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Page 3 of 9 <br />the rate impacts and policy items needed to finalize the rate study process, and to prepare for <br />Proposition 218 noticing. <br /> <br />Staff plans to return to the City Council in May to approve the sewer rate structure, sewer rate, <br />and connection fees, and to seek City Council approval for Proposition 218 notices in July <br />2026. The new sewer rate is targeted to take effect starting January 1, 2027. <br /> <br />DISCUSSION <br />On February 17, 2026, the City Council adopted the Rate Study - Maintain financial planning <br />scenario for the sanitary sewer program. The Maintain Scenario is intended to stabilize system <br />conditions over a five-year period (FY 2026 - FY 2030) by providing the funding needed for <br />enhanced operations and maintenance (O&M) and prioritized capital improvements consistent <br />with the SSMP and long-term sewer CIP, while managing rate impacts to the extent feasible. <br />This scenario provides the minimum effort required to meet the State regulatory requirements <br />for effective sewer system management. <br /> <br />To implement the Maintain scenario, the sewer enterprise requires additional funding from <br />both rate revenue and debt financing to support ongoing operations, deliver planned capital <br />improvements, and maintain key financial performance metrics (including reserve balances <br />and debt coverage requirements). The funding requirements for the Maintain scenario include: <br />• $27.4 million in additional rate revenue <br />• $28.0 million in debt financing <br />Financial Plan Changes <br />Following City Council direction, staff refined the timing of O&M costs, CIP implementation, <br />and associated debt issuances to better align with financial advisor recommendations that <br />would put the City in a better position for bond issuance. These updates improve financial <br />feasibility while maintaining the planned investment level. While costs and debt issuance were <br />rephased within the five-year planning period, the total funding needs (additional rate revenue <br />and proposed debt financing) and the Maintain Scenario’s goal of stabilizing system conditions <br />by the end of the planning period remain unchanged. A revised Maintain Scenario CIP plan <br />will be submitted for City Council approval in May 2026 as part of the mid-term budget <br />process. <br /> <br />Based on the financial plan, Table 1 summarizes the revenue changes needed to meet the <br />Maintain Scenario adopted by the City Council. For context, the current City portion of the <br />typical residential service sewer bill is $31.70 every other month, or $15.85 per month. The <br />monetary impact for each customer classification is illustrated in Table 2 below. <br /> <br />Table 1. Projected Sewer Revenue Adjustments 2027-2030 <br /> <br /> <br /> <br /> <br />Page 4 of 27