Sacramento leaders outline multi‑year water and wastewater rate increases to address funding shortfalls

City utility officials on June 24 presented a five‑year proposal of water and wastewater rate increases intended to close a multi‑year funding gap, rebuild capital reserves and finance high‑priority repairs across the city’s aging system.

“we are bringing in way less money than we need for our expenditures,” said Dalia Fadl, director of the Department of Utilities, describing FY26 shortfalls as high as about $36 million and warning that, without action, the city would exhaust reserves in later years.

The proposal combines a financial plan, a cost‑of‑service allocation and a rate‑design recommendation developed with outside consultants. Consultant Brian Bass said the study focused on three objectives: ensuring continuity of operations, meeting policy targets (including a 120‑day working capital minimum and a targeted debt‑service coverage ratio), and allocating costs so each customer class pays a “proportionate share.”

Why it matters: Staff showed a large backlog of deferred maintenance and capital needs — presented in the meeting as about $875 million on the water side — and said continuing cost inflation and new regulatory requirements had widened the revenue‑to‑expense gap. The department told commissioners it narrowed an initial long list of 426 candidate projects to about 255 priority items and built the financial plan around the highest‑priority work to reduce near‑term rate impacts.

Rates, timing and legal process: Staff said the city will finish the rate study in July, mail Proposition 218 notices to affected property owners in August, conduct community outreach and hold a public hearing during the 45‑day notice period (scheduled by staff for December), with City Council consideration in early 2027 and new rates effective July 1, 2027. The consultants also summarized AB 2257’s written‑objection rules, which require a city response to timely objections before the hearing.

Design details and customer impact: The report recommends a modest shift in how the utility recovers fixed versus volumetric revenue so charges better reflect usage and the cost drivers the cost‑of‑service analysis identified. Consultants said the net effect is to slightly increase volumetric recovery (encouraging conservation where feasible) while continuing to rely on a fixed service charge by meter size. Staff presented sample bills for typical single‑family residences and small, medium and large commercial meters and compared year‑one rates with regional peers.

What the money would buy: Examples of projects included construction and abandonment of groundwater wells, reservoir repairs, replacement of a 24‑inch transmission main from the City College reservoir into downtown, treatment‑plant rehabilitation and pump‑station electrical upgrades. Staff said some projects — such as large resiliency work dubbed the “Water Plus” project — will require bond financing and multi‑year staging rather than one‑time cash funding.

Security, fleet and program concerns: Commissioners pressed staff about SCADA and cybersecurity investments after one commissioner cited a GAO report on risks to water systems. Charlie Cunningham, the wastewater and drainage division manager, said the department has completed perimeter‑security hardening, third‑party assessments and ongoing remediation work and that some SCADA and cybersecurity projects are included in the CIP but must be prioritized against other urgent repairs. Staff also explained assumptions for required vehicle replacements tied to state zero‑emission rules; the department said it is budgeting for phased fleet purchases and related infrastructure but that costs and availability remain uncertain.

Affordability: Staff emphasized the city’s existing Utility Rate Assistance program and outreach plans to help eligible customers. The program is funded outside the utility rate revenue stream (staff said it is supported by Measure U) and enrollment pathways and online bill calculators will be part of the outreach.

Next steps and requests from commissioners: Staff said the formal Prop 218 notice will include the full rate study and a public FAQ, and they will tally written protests (which count toward a majority‑parcel threshold) and respond to written objections under AB 2257 before the hearing. Several commissioners asked staff to provide the detailed prioritized project list and additional cost breakdowns for reserves, bond assumptions, fleet replacement detail and the cybersecurity program so the advisory commission can review specifics ahead of the public engagement period.

No rate vote was taken on June 24; the item was presented for information and commissioner comment. The commission approved only the meeting’s consent calendar by voice vote earlier in the agenda.