Santa Rosa Water subcommittee recommends FY25-26 operating and CIP budget after presentation of $110.5 million package

Santa Rosa Water staff on the budget subcommittee recommended the utility's proposed fiscal year 2025-26 operating and capital-improvement budget to the full board after a presentation and discussion at a subcommittee meeting. The package totals about $110,500,000 and covers water, wastewater (local sewer), regional reuse and stormwater and creeks programs.

The presentation, led by Director Burke and Deputy Director of Administration Nick Harvey, emphasized a planned restoration of capital investment and operating assumptions that shaped the budget. "The biggest takeaway here in my opinion is CIP budget. We plan on delivering approximately $33,200,000 in capital projects," Harvey said, describing a near doubling of the CIP program compared with the current year.

Why it matters: the proposal shifts the utility back toward larger capital spending after cuts the prior year, while also budgeting for higher operating costs driven by an assumed 9% departmentwide salary increase, higher electricity costs and a wholesale water rate increase from Sonoma Water. The subcommittee voted to recommend the package to the full board by a unanimous roll call.

Top-line numbers and rate assumptions

Staff told the subcommittee they assume a 1.1% increase in water deliveries tied to growth and that proposed retail rates follow the five-year schedule under consideration by the City Council. Harvey summarized the rate assumptions used in financial modeling: multi-year increases for water usage and fixed charges and a separate multi-year schedule for sewer rates. Wholesale water purchase costs are a major driver: staff assumed an 8.68% wholesale rate increase from Sonoma Water, bringing next year's wholesale water expense to about $21,600,000 and the water enterprise O&M budget to about $46,100,000.

Operating pressures and reserves

Across the departments, staff incorporated a 9% personnel-cost assumption (reflecting a 4% MOU increase beginning July 1, 2025, plus equity adjustments from an ongoing classification and compensation study). Other pressures cited included higher electricity costs, insurance increases and general upward price pressure in O&M categories.

Harvey described the utility's reserve picture in detail: undesignated water reserves were about $15,300,000 as of June 30, 2024; the wastewater undesignated reserve was just under $14,800,000; and the regional refund reserve held about $8,800,000. The FY25-26 proposal shows a planned local operating deficit of roughly $5,100,000 in the water fund and a planned $6,900,000 deficit in the local wastewater fund, figures staff said are consistent with the long-term financial plan and rate modeling.

Capital program highlights and partnerships

Staff presented project-level highlights across enterprises. Liz Hanley, supervising engineer for asset management, identified several projects by project ID and estimated cost: Station 13 pump station upgrade (PID 1713) at an estimated $3,400,000 and Station 14 pump station upgrade (PID 1986) at about $3,200,000, both aimed at improving fire flow for Oakmont-area facilities in high fire-severity zones. "The estimated project cost is currently at $3,400,000 for Station 13 and $3,200,000 for Station 14," Hanley said.

Other major items included a proposed groundwater program to convert emergency wells to production (PID 2486, preliminary estimate $4.5 million), the Myers Drive water and sewer main replacement (PID 10166, total estimate $3,900,000), and a multiyear Lava Trunk rehabilitation project (PID 2425) with an estimated cost of about $21,800,000 that staff said is contingent on partnership and cost-share with the U.S. Army Corps of Engineers.

For regional infrastructure, staff described a planned $35,000,000 bond issuance to fund electrical infrastructure replacement at the Laguna Treatment Plant. Harvey said the financing assumptions in modeling are a 30-year amortization and a 5.5% interest rate, which staff estimated would produce about $2,600,000 in annual debt-service cost allocated across partner agencies; staff estimated Santa Rosa's share at roughly $1,800,000 annually. Finance staff were described as pursuing financial-advisory and bond-legal contracts ahead of a planned issuance later in the calendar year.

Stormwater and creeks funding concerns

The stormwater and creeks program shows only a 1% aggregate increase in O&M next year, with about 23% of its funding coming from the general fund in staff's presentation. Board members pressed staff about the small size of the stormwater budget and ongoing discussions about how to address long-term underfunding. Director Burke and staff said the utility is completing its first-ever storm drain master plan, which staff said already indicates the system is underfunded and will be used to inform future policy and funding discussions.

Legal and policy constraints for a new stormwater funding mechanism were debated. Staff told the subcommittee that attorneys are split on whether a standalone stormwater utility or assessment could be established without running afoul of Proposition 218 and related constitutional constraints. The discussion noted possible pursuit of assessments or other funding approaches but emphasized legal uncertainty and risk of litigation.

Energy costs and efficiency efforts

Board members and staff discussed rising electricity costs as an operating pressure. Staff said an upcoming ultraviolet (UV) disinfection system is expected to reduce energy use and that an energy-optimization program and participation in clean-power programs are ongoing. Staff estimated the new UV system could reduce energy costs by roughly $440,000 annually compared with current consumption once the project is online.

Board action and next steps

After discussion and public comment, a motion to recommend that the board approve the FY25-26 Santa Rosa Water operating and CIP budget package was made and seconded. The subcommittee conducted a roll call and approved the recommendation unanimously: Board Member Bartholow, Vice Chair Noni and Chair Wright each voted "aye." The motion passed.

Votes at a glance

- Recommend the Board of the (subcommittee referred to as "BTU" in the record) approve the FY25-26 Santa Rosa Water operating and CIP budget package. Outcome: approved by roll call; tally: yes 3, no 0, abstain 0. (Mover and second: not specified in the record.)

Staff noted the following next steps: the subcommittee will forward its recommendation to the full board; staff will present regional budget items with partner agencies on April 3; and the City Council will consider regional and the broader budget package on its April calendar as outlined by staff during the meeting.