TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
Libby Bretthauer, Financial Services Manager
Emy-Rose Hanna, Revenue Services Supervisor
SUBJECT:Title
Consideration of Fee Adjustment for Long-Term Commercial Usage of Public Right-of-Way on City Property (Finance Director Charelian).
(Estimated Time: 30 Min.)
ADOPT RESOLUTION NO. 22-0106
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Recommended Action
RECOMMENDATION:
Staff recommends that the City Council consider adjusting the monthly fee for long-term commercial usage of public right-of-way on City property from $3.00 to $4.00 per square foot.
FISCAL IMPLICATIONS:
The financial impact of the proposed fee adjustment of $1.00 per square foot for long-term commercial use of public right-of-way on City property would result in an annual increase of $9,348 in General Fund revenues, as described below:
- $37,392 Estimated Annual Revenues Based on Proposed Fees
- $28,044 Current Annual Revenues Based on Existing Fees
- $ 9,348 - Estimated Increase in Annual Revenues
BACKGROUND:
In January 2000, the City Council established monthly encroachment fees for the long-term commercial use of the public right-of-way (Manhattan Beach Municipal Code Chapter 7.36). The initial monthly fee was set at $1.00 per square foot. The monthly fee was increased in March 2015 to $3.00 per square foot during the Citywide Fee Study, and has remained unchanged for the last seven years.
This encroachment fee is administered in the same manner as other monthly recurring payments, including tenant leases for City-owned properties, rentals, and other recurring receivables, and billed as a monthly fee calculated based on square footage. The table below lists the four current businesses that have long-term encroachment permits with their square footage, current fee and proposed fee.
Business Address Sq. Ft. Current Fee Proposed Fee
Ocean View 229 13th St 270 $810/mo. $1,080/mo.
Fusion Sushi 1150 Morningside Dr. 270 $810/mo. $1,080/mo.
Uncle Bill’s 1305 Highland Ave. 195 $585/mo. $780/mo.
Summers 3770 Highland Ave. 44 $132/mo. $176/mo.
It should be noted that these long-term encroachment permits and the accompanying monthly fees are not associated with the COVID-19 pandemic response for temporary public right-of-way fees. To date, as part of the City’s COVID-19 response, more than 25 businesses continue to temporarily use public right-of-way areas (metered parking spaces and/or roadway areas) for commercial purposes.
On March 1, 2022, the City Council requested that staff explore the current market rate of fees for long-term commercial uses of the public right-of-way and conducting a survey of the fee structures used by other local coastal cities.
DISCUSSION:
Since 2000, Manhattan Beach businesses have been able to apply for an encroachment permit to utilize the public right-of-way for commercial uses. The long-term commercial use of the public right-of-way requires City Council approval. Once approved, the businesses are billed based on the following pre-existing fees:
Manhattan Beach Monthly Fee per Square Foot
$1.00 / Sq. Ft. - Effective rate in 2000 for Commercial Use of Public Property
$3.00 / Sq. Ft. - Effective rate in 2015 for Commercial Use of Public Property
Based on City Council’s direction to explore the market rate of fees, staff sought to determine the current fees assessed by other local governments for similar uses. Comparisons to other cities were difficult due to variations of the business areas including aspects such as density, topography, and the amount street area dedicated to vehicle traffic versus pedestrian walkways. The survey revealed many different variables that can influence costs, including operating hours, enclosures/barriers, on-site alcohol consumption, one-time and/or annually recurring permit fees, inspection charges and a variety of other factors that can affect the cost for businesses to operate in the public right-of-way. Based on survey responses from several cities, the monthly fees range from $1.00 to $7.05 per square foot based on different variables as demonstrated below with the examples of Hermosa Beach and Santa Monica.
In Hermosa Beach, the fees vary by location and hours from $1.00 to $5.00 per square foot. Pier Plaza locations are billed at a higher rate than other locations and costs are higher for businesses open after midnight.
In Santa Monica, the fees range from $2.12 to $7.05 per month and vary by location and whether the area is partially or fully enclosed.
Additionally, the cities of Redondo Beach, Culver City and West Hollywood have different fee structures where they charge a combination of annual fees (ranging from $12-$13 per square foot) and one-time fees (ranging from $100 - $3,000). Consequently, these other cities do not draw an equivalent comparison to Manhattan Beach.
The commercial use of the public right-of-way provides businesses the ability to expand their retail space outdoors and beyond the confines of their business, Staff explored the current market rates of commercial indoor leases within Manhattan Beach. The indoor monthly lease rates range from $6.00 to $10.00 per square foot with a median lease rate of $8.00 per square foot.
Based on the average market rate of fees for commercial use in both public and private markets, staff recommends increasing the monthly fee to $4.00 per square foot, an increase of $1.00 per square foot. As the outdoor use of commercial public space has less associated value due to the lack of tangible lease terms, intrinsic value and longevity, staff made the determination that $4.00 per square foot, 50% of the local median indoor lease rate of $8.00 per square foot, would be equitable fee rate for this use of the public right-of-way
Staff recommends the City Council approve the proposed fee adjustment for long-term commercial use of City property and set the effective date of the new fee amount for September 1, 2022.
PUBLIC OUTREACH:
Staff reached out to neighboring and similar local governments to survey the current market rate of fees. Additionally, City staff notified each of the four businesses with existing encroachment permits of the proposed increase as well as the Downtown and North Manhattan Beach Business Improvement Districts.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that there is no possibility that the activity may have a significant effect on the environment; therefore, pursuant to Section 15061(b)(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.
ATTACHMENT:
1. Resolution No. 22-0106
2. Survey on Long-Term Commercial Use of Public Right-of-Way Fee
3. PowerPoint Presentation