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Committee endorses UAC’s 8% water rate recommendation, rejects staff’s 10% proposal pending further reserve review
Summary
Staff had recommended a 10% FY27 water rate increase; the Utilities Advisory Commission recommended 8% (5–2). After extended debate about SFPUC wholesale costs and reserve policy, the Finance Committee voted to forward the UAC’s 8% recommendation and a smaller immediate reserve transfer.
The Palo Alto Finance Committee on March 17, 2026, recommended that the City Council consider an 8% FY27 water rate increase after a lengthy staff presentation and committee debate on whether to adopt staff’s 10% proposal.
Audriana Arola, senior resource planner for water, told the committee that staff’s proposed FY27 increase was 10% and that the proposal reflected updated SFPUC wholesale cost assumptions and the need to restore reserve levels. Arola said the SFPUC wholesale assumption increased substantially since the preliminary forecast — to roughly 7.4% for FY27 — a change staff flagged as a major driver of the higher proposed increase.
Arola also presented staff’s proposal to allow up to a $5.5 million transfer from the water operations reserve to the CIP reserve to smooth funding for planned capital projects. Staff framed the reserve transfer as intended both to fund future capital (including seismic and watershed projects) and to maintain metrics that rating agencies monitor, such as days cash on hand.
The Utilities Advisory Commission earlier voted 5–2 in favor of an 8% FY27 increase rather than staff’s 10%, citing concerns about the SFPUC’s revised wholesale estimates and the desire not to “rubber stamp” a larger immediate increase while questions about reserves and SFPUC transparency remain. Several committee members echoed that view and favored a more conservative near‑term increase with the potential for a larger increase later if needed.
During public comment, Peter Dremmyer, identified as policy director for the (transcript) 'Yuseite Rivers Alliance' (formerly Towalami River Trust), urged the council to press SFPUC and BOSA for a study session and argued the wholesale agency’s finances reflect decades of deferred maintenance and planning choices that have driven up costs.
The Finance Committee moved the UAC‑recommended approach — an 8% FY27 increase with a smaller immediate transfer to operations reserves (approximately $1.2 million less than staff proposed) — and voted to forward that recommendation to City Council (votes recorded in the meeting: Council member Lowing — yes; Council member Bert — yes; Council member Lou — yes). The committee asked staff to refine forecasts that incorporate growth assumptions and to return with any needed adjustments in subsequent budget conversations.
Next steps: the City Council will consider the committee’s recommendation. Staff will continue to coordinate with planning on demand and revenue forecasts and will present the external reserves review and any further recommended changes to reserve policy.
