AGENDA CAPTION:
Title
Consider approval of Ordinance 2026-41, on the second of two readings, amending rates for Stormwater Utility in accordance with Section 86.505 of the San Marcos City Code; including procedural provisions; and declaring an effective date.
Body
Meeting date: September 15, 2026
Department: Finance and Capital Improvements/Engineering
Amount & Source of Funding
Funds Required: N/A
Account or Project Number (C = CIP funds): N/A
Funds Available: N/A
Account Name: N/A
Fiscal Note:
Prior Council Action: Click or tap here to enter text.
City Council Strategic Initiative: [Please select from the dropdown menu below]
Stormwater
Choose an item.
Choose an item.
Comprehensive Plan Element (s): [Please select the Plan element(s) and Goal # from dropdown menu below]
N/A Arts and Culture - Choose an item.
N/A Economic Development - Choose an item.
N/A Environment & Resource Protection - Choose an item.
N/A Housing + Neighborhoods - Choose an item.
N/A Land Use + Community Design and Character - Choose an item.
N/A Parks & Public Spaces + Health, Safety & Wellness - Choose an item.
N/A Transportation - Choose an item.
N/A Core Services
N/A Not Applicable
Master Plan: [Please select the corresponding Master Plan from the dropdown menu below (if applicable)]
Choose an item.
Background Information:
During Budget Policy, Council directed staff to use an incremental rate approach for all utilities. Stormwater last increased rates in Fiscal Year 2023. At that time, Council chose not to raise rates and instead used General Fund support to pay for Stormwater capital projects.
Because inflation reached over 4% as of July 2026, Fiscal Year 2027 is an appropriate time to resume the incremental approach for this fund. In addition, due to growing pressures on the General Fund, Stormwater began covering capital costs directly - up to $5M starting in Fiscal Year 2025.
During the August budget workshop, Council asked staff to model different rate scenarios based on varying capital project sizes. Staff evaluated projects costing $10M, $17M, and $24M. To fund projects of those sizes, annual rate adjustments of 1.9%, 3.8%, and 5.8% would be needed for the next three years. These increases would result in Fiscal Year 2027 R2 - medium residential rates of $15.18, $15.47, and $15.76 per month respectively.
The City held a public hearing on September 1, 2026. At that meeting the majority of City Council requested for staff to bring back a 5.8% rate adjustment and some examples of impacts to non residential ratepayers. The City scheduled a public hearing that will be held September 15, 2026. A notice for the public hearing was published in the San Marcos Daily Record on September 9, 2026.
Impact to ratepayers of a 5.8% rate adjustment:
• R1 - Small Residential - $9.14 to $9.67 (increase of $0.53 monthly)
• R2 - Medium Residential - $14.90 to $15.76 (increase of $0.86 monthly)
• R3 - Large Residential - $21.77 to $23.03 (increase of $1.26 monthly)
• NR - Non Residential - $14.90 to $15.76 per equivalent residential unit - ERU (increase of $0.86 monthly)
Stormwater capital projects typically require several years of lead time. The Stormwater Master Plan is expected to be completed by the end of this year. Final project selection could be decided after the Master Plan is completed. For Fiscal Year 2028, the City can start the design on the top projects identified in the stormwater master plan with the goal of starting construction in 2030 on a few projects. By identifying project costs through Fiscal Year 2029, the City can sequence projects gradually and align them with a steady, predictable rate strategy. A final consideration is that other funding sources, such as General Fund, Water-Wastewater, etc., would also need capacity within the fund for other components of the project.
Council Committee, Board/Commission Action:
Click or tap here to enter text.
Alternatives:
• Approve a 1% incremental rate adjustment to prevent larger increases in the future.
• Approve the first of three 1.9% rate adjustments to fund a $10M capital project.
• Approve the first of three 3.8% rate adjustments to fund a $17M capital project.
• Approve the first of three 5.8% rate adjustments to fund a $24M capital project.
Recommendation:
City Council approve a 5.8% incremental rate adjustment for a future capital project.