Item 08 - Water and Sewer Rate Adjustments

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2.2 Key Assumptions A test year, FY 2026, was selected for which costs are to be analyzed and rates to be established for this study. The financial plan was built for the next ten years, including the five-year study period with a detailed revenue adjustment plan. The cost of service rates are adjusted each year by the determined revenue adjustments based on the financial plan. The City's fiscal year starts on July 1 and ends on June 30. Escalation Factors The financial plan was built based on an assumption in the projected escalation of revenues and expenses associated with both operations and maintenance (O&M) and capital improvement projects (CIPs). Bureau of Labor Statistics (BLS) Los Angeles -Long Beach -Anaheim Consumer Price Index (CPI), Federal Reserve Bank of St. Louis (FRED) Economic Research Division, Quarterly Census of Employment and Wages (QCEW), and Engineering News Record (ENR) Building Cost Index (BCI). Escalation factors used in this study are shown in Table 13. The Los Angeles -Long Beach -Anaheim geography was chosen. The overall escalation factor is derived solely from the All Items series of the BLS Los Angeles -Long Beach -Anaheim CPI. The All Items series represents a broad measure of the average change in prices over time for a wide array of goods and services. The market basket includes categories such as food and beverage, housing, apparel, transportation, medical, and other goods and services. The Utilities escalation factor is derived from the Fuels and utilities and Energy series of the BLS Los Angeles -Long Beach -Anaheim CPI. RDN takes a weighted average of the Energy and Fuels and Utilities data sets to form a combined utilities inflation factor. This escalation factor accurately captures the costs associated with energy consumption and utility service. The payroll escalation factor was provided by City Staff based on historical actual costs and unknown impacts of employee bargaining unit negotiations. The fuels and automobile escalation factor is derived from the Private Transportation, Fuels and Utilities, and Motor Fuel series of the BLS Los Angeles -Long Beach -Anaheim CPI. RDN takes a weighted average of the Private Transportation, Fuels and utilities, and Motor Fuel data sets to form a combined Fuels and Automobile inflation factor. The Construction escalation factor is derived using ENR's BCI for the selected geography. ENR publishes a building cost index for Los Angeles, San Francisco, California, and the National level. RDN analyzed all four indices and, in coordination with staff, ultimately selected the index which best represents the building cost environment in the Agency, the Los Angeles BCI. City of Santa Ana - 2026 Water and Sewer Rate Study 11