Mayor, council members, thank you for the time tonight.

We're going to be discussing the utility bill, proposed rate increases, and the notice of intent is part of the formal process for tonight.

Before we get into the presentations on this issue, which is an incredibly important one, as well as in a very complicated one with all of the various aspects and factors that play into that.

I wanted to take just a few minutes and go over some key things regarding our enterprise fund as well as some of the drivers of the rate hikes and some of the things we're doing as a town and an organization in this matter because it can get lost in the presentation of the material itself.

So beginning with our enterprise funds, maybe.

This is off.

Okay.

Beginning with our enterprise funds, the lines of service that are contained within this are water, wastewater, solid waste, and environmental compliance, and they are self-supported through rates and fees.

And I think the easiest way to understand these funds, which are separate from the general fund, it's set up very similar to how a private enterprise would be, where the cost of the service is covered by the fees charged to deliver that service.

The only expense that is coming out of the enterprise fund are the overhead cost for the support services, HR, finance, IT.

Those services, those funds need to operate just like any of our other service lines in the organization, and there is no markup on those expenses whatsoever.

The town of Gilbert also does not transfer any of those funds out of the enterprise funds for non-enterprise related activities like some cities do.

We have to follow a very prescriptive regimen defined by statutor Arizona statute in when it comes to requirements for rate increases, beginning with a notice of intent, which is is tonight.

And then a formal adoption by council, which is currently slated for February 27th.

Then there's a mandatory notification and waiting period before the new rates can take effect.

And the town has begun a process of reviewing rates every two years for potential changes to be more responsive to the needs and ensure that our funds are solvent and can operate.

Another major factor of importance when it comes to these funds is our credit rating and the impact of that credit rating.

And I'll use an example in our personal lives, our credit rating and how that will affect the interest rates we can get on a car loan or a home mortgage, and we know with home mortgages in particular.

Sensitivity to that rate and the subsequent interest is paid, can total up to a lot of money in your monthly payment, as well as the interest cost over the life of that debt.

It is no different when we issue debt.

The better our credit rating is, the better interest rates will get when we do have to go to the markets to issue bonds.

And that can total uh tens of millions in dollars over the life of that bond.

Recently, Fitch just reaffirmed Gilbert AZ's water resources MPC utility system revenue bonds at AAA with an stable outlook.

And I'm gonna uh cover just a few of the things they highlighted in their review.

Starting with the operating cost burden, the system's operating cost burden was considered very low at $3,458 per million gallons.

This affirms that the rating agency views the operating costs of both water and wastewater.

Enterprise funds as very efficient, a strength to the system, and a positive factor in the rating.

Looking at the life cycle ratio was deemed low at 35% in fiscal year 24.

Planned capital spending for the next five years should generally outpace historical depreciation, supporting a continued low life cycle ratio.

This affirms the strength of Gilbert's long-term infrastructure maintenance.

Capital spending that keeps pace with or outpaces depreciation is a key indicator of a well-run utility for long-term sustainability.

They noted some rating sensitivities, and these factors could lead to a negative rating action.

First is failure to manage the rate adjustments in support of the CIP.

Sustained trend in capital needs increasing but what by beyond what is supported by the system revenues.

And pitch also noted they will be watching the large volume of capital expenditure over the next few years closely to see how the town is executing on its plans.

The major factors driving the current rate changes and Rebecca Hamill on our water resource, or our I'm sorry, our water department manager will go into more detail on these, but the four major categories are the historic ongoing and worsening drought in the southwest United States and what we need to do to prepare Gilbert for impacts from Colorado River shortages.

The Colorado River makes up 40% of our current water portfolio, and there is a very uh strong potential for stage three conditions, which would take effect in January 1st of 2027, and that would result in significant cuts in Colorado River allocations to all the cities that receive water from that source.

Second factor is the cost of water itself, and again, I'm not going to dive into the details on this one.

Rebecca will cover it in her presentation, but the cost of water is going up.

There's inflationary pressure on our operations and supplies, and then our critical infrastructure needs, which were one of the biggest drivers of our rate pressure that we're currently experiencing, the North Water Treatment Plant that is under reconstruction right now and expansion, the seven wells that again will prepare us for potential cuts to the Colorado River and making sure we can meet our peak demand and maintenance and replacement of water-related infrastructure.

Some of the things we are exploring and doing is evaluating cash versus bonds to understand what that impact is on rates, the available funding, and overall cost.

We're looking at uh providing additional funding for our financial assistant pro financial assistance programs.

Looking at different different rate or tier options for agricultural users.

We're researching the ability to serve septic users that currently that water that they use is not uh treated by the town and reused, either recharged or put into our recycled water program.

We are looking at to uh our incentive programs and to reduce water usage and new ways to incentivize uh reduced water usage and new programs that could be employed.

And then we're doing a water meter audit.

And I'll dive a little bit deeper onto this one because it is on for council action tonight.

So the town has selected Kimley Horn and Associates Inc.

to complete a third-party audit with preliminary findings available in March 2026, including a public presentation to the town council.

The town anticipates the water audit to strengthen public confidence in its utility billing practices.

Looking first at the third-party team, Kimley Horn Associates will look at data and business operations analysis.

AMKA services will look at uh perform the infrastructure audit, and then ME Simpson Company will perform a 95% statistical confidence confidence level for sample sample testing, and they are nationwide leader in water operations and maintenance.

From transparency perspective to ensure complete independence, Kimbley Horn will have access to all relative systems and data and the consultant report findings to the council without town staff filtering or editing any of those results.

The audit components itself, the data audit is the information flowing correctly.

Operations and business practices audit, are the processes sound, and the infrastructure audit are the meters measuring accurately.

And one thing I'd like to point out under the audit is they will be looking at all 90,000 plus utility billing accounts and analyzing that data to find any anomalies, any any statistical differences that we can then drill down and try to figure out what may be going on.

And then as part of the public engagement, there will be a 24-7 project hotline.

There will be project email and website, uh project email and a website with biweekly updates, and there will be weekly updates to assist with the timely resolution of customer inquiries.

During this period of time, we are requesting anybody if you believe there is an issue with your billing with your meter with anything to do with your water usage in the town to continue to reach out to the town, and we will continue to address those matters that as they are brought forward to us.

With that, Mayor, that's everything I'd like to uh cover at the beginning.