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Okay.

We're going to go ahead and get started with tonight's meeting.

It's January 28, 2026.

I will take the roll.

Commissioners, please unmute your microphones.

Commissioner Tannekella.

Present.

Commissioner Gaspard.

Present.

Commissioner Burdock?

Present.

Commissioner Steinbaum?

Here.

Commissioner Rogers?

Present.

Commissioner Schambe?

Present.

Commissioner Nelson?

Present.

Commissioner Olson?

Here.

Vice Chair Eberle is absent.

Commissioner Johnson?

Present.

Commissioner Tran?

Present.

And Chair Zito?

Present.

Thank you.

We have a quorum.

Okay.

All righty.

Okay.

I would like to remind members of the public in chambers that if you would like to speak on an agenda item,

please turn in speaker slip when the item begins.

You have two minutes to speak once you are called on.

After the first speaker, we will no longer accept speaker slips.

We will now proceed with today's agenda.

We're going to go ahead and stand for the land acknowledgement, if you would, please.

To the original people of this land, the Nisanan people, the Southern Maidu, the Valley and Plains Miwok, Patwin-Wintan peoples, and the people of the Wilton Rancheria, Sacramento's only federally recognized tribe, may we acknowledge and honor the Native people who came here before us and still walk beside us today on these ancestral lands by choosing to gather together today in the

active practice of acknowledgement and appreciation for Sacramento's indigenous people's history,

contribution, and lives. Thank you. Please remain standing for the Pledge of Allegiance.

I pledge allegiance to the flag of the United States of America and to the Republic for which

it stands, one nation, under God, indivisible, with liberty and justice for all. Okay. Before

we begin with a consent calendar is there anybody I need to introduce today

because I might get through this without messing it up one time okay we're good

all right our first order of business today is to approve the consent

calendar clerk do we have any members of the public who wish to speak on this

consent calendar I do not have any speaker slips for this item thank you

okay so do I have any commissioners I move to approve the consent calendar

Second.

That was quick.

Okay.

Let's call for a vote.

We'll do a roll call.

Unmute your microphones, please, commissioners.

Commissioner Kanakela.

Aye.

Commissioner Gaspard.

Aye.

Commissioner Burdock.

Aye.

Commissioner Steinbaum.

Aye.

Commissioner Rogers.

Aye.

Commissioner Schaumbay.

Aye.

Commissioner Nelson.

Aye.

Commissioner Olson.

Aye.

Vice Chair Eberle is absent.

Commissioner Johnson.

Aye.

Commissioner Tran? Aye.

Commissioner Zito? Aye.

Thank you. The motion passes.

Our second agenda item is the Department of Utilities Rate Planning Update for Water Fund.

This is going to be receive and comment. Is that right?

I'm reading the wrong date. See, I knew it.

I couldn't get through a meeting.

Couldn't get through a meeting without doing that.

Okay. It will require a vote. It's the City of Sacramento Utilities Rate Advisory Commission, our annual report and 2026 work plan.

That's the one. All right.

Got it.

Commissioners, Happy New Year.

All right. The item before you tonight supports the Commission's duty to provide an annual report on the activities and plans of the Commission to the Personnel and Public Employees Committee, or P&PE,

and the City Council in accordance with the City Council Rules of Procedure.

At our December 2025 meeting, we sought the Commission's input on the proposed 2026 meeting topics

and timeline for inclusion in the Utilities Rate Advisory Commission 2025 Annual Report and 2026 Work Plan.

Tonight, we are requesting your approval of the report and work plan and to pass a motion forwarding the report and work plan to the P&PE committee for approval.

The report, which is attached to your agenda packet tonight, includes three primary sections.

First, a summary of the purpose, powers and duties of the URAC and a list of commissioners

as of December 2025 with expiration dates of their terms.

Second, a meeting by meeting summary of the key accomplishments from 2025 including the

total amount of hours and costs expended to support the commission's activities.

Lastly, a presentation of the work plan, goals, and meeting calendar with topics for 2026.

There were six meetings conducted during 2025.

The first three meetings focused on educating the Commission on DOU operations, capital, and financial conditions

in preparation for the last three meetings of the year,

which kicked off the FY28 rate development process for water and wastewater funds.

Some highlights from the year include in March 2025, the city auditor's presentation of the independent water and wastewater fund reviews,

which recommended rate adjustments were necessary for each fund beginning in fiscal year 2028.

At the June 2025 meeting, staff provided three presentations.

One, an overview of the Department of Utilities infrastructure, systems, staffing, and impact of increasing regulations.

Second, an explanation of debt management services that are provided to DOU by the City Treasurer's Office.

And then last, an update on two key water planning efforts, RiverArc and WaterPlus.

In July, staff provided a financial update focused on the FY26 approved budget, five-year fund forecasts, and reserves.

Additionally, our engineering team provided an overview of the deferred maintenance challenges affecting the water, wastewater, and storm drainage systems,

and presented the combined sewer system CSS long-term control plan.

At the August 2025 meeting, the city attorney's office provided an overview of the URAC roles and responsibilities,

and DOU staff presented three topics

to kick off the rate development process,

including a timeline and overview

of the water and wastewater rate study,

second, an overview of the water and wastewater rate

needs prioritization process,

and three, a deeper dive

into the department's designated reserve policy.

Last in our October and December meetings,

updates on rate planning efforts for each fund were provided which examined the progress made

by DOU staff to identify the necessary financial investments needed to ensure continued continuity

of operations and address the most critical operational administrative and capital needs

over the five-year rate cycle beginning in FY28. In total the cost of the commission's work in 2025

was approximately $95,000,

which includes personnel costs for city staff time

to prepare agenda materials,

attend meetings, and complete post-meeting tasks.

Additionally, costs associated with commissioner stipends

and their processing by city staff.

For 2026, we have six meetings planned,

including the first one tonight.

Our primary goal for this calendar year

is to prepare the commission for making responsible

utility rate recommendations and communicating the needs

and plans for the upcoming rate adjustment.

Tonight, we will first review and approve

the URAC 2025 Annual Report and 2026 Work Plan,

which is this item, elect a new chair and vice chair,

which is required during the first meeting of the year,

and review fiscal year 2025 year-end financial results,

which includes a deferred maintenance update.

Our next meeting will be in March,

where we will discuss the strategic stakeholder

and outreach communications associated

with the water and wastewater rate process.

In June, we will return to present

the recommended financial plans and proposed rates

for the water and wastewater funds beginning in FY28

and provide an overview of the Proposition 218 and AB 2257 objection process.

In September 2026, Department of Public Works Recycling Solid Waste Division will return to provide an updated presentation

and DOU will provide a financial update including the FY27 approved budget and FY26 year-end projections.

And then last, in December 2026, we will conduct the Proposition 218 rate hearing on the proposed rate adjustments in each fund.

Tonight, we are asking the Commission to pass a motion forwarding the 2025 Annual Report and 2026 Work Plan to the Personnel and Public Employees Committee for consideration and approval.

And with that, that includes my brief presentation, and I am available for questions.

Thank you.

Thank you.

Thank you.

Are there any members of the public who would like to speak on this item?

I do not have any speaker slips for this item.

Are there any commissioners who would like to speak on this item?

Commissioner Olson.

Thank you, Mr. Levine.

Very good, concise presentation there.

So a couple of things that I'd like to see whether this is possible.

As we've gone through some of the previous meetings, some of us have asked you to kind of itemize the higher priority expenses, whether it's an operating expense or capital investment.

and what I picked up from that is that the Pioneer Project,

it looks like a serious thing that needs to happen right away

and that's like, it's hard to tell what that improvement is that's needed.

I heard you say it was a roof improvement

and then I also noticed on a site visit to Fairbairn

that you got two kind of antiquated settlement facilities there

that you want to refurbish.

They're not in operation now, but you want to refurbish them.

And I think that's kind of a high expense too.

So a couple of things that I think would be helpful

and over the course of this year is that

for the higher priority items that are high expense,

that the commissioners have the opportunity

to visit those sites and actually see those.

And I would recommend,

I would not have to go back to Fairbairn,

but it was pretty telling

that you've got this very large part of the property

that's not in service, but could be.

And it's an investment.

I don't know whether it's a high priority

at this point, but it's on your list and it's expensive.

And with the Pioneer facility, wastewater,

I guess it's a convenience spot or location.

I'd like to know more about that.

And I think actually seeing it will be helpful

if that's possible to work that in the schedule

over the next year.

Yes, absolutely.

I think we have a process by which we follow

for commissioners to do site tours.

And maybe it would be helpful for those to have a list

of deferred maintenance projects

that pertain to that facility

so you can maybe put some eyes on where the challenges are.

I've not been on your tours,

so I don't know if that's what you talk about,

but at least with respect

to some of the deferred maintenance challenges,

I think that would be helpful.

And the other thing I wanted to kind of raise here is I still have a concern about how much money is going to be devoted in the rate increase to comply with the ZEV mandate on vehicle upgrades.

and that's something that I think is going to be hard to explain to the

average citizen why a rate increase is going to go to vehicle upgrades. I know

it's an it's an unfunded mandate that's the issue and and I'm kind of wondering

is there another process to explore other sources of money from the state of

California to cover those costs.

And I know they're there.

I worked in that area.

I know that they're there.

Big chunks of money.

And the problem is that local governments do not compete well with the private sector

in pursuing that.

So it's going to take some kind of a different kind of process to go after that.

So thank you very much for putting this together.

But we're looking forward to the whole year.

Well, I'm up next, so I'll call on myself.

Okay, I wanted to piggyback on what you said about the cost of the vehicles.

Because after our last meeting, I went home and thought about that, too.

That's a heck of a lot of money.

And it is mandated by someone who's not paying for it directly.

I don't know if you can apply for a variance or an extension in the timeline of that

to kind of delay some of those costs.

it would just be something possible?

I know that there are exemptions

that could be applied for.

A lot of it is a moving target.

And so because it will come up in our rate cycle,

that's why we are setting aside funds for those purposes.

A lot of it is unknown

with vehicles that aren't even available yet.

So, but I think Yvette might have more information.

MS. Good evening, Commissioners.

Eva Rincon, Assistant Director for the Department.

We are working closely with our fleet manager.

So we have a fleet manager for the whole city, and she leads the efforts on compliance with

the new regulations.

There are some exceptions written in for whether there's power that can be additional power

that is needed at the site and whether SMUD is able to provide that power.

So they are exploring that avenue at one of our sites that has most of our fleet.

They did extend the deadline a bit for most recently for the compliance.

I think off the top of my head I can't remember.

I think it's 2030 now for the full compliance.

And so there has been some changes and there probably will be ongoing changes as utilities

recognize the difficulty in complying with this new regulation and the fact that a lot

of these heavy-duty vehicles don't even exist in the market today so we're in a

pretty difficult spot right trying to plan for compliance with the regulation

where the industry hasn't yet caught up but we're doing our best to try to be

responsible meet with other agencies to see how they're trying to address these

needs continuing to follow legislation as changes are made to the regulation so

So it's an ongoing kind of moving target for us right now.

Thank you.

Commissioner Nelson.

Thank you, Madam Chair, and thank you, staff, for the presentation.

For those of you who aren't aware, my day job is I work for the Association of California Water Agencies,

which represents most of the public water utilities in the state,

and the Advanced Clean Fleet ZEV mandate is something that we've worked on a lot in that time.

One of my colleagues who works on this shared an anecdote with me today, which was that Ford announced they were going to stop building the Lightning, which is their electric F-150.

And the news broke while the Air Resources Board was having a webinar on how to comply with this new law.

And some members who were participating in the webinar said, okay, well, the Lightning was kind of the vehicle we were counting on to replace most of our fleet with.

What should we do?

And CARB said, well, just buy a Rivian.

Which is to say that I think most public water utilities and special districts who have to comply with this mandate are in a similarly tough spot.

CARB is complying with the law, and the legislature is pretty unsympathetic to the plight of public agencies.

Given the state's fiscal situation, I actually don't think there's that much money available to help public agencies with this.

certainly not in a way that could be divided among public agencies in a way that would make a difference to the city of Sacramento.

So I agree that it is a shockingly high portion of the reason that we need a rate increase.

But I think it's sort of a Jesus take the wheel moment where we are just at the mercy of the legislature and CARB doing their job.

I feel for the city of Sacramento having to comply with what seems to be a very unreasonable mandate,

but I'm skeptical that there's much that staff can do beyond what they've already done.

Thank you.

Is there anyone else who would like to speak?

I have a question.

Sure.

Please.

As long as we're on this topic now, which I guess it addresses the work plan of topics

we might be interested in looking at for this upcoming year of 2026.

Is this issue that we're talking about,

is there anyone on the commission or in the community,

and maybe this is also for Mike,

is there any potential unforeseen consequences of including this

in a budget and a rate increase that would be a liability

in terms of potential lawsuits like we saw in Southern California

where I think it was the Ote Water District is now not able to have tiered water rates for the goal of conservation

because it's not directly related to the water service.

And so that was an issue under Prop 218 that was brought.

So I guess I'm interested in hearing about, as we move forward this year,

whether or not this particular item is, if there's funding, if there's not funding,

how does that work into the budget and what kind of potential hiccups or hitches is that going to put into adopting a rate

that people might see as not directly related to water service.

If I could take part of that, and I don't know if Mike has anything to say about it.

when you say not directly related to the water service,

we need the vehicles to perform the work

to sustain our water system.

So I think there is a nexus there with Prop 218.

I'm not sure if that answered your question.

I will say, though, that whenever we get rate adjustments,

we come forward at that time and present,

like we are doing now, what our biggest challenges are.

But we know, especially with the age of our infrastructure,

that we can say we're gonna fund one thing

and then something else breaks and then all of a sudden

we need to direct those rate revenues somewhere else.

I think it's fair to say that if that happens

and we've set aside monies for vehicle replacements

that don't end up happening or law changes

or it gets pushed out, there's a lot of other projects

that those monies can go to.

In fact, as I've talked about briefly

in prior presentations,

we're just touching the surface of what we really need.

So I think if something happens

where we wouldn't be using those funds for that purpose,

I think if we are using them in support of

keeping up our service and deferred maintenance

and everything else, we would still be in compliance

with PROC 218.

I'll chime in here.

Good evening, Commission.

Mike Voss, Senior Deputy City Attorney.

I get the question about whether something is legal under Prop 218 a lot, right?

Because it touches every aspect of Department of Utilities operations.

And there's no court case that answers the question for me every time.

But courts have sort of set out the outside parameters of what's legal under Prop 218 and what isn't.

And I think the general rule is that courts don't second guess the city's reasonable business operations decisions.

So, for example, there was a case where a water district had invested money in a pipeline and then pivoted in another direction, right?

And so this pipeline was not in use.

is a stranded asset, and the city was still paying debt service for the stranded asset,

and that was challenged. And the court said, no, no, that was reasonably related to the purpose

that the water district was authorized to do, and we're not going to second guess that decision,

and they can continue to charge rates to pay the debt on that stranded asset, right? So that was

a reasonable business decision.

Other courts have said that you can't use ratepayer funds

for unreasonable perks or salaries, right?

So the Department of Utilities couldn't go

use limousines for its fleet.

It needs to have reasonable operating decisions, right?

And so I've sort of always couched this

as industry best practices.

Do you should identify what the industry best practices are

and then seek to follow those.

And those are very unlikely to be overridden.

I think conservation tier pricing is a very specific

and hotly debated area that we're hopefully gonna avoid

in this rate hearing.

But that's the sort of general framework.

And so your question about very costly electric vehicles

vehicles is something that my pointing to industry best practices probably is not helpful at all,

right? Nothing's emerged yet. We're in such an uncertain state that it's hard to say

what the best practice is when there's not even the technology to do that. And so I think it's,

but it's unlikely that a court would second guess Department of Utilities' rational decision and a

decision by this commission to prudently plan for the possibility that some sort of mandate may be

imposed on the city. And I think that is going to be an exercise of discretion that staff is going

to make and staff is going to present to you for your input. And so that's a pretty long answer

to a short question, but that's the area we find ourselves in.

Yeah, so I think just Commissioner Johnson, I think there's some other, several factors

to look at here.

And I used to work for the state of California.

I'm very familiar with this because I was part of a group that managed a billion dollar

a year fund to fund the infrastructure for these vehicles.

The Air Resources Board funded the vehicles.

But those regulations are dependent on getting U.S. EPA waiver of the rules in California that are more stringent than the rest of the U.S.

And they had that waiver under the Biden administration, but they do not have that waiver today.

So the advanced clean truck rule, the advanced clean fleet rule, and the advanced clean cars rule are all subject to lots of turmoil.

And that's why Commissioner Nelson made the comment Ford's no longer making the lightning because under that regulation they were compelled to make those vehicles or they couldn't sell anything in California.

And now that is really questionable now

whether they're being compelled.

And in fact, the interpretation of this

is the private fleets don't have to comply.

There's a channel where they don't have to comply.

Yet the public fleets, it looks like

there's more state government control

over the public fleets.

So when you look at where is the money,

the incentive money going,

and what's the history of that,

it's going primarily to the private fleets. So and because they they just have more vehicles and

they and they have bigger fleets like Pepsi and Walmart and Amazon and those are the companies

that are getting the bulk of the money. So the question is why isn't that funding going to public

fleets and it has a lot to do with you don't compete well in the RFP process in submitting

proposals and that's what you have to do or another what I was suggesting as a different

process is negotiating a carve out so that you get the money to cover that unfunded mandate

that's above the city staff level to do that that's really the elected officials that need

to do that on your behalf and that's that could be raised is it's it's something that it's going

be difficult for the staff to do and we need help in getting that funding if we

have to comply. And it's just like Mr. Voss's comment it's still not quite not

certain that there's a compliance that has to happen because of the the

reasonable standard which is should you replace all these vehicles if they

haven't come to their end of the useful life at this point or 10, 10, 20 years

from now. But the goals say you have to do this by 2035 or 2040. And it's a

reasonableness question. So it's just something to kind of consider and factor

in. And so I'm going to be interested and see how you rate this as priority,

whether this is a priority over other things.

I need a motion to approve the annual report and 2026 work plan for the Utilities Rate Advisory Commission.

That's us.

So do I have a motion and a second?

I'll move to approve the 2025 report and the 2026 work plan.

Thank you.

I'll second.

Commissioner Trent.

All you.

Ms. So I have a motion by Commissioner Olsen and a second.

Who do we, Commissioner Tran.

Ms. Great.

I will take the roll call.

If you could unmute your microphones.

Commissioner Tanakella.

Commissioner Tanakella.

Aye.

Ms. Commissioner Gaspard.

Aye.

Ms. Commissioner Burdock.

Aye.

Ms. Commissioner Steinbaum.

Aye.

Ms. Commissioner Rogers.

Aye.

Ms. Commissioner Chambe.

Aye.

Ms. Commissioner Nelson.

Aye.

Ms. Commissioner Olsen.

Aye.

Ms. Commissioner Olsen.

Vice Chair Eberly is absent.

Commissioner Johnson?

Aye.

Commissioner Tran?

Aye.

Chair Zito?

Aye.

Great.

The motion passes.

Now we're going to go ahead and move on to our next agenda item,

which is the selection of Chair and Vice Chair for the year 2026.

I'm going to turn it over to you to go ahead and handle that.

Great.

Good evening.

If I haven't met you, my name is Haley.

I'm with the City Clerk's Office.

There's detailed information in your staff report,

but just a few important reminders regarding the election of officers.

We will hear the nominations and vote for chair first,

and then we'll follow that with vice chair.

The newly elected chair and vice chair will begin their terms at the next regular meeting.

Commissioners, you may nominate yourselves.

You may nominate someone else.

But you can only nominate those who have not already served for two calendar years in each position.

So because of that, Commissioner Jelzito is ineligible to serve as chair and vice chair Spencer Eberle is ineligible to serve as vice chair.

So if you would like to make a nomination, you can add your name to the queue.

Okay.

I guess I'll call myself.

I'd like to nominate Tiffany Tran for the position of chair for 2026.

Do I have a second?

Oh, no, we need to vote on that, don't we?

So you can move to nominate Tran and then you can get a second.

I second.

We have a second.

Okay.

So any counter offers?

Okay.

Taking offers here.

Just not offers or counter motions.

Okay.

So I have a nomination for Commissioner Tran for chair by Zito.

Seconded.

Sorry.

Was that Nelson?

Okay.

I will take a roll call.

Commissioner Tanakella?

Aye.

Commissioner Gaspard?

Aye.

Commissioner Burdock?

Aye.

Commissioner Steinbaum?

Aye.

Commissioner Rogers?

Aye.

Commissioner Schaumbay?

Aye.

Commissioner Nelson?

Aye.

Commissioner Olsen?

Aye.

Commissioner Eberle is absent.

Commissioner Johnson?

Aye.

Commissioner Tran?

Aye.

Chair Zito?

Aye.

Great.

The motion passes.

Congratulations.

Does anybody have a nomination?

Oh, please.

I was going to go ahead and nominate Commissioner Nelson.

Second.

Okay, so we have a nomination for Commissioner Nelson by Rogers, seconded by Tran.

Okay.

We'll take a vote.

Commissioner Tanakella?

Aye.

Commissioner Gaspard?

Aye.

Commissioner Burdock?

Aye.

Commissioner Steinbaum?

Aye.

Commissioner Rogers?

Aye.

Commissioner Schambe?

Aye.

Commissioner Nelson?

Abstent.

Commissioner Olson?

Aye.

Vice Chair Eberle is absent.

Commissioner Johnson?

Aye.

Commissioner Tran?

Aye.

And Chair Zito?

Aye.

The motion passes.

Congratulations.

That concludes.

Oh, and for the record, we did not have any public comment for this item.

Okay, we'll move on to our next agenda item,

which is the deferred maintenance update for fiscal year 2024-25,

year-end financial result.

Do we have any members of the community?

Oh, no, not yet.

Hi.

Hi.

How are you?

There we go.

So good evening.

I'm Kelly Scherfee, the supervising financial analyst

for DOU. Tonight's presentation, so I guess I should clarify really quickly, I'm going

to start with the fiscal year end presentation and then Cheryl Hoon will join us and do the

deferred maintenance. So if it's a little bit out of order on your item, that is why.

So tonight's, my portion of the presentation provides a comprehensive review of fiscal

year 25 year end results for the Department of Utilities. The city is nearing completion

of the fiscal year ends closed process and anticipates a final adoption of the annual

comprehensive financial report by March. For context within the broader budget cycle

we are currently in fiscal year 25 and we are planning for fiscal year 27. So this point

of this presentation is to provide you with the background and the picture of how we ended

fiscal year 25 and that financial performance.

Okay. So this presentation covers our four main funds, water, wastewater, storm drainage,

and the storm drainage property fee fund. I will also touch on the Sacramento utility

Rate Assistance Program and give you a quick overview of that budget as well.

During this presentation, I will provide you with our budgeted numbers versus how our actuals

are looking for fiscal year 25.

And then I'll also kind of highlight some of the reasons for our variances and things

that we can watch for as we continue in the budget process.

So to orientate you to this table, there's three main lines that you should look at.

Obviously we're starting with the water fund.

I always do, first on my list.

And we have the revenues highlighted at the top.

You'll see the first column there is the original budget item.

The second column is our Fish School actuals and then the variance between the two.

So you'll see revenues, total expenses, and then the net change to the fund balance.

So that's how I'm going to review it for you.

So the water fund, as you can see here, ended fiscal year 25 stronger than anticipated.

Revenues totaled approximately $160 million, exceeding the budget by $22.3 million.

This increase was driven primarily by a one-time $13.4 million settlement and higher investment

earnings than budgeted.

The $13.4 million TICERT settlement will be used to address future expenditures related

to repairs in our water system infrastructure that were installed by TICERT and for improvements

in our metering infrastructure.

So the core rate revenue stayed near plan.

So the upside here was primarily non-rate related.

If you look at our operating expenses, they came in lower than budgeted at $122.8 million

versus the $127.9 million.

This is mainly thanks to savings from 33 vacancies and a reduced services and supplies spending.

Ultimately, the year-end net change for the fund balance was $16.2 million, which is a boost to our fund balance.

So the key takeaways from this is while the fund is finishing better than expected in

fiscal year 25 much of this revenue was one time gain.

So for fiscal year 26 budget and future projections we're assuming a normalization of income and

continued pressure from rising costs associated with regulatory compliance, staffing, utilities,

and inventory costs.

So all of those are affecting our long-term outlook for this fund.

So I will move to wastewater.

Wastewater same structure of the table there for you.

The wastewater fund also outperformed expectations revenues reached $49.1 million, exceeding

the $45.6 million budget by roughly $3.5 million.

I'm going to slow down because that's a lot of numbers.

I'm sorry, guys.

This was driven by $1.7 million in higher utility service charges.

And that's basically rate revenue, right?

That's our name for it.

And $1.36 million in interest income.

And there was some delinquency charges that increased.

That was a modest boost to this revenue.

So I will note that DOU historically budgets conservatively for our rates and our interest.

So this doesn't indicate to me that necessarily we're having a significant amount of additional

rates or additional interest.

It's more a reflection of our conservative budgeting on this.

So as we plan forward, we're still going to have that same historical line for these

revenue sources.

So operating expenses were slightly below plan at $39.3 million aided by savings of six vacancies

and several or in services and supplies tracking close to plan despite upward pressure from

regulatory fees, safety equipment for this fund, and increased one-time fleet replacement expenses.

So also here the capital spending was higher than budget by $4 million.

There was some mid-year changes that happened to it.

So those are anticipated and included in there.

Overall the expenses increased by approximately $3 million.

However, the year end net change to the fund balance was a positive $1 million.

So the long-term outlooks though for this fund

continue to decline.

Without a rate increase,

it will continue to fall into a deficit.

So we'll move on to storm drainage.

So I'll cover storm drainage fund

and then the storm drainage property fee fund.

Again, the storm drainage fund finished in fiscal year 25 with a strong positive variance.

Most all of our funds actually had a positive variance for this fiscal year.

Revenues totaled $43.2 million, about $2 million above budget, driven by $1.1 million in higher

utility service charges.

Again that's our rate revenue.

and about $800,000 in interest earnings. Expenditures came in at $4.2 million below budget largely

due to 19 vacancies. Lower citywide cost plan charges and a modest savings in our supplies

and service budget. The year end net impact to the fund balance is $3.8 million. This

This surplus improves fund resiliency for the upcoming budget, but the key watchouts

for this item include interest income normalization, fluctuations in our vacancies could impact

this fund, and inflationary pressures on insurance fees or insurance prices, fleet, utilities,

and our services.

So lastly for our funds is the Storm Drainage Property Fee Fund.

This fund, just as a reminder, is it solely funds our storm drainage capital program.

And it ended fiscal year 25 well above what was planned for it.

And there's a few reasons.

The revenues here were $21.4 million, about $1.1 million above budget, with interest income

contributing to most of that upside. Expenditures were significantly lower than budget, $6.6

million that you can see there versus $13.5 million. And this is mainly due to delays and

reserves of our multi-year projects and our capital spending. So as I'm sure you're most

familiar with, this fund was associated with a litigation. And because of that, we reserved

a lot of our capital project funding as well as our MIOP funding. That litigation has now

been resolved. So we're starting to put that money into the project that was planned for.

So in fiscal year 25, a lot of that money was not spent because it was in reserves.

Let's see.

As a result, the fund balance grew to $14.8 million, strengthening the financial position.

However, note that some of the revenue gains are interest-driven and will decrease over time as we begin to increase operating and CIP expenses.

future budget planning should assume lower interest on this and monitor cost drivers so

again as you see in those expenses the operating budget is even low that's because we weren't

moving specific projects forward so as we start to use that capital projects our expenditures

for operating will increase as well and then we won't get as much interest so that's kind of how

that fund is shaping up. So I'll jump over to the Sacramento Utility Rate Assistance Program.

And this is, if you're not familiar with it, the Sacramento Utility Rate Assistance Program helps

eligible residents by providing a discount on the flat rate portion of water, wastewater,

and solid waste services. In fiscal year 25, the program served 8,909 participants funded

through Measure U with a budget of $5.4 million. And the actual spending came out to be about

$5 million with a variance of $400,000. So this is a small surplus for this program.

The fiscal year 26 budget remains at that $5.4 million so we can continue to sustain

this assistance. The Sura program here plays a critical role in affordability and equity

and helping customers maintain service and avoid delinquency.

So with that, in summary, I guess,

fiscal year 25 closed with stronger than budgeted financial results

across all the funds, driven by higher revenues and controlled expenses.

These outcomes strengthen fund balance,

but planning should remain conservative

given that much of the upside was one time

and related to fluctuation and interest.

We still have significant projected shortfalls

for our water and wastewater funds

that will require rate adjustments in fiscal year 28.

So key priorities include managing

inflationary cost pressures, vacancies,

monitoring interest rates, and the rate adjustments.

So with that, I'll conclude my presentation.

If you have questions, I'm more than happy to answer them now, and then I'll turn it

over to Cheryl.

I do not have any speaker slips for this item.

Okay, thank you.

Thank you so much.

Okay, Commissioner Nelson.

Yeah, thank you, Madam Chair, and thank you staff.

for the great presentation.

I noted that a lot of the surplus

and the funds that you rattled through

were due to open positions.

Was that an intentional operational decision

or are these, I see you shaking your head.

I asked because I went on one of the tours

and had a conversation with one of your staff

about the difficulty of hiring and retaining staff

because people demand excellent service

from public servants but aren't willing to pay them

for that level of service often.

So there's a divide there where we can't afford

to keep those talented people.

And I know that surrounding public agencies

snipe people who wanna be paid well and the private sector.

So I was just wondering if you could speak a little bit

to why there are so many open positions.

One, they were not planned vacancies.

They were positions that we didn't move forward,

we weren't able to fill.

So that was sort of a snapshot of where we were towards the end of the year.

So those vacancies do fluctuate throughout the year.

So I provided the quarter three, quarter four vacancy amounts,

but throughout the year we do have vacancies coming and going.

So it is mainly due to either the inability to hire some of our positions

or just the natural flow of retirements, people moving on, and then people coming on board.

Right. And if I could ask a follow-up, do you think that that situation will be improved with

the rate increase? Will you have more capacity to hire and retain, or is this just the sort of

state of the market where it's just tough to fill those positions? I think that the rate increase

will not allow us to adjust those salaries. I think that's something that's more done at a

citywide level. And then for specific positions, we could try to move forward with different

positions to help us fill it. But this is a normal process for our budgeting item. We

do have vacancies that come up throughout the year. So I don't think rates are going

to help with that.

Okay. Thank you.

Good evening, Chair Gizzo and Commissioner Nelson. To answer your question, we are very

at the disadvantage compared to our brother and sister department from Roseville, Rockland.

So the competitive salary that they offer is significantly higher than what we have in the city of Sacramento.

So that will continue to be a challenge for department utility whether we get the rate adjustment or not

because we are struggling trying to compete for the same resource within the region that we are in.

So thank you for that question.

That would be our response.

Yeah.

I appreciate you continuing to provide excellent service with so many open positions.

Thank you.

Thank you, Commissioner Ousen.

Commissioner Steinbaum.

I was hoping that you could talk a little bit more about the utility rate assistance program.

Just describe it. How does it work? How do people become eligible? What does it cover for someone who participates in that program?

Yeah, so I do have a bit of background. I don't administer that program, but let's see. And then Brian might speak to it, but I swear I have it. Okay. Here we go.

So this program I know that it's done through the eligibility is tied to the participation

in SMUD's energy assistance program rate which requires household incomes at or below

200% of federal poverty level. So applicants must provide proof that they're in that EAPR

program and their enrollment and their income documentation.

So I mentioned that we have a budget of 5.4 million.

We are very conscious and monitor that budget because we do not use that.

It's funded through Measure U. That's general fund money or Measure U money that is not

utility rates.

So we are very conscious to make sure that we monitor that it doesn't go over 5.4 million.

So when we have applicants come in, we make sure they meet this program.

We actually have an automated system that's double checking it for us for their eligibility.

So that's kind of how they get enrolled in that program with us.

Is there additional information?

I guess in terms of what that covers, is it covering an adjustable rate based on usage?

Is it the flat rate?

It's a flat rate that they are currently.

We are going through.

You can do more.

Ryan helps administer the program.

Thank you, Kelly.

In addition, good evening, Commissioner Stanford.

To give you more context, so the Utility Rate Assistance Program used to be called URA,

which is a user rate assistance program.

At the direction of the City Council several years ago,

we have been directed by the Council to do an automated process

with our collaboration effort with SMUD.

So we had an automated process where we leveraged their EAPRF program

where we automatically enroll our utility rate assistant participant.

So the DUU department is very conscious about the affordability of the most vulnerable community.

Therefore, in its inception, we used to do everything manually.

Since the program start, it was only 1,500 participants in the program.

Through the Sacramento Utility Rate Assistance Program collaboration with SMUD, we have increased

it to where we are, which is 8,500.

And that is just allow us to kind of provide the needed assistance for our vulnerable communities

So they will be a little bit more minimized as far as the rate adjustment that we have.

So that has been the historical perspective.

And we are based on the same criteria with SMUD as far as 200% with all property rate for whoever that qualifies.

So we do have a enrollment process, but we also have a recertification process.

meaning that you are in the program for two years

and we get another data exchange with SMUD

and if you continue to qualify in a SMUD program,

you will remain on the program until you no longer qualify.

So that's how the Department of Utility is committed

to provide a vulnerable community with the system

that the city of Sagamore have for that program.

Hopefully that's the long-winded answer for your question.

That was very helpful.

Thank you.

Commissioner Olson.

Yeah, just a couple of clarifications.

Fiscal year 2526, fiscal year is July 1st to June 30th?

Yes.

Okay.

And the title of this deferred maintenance update,

so does that mean that this what you just presented is not the full budget for water

and wastewater or that is the full budget so deferred maintenance Cheryl will address that

component of it those are the projects that we're not able to move forward so they're deferred

and not budgeted for at this point what what's that percent of the total total budget do you have

I do not know that off the top of my head.

It's a rather large number for our deferred maintenance cost.

It would be helpful to have that number at some point.

Thank you.

We have no other speakers, but thank you.

Thank you so much.

I'm going to move to deferred maintenance.

I have some more numbers for you.

Commissioner Wilson. So we'll see if this presentation answers your questions. So good

evening Chair Zito and incoming Chair Tran and Commissioners. I am Cheryl Hune. I am DOU's

Engineering and Water Resources Division Manager and tonight I'm going to talk a little bit about

deferred maintenance and the progress that we've made in fiscal year 2025 and I also have with me

my three supervising engineers that manage each fund,

so they'll be able to help answer any detailed questions you have.

So since April 2023, the Department of Utilities has provided the URAC

with information on our deferred maintenance,

which highlights the funding needed to complete necessary infrastructure replacement

and investment for our water, storm drainage, and wastewater systems.

Tonight, we will provide you with a brief overview of deferred maintenance

or as we like to call it, deferred asset investment, and the progress that we made in the last fiscal year or fiscal year 2025.

So I'll start by defining deferred maintenance or deferred asset investment as it is used in this presentation.

Deferred maintenance is a term we use to describe the postponement of necessary infrastructure repairs and replacements.

This term also includes new infrastructure that has been delayed, preventing us from addressing capacity deficiencies, changing industry standards, and new regulatory requirements.

The presentation does not include the Operation and Maintenance Division's preventative maintenance backlog for these same systems.

so as we've been discussing during our rate development presentations in the last calendar

year this issue is important to discuss because unfortunately the city's water drainage and

wastewater systems have a great deal of deferred asset investment that continues to build over time

deferred asset investment grows each time the department is unable to fully fund planned or

required replacements, repairs, and improvements.

These unfunded projects become a deferred investment

that must be addressed by future budgets.

These systems are pushed beyond their recommended life

expectancies in many cases, and antiquated equipment

remains in use, which causes multiple issues.

So the most obvious issue are the catastrophic failures

caused by deferred investment.

These failures lead to costly, unplanned emergency repairs and interruptions in service,

and these emergency repairs typically result in a higher construction cost,

which erodes our limited capital improvement budgets.

So we wanted to provide an example of this situation.

So our example is a failure of the Beach Lake dike in November of 2023.

It's in the south area of the city.

The gap in the dike needed to be repaired to preserve flood storage and protect regional properties and the environment from high water levels associated with large storm events.

A contractor was able to get the repair done by January of 2024, but we paid a premium for working long days and weekends to meet that timeline.

The next important category is our levels of service.

So system failures and aging infrastructure also challenge DOU's ability to meet our levels of service to our residents and our visitors of our city.

DOU strives to provide the highest level of service possible.

So addressing this issue is critical to our mission.

So an example of this is our combined sewer system Sump 107 rehabilitation project,

which is needed to improve the reliability and performance of the wastewater collection system serving Old Sacramento during wet weather events.

So Sump 107 is located in the basement of an office building where sewer spills can occur during rain events.

limited vehicle and personnel access significantly hinders routine

maintenance and timely response to alarms so rehabilitation is necessary to

improve access reduce sewer spills and prevent outflows and flooding in the old

Sacramento area lastly the lack of investment in our utility infrastructure

could also have regional impacts for example water supply agreements with the

state related to our conjunctive use program include requirements for the city to provide a

specified amount of groundwater supply during dry years. If groundwater wells are offline due to

failures, then it would be difficult to meet these regional agreements. By reducing the amount of

deferred investment in our system, we will increase the reliability of our services to our customers

and regional partners. And this issue is significant and can have a major impact on the

community. So it's the duty of our department to minimize the amount of deferred asset investment

within our systems using our limited funding resources and I will highlight the progress

the department has made over the last fiscal year or the 2025 fiscal year. Starting with our water

system which provides water to over 150,000 customer accounts consists of 1,600 miles of

water mains or pipelines, two drinking water treatment plants, 12 reservoirs or water storage

tanks, and 22 permitted groundwater wells. Our two drinking water treatment plants are capable

of a combined daily production of 260 million gallons per day. This system provides drinking

water to the entire city as well as support to other communities with their water needs through

water transfer sales and to the region by coordinating conjunctive use efforts.

This water system currently has an estimated $832 million of deferred maintenance or asset investment.

So the department works continuously to reduce the deferred maintenance within our systems

when funding is available.

As a part of your report for tonight's item, we have a full list of all of the projects

that received funding in fiscal year 25,

but I'm going to highlight a few of the biggest ones

for each of the systems.

And Jordan also has hard copies for you

if you didn't download those from your report,

so just let him know if you'd like a hard copy of that table.

So during the 2025 fiscal year,

the department was able to expend $10.7 million

toward the water systems deferred maintenance projects.

Some examples of these expenditures include almost $2 million that was spent on the Freeport Reservoir Pump Replacement Approvement Project.

These costs were for construction of the project and include a replacement pump, electrical equipment, and fiber optic infrastructure.

The next project is $1.5 million that was spent on the Med Center Reservoir Rehab Project,

which included design of the project, bidding and awarding a construction contract,

and beginning the construction of the project.

Deferred maintenance items in this project include replacing an existing catwalk and ladders

on the interior of the reservoir to meet current code requirements

and correct unsafe work environments,

and applying protective coatings to the exterior and interior of the reservoir

to protect structural integrity.

A few more projects are the $1.1 million that was spent on SCADA and PLC replacements at various critical infrastructure water facilities across multiple sites.

So these sites include the Capitol Gateway Reservoir, the City College Reservoir, regional water turnouts for the airport and Cal-Am water, communication equipment at the regional Burkut communication tower, and items at both water treatment plants.

These items included replacement of outdated PLCs, HMIs, network switches, enclosures, CPUs, along with SCADA programming for automation, monitoring, and control.

The investments addressed aging systems, reduced operational risk, and improved network reliability.

And the last project that we wanted to highlight was almost $1 million was spent on the Lavender Heights water main project with nearly $660,000 coming from grant funds and the remaining from the water fund.

The project included replacing and upgrading an aging cast iron water main to improve water capacity and increase water safety through this central city corridor.

So now the next system we're going to talk about is the city's storm drainage system, which has 136 drainage sheds, 876 miles of pipe, almost 32,000 drainage inlets, 106 drainage sump stations or pump stations, as they're more commonly referred to, 77 detention basins, and 71 miles of creeks, ditches, and channels.

This system is responsible for collecting and pumping stormwater out of our streets and away from our homes and businesses, and currently the city's drainage system has an estimated $364 million of deferred asset investment.

In reality for this system, the total is larger because about half of the city's drainage basins or sheds lack hydraulic models and master plans.

without these tools it's difficult to know the investment needed to achieve and maintain

our 10-year and 100-year levels of service as we complete this work we anticipate the value of

deferred investment to grow with recent approval of the storm drain drainage property fee in 2022

the department will start to move forward with modeling and planning projects for these different

drainage basins. So based on the deferred asset investment conditions that we do know, the

department spent $7.25 million on critical drainage-related deferred maintenance projects

in fiscal year 2025. The lion's share of this funding, almost $7 million, went to the pump

station repair and replacement project that included the construction of sump 151, 155

pump outfall replacements and design of sump 89 pump outfall replacement. All of these pump station

outfall pipes passed through major levees and were designated as failed due to high levels of

corrosion leading to holes at multiple locations. So lastly, our last system is our wastewater system.

It is divided into two systems, as you know, the combined sewer system and the separated sewer system.

The combined system carries both stormwater and wastewater in one pipe.

So for the whole system, it services over 80,000 customers, has two combined system primary treatment facilities,

57 wastewater basins or sheds, four storage facilities, and 52 pump stations.

The deferred asset investment costs of these two systems reach $1.3 billion.

The deferred investment related to the wastewater system includes rehab and replacement programs for pump stations, pipes, and the combined system treatment facilities.

It also includes capacity improvements associated with the combined sewer system NPDES permit compliance program, which is required by our state permit.

These programs replace or improve infrastructure that is extended past their useful life,

and much of the infrastructure in the combined system is close to 100 years old,

so it is reaching or exceeding its anticipated useful life.

So to build upon the progress noted in our presentation last year,

we wanted to highlight progress made on our major wastewater rehabilitation programs

during fiscal year 2025, where $4.3 million was expended toward deferred maintenance and

improving system reliability. This total includes over $600,000 from the drainage fund toward

combined sewer system projects. So 43% of this total money spent was for two unplanned emergency

projects. The first one is the Pioneer Outfall Repair, where we invested just over $1.26 million

in emergency rehab work needed to restore a critical outfall structure for one of our combined sewer system treatment facilities.

The second emergency project is the Fifth Street sinkhole,

where more than $600,000 went toward emergency repairs to address a failure in the combined sewer collection system.

In addition to the emergency projects, we continued advancing key planned rehab and existing system capacity improvements.

Notably, the first one is $757,000 for the combined sewer system block 5 rehab and replacement program

to continue our long-term reinvestment in aging combined system pipe segments.

And then the Silver Eagle Sewer Improvement Project spent $300,000 for existing system capacity improvements for the Separated Sewer Pipe Program.

So as we've been discussing in the last year during our rate development updates, one of the primary challenges DOU faces related to maintaining our system is lack of funding.

While we are prioritizing and allocating existing funds to address our most critical deferred maintenance projects and other necessary repairs, replacements, and improvements, still remain unfunded and unaddressed.

Despite our ongoing efforts to tackle this issue, the substantial gap between the total funding required to resolve all of the deferred investments and the annual funding available continue to make significant progress challenging.

One main factor contributing to this significant gap is that prior rate recommendations were not adopted at the needed levels to keep up with these timely investments.

Even though the challenges and obstacles DOU faces seems insurmountable at times, we continue to work to bridge the gap and plan for the future.

So DOU conducts planning efforts such as our 30-year capital improvement program planning and asset management program.

which helps the department identify funding priorities and focuses spending on improvements that address the most critical health and safety needs.

These planning efforts also inform the department's rate adjustment and other financing recommendations to ensure the city collect adequate funding in the future to help complete the improvement projects needed in a timely manner.

Through these efforts, we are hopeful that over time we will bridge the gap of the necessary deferred infrastructure investment and have systems in line with industry standards, growing regulations, and provide the needed level of service to protect rate payers for many years to come.

It is important for the department to continue our long-range financial planning efforts that include grants, federal appropriations, short and long-term financing, and rate increases.

So we ask for your continued support as we continue our rate planning development for the water and wastewater funds

And so that concludes my presentation and so I'm happy to answer any questions you have and like I said

I have my CIP supervising engineers here with me tonight as well

Thank you we have any members of the public that would like to comment no

I do not have any speaker slips for this item

Do we have any commissioners? Okay Commissioner Steinbaum

I'm curious if the city does any sort of analysis or assessment of like workflow efficiency

for example like the department that I work for we train a lot of staff in lean six sigma

principles and then you know people for their lean six sigma projects they'll take a particular

process that they're involved in and see if there are ways to make it more efficient saving time

money reducing air etc and I'm just curious we're talking a lot about you know in increases in

funding but are there ways to make the are there ways to increase efficiency like within the system

and the funding that we currently have?

I think we're always looking for those opportunities

to ensure that we're being as efficient as we can with our finances.

I think our engineering team provides different training opportunities

for our project managers, whether they're doing planning, asset management,

or project delivery to ensure that they have the tools

to be able to make the right decisions and deliver projects efficiently.

I know in our BID BSD specifically, they also do the Sigma program as well.

But in engineering, we don't have necessarily formal training programs, but we invest in training our staff throughout the year.

And they meet monthly as a team to share information and learning experiences with each other.

Commissioner Tran.

Hi, thanks for the presentation.

I think it was stood out a bunch to see kind of the big divide between kind of the spend

and the need, especially in the wastewater division, by an order of magnitude.

And so I'm curious, you know, what are some of the factors that go into how projects and

and funds are successfully spent to go towards this deferred maintenance.

It seems like wastewater had the highest need and the lowest spend compared to the other

divisions and just curious more about the process of where the money goes.

Especially it seems like for wastewater two of them were you know emergency reactive fixes

and I'm sure that's not the preference.

For sure it is definitely not the preference.

I think the wastewater fund is a smaller fund than the water fund so it always looks unusual

in the comparison of the two different CIPs.

But a lot of the deferred maintenance in the combined system

is just due to, or the wastewater fund

is due to the combined system, right?

It's our oldest infrastructure

and it also has two large water treatment plants.

So that's where a lot of the cost comes from.

That we go to the Regional Water Quality Control Board

next month to have our new NPDES permit adopted

And so we're very hopeful that the current draft will allow us some flexibility related to how we invest money in our system.

And so it kind of changes the focus from flooding to focus of overflows and outflows and public health.

And so we're hopeful that we'll be able to refocus our spending on R&R and some other projects.

So kind of generally from the CIP groups, how do they go about deciding what are the most important projects to fund?

It is kind of several different things, right?

We have asset management programs that are all in different stages depending on the asset, right?

Sewer pipes, collection system.

We have pretty good information on the condition of those pipes because we can get a camera in there.

And regularly we're looking for failures and what is starting to show signs of problems.

but we can maybe leave in place a little bit longer.

But we have so many different assets, right?

The asset management program is kind of in different stages for different assets.

Each group have planning staff that do planning related to what is needed in these systems.

They also work very closely with our O&M superintendents and supervisors to see what are they seeing.

What do they identify as problems in the system that need to be added to the list?

And so they take all of that information and they kind of prioritize what they believe are the projects that should be put into our five-year CIP and specifically funded for the next fiscal year.

And so we're hopeful, usually, that we can stick with our plan.

But you can see in FY25, we had two sewer emergency projects that really took Roxanne's plan.

and she had to pivot and take money from planning

or other projects that were planned

and move them into these two projects.

And so those other projects sit and wait

until we get funding.

And so that's why you hear us talk a lot about the need

for this rate increase.

So hopefully that's helpful.

Commissioner Nelson.

Thank you.

I continue to be terrified of those big deferred maintenance numbers compared with the amount

of money that you all have available to spend on that.

As we're talking about this rate increase, which is desperately needed, it still does

not rise to that level of funding need.

My question is two part.

One, can you remind us, I know we've talked about it before, but

it's gone.

Why the previous

rate increase didn't

materialize.

Now we're here because we've got some new members of the commission

so maybe that history would be helpful.

And then this rate

increase that we're talking about and recognizing

that Reptelus is going to do their magic

and there will be a few different scenarios.

None of them will be enough to meet

the need that you just laid out.

How you as staff

are thinking about that.

You're still not going to have enough money, have a little bit more, and just how you're thinking through what comes first, what the magic number is for the community can only absorb so much more from their rates and just sort of what your logic is there.

Sure.

I'll give a oversimplified version of how we kind of got here, and maybe the team could jump in if they want to add anything else.

But I think we've had an eight-year holiday since our last rate increase, right?

and that was various reasons for that.

So we have COVID, we had solid waste brought a rate increase forward.

So there were different reasons on why there was such a long delay

from the last rate increase.

I think historically, right, you've heard me talk about being around for 30 years.

So even though I wasn't always in this role,

you see different proposals come forward for rate increases.

And I think council is often concerned about affordability.

and so those were just made by city managers and council members on what they felt the rates

that the that they were willing to move forward and then often when the department goes and

allocates their spending we're a people business right so the largest expense in our budget is

our staff and so our staff is funded you have those things that are uncontrollable like energy

costs and other things, those get funded first. And then the CIP usually gets what is remaining.

So sometimes that number has really fluctuated over the years. And so that is why our CIP

managers with all those different information inputs that I was talking about, they look

at that 30-year plan as well as a more dialed-in five-year plan. And then really they have

specific projects in that first year and second year in the CIP of really where they think the

money needs to go. And then they're constantly adjusting, right? There's the mid-year scrub

process where they might move some money around. And each year during the budget process, they'll

re-look at that five-year budget and move things around. One of the things I'd say, those numbers

are staggering to us as well sometimes. But one thing that I forgot to highlight is some of the

reason, right, we have these big numbers, but you continue to get water when you turn on your tap at

your house, right? Sewer and drainage largely is all taken away, and most of the time that service

is pretty reliable for all of our customers. How that is done is by our fabulous O&M departments,

right? That is where the bulk of our staff are in David Herman's water division and Charlie

Cunningham's wastewater and drainage division. So they are out there making

repairs and keeping the system working even

when we have antiquated equipment or infrastructure that is past

its industry kind of lifespan. Could I ask a

follow-up? If in some magical

fairyland you were given $3 billion today,

I imagine it would still take a long time to get that money out the door. There's

staff capacity that is probably a limitation for planning design you can't have the whole system

down for maintenance to do all that so I assume even if we did a impossibly huge rate increase

that gave you all of the money that you needed you still would have a bottleneck of getting all that

out and so there's probably some logic to metering it because we can't do it all at once is that is

that a fair assessment or or would you just like three billion dollars after the meeting mostly I

like three billion dollars but no um no that is a fair assessment and that really is something that

we look at in those five-year and 30-year plans right if as we are planning for what we would

like to include in the right proposals that will be brought forward to you later this year we look

at what can we deliver with existing staff and if we got a larger site cip what would be the

additional staff that would be needed to deliver those projects. So our rate might include adding

some engineers. We also use consultants all the time to help us with design so we can kind of

bridge the gap with using the private consulting community to help support our existing in-house

stuff.

Can I make a comment? Of course you can.

Okay. One other piece, Commissioner Nelson,

and to the benefit of those that have not seen prior

presentations when we were here in the fall, yes,

the deferred maintenance is staggering, but we are going into

this rate process with three objectives, and I think it's helpful

to restate those.

Number one, we have to ensure continuity of operations.

Right now, we have a projected significant gap

with revenues and expenses.

So the first priority before we even start talking

about deferred maintenance is getting those shored up.

Otherwise, we cannot continue to operate.

The second is adhering to our policy considerations.

and I'll just highlight one as a, well, I mean, there's three,

but with respect to deferred maintenance,

we have bond covenants that govern our debt

that require that we have a certain amount of funds and reserves.

If we do not adhere to our debt covenants,

then our credit rating drops.

And when we want to move forward and have funds to move forward

with borrowing to do these large deferred maintenance projects,

because, I mean, you know, there's no rate revenue that's going to be sufficient to cover these significant costs.

We'll need to go out to borrow so that that debt service is covered by our rates.

But if we are not adhering to our policy objectives, then the costs for us to borrow are exponentially more.

And so that's priority number two before we even get to deferred maintenance and other high-priority needs.

And it's really difficult, and the numbers are staggering even before we get to that.

So it is a tough decision, and a lot of what Cheryl said is correct.

It's, you know, you turn on your tap, you flush your toilet, and everything works,

and it's hard to really understand why everything is so expensive.

Commissioner Nelson, also I want to assure you that it was dubbed as the eight-year rate holiday,

that was not us taking the holiday.

I want to assure you that we have a rate adjustment that we need in 1996,

and we spent five years of those rate holiday period

to make sure that we have the property-related rate adjustment in FY2022.

So everything compounded in the big scheme of things,

Commissioner Nelson.

So the positive thing is we have done our fiduciary responsibility to ensure that our rate payer have a consistent, you know, depending on our ability to manage our finance.

And that also, the rate holiday is also detriment to our maintenance, but it also provides some relief, like rate increase for the water and wastewater adjustment.

And we are pretty much restricted by, you know, the California law is we only do rate adjustment for five years, and we cannot exceed that.

So those are the things that bits here, bits there is adding to those things.

and that doesn't seem to be fair at this point,

but that's what happened in the past.

So I just want to make sure that I acknowledge your question

because that was a very good question for us

that we constantly struggle in our Department of Utility.

So thank you.

Commissioner Rogers.

I appreciate the thorough explanation from all you folks about everything.

that answered a vast majority of one of my questions.

I guess to start, just a basic question is,

are all these anticipated costs for the deferred maintenance

a conservative estimate,

or are you guys kind of shooting for the stars

to have some padding in the budget, number one?

And then, let's see.

No, they touched on that.

Oh, were these issues unknown eight years ago?

Has this maintenance just popped up because the alarm has been sounded regarding what's going on?

Because you mentioned there's been emergency maintenance, which is, I mean, in my line of work, that can cost hundreds of millions of dollars.

It's catastrophic.

And I'm assuming you guys are usually ahead of the curve.

You all seem pretty smart and are always on your game.

So I figure if these things probably weren't known about eight years ago, but I'm just curious if they were.

I would say most of the items are things that the department has known about, right?

At some level, we have a lot of different assets.

So they're looking at the age and condition of different assets as they're pulling these numbers together.

So in 2022, the city, I think it came from a request from a council member, asked the departments to put together this deferred maintenance numbers.

And so a memo was brought forward with costs from Public Works, from the Parks Department or YPSI, and for DOU.

you. So our CIP managers went in and looked at facilities, pump stations, pipelines, all the

different details, and made estimates related to that. So I would say from that perspective,

it was the best knowledge that they had at the time with the cost that they had at the time.

For those of you that work in this industry, things are always changing, right? And so with

COVID, we saw prices really spike. And so we anticipate that oftentimes these projects that

we you know we're estimating costs in 2022 probably cost more today also we are gathering

information through our asset management program or through planning or our o m staff on different

assets that maybe we didn't take into account that might change these numbers a little bit but our

plan is we haven't done a comprehensive update on the numbers since 2022 but every year we are making

progress at replacing things.

And so we have a plan that every so often to kind of update those numbers and kind of

true them up and kind of make sure that they're the best numbers that they can be for, you

know, some general estimation.

These are not engineered cost estimates for every single facility, right?

So they're kind of using some industry standards to project out some of these costs for these

different asset categories.

Right on.

I appreciate it.

And this was for just to receive a comment.

Does anybody else have any further comments on this issue?

Okay, with that, I think we have concluded.

Were there any commissioner comments and questions, ideas, just in general?

Nobody?

Okay.

Well, with that, we've concluded.

I'm sorry, go ahead.

for public comment matters not on the agenda.

I do not have any speakers.

Okay. Thank you.

Okay. Well, that concludes

tonight's meeting. We meet again in March.

And so we'll see everybody then.

Have a good night.

We're done.

Thank you.