CITY COUNCIL REGULA MEETING AGENDA PACKET _Revised_ 6-2-26

Page 3 of 15 The proposed sewer rates and fees have been developed with the following objectives: • Maintaining financial sufficiency to support ongoing O&M and CIP needs to implement the SSMP; • Aligning City collection rates with cost-of-service principles; • Simplifying the rate structure to improve transparency and consistency with peer agencies; and • Updating connection fees to equitably recover costs imposed by new development. The Rate Study objectives are: • Maintain financial sufficiency for O&M and CIP needs to implement the SSMP through a five-year financial plan for fiscal year (FY) 2026 through FY 2030; • Stabilizing system condition over the five-year planning horizon (FY 2026 to FY 2030); • Develop a four-year sewer rate schedule for FY 2027 through FY 2030, with rates effective January 1, 2027, and July 1 at the start of each subsequent fiscal year; • Align collection rates with cost-of-service principles through an updated cost-of-service analysis; • Simplify the rate structure to improve transparency and consistency with peer agencies; and • Updating connection fees to equitably recover costs imposed by new development. On February 17, 2026, the City Council reviewed three implementation scenarios and adopted Scenario 1 — Maintain, which provides a balanced approach between near-term improvements and long-term risk. Staff was directed to return in spring 2026 to review rate impacts and policy issues needed to finalize the Rate Study and prepare for Proposition 218 noticing. On April 21, 2026, the City Council held a workshop to review proposed sewer rates, rate structure options, and policy considerations necessary to complete the Rate Study and prepare for the Proposition 218 process. At the workshop, the City Council expressed support for the proposed rate structure changes. If the recommendations in this report are approved, staff will return to the City Council in July 2026 with the final Rate Study Report and a request to initiate the Proposition 218 noticing process. The proposed sewer rates would take effect on January 1, 2027. DISCUSSION On February 17, 2026, the City Council adopted the Rate Study - Maintain financial planning scenario for the sanitary sewer program. The Maintain Scenario is intended to stabilize system conditions over a five-year period, FY 2026 through FY 2030, by providing the funding needed for improved O&M and prioritized capital improvements consistent with the SSMP and long- term sewer CIP, while managing rate impacts to the extent feasible. This scenario represents the minimum level of investment needed to meet State regulatory requirements for effective sewer system management as defined under the City Council- approved Sewer System Management Plan (SSMP) submitted to the State in July 2025. Page 340 of 617