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reducing the utilities' ability to build and maintain reserve balances and meet reserve and debt service <br />coverage benchmarks commonly reviewed in ongoing credit evaluations. <br />Additionally, since Council last adopted a rate structure, there has been new case law regarding water <br />and sewer rates, creating additional criteria for compliance with Proposition 218. In 2025, two cases <br />(Howard Jarvis Taxpayer's Assn. v. Coachella Valley Water District and Patz v. City of San Diego) <br />provided additional guidance on public water agency rate -setting practices. The City's rate structure must <br />be adjusted to comply with these new case law requirements and ensure that rates are fair and equitable <br />and do not subsidize or benefit one customer class versus another (for example, low-income rates or <br />different rates for residential vs. industrial users are not allowed). <br />PWA has completed both a water and sewer infrastructure master plan which identifies critical projects <br />that should be constructed over the next 15 years. While PWA has excelled at making cost-effective <br />repairs and rehabilitations, continued deferral of capital project investment will eventually result in system <br />failure and loss of critical assets. The infrastructure master plans identified that both the water and sewer <br />utilities need significant investment in the repair and rehabilitation of their aging infrastructure. The <br />proposed rate plan allows for the City to invest an average of $8 million annually on water capital <br />improvements and $5 million annually on sewer capital improvements over the next 5 years. <br />The study evaluated phased rate adjustments over a five-year period to address these longer -term <br />needs. Under the proposed rate plan, both the water and sewer enterprises are projected to gradually <br />build reserve balances, maintain appropriate debt service coverage, and fund planned capital <br />improvements in a manner that supports reliable service and long-term financial sustainability. <br />Figure 1 presents the limits of the City of Santa Ana as well as the zoning. <br />City of Santa Ana - 2026 Water and Sewer Rate Study 2 <br />