Item 02 - Water and Wastewater Commission Budget Committee Report — original pdf

Backup

WATER & WASTEWATER COMMISSION BUDGET COMMITTEE REPORT Overview The Committee appreciates the opportunity to review Austin Water’s FY 2027-2031 Financial Forecast and Budget material and provide the following summary to the Water and Wastewater Commission. Budget Committee Members: Marcela Tuñón, Chair (District 9) Christopher Maxwell-Gaines, Vice Chair (District 8) Shwetha Pandurangi (District 6) Evan Wolstencroft (District 5) Budget Review Executive Summary Austin Water’s Acting Assistant Director of Financial Services, Christina Romero, and staff presented an update on Austin Water’s five-year financial forecast for FY27 - FY31. Staff also provided a recap of the 2024 cost of service study, which included revenue and rate projections, debt service management, and an overview of Austin Water’s Proposed FY 2026-2031 Capital Spending Plan and the Proposed FY 2026-2027 Budget. These items are highlighted below: 1) Enterprise Resiliency - Austin Water (AW) continues to focus on enhancing emergency preparedness and responsiveness, developing operational resiliency for a range of emergency conditions, and identifying and addressing natural hazards resulting from climate change. This is reflected in additional 44 FTE’s for FY27 to cover various strategic goals. 2) Key financial performance indicators • Operating Budget – FY2026 is estimated at $836.7 M, FY2027 proposed budget is $899.8 M. • Debt Coverage – FY2026 is estimated to be 2.22, FY2027 is forecasted to be 1.98, above AW’s financial policy target of 1.75. • Days Cash on Hand - FY2026 estimated to be 274 days, FY 2027 is forecasted to be 260 days, above AW’s goal of 245 days. • % Cash for CIP Spending – FY 2026 is estimated to be 36% at the current financial policy, and FY 2027 is forecasted to be 23.2% at a weighted average. The updated FY 2027 financial policy: 20% is desirable for generational projects and 35-50% for all other projects, resulting in a blended financial policy target of 29.9%. 3) Debt Management • The Utility continues to use capital recovery fees (CRF) for debt defeasance with $30 M debt defeasance FY 2027. • CRFs are declining and net revenue for FY25 was $29.5 M, and net revenue as of June 2026 was $17.0 M. • Other funding opportunities currently being utilized by AW include: o TWDB Low-interest loans to date of $363.6 M. o Second loan closing $5M of the total $45M SWIFT Polybutylene loan in November 2026 o $59M CWSRF loan for Walnut Creek WWTP Expansion to 100 MGD closed May 2026 o EPA WIFIA loan for Walnut Creek WWTP $892M anticipated to close October 2026. o $3.3M FIF loan application approved, TWDB approval anticipated October 2026, loan closing in Spring 2027 o $6M LSDWSRF loan application submitted, under review, TWDB approval anticipated December 2026, loan closing Summer 2027 o AW’s debt savings for FY 2026 are $46.6M. includes $30M in CRF cash, $3M in Reclaimed Fund, and $13.6M in Developer IH and WV repayment o AW’s proposed budget for debt defeasance in FY 2027 is $34M. Page 1 of 2 4) 44 new FTEs - $5.1 M These 44 new positions will replace temporary or contract employees. 19 of the proposed FTEs are new positions, while 13 are temporary and contract conversions and 12 are cost neutral positions to increase staffing for work groups with high levels of overtime. The positions cover the following EUM categories: Infrastructure Strategy & Performance (9 FTEs) o Enterprise Resiliency (13 FTEs) o o Operational Optimization (8 FTEs) o Customer Experience & Satisfaction (4 FTE) o Regulatory & Reliability Performance (3 FTE) o Stakeholder Understanding & Support (3 FTE) o Water Resource Sustainability (3 FTE) o Financial Viability (1 FTE) 5) Capital Plan – AW’s 5-year (FY 27 – FY 31) capital plan is growing and has several large-range projects on the horizon. AW continues to focus on investments to build a resilient water future and customer value. The current approved budget includes a 5-year capital plan of $2.7 billion. FY2027-FY2031 5-year capital plan is $3.2 billion, primarily due to increase in Walnut Creek Wastewater Treatment Plant Expansion. 6) Cost of Service – AWU completed a Cost of Service study in 2024. The study included recommendations that focused on affordability for basic services, water conservation, and system resiliency. For water rates this included lower percent increases for the first two tiers and higher rate increases for tiers 3-5. For wastewater maintaining 35% cash financing on CIP except for 20% for Walnut Creek WWTP upgrades. 7) Go Purple and Community Benefit Charge (CBC) is proposed to remain at $0.30 per 1,000 gallons of water and 1,000 gallons of wastewater. 8) Rate Increase – AW had a rate reduction in FY 2018 followed by 5 years of zero rate increases. AW’s FY 2027 Proposed Budget includes a combined water and wastewater rate increase of 7.8% for residential customers, which is $7.76 increase per month while still allowing for a 49.0% rate reduction for the Customer Assistance Program (CAP) customers. To align the rate structure with maintenance and capital improvement costs by 2031 the following system-wide rate increases averaging 5.4% annual rate increase over a 5-year period are shown below. • FY 2027 7.8% Proposed Budget • FY 2028 6.7% Planned • FY 2029 4.4% Forecast • FY 2030 4.6% Forecast • FY 2031 3.5% Forecast 9) Economy - The utility continues to maintain strong financial metrics. FY 2025 ended with $821.9 M in total revenue. As of May 2026, revenues are $27.04 M above budget. AW’s FY 2027 proposed total revenue budget of $816.1M assumes rate increases based on Cost-of-Service results and modest increases customer account growth and consumption, and increased interest income due to higher interest rates. Conclusions and Recommendation Austin Water continues to maintain a stable financial outlook with the balance of debt service to CIP spending. Austin Water’s March bond rating updates from the three rating agencies reflected a stable rating for the 11th consecutive year. However, Moody’s upgraded Austin Water’s rating in July to Aa1, reflecting the utility’s strong fiscal health. The five-year financial forecast complies with all Council approved financial policies, except Cash of Financing of Capital Improvement Projects, which is below financial policy levels to target a lower level of cash financing for large generational projects like the Walnut Creek Wastewater Treatment Plant upgrade and expansion and is in alignment with growth projections and mandated water conservation measures. The Budget Committee recommends the approval of the proposed Austin Water FY 2027 budget. Page 2 of 2 While the Committee supports the proposed Austin Water FY 2027 budget and recognizes the financial pressures associated with maintaining affordability and delivering critical infrastructure improvements, we encourage Austin Water and future budget processes to evaluate additional opportunities for cost reductions before relying on program funding for community outreach and education about water conservation as a source of budget relief. The Committee acknowledges that recent water supply conditions have improved following two consecutive years of exceptional rainfall and record flooding; however, this temporary abundance should not diminish Austin Water’s long-term commitment to conservation. Austin Water’s Water Forward implementation efforts continue to advance important supply-side strategies such as Indirect Potable Reuse (IPR) and Aquifer Storage and Recovery (ASR), but shifting customer behavior toward greater conservation remains an equally critical component of the City’s water supply portfolio. As Austin plans for long-term population growth, climate variability, and future drought conditions, conservation must remain a core strategy and a priority in future budget and policy decisions. Page 3 of 2