TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Bruce Moe, Finance Director
Steve S. Charelian, Revenue Services Manager
SUBJECT:Title
Adoption of Fiscal Year 2016-17 Through Fiscal Year 2018-2019 Citywide Cost Recovery Fees (Finance Director Moe).
a) CONDUCT PUBLIC HEARING
b) ADOPT RESOLUTION NO. 16-0037
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Recommended Action
RECOMMENDATION:
Staff recommends that City Council conduct a public hearing and adopt Resolution No. 16-0037 approving the fiscal year 2016-17 through 2018-19 Citywide Cost Recovery Fees.
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FISCAL IMPLICATIONS:
Under current City cost recovery policies, staff estimates the updated rates will result in approximately $60,000-$550,000 of additional revenue. The amount of increased revenue is over a three year period: fiscal years 2016-17 through 2018-19.
It is important to note that the proposed fees represent the cost 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 Funds will subsidize the activity. Subsidies for services will reduce General Fund surpluses and correspondingly the Fund’s ability to support activities such as long term capital improvements and pension stabilization efforts, as well as continued subsidies of the Storm Water and Street Lighting activities.
BACKGROUND:
Note: This item was originally scheduled as a public hearing for the June 21, 2016 City Council meeting. At that time, Council requested that the item come back for further study and review prior to conducting the public hearing. The public hearing was rescheduled and noticed for July 19, 2016. The cost recovery fees were reviewed at the July 5, 2016 City Council meeting.
The City conducted its last comprehensive cost allocation plan (CAP) and user fee study in 2015, which identified the 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 2015 study was 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.” The City conducts a comprehensive CAP and user fee study every four years as a municipal agency best practice.
A “personal choice” service is defined as a service where the customer is identifiable and the service is measurable. Examples of “personal choice” services include: building permits, block party permits, fire permits, alarm permits, and building plan checks. With limited ability to raise revenues, it is becoming increasingly important that the City fully recover its costs for services provided, where appropriate.
A “user fee” is a charge for service provided by a governmental agency to the public. Several laws such as Propositions 4, 13, 26 and 218 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 (any excess is then considered a tax subject to voter approval). Local governments have broad authority to implement user fees that reasonably recover the costs of their operations.
In July of 2014, the City contracted with the Matrix Consulting Group to update the Cost Allocation Plan (CAP) and conduct a Citywide User Fee Study (the City typically performs this review every 3-4 years) . The resulting fees were adopted by City Council in April 2015. During the adoption process, City Council referenced the new Memoranda of Understanding (MOU) for various labor groups that were under negotiations, and suggested that at the completion of the MOUs staff update cost recovery fees to include the adjustments to the new fully burdened hourly rates. In January 2016 the first year of the MOU adjustments were initiated. The adjustments for all the bargaining units during fiscal year 2016-17 through FY 2018-19 range from 2.0% to 3.75%. Staff is now presenting the updated user fees that include the MOUs which are effective from FY 2015-2016 through FY 2018-2019.
The Finance Subcommittee reviewed the proposed update of the Citywide cost recovery fees at their June 16, 2016 meeting.
DISCUSSION:
In March 2016 staff contracted with the Matrix Consulting Group to update user fees to incorporate scheduled personnel costs so that the fees would more fully reflect the full cost of providing services. Additionally, subsequent to adoption of the fees in 2015, staff identified under-recovery of plan check and some building permit fees with valuation points over $300,000. As a result, during the Matrix update, staff requested a thorough review of the current Planning and Building Permit valuation tables to make certain all valuation points were recovering accurately. Staff provided Matrix with updated time estimates, and added two additional valuation points to better reflect and recover actual costs for projects valued between $3.5 and $7.5 million, as well as projects valued at greater than $7.5 million. The updated cost recovery fee schedule indicates full cost recovery for Plan Check and Building Permits (including inspections) at the higher valuation ranges.
At the completion of the study update, Matrix Consulting delivered a results memorandum (Attachment #2) for the Citywide cost recovery fee study update. It includes a table which identifies the negotiated MOU increases relating to personnel salaries and benefits for the various labor groups. The table outlines the percentage increase by bargaining unit for three years. The project team identified the bargaining unit for each classification within the City, and applied the corresponding percentage increase to salary and benefit costs to develop the corresponding fully burdened rates. Additionally, there is an updated cost recovery projection table for all services provided. The table is in attachment #2 which outlines the projected cost recovery by division and department based on MOU increases, time estimates and updated workload statistics.
Cost recovery fees are rounded to the nearest dollar. For example, if a permit cost is $40.00 and the increase is 2% the total cost would be $40.80 rounded to $41.00. This is considered standard practice when updating a municipal agency’s fee studies where a cost allocation plan was not concurrently updated to reflect overhead.
This update does not include any changes to the cost allocation plan adopted in 2015. The MOU increases were applied based on staffing assumption levels in FY 2014-15 and as such if certain positions transitioned from part-time to full-time or to different classifications, the relevant departmental and citywide overhead was not applied to those positions; in some cases these factors produced a base fee that may not have increased significantly.
During the 2015 study, specific fees were set by Council policy, State Law or by agreement and will not be adjusted by the MOU updates. Those fees are identified on the cost recovery fee schedules that reflect fees which the City Council has chosen to subsidize by policy. Other fees, variable service deposits, market driven rentals and fines include fees which are set and regulated by State Law, Agreement and Government Code/Statute or by the Courts will also not be adjusted.
PUBLIC OUTREACH/INTEREST:
On June 6, 2016 and June, 27 2016, the City notified the Building Industry Association of Southern California (BIA), The Gas Company and Southern California Edison (SCE) of the proposed fee adjustments to comply with California Government Code Section 66016. The Downtown Business Improvement District (BID), North Manhattan Beach BID and the MB Chamber of Commerce were all notified. In addition, staff emailed notification to over 250 Community Development members such as, contractors, builders, sub-contractors, architects etc.
This public hearing was properly noticed in the July 7, 2016 edition of the Beach Reporter.
LEGAL REVIEW
The City Attorney has reviewed the proposed adjustments, and the City has fully complied with all applicable state law requirements in noticing the proposed adjustments and, if approved, adjusting the fees. The City Attorney has reviewed and approved as to form Resolution No. 16-0037.
Attachments:
1. Resolution No. 16-0037
2. Citywide Cost Recovery Fee Study Update Results Memorandum (Matrix Consulting)
3. Fiscal Years 2017-2019 Cost Recovery Fee Schedule (Attachment A)