Norco staff outline steep choices to shore up water and sewer funds; borrowing could blunt near-term rate shock

Norco officials told a joint workshop that the city’s water and sewer enterprise funds face mounting pressure from falling sales, rising costs and needed capital replacements, and that residents can expect some form of rate adjustments or borrowing to keep systems solvent.

The presentation, led by Director of Public Works Chad Blaze and consultant David Hyder of Stantec, laid out 10-year financial projections for the water and sewer funds and three financing scenarios for the water fund: modest annual increases to cover operations, borrowing to spread capital costs, or spreading capital projects over a longer time frame to reduce near-term rate impacts.

Blaze said the meeting was “the first discussion” in a multi-step rate-study process meant to narrow likely scenarios the council might consider. He told the group the city originally planned a rate study in 2023 but delayed to complete an internal public-works efficiency review. David Hyder said the analysis models revenue requirements (operations, capital reinvestment and debt service) against a no-rate baseline and alternative rate paths.

The water fund faces the greatest stress. Hyder said the city’s current water operating budget is about $12 million for fiscal 2024–25, serving roughly 27,000 people with about 7,500 service connections and roughly 100 miles of distribution mains. The system produces about 6,000 acre-feet annually, Hyder said, with about 85% of that volume purchased from outside vendors (averaging about $1,200 per acre-foot) and roughly 15% from local wells (about $500 per acre-foot). Hyder added the water system shows an estimated 800 acre-feet of reported losses over the past four years and that water sales have declined about 18% since fiscal 2021.

“These trends mean revenues are insufficient to fund the annual operations of the water system,” Hyder said.

Under a baseline “no rate increase / no capital” scenario, the model showed water-fund cash balances falling below the city’s minimum target in the later part of the 10-year projection and going negative thereafter. A modest scenario of 3.5% annual increases in the fixed charge and usage rate would stabilize operations but would not fully fund the city’s approved five-year capital improvement program (CIP).

Hyder and staff ran a cash-funded CIP scenario that would require a dramatic single-year increase—about 65% in fiscal year 2026—to pay for the front-loaded capital program. Because that magnitude was likely politically and practically infeasible, the consultant presented two alternatives the staff recommended the council consider for the formal draft report:

- Borrow for part of the CIP (Stantec modeled roughly $21 million in low-interest loans drawn across two years). That scenario reduced the near-term rate shock to an estimated initial increase of about 17% in fiscal 2026, then smaller step increases in subsequent years. Hyder noted a 17% increase, for a typical single-family water customer, would be roughly an $11 monthly increase in the bill.

- Spread or defer portions of the CIP across a longer horizon (10 years instead of five) and combine limited borrowing. That option produced a lower initial increase—about 10% over two years in the consultant’s example—and more gradual steps afterward.

Blaze emphasized the city still must decide an approach: “It’s really a preference of the council. I looked at it more as council as the fiduciary body of making the ultimate decision,” he said, adding staff’s goal was to return a formal draft rate-study report with one or two recommended funding paths and clearer customer impacts.

Staff also flagged programmatic constraints and regulatory drivers that could add cost. Hyder and staff said a separate recycled-water program is being designed but is not yet included because related grant funding (federal or state) is not finalized. The team described planned PFAS (per- and polyfluoroalkyl substances) treatment work: state and federal rules require treatment, and staff said the city must be in compliance by 2027. Blaze noted the city is designing a PFAS treatment plant and is evaluating fluoride-removal options; a state waiver on fluoride that the city previously used expires in 2028.

Operations and asset details the team said council should weigh:

- Water meters: the city’s advanced metering infrastructure was installed in 2009. Staff tested a sample of 50 original residential meters and reported about 16 of those had at least a 10% under-reporting error on low flows; staff emphasized the sample is small (50 of roughly 6,800 meters) and recommended further study before committing to full replacement. “It would take a lot more analysis,” Blaze said, “and it would still be guesswork for me and my team to really say definitively.”

- Water mains and leaks: staff identified several high-priority main-line replacement projects and supplied work-order counts showing recurring breaks and repairs in specific locations; the five-year CIP contains numerous main-line projects many of which the staff described as “problem children” that drive repeated emergency repairs.

- Sewers: Hyder said the sewer fund (operating budget roughly $5.1 million) is in better near-term shape than the water fund. Sewer sales have decreased about 6% over three years but most sewer revenue is fixed (residential customers pay a flat monthly charge). The sewer CIP is smaller and more of the planned sewer work is already under design or in construction; Stantec modeled a lower-rate path for sewer, roughly a 5–6% lift spread over a few years in the scenarios shown, equating to a few dollars per month for a typical single-family sewer bill (which Hyder said currently averages about $51).

Council and commissioners pressed staff on several specifics: the timing and size of proposed borrowings, whether grant funding could materially lower required rate increases (not yet committed), the life and replacement schedule for meters, energy and chemical cost escalation assumptions (the team used about 3–3.5% average inflation for many line items and 5% for purchased water), and the tradeoffs of delaying CIP work.

Council members also discussed options to mitigate impacts: staggered implementation, borrowing from low-interest state revolving funds, targeting only essential capital for the first five years, and increased conservation/active leak detection programs. Staff cautioned that increased regulatory obligations—state conservation metrics, mandatory leak-reduction reporting and future compliance windows—could increase program costs and staff workload; the city has been working with regional consultants on those compliance matters and Western Municipal Water District has assisted with early consultant funding.

What happens next

Staff said the next formal workshop is tentatively scheduled for March 5, when the city would review a full draft rate study and one or two recommended rate structures to consider for adoption and (if desired) to move forward to a Proposition 218 notice and hearing process. Blaze said the schedule assumes a 45-day Proposition 218 notice if a rate-adoption path is chosen and noted any implementation of adopted rates would target a July 1 effective date aligned to the fiscal year.

Hyder summarized the consultant’s role: produce the cash-flow and rate-design work and return options and customer bill impacts. “We’re completing a projection of the full cost of service for each fund,” he told the workshop, “and really the ultimate goal of those financial plans is to develop a financial plan that will ensure sustainable and resilient operations.”

Staff recommended council direct the team to return with the draft rate study that incorporates the council’s preferred scenario(s), further meter-sample testing and quantification of potential grants and low-interest loan options.

Ending

Councilmembers said they want more detail before a formal rate proposal, but several expressed support for a mixed approach—using borrowing to reduce near-term rate shock while stretching lower-priority CIP items—so long as staff can present clearer bill impacts and a defensible plan for compliance with impending regulations. Staff said it will return with a draft study containing the financial modeling, customer bill tables and an explicit list of policy choices the council would make to finalize any adoption path.