Utility consultant recommends no water, wastewater or stormwater rate increases for FY2026

Grady Reed, the city27s utility rate consultant, told the council at a July budget workshop that staff do not recommend raising water, wastewater or stormwater rates for FY2026.

Reed said the water program faces increased costs tied to a planned purchase of groundwater rights, two tank repainting projects (plants No. 8 and 9) and ongoing water-rehabilitation projects. He described a 2012 debt issue that retires in the current fiscal year and will be replaced in 2026 by new debt payments of about $530,000; the retired debt payment was about $360,000. Reed said the new 2026 debt service is being apportioned roughly half to water and half to wastewater.

On wastewater, Reed said residential sewer charges are modeled to increase about 5% in the short run, with commercial charges modeled at smaller initial increases. He projected that treatment-related expenses (including regional wholesale treatment providers) could increase roughly $410,000 across the planning period, equivalent to about a 24% rise in treatment costs over the period modeled; wholesale CCMA treatment costs were modeled to increase about 10% across five years. Reed emphasized these increases are spread over the planning horizon, not all in the coming fiscal year.

Capital projects and funding: The presentation lists a FY2026 wastewater rehabilitation CIP item of $562,600, declining to $315,000 in 2027 and rising to $365,000 by 2030. Reed said other projects (including water tank repainting at Plant 9 in 2026) will be cash-funded from utility fund balance and from tower rental revenue that the city reserves for tank maintenance. Reed stated the city does not plan to take on additional utility debt across the five-year plan beyond the 2026 public‑works-related issuance already described.

Reserves and rate strategy: Reed told council the combined water and wastewater fund balance is currently higher than the model projected, which allowed staff to recommend no rate increases in FY2026. He said the city is drawing down reserves in a controlled manner to avoid a single large rate spike later: ‘‘We don't want to pull down that fund balance too fast, because that creates a lot of momentum... and in order to stop that ball rolling down, you basically have to have a very large rate increase,'' he said. Reed said operating reserves currently approximate eight months for the combined water/wastewater utility (the city27s target being six months for those funds) and about three months for stormwater (stormwater is modeled with lower variability).

Stormwater: Reed said the last stormwater rate increase occurred in 2023 and that stormwater expenses have declined in part because some vehicle lease costs expired and engineering costs have fallen. He identified FY2026 stormwater capital needs that include projects at the Cibolo Creek property, Oak Meadows drainage and brush clearing; no stormwater rate increase was recommended for FY2026.

Sewer inflow and infiltration (I&I): City staff described the ongoing I&I program and surveys. Reed and Public Works staff said the targeted projects will address higher-priority segments identified in earlier surveys and that some pipeline replacement work will be coordinated with street reconstruction projects.

No formal rate ordinance was adopted at the workshop. Staff said they will return to council with the formal ordinance language and pricing so ordinances remain current in advance of any future rate decisions.

Ending: Reed offered to answer further questions and told council he will continue to update the rate model and monitor weather-driven revenue variability for the water utility.