CITY COUNCIL REGULAR MEETING AGENDA PACKET 7-21-26

City of Pleasanton Sewer Rate Study Report Water Resources Economics 5 by the City’s financial performance, input from City staff, and feedback and direction from City Council. FACTORS AFFECTING FINANCIAL PERFORMANCE The sewer system’s financial performance is driven by the ability of the current sewer rates to meet the City’s funding needs. To maintain financial sufficiency, sewer rates must fully fund O&M costs, CIP expenditures based on the City’s SSMP, and any relevant financial policies, which typically include reserve policy targets and debt coverage requirements. The key factors affecting financial performance include: • Substantial capital investment needs over the next four years: The cost of planned CIP expenditures from FY 2026 through FY 2030 totals approximately $39.3 million (M). Of the total cost of planned CIP expenditure, $28.0M will be funded with new debt. This CIP funding plan was designed to address high priority infrastructure needs while phasing other improvements over time to responsibly manage costs and long-term system risks. The major projects include pipe bridge and siphon improvements as well as lift station, generator, and pipeline replacements intended to meet current sanitary sewer system regulatory requirements outlined by the State Water Resources Control Board (SWRCB) and City Council-approved SSMP on sewer inspection, maintenance, cleaning, repair, and replacement. • New O&M expenses and cost increases: Implementation of the City’s planned CIP requires new O&M expenses, programs, and additional staffing costs in accordance with the City’s SSMP, totaling approximately $15.3M over the four-year rate setting period. Additionally, the City’s existing O&M fund base expenses are projected to increase by 3.6% on average over the four-year rate setting period due to inflationary pressures. Based on current rates and projected expenses, the City is not expected to cover its existing O&M expenses in FY 2026. • Debt coverage requirements: The City plans to issue approximately $28.6M in new debt to fund CIP. Annual debt service payments relating to new debt for CIP fluctuate between $444.8 thousand (K) in FY 2028 and $2.1M in FY 2030. The City must maintain a debt coverage ratio of 125% to meet proposed debt coverage requirements 3. This means that the City’s net operating revenues (excluding CIP funding sources and expenditure) must be at least 125% greater than proposed annual debt service in each year. • Reserve policy targets: The City’s current operating reserve policy, which is shown in Table 1-2, allows the City to maintain cash on hand to meet short-term cash flow requirements. Sewer utility operations are organized amongst several funds; however, this study focuses on the unrestricted Sewer O&M Fund (Fund 430), Sewer Replacement Fund (Fund 434), and Sewer CIP Fund (Fund 431). The operating reserve policy only applies to 3 Debt coverage is calculated for the entire sewer utility (O&M, Replacement and CIP funds combined). Page 157 of 923