Water and Sewer Rate Adjustments

Cerritos City Council meeting; item 9.A: Review and consideration of proposed water rate adjustment options to support long-term fiscal sustainability.

Agenda Report | Presentation

Cerritos City Council meeting; item 9.B: Review and consideration to waive full reading of and adopt a resolution of the City Council of the City of Cerritos directing that the outstanding Enterprise Fund loan balances owed by the Water and Sewer Funds to the General Fund be written off and further directing that any future funding providing by the General Fund to the Water and/or Sewer Funds be classified as non-reimbursable subsidy.

Agenda Report

Cerritos City Council meeting; item 8A: A public hearing to review and consider adoption of a resolution to adjust water and sewer charges.

Agenda Report

Cerritos City Council meeting; item 12C: Consideration of Rate Adjustments for Residential and Commercial Accounts within the City of Cerritos Water Utility and the City of Cerritos Sewer System.

Agenda Report

The City’s water and sewer pipes and equipment are over 50 years old and need repairs or replacement. Several major projects are needed to keep the system working safely and reliably. The rate increase will pay for day-to-day operations and maintenance, system improvements, and build up reserves to protect the system in case of an emergency, as required by the City’s Reserve Policy. It will also reduce reliance on General Fund money, so that money can be used for parks, buildings, and other community projects. These changes help ensure safe, reliable, and sustainable water and sewer service for the future.

If approved, the water and sewer rates would increase in phases over a period of five years, beginning in February 2026. View a detailed breakdown of proposed water rates in the presentation to the City Council on July 28, 2025.

The proposed sewer rates are pending.

If rate increases are approved as part of Water Rate Scenario 2B, the City would carry out the following critical projects over a five-year period. Factoring inflation into the total, the estimated total cost is $22,950,000*.

• Annual Valve Replacement Program
• C-1 Well Water Treatment
• C-4 Well Water Treatment
• C-5 Water Well (NEW)
• Well Desander Replacement

The above list includes only projects deemed critical to ensuring the continued safe delivery of water and supported by the proposed rate increases under Water Rate Scenario 2B. It does not include all necessary projects.

*Project totals will be reflected in the Capital Improvement Program section of the Fiscal Year 2025-2026 Adopted Combined Financial Program and available at cerritos.gov/budget upon publication.

If sewer rate increases are approved, the City would carry out the following projects over a five-year period. Factoring inflation into the total, the estimated total cost is $4,297,110.

• Biannual Rehabilitation/Replacement of Dewatering Stations
• Biannual Rehabilitation/Replacement of Sewer Lift Stations
• Annual Sewer Main Replacement/Upgrades
• Citywide Sewer Pipe CCTV Inspection

View page 10 of the July 28 Agenda Report for more details of sewer projects.

If approved, new rates will go into effect in February 2026.

To address the Water and Sewer Enterprise Fund’s structural deficits, voters authorized 10% annual water rate increases from 2014 to 2020. By 2020, the water utility reached a break-even point for day-to-day operations but lacked any funding for capital maintenance or upgrades. No inflation (CPI) adjustments were included in the rate increases beyond 2020, which has caused revenue to again fall behind rising costs.

Since the City has not raised water rates since 2021, the water and sewer funds are now too low to cover operating costs, repairs, and needed upgrades. In October 2023, the City Council wrote off about $24.3 million in loans from the General Fund to these funds and decided that any future General Fund support would be treated as a one-time transfer, not a permanent solution. The Council also directed staff to develop rate options to address the deficits in the Water and Sewer Enterprise Funds.

Last year, the City’s budget was in a deficit, and there is not enough General Fund money to continue supporting water and sewer operations long term. The proposed rate increases will make the funds self-supporting, pay for needed projects, and build reserves to protect the system in case of an emergency, ensuring safe and reliable service for the community.

From 2014 to 2021, revenue from water rate increases was primarily used to cover the day-to-day operating costs of the water utility – and upon the full implementation of the rate increases, the water utility was in a break-even position and was able to cover day-to-day operations cost. However, the rate increases were not sufficient to fund needed infrastructure replacement or improvements and did not generate any surplus to establish a Water Fund reserve for future system needs.

Although infrastructure upgrades were originally anticipated as part of the 2014–2021 rate plan, the continued escalation of operational expenses consumed the majority of the additional revenue. As a result, the City has continued to rely heavily on General Fund reserves, not only to maintain water system infrastructure, but also to regularly subsidize annual operating costs.

Causes of this deficit fund can be traced back to 2012, when the State of California dissolved redevelopment agencies, resulting in the loss of $30M annually for Cerritos. These funds had supported major capital improvements, including water infrastructure, which allowed the City to use General Fund proceeds to support resident services – including reduced fees for water, sewer and recreation classes. The loss eliminated the City’s ability to use Redevelopment Funds to support capital infrastructure improvements and placed a significant burden on the General Fund.

No. Under California’s Proposition 218, water and sewer rate increases cannot extend beyond five years. The City Council’s approved plan spreads the increases over this maximum period to cover operating costs, fund needed projects, and build reserves, while gradually reducing reliance on the General Fund. Extending the increases beyond five years is not allowed by law.

The continued water and sewer utility deficits are not sustainable and place the City at increasing financial and operating risk. Without corrective action, both the Water and Sewer Enterprise Fund deficits will grow, reducing the City’s ability to properly maintain, repair, and replace aging infrastructure which will lead to service disruptions to residents. As revenues fall short of covering ongoing costs, the City will face deferred maintenance, rising emergency repair expenses, and greater vulnerability to system failures. Over time, this will compromise service reliability, increase health and safety risks to the community, and ultimately require more costly interventions if not addressed proactively. Furthermore, should the City continue to subsidize the Water and Sewer Enterprise Funds from the General Fund, other City services may be negatively impacted.

The rate studies look at how much it costs the City to provide safe and reliable water and sewer services. They review daily operations, long-term maintenance needs, and future projects to keep the system in good condition. The studies also make sure that rates are fair, based on actual costs, and set at a level that will cover operations, repairs, and reserves so the system stays reliable for many years. The studies will give the Cerritos City Council and the community a clear picture of what it will take to keep the water and sewer systems safe, reliable, and financially stable for the future.

The City is working with Water Resource Economics (WRE), a consulting firm with over 25 years of experience helping water and wastewater utilities set fair and accurate rates. WRE provides independent analysis to make sure rates cover costs, support system reliability, and are easy to understand. The City hired an outside firm because rate studies are technical, and using an independent expert ensures accuracy and transparency.

Proposition 218, or the "Right to Vote on Taxes Act," is a California ballot proposition approved by voters in 1996 that sets requirements for local governments regarding the imposition, increase, or extension of various taxes, assessments, and fees.

Proposition 218 aims to increase transparency and accountability in local government finance by giving voters more control over tax and fee increases and ensuring that property owners have a say in the imposition of assessments and fees related to property services. Any adjustments to the City’s water or sewer rates requires Prop 218 to be implemented.

Customers can provide feedback by attending public hearings or contacting the Public Works Department at (562) 916-1220 to share their thoughts. To formally vote against the rate increase, customers can submit a written protest. Instructions for submitting a protest will be included with the Proposition 218 Notice mailed to property owners. Each property is allowed one protest, and if a majority of affected properties submit protests, the rate increase can be stopped. This process ensures all customers have a voice in decisions affecting their utility rates.

The Water Enterprise Fund is intended to operate like a business, with user fees covering all operations and maintenance expenses. The Fund is not designed to generate profit, only to be self-sustaining. All revenues received are restricted for use on water operations and infrastructure and may not be used for any other purpose. By continually subsidizing this fund, the City’s ability to fund other priorities like public safety, street infrastructure, and community services are reduced. The City’s auditors have consistently noted that the Water Enterprise Fund’s deficit position and subsequent subsidy from the General Fund is not best practice in municipal finance; rather, the auditors have noted the Water Enterprise Fund should be self-sustained by user fees.

Staff is reviewing assistance options for eligible residents, following City Council direction on July 28, 2025. Any program will still need to be reviewed and approved by City Council before it becomes available. Once approved, it would help customers on fixed or limited incomes manage their water and sewer costs.

A Capital Improvement Program, or CIP, is a plan for building, repairing, and upgrading the City’s major facilities and infrastructure. For water and sewer, this includes projects like replacing old pipes, fixing pumps, building new water wells, and improving treatment systems. The CIP helps make sure the system stays safe, reliable, and is able to meet the community’s needs now and in the future.

The City continuously works with state and federal partners to identify grants and funding opportunities that can help offset the cost of critical infrastructure projects. While these funds can reduce the total cost of projects, they are limited and cannot fully cover the cost of operating, maintaining, and upgrading the water and sewer system. As a result, rate adjustments are still necessary to ensure the system remains safe, reliable, and financially sustainable.

Projects noted below have been identified in the Water Master Plan and will need funding in the future to complete and ensure the continued safe delivery of water to the residents of Cerritos. These projects total approximately $19,250,000.*

• Annual Water Main and Appurtenances replacement
• C-2 East and West Reservoirs – Perimeter roof handrail system
• C-2 Well Chlorine Room Modifications
• City Reservoir Refurbishment
• Well Booster Rehabilitation
• Citywide Replacement of Water Service Laterals
• Water System GIS Database Upgrade

* The initial unfunded project listing was developed prior to the Water Master Plan being completed; thus are not reflected in the Fiscal Year 2025-2026 Preliminary Combined Financial Program. These projects will be reflected in the Fiscal Year 2026-2027 Combined Financial Program.