Santa Rosa proposes multi‑year water and wastewater rate increases; board asks for smaller first‑year jump

Nick Harvey, deputy director of administration for Santa Rosa Water, and consultant Mark Hildebrand of Hildebrand Consulting presented the 2024 water and wastewater cost‑of‑service study and proposed five‑year rate schedules at a Board of Public Utilities study session.

The study updates the utilities’ 10‑year financial forecast using the city’s June 30, 2023 reserve balances and the FY 2024–25 budget as a baseline. It recommends raising capital appropriations to match an infrastructure report card: for water, the report recommended $34 million per year (up from a seven‑year average of about $13.8 million); for wastewater, $42 million per year (up from a seven‑year average of about $14.2 million). To pay for the phased increase in capital spending, the consultant proposed multi‑year rate increases for customers.

Mark Hildebrand said the proposal for the water utility is an 8% average increase in year one followed by 7% in years two through five (with projected forecasts beyond year five). He explained the increases are driven primarily by planned capital appropriations and the city’s wholesale purchase of water from Sonoma Water, which comprises the largest single operating expense. “The by far, the largest expense to your water utility is the wholesale purchase of water from Sonoma Water,” Hildebrand said.

The study also recommends reinstating an automatic pass‑through of Sonoma Water rate changes so Santa Rosa’s customers directly bear changes in Sonoma Water’s wholesale price rather than the city guessing those increases in advance. Hildebrand said the pass‑through protects both the utility and customers from revenue shortfalls or over‑collections if Sonoma Water’s changes differ from Santa Rosa’s forecasts.

For wastewater, the consultant presented a five‑year schedule that would achieve the forecasted reserve and capital targets with 5% annual increases over the next five years. The wastewater proposal also reflects subregional treatment costs shared with four other agencies and an updated catastrophic reserve target (raised from $8.6 million to $21.5 million according to an engineering report).

Board members raised delivery capacity and reserve‑level concerns. Transportation and Public Works Director Dan Hennessy said the city will need to expand capital delivery capacity, including hiring an outside program manager to sequence and deliver a larger pipeline of projects. Hennessy said the city’s existing delivery rate is roughly $30 million per year and that the proposed capital program would require additional program management and design resources, including reliance on consultant teams and a master list of design firms.

Board Member Wright questioned why staff intends to wait until rates are approved before issuing the program‑manager RFP. Hennessy and acting staff said firms have told the city they need a defined scope tied to an approved funding level to respond competitively; staff said they are preparing the RFP now and intend to issue it soon after rates are finalized.

Vice Chair Arnoni and other members pressed staff about reserve targets. The consultant said the initially recommended first‑year water increase of 8% was intended to ensure reserves did not fall below target; board members expressed a preference to present a 7% first‑year option to city council. Chair Galvin and staff noted they would present that option at the BPU’s upcoming January report and again to the City Council at a January 7 study session.

The outreach schedule includes a Proposition 218 noticing process, a public hearing planned for March 2025, and an ongoing “value of water” public education campaign through July 2025 that uses web, bill inserts and paid advertising. Nick Harvey said staff will return to the board on December 19 with a report and recommendation and to request the board’s recommendation to council.

Board discussion was limited to study‑session review; no formal rate adoption vote occurred at this meeting. The board recorded a consensus that staff and the consultant should present a 7% first‑year water increase option to the next board meeting and to city council study session materials.

The board’s questions and staff responses highlighted implementation risks: the ramp‑up to meet the infrastructure target will require significant consultant support and hiring, and some costs (notably Sonoma Water rates) will vary and be passed through directly to ratepayers.