Agenda Item Number:__8 __
CITY OF SEBASTOPOL
CITY COUNCIL
AGENDA ITEM
Meeting Date: October 3, 2023
To: Honorable Mayor and City Councilmembers
From: Ana Kwong – Administrative Services Director
Dante Del Prete – Public Works Superintendent
Toni Bertolero – Engineering Consultant
Subject: Presentation of Water & Sewer Financial Plan Scenarios and Receive Feedback Recommendation: That the City Council Receive the information, provide staff direction on the options in order to develop the utility rate.
Funding: Currently Budgeted: Yes ☐ No ☐ Not Applicable Account Code: 500/510-44-02-4210
Costs authorized in City Approved Budget: Yes (Finance Initialed __AK__) ☐ No (Finance Exempt) INTRODUCTION/PURPOSE:
The item is to request Council receive the information, provide staff direction on the options in order to develop the utility rate. This agenda report has been prepared in conjunction with the City’s Financial Consultant, Raftelis, and Ratelis will be presenting this information at the Council meeting.
BACKGROUND:
In May 2023, the City contracted with Raftelis to conduct a Utility Rate Study for both Water and Wastewater Enterprise Funds. A rate study is recommended to be done approximately every five years to ensure the City will have sufficient water and wastewater revenues to meet ongoing operational and capital obligations. Over the past 10 years, the City has conducted two prior rate studies: a study in 2012 (done in-house) with a five-year rate structure approved by the Council on February 20, 2012 and a subsequent study in 2019 (prepared by outside consultant, Willdan) with a four-year rate structure approved by the Council on January 7, 2019.
Due toworkload demand,staff initiated the currentrate study later than anticipated even though itwas determined that revenues from the existing rate structure are insufficient to fund increased infrastructure and capital project needs in the City’s water and wastewater systems. Staff worked closely with Raftelis to produce the comprehensive review of the City’s utility rates including an extensive review of current water and wastewater rates and future operating and capital costs to the Water and Wastewater Enterprise Funds. The desired outcome of this study was to ensure that the rates are sufficient to cover costs associated with ongoing maintenance and operations of the water and wastewater utilities. The rates should also fund anticipated capital improvement costs for much needed infrastructure improvements and water resiliency projects while supporting debt service obligations and maintaining reserves equal to at leastsix months of typical maintenance and operations expendituresin accordance with industry standards.
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
DISCUSSION:
The objective of this rate study is to conduct a cost-of-service analysis and develop a rate structure that allows the City to equitably divide the costs for providing service to defined classes of ratepayers.
Study Process:
City staff have held multiple meetings with Raftelis to confirm financial planning and rate setting goals, discuss financial model assumptions, and provide the financial data necessary for Raftelis to complete modeling long range financial plan options (scenarios). The current rate study will also evaluate the significant reduction in water revenues that resulted from a large reduction of water usage due to both water conservation efforts coupled with the COVID pandemic in the last four years. These revenue losses of approximately $600,000 (water) & $1,200,000 (sewer) create the need to build back water reserve balances that were used due to lower than anticipated revenues. Lastly, the rate study also incorporated much needed CIP (Capital Improvement Program) projects, debt service funding and coverage requirements for water meters project to the water system upgrades.
Water Financial Plan:
Based on the initial findings in the financial plan, Raftelis has developed three scenarios for water rate revenue increases that are summarized below:
» Scenario 1: O&M Only
» This scenario allows for the currently in progress CIP projects for FY 2023-24, though no other CIP projects will be implemented beyond FY 2023-24
» Assumes one additional water maintenance staff person is added in FY 2024-25 » Requires a 60% increase in rate revenue for FY 2023-24, a 5% increase in revenue for FY 2024-25, and 2% annually thereafter through FY 2032-33
» Scenario 2: Right the Ship
» This scenario allows for all currently planned CIP through FY 2032-33 » Assumes one additional staff person is added in FY 2025 » Requires a 125% adjustment in FY 2023-24, and no further adjustments through FY 2032-33 » Scenario 3: CIP Phase-in
» This scenario allows for all currently in progress CIP projects for FY 2023-24 and defers approved, but not yet implemented CIP projects; gradually ramping up capital spending to reduce cost pressures in the short term
» Assumes one additional staff person is added in FY 2025-26 » Requires a 75% increase in FY 2024-25 and gradually reduced rate increases through FY 2032-33 Scenario 1: O&M Only
This scenario only allows for CIP projects that are currently in progress for FY 2023-24. For every year after that, no CIP spending is included. This means all costs, outside of the in-progress CIP projects (namely the Parquet Street Water Replacement Project), are purely related to O&M. Table 0-1 shows the month and fiscal year the rate revenue adjustment would take place, the percentage increase of rate revenue, and the proposed CIP completion rate. For the O&M only scenario, the 91% CIP Completion represents the currently in progress CIP projects that will be completed, with the remaining 9% representing the balance of projects in the CIP that are not in progress and therefore will not be completed. Under this scenario 1, from FY 2024-25 to FY 2032-33, there are no proposed CIP projects. While the City has only approved a 5-year CIP, for purposes of this rate study, a 10-year CIP has been assumed with a “placeholder” amount of $1.06 million (uninflated) per year added to FY 2028-29 through FY 2032-
33. The placeholder years can be modified once the City updates its Water System Master Plan (currently planned for FY 2025-26).
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Table 0-1: O&M Only Projected Rate Revenue Increase and Proposed CIP Completion Figure 0-1 shows the ending reserve balances through FY 2032-33. As shown in the graph below, the utility would be operating with a negative cash balance in FY 2023-24 but would reach the target reserve balance by FY 2026-
27. Figure 0-1: Reserve Balances Under O&M Scenario
Figure 0-2 shows debt coverage requirements and expected revenue adjustments.
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 60% 91%
January FY 2024-25 5% 0%
January FY 2025-26 2% 0%
January FY 2026-27 2% 0%
January FY 2027-28 2% 0%
January FY 2028-29 2% 0%
January FY 2029-30 2% 0%
January FY 2030-31 2% 0%
January FY 2031-32 2% 0%
January FY 2032-33 2% 0%
-$0.45
$0.15
$0.78
-$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Figure 0-2: Revenue Adjustments (left) and Debt Coverage (right) Under the O&M Scenario
Scenario 2: Right The Ship
This scenario allows for recovery of all O&M and all planned CIP projects. Table 0-2 below shows the month and year the rate revenue adjustment would take place, the percentage increase of rate revenue, and the proposed CIP completion rate.
Table 0-2: Right The Ship Projected Rate Revenue Increase and Proposed CIP Completion Figure 0-3 shows the ending reserve balances through FY 2032-33. As shown in the graph below, the utility would be out of a negative cash position in FY 2023-24 and will achieve the target reserve balance FY 2025-26.
0.00 1.00
2.00 3.00
4.00 5.00
6.00 0%
10%
20%
30%
40%
50%
60%
70%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 125% 100%
January FY 2024-25 0% 100%
January FY 2025-26 0% 100%
January FY 2026-27 0% 100%
January FY 2027-28 0% 100%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
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City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Figure 0-3: Reserve Balances Under Right The Ship Scenario Figure 0-4 shows debt coverage requirements and expected revenue adjustments.
Figure 0-4: Revenue Adjustments (left) and Debt Coverage (right) Under the Right The Ship Scenario $0.00
$1.35
-$1.0
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
0.00 2.00
4.00 6.00
8.00 10.00
12.00 14.00
0%
20%
40%
60%
80%
100%
120%
140%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Scenario 3: CIP Phase-In
As discussed in the beginning of this section, this scenario allows for currently in progress CIP to be completed before deferring all remaining CIP. FY 2025-26 has some CIP spending and starting in FY 2026-27, there is catch-up spending of CIP to make up for the deferred CIP. This scenario also has a large rate increase in FY 2023-24, with gradually reduced rate increases through FY 2032-33. Table 0-3 shows the month and year the rate revenue adjustment would take place, the percentage increase of rate revenue, and the proposed CIP completion rate.
Table 0-3: CIP Phase-In Projected Rate Revenue Increase and Proposed CIP Completion Figure 0-5 shows the ending reserve balances through FY 2032-33. As shown in the graph below, the utility would be in a negative cash balance for the first year but will achieve the target reserve balance in FY 2025-26, FY 2026- 27, and in FY 2032-33.
Figure 0-5: Reserve Balances Under CIP Phase-In Scenario Figure 0-6 shows debt coverage requirements and expected revenue adjustments.
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
February FY 2023-24 50% 91%
January FY 2024-25 12% 0%
January FY 2025-26 10% 50%
January FY 2026-27 10% 125%
January FY 2027-28 8% 125%
January FY 2028-29 5% 103%
January FY 2029-30 5% 100%
January FY 2030-31 5% 100%
January FY 2031-32 5% 100%
January FY 2032-33 5% 100%
-$0.33
$0.72
$2.05
$1.74 $1.81
$2.13
$2.59
-$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Figure 0-6: Revenue Adjustments (left) and Debt Coverage (right) Under the CIP Phase-In Scenario Summary of the Water Financial Plan Options
Table 0-4 below summarizes the annual rate increases for each scenario, and Table 0-5 summarizes the CIP completion rate for each of the discussed scenarios for FY 2023-24 to FY 2032-33.
Table 0-4: Rate Revenue Increase Scenarios
Table 0-5: CIP Completion Scenarios
Wastewater Financial Plan Options
Based on the findings in the financial plan, Raftelis developed three scenarios for wastewater rate revenue increases:
» Scenario 1: O&M Only
» This scenario allows for the currently in progress CIP for FY 2023-24, though no other CIP beyond FY 2023-24
» Assumes one additional wastewater maintenance staff person is added in FY 2025-26
0.00 2.00
4.00 6.00
8.00 10.00
12.00 14.00
16.00 0%
10%
20%
30%
40%
50%
60%
70%
80%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 60.0% 5.0% 2.0% 2.0% 2.0%
Scenario 2: Right the Ship 125.0% 0.0% 0.0% 0.0% 0.0%
Scenario 3: CIP Phase-In 75.0% 6.0% 5.0% 5.0% 5.0%
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 91.0% 0.0% 0.0% 0.0% 0.0%
Scenario 2: Right the Ship 100.0% 100.0% 100.0% 100.0% 100.0% Scenario 3: CIP Phase-In 91.0% 0.0% 50.0% 105.0% 115.0% Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
» Requires a 125% increase in rate revenue for FY 2023-24 and no further increases through FY 2032-
33. » Scenario 2: Right the Ship
» This scenario allows for all currently planned CIP through FY 2032-33 » Assumes one additional staff person is added in FY 2025-26 » Requires a 175% adjustment in FY 2023-24, though no further rate increases are required for the ten year horizon
» Scenario 3: CIP Phase-in
» This scenario allows for all currently in progress CIP for FY 2023-24 but defers some CIP and gradually ramps up capital spending to reduce cost pressures in the short term » Assumes one additional staff person is added in FY 2025-26 » Requires a 125% increase in FY 2023-24 and no further increases through FY 2032-33.
Scenario 1: O&M Only
This scenario only allows for CIP that is currently in progress for FY 2023-24 (namely the Parquet Street Sewer Line Replacement Project). For every year after that, no CIP spending is included. This means all costs are purely related to O&M. Table 0-6 below shows the month and year the rate revenue adjustment would take place, the percentage increase of rate revenue, and the proposed CIP completion rate. For the O&M only scenario, the 96% represents the currently in progress CIP that will be completed, with the remaining 4% representing CIP that is not in progress; therefore, it will not be completed. From FY 2024-25 to FY 2032-33, there is no proposed CIP spending.
Table 0-6: O&M Only Projected Rate Revenue Increase and Proposed CIP Completion Figure 0-7 shows the ending reserve balances through FY 2032-33. As shown in the graph below, the wastewater enterprise fund would be operating with a negative cash balance in FY 2023-24 but will reach the target reserve balance in FY 2024-25.
As the wastewater scenarios do not include debt, the revenue adjustments are shown in table format, and the revenue adjustment / debt coverage graph is not shown for the wastewater scenarios.
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 125% 96%
January FY 2024-25 0% 0%
January FY 2025-26 0% 0%
January FY 2026-27 0% 0%
January FY 2027-28 0% 0%
January FY 2028-29 0% 0%
January FY 2029-30 0% 0%
January FY 2030-31 0% 0%
January FY 2031-32 0% 0%
January FY 2032-33 0% 0%
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City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Figure 0-7: Reserve Balances Under O&M Scenario
Scenario 2: Right The Ship
This scenario allows for all currently planned CIP projects. Table 0-7 shows the month and year the rate revenue adjustment would take place, the percentage increase of rate revenue, and the proposed CIP completion rate.
Table 0-7: Right The Ship Projected Rate Revenue Increase and Proposed CIP Completion Figure 0-8 shows the ending reserve balances through FY 2032-33. As shown in the graph below, the utility would be out of the negative cash position in FY 2023-24 and would reach the target reserve balance in FY 2024-25. -$0.47
-$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 175% 100%
January FY 2024-25 0% 100%
January FY 2025-26 0% 100%
January FY 2026-27 0% 100%
January FY 2027-28 0% 100%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
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City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Figure 0-8: Reserve Balances Under Right The Ship Scenario Scenario 3: CIP Phase-In
As discussed in the beginning of this section, this scenario allows for currently in progress CIP to be completed before deferring remaining CIP projects. Catch up spending starts in FY 2025-26 to make up for the deferred period.
This scenario also has a large rate increase in FY 2023-24, with no further increases anticipated through FY 2032-
33. Table 0-8 shows the month and year the rate revenue adjustment would take place, the percentage increase of rate revenue, and the proposed CIP completion rate.
Table 0-8: CIP Phase-In Projected Rate Revenue Increase and Proposed CIP Completion Figure 0-9 shows the ending reserve balances through FY 2032-33. As shown in the graph below, the utility would be in a negative cash position in FY 2023-24 but will achieve the reserves policy target in FY 2024-25. $0.02
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 125% 96%
January FY 2024-25 0% 50%
January FY 2025-26 0% 108%
January FY 2026-27 0% 120%
January FY 2027-28 0% 120%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
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City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
Figure 0-9: Reserve Balances Under CIP Phase-In Scenario Summary of the Wastewater Financial Plan Options
Table 0-9 below summarizes the annual rate increases for each scenario, and Table 0-10 summarizes the CIP completion rate for each of the discussed scenarios for FY 2023-24 to FY 2032-33.
Table 0-9: Rate Revenue Increase Scenarios
Table 0-10: CIP Completion Scenarios
In Summary
Staff is seeking feedback and direction regarding the proposed scenarios for both water and wastewater funds as described in this agenda report. The financial option scenarios are:
1. O&M Only – for both water and wastewater, this scenario removes CIP spending (except for in-progress CIP project, namely the Parquet Street Water and Sewer Replacement Project) and instead is focused on increases to O&M expenditures for two additional personnel (one each for water and wastewater). This scenario does not allow for any CIP spending beyond FY 2023-24. -$0.47
-$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 125.0% 0.0% 0.0% 0.0% 0.0%
Scenario 2: Right the Ship 175.0% 0.0% 0.0% 0.0% 0.0%
Scenario 3: CIP Phase-In 125.0% 0.0% 0.0% 0.0% 0.0%
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 96.0% 0.0% 0.0% 0.0% 0.0%
Scenario 2: Right the Ship 100.0% 100.0% 100.0% 100.0% 100.0% Scenario 3: CIP Phase-In 96.0% 50.0% 108.0% 120.0% 120.0% Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Agenda Item Number:__8 __
2. Right The Ship – for both water and wastewater enterprise funds, this scenario is focused on fixing the negative cash balance in FY 2023-24 with one large increase in rate revenue and in turn allows for all planned CIP spending and increased O&M spending.
3. CIP Phase-In – for both water and wastewater, this scenario defers CIP spending and gradually ramps up the spending.
Actual bill impacts to individual customers rely on the overall revenue increase (financial plan), the cost-of-service analyses, and the rate structure. For example, an overall utility-wide increase of 50% may translate into a 10% impact for one customer and a 40% increase for another. These impacts are not included in this financial planning portion and will result from the proposed rates after Raftelis completes the cost-of-service analyses and any rate restructuring.
ENVIRONMENTAL REVIEW:
The proposed action is exempt (☐ Yes ☐ No ☒ Not a project under CEQA) from the requirements of the California Environmental Quality Act (CEQA)
GOALS:
This action supports the following City Council Goals and General Plan Actions:
Goal 2: Maintain, Improve and Invest in the City infrastructure (Water, Sewer, Streets, Circulation, Parks, Storm Drains and Public Facilities)
PUBLIC COMMENT:
As of the writing of this staff report, the City has not received any public comment. However, staff anticipates receiving public comment from interested parties following the publication and distribution of this staff report.
Such comments will be provided to the City Council assupplemental materials before or at the meeting. In addition, public comments may be offered during the public comment portion of the agenda item.
PUBLIC NOTICE:
This item was noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to schedule meeting date.
FISCAL IMPACT:
No fiscal impact by receiving the information and provide staff and consultant the option presented in order to move forward to develop a rate structure.
RECOMMENDATION:
Staff recommends the Sebastopol City Council receive the information, provide staff direction on the scenarios in order to continue with the development of the water and wastewater rates.
Attachments:
PowerPoint Presentation
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
1 City of Sebastopol
Water & Wastewater Financial Plan Scenarios
October 3, 2023
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Kevin Kostiuk
Project Director
Theresa Jurotich,
P.E., PMP
Project Manager
Cleo Koenig
Lead Consultant
Raftelis Team
2 Legal process for setting utility
rates
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
3 • Why Conduct a Rate Study
• Financial Plan Assumptions
• Scenario Results
• Water
• Wastewater
Key Focus
Areas
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
• Rates must keep up with the costs to operate the City’s water & wastewater systems
• The City’s water and wastewater utilities (enterprise fund) are each selffunding enterprises – they are not like other government services (e.g., public safety, city facilities and/or street maintenance) that are funded by tax dollars from the General Fund
• By law (Proposition 218), rates must be based on the cost to operate and maintain the water and wastewater systems
4 Why Would the City do a Water Rate Study?
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Key Steps in Conducting a Rate Study
Rate Adoption
– 218
Procedures
Rate
Authorization Rate Design Cost-ofService
Financial
Planning =
Revenue
Requirements
5 Compare
revenue with
operating costs,
capital costs,
and reserve
requirements
Identify
differences in
costs to serve
each of the
customer
classes
Consider level
and structure of
rate design for
each class of
service
Documentation,
report, review
by legal counsel
Notice to City
customers
Public Hearing
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
6 Water Financial Plan
Assumptions
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
7 Consumer Price Index: San Francisco-OaklandHayward, CA
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
All Items
Year-to-Year Cumulative
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
-5%
0%
5%
10%
15%
20%
25%
Fuels & Utilities Electricity
FY2017-18 FY2018-19 FY2019-20 FY2020-21 FY2021-22 FY2022-23 8 Consumer Price Index: San Francisco-OaklandHayward, CA 16%
19%
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Assumptions – Water Demand
• Assumed 0.5% per year new connection growth for residential users • Assumed usage per account stays flat (no increase/decrease in usage beyond that due to new accounts)
• All other connection types are assumed to have no growth 9 Assumptions – Water Demand
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City Council Meeting Packet of October 3, 2023
Assumptions – Inflationary Escalation
10 Expense Category FY
2023-24
FY
2024-25
FY
2025-26
FY
2026-27
FY
2027-28
FY
2028-29
FY
2029-30
FY
2030-31
FY
2031-32
FY
2032-33
O&M Expenses
General Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Salary Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Benefits Budget 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Utilities Budget 10.0% 10.0% 7.0% 7.0% 5.0% 5.0% 5.0% 5.0% 5.0% Capital Expenses
Capital 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Assumptions – Inflationary Escalation
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City Council Meeting Packet of October 3, 2023
Assumptions – O&M Expense Projections
11 O&M Expense Summary 5 Year Average - Water
G&A Allocation,
48%
Salaries & Benefits,
22%
Utilities, 12%
Other, 10%
Materials, Supplies
& Equipment, 6%
Capital Outlay, 2% Replacement
Program, 1%
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City Council Meeting Packet of October 3, 2023
12 O&M Annual Expense (alternative slide)
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
Millions
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City Council Meeting Packet of October 3, 2023
13 Note: The values displayed are inflated by the 4% capital inflator Capital Improvement Program
$0.6 $0.7 $0.7 $0.7
$3.4
$1.3 $1.4 $1.4 $1.4 $1.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
Millions
Water CIP Funding
Debt Funded Rate Funded Unfunded Total CIP
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City Council Meeting Packet of October 3, 2023
Assumptions – Water Reserve Policies
• Cash Reserves
› Operations Reserve: 33% of annual O&M (approximately 4 months of expenses)
› Capital Reserve: One year of Cash-funded CIP
• Debt
› Current debt does not have a coverage requirement
› Future debt assumes a minimum coverage of 1.25x
14 Assumptions – Water Reserve Policies
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15 Water
Financial Plan
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City Council Meeting Packet of October 3, 2023
16 Status Quo
-$0.97 -$2.54 -$4.24 -$6.01
-$8.10
-$10.87
-$13.80
-$16.89
-$20.16
-$23.61 -$25.0
-$20.0
-$15.0
-$10.0
-$5.0
$0.0
$5.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
-5.42-6.09 -6.80 -7.54 -8.32 -9.14
-10.00
-8.00
-6.00
-4.00
-2.00
0.00 2.00
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 0% 100%
January FY 2024-25 0% 100%
January FY 2025-26 0% 100%
January FY 2026-27 0% 100%
January FY 2027-28 0% 100%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Water Financial Plan Projections
17 1) O&M Only Scenario:
• Allows currently in progress
CIP for FY 2023-24; no other
CIP beyond FY 2023-24
• Additional Staff are added in
FY 2024-25
• 60% increase required in
FY 2023-24, 5% in FY 2024-
25, 2% annually thereafter
through FY 2032-33
3) CIP Phase-In Scenario:
• Allows currently in progress
CIP for FY 2023-24; defers
some CIP and ramps up
capital spending gradually
• Additional Staff are added in
FY 2025-26
• 75% increase in FY 2023-24,
reduced rate increases
through FY 2032-33
2) Right The Ship Scenario:
• Allows all currently planned
CIP
• Additional Staff are added in
FY 2024-25
• 125% adjustment in FY 2023-
24, no additional adjustments
through FY 2032-33
Water Financial Plan Projections
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
18 1) O&M Only
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 60% 91%
January FY 2024-25 5% 0%
January FY 2025-26 2% 0%
January FY 2026-27 2% 0%
January FY 2027-28 2% 0%
January FY 2028-29 2% 0%
January FY 2029-30 2% 0%
January FY 2030-31 2% 0%
January FY 2031-32 2% 0%
January FY 2032-33 2% 0%
-$0.45
$0.15
$0.78
-$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
0.00 1.00
2.00 3.00
4.00 5.00
6.00 0%
10%
20%
30%
40%
50%
60%
70%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
19 2) Right the Ship
$0.00
$1.35
-$1.0
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
0.00 2.00
4.00 6.00
8.00 10.00
12.00 14.00
0%
20%
40%
60%
80%
100%
120%
140%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 125% 100%
January FY 2024-25 0% 100%
January FY 2025-26 0% 100%
January FY 2026-27 0% 100%
January FY 2027-28 0% 100%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
20 3) CIP Phase-in
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
February FY 2023-24 50% 91%
January FY 2024-25 12% 0%
January FY 2025-26 10% 50%
January FY 2026-27 10% 125%
January FY 2027-28 8% 125%
January FY 2028-29 5% 103%
January FY 2029-30 5% 100%
January FY 2030-31 5% 100%
January FY 2031-32 5% 100%
January FY 2032-33 5% 100%
0.00 2.00
4.00 6.00
8.00 10.00
12.00 14.00
16.00 0%
10%
20%
30%
40%
50%
60%
70%
80%
Debt Coverage
Revenue Adjustment
Revenue Adjustments and Debt Coverage
Revenue Adjustments Debt Coverage
Required Coverage Alert Coverage
-$0.33
$0.72
$2.05
$1.74 $1.81
$2.13
$2.59
-$1.0
-$0.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
• Revenue Adjustments Required (%)
21 • Percent of Planned CIP Completed
Water Financial Plan Scenario Summaries
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 60.0% 5.0% 2.0% 2.0% 2.0%
Scenario 2: Right the Ship 125.0% 0.0% 0.0% 0.0% 0.0%
Scenario 3: CIP Phase-In 75.0% 6.0% 5.0% 5.0% 5.0%
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 91.0% 0.0% 0.0% 0.0% 0.0%
Scenario 2: Right the Ship 100.0% 100.0% 100.0% 100.0% 100.0% Scenario 3: CIP Phase-In 91.0% 0.0% 50.0% 105.0% 115.0% Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
22 Wastewater Financial Plan
Assumptions
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
• Assumes current wastewater flows represent baseline
• Modest new connection growth (0.5%) assumed for 5/8” through 1” meters (aligning with new Residential connections on the water side) • No growth for all other connection sizes
23 Assumptions – Wastewater Demand
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Assumptions – Inflationary Escalation
24 Expense Category FY
2022-23
FY
2023-24
FY
2024-25
FY
2025-26
FY
2026-27
FY
2027-28
FY
2028-29
FY
2029-30
FY
2030-31
FY
2031-32
FY
2032-33
O&M Expenses
General Actuals Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Salary Actuals Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Benefits Actuals Budget 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Utilities Actuals Budget 10.0% 10.0% 7.0% 7.0% 5.0% 5.0% 5.0% 5.0% 5.0% Subregional Contract
Services Actuals Budget 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Capital Expenses
Capital Actuals 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Assumptions – Inflationary Escalation
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
25 Subregional
Contract
Services, 50%
G&A
Allocation,
27%
Salaries &
Benefits, 13%
Other, 4%
Materials,
Supplies &
Equipment,
3%
Utilities, 2% Capital
Outlay, 1%
O&M Expense Summary 5 Year Average - Wastewater
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
26 Note: The values displayed are inflated by the 4% capital inflator Capital Improvement Program
$0.6 $0.6
$0.8
$0.7
$0.6
$0.7 $0.8 $0.8 $0.8 $0.8
$0.0
$0.1
$0.2
$0.3
$0.4
$0.5
$0.6
$0.7
$0.8
$0.9
Millions
Wastewater CIP Funding
Debt Funded Rate Funded Total CIP
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
• Reserves
› Operations Reserve: 33% of annual O&M (approximately 4 months of expenses)
› Capital Reserve: Based on Emergency repair needs estimated at $200,000 • Debt
› Current debt does not have a coverage requirement
› Future debt – no presumed new debt
27 Assumptions – Wastewater Reserve Policies
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
28 Wastewater
Financial Plan
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
29 Status Quo
-$1.78 -$3.79 -$6.18 -$8.56 -$11.04
-$13.86
-$16.90
-$20.18
-$23.72
-$27.52 -$30.0
-$25.0
-$20.0
-$15.0
-$10.0
-$5.0
$0.0
$5.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 0% 100%
January FY 2024-25 0% 100%
January FY 2025-26 0% 100%
January FY 2026-27 0% 100%
January FY 2027-28 0% 100%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Wastewater Financial Plan Projections
30 1) O&M Only Scenario:
• Allows currently in progress
CIP for FY 2023-24; no other
CIP beyond FY 2023-24
• Additional Staff are added in
FY 2025-26
• 125% increase in FY 2023-24,
no increases through
FY 2032-33 (initial increases
generates sufficient revenues
over the 10-yr horizon)
3) CIP Phase-In Scenario:
• Allows currently in progress
CIP for FY 2024; defers some
CIP and ramps up spending
Additional Staff are added in
FY 2026
• 125% increase in FY 2024, no
increases through
FY 2032-33 (initial increases
generates sufficient revenues
over the 10-yr horizon)
2) Right The Ship Scenario:
• Allows all currently planned
CIP
• Additional Staff are added in
FY 2025-26
• 175% adjustment in
FY 2023-24, no future rate
increases through
FY 2032-33 (initial increases
generates sufficient revenues
over the 10-yr horizon)
Wastewater Financial Plan Projections
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
31 1) O&M Only
-$0.47
-$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
$20.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 125% 96%
January FY 2024-25 0% 0%
January FY 2025-26 0% 0%
January FY 2026-27 0% 0%
January FY 2027-28 0% 0%
January FY 2028-29 0% 0%
January FY 2029-30 0% 0%
January FY 2030-31 0% 0%
January FY 2031-32 0% 0%
January FY 2032-33 0% 0%
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
32 2) Right the Ship
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 175% 100%
January FY 2024-25 0% 100%
January FY 2025-26 0% 100%
January FY 2026-27 0% 100%
January FY 2027-28 0% 100%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
$0.02
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
33 3) CIP Phase-in
Month Fiscal Year
Rate
Adjustment
Proposed CIP
Completion
March FY 2023-24 125% 96%
January FY 2024-25 0% 50%
January FY 2025-26 0% 108%
January FY 2026-27 0% 120%
January FY 2027-28 0% 120%
January FY 2028-29 0% 100%
January FY 2029-30 0% 100%
January FY 2030-31 0% 100%
January FY 2031-32 0% 100%
January FY 2032-33 0% 100%
-$0.47
-$2.0
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
Millions
Reserve Balance
Ending Balance Target Balance Alert Balance
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
• Revenue Adjustments Required (%)
34 • Percent of Planned CIP Completed
Wastewater Financial Plan Scenario Summaries
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 125.0% 0.0% 0.0% 0.0% 0.0%
Scenario 2: Right the Ship 175.0% 0.0% 0.0% 0.0% 0.0%
Scenario 3: CIP Phase-In 125.0% 0.0% 0.0% 0.0% 0.0%
Scenario FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Scenario 1: O&M Only 96.0% 0.0% 0.0% 0.0% 0.0%
Scenario 2: Right the Ship 100.0% 100.0% 100.0% 100.0% 100.0% Scenario 3: CIP Phase-In 96.0% 50.0% 108.0% 120.0% 120.0% Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Present Financial Plans to Council Oct. 3, 2023
Present Initial Rates to Council Nov. 7, 2023
City Council Meeting – Authorize Final Rate Proposal & Prop 218 Notice Nov. 21, 2023 Notice Mailed to Customers Dec. 6, 2023
Public Hearing on Rate Adoption Feb. 6, 2024
New Rates Effective Date Mar. 1, 2024
35 Schedule
Agenda Item Number 8
City Council Meeting Packet of October 3, 2023
Raftelis is a Registered Municipal Advisor within the meaning as defined in Section 15B (e) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder (Municipal Advisor Rule).
However, except in circumstances where Raftelis expressly agrees otherwise in writing, Raftelis is not acting as a Municipal Advisor, and the opinions or views contained herein are not intended to be, and do not constitute “advice” within the meaning of the Municipal Advisor Rule. 36 Contact:
Kevin Kostiuk: 213 262 9309 / [email protected]
Theresa Jurotich: 206 707 9155 / [email protected] Agenda Item Number 8
City Council Meeting Packet of October 3, 2023