Title
Report regarding a resolution to adopt proposed amendments to the Public Works Engineering Division section of the City of South San Francisco Master Fee Schedule for Fiscal Year 2021-2022 (Jason Hallare, Senior Civil Engineer; Matt Ruble, Principal Engineer)
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RECOMMENDATION
Recommendation
Staff recommends the City Council of South San Francisco adopt a resolution to approve amendments to the Public Works Engineering Division section of the City of South San Francisco Master Fee Schedule for Fiscal Year 2021-2022.
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BACKGROUND
Unlike general city services such as public safety, streets, and other infrastructure that benefit the entire community which are primarily supported by tax revenues, discretionary services that benefit a specific user group are typically funded in whole, or in part, by user fees. Any amount not covered by user fees is then subsidized, typically by General Fund tax dollars or other available sources. Under State law, public agencies are permitted to recover the costs associated with providing certain services considered to be a “personal choice” or “user fees.” Such services are provided to a specific customer for their singular benefit. Some examples of those services are building permits or recreation classes, which benefit the individual and not the community.
Propositions 218 and 26 amended Article XIII C of the California Constitution to place restrictions on local government’s ability to levy charges. Among the restrictions is a limitation on most user fees, prohibiting them from exceeding the reasonable cost of the service for which they are collected. The Constitution imposes other limits on other kinds of charges for local government services, use of government property, and penalties and fines, for example. While the City Council can set fees by a simple majority vote, any fee that exceeds the reasonable cost of providing the service or benefit becomes a tax, which requires approval by the electorate. In order to ensure that it is charging appropriate fees for its services, and to comply with the requirements of Propositions 218 and 26, local agencies typically perform periodic studies to assess their costs of providing services prior to increasing existing fees or adopting new fees.
On August 28, 2019, City Council adopted a resolution approving a contract with Matrix Consulting Group to conduct a comprehensive user fee analysis with the goal of identifying the actual cost of providing fee-related city services and understanding recovery levels for each fee. To determine the full cost of each user fee, extensive data was collected utilizing the FY 2019-20 budget as well as staff time estimates and service volume data.
In working with Matrix, staff examined the following as part of the fee study:
• Ensuring that fee calculations followed federal, state, and local guidelines
• Understanding the current cost to provide these services
• Establishing fees that reasonably recover the City’s cost to provide each service
The final "Report on the Cost of Services (User Fee) Study" is attached as Attachment 1 ("Study"). It provides data related to current service levels, the cost and demand for those services, and identifies the maximum fees that can be charged for those services. In addition, the Study provides the framework for assessing legal, financial, and policy issues associated with establishing those fees for service.
The methodology for calculating fees begins with time spent per unit of fee activity for each position within the division. Once time spent for a fee activity is determined, all applicable city costs are then considered in the calculation of the “full” cost of providing each service. Direct costs include inflation-adjusted FY 2019-20 budgeted salaries, benefits, and allowable expenditures. Indirect costs include departmental or division administration including management and clerical support and a proportionate share of operating expenses, overhead, and replacement costs for assets involved in the delivery of the service. Together, the cost components comprise the calculation of the total “full” cost of providing any particular service, regardless of whether a fee for that service is charged.
The results of the Study were presented to the Budget Standing Committee by staff on August 3, 2020. At the committee, there were no questions or comments on the Public Works Engineering proposed fees. Due to the ongoing economic effects of the global pandemic, the proposed fee updates were not adopted in the Master Fee Schedule for FY 2020-21. In FY 2021-22, most fees in the Master Fee Schedule were increased nominally by two percent, except for the newly adopted housing and planning fees.
Per best management practices, the costs to provide services as calculated by the Study should be adjusted yearly to match the current actual fiscal year costs. As with the previous yearly adjustments, staff is applying the Consumer Price Index for All Urban Consumers (“CPI-U”) for the San Francisco-Oakland-Hayward area based on calendar years (“CY”) December 2019 to December 2021 from the Bureau of Labor Statistics (Attachment 2), which would have normally been captured by the annual Master Fee Schedule increases. The CPI-U is calculated to be 6.2% between CY 2020 and CY 2021 and is applied to the cost of services from the Study.
DISCUSSION
The proposed Public Works Engineering fees of the Master Fee Schedule (Attachment 3) is based upon the results of the Study performed in 2019-2020 and contains a description by service of each user fee, both current and recommended fee amounts.
Currently, the Engineering Division has 19 defined and established fees. All Engineering services are provided and charged either by (1) applying the most similar fee based on current description or (2) accepting and tracking deposits from developers and then drawing down on these deposits as work on the project is completed. To make the fees more predictable to staff and the end user and to simplify the administrative process, staff recommends moving to flat rate based fees and establishing clearer defined fees. An overview of changes is provided below:
Fee Definitions
Current number of established Engineering Fees: 19
Total number of proposed Engineering Fees: 98
Overall, the City will effectively recover the costs for providing services to the community and will continue to do so after the new fees are implemented. Public Works is recommending 100% cost recovery for most engineering fees, except two fees controlled by state mandates. Engineering fees have historically been under-recovered for many of the services provided. While some of these fees appear to have risen significantly, the amounts of the proposed fees do not exceed a reasonable estimate of the costs of providing the associated services and comply with the state constitution.
Based upon the current schedule, if adopted by City Council, the fees would become effective 60 days after the date of adoption.
RECOMMENDATION
Staff recommends that the City Council adopt the proposed amendments to the Public Works Engineering Division section of the City of South San Francisco Master Fee Schedule for Fiscal Year 2021-2022. The proposed Engineering Master Fee Schedule is provided in Attachment 3.
FISCAL IMPACT
Based upon findings of the Citywide Cost Allocation Plan and User Fee Study and the City’s opting out of annual CPI adjustments, it is expected that the Engineering Division’s revenue to the City will nominally increase.
In 2021, the Engineering Division’s revenue was approximately $1,300,000. With this new Engineering fee structure, revenue is expected to increase by approximately $200,000.
RELATIONSHIP TO STRATEGIC PLAN
This effort supports the City’s strategic initiative (Priority Area 3) of ensuring fiscal stability.
CONCLUSION
The Engineering Division recommends adopting an updated fee schedule that will establish flat-rate fees for Engineering services previously tracked as deposits and provide effective cost recovery. If approved as proposed, based on the current schedule, the new Master Fee Schedule will go into effect 60 days after the date of adoption.
Attachments:
1. User Fee Study Results
2. Bureau of Labor Statistics CPI-U Table
3. FY 2021-2022 Proposed Engineering Master Fee Schedule
4. Presentation slides