TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Henry Mitzner, Controller
Cynthia F. Mickschl, Revenue Services Manager
SUBJECT:Title
Conduct Public Hearing to Consider Adopting a Resolution Regarding the Citywide User Fee Schedule and Cost Allocation Plan (Finance Director Charelian).
a) CONDUCT PUBLIC HEARING
b) ADOPT RESOLUTION NO. 19-0107
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_________________________________________________________
Recommended Action
RECOMMENDATION:
Staff recommends that the City Council conduct a public hearing to consider adopting resolution 19-0107 regarding the Citywide User Fee Schedule and Cost Allocation Plan.
Body
FISCAL IMPLICATIONS:
Results of the current City User Fee Study and Cost Allocation Plan (CAP) indicate the City will receive an estimated $579,000 in additional revenue (cost recovery) annually using the new rates. It is important to note that the proposed fee rates represent the costs for services that are discretionary on the part of the user. To the extent the City does not fully recover its costs for these services, General Fund taxes will subsidize the activity. Tax subsidies for discretionary services reduce General Fund surpluses and correspondingly the Fund’s ability to support activities such as long-term capital improvements.
BACKGROUND:
In 2014, the City conducted its last Comprehensive Cost Allocation Plan and User Fee Study, which identified costs associated with providing each non tax-supported service, and assigned the fully burdened rate (i.e. direct labor costs as well as indirect costs) of each City position involved in delivery of those services. The purpose of the cost allocation plan is to ensure that the City includes overhead costs to determine the true cost of providing various City services, as well as indirect costs attributable to enterprise and other chargeable funds.
Over the past five years, the cost of service has increased due to increases in salaries, benefits, staffing changes, and other operational costs. The current fees charged by the City have increased incrementally based on the known Memorandum of Understanding (MOU) salary rate increases for each employee class, but did not increase with other operational costs since they were not known at the time the user fees were adopted.
In June 2018, the City contracted with Matrix Consulting Group to conduct a comprehensive Cost Allocation Plan and User Fee Study. The purpose of the study is to identify areas where tax dollars may be subsidizing “personal choice” services, and to ensure the fees charged do not exceed the cost of providing the service since any excess may be considered a tax. Under State law, public agencies are entitled to recover the costs associated with providing certain services that are considered “personal choice.”
A “personal choice” service is defined as a service where the customer is identifiable and the service is directly provided to that customer alone. Examples of “personal choice” services include: building permits, block party permits, alarm permits, and building plan checks. The fees associated with these types of services are provided directly to the customer at the request of, and for benefit to, that customer. The City fully recovers its costs, where appropriate, using the analysis provided by Matrix Consulting Group, which is derived from extensive interviews with staff to determine the true scope and cost of providing these types of services.
A “user fee” is a charge for service provided by a governmental agency to the public. Several laws such as Propositions 13, 4, 218, and 26 set parameters under which the user fees can be established and administered by local government. User fees charged by local agencies may not exceed the estimated reasonable cost of providing the service for which the fee is charged. Local governments have broad authority to implement user fees that reasonably recover the costs of their operations.
How Fees are Developed:
The primary objective of a full Cost Allocation Plan is to spread costs from central support departments, generally called “Central Service Departments,” to those departments, divisions, cost centers, and funds that receive services in support of conducting their operations. Central Services include support departments Management Services, Finance, and Human Resources. In addition, management and external support within a service department such as Community Development or Public Works are captured in the full-cost of providing a service. In doing so, an organization can both better understand its full cost of providing specific services to the community, and also generate organizational awareness regarding indirect (overhead) costs associated with operations. This plan was compiled in accordance with Generally Accepted Accounting Principles, and is also based on many of the methods of indirect cost allocation defined by the federal Office of Management and Budget’s (OMB) Title 2 Code of Federal Regulation (CFR) 200.
Determining the cost of providing services is complex. Matrix Consulting Group, recognized with over 17 years of providing financial and management analytical services to local governments, held numerous meetings with City staff to conduct interviews and confirm the actual amount of staff time spent to provide each specific service listed. They also developed schedules that identified the costs for labor benefits, overhead and materials in order to calculate a true cost of service. Cost recovery fees are designed to recover the City’s costs for providing services without a “profit.” Therefore, not all fees automatically increase; some fees may adjust lower.
The work accomplished by the Matrix Consulting Group in the analysis of the proposed fees for services involved the following steps: First, divisional staff interviews in which the project team interviewed staff to obtain a general understanding of the structure of the City’s existing fee schedule. Second, data was collected for each service, including labor time estimates and current or potential volume for each service. Concurrently, all budgeted costs and staffing levels for Fiscal Year 2019-2020 were entered into the consultant’s analytical software to produce a model for the allocation of Citywide overhead. Finally, the full cost of providing each service included in the fee schedule was established and sent to Departmental staff for a final review for reasonability.
An example of how a fee is developed is illustrated below. This sample for a “Use Permit” shows a total cost recovery fee of $8,393.38.
The total cost is based on the number of hours it takes staff to process the permit:
|
Division: |
Planning |
|
|
|
|
Category/Fee Title: |
Use Permit |
|
|
|
|
Range: |
Use Permit |
|
|
|
|
Process Step Details: |
Dept. |
Division |
Position |
Time to Complete |
Fully Burdened Rate |
Total |
|
Intake / Routing |
CD |
Current Planning |
Asst. / Assoc. Planner |
0.25 |
$ 135.82 |
$ 33.95 |
|
Intake / Routing |
CD |
Current Planning |
Admin Clerk II |
0.75 |
$ 95.10 |
$ 71.33 |
|
Review |
Fire |
Prevention |
Fire Marshal |
0.50 |
$ 279.94 |
$ 139.97 |
|
Review |
PW |
Admin |
Mgmt. Analyst |
0.25 |
$ 117.80 |
$ 29.45 |
|
Review |
CD |
Plan Check |
Plan Check Engineer |
0.50 |
$ 161.87 |
$ 80.93 |
|
Review |
PW |
Civil Engineering |
Principal Engineer |
1.50 |
$ 159.15 |
$ 238.72 |
|
Review |
PW |
Civil Engineering |
Public Works Inspector |
0.25 |
$ 109.79 |
$ 27.45 |
|
Review |
CD |
Current Planning |
Asst. / Assoc. Planner |
13.00 |
$ 135.82 |
$ 1,765.61 |
|
Resubmittal |
CD |
Current Planning |
Asst. / Assoc. Planner |
8.00 |
$ 135.82 |
$ 1,086.53 |
|
Resubmittal |
CD |
Current Planning |
Planning Mgr. |
3.00 |
$ 175.15 |
$ 525.45 |
|
Planning Commission |
CD |
Current Planning |
Admin Clerk II |
3.00 |
$ 95.10 |
$ 285.30 |
|
Planning Commission |
CD |
Current Planning |
Asst. / Assoc. Planner |
12.00 |
$ 135.82 |
$ 1,629.79 |
|
Planning Commission |
CD |
Admin |
Comm. Dev. Director |
2.00 |
$ 194.14 |
$ 388.28 |
|
Planning Commission |
CD |
Current Planning |
Planning Mgr. |
6.00 |
$ 175.15 |
$ 1,050.90 |
|
PC Follow-Up & City Council |
CD |
Current Planning |
Admin Clerk II |
4.50 |
$ 95.10 |
$ 427.95 |
|
PC Follow-Up & City Council |
CD |
Current Planning |
Asst. / Assoc. Planner |
2.50 |
$ 135.82 |
$ 339.54 |
|
PC Follow-Up & City Council |
CD |
Admin |
Comm. Dev. Director |
0.50 |
$ 194.14 |
$ 97.07 |
|
PC Follow-Up & City Council |
CD |
Current Planning |
Planning Mgr. |
1.00 |
$ 175.15 |
$ 175.15 |
|
|
|
|
FEE @ 100% COST RECOVERY |
$ 8,393.38 |
The hourly rates used for each position is “fully burdened” meaning that it includes not only the employee’s salary and benefits, but a proportionate share of operating expenses, overhead, and replacement costs for assets involved in the delivery of service. Worksheets evaluating the time and staff positions used to provide each of the services on the fee schedule have been created as support for each of the recommended fees.
DISCUSSION:
In 2006, the City Council adopted a policy to periodically review and update its user fees. To perform the most recent comprehensive cost allocation plan and user fee study, the City hired the Matrix Consulting Group. Staff provided updated salary and benefit data as well as detailed budget information to the consultants who have now provided an updated Cost Allocation Plan (Attachment) and Report of the Cost of Services (User Fee) Study (Attachment). The attached Schedule of Fees (Attachment) provides detailed information for each fee including the current fee, total cost of providing the service, net dollar change, proposed fee, any special conditions related to the fee, and estimated annual volume. The proposed fees are based on current salaries and benefits. Throughout the fee schedule, you will see indicators in the “Special Consideration” column that reference fees staff will be introducing for the first time, fees which have previously been set by City Council policy, fees set by statute, and finally those which have been charged in the past, but will be modified in structure during this study.
During the past five years, the City has seen many changes including the addition of new staff positions and modifications to our processes. For example, some processes previously only completed by the City Traffic Engineer will now be handled by the new Traffic Engineering Technician. Changes to Federal and State regulations has also impacted fees. New regulations pertaining to telecommunication infrastructure and HVAC systems have created the need for staff to spend additional time during reviews and inspections to ensure compliance with these regulations, which in turn affects fees for these services. Changes to key positions with the hiring of a new Fire Chief, Building Official, City Engineer, and Utilities Manager brought additional experience and expertise, which was essential to enhancing and restructuring some of the City’s processes. For example, there is a new fee in the Fire Department that should be highlighted: The multi-family unit annual inspection fee. There are approximately 300 apartment buildings or multi-family unit buildings within the City that require this inspection, and per the State Fire code, these types of inspections are fully recoverable by the agency that provides them.
One of the objectives of a User Fee Study is to evaluate the current fee schedule and gauge the defensibility behind the methodology we use to calculate our fees. In the area of Building Permits, it was determined that an approach based on a non-subjective factor, square footage, would be more equitable and defensible than the valuation based model in place today. While the City has utilized the valuation based method in the past, we differ from other jurisdictions because we do not simply take the value given to us by the applicant. We also calculate the square footage of the project and utilize standard industry tables to verify the reasonability of the applicant’s valuation. It is because of this that the increase or decrease between methods is not as extreme as other jurisdictions have experienced when changing from a valuation methodology to a square footage methodology.
Right-of-Way permitting was also carefully reviewed. There were many interdepartmental meetings with the primary staff members who work on these types of permits and the structure presented in this study was brought forth as the most appropriate way to charge for this service. A variety of structure was added in order to accurately reflect what types of projects are taking place in the Right-of-Way. Similarly, staff created more structure for other types of fees such as the special events application.
During the next several years the City will continue to see technology improvements. Implementation of a new permitting solution, Tyler Energov, will take place in January 2020, and over the next 12-24 months, Tyler Munis will replace the City’s current Enterprise Resource Planning (ERP) solution. In order to mitigate the cost to taxpayers for the permitting solution that is primarily used for non-tax supported services, an account will be created that will receive the technology fee revenue and be used to pay for the cost of the software purchase, maintenance and 50% of the Building Services Analyst salary that provides direct software support for the Department. The account will be funded by adding a three percent technology fee to all permits. Additionally, the Fire Department anticipates implementing a technology fee to mitigate the costs of a Fire Records Management System (RMS) software that will be utilized for the scheduling and permitting of Fire user fee permits. The calculated cost of this fee will be an additional five percent. Technology fees are a common practice among municipalities and typically range between four and 12 percent, making our rates among the lowest for this type of fee. Given that this type of fee is created for a very specific use, it can only be used for technology support services in these Departments.
The majority of changes to the current study were based on changes in processes and structure. There are a few “new” fees and the overall increase in revenue is not as substantial as in the prior study, indicating we effectively capture recoverable revenue.
At the October 24, 2019, Finance Subcommittee meeting, Matrix Consulting Group presented an overview of the Study and provided the Subcommittee with the detail surrounding the proposed fees, followed by questions and answers. The Subcommittee voted to recommend presentation of the Comprehensive Cost Allocation Plan and User Fee Study at a public hearing at the November 19th, 2019, City Council meeting. The Subcommittee also requested Staff provide options for appeals, such as only waiving the fee if the applicant wins, and no subsidies for third parties. All fees will be updated for the next three fiscal years (fiscal years 2020-2021, 2021-2022, and 2022-2023) using MOU pay rate increases that are known at this time.
If approved, fees will go into effect on December 19, 2019 (excluding Community Development related fees). All other fees not defined in the study are based on Direct Costs or Fully Burdened Rates and are executed at the discretion of the City Manager.
PUBLIC OUTREACH:
Study results were presented at a public meeting of the Manhattan Beach Finance Subcommittee held at City Hall on October 24, 2019.
On September 19, 2019, the City notified the Building Industry Association of Southern California (BIASC), The Gas Company, and Southern California Edison (SCE) of the City’s intent to modify its user fees in compliance with California Government Code Section 66016.
The public hearing was properly noticed in the November 7, 2019, and November 14, 2019, legal notices section of The Beach Reporter. Related documents were posted on the City website November 1, 2019 and made available at City Hall for in-person review.
Finally, an email was sent on November 12, 2019, to the Community Development Department email list that includes contractors and other important stakeholders.
ENVIRONMENTAL REVIEW:
The City reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and determined the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Resolution No. 19-0107
2. Fiscal Year 2020 Proposed Schedule of Fees
3. Report on the Cost of Services Study (User Fee)
4. 2019 Comprehensive Cost Allocation Plan