CC 05-14-2024 Searchable Packet.pdf — Cupertino City Council, May 14, 2024 (part 6 of 6)

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Kirsten Squarcia, City Clerk
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Date
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Report on Cost of Services (User Fee) Study

CITY OF CUPERTINO, CALIFORNIA

FINAL REPORT
January 2024
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Table of Contents

1. Introduction and Executive Summary 1

2. Legal Framework and Policy Considerations 5

3. User Fee Study Methodology 8

4. Results Overview 10

5. General Fees 11

6. Building 17

7. Public Works Department 33

8. Planning 37

9. Parks & Recreation 41

10. Development Services Surcharges 47

11. Cost Recovery Considerations 51
Appendix – Comparative Survey 55
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1. Introduction and Executive Summary
The report, which follows, presents the results of the Cost of Services (User Fee) Study conducted by the Matrix Consulting Group for the City of Cupertino, California.

Project Background and Overview
The City of Cupertino last conducted a comprehensive fee analysis in 2016 and has since updated fees based upon annual inflationary factors (Bay Area Consumer Price Index (CPI), Bay Area Construction Cost Index (CCI), or budgeted labor costs). The purpose of this study was to re-evaluate time and cost assumptions from the 2016 analysis and determine the full cost (direct and indirect) of providing City services based upon the current organizational structure and processes. The project team analyzed the cost-of-service relationships that exist between fees for service activities in the following areas: City Clerk, Finance, Building, Code Enforcement, Public Works, Planning, Parks and Recreation, and Emergency Services (OES). The results of this Study provide an updated understanding of current service levels and the max justifiable cost for those services.

General Project Approach and Methodology
The methodology employed by the Matrix Consulting Group is a widely accepted “bottom up” approach to cost analysis, where time spent per unit of fee activity is determined for each position within a Department or 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. The following table provides an overview of the types of costs included in establishing the “full” cost of services provided by the City:

Table 1: Overview of Cost Components
Cost Component Description
Direct Fiscal Year 2024 Budgeted salaries, benefits, and allowable expenditures.

Indirect Division, departmental, and Citywide support.

Together, the cost components in the table above comprise the calculation of the total “full” cost of providing any particular service, regardless of whether a fee for that service is charged.

The work accomplished by the Matrix Consulting Group in the analysis of fees for service involved the following steps:
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• Department / Division Staff Interviews: The project team interviewed department / division staff regarding their needs for clarification to the structure of existing fee items, or for addition of new fee items.
• Data Collection: Data was collected for each permit / service, including time estimates. In addition, all budgeted costs and staffing levels for Fiscal Year 2024 were entered into the Matrix Consulting Group’s analytical software model. • Cost Analysis: The full cost of providing each service included in the analysis was established.
• Review and Approval of Results with City Staff: Department and City management has reviewed and approved these documented results.

A more detailed description of user fee methodology, as well as legal and policy considerations are provided in subsequent chapters of this report.

Summary of Results
When comparing FY24 fee-related budgeted expenditures with fee-related revenue the City is under-recovering its costs by approximately $767,000 or recovering 88% of its costs. The following table shows by major service area: the revenue collected, the total annual cost, the resulting difference, and the resulting cost recovery percentage.

Table 2: Annual Cost Recovery Analysis
Service Area
Current
Revenue Total Cost Difference
Cost
Recovery %
Planning $716,696 $886,158 ($169,462) 81%
Public Works $1,122,328 $1,182,734 ($60,407) 95%
Building $3,800,581 $4,337,761 ($537,180) 88%
Total $5,639,605 $6,406,653 ($767,048) 88%
Building at roughly $537,000 is the primary contributor to the overall deficit. The proposed modifications to their current fee schedules (expanding various flat fees, reorganizing the MEP section, etc.), as well as adding the Planning Review and Inspection fee will help to address the observed cost recovery gap.

The detailed documentation of this study will show an over-collection for some fees (on a per unit basis), and an undercharge for most others. The results of this analysis provide each Department and the City with guidance on how to right-size their fees to ensure that each service unit is set at an amount that does not exceed the full cost of providing that service. The display of the cost recovery figures shown in this report are meant to provide a basis for policy development discussions among Council members and City staff, and 1068
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do not represent a recommendation for where or how the Council should act. The setting of the “rate” or “price” for services, whether at 100 percent full cost recovery or lower, is a policy decision to be made only by the Council, with input from City staff and the community.

Considerations for Cost Recovery Policy and Updates
The Matrix Consulting Group recommends that the City use the information contained in this report to make any necessary updates to their formal Cost Recovery polices and continue with their annual updates to fees for service. 1 Adopt a Formal Cost Recovery Policy
The Government Finance Officers Association’s (GFOA) best practices for Establishing Government Charges and fees states that governmental entities should adopt formal policies regarding charges and fees which include the jurisdiction’s intention to recover the full cost or partial costs of providing services, sets forth circumstances under which the jurisdiction might set a charge or fee at less than or more than 100% of full cost, and outlines the considerations that might influence the jurisdiction’s pricing decision.

Matrix Consulting Group strongly recommends that the City adopt a formalized, individual cost recovery policy for each service area included in this Study. Whenever a cost recovery policy is established at less than 100% of the full cost of providing services, a known gap in funding is recognized and may then potentially be recovered through other revenue sources. Matrix Consulting Group considers a formalized cost recovery policy for various fees for service an industry Best Management Practice. 2 Continue Annual Fee Update / Increase Mechanism
The purpose of a comprehensive update is to completely revisit the analytical structure, service level estimates and assumptions, and to account for any major shifts in cost components or organizational structures that have occurred since the District’s previous analysis.

GFOA best practices for Establishing Government Charges and Fees states that governmental entities should review, and update charges and fees periodically based on factors such as the impact of inflation, other cost increases, adequacy of cost recovery, use of services, and the competitiveness of current rates to avoid large infrequent fee increases. Therefore, it is recommended the City continue the practice of conducting comprehensive analyses every three to five years as this practice captures any changes to organizational structure, processes, code amendments, as well as any new service areas.
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In between comprehensive updates, the City should continue to utilize published industry economic factors such as Consumer Price Index (CPI) or other regional factors to update the cost calculations established in the Study on an annual basis. Utilizing an annual increase mechanism ensures that the City receives appropriate fee increases that reflect growth in costs.
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2. Legal Framework and Policy Considerations
This section of the report is intended to provide an overview regarding overall legal rules and regulations as well as general policy considerations for fees for service. A “user fee” is a charge for service provided by a governmental agency to a public citizen or group. In California, several constitutional laws such as Propositions 13, 4, and 218, State Government Codes 66014 and 66016, and more recently Prop 26 and the Attorney General’s Opinion 92-506 set the parameters under which the user fees typically administered by local government are established and administered. Specifically, California State Law, Government Code 66014(a), stipulates that user fees charged by local agencies “…may not exceed the estimated reasonable cost of providing the service for which the fee is charged”.

General Principles and Philosophies Regarding User Fees Local governments are providers of many types of general services to their communities.

Table 3: Services in Relation to Benefit Received
“Global” Community Benefit “Global” Benefit and an
Individual or Group Benefit Individual or Group Benefit • Police
• Park Maintenance
• Fire Suppression
• Parks and Recreation
• Fire Prevention
• Building Permits
• Planning and Zoning Approval
• Site Plan Review
• Engineering Development
Review
• Facility Rentals
Funding for local government is obtained from a myriad of revenue sources such as taxes, fines, grants, special charges, user fees, etc. In recent years, alternative tax revenues, which typically offset subsidies for services provided to the community, have become increasingly limited. These limitations have caused increased attention on user fee activities as a revenue source that can offset costs otherwise subsidized (usually) by the general fund. In Table 3, services in the “global benefit” section tend to be funded primarily through voter approved tax revenues. In the middle of the table, one typically finds a mixture of taxes, user fee, and other funding sources. Finally, in the “individual / 1071
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group benefit” section of the table, lie the services provided by local government that are typically funded almost entirely by user fee revenue.

The following are two central concepts regarding the establishment of user fees:
• Fees should be assessed according to the degree of individual or private benefit gained from services. For example, the processing and approval of a land use or building permit will generally result in monetary gain to the applicant, whereas Police services and Fire Suppression are examples of services that are essential to the safety of the community at large.
• A profit-making objective should not be included in the assessment of user fees.

In fact, California laws require that the charges for service be in direct proportion to the costs associated with providing those services. Once a charge for service is assessed at a level higher than the actual cost of providing a service, the term “user fee” no longer applies. The charge then becomes a tax subject to voter approval.

Therefore, it is commonly accepted that user fees are established at a level that will recover up to, and not more than, the cost of providing a particular service.

General Policy Considerations Regarding User Fees
Undoubtedly, there are programs, circumstances, and services that justify a subsidy from a tax based or alternative revenue source. However, it is essential that jurisdictions prioritize the use of revenue sources for the provision of services based on the continuum of benefit received.

Within the services that are typically funded by user fees, the Matrix Consulting Group recognizes several reasons why City staff or the Council may not advocate the full cost recovery of services. The following factors are key policy considerations in setting fees at less than 100 percent of cost recovery:
• Limitations posed by an external agency. The State or an outside agency will occasionally set a maximum, minimum, or limit the jurisdiction’s ability to charge a fee at all. An example includes time spent copying and retrieving public documents and / or transportation permits.
• Encouragement of desired behaviors. Keeping fees for certain services below full cost recovery may provide better compliance from the community. For example, if the cost of a permit for charging a water heater in residential home is higher than the cost of the water heater itself, many citizens will avoid pulling the permit. 1072
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• Benefit received by user of the service and the community at large is mutual.

Many services that directly benefit a group or individual equally benefit the community as a whole. Examples include Planning Design Review, historical dedications, and certain types of special events.

The Matrix Consulting Group recognizes the need for policies that intentionally subsidize certain activities. The primary goals of a User Fee Study are to provide a fair and equitable basis for determining the costs of providing services and ensure that the City complies with State law.

Summary of Legal Restrictions and Policy Considerations Once the full cost of providing services is known, the next step is to determine the “rate” or “price” for services at a level which is up to, and not more than the full cost amount.

The City Council is responsible for this decision, which often becomes a question of balancing service levels and funding sources. The placement of a service or activity within the continuum of benefit received may require extensive discussion and at times fall into a “grey area”. However, with the resulting cost of services information from a User Fee Study, the City Council can be assured that the adopted fee for service is reasonable, fair, and legal. The City will need to review all fees for service in this analysis and where subsidies are identified increase them to reduce the deficit, and where overrecoveries are identified the fee must be reduced to be in compliance with the law. 1073
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3. User Fee Study Methodology
The Matrix Consulting Group utilizes a cost allocation methodology commonly known and accepted as the “bottom-up” approach to establishing User Fees. The term means that several cost components are calculated for each fee or service. These components then build upon each other to comprise the total cost for providing the service. The following chart describes the components of a full cost calculation:

The general steps utilized by the project team to determine allocations of cost components to a particular fee or service are:
• Calculate fully burdened hourly rates by position, including direct & indirect costs. • Develop time estimates for the average time spent to delivery each service included in the study.
• Distribute the appropriate amount of the other cost components to each fee or service based on the staff time allocation basis, or another reasonable basis.

The results of these allocations provide detailed documentation for the reasonable determination of the actual cost of providing each service.

One of the key study assumptions utilized in the “bottom up” approach is the use of time estimate averages for the provision of each fee related service. Utilization of time estimates is a reasonable and defensible approach, especially since experienced staff members who understand service levels and processes unique to the City developed these estimates.

The project team worked closely with City staff in developing time estimates with the following criteria:
• Estimates are representative of average times for providing services. Extremely difficult or abnormally simple projects are not factored in the analysis.

DIRECT
(Salaries, Benefits,
Productive Hours)

INDIRECT
(Departmental Admin,
Services & Supplies,
Citywide Overhead etc.)
Total Cost
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• Estimates reflect the time associated with the position or positions that typically perform a service.
• Estimates provided by staff are reviewed and approved by the department / division, and often involve multiple iterations before a Study is finalized. • Estimates are reviewed by the project team for “reasonableness” against their experience with other agencies.
• Estimates were not based on time in motion studies, as they are not practical for the scope of services and time frame for this project.
• Estimates match the current or proposed staffing levels to ensure there is no overallocation of staff resources to fee and non-fee related activities.

The Matrix Consulting Group agrees that while the use of time estimates is not perfect, it is the best alternative available for setting a standard level of service for which to base a jurisdiction’s fees for service and meets the requirements of California law.

The alternative to time estimating is actual time tracking, often referred to billing on a “time and materials” basis. Except in the case of anomalous or sometimes very large and complex projects, the Matrix Consulting Group believes this approach to not be cost effective or reasonable for the following reasons:
• Accuracy in time tracking is compromised by the additional administrative burden required to track, bill, and collect for services in this manner. • Additional costs are associated with administrative staff’s billing, refunding, and monitoring deposit accounts.
• Customers often prefer to know the fees for services in advance of applying for permits or participating in programs.
• Departments can better predict revenue streams and staff needs using standardized time estimates and anticipated permit volumes.

Situations arise where the size and complexity of a given project warrants time tracking and billing on a “time and materials” basis. The Matrix Consulting Group has recommended taking a deposit and charging Actual Costs for such fees as appropriate and itemized within the current fee schedule.
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4. Results Overview
The motivation behind a cost of services (User Fee) analysis is for the City and Departmental staff to maintain services at a level that is both accepted and effective for the community, and also to maintain control over the policy and management of these services.

It should be noted that the results presented in this report are not a precise measurement.

In general, a cost-of-service analysis takes a “snapshot in time”, where a fiscal year of financial and operational information is utilized. Changes to the structure of fee names, along with the use of time estimates allow only for a reasonable projection of subsidies and revenue. Consequently, the City and Department staff should rely conservatively upon these estimates to gauge the impact of implementation going forward.

Discussion of results in the following chapters is intended as a summary of extensive and voluminous cost allocation documentation produced during the Study. Each chapter will include detailed cost calculation results for each major permit category including the following:
• Modifications: discussions regarding any proposed revisions to the current fee schedule, including elimination or addition of fees.
• “Per Unit” Results: comparison of the full cost of providing each unit of service to the current fee for each unit of service (where applicable). • Annualized Results: utilizing volume of activity estimates annual subsidies and revenue impacts were projected.

The full analytical results were provided to City staff under separate cover from this summary report.
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5. General Fees
The General Fee category encompasses fees for services which are applied Citywide, such as, photocopies, notary, business licenses, taxicab permits, block parties, etc. While these services can be applied Citywide, the department / division’s which are responsible for processing and administering these fees are as follows: City Clerk, Finance, Code Enforcement, and Emergency Service (OES). The following subsections discuss fee schedule modifications and detail per unit results for each major service area.

Fee Schedule Modifications
In discussions with staff, the following modifications were proposed to the current fee schedule:
• Eliminated Fees: The fee for ‘Microfilm / Microfiche Printout’ was eliminated as this service is no longer offered by the City due to all records being digitized. • New Fees: The following three fees were added as a means to allow staff to accurately charge for their time providing services to the community:
- ‘Code Enforcement Cost Recovery – Hourly Rate’
- ‘Code Enforcement Cost Recovery – Substandard Housing Re-Inspection’ - ‘Permit Update’
- ‘Credit Card Surcharge’
• Consolidated Fee: The following fees were consolidated into single fees as a means to streamline the fee schedule
- ‘Abatement Fee’ and ‘Graffiti Cleanup’ were consolidated as both services are abatement related and are charged based on actual costs incurred. - ‘Commercial Kennel Permit’, ‘Private Kennel Permit’, ‘Pet Shop’, ‘Grooming Business’ and ‘Horse Establishment’ were consolidated under a single ‘Animal Establishment Permit’ fee.
• Formatting Modification: To make it easier for applicants to understand the department / division which is responsible for administering the fee being charged the project team recommends that the City organize their General Fee section by major service area (i.e., City Clerk, Finance, Code Enforcement, etc.).

These modifications ensure that the proposed fee schedule more accurately reflects the services currently being provided while also improving the overall flow of the City’s general fee schedule section.
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Detailed Results – City Clerk
The City Clerk Department is responsible for supporting the City Council and City Manager’s Office by recording meeting minutes and preparing agenda packets.

Additionally, this Department keeps all City record and maintains city archives. The fees examined within this study relate to these responsibilities and encompass lobbyist registration, candidate statement fees, public requests, maps print outs, notary, photocopies, fair political practices, and video / audio services.

The total cost calculated for each service includes direct staff costs and Departmental and Citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered.

Table 4: Total Cost Per Unit Results – City Clerk
Fee Name
Current
Fee
Total
Cost Difference
Annual Lobbyist Registration Fee $188 $290 ($102)
Candidate Statement Fee (County Regulated Fee) Current County Registrar Cost Public Requests for GIS Printed Maps
Standard pre-formatted maps:

Plotted maps $24 $36 ($12)
Printed maps $3 $5 ($2)
Custom request maps Actual Cost
Prints/plots of aerial photography (see Engineering fees) Actual Cost Municipal Code Book Vendor Invoice
Notary Fee (State Regulated Fee)1 $15 $15 $0
Petitions for Reconsideration $351 $367 ($16)
Photocopies
Standard sizes $13 $0.29 $12.64
For 11 x 17 sizes or color sheets $0.64 $0.67 ($0.03)
For Large format prints $32 $33.57 ($1.69)
Fair Political Practices Commission2 $0.11 $0.10 $0.01
Fair Political Practices Commission (older than five (5) years)2 $5.50 $5.00 $0.50 Video/Audio Service
DVD/CD $26 $25 $1
Flash Drive $16 $27 ($11)
Excluding state set fees, the City Clerk only shows an over-recovery for one fee:
‘Photocopies – Standard Size’. This over-recovery is minimal at roughly $13 and is due to the reduction in material costs associated with DVD / CDs. The largest under-recovery at $102 is in relation to ‘Annual Lobbyist Registration Fee. 1 GOV § 8223 (b)
2 CA Govt Code § 81008(a)
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Detailed Results - Finance
Finance is responsible for fiscal management citywide, including disbursement of funds and payroll, audits, budget and fiscal reporting development, and vendor oversight. The fees examined within this study relate to business licenses duplicates and databases, false alarms, and monthly reports.

Table 5: Total Cost Per Unit Results – Finance
Fee Name Current Fee Total Cost Difference
Business License Database $24 $30 ($5)
Duplicate Business Licenses $13 $15 ($2)
False Alarms $98 $119 ($21)
New Business Monthly Reports $45 $45 $0
Finance under-recovers for all fees reviewed ranging from a low of $2 for ‘Duplicate Business Licenses’ to a high of $21 for ‘False Alarms’.

Detailed Results – Code Enforcement
Code Enforcement is responsible for ensuring enforcement of and compliance with federal, state, and municipal laws and codes. The fees examined within this study relate to dangerous dog registration, solicitor permits, massage therapist establishment permits, taxicab driver permits, and various others.

Table 6: Total Cost Per Unit Results – Code Enforcement Fee Name Current Fee Total Cost Difference
Animal Establishment Permit $318 $361 ($43)
Bingo Permit $191 $255 ($64)
Code Enforcement Cost Recovery
Abatement / Graffiti Cleanup Actual Cost
Hourly Rate New $240 N/A
Substandard Housing Re-Inspection New $240 N/A
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Fee Name Current Fee Total Cost Difference
Dangerous Dogs
Registration $256 $481 ($225)
Sign $88 $25 $63
Fingerprinting $67 $71 ($5)
Handbill Permit
Initial $151 $240 ($90)
Renewal $75 $120 ($45)
Sign Removal (Public Right-of-Way) (All except Political Signs) $6 $180 ($174) Sign Recovery Fee for Political Signs $4 $180 ($177)
Permit Update New $120 N/A
Property Lien $54 $240 ($186)
Solicitor Fee
Initial $301 $481 ($179)
Renewal $76 $120 ($45)
Massage Therapist Fees
Massage Establishment Permit Fee $339 $541 ($202)
Massage Establishment - Renewal $113 $180 ($67)
Massage Managing Employee Permit Fee $301 $481 ($179)
Massage Managing Employee - Renewals $113 $180 ($67)
Massage Permit - Appeal $794 $1,202 ($408)
Taxicab Fees
Driver Permit Fee (Valid for 2 years) $394 $961 ($568)
Driver Permit Fee (Valid for 2 years) - Renewal $76 $120 ($45) Except for ‘Dangerous Dongs – Sign’ which over-recovers by $63, Code Enforcement under-recovers for all their fees. The largest under-recovery is in relation to ‘Taxicab Fees – Driver Permit Fee (Valid for 2 Years)’ at $568; followed by ‘Massage Therapist Fees – Massage Permit – Appeal’ and ‘Dangerous Dogs – Registration’ at $408 and $225, respectively.

Detailed Results – Emergency Service (OES)
Emergency Services (OES) is responsible for coordinating the City’s disaster response and recovery efforts, as such, OES works within the community to educate on proper disaster preparedness and prevention. The fees examined within this study relate to block party presentations and special event medical standby. OES currently does not charges fees for these services.

The following table provides the Division with an overview of what the total cost for providing these services are. The total cost calculated for each service includes direct staff costs and Departmental and Citywide overhead. The following table details the fee name and total cost associated with each service offered. 1080
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Table 7: Total Cost Per Unit Results – OES
Fee Name Total Cost
Block Party Presentation $418
First Aid / Medical Stand-by at Special Events $215
The $418 associated with ‘Block Party Presentation’ relates to serving as the liaison between the community and the requested department providing the presentation, along with assisting in preparation for the presentation by compiling data and visualizations.

Likewise, the $215 associated with ‘First Aid / Medical Stand-by at Special Events’ relates to processing the permit, along with coordinating volunteers to be on-site during the event.

Credit Card Surcharge
Many jurisdictions charge applicants a credit card transaction fee for any payments made using a credit card. This surcharge is generally a percentage of the overall fee charged to the city by a bank for processing credit card transactions and acts as a mechanism for recovering costs associated with fees incurred. Currently, the City of Cupertino does not assess a credit card transaction surcharge. Through this study, the project team worked with City staff to determine the appropriate surcharge amount.

In order to calculate the surcharge, the project team divided the total bank fees charged to the City for a year by the same revenue upon which the credit card surcharge was applied. The following table shows this calculation:

Table 8: Credit Card Transaction Fee Calculation
Category Amount
Total Bank Fees $432,668
Total Revenue $12,566,758
Credit Card Fee Rate 3.44%
Based upon this calculation, the City’s full cost associated with credit card fees is 3.44%.

As part of this analysis, the project team conducted a comparative survey of other local jurisdictions and their assessment of the Credit Card Transaction fee. Like other comparative efforts, the survey below simply shows the fees charged by the jurisdiction and does not include the basis upon which the other jurisdictions calculated or developed their fee. The following table shows the results of this comparative analysis:
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Table 9: Credit Card Transaction Fee – Comparative Survey Jurisdiction Fee Amount
Milpitas 2.4% of Fees Paid by Credit Card
Palo Alto 2.7% on Fees over $5,000 Paid by Credit Card
Mountain View N/A
Santa Clara N/A
Sunnyvale N/A
Palo Alto (2.7%) and Milpitas (2.4%) are the only surveyed jurisdictions that charge this fee as a stand-alone surcharge. Both cities charge the credit card transaction fee based on a percentage of the fees paid and at a lower percentage than Cupertino’s calculated full cost of 3.44%. Additionally, Palo Alto only charges their surcharge on fees over $5,000.

Annual Revenue Impact
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6. Building
The Building division is responsible for ensuring all new construction and modification or additions to existing building are in compliance with federal, state, and local laws and regulations. The fees examined within this study relate to structural, mechanical, electrical, and plumbing plan review and inspections. The following subsections discuss fee schedule modifications and detailed per unit results for the fee-related services provided by Building.

Fee Schedule Modifications
In an effort to streamline the square footage tables, Building staff proposed the following modifications:
• Consolidate the two tables for Plan Check and Inspection into a singular table which encompasses Plan Check and Inspection.
• Consolidate the three construction type categories into a single construction type based on the most common type for the IBC Class.
• Consolidate the IBC Classes into two general categories based on IBC Occupancy type – New Construction and Tenant Improvement. The only expectation was for the R IBC Classes which were left expanded.
• Remove the IBC Occupancy Types ‘Deferred Submittal – All Except R-3 and ‘Deferred Submittal – R3’.
• Add a 1,000 sq. ft. project size threshold for IBC Class U Accessory.

In discussions with staff, the following modifications were proposed to the current flat and MEP fee schedule:
• Eliminated Fees: The following fees were eliminated as the City no longer offers these services
- ‘Close Existing Openings – Interior Wall’
- ‘Close Existing Openings – Exterior Wall’
- ‘Garage / Agricultural Buildings - Wood frame up to 1,000 sf’ - ‘Garage / Agricultural Buildings - Masonry up to 1,000 sf’ - ‘Green Building Deposit – Third Party Certification Process – Single Family Residential ($1,000 max.)’
- ‘Green Building Deposit – Third Party Certification Process – Multi-Family Residential ($20,000 min, $40,000 max.)’
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- ‘Green Building Deposit – Third Party Certification Process – Non-Residential ($35,000 min, $75,000 max.)’
- ‘Life Safety Report’
- ‘Enclosed prefabricated Sun Room – Additional Sun Rooms’ - ‘Plan Review Supplemental Fee (after 2nd review) – Each Additional Hour’ - ‘Standalone MEP Permit Fees - Travel and Documentation’ - ‘Standalone MEP Permit Fees - Permit Issuance’
- ‘Install / Relocate forced air furnace or burner (including attached ducts and vents) – up to and including 100,000 Btu/h’
- ‘Install / Relocate forced air furnace or burner (including attached ducts and vents) – over 100,000 Btu/h’
- ‘Install / Relocate floor furnace, including vent’
- ‘Install or relocate suspended heater, recessed wall heater, or floor-mounted unit – Residential’
- ‘Install or relocate suspended heater, recessed wall heater, or floor-mounted unit – Commercial’
- ‘Repair/Alter/Add heating appliance, refrigeration unit, cooling unit, absorption unit, mini-split system/heat pump, or each heating, cooling, absorption, or evaporative cooling system, including installation of controls and/or ducts – Residential’
- ‘Repair/Alter/Add heating appliance, refrigeration unit, cooling unit, absorption unit, mini-split system/heat pump, or each heating, cooling, absorption, or evaporative cooling system, including installation of controls and/or ducts – Commercial’
- ‘Install or relocate boiler or compressor - up to and including 3HP, or absorption system up to and including 100,000’
- ‘Install or relocate boiler or compressor - over 3HP and up to and including 15 HP, or absorption system over 100,000 Btu/h and up to and including 500,000 Btu/h’
- ‘Install or relocate boiler or compressor - over 15 HP and up to and including 30 HP, or absorption system over 500,000 Btu/h and up to and including 1,000,000 Btu/h’
- Install or relocate boiler or compressor - over 30 HP and up to and including 50 HP, or absorption system over 1,000,000 Btu/h and up to and including 1,750,000 Btu/h’
- Install or relocate boiler or compressor - over 50 HP, or absorption system over 1,750,000 Btu/h’
- ‘Air-handling unit, including attached ducts – Residential’ - Air-handling unit, including attached ducts – Commercial’ - Air-handling unit, including attached ducts – Air-handling unit over 10,000 CFM’ 1084
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- ‘Ventilation fan connected to a single duct’
- ‘Ventilation system that is not a portion of any heating or air-conditioning system authorized by a permit’
- ‘Lighting fixtures, sockets, or other lamp-holding devices – Theatrical-type lighting fixtures or assemblies’
- ‘Appliances - Fixed residential appliances or receptacle outlets for same, including wall- mounted electric ovens; counter mounted cooking tops; electric ranges; self- contained room console or through-wall air conditioners; space heaters; food waste grinders; dishwashers; washing machines; water heaters; clothes dryers; or other motor-operated appliances not exceeding one horsepower (HP) in rating’
- ‘Appliances - Residential appliances and self-contained factory-wired, nonresidential appliances not exceeding one horsepower (HP), kilowatt (kW), or kilovolt- ampere (kVA) in rating, including medical and dental devices; food, beverage, and ice cream cabinets; illuminated show cases; drinking fountains; vending machines; laundry machines; or other similar types of equipment’ - ‘Busway – Trolley and plug-in type busways’
- ‘Signs, Outline Lighting, and Marquees - Supplied from one branch circuit’ - ‘Signs, Outline Lighting, and Marquees - Additional branch circuits within the same sign, outline lighting system, or marquee’
- ‘Plumbing fixture or trap or set of fixtures on one trap, including water, drainage piping, and backflow protection’
- ‘Rainwater system inside building’
- ‘Private sewage disposal system’
- ‘Repair/Alter drainage or vent piping’
- ‘Lawn sprinkler system on any one meter, including backflow protection devices’
- ‘Backflow devices not included in other fee services (e.g., building/trailer park)’ - ‘Atmospheric-type vacuum breakers not included in other fee services (e.g., building/trailer park sewer)’
• New Fees: The following fees were proposed for addition to address new services offered by the City or to capture services already offered but not listed on the current fee schedule
- ‘Additions (Non-Hillside R3 Occupancy) - Plan Check Fees (500-999 sq. ft.)’ - ‘Additions (Non-Hillside R3 Occupancy) - Inspection Fees (500-999 sq. ft.)’ - ‘Accessory Buildings (Up to 499 sq. ft.)’
- ‘Accessory Buildings (500-999 sq. ft.)’
- ‘Below Market Rate – Escrow Inspection’
- ‘Photovoltaic System – Residential – Each Additional kW Above 15kW’ 1085
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- ‘Thermal System – Residential – Systems up to 10kW’
- ‘Thermal System – Residential – Each Additional kW Above 10kW’ - ‘Thermal System – Multi-Family and Commercial – Systems up to 30kW’ - ‘Thermal System – Multi-Family and Commercial – Each Additional kW between 20kW and 260kW’
- ‘Thermal System – Multi-Family and Commercial – Each Additional kW Above 260kW’
- ‘Expedited Plan Review’
- ‘Install or relocate HVAC system or portion there of – Residential’ - Install or relocate HVAC system or portion there of – Commercial’ - ‘Appliances (Install / Repair / Replace) – Residential’ - Appliances (Install / Repair / Replace) – Commercial’ - ‘Building Drain/Waste/Vent Repair – Residential’
- ‘Building Drain/Waste/Vent Repair – Commercial’
- ‘Any other device/fixture not listed in Plumbing Schedule (Install/Repair/Replace)’
- ‘Planning Review and Inspection of Building Permits’
• Condensed Fees: In an effort to streamline the fee schedule ‘Revisions – Commercial Projects (2hr. Min.)’, ‘Revisions – Single Family Dwelling Projects (2hr.

Min.)’, and ‘Revisions – Remodel’ were condensed into a singular per hour fee called ‘Revisions’
• Expanded Fees: The following fees were expanded as a means to define the services being provided more accurately:
- ‘Power Apparatus - Generator/Transformer or Similar (Install/Repair/Replace)’ was expanded into two categories: ‘Residential’ and ‘Commercial’ - ‘Building sewer lateral or sewer clean-out’ was expanded into two fee categories ‘Building sewer lateral (Install / Repair / Replace)’ and ‘Sewer Cleanout (Install/Repair/Replace)’ each with a ‘Residential’ and ‘Commercial’ subcategory. - ‘Photovoltaic System – Multi-family Res/Commercial, each additional 1 kilowatt’ was expanded into two fees: ‘Photovoltaic System – Multi-Family and Commercial – Each Additional kW between 50kW and 250kW’ and ‘Photovoltaic System – Multi-Family and Commercial – Each Additional kW Above 250kW’.
• Fee Name Changes: In an effort to clearly define what services are associated with fees the following name changes were proposed:
- ‘Deferred Submittal (2 hour minimum)’ was changed to ‘Deferred Submittal’ 1086
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- ‘Garage / Agricultural Buildings’ was changed to ‘Accessory Building – Residential’
- ‘Photovoltaic System – Residential’ was changed to ‘Photovoltaic System – Residential – Systems up to 15kW’
- ‘Photovoltaic System – Multi-Family Res/Commercial, up to 8 kilowatts’ was changed to ‘Photovoltaic System – Multi-Family and Commercial – Systems up to 50kW’
- ‘Overtime Plan Review (2 hour minimum)’ was changed to ‘Overtime Plan Review (4 hour minimum)’
- ‘Plan Review Supplemental Fee (after 2nd review)’ was changed to ‘Supplemental Plan Review (After 2nd Review)’
- ‘Skylight – 50 sf or less (cumulative area)’ was changed to ‘Skylight – First (3) Skylights’
- ‘Skylight – Greater than 50 sf or structural’ was changed to ‘Skylight – Each Additional Skylight’
- ‘Appliance or piece of equipment not classed in other appliance categories, or for which no other fee is listed’ was changed to ‘Any other piece of equipment or appliance not listed in Mechanical schedule.’
- ‘Power Apparatus - Motors, generators, transformers, rectifiers, synchronous converters, capacitors, industrial heating, air conditioners and heat pumps, cooking or baking equipment, and other apparatus. Rating in horsepower (HP), kilowatts (kW), or kilovolt-amperes (kVA), or kilovolt-amperes-reactive (kVAR)’ was changed to ‘Power Apparatus - Generator/Transformer or Similar (Install/Repair/Replace)’
- ‘Electrical apparatus, conduits, and conductors for which a permit is required, but for which no fee is herein set forth’ was changed to ‘Any other Electrical apparatus, conduits, and conductors not listed in Electrical Schedule’ - ‘Residential Whole-House Re-Plumbing (up to 2500 sq ft)’ was changed to ‘Residential Whole-House Water Re-Pipe (up to 2500 sq ft)’ - ‘Partial Re-pipe’ was changed to ‘Partial Water Re-pipe’ - ‘Water Service’ was changed ‘Install or Replace Water Meter / Service’ - ‘Install, Alter, or Repair Water Treatment System’ was changed to ‘Water Treatment System (Install/Repair/Replace)’
- ‘Industrial waste pretreatment interceptor, including its trap and vent, excepting kitchen-type grease interceptors functioning as fixture traps’ was changed to ‘Interceptors - Grease/Sand (Install/Repair/Replace)’
- ‘Water Heater (Gas or Solar) and/or Vent’ was changed to ‘Water Heater Replacement / Installation - All Types’
- Gas Piping system per outlet’ was changed to ‘Gas Piping (Install/Repair/Replace)’
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• Unit Changes: Since the minimum time for ‘Supplemental Plan Review (After 2nd Review)’ is one hour the unit was changed from ‘First 1/2 hour minimum’ to ‘Per Hour’
These modifications ensure that the proposed fee schedule not only more accurately reflects the services currently being provided by Building but also will make it easier for applicants to understand fees being charged and for staff to administer and apply fees.

Detailed Results – Fees Based on Square Footage
Building currently utilizes two tables to collect various fees based on occupancy type, construction material, and square footage of the project. As outlined in the modifications section, updates to these tables were proposed by Building staff. After integrating the changes, the project team then calculated total costs for each service which includes direct staff costs and Departmental and Citywide overhead. The following table details the IBC Class, IBC Occupancy Type, project size threshold (square footage), current fee, total cost calculated, and the resulting difference for plan review and inspection services.

Table 10: Total Cost Per Unit Results – Building – Square Footage Based Fees Current Fee Total Cost Difference
IBC
Class
IBC
Occupancy
Type
Project
Threshold
Size (Sq. Ft.)
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
A Assembly 250 $8,195 $237.12 $8,113 $224.83 $81 $12.29 1,250 $10,566 $261.70 $10,362 $233.96 $204 $27.74
2,500 $13,837 $164.53 $13,286 $92.51 $551 $72.02
5,000 $17,950 $39.37 $15,599 $56.44 $2,352 ($17.08)
12,500 $20,903 $50.88 $19,832 $49.66 $1,071 $1.22
25,000 $27,263 $109.05 $26,039 $104.16 $1,224 $4.89
A A Occupancy 500 $7,331 $108.04 $7,405 $117.39 ($74) ($9.34) Tenant 2,500 $9,491 $118.91 $9,753 $116.34 ($261) $2.57 Improvements 5,000 $12,464 $71.27 $12,661 $43.07 ($197) $28.19 10,000 $16,027 $17.51 $14,815 $26.28 $1,213 ($8.77)
25,000 $18,654 $23.62 $18,757 $24.13 ($103) ($0.50)
50,000 $24,560 $49.12 $24,789 $49.58 ($229) ($0.46)
B Business 1,000 $10,806 $97.03 $11,137 $85.35 ($331) $11.68 5,000 $14,688 $93.07 $14,551 $84.99 $136 $8.08
10,000 $19,341 $53.80 $18,801 $55.79 $540 ($1.99)
20,000 $24,721 $13.89 $24,380 $12.44 $341 $1.45
50,000 $28,889 $18.61 $28,112 $17.91 $777 $0.70
100,000 $38,196 $38.20 $37,068 $37.07 $1,127 $1.13
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Current Fee Total Cost Difference
IBC
Class
IBC
Occupancy
Type
Project
Threshold
Size (Sq. Ft.)
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
B B Occupancy 300 $6,895 $166.93 $7,338 $208.90 ($443) ($41.97) Tenant 1,500 $8,898 $184.16 $9,845 $160.49 ($947) $23.67 Improvements 3,000 $11,660 $114.55 $12,252 $86.24 ($592) $28.31 6,000 $15,097 $27.56 $14,839 $41.11 $258 ($13.55)
15,000 $17,577 $35.99 $18,539 $36.21 ($962) ($0.21)
30,000 $22,977 $76.59 $23,971 $79.90 ($994) ($3.31)
E Educational 100 $7,122 $514.67 $7,338 $562.07 ($216) ($47.40) 500 $9,180 $568.17 $9,586 $584.90 ($405) ($16.73)
1,000 $12,021 $358.05 $12,510 $258.73 ($489) $99.32
2,000 $15,602 $85.54 $15,098 $123.34 $504 ($37.80)
5,000 $18,168 $110.33 $18,798 $113.80 ($630) ($3.46)
10,000 $23,685 $236.85 $24,488 $244.88 ($803) ($8.03)
E E Occupancy 100 $6,022 $439.09 $6,239 $428.77 ($217) $10.31 Tenant 500 $7,778 $484.12 $7,954 $478.26 ($176) $5.87
Improvements 1,000 $10,199 $298.17 $10,346 $176.34 ($147) $121.83 2,000 $13,181 $72.16 $12,109 $105.56 $1,072 ($33.40)
5,000 $15,346 $95.05 $15,276 $97.64 $70 ($2.59)
10,000 $20,098 $200.98 $20,158 $201.58 ($60) ($0.60)
F Factory 1,000 $11,857 $57.72 $11,945 $65.16 ($88) ($7.44) Industrial 5,000 $14,166 $70.48 $14,551 $79.49 ($385) ($9.02) 10,000 $17,690 $53.46 $18,526 $61.28 ($836) ($7.83)
20,000 $23,036 $10.91 $24,654 $11.53 ($1,619) ($0.61)
50,000 $26,310 $13.13 $28,112 $14.62 ($1,802) ($1.49)
100,000 $32,873 $32.87 $35,420 $35.42 ($2,548) ($2.55)
F F Occupancy 1,000 $9,141 $66.90 $9,554 $72.02 ($413) ($5.12) Tenant 5,000 $11,817 $73.70 $12,435 $74.32 ($618) ($0.63) Improvements 10,000 $15,502 $44.98 $16,151 $29.77 ($649) $15.21 20,000 $20,000 $10.93 $19,128 $16.70 $871 ($5.77)
50,000 $23,279 $14.56 $24,137 $15.26 ($859) ($0.71)
100,000 $30,556 $30.56 $31,769 $31.77 ($1,212) ($1.21)
H High Hazard 100 $9,564 $687.16 $10,020 $695.37 ($455) ($8.20) 500 $12,313 $759.28 $12,801 $749.68 ($488) $9.60
1,000 $16,110 $485.55 $16,550 $341.12 ($440) $144.43
2,000 $20,965 $115.05 $19,961 $168.04 $1,004 ($52.99)
5,000 $24,416 $146.42 $25,002 $151.28 ($586) ($4.86)
10,000 $31,738 $317.38 $32,566 $325.66 ($828) ($8.28)
H H Occupancy 100 $6,723 $488.44 $6,514 $493.41 $210 ($4.97) Tenant 500 $8,677 $538.85 $8,487 $584.90 $190 ($46.05)
Improvements 1,000 $11,371 $334.97 $11,412 $203.80 ($41) $131.17 2,000 $14,721 $80.62 $13,450 $123.34 $1,271 ($42.72)
5,000 $17,140 $105.34 $17,150 $102.81 ($10) $2.53
10,000 $22,406 $224.06 $22,291 $222.91 $116 $1.16
I Institutional 500 $10,327 $148.76 $11,218 $171.51 ($891) ($22.75) 2,500 $13,302 $164.30 $14,648 $171.26 ($1,346) ($6.97)
5,000 $17,410 $104.43 $18,930 $81.52 ($1,520) $22.91
10,000 $22,632 $24.82 $23,006 $38.89 ($374) ($14.06)
25,000 $26,355 $31.79 $28,838 $33.95 ($2,483) ($2.16)
50,000 $34,302 $68.60 $37,326 $74.65 ($3,024) ($6.05)
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Current Fee Total Cost Difference
IBC
Class
IBC
Occupancy
Type
Project
Threshold
Size (Sq. Ft.)
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
I I Occupancy 100 $6,659 $483.13 $7,338 $562.07 ($679) ($78.94) Tenant 500 $8,591 $533.03 $9,586 $533.19 ($995) ($0.16) Improvements 1,000 $11,256 $332.51 $12,252 $258.73 ($996) $73.78 2,000 $14,581 $79.88 $14,839 $123.34 ($258) ($43.46)
5,000 $16,978 $104.07 $18,539 $108.63 ($1,562) ($4.55)
10,000 $22,181 $221.81 $23,971 $239.71 ($1,789) ($17.89) M Mercantile 2,000 $13,877 $50.21 $14,500 $54.42 ($623) ($4.21) 10,000 $17,894 $55.43 $18,854 $55.90 ($960) ($0.48)
20,000 $23,436 $34.81 $24,444 $23.70 ($1,008) $11.11
40,000 $30,399 $8.31 $29,185 $12.79 $1,214 ($4.48)
100,000 $35,386 $10.78 $36,860 $11.50 ($1,474) ($0.72)
200,000 $46,163 $23.08 $48,355 $24.18 ($2,192) ($1.10)
M M Occupancy 300 $7,007 $171.55 $7,146 $195.64 ($139) ($24.09) Tenant 1,500 $9,066 $188.92 $9,494 $194.97 ($428) ($6.04) Improvements 3,000 $11,900 $114.23 $12,419 $71.79 ($519) $42.44 6,000 $15,327 $27.91 $14,572 $46.86 $754 ($18.95)
15,000 $17,839 $37.44 $18,789 $36.76 ($951) $0.68
30,000 $23,455 $78.18 $24,304 $81.01 ($849) ($2.83)
R-1 Residential— 3,000 $21,538 $15.25 $16,908 $42.88 $4,631 ($27.63) Hotels & 15,000 $23,368 $24.76 $22,053 $42.65 $1,315 ($17.90) Motels 30,000 $27,082 $8.10 $28,451 $18.55 ($1,369) ($10.45) 60,000 $29,512 $3.68 $34,016 $9.69 ($4,504) ($6.01)
150,000 $32,824 $1.91 $42,741 $8.90 ($9,917) ($7.00)
300,000 $35,682 $11.89 $56,094 $18.70 ($20,412) ($6.80) R-2 Residential— 800 $18,400 $47.41 $13,318 $123.86 $5,082 ($76.44) Apartment 4,000 $19,918 $80.63 $17,282 $126.83 $2,636 ($46.20) Building 8,000 $23,143 $24.89 $22,355 $54.38 $788 ($29.50) 16,000 $25,134 $12.13 $26,706 $28.68 ($1,572) ($16.54)
40,000 $28,046 $5.75 $33,589 $26.47 ($5,543) ($20.72)
80,000 $30,346 $37.93 $44,177 $55.22 ($13,831) ($17.29) R-2 Residential— 800 $7,774 $29.92 $6,452 $63.78 $1,321 ($33.85) Apartment 4,000 $8,731 $24.72 $8,493 $58.17 $238 ($33.45) Building 8,000 $9,720 $17.87 $10,820 $2.89 ($1,100) $14.99 - Repeat Unit 16,000 $11,150 $2.83 $11,051 $18.38 $99 ($15.55) 40,000 $11,828 $4.34 $15,462 $14.80 ($3,634) ($10.46)
80,000 $13,563 $16.95 $21,381 $26.73 ($7,818) ($9.77)
R-3 Dwellings— 1,000 $11,253 $64.77 $11,654 $70.02 ($401) ($5.25) Custom 2,500 $12,225 $113.41 $12,705 $124.95 ($480) ($11.53) Homes 4,000 $13,926 $66.83 $14,579 $89.92 ($653) ($23.09) 6,000 $15,262 $72.88 $16,377 $80.78 ($1,115) ($7.91)
Models, 8,000 $16,720 $78.97 $17,993 $89.92 ($1,273) ($10.95) 10,000 $18,299 $182.99 $19,791 $197.91 ($1,492) ($14.92) R-3 Dwellings - 1,000 $7,937 $55.97 $5,060 $111.12 $2,877 ($55.15) Production 2,500 $8,777 $78.14 $6,727 $138.96 $2,050 ($60.82) Phase of 4,000 $9,949 $60.26 $8,811 $25.29 $1,138 $34.97 Master Plan 6,000 $11,154 $46.39 $9,317 $181.79 $1,837 ($135.39) (Repeats) 8,000 $12,082 $72.42 $12,953 $232.12 ($871) ($159.70) 10,000 $13,530 $135.30 $17,595 $175.95 ($4,065) ($40.65) 1090
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Current Fee Total Cost Difference
IBC
Class
IBC
Occupancy
Type
Project
Threshold
Size (Sq. Ft.)
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
Base Cost
@
Threshold
Size
Cost for
Each
Addl.
100 sf *
R-3 Group Care 1,000 $16,739 $36.10 $12,220 $98.68 $4,519 ($62.58) 5,000 $18,183 $57.17 $16,167 $90.48 $2,016 ($33.31)
10,000 $21,041 $19.29 $20,691 $38.01 $350 ($18.73)
20,000 $22,970 $8.45 $24,492 $21.97 ($1,523) ($13.53)
50,000 $25,505 $4.48 $31,085 $19.53 ($5,580) ($15.04)
100,000 $27,747 $27.75 $40,849 $40.85 ($13,102) ($13.10) R R Occupancy 80 $7,225 $215.54 $6,064 $494.83 $1,161 ($279.29) Tenant 400 $7,914 $288.79 $7,647 $529.16 $267 ($240.37) Improvements 800 $9,069 $119.63 $9,764 $200.54 ($695) ($80.90) 1,600 $10,026 $40.71 $11,368 $142.06 ($1,342) ($101.34) 4,000 $11,004 $28.40 $14,778 $118.07 ($3,774) ($89.67)
8,000 $12,140 $151.75 $19,501 $243.76 ($7,361) ($92.01) S Storage 600 $9,006 $108.76 $9,037 $120.71 ($31) ($11.95) 3,000 $11,616 $120.04 $11,934 $115.26 ($318) $4.79
6,000 $15,217 $75.11 $15,391 $49.62 ($174) $25.48
12,000 $19,724 $18.02 $18,369 $26.39 $1,355 ($8.37)
30,000 $22,967 $23.36 $23,119 $23.77 ($153) ($0.41)
60,000 $29,975 $49.96 $30,250 $50.42 ($275) ($0.46)
S S Occupancy 600 $7,364 $90.22 $7,954 $109.26 ($590) ($19.05) Tenant 3,000 $9,530 $99.39 $10,577 $106.10 ($1,047) ($6.71) Improvements 6,000 $12,511 $59.91 $13,760 $40.47 ($1,248) $19.44 12,000 $16,106 $14.68 $16,188 $23.43 ($82) ($8.75)
30,000 $18,748 $19.68 $20,405 $21.94 ($1,657) ($2.26)
60,000 $24,652 $41.09 $26,986 $44.98 ($2,334) ($3.89)
U Accessory > 1,000 See Flat Fee Schedule
1,000 $7,283 $0.00 $6,048 $665.77 $1,235 ($665.77)
2,000 $7,283 $122.74 $7,989 $294.99 ($707) ($172.26)
4,000 $9,737 $243.43 $10,997 $274.93 ($1,260) ($31.49)
Standard 500 $10,404 $50.22 $6,856 $103.65 $3,548 ($53.43) Comm. 2,500 $11,408 $66.00 $8,929 $105.99 $2,480 ($39.99) Foundation 5,000 $13,058 $28.01 $11,579 $37.58 $1,480 ($9.57) w/o Podium 10,000 $14,459 $9.26 $13,457 $24.45 $1,001 ($15.19) 25,000 $15,848 $6.63 $17,125 $21.99 ($1,277) ($15.36)
50,000 $17,506 $35.01 $22,624 $45.25 ($5,118) ($10.24)
Standard 500 $8,072 $21.51 $7,389 $117.39 $683 ($95.88) Comm. 2,500 $9,793 $41.57 $9,737 $116.34 $56 ($74.77)
Foundation 5,000 $12,586 $9.91 $12,645 $37.58 ($58) ($27.67) with Podium 10,000 $14,702 $6.47 $14,524 $28.01 $178 ($21.54) 25,000 $17,075 $3.74 $18,725 $24.13 ($1,650) ($20.39)
50,000 $21,836 $15.88 $24,757 $49.51 ($2,920) ($33.64)
All Shell 500 $7,402 $108.12 $7,146 $117.39 $255 ($9.26) Buildings 2,500 $9,564 $119.19 $9,494 $116.98 $70 $2.21 5,000 $12,544 $73.09 $12,419 $43.07 $125 $30.02
10,000 $16,198 $17.74 $14,572 $28.11 $1,626 ($10.37)
25,000 $18,860 $23.46 $18,789 $22.06 $70 $1.40
50,000 $24,724 $49.45 $24,304 $48.61 $420 $0.84
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Overall, Building shows an under-recovery for square footage-based fees. The majority of over-recoveries are within the ‘A – Assembly’ and ‘All Shell Building’ categories. The reevaluation of time estimates ensures that each project is paying for their fair share of plan check and inspection costs.

Detailed Results – Flat and MEP Fees
Building collects flat fees for various structural, mechanical, electrical, and plumbing plan reviews and inspections. The total cost calculated for each service includes direct staff costs and Departmental and Citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered.

Table 11: Total Cost Per Unit Results – Building – Flat & MEP Fees Fee Name Current Fee Total Cost Difference
Miscellaneous Fees
Standard Hourly Rate - Building $243 $263 ($20)
Planning Review and Inspection of Building Permits New 15% N/A Accessibility Hardship Exemption $243 $275 ($32)
Acoustical Review
Single Family Home/Duplex—New $608 $649 ($41)
Single Family Home/Duplex—Addition/Alteration $364 $382 ($18) Multi-Family/Commercial $608 $649 ($41)
Additions (Non-Hillside R3 Occupancy) - Plan Check Fees Plan Check Fees (up to 150 sq. ft.) $487 $2,428 ($1,941) Plan Check Fees (251 - 499 sq. ft.) $971 $4,625 ($3,654) Plan Check Fees (500-999 sq. ft.) New $5,724 N/A
Additions (Non-Hillside R3 Occupancy) - Inspection Fees Inspection Fees (up to 150 sq. ft.) $1,213 $3,103 ($1,890) Inspection Fees (251 - 499 sq. ft.) $1,456 $4,137 ($2,681) Inspection Fees (500-999 sq. ft.) New $5,171 N/A
Accessory Buildings - Residential
Accessory Buildings (Up to 499 sq. ft.) New $1,699 N/A
Accessory Buildings (500 - 999 sq. ft.) New $2,491 N/A
Shed over 120 square feet $1,094 $1,311 ($217)
Accessory Dwelling Unit (ADU) - Plan Check Fees
Plan Check Fees (up to 499 sq. ft.) $971 $2,428 ($1,457) Plan Check Fees (500-999 sq. ft.) $1,940 $3,527 ($1,587) Accessory Dwelling Unit (ADU) - Inspection Fees
Inspection Fees (up to 499 sq. ft.) $1,456 $2,585 ($1,129) Inspection Fees (500-999 sq. ft.) $2,423 $3,620 ($1,197) Address Assignment $243 $231 $12
Alternate Materials and Methods of Construction $243 $253 ($10) Antenna—Telecom Facility
Radio $608 $454 $154
Cellular/Mobile Phone, alterations to existing facility $486 $649 ($163) Cellular/Mobile Phone, free-standing $1,335 $2,248 ($913) Cellular/Mobile Phone, attached to building $1,094 $1,182 ($88) Arbor/Trellis $487 $649 ($162)
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Fee Name Current Fee Total Cost Difference
Awning/Canopy (supported by building) $487 $649 ($162)
Balcony Addition $1,094 $1,572 ($478)
Battery Energy Storage System
First 3 $243 $649 ($406)
Each Additional $121 $382 ($261)
Below Market Rate
Escrow Inspection New 0.52% N/A
Board of Appeals $243 $263 ($20)
Carport $850 $907 ($57)
Certifications
Special Inspector Qualifications (initial review) $487 $506 ($19) Special Inspector Qualifications (renewal / update) $243 $231 $12 Chimney (new) $729 $907 ($178)
Chimney Repair $487 $511 ($24)
Clerical Fee $121 $116 $5
Commercial Coach (per unit) $1,094 $1,182 ($88)
Covered Porch $850 $907 ($57)
Deck (wood) $850 $907 ($57)
Deck Railing $487 $511 ($24)
Deferred Submittal Actual Cost $255
Demolition
Multi-Family and Commercial (up to 3,000 sf) $608 $764 ($156) Multi-Family and Commercial (each additional 3,000
sf) $243 $267 ($24)
Residential (R-3 Occ) (up to 3,000 sf) $487 $764 ($277) Residential (R-3 Occ) (each additional 3,000 sf) $243 $267 ($24) Swimming Pool Residential $487 $511 ($24)
Swimming Pool Multi-Family and Commercial (up to
3,000 sf) $729 $770 ($41)
Swimming Pool Multi-Family and Commercial (each
additional 3,000 sf) $243 $259 ($16)
Disabled Access Compliance Inspection $243 $263 ($20)
Door
New door (nonstructural) $364 $382 ($18)
New door (structural shear wall/masonry) $487 $649 ($162) Duplicate / Replacement Job Card $121 $116 $5
Electric Vehicle Charging Station $243 $382 ($139)
Extensions
Plan Check Applications (within 180 days of
Submittal) $243 $263 ($20)
Permits (within 180 days of Issuance):

Start construction, without plans $121 $137 ($16)
Resume or complete construction, without plans $121 $137 ($16) Start construction, with plans $243 $275 ($32)
Resume or complete construction, with plans $486 $549 ($63) Fence
Non-masonry, over 7 feet in height $487 $511 ($24)
Non-masonry, each additional 100 l.f. $121 $129 ($8)
Masonry, over 7 feet in height $850 $907 ($57)
Masonry, each additional 100 l.f. $487 $517 ($30)
Fireplace
Masonry $850 $907 ($57)
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Fee Name Current Fee Total Cost Difference
Pre-Fabricated/Metal $487 $511 ($24)
Flag pole (over 20 feet in height) $487 $511 ($24)
Foundation Repair $1,094 $1,166 ($72)
Inspections
Pre-Inspection Fee $243 $263 ($20)
Standard Inspection Hourly Rate $243 $263 ($20)
Progress Inspection $243 $263 ($20)
Partial Inspection $243 $263 ($20)
Courtesy Inspection - 2 hour minimum $243 $256 ($13)
Cancelled inspection w/out advance notice $243 $256 ($13) Reinspection $243 $256 ($13)
Outside of normal business hours (4 hour minimum) $243 $305 ($62) Inspection Supplemental Fee (Projects that require
more inspections than average, the Building Official
may charge additional inspection fees)
First 1/2 hour minimum $121 $129 ($8)
Each Additional hour $243 $259 ($16)
Lighting pole $608 $649 ($41)
Each additional pole $243 $267 ($24)
Modular Structures $1,094 $923 $171
Modification of Technical Code $243 $263 ($20)
Occupancy
Certificate of Occupancy/Completion $487 $511 ($24)
Temporary Occupancy Permit $487 $511 ($24)
Partition—Commercial, Interior (up to 30 l.f.) $729 $778 ($49) Additional partition $243 $259 ($16)
Partition—Residential, Interior (up to 30 l.f.) $487 $511 ($24) Additional partition $243 $259 ($16)
Patio Cover / Gazebo
Wood frame $584 $923 ($339)
Metal frame $584 $923 ($339)
Other frame $816 $923 ($107)
Additional patio $350 $396 ($46)
Enclosed prefabricated Sun Room $816 $907 ($91)
Photovoltaic System
Residential:

Systems up to 15kW $427 $450 ($23)
Each Additional kW Above 15kW New $15
Multi-Family and Commercial:

Systems up to 50kW $608 $1,000 ($392)
Each Additional kW between 50kW and 250kW $62 $7 $55
Each Additional kW Above 250kW $62 $5 $57
Thermal System
Residential:

Systems up to 10kW New $450 N/A
Each Additional kW Above 10kW New $15 N/A
Multi-Family and Commercial:

Systems up to 30kW New $1,000 N/A
Each Additional kW between 30kW and 260kW New $7 N/A
Each Additional kW Above 260kW New $5 N/A
Pile Foundation
Cast in Place Concrete (first 10 piles) $1,094 $1,182 ($88) 1094
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Fee Name Current Fee Total Cost Difference
Additional Piles (increments of 10) $729 $792 ($63)
Driven (steel, pre-stressed concrete) $1,094 $1,182 ($88) Additional Piles (increments of 10) $729 $792 ($63)
Product Review $243 $253 ($10)
Plan Review
Standard Plan Review Hourly Rate $243 $275 ($32)
Overtime Plan Review (4 hour minimum) $243 $321 ($78)
Pre-Submittal Plan Review (2 hour minimum) $243 $275 ($32) Expedited Plan Review
New

1.5x Plan
Check Fee
Supplemental Plan Review (After 2nd Review) $242 $275 ($33) Pre-Construction Meeting $460 $446 $14
Remodel—Residential
Kitchen (up to 300 sq. ft.) $971 $1,028 ($57)
Bath (up to 300 sq. ft.) $971 $1,028 ($57)
Other Remodel (up to 300 sq. ft.) $729 $907 ($178)
Additional remodel (each 300 sq. ft.) $364 $679 ($315)
Other Remodel (1000 sq. ft.) $2,308 $2,491 ($183)
Additional remodel (each 300 sq. ft.) $364 $158 $206
Other Remodel (2500+ sq. ft.) $3,037 $3,282 ($245)
Additional remodel (each 300 sq. ft.) $364 $79 $285
Re-roof
Residential (maximum $500 per building) $26 $25 $1
Multi-Family Dwelling (maximum $500 per building) $26 $25 $1 Commercial:

Commercial (first 5,000 sf) $608 $633 ($25)
Commercial (each additional 2,500 sf) $243 $259 ($16)
Retaining Wall (concrete or masonry)
Standard (up to 50 l.f.) $1,094 $1,182 ($88)
Additional retaining wall $729 $792 ($63)
Special Design, 3-10' high (up to 50 l.f.) $1,577 $1,715 ($138) Additional retaining wall $729 $1,050 ($321)
Special Design, over 10' high (up to 50 l.f.) $1,821 $1,974 ($153) Additional retaining wall $729 $1,309 ($580)
Gravity/Crib Wall, 0-10' high (up to 50 l.f.) $1,577 $1,715 ($138) Additional Gravity/Crib Wall $971 $1,050 ($79)
Gravity/Crib Wall, over 10' high (up to 50 l.f.) $1,821 $1,974 ($153) Additional Gravity/Crib Wall $971 $1,309 ($338)
Revisions $608 $259 $349
Sauna—steam $850 $907 ($57)
Siding
Stone and Brick Veneer (interior or exterior) $608 $633 ($25) All Other (up to 400 sq. ft.) $487 $503 ($16)
Additional siding (up to 400 sq. ft.) $121 $129 ($8)
Signs
Directional $487 $511 ($24)
Each additional Directional Sign $243 $267 ($24)
Ground/Roof/Projecting Signs $487 $511 ($24)
Master Plan Sign Check $487 $511 ($24)
Rework of any existing Ground Sign $487 $511 ($24)
Other Sign $487 $511 ($24)
Reinspection Fee $121 $122 ($1)
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Fee Name Current Fee Total Cost Difference
Wall/Awning Sign, Non-Electric $364 $382 ($18)
Wall/Awning Sign, Electric $364 $511 ($147)
Skylight
First (3) Skylights Modified $511 N / A
Each Additional Skylight Modified $267 N / A
Stairs—First Flight $487 $511 ($24)
Each additional flight $243 $267 ($24)
Storage Racks
0-8' high (up to 100 l.f.) $608 $649 ($41)
each additional 100 l.f. $121 $129 ($8)
over 8' high (up to 100 l.f.) $608 $778 ($170)
each additional 100 l.f. $121 $129 ($8)
Stucco Applications
Base $487 $503 ($16)
Additional Stucco Application $121 $129 ($8)
Swimming Pool/Spa
Vinyl-lined $1,094 $1,182 ($88)
Fiberglass $1,094 $1,182 ($88)
Gunite (up to 800 sf) $1,577 $1,699 ($122)
Additional pool (over 800 sf) $364 $396 ($32)
Commercial pool (up to 800 sf) $2,672 $2,881 ($209)
Additional pool (over 800 sf) $729 $792 ($63)
Spa or Hot Tub (Pre-fabricated) $487 $511 ($24)
Temporary Structures $729 $778 ($49)
Tenant Improvement Preparation $487 $511 ($24)
Window or Sliding Glass Door
Replacement (first 8 windows) $364 $374 ($10)
Replacement (each additional 8 windows) $121 $129 ($8)
New Window (nonstructural) $305 $320 ($15)
New window (structural shear wall/masonry) $426 $454 ($28) Bay Window (structural) $426 $454 ($28)
Mechanical, Electrical, and Plumbing (MEP) Fees
Mechanical Fees
Mechanical Permit Fee $82 $263 ($181)
Stand Alone Mechanical Plan Check $243 $263 ($20)
Other Mechanical Inspections $243 $263 ($20)
Mechanical Unit Fees
Install or relocate HVAC system or portion there of
Residential New $259 N/A
Commercial New $388 N/A
Hood installation that is served by mechanical
exhaust, including the ducts for
such hood
Residential $121 $129 ($8)
Commercial $364 $517 ($153)
Any other piece of equipment or appliance not listed in Mechanical schedule. $182 $259 ($77)
Electrical Fees
Electrical Permit Fee $82 $263 ($181)
Electrical Plan Check $243 $263 ($20)
Electrical Inspections $243 $263 ($20)
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Fee Name Current Fee Total Cost Difference
Electrical Unit Fees
Residential Whole-House Rewire (up to 2500 sq ft) $486 $517 ($31) Each Additional 1000 sq ft $243 $259 ($16)
Receptacle, switch, lighting, or other outlets at which current is used or controlled, except services, feeders, and meters
First 20 $82 $86 ($4)
Each Additional $7 $9 ($2)
Lighting fixtures, sockets, or other lamp-holding
devices
First 20 $121 $129 ($8)
Each Additional $9 $9 $0
Pole or platform-mounted lighting fixtures $26 $30 ($4) Appliances (Install / Repair / Replace)
Residential New $44 N/A
Commercial New $85 N/A
Power Apparatus - Generator/Transformer or Similar
(Install/Repair/Replace)
Residential $243 $388 ($145)
Commercial $243 $259 ($16)
Services (including Temporary Power)
600 volts or less, up to 200 amperes in rating $82 $86 ($4) 600 volts or less, 201 to 1000 amperes in rating $121 $259 ($138) Over 600 volts or over 1000 amperes in rating $243 $388 ($145) Any other Electrical apparatus, conduits, and
conductors not listed in Electrical Schedule $243 $0 $243 Plumbing / Gas Fees
Plumbing/Gas Permit Fee $82 $263 ($181)
Stand Alone Plumbing Plan Check $243 $263 ($20)
Other Plumbing and Gas Inspections $243 $263 ($20)
Plumbing / Gas Unit Fees
Residential Whole-House Water Re-Pipe (up to 2500
sq ft) $486 $517 ($31)
Each Additional 1000 sq ft $243 $259 ($16)
Partial Water Re-pipe
Residential $24 $517 ($493)
Commercial $15 $259 ($244)
Install or Replace Water Meter / Service $62 $17 $45
Water Treatment System (Install/Repair/Replace) $82 $0 $82 Building sewer lateral (Install / Repair / Replace)
Residential $62 $65 ($3)
Commercial $121 $129 ($8)
Sewer Clean-out (Install/Repair/Replace)
Residential $62 $65 ($3)
Commercial $121 $129 ($8)
Building Drain/Waste/Vent Repair
Residential New $26 N/A
Commercial New $18 N/A
Interceptors - Grease/Sand (Install/Repair/Replace) $182 $194 ($12) Water Heater Replacement / Installation - All Types
Residential $62 $65 ($3)
Commercial $182 $194 ($12)
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Fee Name Current Fee Total Cost Difference
Gas Piping (Install/Repair/Replace) $121 $129 ($8)
Any other device/fixture not listed in Plumbing
Schedule (Install/Repair/Replace) New $129 N/A
Generally, Building under-recovers for their Flat and MEP fees. The largest deficit at $580 is in relation to ‘Retaining Wall (concrete or masonry) – Special Design, over 10’ high – Additional retaining wall’, followed by ‘Partial Water Re-Pipe - Residential’ and ‘Partial Water Re-Pipe – Commercial’ at $493 and $244, respectively. The largest over-recoveries are in relation to ‘Remodel – Residential’ and ‘Skylights’ as both of these fee categories not only have proposed unit changes but the staff effort captured within the fees were modified.

Currently, the City does not capture time associated with the Planning Division’s review and inspection on Building permits. It was determined that a fee based on a percentage of the building permit would be added to Building’s fee schedule to account for Planning support provided during the construction phase. This percentage was calculated at 15% of the building permit fee.

Annual Revenue Impacts
Based on the prior year’s workload information, and current budgeted expenditures, annual cost recovery was evaluated. The following table shows by major fee category:
revenue at current fee, total projected annual cost, and the resulting difference.

Table 12: Annual Results – Building
Fee Category
Revenue at
Current Fee Annual Cost Difference
Flat & MEP Fees $1,290,973 $1,567,052 ($276,079)
Sq. Ft. $2,509,608 $2,577,404 ($67,796)
Planning Cross-Dept Support $0 $193,305 ($193,305)
Total $3,800,581 $4,337,761 ($537,180)
Building has an annual cost recovery of 88%, which translates to roughly a $537,000 subsidy. The majority of the difference is due to Flat and MEP fees, primarily due to ‘Additions (Non-Hillside R3 Occupancy) – Plan Check’ and ‘Additions (Non-Hillside R3 Occupancy) – Inspections’. The next largest subsidy is due to lack of recovery for Planning support on building plan checks and permits. The City should consider implementing a separate fee to allow for greater cost recovery. 1098
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7. Public Works Department
The Public Works Department is responsible for the daily upkeep and maintenance of City owned and operated facilities and infrastructure. The fees examined within this study relate to oversight and permitting of improvements that affect the public right of way and public infrastructure, including, encroachments, map services, public improvements, tree planting, and more. The following subsections discuss fee schedule modifications and detailed per unit results for the fee-related services provided by Public Works.

Fee Schedule Modifications
In discussions with staff, the following modifications were proposed to the current fee schedule:
• Fee Name Changes: The following fee names were updated to more accurately reflect the services provided:
- ‘Grading Permit - <10,000 s.f. lot’ is now ‘Grading Permit - <10,000 s.f.’ - ‘Review of Building Permit Only’ is now ‘Stand Alone Building Permit Review’ • Eliminated Fee: The following fees are proposed for elimination from the Public Works fee schedule:
- The ‘Stormwater Permit -Initial Inspection’ fee was eliminated as the City seldomly charged the fee and instead is working towards voluntary cooperation and compliance
- ‘Trash Enclosure’ fees were eliminated as these fees are now captured under Environmental Plan Review.
• New Fees: The following fees are proposed for addition to the Public Works fee schedule:
- Environmental Plan Review
- Construction and Demolition Diversion Compliance Review - Development Project Review
- Planning Application Review
- VMT Monitoring Fee
These modifications ensure that the proposed fee schedule provides a clear and concise list of Public Works services.
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Detailed Results
The Public Works Department collects fees for encroachments, map services, public improvements, tree planting, etc. The total cost calculated for each service includes direct staff costs, Departmental and Citywide overhead, and cross-departmental support3. The following table details the fee name, current fee, total cost, and difference associated with each service offered.

Table 13: Total Cost Per Unit Results – Public Works
Fee Name Current Fee Total Cost Difference
Encroachment Permits
Minor Encroachment Permits (Local Streets) $647 $602 $45 Minor Encroachment Permits (Utility) $447 $416 $31
Major Encroachment Permits (Arterials and
Collectors) $1,115 $1,057 $58
Work without Permit Double the permit cost
Small Cell Facility Encroachment Permit $2,228 $2,195 $33 Minor Street Cuts $1,785 $1,729 $56
Major Street Cuts $3,601 $3,515 $86
Special Major Permit (projects in excess of $30,000 or
over 15 working days) 5% 5% 0%
Special Major Permit (projects in excess of $30,000 or
over 15 working days) $80 $254 ($174)
Permit Extension $524 $523 $1
Crane Lift New $1,415 N/A
Grading Permit
<10,000 s.f. $1,376 $1,338 $38
10,000 s.f. or greater - Min. $4,015 $4,842 ($827)
10,000 s.f. or greater - % of Improvement 6.00% 7.24% (1.24%) Mapping Services
Parcel Map (1‐4 lots) $8,170 $8,299 ($129)
Tract Map (> 4 lots) $13,413 $13,549 ($136)
Certificate of Correction $1,155 $1,113 $42
Certificate of Compliance - Initial Review $1,265 $3,935 ($2,670) Certificate of Compliance - Finalize Certificates $1,265 $3,935 ($2,670) Lot Line Adjustment $4,069 $4,173 ($104)
Annexation (plus County filing fee) $2,948 $3,486 ($538) Plan Check and Inspection
Stand Alone Building Permit Review $1,218 $1,289 ($71)
Additional Plan Review ‐ 3 or more reviews $279 $315 ($36) Revisions to Plans and Permits $279 $315 ($36)
Floodplain Evaluation/Elevation Certificate Review $271 $297 ($26) Streamside Permit $494 $462 $32
Storm Management Plan Review $1,789 $2,202 ($413)
Professional Services 3rd Party Consultant Review Cost of Review + City Administrative Fee Public Works Confirmation $542 $629 ($87)
Review of Public/Private Improvement Plans
Residential - Minimum $5,392 $5,598 ($206)
3 Planning, City Attorney, City Clerk, Maintenance, GIS, and Environmental provide cross-departmental support on various Public Works fees.
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Fee Name Current Fee Total Cost Difference
Residential - Cost of Improvement 5.00% 5.19% (0.19%)
Commercial - Minimum $10,086 $10,621 ($535)
Commercial - Cost of Improvement 6.00% 6.32% (0.32%)
Planning Application Review New $1,573 N/A
VMT Monitoring Fee New $188 N/A
Transportation Permit (State Regulated Fee)4
Single $16 $16 $0
Annual Utility Company $90 $90 $0
Miscellaneous
Large Banners Across Stevens Creek Boulevard $741 $730 $11 Block Party $0 $1,338 ($1,338)
Additional Engineering Investigation or Coordination $279 $315 ($36) Public Works Staff Time $256 $288 ($32)
Vacation of Public Street ROW/PUE
Summary Vacation $3,091 $3,168 ($76)
Full Vacation $4,809 $4,930 ($121)
Rural/Semi‐Rural Classification Application
Application Phase $2,518 $2,571 ($53)
Implementation Phase $1,540 $1,594 ($54)
Permit Parking Study
Application Phase $1,540 $1,397 $143
Implementation phase $1,261 $1,138 $123
Permit Parking Bi‐annual Fee $0 $39 ($39)
Environmental Programs
Stormwater Permit - Re‐Inspection for Violations $355 $431 ($76) Plan Review Fee:

Single Family New $157 N/A
Multi-Family New $313 N/A
Construction and Demolition Diversion Compliance
Review New $106 N/A
Development Project Review New $271 N/A
Public Tree Planting Cost
24" Street Tree $515 $1,018 ($503)
36" Street Tree or larger Actual Costs
Public Works generally under-recovers on fees for service. Under-recoveries range from a low of $26 for ‘Floodplain Evaluation/Elevation Certificate Review’ to a high of $2,670 for ‘Certificate of Compliance – Initial Review’ and ‘Certificate of Compliance – Finalize Certificates’. Due to a policy decision, the City currently does not charge for ‘Block Party’ permits; as such, the $1,338 cost associated with this activity documents the full-cost subsidy provided to applicants by the City.
4 Cal. Code Regs. tit. 21 § 1411.3 (a)
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Annual Revenue Impacts
Utilizing the prior year’s workload information, the project team compared the revenue at current fee to the revenue at the calculated full cost. This analysis provides a ‘per unit’ difference and a cost recovery percentage which can be used to estimate the fiscal impact of implementing the results from this fee study. The following table shows by major fee category: revenue at current fee, revenue at calculated full cost, and the resulting difference.

Table 14: Annual Results – Public Works
Fee Category
Revenue at
Current Fee
Revenue at
Calculated
Full-Cost Difference
Encroachment Permits $660,932 $664,363 ($3,431)
Mapping Services $25,652 $26,020 ($368)
Plan Check and Inspection $133,510 $144,898 ($11,388)
Review of Public/Private Improvement Plans $13,042 $13,540 ($498) Transportation Permit (State Regulated Fee) $834 $834 $0 Miscellaneous $288,358 $333,080 ($44,722)
Total $1,122,328 $1,182,734 ($60,407)
Public Works has an annual cost recovery of 95%, which represents a roughly $60,000 deficit. The largest deficit is in the Miscellaneous fee category associated with services billed out at the public works staff hourly rate. Reviewing and updating this rate will allow the department to achieve greater cost recovery.
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8. Planning
The Planning division is responsible for ensuring current and future development aligns with the City’s general and master plan. As such, the fees examined within this study relate to zoning, subdivisions, exceptions, appeals, etc. The following subsections discuss fee schedule modifications and detailed per unit results for the fee-related services provided by Planning.

Fee Schedule Modifications
In discussions with staff, the following modifications to the fee schedule were proposed. • New Fees: The following fees were proposed for addition to the Planning fee schedule:
- ‘Project Review Meeting’
- ‘Preliminary Application Review – Single Family’
- ‘Preliminary Application Review – Non-Residential (Retail / Industrial / Office / Hotel): <10,000 sf’
- ‘Preliminary Application Review – Non-Residential (Retail / Industrial / Office / Hotel): >10,000 sf’
- ‘Preliminary Application Review – Residential / Mixed Use: Duplex’ - ‘Preliminary Application Review – Residential / Mixed Use: 3-6 Units’ - ‘Preliminary Application Review – Residential / Mixed Use: 6-50 Units’ - ‘Preliminary Application Review – Residential / Mixed Use: >50 Units’ - ‘Planning Inspection’
- ‘Application Revisions (after 2nd Review)’
- Mercury News Ad’
- ‘Special Events’
- ‘Sign Permit’
The proposed addition of new fees ensure that the proposed fee schedule more accurately reflects the services currently being provided by Planning staff.

Detailed Results – Flat Fees
Planning collects flat fees for subdivisions, exceptions, appeals, and more. The total cost calculated for each service includes direct staff costs, Departmental and Citywide overhead, and cross-departmental support5. The following table details the fee name, current fee, total cost, and difference associated with each service offered. 5 Traffic Engineering, Environmental, and Building provide cross-departmental support on various Planning fees. 1103
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Table 15: Total Cost Per Unit Results – Planning Flat Fees Fee Name Current Fee Total Cost Difference
Planning Staff Hourly Rate $332 $287 $45
Subdivision
Tentative Map (Five or More Parcels) $34,792 $46,604 ($11,812) Parcel Map (0-4 Parcels) $20,917 $27,117 ($6,200)
Conditional Use/Development Permit
Temporary Use Permit $4,639 $5,030 ($391)
Administrative Conditional Use Permit $7,682 $10,614 ($2,932) Minor $21,043 $25,496 ($4,453)
Major $35,064 $38,905 ($3,841)
Amendment to Conditional Use Permit/Development Permit
Minor $9,666 $11,501 ($1,835)
Major $17,654 $24,819 ($7,165)
Architectural and Site Approval Permit
Minor Duplex/Residential $7,393 $10,584 ($3,191)
Minor $14,557 $16,515 ($1,958)
Major $21,667 $25,195 ($3,528)
Single Family (R-1) Residential Permits
Minor Residential Permit $3,796 $3,983 ($187)
Two-Story Permit without Design Review $4,929 $4,985 ($56) Two-Story Permit with Design Review $5,915 $6,088 ($173) Director Minor Modification $5,185 $5,441 ($256)
Ministerial Residential Permit
Miscellaneous Ministerial Permit $4,322 $4,506 ($184)
Exceptions
Fence Exception - R1 and R2 $1,411 $4,626 ($3,215)
Fence Exception - Other $4,749 $5,132 ($383)
Sign Exception $5,405 $6,911 ($1,506)
R-1 Exception $7,677 $7,742 ($65)
Heart of the City Exception $21,460 $24,873 ($3,413)
Hillside Exception $22,241 $23,724 ($1,483)
Exception - Other $7,408 $7,862 ($454)
Variance $8,489 $8,990 ($501)
Reasonable Accommodation $1,232 $3,570 ($2,338)
Tree Removal Permit
Tree Removal Permit (no Arborist review required):

First Tree $328 $1,260 ($932)
Each Additional Tree $165 $276 ($111)
Tree Removal Permit (Arborist review required):

First Tree $492 $2,305 ($1,813)
Each Additional Tree $247 $950 ($703)
Retroactive Tree Removal Permit $5,464 $5,464 $0
Heritage Tree Designation $411 $4,182 ($3,771)
Tree Management Plan $7,724 $7,871 ($147)
Signs
Temporary Sign Permit $524 $547 ($23)
Sign Program $4,242 $4,411 ($169)
Planning Commission Interpretation $7,822 $7,973 ($151) Extension of Approved Entitlements $2,103 $643 $1,460
Environmental Assessment
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Fee Name Current Fee Total Cost Difference
Categorical Exemption (Plus County Filing Fee) $379 $397 ($18) Appeals
Planning Commission $379 $19,006 ($18,627)
City Council $379 $19,294 ($18,915)
Miscellaneous Fees
Legal Noticing Fee $440 $521 ($81)
Zoning Verification Letter $555 $577 ($22)
Public Convenience & Necessity Letter (Alcohol
Beverage License) $279 $288 ($9)
Short-Term Rental $232 $405 ($173)
Mobile Vending Registration Fee $332 $543 ($211)
Proposed New Fees
Project Review Meeting New $5,106 N/A
Preliminary Application Review
Single Family New $4,042 N/A
Non-Residential (Retail / Industrial / Office / Hotel):
<10,000 sf New $9,421 N/A
>10,000 sf New $12,999 N/A
Residential / Mixed Use:

Duplex New $3,428 N/A
3-6 Units New $14,776 N/A
6-50 Units New $18,427 N/A
>50 Units New $23,213 N/A
Planning Inspection New $860 N/A
Application Revision (after 2nd review) New $10,400 N/A Mercury News Ad New
Actual Cost + 15% Admin
Charge
Special Events New $7,779 N/A
Sign Permit New $6,911 N/A
Planning under-recovers for all their fees. The largest under-recoveries are within the Appeals category, at $18,627 for ‘Appeals – Planning Commission’ and $18,915 for ‘Appeals – City Council’. It is common to see large subsidies in relation to appeals due to the understanding that the benefit to the community having access to the appeal process outweighs the benefit of recovering the full cost to the City. There are also several new fees being proposed to be added to help recover costs for services currently being provided but for which there is no fee on the fee schedule.

Detailed Results – Deposit Based Fees
The Planning division currently collects several deposit-based fees associated with general plan and zoning amendments. These fees are billed at the staff fully burdened hourly rate. The following lists all deposit-based fees assessed by the Planning division:
• General Plan Authorization
• General Plan Amendment
• Zoning Map Amendment
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• Zoning Text Amendment
• Zoning – Single Story Overlay District
• Study Session
These fees would continue to remain deposit-based and should be billed out at the updated fully burdened staff hourly rate of $287 to ensure that there is full cost recovery.

Annual Revenue Impacts
Utilizing the prior year’s workload information, the project team compared the revenue at current fee to the revenue at the calculated full cost. This analysis provides a ‘per unit’ difference and a cost recovery percentage, which can be used to estimate the fiscal impact of implementing the results from this fee study. The following table shows by major fee category: revenue at current fee, revenue at calculated full cost, and the resulting difference.

Table 16: Annual Results – Planning
Fee Category
Revenue at
Current Fee
Revenue at
Calculated Full Cost Difference
Subdivision - Tentative Map (Five or More Parcels) $69,584 $93,209 ($23,625) Conditional Use/Development Permit $107,471 $125,455 ($17,984) Architectural and Site Approval Permit $94,452 $107,772 ($13,320) Single Family (R-1) Residential Permits $272,286 $277,093 ($4,807) Director Minor Modification $119,255 $125,149 ($5,894)
Exceptions $23,652 $28,350 ($4,698)
Tree Removal Permit $22,960 $103,144 ($80,184)
Signs $1,048 $1,094 ($46)
Extension of Approved Entitlements $2,103 $643 $1,460
Zoning Verification Letter $3,885 $4,037 ($152)
Preliminary Application Review - Single Family $0 $20,212 ($20,212) Total $716,696 $886,158 ($169,462)
Planning has an annual cost recovery of 81%, which represent a roughly $169,000 deficit.

Roughly $80,000 of the $169,000 difference is due to ‘Tree Removal Permits’, primarily ‘Tree Removal Permit (Arborist review required)’. The City currently charges this fee at $492 per tree, the full cost was calculated to be $2,305 per tree, resulting in a $1,813 per unit deficit. While Tree Removal Permits are often subsidized to mitigate impacts to the community, due to the large annual volume of these permits even a small adjustment to the fee would have a significant impact on bridging Planning’s cost recovery gap. 1106
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9. Parks & Recreation
Within the Parks and Recreation Department, the Recreation Services Organization is responsible for providing residents and visitors with recreational and leisure activities.

The Department coordinates, promotes, and oversees recreation services across various programs. The following dot points provide an overview of each program:
• Cultural Events is responsible for facilitating City hosted events and acting as liaison for community sponsored special events.
• Facilities is responsible for managing daily operations and overseeing the rental of the Community Hall, Quinlan Community Center, and the Creekside Park building.
• Youth Teen Recreation is responsible for developing and overseeing fee-based youth and teen programs (i.e. summer camps, preschool, enrichment classes, etc.).
• Senior Center is responsible for developing and overseeing activities at the Senior Center (i.e., enrichment classes, group trips, social events, etc.). • Youth and Teen Programs is responsible for supporting the Youth Activity Board, coordinating the teen summer volunteer program, producing on youth specific special events, and managing daily operations of the Monta Vista Recreation Center.
• Neighborhood Events is responsible for scheduling summer events at neighborhood parks (i.e., outdoor concerts and movies, fitness programs, performances, etc.).
• Park Facilities is responsible for the operations of Blackberry Farm which provides open spaces for various recreational activities (i.e., swimming, picnics, etc.) along with overseeing and managing the McClellan Ranch Preserve and the Community Garden.
• Blackberry Farms Golf Course is responsible for managing the daily operations of the City’s nine-hole golf facility.
• Sports Center Operations is responsible for managing the daily operations of the Cupertino Sports Center, along with providing various wellness and sport related activities (i.e., tennis, pickleball, fitness classes, etc.). 1107
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• Outdoor Recreation is responsible for providing the community with various sports, fitness, and outdoor activities (i.e., swim classes, sports leagues, nature, and science programs, etc.).

Like most cities, Cupertino assess most of their fees within each program on a tiered basis, proportionate to the benefit provided to the community. Depending on where the applicant falls on the tiered system their fee(s) will vary based on the associated cost recovery goal for that group. Cupertino classifies applicants into four groups: Cupertino Non-Profit, Non-Profit, Resident, and Non-Resident. Grants, special funding, or general fund subsidies are then used to offset the difference in cost recovery to ensure that the community and visitors have equitable access to programs and facilities.

Recreation fees are classified as market driven due to their optional nature. Residents have the choice of utilizing the programs and facilities within their own community or those of a neighboring city. Given this, while the project team worked with parks and recreation staff to review costs associated with individual program fees, this report focuses and highlights overall programmatic cost recoveries.

The following subsections provide an overview of the legal framework for recreational fees along with a cost recovery analysis of Cupertino’s Park and Recreation services at the programmatic level.

Parks & Recreation Legal Framework
There are specific rules and regulations within California State Law that impact Parks and Recreation related activities directly. These can be separated into two categories – rental rates and recreation programs. The following points provide further information regarding these items:

1. Rental Rates: One of the exceptions to the tax category under proposition 26 is a charge imposed for entrance to or use of local government property, or the purchase, or rental, or lease of local government property6. There is no requirement that these rates must be limited to the cost of service, as they can be dependent upon a variety of features of the facility or park being rented.

2. Recreation Programs: Under Proposition 26, the exception to the tax category is a charge that is “imposed”. Based upon the League of California Cities implementation guide for Proposition 26, as well as other legal opinions, recreation classes, youth sports, adult sports, are not a charge that is “imposed upon residents”. Rather residents have the option to voluntarily participate in those 6 Proposition 26 Article XIII C(1)(e)(4)
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programs and utilize a private entity (non-governmental entity) for those activities.

Therefore, these rates are allowed to be set based upon the market options within the area rather than being restricted to the cost of service being provided.

Utilizing these two principals is key to understanding the results generated through this analysis. As such, when setting fees specific to Parks and Recreation fees do not need to be set at or under the cost of service, rather, fee amount(s) can and should be based upon the rates that the market can bear.

Cost Recovery Analysis – Direct Expenses
The typical cost recovery for Parks and Recreation services is between 20-50%. The lowcost recovery for these services is due to the belief that these services primarily benefit the community at large, and as such are providing a direct benefit to residents and the community. The Parks and Recreation Department recovers approximately 54% of its direct costs, which is slightly above the average seen in other jurisdictions. This cost recovery percentage equates to an annual subsidy of approximately $4.4 million. In order to assess cost recovery, the project team compared FY24 budgeted expenditures with FY22 actual revenue to assess the direct cost recovery. The following table shows by program: expenditures, revenue, and the resulting cost recovery percentage.

Table 17: Annual Parks & Recreation Program Cost Recovery – Direct Costs Program Revenue Budget Difference Cost Recovery %
Cultural Events $1,221 $437,794 ($436,573) 0.28%
Facilities $203,173 $390,211 ($187,038) 52%
Youth Teen Recreation $854,411 $1,703,251 ($848,840) 50% Senior Center $70,129 $812,264 ($742,135) 9%
Youth and Teen Programs $0 $278,895 ($278,895) 0%
Neighborhood Events $0 $92,872 ($92,872) 0%
Park Facilities $195,207 $1,270,364 ($1,075,157) 15%
BBF Golf Course $602,779 $642,342 ($39,563) 94%
Sports Center Operations $2,796,329 $2,840,279 ($43,950) 98% Outdoor Recreation $439,717 $1,086,993 ($647,276) 40%
Total $5,162,966 $9,555,265 ($4,392,299) 54%
The primary contributor to the Department’s deficit is Park Facilities at $1.1 million; followed by ‘Youth Teen Recreation’ and ‘Senior Center’ at $849,000 and $742,000, respectively. These large differences align with programs which offer a higher community benefit, as such, they are subsidized. While the programs which have a more individual benefit (BBF Golf Course, Sports Center, etc.) have less of a difference and their individual cost recovery percentages are closer to 100%.
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Cost Recovery Analysis – Direct & Indirect Expenses
In the previous section, the cost recovery only incorporated direct budgeted expenditures for the Department. However, various indirect costs are associated with the daily operations within the Department. The following dot points summarize the indirect cost components included in this analysis:
• Citywide: consists of indirect costs from other City departments, such as, Finance, Human Resources, City Manager, etc., who do not deal directly with recreation fees but do support the staff who spend direct time on fees. • Departmental / Administrative: consists of indirect support from the administrative programs within the Parks and Recreation Department who provide administrative and managerial support to staff who spend direct time on fees. • Parks & Recreation Maintenance: consists of costs from programs which act as budgetary centers for the continued maintenance and upkeep of open spaces and facilities.

The result of adding the direct and indirect costs together creates “fully burdened” expenditures, allowing for a more accurate comparison of cost recovery. The following table shows the cost recovery percentages at the programmatic level based upon comparing FY22 Actual Revenue to the calculated “fully burdened” expenditures.

Table 18: Annual Parks & Recreation Program Cost Recovery – Total Costs Program Revenue
Direct &
Indirect Exp Difference Cost Recovery %
Cultural Events $1,221 $768,430 ($767,209) 0.16%
Facilities $203,173 $802,246 ($599,073) 25%
Youth Teen Recreation $854,411 $2,827,397 ($1,972,986) 30% Senior Center $70,129 $1,437,067 ($1,366,938) 5%
Youth and Teen Programs $0 $503,414 ($503,414) 0%
Neighborhood Events $0 $179,317 ($179,317) 0%
Park Facilities $195,207 $2,536,875 ($2,341,668) 8%
BBF Golf Course $602,779 $1,217,291 ($614,512) 50%
Sports Center Operations $2,796,329 $5,116,163 ($2,319,834) 55% Outdoor Recreation $439,717 $1,880,645 ($1,440,928) 23% Total $5,162,966 $17,268,845 ($12,105,879) 30%
With the inclusion of indirect expenses, the Department’s cost recovery percentage decreases from 54% to 30% and the dollar value of the deficit increases from $4.4 million to $12.1 million. At $2.3 million each, Park Facilities and Sports Center Operations are the largest contributors to the Department’s deficit. Since both programs have fees which are primarily based on market-rate it is imperative that staff and management evaluate these 1110
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fees and adjust appropriately to not only align with established cost recovery polices and targets but also to lessen the cost recovery gap.

Summary
Certain Parks and Recreation programs tend to achieve higher cost recovery (i.e., rentals and Golf Course); whereas other programs (i.e., neighborhood events and senior activities), due to their benefit to the community, have lower cost recovery. The following table compares both cost recovery percentages at the programmatic level.

Table 19: Programmatic Cost Recovery Comparison
Program
Direct Exp Cost
Recovery %
Direct & Indirect Exp
Cost Recovery %
Cultural Events 0.28% 0.16%
Facilities 52% 25%
Youth Teen Recreation 50% 30%
Senior Center 9% 5%
Youth and Teen Programs 0% 0%
Neighborhood Events 0% 0%
Park Facilities 15% 8%
BBF Golf Course 94% 50%
Sports Center Operations 98% 55%
Outdoor Recreation 40% 23%
Total 54% 30%
By incorporating the indirect costs associated with parks and recreation operations the Departmental cost recovery percentage of 54% decreases to 30%, which is within the typical cost recovery range of 20% – 50%. The following dot points provide a summary of each programs cost recovery comparison:
• Cultural Events recovers 0.28% of its costs providing an annual subsidy of $437,000 in relation to its direct costs. When indirect costs are factored in this program recovers 0.16% off its costs providing an annual subsidy of $767,000. • Facilities recovers 52% of its costs providing an annual subsidy of $187,000 in relation to its direct costs. When indirect costs are factored in this program recovers 25% off its costs providing an annual subsidy of $599,000. • Youth Teen Recreation recovers 50% of its costs providing an annual subsidy of $848,000 in relation to its direct costs. When indirect costs are factored in this program recovers 30% off its costs providing an annual subsidy of $1.97 million. 1111
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• Senior Center recovers 9% of its costs providing an annual subsidy of $742,000 in relation to its direct costs. When indirect costs are factored in this program recovers 5% off its costs providing an annual subsidy of $1.4 million. • Youth and Teen Programs recovers 0% of its costs providing an annual subsidy of $279,000 in relation to its direct costs. When indirect costs are factored in this program recovers 0% off its costs providing an annual subsidy of $503,000. • Neighborhood Events recovers 0% of its costs providing an annual subsidy of $93,000 in relation to its direct costs. When indirect costs are factored in this program recovers 0% off its costs providing an annual subsidy of $179,000. • Park Facilities recovers 15% of its costs providing an annual subsidy of $1.1 million in relation to its direct costs. When indirect costs are factored in this program recovers 8% off its costs providing an annual subsidy of $2.3 million. • Blackberry Farms Golf Course recovers 94% of its costs providing an annual subsidy of $40,000 in relation to its direct costs. When indirect costs are factored in this program recovers 50% off its costs providing an annual subsidy of $615,000 • Sports Center Operations recovers 98% of its costs providing an annual subsidy of $44,000 in relation to its direct costs. When indirect costs are factored in this program recovers 55% off its costs providing an annual subsidy of $2.3 million. • Outdoor Recreation recovers 40% of its costs providing an annual subsidy of $647,000 in relation to its direct costs. When indirect costs are factored in this program recovers 23% off its costs providing an annual subsidy of $1.4 million.

Overall, the Department should continue their practice of evaluating cost recovery levels.

The nature of Parks and Recreation services means that fee structures are dynamic, adjusting to economic shifts and public demand. Administrators often develop and approve fee increases, with an aim to maintain the quality and accessibility of park facilities and recreational services. Fee adjustments must balance affordability for users with generating enough revenue to support ongoing operations and improvements.

Program and city management continuously navigate this cycle, considering factors like inflation, facility upgrades, and program popularity to ensure the long-term success of parks and recreation programs and services in the community. 1112
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10. Development Services Surcharges
There are two typical surcharges assessed as part of the development review process – General Plan Maintenance Fee and Technology fee. Currently, the City of Cupertino charges a tiered General Plan Maintenance fee; and does not charge a Technology fee.

As part of this study the City requested the project team calculate the full cost of permitrelated technology services for the City. The following subsections discuss the calculation of the General Plan Maintenance Fee and Technology Fee.

General Plan Maintenance Fee
A General Plan Maintenance fee is meant to account for updates to the general plan, zoning ordinance, housing elements, and other long-range planning activities that are part of the larger General Plan.

The General Plan Maintenance fee is governed by Government Code Section 66014(b) which states that fees “may include the costs reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and recommendations.” This code states that fees can be charged against zoning changes, zoning variances, use permits, building inspections, and filing applications.

More typically, the fee is charged during the building permit phase so as to ensure any development project, which gets to that phase, makes enough of an impact to require the need for an update to the Zoning Code or the General Plan. This fee should only be applied to major building permits (i.e., new or remodel / tenant improvements) rather than standalone permits for water heaters or electrical outlets.

The three most common methodologies for assessing a General Plan Maintenance fee are:
• Cost Per Square Foot: the fee is assessed based upon the total potential square footage based upon which it would be assessed.
• Percentage of Valuation: the fee is assessed based upon the total project valuation.
• Percentage of Building Permit Fee: the fee is assessed as a percentage of the total building permit fee assessed to a project.
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The project team calculated and evaluated the full cost of General Plan Maintenance based upon all three methodologies.
1 Annual Long Term Planning Costs
The City of Cupertino has a Long-Term Planning cost center housed within their Planning Division. This Division houses staff dedicated to making updates to the City’s General Plan and Housing Element. In order to determine the full cost of Long Term Planning, the project team calculated the full cost associated with the division, including direct and indirect costs. The following table shows cost component the full annual cost associated with Long Term Planning:

Table 20: Annual Cost – Long-Term Planning
Position Total Cost
Direct Costs $982,428
Indirect Costs $201,639
Annual Cost $1,184,067
Direct costs consist of salaries and benefits associated with division staff, as well as divisional services and supplies. The indirect costs account for managerial and administrative support provided by other Community Development programs, as well as citywide overhead. The roughly $1.18 million in annual division cost was used as the numerator while calculating the three options.
2 General Plan Maintenance Full Cost Calculation
Currently, the City assesses its General Plan Maintenance fee based on project square footage by occupancy type (All Non-Residential and Multi-Family, Residential Single Family, and General Plan Office Allocation). The project team calculated full cost General Plan Maintenance fee options based on the three most common methodologies noted previously. The following table shows General Plan Maintenance costs based on total square footage, total valuation, and total building permit revenue.

Table 21: General Plan Maintenance Calculation
Category
Total Square
Footage
Total
Valuation
Total Building
Permit Revenue
Total Annual Cost $1,184,067 $1,184,067 $1,184,067
General Plan Fee Basis 788,270 $276,621,670 $4,337,761
General Plan Maintenance Fee $1.50 0.43% 27%
If the City wishes to continue using the square footage methodology the full cost fee would be $1.50 per square foot. The City could simplify its current fee structure and use the singular rate of $1.5 per square foot, or proportionately reduce the $1.50 based on 1114
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occupancy type. Alternatively, the City could look at changing its methodology, and implementing either a fee based on project valuation (0.43%) or building permit cost (27%).
3 Comparison to Surveyed Jurisdictions
As part of this analysis, the project team conducted a comparative survey of other local jurisdictions and their assessment of the General Plan Maintenance Fee. Like other comparative efforts, the survey below simply shows the fees charged by the jurisdiction and does not include the basis upon which the other jurisdictions calculated or developed their fee. The following table shows the results of this comparative analysis:

Table 22: General Plan Maintenance Fee – Comparative Survey Jurisdiction Fee Amount
Milpitas 5% of Building Permit
Mountain View 0.26% of Building Valuation
Palo Alto 0.00117% of Building Valuation
Santa Clara 12.39% of Building Permit & Plan Check Fee
Sunnyvale 0.15% of Building Valuation
The General Plan Maintenance fees charged by surveyed jurisdictions are either based on building valuation or building permit. None of the surveyed jurisdictions charge fees like Cupertino - based on square footage.

Technology Surcharge Fee
A Technology Fee allows the City to support the costs associated with the City’s permitting system, staff time for managing the systems, acquiring the system, mobile devices used for permitting, etc. The City currently does not assess this fee.

The project team used the annual technology costs of the City’s permit tracking system and divided that by the prior year’s total annual revenue for Building, Planning, and Public Works permits and applications. The following table shows this calculation:

Table 23: Technology Fee Calculation
Category Amount
Total Technology Annual Cost $372,860
Total Projected Development Annual Cost $6,406,653
Technology Fee as % of Permit Fee 5.8%
Based upon this calculation, the City’s full cost Technology fee would be 5.8% of the permit fee. Therefore, if a permit fee was $100, the Technology fee collected would be $5.80; whereas if a permit fee was $1,000; the Technology fee collected would be $58. 1115
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This type of structure enables the Technology fee to be more proportionately distributed based upon the projects and their impact upon the system.

As part of this analysis, the project team conducted a comparative survey of other local jurisdictions and their assessment of a Technology Fee. Like other comparative efforts, the survey below simply shows the fees charged by the jurisdiction and does not include the basis upon which the other jurisdictions calculated or developed their fee. The following table shows the results of this comparative analysis:

Table 24: Technology Fee – Comparative Survey
Jurisdiction Fee Amount
Milpitas 3.8% of Permit Fee
Mountain View 4.0% of Permit Fee
Santa Clara 3.37% of Permit Fee
Sunnyvale 5.00% of Permit Fee
Palo Alto N/A
With the exception of Palo Alto, which does not individually charge a technology fee, all surveyed jurisdictions charge their technology fee as a percentage of the permit. The City of Sunnyvale at 5% most closely matches the City’s full cost calculated at 5.8%.

Surcharge Funds
It is a best practice to collect and account for General Plan Maintenance and Technology surcharges in separate accounts. The City of Cupertino already follows this best practice for General Plan Maintenance and should continue to collect these fees separately, along with establishing a fund for fees collected in association with the proposed Technology fee.
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11. Cost Recovery Considerations
The following sections provide guidance regarding how and where to increase fees, determine annual update factors, and develop cost recovery policies and procedures.

Fee Adjustments
This study has documented and outlined on a fee-by-fee basis where the City is under and over collecting for its fee-related services. City and Department management will now need to review the results of the study and adjust fees in accordance with Departmental and City philosophies and policies. The following dot points outline the major options the City has in adjusting its fees.
• Over-Collection: Upon review of the fees that were shown to be over-collecting for costs of services provided, the City should reduce the current fee to be in line with the full cost of providing the service.
• Immediate Increase to Full Cost Recovery: For fees that show an under-collection for costs of services provided, the City may decide to increase the fee to either (1) full cost recovery, or (2) the policy-driven fee cost recovery level of less than 100% of cost recovery.
• Phased Increase: For fees with significantly low-cost recovery levels, or which would have a significant impact on the community, the City could choose to increase fees gradually over a set period to either (1) full cost recovery, or (2) the policy-driven fee cost recovery level of less than 100% of cost recovery.

The City will need to review the results of the fee study and associated cost recovery levels and determine how best to adjust fees. While decisions regarding fees that currently show an over-recovery are fairly straight forward, the following subsections, provide further detail on why and how the City should consider either implementing Full Cost Recovery or a Phased Increase approach to adjusting its fees. 1 Full Cost Recovery
Based on the permit or review type, the City may wish to increase the fee to cover the full cost of providing services. Certain permits may be close to cost recovery already, and an increase to full cost may not be significant. Other permits may have a more significant increase associated with full cost recovery.
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Increasing fees associated with permits and services that are already close to full cost recovery can potentially bring a Department’s overall cost recovery level higher. Often, these minimal increases can provide necessary revenue to counterbalance fees which are unable to be increased.

The City should consider increasing fees for permits for which services are rarely engaged to full cost recovery. These services often require specific expertise and can involve more complex research and review due to their infrequent nature. As such, setting these fees at full cost recovery will ensure that when the permit or review is requested, the City is recovering the full cost of its services.
2 Phased Increases
Depending on current cost recovery levels some current fees may need to be increased significantly in order to comply with established or proposed cost recovery policies. Due to the type of permit or review, or the amount by which a fee needs to be increased, it may be best for the City to use a phased approach to reaching their cost recovery goals.

As an example, you may have a current fee of $200 with a full cost of $1,000, representing 20% cost recovery. If the current policy is 80% cost recovery, the current fee would need to increase by $600, bringing the fee to $800, in order to be in compliance. Assuming this particular service is something the City provides quite often, and affects various members of the community, an instant increase of $600 may not be feasible. Therefore, the City could take a phased approach, whereby it increases the fee annually over a set period until cost recovery is achieved.

Raising fees over a set period of time not only allows the City to monitor and control the impact to applicants, but also ensure that applicants have time to adjust to significant increases. Continuing with the example laid out above, the City could increase the fee by $150 for the next four years, spreading out the increase. Depending on the desired overall increase, and the impact to applicants, the City could choose to vary the number of years by which it chooses to increase fees. However, the project team recommends that the City not phase increases for periods greater than five years, as that is the maximum window for which a comprehensive fee assessment should be completed.

Annual Adjustments
Conducting a comprehensive analysis of fee-related services and costs annually would be quite cumbersome and costly. The general rule of thumb for comprehensive fee analyses is between three and five years. This allows for jurisdictions to ensure they 1118
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account for organizational changes such as staffing levels and merit increases, as well as process efficiencies, code or rule changes, or technology improvements.

The City of Cupertino already utilizes an annual update factor, that is based on the Consumer Price Index (CPI). This practice should continue to ensure that the City continues to achieve its expected cost recovery goals.

Policies and Procedures
This study has identified areas where the City is under-collecting the cost associated with providing services. This known funding gap is therefore being subsidized by other City revenue sources. Development of cost recovery policies and procedures will serve to ensure that current and future decision makers understand how and why fees were determined and set, as well as provide a road map for ensuring consistency when moving forward. The following subsections outline typical cost recovery ranges and discuss the benefits associated with developing cost recovery goals and procedures for achieving and increasing cost recovery.
1 Typical Cost Recovery
The Matrix Consulting Group has extensive experience in analyzing local government operations across the United States and has calculated typical cost recovery ranges. The following table outlines these cost recovery ranges by major service area.

Table 25: Typical Cost Recovery Ranges by Major Service Area Service Areas
Typical Cost
Recovery Ranges
Building 80-100%
Planning 50-80%
Public Works 70-100%
Information presented in the table above is based on the Matrix Consulting Group’s experience in analyzing local governments’ operations across the United States and within California and reflects typical cost recovery ranges observed by local adopting authorities. The following graph depicts how Cupertino compares to industry cost recovery range standards.
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 54
Public Works and Building fall within the typical cost recovery ranges, while Planning at 81% is just above the typical cost recovery range.
2 Development of Cost Recovery Policies and Procedures
The City should review the current cost recovery levels and adopt a formal policy regarding cost recovery. This policy can be general in nature and can apply broadly to the City as a whole, or to each department and division specifically. A department specific cost recovery policy would allow the City to better control the cost recovery associated with different types of services being provided and the community benefit received. 88%
81%
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Appendix – Comparative Survey
As part of the Cost of Services (User Fee) Study for the City of Cupertino, the Matrix Consulting Group conducted a comparative survey of various fees citywide. The City identified five (5) California jurisdictions to be included in the comparative survey:

Milpitas, Mountain View, Palo Alto, Santa Clara, and Sunnyvale. The project team then reviewed public documents (i.e., agenda items, staff reports, budgets, fee schedules, and ordinances), and or contacted jurisdictions to get comparative information.

The following sections outline key factors to consider when reviewing the comparative survey, as well as graphical comparisons of current fees and total calculated costs for various permits issued or services provided.

Factors to Consider When Reviewing Comparative Survey Results While this report provides a reasonable estimate and understanding of the true costs of providing services, many jurisdictions also wish to consider the local “market rates” for services as a means for assessing what types of changes in fee levels their community can bear. A comparative survey does not provide adequate information regarding the relationship of a jurisdiction’s cost to its fees. The following points highlight various factors to consider when reviewing comparative survey results. • Economic Factors: Three important economic factors to consider when comparing fees across multiple jurisdictions are: population, budget, and workforce size. These factors can impact how and when fees are administered, as a jurisdiction with a smaller population may choose to not charge a fee, or a smaller workforce size may inhibit their ability to administer a fee. • Recency Factors: Recency is two-fold; when did a jurisdiction last update their fee schedule and when did they last undergo a comprehensive fee analysis. It is important to note that even though jurisdictions may have conducted fee studies, fees are not always adopted at full cost recovery. The comparative results only show the adopted fee for the surveyed jurisdiction, not necessarily the full cost associated with the comparable service.
• Cost Recovery Factors: Each jurisdiction and its fees are different, and many are not based on the actual cost of providing services as various policy decision may subsidize services.
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• Fee Variance Factors: The same “fee” with the same name may include different steps or sub-activities. In addition, jurisdictions provide varying levels of service and have varying levels of costs associated with providing services such as staffing levels, salary levels, indirect overhead costs, etc.

In addition to the factors noted, market surveys can also run the risk of creating a confusing excess of data that will obscure rather than clarify policy issues. Because each jurisdiction is different, the Matrix Consulting Group recommends that the information contained in the market comparison of fees be used as supporting information, rather than a tool for establishing an acceptable price point for services.

The following two subsections provide contextual information regarding the jurisdictions included in the comparative survey.
1 Economic Factors
To provide additional context to the comparative survey information, the project team collected economic factors for the jurisdictions included. The following tables rank each jurisdiction from smallest to largest based on population, budget, and FTE.

Table 26: Ranking of Jurisdictions by Population
Jurisdiction Population7
Cupertino 60,381
Palo Alto 66,680
Milpitas 79,066
Mountain View 81,516
Santa Clara 127,151
Sunnyvale 152,258
Table 27: Ranking of Jurisdictions by Citywide Total Budget8 Jurisdiction FY24 Budget
Cupertino $121,765,857
Milpitas $231,719,202
Sunnyvale $308,422,779
Mountain View $477,721,195
Palo Alto $965,945,000
Santa Clara $11,224,306,187
7 The population values used are from the 2021US Census. 8 To ensure appropriate comparisons, full operating budget (all funds) has been used for all jurisdictions. 1122
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Table 28: Ranking of Jurisdictions by FTE
Jurisdiction FY24 FTE
Cupertino 212
Milpitas 455
Mountain View 698
Sunnyvale 936
Palo Alto 1,018
Santa Clara 22,205
When compared to the surveyed jurisdictions the City of Cupertino ranks the lowest in terms of budget, staffing, and population. Milpitas, Sunnyvale, and Mountain View tend to be in the bottom middle, while Santa Clara tends to be the highest in most categories. 2 Recency Factor
While the previous comparative information provides some perspective when comparing the City of Cupertino’s population, budget, and staffing with surveyed jurisdictions, other key factors to consider are when a jurisdiction’s fee schedule was last updated and when the last comprehensive analysis was completed. The following tables detail when each surveyed jurisdiction last updated their fee schedule and last conducted a fee study.

Table 29: Last Fee Schedule Updated
Jurisdiction Response
Milpitas 2023
Mountain View 2023
Palo Alto 2023
Santa Clara 2023
Sunnyvale 2023
Table 30: Last Fee Study Conducted
Jurisdiction Response
Sunnyvale 2010
Palo Alto 2013
Mountain View 2018
Milpitas 2019
Santa Clara 2022
All of the surveyed jurisdictions have published new fees within the past year; however, of those surveyed only Santa Clara has conducted a fee study in the last five years.

It is important to note that even though jurisdictions may have conducted fee studies, fees are not always adopted at full cost recovery. The following comparative analysis will only show the adopted fees for the surveyed jurisdictions, not necessarily the full cost associated with the comparable service.
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 58
Comparative Survey Results
As part of this study, the project team conducted a survey of how the Cupertino’s current user fees and calculated full cost compare to other identified jurisdictions. The following subsections summarize the analysis.
1 Massage Establishment - New
The current fee for a new Massage Establishment permit is $113 per permit. Through this study, the project team calculated the full cost of this permit to be $180. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are well below the jurisdictional average of $795.

Cupertino’s current fee is closest to Mountain View’s fee at $204. Sunnyvale ($1,522) and Milpitas ($1,000) both charge fees above the jurisdictional average. 2 Minor Encroachment Permit (Local Street)
The current fee for a 150-foot Minor Encroachment permit of a local street valued at $15,000 is $647 per permit. Through this study, the project team calculated the full cost of this permit to be $602. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions. $0
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The current fee and calculated full cost are well below the jurisdictional average of $1,158. Cupertino’s current fee is closest to Sunnyvale’s fee at $817. Santa Clara charges the highest fee at $1,647.
3 Lot Line Adjustment
The current fee for a Lot Line Adjustment of four lots is $4,069 per permit. Through this study, the project team calculated the full cost of this permit to be $4,173. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are slightly above the jurisdictional average of $3,628. Cupertino’s current fee is closest to Milpitas’ fee at $3,500. Palo Alto doesn’t have a specific fee for lot line adjustment, however, for 15 hours of plan check and inspection (which is the amount of time used to calculate Cupertino’s full cost) Palo Alto charges $8,415.
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4 Review of Public / Private Improvement Plans
The current fee for a Review of Public / Private Improvement plans for a residential project valued at $10,000 is $4,947 per permit. Through this study, the project team calculated the full cost of this permit to be $5,598. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are slightly above the jurisdictional average of $4,239. Sunnyvale ($6,453) and Milpitas ($11,084) are the only comparable jurisdictions which charge more than the jurisdictional average.
5 Review of Public / Private Improvement Plans
The current fee for a Review of Public / Private Improvement plans for a commercial project valued at $50,000 is $9,254 per permit. Through this study, the project team calculated the full cost of this permit to be $10,621. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions. $0
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Review of Public / Private Improvement Plans - Residential Valued at $10,000 1126
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The current fee and calculated full cost are slightly above the jurisdictional average of $10,340. Sunnyvale ($22,627) and Milpitas ($11,084) are the only comparable jurisdictions which charge more than the jurisdictional average. 6 Parcel Map
The current fee for a Parcel Map of four lots is $8,170 per permit. Through this study, the project team calculated the full cost of this permit to be $6,885. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are below the jurisdictional average of $8,370.

Cupertino’s current fee is closest to Santa Clara’s fee at $8,361, while Cupertino’s calculated full cost is closest to Sunnyvale’s fee at $6,995. At $14,255, Milpitas charges the highest fee.
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 62
7 Zoning Map Amendment
The current fee for 40 hours of Zoning Map Amendment is $13,280. Through this study, the project team calculated the full cost of this service to be $11,467. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current and full cost is below the jurisdictional average of $14,693. Milpitas ($20,000) and Palo Alto ($10,976) both charge this fee as a deposit. Of the comparable jurisdictions Santa Clara charges the most for this service at $26,550. 8 Temporary Use Permit
The current fee for a Temporary Use Permit is $4,639 per permit. Through this study, the project team calculated the full cost of this permit to be $5,030. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 63
The current fee and calculated full cost are well above the jurisdictional average of $1,927. At $6,288, Santa Clara charges the highest fee and the closets to Cupertino’s current fee. All other jurisdictions charge below the average. 9 Tree Removal Permit – No Arborist Review
The current fee for a single Tree Removal Permit without arborist review is $328 per permit. Through this study, the project team calculated the full cost of this permit to be $1,260. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee is below the jurisdictional average of $490, while the calculated full cost is well above the average. Cupertino’s current fee is closest to what Sunnyvale charges at $358. It should be noted that these permits are often subsidized to mitigate impacts to the community.
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10 Appeal – Planning Commission
The current fee for an Appeal to the Planning Commission is $379 per appeal. Through this study, the project team calculated the full cost of this type of appeal to be $19,006.

The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee is below the jurisdictional average of $880, while the calculated full cost is well above the average. Cupertino’s current fee is closest to what Sunnyvale charges at $238, while Palo Alto at $700 charges the closest to the jurisdictional average. Of the comparable jurisdictions, Santa Clara charges the highest fee at $10,428. There is a separate fee that they assess for appeals from non-applicant, which is significantly lower ($523). It should be noted that these permits are often subsidized to mitigate impacts to the community.
11 Zoning Verification Letter
The current fee for a Zoning Verification Letter is $555 per letter. Through this study, the project team calculated the full cost to be $577 per letter. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions. $0
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 65
The current fee and calculated full cost are above the jurisdictional average of $347.

Cupertino’s current fee is closest to what Santa Clara charges at $508. Palo Alto doesn’t have a specific fee for zoning verification letters, however, for 2 hours of staff time (which is the amount of time used to calculate Cupertino’s full cost) Palo Alto charges $495. 12 Temporary Occupancy
The current fee for a Temporary Occupancy permit is $487. Through this study, the project team calculated the full cost to be $511 per permit. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are below the jurisdictional average of $738. At $606, Sunnyvale charges the closest to Cupertino’s current fee and full cost calculated.

Mountain View doesn’t have a specific fee for temporary occupancy, however, for 2 hours $0
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 66
of staff time (which is the amount of time used to calculate Cupertino’s full cost) Mountain View’s fee would be $298.
13 Residential Bathroom Remodel
The current fee for a Residential Bathroom Remodel is $971. Through this study, the project team calculated the full cost to be $1,028. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are well above the jurisdictional average of $585.

At $1,007, Milpitas charges the closest to Cupertino’s current fee and full cost calculated.

Rather than charging a flat fee, Mountain View ($606) and Sunnyvale ($603) charge their fees based on valuation.
14 Residential Reroof
The current fee for a Residential Reroof is $26 per 100 square feet, with a $500 maximum fee. Through this study, the project team calculated the full cost to be $25 per 100 square feet. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 67
The current fee and calculated full cost are in-line with the jurisdictional average of $493.

Santa Clara charges the most at $766 followed by Milpitas at $668. All jurisdictions, with the exception of Mountain View ($324) which charges based on valuation, charge residential reroofs as a flat fee.
15 Ground Sign
The current fee for a Ground Sign is $487. Through this study, the project team calculated the full cost to be $511. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are well above the jurisdictional average of $284.

At $544, Mountain View charges the closest to Cupertino’s current fee and full cost calculated.
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Cost of Services (User Fee) Study Report City of Cupertino, CA Matrix Consulting Group 68
16 Window Replacement
The current fee for a Window Replacement of five windows is $364. Through this study, the project team calculated the full cost to be $374. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are in alignment with the jurisdictional average of $332. Milpitas charges the most at $893. Unlike Cupertino, Sunnyvale ($140), Santa Clara ($134), and Mountain View ($107) all charge their fees based on valuation. 17 A-Occupancy New Construction Plan Check & Inspection – 5,000 Square Feet The current fee for a 5,000 square foot A-Occupancy new construction plan check and inspection is $17,950. Through this study, the project team calculated the full cost to be $15,599. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.
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The current fee and calculated full cost are below the jurisdictional average of $19,811.

Santa Clara ($35,500) and Palo Alto ($30,800) charge the highest fees and are the only jurisdictions which charge above the average.
18 B-Occupancy TI Plan Check & Inspection – 15,000 Square Feet The current fee for a 15,000 square foot B-Occupancy tenant improvement plan check and inspection is $17,577. Through this study, the project team calculated the full cost to be $18,539. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.
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The current fee and calculated full cost are significantly below the jurisdictional average of $32,950. Palo Alto at $77,000 charge the highest fee and is the only jurisdictions which charge above the average.
19 R2 Occupancy New Construction Plan Check & Inspection – 16,000 Square Feet The current fee for a 16,000 square foot R2 Occupancy new construction plan check and inspection is $17,577. Through this study, the project team calculated the full cost to be $18,539. The following graph compares Cupertino’s current fee and calculated full cost to those of the surrounding jurisdictions.

The current fee and calculated full cost are significantly below the jurisdictional average of $54,405. Palo Alto ($107,800) and Santa Clara ($82,688) charge the highest fees and are the only jurisdictions which charge above the average.

Results Summary
Overall, the City of Cupertino’s current fees are on the lower end of fees being surveyed and, in most cases, the full cost helps bring the City more in alignment with other jurisdictions. It is important to note that the results of this survey only show the fees adopted by council, not the cost recovery policy decisions for departments or a jurisdiction. As such, the results of this survey should be used as a secondary decisionmaking tool. $0
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CITY COUNCIL STAFF REPORT
Meeting: February 6, 2024
Subject
Cost Allocation Plan, User Fee Study, and Cost Recovery Policy Recommended Action
Receive and File Cost Allocation Plan and User Fee Study and provide direction on the components of a Cost Recovery Policy
Reasons for Recommendation
A comprehensive Fee Study is completed in conjunction with a Cost Allocation Plan (CAP) in approximately seven-year cycles. The City last completed a fee study and CAP in 2016. The objective of the fee study is to re-evaluate time and cost assumptions and determine the full cost (direct and indirect) of providing City services based on the current organizational structure and processes. The intent of this item is to provide a review of the fee study and to obtain City Council direction towards further review and adoption of the fee schedule later this fiscal year.

Background
Local governments are providers of many types of general services to their communities.

While all services provided by local government are beneficial to constituents, some services can be classified as globally beneficial to all citizens, while others provide more of a direct benefit to a specific group or individual. The following table provides examples of services provided by local government within a continuum of the degree of community benefit received:
“Global” Community
Benefit
“Global” Benefit and an
Individual or Group Benefit Individual or Group Benefit • Police
• Park Maintenance
• Fire Suppression
• Parks and Recreation
• Fire Prevention
• Building Permits
• Planning and Zoning Approval
• Site Plan Review
• Engineering Development
Review
• Facility Rentals
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2 Services in the “global benefit” section tend to be funded primarily through voterapproved tax revenues. In the middle of the table, one typically finds a mixture of taxes, user fees, and other funding sources. Finally, in the “individual or group benefit” section of the table, lie the services provided by local government that are typically funded almost entirely by user fee revenue. The following are two central concepts regarding the establishment of user fees:
• Fees should be assessed according to the degree of individual or private benefit gained from services. For example, the processing and approval of a land use or building permit will generally result in monetary gain to the applicant, as opposed to the community at large.
• A profit-making objective should not be included in the assessment of user fees. California laws require that charges for service should generally not exceed the costs associated with providing those services. Once a charge for service is assessed at a level higher than the actual cost of providing a service, the term “user fee” no longer applies. The charge then becomes a tax subject to voter approval.

Therefore, it is commonly accepted that user fees are established at a level that will recover up to, and not more than, the cost of providing a particular service. The fee study provides the analysis to validate the City’s current fees and cost recovery rate, ensuring the fee does not result in a tax.

Discussion
The City sets fees for services considering how those fees could or do recover the full cost of those services. Recreation fees are generally market-based in order to be competitive with public and private entities that offer competing services. While user fees are generally updated each year, comprehensive user fee studies and CAP are conducted in approximate seven-year cycles, with the last study and plan performed in 2016 by Matrix Consulting Group. The CAP is a document that defines the indirect costs of an organization and equitably and fairly distributes them to the beneficiaries of that service.

The results of that analysis help determine the indirect costs that are used to calculate the full cost of providing fee-related services. For example, in order to issue a building permit, a building inspector has the direct cost and time to conduct the inspections, but in order for that inspector to do their inspections, they had to be hired by HR, and payroll needed to be processed by Finance, etc. That level of indirect support is captured through the CAP.

Between studies, common practice is to adjust fees by the change in the Consumer Price Index (CPI) or to leave them unchanged. Council approves changes to the City’s Fees and Charges. The last revision of the City’s Fees and Service Charges schedule occurred in July 2023 with the understanding that the fee study and CAP were planned for completion in the current year.
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3 Matrix analyzed the cost of service relationships that exist between internal service divisions (e.g. City Council, City Manager, City Attorney, and Administrative Services) and fees for service activities related to building permits, planning applications, public works, general services, and parks and recreation. The analysis includes a review of actual revenue, budgeted expenditures, staff time estimates, costs of materials, and overhead.

The results of the CAP and User Fee Study provide the City with a tool for understanding current service levels, the cost and demand for those services, and what fees for service can and should be charged.

The following is a discussion of the study methodology, study results, and potential areas where changes might occur.

Methodology
Matrix first developed a cost allocation plan (CAP) to account for the full cost of providing specific services to the community by determining indirect (overhead) costs associated with operations. Using time estimates and data, the Matrix analytical model spreads costs from central service departments to those divisions, programs, and/or funds that receive services in support of conducting their operations (see Attachment A). The model is based on many of the methods of indirect cost allocation defined by the federal Office of Management and Budget’s (OMB) Circular A-87 and Generally Accepted Accounting Principles (GAAP).

The methodology employed by the Matrix Consulting Group is a widely accepted “bottom up” approach to cost analysis, where time spent per unit of fee activity is determined for each position within a Department or 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. The following table provides an overview of the types of costs included in establishing the “full” cost of services.

Cost Component Description
Direct Fiscal Year 2024 Budgeted salaries, benefits, and allowable expenditures.

Indirect Division, departmental, and Citywide support.

Current Cost Recovery
When comparing FY24 fee-related budgeted expenditures with fee-related revenue the City is under-recovering its costs by approximately $767,000 or recovering 88% of its costs associated with services that provide direct benefits to individuals or groups. The following table outlines this by major service area, including the revenue collected, the total annual cost, the resulting difference, and the resulting cost recovery percentage. 1139
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4 Service Area
Current
Revenue Total Cost Difference
Cost
Recovery %
Planning $716,696 $886,158 ($169,462) 81%
Public Works $1,122,328 $1,182,734 ($60,407) 95%
Building $3,800,581 $4,337,761 ($537,180) 88%
Total $5,639,605 $6,406,653 ($767,048) 88%
Building at roughly $537,000 is the primary contributor to the overall deficit. Potential modifications to the current fee schedules in this program (expanding various flat fees, reorganizing the Mechanical, Electrical, and Plumbing (MEP) fees section, etc.), as well as adding a fee for Planning Review and Inspection will help to address the cost recovery gap.

It is important to note that it may not be advantageous to bring all fees to full cost recovery as higher fees may discourage, for example, the application for a permit. Staff will utilize some discretion as the fee schedule is created and proposed for Council.

Market Comparison and Cost Recovery Policy
Cost recovery levels in Cupertino were also compared to levels typically seen in other jurisdictions. The following table reflects the typical cost recovery levels observed by local adopting authorities.

Service Areas
Typical Cost
Recovery Ranges
Building 80-100%
Planning 50-80%
Public Works 70-100%
Information presented in the table above is based on the Matrix Consulting Group’s experience in analyzing local governments’ operations across the United States and within California and reflects typical cost recovery ranges observed by local adopting authorities.

The following graph depicts how Cupertino compares to industry cost recovery range standards.
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5 Public Works and Building fall within the typical cost recovery ranges, while Planning at 81% is just above the typical cost recovery range.

The City will benefit from adopting a formal Cost Recovery Policy, which can be general in nature and can apply broadly to the City as a whole, or to each department and division specifically. A department specific cost recovery policy would allow the City to better control the cost recovery associated with different types of services being provided and the community benefit received. Proposed Cost Recovery Policy components are included later in this staff report.

General Fees
The General Fee category encompasses fees for services which are applied Citywide, such as, photocopies, notary, business licenses, taxi driver permits, block party presentations, etc. Where applicable, fees are proposed to fully recover the cost of service. Exceptions include state regulated fees, penalties, and services with community benefit. Additionally, changes provided in the report include consolidating several fees, eliminating ‘Microfilm/ Microfiche Printout’ (service no longer offered), and the following new fees:

Fee Name Unit Total Cost Difference
Code Enforcement Cost Recovery
Abatement / Graffiti Cleanup Actual Cost
Hourly Rate Per Hour $240 N/A
Substandard Housing Re-Inspection Per Hour $240 N/A
Handbill Permit
Permit Update Each $120 N/A
Finance - General
Credit Card Transaction Fees 3.4% N/A
Emergency Service - General
Block Party Presentation Each $418 N/A
First Aid / Medical Stand-by at Special Events Each $215 N/A 1141
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6 Public Works Department (Engineering Division)
The Engineering Division is responsible for the daily upkeep and maintenance of City owned and operated facilities and infrastructure. The fees examined within this study relate to oversight and permitting of improvements that affect the public right of way and public infrastructure, including, encroachments, map services, public improvements, tree planting, and other fees associated with tasks performed by the Engineering Division.

Like General Fees, fees reflect full cost recovery with the exception of state-regulated fees.

Block Parties, with a current cost of approximately $1,338, have historically been fully subsidized at the direction of City Council. Two fees are proposed for deletion, with the ‘Stormwater Permit -Initial Inspection’ fee rarely used and the ‘Trash Enclosure’ being captured elsewhere. Staff is recommending the following new fees:

Fee Name Unit Total Cost Difference
Encroachment Permits
Crane Lift Each $1,415 N/A
Review of Public/Private Improvement Plans
Planning Application Review Each $1,573 N/A
VMT Monitoring Fee Per Hour $188 N/A
Environmental Programs
Plan Review Fee:

Single Family Each $157 N/A
Multi-Family Each $313 N/A
Construction and Demolition Diversion
Compliance Review Each $106 N/A
Development Project Review Each $271 N/A

Community Development Department (Planning Division)
The Planning division is responsible for ensuring current and future development aligns with the City’s General Plan, Zoning Plan, and specific plans. As such, the fees examined within this study relate to zoning, subdivisions, exceptions, appeals, etc.

Planning under recovers a majority of its fees, with the largest variance category being Appeals; fees ‘Appeals – Planning Commission’ and ‘Appeals – City Council’ are below full cost recovery by $18,627 and $18,915, respectively. It is common to see large subsidies in relation to appeals due to the understanding that the benefit to the community having access to the appeal process outweighs the benefit of recovering the full cost to the City.

The following new proposed fees will help recover costs for services currently being provided but for which there is no fee on the fee schedule. 1142
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7 Fee Name Unit Total Cost Difference
Appeals
Project Review Meeting Each $5,106 N/A
Preliminary Application Review
Single Family Each $4,042 N/A
Non-Residential (Retail / Industrial / Office / Hotel):
<10,000 sf Each $9,421 N/A
>10,000 sf Each $12,999 N/A
Residential / Mixed Use:

Duplex Each $3,428 N/A
3-6 Units Each $14,776 N/A
6-50 Units Each $18,427 N/A
>50 Units Each $23,213 N/A
Planning Inspection Each $860 N/A
Application Revision (after 2nd review) Each $10,400 N/A Mercury News Ad
Actual Cost + 15% Admin
Charge
Special Events Each $7,779 N/A
Community Development Department (Building Division)
The Building Division is committed to safeguarding life, health, property and public welfare through the administration and enforcement of the uniform building codes and adopted City ordinances and policies. Specifically, the Building division provides the following services:
• Plan review and permit issuance of all proposed construction to assure compliance with all state and local building codes.
• Explaining codes, ordinances, requirements and regulations that apply to individual building projects.
• Assisting the public with their concerns about public safety within their homes or places of business.
• Providing building inspection services for all privately funded development.

The fees included for examination in this study relate to plan review and inspection of buildings and structures.

All Building Fees are presented at full cost recovery based on CAP and Fee Study results.

Staff worked with Matrix to alter time estimates for all building fees to better reflect current Building Division processes and requirements. Through this process, numerous fees were identified as services no longer offered by the City, and will be removed from future fee schedules. Additionally, staff is proposing the addition of fees for services provided but not captured in the current fee schedule, such as Additions, Thermal 1143
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8 Systems, and Appliances. A comprehensive list is provided in section six, “Building,” in Attachment B.

Parks and Recreation–Cost Recovery and Fees
The Parks and Recreation Department strives to enhance the leisure lifestyle and quality of life of both residents of and visitors to the City by providing affordable, fun, integrated, and safe recreational activities for people of all ages and abilities. The Department organizes, markets, and oversees recreation and leisure services in a variety of programs, including a Sports Center, Senior Programs, Youth and Teen activities and classes, trips, facility rentals, and other recreation activities.

Currently, the Department sets and updates class fees internally on a seasonal basis.

Membership and facility fees are studied on an annual basis. The primary methodology used for fee-setting is to determine the demand of a program based upon participation, conducting market inquires, and determining the benefit of the program to the community. These are typically the most important components of determining parks and recreation fees. Changes recommended in the Recreation fee schedule are historically driven by demand and market comparisons of similar services as residents have a choice between utilizing programs offered in their own city or those of a neighboring city.

Grants, special funding, or General Fund subsidies often offset programs and services provided by recreation departments in order to ensure that all citizens have equal opportunity and choice of participation.

Recreation fees were not assessed in the User Fee Study. As such, Matrix determined cost recovery levels at the department level only. The typical cost recovery for Parks and Recreation services is between 20-50%. The low-cost recovery for these services is due to the belief that these services primarily benefit the community at large and, as such, are providing a direct benefit to residents and the community, leading to a substantial General Fund subsidy.

Program Revenue
Direct &
Indirect Exp Difference
Cost Recovery
%
Cultural Events $1,221 $768,430 ($767,209) 0.16%
Facilities $203,173 $802,246 ($599,073) 25%
Youth Teen Recreation $854,411 $2,827,397 ($1,972,986) 30% Senior Center $70,129 $1,437,067 ($1,366,938) 5%
Youth and Teen Programs $0 $503,414 ($503,414) 0%
Neighborhood Events $0 $179,317 ($179,317) 0%
Park Facilities $195,207 $2,536,875 ($2,341,668) 8%
BBF Golf Course $602,779 $1,217,291 ($614,512) 50%
Sports Center Operations $2,796,329 $5,116,163 ($2,319,834) 55% Outdoor Recreation $439,717 $1,880,645 ($1,440,928) 23% Total $5,162,966 $17,268,845 ($12,105,879) 30%
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9 At $2.3 million each, Park Facilities and Sports Center Operations are the largest contributors to the Department’s deficit. Since both programs have fees which are primarily based on market-rate, it is imperative that staff and management evaluate these fees and adjust appropriately to not only align with established cost recovery polices and targets but also to lessen the cost recovery gap.

Staff has committed to evaluating business practices with respect to these facilities to maximize the return within the competitive market. The cost recovery study provides the opportunity for the Council to identify specific programs in which there is an interest to explore alternative service delivery models.

Cost Recovery Policy Components
The Government Finance Officers Association’s (GFOA) best practices for Establishing Government Charges and Fees states that governmental entities should adopt formal policies regarding charges and fees which include the jurisdiction’s intention to recover the full cost or partial costs of providing services, sets forth circumstances under which the jurisdiction might set a charge or fee at less than or more than 100% of full cost, and outlines the considerations that might influence the jurisdiction’s pricing decision.

The City is currently developing a cost recovery policy addressing the following three primary components:
• Comprehensive fee study and CAP – Staff is recommending maintaining the current seven-year cycle.
• Cost recovery target ranges – Staff is recommending the following ranges:

Service Area Cost Recovery Range
General 100%
Building 80-100%
Public Works 75-100%
Planning 50-80%
Recreation Market-driven
• Annual fee update/Increase mechanism – Continuing the City’s current process, user fees (Schedules A-D) will be updated by CPI or to state-regulated limits. • Phase-in period – fees with greater differences between current and full cost recovery rates will gradually increase over multiple years to reach full cost recovery.
• Parks and Recreation Fees exclusion – fees will be administratively updated per Resolutions No. 04-350, authorizing the City Manager to set all recreation fees.

Next Steps
City Staff will return to City Council in April with the Fiscal Year 2024-25 Proposed Fee Schedules (A-D) and Cost Recovery Policy for adoption.
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10 Sustainability Impact
No sustainability impact.

Fiscal Impact
There is no direct fiscal impact from this agenda item. Adjustments that derive from the fee study may lead to increased revenue up to $767,048 that could provide direct General Fund relief to the structural budget deficit.

California Environmental Quality Act
Not applicable.
_____________________________________
Prepared by: Jonathan Orozco, Finance Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services Approved for Submission by: Matt Morley, Assistant City Manager Attachments:

A - Cost Allocation Plan
B - User Fee Study Final Report
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USER FEE COST

RECOVERY POLICY
Citywide Policy Manual
Attachments: N/A
Effective Date:

July 14, 2024 per Resolution 24-XX
Responsible Department:

Administrative Services
Related Policies & Notes:

Purpose
To provide general guidelines for establishing and maintaining a comprehensive user fee schedule to ensure the City adequately recovers costs for the provision of services, benefits, or privileges (Services) in an efficient, legal, and accountable manner.

Background
The City conducts comprehensive Cost Allocation Plans (CAP) and Fee Studies on a seven-year cycle to assess the alignment of current fees with the actual cost of providing each service. CAP establishes a data-driven methodology for distributing administrative and overhead charges to programs and services, while a Fee Study determines the full cost of services for which fees are charged. The most recent study, presented during the February 6,2024, City Council Meeting, recommended the adoption of a formal cost recovery policy across all service sectors, including General, Engineering, Building, Planning, and Parks and Recreation. The CAP and Fee Study guided the crafting of the policy by City staff, aligning closely with Council directives and recommendations.

Between CAP and fee studies, the City adjusts fee schedules annually to reflect changes in the Consumer Price Index (CPI), the Bay Area Construction Cost Index (CCI), or changes in budgeted labor costs. These adjustments require annual review and approval by the City Council to ensure fees accurately reflect current service costs, accommodate new City services, and eliminate fees for discontinued services.

Policy
The policy has three main components:
• Provision for ongoing review
• Process of establishing cost recovery levels
o Factors to be Considered
• Target Cost Recovery Levels
o General ranges
o Target cost recovery by service area
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Provision for ongoing review
Fees will undergo annual reviews to ensure they remain aligned with changes in the cost of living and evolving methods or levels of service delivery. To facilitate an evidence-based approach to this review process, the City will conduct a CAP and Fee Study every seven years. During the interim periods, fee adjustments will be made based on annual cost factors, such as the Consumer Price Index (CPI), the Bay Area Construction Cost Index (CCI), or changes in budgeted labor costs.

Furthermore, should a significant fee increase be warranted after the completion of the study, the fee structure may be phased in over a period of 2-3 years to reach the desired cost recovery rate.

This proactive approach ensures that our fee structures remain fair, transparent, and reflective of current economic conditions and service standards.

Process of establishing user fee cost recovery levels
The following factors will be considered when setting service fees and cost recovery levels:

1. Community-wide vs. private benefit
a. The use of general purpose revenue is appropriate for community-wide services while user fees are appropriate for services that are of private benefit to individuals or groups. Full cost recovery is not always appropriate.

2. Service recipient vs. service driver
a. Particularly for services associated with regulated activities (development review, code enforcement), from which the community eventually benefits, cost recovery from the "driver" of the need for the service (applicant, violator) is appropriate.

3. Consistency with City public policies and objectives a. City policies and Council goals focused on long-term improvements to community quality of life may also impact desired fee levels, as fees can be used to change community behaviors, promote certain activities, or provide funding for the pursuit of specific community goals, for example, health and safety, environmental stewardship.

4. Impact on demand (elasticity)
a. Pricing of services can significantly impact demand. At full cost recovery, for example, the City is providing services for which there is a genuine market not over-stimulated by artificially low prices. Conversely, high-cost recovery may negatively impact lower-income groups, and this can work against public policy outcomes, especially if the services are specifically designed to serve particular groups.

5. Discounted Rates and Surcharges
a. Rates may be discounted to accommodate lower income groups or groups who are the target of the service, such as senior citizens or residents. b. Higher rates are considered appropriate for non-residents to further reduce general fund subsidization of services.
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6. Feasibility of Collection
a. It may be impractical or too costly to establish a system to appropriately identify and charge each user for the specific services received. The method of assessing and collecting fees should be as simple as possible in order to reduce the administrative cost of collection.

Target cost recovery levels

1. Low-cost recovery levels (0% - 30%) are appropriate if:
a. There is no intended relationship between the amount paid and the benefit received
b. Collecting fees is not cost-effective
c. There is no intent to limit the use of the service
d. The service is non-recurring
e. Collecting fees would discourage compliance with regulatory requirements f. The public at large benefits even if they are not the direct users of the service

2. Services having factors associated with both cost recovery levels would be subsidized at a mid-level of cost recovery (31% - 80%).

3. High-cost recovery levels (81% - 100%) are appropriate if:
a. The individual user or participant receives the benefit of the service b. Other private or public sector alternatives could or do provide the service c. For equity or demand management purposes, it is intended that there be a direct relationship between the amount paid and the level and cost of the service received
d. The use of the service is specifically discouraged
e. The service is regulatory in nature
Schedule/Service Area Target Cost Recovery Range
Schedule A – General 100%
Schedule B – Engineering (PW) 75-100%
Schedule C – Building 80-100%
Schedule D – Planning 50-80%
Schedule E – Recreation* Market-driven
*Parks and Recreation Fees exclusion – fees will be administratively updated per Resolutions No. 04- 350, authorizing the City Manager to set all recreation fees.

Revisions:
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RESOLUTION NO. 24-________

A RESOLUTION OF THE CUPERTINO CITY COUNCIL ADOPTING

USER FEE COST RECOVERY POLICY
WHEREAS, the Cupertino City Council has identified a need to adopt a policy governing general guidelines for establishing and maintaining a comprehensive user fee schedule to ensure the City adequately recovers costs for the provision of services, benefits, or privileges (Services) in an efficient, legal, and accountable manner; and
WHEREAS, on May 14, 2024, the City Council considered proposed policy at a duly noticed special meeting of the City Council.

NOW, THEREFORE, BE IT RESOLVED that:

1. The City Council hereby adopts the User Fee Cost Recovery Policy attached hereto as Exhibit A. The Policy shall be effective on July 14, 2024.

PASSED AND ADOPTED at a special meeting of the City Council of the City of Cupertino this 14th day of May, 2024, by the following vote:

Members of the City Council
AYES:

NOES:

ABSENT:

ABSTAIN:

SIGNED:
________
Sheila Mohan, Mayor
City of Cupertino
________________________
Date
ATTEST:
________ ________________________
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Resolution No. __________________

Page 2 ends

Kirsten Squarcia, City Clerk Date
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CITY OF CUPERTINO
Agenda Item
23-12761 Agenda Date: 5/14/2024
Agenda #: 3.

Subject: Consider accepting the City's Investment Policy Adopt Resolution No. 24-042 accepting the City's Investment Policy CITY OF CUPERTINO Page 1 of 1 Printed on 5/8/2024
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CITY COUNCIL STAFF REPORT
Meeting: May 14, 2024
Subject
Consider the City's Investment Policy
Recommended Action
Adopt Resolution No. 24-XXX accepting the City's Investment Policy Reasons for Recommendation
Background
To ensure the City's investment policy is up-to-date and aligned with its investment objectives, the Audit Committee conducts an annual review before presenting it to the City Council. The most recent review and acceptance of the investment policy by the Audit Committee occurred on April 22, 2024, and awaiting approval from the City Council on May 14, 2024.

The investment policy is the foundation of the City's investment goals and priorities. It can help protect the City's assets if it is carefully researched, effectively drafted, and regularly reviewed to ensure that it continues to meet the City's investment objectives.

The existence of an approved investment policy demonstrates that the City is performing its fiduciary responsibilities, thereby inspiring trust and confidence among the public that it serves.

The policy also provides guidance on the proper management of the City's temporary idle cash, outlining protocols to maximize cash efficiency.

California Government Code (Code) section 53646(a)(2) states:
[T]he treasurer or chief fiscal officer of the local agency may annually render to the legislative body of that local agency and any oversight committee of that local agency a statement of investment policy, which the legislative body of the local agency shall consider at a public meeting. Any change in the policy shall also be considered by the legislative body of the local agency at a public meeting.
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Assembly Bill 2853 (Chapter 889, Statutes of 2004) amended section 53646(a)(2) to make presentation of the investment policy to the City Council optional. While no longer required by Code, the City annually presents the investment policy to the Audit Committee before submitting it to City Council for approval.

Chandler Asset Management
In FY 2018-19, the City conducted a Request for Proposal (RFP) for investment management services and selected Chandler Asset Management. Under the City's Treasurer's direction, Chandler Asset Management manages the City's investment portfolio in accordance with the City's investment objectives. The City's investment objectives, in order of priority, are to provide:
 Safety to ensure the preservation of capital in the overall portfolio  Sufficient liquidity for cash needs
 A market rate of return consistent with the investment program The performance objective is to earn a total rate of return through a market cycle equal to or above the return on the benchmark index. To achieve the objective, Chandler Asset Management invests in high-quality fixed-income securities consistent with the City's investment policy and Code.

Investment Policy Review
Chandler Asset Management reviewed the City's investment policy. The review of the policy focused on compliance with the statutes of Code that govern the investment of public funds, as well as on the inclusion of current best practices.

There was a change to Code Section 53601 for 2023 that Chandler Asset Management recommends the City adopt. Pursuant to Senate Bill 1489, effective January 1, 2023, the Code specified that an investment’s term or remaining maturity shall be measured from the settlement date to final maturity rather than from the trade date. Chandler Asset Management has added the change in the Maximum Maturities and Mitigating Market Risk in the Portfolio sections. The City’s policy continues to be effective as written.

Additionally, language was included in the policy clarifying the Treasurer’s existing authority for investing City funds as it relates to Government Code Section 53607.

Following the Audit Committee meeting on April 22, staff extended the effective date to encompass the entire Fiscal Year 2024-25. Moving forward, the Investment Policy will undergo review by the Audit Committee and subsequent approval by the City Council annually, with an effective date corresponding to the preceding fiscal year.

This approach aligns with standard practices observed in other agencies and is consistent with the relevant municipal code.
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Sustainability Impact
No sustainability impact.

Fiscal Impact
No fiscal impact.
_____________________________________
Prepared by: Jonathan Orozco, Finance Manager
Reviewed by: Kristina Alfaro, Director of Administrative Services and City Treasurer Approved for Submission by: Matt Morley, Assistant City Manager Attachments:

A – Cupertino Investment Policy (clean)
B – Cupertino Investment Policy (redline)
C – Cupertino Investment Policy Statement Review Memo
D – Draft Resolution
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City Investment Policy
Citywide Policy Manual
Attachments: N/A
Effective Date:

May14, 2024 through June 30, 2025
Responsible Department:

Administrative Services
Related Policies & Notes:

Pension Investment Policy, OPEB Investment Policy
POLICY
Under authority granted by the City Council, the City Treasurer and Deputy Treasurer are responsible for investing the surplus funds of the City.

The investment of the funds of the City of Cupertino is directed to the goals of safety, liquidity and yield. The authority governing investments for municipal governments is set forth in the California Government Code, Sections 53600 et seq. By adopting this Policy, the City Council delegates to the City Treasurer the authority to invest or to reinvest City funds, or to sell or exchange securities so purchased pursuant to Government Code Section 53607.

The primary objective of the investment policy of the City of Cupertino is SAFETY OF PRINCIPAL. Investments shall be placed in those securities as outlined by type and maturity sector in this document. Effective cash flow management and resulting cash investment practices are recognized as essential to good fiscal management and control. The City’s portfolio shall be designed and managed in a manner responsive to the public trust and consistent with state and local law. Portfolio management requires continual analysis and as a result the balance between the various investments and maturities may change in order to give the City of Cupertino the optimum combination of necessary liquidity and optimal yield based on cash flow projections.

SCOPE
The investment policy applies to all financial assets of the City of Cupertino as accounted for in the Annual Comprehensive Financial Report (ACFR). Policy statements outlined in this document focus on the City of Cupertino’s pooled, surplus funds, but will also apply to all other funds under the City Treasurer’s span of control unless specifically exempted by statute or ordinance. This policy is applicable, but not limited to all funds listed below:
 General Fund
 Special Revenue Funds
 Capital Project Funds
 Enterprise Funds
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 Internal Service Funds
 Trust and Agency Funds
 Any new fund unless specifically exempted
Investments of bond proceeds shall be governed by the provisions of the related bond indentures and/or cash flow requirements and therefore may extend beyond the maturity limitations as outlined in this document. Other post-employment benefit (OPEB) and Pension trust investments are governed by California Government Code Sections 53620 through 53622 and trust documents.

The trusts are governed by separate investment policies entitled Investment Policy Statement City of Cupertino Investment Trust that were reviewed by the City of Cupertino Audit Committee on October 23, 2023 and City Council on December 5, 2023.

PRUDENCE
Pursuant to California Government Code, Section 53600.3, all persons authorized to make investment decisions on behalf of the City are trustees and therefore fiduciaries subject to the Prudent Investor Standard:
“…all governing bodies of local agencies or persons authorized to make investment decisions on behalf of those local agencies investing public funds pursuant to this chapter are trustees and therefore fiduciaries subject to the prudent investor standard.

When investing, reinvesting, purchasing, acquiring, exchanging, selling, or managing public funds, a trustee shall act with care, skill, prudence, and diligence under the circumstances then prevailing, including, but not limited to, the general economic conditions and the anticipated needs of the Agency, that a prudent person acting in a like capacity and familiarity with those matters would use in the conduct of funds of a like character and with like aims, to safeguard the principal and maintain the liquidity needs of the Agency. Within the limitations of this section and considering individual investments as part of an overall strategy, investments may be acquired as authorized by law.”
It is the City’s intent, at the time of purchase, to hold all investments until maturity to ensure the return of all invested principal dollars. However, it is realized that market prices of securities will vary depending on economic and interest rate conditions at any point in time. It is further recognized that in a well-diversified investment portfolio, occasional measured losses are inevitable due to economic, bond market, or individual security valuation fluctuations. These occasional losses must be considered within the context of the overall investment program objectives and the resultant long-term rate of return. The City Treasurer and Deputy Treasurer, acting within the intent and scope of the investment policy and other written procedures and exercising due diligence, shall be relieved of personal responsibility and liability for an individual security’s credit risk or market price changes, provided deviations from expectations are reported in a timely manner and appropriate action is taken to control adverse developments.

OBJECTIVES
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The primary objectives, in order of priority, of the City of Cupertino’s investment activities shall be:

A. Safety of Principal
Safety of principal is the foremost objective of the City of Cupertino. Investments will be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio.

To attain this objective, the City will diversify its investments by investing funds among a variety of securities with independent returns.

B. Liquidity
The City’s investment portfolio will remain sufficiently liquid to meet all operating requirements which might be reasonably anticipated and provide the City with adequate cash flows to pay its obligations over the next six months. Additionally, the portfolio should consist largely of securities with active secondary resale markets.

C. Return
The City’s investment portfolio shall be designed with the objective of attaining a rate of return throughout budgetary and economic cycles, commensurate with Cupertino’s investment risk constraints and cash flow characteristics of the portfolio.

MAXIMUM MATURITIES
Maturities of investments will be selected based on liquidity requirements to minimize interest rate risk and maximize earnings. Investment of surplus funds shall comply with the maturity limits as set forth in the California Government Code 53600, et seq. Where this section does not specify a limitation on the term or remaining maturity at the time of the investment, no investment shall be made in any security that at the time of the investment has a term remaining to maturity in excess of five years from date of trade settlement, unless the Council has granted express authority to make that investment either specifically or as a part of an investment program approved by the Council no less than three months prior to the investment. Reserve funds may be invested in securities exceeding five years if the maturity of such investments is made to coincide as nearly as practicable with the expected use of the funds.

PERFORMANCE EVALUATION
Investment performance is continually monitored and evaluated by the City Treasurer.

Investment performance statistics and activity reports are generated on a quarterly basis for presentation to the oversight (audit) committee, City Manager and City Council. Yield on the City’s investment portfolio is of secondary importance compared to the safety and liquidity objectives described above. The City’s investment portfolio shall be designed to attain a market average rate of return through economic cycles. The Treasurer shall monitor and evaluate the portfolio’s performance relative to the chosen market benchmark(s), which will be included in the Treasurer’s quarterly report. The Treasurer shall select an appropriate, readily available index to use as a market benchmark. Whenever possible, and consistent with risk limitations as defined herein and prudent investment principles, the Treasurer shall seek to augment return above the 1159
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market average rate of return. The City may select alternative benchmarks for identified pools of City funds that have different objectives.

DELEGATION OF AUTHORITY
Authority to manage the City’s investment program is derived from California Government Code, Sections 41006 and 53600 et seq. The Treasurer is responsible for investment management decisions and activities per City Council Resolution.

The Treasurer shall designate a staff person as a liaison/deputy in the event circumstances require timely action and the Treasurer is not present.

No officer or designee may engage in an investment transaction except as provided under terms of this policy and the procedures by the Treasurer and approved by the City Manager/Council.

The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

If an investment adviser is retained by the City, the investment adviser, registered under the Investment Advisers Act of 1940, must have at least five years' experience investing in the securities and obligations authorized by California Government Code 53601 subdivisions (a) to (k), inclusive, and subdivisions (m) to (q), inclusive, and with assets under management in excess of five hundred million dollars ($500,000,000). External investment advisers may be granted discretion to purchase and sell investment securities in accordance with this investment policy.

The City’s overall investment program shall be designed and managed with a degree of professionalism that is worthy of the public trust. The City recognizes that in a diversified portfolio, occasional measured losses may be inevitable and must be considered within the context of the overall portfolio’s return and the cash flow requirements of the City.

OVERSIGHT COMMITTEE
An audit committee consisting of appropriate internal and external members, appointed by the City Council, shall be established to provide general oversight and direction concerning the policies related to management of the City’s investment pool, OPEB trust, and Pension Rate Stabilization Program trust. The City Treasurer shall serve in a staff and advisory capacity. The committee shall meet at least quarterly to review policy changes, new legislation and portfolio status.

ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain from personal business activity that conflicts with proper execution of the investment program, or impairs their ability to make impartial investment decisions. Additionally the City Treasurer and the Deputy Treasurer are required to annually file applicable financial disclosures as required by the Fair Political Practices Commission (FPPC).
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SAFEKEEPING OF SECURITIES
To protect against fraud or embezzlement or losses caused by collapse of an individual securities dealer, all securities owned by the City shall be held in safekeeping by a third party custodian acting as agent for the City under the terms of a custody agreement. All trades executed by a dealer will settle delivery versus payment (DVP) through the City’s safekeeping agent. In order to verify investment holdings, an external auditor, on an annual basis, shall independently verify securities held in custody for the City. Additionally, the City Treasurer shall include a listing of holdings provided by the City’s custodian to the quarterly investment report as verification between annual reviews by the external auditor.

The only exceptions to the foregoing shall be depository accounts and securities purchases made with: (i) local government investment pools; (ii) time certificates of deposit, and, (iii) money mutual funds, since the purchased securities are not deliverable. All other exceptions to this safekeeping policy must be approved by the City Treasurer in written form and included in the quarterly report to City Council.

INTERNAL CONTROL
Separation of duties between the Treasurer’s function and Finance is designed to provide proper internal controls to prevent the potential for converting assets or concealing transactions. Dual transaction controls, separate and independent notifications, and reports provided by financial institutions shall be used to help implement these controls.

Wire transfers shall be approved prior to being submitted to the financial institution. Wire transfers initiated by Treasury staff must be reconfirmed by the appropriate financial institution to Finance staff. Proper documentation is required for each investment transaction and must include a broker trade confirmation and a cash disbursement wire transfer confirmation. Timely bank reconciliation is conducted to ensure proper handling of all transactions. The investment portfolio and all related transactions are reviewed and balanced to appropriate general ledger accounts by Finance staff on a monthly basis.

An annual agreed-upon procedures engagement in accordance with the attestation standards established by the American Institute of Certified Public Accountants shall be conducted by an auditor solely to assist management in determining the City’s compliance with this investment policy. At the conclusion of such engagement, the agreed-upon procedures report detailing all procedures performed and findings noted (if applicable) shall be provided to the Audit Committee of the City.

REPORTING
Monthly transaction reports will be submitted by the Treasurer to the City Council within 30 days of the end of the reporting period in accordance with California Government Code Section 53607. 1161
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The City Treasurer shall also prepare a quarterly investment report, including a succinct management summary that provides a clear picture of the status of the current investment portfolio. The report will be prepared in a manner that will report all information required under this policy and as recommended by California Government Code. The Treasurer will submit the report to Council no later than the second regular council meeting, or approximately 45 days following the end of the quarter covered by the report.

AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND QUALIFIED

BROKER/DEALERS
To the extent practicable, the Treasurer shall endeavor to complete investment transactions using a competitive bid process whenever possible. The City’s Treasurer will determine which financial institutions are authorized to provide investment services to the City. It shall be the City’s policy to purchase securities only from authorized institutions and firms.

The Treasurer shall maintain procedures for establishing a list of authorized broker/dealers and financial institutions which are approved for investment purposes that are selected through a process of due diligence as determined by the City. Due inquiry shall determine whether such authorized broker/dealers, and the individuals covering the City are reputable and trustworthy, knowledgeable and experienced in Public Agency investing and able to meet all of their financial obligations. These institutions may include "primary" dealers or regional dealers that qualify under Securities and Exchange Commission (SEC) Rule 15c3-1 (uniform net capital rule).

In accordance with Section 53601.5, institutions eligible to transact investment business with the City include:
• Primary government dealers as designated by the Federal Reserve Bank and non-primary government dealers.
• Nationally or state-chartered banks.
• The Federal Reserve Bank.
• Direct issuers of securities eligible for purchase.

Selection of financial institutions and broker/dealers authorized to engage in transactions will be at the sole discretion of the City, except where the City utilizes an external investment adviser in which case the City may rely on the adviser for selection.

All financial institutions which desire to become qualified bidders for investment transactions (and which are not dealing only with the investment adviser) must supply the Treasurer with audited financials and a statement certifying that the institution has reviewed the California Government Code, Section 53600 et seq. and the City’s investment policy. The Treasurer will conduct an annual review of the financial condition and registrations of such qualified bidders.

Public deposits will be made only in qualified public depositories as established by State law.

Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the extent the amount exceeds the insured maximum, will be collateralized in accordance with State law. 1162
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Selection of broker/dealers used by an external investment adviser retained by the City will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be selected on a competitive basis and their bid or offering prices shall be recorded. If there is no other readily available competitive offering, best efforts will be made to document quotations for comparable or alternative securities. When purchasing original issue instrumentality securities, no competitive offerings will be required as all dealers in the selling group offer those securities at the same original issue price.

COLLATERAL REQUIREMENTS
CERTIFICATES OF DEPOSIT (CDS). The City shall require any commercial bank or savings and loan association to deposit eligible securities with an agency of a depository approved by the State Banking Department to secure any uninsured portion of a Non-Negotiable Certificate of Deposit. The value of eligible securities as defined pursuant to California Government Code, Section 53651, pledged against a Certificate of Deposit shall be equal to 150% of the face value of the CD if the securities are classified as mortgages and 110% of the face value of the CD for all other classes of security.

COLLATERALIZATION OF BANK DEPOSITS. This is the process by which a bank or financial institution pledges securities, or other deposits for the purpose of securing repayment of deposited funds. The City shall require any bank or financial institution to comply with the collateralization criteria defined in California Government Code, Section 53651.

REPURCHASE AGREEMENTS. The City requires that Repurchase Agreements be collateralized only by securities authorized in accordance with California Government Code:
• The securities which collateralize the repurchase agreement shall be priced at Market Value, including any Accrued Interest plus a margin. The Market Value of the securities that underlie a repurchase agreement shall be valued at 102% or greater of the funds borrowed against those securities.
• Financial institutions shall mark the value of the collateral to market at least monthly and increase or decrease the collateral to satisfy the ratio requirement described above. • The City shall receive monthly statements of collateral.

AUTHORIZED INVESTMENTS
Investment of City funds is governed by the California Government Code Sections 53600 et seq. Within the context of the limitations, the following investments are authorized, subject to the restrictions below. In the event a discrepancy is found between this policy and the Code, the more restrictive parameters will take precedence. Percentage holding limits listed in this section apply at the time the security is purchased.

Any investment currently held at the time the policy is adopted which does not meet the new policy guidelines can be held until maturity and shall be exempt from the current policy. At the time of the investment’s maturity or liquidation, such funds shall be reinvested only as provided in the current policy.
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An appropriate risk level shall be maintained by primarily purchasing securities that are of high quality, liquid, and marketable. The portfolio shall be diversified by security type and institution to avoid incurring unreasonable and avoidable risks regarding specific security types or individual issuers.

1. United States Treasury Bills, Bonds, and Notes or those for which the full faith and credit of the United States are pledged for payment of principal and interest. There is no percentage limitation of the portfolio that can be invested in this category, although a fiveyear maturity limitation is applicable.

2. Obligations issued by Federal agencies or United States Government-Sponsored Enterprise obligations, participations, or other instruments, including those issued by or fully guaranteed as to principal and interest by federal agencies or United States government-sponsored enterprises. There are no limits on the dollar amount or percentage that the City may invest in Federal Agency or Government-Sponsored Enterprises (GSEs), provided that:
• No more than 25% of the portfolio may be invested in any single Agency/GSE issuer.
• The maximum maturity does not exceed five (5) years.
• The maximum percent of agency callable securities in the portfolio will be 20%.

3. Banker’s Acceptances (bills of exchange or time drafts drawn on and accepted by commercial banks) may not exceed 180 days to maturity or 40% of the portfolio. • They are issued by institutions which have short-term debt obligations rated “A-1” or its equivalent or better by at least one NRSRO; or long-term debt obligations which are rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
• No more than 5% of the portfolio may be invested in any single issuer.

4. Local Agency Investment Fund (LAIF), which is a State of California managed investment pool, may be used up to the maximum permitted by California state law.

LAIF’s investments in instruments prohibited by or not specified in the City’s policy do not exclude the investment in LAIF itself from the City’s list of allowable investments, provided LAIF’s reports allow the Treasurer to adequately judge the risk inherent in LAIF’s portfolio..

5. Commercial paper issued by corporations organized and operating in the United States having assets in excess of $500,000,000, ranked “A-1” or its equivalent or better by at least one Nationally Ranked Statistical Rating Organization (NRSRO), issued by corporations which have long-term obligations rated in a rating category of “A” or its equivalent or better by one NRSRO.

Purchases of eligible commercial paper may not exceed 270 days to maturity nor represent more than 10% of the outstanding paper of the issuing corporation. 1164
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Purchases of commercial paper may not exceed 25% of the portfolio. Under a provision sunsetting on January 1, 2026, no more than 40% of the City’s portfolio may be invested in Commercial Paper if the City’s investment assets under management are greater than $100,000,000. No more than 10% of the total investments may be invested the in commercial paper and medium term notes of any single issuer.

6. Negotiable Certificates of Deposits issued by nationally or state-chartered banks, state or federal savings associations, or state or federal credit unions, or by a federally licensed or state-licensed branch of a foreign bank. Purchases of Negotiable Certificates of Deposit may not exceed 30% of the portfolio. No more than 5% of the portfolio may be invested in any single issuer. A maturity limitation of five years is applicable. The amount of the NCD insured up to the FDIC limit does not require any credit ratings. Any amount above the FDIC insured limit must be issued by institutions which have short-term debt obligations rated “A-1” or its equivalent or better by at least one NRSRO; or long-term obligations rated in a rating category of “A” or its equivalent or better by at least one NRSRO.

7. Repurchase agreements that specify terms and conditions may be transacted with banks and broker dealers. The maturity of the repurchase agreements shall not exceed one year.

The market value of the securities used as collateral for the repurchase agreements shall be monitored by the investment staff and shall not be allowed to fall below 102% of the value of the repurchase agreement. A PSA Master Repurchase Agreement is required between the City of Cupertino and the broker/dealer or financial institution for all repurchase agreements transacted.

8. Reverse repurchase agreements are not authorized.

9. Certificates of Deposit (time deposits), non-negotiable and collateralized in accordance with the California Government Code, may be purchased through banks, savings and loan associations, or credit unions. Within a limit of 30% of the portfolio, these institutions may use a private sector entity to assist in the placement of the time deposits under the conditions specified by the Government Code.

10. Medium Term Corporate Notes issued by corporations organized and operating in the United States or by depository institutions licensed by the United States or any state and operating within the United States, with a maximum maturity of five years may be purchased. Securities eligible for investment shall be rated in the rating category of “A” or better by at least one NRSRO. Purchase of medium term note s may not exceed 30% of the portfolio. No more than 10% of the total investments may be invested in the commercial paper and medium term notes of any single issuer.

11. Municipal securities, including obligations of the City, the State of California, and any local agency within the State of California, provided that:
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• The securities are rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
• No more than 5% of the portfolio may be invested in any single issuer. • No more than 30% of the portfolio may be in Municipal Securities. • The maximum maturity does not exceed five (5) years.

12. Municipal securities (Registered Treasury Notes or Bonds) of any of the other 49 states in addition to California, including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by a state or by a department, board, agency, or authority of any of the other 49 states, in addition to California.
• The securities are rated in a rating category of “A” or its equivalent or better by at least one nationally recognized statistical rating organization (“NRSRO”).
• No more than 5% of the portfolio may be invested in any single issuer. • No more than 30% of the portfolio may be in Municipal Securities. • The maximum maturity does not exceed five (5) years.

13. Asset-backed, mortgage-backed, mortgage pass-through securities, and collateralized mortgage obligations, provided that:
• The securities are rated in a rating category of “AA” or its equivalent or better by a NRSRO.
• No more than 20% of the total portfolio may be invested in these securities. • No more than 5% of the portfolio may be invested in any single Asset-Backed or Commercial Mortgage security issuer. There is no issuer limitation on any Mortgage security where the issuer is the US Treasury or a Federal Agency/GSE. • The maximum legal final maturity does not exceed five (5) years.

14. Supranationals, provided that:
• Issues are US dollar denominated senior unsecured unsubordinated obligations issued or unconditionally guaranteed by the International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank.
• The securities are rated in a rating category of “AA” or its equivalent or better by a NRSRO.
• No more than 30% of the total portfolio may be invested in these securities. • No more than 10% of the portfolio may be invested in any single issuer. • The maximum maturity does not exceed five (5) years.
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15. Various daily money market funds administered for or by trustees, paying agents and custodian banks contracted by the City of Cupertino may be purchased as allowed under State of California Government Code. Only funds holding U.S. Treasury obligations, Government agency obligations, or repurchase agreements collateralized by U.S.

Treasury or Government agency obligations can be utilized and may not exceed 20% of the cost value of the portfolio.

16. Ineligible investments are those that are not described herein, including but not limited to, common stocks and long-term (over five years in maturity) notes and bonds are prohibited from use in this portfolio. It is noted that special circumstances arise that necessitate the purchase of securities beyond the five-year limitation. On such occasions, requests must be approved by City Council prior to purchase. Additionally:
• State law notwithstanding, any investments not specifically described herein are prohibited, including, but not limited to futures and options. • In accordance with Government Code, Section 53601.6, investment in inverse floaters, range notes, or mortgage derived interest-only strips is prohibited.
• Investment in any security that could result in a zero-interest accrual if held to maturity is prohibited. Under a provision sunsetting on January 1, 2026, securities backed by the U.S. Government that could result zero- or negative-interest accrual if held to maturity are permitted. • Trading securities for the sole purpose of speculating on the future direction of interest rates is prohibited.
• Purchasing or selling securities on margin is prohibited. • The use of reverse repurchase agreements, securities lending or any other form of borrowing or leverage is prohibited.
• The purchase of foreign currency denominated securities is prohibited.

RISK MANAGEMENT AND DIVERSIFICATION
Mitigating Credit Risk in the Portfolio
Credit risk is the risk that a security or a portfolio will lose some or all its value due to a real or perceived change in the ability of the issuer to repay its debt. The City will mitigate credit risk by adopting the following strategies:

The diversification requirements included in the “Authorized Investments” section of this policy are designed to mitigate credit risk in the portfolio. • No more than 5% of the total portfolio may be deposited with or invested in securities issued by any single issuer unless otherwise specified in this policy. • The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to manage the quality, liquidity or yield of the portfolio in 1167
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response to market conditions or City’s risk preferences. • If the credit ratings of any security owned by the City are downgraded to a level below the quality required by this investment policy, it will be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio.
• If a security is downgraded, the Treasurer will use discretion in determining whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors.
• If a decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported monthly to the City Council.

Mitigating Market Risk in the Portfolio
Market risk is the risk that the portfolio value will fluctuate due to changes in the general level of interest rates. The City recognizes that, over time, longer-term portfolios have the potential to achieve higher returns. On the other hand, longer-term portfolios have higher volatility of return. The City will mitigate market risk by providing adequate liquidity for short-term cash needs, and by making longer-term investments only with funds that are not needed for current cash flow purposes.

The City further recognizes that certain types of securities, including variable rate securities, securities with principal paydowns prior to maturity, and securities with embedded options, will affect the market risk profile of the portfolio differently in different interest rate environments. The City, therefore, adopts the following strategies to control and mitigate its exposure to market risk:
• The City will maintain a minimum of six months of budgeted operating expenditures in short term investments to provide sufficient liquidity for expected disbursements.
• The maximum stated final maturity of individual securities in the portfolio will be five (5) years as measured from trade settlement date, except as otherwise stated in this policy.
• The duration of the portfolio will generally be approximately equal to the duration (typically, plus or minus 20%) of a Market Benchmark, an index selected by the City based on the City’s investment objectives, constraints and risk tolerances.

DEPOSITS
To be eligible to receive local agency money, a bank, savings association, federal association, or federally insured industrial loan company shall have received an overall rating of not less than “satisfactory” in its most recent evaluation by the appropriate federal financial supervisorial agency of its record of meeting the credit needs of California’s communities. 1168
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INTEREST EARNINGS
All moneys earned and collected from investments authorized in this policy shall be allocated monthly to various fund accounts based on the cash balance in each fund as a percentage of the entire pooled portfolio.

REVIEW OF INVESTMENT PORTFOLIO
The Treasurer shall periodically, but no less than quarterly, review the portfolio to identify investments that do not comply with this investment policy and establish protocols for reporting major and critical incidences of noncompliance to the City Council.

POLICY REVIEW
The City of Cupertino’s investment policy shall be adopted by resolution of the City Council on an annual basis. This investment policy shall be reviewed at least annually to ensure its consistency with the overall objectives of preservation of principal, liquidity, and yield, and its relevance to current law and financial and economic trends. 1169
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GLOSSARY OF INVESTMENT TERMS
AGENCIES. Shorthand market terminology for any obligation issued by a governmentsponsored entity (GSE), or a federally related institution. Most obligations of GSEs are not guaranteed by the full faith and credit of the US government. Examples are:

FFCB. The Federal Farm Credit Bank System provides credit and liquidity in the agricultural industry. FFCB issues discount notes and bonds.

FHLB. The Federal Home Loan Bank provides credit and liquidity in the housing market. FHLB issues discount notes and bonds.

FHLMC. Like FHLB, the Federal Home Loan Mortgage Corporation provides credit and liquidity in the housing market. FHLMC, also called “FreddieMac” issues discount notes, bonds and mortgage pass-through securities.

FNMA. Like FHLB and Freddie Mac, the Federal National Mortgage Association was established to provide credit and liquidity in the housing market. FNMA, also known as “Fannie Mae,” issues discount notes, bonds and mortgage pass-through securities.

GNMA. The Government National Mortgage Association, known as “Ginnie Mae,” issues mortgage pass-through securities, which are guaranteed by the full faith and credit of the US Government.

PEFCO. The Private Export Funding Corporation assists exporters. Obligations of PEFCO are not guaranteed by the full faith and credit of the US government.

TVA. The Tennessee Valley Authority provides flood control and power and promotes development in portions of the Tennessee, Ohio, and Mississippi River valleys. TVA currently issues discount notes and bonds.

ASKED. The price at which a seller offers to sell a security.

ASSET BACKED SECURITIES. Securities supported by pools of installment loans or leases or by pools of revolving lines of credit.

AVERAGE LIFE. In mortgage-related investments, including CMOs, the average time to expected receipt of principal payments, weighted by the amount of principal expected.

BANKER’S ACCEPTANCE. A money market instrument created to facilitate international trade transactions. It is highly liquid and safe because the risk of the trade transaction is transferred to the bank which “accepts” the obligation to pay the investor.

BENCHMARK. A comparison security or portfolio. A performance benchmark is a partial market index, which reflects the mix of securities allowed under a specific investment policy.

BID. The price at which a buyer offers to buy a security. 1170
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BROKER. A broker brings buyers and sellers together for a transaction for which the broker receives a commission. A broker does not sell securities from his own position.

CALLABLE. A callable security gives the issuer the option to call it from the investor prior to its maturity. The main cause of a call is a decline in interest rates. If interest rates decline since an issuer issues securities, it will likely call its current securities and reissue them at a lower rate of interest. Callable securities have reinvestment risk as the investor may receive its principal back when interest rates are lower than when the investment was initially made.

CERTIFICATE OF DEPOSIT (CD). A time deposit with a specific maturity evidenced by a certificate. Large denomination CDs may be marketable.

CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SYSTEM (CDARS). A private placement service that allows local agencies to purchase more than $250,000 in CDs from a single financial institution (must be a participating institution of CDARS) while still maintaining FDIC insurance coverage. CDARS is currently the only entity providing this service. CDARS facilitates the trading of deposits between the California institution and other participating institutions in amounts that are less than $250,000 each, so that FDIC coverage is maintained.

COLLATERAL. Securities or cash pledged by a borrower to secure repayment of a loan or repurchase agreement. Also, securities pledged by a financial institution to secure deposits of public monies.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMO). Classes of bonds that redistribute the cash flows of mortgage securities (and whole loans) to create securities that have different levels of prepayment risk, as compared to the underlying mortgage securities.

COMMERCIAL PAPER. The short-term unsecured debt of corporations.

COST YIELD. The annual income from an investment divided by the purchase cost. Because it does not give effect to premiums and discounts which may have been included in the purchase cost, it is an incomplete measure of return.

COUPON. The rate of return at which interest is paid on a bond.

CREDIT RISK. The risk that principal and/or interest on an investment will not be paid in a timely manner due to changes in the condition of the issuer.

CURRENT YIELD. The annual income from an investment divided by the current market value.

Since the mathematical calculation relies on the current market value rather than the investor’s cost, current yield is unrelated to the actual return the investor will earn if the security is held to maturity.

DEALER. A dealer acts as a principal in security transactions, selling securities from and buying securities for his own position.

DEBENTURE. A bond secured only by the general credit of the issuer. 1171
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DELIVERY VS. PAYMENT (DVP). A securities industry procedure whereby payment for a security must be made at the time the security is delivered to the purchaser’s agent.

DERIVATIVE. Any security that has principal and/or interest payments which are subject to uncertainty (but not for reasons of default or credit risk) as to timing and/or amount, or any security which represents a component of another security which has been separated from other components (“Stripped” coupons and principal). A derivative is also defined as a financial instrument the value of which is totally or partially derived from the value of another instrument, interest rate, or index.

DISCOUNT. The difference between the par value of a bond and the cost of the bond, when the cost is below par. Some short-term securities, such as T-bills and banker’s acceptances, are known as discount securities. They sell at a discount from par, and return the par value to the investor at maturity without additional interest. Other securities, which have fixed coupons, trade at a discount when the coupon rate is lower than the current market rate for securities of that maturity and/or quality.

DIVERSIFICATION. Dividing investment funds among a variety of investments to avoid excessive exposure to any one source of risk.

DURATION. The weighted average time to maturity of a bond where the weights are the present values of the future cash flows. Duration measures the price sensitivity of a bond to changes in interest rates. (See modified duration).

FEDERAL FUNDS RATE. The rate of interest charged by banks for short-term loans to other banks. The Federal Reserve Bank through open-market operations establishes it.

FEDERAL OPEN MARKET COMMITTEE. A committee of the Federal Reserve Board that establishes monetary policy and executes it through temporary and permanent changes to the supply of bank reserves.

LEVERAGE. Borrowing funds in order to invest in securities that have the potential to pay earnings at a rate higher than the cost of borrowing.

LIQUIDITY. The speed and ease with which an asset can be converted to cash.

LOCAL AGENCY INVESTMENT FUND (LAIF). A voluntary investment fund open to government entities and certain non-profit organizations in California that is managed by the State Treasurer’s Office.

LOCAL GOVERNMENT INVESTMENT POOL. Investment pools that range from the State Treasurer’s Office Local Agency Investment Fund (LAIF) to county pools, to Joint Powers Authorities (JPAs). These funds are not subject to the same SEC rules applicable to money market mutual funds.

MAKE WHOLE CALL. A type of call provision on a bond that allows the issuer to pay off the remaining debt early. Unlike a call option, with a make whole call provision, the issuer makes a 1172
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lump sum payment that equals the net present value (NPV) of future coupon payments that will not be paid because of the call. With this type of call, an investor is compensated, or "made whole." MARGIN. The difference between the market value of a security and the loan a broker makes using that security as collateral.

MARKET RISK. The risk that the value of securities will fluctuate with changes in overall market conditions or interest rates.

MARKET VALUE. The price at which a security can be traded.

MARKING TO MARKET. The process of posting current market values for securities in a portfolio.

MATURITY. The final date upon which the principal of a security becomes due and payable.

MEDIUM TERM NOTES. Unsecured, investment-grade senior debt securities of major corporations which are sold in relatively small amounts on either a continuous or an intermittent basis. MTNs are highly flexible debt instruments that can be structured to respond to market opportunities or to investor preferences.

MODIFIED DURATION. The percent change in price for a 100 basis point change in yields.

Modified duration is the best single measure of a portfolio’s or security’s exposure to market risk.

MONEY MARKET. The market in which short-term debt instruments (T-bills, discount notes, commercial paper, and banker’s acceptances) are issued and traded.

MORTGAGE PASS-THROUGH SECURITIES. A securitized participation in the interest and principal cash flows from a specified pool of mortgages. Principal and interest payments made on the mortgages are passed through to the holder of the security.

MUNICIPAL SECURITIES. Securities issued by state and local agencies to finance capital and operating expenses.

MUTUAL FUND. An entity which pools the funds of investors and invests those funds in a set of securities which is specifically defined in the fund’s prospectus. Mutual funds can be invested in various types of domestic and/or international stocks, bonds, and money market instruments, as set forth in the individual fund’s prospectus. For most large, institutional investors, the costs associated with investing in mutual funds are higher than the investor can obtain through an individually managed portfolio.

NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO).

A credit rating agency that the Securities and Exchange Commission in the United States uses for regulatory purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of investments, especially debt securities, pay credit rating agencies to provide them with ratings. The three most prominent NRSROs are Fitch, S&P, and Moody's. 1173
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NEGOTIABLE CD. A short-term debt instrument that pays interest and is issued by a bank, savings or federal association, state or federal credit union, or state-licensed branch of a foreign bank. Negotiable CDs are traded in a secondary market and are payable upon order to the bearer or initial depositor (investor).

PREMIUM. The difference between the par value of a bond and the cost of the bond, when the cost is above par.

PREPAYMENT SPEED. A measure of how quickly principal is repaid to investors in mortgage securities.

PREPAYMENT WINDOW. The time period over which principal repayments will be received on mortgage securities at a specified prepayment speed.

PRIMARY DEALER. A financial institution (1) that is a trading counterparty with the Federal Reserve in its execution of market operations to carry out U.S. monetary policy, and (2) that participates for statistical reporting purposes in compiling data on activity in the U.S.

Government securities market.

PRUDENT PERSON (PRUDENT INVESTOR) RULE. A standard of responsibility which applies to fiduciaries. In California, the rule is stated as “Investments shall be managed with the care, skill, prudence and diligence, under the circumstances then prevailing, that a prudent person, acting in a like capacity and familiar with such matters, would use in the conduct of an enterprise of like character and with like aims to accomplish similar purposes.” REALIZED YIELD. The change in value of the portfolio due to interest received and interest earned and realized gains and losses. It does not give effect to changes in market value on securities, which have not been sold from the portfolio.

REGIONAL DEALER. A financial intermediary that buys and sells securities for the benefit of its customers without maintaining substantial inventories of securities and that is not a primary dealer.

REPURCHASE AGREEMENT. Short-term purchases of securities with a simultaneous agreement to sell the securities back at a higher price. From the seller’s point of view, the same transaction is a reverse repurchase agreement.

SAFEKEEPING. A service to bank customers whereby securities are held by the bank in the customer’s name.

STRUCTURED NOTE. A complex, fixed income instrument, which pays interest, based on a formula tied to other interest rates, commodities or indices. Examples include inverse floating rate notes which have coupons that increase when other interest rates are falling, and which fall when other interest rates are rising, and "dual index floaters," which pay interest based on the relationship between two other interest rates - for example, the yield on the ten-year Treasury note minus the Libor rate. Issuers of such notes lock in a reduced cost of borrowing by purchasing interest rate swap agreements.
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SUPRANATIONAL. A Supranational is a multi-national organization whereby member states transcend national boundaries or interests to share in the decision making to promote economic development in the member countries.

TOTAL RATE OF RETURN. A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending value; it includes interest earnings, realized and unrealized gains, and losses in the portfolio.

U.S. TREASURY OBLIGATIONS. Securities issued by the U.S. Treasury and backed by the full faith and credit of the United States. Treasuries are considered to have no credit risk, and are the benchmark for interest rates on all other securities in the US and overseas. The Treasury issues both discounted securities and fixed coupon notes and bonds.

TREASURY BILLS. All securities issued with initial maturities of one year or less are issued as discounted instruments, and are called Treasury bills. The Treasury currently issues three- and six-month T-bills at regular weekly auctions. It also issues “cash management” bills as needed to smooth out cash flows.

TREASURY NOTES. All securities issued with initial maturities of two to ten years are called Treasury notes, and pay interest semi-annually.

TREASURY BONDS. All securities issued with initial maturities greater than ten years are called Treasury bonds. Like Treasury notes, they pay interest semi-annually.

VOLATILITY. The rate at which security prices change with changes in general economic conditions or the general level of interest rates.

YIELD TO MATURITY. The annualized internal rate of return on an investment which equates the expected cash flows from the investment to its cost.

Revisions:

Director of Administrative Services’ signature: _______________________________ Date: _______________________________
City Manager’s signature: _______________________________ Date: _______________________________
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City Investment Policy
Citywide Policy Manual
Attachments: N/A
Effective Date:

May 16, 2023 14, 2024 through June 30, 2025
Responsible Department:

Administrative Services
Related Policies & Notes:

SCOPE
The investment policy applies to all financial assets of the City of Cupertino as accounted for in the Annual Comprehensive Financial Report (ACFR). Policy statements outlined in this document focus on the City of Cupertino’s pooled, surplus funds, but will also apply to all other funds under the City Treasurer’s span of control unless specifically exempted by statute or ordinance. This policy is applicable, but not limited to all funds listed below:
 General Fund
 Special Revenue Funds
 Capital Project Funds
 Enterprise Funds
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 Internal Service Funds
 Trust and Agency Funds
 Any new fund unless specifically exempted
Investments of bond proceeds shall be governed by the provisions of the related bond indentures and/or cash flow requirements and therefore may extend beyond the maturity limitations as outlined in this document. Other post-employment benefit (OPEB) and Pension trust investments are governed by California Government Code Sections 53620 through 53622 and trust documents.

OBJECTIVES
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The primary objectives, in order of priority, of the City of Cupertino’s investment activities shall be:

To attain this objective, the City will diversify its investments by investing funds among a variety of securities with independent returns.

PERFORMANCE EVALUATION
Investment performance is continually monitored and evaluated by the City Treasurer.

Investment performance statistics and activity reports are generated on a quarterly basis for presentation to the oversight (audit) committee, City Manager and City Council. Yield on the City’s investment portfolio is of secondary importance compared to the safety and liquidity objectives described above. The City’s investment portfolio shall be designed to attain a market average rate of return through economic cycles. The Treasurer shall monitor and evaluate the portfolio’s performance relative to the chosen market benchmark(s), which will be included in the Treasurer’s quarterly report. The Treasurer shall select an appropriate, readily available index to use as a market benchmark. Whenever possible, and consistent with risk limitations as defined herein and prudent investment principles, the Treasurer shall seek to augment return above the 1178
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market average rate of return. The City may select alternative benchmarks for identified pools of City funds that have different objectives.

The Treasurer shall designate a staff person as a liaison/deputy in the event circumstances require timely action and the Treasurer is not present.

No officer or designee may engage in an investment transaction except as provided under terms of this policy and the procedures by the Treasurer and approved by the City Manager/Council.

The Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

REPORTING
Monthly transaction reports will be submitted by the Treasurer to the City Council within 30 days of the end of the reporting period in accordance with California Government Code Section 53607. 1180
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The City Treasurer shall also prepare a quarterly investment report, including a succinct management summary that provides a clear picture of the status of the current investment portfolio. The report will be prepared in a manner that will report all information required under this policy and as recommended by California Government Code. The Treasurer will submit the report to Council no later than the second regular council meeting, or approximately 45 days following the end of the quarter covered by the report.

AUTHORIZED FINANCIAL INSTITUTIONS, DEPOSITORIES, AND QUALIFIED

Public deposits will be made only in qualified public depositories as established by State law.

Deposits will be insured by the Federal Deposit Insurance Corporation, or, to the extent the amount exceeds the insured maximum, will be collateralized in accordance with State law. 1181
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Selection of broker/dealers used by an external investment adviser retained by the City will be at the sole discretion of the adviser. Where possible, transactions with broker/dealers shall be selected on a competitive basis and their bid or offering prices shall be recorded. If there is no other readily available competitive offering, best efforts will be made to document quotations for comparable or alternative securities. When purchasing original issue instrumentality securities, no competitive offerings will be required as all dealers in the selling group offer those securities at the same original issue price.

Any investment currently held at the time the policy is adopted which does not meet the new policy guidelines can be held until maturity and shall be exempt from the current policy. At the time of the investment’s maturity or liquidation, such funds shall be reinvested only as provided in the current policy.
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An appropriate risk level shall be maintained by primarily purchasing securities that are of high quality, liquid, and marketable. The portfolio shall be diversified by security type and institution to avoid incurring unreasonable and avoidable risks regarding specific security types or individual issuers.

4. Local Agency Investment Fund (LAIF), which is a State of California managed investment pool, may be used up to the maximum permitted by California state law.

Purchases of eligible commercial paper may not exceed 270 days to maturity nor represent more than 10% of the outstanding paper of the issuing corporation. 1183
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Purchases of commercial paper may not exceed 25% of the portfolio. Under a provision sunsetting on January 1, 2026, no more than 40% of the City’s portfolio may be invested in Commercial Paper if the City’s investment assets under management are greater than $100,000,000. No more than 10% of the total investments may be invested the in commercial paper and medium term notes of any single issuer.

7. Repurchase agreements that specify terms and conditions may be transacted with banks and broker dealers. The maturity of the repurchase agreements shall not exceed one year.

8. Reverse repurchase agreements are not authorized.

11. Municipal securities, including obligations of the City, the State of California, and any local agency within the State of California, provided that:
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• The securities are rated in a rating category of “A” or its equivalent or better by at least one NRSRO.
• No more than 5% of the portfolio may be invested in any single issuer. • No more than 30% of the portfolio may be in Municipal Securities. • The maximum maturity does not exceed five (5) years.

Treasury or Government agency obligations can be utilized and may not exceed 20% of the cost value of the portfolio.

The diversification requirements included in the “Authorized Investments” section of this policy are designed to mitigate credit risk in the portfolio. • No more than 5% of the total portfolio may be deposited with or invested in securities issued by any single issuer unless otherwise specified in this policy. • The City may elect to sell a security prior to its maturity and record a capital gain or loss in order to manage the quality, liquidity or yield of the portfolio in 1186
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response to market conditions or City’s risk preferences. • If the credit ratings of any security owned by the City are downgraded to a level below the quality required by this investment policy, it will be the City’s policy to review the credit situation and make a determination as to whether to sell or retain such securities in the portfolio.
• If a security is downgraded, the Treasurer will use discretion in determining whether to sell or hold the security based on its current maturity, the economic outlook for the issuer, and other relevant factors.
• If a decision is made to retain a downgraded security in the portfolio, its presence in the portfolio will be monitored and reported monthly to the City Council.