1 ## City Council ## Work Session Monday, August 3, 2026, 5:30 PM ## 106 Center Street Members of the public may attend the work session either in person or by joining via Zoom either online or by telephone at: https://us02web.zoom.us/j/88526566715 Meeting ID: 885 2656 6715 --- One tap mobile ## +13052241968,,88526566715# US ## +13092053325,,88526566715# US ## AGENDA ## 1. Call to Order/Roll Call ## 2. Agenda Approval ## 3. New Business ## a) Water, Sewer, and Surface Water Rate Study Update 4. Adjournment Page 1 of 32 Item: 3.a. ## ITEM REPORT ## To: City Council ## From: Jenny Palmer, Finance Director ## Meeting Date: August 3, 2026 ## Department/Office: Finance ## Item Name: Water, Sewer, and Surface Water Rate Study Update ## Summary: Included with this memo is an updated analysis of the projected Water, Sewer, and Surface Water utility rates, as well as the future debt levy associated with planned street reconstruction projects. City staff has been working with Baker Tilly to update the City's Capital Improvement Plan based on revised project schedules and cost estimates provided by Public Works and the City Engineer. The updated projections evaluate the anticipated impacts on utility rates and the annual debt levy for the 2027–2033 planning period. Based on the revised analysis, the following rate adjustments and debt levy increases are projected: Water Utility: Rate increases of 10% are projected for 2027, 2028, and 2029, followed by 8% increases in 2030 and 2031. Sewer Utility: Rate increases of 20% are projected for 2027 and 2028, followed by an 18% increase in 2029. No additional rate increases are currently projected after 2029. Surface Water Utility: Annual rate increases of 9% are projected for each year from 2027 through 2033. Debt Levy: The debt levy is projected to increase by $180,000 annually in 2028, 2029, and 2030, decrease to $150,000 in 2031, and then decrease to $100,000 in 2032. These projections are based on the current capital improvement schedule and will continue to be reviewed annually as projects, costs, financing, and infrastructure needs evolve. ## Recommended Action: Review the rate study memo and provide staff direction on next steps. ## Budget: Page 2 of 32 ## Attachments: 1. Excelsior CIP memo for 2026-08-03 2. Excelsior CIP presentation 2026-07-30 Page 3 of 32 ## Summary Memo ## To: ## Members of Excelsior City Council ## Kristi Luger and Jenny Palmer, City of Excelsior ## From: Matt Stark, Manager Date: July 30, 2026 ## Subject: ## City Council Work Session: Impacts of Capital Planning Changes ## BACKGROUND Baker Tilly has prepared an analysis of the City’s updated capital improvement plan to identify the potential impacts that capital spending is likely to have on the City’s Water, Sewer and Surface Water Utility Funds. Consistent with our previous work, the purpose of our recommended rate adjustments is to provide each utility fund with resources sufficient to cover operating and maintenance expenses, debt service payments and capital outlays, as well as to maintain adequate cash reserves. This analysis builds on our earlier work; assumptions about operations in each utility fund have not changed, and we are not revisiting our rate recommendations for 2026 where were already adopted by the City. Our focus for this analysis is on the impacts of changes in the City’s planned capital spending. ## CHANGES TO CAPITAL PLANS We were provided with updated assumptions about future capital spending which were developed by the City in conjunction with its engineering partners. The updated capital plan included a number of significant changes, including the following: ## Deletions: • The 2026 project for water main lining on Division ($460,000) was removed. • The 2026 project for the 3 rd & Center Street STUL ($6.4 million) was removed. • The 2028 pavement management project for Area 6 ($2.4 million) was removed. • The 2030 pavement management project for Area 7 ($2.9 million) was removed. • The 2032 pavement management project for Area 11 ($3.0 million) was removed. • The 2032 Oak Street water main project ($2.0 million) was removed. ## Additions: • A 2028 pavement management project for Area 12 ($8.6 million) was added. o $5.6 million of project costs are anticipated to be paid through State funding. • A 2030 reconstruction project for Elm Place ($5.3 million) was added. • A 2032 reconstruction project for 3 rd Avenue ($4.0 million) was added. ## Changes: • Construction of a replacement Public Works building was moved from 2030 to 2031. • Many changes to the amounts and timing of smaller projects and purchases were made; these smaller changes did not have a significant effect on our projections. Page 4 of 32 ## CAPITAL SPENDING IMPACTS – WATER FUND The Water Fund is anticipated to make $2.6 million in capital outlays from its cash reserves over the next ten years, which makes for average cash outlays of $263,000 annually. Cash outlays are typically used to pay for equipment purchases, ongoing capital maintenance programs, refurbishment and rehabilitation of existing equipment, and similar expenditures. In most cases, the equipment being purchased or repaired does not have a long life cycle, and as such it would be inappropriate to pursue long-term financing for such items. In addition to its cash outlays, the Water Fund is also expected to fund some of its larger projects through long- term financing. These projects include the street projects mentioned earlier, as well as significant facilities improvements planned for 2027. Throughout our analysis, we assumed that long-term financing will carry a term of 20 years and an interest rate of 5%. The chart below shows a snapshot of the updated assumptions for the Water Fund’s capital outlays, showing the proportion of cash and debt financing each year. As would be expected, the changes to the planned capital outlays funded by the Water Fund have an impact on our financial projections. Our previous work identified that a 15% rate increase was needed to pay for the Water Fund’s activities in 2026. Using the 2026 rate increase as a starting point, we estimate that 10% rate increases will be needed in 2027, 2028 and 2029, followed by 8% increases in 2030 and 2031. These rate adjustments should provide the Water Fund with the resources required to pay debt service on the debt-financed projects listed above. In 2032 and thereafter, we anticipate that modest rate increases around 4% should be sufficient to maintain positive net income and cash reserves. The chart on the following page shows the Water Fund’s projected cash balance for the coming ten years, comparing these reserves to the minimum recommended levels over that time. The chart shows that cash reserves remain above minimum levels, given the rate recommendations described in this section. The recommended minimum cash drops in 2033 concurrent with the retirement of some of the Water Fund’s existing debt. Page 5 of 32 ## CAPITAL SPENDING IMPACTS – SEWER FUND The Sewer Fund is expected to make $2.2 million in capital outlays from its cash reserves over the next ten years, along with $3.8 million in debt-financed projects over the same period. These outlays translate into an average annual cash outlay of $220,000, with debt service payments growing to about $300,000 per year by 2032. Total outlays by year are shown in the chart below. Page 6 of 32 As was discussed in our previous reports, the Sewer Fund is starting from a difficult position. The fund has shown negative income and negative cash reserves in the past couple of years; rectifying this imbalance was the primary driver of the 25% rate increase recommended and adopted for 2026. As a result of its precarious starting position, the addition of capital expenditures to the Sewer Fund’s requirements presents an outsized challenge. To meet its operating, capital, and debt service obligations, we recommend that the Water Fund implement 20% rate increases in 2027 and 2028, with an additional increase of 18% in 2029. The revenues generated by these increases should serve to put the Sewer Fund on a sustainable financial trajectory. In 2030 and thereafter, we anticipate that no rate adjustments will be required. The chart below shows the Sewer Fund’s projected cash position if the above adjustments are made. We anticipate that it will take until 2029 to establish a positive cash balance, and another two years to bring cash reserves to the minimum recommended levels. Page 7 of 32 ## CAPITAL SPENDING IMPACTS – SURFACE WATER FUND As we observed in our previous work, the Surface Water Fund is less than half the size of the Water and Sewer funds in terms of total operating revenues and expenses. As a result, capital spending has an outsized impact on the fund. For instance, a project like the Public Works building replacement carries an annual debt service obligation of around $150,000. For the Water Fund, this amount is less than 10% of the utility’s expected revenues in 2031. For the Surface Water Fund, the 2031 revenues are expected to be less than $600,000. Adding $150,000 in new debt service expenses to this base is equivalent to a 25% increase. Looking at the ten years from 2026 to 2035, the Surface Water Fund is scheduled to spend $120,000 from its reserves and to finance nearly $4 million through long-term debt. Annual debt service on these projects is expected to grow to approximately $320,000 by 2032. This amount is very nearly the same as the fund’s total revenues in 2025. The 15% increase adopted in 2026 helps to put the fund on the right path, but significant additional increases are required to provide the resources needed for the fund’s future debt service payments. Total capital spending for the Surface Water Fund is shown below. We anticipate that 9% increases will be needed each year from 2027 through 2033 in order to provide the resources needed for the Surface Water Fund’s capital outlays. These increases are expected to keep fund balances above the minimum recommended levels. These also provide positive operating and net income over the course of the planning period, though debt service coverage may drop below 100% due to the comparative large debt service payments which come on line in 2031 and 2032. We encourage the City to work with its financial advisor ahead of these projects to address any complications arising from the projected coverage level. If additional revenues are likely to be required, it may be preferable to implement smaller additional increases at an earlier data, rather than a single large increase the year that debt is issued. The two charts on the following page show the Surface Water Fund’s projected cash balance and debt service coverage over the next ten years. Page 8 of 32 Page 9 of 32 ## CAPITAL SPENDING IMPACTS – OTHER FUNDS In addition to our analysis of capital impacts on utility funds, we also reviewed the capital spending impacts on other funds which are scheduled to participate in the City’s major projects. In the updated capital improvement plan, approximately $7.7 million in outlays is expected to come from long- term financing linked to Streets budgets. In terms of debt service requirements, these projects are expected to generate approximately $180,000 in annual debt service payments in 2029, with a similar amount added in 2031. Additional debt service of $150,000 is expected in 2032, followed by $100,000 more in 2033. In total, the annual debt service paid through Streets funding is expected to grow to approximately $620,000 in 2033 and subsequent years. Lastly, the City has scheduled $1.85 million of the Public Works building project to come from the Dock Fund. If the Dock Fund does not have this amount in reserve when the project is started, it may need to make debt service payments for its share of project costs alongside the other participating funds. ## CLOSING We trust that this analysis of capital spending impacts proves useful to the City of Excelsior at it continues its financial planning, budgeting and rate-setting processes. We look forward to discussing the analysis and answering the City’s questions about these matters at the August 3 City Council work session. Page 10 of 32 Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, are members of the global network of Baker TillyInternational Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients andare not licensed CPA firms. ## City of Excelsior ## Capital Planning Analysis and Projections ## Matt Stark August 3, 2026 Page 11 of 32 ## Capital Outlays Page 12 of 32 3 Major capital projects ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • 2027:Water Treatment Plant Upgrades$2.5 million • 2028:PMP Area 12 (local portion*) $3.2 million • 2030:Elm Place Reconstruction$5.5 million • 2031:Replace Public Works Building$9.3 million • 2032:3 rd ## Ave Reconstruction$4.2 million • 2040:Yard and Process Piping$2.4 million * PMP Area 12 is projected to receive $5.6 million in State funding. Page 13 of 32 4 Capital spending ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS Page 14 of 32 5 Capital funding assumptions ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • Funds usually don’t have reserves to cover major capital outlays. • Projections assume long term funding will be 20 years at 5% interest. • Smaller outlays for ongoing services and equipment are paid from fund reserves. Page 15 of 32 ## Capital Funding ## Impacts Page 16 of 32 7 Review of capital spending impacts ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS ## • Utility Funds: • Review rates needed to pay for updated capital investments. ## • Other Funds: • Review projects paid with non-utility funds. • Review debt service needed to fund project costs. Page 17 of 32 ## Water Fund Page 18 of 32 9 Water Fund –updated capital outlays ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS Page 19 of 32 10 Water Fund –rate adjustments ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • To pay for projects and maintain cash reserves, water rates will need to increase by 10% in 2027, 2028 and 2029. • 8% increases needed in 2030 and 2031. • Increases will put Water Fund in good position to pay for piping replacements in 2040. Page 20 of 32 ## Sewer Fund Page 21 of 32 12 Sewer Fund – updated capital outlays ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS Page 22 of 32 13 Sewer Fund – rate adjustments ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • Sewer Fund starts from a very weak position. • To pay for projects and maintain cash reserves, sewer rates will need to increase by 20% in 2027 and 2028 • 18% increase needed in 2029. • No increases projected for 2030 and after. Page 23 of 32 ## Surface ## Water Fund Page 24 of 32 15 Surface Water Fund – updated capital outlays ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS Page 25 of 32 16 Surface Water Fund – rate adjustments ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • Capital costs represent a very large share of fund revenues. • Rates will need to increase by 9% annually through 2033 to cover debt service on projects in 2030-32. Page 26 of 32 Other funding Page 27 of 32 18 Streets – updated capital outlays ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS Page 28 of 32 19 Street funding – debt service impacts ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • Projects in 2028 and 2030 each add about $180,000 in annual debt service requirements. • PW building in 2031 adds $150,000 to debt service. • 3 rd Avenue project in 2032 adds another $100,000. • Total debt service for Streets accumulates to $620,000 annually after 2033. Page 29 of 32 20 ## Dock Fund ## CITY OF EXCELSIOR – CAPITAL PLANNING ANALYSIS • Dock Fund is scheduled to contribute $1.85 million to Public Works building replacement. • If Dock Fund cannot pay from cash reserves, then debt service would be about $150,000 annually for 20 years. Page 30 of 32 ## Questions Page 31 of 32 Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. The name Baker Tilly and its associated logo is used under license from Baker Tilly International limited. The information provided here is of a general nature and is not intended to address the specific ci rcumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. © 2024 Baker Tilly Advisory Group, LP ## Matt Stark ## Manager ## P: +1 (651) 223-3043 ## E: Matt.Stark@bakertilly.com Page 32 of 32