STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of October 10, 2023
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Edwin Gato, Director of Finance
SUBJECT: Review of the Comprehensive User Fee Study
RECOMMENDATION ACTION
Staff recommends that the City Council:
Receive report from Staff and Revenue & Cost Specialist (RCS).
Review and discuss staff recommendations for changes to the City’s Master Fee Schedule for fiscal year 2023-24 based on the completed user fee analysis.
Provide Staff with direction on cost recovery objectives and the recommended fee proposals.
EXECUTIVE SUMMARY
The City Council has traditionally approved a Master Fee Schedule as part of the budget process to reflect the anticipated annual cost increase in the upcoming fiscal year. The fee adjustments are not automatic. They require a yearly review and approval by the City Council. An annual review and update ensures that fees reflect current costs to provide services, allow the addition of fees when applicable for new City services, and provide for the elimination of fees for discontinued services.
To establish appropriate cost recovery levels for City services that benefit individuals or groups rather than the general public, the City initiated a cost of service and fee study. The City engaged RCS to perform this study, identifying the City’s labor and non-labor resources and establishing the full-service cost for fee-related activities for the development services, public safety, and administration.
DISCUSSION
Each year, the City adopts a fee resolution that establishes the fees for City services for the upcoming fiscal year, which are then compiled into one document called the Master Fee Schedule. The fees were annually increased by the consumer price index (CPI). However, changes have occurred in services, materials, and employee costs, many of which have outpaced CPI increases.
The City hired Revenue & Cost Specialists, LLC (RCS) to conduct a comprehensive cost allocation plan (CAP) and user fee study to assist the City in determining the actual cost of providing City services and help the departments establish appropriate user fees. The Cost Allocation Plan (CAP) and updated Cost of Services study assisted departments in determining the actual cost of providing City services and programs paid for by user fees. The objectives of the update were to develop a rational basis for setting fees, understand the total cost of providing services, identify subsidy amounts, identify appropriate fee adjustments that enhance fairness and equity, maintain consistency with local policy and objectives, and comply with state law; and develop an updatable, comprehensive list of fees. As is often the case, the Cost of Services study revealed differences between actual costs and the fees charged to recover those costs.
The methodology used to calculate the total cost of each service comprised of two essential elements: 1) the Fully Burdened Hourly Rates (FBHR) of staff providing the service and 2) the time spent by staff providing the service. The FBHRs used in the Study include both direct costs and indirect costs. Direct costs are those directly tied to a service, such as labor and possibly materials or supplies. An example of direct costs would be the hourly salary and benefits of the individual processing and reviewing Planning & Development Service permits. Indirect costs support multiple service areas and are not directly tied to a specific fee. An example of indirect costs would be the costs of City finance or human resources staff, which support the divisions and staff members performing the fee services. Once the FBHRs were established, RCS worked with all City departments to establish the number of hours (on average) staff takes to accomplish each service associated with a fee. Once the number of hours it takes staff to perform each service was gathered, the total cost to provide each service could be calculated. The total cost of each service is the product of the FBHR calculation multiplied by the time spent performing the service. These total costs are the full recovery levels shown in the fee schedules and the comprehensive User Fee Study. The methodology utilized by RCS is described in the Report. With consultation from RCS, the City has completed a comprehensive User Fee Study (Attachment 1) for the City Council’s consideration.
FISCAL IMPACT OF RECOMMENDATION:
There is no fiscal impact at this time. However, should the City Council adopt at the public hearing on October 24, 2023, City fee revenues could increase by approximately $99,000 annually or a 10% increase compared to the current fees.
ATTACHMENTS:
Hercules Cost of Service Study (User Fee Study)
Hercules Fee Study Presentation
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