Committee backs recommendation to raise sewer rates, staff proposes 20% FY26 increase or 16% with extended amortization

City staff presented the wastewater financial forecast and rate-schedule recommendation, asking the Finance Committee to forward a resolution to the City Council approving the FY2026 wastewater collection utility financial forecast and amended rate schedules. Brad Eggleston, Director of Public Works, and other wastewater staff explained that the utility’s reserves are depleted and that the regional Silicon Valley Clean Water plant is undergoing major projects with increasing treatment costs; staff proposed a 20% rate increase for FY26 aimed at replenishing reserves and funding minor capital needs at the treatment plant.

Staff said if the outstanding authorized amount for minor capital at the treatment plant were recovered over 10 years (instead of the staff-preferred four years), the required FY26 increase would fall to about 16% (roughly $9/month) but that longer amortization increases the risk because the treatment plant could need those funds sooner. Staff noted the sewer utility had borrowed $3 million from the city fiber-optics fund last year to preserve near-term cash; that loan must be repaid in FY26 with interest.

Staff walked the committee through a cost/revenue chart showing how collection capital, collection operations, treatment minor capital and treatment operations contribute to the forecast. The 20% request reflects operating expense increases (largely labor), treatment cost increases, and the need to rebuild reserves after a period in which capital and operating pressures outpaced revenues. Staff also described deferred projects — including shifting a five-mile main replacement from 2026 to 2028 — as a partial offset to near-term rate pressure.

Communications manager Catherine Elvert said outreach will emphasize safety, regulatory compliance and the importance of treatment-plant investments. She reiterated the department’s view that Palo Alto’s wastewater bills remain competitive with neighboring agencies and that outreach will include direct mail, digital channels and public meetings.

Committee members asked for clarity on the allocation of treatment costs among partner agencies and whether the city’s share might change. Brad Eggleston said the long-range facilities plan update now underway includes a task to review allocation methods; staff said Palo Alto’s flow-based share has risen since COVID and the forecasts assume a roughly 38% allocation in upcoming years.

After follow-up questions, the committee unanimously voted to forward the staff recommendation for Council adoption (vote 2–0). Staff will prepare materials for Council consideration, and the committee asked for additional detail on options staff identified for amortization periods and the risks of the longer amortization approach.