negotiated sale and private placement may be considered on a case-bycase basis.
TYPES AND PURPOSE OF DEBT
The City may utilize the following types of municipal debt obligations to finance long-term capital projects. Long-term debt is only issued to finance the acquisition and/or construction of
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capital improvements unless otherwise decreed by court order or adjudicated settlement. Longterm debt financing shall never be used to fund operating or maintenance costs.
Types of Debt
A. Assessment Bonds: Proceeds from Assessment Bonds may be used to finance local public improvements, and are repaid with taxes assessed on the parcels of land that benefit from the improvements. Local streets, street lights, landscaping, sidewalks and sanitary sewers are some examples of local improvements commonly financed by Assessment Bonds.
B. General Obligation (GO) Bonds: The City may issue GO Bonds with two-thirds approval of a popular vote as stated in the California State Constitution (Article XVI, Section 18). GO Bonds are secured by a pledge of the full faith and credit of the City, or by a levy on property taxes to pay the debt service. GO Bonds are used to finance the acquisition, construction, or improvement of public facilities such as parks and public safety facilities.
C. Pension Obligation Bonds: Pension Obligation Bonds may be issued to finance all or part of the City’s unfunded pension liability, and are a general obligation of the City. Typically, these bonds are issued at an interest rate which is lower than that being charged by CalPERS, the City’s pension administrator.
D. Enterprise Revenue Bonds: Enterprise Revenue Bonds may be issued to finance facilities for a revenue-producing enterprise, and are payable from revenue sources generated and pledged by that enterprise. Water, sewer, refuse, storm water, and parking are examples of revenueproducing enterprises within the City.
E. Lease Revenue Bonds: Lease Revenue Bonds are typically issued by the City of Santa Cruz Public Financing Authority, on behalf of the City. They are secured by and payable from a pledge of revenues consisting primarily of lease payments on the capital project being financed. The City’s General Fund is obligated to pay these lease payments.
F. Refunding Bonds: Pursuant to the California Government Code and various other financing statutes, the City is authorized to issue bonds for the purpose of refunding any long-term obligation of the City, provided it produces economic benefit to the City.
G. Conduit Financing Bonds: Conduit financing is a mechanism for other governmental entities, nonprofit agencies, or private companies to fund projects which provide a clear public benefit through the issuance of tax-exempt municipal bonds. These are essentially revenue bonds payable solely from the loan repayments received from the borrower under the loan agreement, for which the City has no liability for debt service. They may also be known as private activity or pass-through bonds. The City may issue Conduit Financing Bonds for projects such as schools, hospitals, universities, public works, housing and industrial development. In such cases, the City will take reasonable steps to confirm the financial feasibility of the project to be financed and the financial solvency of the borrower.
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H. Certificates of Participation (COP): COPs are a form of lease revenue bond which permits the investor to participate in a stream of lease payments, installment payments, or loan payments relating to the acquisition or construction of specific equipment, land, or facilities.
The City is obligated to make these debt service payments.
I. Lease Financing: The City may finance a capital asset by leasing it directly from the vendor or leasing company under a long-term agreement. This is essentially a lease-purchase contract with the lessor receiving a portion of each rental payment as tax-exempt interest.
J. Bank/Private Loans: The City may borrow directly through a loan with a commercial bank, Letter of Credit, or Line of Credit with a commercial bank, State revolving loan program, or other governmental agency. Each loan will have a specific purpose.
K. Tax Allocation Bonds: Before dissolution of California Redevelopment Agencies (RDAs) in 2012, the City of Santa Cruz RDA issued Tax Allocation Bonds using tax increment funds as a pledge for repayment. The taxes pledged to the repayment came from the increase of assessed value over and above a pre-established base. Dissolution of RDAs in 2012 has ended this type of debt from being issued by California cities and counties.
L. City of Santa Cruz Internal Financing Pool: The Internal Financing Pool provides loans to City departments or funds for significant one-time purchases, such as large vehicles. Such loans are repaid by applicable City departments or funds with interest on an annual basis with the principal amortized evenly over a period of at least five (5) years but not exceeding ten (10) years. The interest rate levied is 2% more in simple interest above the City’s pooled investments monthly yield to maturity.
M. Other Obligations: There may be special circumstances when other forms of debt are appropriate and may be evaluated on a case-by-case basis. Such other forms include, but are not limited to, non-enterprise revenue bonds, bond anticipation notes, grant anticipation notes, tax and revenue anticipation notes, and judgment or settlement obligation bonds.
Purpose of Debt
A. Integration with the City’s Capital Improvement Plan: The City is committed to long-term financial planning, including capital planning. This policy will be used in conjunction with the City’s capital budget and the capital improvement plan. The City shall strive to fund the upkeep and maintenance of its infrastructure and facilities due to normal wear and tear through its available operating revenues.
B. Long-Term Debt: Long-term debt may be used to finance the purchase or improvement of land, infrastructure, facilities, or equipment for which it is appropriate to spread these costs over more than one budget year. Long-term debt may also cover capitalized interest, costs of issuance, required reserves, and any other financing-related costs which may be legally capitalized. Long-term debt may not be used to fund City operating costs.
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C. Short-Term Debt: Short-term borrowing, such as commercial paper and lines of credit, may be used as an interim source of funding in anticipation of long-term borrowing. Short-term debt is defined as debt repaid in twelve (12) months or less and may be issued for the same purpose as long-term debt, including capitalized interest and other financing-related costs.
Short-term debt, such as tax and revenue anticipation notes, may be issued to address justifiable cash flow requirements for short-term operating needs to provide necessary public services.
D. Refunding: Periodic reviews of existing debt will be undertaken to identify refunding opportunities. Refunding will be considered (within Federal tax law constraints) if and when there is a net benefit of the refunding. In general, refundings which produce a net present value savings of at least three percent (3%) of the refunded debt will be considered economically viable. Refundings which produce a net present value savings of less than three percent (3%) will be considered on a case-by-case basis to achieve City goals such as changes in covenants, call provisions, operational flexibility, tax status, issuer, or the debt service profile. Refundings with negative savings will not be considered unless there is a compelling public policy objective that is accomplished by retiring the debt. The City may purchase its own bonds in the open market for the purpose of retiring the obligation when the purchase is cost effective.
E. Lease Financing: The City may finance a capital asset by leasing it directly from the vendor or leasing company, with the lessor receiving a portion of each rental payment as tax-exempt interest.
DEBT CAPACITY
It is the policy of the City of Santa Cruz that aggregate debt service payments funded from General Fund sources shall be no greater than 10% of Primary General Fund revenues as reflected in the prior year adopted budget. Payments on bonds that are tied to a specified revenue stream other than General Fund sources (e.g., enterprise revenue bonds, tax allocation bonds, and assessment bonds) are not subject to this 10% limit. Each proposed financing will be individually assessed by the Finance Director and subject to the approval policies contained herein.
DEBT STRUCTURE FEATURES
A. Debt Repayment: The City will structure its debt issues so that the maturity of the debt does not exceed the economic or useful life of the capital project which is financed.
B. Maximum Maturity: The California Constitution allows for the issuance of long-term debt of up to forty (40) years. The City’s standard maximum maturity is thirty (30) years, but up to forty (40) years may be acceptable depending on cash flow assumptions, construction timeline, and remaining useful life of the asset being financed.
C. Credit Quality: The City seeks to obtain and maintain the highest possible credit ratings when required for issuing long-term and short-term debt.
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D. Fixed-Rate Debt: Fixed-rate debt shall be the desired method of pricing.
E. Variable-Rate Debt: The City may choose to issue debt that pays a rate of interest that varies according to a pre-determined formula or index. There may be situations in which the City will benefit from variable-rate debt.
F. Call Options and Premium Provisions: Call Options or optional redemption provisions can enable the City to partially or totally repay a bond issue before its stated maturity. These may be considered on a case-by-case basis when issuing bonds, provided they enhance the marketability of the bonds, ensure flexibility related to potential early redemption, or foster future refunding options. The potential for additional costs, such as a call premium or potentially higher interest rates, will be evaluated in the decision to redeem the bonds.
G. Credit Enhancement: To establish or improve the credit rating on a proposed debt issuance, the City may purchase credit enhancement such as bond insurance, surety policy, or letter of credit. The Finance Director will consider the use of credit enhancement if it reduces the overall cost of the proposed financing or furthers the City’s overall financial objectives.
DEBT ADMINISTRATION
The City’s Finance Department shall maintain written directives and procedures detailing required actions to certify compliance with local, State, and Federal regulations. The City is committed to full and complete financial disclosure in accordance with the requirements established by the Securities and Exchange Commission (SEC) rule 15c2-12 and the Municipal Securities Rulemaking Board. The City is also committed to fully supporting requests from rating agencies, institutional and individual investors, other governmental entities, and to the general public to share clear, timely, and correct financial information.
In addition to financial disclosure and arbitrage rebate compliance, once bonds are issued the City is responsible for verifying compliance with all activities, agreements, and requirements outlined in the bond documents on an ongoing basis. This typically includes: ensuring an annual appropriation to meet debt service payments; that relevant taxes, rates, and fees are levied and collected at a level sufficient to meet indenture requirements and debt service payments; the timely payment of debt service to a trustee or paying agent is completed; and compliance with insurance and other requirements.
All investments of bond proceeds shall adhere to the City’s Investment Policy which is approved annually by the City Council, Federal tax requirements, and with the requirements contained in the bond documents. Investments related to the bond proceeds shall not allow security types or credit standards less than those stated in the City’s Investment Policy.
GLOSSARY OF TERMS
Advance Refunding: A refunding that occurs more than ninety (90) days in advance of the first optional redemption date. All covenants and restrictions of the refunded bond indenture are
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extinguished through an Advance Refunding. Under current IRS regulations, tax-exempt bonds issued after December 31, 1985 are permitted only one Advance Refunding.
Arbitrage: Generally, tax-exempt bond issues are subject to arbitrage rebate requirements, which require that any profit or “arbitrage” be “rebated” to the Federal government in the amount of the excess of the amount earned on investments purchased with gross proceeds of the bonds over the amount which would have been earned if such investments were invested at a rate equal to the yield on the bonds. A rebate computation and payment, if applicable, is generally required to be made every five (5) years and upon final redemption or maturity of the bonds. Failure to comply with these requirements could lead to substantial late filing penalties and interest and/or the loss of tax-exempt status for the bonds.
Bond Counsel: A law firm retained by the bond issuer to give a legal opinion that the bond issuer is authorized to issue the proposed securities, the bond issuer has met all legal requirements necessary for issuance, and interest on the proposed securities will be exempt from Federal income taxation, and where applicable from State and local taxation. Usually, Bond Counsel will prepare authorizing resolutions and ordinances, trust indentures, and other bond documents with the exception of the Official Statement.
Bond Insurance: An insurance policy which guarantees the timely payment of principal and interest, of either an entire bond issue, or on one or more specified maturities. In exchange for payment of the Bond Insurance premium, a higher Credit Rating is assigned to the insured bonds, and a lower cost of funds is attained. With a Competitive Sale, generally the bidding dealer bears the cost of insurance to the benefit of the firm’s bid. The bond issuer pays the cost of Bond Insurance from bond proceeds with a Negotiated Sale.
California Debt and Investment Advisory Commission (CDIAC): A State commission established to provide oversight with respect to public debt and investment activities. It serves as the State’s clearinghouse for information on public debt issuance and local investment practices.
CDIAC also provides policy guidance on debt and investment matters.
Call Provisions: The terms of the bond giving the issuer the right to redeem all or a portion of a bond prior to its stated date of maturity at a specific price, usually at or above par.
Capitalized Interest: Capitalized Interest is a portion of the proceeds of an issue which is set aside to pay interest on the bonds for a specified period of time. Interest is commonly capitalized during the construction period of a revenue-producing project or a project financed with the proceeds of lease revenue bonds whereby the facility securing the lease payments must be available for use and occupancy before lease payments may commence.
Commercial Paper: Short-term (1 to 270 days) promissory notes usually issued to provide for interim financing of projects through the construction period and backed by a Letter or Line of Credit from a commercial bank. Following the completion of the projects, principal and interest due on Commercial Paper is often redeemed through the issuance of long-term refunding bonds.
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Competitive Bidding Process: The sale of a new issue of bonds by an issuer through a bidding process where Underwriters are awarded the bonds on the basis of offering the lowest cost of funds for the issuer, usually measured on a True Interest Cost basis. The bid parameters for the public sale are established in the notice of sale or notice inviting bids.
Continuing Disclosure Certificate: A commitment entered into by the County for the benefit of the Underwriters and holders of certain bonds pursuant to SEC Rule 15(c)2-12 to provide continuing disclosure of specific County information.
Credit Ratings: Evaluations of the credit quality of bonds made by independent ratings services such as Moody’s Investors Service, Standard & Poor’s Ratings Services, and Fitch Ratings.
Credit Ratings are intended to measure the probability of timely repayment of principal and interest on municipal securities. Credit Ratings are assigned before issuance of the bonds, and are periodically reviewed by the rating services, or may be amended to reflect changes in the issuer’s credit position. Bonds with investment grade ratings are assigned Credit Ratings between Baa3/BBB- and Aaa/AAA.
Debt Service: The sum of principal and interest due on outstanding debt, including any required contributions to a sinking fund for term bonds. Debt Service may be computed on a bond year, fiscal year, or calendar year basis.
Derivative: Short for “Derivative investment,” a contract whose value is based on the performance of an underlying financial asset, index, or other investment. Generally, Derivatives are risk mitigation tools. Examples include structures with Option-like or Swap-like features.
Financial Advisor: A consultant who advises the bond issuer on matters such as bond structure, timing, marketing, pricing, documentation, and Credit Ratings. The consultant may also provide non-bond related advice relating to capital planning and investment management. Financial Advisors must be registered as an independent registered municipal advisor (“IRMA”) with the SEC.
Fixed-Rate Debt: A borrowing wherein interest is established at a fixed rate of interest for the life of the obligation.
Line of Credit: A commitment usually made by a commercial bank to provide liquidity support for issues of notes, Commercial Paper, or bonds if the issuer is unable to pay Debt Service. The timely payment of Debt Service is not guaranteed, and the agreement between the bank and the issuer of the debt may be terminated in the event of a payment default by the bond issuer, or under other certain specified events. Debt issued with a Line of Credit is assigned the short-term Credit Rating of the Line of Credit provider.
Municipal Securities Rulemaking Board (MSRB): An independent self-regulatory organization established by the Securities Acts Amendments of 1975, which is charged with primary rulemaking authority over Broker-Dealers and brokers in municipal securities. Its members
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represent three categories—securities firms, bank dealers, and the public—each category having equal representation on the MSRB.
Negotiated Sale: The sale of a new issue of bonds whereby the issuer selects the Underwriters in advance and negotiates the terms of the bonds, including coupons, interest rates, redemption provisions, and the Gross Spread, at the time of sale.
Official Statement: A document published by the bond issuer, and often prepared by Disclosure Counsel, which discloses material information on a new bond issue, including the purpose of the issue, source of repayment, bond covenants, as well as financial, economic, demographic, and legal characteristics of the bond issuer. The Official Statement is used by investors to determine the credit quality of the bond issue. An Official Statement is deemed preliminary prior to the determination of the interest rates on the bond issue, but is final in all other respects at the time it is circulated in its preliminary form prior to the sale of the bonds.
Private Placement: A sale in which the bonds are sold directly to institutional or private investors, rather than through a public offering. Issuers often require investors purchasing privately placed bonds to agree to restrictions as to resale through the use of a signed agreement.
This is the same as a direct placement or a direct purchase. Private Placements may also involve the direct sale of a bond or other obligation to a commercial bank.
Securities and Exchange Commission (SEC): The Federal agency responsible for supervising and regulating the securities industry. In general, municipal securities are exempt from the SEC’s registration and reporting requirements. Brokers and dealers in municipal securities, as well as independent registered municipal advisors, however, are subject to SEC regulation and oversight. The SEC also has responsibility for the approval of MSRB rules, and has jurisdiction, pursuant to SEC Rule 10b-5, over fraud in the sale of municipal securities.
SEC Rule 15(c)2-12: A regulation of the SEC which requires Underwriters participating in primary offerings of municipal securities of $1,000,000 or more (i) to obtain, review, and distribute to investors copies of the issuer’s Disclosure documents; (ii) to obtain and review a copy of an Official Statement deemed final by an issuer of the securities, except for the omission of specified information; (iii) to make available upon request, in non-competitively bid offerings, the most recent preliminary Official Statement, if any; (iv) to contract with an issuer of the securities, or its agent, to receive, within specified time periods, sufficient copies of the issuer’s final Official Statement, both to comply with this rule, and any rules of the MSRB; and (v) to provide, for a specified period of time, copies of final Official Statements to any potential customer upon request. The rule contains exemptions for Underwriters participating in certain offerings of municipal securities issued in large denominations that are sold to no more than thirty-five (35) sophisticated investors, have short-term maturities, or have short-term tender or put features. SEC Rule 15(c)2-12 also requires that Underwriters participating in a bond offering obtain from the issuer a written Continuing Disclosure Agreement to provide continuing disclosure with respect to those bonds.
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Trustee: A third-party banking institution which administers the funds specified in the trust indenture or agreement and implements the remedies provided in case of default. The Trustee acts on behalf of the bondholders based on the specific requirements in each trust indenture. The Trustee may also refer to a trustee bank acting in the capacity of escrow agent with respect to refunding bonds or issuing and/or paying agent with respect to Commercial Paper or Variable Rate Debt.
Underwriter: A dealer which purchases a new issue of bonds for resale either by negotiation with the issuer or by award on the basis of a competitive bid.
Variable-Rate Debt: A borrowing wherein interest changes at intervals according to an index or formula, or is periodically (e.g., daily, weekly, or monthly) reset at the market clearing rate. This is also known as floating rate debt.
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Attachment 2
FY 2027-31 Financial Pro Forma
Fiscal Year 2027 2028 2029 2030 2031
Revenue Requirements 67,597,110 73,644,929 82,013,263 90,267,701 98,109,397 Operating Expenses
Personnel 22,224,515 23,335,741 24,502,528 25,727,654 27,014,037 Services, Supplies & Other 21,959,830 23,057,821 24,210,712 25,421,248 26,692,310 Capital Outlay 1,034,000 1,085,700 1,139,985 1,196,984 1,256,833 Other Operating Expenses 1,739,939 1,826,935 1,918,282 2,014,196 2,114,906 Total Operating Expenses 46,958,283 49,306,198 51,771,507 54,360,083 57,078,087 Net Operating Revenues 20,638,827 24,338,731 30,241,756 35,907,618 41,031,310 Capital Expenditures 42,048,740 52,197,098 54,095,328 67,438,123 71,357,435 SRF Funded 13,813,482 17,737,192 17,234,787 4,851,312 - WIFIA Funded 15,042,259 21,266,652 21,154,280 25,251,589 24,645,801 Pay-Go Funded 13,192,999 13,193,255 15,706,261 14,335,222 17,711,634 Debt Funded 0 0 23,000,00 0 0 29,000,000
Debt Service 12,155,531 13,470,781 16,093,928 18,894,926 21,668,571 Net Income (4,709,703) (2,325,305) (1,558,433) 2,677,470 1,651,106 Beginning Balance 51,796,017 47,086,314 44,761,009 43,202,576 45,880,047 Ending Balance 47,086,314 44,761,009 43,202,576 45,880,047 47,531,152 Coverage and Targets
Debt Service Coverage 1.70 1.81 1.88 1.90 1.89
Debt Service Coverage Target 1.50 1.50 1.50 1.50 1.50
Days' Cash on Hand 366 331 305 308 304
Days' Cash Target 180 180 180 180 180
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Attachment 3
CIP Budget Summary
Project Titles
WATER SUPPLY RESILIENCY & CLIMATE ADAPTATION PROJECTS
Water Supply Augmentation Strategy
Beltz Wellfield Aquifer Storage and Recovery
ASR Planning 1,047,000
Beltz 8 & 12 Design with Beltz 12 Upgrades * 306,508
Beltz 8 Construction 4,584,039
Beltz 9 Construction 4,335,388
Studies, Recycled Water, Climate Change, Aquifer Storage and Recovery Water Supply Augmentation 56,225,339
Subtotal 66,498,274
INFRASTRUCTURE RESILIENCY AND CLIMATE ADAPTATION
Raw Water Storage Projects
NCD I/O Replacement Project 707,141
Raw Water Diversion and Groundwater System Projects
Tait Diversion Retrofit 1,165,740
Coast Pump Station Rehab/Replacement 2,410,328
Beltz WTP Upgrades 24,547,803
Raw Water Transmission
Newell Creek Pipeline Felton/GHWTP * 4,640,118
Newell Creek Pipeline Felton/Loch Lomond 949,306
Brackney Landslide Area Pipeline Risk Reduction * 2,973,402 North Coast Pipeline Repair/Replacement - Ph 4 & 5 500,000 Felton Diversion Pipeline Emergency Repair * 72,788
Surface Water Treatment
GHWTP Concrete Tanks Replacement 119,334
GHWTP Facilities Improvement Project 151,209,959
Distribution System Storage, Water Main and Pressure Regulation, and Metering Projects University Tank No. 4 Rehab/Replacement * 1,328,269
Engineering and Distribution Main Replacement Projects 14,250,000 Facility & Infrastructure Improvements 2,100,000
Intertie 1: Santa Cruz - Scotts Valley * 166,824
Pasatiempo Tanks Replacement 5,026,022
Subtotal 212,167,034
OTHER RISK MANAGEMENT AND RISK REDUCTION PROJECTS
Site Safety and Security
CMMS Software Replacement - Water Share 190,000
Staff Augmentation
Water Program Administration 8,211,418
Other Projects
Photovoltaic Systems Improvements 70,000
Subtotal 8,471,418
GRAND TOTAL 287,136,726
* Expenses are not adjusted for grant funding.
Project Costs
FY27 - FY31
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Attachment 4
Proposed Volumetric Water Rates
Volumetric Rates
Jul. 1,
2026 COS Rates
Jan. 1,
2027
Jan. 1,
2028
Jan. 1,
2029
Jan. 1,
2030
Jan. 1,
2031
($ per CCF) 1 Existing Proposed Proposed Proposed Proposed Proposed Residential 2
Tier 1 (0-5 CCF) $16.07 $14.92 $15.96 $17.88 $20.03 $21.83 $23.79 Tier 2 (6-9 CCF) $23.00 $18.40 $19.69 $22.05 $24.70 $26.92 $29.34 Tier 3 (>9 CCF) $29.98 $25.15 $26.91 $30.14 $33.76 $36.79 $40.11 Commercial
Commercial 3 $18.60 $17.24 $18.45 $20.66 $23.14 $25.22 $27.49 UCSC $19.67 $17.29 $18.50 $20.72 $23.21 $25.30 $27.57
Landscape Irrigation
Tier 1 (≤100% of budget) $32.74 $22.34 $23.90 $26.77 $29.98 $32.68 $35.63 Tier 2 (101% - 150%) $45.17 $30.31 $32.43 $36.32 $40.68 $44.34 $48.33 Tier 3 (151% & above)
5 $57.10 $30.31 Proposed Tier 2 rate applies to all use >100% of budget North Coast Agriculture
Maintain Reliability $11.00 $5.73 $6.13 $6.87 $7.69 $8.38 $9.14 Decrease Reliability $5.50 N/A N/A N/A N/A N/A
Elevation Surcharges6
Jul. 1,
2026 COS Rates
Jan. 1,
2027
Jan. 1,
2028
Jan. 1,
2029
Jan. 1,
2030
Jan. 1,
2031
($ per CCF) 1 Existing Existing Proposed Proposed Proposed Proposed Proposed Lift Station Zone 1 $0.32 $0.34 $0.36 $0.37 $0.39 $0.41 $0.43 Lift Station Zone 2 $0.61 $0.80 $0.84 $0.88 $0.93 $0.97 $1.02 Lift Station Zone 3 $1.10 $1.28 $1.35 $1.41 $1.49 $1.56 $1.64 1 CCF = 100 Cubic Feet or approximately 748 gallons.
2 Per dwelling unit, includes single-family and multi-family. 3 Includes industrial, golf, bulk, fire service leaks, and temporary. 4 Tiers based on percent of water budget for each customer. 5 Tiers 2 and 3 will be combined if the proposed rates are adopted.
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Attachment 5
Drought Surcharge Derivation by Drought Stage
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Proposed Water Rates: What You Need to Know
The Santa Cruz Water Department provides high-quality drinking water by managing local water sources, treatment facilities, and the infrastructure that delivers water to our community 24/7/365. This occurs despite emergencies, droughts and an increasingly uncertain climate. Meeting that responsibility requires continued investment in both our water infrastructure and long-term water supply.
Much of the infrastructure that collects, treats, stores and delivers water is aging and is in need of rehabilitation or replacement. At the same time, Santa Cruz’s reliance on local, rainfall-dependent water sources makes our supply increasingly vulnerable to a changing climate: longer droughts and more variable weather. Continued investment is needed to reduce the risk of system failures, maintain water quality, ensure critical facilities operate during emergencies, and improve long-term water supply reliability.
The proposed rates are designed to provide the funding needed over the next five years to operate and maintain the water system, renew critical infrastructure, and advance projects that improve drought resiliency, protect and replenish groundwater, and provide greater flexibility and redundancy. The Water Rate Study ensures that rates reflect the proportional cost of providing service to each customer class, as required by California’s Proposition 218.
We recognize that rate increases affect every household and business and can be especially difficult for customers on fixed or limited incomes. We have worked carefully to balance affordability with the responsibility to maintain reliable service without deferring essential costs and greater risks to future customers. The Frequently Asked Questions provide additional information about customer assistance, the proposed rate structure and planned capital investments.
The proposed rates will help maintain reliable service, replace aging infrastructure and prepare the water system for future challenges, helping ensure our community has a safe and dependable water system and a more resilient water supply for decades to come.
Heidi Luckenbach, Nick Kurns,
Director, Water Department Assistant Finance Director, Water Department City of Santa Cruz Water Department Proposition 218
Notice of Proposed Water Rates
SEPTEMBER 2026
IMPORTANT DATES*
Virtual Community Meeting
September 24, 2026, at 5:30 p.m.
Register at santacruzca.gov/water-rates
Public Hearing
November 17, 2026, after the hour of 10 a.m.
City Hall
For more information, visit santacruzca.gov/water-rates.
Para obtener información en español, visite santacruzca.gov/water-rates. 1 *Learn more on page 8
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Frequently Asked Questions
Why is a rate increase needed?
Much of the City’s water infrastructure has reached or is reaching the end of its functional lifespan, a challenge that is made more urgent due to the impacts of climate change. In response, the Santa Cruz Water Department (SCWD) continues to implement a major infrastructure reinvestment program, with $287 million needed for projects over the next five years.
If approved, when would the new rates go into effect?
The new rates would become effective on January 1, 2027.
What is the anticipated impact to a single-family household? A single-family household using 5 ccf [1] currently pays $99.48 a month for water service. Under the proposed rates, the household’s monthly water bill is expected to be $112.07.
What are the proposed changes to water rates?
There are several changes proposed, including the rate structure and the per-unit costs of water including:
• Increase Fixed Revenue Recovery: The proposed readiness-to-serve charges are increasing to recover about 20% of system costs (up from 10%). While still low relative to other water utilities, this improves revenue stability for SCWD, ensuring that essential operations and capital investments remain funded. • Fixed Revenue Recovery Based on Meter Capacity: Fixed charges are based on meter size using AWWAstandard meter equivalents. Larger meters have greater potential demand on the system, so they will see larger increases in fixed charges. This approach is consistent with standard industry rate-setting practices. • Consolidation of Volumetric Rate Components: The proposed rates combine the Quantity Charge, Infrastructure Reinvestment Fee, and Rate Stabilization Fee into one volumetric rate. SCWD will continue to fund capital projects and maintain reserves through its budgeting and reserve policies, but these costs will no longer appear as separate charges on customer bills. This simplifies the bill while maintaining cost-of-service and industry-standard rate-setting practices.
• Two Landscape Irrigation Tiers: The proposed rate structure reduces the number of tiers from three to two for dedicated irrigation users, based on the cost-of-service analysis and customer usage patterns. Most customers stay within their water budgets, resulting in very little usage in the third tier. • Volumetric Drought Surcharges: During water shortages, mandatory conservation can substantially reduce billed water use and revenue needed for essential operations. Applying drought surcharges per unit ensures that costs are recovered proportionally based on actual water usage.
Is there a difference in water rates for customers who live within the city limits of Santa Cruz vs. those who live outside the city, such as in Live Oak? No. All customers pay the exact same water rates regardless of whether they live inside or outside city limits. The main difference is in the services customers receive. Customers within Santa Cruz city limits receive water, sewer, and refuse services. Most customers outside the city limits, such as in Live Oak, receive water service only. 2 [1] CCF = 100 Cubic Feet or approximately 748 gallons.
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Does the City offer financial assistance for low-income customers? Yes. The City recognizes water service is vital and shouldn’t be a financial struggle. As the proposed rate changes are considered, affordability is top of mind, and the City offers the Utility Customer Assistance Program (UCAP). Qualified, enrolled Single-Family UCAP customers receive a monthly discount applied directly to their bill, while Multi-Unit UCAP households receive a one-time utility assistance check to help offset a portion of their annual Santa Cruz Municipal Utilities costs. UCAP is available to households that have proof of enrollment in a government assistance program, such as CalFresh or Medi-Cal or in PG&E’s CARE program. For more information about UCAP or to apply, visit santacruzca.gov/ucap or e-mail [email protected].
California law (Proposition 218) requires that rates must be based on the cost of providing the service. Each customer group must pay their fair share and can’t be required to pay the costs incurred by another group.
The law doesn’t allow for separate rates for individual customers because it would result in some customers subsidizing water service costs for other customers. The UCAP program is not funded by rate revenue.
How are rate revenues used?
Rate revenues cover ongoing day-to-day operations, water treatment, system maintenance, and critical capital investments that ensure safe water continues to be available to all customers 24/7/365.
Capital Investments (2022-2026)
Project Cost
Newell Creek Dam Inlet/Outlet Replacement $100,022,000
Graham Hill Water Treatment Plant Concrete Tanks Replacement $51,998,000 Customer Water Meter Replacement $13,550,000
Water Supply Augmentation – Aquifer Storage and Recovery at Beltz Well 12 $6,800,000 Newell Creek Pipeline Partial Replacement $31,000,000
Planned Capital Investments (2027-2031)
Project Cost
Rehabilitation of the Graham Hill Water Treatment Plant $222,830,000 Water Supply Augmentation - Aquifer Storage and Recovery at Beltz Wells 8 and 9 $10,100,000 Beltz Water Treatment Plant Rehabilitation $30,000,000
Where can I learn more?
Learn more about proposed water rates and view the 2026 Water Rate Study at santacruzca.gov/water-rates. 3 15.122
Multi-Year Proposed Water Rates
Proposed Ready-to-Serve Charges
Ready-to-serve charges are a fixed charge based on the size of your water meter. These charges pay for functions such as customer service, billing, and meter servicing.
Monthly Ready-to-Serve Charge ($/Water Meter/Month)
Meter Size Current Jan. 1, 2027 Jan. 1, 2028 Jan. 1, 2029 Jan. 1, 2030 Jan. 1, 2031 5/8 inch $19.13 $32.27 $36.15 $40.48 $44.13 $48.10
3/4 inch $19.48 $44.30 $49.61 $55.57 $60.57 $66.02
1 inch $20.49 $68.79 $77.05 $86.29 $94.06 $102.53
1 1/2 inch $21.86 $128.48 $143.90 $161.16 $175.67 $191.48 2 inch $25.56 $202.85 $227.19 $254.46 $277.36 $302.32
3 inch $53.00 $458.85 $513.91 $575.58 $627.38 $683.84
4 inch $63.15 $796.46 $892.03 $999.07 $1,088.99 $1,187.00 6 inch $86.84 $1,603.52 $1,795.94 $2,011.45 $2,192.48 $2,389.80 8 inch $113.91 $3,376.34 $3,781.50 $4,235.28 $4,616.45 $5,031.93 10 inch $144.39 $5,037.77 $5,642.30 $6,319.38 $6,888.12 $7,508.06 4 15.123
Proposed Fire Service Ready-to-Serve Charges
Fire service ready-to-serve charges are only for customers who have private fire lines. These charges are based on the size of private fire lines.
Monthly Fire Service Ready-to-Serve Charge ($/Fire Meter/Month) Fire Line Size Current Jan. 1, 2027 Jan. 1, 2028 Jan. 1, 2029 Jan. 1, 2030 Jan. 1, 2031 5/8 inch N/A N/A N/A N/A N/A N/A
3/4 inch $3.67 $9.27 $10.38 $11.62 $12.67 $13.81
1 inch $3.92 $9.39 $10.51 $11.77 $12.83 $13.99
1 1/2 inch $4.87 $9.82 $10.99 $12.31 $13.42 $14.63
2 inch $6.53 $10.56 $11.83 $13.25 $14.44 $15.74
3 inch $8.97 $13.22 $14.81 $16.59 $18.08 $19.71
4 inch $22.49 $17.82 $19.95 $22.35 $24.36 $26.55
6 inch $58.83 $34.30 $38.42 $43.03 $46.90 $51.13
8 inch $121.90 $62.74 $70.27 $78.71 $85.79 $93.51
10 inch $215.74 $105.52 $118.18 $132.37 $144.28 $157.26 5 15.124
Multi-Year Proposed Water Rates Continued
Proposed Volumetric Charges
High water users place more significant demand (and higher costs) on the system than low water users. Tiered volumetric rates ensure that the more water someone uses each month, the more they pay.
Volumetric Charge ($/ccf) [1]
Customer Class Current [2] Jan. 1, 2027 Jan. 1, 2028 Jan. 1, 2029 Jan. 1, 2030 Jan. 1, 2031 Residential [3]
Tier 1 (0-5 CCF) $16.07 $15.96 $17.88 $20.03 $21.83 $23.79 Tier 2 (6-9 CCF) $23.00 $19.69 $22.05 $24.70 $26.92 $29.34 Tier 3 (>9 CCF) $29.98 $26.91 $30.14 $33.76 $36.79 $40.11 Commercial
Commercial [4] $18.60 $18.45 $20.66 $23.14 $25.22 $27.49 UCSC $19.67 $18.50 $20.72 $23.21 $25.30 $27.57
Landscape Irrigation [5]
Tier 1 (≤100% of budget) $32.74 $23.90 $26.77 $29.98 $32.68 $35.63 Tier 2 (101% - 150%) $45.17 $32.43 $36.32 $40.68 $44.34 $48.33 Tier 3 (151% & above) [6] $57.10 Proposed Tier 2 rate apply to all use >100% of budget.
North Coast Agriculture
Maintain Reliability $11.00 $6.13 $6.87 $7.69 $8.38 $9.14 Decrease Reliability $5.50 N/A N/A N/A N/A N/A
[1] CCF = 100 Cubic Feet or approximately 748 gallons.
[2] Current rates reflect combined charges for Quantity Charge, Infrastructure Reinvestment Fee and Rate Stabilization Fee. [3] Per dwelling unit, includes single-family and multi-family. [4] Includes industrial, golf, bulk, fire service leaks, and temporary. [5] Tiers based on percent of water budget for each customer. [6] Tiers 2 and 3 will be combined if the proposed rates are adopted.
Proposed Elevation Surcharges
This surcharge covers the additional energy costs of pumping water to customers residing at higher elevations.
Higher elevations require water to pass through a greater number of pump stations than lower elevations. Not all customers receive this charge.
Elevation Surcharge ($/ccf) [1]
Elevation Zone Current Jan. 1, 2027 Jan. 1, 2028 Jan. 1, 2029 Jan. 1, 2030 Jan. 1, 2031 Lift Station Zone 1 $0.32 $0.36 $0.37 $0.39 $0.41 $0.43 Lift Station Zone 2 $0.61 $0.84 $0.88 $0.93 $0.97 $1.02 Lift Station Zone 3 $1.10 $1.35 $1.41 $1.49 $1.56 $1.64 [1] CCF = 100 Cubic Feet or approximately 748 gallons.
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Proposed Drought Surcharges
The following table outlines the proposed Drought Surcharges that may be authorized for each Water Shortage Response Stage identified in the SCWD’s Urban Water Management Plan. If City Council declares a water shortage, these temporary surcharges are calculated as a percentage of the SCWD’s regular volumetric rates and levied in addition to those rates for all units of water consumed. Surcharges take effect only upon City Council declaration of a specific water shortage stage and terminate automatically when the shortage declaration ends.
Temporary Drought Surcharges
Water Shortage Response
Stage [1]
Associated Water Use
Reduction
Baseline
0%
Stage 1
10%
Stage 2
20%
Stage 3
30%
Stage 4
40%
Stage 5
50%
Proposed Drought Surcharge 10% 23% 40% 63% 94%
[1] Per 2025 Urban Water Management Plan.
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Notice of Public Hearing
The Santa Cruz City Council will hold a public hearing on the proposed water rate increases on November 17, 2026 after the hour of 10 a.m. at City Council Chambers, located at 809 Center Street, Santa Cruz.
Protests can happen through the public hearing. Written objections must be received no later than November 1. View more information below.
Protesting the Proposed Rates
You are invited to appear at the hearing and present oral or written statements about the proposed rates. Any owner of a parcel subject to the proposed rates, or any tenant responsible to pay those rates, may submit a written protest against the proposed adjustments. If written protests are received from a majority of affected properties, the proposed rate increases will not be adopted. If there is no majority protest, the City Council may adopt the proposed rate increases.
In order to be counted, a protest must be in writing and include the following information: your printed name, your street address or account number with the City’s water utility so the City can identify the property at issue, a clear statement that you protest the proposed water rate increase, and your signature. Protests may be mailed or hand delivered to Mayor and Council of Santa Cruz, 809 Center Street, Room 10, Santa Cruz, CA 95060, but in any event the City must receive them by the close of the public hearing on November 17, 2026. Finally, on the outside of the envelope that contains your protest, please write the phrase “Water Rate Protest” so the City can process it more efficiently.
Objecting to the Proposed Rates
If you claim the proposed rate adjustments are unlawful, whether or not a majority of affected properties submit the protests described above, you may file a legal objection with the City. Any such objection must be in writing and include the following information: (1) your printed name, original signature, and your property’s street address or utility account number, (2) the specific rate or charge that you claim is unlawful, and (3) the grounds for your claim that the rate or charge is unlawful. Please note that the grounds must be sufficiently detailed to allow the City to understand it and respond appropriately. A general statement such as, “This violates state law,” is insufficient. The 2026 Water Rate Study explaining the basis for the proposed rate adjustments is on the City’s website.
Legal objections may be mailed or hand delivered to Mayor and Council of Santa Cruz, 809 Center Street, Room 10, Santa Cruz, CA 95060. In any event, objections must be received no later than November 1, 2026. Please note that this deadline is prior to the rate hearing on November 17, 2026 so the City may review objections and respond to them adequately at that hearing.
Failure to submit a timely objection will waive the right to challenge these rate adjustments in court, and any such action will be limited to the issues identified in that objection. If the City Council adopts the proposed rate adjustments, and you wish to challenge those rates in court, please note that there is a 120-day statute of limitations for challenging any new, increased, or extended fee or charge. (Gov. Code, § 53759.) For more information, visit santacruzca.gov/water-rates.
Para obtener información en español, visite santacruzca.gov/water-rates.
City of Santa Cruz Water Department
212 Locust Street, Santa Cruz, CA 95060
831-420-5200
[email protected]
santacruzca.gov/water
PRSRT STD
US POSTAGE
PAID
SANTA CRUZ, CA
PERMIT NO. 11
8 15.127
Brittany Inclan
From: Garrett <[email protected]>
Sent: Monday, September 7, 2026 12:44 PM
To: City Council; Renee Golder
Subject: 8.8.26 Item #15 OMG water rates/top 10 list of objections
8.8.26 Item #15 OMG water rates/top 10 list of objections (In no particular order) Dear Council,
Let me summarize here my questions and comments here in case you don't care to read the detail below what this little people commoner serf has to say in full. Perhaps call the water department head up to answer these. Why not?
1) Exactly WHEN are you going to finish these massive debt laden infrastructure projects, and why so long?
2) Make it interesting. Hold a raffle where the winner gets a key to the city if they guess the (ridiculously low) number of objections on this mailed to the city on this matter. 3) Has it occurred to you perhaps YOUR rate structure is the problem leading to ever more conservation, leading to lower revenue, leading to every higher rates continually costing more for less (Doom loop)? Even in wet years? See below for a better approach. 4) Is there any chance you might possible Please, Please, do the right thing and use the
11.5% windfall tax money levied on debt to go to pay the debt or be part of that 1.5x overcharging on debt instead of blowing it on whatever your fancy?
5) Consolidate bills so that all volume charges are lumped into one = STINKS. See below Raise (double) the "ready to serve charge" = STINKS. See below Apply 1.5x pricing to debt = "STINKS" . If the banks want 1.2x revenue/cost, use that if you must. Seems to me a 20% margin is plenty with standard (not awful) management. 6) Make some rules as to when the Rate Stabilization Fund can be tapped. I see no evidence its purpose is consistently followed.
7) Consider DOING THE RIGHT THING, and applying the 11.5% Utility taxes levied on the Rate Stabilization Fund to fund the fund. After all, in theory, with proper management, the monies collected might just be doing nothing for anyone being an emergency fund. Excess like those taxes could be used to lower RSF charges the next year.
8) The Inflation projection is 5% a year used in the study. The last 5 years it was 4.1`%, and last 10 years 3.3%.
Ask , where did you get this number from?
9) The habitual siphoning off of monies from the utility/water fund to fund non-water related uses like art is a violation of Prop 218. See below
10) Budget transparency of fund balances leaves a lot to be desired.
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For the record, consider this an objection to the rate increases.
Garrett Philipp
-------------------------------------------------------------------------------- Detail:
The people have endured 5 years now of eye-popping rate increases every year, and now you suggest another 5 years of year after year eye-popping rate increases, some reaching into double digits.
Perhaps if its not TOO much trouble, you might enquire and placate the little peoples curiosity exactly WHEN are you going to finish these massive debt laden infrastructure projects and we might expect to settle in for more normal inflation type operating expense type increases from some astronomically final high rate for the next 40 years (I'll be dead, but some people will be around that long).
Are we in for this same (mis-)treatment in 5 years? Hey, they built the Golden Gate bridge in 4 years, and the Empire State building in a year 45 days. Seems like you might want to mention when you will be "done-done" .
------------
The very same rate increase analyst in water department meetings said the department was something like 50 million behind plan over the last 10 years. Of course it could mean they are ahead of schedule and are pulling construction expenses from future years forward (yeah, right!), or some poor planning/execution is at work?
Shouldn't you ask which it is?
-----------
FYI, this process of approval by non-majority parcel objection to rates is nonsense. It doesn't mean anyone approves at all. It's a highly defective process and we are counting on you to do the right thing instead.
Did you know in the history (say this century) of utility rate increases there have only been TWO successful challenges to increases, one by Cambia and one by Independence, small cities of 5000 and less than 1000. One faced increases of 600%. Yeah, that is not going to happen. ------------------
Most Muni infrastructure bonds require a majority vote of the people, not here. You borrow extraordinary amounts of money funding a monopoly (no competition here) of a critical life/hygiene required resource and acknowledge a lot of people can't pay. You punish those who also perhaps can't pay so easily (pay late) by fining them to assist with using those monies to assist those who just don't pay, or will never pay in full. Perhaps you shouldn't sell to people you can't buy. Everything everywhere else works that way.
-------------------
I asked AI the following question:
"Would charging less for water in wet years and more in dry years help the problem of the doom loop of higher rates leading to lower water use for a city utility?" It replied,
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Yes, it can help mitigate the financial “doom loop,” though it is not a complete fix on its own and works best as part of a broader rate design. The classic water-utility doom loop arises because most costs are fixed (pipes, treatment plants, debt service, staffing) while a large share of revenue often comes from volumetric charges. Successful conservation or efficiency gains reduce sales volume → revenue falls short → rates are raised → further conservation is encouraged → the cycle repeats. Droughts amplify this because mandatory or voluntary cutbacks slash volume just when the utility still needs to cover the same fixed costs.
andthewest.stanford.edu
Charging less in wet years and more in dry years is a form of scarcity (or dynamic/condition-based) pricing. It addresses both the physical and financial sides of the problem:
Demand management: Higher prices when water is scarce reduce non-essential use (outdoor irrigation, etc.) and allocate limited supplies more efficiently. Lower prices when water is abundant remove the artificial penalty on use and can support higher volumes. Economic theory and modeling support this: prices should track short-run marginal cost plus a scarcity value that rises in dry periods. Flexible pricing based on inflows or reservoir conditions produces lower prices in sequences of wet years and higher prices in dry ones.
assets.pc.gov.au
Revenue effects: In dry years the higher unit rate partially offsets the drop in volume. In wet years the lower unit rate is applied to higher volume. If the structure is calibrated properly, average revenue can be more stable across hydrologic conditions than a flat volumetric rate that must be ratcheted upward permanently after every conservation success or drought. Trials and proposals in the UK (seasonal or drought “surge” pricing) and analyses of scarcity pricing elsewhere illustrate this approach.
ibtimes.co.uk
It does not eliminate the underlying mismatch between high fixed costs and volumetric revenue recovery. Utilities still need mechanisms that reliably cover fixed costs regardless of weather or conservation trends—examples include a larger fixed service charge, revenue-stabilization or drought reserves, multi-year rate averaging, or carefully designed two-part tariffs. Pure volumetric scarcity pricing without those elements can still leave revenue volatile. Practical advantages and caveats:
It gives clearer, time-varying signals than permanent rate increases or purely administrative restrictions.
Implementation requires meters, clear communication, and usually regulatory approval; abrupt changes can create equity or political concerns (low-income households have less discretionary outdoor use to cut).
It pairs well with increasing-block or budget-based rates and with non-price tools (rebates, education, leak reduction).
In short, condition-based pricing (cheaper when wet, more expensive when dry) improves both resource allocation and revenue resilience relative to static high rates that drive the doom loop. The strongest results come when it is combined with fixed-cost recovery mechanisms so that conservation successes and droughts no longer automatically force ever-higher permanent rates." - Grok AI
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Give it some thought. Also Rate tiers are part of the doom loop.
If you don't think people would rather pay more for more water rather than more for less, guess again.
------------------
As far as I know, Satna Cruz Muni total Utility plus Franchise taxes are the highest in the state, and by a she-hopper amount (11.5% for water/sewer, 20.5% for garbage).
When the people voted for these, they were both misled (Pro voices like the city maintained the "weren't raising rates, without would mean cutting city services like police/fire), and utility rates were relatively quite low.
They had NO IDEA you would be encumbering the people without a vote for hundreds of millions in debt and debt service that they would pay on for 40 years.
I would point out encumbering future people yet unborn with debt is immoral (although yes, governments are immoral that way).
This WINFALL of tax monies going to the General fund as a result of massive increases in debt and debt services, multiplied by 1.5x (the 0.5 extra for what exactly?) to blow however you see fit, without a vote, must make for some big laughs behind council chambers and a source of some real abuse (the more debt the better!)
Is there any chance you might possible Please, Please, do the right thing and use the
11.5% tax money levied on debt to go to pay the debt or be part of that 1.5x overcharging on debt?
On a scale of 1-10 this is a 10 as to pissing me off.
-----------
Your (some new) ideas:
Consolidate bills so that all volume charges are lumped into one = STINK. it hides the ever increasing portion of the bill that services debt and obfuscates what we are paying for (the only imaginable reason to do so). NO.
Raise (double) the "ready to serve charge" = STINK. You are selling water and the only "infrastructure" unique to any user is the water meter, period. While there are fixed system charges they are and should be still volumetric based (bigger water users use more infrastructure, duh!). This is a pay me no matter what water you use scheme = crap. See the variable rate wet/dry year scheme above.
Apply 1.5x pricing to debt = "STINK" . If the banks want 1.2x revenue/cost, use that if you must. Seems to me a 20% margin is plenty with standard (not awful) management. ---------------------
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Having looked at some of the expenses that were charged to the "Rate stabilization Fund" since inception, they far exceed any drop in revenue from less volume water delivery than expected (for instance a 3% or so temporary drop in revenue compared to average use is not 10 million a year).
Make some rules as to when the Rate Stabilization Fund can be tapped (like only when water use is below honest data driven projections), as opposed to just bailing management out when expenses get out of hand. And try filling any withdrawals up in water demand exceeds data driven real budget projections. It's not FUN MONEY.
--------------------
Consider DOING THE RIGHT THING, and applying the Utility taxes to the Rate Stabilization Fund to fund the fund. After all, in theory, with proper management, the monies collected might just be doing nothing for anyone being an emergency fund. Excess like those taxes could be used to lower RSF charges the next year.
---------------
Inflation projection is 5% a year used in the study. Probably a BS number. Currently is is 3.4%. You probably think consumers won't mind the extra 1.6% add on? The rate the last 5 years is 4.1%, the last 10 years is 3.3%. Ask where they got 5% from? ----------------
The habitual siphoning off of monies from the utility/water fund to fund non-water related uses like art is a violation of Prop 218. You take the monies out, comingle with similarly misused funds from other utilities like sewer, and other funds, usually without regard to any specific projects, then incapable of tracking which monies come from what sources applied to what purpose in accordance with Prop 218.
Coming from a monopoly essential health resource where people have a very hard time paying bills or at all seems immoral, unethical, and I'd say illegal. Having the water director say those expenses are legitimate doesn't make it so.
Try explaining how every art project receiving water funds is a legitimate expense of the water fund.
I need a good laugh.
-------------------
Transparency of fund balances leaves a lot to be desired. The Rate Stabilization fund balance is invisible in the budget and is quite hard to find even in water commission proceedings with regularity.
Make it so.
Even the water fund itself is only posted as 2 year old data in the budget. Really, you don't know every June what the water fund balance is? How much is unspent borrowed money, how much from utility bills?
Strange and unsettling.
Off the top of my head, that's all I can think of.
Garrett Philipp - West side backyard food crop grower that needs water to produce food among other uses.
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City of Santa Cruz
2026 Long Range Financial Plan, Cost of
Service Analysis & Water Rate Study
September 8, 2026
15.133 1
Presentation Overview
Newell Creek Dam Inlet Outlet Replacement
2 Water Department
Rate Study Process
Drivers
Financial Projections
Rate Study Recommendations (BW)
Customer Assistance
Next Steps
Recommended Actions
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Water Department
3 Seining at the mouth of the San Lorenzo River
Self-supporting enterprise utility
Customer rates fund the cost of service
Population Served: 94,992
Service Connections: 24,748
• 3 treatment plants
• 7 production wells
• 6 diversions
• 17 pump stations
• 14 tanks
Major Infrastructure:
15.135
15.136 4
Beyond the Rate Study
Stakeholder Oversight – Guided by an Ad Hoc Committee of the Water Commission and an outside ratepayer representative to ensure community perspectives shaped the process Independent Economic Rigor – Evaluated ratepayer affordability with a dedicated Resource Economist and ongoing evaluations partnership with Stanford University Protecting Essential Use – Analyzed detailed bill impacts across customer classes and adjusted rate structures to directly mitigate impacts on essential water use
15.137 5
15.138 6
Drivers
7 Left – Flooding at Coast Pump Station; Middle – North Coast Pipeline; Right Pipe Break Aging Infrastructure
Investments to ensure safe, reliable water service
Rising operating costs, including electricity and chemicals Maintaining prudent financial reserves
Meeting debt service requirements
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Financial: Historical
8 * Unaudited figures
(5,000,000)
5,000,000
15,000,000
25,000,000
35,000,000
45,000,000
55,000,000
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 Operating Costs CIP
15.140
Capital Investment Program (CIP)
9 Note: Table Figures are Total Project Costs
15.141
Investing in the Water System
10 Upper Left – University No. 4 Tank Replacement; Upper Right - Newell Creek Dam Inlet Outlet Project; Lower Left - Beltz 12 Aquifer Storage & Recover; Right - Graham Hill Water Treatment Plant Tank Replacement
15.142
Financial: Projections
11 $42
$52 $54
$67 $71 $72
$59
$49 $48 $46
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 Millions
10 Year Capital Investment Program
PAYGO Debt Funded
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$114 M $100 M
$190 M $174 M
WIFIA SRF
Bond Financing Paygo Funded
12 Secured $16M in Grant Funding
Secured >$300 M in Low Interest Loans – Saving more
than $100 M for ratepayers
Implemented Operating Budget Strategies to Mitigate
Inflation
Re-prioritized the CIP
Efforts to Reduce the Reliance on Rate Increases
15.144
Rate Study &
City
Objectives
• Financial Sufficiency
• Rates are the main source of revenues and need to be set at levels adequate to fund the cost of providing service
(Operating, Capital Investment Program, Debt Service, etc.) • Legal Compliance
• Rates cannot exceed the cost of service and must be
proportional to the cost of service (Prop 218)
• City objectives for this rate study:
• Support CIP
• Increase revenue stability
• Minimize ratepayer impacts
13 15.145
Rate Study
Components
• Long Range Financial Plans
• Identify rate revenue needed to fund long-term operating, debt service and capital needs
• Cost-of-Service Analysis
• Develop updated rates that reflect the cost-of-service and meet annual revenue requirements
• Customer Impact Analysis
• Analyze the effect of proposed rate changes on customer bills
14 15.146
Water Capital
Investment
Program
Funding $42
$52 $54
$67
$71
$0
$10
$20
$30
$40
$50
$60
$70
$80
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Millions
Projected 5-Year Capital Plan
PayGo (Cash Funded) Debt Funded
15 15.147
Rate Revenue
Requirement
Drivers
• Water System Upgrades, Repairs & Replacements
Needed to Maintain Safe & Reliable Operations
• 5-year CIP $287.1 million ($213 million debt funded)
• Debt Service
• Projected to reach $21.7 million in FY 2031
• Comply with debt service coverage obligations
• Operating Cost Inflation
• Projected rate model inflation 5.0% per year
• Annual rate adjustments needed to keep rates in line with escalating costs (chemicals, utilities, salaries, benefits, supplies, insurance, overhead allocation, etc.)
• Maintain Prudent Reserves
16 15.148
Rate Revenue
Increases &
Financial
Projections
$0
$20
$40
$60
$80
$100
$120
FY 2027 FY 2028 FY 2029 FY 2030 FY 2031
Millions
17 Jan 1
2027
Jan 1
2028
Jan 1
2029
Jan 1
2030
Jan 1
2031
Rate Revenue
Increase (%)
7%* 12% 12% 9% 9%
Projected Rate
Revenue ($ millions) $62.5 $68.8 $77.1 $85.2 $92.9
*Cost-of-Service adjustments, actual bill impacts will vary the first year 15.149 Fixed Rate
Cost-of-Service
Analysis Results
and
Recommendations
• Increase Revenue From Fixed Rates
• Currently, fixed rates collect 10% of rate revenue
• Proposed fixed rates collect 20% of rate revenue
• Industry practice is 30% to 50%
• Additional Fixed Rate Revenue Recovering
Capacity Costs
• Higher fixed rates for larger meters
• Based on AWWA meter capacity ratios
• Impacts mitigated by lower volumetric rates
18 15.150
Proposed
Rates
Fixed
Monthly Fixed Charges
Jul. 1,
2026
Jan. 1,
2027
Jan. 1,
2028
Jan. 1,
2029
Jan. 1,
2030
Jan. 1,
2031
Meter Size Existing Proposed Proposed Proposed Proposed Proposed Monthly Meter Ready-to-Serve Charge ($/water meter/month) 5/8" $19.13 32.27 36.15 40.48 44.13 48.10
3/4" 19.48 44.30 49.61 55.57 60.57 66.02
1" 20.49 68.79 77.05 86.29 94.06 102.53
1 1/2" 21.86 128.48 143.90 161.16 175.67 191.48
2" 25.56 202.85 227.19 254.46 277.36 302.32
3" 53.00 458.85 513.91 575.58 627.38 683.84
4" 63.15 796.46 892.03 999.07 1,088.99 1,187.00
6" 86.84 1,603.52 1,795.94 2,011.45 2,192.48 2,389.80
8" 113.91 3,376.34 3,781.50 4,235.28 4,616.45 5,031.93
10" 144.39 5,037.77 5,642.30 6,319.38 6,888.12 7,508.06 Monthly Fire Service Ready-to-Serve Charge ($/fire meter/month) 5/8" N/A N/A N/A N/A N/A N/A
3/4" 3.67 9.27 10.38 11.62 12.67 13.81
1" 3.92 9.39 10.51 11.77 12.83 13.99
1 1/2" 4.87 9.82 10.99 12.31 13.42 14.63
2" 6.53 10.56 11.83 13.25 14.44 15.74
3" 8.97 13.22 14.81 16.59 18.08 19.71
4" 22.49 17.82 19.95 22.35 24.36 26.55
6" 58.83 34.30 38.42 43.03 46.90 51.13
8" 121.90 62.74 70.27 78.71 85.79 93.51
19 10" 215.74 105.52 118.18 132.37 144.28 157.26
15.151
Volumetric Rate
Cost-of-Service
Analysis Results
and
Recommendations
• COSA Results in Less Residential Tier Differentiation • Tier 1 and tier 3 rates are closer
• Reduce Landscape Irrigation Number of Tiers
• Move from 3 tiers to 2 tiers to align with COSA
• Consolidate Rate Components
• Quantity Charge + Infrastructure Reinvestment Fee + Rate Stabilization Fee = Volumetric Rate
• Volumetric Drought Surcharges
• Volumetric Drought Surcharges maintain revenue recovery and incentivize conservation during droughts
20 15.152
Proposed
Rates
Volumetric
Volumetric Rates
Jul. 1,
2026
Jan. 1,
2027
Jan. 1,
2028
Jan. 1,
2029
Jan. 1,
2030
Jan. 1,
2031
($ per CCF) 1 Existing Proposed Proposed Proposed Proposed Proposed Residential 2
Tier 1 (0-5 CCF) $16.07 $15.96 $17.88 $20.03 $21.83 $23.79 Tier 2 (6-9 CCF) $23.00 $19.69 $22.05 $24.70 $26.92 $29.34 Tier 3 (>9 CCF) $29.98 $26.91 $30.14 $33.76 $36.79 $40.11 Commercial
Commercial 3 $18.60 $18.45 $20.66 $23.14 $25.22 $27.49
UCSC $19.67 $18.50 $20.72 $23.21 $25.30 $27.57
Landscape Irrigation
Tier 1 (≤100% of budget) $32.74 $23.90 $26.77 $29.98 $32.68 $35.63 Tier 2 (101% - 150%) $45.17 $32.43 $36.32 $40.68 $44.34 $48.33 Tier 3 (151% & above)5 $57.10 Proposed Tier 2 rate apply to all use >100% of budget North Coast Agriculture
Maintain Reliability $11.00 $6.13 $6.87 $7.69 $8.38 $9.14 Decrease Reliability $5.50 N/A N/A N/A N/A N/A
21 15.153
Monthly Single Family Residential
Water Bill Comparison of Existing and
Proposed Year 1 and Year 5 Rates
$19.13 $32.27 $48.10 $19.13 $32.27 $48.10 $19.13 $32.27 $48.10 $48.21 $47.88
$71.37
$80.35 $79.80
$118.95 $172.35 $158.56
$236.31
$67.34 $80.15
$119.47 $99.48 $112.07
$167.05
$191.48 $190.83
$284.41
$0
$50
$100
$150
$200
$250
$300
Existing Year 1 Year 5 Existing Year 1 Year 5 Existing Year 1 Year 5 Fixed Variable
Bill = 3 CCF Bill = 5 CCF Bill = 9 CCF
22 15.154
23 $29.93 $33.67 $27.81
$52.55
$19.13 $32.27 $41.43
$65.56
$100.92 $20.55
$47.55 $54.30
$41.39
$80.35
$79.80 $72.96
$54.80
$58.91
$50.48
$81.22 $82.11 $93.94 $99.48 $112.07 $114.39 $120.36
$159.83
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Monthly Single Family Residential Water Bill Comparison 5 CCF Monthly Water Use
Fixed Charge Variable Charge
15.155
Utility Customer Assistance Program (UCAP)
Single Family Residential
Assistance
Launched in March 2025
$ Direct monthly bill credit
$63/month inside City
$25/month outside City
+ Arrears relief
Multi-Unit Residential
Assistance
Launched in March 2026
$ Annual utility assistance
payment
$756/year inside City
$300/year outside City
Funding source: penalty / late fees (non–rate revenue)
15.156 24
UCAP Impact
Resolves Past Debt
75%
Participating households
with prior debt reduced or
eliminated within one year
Scalable Safety Net
25%
Benefit scales annually with
rate increases to maintain a
25% average discount
Participants:
630
Single Family
(~13% of eligible)
520
Multi-Unit
(~7% of eligible)
15.157 25
Investing Today, Building Capacity for Tomorrow
26 Positions the Department to deliver the near-term CIP Helps moderate future rate increases
Strengthens financial capacity for future debt financing Supports ongoing investment in system infrastructure
15.158
Next Steps
Date Item
9/8/2026 LRFP and COSA presented to the City Council
Authorization to release of the Prop. 218 Notice
9/9/2026 Prop. 218 Notice release to property owner, addresses and customers
Information published to website
9/24/2026
5:30 to 7 pm
Public Presentation / Webinar
11/17/2026 City Council Public Hearing to Adopt New Rates 1/1/2027 Implement New Water Rates and Structure
Early 2027 System Development Charges Study Completed
27 Water Main Repair
15.159
Adopt the 2026 Water Department LongRange Financial Plan.
Receive the 2026 Water Rate Study dated August 18, 2026.
Accept the proposed schedule of water rate increases for CY 2027-2031 as set forth in the Cost-of-Service Analysis and proceed with the required public notice and protest period under Proposition 218.
Authorize the Water Departmentto mail the Proposition 218 -compliant public notice initiating the protest
period and set the required public hearing for Tuesday
November 17, 2026, after the hour of 10:00 a.m.
Recommended Actions:
Graham Hill Water Treatment Plant Tank Replacement, Catwalk
15.160 28
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