STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of November 14, 2023
TO: Mayor and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Edwin Gato, Director of Finance
SUBJECT: Public Hearing on Approving Additions, Deletions and Adjustments to the Master Fee Schedule
RECOMMENDATION ACTION
Staff recommends that the City Council open the continued public hearing, deliberate, and adopt the resolution approving additions, deletions and adjustments to the Master Fee Schedule for services provided by the City.
EXECUTIVE SUMMARY
The City of Hercules engaged Revenue & Cost Specialist (RCS) to determine the full costs incurred by the City to support the various activities for which the City charges user fees. Due to the complexity and breadth of performing a comprehensive review of fees, RCS employed a variety of fee methodologies to identify the full costs of individual fees and program activities. This report and the appendices herein identify full cost recovery for City services and the recommended level of recovery as determined through discussion with departmental staff.
BACKGROUND
As part of a general cost recovery strategy, local governments adopt user fees to fund programs and services that provide limited or no direct benefit to the community. As cities struggle to maintain service levels and variability of demand, they have become increasingly aware of subsidies provided by the General Fund and have implemented cost-recovery targets. To the extent that governments use general tax monies to provide individuals with private benefits and not require them to pay the full-service cost (and therefore receive a subsidy), the government limits funds available to offer other community-wide benefits. The government is using community funds to pay for private benefits. Unlike most revenue sources, cities have more control over the user fees they charge to recover costs or the subsidies they can institute.
DISCUSSION
At its meeting on October 10, 2023, the City Council received the results of the City’s comprehensive User Fee Study (Attachment 6). The updated User Fee Study will allow the City to establish fees based on actual current costs, which ensures fairness and equity of fees. In addition to the fees included in the User Fee Study, the Master Fee Schedule contains the Parks & Recreation fees, which are not required to be included as part of the User Fee Study and are set at a market rate. To keep up with inflation, staff recommends increasing the Parks & Recreation fees by the San Francisco-Oakland-Hayward Consumer Price Index (CPI) from June to June by 2.9 percent. Also, the Business License tax will be increased by the same percentage per ordinance.
The objective of the Study:
As the City of Hercules seeks to efficiently manage limited resources and adequately respond to increased service demands, it needs various tools. These tools ensure that the City has the best information and resources available to make sound decisions, fairly and legitimately set fees, maintain compliance with state law and local policies, and meet the City administration's and its constituency's needs. Given the limitations on raising revenue in local government, the City recognizes that a User Fee Study is a cost-effective way to understand the total cost of services and identify potential fee deficiencies. Essentially, a User Fee is a payment for a requested service provided by a local government that primarily benefits an individual or group.
The total cost of each service included in this analysis is based on the reasonable full cost of providing City services, including direct salaries and benefits of City staff, direct departmental costs, and indirect costs from central service support. This study determines the full cost recovery fee for the City to provide each service. The principal goal of the study was to help the City determine the full cost of the services that the City provides.
The result of the study will help the City better understand its actual costs of providing services. It may serve as a basis for making informed policy decisions regarding the most appropriate fees, if any, to collect from individuals and organizations that require individualized services from the City.
Responses to the Council’s questions and clarifications:
Paving Fees – Effective June 22, 2018, the addition of paving of more than 120 square feet in yard areas requires a Paving Permit. These paving rules help the City ensure public safety, protect against flooding, preserve neighborhood character and property values, and minimize impacts to the environment, including problems from run-off and storm water. To achieve these goals, residents must follow these rules for all new paving/hardscape installation and landscaping, set forth by the ordinance.
Below are the proposed revisions to the fees for the paving permit and paving plan review based on the updated information from the responsible department. The cost and fee details are included in attachment 2.
The paving fee recommendations, as indicated above, are reasonable based on the cost of providing this service.
Impact on Demand (Elasticity) – Economic principles of elasticity suggest that increased costs for services (higher fees) will eventually curtail the demand for the services. In contrast, lower fees may incentivize utilizing the services and encourage certain actions. Either of these conditions may have a desirable effect on the City. However, the level of the fees that would cause demand changes is largely unknown. The Cost-of-Service Study did not attempt to evaluate the economic or behavioral impacts of higher or lower fees; nevertheless, the City should consider the potential effects of these issues when deciding on fee levels tonight.
However, despite the intent, the City Council and the public need to understand that another revenue source, such as the General Fund, must cover subsidies. Therefore, the general taxpayer will potentially help to fund private benefits, and the services will not receive funds that are otherwise directed to cover subsidies.
The fee recommendations are reasonable based on the cost study and, in comparison, with other jurisdictions on specific fees, as illustrated in attachment 3. It should be understood that certain fees between jurisdictions are not a direct match. Therefore, the staff hopes that the comparison is performed on certain fees and presented so that the City Council can understand the results.
In addition, the staff recommends that the City Council consider bifurcating the Administrative/Minor User Permit (S-001) to add 50% recovery for home-based businesses to encourage participation in a service and 100% recovery for all other businesses. The cost and fee details are included in attachment 2.
Booking Fees and DUI cost recovery – Per Government Code:
GOV§ 29550.1. Administration Fee Reimbursement for Arrest Any city, special district, school district, community college district, college, university, or other local arresting agency whose officer or agent arrests a person is entitled to recover any criminal justice administration fee imposed by a county from the arrested person if the person is convicted of any criminal offense related to the arrest. A judgment of conviction shall contain an order for payment of the amount of the criminal justice administration fee by the convicted person, and execution shall be issued on the order in the same manner as a judgment in a civil action, but the order shall not be enforceable by contempt. The court shall, as a condition of probation, order the convicted person to reimburse the city, special district, school district, community college district, college, university, or other local arresting agency for the criminal justice administration fee.
The County sets the fee to reimburse the City as follows:
Booking Fee: $175
Jail Access Fee: $345
Both Booking and Jail Access Fee: $520
Public Hearing Notice:
The public hearing was noticed in the local newspaper on October 12, 2023. The purpose of the public hearing is to provide a formal opportunity for community input.
Staff Recommendations:
The definition of a user fee helps staff guide our decisions regarding fee setting. The general standard is that individuals (or groups) who receive a wholly private benefit should pay 100% of the full cost of the services. In contrast, public benefit services should be funded entirely by the general fund’s tax dollars.
Since all of the user fees identified in the study will benefit an individual or a group as opposed to the whole Hercules community, staff recommend adopting the changes to the fees, new fees, and deleting fees that are not used or inactive based on the result of the comprehensive user fee study, and in addition, increasing the Parks & Recreation fees and Business License tax by the San Francisco-Oakland-Hayward Consumer Price Index (CPI) from June to June by 2.9 percent to keep up with inflation and as required by ordinance, respectively.
FISCAL IMPACT OF RECOMMENDATION:
If the City Council approves all changes to the user fee based on the study, City fee revenues could increase by approximately $99,000 annually or by 10% compared to the current fees.
ATTACHMENTS:
Resolution
Exhibit “A” - Master Fee Schedule
Summary of Current and Recommended Fees
Recommended Revision to Paving Permit and Plan Review
Recommended Revision to Administrative/Minor Use Permit (AUP) Selected User Fee Comparison with Other Jurisdictions
Hercules Cost of Service Study (User Fee Study)
Hercules Cost of Service Study PowerPoint Presentation
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