REPORT TO COUNCIL
SUBJECT
Title
Public Hearing: Action on Adoption of Resolutions Amending Water, Sewer and Recycled Water Rate Schedules to be Effective July 1, 2026
Report
BACKGROUND
In November 1996, California voters approved Proposition 218, amending the State Constitution to establish a new category of “property‑related fees and charges” and to create specific procedural requirements for their adoption. Under Proposition 218, proposed fees or charges for water, sewer, and recycled water services must be preceded by a written notice to customers and a public hearing held no sooner than 45 days after the notice is mailed. The notice must also describe the process for customers to submit a formal protest.
At the public hearing, all protests received are counted. If written protests are submitted by a majority of affected utility customers (50 percent plus one), the proposed fees or charges cannot be adopted. If a majority protest is not received, the City Council may consider and act on a motion to approve the proposed rate adjustments. For the current process, 11,886 protests are required to constitute a majority and prevent Council action on rate increases.
The City reviews and updates its water, sewer, and recycled water rates annually. Each of these utilities operates as a self‑sustaining enterprise, and rates are set to recover the revenue necessary to fund operations and maintenance (O&M), capital improvement program (CIP) needs, and, when feasible, reserves for each utility system.
Staff is requesting approval of the attached resolutions establishing updated water and recycled water rates (Attachment 1) and sewer rates (Attachment 2), effective July 1, 2026.
To support this rate‑setting process, the Water & Sewer Utilities Department engaged Black & Veatch Management Consulting, LLC (Black & Veatch) to conduct an ongoing cost‑of‑service study for the City’s water, sewer, and recycled water utilities.
DISCUSSION
In Fall 2021, the City conducted a competitive procurement process and, in December 2021, entered into a five-year agreement with Black & Veatch Management Consulting, LLC (Black & Veatch) for rate-setting consulting services.
Consistent with prior years, Black & Veatch completed a cost-of-service analysis for the City’s water, sewer, and recycled water utilities; developed three-year rate projections; and prepared a ten-year financial plan to support operations and maintenance, capital improvement program requirements, and prudent reserve levels. Black & Veatch also updated the Rate Study (Attachment 3) to incorporate reserve funding analyses and financial plans based on the cost-of-service results. The rate study methodology allocates each utility’s operating and capital cost components to customers and customer classes based on their respective use of the utility systems. In compliance with Proposition 218, the rate study helps to ensure the proposed rate increases will not result in the City’s water and sewer rates exceeding the City’s reasonable cost to provide water and sewer services to its customers.
Water Rates
Potable water rates for Santa Clara residents and businesses are primarily driven by wholesale water purchase costs, O&M expenses, and capital investments needed to rehabilitate and replace aging infrastructure. Approximately 70% of the City’s water utility budget is to purchase wholesale water from the San Francisco Public Utilities Commission (SFPUC) and Santa Clara Valley Water District (Valley Water). On April 28, 2026, SFPUC approved a 7.4% wholesale rate increase for Fiscal Year (FY) 2026/27. On May 12, 2026, the Valley Water Board adopted a 9.1% wholesale rate increase for FY 2026/27. Valley Water’s wholesale increase is for both treated surface water and groundwater pumping charges. A portion of this and future rate increases is to cover the CIP costs for Valley Water’s investments in Anderson Dam Seismic Retrofits and Improvements, Rinconada Water Treatment Plant Improvements, and the Pure Water Silicon Valley Project, which is intended to provide additional water supplies during times of drought.
To maintain system reliability and water quality, the City’s Water Utility plans to complete approximately $24 million in CIP projects over the next five years. CIP includes Water Main Replacement of aging infrastructure, Well Improvement Projects, which consist of well rehabilitation to extend their useful life and the installation of new well disinfection systems to reduce flushing and improve water quality, and Facility Improvement Projects, which include overall water distribution infrastructure improvements. These costs, together with ongoing O&M needs, support a proposed 12.2% increase in potable water rates. For an average residential customer using 12 units of water per month (1 unit = 1 HCF = 748 gallons), the monthly bill would increase by $14.40/month, from $118.68 to $133.08. A customer who uses 12 units of water is considered a high-end user, and with water conservation efforts, increases in customer utility bills can be reduced.
Sewer Rates
Sewer rates for Santa Clara customers are primarily driven by the City’s share of capital and O&M costs at the San José-Santa Clara Regional Wastewater Facility (RWF), which the City co-owns (i.e., City is 20% co-owner), as well as O&M and capital needs within the City’s sewer collection system. The RWF is undergoing a significant rehabilitation and replacement program that is expected to continue for up to 30 years. Santa Clara’s share of these costs is currently budgeted at approximately $123 million over the next five years. To help moderate rate impacts and promote generational equity in funding the RWF Program, the Sewer Utility issued $35 million in Certificates of Participation in October 2023. Additional financing is anticipated in future years to fund the remaining costs of the planned RWF CIP.
Based on the cost-of-service analysis, the proposed sewer rate adjustments include a 12% increase for single-family residential customers, a 9.6% increase for multi-family residential customers, and an average 17.7% increase for commercial customers, with actual increases varying by customer class (Table 1). For FY 2026/27, due to RWF capital needs, the commercial rate increase ranges from -17 percent to 33 percent.
If adopted, the proposed rates would increase monthly bills by $6.90 for single-family residential customers and $5.11 for multi-family residential customers. Even with these adjustments, Santa Clara’s sewer rates would remain competitive with those of neighboring agencies in Santa Clara County.
Table 1. Commercial Sewer Rates
|
Residential Sewer Rates Per Month |
Current Rate |
Proposed Rate |
Delta Amount |
Delta % |
|
Single Family |
$57.56 |
$64.46 |
$6.90 |
12% |
|
Multi-Family |
$53.15 |
$58.26 |
$5.11 |
9.6% |
|
Non-Residential Type (per HCF) |
Current Rate |
Proposed Rate |
Delta |
% Delta |
|
Food & Kindred Products |
$17.53 |
$23.23 |
$5.70 |
33% |
|
Industrial Chemical |
$12.69 |
$16.36 |
$3.67 |
29% |
|
Metal Plating |
$4.92 |
$4.08 |
$(0.84) |
-17% |
|
Machinery Manufacturers |
$9.98 |
$12.36 |
$2.38 |
24% |
|
Electrical & Electronic Equipment |
$6.33 |
$5.71 |
$(0.62) |
-10% |
|
Auto Dealers & Service Stations |
$8.38 |
$9.45 |
$1.07 |
13% |
|
Restaurants |
$17.88 |
$23.48 |
$5.60 |
31% |
|
Motels & Hotels |
$8.56 |
$9.19 |
$0.63 |
7% |
|
Laundries |
$7.01 |
$6.99 |
$(0.02) |
0% |
|
Repair Shops & Car Washes |
$6.47 |
$7.64 |
$1.17 |
18% |
|
Amusement Parks |
$7.22 |
$7.17 |
$(0.05) |
-1% |
|
Hospitals & Convalescent Homes |
$8.00 |
$8.30 |
$0.30 |
4% |
|
Schools & Colleges |
$7.71 |
$7.92 |
$0.21 |
3% |
|
Churches |
$6.12 |
$5.71 |
$(0.41) |
-7% |
|
Other Non-Residential |
$6.85 |
$6.83 |
$(0.02) |
0% |
|
Minimum Commercial Charge |
$57.56 |
$64.46 |
$6.90 |
12% |
The proposed commercial sewer rate increases are necessary to address rising operational and regulatory costs associated with maintaining a safe, reliable, and compliant sewer collection system. In addition, significant cost drivers include ongoing and future CIP investments related to regulatory compliance at the RWF, including new regulations on nutrient removal, as well as the rehabilitation and replacement of aging wastewater infrastructure within the RWF. In addition, upgrades to existing collection, pumping, and treatment systems are required to maintain system reliability, accommodate future operational needs, and reduce the risk of service disruptions or regulatory violations. These rate adjustments will help ensure the sewer utility's continued financial sustainability while supporting critical infrastructure improvements to protect public health and the environment at the RWF.
Recycled Water Rates
Recycled water rates are primarily driven by wholesale costs charged to the City by the City of San José through the South Bay Water Recycling (SBWR) Program. SBWR rates are tied to the groundwater charge established by Valley Water. The wholesale rate Santa Clara pays for recycled water will increase by 9.5%. These wholesale cost increases, together with O&M needs, support a proposed 11.4% increase in recycled water rates. Recycled water is used by non-residential customers for irrigation, dual-plumbed buildings, and various industrial processes.
ENVIRONMENTAL REVIEW
The action being considered is not subject to the California Environmental Quality Act (“CEQA”) pursuant to Public Resources Code section 21080(b)(8) and CEQA Guidelines section 15273 as it concerns the establishment, modification, structuring, restructuring, or approval of rates, tolls, fares, or other charges that are for the purpose of (A) meeting operating expenses, (B) purchasing or leasing supplies, equipment, or materials, (C) meeting financial reserve needs and requirements, or (D) obtaining funds for capital projects necessary to maintain service within existing service areas. As described above, the proposed rate increases will cover operations and maintenance costs, capital improvement program projects and the funding of reserves associated with the respective utilities’ systems.
FISCAL IMPACT
The proposed rates are reflected in the FY 2026/27 Water & Sewer Utilities operating budget. Failure to adopt the proposed rates will result in lower-than-expected revenues and the need to amend the upcoming budgets by further drawing down reserve funds for the three utilities and changing the ten-year financial outlook for each of the utilities.
COORDINATION
This report has been coordinated with the Finance Department, City Manager’s Office and the City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov.
Additionally, on April 21, 2026, which is not less than 45 days before the public hearing on June 9, 2026, as required by Article XIII D of the California Constitution (Proposition 218), notices were mailed to all 23,770 current utility customers in the City Utility Billing System. Also, staff reached out to utility customers via social media platforms and through the utility rates page on the City’s website. The notices included instructions on how to protest the rate increases, and details on how to access the public hearing.
RECOMMENDATION
Recommendation
Conduct a public hearing, tabulate protest votes, and if less than a majority protest is tabulated, Adopt Resolutions Amending the Water, Recycled Water, and Sewer Rate Schedules, Including Increases in Rates and Other Adjustments.
Staff
Reviewed by: John Ramirez, Director, Water & Sewer Utilities
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Proposed Resolution Establishing Water Rate Schedule 2026-01 & Recycled Water Rate Schedule 2026-02
2. Proposed Resolution Establishing Sewer Rate Schedule S-26
3. Draft 2026 Water and Sewer Rate Study Report by Black & Veatch Management Consulting, LLC