City Council

c. CONFIRMATION OF PROPOSED RATES FOR WATER DELIVERED\nTHROUGH THE CITY’S DISTRIBUTION SYSTEM AND OUTLINE OF\nPROPOSITION 218 PROCESS\nSummary:\nThe 2023-2028 City of Signal Hill Strategic Plan identifies updating the Water\nMaster Plan (WMP) and Water Rate Study (RS) as key initiatives for Fiscal Year\n2024-2025. The WMP evaluates the City's water infrastructure, identifies\ndeficiencies, and outlines a plan for necessary improvements. The RS conducts\na comprehensive rate analysis, establishing a sustainable and equitable\nfive-year tiered rate structure that integrates public engagement and City Council\nrecommendations. In December 2023, the City entered into a professional\nservices agreement with Dudek to assist in preparing the WMP & RS. City staff\ncollaborated with Dudek and its subconsultant, Raftelis, to evaluate water\nsystem operations, assess financial needs, and develop recommendations.\nOn December 10, 2024, the City Council appointed a Water Rate Subcommittee\nto review the WMP, assess Capital Improvement Projects, evaluate rate\nstructures, and analyze the reserve policy. During the Subcommittee Meeting on\nJanuary 27, 2025, members reviewed the Water Division’s current and projected\ncosts, considering the financial impact of infrastructure improvements and\nongoing operational expenses. After evaluating three rate structure options, the\nSubcommittee selected the Self-Funded option as the most viable. This option\nincludes a 15 percent rate increase in the first two years, 14 percent in the third\nand fourth years, and 10 percent in the fifth year, ensuring sufficient funding for\ncapital projects, debt repayment, and financial reserves to address consumption\nfluctuations and economic uncertainties. The proposed rate adjustment is driven\nby high-priority Capital Improvement Projects, many of which are required to\nmeet state-mandated regulations. Additionally, revenue losses resulting from\nwater conservation efforts have impacted the Water Division’s financial stability,\nmaking a structured rate increase necessary.\nOn February 27, 2025, the Public Works Department presented the findings of\nthe WMP & RS in a public workshop, outlining the three rate adjustment options\nreviewed by the Subcommittee. After considering the financial implications and\npublic input, the City Council directed staff to proceed with the Self-Funded\noption as the preferred rate adjustment plan. The recommended rate adjustment\nensures that the Water Division can fully fund its operating expenses, capital\nprojects, reserves, and debt service obligations over the next five years without\nissuing additional debt.\nFollowing a community workshop on March 10, 2025, staff proposes\nimplementing the recommended rate adjustments beginning in Fiscal Year\n2025-2026. The proposed changes require amendments to Signal Hill Municipal\nCode Section 13.04.130 and confirmation to initiate a Proposition 218 Protest\nHearing. Staff recommends that the City Council approve the proposed rate\nadjustments and authorize the necessary actions for implementation.\nStrategic Plan Goal(s):\nGoal No. 1 Financial Stability: Ensure the City’s long-term financial stability\nand resilience.\nGoal No. 4 Infrastructure: Maintain and improve the City’s physical\ninfrastructure, water system, and recreational spaces.\nGoal No. 5 High-Functioning Government: Strengthen internal communication,\nrecruitment, retention, systems, and processes to increase the\neffectiveness and efficiency of City services.\nRecommendation:\n1. Confirm the recommended water rate adjustments of 15% in FY 2025-26,\n15% in FY 2026-27, 14% in FY 2027-28, 14% in FY 2028-29, and 10% in\nFY 2029-30.\n2. Set a Proposition 218 Protest Hearing for May 27, 2025.