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The MPCA has halted funding on water extensions paid via the 3M settlement funds, in favor of funding <br />more treatment plants. This change significantly decreased revenues including connection fees and <br />ongoing service charges, in both the water and sewer fund. These revised assumptions demonstrate how <br />heavily the City’s utility operations rely on development-driven revenues. <br /> <br />The City received a one‑year MPCA grant (via the 3M Settlement) reimbursing treatment plant O&M <br />through December 31, 2026 for Well 2’s temporary plant (completed in 2025). Staff will pursue new <br />grants and extensions for the new treatment plants, but future funding is not guaranteed. The utility model <br />therefore assumes no O&M reimbursement after 2026. <br /> <br />As finance staff evaluated the updated model, we also revisited the long-term financial goals for each <br />utility fund. <br /> <br />• Revenue Sufficiency – The level of revenue required to support projected operating costs, capital <br />improvements, and debt service obligations, while maintaining adequate reserves for future <br />capital needs of the Utility Funds. <br />• Debt Load – Limit new borrowing and gradually reduce total debt over time to improve financial <br />stability. <br />• Expense Recovery – This ensures that all costs — including non-cash items like depreciation — <br />are fully recovered through rates. The idea is that rates should reflect the true cost of providing <br />service. <br />Proposed 2026 Rate Adjustments <br /> <br />The proposed increase for 2026 differs slightly from the plan presented in 2025. The updated 2026 <br />proposal maintains the 20% increase in Water rates, lowers the Sewer rate increase to 15%, and <br />introduces an 8% increase for the Stormwater rate, as shown in the table below. <br /> <br /> <br />Service 2025 Plan 2026 Proposal Change Notes <br />Water +20% +20% Unchanged <br />Sewer +20% +15% Reduced from 20% <br />Stormwater 0% +8% New increase <br />Overall bill % change ~13% ~14% <br /> Note: “Overall bill % change” based on typical single-family usage of 6000 gallons per quarter. <br /> <br />The reduced Sewer rate increase is intended to lessen the financial impact on residents and keep the <br />overall change to a standard utility bill at or below a 15% increase. While this lower Sewer rate does <br />slightly affect the fund’s cash balance and delays full expense recovery, the impact is manageable. <br /> <br />Debt <br />Per on-going conversations regarding the city’s current overall debt load, we also wanted to avoid issuing <br />new debt unless necessary or beneficial. In the current model, we’ve planned for no new debt for capital <br />projects in the Water Fund or Sewer Fund and should be able to pay cash for most capital projects, and as <br />such, the Water Fund could be debt free after 2045. After the workshop meeting on March 10th, we did <br />update the Stormwater Fund to include an issuance of bonds for our larger Lion’s Park drainage <br />improvement project in 2028. There could be an additional opportunity to issue up to $3 million in debt <br />for projects to manage cash flow or take advantage of low interest rates. <br /> <br />Stormwater Fund <br />In an effort to begin addressing depreciation expenses in the Stormwater Fund, we are proposing an 8% <br />rate increase in 2026. This increase will generate a modest revenue boost and represents the first step <br />toward sustainably funding long‑term infrastructure replacement and maintenance needs. We do <br />recognize that any rate increase has an impact on customers, but this proposal reflects a balanced