Environmental Services Commission - Regular Meeting

Good evening, it's 6.31 and I'm calling the July 2nd Environmental Services Commission meeting to order. We will start with the roll call. Commissioner Lutterman? Present. Commissioner Heinash? Present. Commissioner Margolis?

Present.

Commissioner Tyson?

Present.

Commissioner DuPertis is currently absent. Commissioner Laxson is excused for this evening. Good evening and welcome to the July 2nd Environmental Services Commission meeting. First off, we will start with the approval of the agenda. May I have a motion to approve?

Move to approve the agenda. Second.

Thank you. Are there any requested changes or modifications to the agenda by anyone? Hearing none, the agenda is approved as motioned. We'll now move to oral communications. Our communications are now open. Remember that there's a three minute time limit per person and 30 minute total per meeting. Public comment shall be limited to matters relating to the city of Bellevue government and to the subject matters encompassed within the power and duties of the commission. Persons participating in commission meetings must not engage in speech or conduct that disrupts, disturbs, or otherwise impedes the orderly conduct of any meeting. Disruptions may include and are not limited to failure for speaker to comply with the commission bylaws concerning public comment. Joe, do we have anyone registered for oral communications? I think we do.

I would like to reflect that Andy, Commissioner DuPertis joined us at 632.

Excellent. Thank you. Commissioner DuPertis is now present. All right. So we'll move with the oral communications registered. Mr. Zimmerman.

My name Alex Zimmerman. I come to you in talking for many years. Guys, I don't blame you so you're boring like a slave. And I don't blame you so you're thinking you're very smart because position here and for a long time make you more Your career better, you make more money. By definition, what is you doing is absolutely only the bill can do this. Look what has happened with city for last seven year under Mayor Robinson. And right now under Mayor Muhammad. It's a nightmare. City dead. Totally. Classic fascism city. Yes. When government together with corporation... Suck blood and money from us. No analogy in America. Plantation, what has existed after 200 years, what has last plantation disappear? Look this council, they all criminal, all pure bandita. You know what this means? They not care about city. They care about her $400 salary per hour. You know what this means? No longer you can stay in, better for everybody. Guys, Bellevue very unique city. Week ago is come... State of the city, in each time that the state of the city come, is come to downtown Bellevue Association. 50 people are approximately present. You need pay approximately $1,000. for presenting this meeting. My question right now to degenerative idiots, Nazi Gestapo, bandit, what is seven council, how is this possible? Why not, and I live here for four years, why no one statement of the city come to people? Why? Why they never happen? Why council never have Q&A? Never! And I'm talking about this for a long time. Are you care about this? No. Yeah, you're thinking you're very smart. You will stay in here. You make a little bit more money. Everybody happy. Yeah, but by definition, you're degeneratively idiotic. It's my personal opinion about what has happened here. So you have different opinion. You're blind, stupid, stupid. ordinary, no, you're not a Nazi. Nazis are much decent people, the communists too. You're a bandita, you know what I mean? Primitive, real bandita. All of it, because you're all identical. Viva Trump, viva new American revolution. Stand up, slap, and happy cow. Guys, city dead. You don't understand this? Thank you very much. Idiot.

All right, that's the end of our registered oral communications. Now I'd like to open it up to the floor and see if anyone would like to speak. Yes, please. Well, please have a seat. you have a three minute time limit, please, uh, state your name and your address and then please share with us what you'd like.

Hi, my name is Nicole Myers. I am a Bellevue resident and, um, I just wanted to say thank you for taking so seriously your responsibilities to control the cost for Bellevue residents. We know that it's not just the things that are being decided in this room that are going to affect people's bottom lines. It's also what's going on with PSE. It's also the fact that it looks like our transportation benefit district tax is, you know, in progress, and that's going to add on to the sales taxes. You know, there's always more things that... people have to be concerned about. And I know in the scope of utilities as well, there's only a limited number of things that we actually have control over. So, you know, I know it's, you know, some people may say it's a rounding error compared to the you know, major costs that utilities is facing that we really can't avoid. But thank you for reading some of the letters I sent in regarding the connection recovery charges. And I also realized after I sent those that I had another question really for staff regarding the DFCCs. Now, I think it has been described that DSCCs are really growth pays for growth. And, you know, maybe some of the impact ends up on people who are, or the developers who are paying the CRCs if no one's, you know, if we stop collecting the DFCCs. But I also wonder how much we're leaving on the table, what the scale of some of those is on a per parcel or per project basis. You know, if, you know, a typical project is You know, maybe 100,000 that, you know, interferes with developing a small project. What are we talking about for some of the larger projects? Do we know what we're leaving on the table? Now that I know that it also includes downtown and Wilberton, not just the outlying areas, like are there you know, ways that we can try to capture as much of the foreseeable DFCC revenue as possible while coming up with a change that, you know, we can agree is not going to hamper development in Bellevue going forward and, you know, really is logical. I think the whole idea of changing how we charge for the DFCCs is not unreasonable. but I don't think we necessarily have enough information. At least I don't as a member of the public to know you know, really where the trade offs are, who's benefiting, what is reasonable. And I hope that we'll just have a little bit more discussion. I'm sorry for spurring this on you at the last minute, because I know I have had so many requests before. But again, I think that the work you do is so important for maintaining these vital resources for Bellevue residents and for keeping the costs under control. Thank you so much.

Thank you. Thank you for sharing. Let's see. Anyone else in the audience? I don't think so. Anyone online, Joe, that would like to raise their hand?

No.

All right. Okay. And that concludes our public comment. Now would be City Council update. Council Member Nguyenhouse?

Thank you. And it's so great to see everyone here this evening. I mean, some people might have thought that, you know, before a long holiday, there wouldn't be full attendance here. But nevertheless, everyone is here. So that's great to see you. Thank you. A couple of quick things I just want to update on. So one, we are in the throes of our budget process right now, as you are aware, some of the work here directly impacts that. But We did have an update last meeting about our revenue growth, which is flat. 2028 will be flat. We think that there we will still see some growth in 2029. But there are a number of headwinds that were that we're faced with right now. Some of them really kind of outside of our control, you know, be it inflation, be it some of the policies down in Olympia, some of the legislation there is impacting us. You know, the high interest rates, you know, certainly impacts developers and also home purchases as well. And then just a bit of a lower consumer confidence right now with everything going on in the world and then domestically as well. That consumer confidence is not as high as it could be, and that impacts to our economy in terms of what people are willing to spend their money on. And as you probably know, a great deal of our revenue that comes into the city is through sales tax. So if they're not spending those dollars, we're not seeing as much revenue into the city. um so um we we just had that preliminary um uh budget and that public hearing uh last meeting and um really you know i've been asking everyone to please even outside of this um of this committee to please share your thoughts especially on priorities especially what you see uh should be priorities in your neighborhood uh in in your community things that you would like to see in the budget. This council really wants to hear from you. So encouraging everybody here as well as anyone listening to please be engaged in this process because what we develop really a values document, and we want it to be reflective of what the community really wants to see in this budget. Yes, we did an amazing survey, which is great, but that's about 2,000 residents of close to 160,000. So we'd love to continue to hear more and be a part of that conversation. More of the budget will be rolled out over the next months before we pass it in late November. So there's plenty of time to weigh in. and to share some of your thoughts in terms of what you're hearing during that process. The other thing I wanted to mention was about the study that I encouraged my colleagues to support, and thankfully they did, and we did a grid capacity assessment last meeting. We got some results. It was a great collaboration between the City of Bellevue, the City of Redmond, and PSE. We, as you probably know, are growing fairly dramatically between now and 2024, 35,000 new housing units and 70,000 jobs. So one of the things that has been concerning to me is do we have the infrastructure, specifically, do we have the, you know, grid to support that kind of growth? And on top of that, we're shifting as a society in terms of like, just look at the environment, for example, right? You know, a lot of people are making the decision to move to EV vehicles. Well, they need to power them every day. And then just a little bit of other things that we're putting more and more emphasis on the grid. The good news is that it might not be immediate, but there are some very, I would say, some very concerning clouds ahead, if you will. Basically, the studies show that there are four substations that need to be replaced within 10 years. And if not, we could see some fairly significant impacts, especially to some neighborhoods. Um, especially those, um, in the northern part of of of the city, kind of North town area and Somerset, especially, um, when you consider that it can take 5 to 6 years to replace a substation and that 10 years is basically an estimate. It could fail quicker. We're on a time crunch. That's why I always appreciate what we hear about here during this commission about the importance of constantly reinvesting in our infrastructure, not waiting to the last minute or wait until we see fails, right? We don't want to see that here. So there was a great, I think it was about 40 or 50 page report, because we worked with a great consulting firm called Akon. AECON. That report is on the city website. If you have an opportunity, I would really encourage you to take a look at it and look at how the study was conducted and also their best analysis in terms of where we're at right now. It's not 100% complete, but it gives us a great path forward and it's really accomplished something where has been missing and that has really been a better collaboration with PSE. It's so important. We're establishing more critical deadlines, more meetings, more specific tasks between the city and between PSE, and just more coordination in general to help us fuel all this growth. So really important work there. So please really take advantage and take a look at that report. I would hope that You know, that might be might be of interest to you. And then also just take a lastly, take a look at speed reductions that we're doing across the city as well. This is part of the Vision Zero program. This is also in response to to some, unfortunately, some rather high increases in terms of uh of injuries and deaths that we're seeing within within the city of bellevue um so this is just one of numerous tactics that were taken to hopefully reduce the amount of this incidents there um as as much as much as we can um It doesn't address some of the core things that I think we still need to address, unfortunately, where sometimes we have the folks who like to come into our city and do some drag racing on 148th or other parts of the city. We still need to clamp down on that, and we are, but it's kind of cyclical, right? We do these emphasis, comes down, and then sometimes the summer months bring out more of the car rallies, and next thing you know, they're going at very dangerous speeds on our streets and can really create those dangerous conditions. So anyway, so hopefully this will be a good step in eliminating, again, serious injuries and fatalities. We'll encourage you to take a look at that as well. So quick update, probably longer than you wanted me to go on, but it's a short agenda tonight. So thank you, Chair. Thank you.

You're welcome, Councilmember. All right. Next up, staff reports. Joe?

Yeah, we have Deputy Director Scott Edwards here to touch base on the solid waste contract.

All right. It's my pleasure tonight and this is just a real quick update. It's been a bit. Since we were before you, you'll remember that you considered and approved the objectives to guide the procurement process, subsequently taken forward as a recommendation to the City Council and they approved them. So I'm just here to let you know that the procurement process is proceeding as expected on schedule. We are working with our solid waste consultant. You may remember that's New Gen Strategies. And so we have conducted and completed benchmarking with certain regional jurisdictions as well as national jurisdictions. And we have evaluated best practices, not only in solid waste contract provisions, but obviously optimal service delivery, which is what we're after ultimately. Based on our findings and stakeholder engagement, we're going through a process of completing refinements to the existing contract language. And we are really doing that through that lens again of the four objectives. If you remember, they are alignment with best practices, responsive to community needs in terms of reliability, affordability, and user experience, compliance with state laws and local policy, and then the last being leveraging technology. uh ultimately the proposed contract language at this stage is currently under its final review as we prepare all rfp or request for proposal materials the final package if you will and we do look to release that at the latter part second half of this month and again we are on schedule thank you we're now going to move on to the approval of the june 4th 2026 minutes

Do approve the minutes. Commissioner Letterman, thank you. May I have a second?

I'll second.

Thank you, Commissioner Hainash. Are there any requested changes or modifications to the minutes or to the motion? All right. Hearing none, the minutes are approved as motioned. We have no unfinished business so we're on to our one new business item tonight the utilities 2027 28 budget and rates recommendation. Scott and matt you have the floor.

Thank you. Matt just a second here.

Okay, so as the Commission considers budget and rates recommendation to the city manager, we prepared for you this evening a recap to highlight the relevant materials that you've seen to date. In addition to reviewing this information, we're available clearly to answer any questions that you may have that would help support your recommendation. With the informational items that you received over the last five months, we're now seeking the commission's recommendation, as you can see on this slide, to the city manager regarding the utilities 2027 to 2028 operating budget and the 2027 to 2032 CIP budget and the rates necessary to fund the proposed budgets for the next biennium. Your recommendation will be very helpful to the city manager as she forms her proposed budget, which will be delivered to the city council in September. And in September, the commission will develop a recommendation to the city council on utilities budget and rates. Our presentation this evening, as you can see on the agenda, will revisit some key information. We'll review the calendar and the topics that we've covered this year, the roles and responsibilities of the ESC, of course. We'll recap the key principles used in developing the utilities budget. We'll summarize the operating and CIP budgets for you as well that were presented to the Commission during our prior meetings. And again, we'll answer any questions you may have to support the Commission in developing a recommendation. So, beginning with the budget calendar, tonight's meeting is a continuation of the commission's review of the utilities budget. Believe it or not, this represents the sixth meeting on the budget this year. So my hats off and appreciation to all of you for hanging in with us this far. It's been, but we're actually getting through the calendar very well. You received a number of foundational briefings on the budget process over the last 5 months, and those include a review of the utility financial policies in February. As you can see, we provided the commission with the 2025 financial performance in April. In May, we provided the commission with the 2027 to 2032 early outlook rate forecast, which included the anticipated rates necessary to fund our budget requests. in june we conducted two meetings to cover the 2027 to 2028 operating and cip budget proposals as well as the 2027 to 2032 proposed rate forecast and tonight we'll be recapping those proposed operating and cip budgets and seeking the commission's budget recommendation to the city manager As you can see, it's following tonight we have coming up in September, early September, we have the budget and rates update as well as the budget and rates public hearing. And then that leads to the September 17th meeting where we would seek the 2027 to 2028 budget and rates recommendation to the city council with subsequent budget and rates update. It's listed as tentative in early October, followed by the ESC chair presenting the recommendation to council in October as well. So, the Commission will recall that our budget represents the largest policy document for the Department as it outlines the strategies and policies utilities uses to address key financial and operational challenges over the next biennium. Moving from left to right on this slide, it depicts respective roles and responsibilities of staff, the Commission as well, and the Council, of course, in developing budget and rates. The foundation for any budget is council's policy direction and vision, and staff develops the budget consistent with council direction and council adopted policies, and proposes rates based on those policies, as well as legal requirements and utility rate setting best practices. The commission is an advisory body to council, and in that role, the commission reviews the budget presented by staff, asks questions, holds a public hearing to gather public input, and then again, develops a recommendation to the city council. And on the right, as you can see, is the city council is the ultimate responsibility and authority to adopt utilities, budget and rates. next the commission will recall utilities budget rates development is founded on certain principles and those include the budget must align with council priorities and strategic direction the budget must also adhere to our long-standing financial policies and those include wholesale costs for water supply from cascade and sewer treatment services from king county must be passed directly through to our customers our rates must be set at a level sufficient to cover our current and future expenses Changes in rates should be gradual and uniform to the extent possible. And funding for capital investments must be sufficient to meet our long-term capital program costs and ensure intergenerational equity. Before we review the proposed budget, we'll provide an overview of what you see here of how the proposed 2027 to 2028 budget compares to the current adopted budget. Reflected in this chart, the total operating budget is increasing by 10.6% in 2027 and 8.2% in 2028. PLEASE NOTE THAT THIS IS A BUDGET INCREASE. IT DOES NOT EQUATE TO THE SAME PERCENTAGE RATE INCREASE AND THAT'S FOR MANY REASONS INCLUDING ONE TIME EXPENDITURES AND BECAUSE WE ARE ABLE TO SMOOTH INCREASES THROUGH OUR LONG-TERM FORECASTING PROCESS. Budget drivers are depicted on the right on this slide, and working from bottom to top, you'll see base compensation adjustments and changes to indirect support costs are expected to add four-tenths of 1% to the budget in 2027. The need to build rate capacity for our aging infrastructure contributes 2.9%. Planning prudently for aging infrastructure replacement remains an ongoing priority as it must to avoid rate spikes and achieve customer intergenerational equity. wholesale sewer treatment and water supply costs, Those will contribute 2.7% and 1.1% respectively to the 2027 budget. And the cost of additional state and local taxes assessed on planned rate increases, as well as the specific inflationary adjustments to electric utility expenses and standby pay tied to labor agreements will add 2.2%. And it's important to note that utilities has reviewed and it's our standard practice to review its base budget and right size our expenses wherever possible. However, we are unable to fully absorb the rising costs experienced in utilities capital programs and local operations. We've been able to contain our local operations to inflation, with the exception of a few key investments, which add 1.3%. This includes extending LTEs or converting them to FTE staff to sustain existing operations, as well as the expansion of the utility bill assistance program, as we've already covered earlier. You'll hear more about each of these key drivers coming up. This slide presents a mid-level view of the proposed two-year operating budget for our four lines of business. In total, as you can see, the operating budget is about $511.8 million, which represents the funding necessary for the next two years to pay for our operating and capital support needs. Starting at 12 o'clock and moving clockwise, you'll see wholesale costs in red total $174.9 million, or about 34% of our biennial budget. Next, we'll focus on two pie slices, taxes totaling $49.5 million and support services totaling $34.9 million. And combined, these represent about 16 percent of our operating budget. For the 2027 to 2028 budget, it should be noted that taxes are included with wholesale costs in a single operating budget proposal. However, for the early outlook forecast presentation earlier this year, you'll recall taxes were combined with support services separate from wholesale costs. To be consistent, we're depicting taxes separately from wholesale costs for this presentation as well. And we've shaded the taxes pie slice in orange with yellow dots to demonstrate its alignment with what we shared with you previously. The next pie slice is teal and it represents CIP support totaling 179.4 million or about 35% of our operating budget. And finally, local operations in blue total 73.1 million or about 15% of the operating budget. This next slide depicts the proposed 2027 to 2032 CIP budget by proposals, also known as the areas of investment that align with Council's strategic target areas. The utility continues to invest over 75% of the CIP for renewal and replacement of aging infrastructure, which is shown in blue on the pie chart. The proposed CIP includes 65.8 million in capacity for growth category, which is shown in orange. This is to fund new reservoir and associated infrastructures needed to provide drinking water storage for planned population growth in downtown, Bell Red, and Wilberton areas. And the proposed CIP also expands investment in the environmental preservation category by about 25 million, which is in purple. The increase is attributed to several new projects proposed in flood reduction and water quality improvement programs, while continuing to fund fish passage and stream improvement projects to preserve and protect our natural resources. For some of the smaller slices of the total CIP, we have proposed budget to renovate Eastgate Yard, as well as continuing to fund land acquisition and construction of the new North End O&M facility shown in dark blue. We also continue funding for projects that rehabilitate and improve existing groundwater wells and associated infrastructure for emergency supply, which is shown in green. Next, we'll have Matt provide a review of the rates forecast and typical residential bill impacts. Matt.

Thanks, Scott. Good evening, Commissioners, Councilman. So this slide on screen, you've seen this before, but it presents the combined water, sewer and storm rate increases presented with the revised rate forecast from two weeks ago. These are the annual aggregate rate increases for the three piped utilities. The actual bills and the bill impacts will vary by utility and by customer type. So the bottom stack of the chart is the wholesale cost rate drivers tied to Cascade Water Alliance and King County Wastewater Treatment. and they represent a little more than half of the overall rate pressures over the next six years. As Scott mentioned, those costs are passed directly to our customers via their bills. Local operations, a little less than half of the remaining rate drivers depicted in orange, include funding for the capital investment plan, financial obligations such as taxes and indirect support to the general fund, and ongoing operations and maintenance activities. But before we go into the bill impacts, though, of these operating capital budget proposals, I'd like to spend some time summarizing how these budget proposals translate into bill impacts. There was discussion and request from our Commission's last meeting for options for rate relief by making adjustments to the controllable parts of our budget. And as a reminder, when I use the word controllable, what I mean by that is internal budget items, including local operations and our annual contributions to the capital reserve to fund the six-year capital program and the 75-year asset renewal and replacement program. The other part of our budget are those costs which we have less control, like wholesale costs, taxes, and general fund support. And as Scott mentioned, those external costs are about half of the proposed budget. And so because half of our operating budget is driven by external pressures, we can only rely on the other half of the budget, the one we have more control over, to pay for a rate reduction. In simple terms, a 1% reduction in rates requires a 2% reduction in controllable expenses. Kind of a rule of thumb that we'll probably continue to see for the next several years. The timing of the rate reduction matters too. Shaving one person off rates next year has a compound effect on the amount of revenue generated by rate increases in later years. For example, if we shave one person off the rate increase next year, that requires a $2 million reduction next year, but it requires a $3 million reduction by the end of the sixth year. The table below provides some helpful information for evaluating the impacts of a 1% rate reduction. The first row details the financial impact of a one-time 1% rate reduction next year. And so it would result in us identifying $2 million in controllable expenses to reduce. Over the next six years, we would have to shave around $15 million of controllable expenses. That is the equivalent to shaving our capital program by about 3% over the next six years. The flip side, though, is that our monthly bill that we're showing you tonight would be about $2.30 lower this year, or I'm sorry, in 2027. And then by 2032, it would be about $3.45 lower than what we've shown you in the previous couple of meetings. If we were to entertain a 1% rate reduction every year for the next six years, this is where you see the compound effects start to show up. It would still require a $2 million reduction next year in controllable expenses. We would have to find $55 million in controllable expenses over the next six years. By year 2032, that would cut about a third of our local operating budget. In CIP comparison, it would cut about 13% of the six-year capital program. Of course, theoretically, if we could do this, the bill discount next year would be $2.30, and then by year six, it would be $20 lower than we've shown you. Just kind of frame of reference of the impacts. Okay. So based on the discussion with ESC two weeks ago, my team sharpened our pencils and looked at some options for the commission's consideration to create some short-term rate relief. The decision you'll see tonight or the option that you'll see tonight focuses on a financial management strategy for addressing the recent revisions to the capital improvement program. Last month, Dave highlighted that the six-year CIP was revised, the cost was revised downward by about $19 million from the early outlook forecast. And that downward revision was due to updated cost estimates on recent bids, rescheduling of some projects, primarily in the water main replacement program. Most of that $19 million is in the water CIP, about $16.5 million. Because the water utility is an active replacement, our capital program over the next six years will rely on reserves in addition to our annual transfers to the capital fund to pay for that capital program. We'll also rely a little bit on interest earnings to fund all those projects. Works. Hopefully it does. Perfect. There it is. The early outlook forecast envisioned that the $287 million CIP would be funded primarily from that operating transfer. That's that blue column. About $236 million of the total 287 CIP would be funded from cash-funded transfers from our operating fund. We would also rely on about $30 million from interest earnings and connection charges. And then these funding sources would be supplemented by the use of $21 million in one-time use of capital reserves. That was the capital funding strategy envisioned in the early outlook forecast. Now the cost revisions to the CIP resulted in our water CIP being about $6.5 million lower. So it's now 270 and a half. Because of this change, staff adjusted our capital funding strategy. So what we presented to you two weeks ago and four weeks ago, that proposed budget leveraged that cost reduction to reduce the reliance of capital reserves to fund the program. So you can see the blue column remains the same. The annual transfer each year would be the same, but what we're changing is we're relying less on capital reserves to fund the program. Instead of being $21.3 million in yellow, it's now like $2 million. So that was the financial strategy we presented in the proposed budget. I want to stop there before I move on. Is there any questions so far on this?

Yeah. What do we have in the reserves right now and what... What kind of reserves do we aspire to maintain?

So by policy, by practice, it's not a city policy, by practice, we try to retain the equivalent of two years of capital project expenses held back as a reserve for each capital fund. So for the water utility, next year, that would be ideally retaining about $84 million in standing reserves.

Is that what's in there right now?

We are very close to that number right now. So we envisioned moving this next six years is going to be capital intensive for the water utility. It is an active replacement. And so we'll be drawing reserves from that amount over the next six years. The plan is by year seven, we've gotten through this pressure point and you're rebuilding those reserves back up. So the strategy we're proposing here, we recognize, hey, we're going to be dipping into those reserves by taking that cost reduction and relying less on reserves. We shorten that U shape of use of reserves, if that makes sense. Alternatively, what we could look at, I got two mouses here, is that we could flip that financial strategy. We could reduce the operating transfer, which provides short-term rate relief and rely on a similar level of reserves that was envisioned as part of the early outlook forecast. So the difference between that third and fourth column is we're still going to use the same amount of reserves that we thought we would need as part of the early outlook. And then we would reduce the size of the annual transfer each year from our operating fund to the capital fund. That has a direct impact on rates. Lowering that blue column impacts rates.

Can you go to the prior slide for a second?

Yeah.

So over what amount of time is that $54.4 million? You say 1% rate reduction every year. At what point is it? Is it 2032 that you see the $54?

That's a cumulative total. I can do the annual amount. So over six years, if you added the amount of money we have to identify, it'd be about $55 million. Okay. In 2032, you know, I always try to plan for the... unexpected and then I fail. So I have it open.

And while you're looking that up, I'm curious too. So the rate payer would see anywhere from $2.30 to $3.45 reduction in their monthly bill. What else would the rate payer notice in terms of quality of service? Would they notice any reduction at all?

Yeah, so a $54 million reduction to our capital program is essentially scratching the whole year of our capital program. So it is a significant.

But at what point do we get to the 54.4? By year six.

By year six.

Okay. So at the end of the, okay.

Yep. And so if.

Again, what's, what is the rate payer going to see because of that? Yes, it's a reduction in our CIP, but what is the rate payer going to see or know?

Yeah. So if we depress rates to that level, I'm looking at that last row, a 1% reduction every year for the next six years, you're pushing down a balloon. And so it will result in higher rate increases, rate spikes outside that six-year window. That's the cost of pursuing an aggressive rate reduction where we have to basically reduce our operating expenses and Our capital program, if 75% of our program is targeted at replacement of assets, these aren't new. These are approaching the end of the useful life. And every year that we defer that, it increases the cost to rehabilitate or repair that asset. Sure. Okay.

More of a question, but I'll forget. So go ahead, Commissioner. Thank you.

So that $54.4 million is reduction in the CIP for water specifically, what we're talking over those six years?

That $55 million would be a over-cross our entire capital program. Okay. Yeah, this is more a theoretical exercise. This slide here is if you reduce rates by 1% across the board for all three piped utilities, that's financial impact.

That's the total and- And so your assertion, as I understood a little bit ago, was then that's $54 million of stuff that's not getting done in these six years, and so will have to be done at some point at year seven plus. Yes. In essence.

Yeah, we would... there's a deferral of projects.

Yes.

It's different.

Projects are not going to go away and water mains are not going to magically extend their life.

And to Council Member Newenhaus' question, the customer, the ratepayer may not see that readily apparent in the work, but as you defer work, it is something that over time you will start to experience in terms of disruptions or failures, potentially, depends on how long you would do that. speculating a bit, but also as to Matt's point to catch up, if you will, this result in higher rates later on outside the six year window. Yeah.

To drill down a little bit. Right back there. That's outside of the replacing That a little bit more. I think you mentioned that was specific to downtown. So what exactly?

Oh, sorry. The bulk of that funding in orange is the Maiden Bower South Water Reservoir. Yeah.

Okay. And is that just to maintain? So I'm going to jump here.

Before you jump, can I go back to that slide, please?

I just want to finish, I think, Councilmember Newhouse's question that I don't think I heard the answer for. Not this one, the one with the two lines on the bottom. Got it. Yep. So I heard we had a discussion about that bottom line, about the reduction every year for six years of 1% impact $2 million to the budget in 27, cumulative impact $55 million over six years, lots of deferral of projects, rate reductions between 230 and 2035 over the six years. And I think the question was, what will the customer see? If we just pursue a temporary 1% rate reduction just for one year, the cumulative impact for that one year is 15 million. What will the customer see there?

Yeah, great question. So that's essentially the... a like alternative that we're presenting in the following slide, but it's if we were to reschedule the projects as proposed and just change our financial strategy instead of relying less on reserves, we rely on a similar level of reserves that was envisioned as part of the early outlook forecast, and you reduce the operating transfer at that same level, you're essentially reducing the operating transfer around I think it ends up being just under $17 million. So it's on par with that first line, the alternative that I'm showing in the next slide.

All right, but it's only a one-year reduction, not a six-year reduction. So the cumulative deferral is much less. You get projects back up after a year and you have to defer fewer projects. So is that a fair assumption then that the customer will see less impact to their service? There's less likelihood of major failures because you're not deferring six years worth of projects. You're deferring just one year to get them a one-year rate relief.

Yeah. If we're looking at a pragmatic approach for that first row, I would not recommend reducing the capital improvement program because those are our highest needs of capital projects identified the next six years. I would instead look at focusing on can we massage the 75-year outlook. Right. And that way you're not jeopardizing things that need to be done today.

So there's even less impact that the customer will see.

And that's what we're showing in that next slide, 12, is that alternative really focuses on adjusting our future contributions long-term. So we don't have an impact on current capital projects. Customers still get some short-term rate relief, and it doesn't come across with an additional, you're not pushing the balloon, so to speak, too hard.

And you might answer this later, Matt, so I might be jumping ahead here. If I recall last meeting's discussion, part of what I was trying to ask was in your five-year or six-year forecast, you had us going, the rate going up quite high the next two years, next four years, and then a little bit back down on the tail end. And I was asking if there was a way for us to lower the impact in the first few years so that it was more of a gradual increase than a spike and then drop later.

So that's just a... Yeah, and... Well, I was just going to say, to clarify, that wasn't a rate, that was a rate increase each year. So the first two-year increases were a little higher than the third. Exactly. Sorry, yes, three years. Yeah.

So to respond to the question, one of the reasons, the main reason we see that upward pressure on rates in the next four years is primarily because King County's wholesale rate increase is growing faster in the next four years than the last two years. And so if we're passing that expense on to our customers verbatim, then that reduces our flexibility essentially. The alternative I'm showing, I'll show in the next slide, does reduce the overall rate relief. It's not as emphasized in the New York term. It's spread out evenly, really, over the next six years. But that's the reason for the pressure being a little higher. I mean, I could look at other options that put more of that up front. The challenge of putting more rate relief up front is it requires higher rate increases later on. So we're trying to both provide rate relief and avoid rate spikes.

Yeah. Commissioner Hynos, you had a question?

Thank you.

Okay. And I'm just going to pause to check. Commissioner DePertis, any questions from you?

I'm growing concerned. These are the words that really smart people use when they start to get nervous. I can feel it. I don't have the spreadsheet in front of me, but I don't think we're trending in a good way. We need to make sure that we have the revenue to support our, and we can just think our rate payers, our quality of service. We can think of mechanical terms like total cost to serve and other things that fit really well into Excel. But I'm getting nervous about these slides.

Okay. Thank you, Commissioner DuPertis.

Matt? Yeah, let me go through these two proposals here. So we've talked about the proposed funding plan that we showed to you all two weeks ago. This is an alternate approach. I want to emphasize between these two approaches from a financial professional perspective, I am indifferent. None of both these options preserve our financial sustainability for investing in our infrastructure. It's a value proposition, I guess, for these two options. And let me kind of go through the impacts of that alternate option. With the alternate option, as I mentioned, we could flip our financial strategy where we could reduce the operating transfer by about $18 million. I'm doing quick math on screen here, y'all. That creates some rate relief in the short term, and we would rely on a similar level of capital reserves that we presented in the early outlook forecast. And I want to be clear here, we would not be reducing the size of the operating transfer compared to current levels. We would be reducing the level of increase to the operating transfer. So we will continue to invest more in our infrastructure over the next six years. It won't be to the same level as envisioned in the proposed budget. also emphasizing it's not going to create a financial risk of us maintaining our 75-year investment plan. We estimate that this option, this alternate option, would lower the annual rate increases for the water utility by one percentage point each year. When we were showing 7.7, those would become 6.7s. When we were showing 7s in the latter two years, there would be 6% increases. We estimate it would lower the overall combined water, sewer, and storm rate increases by around two-tenths of one percent to three-tenths of one percent every single year for the next six years. Doing the math, that's about a dollar shave off next year's monthly bill growing to about a seven dollar shave to the bill six years from now. If the Commission has to go to this route, I would recommend that we evaluate the impact of this action at our first meeting in September, so that we can account for other factors that may impact the rates over the next two months, including Cascades adopted budget, wage inflation that's informed by CPI-W numbers in July, and then the final numbers for general liability insurance.

So Matt, while we have all these numbers in our heads a little bit fresh, I just want to confirm, so these rate impacts already account for, they reflect the cost of service changes that we talked about, at least on the sewer side, right? basically shifting towards more cost of service. The equity analysis? Yes. Okay. So that's already in there. And then, of course, the utility bill. Assistance? Yes, assistance program that's fully funded the way we had already determined that. Okay. Okay. Thank you.

Any questions on that alternate option? Once again, this is a change in capital funding strategy. You can see relative terms, the bulk of our capital program for water will continue to be funded by that operating transfer. We're just relying more on reserves in the alternate relative to proposed. That level of reserves in yellow is similar to what we had originally in May. And both options do not continue to achieve long-term financial sustainability of our capital reserves. It's just two different ways of doing it. Do we want to use that cost savings windfall to rely less on reserves, or do you want to use it to provide rate relief? That's the question to be had by the commission.

So Matt, between the proposed and the alternate, what's the difference to the rate payer? What would they see? Or are these basically equal to the rate payer?

The rate payer, as I mentioned, if nothing else changes the next two months, we would see on that typical bill impact that we'll show later on in the presentation, that if we went the alternate route, next year that rate impact would be $1 less per month. And if we forecast it out six years, it'd be $7 less per month than the numbers we have shown you.

And then comparing that to the proposed, because part of my question is comparing them to each other.

Yes. So $1 less than proposed, $7 less by year six compared to proposed.

So for the rate payer, they don't care which way, right? Proposed or alternate. There's no direct impact to what they see.

There is. There is a direct impact. So example is- Between proposed and alternate? Yes. So if I went the proposed route that we showed back in two weeks ago, the total monthly bill would be about $250 next year. The alternate path, well, it's in relative terms, it'd be $249 per month. By year six, instead of being whatever, you'll see the number here, it'll be $7 lower under the alternate path. So you're reducing that annual rate increase by about three tenths of a percent every month, three tenths of 1% every year for the next six years.

So sort of a more general comment, which is just when these things come out to rate players, I just hope there's a way that we can communicate the extensive amount of work and care that you put into trying to figure this out for their benefits of figuring out and minimizing rates, because it's impressive how much you're You have pointed, you know, sharpened your pencils and tried to figure this out. And I just hope that we have a way to communicate this when the rate payers start reacting, because they're going to react, obviously. So I appreciate all the work that's gone into figuring all this out.

It is a challenge going back to half our budget, we don't control. So if we're trying to reduce the pressure, we are doing double work to get that 1%. Um, so what we're seeking that work? Yes, we're hoping to get direction from the commission tonight on a financial management strategy related to the 20272032 water capital investment plan. That we could ask proposed maintain the operating transfer consistent with what we have shown you the last 2 meetings. And as a result, it would reduce the reserve funding requirement required to support our capital investment plan. All the numbers we presented to you in the last two meetings would hold. No change. Alternatively, we could reduce this number two. We could reduce the size of the operating transfer over the next six years and rely on a similar level of reserve funding that was envisioned in May and provide that rate relief that we've estimated over the next six years. So we're just looking for direction from the commission, and then we'll move on to the last parts of the presentation.

All right. So I take it you're ready for us to make a motion and set direction. So may I have a motion, please?

Okay. I move to follow the proposed rate, staff proposed rate, CIP funding objective similar to the early outlook.

I second.

All right. uh so before we go ahead and take a vote uh if there are any further questions from any of the commissioners uh now would be a time we can discuss it we can ask staff um so i'll open up the floor is the motion to support number one or number two uh number one commissioner purvis

Can I just make sure I understand the difference between one and two is really a result of the CIP for the water utility coming in $16 million lower. And so then we basically are saying, originally we were going to fund a certain level from reserves, right? Now, because of the $16 million lower CIP, we have the option of either keeping that level of reserves or reducing another source, right? Precisely. Yep, precisely. But that second one, the alternative proposal, is basically going to result in a little bit of rate relief, a dollar a month for a typical single family going up to $7 a month by year six, if we choose the alternative. Yes, that's correct. Okay.

Thank you. And to confirm what I thought I heard you say, Matt, from a financial professional's perspective, you are indifferent to either proposal.

That's correct. And just to kind of, we go through months of financial planning and we presented our capital improvement program back in May. We knew that we would be drawing $30 million from our water reserves to pull this off, and we made a financial management strategy decision that that was an adequate and a responsible decision. And so using that same old reserves now, we're not saying that's a bad idea. We already signed off on that idea. What changed is the cost went down, and we could make a choice. Do we rely less on reserves now that we know the cost is going to go down, or... because the discussion was brought up two weeks ago, is this an opportunity that we can look towards some rate relief?

Commissioner Margolis?

Yeah, this just seems like there are two things to you that are equivalent, and one of them has lower rates. Is that how I'm hearing it? So is there a downside to... Would there be a benefit to not using the reserves in the same way? I don't understand what the downside is here.

It has to do with how quickly that we talked about that reserve minimum that we try to hold on to about two years worth of capital spending. Under the proposed approach, number one, because we're not relying on those same level of reserves, we're able to come out of this U-shaped use of our reserves faster. So we're able to come back to our minimum target of capital reserves around 2033. If we go to the alternate approach, it's like 2035. So there is a delay in recovery, essentially. Not a level that's alarming, not one that we're concerned about, but that's the advantage is that we're able to recover from this heavy investment period for the water utility.

And that presumes that something else doesn't happen where suddenly we needed those reserves, right? I mean, you guys obviously have planned for all these possibilities, but it means, We don't have a kind of a, oh, no.

Yes, and Bellevue utilities sets itself apart from other utilities in the country. I cannot think of another city or utility that holds as a reserve minimum two years worth of capital spending. One reason we do that is that it provides the benefit of financial flexibility. If we do have unknown or unexpected consequences, we have financial capacity to absorb unexpected elements. That's not by accident. That's intentional. And so, yeah, I don't want to present that there's an alarm bell going off. We have robust reserves, and that's an intentional policy. Okay.

Any other comments from any commissioners? Hearing none, I'm gonna take a roll call vote for the motion on the table, which is to recommend the proposed option number one here in the action, which is to maintain the operating transfer consistent with the early outlook forecast and reduce reserve funding requirement, which would result in the rate recommendations presented to the commission at the last meeting. And there will not be a reduction. So with that, Commissioner Letterman. Aye. Commissioner Hainash.

Nay.

Nay. Commissioner Margolis.

Nay.

Commissioner Tyson. Nay. Commissioner DuBertis.

Nay.

Nay, right, Commissioner DuBertis?

Nay. Okay.

All right. Thank you. And I will also vote nay. So that is one, two, three, four, five nays and one yay. All right. Then now let's take a motion for the alternative, please. We have a motion.

Yeah, I move to adopt the alternative to reduce operating transfer and rely on the similar level of reserve funding with the early outlook forecast to provide a little bit of rate relief.

Okay, may I have a second?

I second.

Thank you, Commissioner Tyson. Do we need to have any further discussion, commissioners, on this alternative before we take a vote? All right, then I'm going to go with the roll call vote again. Commissioner Tyson?

Aye. Yay.

Yay. Commissioner Margolis? Yay. Commissioner Hainash?

Yay.

Commissioner Letterman? Yay. Commissioner DePertis?

Nay.

And I am a yay as well. So I believe we are unanimous. 6-0.

I voted no. Oh, sorry.

Were you nay? Sorry. All right. So sorry. Commissioner Dupartis is a nay. So we are five yays and one nay on the alternative. And with that, the motion passes. And that is the recommendation for the ESC.

And as I mentioned, so we'll come back in our first meeting in September. including the recommendation from esd on this action in addition to any other changes um to the operating budget once again i don't know the directional impact of those we'll know more in the next couple of months all right but that affects your timeline to get this to the city manager correct correct i i think uh if we could incorporate this language into the recommendation of the city manager that the rates as submitted to the ESC through two weeks ago with this additional action.

Okay. Okay. Is there any further presentation?

The slides here.

Very good.

Just wrapping up here. So we did want to circle back just as a reminder for what we showed two weeks ago. In bill impacts, we'll start with multifamily residential. On the top left side of the table, you can see the total typical monthly bill in 2026 is about $128. And moving downward on the table, the primary rate drivers next year include wholesale, which we discussed earlier as presented with our pass-through costs to Cascade and King County. The bill assistance expansion. Local other, which represents all other increases to our operating expenses, including the transfer to the capital investment program fund. And lastly, the sewer equity adjustment. This represents the equity adjustment required to bring rates consistent with the cost of service study as approved by the commission, recommended by the commission and approved by council in April. And as a reminder, this equity adjustment would result in a decrease to the multifamily customer bill and a corresponding increase to the single family residential bill. The net result is that the typical multifamily bill would increase by about $10.51 next year. And below that table in the blue box, we're showing the projected typical multifamily bills for customers enrolled in the bill assistance program. First, for those customers currently enrolled and are receiving a 70% rebate, that typical monthly bill would be about $52.60. And then next, for new customers that would qualify for the expanded bill assistance program next year, they would receive a 35 percent rebate, which means that their typical monthly bill after that rebate would be around $95.74 per month. You'll see the right side of the table depicts that same information for 2028.

Any questions here?

Once again, these will be revised, and we'll show you the numbers in September.

will get better because we went with the alternative? If nothing else changes, yes. Okay. Yes.

I'll tell you, if nothing else changes, these numbers will be three tenths of one percent less. Okay. Thank you. Other questions?

We're bidding on a miracle, right? That the wholesale costs are previously volatile and from here forward, they're now knowable. That's what has to happen for this slide to be true, right?

Yes. So King County adopted the sewer rates next year, last month. And so those are set. And Cascade is about to adopt their budget, I think, in September. And as of this month, the no changes have been made that are different from what we are projecting in these numbers.

So we're relying on those not changing. And we have a 12-month guarantee. Is that right?

For Cascade, it'd be a two-year guarantee. And for King County, it'll be a one-year. Ideally, beginning next year, it'll be two years with a firm commitment for a third year.

I think this is a heck of a gamble. Those assumptions haven't proven to be reliable in the past. And I think that we're assuming that these I think we're assuming that there's going to be stability where there isn't going to be stability.

Andy, I can't contribute anything at this point to that question or observation.

And I would echo that for Matt. I think we continue to work with King County, with Cascade, to work on long-term forecasting and driving predictability into the rates. King County is moving in a multi-year rate forecast, hopefully to provide a little bit better certainty for us. And so we're looking forward to that. That's the next step for us. The longer-term outlook, of course, remains uncertain. uncertain if you recall from a wtt perspective due to regulatory requirements that are unknown among others uh cascade is obviously in a similar boat but they do a fairly good job of projecting out in the near term uh so i i understand and hear what uh commissioner dupertis is saying but i do believe that we have uh near term more certainty than we would have otherwise had in recent years so just leave it at that

Well, that's precisely the correct answer. The problem is that it says that the problem is correctly universally understood. So that brings me back to the prior slide, which is how do we rise above it? And let's just be careful not to get caught in the payday loan right where we assume that good things are going to happen in the future so and maybe i should be more of an optimist maybe it's my internal pessimist coming through but let's make sure that we're instead of borrowing against Instead of borrowing against stuff, let's make sure that we are... The plan should be to make sure we have the revenue to support the quality of service. And we have the revenue necessary to overcome the total cost to serve to kind of close the loop between... Councilman Nguyen asked this comment in the prior slides and in the conversation now. I do realize I'm being a bit of a broken record, but it's something that I'm uniquely passionate about. And I think that we should be focusing on that now in particular.

Thank you, Commissioner DuPertis. And I just, if I just clarify, I agree with Commissioner DuPertis that past history has shown that the wholesale rates are rather unpredictable and especially with King County. But I do think that's an aspect that I think this commission we can't or the staff really can't control. But I do think I just want to confirm what we voted on tonight. I mean, no matter where those wholesale rates go, our current recommendation is still going to give the ultimate consumer a slight rate relief versus the original proposed rate recommendation.

That's correct. Yeah. Yeah. The action taken by the commission tonight is completely independent of the wholesale rate drive pressures.

Yep. And if I recall our earlier discussions, not at the last meeting, but earlier, I think Commissioner DuPertis, others have kind of asked the questions, and I think staff have answered that you all are actively working with King County and Cascade to provide more longer-term predictability in the rates. So it's not a 12-month outlook at King County so that we can better plan and for them to invest in their infrastructure so that we don't have these rate spikes. And that's an ongoing, I think, item that I think staff should update the commission on as we move forward.

I agree with you and understood. Thank you.

Thank you.

I'll just quickly summarize the single family. It's the same layout as the multifamily, just moving from top left and down. Typical bill right now is just under $230. You can see the rate drivers below that with wholesale being the biggest rate driver for single-family customers. I'll also point out just as a reminder for the sewer equity adjustment, it is an increase to the single family residential class and will continue to be over the next five years due to the five year phase and plan to move rates towards full cost recovery.

Any questions here?

The commission also requested information last two weeks ago on bill impacts to all customers and not just the typical bill. So monthly single family residential bills vary from customer to customer due largely to differences in water use. The histogram on screen will show the frequency of bills based on water use measured in 100 cubic feet. So as you might expect, let's see if this works. And there's a concentration of bills in the middle distribution tends to lean to the right side due to high water use for relatively few number of customers. went out at some parts of a customer bill are fixed relative to water use those include their fixed meter charge. The metro charge assessed and pass through from King county and most of our storm or all of our stormwater charges are fixed relative to water use so. all customers will see an increase to their bill next year, even if they use very little water. And maybe I'm too small, but if you look at the far left side of that orange line, a customer who uses no water next year, theoretically, would still see a $13.70 increase to their monthly bill because of those fixed charges. All other parts of a customer bill are related to water use or for sewer, winter water use. Generally, these parts of the customer's bill will increase in proportion to water volume demand. You'll notice that the rate of increase tends to slow down around 5.5 CCFs. And that's because customer sewer charges are tied to winter water use and not total use. So as a result, water use in excess of about that 5.5 CCFs of use tends to reflect outdoor water use. And so it doesn't show up on the sewer bill in terms of flow charges. Big picture, this is 95% of our residential bills on screen. The typical bill impact will range from $13.70 per month on the left side to around $32 per month on the right side for a customer who's using 20 CCFs a month. Once again, that's at the 95th percentile of water use in the city of Bellevue. The typical or average bill, as we showed in previous slides, will be about $22.38 next year. The middle 80% of bills will range somewhere between $17 and $23 per month. So 80% of our customers use about that water. And so the range of variation for 80% of our customers will be $17 to $23 a month.

This represents residential and commercial. It's everything.

Just single family residential. Questions here? I'm almost done, I promise. And I thank you for staying tonight. Okay.

Mac, can you just clarify for winter water use, what is the time period?

Bills between November and June. We bill bi-monthly. So, for example, customers' water use in April may not show up until the June bill. And that's why it's when people hear June, like, that's not winter. It's because we have a bi-monthly billing cycle. Water use in April typically won't even show up on a customer's bill until June.

Questions about what's going on in those homes all the way to the right, but you probably can't answer that.

Every one of them has a story.

I'm sorry. I was going to ask, what single family home is using 20 CCFs a month?

Irrigation. Okay.

So finally, just as a recap for benchmarking, I wanted to provide this slide. This is where Bellevue stands today in 2026, and then where we would stand in 2027 in the far right, emphasizing that With exception to Seattle, I'm sorry, with exception to none of these cities, all of them are served by King County wastewater. They will all be seeing the same pressure. And every one of these, except for Renton and Seattle and Mercer Island, receive their water from Cascade Water Alliance, some level of water from Cascade. And so similar rate drivers. I do want to point out that folks look at these charts and say, well, Bellevue is pretty high. One of the main reasons for Bellevue being high is we stand, I would say, stand alone in a good way. We reinvest in our capital infrastructure far beyond any one of these cities on screen. I can go into the financial metrics that we use to evaluate capital solvency. We stand alone in a good way. And the way that I've explained it is many of these cities are investing every year into their assets what they paid for them 30 years ago or 50 years ago. That is not a sustainable rate strategy. You're hoping for free money or low-cost money. For every dollar of depreciation that we incur, we plan for $4 for the replacement costs, which sounds like a lot. 3% per year over 50 years is about four times the cost. So it's prudent financial planning. It's thinking ahead. This type of financial planning will result in less rate spikes, more predictable rates in the future. Even though it looks on screen that somehow our rates are higher, they're not needlessly higher. We are being strategic and thoughtful in capital investment.

I completely defend you in that. You know, I think that's one of the challenges with this, with these benchmarking slides to say they don't care, they don't in themselves carry the top track and narratives, but I think you're exactly on the right path in how you're thinking about the comparison here.

That'd be possible to like drill down a little bit on comparison to other cities. Yeah, absolutely. Or pick maybe Redmond and Kirkland, for example. I think that would just be interesting to see.

Yeah, we can provide that. This is information that's, the good thing about being in a public agency is we're all required to produce an annual financial report. And so the information is all standardized. But for example, Bellevue 2024, our net operating cashflow. So after paying for all of our operating expenses, what do we have left over? If you compare that number to our annual depreciation expense, we're four to one. Every dollar of depreciation, we have enough cash flow to pay for $4. Just some examples here. I won't give the names right now, but the highest of those cities on screen right now is about $2. Once again, it sounds like it's a lot. A dollar 50 years ago is worth $4 today.

We're not shaming other municipalities. We're just saying we have a different approach. So, you know, I don't think there's any downside just to highlighting that, that our approach is different. We think it's the appropriate approach, but to see that would be interesting.

Hey, Matt, is it also related to what I learned yesterday What we do here relative to debt, our approach to debt is that we don't have debt in our utilities. And what I've seen with other utilities is they do have debt. And so that can tend to spread the costs of capital, you know, across 20, 30 years versus having, you know, and lowering the rates. So I don't know to what extent some of these other folks are more highly leveraged.

Yeah, so operating cash flow, right, you can either use it to reinvest in your system, or you can use it to pay interest expense, or a combination of both. In Bellevue, we use all of it for capital reinvestment. Other cities on this list and across the country have to set aside a portion of that operating cash flow every year to pay for, in some cases, a lot of interest expense. It's not supporting the asset being replaced, it's supporting the cost of money.

But it's spreading the load on the funds that you get across 20 years or 30 years.

Yes, that's a great, great point. When we do a proactive planning like this, we're able to spread the cost over the life of the asset, which is generally 50 to 80 years. If you go out to get a revenue bond... 30 years is probably the highest. And so you're compressing that repayment over a much shorter period. And also you have to plan for reinvesting for the next 50 years in order to replace it. And so it puts a double obligation on your next generation when you go out for debt. Thank you for your patience. I'm gonna pass the baton off to Scott, who will close up for us.

Okay, thank you, Matt. So in conclusion, the budget proposals for the next biennium include the anticipated cost increases for wholesale water supply and sewer treatment services, state and local taxes, and indirect support from other city departments. And collectively, these expenses comprise about 50% of the proposed budget. About a third of the budget is for capital investments as we've been talking about and that takes care of our system infrastructure, the remaining 15% of the proposed budget pays for local operations, including maintenance engineering department management and customer service and outreach. Request for additional budget within local operations focus is focused on sustaining services at existing levels and implementing the expansion of the utility bill assistance program consistent with the Commission's recommendations. And that does conclude our review for this evening. Again, we're happy to answer any additional questions that the commission has on our budget and rates recommendation or your budget and rates recommendation for the city manager.

All right. Thank you.

Thank you.

All right. We finished our one item tonight. Good job. Joe, would you like to review the commission calendar, please?

Yes. I'm just pulling it up now. So thank you for that presentation. It's fantastic. July, tonight at ESC, we just covered that. And we get August, a well-deserved month off. So thank you, everyone, for the work you've been doing so far this year. Then we'll come back in September. for the budget rates update and a public hearing on the third, and then your recommendation to council on the budget. And I left, we have some slots to fill in the fall. We're looking at solid waste in November, but I think we'll probably be coming back in October with something on the system planning. when you're done with the calendar. We have one item to go back to. Something to go back on. All right. And then real quick in July, as you already know, Cascade's coming to council on the budget and rates proposal and Cascade's supply program. And then what you worked on two meetings ago, I believe it was, connection charges is going with your recommendation to council. Commissioner Watt will be at that meeting tomorrow. to present your recommendations. I will leave it at that. You can read ahead. And then we have one more quick topic to cover. Turn it back to Scott.

Yeah, and I apologize. I should have clarified with that last action slide that staff is seeking the commission's recommendation to the city manager regarding the utilities 2027 to 2028 operating budget, 2027 to 2032 CIP budget, and 2027 to 2028 rates. So that is something that actually needs to be voted on in terms of a recommendation.

I see. All right. So then can you go back?

minor, minor bits of that minor detail.

I suppose we, we, we, we voted on the alternative versus the proposed. We did not vote on your ultimate recommendation that you need to make to the city manager. So let's go ahead and do that before we wrap up. So, uh, with everything that's been presented may have a motion for this recommendation.

I move to recommend the 2728 budget 27 to 32 CIP budget and 27 to 28 rates as amended earlier.

I second.

Thank you sure Tyson so. Does any commissioner want to ask any questions before you take a vote on this motion.

This is a surprise. So this is with or without the changes to CIP? With the changes, right?

With.

So this would be the lower CIP spend?

Yes. Yes, Matt, go ahead.

It's for clarification. It's on a lower CIP spend. It's just, it's a change in funding strategy for the CIP. So we'll still execute the same capital investment program, but we're using less reserve, more reserves and less operating transfer to fund it.

Correct. It's the alternative we just voted on. Correct.

This is with option two?

Yes. Correct.

Got it. Thank you.

All right. Okay, then if we don't have any more questions, let's take a vote on this motion. Commissioner Letterman? Aye. Commissioner Hainash?

Aye.

Commissioner Margolis?

Aye.

Commissioner Tyson?

Aye.

And Commissioner DuPertis? Nay. Nay, thank you. And I vote yay as well. So it is a five yays and one nay. And the motion is approved. Thank you very much, everyone. Joe, anything else? No? Commissioner Nuenhaus. Council Member Nuenhaus.

Exactly. No, thanks for the great conversation this evening. Two things. One, it was mentioned on your calendar there about the Cascade Water Alliance presentation to the city council. This one, I encourage you to watch that. Second, there is a great ribbon cutting on July 15th at 1230 for the Horizon View Reservoir, right? Okay. Yeah. So if you're able to sneak out for lunch and take part in that, we'd love to see you there. I'll be there as well. So thank you.

Thank you for that reminder, Council Member Newenhouse. All right. With that, it is 8 o'clock. May I have a motion to adjourn?

Move to adjourn.

And a second?

Second.

Thank you, Commissioner Margolis. We are adjourned at 8 p.m. Thank you. Thank you, Commissioner DePertis, for joining online.