Item No. 2
Town of Atherton
CITY COUNCIL STAFF REPORT – STUDY SESSION
TO: HONORABLE MAYOR AND CITY COUNCIL
GEORGE RODERICKS, CITY MANAGER
FROM: ROBERT BARRON III, FINANCE DIRECTOR
DATE: DECEMBER 6, 2023
SUBJECT: PRESENTATION, REVIEW AND DISCUSSION USER FEE STUDY
COST ALLOCATION, IF APPROPRIATE PROVIDE DIRECTION
ON MASTER FEE SCHEDULE
RECOMMENDATION
Presentation, review, and discussion on the User Fee Study prepared by Capital Accounting Partners. If appropriate provide directions on proposed master fee schedule.
BACKGROUND
The Town last performed a User Fee Study Cost Allocation Plan in 2013. Since then, the Town has only increased user fees by CPI index in 2020 and 2022 to reflect accumulated CPI adjustments. During those times, no changes were made to valuation-driven fees or flat fees for Building and Plan check fees. The Building Permit and Plan Check remained constant since 2013.
The Town engaged the services of Capital Accounting Partners to prepare a User Fee Study. The results of the Study will inform updates to the Town’s Master Fee Schedule and the development of new fees. The Master Fee Schedule includes all fees charged by all Town Departments. Most fees are set at full cost recovery. If the fees are not consistently updated, this will often result in a greater need for the Town’s General Fund to support private development services. The Town had planned to complete a User Fee Study in 2018; however, with the new Town Center nearing construction, the Town opted to hold off on completing the Study until after the Town Center was completed to allow a full assessment of overall overhead costs.
When imposing a fee, the Town must establish the full cost of services and cannot assess a fee that exceeds the cost of providing the service. Identifying the cost components of providing the services is important in establishing the fees and rates of cost recovery and to get to that number, a User Fee Study is required (Proposition 26).
User Fee Study
DECEMBER 6, 2023
FINDINGS
Dan Edds of Capital Accounting Partners met with individual departments to assess the full cost associated with the services provided. This included discussion with staff to understand each task provided at an operational level and identifying the tasks involved in the core business processes used to provide services. Planning and Building services, for example, entail pre-application review, application intake, plan check, and inspection. Core to the process is understanding the time estimates for direct and indirect processes for service delivery. The time estimates are assigned to each step and the sum is the total time required to provide the specific development service.
Cost Recovery of Services
The fee analyses in the User Fee Study are based on full cost recovery. Provided in the Appendices of the report is a comparison of the total assigned cost of service per fee and the actual fees being charged. The result is either a unit surcharge or (subsidy). For services provided by the Town for which fees are set below cost recovery, services are subsidized by the Town’s General Fund or other funding sources. Setting fees at full cost recovery is to recover the cost of services provided to those who receive a private/individual benefit. Most of the fees in the Master Fee schedule are for specific services where they are user fees specific to an individual or group that benefits from the use. These are often regulated activities that call for compliance with government codes and include development reviews, building permits, and encroachment permits. In this instance cost recovery is appropriate. The Town currently provides Development Services that include services from Engineering, Planning, and Building departments. These services support and regulate private Town development. They are high-demand services, and the cost recovery goal should be close to 100 percent. The requirement that private development pay 100% of the cost of development services is a policy practice for municipal government.
Agencies also adopt policies that do not charge for full cost recovery but set fees for compliance, level of demand, and the public-private benefits of the service. In reviewing the Fee Study, the City Council can identify areas for cost recovery as well as areas where the Town wishes to encourage compliance. For example, Planning service fees are typically incurred only when the applicant files a project application. There are no fees associated with discussions with planners at the public counter to discuss what is necessary for project development. The Town pays the cost of this service directly.
The Town could set fees at full cost recovery or tiers for cost recovery at low, medium, or highcost recovery. Recovery levels can be used to assist in identifying targets for cost recovery. The policy framework could look like the following based on a percentage:
• Low-Cost Recovery- (Policy Percentage 0-30%)
• Medium Cost Recovery (Policy Percentage 30-70%)
• High-Cost Recovery (70-100% development programs such as planning, building, and engineering)
User Fee Study
DECEMBER 6, 2023
Or the Town could set fees based on a Tier type benefit:
Tier Type Cost Recovery
Private Benefit Fees that will achieve 75% to 100% Cost recovery for services that primarily provide
benefit to the property owner and place
considerable time and demand on staff.
Private & Public Benefit Fees that will achieve 50% cost recovery for services that generally provide an equal benefit
to the property owner and to the community.
Public Benefit Fees that will achieve less than 50% cost recovery to encourage compliance with
Town’s codes, regulations, and policies.
Building Department
The Building Department is responsible for making sure all new construction and building alterations meet Municipal Building Codes, and State of California Building Codes. The Town maintains a professional services contract with Interwest. They have provided our building development services since 2011 and have maintained the same level of fee share. Interwest has held their rate base constant since 2013. To assess the true cost of services, the User Fee Study used the current costs for service to provide building services for plan check, inspection, and counter services.
The base building permit fee is valuation-driven and is based on a per square foot calculation. As was discussed in the Study, there are multiple options for calculating a value. The Town utilizes an established value or cost per square foot within a valuation model. This value of cost per square foot has not been adjusted since 2013.
The Use Fee Study reveals that the current Building revenue fees show a subsidy when compared to the actual cost of services. This demonstrates that based on the cost of building services, there is a shortfall of $785,465 in building fee revenue. The Study advises that the valuation-based fees must increase by 45.6% - raising the base value from $350 per square foot to $509. This amount per square foot does not represent actual construction but is only a multiplier for establishing the final fee. Based on the valuation table there will be valuation permits that are less in value. For the smaller valuation permits, it was suggested that a minimum permit fee of $168 be added as a building permit fee. This would cover the processing of a permit. There are building permits that are flat fee permits which require review and processing of plans, permits and inspections. They differ in complexity but are required to ensure the Municipal and Building codes are adhered to.
Some of these include Heritage Tree removal permits, landscape screening permit fee, mechanical, plumbing, and electrical permits. Below are Building Department samples of flat fees and comparison example if set at cost recovery of 90%.
User Fee Study
DECEMBER 6, 2023
Building Department Samples of Flat Fees
Flats Fees Total Cost Assigned 90% Cost Recovery
Swimming Pool (over 1000sf) $2,542 $2,287
Patio Covers & Gazebos (up to 1000sf) $1,563 $1,407
Non inhabitable Pool house $2,525 $2,273
Plumbing, Mechanical, Electrical $301 $271
Landscape Screening Permit Fee $654 $587
Heritage Tree Removal (First Tree) $716 $644
Planning Department
As was discussed in the report, the current costs for planning personnel are higher than the prior vendor and include increased planning support process requirements. During the Study, Capital Accounting Partners analyzed planning review processes and counter hour estimates, and these led to some updates in the fee calculations and new planning fee types. In the prior fee study, planning fees were not set to full cost recovery. They were set lower to address customer service hours provided to applicants as part of the process, to encourage compliance with Town’s Codes and regulation policies. However, over the last ten years there have been substantial changes to land use regulations, State mandated processing requirements and other new laws that have made the planning process more complex.
Revenue at current fees shows a subsidy when compared to the full cost of services. The Fee Study indicates that based on full cost of planning services, there is a subsidy of $927,753 in the planning fee revenue. The Town could elect to set Planning fees below cost recovery for compliance and counter hours; however, staff recommends that fees be set as percentage of not less than 80 percent or at a tier structure as presented above. Below are Planning fee samples of Initial Reviews.
Planning Samples of Initial Reviews
Initial Review Total Cost Assigned 80% Cost Recovery
Fence $986 $789
Accessory Structure (including pools) $1,198 $958
Accessory Buildings $1,251 $1,000
Additions $2,050 $1,640
New Construction $2,712 $2,170
As the Council reviews the report, discussion should also include policy choices related to the setting of fees. For example, Planning fees could be set at $0 for the processing of an ADU or JADU application where there is a deed-restriction; or Building permit fees can be set at $0 for solar installation. As part of the Study process, new fees were also identified related to the processing of new types of applications, such as an SB 9 application.
Engineering
The Engineering division works in tandem with the Building and Planning Departments. Their interaction stems from the protection and development of public infrastructure during the User Fee Study
DECEMBER 6, 2023
development process. This includes preserving and maintaining the public right of way, drainage improvements, storm water, protecting and maintaining the Town’s heritage trees. Most of the fee types include encroachment permits, that also include grading and drainage review, and water detention systems.
Current engineering revenue at current fees shows a subsidy when compared to the full cost of services. The Fee Study indicates that based on the full cost of services to provide engineering development services, there is a subsidy of $114,756 in engineering fee revenue. Below are some engineering fee samples of encroachment permits and comparison example if set at cost recovery of 90%.
Encroachment Total Cost Assigned 90% Cost Recovery
Class B – Two Inspections Required Driveway
connect to street
$593 $534
Class C – Three or more Inspections Requiredwith Driveway culvert$875 $788 Class C – Three or more Inspections Requiredwith Driveway connection to street$875 $788 Class D- Public Right of Way Landscaping fence
etc. - minor
$522 $470
Class D- Public Right of Way Landscaping fence
etc.-standard
$593 $534
Class D- Public Right of Way -Utility Minor $451 $406
Class D- Public Right of Way -Utility connection
in pavement
$734 $660
The Study also identified a new fee for reviewing traffic control permits on projects. The need arose due to the number of construction projects and the necessity to ensure that traffic control measures were in place in the entirety of the encroachment permit process. Staff recommends a new permit for traffic control and based on the timeline of the projects.
New Permit -Traffic Control Total Cost Assigned
Traffic Control Permit (includes plan check & first week of inspection) Base Permit
$451
Traffic Control Inspection (each additional week) $141
Traffic Control Permit (for longer term) Inspection per month) $423 Police & Park Services Fees
Police services have a limited number of fees that were updated based on cost of services. Fees for market-driven services, such as rental of public spaces (Park or Town Hall) may be set independent of a cost analysis. Park fees are not set for update. Park rentals are slowly recovering from the pandemic protocols. They are reviewed periodically and are set based on market area trends.
User Fee Study
DECEMBER 6, 2023
Comparison Study/Recommendations
Within the Study is a comparative analysis of selected fees with five benchmark cities of Los Altos Hills, Woodside, Belmont, Hillsborough, and Belvedere. These cities are similar in size and represent similar demographics. A comparison study was provided to see if fees are reasonably aligned with similar cities. There is a note of caution in comparing fees and services as they may differ in policies for fee recovery and the service levels that are provided particularly in the development departments. The Town of Atherton has one of the quickest turnarounds in the plan check reviews. Other agencies may not update their fees regularly and may offer challenges in comparisons. There were selected comparative examples within building project costs, planning reviews, and engineering permit fees. The Atherton user fees reveal we are in similar alignment with benchmark cities.
The Council may wish to have the consultant add additional comparatives for information prior to adoption of any fee adjustments. Other communities may include Menlo Park, Portola Valley, Redwood City, or Tiburon.
The Fee Study provides a comparative of the total assigned cost of service per fee and actual fees being charged. Staff is recommending user fees based on cost recovery in the master fee schedule.
This Study Session is an opportunity to clarify and answer any questions on the Fee Study. The master user fee schedules are in the Appendices of the Fee Study Report. The User Fee Study recommends updating fees through a CPI adjustment every year and conducting a thorough assessment of Town fees every 3 to 5 years.
The Council could also consider implementing fee adjustments incrementally. This would need to be done in a singular process. For example, the Council could direct an increase in fees to a set amount and direct that the increases be implemented in tranches – 50% in FY 2023/24 and 50% in FY 2024/25. Thereafter, fees could be adjusted via CPI.
POLICY ISSUES
The City Council’s policy discussion should revolve around ensuring the Town’s compliance with Proposition 26 which requires the Town’s fees to be set at or below full cost recovery.
FISCAL IMPACT
None. Any proposed fee adjustments would be incorporated into the Town’s Master Fee Schedule and would be reflected in the remainder of the FY 2023/24 anticipated revenues.
GOAL ALIGNMENT
This Report and its contents are in alignment with the following Council Policy Goals:
• Goal Area A – Maintain Fiscal Responsibility
PUBLIC NOTICE
User Fee Study
DECEMBER 6, 2023
Public notification was achieved by posting the agenda, with this agenda item being listed, at least 72 hours prior to the meeting in print and electronically. Information about the project is also disseminated via the Town’s electronic News Flash and Atherton Online. There are approximately 1,200 subscribers to the Town’s electronic News Flash publications. Subscribers include residents as well as stakeholders –to include, but be not limited to, media outlets, school districts, Menlo Park Fire Protection District, service provides (water, power, and sewer), and regional elected officials.
COMMISSION/COMMITTEE FEEDBACK/REFERRAL
This item has not been before a Town Committee or Commission
ATTACHMENTS
1. User Fee Study