Chico advances 180% sewer rate hike to fund $135 million capital plan amid regulatory pressures

Chico advances 180% sewer rate hike to fund $135 million capital plan amid regulatory pressuresDriven by decades of deferred maintenance and a $48 million state mandate to line wastewater treatment ponds, the Chico City Council voted 4-3 to initiate the Proposition 218 process for a five-year sewer rate adjustment.

The council approved 'Option 1', setting a maximum 180% rate increase to rescue the city's heavily underfinanced Sewer Enterprise Fund.

The utility faces $135 million in capital needs over five years, including $65 million in unfunded state regulatory mandates under the Clean Water Act.

A controversial $48 million project to line wastewater ponds with concrete is pending heavy metal testing results, which could potentially reduce the final project scope and cost.

Despite pushback over affordability for local businesses and residents, staff warned that delaying the rate increase would compress the collection period and ultimately cost ratepayers more.

The city will pursue low-interest loans, such as the State Revolving Fund, to debt-finance the regulatory-driven infrastructure projects.

The Chico City Council advanced a sweeping five-year sewer rate adjustment on March 17, 2026, narrowly approving a maximum 180% rate increase to stabilize the city's underfinanced Sewer Enterprise Fund. The 4-3 vote initiates the Proposition 218 public notice process, with the new rates projected to take effect in August. The rate shock is the culmination of decades of deferred maintenance and artificially low user fees. Vice Mayor Bennett noted that for the past 20 years, rates failed to keep pace with operational expenses. "We are here because we should have done something better 20 years ago," Bennett said. "We can't keep going in this direction." According to Public Works Engineering Deputy Director David Kehn, the utility faces $135 million in capital spending over the next five years. Of this total, $65 million is driven by unfunded state regulatory mandates associated with the Clean Water Act. The largest single expenditure is an estimated $48 million requirement to line wastewater ponds with concrete due to heavy metal concerns. The pond lining mandate became the central point of contention during the meeting. Councilmember Van Overbeck introduced a motion to delay the rate increase until the city receives the results of pending heavy metal tests, arguing that the final regulatory requirement could swing by $25 million. "Committing to the $48 million before we know we need to do it strikes me as premature," Van Overbeck stated. However, staff clarified that waiting for test results would delay implementation until December, forcing steeper rate hikes compressed into a shorter timeframe to meet the utility's revenue requirements. Kehn noted that the city is in active discussions with the Regional Water Quality Control Board. While a reduced project scope is possible, the Proposition 218 process only sets a maximum rate ceiling; rates can be lowered before final adoption if project costs decrease. Following this clarification, Councilmember Hawley introduced a substitute motion to immediately approve "Option 1," which passed with support from Councilmembers Goldstein, Winslow, and Vice Mayor Bennett. Mayor Reynolds, Councilmember O'Brien, and Councilmember Van Overbeck dissented. The steep increase drew significant concern regarding affordability. Mayor Reynolds highlighted the severe impact on downtown restaurants, noting that some businesses could see their monthly utility bills jump from $600 to $2,000. Representatives from the local real estate association also urged a phased approach, warning that rapid cost increases would flow directly through to renters and prospective homeowners. While some public commenters suggested shifting more of the financial burden to significant industrial users, Kehn confirmed that industrial dischargers are already heavily regulated and monitored monthly. Restaurants currently pay three to five times more per equivalent dwelling unit than residential customers, and one industrial user already pays in excess of $300,000 annually into the system. To help offset the capital burden, the city plans to pursue debt financing for the regulatory-driven projects. Because grant funding is highly limited for utilities in Chico's position, staff will target low-interest loans through the State Revolving Fund or the California Infrastructure and Economic Development Bank (IBank), modeling an estimated 4% to 4.5% interest rate.