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Report regarding a resolution approving changes to the Master Fee Schedule for Fiscal Year 2017-18 for fees for services for the City of South San Francisco. (Richard Lee, Director of Finance)
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RECOMMENDATION
Recommendation
It is recommended that the City Council adopt a resolution approving changes to the Master Fee Schedule for Fiscal Year 2017-18 for fees for services for the City of South San Francisco.
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BACKGROUND
Consistent with Proposition 218 and Proposition 26, the City has the authority to set its user fees at a rate which reflects the reasonable cost to provide the regulatory act or service. In this way, the requester of the service is paying for the cost of providing the service, and not the general public.
The City should, as a good business practice, periodically examine the actual cost to provide a service and then adjust fees accordingly, either up or down. The Fiscal Year 2016-17 Adopted Budget includes a budget appropriation to have a comprehensive review of the City’s fees. This fee setting process is supported by a fee study, which serves to:
1. Calculate fees in compliance with federal guidelines;
2. Ensure a reasonable cost to provide services; and
3. Set fees up to a rate that recovers the City’s cost to provide the service.
Staff solicited proposals from three qualified firms and selected NBS Government Finance Group (NBS), based on their qualifications, experience and proposed cost. NBS has a staff of over 35 consultants and engineers that have extensive experience in the fields of finance, management, engineering, and local governance and combine their knowledge to produce a synergy that results in maximum success and minimum risk. NBS has completed numerous fee studies for local government agencies, including the City of San Carlos, Sacramento Metropolitan Fire District, and the San Francisco Municipal Transportation Agency,
Prior to conducting the fee study and rate setting, NBS completed a Cost Allocation Plan (CAP), which ultimately determined a Productive Hourly Rate (PHR) for all staff members that provide a direct service to members of the public. The PHR was calculated using the process dictated by guidelines contained within the Office of Management and Budget Circular A-87, outlined below:
1. Determined which departments provide indirect services - these typically include City Council, City Clerk, City Manager, Human Resources, and other city administrative departments;
2. Calculated the reasonably hourly rate for staff members within the indirect service departments - the indirect service hourly rate included salary, incentives and the cost of all benefits;
3. Reviewed all other costs incurred by indirect departments and determined which were eligible to be included in the cost allocation plan; and
4. Identified an appropriate basis to allocate all eligible indirect department costs to those departments that provide direct services to members of the public - those direct service departments typically include the Police, Fire, Library, Parks and Recreation and Public Works Departments. Indirect costs can be allocated to direct services in a number of different ways. The City’s CAP primarily used the following allocation methods:
a. Building occupancy by department;
b. Net expenses per fund/department; and
c. Full time equivalent (FTE) count by fund/department.
In order to determine appropriate cost allocations, NBS conducted extensive interviews with staff from each department that provide direct services over the past three months. Through the interview process, NBS was able to determine the amount of time, on average, that staff spends on each service listed on the City’s Master Fee Schedule.
Proposed Fee Changes
Following completion of the information gathering phase, NBS’ calculations determined the City’s current cost recovery rate, as well as the potential full cost recovery rate. Staff recommends that certain fees recover costs at a rate less than full cost recovery, primarily for affordability and market purposes. A detailed breakdown of each fee is included in Attachment 1, which shows the current fee, actual cost in today’s dollars, and the proposed fee for consideration. The analysis is color coded to highlight fees where the cost recovery rate is less than 90 percent in green. Fees that are increasing by a factor of more than 200 percent are highlighted orange.
Overall, South San Francisco is under charging on its fees by $8.3 million. This means there are $8.3 million worth of services being provided at the expense of other funds, namely the General Fund.
Discussing all fees individually in this staff report is not feasible. However, below is a discussion of the proposed fee changes with the most projected annual impact:
Economic and Community Development Department - Planning
Conditional Use Permit - Increase fee from $650 to $3,273
The current fee for a residential or civic conditional use permit is $650. Based on the results of the fee study, the recommended fee level (and full cost recovery rate) is $3,273; an increase of $2,623. Based on the average number of times the City issues a conditional use permit per year (estimated volume of activity), the change in rate would generate an additional $62,953 in annual revenue.
Zoning Text Amendment - Increase fee from $2,000 to $8,155
The current fee for zoning text amendment services is $2,000. Based on the results of the fee study, the recommended fee level (and full cost recovery rate) is $8,155; an increase of $6,155. Based on the average number of times the City provides zoning text amendment services per year (estimated volume of activity), the change in rate would generate an additional $92,323 in annual revenue.
Design Review - Commercial and Industrial - Increase fee from $700 to $2,458
The current fee for design review services of a commercial or industrial development is $700. Based on the results of the fee study, the recommended fee level (and full cost recovery rate) is $2,458; an increase of $1,758. Based on the average number of times the City provides this service per year (estimated volume of activity), the change in rate would generate an additional $117,756 in annual revenue.
Economic and Community Development Department - Building
Building Inspection - Increase from $6,217 to $23,273
The current fee for building inspection services on permits valued between $10 million and $25 million is $6,217. The fee study recommends a fee of $23,273. Based on the average number of times the City provides building inspection services within this valuation tier, the change in rate would generate an additional $289,962 in annual revenue.
Building Plan Checking - Increase from $4,586 to $23,273
The current fee for building plan checking services for permits valued between $10 million to $25 million is $4,586. Based on the results of the fee study, the recommended fee level (and full cost recovery rate) is $23,273; an increase of $18,687. Based on the average number of times the City provides building plan checking services per year within this valuation tier (estimated volume of activity), the change in rate would generate an additional $186,873 in annual revenue.
Police Department
New Fee for Ammunition Storage Administration - $135
Pursuant to California Penal Code (PC) Section 33880, cities or counties may impose a charge equal to its administrative costs related to the seizure, storage, impounding or release of ammunition. Based on the anticipated time increment and Police Department staff required to provide the service, the full cost recovery rate was calculated to be $135. Further, staff anticipates that this service fee will generate over $70,000 per year.
Fire Department
Fire and Life Safety - Plan Check - Increase fee from $2,243 to $10,630
Fire and life safety plan check service fees are recommended to increase from $2,243 to $10,630 for permits valued between $1,000,001 and $3,000,000 based on the results of the fee study. Based on the average number of times City staff provides this service per year (estimated volume of activity), the change in rate would generate an additional $478,037 in annual revenue.
Public Works Department
Improvement Plan Check - Increase fee from $300 to $575
The current fee for improvement plan check services is $300. Based on the results of the fee study, the recommended fee level (and full cost recovery rate) is $575; an increase of $275. Based on the average number of times the City provides improvement plan check services per year (estimated volume of activity), the change in rate would generate an additional $100,952 in annual revenue.
Improvement Inspection - Increase fee from $200 to $431
The current fee for improvement inspection services is $200. Based on the results of the fee study, the recommended fee level (and full cost recovery rate) is $431; an increase of $231. Based on the average number of times the City provides improvement plan check services per year (estimated volume of activity), the change in rate would generate an additional $84,889 in annual revenue.
Library and Parks and Recreation
Fees for Library and Parks and Recreation were handled differently and are not part of Attachment 1. Library Department fees generate a nominal amount of revenue, and are principally set by the Peninsula Library System (PLS), a consortium of 35 public and community college libraries working together to provide innovative and cost-effective service to their users. As such, Library Department fees are consistent with those authorized by the PLS.
A fee study specific to Parks and Recreation is underway but is not yet complete. This entails examining every specific program offering individually, a lengthy process where the cost of conducting the study further may be more than the potential return given the low fees involved. This area will be the subject of further study. The study thus far, however, has evaluated cost recovery efforts in the Parks and Recreation Department on a program basis, a common fee study practice. A number of the programs returned reasonable cost recovery rates:
• Rentals/Picnics - 99 percent;
• Classes Events - 80 percent;
• Childcare - 72 percent
Fees for Parks and Recreation have not been adjusted in two years. The Consumer Price Index in the Bay Area has risen 6.5 percent as of April, 2017. To keep pace with inflation, staff proposes an increase of five percent for Parks and Recreation fees. In the meantime, the fee study will be completed over the next year, and focus on the programs that are currently below desired cost recovery rates.
Comparisons With Other Cities
An attempt was made to compare individual fees in South San Francisco with neighboring cities; however, this method proved generally unsuccessful as each city has unique names and formulas for fees and a true one-to-one comparison was not possible. Instead, NBS examined ten common service applications and compared each application against the cost of a similar application in other cities, namely, San Francisco, San Bruno, San Mateo, Redwood City, Palo Alto and Daly City. This city comparison is attached hereto as Attachment 2, and shows that in every case, South San Francisco remains at or below the average fee cost when compared with other cities.
FISCAL IMPACT
Overall, South San Francisco is under charging on its fees by $8.3 million. City Council adoption of the Master Fee Schedule as proposed will reduce the subsidy of the service cost for which the City charges fees by $4.7 million. The City will still subsidize fees by approximately $3.6 million. Staff will continue to study related service cost and return to Council next year to again review fees in hopes of further closing the gap between service cost and fee revenue.
CONCLUSION
Good business practice requires South San Francisco to periodically adjust service fees to align actual cost with the fee charged. The proposed amendments to the City’s Master Fee Schedule are consistent with Proposition 218 and Proposition 26, which authorizes the City to set its user fees at a rate which reflects the reasonable cost to provide the regulatory act or service. The methodologies used to review the costs to provide service for which the City charges fees is in compliance with federal guidelines. It is recommended the City Council accordingly adopt the FY 2017-18 Master Fee Schedule, attached to the accompanying resolution as Exhibit A.
Attachments
1. Fee Cost Analysis
2. Fee Comparison with Other Cities
3. PowerPoint Presentation