TO: Mayor and City Councilmembers
FROM: Robin Kampmann, City Engineer
SUBJECT:
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Proposition 218 Final Water and Sewer Rate Study
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RECOMMENDED COUNCIL ACTION:
recommendation
Upon conclusion of the presentation of the proposed rates Staff recommends that the City Council:
1) Set the date of August 20, 2026, for mailing the public notice for Proposition 218; and
2) Authorize LT Municipal Consultants (LTMC) to conduct the public notification process.
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SUMMARY:
As directed by the City Council on July 21, 2026, Staff and LTMC have moved forward with finalizing the rate study using Scenario 3, a phased-in option, for the Water rate increase and Scenario 3, a cash funded Low CIP option, for the Sewer rate increases. This rate study proposes a new 5-year plan with new water and sewer rates going into effect each January 1st from 2027 to 2031.
The next steps in the Proposition 218 process for adjusting the water and sewer rates are for the City Council to set the Proposition 218 hearing date, mail the Proposition 218 notices to all property owners and the users, conduct a public outreach meeting and hold a Proposition 218 hearing at least 45 days after the notices have been mailed.
PREVIOUS COUNCIL ACTION:
The City Council approved Ordinance 832 on February 1, 1997, establishing the sewer rates.
On May 20, 2008 the City Council approved an incremental increase of 5% to water consumption rates, beginning July 15, 2008.
On June 2, 2009 the City Council postponed the increases to the water rates.
On August 7, 2010 the City Council directed Staff to postpone the CPI rate increase based on December 2008 and 2009 until FY2011/12, at which time staff will present the FY2011/12 CPI rate increase to City Council.
On April 17, 2012 the City Council Conducted a public hearing and directed staff to prepare the CPI rate increase for FY2012/13.
On July 21, 2026 the City Council directed staff to move forward with Scenario 3, a phased-in option, for the Water rate increase and Scenario 3, a cash funded Low CIP option, for the Sewer rate increase.
DISCUSSION:
The City of Red Bluff provides water and sewer service to a population of about 14,400 people via approximately 4,600 active water and sewer connections. Water and sewer services are funded entirely through monthly rates paid by customers. Water and sewer rates were last adjusted in July 2012 with a one-time increase. Prior to 2012, the water rates had not been increased since 2008, and the sewer rates had not been increased since they were established in 1997. The City Council has the authority to approve rate changes when necessary to ensure the financial stability of the Water and Sewer Enterprise Funds. The rate change and rate study process is governed by Proposition 218, which was added to the California Constitution in 1996. All property-related fees, including water and sewer service fees, must meet Proposition 218’s requirements for calculating, documenting, and adopting fees. The proposed water and sewer rates will also be subject to a majority protest public hearing anticipated to be held in October 2026.
LTMC used projected operating costs and capital improvement plan projections to develop 5-year rate structures that would support the needs of each utility and maintain adequate debt coverage to qualify for future grants. Currently, the City is out of compliance with the rate covenant requirement associated with the California State Water Resources Control Board grants. All financial plan options include the minimum increases needed to meet debt service coverage requirements in the first year of the rate study period.
In addition to operating costs and debt service, the City must fund short- and long-term capital improvements necessary to keep the water and sewer systems operational and compliant with state requirements. The proposed water and sewer rate options would fund varying levels of capital improvements and offer different financing approaches, such as cash funding only or a combination of cash and loan proceeds.
The rate study also proposes rate structure adjustments to better comply with Proposition 218 requirements and recent court rulings.
Currently, water customers are charged a base fee by meter size with usage billed on a tiered system. It is proposed that tiered water usage be replaced with a uniform rate for all water usage.
Residential and Multifamily sewer customers are currently charged a flat monthly fee based on their residential type, and commercial customers are separated into three (3) classes: bakery, restaurant, and all others, with a base fee and allowable minimum usage and a use rate over the minimum usage for each class. It is proposed that the sewer rate structure be simplified by grouping customers into categories based on typical usage and wastewater strength. Residential customers would be classified as single-family or multifamily. Commercial customers would be categorized as low-, medium-, or high-strength users based on business type and typical flow and pollutant characteristics. Under the proposed rates, residential sewer customers would continue to pay a fixed monthly fee. Commercial sewer customers would pay a base fee that includes the first 5,236 gallons of usage, with an excessive flow charge applied to usage above 5,236 gallons.
As directed by the City Council on July 21, 2026, Staff and LTMC have moved forward with finalizing the rate study using Scenario 3, a phased-in option, for the Water rate increase and Scenario 3, a cash-funded Low CIP option, for the Sewer rate increase; see the summary of each of the selected scenarios below:
Water Rates Scenario 3 - Phased-in to Fund Half CIP:
• Rates fund $9.2M water CIP
• No debt
• Initial 1st year increase on average for a single-family residence is from $28 to $42 with consistent increases year 2 through year 5
• Will provide positive operating revenue in year 2 and positive net revenues in year 4
• Estimated ending fund balance after year 5 will be $2.64M
Sewer Rates Scenario 3 - Cash Fund Lower CIP:
• Rates fund $8M sewer CIP
• Full repayment of the sewer fund deficit of $2.8M in approximately 10 years
• No new debt
• Initial 1st year increase on average for a single-family residence is from $34 to $86 with additional smaller increases in years 2 through 5 compared to Options 1 and 2
• Estimated ending fund balance after year 5 will be $3.78M
The attached presentation expands the selected scenarios showing the proposed rates for the next 5 years.
If Council provides direction to proceed, staff will work with LTMC to initiate the Proposition 218 process, including preparation and mailing of the required notices and scheduling the public hearing.
CITY FISCAL IMPACT:
Cities have the authority to impose fees, charges and rates for services and facilities it provides. Use of these revenues is limited to paying for the services for which these fees are collected.
ATTACHMENTS:
1. Final Water and Sewer Rate Study Presentation