Title
Water Services Department’s Financial Plan Update
Description
This report provides the Transportation, Infrastructure and Planning Subcommittee with an update on the Water Services Department’s financial plans for Fiscal Years 2024-29.
THIS ITEM IS FOR INFORMATION ONLY.
Report
Summary
The Water Services and Finance departments have prepared the five-year financial plans for both the City's water and wastewater utilities. The plans reflect the financial requirements needed to operate and maintain the water and wastewater utilities. The financial requirements include funding the Capital Improvement Program (CIP), which allows for rehabilitation and/or replacement of critical infrastructure.
The City Council has taken the necessary actions to meet the needs of a rapidly growing city, maintain the infrastructure for existing residents, and meet federal standards for safe drinking water and wastewater effluent.
Ongoing and upcoming plans include:
- Delivery of necessary resources for Water and Wastewater to continue to operate efficiently and effectively;
- Maintaining rates that assure safe and reliable water services delivery and provide affordability for water and wastewater customers;
- Restoring and upgrading the Cave Creek Water Reclamation Plant (CCWRP) to augment the City’s water resources by taking the region’s generated wastewater and treating it to potable water standards; and
- Continuing to encourage water conservation efforts with outreach and education.
The following sections outline the financial requirements for the water and wastewater utilities to meet its current debt obligations, as well as its forecasted Operations & Maintenance (O&M) and CIP expenditures.
Impacts to O&M Budgets
The Water Services Department continues to experience significant growth to its O&M budget. Major factors impacting the increase include:
Salaries and Benefits - The City of Phoenix implemented salary increases related to the recent class and compensation study. The proposed financial plan includes costs associated with further labor increases over the next two years. Additionally, health insurance benefit costs continue to rise.
Colorado River Water Shortages
Water Services is looking ahead for ways to provide safe, clean, drinking water in response to the current and unpredictable drought. Water scarcity is driving the need for “new” water sources and turning wastewater into potable water is a way to provide a sustainable source of water. To minimize the impact of the continued shortage occurring on the Colorado River, Water Services is preparing for significant treatment upgrades to the currently offline CCWRP to augment the existing water resources portfolio. The City believes Advanced Water Purification (AWP) facilities will play a large role in offsetting some of the future losses of surface water supplies. Upgrading the CCWRP is the first step in the City’s overall AWP plan.
Additionally, Water Services is currently in the planning stages of acquiring additional capacity for water storage behind a newly constructed Bartlett Dam. This could result in an additional supply to be delivered to areas currently served by Colorado River supplies.
O&M and CIP Budgets
Given the impact of the Colorado River shortage, the Water and Wastewater O&M and CIP budgets were carefully developed to minimize costs in the current fiscal year while upholding the Department’s mission to provide safe and reliable drinking water and wastewater services that meet or exceed regulatory requirements.
As submitted to the Transportation, Infrastructure, and Planning Subcommittee on Nov. 15, 2023, the approved Fiscal Year (FY) 24 and proposed FY 25 through 29 CIPs for water and wastewater are $2.84 billion and $2.06 billion respectively. The capital programs are a reflection of the necessary infrastructure investments needed, based upon ongoing condition assessments and prioritization of both utilities to ensure safe, reliable water and wastewater services. Both the water and wastewater Capital Programs experience inflationary increases associated with construction/rehabilitation of infrastructure.
Water and Wastewater Financial Plan
The financial plans forecast inflationary adjustments that are necessary to support future O&M costs. The plans also address the ongoing impacts of the Colorado River shortage by investing in the conversion of the CCWRP to an AWP Treatment Facility thereby augmenting Phoenix’s potable water supplies. In addition, the plans incorporate projected bond debt for near-term CIP investment.
Based on Water Services projected O&M and CIP needs, the Finance Department has developed a financial plan to determine the forecasted revenue requirements. Information on operating costs and capital needs were examined and forecasted to determine required bond issuance amounts and timing to determine future rate revenue requirements.
The forecasted water rate revenue increases, as compared to the last financial forecast, are summarized in the table below.
Water Rate Revenue Increase - Percentages are from January 2024 proforma.
Calendar Year Previous Proposed
of increase Financial Plan Rate Revenue Increase
2024 6.5% 6.5%
2025 13% 13%
2026 5% 5%
2027 5% 5%
2028 5% 7%
2029 Not Forecasted 7%
Wastewater Rate Revenue Increase - Percentages are from January 2024 proforma.
Calendar Year Previous Proposed
of increase Financial Plan Rate Revenue Increase
2024 6.5% 6.5%
2025 7% 7%
2026 9% 9%
2027 9% 9%
2028 9% 12%
2029 Not Forecasted 12%
Previous Council Action
On June 28, 2023, the City Council adopted to amend Phoenix City Code to adjust water and wastewater service rates and components as follows:
- Water rate revenue increases of 6.5 percent effective October 2023, 6.5 percent effective March 2024, and 13 percent effective March 2025
- Wastewater rate revenue increases of 6.5 percent effective October 2023, 6.5 percent effective March 2024, and 7 percent effective March 2025.
Department
Responsible Department
This item is submitted by Deputy City Manager Ginger Spencer and the Water Services Department.