Santa Fe officials outline FY26 public utilities budget, warn of large wastewater capital needs and proposed rate action

Interim Public Utilities Director Jesse Roach on Wednesday presented the proposed fiscal 2026 operating budget for Santa Fe’s Public Utilities Department and told the city’s finance committee the department has sufficient operating revenues today but faces large capital needs — especially at the Paseo Real wastewater treatment plant — that will require additional financing and likely rate increases.

Roach said the department has more than 260 funded positions and predicts roughly $84,000,000 in total revenues across its enterprise funds (water, wastewater and environmental services) for FY26. "The difference between the operating budget and the revenues is used to fund CIP," Roach said, adding that those capital needs drive the revenue requirements for the utilities. He added that the water division alone holds about $1 billion in physical assets and that an appropriate long-term replacement program would imply roughly $10–13 million a year in capital spending to keep assets current.

Why it matters: Committee members pressed staff for details because the utilities face multi‑decade deferred maintenance and a looming decision on how to finance hundreds of millions of dollars of work. Roach and division directors said operating reserves and one‑time grants or low‑interest loans can address some projects, but the scale of wastewater plant needs makes rate action, loan funding or bonding unavoidable without additional outside funding.

Key details

- Revenues and operations: Roach said predicted FY26 revenues by fund include more than $41,000,000 for water, about $21,000,000 for wastewater and $22,000,000 for environmental services, and that recent audited operating spending ran lower than the full budget because of vacancies and typical underspending. He cautioned that those revenues are not sufficient to fully fund long‑term capital needs.

- Wastewater capital gap: Roach and Wastewater Director Michael Dozier estimated a minimum of $180,000,000 in capital improvement needs at the Paseo Real Reclamation Facility over the next five years. Dozier emphasized that staff have improved regulatory compliance since 2024 — "we are compliant with E. Coli requirements; we've been compliant since October of '24" — but said the governing body will need to decide whether to rehabilitate the existing plant or build a new facility once cost uncertainties narrow.

- Asset management and rates: Roach said the department is standing up a formal asset management program to move from reactive to proactive repairs and to produce a long‑range capital spend plan. He said a prior desktop study suggested water should be investing about $13 million annually; the department has been spending closer to $5 million. Roach said the governing body will see a revenue‑needs presentation and an ordinance to begin rate adjustments for wastewater at a forthcoming governing‑body meeting.

- Financing options: Finance staff and Director Oster told the committee the department is actively seeking low‑cost financing and grants. Examples cited: Water Trust Board awards and NMFA support for dam work, and access to the Clean Water State Revolving Fund (noted by staff as a roughly $151,000,000 program of low‑interest loans with potential grant components). The city’s bond ratings and debt covenants also factor into borrowing decisions.

- Billing system and contracts: Upgrading the city’s long‑outdated utility billing system is a multi‑year priority. Nancy Jimenez, director of utility billing and administrative services, said the FY26 budget includes contract funding for program management and vendor services: roughly $2,500,000 budgeted for IT Connect (program management) and about $1,700,000 for Advanced (the billing software vendor) for implementation milestones. Jimenez said purchase orders opened this year have unspent balance that staff will ask to carry forward if not expended before fiscal year end.

- Environmental services, fleet and grants: Environmental Services Director Deborah Trujillo said $3,000,000 in FY26 is budgeted to replace about four refuse/recycling collection vehicles and related support units. Fleet Manager Martin (Marty) Valdez explained the city is evaluating factory or manufacturer modifications for supplemental air conditioning; an aftermarket base unit price was discussed at about $3,000 per truck (installation not included). Carol Branch, director of the nonprofit Keep Santa Fe Beautiful and an Environmental Services program manager, told the committee that a small annual grant from the New Mexico Tourism Department (historically $35,000, more recently smaller awards such as $12,000–$16,000) supports cleanup supplies and community beautification projects.

- Accounting support and audits: Committee members were told the city engages outside accounting contractor CLA (and other consultants) to help close utility and component‑unit accounts and to support the city audit. Staff said a $1,000,000 allocation appears in Public Utilities Administration for those services; finance staff explained additional allocations exist elsewhere (including BDD and finance) and that outside help was critical to produce on‑time audits while the city fills certain vacant finance positions.

- Regional and joint facilities: The budget reflects the city’s share of regional facilities. Roach and staff noted the city’s FY26 contribution to the Buckman Direct Diversion (BDD) shows on the water budget (approximately $7,200,000 in the materials presented) and that the full BDD and SUAMA budgets are separate processes that come back to the city for approval.

- Other policy steps: Roach said staff plan to bring a proposed backflow‑prevention ordinance to require inventorying and annual testing of backflow devices and online reporting; that ordinance had not yet been adopted at the time of the committee hearing. Staff also described work with the fire department and forest service to prioritize fuels mitigation around critical water infrastructure and to protect storage tanks and pump stations.

Committee action and next steps

The finance committee gave preliminary approval to the Public Utilities Department FY26 budget and a roll call vote was held to preliminarily approve the budget. Committee members and staff said a more detailed presentation addressing rate structure, projected gaps and financing alternatives will be presented to the full governing body later the same day; staff flagged that the governing body will consider introducing an ordinance to begin wastewater rate adjustments.

What councilors said

Committee members across the dais praised the utilities staff for responding to compliance issues and for maintaining services while staff move to upgrade systems. Several members, including Councilor Lee Garcia and Councilor Lindell, pushed for clearer long‑term plans and for the asset management program to drive transparent, multi‑year capital plans tied to any rate proposals. Councilors also pressed for detail on how much of the current revenues have been used for capital versus operations and for clear documentation of past corrective actions and consultant evaluations.

Taper: Staff asked the governing body to expect detailed financial analyses, consultant reports and proposed ordinance language in the coming days so the public and council can review proposed rate changes, funding scenarios and potential loan or bond packages.