City staff told the Highland Village City Council on Aug. 12 that wetter-than-expected weather reduced water sales this year and that a combination of higher wholesale charges and escalating operating costs is squeezing the utility fund.

Staff said water sales are likely to finish the year below budget, sewer revenues are somewhat below projections and administration costs have risen because of higher credit-card processing and bill‑printing and delivery costs. An emergency sewer manhole replacement and other lift‑station work drove operations over budget in the current fiscal year, staff said.

The presentation included preliminary wholesale cost figures from the Upper Trinity regional supplier and showed a projected volume cost increase and higher demand charges. To offset the near-term shortfall for FY 2026 staff proposed modest municipal rate changes (adjusting the city demand and volume charges for water and sewer). With the specific example presented, staff estimated the proposed 2026 changes would roughly neutralize the fund position for that year but would not eliminate projected deficits beginning in FY 2027.

Staff emphasized the city’s practice of waiting for the final wholesale rates from Upper Trinity before adopting a final municipal rate and recommended revisiting the schedule in November after that information is available. Council members pressed staff about smoothing adjustments over multiple years rather than smaller incremental increases and asked for future scenarios that show multi‑year impacts.

Staff also reviewed capital timing that affects the utility fund: repainting and maintenance of water storage tanks was delayed in part to next fiscal year, lowering near‑term capital outlays but creating a likely multi‑year debt service profile that staff said could require larger revenue increases in later years. Staff said maintaining the city’s policy target of roughly 90 days of operating working capital would require about $700,000 additional recurring revenue in the longer term absent new growth.

Council members asked about nonrevenue options, the city’s water‑loss monitoring (staff said the system’s measured loss is under 10 percent and is reported to TCEQ), and how impact‑fee receipts from a planned local development (Magnolia Village) could affect the five‑year outlook. Several council members urged workshops to refine the timing and sizing of increases so they are predictable for residents.

Staff noted administrative increases tied to convenience fees paid to the software vendor — the vendor’s convenience fee (about $1.50 per transaction) does not go to the city — and that about $80,000 per year in card processing costs are being borne by the utility. Council discussed options such as directing staff to pursue a convenience fee or similar mechanism to recover processing costs and asked staff to return with modeled options.

Council did not take formal action on utility rates at the meeting; staff said they would return with final wholesale numbers and rate alternatives later this fall.