Good evening, it's 6 31.

I'm calling the July 2nd Environmental Services Commission meeting to order.

We will start with the roll call.

Commissioner Lutterman present.

Commissioner Heinosh.

Present.

Commissioner Margolis.

Present.

Commissioner Tyson present.

Commissioner DuPertis.

Is currently absent.

Commissioner Laxon is excused for this evening.

Good evening and welcome to the July 2nd Environmental Services Commission meeting.

First off, we will start with the approval of the agenda.

May have a motion to approve.

Move to approve the agenda.

Second.

Thank you.

Are there any uh requested changes or modifications to the agenda by anyone?

Hearing none, the agenda is approved as motioned.

We'll now move to oral communications.

Our communications are now open.

Remember that there's a three-minute time limit per person and 30 minute total per meeting.

Public comment shall be limited to matters relating to the city of Bellville government and to the subject matters encompassed within the power and duties of the commission.

Persons participating in commission meetings must not engage in speech or conduct that is that disrupts, disturbs or otherwise impedes the orderly conduct of any meeting.

Disruptions may include and are not limited to failure of a speaker to comply with the commission bylaws concerning public comment.

Uh Joe, do we have anyone registered for oral communications?

I think we do.

I would like to reflect that Andy.

Commissioner Dupertis joined us at 6 32.

Oh, excellent.

Thank you.

Commissioner DuPertis is now present.

Um all right.

So we'll move with the oral communications registered.

Mr.

Zimmerman.

I come there to you in talking for many years.

Guys, I don't blame you, so you're boring like a slave.

And I don't blame you so you're thinking you're very smart because position here and for a long time make you more.

Your career better, you make more money.

But by definition, what is you doing is absolutely only the bill can do in this.

Look what has happened with City for last seven years under Mayor Robinson.

In right now, under Mr.

Muhammad is a nightmare.

City dead, totally classic fascism city.

Yes.

When government together with corporation, suck blood and money from us.

No analogy in America.

Plantation, what is exist after 200 years?

What is last plantation disappear?

Look, this console is the old criminal, all pure bandita.

You know what this means.

They don't care about city, they care about her $400 salary per hour.

You know what this means.

The longer you can stay in, better for everybody.

Guys, Bill is very unique city.

State of the city in each time at the state of the city come is come to downtown Bellevue Association.

Fifty people are approximately present, and you need to pay approximately a thousand dollars for presenting this meeting.

My question right now to the generative and idioto, not say yes up a bandita, what is seven council?

How is this possible?

Why not in a liver for four years?

Why know now one statement of the city come to people?

Why?

Why is it never happen?

Why council never have QA?

Never.

And I'm talking about this for a long time.

Are you care about this?

Nah.

Yeah, you're thinking you're very smart.

You will stay in here, you make a little bit more money.

Everybody happy.

Yeah, but by definition, you the generative idiot, debilly is my personal opinion about what has happened here.

So you have different opinion.

You're blind, stupid, or do you not even?

No, you're not a Nazi.

Not so much uh decent people communists do.

You're a bandito, you know what is mean?

Primitive, realita.

All of it because you will indentity.

Viva Trump, if a new American revolution, stand up sleep and happy cow.

Guys, city dead.

You don't understand this?

Thank you very much.

You do what it is.

All right, that's the end of our registration registered oral communications.

Now I'd like to open it up to the floor and see if anyone would like to speak.

Yes, please.

Well, please have a seat.

Um you have a three-minute time limit.

Please uh state your name and your address, and then please share with us what you'd like.

Hi, my name is Nicole Myers.

I am a Bellevue resident.

And um I uh just wanted to say thank you for taking so seriously your responsibilities to control the cost for Bellevue residents.

We know that it's not just the things that are being decided in this room that are going to affect people's bottom lines, it's also what's going on with PSC.

It's also the fact that it looks like our transportation benefit district tax is, you know, in progress, and um that's gonna add on to the sales taxes.

You know, there's always more things that um people have to be concerned about.

And I know in the scope of uh utilities as well, there's only a limited number of things that we actually have control over.

So um, you know, I know it's, you know, some people may say it's a rounding error compared to the you know major costs that utilities is facing that we really can't avoid.

Um, but um thank you for reading some of the letters I sent in regarding the connection recovery charges.

Um and uh I also realized after I sent those that I had another question uh really for staff regarding the DFCCs.

Now I think it has been described that DSCCs are um really growth pays for growth, and you know, maybe some of the impact ends up on people who are or the developers who are paying the CRCs if no one's you know, if we stop collecting the DFCCs.

Um, but I also wonder how much we're leaving on the table, what the scale of some of those is on a per parcel or per project basis.

Um, you know, if you know a typical project is maybe a hundred thousand that you know interferes with developing a small project.

What are we talking about for some of the larger projects?

Do we know what we're leaving on the table?

Um, now that I know that it also includes downtown in Wilburton, not just the outlying areas.

Like, are there, you know, ways that uh we can try to capture as much of the foreseeable DFCC revenue as possible uh while coming up with a change that you know we can agree is not going to um hamper development in Bellevue going forward and you know, really is logical.

I think the whole whole idea of changing how we charge for the DFCCs is not unreasonable, but I don't think we necessarily have enough information, at least I don't as a member of the public, um, to know, you know, really where the trade-offs are, who's benefiting, um, what is reasonable, and I hope that we'll just have a little bit more discussion.

I'm sorry for spraying this on you at the last minute because I know I have had so many requests before, but again, I think that the work you do is so important for maintaining um these vital resources for Bellevue residents and for keeping the costs under control.

Thank you so much.

Thank you.

Thank you for sharing.

Um let's see.

Anyone else in the audience?

I don't think so.

Um anyone online, Joe, that would like raise their hand.

No, all right.

Okay, and that concludes our uh public comment.

Uh now would be city council update, Councilmember new house.

Thank you, and it's so great to see everyone here this evening.

I mean, some people might have thought that uh, you know, before a long holiday, it wouldn't be full attendance here but nevertheless everyone is here so that's great to see you thank you um a couple of uh quick things I just want to update on so uh one we are in the throes of um our our budget process right now as you uh are are aware uh some of the work here directly impacts that but we did have an update um la last meeting about um uh our our our revenue growth which is flat uh 2028 will be flat we think that there we will still uh see some growth in 2029 uh but there are a number of headwinds that we're um that we're uh uh faced with right now some of them um uh really kind of outside of our control you know be it inflation be it uh some of the uh policies um down in Olympia some of the legislation there is is is impacting us um uh you know uh the the high interest rates um uh you know certainly impacts um developers uh and and also uh home purchases um as as well um and then um and then just a bit of a um lower consumer confidence right now with everything going on in the world and and and then uh domestically as well um that that consumer confidence is not um as high as it could be and that impacts too our our economy in terms of um you know what people are willing to spend their their money on um and as you probably know a great deal of our uh revenue that comes into the city is through sales tax um so if they're not spending those dollars we're not seeing as much revenue into the city um so um we we just had that preliminary um uh budget and that public hearing uh last meeting and um really uh you know I've been asking everyone to please even outside of this um uh this committee to to please share your thoughts especially on priorities especially what you see uh should be priorities in your neighborhood uh in in in your community things uh that you would like to to to see um in in the budget we this council really wants to hear from you so encouraging everybody here as well as anyone listening um to uh please uh be engaged in this process because what we develop is really a values document and we want it to be uh reflective of what the community really wants to see in this budget yes we did an amazing survey which is great um but um you know that's about what 2,000 residents of what close to 160,000 so we'd love to hear to continue to hear more and and be a part of that conversation um you know more more of the budget will be rolled out over the over the next month before we pass it in late November so there's plenty of time to uh to to weigh in um and and to share some of your thoughts on in terms of what you're hearing during during that process um the other thing I wanted to mention was about um the study that I um uh encourage my colleagues to support and thankfully they did and we did a grid capacity assessment um last last meeting uh we got some results it was uh it was a great uh collaboration between the city of Bellevue the city of Redmond and uh and PSC um we as you probably know are growing fairly dramatically between now and 2020 2044 35 thousand new uh housing units and seventy uh 7000 jobs um so one of the things that has been concerning to me is do we have um the infrastructure specifically do we have the um uh you know grid to support that kind of growth and on top of that we're shifting as a society in terms of like just look at the environment for example right um you know a lot of people are making the decision to move to ev vehicles well um they need to power them every day um uh and then and then just a little other things that we're uh putting more and more emphasis on the on on the grid um the the good news is is that um it might not be immediate, but there are some very um uh I I would say some very uh concerning uh clouds ahead, if you will.

Uh basically the studies show that there are four uh substations that need to be replaced within 10 years.

And if not, we could see some fairly significant uh impacts, especially to um some neighborhoods, um, especially those um in the northern part of uh of the city, kind of north town area and Somerset, especially.

Um, when you consider that it can take five to six years to replace a substation, and that 10 years is basically an estimate, it could fail quicker.

Um, we're on we're on a time crunch.

Um that's why I always appreciate what we hear about here during this commission about the importance of constantly reinvesting in our infrastructure, not waiting to the last minute or waiting until we see fails, right?

We don't want to see that here.

So um there was a great, I think it was about 40 or 50-page report because we worked with a great uh consulting firm called uh ACON, AECON.

Um, that report is on the city website.

Um if you have an opportunity, would really encourage you to take to take a look at it and look at how the study was conducted and uh also uh their their best analysis in terms of what where we're at right now.

It's not a hundred percent complete, um, but it gives us a great path forward, and it's really accomplished something where um has been missing, and that has really been a better collaboration with PSE.

Uh it's so important.

We we're we're we're we're establishing more uh critical uh deadlines, uh, more uh more meetings, more specific uh tasks between the city and between PSC and just more coordination in general to help us fuel all this growth.

So really important work there.

So please um really uh take advantage and and take a look at that uh report.

I would hope that you know that might be might be of interest to you.

And then also just take a uh lastly take a look at um uh speed reductions that we're doing across the city as well.

Uh this is part of the Vision Zero program.

This is also in response to um uh to some unfortunately some rather high increases in terms of uh of injuries and deaths that we're seeing within within the city of Bellevue.

Um so this is just one of numerous tactics that we're taking to hopefully reduce the amount of this incidence there as much as much as we can.

Um, you know, it doesn't address some of the core things that I'd that I think we still need to address, unfortunately, where sometimes we have, you know, the the folks who'd like to come into our city and do some drag racing on 148th or uh other other parts of the city.

Um we still need to clamp down on that, and and and we are uh, but it's kind of cyclical, right?

We do these emphasis, comes down, and then they and then, and then sometimes the summer months bring bring out more of the the car rallies, and next thing you know, they're uh um uh going at very dangerous speeds on on our streets and can really um create those dangerous conditions.

So anyway, so hopefully um this will be a good step in eliminating uh again serious injuries and fatalities with encourage you to take a take a look at that as well.

So quick update, probably longer than you want me to go on, but uh it's it's just it's a short agenda tonight.

So thank you, Chair.

Thank you.

You're welcome, council member.

Um, all right.

Uh next up, staff reports, Joe.

Yeah, we have Deputy Director Scott Edwards here to touch base on the solid waste contract.

All right.

Yeah, it's my pleasure uh tonight, and this is just a real quick update, it's been a bit.

Uh since we were before you, you're a member that you considered and approved the uh objectives that guide the procurement process, subsequently taken forward as a recommendation to the city council and they approve them.

So I'm just here to let you know that the procurement process is proceeding as expected on schedule.

Um we are working with our solid waste consultant.

You may remember that's new gen strategies.

And so we have conducted and completed uh benchmarking with certain uh regional jurisdictions as well as national jurisdictions, and we have evaluated best practices not only in solid waste contract uh provisions, but obviously optimal service delivery, which is what we're after uh ultimately.

Uh based on our findings and stakeholder engagement, we're going through a process of completing refinements to the existing contract language, and we are really doing that through that lens again of the four objectives.

If you remember, they are alignment with best practices, responsive to community needs in terms of reliability, affordability, and user experience, uh compliance with state laws and local policy, and then the last being leveraging technology.

Uh ultimately, the proposed contract language at this stage is currently under its final review.

As we prepare all RFP or request for proposal materials, the final package, if you will, and we do look to release that at the latter part, second half of this month.

And again, we are on schedule.

Thank you.

We're now going to move on to the approval of the June 4th, 2026 minutes.

Move to approve the minute.

Thank you.

May I have a second?

A second.

Thank you, Commissioner Heinosch.

Are there any requested changes or modifications to the minutes or to the motion?

All right, hearing none, the minutes are approved as motioned.

We have no unfinished business, so we're on to our one new business item tonight, the utilities 2027 28 budget and rates recommendation.

Scott and Matt, you have the floor.

Thank you.

Okay.

So as the commission considers budget and rates recommendation to the city manager, we prepared for you this evening a recap to highlight the relevant materials that you've seen to date.

In addition to reviewing this information, we're available clearly to answer any questions that you may have that would help support your recommendation.

With the informational items that you received over the last five months, we're now seeking the commission's recommendation as you can see on this slide to the city manager regarding the utilities 2027 to 2028 operating budget and the 2027 to 2032 CIP budget and the rates necessary to fund the proposed budgets for the next biennium.

Your recommendation will be very helpful to the city manager as she forms her proposed budget, which will be delivered to the city council in September.

And in September, the Commission will develop a recommendation to the City Council on utilities budget and rates.

Our presentation this evening, as you can see on the agenda, we'll revisit some key information.

We'll review the calendar and the topics that we've covered this year.

The roles and responsibilities of the ESC, of course.

We'll recap the key principles used in developing the utilities budget.

We'll summarize the operating and CIP budgets for you as well that were presented to the commission during our prior meetings.

And again, we'll answer any questions you may have to support the commission in developing a recommendation.

So beginning with the budget calendar, tonight's meeting is a continuation of the commission's review of the utilities budget.

Believe it or not, this represents the sixth meeting on the budget this year.

So my hat's off and appreciation to all of you for hanging in with us this far.

It's been but we're actually getting through the calendar very well.

You received a number of foundational briefings on the budget process over the last five months, and those include a review of the utility financial policies in February, as you can see.

We provided the commission with the 2025 financial performance in April.

In May, we provided the commission with the 2027 to 2032 early outlook rate forecasts, which included the anticipated rates necessary to fund our budget requests.

In June, we conducted two meetings to cover the 2027 to 2028 operating and CIP budget proposals as well as the 2027 to 2032 proposed rate forecast.

And tonight we'll be recapping those proposed operating and CIP budgets and seeking the commission's budget recommendation to the city manager.

As you can see, it's following tonight.

We have coming up in September, early September, we have the budget and rates update as well as the budget and rates public hearing.

And then that leads to the September 17th meeting where we would seek the 2027 to 2028 budget and rates recommendation to the city council with subsequent budget and rates update.

It's listed as tentative in early October, followed by the ESC chair presenting the recommendation to council in October as well.

So the Commission will recall that our budget represents the largest policy document for the department as it outlines the strategies and policies utilities uses to address key financial and operational challenges over the next biennium.

Moving from left to right on this slide, it depicts respective roles and responsibilities of staff, the commission as well, and the council, of course, in developing budget and rates.

The foundation for any budget is council's policy direction and vision, and staff develops the budget consistent with council direction and council adopted policies and proposes rates based on those policies, as well as legal requirements and utility rate setting best practices.

The commission is an advisory body to council, and in that role, the commission reviews the budget presented by staff, asks questions, holds a public hearing to gather public input, and then again develops a recommendation to the city council.

And on the right, as you can see, is the city council's is the ultimate responsibility and authority to adopt utilities budget and rates.

Next, the commission will recall utilities budget and rates development is founded on certain principles, and those include that the budget must align with council priorities and strategic direction.

The budget must also adhere to our long-standing financial policies, and those include wholesale costs for water supply from Cascade and sewer treatment services from King County, must be passed directly through to our customers.

Our rates must be set at a level sufficient to cover our current and future expenses.

Changes in rates should be gradual and uniform to the extent possible, and funding for capital investments must be sufficient to meet our long-term capital program costs and ensure intergenerational equity.

Before we review the proposed budget, we'll provide an overview of what you see here of how the proposed 2027 to 2028 budget compares to the current adopted budget.

Reflected in this chart, the total operating budget is increasing by 10.6% in 2027 and 8.2% in 2028.

Please note that this is a budget increase.

It is not and does not equate to the same percentage rate increase, and that's for many reasons, including one-time expenditures and because we are able to smooth increases through our long-term forecasting process.

Budget drivers are depicted on the right on this slide, and working from bottom to top, you'll see base compensation adjustments and changes to indirect support costs are expected to add four-tenths of 1% to the budget in 2027.

The need to build rate capacity for our aging infrastructure contributes 2.9%.

Planning prudently for aging infrastructure replacement remains an ongoing priority as it must to avoid rate spikes and achieve customer intergenerational equity.

Wholesale sewer treatment and water supply costs.

Those will contribute 2.7% and 1.1% respectively to the 2027 budget.

And the cost of additional state and local taxes assessed on planned rate increases as well as the specific inflationary adjustments to electric utility expenses and standby pay to like tied to labor agreements, will add 2.2%.

And it's important to note that utilities has reviewed, and it's our standard practice to review its base budget and right size our expenses wherever possible.

However, we are unable to fully absorb the rising costs experienced in utilities capital programs and local operations.

We've been able to contain our local operations to inflation with the exception of a few key investments, which add 1.3%.

This includes extending LTEs or converting them to FTE staff to sustain existing operations, as well as the expansion of the utility bill assistance program as we've already covered earlier.

You'll hear more about each of these key drivers coming up.

This slide presents a mid level view of the proposed two-year operating budget for our four lines of business.

In total, as you can see, the operating budget is about 511.8 million, which represents the funding necessary for the next two years to pay for our operating and capital support needs.

Starting at 12 o'clock and moving clockwise, you'll see wholesale costs in red total 174.9 million or about 34% of our biannual budget.

Next, we'll focus on two pie slices, taxes totaling 49.5 million, and support services totaling 34.9 million, and combined these represent about 16% of our operating budget.

For the 2027 to 2028 budget, it should be noted that taxes are included with wholesale costs in a single operating budget proposal.

However, for the early outlook forecast presentation earlier this year, you'll recall taxes were combined with support services separate from wholesale costs.

To be consistent, we're depicting taxes separately from wholesale costs for this presentation as well.

And we've shaded the taxes pie slice in orange with yellow dots to demonstrate its alignment with what we shared with you previously.

The next pie slice is TEAL, and it's represents CIP support totaling 179.4 million or about 35% of our operating budget.

And finally, local operations in blue total 73.1 million or about 15% of the operating budget.

This next slide depicts the proposed 2027-2032 CIP budget by proposals, also known as the areas of investment that align with council's strategic target areas.

The utility continues to invest over 75% of the CIP for renewal and replacement of aging infrastructure, which is shown in blue on the pie chart.

The proposed CIP includes 65.8 million in capacity for growth category, which is shown in orange.

This is to fund new reservoir and associated infrastructures needed to provide drinking water storage for planned population growth in downtown Bell Red and Wilburton areas.

And the proposed CIP also expands investment in the environmental preservation category by about $25 million, which is in purple.

The increase is attributed to the several new projects proposed in flood reduction and water quality improvement programs, while continuing to fund fish passage and stream improvement projects to preserve and protect our natural resources.

For some of the smaller slices of the total CIP, we have proposed budget to renovate Eastgate Yard, as well as continuing to fund land acquisition and construction of the new North End OM facility shown in dark blue.

We also continue for funding for projects that rehabilitate and improve existing groundwater wells and associated infrastructure for emergency supply, which is shown in green.

Next, we'll have Matt provide a review of the rates forecast and typical residential bill impacts.

Matt?

Thanks, Scott.

Good evening, Commissioners, Councilman.

So this slide on screen, you've seen this before, but it presents the combined water, sewer, and storm rate increases presented with the revised rate forecast from two weeks ago.

These are the annual aggregate rate increases for the three piped utilities.

The actual bills and the bill impacts will vary by utility and by customer type.

So the bottom stack of the chart is the wholesale cost rate drivers tied to Cascade Water Alliance and King County wastewater treatment.

And they represent a little more than half of the overall rate pressures over the next six years.

As Scott mentioned, those costs are passed directly to our customers via their bills.

Local operations, a little less than half of the remaining rate drivers depicted in orange, include funding for the capital investment plan, financial obligations such as taxes and indirect support to the general fund, and ongoing operations and maintenance activities.

But before we go into the bill impacts, though, of these operating capital budget proposals, I'd like to spend some time summarizing how these budget proposals translate into bill impacts.

There was discussion and request from our commission's last meeting for options for rate relief by making adjustments to the controllable parts of our budget.

And as a reminder, when I use the word controllable, what I mean by that is internal budget items, including local operations and our annual contributions to the capital reserve to fund the six-year capital program and the 75-year asset renewal and replacement program.

The other part of our budget are those costs, which we have less control, like wholesale costs, taxes, and general fund support.

And as Scott mentioned, those external costs are about half of the proposed budget.

And so because half of our operating budget is driven by external pressures, we can only rely on the other half of the budget to the one we have more control over to pay for a rate reduction.

In simple terms, a 1% reduction in rates requires a 2% reduction in controllable expenses.

Kind of a rule of thumb that we'll probably continue to see for the next several years.

The timing of the rate reduction matters too.

Shaving 1% off rates next year has a compound effect on the amount of revenue generated by rate increases in later years.

For example, if we shave 1% off the rate increase next year, that requires a $2 million reduction next year, but it requires a $3 million reduction by the end of the sixth year.

The table below provides some helpful information for evaluating the impacts of a 1% rate reduction.

The first row details the financial impact of a one-time 1% rate reduction next year.

And so it would result in us identifying $2 million in controllable expenses to reduce.

Over the next six years, we would have to shave around $15 million of controllable expenses.

That's the equivalent to shaving our capital program by about 3% over the next six years.

The flip side, though, is our monthly bill would be that we're showing you tonight would be about $2.30 lower this year, or I'm sorry, 2027, and then by 2032, it would be about $3.45 lower than what we've shown you in the previous couple of meetings.

If we were to entertain a 1% rate reduction every year for the next six years, this is where you see the compound effect start to show up, it would still require a $2 million reduction next year in controllable expenses.

We would have to find $55 million in controllable expenses over the next six years.

By year 2032, that would cut about a third of our local operating budget.

In CIP comparison, it would cut about 13% of the six-year capital program.

Of course, theoretically, if we could do this, the bill discount next year would be $2.30, and then by year six, it would be $20 lower than what we've shown you.

So based on the discussion with ESC two weeks ago, my team sharpened our pencils and looked at some options for the commission's consideration to create some short-term rate relief.

The decision you'll see tonight, or the option that you'll see tonight, focuses on a financial management strategy for addressing the recent revisions to the capital improvement program.

Last month, Dave highlighted that the six-year CIP was revised, the cost was revised downward by about 19 million dollars from the early outlook forecast.

And that downward revision was due to updated cost estimates on recent bids, rescheduling of some projects, primarily in the water main replacement program.

Most of that 19 million dollars is in the water CIP, about 16.5 million dollars.

The water utility is an active replacement.

Our capital program over the next six years will rely on reserves in addition to our annual transfers to the capital fund to pay for that capital program.

We'll also rely a little bit on interest earnings to fund all those projects.

Hopefully it does.

Perfect.

Uh there it is.

The early outlook forecast envisioned that the 287 million dollar CIP would be funded primarily from an operating transfer.

That's that blue column.

About 236 million dollars of the total 287 CIP would be funded from cash funded transfers from our operating fund.

We would also rely on about 30 million dollars from interest earnings and connection charges, and then these funding sources would be supplemented by the use of 21 million dollars in one-time use of capital reserves.

That was the capital funding strategy envisioned in the early outlook forecast.

Now, the cost revisions to the CIP resulted in our water CIP being about 16.5 million dollars lower, so it's now 270 and a half.

Because of this change, staff adjusted our capital funding strategy.

So what we presented to you two weeks ago and four weeks ago, that proposed budget leveraged that cost reduction to reduce the reliance of capital reserves to fund the program.

So you can see the blue column remains the same.

The annual transfer each year would be the same, but we're what we're changing is we're relying less on capital reserves to fund the program.

Instead of being 21.3 million dollars in yellow, it's now like two million dollars.

So that was the financial strategy we presented in in the proposed budget.

I'm gonna stop there before I move on.

Is there any questions so far in this?

Yeah.

What um what do we have in the reserves right now and what um kind of uh reserves do we um aspire to uh to me to maintain?

So uh by policy, by practice, it's not a city policy by practice we try to retain the equivalent of two years of capital project expenses held back as a reserve for the for each capital fund.

So for the water utility, um next year that would be ideally retaining about 84 million dollars in standing reserves.

So what's in there right now?

We are very close to that number right now.

Okay.

So we envisioned moving this next six years is gonna be capital intensive for the water utility.

It is an active replacement, and so we'll be drawing reserves from that amount over the next six years.

The plan is by year seven, we've gotten through this pressure point and you're rebuilding those reserves back up.

Um, so that so that the the strategy we're proposing here, we recognize hey, we're gonna be dipping into those reserves by taking that cost reduction and relying less on reserves.

We kind of we shorten that U shape of use of reserves if that makes sense.

Um alternatively what we could look at, I got two mouses here, uh, is that we could flip that financial strategy.

We could reduce the operating transfer, which provides short-term rate relief, and rely on a similar level of reserves that was envisioned as part of the early outlook forecast.

So the difference between um that third and fourth column is we're still gonna use the same amount of reserves that we thought we would need as part of the early outlook, and then we would reduce the size of the annual transfer each year from our operating fund to the capital fund that has a direct impact on rates, lowering that blue column impacts rates.

Can you go to the prior slide for a second?

Yeah.

So over what amount of time is that 54.4 million, you say one percent rate reduction every year.

To what at what point is it?

Is it 2032 that you see the 54?

That's uh cumulative total.

I can do the annual amount.

So over the six years, if you added the amount of money we'd have to identify, it'd be about 55 million dollars.

Okay.

In 2032, you know, I always try to plan for the unexpected, and then I fail.

So I have it open.

And while you're looking that up, I'm I'm curious too.

So um, so the ratepayer would see anywhere from $2.30 to $3 to $3.40, $45 reduction in their monthly bill.

What else would the ratepayer notice in terms of quality of service?

Would they notice any reduction at all?

Yeah, so a $54 million reduction to our capital program is essentially scratching the whole year of our capital program.

So it is a but at what point do we get to the 54.4?

By year six.

So here's that, okay.

So that's the end of the okay.

Yep, and so if you do that number, but again, what's what is the ratepayer going to see because of that?

Yes, in our CIP, but what is the rate payer gonna see or no?

Yeah, so if we depress rates to that level, I'm looking at that last row, a one percent reduction every year for the next six years, you're pushing down a balloon, and so it was will result in higher rate increases, rate spikes outside that six-year window.

Um, that's the cost of pursuing an aggressive rate reduction where we have to basically reduce our operating expenses.

Um our capital program.

If 75% of our program is targeted at replacement of assets, these aren't new, these are approaching the end of the useful life.

Yeah, and every year that we defer that, it increases the cost to rehabilitate or repair that.

Sure.

So um, uh question, but now I'll forget.

So go ahead, Commissioner.

Thank you.

So that 54.4 million is reduction in the CIP for water, specifically.

That's what we're talking about over those six years.

That 55 million would be a over cross our entire capital program.

Okay.

This is like, yeah, this is more a theoretical exercise.

This slide here is if you reduce rates by one percent across the board for all three pipe utilities, that's financial impact.

That's the total.

And so your assertion, as I understood a little bit ago, was then that's 54 million dollars of stuff that's not getting done in these six years, and so will have to be done at some point at year seven plus.

Yes.

In essence, you yeah, we would we would there's a deferral of projects.

Yes, that's the words it's deferred.

Projects are not gonna go away, and and water mains are not gonna magically extend their life.

They're yours.

And to Council Member Newenhouse's question, the the customer, the ratepayer may not see that readily apparent in the work, but as you defer work, uh you know, it is something that over time you will start to experience in terms of disruptions or failures, potentially, depends on how long you would do that, speculating a bit, but also as to Matt's point to catch up, if you will, would this result in higher rates later on outside the six-year window?

Yeah, to drill down a little bit.

Right back there.

Um, um that's outside of the replacing that a little bit more.

I think we mentioned that was specific to downtown.

So what exactly is that?

Sorry.

The bulk of that uh funding in orange, yeah, is the Maidenbauer South Water Reservoir.

Oh yeah.

Okay, and and and is that just to 18?

What is going there?

But what it's a new resource, it's a new reservoir.

Oh, okay, so it's okay, okay, gotcha.

Okay, so I'm gonna I'm gonna jump here.

Before you jump, go back to that slide.

Oh, yes.

I just want to finish.

I think council member Newenhouse's question that I don't think I heard the answer for.

Not this one, the one with the two lines on the bottom.

Got it.

Yep.

So I I heard we had a discussion about that bottom line about the reduction every year for six years of one percent impact two million to the budget in 27, cumulative impact 55 million over six years, lots of deferral of projects, rate reductions between 230 and 2035 over the six years.

Um, and I think the question was what will the customer see?

If we just pursue a temporary one percent rate reduction just for one year, the cumulative impact for that one year is 15 million.

What will the customer see there?

Yeah, yep, great question.

So that's essentially the um a like alternative that we're presenting in then following slide.

Right, right?

But it's it's if we were to reschedule the projects as proposed and just change our financial strategy instead of relying more less on reserves.

We rely on a similar level of reserves that was envisioned as part of the early outlook forecast, and you reduce the operating transfer at that same level, you're essentially reducing the operating transfer around, I think it ends up being just under 17 million dollars.

So it's on par with that first line, the alternative that I'm showing in the next slide.

All right, but it's only a one year reduction, not a six year reduction.

So the cumulative deferral is much less.

You get projects back up after a year, and you have to defer fewer projects.

So is that a fair assumption then that the customer will see less impact uh to their service?

There's less likelihood of major failures because you're not deferring six years worth of projects, you're deferring just one year to get them a one-year rate relief.

Yeah, for for if we're looking at pragmatic approach for that first row, I would not recommend reducing the capital improvement program because those are our highest needs of capital projects identified the next six years, and I would instead look at focusing on can we massage the 75 year outlook, right?

And that we are not jeopardizing things that need to be done today.

So there's even less impact that the customer.

And that's what we're showing in that next slide 12.

Is this alternative that alternative really focuses on adjusting our future contributions long term?

So we don't have an impact on current capital projects.

Customers still get some short-term rate relief, and it doesn't come across with an additional, you're not pushing the balloon, right?

So to speak, um, too hard.

And you might answer this later, Matt, so I might be jumping ahead here.

If I recall last meeting's discussion, part of what I was trying to ask was in your five year or six year forecast, you had us going the rate going up quite high the next two years, uh next four years, and then a little bit back down on the tail end.

And I was asking if there was rate a way for us to lower the impact in the first few years so that it was more of a gradual increase than a spike and then drop later.

So that's just but yeah, and and well, I was just gonna say to clarify that wasn't a rate, that was a rate increase each year.

So the first two-year increases were a little higher.

Sorry, yes, three.

Yeah.

So, and to respond to the question, one of the reasons the main reason we see that upward pressure on rates in the next four years is primarily because King County's wholesale rate increase is growing faster in the next four years than the last two years.

Um, and so if we're passing that expense on to our customers verbatim, then that reduces our flexibility essentially.

The alternative I'm showing, I'll show in the next slide does reduce the overall rate relief.

Um, it's not as emphasized on the New York term, it's spread out evenly really over the next six years, but but that's the reason for the pressure being a little higher, okay.

Um we I mean I could look at the options, other options that put most more of that up front.

Um, the challenge of putting more rate relief up front is it requires higher rate increases later on, right?

Um, so we're trying to both provide rate relief and avoid rate spikes.

Yep.

Commissioner Heinosch, you had a question?

I think he sort of answered it.

Okay.

And I'm just gonna pause just to check community.

Commissioner Dupertis, any questions from you?

I'm growing concern.

These are the words that really smart people use when they start to get nervous.

I can feel it.

I don't have the spreadsheet in front of me, but I don't think we're trending in a good way.

We need to make sure that we have the revenue to support our, and we can just think our ratepayers, our uh quality of service, we can think of mechanical terms like total cost to serve and other things that fit really well into Excel.

But uh I'm getting nervous about these slides.

Okay.

Thank you, Commissioner Dupert.

All right.

Yeah, let me let me go through these two proposals here.

So we've talked about the proposed funding plan that we showed to you all two weeks ago.

This is an alternate approach.

I want to emphasize between these two approaches from a financial professional perspective, I am indifferent.

Um both these options preserve our financial sustainability for investing in our infrastructure.

Um, it's a it's a value proposition in, I guess, for these two options.

And let me kind of go through the impacts of that alternate option.

With the alternate option, as I mentioned, we could flip our financial strategy where we could reduce the operating transfer by about um 18 million dollars.

I'm doing quick math on screen here, y'all.

Um that provide creates some rate relief in the short term, and we would rely on a similar level of capital reserves that we presented in the early outlook forecast.

And I want to be clear here, we would not be reducing the size of the operating transfer compared to current levels.

We would be reducing the level of increase to the operating transfer.

So we will continue to invest more in our infrastructure over the next six years.

It won't be the same level as envisioned in the proposed budget.

Um also emphasizing it's not going to create a financial risk of us maintaining our 75-year investment plan.

We estimate that this option, this alternate option would lower the annual rate increases for the water utility by one percentage point each year.

We were showing 7.7, those would become 6.7s.

When we're showing sevens in the latter two years, there would be 6% increases.

We estimate it would lower the overall combined water, sewer, and storm rate increases by around two tenths of 1% to three-tenths of 1% every single year for the next six years.

Doing the math, that's about a dollar shave off next year's monthly bill growing to about a seven dollar shave to the bill six years from now.

Um if the commission has to go to this route, I would recommend that we evaluate the impact of this action at our first meeting in September so that we can account for other factors that may impact the rates over the next two months, including Cascade's adopted budget, um, wage inflation that's informed by CPIW numbers in July, and then the final numbers for general liability insurance.

So, Matt, can I just um try while we have all these numbers in our heads a little bit fresh?

I just want to confirm so these rate impacts um already account for they reflect the cost of service changes that we talked about, at least in the sewer on the sewer side, right?

Basically shifting, you know, towards more cost of service, the equity analysis, yes, yes.

Okay, so that's already in there, and then of course the utility bill um assistance, yes, assistance program that's fully funded the way we had already determined that.

Okay, yeah.

Okay, thank you.

Any questions on on that alternate option?

Um, once again, this is this is a change in capital funding strategy.

You can see relative terms, the bulk of our capital program for water will continue to be funded by that operating transfer.

We're just relying more on reserves in the alternate relative to proposed.

That level of reserves in yellow is similar to what we envisioned originally in May, and both options do not or continue to achieve uh long-term financial sustainability of our capital reserves.

Um it's just two different ways of doing it.

Do we want to use that that cost savings windfall to rely less on reserves, or do you want to use it to provide rate relief?

That's the question to be had by the commission.

Um, Matt, between uh, oops.

Oh, sorry, just change it.

Between the proposed and the alternate, what's the difference to the rate payer?

What would they see, or are these basically equal to the rate payer?

No, the rate payer, as I mentioned, if nothing else changes the next two months.

Um, we would see on that typical bill impact that we'll show later on in the presentation that if we went the alternate route next year, that rate impact would be one dollar less per month, and if we forecast it out six years, it'd be seven dollars less per month than the numbers we have shown here, and then comparing that to the proposed, because part of my question is comparing them to each other.

Yes, so one dollar less than proposed, seven dollars less by year six compared to that.

Okay, so for the rate payer, they they don't care which way, right?

Proposed or alternate.

If it there's no direct impact to what they see.

Well, there there is a direct impact.

So example is between if you went proposed and alternate.

Yes.

So if I went the proposed route that we showed back in in two weeks ago, the total monthly bill would be about $250 next year.

The alternate path.

Well, it's in relevant terms, it'd be $249 per month by year six, instead of being um whatever you'll see the number here, it'll be seven dollars lower under the alternate path.

So you're you're reducing that annual rate increase by about three tenths of a percent every month, or three tenths of one percent every year for the next six years, so sort of a more general comment, which is just when these things come out to rate players.

I I just hope there's a way that we can communicate the extensive amount of work and care that you put into trying to figure this out for their benefits of figuring out and minimizing rates because it's it's impressive how much you're you have pointed, you know, sharpened your pencils and tried to figure this out, and and I just hope that we have a way to communicate this when the ratepayers start reacting because they're gonna react, obviously.

Um, so I appreciate all the work that's gone into figuring all this out.

It is a challenge going back to half our budget we don't control, so we're trying to reduce the pressure.

We are doing double work to get that one percent.

Um, so what we're seeking, oh that work?

Yes, we're hoping to get direction from the commission tonight on a financial management strategy related to the 2027 2032 water capital investment plan that um we could as proposed maintain the operating transfer consistent with what we have shown you the last two meetings, and as a result, it would reduce the reserve funding requirement required to support our capital investment plan.

All the numbers we presented to you in the last two meetings would hold.

No change.

Alternatively, we could reduce this number two, we could reduce the size of the operating transfer over the next six years and rely on a similar level of reserve funding that was envisioned in May, um, and provide that that rate relief that we've estimated over the next six years.

So we're just looking for direction from the commission and then we'll move on to the to the last parts of the presentation.

All right.

So I take it you're ready for us to uh make a motion and set direction.

So may I have a motion, please?

Okay, I move to uh follow the proposed rate, uh uh staff proposed rate uh uh CIP funding objective similar to the early outlook.

A second.

All right.

Uh so before we go ahead and take a vote.

Uh if there are any further questions from any of the commissioners, uh now would be a time we can discuss it.

We can ask staff.

Um so I'll open up the floor.

Is the motion to support number one or number two?

Uh number one, Commissioner DePurtis.

Can I just um make sure I understand the difference between one and two is really a result of the CIP for the water utility coming in sixteen million dollars lower, and so then we basically are saying originally we're gonna fund a certain level from reserves, right?

Um, now because of the sixteen million dollar lower CIP, we have the option of either keeping that level of reserves or re reducing another source, right?

Yep, per se.

Okay.

But that second one, the alternative proposal is basically going to result in in a little bit of rate relief, a dollar a month for a typical single family going up to seven dollars a month by year six if we choose the alternative.

Yes, that's correct.

Okay, thank you.

And to confirm what I thought I heard you say, Matt, from a financial professional's perspective, you are indifferent to either proposal.

That's correct, and just to kind of uh we go through months of financial planning, and when we presented our capital improvement program back in May, um we knew that we would be drawing 30 million dollars from our water reserves to pull this off, and we made a financial management strategy decision that that was that was an adequate and a responsible decision.

Um, and so using that same little reserves now, we're not saying that's a bad idea.

We were we had a we already signed off on an idea.

What changed is the cost went down, and we could make a choice.

Do we rely less on reserves now that we know the cost is going to go down, or because the discussion was brought up two weeks ago, is this an opportunity that we can look to towards um some rate relief.

Commissioner Margolis.

Yeah, I this just seems like there are two things to either equivalent and one of them has lower rates, is that how I'm hearing it.

So is there a downside to is there a would there be a benefit to um not using the reserves in the same way?

I just I don't understand what the downside is here.

It has to do with how quickly that we talked about that reserve minimum that we try to hold hold on to, about two years worth of capital spending.

Um, under the proposed approach, number one, because we're not relying on those same level of reserves, we're able to come out of this U-shape use of our reserves faster, right?

So we're able to come back to our minimum target of capital reserves around 2033.

If we go to the alternate approach, it's like 2035.

So there is a delay in recovery essentially, not a level that's alarming, uh, not one that we're concerned about, but that's the advantage is that we're able to recover from this um heavy investment period for the water utility.

And that presumes that something else doesn't happen where suddenly we needed those reserves, right?

I mean, you guys have I mean, obviously have planned for all these possibilities, but it means we don't have a kind of a oh no reserve.

Yes, and um Bellevue utilities sets itself apart from other utilities in the country.

Um I cannot think of another city or utility that holds as a reserve minimum, two years worth of capital spending.

One reason we do that is that it provides the benefit of financial flexibility.

Um if we do have unknown or unexpected consequences, we have financial capacity to absorb unexpected elements.

Um that's not by accident, that's intentional.

Um, and so I yeah, I don't want to present that there's uh an alarm bell going off.

Um we have robust reserves, and that's an intentional policy.

Any other comments from any commissioners?

Uh hearing none, um, gonna take a roll call vote for the motion on the table, which is to recommend uh the proposed option number one here in the action, which is to maintain the operating transfer consistent with the early outlook forecasts and reduce reserve funding requirement, which would result in uh the rate recommendations presented to the commission at the last meeting, and there will not be a reduction.

Uh so with that, um Commissioner Lutterman.

Aye.

Commissioner Hynosh?

Nay.

Nay, Commissioner Margolis, Commissioner Tyson?

Nay.

Uh Commissioner Dupertis.

Nay, right, Commissioner Duperis?

Yes.

Yay.

Okay.

All right.

Thank you.

Uh, and I uh will also vote nay.

So that is one, two, three, four, five nays and one yay.

All right.

Then now let's take a motion for the alternative, please.

We have a motion.

Yeah, I move um to adopt the alternative to reduce operating transfer and rely on the similar similar level of reserve funding, funding with the early outlook forecasts to provide a little bit of rate relief.

Okay, may I have a second?

I second.

Thank you, Commissioner Tyson.

Uh do we need to have any further discussion, Commissioners, on this alternative before we take a vote.

All right.

Then I'm gonna go with the roll call vote again.

Uh Commissioner Tyson.

Aye.

Yay.

Yay.

Commissioner Margolis.

Yes.

Uh Commissioner Heinosch.

Yay.

Commissioner Letterman.

Yay.

Commissioner DuPertis.

Nay.

And I am a yay as well.

So I believe we are unanimous.

Six.

So I voted I voted no.

Oh, sorry.

Were you nay?

Sorry.

All right.

So sorry, Commissioner DuPartis is a nay.

So we are uh five yes and one nay on the alternative.

And with that, the motion passes, and that is the recommendation for the ESC.

Thanks.

And as I mentioned, so we'll come back in our first meeting in September, including the recommendation from ESC on this action in addition to any other changes to the operating budget.

Once again, I don't know the directional impact of those.

We'll know more in the next couple of months.

All right.

But that uh affects your timeline to get this to the city manager, correct?

I think uh if the we could incorporate this language into the recommendation to the city manager that the rates as submitted to the ESC through two weeks ago with this um additional action.

Okay, okay.

Is there any further presentation?

The slides here.

Very good.

Just wrapping up here.

So we did want to circle back just as a reminder for what we showed two weeks ago.

Um in bill impacts, we'll start with multi-family residential.

Um, the top left side of the table, you can see the total typical monthly bill in 2026 is about 128 dollars.

And then moving downward on the table.

The primary rate drivers next year include wholesale, which we discussed earlier as presented with our pass-through costs to Cascade in King County, the bill assistance expansion, local other, which represents all other um increases to our operating expenses, including the transfer to the uh capital investment program fund, and lastly, the sewer equity adjustment.

This represents the equity adjustment required to bring um rates consistent with the cost of service study as approved by the commission, recommended by the commission and approved by council in April.

Um as a reminder, this equity adjustment would result in a decrease to the multifamily customer bill and a corresponding increase of the single family residential bill.

The net result is that the typical multifamily bill would increase by about ten dollars and fifty-one cents next year, and below that table in the blue box, we're showing the projected typical multifamily bills for customers enrolled in the bill assistance program.

First, for those customers currently enrolled and are receiving a 70% rebate, that typical monthly bill would be about $52.60.

And then next, for new customers that would qualify for the expanded bill assistance program next year, they would receive a 35% rebate, which means that their typical monthly bill after that rebate would be around $95.74 per month.

You'll see the rights of the table to pick that is same information for 2028.

Any questions here?

Once again, these will be revised, and we'll show you the numbers in September.

Um get better.

Because we went with the alternative.

Nothing else changes.

Yes.

Okay.

Yes.

I'll tell you if better from the standpoint of these numbers will be three less of an incident less.

Okay.

Thank you.

Other questions?

But we're bidding in a miracle, right?

That the wholesale costs are previously volatile.

And from here forward, they're now knowable.

That's what has to happen for the for these for the slide to be true, right?

Yeah.

So King County adopted the sewer rates next year, uh, last month, and so those are set.

Um Cascade has is about to adopt their budget, I think, in September.

And as of this month, the no changes have been made that are different from what we are projecting in these numbers.

So we're relying on those not changing.

And we we have we have a 12 month guarantee, is that right?

Um for cascade, it'd be a two-month, a two-year guarantee.

And for King County, it'll be a one-year.

Ideally beginning next year, it'll be uh two years um with a firm commitment for a third year.

I think I think this is a heck of a gamble.

Though the those assumptions haven't proven to be reliable in the past, and I think that we're we're assuming that these.

I think we're assuming that there's going to be stability where there isn't going to be stability.

I Andy, I don't know, I can't contribute anything at this point to the uh to that question or or observation.

And I would echo that for Matt.

I think uh we continue to work with King County with Cascade to work on long-term forecasting and driving predictability into the rates.

King County is moving in a multi-year rate forecast, uh, hopefully to provide a little bit better certainty uh for us, and so we're looking forward to that.

That's the next step for us.

Uh the longer-term outlook, of course, remains uh uncertain, if you recall from a WTD perspective due to regulatory requirements that are unknown among others.

Uh Cascade is obviously in a similar boat, but they do a fairly good job of projecting out in the near term.

Uh so I I understand and hear what uh Commissioner DuPertis is saying, but I do believe that we have uh near term more certainty than we would have otherwise had in recent years.

So I just leave it at that.

Well, and that's that's precisely the uh correct answer.

Um the problem is that it's it says that the problem is is correctly universally understood.

So that brings me back to the prior slide, which is how do we rise above it?

And let's just be careful not to get caught in the payday loan, right?

Where we assume that good things are going to happen in the future.

So maybe I should be more of an optimist.

Maybe it's my internal pessimist coming through.

But let's make sure that we're instead of borrowing against borrowing against stuff.

Let's make sure that we are the plan should be sure we have the revenue to support the quality of service.

Um, and we have the revenue necessary to overcome the total cost to serve to kind of close the loop between uh consummanouses comment on meaning prior slides and the conversation now.

I do realize it's I'm being a bit of a broken record, but it's there's something that I'm uniquely cautionate about, and I I think that we should uh be focusing on that uh now in particular.

Thank you, Commissioner Dupertis.

Um I just I if I just clarify I agree with Commissioner Duper's that past history has shown that the wholesale rates are rather unpredictable, and especially with King County.

Um, but I do think that's an aspect that I think this commission we can't, or the staff really can't control.

Um, but I do think I just want to confirm what we voted on tonight.

I mean, no matter where those wholesale rates go, our current recommendation is still gonna give the ultimate consumer a slight rate relief uh versus the original proposed rate recommendation.

That's correct.

Yeah, yeah.

The action taken by the commission tonight is completely independent of the wholesale rate drive pressures.

Yep.

And and if I recall our earlier discussions, not at the last meeting, but earlier, I think Commissioner Dupertis, others have kind of asked the questions, and I think staff have answered that you all are actively working with King County and Cascade to provide more longer term predictability in the rates.

So it's not a 12-month outlook at King County, so that we can better plan and for them to invest in their infrastructure so that we don't have these rate spikes, and that's an ongoing.

I think the uh item that I think staff should update the commission on as we're move forward.

I agree with you and understood.

Thank you.

Thank you.

I'll just quickly summarize the single family.

Um, it's the same layout as the multifamily, just moving from top left and down.

Typical bill right now is just under 230 dollars.

You can see the rate drivers below that, with wholesale um being the biggest rate drivers, single family customers.

Um, I'll also point out just as a reminder for the sewer equity adjustment, it is an increase to the single family residential class and will continue to be over the next five years due to the five-year phase and plan to move rates towards full cost recovery.

Any questions here?

Um the commission also requested information last uh two weeks ago on bill impacts to all customers and not just the typical bill.

Um so monthly single-family residential bills vary from customer to customer due largely to differences in water use.

Um, the histogram on screen will show the frequency of bills based on water use measured in 100 cubic feet.

So, as you might expect, let's see if this works.

Um, there's a concentration of bills in the middle.

The distribution tends to lean to the to the right side due to high water use for a relatively few number of customers.

Well, that some parts of a customer bill are fixed relative to water use.

Those include their fixed meter charge, um, the metro charge assessed and passed through from King County, and then most of our storm or all of our stormwater charges are fixed relative to water use.

So, um, all customers will see an increase to their bill next year, even if they use very little water.

And if you maybe too small, but if you look at the far left side of that orange line, a customer who uses no water next year, theoretically would still see a $13.70 increase to the monthly bill because of those fixed charges.

All other parts of a customer bill are related to water use, um, or for sewer winter water use.

Generally, these parts of the customer's bill will increase in proportion to water volume demand.

You'll notice that um the rate of increase tends to slow down around five and a half CCFs, and that's because customer sewer charges are tied to winter water use and not total use.

So as a result, water use in excess of about that five and a half CCFs of use tends to reflect outdoor water use, and so it doesn't show up on the sewer bill in terms of flow charges.

Um big picture for uh this is 95% of our residential bills on screen.

Um the typical bill impact will range from $13.70 per month on the left side to around $32 per month on the right side for a customer who's using who's using uh 20 CCFs a month.

Once again, that's at the 95th percentile of water use in the city of Bellevue.

The typical or average bill, as we showed in previous slides, will be about 22.38 cents next year.

The middle 80% of bills will range somewhere between 17 and 23 dollars per month.

Um so 80% of our customers use about that water, and so the range of variation for 80% of our customers will be 17 to 23 dollars a month.

This represents residential and commercial, it's everything, just single family residential.

So far, questions here?

I'm almost done, I promise, and I thank you for staying tonight.

I can just clarify for winter water use.

What is the time period?

Um, bills between November and June.

We bill bi-monthly, so for example, customers' water use in April may not show up until a June bill, and that's why it's when people hear June, like that's not that's not winter.

It's because we have a bi-monthly billing cycle, water use in April typically won't even show up on a customer's bill until June.

Questions about what's going on in those homes all the way to the right, but you probably can't do that.

Every one of them has a story.

I'm still just gonna ask what single family home is using 20 CCFs a month, so yeah, irrigation, okay.

Okay, okay.

So finally, just as a recap for benchmarking, um, wanted to provide this slide.

This is where Bellevue stands today in 2026, um, and then where we would stand in 2027 in the far right, emphasizing that with exception to Seattle.

Well, I'm sorry, with exception to none of these cities, all of them are served by King County wastewater.

They will all be seeing the same pressure, and every one of these except for Renton and Seattle and Mercer Island receive their water from Cascade Water Alliance, some level of water from Cascade.

And so similar rate drivers.

I do want to point out that folks look at these charts and say, well, Bellevue's pretty high.

Um, one of the main reasons for Bellevue being high is we stand, I would say stand alone in a good way.

Um we reinvest in our capital infrastructure far beyond beyond any one of these cities on screen.

Um, I can go into the financial metrics that we use to evaluate um capital solvency.

Um, we stand alone in a good way.

Uh, and the way that explained it is many of these cities are investing every year into their assets what they paid for them 30 years ago or 50 years ago.

That is not a sustainable rate strategy.

You're you're hoping for free money or low-cost money.

Um for every dollar of depreciation that we incur, we plan for $4 for the replacement cost, which sounds like a lot.

3% per year over 50 years is about four times the cost.

So it's prudent financial planning, it's thinking ahead.

This type of financial planning will result in less rate spikes, more predictable rates in the future, even though it looks on screen that somehow our rates are higher, they're not needlessly higher.

We are being strategic and thoughtful in in capital investment.

I completely defend you in other things.

That's one of the challenges with this with these benchmarking slides to say they don't carry, they don't themselves carry the talk document narrative.

But I think you're exactly on the on the right path.

Yeah, how you're thinking about the comparison here.

That'd be possible to like drill down a little bit on comparison to other cities, yeah.

I absolutely say, or pick maybe Redmond and Kirkland for example.

I think that would just be interesting to to see.

Yeah, I think we can provide that.

Um, this is information that's um the good thing about being a public agency is we're all required to produce an annual financial report.

Yeah, and so the information's all standardized.

Um, but but for example, uh Bellevue 2024, um, our net operating cash flow.

So after paying for all of our operating expenses, what do we have left over?

You compare that number to our annual depreciation expense.

We're four to one.

Every dollar of depreciation, we're have enough cash flow to pay for $4.

Just some examples here.

I won't give the names right now, but uh the highest of those cities on screen right now is about $2.

Once again, it sounds like it's a lot.

A dollar 50 years ago is worth $4 today.

Well, we're not we're not shaming other municipalities.

We're just saying we have a different approach.

So, you know that I don't think there's there's any uh downside just to highlighting that that our approach is different.

We we think it's the appropriate approach, but uh to see that would be interesting.

Hey Matt, is it also um related to uh what I learned what we do here relative to debt, our approach to debt is that we don't have debt in our utilities, and uh what I've seen with other utilities is they do have debt, and so that can tend to spread the costs of capital, you know, across 20 30 years versus having you know and lowering the rates.

So I don't know to what extent some of these other folks are more highly leveraged.

Yeah, so uh operating cash flow, right?

You can either use it to reinvest in your system or you can use it to pay interest expense or one of the or a combination of both in Bellevue.

We use all of it for capital reinvestment.

Other cities on this list and across the country have to set aside a portion of the operating cash flow every year to pay for in some cases a lot of interest expense.

Um it's not supporting the asset being replaced, it's supporting the cost of money.

But it's spreading the print, I mean it's spreading the the load on that, yeah, right, on the funds that you get across 20 years or 30 years.

Yes, that's a great great point.

Um we do a proactive planning like this, we're able to spread the cost over the life of the asset, which is generally 50 to 80 years.

If you go out to get a revenue bond, 30 years is probably the highest, and so you're compressing that repayment over a much shorter period, and also you have to plan for reinvesting for the next 50 years in a remote to replace it, and so it puts a double obligation on your on your next generation when you go out for debt.

But thank you for your patience.

I'm gonna pass the baton off to Scott who will close up for us.

Okay, thank you, Matt.

So in conclusion, the budget proposals for the next biennium include the anticipated cost increases for wholesale water supply and sewer treatment services, state and local taxes, and indirect support from other city departments and collectively, these expenses comprise about 50% of the proposed budget.

About a third of the budget is for capital investments, as we've been talking about, and that takes care of our system infrastructure.

The remaining 15% of the proposed budget pays for local operations, including maintenance, engineering, department management, and customer service and outreach.

Request for additional budget within local operations focused, it's focused on sustaining services at existing levels and implementing the expansion of the utility bill assistance program consistent with the commission's recommendations.

And that does conclude our review for this evening.

Again, we're happy to answer any additional questions that the commission has on our budget and rates recommendation or your budget and rates recommendation for the city manager.

Alright, thank you.

Thank you.

We finished our one item tonight.

Good job.

Uh Joe, would you like to review the commission calendar, please?

Yes.

Uh, just pulling it up now.

So, um, thank you for that presentation.

It's fantastic.

Um, July, uh tonight at ESC, we just covered the the and we get August a well deserved month off.

Um, so thank you everyone for the work you've been doing so far this year.

Um, then we'll come back in September uh for the budget rates update uh and a public hearing on the third, and then your recommendation to uh council on the budget.

And I left that we have some slots to fill in the fall.

Um we're looking at solid waste in November, but I I think we'll probably be coming back in October with um with something on the system plan when you're done with the calendar.

We have one item to one item.

Okay, go back to some something to scroll back on.

All right, and then real quick in July, as you already know, cascades coming uh to council uh on the budget and rates proposal and cascade supply program, and then what you worked on two meetings ago, I believe it was.

Uh connection charges is going with your recommendation to council.

Uh Commissioner Wan will be at that meeting uh to present uh your recommendations.

Um I will leave it at that.

Um you can read ahead, and then we have a little one more quick topic to cover, turn it back to Scott.

Yeah, and and I apologize, I should have clarified with that last action slide that staff is seeking the commission's recommendation uh to the city manager regarding the utilities 2027 to 2028 operating budget, 2027 to 2032 CIP budget, and 2027 to 2028 rates.

So that is something that actually uh needs to be voted on in terms of a recommendation.

I see.

All right, so then can you go back?

Minor minor yes on that one.

Minor detail, I suppose.

We we we voted on the alternative versus the proposed.

We did not vote on your ultimate recommendation that you need to make to the city manager.

So let's go ahead and do that before we wrap up.

So uh with everything that's been presented, may have a motion for this recommendation.

I move to recommend the uh 27 28 budget, 27 to 32 CIP budget, and 27 to 28 rates as amended earlier.

I second.

Thank you, Commissioner Tyson.

So um does any commissioner uh want to ask any questions before you take a vote on this motion?

Sorry, this is this is a surprise.

So this is with or without the changes to CIP.

With the changes, right?

With so this would be the lower CIP spend.

Yes.

Yes, Matt, go ahead.

Just for clarification, it's on a lower CIP spend, it's just it's a change in funding strategy for the CIP.

So we'll still execute the same capital investment program, but we're using less reserve, more reserves and less operating transfer to fund it.

Correct.

It's the alternative we just voted on, correct.

So that is your question.

This is with option two.

Yes, correct.

Got it.

Thank you.

All right.

Okay.

Then uh if we don't have any more questions, let's take a vote on this motion.

Um, Commissioner Letterman.

I.

Commissioner Heinosh, aye.

Commissioner Margolis.

Commissioner Tyson.

Yay.

And Commissioner DePertis.

Nay.

Nay, thank you.

Uh, and I vote yay as well.

So uh it is a five yeah's and one nay.

And the motion uh is approved.

Thank you very much, everyone.

Joe, anything else?

No.

Commissioner New Enhouse.

Uh Council Member Newhouse.

Sorry.

Exactly.

No, thanks for the great conversation this evening.

Uh two things.

Uh one, it was mentioned on your calendar there about the Cascade Water Alliance presentation to the city council.

Just want to encourage you to watch that.

Second, uh, there is a great ribbon cutting on July 15th at 12 30 for the horizon view reservoir.

Yes.

Right?

Okay.

Uh yes.

Yeah.

So if you're if you're able to um sneak out for for for lunch and take part in that, would uh would love to see you there.

I'll be there as well.

So thank you.

Thank you for that reminder, Councilmember Newman House.

All right.

Uh, with that, it is uh eight o'clock.

May have a motion to adjourn.

Move to adjourn.

And a second.

Second.

Thank you, Commissioner Margolis.

We are adjourned at 8 p.m.

Thank you.

Thank you, Commissioner DuPertis, for joining online.