Pearland council backs 9.9% minimum water rate hike despite credit warnings

Pearland council backs 9.9% minimum water rate hike despite credit warningsCity council members reached a consensus for a 9.9% water and sewer rate increase for FY27, opting for the lowest allowable hike under city policy to fund major wastewater expansions while rejecting a staff-recommended 12% boost.

The 9.9% increase will add approximately $11.31 to the average monthly residential bill, keeping the utility's cash equivalent operating reserve exactly at the 15% policy minimum.

Staff had recommended a 12% hike to smooth out future rate spikes, warning that the minimum increase could trigger a "negative outlook" from bond rating agencies.

Rate pressures are largely driven by over $500 million in recent and ongoing infrastructure investments, including the $223.8 million Barry Rose Water Reclamation Facility expansion.

Pearland has successfully shifted its water supply portfolio to a 60% surface water and 40% groundwater split, utilizing its new 10 MGD surface water treatment plant to meet regional subsidence mandates.

The Pearland City Council has signaled support for a 9.9% water and sewer rate increase for fiscal year 2027, prioritizing immediate ratepayer relief over staff recommendations for a larger hike to build financial reserves. During a July 27 budget workshop, council members reviewed three rate scenarios to support the city's self-sustaining Enterprise Fund and cover significant debt from major capital projects. While utility staff recommended a 12% increase—which would have added $13.70 to an average 6,000-gallon monthly residential bill—the council formed a consensus around the 9.9% "minimum" scenario, which adds $11.31 a month. The 9.9% increase is the lowest adjustment allowable that still meets the city's financial policy of maintaining a 15% cash equivalent operating reserve. However, city staff warned that adopting the bare minimum could have financial consequences. "I would warn you that the bond rating agencies who we're talking to next week will query what our plans are," a city official noted during the meeting, adding that while the move might not immediately drive the rating down, it could result in a negative credit outlook that ultimately affects debt costs for both the utility and the general fund. Despite the warning, multiple council members voiced support for the lower rate, citing the economic pressures already facing residents. The rate adjustments are primarily driven by the need to service debt on over $500 million in recent and ongoing water and wastewater capital improvements. The city is currently in the midst of a massive transition of its wastewater collection and treatment system, moving from five aging treatment plants to three regional facilities. The centerpiece of this transition is the $223.8 million Barry Rose Water Reclamation Facility replacement and expansion. The project, currently 52% complete and scheduled for commissioning in April 2028, will increase the facility's capacity to 5 million gallons per day (MGD) and allow the city to decommission the 60-year-old Longwood Treatment Facility. Pearland also recently completed an $80.5 million expansion of the JHEC Water Reclamation Facility, boosting its capacity from 4 MGD to 6 MGD. On the drinking water side, Pearland has successfully executed a long-term strategy to reduce its reliance on groundwater. Following the recent completion of a $175.5 million, 10 MGD surface water treatment plant treating raw water from the Brazos River basin, the city's supply is now comprised of 60% surface water and 40% groundwater. This shift aligns with Gulf Coast Subsidence District mandates aimed at reducing aquifer withdrawals. To secure the long-term viability of the new plant, Pearland recently consolidated its agreements with the Gulf Coast Water Authority. The amended contract guarantees the city 10 MGD of raw water through 2056, while securing an option for an additional 10 MGD through 2044. The city is also actively pursuing up to $21 million in state grant funding to accelerate the replacement of 72 miles of aging transite water pipes, which staff identified as a leading cause of water loss and main breaks in the distribution system. If awarded, the grant funds would be used to offset future debt issuances. The FY27 proposed budget and rate changes are scheduled for formal adoption following public hearings in September.