Santa Rosa staff recommend multi-year water and wastewater rate increases; council directs Prop 218 notice

Santa Rosa city staff presented a comprehensive water and wastewater rate study on Jan. 7, 2025, recommending staged rate increases over the next five years and asking the City Council to authorize staff to start the Prop 218 notice and protest process.

The study was presented by Jennifer Burke, director of Santa Rosa Water, and Mark Hildebrand of Hildebrand Consulting, who said the plan balances a 10-year capital program against operating and reserve needs and includes reinstating an automatic pass-through of Sonoma Water wholesale rate changes. Mark Hildebrand summarized the law underpinning the work, saying, "The basic premise is that you can't charge customers more than the cost of providing service." Director Burke said the Board of Public Utilities reviewed the work and "unanimously recommended the report and the rate schedule that is before you today."

Why it matters: Santa Rosa faces a long-running capital shortfall for water and sewer systems. The study proposes multi-year increases so the utilities can raise annual capital appropriations to levels recommended by recent infrastructure assessments while maintaining reserve policies. A separate but related change — a proposed pass-through of Sonoma Water wholesale increases — would shift some wholesale-cost volatility directly to retail customers when Sonoma Water raises its rates.

Key findings and recommendations: The rate study uses June 30, 2023 reserve balances and the city's 2024-25 budget as its baseline. It recommends (summary): - Water: staged increases with a weighted average revenue increase of about 6% in year one and additional scheduled increases (the presentation showed 6%, 6%, 6%, then 7%, 7% in early years), driven in part by ramping capital appropriations toward an infrastructure-report-card target. The study also proposes raising the catastrophic reserve from roughly $6 million to $17.5 million to meet engineering recommendations. - Wastewater: a series of 5% annual increases over multiple years to support both local collection and regional treatment capital programs, including recently completed and planned debt issues for the regional treatment plant. - Pass-through: reinstate automatic pass-through of Sonoma Water wholesale rate changes for the portion of retail bills tied to wholesale purchases; the consultant said this protects both the utility and ratepayers from mis-estimating Sonoma Water's future rates.

Cost drivers and capital delivery: Hildebrand and Burke highlighted that wholesale water purchases (Sonoma Water) are the largest single expense line. Burke and staff also recommended a step-up in capital project delivery: contracting additional project management and design consultant teams because in-house delivery capacity has historically been limited. Burke said staff would pursue a project management RFP and a master list of design consultants to accelerate delivery and reduce backlog.

Prop 218 process and legal protections: Dustin Cooper, interim assistant city attorney, outlined newly available legislative options intended to lower litigation risk in California rate-setting. He recommended including a 120-day statute of limitations notice and using a new exhaustion-of-administrative-remedies step. Cooper said the exhaustion step "establishes an exhaustion of administrative remedies requirement" that asks prospective litigants to file written objections in a defined early window so the city can respond and, if needed, amend its rationale before a final protest period. The staff timeline set a March 5, 2025 deadline for written objections under that exhaustion step, with a public hearing tentatively scheduled for April 1.

Public outreach and context: Burke described an outreach campaign launched in May 2024 called "Value of Water," which included digital ads, bill inserts, radio and social media and reported more than 650,000 impressions across channels. Burke also told council that the Board of Public Utilities and a budget subcommittee had reviewed the study and that the BPU had unanimously recommended the proposed schedule.

Council direction and next steps: In the study-session discussion, council members asked about stabilizing rates, the degree of public feedback to date, Sonoma Water forecasts and project delivery. Several members praised staff and the BPU for their work. The council did not take a formal recorded vote on rate adoption at the Jan. 7 study session, but a majority gave staff direction to proceed with the Prop 218 notice and the proposed schedule. Staff indicated the Prop 218 notices would be mailed within a week to meet the March 5 objection deadline and return to council for the public hearing on April 1.

What stays uncertain: The study uses multi-year inflation and usage assumptions; future Sonoma Water wholesale increases and grant awards could alter outcomes. The proposed exhaustion procedure and 120-day limitations period are optional under new state law; adopting those procedures will add time to the Prop 218 process but, per the city attorney, may reduce litigation exposure.

Ending: Santa Rosa Council signaled support to start the Prop 218 process after the study session; formal rate adoption will require completion of the mailed notice period, resolution of any timely objections, and the April public hearing before the council can adopt a final rate schedule.