Utility Rate Advisory Commission Meeting - July 23, 2025

The Utility Rate Advisory Commission met to receive informational updates from the Department of Utilities (DOU) staff on the FY 2025-2026 budget, deferred maintenance needs, and the Combined Sewer System Long-Term Control Plan. The commission reviewed these presentations and asked clarifying questions, focusing on reserve fund policies, rate increase planning, and infrastructure investment priorities. No votes were required on the discussion items.

Department of Utilities Financial Update

• Budget Overview: Staff presented the adopted FY 2025-2026 budget for Water, Wastewater, Storm Drainage, and the Storm Drainage Property Fee funds, highlighting operating budgets, capital improvement program (CIP) allocations, and multi-year operational projects.
• Key Budget Details:
  • Water Fund: Operating budget of $130M, CIP of $39.4M, and $4.6M for multi-year projects. Two new positions (construction inspector, instrumentation technician) were added.
  • Wastewater Fund: Operating budget of $39M, CIP of $8M, and $1.9M for multi-year projects. No new positions.
  • Storm Drainage Fund: Operating budget of $43.7M and $2.2M for multi-year projects. Two service worker positions were added for homeless encampment cleanup.
  • Storm Drainage Property Fee Fund: Operating budget of $5.2M and CIP of $12.2M, focused on capital improvements and trash capture.
• Financial Reserves: Staff outlined the DOU's reserve policy requiring a minimum of 120 days of unrestricted operating capital and one year of capital reserves. Current reserves are above these minimums (e.g., Water Fund has 231 days of operating capital).
• Rate Increase Projections: Staff indicated planned rate adjustments are anticipated for the Water Fund in FY 2028 and the Wastewater Fund in FY 2028 to address projected deficits and maintain fiscal stability. A rate adjustment for the Storm Drainage Fund is anticipated in FY 2029 or 2030.

Public Comments & Testimony

• No members of the public spoke on any of the agenda items.

Discussion Items

• Commissioner Questions on Financials:

  • Reserve Policy & Interest: Commissioners inquired about the purpose of large reserve balances, whether they earn interest, and the rationale for maintaining reserves above the 120-day minimum. DOU staff stated the reserves do not earn interest and are maintained for emergency preparedness, bond rating stability, and financial responsibility.
  • Fund Segregation & Customer Bills: Commissioners sought clarity on the separation of utility funds, particularly the new Storm Drainage Property Fee. Staff confirmed funds are not co-mingled (a Proposition 218 violation) and that fees are itemized on customer utility bills.
  • Rate Increase Timing & Bond Ratings: Commissioners asked for more context on the correlation between reserve levels, bond ratings (currently AA), and planned rate increases. Staff committed to providing comparative data from other utilities and detailed projections from bond rating agencies.
  • Homeless Encampment Costs: A commissioner requested studies on the budgetary impact of trash removal from storm drains related to homeless encampments. Staff agreed to follow up with available data.

• Deferred Maintenance Highlights:

  • Presentation Summary: Staff provided an update on the significant backlog of deferred infrastructure investment: Water System ($740M), Storm Drainage ($364M), and Wastewater System ($1.1B).
  • FY 2026 Projects: Highlighted specific critical projects budgeted for the year, including a 90-year-old water transmission main replacement, storm drainage berm and channel repairs, and wastewater force main replacements.
  • Commissioner Discussion:
    • Commissioners questioned how proposed rate increases would address the massive backlog. Staff indicated rate proposals would balance deferred maintenance with other operational needs and departmental capacity.
    • Questions were raised about project prioritization criteria, equity between combined and separated sewer system investments, and the feasibility of separating the combined system (estimated at $4.7B). Staff explained prioritization is based on risk of failure, age, and observed defects, and that full separation is cost-prohibitive.
    • A commissioner requested future presentations include project locations on a map.

• Combined Sewer System (CSS) Long-Term Control Plan (LTCP):

  • Presentation Summary: Staff reviewed the CSS, which serves older parts of the city, and its regulatory requirements under an NPDES permit. The LTCP aims to minimize combined sewer overflows (CSOs) and outflows (flooding).
  • Costs & Strategy Shift: The remaining cost for capacity improvements is $543M. Staff explained a strategic shift from solely targeting modeled flood reduction to prioritizing projects that ensure system resiliency and protect public health, using adaptive management and real-time monitoring.
  • Commissioner Discussion:
    • Commissioners asked about the impact of updated precipitation data and climate change on design storm targets, the frequency of untreated discharges, and confidence in hydraulic modeling. Staff noted precipitation updates increased design storm rainfall by 10%, complicating progress measurement, and emphasized using new technologies to calibrate models.

Key Outcomes

• Informational Review: All items (FY 2026 Budget, Deferred Maintenance, CSS LTCP) were for review and comment only. No votes were taken.
• Action Items & Follow-ups: DOU staff committed to providing commissioners with:
  • Multi-year trends for reserve balances and expenditures.
  • Data on the financial impact of homeless encampment cleanups on storm drainage operations.
  • Comparative analysis of reserve levels and bond rating requirements from other utilities.
  • Detailed information on the Storm Drainage Property Fee structure and inflation indexing.
  • A map showing locations of major deferred maintenance projects.
  • Clarification on whether reserve funds earn interest.
• Meeting Extension: The commission voted unanimously to extend the meeting past 7:30 PM to complete discussion.
• Future Presentation: The City Attorney will give a presentation at the next meeting (August 2025) on the commission's rules, responsibilities, and jurisdictional boundaries as outlined in the city code.

Commissioner Comments & Ideas

• A commissioner requested a better understanding of the commission's advisory role versus delving into operational details, prompting the planned presentation from the City Attorney.