CITY OF SEBASTOPOL CITY COUNCIL
AGENDA ITEM REPORT FOR MEETING OF: February 3, 2026
=========================================================================================== To: Honorable Mayor and City Councilmembers
From: Ana Kwong – Administrative Services Director
Erik Billing – Acting Public Works Director/Operations Supervisor Toni Bertolero – Public Works Engineer
Subject: FY25-26 Quarter 2 (October - December 2025) Financial Update – Enterprise Fund =========================================================================================== RECOMMENDATION:
Staff recommends the Sebastopol City Council receive year-to-date financial information for the Enterprise Fund.
EXECUTIVE SUMMARY:
Based on the best available information as of December 31, 2025, the city's water fund has billed 51.6% of budgeted revenue for the fiscal year. Expenses are at 50.6% of the fiscal year adopted budget. Wastewater has billed 47.5% of budgeted full year revenue. Expenses are at 42.5% of the fiscal year adopted budget.
BACKGROUND:
The Enterprise Fund is used to account for operations that are financed and operated in a manner similar to private business enterprises, where the costs of providing services are primarily recovered through user fees and charges for services. This includes essential services such as water and wastewater. Activities supported by the Enterprise Fund encompass operations, maintenance, billing and collections, administration, financing, and related debt service. The principal sources of revenue are charges to customers for water consumption, wastewater collection, and fees associated with new service connections.
On the revenue side, the City is in its second year of implementing water and wastewater rate increases. As a result of these rate increases, the City’s Enterprise Fund financial position has improved, with income exceeding expenses and generating a positive net impact, rather than the shortfall experienced in past years.
On the expenditure side, spending patterns are not always linear, which is evident in the second-quarter data.
Water expenditures appear on track to meet the 50% benchmark, while wastewater spending is currently below that threshold. These fluctuations are typical and primarily reflect the timing of operational activities and capital projects. Overall, the Enterprise Fund continues to operate as a self-sustaining model, ensuring that utility services remain both financially accountable and managed with long-term sustainability in mind.
DISCUSSION:
This report provides an overview of the City’s Enterprise Fund performance for the second quarter of FY25-26, using the most current financial data available as of December 31, 2025. It presents a detailed accounting of revenues and expenditures recorded during this period, offering a snapshot of the enterprise financial position at the fiscal year halfway point. Revenue billings reflect 6 months of activities.
STAFF ANALYSIS:
Water:
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
The City is in its second year of implementing water rate increases, which have contributed to more stable operations and stronger financial performance. As of midyear, year-to-date revenues stand at $1.79 million (51.6% of the Adopted Budget), while expenditures total $1.50 million (50.6%). This results in a positive net position of $293,923—up from $274,743 at the same point last year—reflecting modest year-over-year improvement. The continued impact of rate adjustments reinforces fund stability, with income exceeding expenses and delivering a positive outcome ratherthan a shortfall.Overall, performance remains consistentwith typicalmidyear benchmarks.
Operating expenditures—which include salaries, employee benefits, contracted services, debt service payments, cost allocation plan charges, and transfers out—are currently tracking at 50.6% of the annual budget. This is right on the 50% benchmark typically expected at this point in the fiscal year, it remains consistent with anticipated spending patterns and indicates that expenditures are on track.
Wastewater:
The quarterly report for the Wastewater Fund reflects the same billing period as the Water Fund—July through December—representing the second quarter of the fiscal year. Revenue collection for this period stands at 47.5% of the annual budget. While the Water Fund has surpassed the 50% mark, the Wastewater Fund is close behind. It is important to note that usage typically declines during the winter months, which naturally impacts revenue levels.
On the expenditure side, the Wastewater Fund is tracking at 42.5%, slightly below the 50% benchmark. This variance is primarily due to the timing of Subregional contract payments, which cover five months of service rather than six months. As the fiscal year progresses toward June, full contractual costs will be incurred, and expenditures are expected to align with budgeted projections. Overall, the fund is operating within expected parameters.
Final Note:
As we enter the second year of rate adjustments, the strengthened position of the enterprise fund reflects our ongoing commitment to financial stability and the continued delivery of essential services. Our intent is not to generate excess funds, but to maintain a sound financial foundation and plan responsibly for the future. By setting aside resources for unforeseen needs, we help ensure service reliability and minimize the risk of unexpected financial pressures.
The purpose behind increasing rates is twofold:
1. To ensure rates fully capture our operating expenses, including all associated costs.
2. To create contingency reserves that can address future capital improvements and emergency repairs without jeopardizing service quality or financial stability.
The rates were designed for a five-year period to gradually build reserves for future capital projects, avoiding a single-year spike. This approach ensures revenue aligns with the ramp-up in capital projects. For water, consultant interviews for the $400,000 design expense are underway, as identified in the rate study for this fiscal year.
Additionally, the rates account for hiring an extra maintenance worker in FY 26/27 and another in FY 27/28, shared between water and sewer, as planned in the rate study.
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
On the sewer side, CIP projects such as the master plan and Morris Street pump station repairs have not yet been contracted, resulting in lower expenses at this point. Subregional costs are also below 50% due to payment lags, which are reconciled at the end of the fiscal year as stated above.
Water Rate Model:
The Enterprise Fund’s financial performance for the second quarter is consistent with the projections outlined in the current Water Rate Model. As part of the quarterly review process, staff conducts a detailed comparison between actual revenues and expenditures against the model’s estimates. The alignment confirms the reliability of the rate structure implemented on July 1, 2025, and reinforces its effectiveness in supporting the fund’s financial stability and operational needs.
BUDGET COMMITTEE REVIEW
This item was reviewed by the Budget Committee at its meeting on January 12, 2026.
ENTERPRISE FUND COMMITTEE REVIEW
This item was reviewed by the Enterprise Fund Committee at its meeting on January 13, 2026.
CITY COUNCIL GOALS/PRIORITIES/AND OR GENERAL PLAN CONSISTENCY:
Goal 5 – Long Term Financial Sustainability
Achieving Greater Fiscal Resilience and Long Term Fiscal Sustainability Action Plan 2 – Quarterly Financial Report
Enterprise Fund: A quarterly update is an essential tool for monitoring and managing the financial health of an organization. It provides a snapshot of the financial performance over the past three months, allowing City Council to assess progress, identify trends, and make informed decisions.
FISCAL IMPACT:
There is no fiscal impact in receiving this informational financial update.
PUBLIC COMMENT:
As of the writing of this staff report, the City has not received any public comment on this item. However, if staff receives public comment from interested parties following the publication and distribution of this staff report,such comments will be provided to the City Council as supplemental materials before or at the meeting.
COMMUNITY OUTREACH:
This item has been noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to the scheduled meeting date.
RESTATED RECOMMENDATION:
That the City Council receive year-to-date financial information.
CITY COUNCIL OPTION(S):
There are no options to consider.
ATTACHMENTS:
Second Quarter Financial Reports
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
APPROVALS:
Department Head Approval: Approval Date: __1/6/2026____ CEQA Determination (Planning): Approval Date: ___N/A_______ The proposed action is / is not exempt from the requirements of the California Environmental Quality Act (CEQA) Administrative Services/Financial Approval: Approval Date: ___1/6/2026___ Costs authorized in City Approved Budget: ☐ Yes ☐ No N/A Account Code (f applicable) ___________________________ City Attorney Approval: Approval Date: __1/21/26 _____
City Manager Approval: Approval Date: ___1/21/26____
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
Description
2024-25
Actual
Y-T-D
Actual
12/31/24
2025-26
Adopted
Budget
Y-T-D
Actual
12/31/25
% of
Adopted
Budget
OPERATING REVENUE
Usage Charges - Residential 1,782,411 838,079 1,764,321 964,516 54.7% Usage Charges - Commerical 1,429,003 692,853 1,510,087 766,061 50.7% Usage Charges - Water Tower 45,047 24,089 54,500 33,256 61.0% Interest Income 45,171 46,642 75,000 10,326 13.8%
New Service Fee 10,200 5,250 10,000 4,800 48.0%
Penalties 22,067 9,397 20,000 14,252 71.3%
Miscellaneous Income 45,965 874 44,000 600 1.4%
TOTAL REVENUE 3,379,864 1,617,184 3,477,908 1,793,811 51.6%
OPERATING EXPENDITURE
Salaries & Wages 359,327 165,939 370,268 188,752 51.0%
Benefits 282,390 98,124 244,830 151,936 62.1%
Contracted Services 159,241 73,485 328,800 201,355 61.2% Services & Supplies 195,954 74,858 222,490 62,388 28.0% Conference & Training Expense 4,439 3,693 5,000 2,192 43.8% Utilities 235,947 158,406 317,350 155,368 49.0%
Allocated Insurance 81,510 39,764 104,755 52,378 50.0%
Capital Outlay - - 160,500 11,987 7.5%
Debt Service Payments 461,365 277,508 252,657 245,349 97.1% Cost Allocation Plan 852,863 426,432 845,358 422,679 50.0% Transfers Out 50,230 24,233 115,000 5,504 4.8%
TOTAL EXPENDITURES 2,683,266 1,342,441 2,967,008 1,499,888 50.6% Net Surplus/(Deficit) 696,597 274,743 510,900 293,923
WATER OPERATING FUND
OCTOBER - DECEMBER 2025
QUARTER 2 REPORTING
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
Description
2024-25
Actual
Y-T-D
Actual
12/31/24
2025-26
Adopted
Budget
Y-T-D
Actual
12/31/25
% of
Adopted
Budget
Salaries & Wages
4010 - Salaries - Full Time 318,931 146,923 345,813 170,218 49.2% 4012 - Overtime 21,733 10,024 24,500 12,299 50.2%
4013 - Standby 14,914 6,442 14,200 6,235 43.9%
4090 - Vacancy Savings - - (14,245) - 0.0%
4023 - One Time Payment 7,650 2,550 - - 0.0%
4990 - PW/Staff Time Project Reimb (3,900) - - - 0.0%
Total Salaries & Wages 359,327 165,939 370,268 188,752 51.0% Benefits
4102 - Uniform Allowance 2,550 2,550 - 3,203 0.0%
4105 - Medicare & Fica 5,318 2,450 5,014 2,790 55.7%
4110 - CalPERS Employer Rate 106,282 14,010 33,983 16,769 49.3% 4111 - CalPERS UAL Cost 60,746 30,612 73,475 71,021 96.7% 4130 - Health Insurance 94,970 42,796 115,634 51,719 44.7% 4150 - Dental Insurance 9,740 4,409 11,067 4,947 44.7%
4151 - Vision Insurance 1,026 466 1,088 488 44.8%
4181 - Long Term Disability Insurance 999 493 2,982 519 17.4% 4182 - Short Term Disability Insurance 414 182 497 311 62.7% 4183 - EAP (Employee Asst Prog) 103 46 280 57 20.4%
4184 - Life Insurance 242 110 810 113 13.9%
Total Benefits 282,390 98,124 244,830 151,936 62.1%
Contracted Services
4210 - Professional Contract Services 140,875 64,316 310,800 190,280 61.2% 4211 - Banking Fees 18,366 9,169 18,000 11,075 61.5%
Total Contracted Services 159,241 73,485 328,800 201,355 61.2% Services & Supplies
4301 - Bad Debt Expense 2,110 393 5,000 391 7.8%
4310 - Office Supplies - - 1,500 - 0.0%
4330 - Misc Supplies & Services 171,106 64,200 182,090 56,547 31.1% 4332 - Janitorial & Safety Supplies - - 1,200 - 0.0%
4361 - Meter Replacement Program 5,992 1,323 7,500 210 2.8% 4365 - Fire Hydrant Replacement Program 13,203 8,942 10,000 - 0.0% 4366 - Backflow Prevention Program 222 - 5,200 5,240 100.8% 4380 - Vehicle Maintenance 3,321 - 10,000 - 0.0%
Total Services & Supplies 195,954 74,858 222,490 62,388 28.0% Conference & Training Expense
4510 - Conference & Training 3,051 2,432 3,000 1,964 65.5% 4515 - Meetings & Travel 1,388 1,262 2,000 228 11.4%
Total Conference & Training Expense 4,439 3,693 5,000 2,192 43.8% Utilities
4710 - Utilities - Gas & Electric 230,402 155,748 310,000 153,067 49.4% 4750 - Telecommunications 5,544 2,658 7,350 2,301 31.3% Total Utilities 235,947 158,406 317,350 155,368 49.0%
Detail - Water Operation Fund - 500
October - December 2025
Quarter 2 Expenditures
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
Description
2024-25
Actual
Y-T-D
Actual
12/31/24
2025-26
Adopted
Budget
Y-T-D
Actual
12/31/25
% of
Adopted
Budget
Detail - Water Operation Fund - 500
October - December 2025
Quarter 2 Expenditures
Allocated Insurance | Others
4996 - Allocated Liability Insurance 53,266 25,912 71,485 35,742 50.0% 4997 - Allocated Wrkrs Comp Insurance 28,244 13,852 33,270 16,636 50.0% 4998 - Cost Allocation Plan (CAP) 852,863 426,432 845,358 422,679 50.0% 4999 - Transfers Out 50,230 24,233 115,000 5,504 4.8%
5100 - Capital Outlay - - 160,500 11,987 7.5%
Total Allocated Insurance | Others 984,603 490,429 1,225,613 492,548 40.2% Debt Service
6100 - Principal 409,137 233,792 198,633 213,341 107.4% 6200 - Interest 52,229 43,716 54,024 32,008 59.2%
Total Debt Service 461,365 277,508 252,657 245,349 97.1% TOTAL 2,683,266 1,342,441 2,967,008 1,499,888 50.6%
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
Description
2024-25
Actual
Y-T-D
Actual
12/31/24
2025-26
Adopted
Budget
Y-T-D
Actual
12/31/25
% of
Adopted
Budget
OPERATING REVENUE
Service Charge - Residential 2,378,207 994,735 2,535,849 1,264,521 49.9% Service Charge - Commercial 2,295,499 985,476 2,639,354 1,194,357 45.3% Interest Income 11,305 11,880 20,000 3,099 15.5%
Penalties 20,310 8,203 20,000 13,436 67.2%
Transfers In -0 -0 -0 0.0%
TOTAL REVENUE 4,705,321 2,000,294 5,215,203 2,475,412 47.5%
OPERATING EXPENDITURE
Salaries & Wages 310,272 137,471 325,142 164,574 50.6%
Benefits 245,639 84,151 219,286 132,950 60.6%
Contracted Services (18,805) 17,964 129,550 39,941 30.8% Subregional Cost 2,118,436 882,682 1,953,889 814,120 41.7% Services & Supplies 79,268 14,181 107,000 6,134 5.7%
Conference & Training Expense 3,175 1,267 8,000 2,516 31.5% Utilities 68,698 26,627 65,198 32,030 49.1%
Allocated Insurance 57,065 27,868 68,905 34,452 50.0%
Debt Service Payments 240,038 150,645 119,888 119,888 100.0% Cost Allocation Plan 908,934 454,467 950,965 475,483 50.0% Capital Outlay - - 148,000 - 0.0%
Transfers Out 32,551 32,105 187,000 51 0.0%
TOTAL EXPENDITURES 4,045,271 1,829,429 4,282,823 1,822,138 42.5% Net Surplus/(Deficit) 660,050 170,865 932,380 653,274
WASTEWATER OPERATING FUND
OCTOBER - DECEMBER 2025
QUARTER 2 REPORTING
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
Description
2024-25
Actual
Y-T-D
Actual
12/31/24
2025-26
Adopted
Budget
Y-T-D
Actual
12/31/25
% of
Adopted
Budget
OPERATING EXPENDITURE
Salaries & Wages
4010 - Salaries - Full Time 271,638 124,463 306,282 150,626 49.2% 4012 - Overtime 19,884 6,202 19,600 8,073 41.2%
4013 - Standby 11,850 4,506 11,500 5,876 51.1%
4090 - Vacancy Savings - - (12,240) - 0.0%
4023 - One Time Payment 6,900 2,300 - - 0.0%
Total Salaries & Wages 310,272 137,471 325,142 164,574 50.6% Benefits
4101 - Health in Lieu - - - 0.0%
4102 - Uniform Allowance 2,300 2,300 2,300 2,993 130.1% 4105 - Medicare & Fica 4,544 2,033 4,441 2,436 54.9%
4110 - CalPERS Employer Rate 93,712 12,165 30,519 15,054 49.3% 4111 - CalPERS Employer Rate-Unfunded 53,360 26,889 63,200 60,971 96.5% 4130 - Health Insurance 81,089 35,988 103,436 45,816 44.3% 4150 - Dental Insurance 8,315 3,707 9,934 4,397 44.3%
4151 - Vision Insurance 875 392 977 433 44.3%
4181 - Long Term Disability Insurance 810 400 2,982 437 14.7% 4182 - Short Term Disability Insurance 340 147 407 264 64.9% 4183 - EAP (Employee Asst Prog) 88 39 280 50 17.9%
4184 - Life Insurance 207 93 810 99 12.2%
Total Benefits 245,639 84,151 219,286 132,950 60.6%
Contracted Services
4210 - Professional Contract Services 12,829 8,795 110,250 16,404 14.9% 4210 - Subregional O&M 2,118,436 882,682 1,953,889 814,120 41.7% 4211 - Banking Fees 18,366 9,169 19,300 23,537 122.0%
4227 - Private Swr Lateral Grant Program (50,000) - - - 0.0% Total Contracted Services 2,099,631 900,646 2,083,439 854,061 41.0% Bad Debt Expense
4301 - Bad Debt Expense 2,486 577 5,000 522 10.4%
Total Bad Debt Expense 2,486 577 5,000 522 10.4%
Services & Supplies
4330 - Misc Supplies & Services 71,960 11,897 89,500 3,703 4.1% 4332 - Janitorial & Safety Supplies - 1,500 0.0%
Total Services & Supplies 71,960 11,897 91,000 3,703 4.1% Special Programs
4360 - Conservation Rebate Program - - 1,000 - 0.0%
Total Special Programs - - 1,000 - 0.0%
Vehicle Expense
4380 - Vehicle Maintenance 4,822 1,708 10,000 1,909 19.1% Total Vehicle Expense 4,822 1,708 10,000 1,909 19.1%
Detail - Wastewater Operation Fund - 510
October - December 2025
Quarter 2 Expenditures
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026
Description
2024-25
Actual
Y-T-D
Actual
12/31/24
2025-26
Adopted
Budget
Y-T-D
Actual
12/31/25
% of
Adopted
Budget
Detail - Wastewater Operation Fund - 510
October - December 2025
Quarter 2 Expenditures
Conference & Training Expense
4510 - Conference & Training 915 328 5,000 2,397 47.9%
4515 - Meetings & Travel 2,260 939 3,000 119 4.0%
Total Conference & Training Expense 3,175 1,267 8,000 2,516 31.5% Utilities
4710 - Utilities - Gas & Electric 64,505 24,702 60,000 30,380 50.6% 4711 - Utilities - City Bill 3,080 1,390 3,198 1,018 31.8% Total Utilities 67,585 26,092 63,198 31,398 49.7%
Telecommunications
4750 - Telecommunications 1,113 536 2,000 632 31.6%
Total Telecommunications 1,113 536 2,000 632 31.6%
Allocated Insurance
4996 - Allocated Liability Insurance 30,012 14,600 40,285 20,142 50.0% 4997 - Allocated Wrkrs Comp Insurance 27,053 13,268 28,620 14,310 50.0% Total Allocated Insurance 57,065 27,868 68,905 34,452 50.0% G & A Allocation
4998 - Cost Allocation Plan (CAP) 908,934 454,467 950,965 475,483 50.0% Total G & A Allocation 908,934 454,467 950,965 475,483 50.0% Transfers Out
4999 - Transfers Out 32,551 32,105 187,000 51 0.0%
Total Transfers Out 32,551 32,105 187,000 51 0.0%
Capital Outlay
5100 - Capital Outlay - - 148,000 - 0.0%
Total Capital Outlay - - 148,000 - 0.0%
Debt Service Payments
6100 - Principal 214,370 125,529 97,127 97,127 100.0%
6200 - Interest 25,668 25,116 22,761 22,761 100.0%
Total Debt Service Payments 240,038 150,645 119,888 119,888 100.0% TOTAL 4,045,271 1,829,429 4,282,823 1,822,138 42.5%
Agenda Item Number 11 Agenda Item Number 11
City Council Meeting Packet of February 3, 2026