CSO Financial Capability Assessment April 2026 — File 26-0650

Technical Memorandum To: Gina Cortese, Senior Project Manager City of Somerville From: David Hyder Katelyn Greer Project/File: City of Somerville Financial Capability Assessment Date: April 22, 2026 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary 1 Introduction A key component of the City of Somerville’s (City’s) selected combined sewer overflow (CSO) control plan is a determination of financial burden of such controls on the community. As part of the City’s Updated CSO Control Plan, the United States Environmental Protection Agency (EPA) requires a financial capability assessment (FCA). FCAs evaluate the capability of a community and its households to undertake additional water quality-related capital improvements. FCAs provide information useful in negotiating schedules to meet CSO control requirements. The FCA process completed for the City’s Amended LTCP is as follows: • Determine the Baseline affordability results for the City’s wastewater and stormwater systems • Evaluate effect of the selected CSO control plan on financial burden • Review affordability metrics when evaluating alternative plans and summarize overall financial capability for CSO control • Determine impacts on ratepayers’ bills and affordability The purpose of this section is to provide a summary FCA for the City’s residential customers as evaluated under the EPA 2024 Clean Water Act Financial Capability Assessment Guidance (herein referred to as EPA Guidance)1. Affordability of the City’s Baseline wastewater CIP and Selected CSO Control Plan was evaluated using EPA Guidance The EPA Guidance outlines two approaches that can be used to complete an FCA. To provide a comprehensive assessment, both approaches have been evaluated for the City. The EPA FCA approach utilized in the City’s Amended LTCP considers the following factors for each approach: 1 EPA. March 2024 Revision. Office of Water. Clean Water Act Financial Capability Assessment Guidance, EPA 800-B-24-001.

June 30, 2025 Gina Cortese, City of Somerville Page 2 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Alternative 1 Approach: • Residential Indicator (RI) calculated as Cost per Household (CPH) as a percentage of Median Household Income (MHI) • Financial Capability Indicators including Bond Rating and Net Debt • Socioeconomic Indicators including Unemployment and Household Income • Financial Management Indicators including Property Tax Revenues and Tax Collection Efficiency • Lowest Quintile Poverty Indicator (LQPI) Alternative 2 Approach: • Financial and Rate Models • Annual RI calculations including water rate impacts 2 Background The City’s baseline financial condition is based on its current 11-year (2025 through 2036) wastewater and stormwater system capital improvement programs (CIPs), estimated long-term capital needs beyond 2036 as well as ongoing wastewater and stormwater operations and maintenance (O&M) costs. This scenario is referred to as the Baseline. The CSO Control Plan scenarios evaluated in this analysis include additional CIP costs associated with CSO mitigation and costs associated with Somerville’s 1/43rd share of Massachusetts Water Resources Authority (MWRA) increases. The specific CSO control plan scenarios include the following: • Limited 2050 TY: Limited CSOs in the 2050 Typical Year • 2050 TY: Zero CSOs in 2025 Typical Year • 2050 5-YR: Zero CSOs in the 2050 5-Year Storm • 2050 25-YR: Zero CSOs in the 2050 25-Year Storm, and • Full Sewer Separation: Overflows resulting from Full Sewer Separation Table 2-1 CSO Control Plan Scenarios Name Description Duration Cost Current FY 2025 Dollars Baseline Existing Capital Plan2 2025 – 2050 $628,371,504 Limited 2050 TY Limited CSOs 2028 - 2045 + $171,200,000 2050 TY 2025 Typical Year 2028 - 2042 + $257,300,000 2050 5-YR 2050 5-Year Storm 2028 -2042 + $380,000,000 2050 25-YR 2050 25-Year Storm 2028 - 2042 + $530,000,000 Full Sewer Separation Full Sewer Separation 2028 - 2057 + $2,640,000,000 2 All control plans scenarios are evaluated as additions to the baseline existing capital plan

June 30, 2025 Gina Cortese, City of Somerville Page 3 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary The City maintains a practice of evaluating the financial needs of the sewer system on an annual basis. This financial planning process allows the City to evaluate the needs of the system in the near-term and long-term and adjustments to sewer rates are proposed to meet the funding needs of the system. Over the past five years the City has increased sewer rates each year, except for FY 2025, when rates were held constant. Over this period the average increase in a typical Single Family Residential (SFR) customers bill has been approximately 7%. It should be noted that in FY 2026, the City adopted a new rate structure which minimized the impact of bill adjustments for SFR customers and simplified the rate structure. To address the City’s CIP and the CSO Control Plan Scenarios presented in 2050 25-YR: Zero CSOs in the 2050 25-Year Storm, and • Full Sewer Separation: Overflows resulting from Full Sewer Separation Table 2-1, the future sewer rate increases are expected to exceed the increases that have been adopted over recent years. Table 2-2 Historical Sewer Rate Increases for Single Family Residential (SRF) Item FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 (Current) Base (5/8” Meter) $40.00 $40.00 $40.00 $40.00 $40.00 Tier 1 $8.82 $9.92 $11.26 $11.26 $12.51 Tier 2 $9.80 $11.03 $12.52 $12.52 $15.63 Tier 3 $12.51 $14.07 $15.97 $15.97 $18.76 Tier 4 $13.12 $14.76 $16.75 $16.75 N/A Tier 5 $13.58 $15.28 $17.34 $17.34 N/A Typical SFR Bill3 $666.33 $734.58 $817.59 $817.59 $851.70 Percent Change from Prior Year 10.6% 10.2% 11.3% 0.0% 4.17% 3 Somerville Socio-Economic Setting When considering financial capability and affordability, it is beneficial to understand the historical trends and current socio-economic setting of a community. Understanding the socio-economic setting for the City provides clarity on the fiscal burden facing citizens, now and into the future. The following sections include data concerning the City’s economic conditions. Dollar values representing demographic information in this section are expressed in nominal dollars for the year in which they were reported. 3 Total annual bill for the “typical” Single Family Residential (SRF) consuming 18 CCF, tri-annually.

June 30, 2025 Gina Cortese, City of Somerville Page 4 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary 3.1 Population The City’s population during the 2020 census4 was 81,045. Although the census occurs every 10 years, the US Census Bureau updates their estimates every year to get a more accurate depiction of the population. Based on the five-year average census, the City’s population has been steady from 2018 to 20235. Figure 3-1 shows the population trend in the City over the past 6 years. Figure 3-1 City of Somerville Population Trend 3.2 Cost of Housing Housing costs, particularly for renters, present a significant and growing financial challenge for many households within the City of Somerville. Of the approximately 37,600 occupied rental units in the City, more than one-quarter of renters spend over 35% of their household income on rent6. This exceeds the accepted affordability benchmark, which recommends that rent should not surpass 30% of household income7. This means that over 10,000 renter households in Somerville are experiencing a level of housing cost burden that can be classified as moderate to severe. With the City’s median household income estimated at 4 U.S. Census Bureau, Profile of General Demographic Characteristics: 2020, Table DP-1, Somerville City, PA 5 U.S. Census Bureau, City and Town Population Totals Datasets: 2020-2023. Somerville City, PA 6 U.S. Census Bureau, Selected Housing Characteristics; Table: DP04: 2023 5-Year Estimates. Somerville City, MA 7 U.S. Census Bureau. Nearly half of renter households are cost-burdened, proportions differ by race [Press release]. U.S. Department of Commerce. https://www.census.gov/newsroom/press-releases/2024/renter-households-cost-burdened-race.html

June 30, 2025 Gina Cortese, City of Somerville Page 5 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary about $127,000 in 2023, many of these renters are likely paying in excess of $3,700 in rent per month. This is more than double the national average rent of approximately $1,4508. Affordability pressures are not evenly distributed across the City. In four census tracts, more than 40% of renter households spend over 35% of their income on rent. There are 25 total census tracts in the City. Figure 3-2 presents a comparison of the percentage of households within each census tract in the City whose rent comprises 35% or more of their annual incomes. Figure 3-2 Percentage of Households with Rent More Than 35% of Incomes, by Census Tract Table 3-1 presents the number of renter-occupied households within the City by census tract. Table 3-1 Renter-occupied Households by Census Tract Census Tract Total Renter-Occupied Units No. Paying >35% of Income on Rent 3501.05 543 89 3501.06 1,232 500 3501.07 480 209 3501.08 1,813 573 3501.09 963 96 3502.01 1,327 279 3502.02 1,764 332 3503 1,517 620 3504 2,520 801 3505 833 155 8 U.S Census Bureau, (2025, September 11). The cost of homeownership continues to rise. Census.gov. https://www.census.gov/newsroom/press-releases/2025/acs-1-year-estimates.html

June 30, 2025 Gina Cortese, City of Somerville Page 6 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Census Tract Total Renter-Occupied Units No. Paying >35% of Income on Rent 3506 1,092 259 3507.01 1,619 466 3507.02 1,648 666 3508 955 185 3509 1,789 315 3510.01 2,011 690 3510.02 1,304 309 3511.01 1,607 275 3511.02 1,104 296 3512.03 2,306 650 3512.04 2,099 812 3513 2,193 452 3514.03 1,793 699 3514.04 1,607 525 3515 1,464 468 Total 37,583 10,721 3.3 Cost of Utilities The annual increase in the cost of sewer service has exceeded the growth in household incomes over the past five years. In 2023, the cost of sewer service for single-family households increased by over 21% since 2021;9 while the MHI has only increased about 16 percent10. 9 Assuming a usage of 18 CCF tri-annually for the typical single family residential customer. 10 U.S. Census Bureau, Selected Housing Characteristics; Table: S1901: 2023 5-Year Estimates. Somerville, MA

June 30, 2025 Gina Cortese, City of Somerville Page 7 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Figure 3-3 Cumulative Percent Increase in Single Family Residential Annual Sewer Bills and Median Household Income, Relative to 2021 The disparity between the increase in sewer bills and MHI is expected to increase over time (see Figure 3- 3). By 2026, sewer bills were about 36% higher in comparison to 2021; whereas, the MHI is projected to be 27% higher. As a result, utility bills are becoming a larger share of household budgets, making sewer bills a greater burden for the average single-family household in the City of Somerville. The rate increases associated with the CSO Control Plan scenarios will likely exacerbate the gap between sewer bill increases and the growth in household incomes. 4 FCA - Alternative 1 Approach The Alternative 1 approach uses residential metrics like the residential indicator (RI) and cost per household (CPH) and permittee financial capability indicators. This approach has limitations as it does not accurately reflect the impact on the ratepayers that are most economically vulnerable in a particular community due to its reliance on national averages. It also provides a snapshot in time without consideration of how financial health can vary over time for both ratepayers and the permittee. 4.1 Residential Indicator (RI) The findings presented reflect Phase 1 of the full analysis which determines the RI, or a measure of the financial impact of current and proposed wastewater management and CSO controls on residential users. EPA’s RI scoring criteria are presented in Table 4-1. If the CPH is less than 1% of the median household income (MHI), the RI is assigned a low Financial Impact score. If the CPH is between 1 and 2% of MHI, the RI is assigned a mid-range Financial Impact score. If CPH is more than 2% of MHI, the RI is assigned a

June 30, 2025 Gina Cortese, City of Somerville Page 8 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary high Financial Impact score. If a community’s RI is calculated as greater than 1%, Phase 2 analysis of six financial capability indicators is required. Table 4-1 EPA's Residential Indicator Scoring Criteria Financial Impact Cost Per Household Low Less than 1.0% of MHI Mid-Range 1.0 - 2.0% of MHI High Greater than 2.0% of MHI MHI = Median Household Income As part of the analysis, the CPH was evaluated for the wastewater system. The residential share of costs is calculated by dividing the residential flow by the total flow. CPH is determined by dividing the residential share of costs by the number of households, following EPA guidance. Flows are allocated between residential and non-residential classes based on billed flows. Table 4-2 below presents the preliminary CPH for the wastewater system for the Baseline and the CSO Control Plan scenarios.

June 30, 2025 Gina Cortese, City of Somerville Page 9 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Table 4-2 Cost per Household Determination, in Millions of 2025 USD Item Baseline Limited 2050 TY 2050 TY 2050 5-YR 2050 25-YR Full Sewer Separation Annual O&M (Excluding Depreciation) $22.6 M $22.6 M $22.6 M $22.6 M $22.6 M $22.6 M Annual Capital and Annual Debt Service11 $8.0 M $8.0 M $8.0 M $8.0 M $8.0 M $8.0 M Total Current Costs $30.6 M $30.6 M $30.6 M $30.6 M $30.6 M $30.6 M Estimated Future Annual Debt Service12 $38.6 M $49.1 M $54.4 M $61.9 M $71.1 M $200.7 M Total Projected Costs $38.6 M $49.1 M $54.4 M $61.9 M $71.1 M $200.7 M Total Costs $69.2 M $79.7 M $80.0 M $92.6 M $101.8 M $231.3 M Residential Share of Total Costs13 (%) 82.2% 82.2% 82.2% 82.2% 82.2% 82.2% Total Number of Households (No.) 35,427 35,427 35,427 35,427 35,427 35,427 Annual Cost per Household ($) $1,607 $1,851 $1,974 $2,149 $2,362 $5,370 The RI computation divides CPH, as determined in Table 4-2 above, by MHI. Table 4-3 provides the City’s MHI for 2025 adjusted based on five-year average change in Consumer Price Index (CPI) adjustment factor of 4.3%14. 11 Existing debt service and pay-go capital in FY 2025 12 Based on sewer projects identified for debt financing in the capital improvement plans 13 Based on residential flow per EPA guidance 14 Source: US Bureau of Labor Statistics: Consumer Price Index, All Urban Consumers - (CPI-U), U.S. city average, All items - CUUR0000SA0

June 30, 2025 Gina Cortese, City of Somerville Page 10 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Table 4-3 Residential Indicator Determination Item Baseline Limited 2050 TY 2050 TY 2050 5-YR 2050 25-YR Full Sewer Separation Median Household Income (2025) $138,253 $138,253 $138,253 $138,253 $138,253 $138,253 Annual Cost per Household $1,607 $1,851 $1,974 $2,149 $2,362 $5,370 Residential Indicator 1.16% 1.34% 1.43% 1.55% 1.71% 3.88% The RI for the 2025 Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR capital plans yield a medium impact score because the RIs are between 1% and 2%. Only the Full Sewer Separation capital plan yields a high impact score since the RI is higher than 2%. 4.2 Permittee Financial Capability Indicators In addition to the RI, the Alternative 1 Approach also considers the financial health of the community. There are six Permittee Financial Capability Indicators (FCIs): • Debt Indicators o Bond Ratings o Overall Net Debt as a Percent of Full Market Property Value • Socioeconomic Indicators o Unemployment Rate o MHI • Financial Management Indicators o Property Tax Revenues as a Percent of Full Market Property Value o Property Tax Revenue Collection Rate A summary of the FCIs is presented in Table 4-4. The Baseline capital plan and the CSO Control Plan scenarios have identical FCI results. EPA Guidance provides that each ‘Weak’ financial capability indicator shall be assigned a numeric value of ‘1’, ‘Mid-Range’ indicators are assigned ‘2’, and ‘Strong’ indicators are assigned ‘3’. Somerville scored a ‘2’ on two indicators and a ‘3’ on four of the indicators. The arithmetic average of the six indicators for the City of Somerville is 2.67.

June 30, 2025 Gina Cortese, City of Somerville Page 11 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Table 4-4 Summary of Financial Capability Indicators Item Sewer Value (Score) Bond rating AAA (3) Net debt percent of property value 3.2% (2) Unemployment rate compared with national average -1.0% (2) MHI compared with National Average 61.8 (3) Property tax revenue percent of property value 1.0% (3) Property tax revenue collection rate 99.0% (3) City of Somerville Financial Capability Indicator Score 2.67 Table 4-5 Financial Capability Scores Indicator Strong Mid-Range Weak Bond Rating AAA-A (S&P) or Aia-A (MIS) BBB (S&P) or Baa (MIS) BB-D (S&P) or Ba-C (MIS) Net Debt/Property Value Below 2% 2% - 5% Above 5% Unemployment Rate >1% below ±1% of >1% above National Avg. National Avg. National Avg. Median Household Income >25% above ±25% of >25% below adj. Natal MHI adj. Natal MHI adj. Natal MHI Prop. Tax/Property Value Below 2% 2% - 4% Above 4% Property Tax Collection Rate Above 98% 94% - 98% Below 94% "S&P" means Standard & Poor’s Corp. "MIS" means Moody's Investors Service Key: = City of Somerville score 4.3 Financial Capability Assessment Alternative 1 Results Combining the Phase I Residential Indicator and the Phase 2 Financial Capability Indicators for the City’s CIP scenarios indicates the financial impact of the City’s plans overall. The tables below provide the Financial Capability Matrix and results pursuant to the EPA Guidance. The Phase 1 Residential Indicator is determined to be in the “Mid-Range” category for the Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR capital plans since the scores are between 1% and 2%. The Phase 1 RI is determined to be ‘High” category for the Full Sewer Separation capital plan. The average score of the Phase 2 Permittee

June 30, 2025 Gina Cortese, City of Somerville Page 12 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Financial Capability Indicators (2.67) is above 2.5 for all scenarios. Table 4-6 shows the Phase 2 Permittee Financial Capability Indicators to be in the “Strong” category and are shaded accordingly. The intersection of the Phase 1 and Phase 2 determinations shows that the overall assessment results place the Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR capital plans in the “Low Impact” category and the Full Sewer Separation capital plan in the “Medium Impact” category, shown in Table 4-7. Table 4-6 Financial Capability Assessment Results – Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR Capital Plans Permittee Financial Capability Indicators Score (Socioeconomic, Debt, & Financial Indicators) Residential Indicator (Cost per Household as % of MHI) Low (Below 1.0%) Mid-Range (Between 1.0 and 2.0%) High (Greater than 2.0%) Weak (Below 1.5) Medium Impact High Impact High Impact Mid-Range (Between 1.5 and 2.5) Low Impact Medium Impact High Impact Strong (Above 2.5) Low Impact Low Impact Medium Impact Table 4-7 Financial Capability Assessment Results – Full Sewer Separation Capital Plan Permittee Financial Capability Indicators Score (Socioeconomic, Debt, & Financial Indicators) Residential Indicator (Cost per Household as % of MHI) Low (Below 1.0%) Mid-Range (Between 1.0 and 2.0%) High (Greater than 2.0%) Weak (Below 1.5) Medium Impact High Impact High Impact Mid-Range (Between 1.5 and 2.5) Low Impact Medium Impact High Impact Strong (Above 2.5) Low Impact Low Impact Medium Impact

June 30, 2025 Gina Cortese, City of Somerville Page 13 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary 4.4 Lowest Quintile Poverty Indicators Analysis The Lowest Quintile Poverty Indicator (LQPI) combines the lowest quintile income element with five additional poverty indicators (PIs) to establish a numeric score for poverty prevalence within the community’s service area, as compared to a national average. Equal weight is provided to the income element and the sum of the five PIs. Each of the factors in this analysis is evaluated based on the values of the community served relative to national statistics. Each of the LQPI criteria, except for trends in household growth, are evaluated using a plus or minus 25% benchmark to national values, like the methodology used to calculate the FCI. Indicator values within 25% of national average are characterized as mid-range and scored two, while indicators outside of 25% of the national average are characterized as weak or strong and scored one or three respectively. The LQPI is then calculated as the weighted average score of the six indicators. LQPI above 2.5 is characterized as low impact, LQPI between 2.5 and 1.5 is a mid-range impact, and a LQPI below 1.5 is high impact. The LQPI calculation for the City of Somerville’s residents is shown in Table 4-8 and indicates that EPA considers the City to have a low poverty prevalence. Table 4-8 Lowest Quintile Poverty Indicator Calculation Row Item Sewer LQPI1 Upper Limit of Lowest Income Quintile 1.1 Upper Limit of Lowest Income Quintile for Service Area $50,558 1.2 Upper Limit of Lowest Income Quintile for Nation $32,232 1.3 Percent Difference 56.9% 1.4 LQPI1 Score 3 1.5 LQPI1 Weight 50% LQPI2 Percentage of Population with Income Below 200% of the Federal Poverty Guidelines 2.1 Service area population for whom poverty status is determined 77,965 2.2 Service area population with income below 200% of poverty level 14,921 2.3 Percentage of population with income below 200% of poverty level 19.1% 2.4 National population for whom poverty status is determined 324,567,147 2.5 National population with income below 200% of poverty level 92,357,008 2.6 National Percentage of population with income below 200% of poverty level 28.5% 2.7 Difference in percentage -32.7% 2.8 LQPI2 Score 3 2.9 LQPI2 Weight 10% LQPI3 Percentage of Population Receiving Food Stamps / SNAP Benefits 3.1 Percentage of Service Area households receiving Food Stamps / SNAP 8.5% 3.2 Percentage of National households receiving Food Stamps / SNAP 11.8% 3.3 Difference in percentage -28.0% 3.4 LQPI3 Score 3

June 30, 2025 Gina Cortese, City of Somerville Page 14 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Row Item Sewer 3.5 LQPI3 Weight 10% LQPI4 Percentage of Vacant Households 4.1 Total Households in Service Area 37,583 4.2 Vacant Households in Service area 2,156 4.3 Percentage of Vacant Households in Service Area 5.7% 4.4 Total Households Nationally 142,332,876 4.5 Vacant Households Nationally 14,850,011 4.6 Percentage of Vacant Households Nationally 10.4% 4.7 Difference in percentage -45.0% 4.8 LQPI4 Score 3 4.9 LQPI4 Weight 10% LQPI5 Trend in Household Growth 5.1 Total Households in 2023 Census 35,427 5.2 Total households in 2018 Census 32,851 5.3 Trend 1.52% 5.4 LQPI5 Score 3 5.5 LQPI5 Weight 10% LQPI6 Percentage of Unemployed Population 16 and Over in Civilian Labor Force 6.1 Percentage of Unemployed Population in Service Area 2.3% 6.2 Percentage of Unemployed Population Nationally 3.3% 6.3 Difference in percentage -30.3% 6.4 LQPI6 Score 3 6.5 LQPI6 Weight 10% LQPI Lowest Quintile Poverty Indicator (LQPI) 3.00 Lowest Quintile Poverty Characterization Low Impact Upon completion of the Initial LQPI analysis, the LQPI score and the FCA score were combined in the Expanded FCA Matrix to provide the final FCA result. The expanded FCA scores are shown in the following tables and demonstrate a Low Impact for the Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR capital plans and a Low Impact for the Full Sewer Separation capital plan.

June 30, 2025 Gina Cortese, City of Somerville Page 15 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Table 4-9 Expanded Financial Capability Assessment Matrix for the Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR Capital Plans Financial Capability Assessment Score Lowest Quintile Poverty Indicator Score Low Impact (Above 2.5) Mid-Range (Between 1.5 and 2.5) High Impact (Below 1.5) Low Impact Low Impact Low Impact Medium Impact Mid-Range Low Impact Medium Impact High Impact High Impact Medium Impact High Impact High Impact Table 4-10 Expanded Financial Capability Assessment Matrix for the Full Sewer Separation Capital Plan Financial Capability Assessment Score Lowest Quintile Poverty Indicator Score Low Impact (Above 2.5) Mid-Range (Between 1.5 and 2.5) High Impact (Below 1.5) Low Impact Low Impact Low Impact Medium Impact Mid-Range Low Impact Medium Impact High Impact High Impact Medium Impact High Impact High Impact 5 FCA – Alternative 2 Approach The Alternative 2 approach offers a more comprehensive analysis than the Alternative 1 approach. Under the Alternative 2 approach, permittees can incorporate financial and rate models and approaches to evaluate affordability burdens on different income levels. 5.1 Financial and Rate Models Forecasts of affordability over time can be made through long-term financial planning. Rate increases used to analyze affordability over time were projected in a long-term financial plan consistent with the City’s practice of evaluating the sewer system needs on an annual basis. The sources and uses of funds are evaluated and deficits in sources of funds relative to uses yield annual rate revenue increases necessary to manage the utility and complete implementation of the City’s CIPs. Rate revenue projections consider targets and requirements such as debt service coverage ratios, and minimum fund balances. These are items omitted from EPA’s recommended CPH calculation.

June 30, 2025 Gina Cortese, City of Somerville Page 16 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Table 5-1 depicts the forecasted annual rate increase for the sewer fund for the Baseline and all the Selected CSO Control plans for the next 30 years.15 Table 5-1 Annual Sewer Rate Increase Comparison Between Asset Renewal & Improvement Baseline and Selected CSO Control Plans The CSO Control Plans rate plans are higher than the Baseline in the beginning years of the forecast due to the additional capital needs shown in Table 2-1. 15 The 2026 fiscal year for the City of Somerville is July 1, 2025, to June 30, 2026.

June 30, 2025 Gina Cortese, City of Somerville Page 17 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Figure 5-1 depicts a 30-year projection of annual single family residential sewer bills with an annual consumption of 54 CCF by capital plan scenario. Figure 5-1 30-Year Projection of Annual Single Family Residential Sewer Bills by Capital Plan Scenario The current and projected bills over the 30-year period are summarized for each alternative in Table 5-2. Table 5-2 Sewer Fund 30-Year Forecast of Single-Family Residential Bills Alternatives Current FY 2026 Annual Bill Projected FY 2055 Annual Bill Percent Change Baseline $852 $2,094 +146% Limited 2050 TY $852 $2,367 +178% $800 $1,800 $2,800 $3,800 $4,800 $5,800 $6,800 $7,800 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 FY 2033 FY 2034 FY 2035 FY 2036 FY 2037 FY 2038 FY 2039 FY 2040 FY 2041 FY 2042 FY 2043 FY 2044 FY 2045 FY 2046 FY 2047 FY 2048 FY 2049 FY 2050 FY 2051 FY 2052 FY 2053 FY 2054 FY 2055 Baseline Limited 2050 TY 2050 TY Full Sewer Separation 2050 5-YR 2050 25-YR

June 30, 2025 Gina Cortese, City of Somerville Page 18 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Alternatives Current FY 2026 Annual Bill Projected FY 2055 Annual Bill Percent Change 2050 TY $852 $2,600 +205% 2050 5-YR $852 $2,976 +249% 2050 25-YR $852 $3,109 +265% Full Sewer Separation $852 $7,409 +770% As demonstrated in the figure and table, sewer bills are expected to increase to account for revenue requirements of the annual expenditures associated with each of the capital plans. Annual expenditures for the sewer fund are assumed to be the existing sewer debt service, the new debt service associated with planned capital improvement projects, forecasted Operations and Maintenance (O&M) expenditures, cash funded capital & capital outlay (CO), the debt service associated with the CSO Control Plan scenarios, and the increase in MWRA costs associated with the CSO Control Plan scenarios. With the issuance of new debt each year to fund the costs of capital projects over the 30-year forecast period, the City would require cumulative annual rate increases to recover the revenue requirements to satisfy the debt service payments and debt service coverage ratios. Figure 5-2 presents the total projected sewer fund expenses by type and the projected SFR annual sewer bills for two scenarios: Baseline (Blue) and Limited 2050 TY (Orange). At the start of the forecast, the average annual single family wastewater bill is $85216 in FY 2026. By 2055, the annual bill is about $2,100 for the Baseline capital plan. 16 Usage is assumed to be 18 CCF tri-annually for the average single family.

June 30, 2025 Gina Cortese, City of Somerville Page 19 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Figure 5-2 Sewer Fund Projected Expenses by Type for the Baseline & Limited 2050 TY Scenarios Figure 5-3 presents the total projected sewer fund expenses by type and the projected SFR annual sewer bills for two scenarios: Baseline (Blue) and Full Sewer Separation (Green).

June 30, 2025 Gina Cortese, City of Somerville Page 20 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Figure 5-3 Sewer Fund Projected Expenses by Type for the Baseline & Full Sewer Separation Scenarios 5.2 Projection of Residential Indicator (RI) and Lowest Quintile Residential Indicator (LQRI) The City’s 2025 MHI is $138,253. The RI using the 2025 average wastewater bill is calculated to be 0.6%.17 Table 5-3 presents a 30-Year forecast of the RI for both the Baseline and all the CSO Control Plan 17 NOTE: The Residential Indicator (RI) in Alternative 1 Approach Phase 1 uses the Cost Per Household (CPH); whereas, the RI in Alternative 2 Approach uses average total residential bills.

June 30, 2025 Gina Cortese, City of Somerville Page 21 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary scenarios. For the projection of MHI, an annual increase of the 30-year average change in CPI (2.5%) is assumed.18 Table 5-3 Projected Residential Indicator Over the course of the projection, the Baseline RI is low impact. It peaks in FY 2033 at 0.91% and then decreases for the remainder of the forecast. This gradual decrease in RI is due to the Median Household 18 Source: US Bureau of Labor Statistics: Consumer Price Index, All Urban Consumers - (CPI-U), U.S. city average, All items - CUUR0000SA0

June 30, 2025 Gina Cortese, City of Somerville Page 22 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Income increasing at a faster rate than the projected Baseline sewer bills. Debt service payments are expected to retire in the outer years and the rate increase required to maintain the revenue requirements of the wastewater system does not need to be as aggressive as the early in the projection for the Baseline. For the Limited 2050 TY capital plan, in FY 2032, the capital plan RI reaches the medium impact, peaks in FY 2034 at 1.03%, and then remains a medium impact until FY 2038 where it drops back down to low impact for the rest of the forecast. The 2050 TY capital plan RI follows a similar projection as the Limited 2050 TY, but the RI remains medium impact for a longer duration from FY 2031 to FY 2047 and it peaks in FY 2034 at 1.13%. This is because the 2050 TY capital plan has more aggressive rate increases earlier in the projection that allows for lower rate increases later in the projection. Meaning that the RI higher and reaches medium impact faster than the 2050 TY capital plan but decreases at a faster rate later in the projection. The 2050 5-YR alternative RI remains medium impact for the duration of the forecast and it peaks in FY 2040 at 1.29%. Similarly to the 2050 5-YR, the 2050 25-YR alternative also RI remains medium impact for the duration of the forecast. However, every year the RI is higher for the 2050 25-YR, and it peaks in FY 2040 at 1.35%. The Full Sewer Separation capital plan has the highest RI out of all the scenarios. It is medium impact for FY2030 – 2035 and then is high impact from FY 2036 through the rest of the projection. The RI is always increasing for the Full Sewer Separation scenario because the sewer bills are increasing at a faster rate than the MHI. The Full Sewer Separation capital plan adds almost an additional $2.6 billion (in 2025 dollars) in capital projects over 28 years. To evaluate the impacts on lower income households, a forecast of the RI was calculated using the Lowest Quintile Household Income (LQHI), or the 20th percentile household income, instead of the MHI. The results are presented in Table 5-4. The LQRI projection follows the same logic as the RI projection since LQHI is assumed to increase at the same rate as the MHI. Additionally, the same rate increases are assumed. The LQHI is always less than the MHI, so the LQRI is higher than the RI in every year of the projection for every scenario.

June 30, 2025 Gina Cortese, City of Somerville Page 23 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary Table 5-4 Projected Lowest Quintile Residential Indicator 6 Summary of FCA Consistent with the extent of capital improvements needed both to maintain its wastewater system and to meet regulatory obligations, the results of the City’s FCA Alternative 1 indicate a low financial impact on its retail households for the Baseline, Limited 2050 TY, 2050 TY, 2050 5-YR, and 2050 25-YR capital plans and a low financial impact for the Full Sewer Separation capital plan. The FCA evaluated the financial impacts on the City’s residents for all capital plan scenarios. Both the snapshot of financial impact and the year-over-year rate increases needed indicate the feasible level of control for LTCP implementation and a

June 30, 2025 Gina Cortese, City of Somerville Page 24 of 24 Reference: City of Somerville Financial Capability Assessment (FCA) Update Summary typical LTCP schedule for the Limited 2050 TY, 2050 TY, 2050 5-YR, and the 2050 25-YR capital plans. However, the Full Sewer Separation scenario year-over-year rate increases demonstrated significant impact on ratepayers, suggesting the need for a longer LTCP schedule. While one alternative of the FCA demonstrates a snapshot of affordability, ratepayer impacts over time in the second alternative affect affordability year-over-year. Financial impact is affected by the cost of inflation, which historically has been 2.5% per year for the past 30 years. Costs of borrowing for projects drives the annual debt service costs. The implementation of the Amended LTCP depends on the implementation schedule approved by EPA. As a guide, EPA Guidance indicates the FCA results for the City at Low Financial Impact would follow the benchmark to maintain a normal implementation schedule. Table 6-1 EPA Schedule Recommended Implementation Schedule Benchmarks FCA Results Implementation Schedule Benchmarks Low Impact Normal Schedule Medium Impact Generally, up to 10 years Medium with Financial Alternatives Analysis Generally, up to 15 years High Impact Generally, between 15-20 years High with Financial Alternatives Analysis Generally, between 20 – 25 years