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Commission recommends 20% wastewater rate increase to restore reserves and pay plant costs
Summary
The Utilities Advisory Commission recommended a 20% wastewater collection rate increase for FY2026 to restore depleted reserves, pay treatment plant charges and fund ongoing operations; commissioners discussed a 16% alternative that would delay some reserve replenishment and require an interfund loan.
The Utilities Advisory Commission voted unanimously to recommend that the City Council approve a 20% rate increase for the wastewater collection utility in fiscal year 2026.
Staff told the commission the wastewater utility faces a combination of factors that drove the proposed increase: low operating reserves that must be replenished, rising personnel and vehicle costs, and charges from Silicon Valley Clean Water (the regional treatment plant) for authorized future minor capital. Carla Daley and staff presented a financial plan that included repaying a short‑term loan taken in FY24 and restoring reserves within policy guidelines.
The staff recommendation would recover an outstanding authorized amount for future minor capital over four years. Staff also presented an alternative that would spread replenishment over 10 years and, if used, likely require council approval of an interfund loan (the staff example was a loan up to $2.5 million from the fiber‑optic fund at the city portfolio rate plus a margin).
Commissioners and the budget subcommittee examined drivers of the increase, including Palo Alto’s share of regional treatment flows and strength factors that have increased the city’s flow share as employees return to offices post‑pandemic. Staff described added costs such as CCTV inspection for collections and the inclusion of recurring CCTV funding starting in 2026 to allow condition‑based repairs that extend asset life.
The commission motion asked that the Finance Committee and City Council consider the identified cost‑savings options (e.g., passing through credit card fees and seeking waivers for EV purchases where impractical) and apply any realized savings toward reducing planned reserve draws. The commission voted 7–0 to forward the staff recommendation (20% increase) and the subcommittee’s cost‑savings items to council for adoption.
Staff noted that without reserve replenishment the projected rate increase would have been substantially higher; staff also highlighted that reserves are low in part because the wastewater fund borrowed $3 million in FY24 from the fiber‑optic fund and must repay it in FY26. The commission discussed the trade‑offs between immediate rate relief and long‑term risk if capital continues to be deferred.
The recommendation moves next to the City Council for consideration and possible adoption.
