Item 23 - Public Hearing to Consider Proposed Water and Sewer Rate Adjustments

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Water and Sewer Rates March 17, 2026 Page 5 improvement projects, including the Smart Water Meter Program and water well improvement projects. The City secured favorable financing terms based, in part, on its AA credit rating, as evaluated by S&P Global Ratings, and the existence of an adopted rate plan demonstrating alignment between revenues and expenditures. In more recent years, operating expenses have continued to increase while revenues have remained relatively unchanged, reducing the utilities' ability to build and maintain reserve balances necessitated by debt covenants and best practices. Maintenance of these balances is a key factor in ongoing credit evaluations. According to the most recent S&P publication from 2025, S&P affirmed the existing AA credit rating but revised the outlook from stable to negative (Exhibit 1). To support long-term financial sustainability and continued compliance with Proposition 218, the City commissioned a third -party consultant to prepare an updated cost -of - service and rate study. On May 20, 2025, upon the completion of a competitive procurement process, the City Council awarded a contract to Robert D. Niehaus, Inc. to perform a long-term financial planning and cost -of -service study for both the water and sanitary sewer enterprises (Study) (Exhibit 2). The objectives of the Study were to examine the City's financial and strategic goals and, if necessary, develop and recommend a new rate structure to ensure the future financial stability of both water and sewer enterprises, while ensuring that the rates adhere to applicable law. After presenting the findings and recommendations of the Water and Sewer Rate Study to the City Council on January 20, 2026, the Council authorized staff to initiate the Proposition 218 noticing process for potential water and sewer rate adjustments. This action directed staff to prepare and distribute the required notices and supporting documentation in accordance with Proposition 218 requirements. Initiating the noticing process allows the City to formally consider the proposed rate adjustments while providing property owners and customers with an opportunity to review the proposal and submit comments or protests. A public hearing will be held as part of this process, during which the City Council will consider public input before making any final decision regarding the proposed rates. The key elements and recommendations of the Study are discussed in the sections below as follows: Capital Improvement Plan The water and sewer utilities need significant investment in the repair and rehabilitation of the aging infrastructure. PWA has completed both a water and sewer infrastructure master plan which identifies critical projects that should be constructed over the next 15 years. The water and sewer systems are already showing signs of distress. In the past year alone, the systems experienced 23 water main breaks, 200 water service leaks,