San Francisco unveils $12.5 billion capital plan dominated by wastewater mandates

San Francisco unveils $12.5 billion capital plan dominated by wastewater mandatesThe utility cut nearly $3.5 billion from initial proposals to manage affordability while funding a $1.5 billion nutrient reduction mandate and aging sewer renewals.

The proposed 10-year Capital Improvement Plan (CIP) totals $12.5 billion, reduced from an initial $16 billion proposal through strategic project deferrals.

Wastewater projects account for nearly half of the total capital spend, driven by the $1.5 billion Nutrient Reduction Project.

San Francisco ranks as the second most expensive city globally for construction, exacerbating cost pressures alongside regulatory mandates.

The utility expects to issue new debt roughly equivalent to its current $11 billion outstanding portfolio to finance the long-term upgrades.

The San Francisco Public Utilities Commission (SFPUC) has outlined a $12.5 billion 10-year Capital Improvement Plan (CIP) defined by massive wastewater investment needs and a strategic effort to curb rate hikes in one of the world's most expensive construction markets. During a budget hearing on January 12, 2026, staff presented a capital plan that had been rigorously trimmed from an initial proposal of nearly $16 billion. Trey Hunter, the Capital Budget Manager, noted that the initial higher figure would have required unsustainable rate hikes. Through prioritization and deferrals, the agency reduced the plan by over $3 billion while maintaining regulatory and level-of-service goals. The driving force behind the spending is the wastewater enterprise, which accounts for nearly half of the costs over the next decade. The single largest line item is the Nutrient Reduction Project, priced at $1.5 billion, which is responsive to regulatory requirements regarding discharges into the San Francisco Bay. General Manager Dennis Herrera highlighted that while parts of the water system are a century old, the oldest parts of the sewer system date back to the Gold Rush, necessitating critical maintenance alongside new investments. Budget Director Anna Duning emphasized that these costs are compounded by the local economic environment, noting that San Francisco is currently the second most expensive city in the world for construction, trailing only New York City. Additionally, the utility faces higher interest rates and inflationary pressures. To fund these projects, the SFPUC relies heavily on debt financing. Nikolai Sklarov, Capital Finance Director, stated that the agency currently has about $11 billion in outstanding debt and plans to issue a similar amount over the course of the plan. He described debt as a crucial tool for intergenerational equity, spreading the costs of assets with 30-year lifespans across the ratepayers who will use them. Despite the reduction in the capital plan, the financial outlook involves significant hikes. Projections indicate water rates could rise by 28% over the next three years, with long-term estimates suggesting average combined water and sewer bills could more than double over the next decade. However, officials noted that these increases are partially offset for residents by a projected 20-25% reduction in Clean Power SF generation rates. Consequently, the average customer receiving water, sewer, and power services from the utility is expected to see a total bill increase of approximately 3% next year, which is below projected inflation. The scale of specific projects drew scrutiny during the hearing. Public commenters, including the Vice Mayor of Millbrae, criticized the inclusion of a $366 million Millbrae Operations Center Improvement project, arguing it lacked transparency and oversight. Meanwhile, environmental advocates questioned the agency's demand projections and "design drought" assumptions, suggesting that overestimating water demand could be driving unnecessary infrastructure spending.