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rates is a more upfront, honest, and transparent move resulting in a bill almost identical to current bills so long as a customer conserves their 15%. She advised the City has PFAS and other water projects coming up they will have to fund and as the cost of doing business. In response to Councilmember Arkin, Deputy Director Baptista advised staff will update the City Council every two months on the water usage levels and the potential need to continue charging the Stage 2 drought rates. She explained the duration of the higher rates will depend on the community's reaction and conservation achievement. She advised if the drought rates are not activated, it will further hurt the City's water budget and staff would likely return with a plan to activate at least excess usage fees if not excess usage fees and drought rates. She advised the main goal is to keep the City financially stable. Director Yurchak advised the City would be using more of their reserves to offset operating costs. Deputy Director Baptista advised that based on the FY 21/22 numbers, the Water Fund's reserves could be gone in three years beyond just the consequences of needing these reserve funds for PFAS and other upcoming needs. Councilmember Balch advised there is not a tier of lower consumption use by customers allowing the reserves to be drawn down in a fiscally prudent manner. He noted the reserve exists so the rate payments are not used for capital projects. In response to Councilmember Balch, Deputy Director Baptista confirmed the definition of the lower-use tier of customers could be set at any usage threshold as a policy decision. Councilmember Balch called to find a usage level where a customer could not feasibly conserve any more than they do and thus be exempt from the drought rates. He advised the City Council does not have information on an exemption for a group of customers while still meeting revenue needs. Mayor Brown noted people in the lower usage range could only be paying about two dollars more on each bill with the Phase 2 rates. Councilmember Balch called to continue the item so staff can work out mathematically if exempting lower users would be financially feasible. In response to Councilmember Balch, Interim City Manager Dolan clarified a 20-unit user will only pay an additional 11 cents per month. Councilmember Balch reported a customer who uses just 10 units may not have any room to conserve for using so little water and they do not have an opportunity to lower their bills through reduced usage. In response to Councilmember Arkin, Deputy Director Baptista confirmed lower users who conserve 15% at drought rates will pay about the same as they would pay with no conservation efforts but keeping the current rates. She advised this is the goal of the drought rates. Mayor Brown advised the City is in a drought and water costs more. In response to Councilmember Testa, Deputy Director Baptista confirmed staff looked at the mid-year budget and it reflects a smaller purchasing expenditure to Zone 7 assuming customers conserve 15%. She advised even with this assumption, they are still drawing down their reserves. Councilmember Narum clarified the City gets a fixed bill from Zone 7 regardless of how much water it buys. She explained the City has to be able to pay the bill to keep the Water Enterprise Fund whole. Mayor Brown advised the City has to cover its losses while reducing water consumption. Mayor Brown advised she is not interested in drawing down reserves because the City is going out for a PFAS-funding bond and the reserves are necessary to get a good rating on those bonds. City Council Minutes Page 19 of 22 March 15, 2022