CITY COUNCIL SPECIAL MEETING AGENDA PACKET 8-11-26

Page 2 of 5 2026. The feasibility phase of the Groundwater Supply Project is complete, the design of the Emergency Power Improvements Project is complete, and construction for the latter is anticipated to start by the end of 2026. In 2025, the City was awarded a $1 million State grant to fund approximately 70 percent of the feasibility phase costs for the Groundwater Supply Project. The feasibility phase was completed in early 2026, and staff anticipate presenting the negotiated agreements to the City Council for consideration in September 2026, subject to successful completion of negotiations with Zone 7. Because of delays in the start of the design and construction of the Groundwater Supply Project, a portion of the remaining 2024 Water Revenue Bond proceeds will instead be used to advance Phase 1 of the Water Meter and Advanced Metering Infrastructure (AMI) System Replacement Program, including proof-of-concept testing and replacement of failed water meters. Phase 1 is expected to replace approximately 25 percent of the City's meter inventory by the end of 2026. With the current project delivery schedule, staff expects to expend or encumber the 2024 Water Revenue Bond in 2027. Water Fund The City’s Water Fund is operated as an enterprise fund to deliver potable water. The City Council adopted new water rates on October 7, 2025, for the next four years, beginning in January 2026. The adopted rates were based on revenue adjustments of 15 percent increases in each of Calendar Year 2026 and 2027, and 8 percent increases in each of Calendar Year 2028 and 2029. The water rate increases were adopted to ensure the long-term financial sustainability of the City's water utility by providing sufficient funding for daily operations, debt service, infrastructure rehabilitation and replacement, regulatory compliance, and future capital improvements identified in the WSMP. The updated rates also support appropriate reserve levels while balancing affordability, revenue stability, and water conservation objectives. The proposed issuance of debt was incorporated into the new rate increases. 2026 Water Revenue Bonds Following completion of the City’s Water System Management Plan (WSMP) in 2024, the City completed a comprehensive water rate study in 2025. The study identified the need to issue approximately $35 million in additional debt financing through 2030 to implement the City's water capital improvements. The anticipated financing schedule includes approximately $15 million in FY 2026/27, $10 million in FY 2027/28, and $10 million in FY 2028/29. Major projects anticipated to be funded through the proposed 2026 Water Revenue Bonds include: • Water Meter and Advanced Metering Infrastructure (AMI) System Replacement; • Design and construction of City Groundwater Supply Project; • Completion of construction of Water System Emergency Power Improvements; • Annual Water Distribution System Improvements; and • Other water system capital improvements As some of the projects are in active implementation using a portion of the unspent proceeds from the 2024 Water Revenue Bonds, certain costs related to the Water System capital improvement projects will be incurred before the 2026 Bonds are issued. Therefore, the City is required to adopt a resolution declaring its official intent to reimburse such expenditures from Page 224 of 373