Folsom residents could see increases hitting their water bills beginning in 2027 as city officials evaluate proposed rate adjustments tied to aging infrastructure, rising operating costs and long-term financial sustainability.
The discussion came during a detailed presentation Tuesday night as consultants from HF&H Consultants delivered findings from a comprehensive water and wastewater rate study to the Folsom City Council. No action was taken, but councilmembers conducted an extended review of proposed revenue increases, potential changes to the city’s tiered rate structure, updates to surcharges and adjustments to reserve policies.
According to city staff and project consultants, Folsom’s water system faces mounting financial pressures. Over the next five years, the city projects an average of $8.4 million annually in water-related capital projects, including treatment upgrades, system improvements and investments intended to maintain reliability and accommodate peak summer demand. The city also continues to service water revenue bonds issued in 2019 and 2021, with debt obligations extending through 2034.
Consultants cautioned that without rate adjustments, the water enterprise fund’s reserves would steadily decline, potentially falling below recommended minimum levels. To address projected shortfalls, staff proposed a phased series of revenue increases beginning in January 2027: a 12 percent increase in the first year, followed by 9 percent in 2028, 3 percent in 2029 and 2 percent in 2030, with additional inflation-based adjustments thereafter. These figures represent overall revenue targets; individual customer impacts would vary based on meter size and water usage.
One of the most debated elements of the presentation centered on proposed revisions to the city’s tiered water rate structure. Consultants outlined two primary options.
The first would maintain separate customer classes — residential, nonresidential and irrigation — each with its own tier break based on average usage within that category. For residential customers, Tier 1 would cover the first 15 units, or approximately 1,500 cubic feet, of monthly use, reflecting current average consumption. Usage beyond that level would fall into Tier 2, where the per-unit price would increase substantially. Similar two-tier structures would apply to commercial and irrigation customers using class-specific averages.
The second option would consolidate all customers into a single class. Under that model, Tier 1 would apply to the first 24 units of monthly use — representing the overall systemwide average — with Tier 2 rates applying beyond that threshold. Supporters of the streamlined approach said it would simplify administration and improve billing transparency.
Councilmembers expressed concern about the magnitude of the proposed differences between Tier 1 and Tier 2 rates. Historically, Folsom’s tier differentials have been relatively modest. The new proposals would create significantly larger gaps between usage tiers in some cases. Councilmembers questioned whether the cost to deliver a unit of water meaningfully differs by customer type and asked for clearer documentation linking higher-tier pricing to peak demand costs and system strain.
Consultants explained that tier structures are commonly used to allocate costs associated with “peaking” infrastructure — facilities built to accommodate higher-than-average demand during summer irrigation months — but acknowledged that additional clarification would be provided in future materials.
The study also addressed water supply and treatment surcharges tied to specific contractual obligations. Folsom purchases 7,000 acre-feet of Central Valley Project water from the federal government, along with additional water under agreements associated with the Folsom Plan Area. Under the proposal, the surcharge related to Central Valley Project water would be applied more broadly across the city’s primary service area, reflecting expanded distribution authorization in recent years. Separate surcharges would remain in place for the Folsom Plan Area and the Ashland service area, which receives treated water from San Juan Water District rather than the city’s treatment plant.
Councilmembers also discussed whether certain surcharges should remain as separate line items on customer bills or be incorporated into base rates for simplicity. Staff noted that contractual and accounting requirements influence how those costs must be reported but indicated the issue could be reviewed further.
Under the proposed structure, a typical residential customer using about 1,500 cubic feet per month would see a water bill increase from approximately $42.74 to about $62 in 2027. By 2031, that same bill could approach $72 depending on final rate adoption and usage patterns. Combined water and wastewater bills would also rise, though staff indicated Folsom’s overall rates remain competitive compared to many neighboring communities.
The wastewater portion of the study recommended more moderate increases — 5 percent in 2027 followed by 4 percent annually for four additional years. Staff emphasized that wastewater capital needs remain significant but are less aggressive relative to current reserve levels.
Another key component of the discussion focused on reserve policy adjustments. Currently, the city targets reserves equal to roughly 40 percent of annual operating and capital expenses. The proposed framework would divide reserves into separate minimum and capital components: a minimum reserve equal to 25 percent of annual operating expenses plus one year of debt service, and an additional capital reserve equal to 50 percent of the five-year average of projected capital expenditures. Councilmembers requested historical reserve trend data covering the past decade before considering changes to reserve targets.
The council also reviewed Folsom’s low-income water assistance program, which provides discounted service to 282 qualifying households at an annual General Fund cost of approximately $25,000. Under the proposed rates, that cost would rise to roughly $39,000. Because California’s Proposition 218 prohibits using ratepayer revenue to subsidize other ratepayers, the discount must be funded through the city’s General Fund. Councilmembers expressed support for continuing the program, citing water service as an essential need. Staff noted that late-payment penalties generate only limited revenue that could offset a small portion of the program’s cost.
City officials also clarified that state law limits rate adoption to a maximum five-year period. Automatic, indefinite cost-of-living escalators cannot be embedded beyond that timeframe.
City management emphasized that the presentation was intended to gather feedback rather than finalize decisions. Staff will refine capital assumptions, provide additional historical financial data and evaluate alternative funding strategies, including potential debt financing or state loan programs.
Any proposed rate increases would require formal notice under Proposition 218, including mailed notices to property owners and a public hearing during which ratepayers may submit written protests. If a majority protest does not occur, the council may adopt the new rates. If a majority protest is received, the increases cannot move forward.
For now, no votes were taken, and additional review is expected in the coming months as the city weighs how to balance infrastructure demands with long-term affordability for residents.
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