ITEM 24 ATTACHMENT 2 - Laserfiche WebLink

City of Pleasanton 2025 Water Rate Study Water Resources Economics 5 maintenance (O&M) costs, capital improvement plan (CIP) expenditures based on the City’s WSMP, and any relevant financial policies, which typically include target reserve balances and debt coverage. The key factors affecting financial performance include: • Substantial capital investment needs over the next five years: The cost of planned capital projects over the next four years (FY 2026 through FY 2029), excluding that to be funded by connection fees, is approximately $62.7 million, accounting for inflation of project costs over time. Significant projects include local groundwater well improvements to recover local water supply sources, turnout improvements to facilitate Zone 7 imported water into the distribution system, pipeline distribution improvements, and facility rehabilitation. • Cost increases for Zone 7 Water: The City is expected to purchase 100% of its potable water supply from Zone 7 Water Agency each year of the study, representing on average 69% of the annual potable water operating budget. On average, purchased water costs from Zone 7 are expected to increase by 5.0% each year. • Debt coverage requirements: The City’s existing annual debt service payments fluctuate between $1.5 and $1.6 million each year of the study period, and the City is required to meet an annual debt coverage requirement of 125% each year. This means that the City’s net operating revenue (operating revenue not including grant or debt proceeds less operating expenses not including debt service or CIP expenses) must be at least 125% greater than its annual debt service. Without any revenue adjustments, the City is not expected to meet its debt coverage requirements starting in FY 2027. • Projected O&M cost increases: O&M expenses are projected to increase by 5% on average each year over the next four years due to inflationary pressures. This does not factor in additional increases in operational expenses to facilitate CIP, additional staffing costs, and additional insurance liability costs expected in FY 2026 and FY 2027 to add approximately $8.2 million in O&M expenses over the four-year study period. Without any revenue adjustments, the City is not expected to cover its O&M expenses starting in FY 2027. • Reserve policy targets: The City’s current reserve policy, which is shown in Table 1-4, includes the reserve policy target for the operating and capital replacement funds combined. The reserve policy in place allows the City to maintain cash on hand to meet short-term cash flow requirements and execute CIP projects. The fund balances for FY 2026 (the first year of the rate- setting period) prior to any revenue adjustments are approximately 64% of the reserve target. Table 1-4: Current Reserve Policies Line Reserve Policy Policy Targets FY 2026 1 Water and Recycled Operating and Capital 35% of annual O&M expenses3 $13,958,209 2 Projected Reserves (Before Increases) $8,956,009 STATUS QUO FINANCIAL PLAN The first step in evaluating the City’s financial performance is to develop a “status quo financial plan,” which is the scenario in which the City does not increase its potable and recycled water rate revenues or issue new debt to fund CIP. This exercise is to determine whether the City’s current potable and recycled 3 Does not include debt service or CIP expenses.