For City Council Meeting January 13, 2026
TO: Honorable Mayor and City Council
FROM: Tanya Williams, City Manager
AUTHOR: Sachin Chawla, Director of Utilities
Title
Request City Council/Rialto Utility Authority to Conduct a Public Hearing, as Required Under Proposition 218, Adopt Resolution No. 8446 and RUA Resolution No. 26-01 Approving the Proposed Adjustments for Water and Wastewater Services as supported by the Water Resources Economics Rate Study (October 2025).
PRESENTATION
(ACTION)
Body
RECOMMENDATION
Staff recommends that the City Council/Rialto Utility Authority Board conduct a public hearing and adopt resolutions approving the proposed adjustments for Water and Wastewater Services as supported by the Water Resources Economics Rate Study (October 2025).
BACKGROUND
Since 2012, the City has implemented rate adjustments only in 6 years over a 13-year period, reflecting a measured and deliberate approach to balancing infrastructure investment needs with ratepayer affordability. Over time, this approach has resulted in periods where inflationary pressures and capital investment requirements increased at a faster pace than utility revenues, contributing to the need for rate stabilization from the General Fund.
On July 23, 2024, the City Council/Rialto Utility Authority (RUA) Board adopted a one-year rate adjustment effective January 1, 2025, consisting of a 15 percent revenue adjustment for water services and a 6 percent revenue adjustment for wastewater services. The one-year adjustment was based on a five-year financial projection, and staff were directed to return in 2025 with an updated rate analysis for Council/RUA Board reevaluation.
In accordance with the City Council’s direction to return in 2025 for reevaluation, staff presented an updated analysis to the City Council/RUA Board to reassess the water and wastewater rates. On July 24, 2025, staff shared a proposed schedule for the rate study with the Water Subcommittee and requested feedback to support the development of the updated rate analysis. Further, on September 18, 2025, the Water Subcommittee reviewed the proposed rates and recommended that they be presented to the City Council for adoption.
On October 28, 2025, the City Council/RUA Board set a Public Hearing for January 13, 2026, regarding Water and Wastewater Utility Services Rate Adjustments in accordance with Proposition 218 and AB 2257, based on the findings and recommendations contained in the October 2025 Water Resources Economics Rate Study (Attachment 1).
On December 16, 2025, the Cable Advisory and Utilities Commission received a presentation on the Water and Sewer/Wastewater Rate Study Report as part of the advisory review process.
This item now returns to the City Council/RUA Board for consideration and public hearing in accordance with Proposition 218 and AB 2257.
ANALYSIS/DISCUSSION
This section explains why water and wastewater rates are proposed to increase, how the rates were calculated, and how revenues will be used. The proposed adjustments are based on a five-year financial plan designed to maintain reliable service, replace aging infrastructure, and meet legal and financial requirements while avoiding sudden future rate spikes and stabilize rate increases in the long term
Staff representing both the City and RUA worked with the contracted utility service provider, Rialto Water Services, LP (RWS), along with the City/RUA’s financial consultant, Water Resources Economics to prepare a financial analysis and rate study to determine the potential rate increases necessary to cover the costs of providing utility services in compliance with the 2012 Concession Agreement between the City, the RUA, and RWS. The five-year analysis considers projected operational expenditures, Capital Improvement Program (CIP) projects, cash reserves, potential long-term debt financing, and debt coverage requirements.
Purpose and Methodology of Rate Study
The October 2025 Water Resources Economics (WRE) Rate Study was prepared to establish a financially sustainable rate structure for the City’s water and wastewater utilities over a five-year planning period (2026 - 2030). The study applies standard cost-of-service and financial planning methodologies commonly used by California municipal utilities and is designed to ensure compliance with Proposition 218, the 2012 Concession Agreement, bond and trustee coverage requirements, and generally accepted utility finance practices.
The primary objectives of the study are to:
• Determine the annual revenue required to fully recover the cost of providing water and wastewater services;
• Develop a multi-year funding plan that supports operations, capital investment, and required reserves;
• Evaluate the adequacy of existing rate stabilization resources and identify the need for replacement revenue; and
• Establish a defensible rate adjustment schedule that balances infrastructure needs with ratepayer affordability.
The rate study also evaluated alternative scenarios, including reduced capital investment and a scenario with no rate adjustments. These alternatives were not recommended because they would result in the Utility Funds failing to meet trustee coverage requirements beginning in FY 2027, accelerating reserve depletion and increasing long-term financial risk, which could ultimately lead to larger and more disruptive rate increases in the future. As a result, the proposed rates are not arbitrary increases but rather are mathematically derived from the financial plans and projections necessary to meet these objectives.
Key Financial Drivers
The rate study identifies several structural and external factors that are placing increasing pressure on the City’s water and wastewater utilities, including:
Inflationary Impacts: Since the last comprehensive rate adjustment in 2018, inflation has increased by approximately 28 percent. While a one-year adjustment was implemented in 2025, cumulative inflationary impacts on labor, chemicals, energy, regulatory compliance, construction and contracted services continue to outpace historical rate adjustments and Consumer Price Index. Operating expenses for both utilities are projected to increase by approximately 3.2 percent annually throughout the planning period.
Declining Water Consumption: Billed water consumption has declined by approximately 9 percent between FY 2021 and FY 2024, driven by conservation mandates, efficiency improvements, and customer behavior. While conservation is a desired policy outcome, reduced consumption directly constrains volumetric revenues and places upward pressure on rates needed to recover fixed system costs and CIP
costs.
Reduced Rate Stabilization Availability: Historically, the City and RUA have relied on rate stabilization funds from the City’s General Fund to supplement utility revenues and meet financial performance criteria. The rate study assumes that existing stabilization balances will be drawn down over the near term and will not be available as a long-term solution. As a result, the proposed rate adjustments are intended to replace declining stabilization support with sustainable, recurring rate revenue.
Capital Improvement Program (CIP) Needs: Both utilities face significant capital investment requirements to maintain aging infrastructure, address regulatory mandates, and ensure service reliability. The scale and timing of these CIP needs are a primary driver of the proposed rate adjustments.
Water Utility Financial Analysis
For the water utility, the Water Subcommittee directed staff and the City’s financial consultant to develop a five-year financial plan that fully funds all Priority, Second Priority, Grant-Funded, and Third Priority CIP projects necessary to maintain reliable service, address aging infrastructure, and comply with regulatory requirements.
Over the five-year planning period, the total identified Water CIP is approximately $51.8 million. Staff have been working diligently to offset CIP costs with external grant funding and Developer Impact Fees (DIF) to minimize rate payer impacts and to date have secured $14.5M in grants and $4M in DIF. Staff will continue to find more grants and is in the process of updating the DIF for the remaining $19.1 million of identified water CIP projects that are currently unfunded.
Figure 1: Water CIP
Under the proposed rate adjustment scenario, the Water Fund is projected to remain financially stable over the five-year planning period while funding Priority, Second Priority, Grant-Funded, and Third Priority capital improvements, as well as ongoing operations and maintenance. As shown in Figure 2, the proposed multi-year rate adjustments, together with limited use of rate stabilization funds in the early years, allow the City/RUA to meet required trustee coverage and reserve targets in each fiscal year. While fund balances decline during the middle years of the plan as rate stabilization is phased out, balances recover by FY 2030 as revenues align with operating and capital needs, supporting long-term system reliability and financial sustainability.
Figure 2: Water Financial Plan
Table 1 summarizes the proposed water rate schedule resulting from the revenue adjustments recommended in the October 2025 Water Resources Economics Rate Study. The proposed rates are structured as a multi-year schedule, with phased adjustments effective between March 1, 2026, and January 1, 2030, and include updates to monthly minimum charges, volumetric usage rates, and specialty service charges. These proposed rates are designed to recover the cost of providing water service, support ongoing operations and capital investment, and maintain required financial reserves in compliance with Proposition 218.
Table 1: Proposed Water Rates After Revenue Adjustment
Figure 3 compares estimated monthly single-family residential water bills for Rialto and neighboring or comparable water agencies based on average household usage. Bill impacts are shown for an average single-family residence using approximately 15 hundred cubic feet (ccf) per month and reflect FY 2026 water rates, effective either July 1, 2025, or January 1, 2026, depending on the agency. As illustrated, Rialto’s proposed water rates fall within the range of comparable agencies, with differences reflecting variations in fixed and volumetric charges, infrastructure investment levels, and service area characteristics.
Figure 3: Monthly Water Single-Family Bill Impacts
Under the proposed rate adjustment scenario, the water utility is projected to:
• Maintain positive operating reserves;
• Meet trustee coverage requirements in each fiscal year;
• Avoid depletion of operating and CIP reserves; and
• Provide sufficient cash flow to fund planned capital improvements.
.
Wastewater Utility Financial Analysis
For the wastewater utility, the Water Subcommittee directed staff and the City’s financial consultant to develop a five-year financial plan that funds all Priority and Grant-Funded CIP projects necessary to maintain regulatory compliance, system reliability, and long-term operational sustainability.
Over the five-year planning period, the total identified Wastewater CIP is approximately $118.3 million, of which approximately $70.3 million is funded. Staff have been working diligently to offset these costs with grant funding and DIF. There are less opportunities for grants for wastewater projects, but we have been able to secure approximately $2M in grant funding and approximately $15.7M in DIF. Staff is also looking at securing debt for funding these CIP projects which will help stabilize future rate increases. Financial institutions see the 5 year rate increases favorably when issuing debt.
Figure 4: Wastewater CIP
The remaining $48.0 million of identified wastewater CIP projects is currently unfunded and would require future grant awards, additional debt financing, reprioritization, or further financial planning.
Under the proposed rate adjustment scenario, the Wastewater Fund is projected to remain financially stable over the five-year planning period while funding Priority and Grant-Funded capital improvements, as well as ongoing operations and maintenance. As shown in Figure 5, the proposed multi-year rate adjustments, together with limited use of rate stabilization funds and a planned debt issuance in FY 2027, allow the City/RUA to meet required trustee and debt service coverage requirements in each fiscal year. While fund balances decline over the planning period as rate stabilization funds are phased out and capital investments are made, the financial plan maintains required reserve levels, supporting long-term regulatory compliance, system reliability, and financial sustainability.
Figure 5: Wastewater Financial Plan
Table 2 summarizes the proposed wastewater rate schedule resulting from the revenue adjustments recommended in the October 2025 Water Resources Economics Rate Study. The proposed wastewater rates are structured as a multi-year schedule, with phased adjustments effective between March 1, 2026, and January 1, 2030, and include updates to residential, multi-family, non-residential, and school wastewater service charges. These proposed rates are designed to recover the cost of providing wastewater collection and treatment services, support ongoing operations and capital investment, meet trustee and debt service coverage requirements, and maintain required financial reserves in compliance with Proposition 218.
Table 2: Proposed Wastewater Rates After Revenue Adjustment
Wastewater rates in Rialto are higher than those of some comparable agencies primarily because the City has already made significant, proactive investments in its wastewater infrastructure. As part of the long-term Concession Agreement, Rialto completed a major upgrade of the Wastewater Treatment Plant to meet modern regulatory, capacity, and reliability standards. Because this upgrade is already complete and financed, its costs have been incorporated into wastewater rates for several years. While this has resulted in higher baseline wastewater rates, it has also protected ratepayers by avoiding sudden, large rate increases that often occur when agencies delay critical treatment plant upgrades until regulatory deadlines or emergency conditions arise.
Figure 6: Monthly Wastewater Single-Family Bill Impacts
The proposed wastewater rate adjustments are driven by rising operating costs, ongoing infrastructure reinvestment needs, and the planned phase-out of rate stabilization funds.
Rate Design, Timing, and Bill Impacts
The proposed water and wastewater rate changes are planned as a multi-year adjustment, rather than a single large increase, to help spread costs over time and reduce sudden bill impacts. This approach allows the City/RUA to keep up with rising costs such as energy, materials, labor, and regulatory requirements while avoiding sharp rate spikes in any one year. Also, it will help stabilize future rate increase past the proposed five year rate increase.
Rates are based on the actual cost of providing service, including daily operations, infrastructure maintenance, and required financial reserves. State law (Proposition 218) requires that utility rates only pay for the water and wastewater systems themselves and not for other City services such as police, fire, or parks.
The bill impact examples presented are based on average single-family household usage and are intended to help residents understand how rates are calculated and used. Actual bills will vary depending on individual household water use.
When compared to neighboring and peer agencies, Rialto’s single-family water bills are generally within the range of comparable agencies, particularly when accounting for differences in water sources, infrastructure age, and local regulatory requirements. For wastewater service, Rialto’s single-family sewer bills are higher than comparable agencies, largely because the City/RUA has already completed and financed major wastewater infrastructure investments, most notably the Wastewater Treatment Plant upgrade rather than deferring those costs to the future. Many agencies with lower current wastewater rates have not yet made comparable investments and may face larger future increases when major upgrades become unavoidable.
Staff recognizes that any rate increase affects household budgets. However, delaying or significantly reducing the proposed adjustments would increase long-term financial risk, use up reserve funds more quickly, and could result in larger and more sudden rate increases in the future, particularly if emergency repairs or regulatory mandates arise. More importantly it may have impact on the service and reliability of the water and wastewater systems long term.
Water and wastewater services are funded as separate enterprise funds, meaning the rates residents pay go directly back into operating, maintaining, and improving those systems.
Proposition 218 Public Hearing and AB 2257 Compliance
The Proposition 218 and AB 2257 proceedings for the proposed water and wastewater rate adjustments have been conducted in accordance with applicable constitutional and statutory requirements, including California Constitution Article XIII D, Section 6, and Government Code Sections 53759.1 and 53759.2.
In compliance with Proposition 218, a Notice of Public Hearing was mailed on November 6, 2025, to the owner and customer of each parcel served by City water and/or sewer/wastewater services, as reflected in the San Bernardino County Assessor’s records and City utility billing records. Copies of the mailed notices are provided as Attachments 2 (English) and 3 (Spanish). The notice identified the public hearing date and time (January 13, 2026, at 6:30 p.m.), the proposed rate adjustments, the basis for the proposed rates, and information regarding the protest and objection procedures. The public hearing was scheduled not less than forty-five (45) days from the mailing date, consistent with Proposition 218 requirements.
Pursuant to AB 2257, the mailed notice also set forth requirements for timely written objections. Property owners, as defined in the Utility Rate Setting Procedures, were enrolled with instructions for submitting written objections that state the specific grounds on which the proposed rates are alleged not to comply with legal requirements. Written objections were required to be received no later than 4:00 p.m. on December 22, 2025, in accordance with the mailed notice. Timely written objections were required to include the objector’s name, parcel number or service address, signature or verification of eligibility, the particular rate or rates to which the objection is made (water and/or sewer), and a statement of the substantive grounds for the objection, including why the proposed rates are believed not to comply with Proposition 218.
Based on the requirements of AB 2257, the City did not receive any written objections. Accordingly, no written responses were required; however, a summary confirming the absence of objections is included in Attachment 4 for the administrative record.
Under Proposition 218, property owners also had the opportunity to file written protests against the proposed rate adjustments. Written protests must have been received by the City Clerk prior to the close of the public hearing on January 13, 2026, and include the property owner’s name, parcel number or service address, signature, and a clear statement of opposition to the proposed water rates and/or sewer/wastewater rates. Only one written protest per parcel for each set of proposed rates will be counted for purposes of determining whether a majority protest exists.
As of the preparation of this staff report, seven (7) written protests have been received by the City Clerk’s Office. Proof of publication for the public hearing notice is provided as Attachment 5.
The Proposition 218 majority protest standard provides that the City and the RUA may not adopt the proposed rate adjustments for a particular utility service (water or wastewater) if written protests are received from owners of more than one-half of the parcels receiving that service. Consistent with other California agencies’ practice, written protests are counted separately for the water rate adjustments and for the sewer/wastewater rate adjustments.
For written objections under AB 2257, the City prepared substantive responses to all timely objections, which were provided to the Council as part of the public hearing record. A property owner must submit a timely written objection to exhaust administrative remedies before challenging the adopted rates in court. Failure to submit a timely written objection generally precludes a judicial challenge on Proposition 218 compliance grounds.
The Utility Rate Setting Procedures previously adopted by the City Council and RUA remain in effect and govern the processing of written objections and protests. The City Council and RUA Board will consider all timely written protests, oral testimony presented at the public hearing, and the full administrative record including the Rate Study, mailed notices, proof of publication, and proposed resolutions (Attachments 6 and 7), prior to taking action on the proposed rates.
ENVIRONMENTAL IMPACT
The is not a “Project” as defined by the California Environmental Quality Act (CEQA). Pursuant to Section 15378(a), a “Project” means the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. According to Section 15378(b), a Project does not include: (5) Organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY
Approval of the proposed action also complies with the following City of Rialto Guiding Principles, General Plan Goals and Policies: “Our City government will lead by example, and will operate in an open, transparent, and responsive manner that meets the needs of the citizens and is a good place to do business.”
Approval of this action also complies with the City of Rialto General Plan Goal and Policy:
Goal 3-6: Require that all developed areas within Rialto are adequately served with essential public services and infrastructure.
Policy 3-8.4: Advocate regular evaluation of the entire water supply and distribution system to ensure its continued adequacy, reliability, and safety.
LEGAL REVIEW
The City Attorney's Office has reviewed the resolutions and approved them as to form.
FINANCIAL IMPACTS
Operating Budget Impact
The Water Resources Economics Rate Study (October 2025) evaluated the financial performance of the City’s water and wastewater utilities under current and projected operating conditions. The analysis concluded that periodic rate adjustments are necessary to maintain long-term financial stability, ensure continued investment in essential infrastructure, and comply with the financial and reserve provisions outlined in the City’s existing agreements.
For both the water and wastewater funds, the study recommends a multi-year adjustment schedule beginning in FY 2026 to align revenues with projected operating and capital costs over the five-year planning horizon. These recommendations reflect anticipated increases in system operation and maintenance expenses, planned capital improvements, and the need to maintain adequate reserves and coverage ratios in accordance with established financial policies.
Capital Improvement Budget Impact
The adopted financial plan supports the City’s ongoing Capital Improvement Program (CIP) for water and wastewater infrastructure. Over the five-year planning period (FY 2026 - FY 2030), the rate study identifies funding strategies for planned system rehabilitation and replacement projects, treatment upgrades, and other priority improvements needed to ensure service reliability and regulatory compliance.
Implementation of the recommended adjustments will allow the City to continue meeting its operational and capital obligations without reliance on non-utility funding sources, consistent with the rate-setting principles and financial structure described in the October 2025 Rate Study.
Licensing
This action does not require a business license.
ATTACHMENTS
1. October 2025 Rate Study Report
2. English Mailed Notice of Public Hearing Under Proposition 218 and AB 2257
3. Spanish Mailed Notice of Public Hearing Under Proposition 218 and AB 2257
4. City Responses to Written Objections
5. Proof of Publication Newspaper Notification of Public Hearing
6. City Resolution Adopting Revised Schedule of Water and Sewer Rates
7. RUA Resolution Adopting Revised Schedule of Water and Sewer Rates