DATE:
December 19, 2023
TO:
Mayor and Council Members
Chair and Board Members, Hesperia Water District
FROM:
Rachel Molina, City Manager
BY:
Casey Brooksher, Assistant City Manager
Anne Duke, Deputy Finance Director
Keith Cheong, Senior Accountant
SUBJECT:
User Fee Study
RECOMMENDED ACTION
It is recommended that the City Council and Board of Directors of the Hesperia Water District consider amending the City-wide fee schedule, as identified in the related to the User Fee Study, and the adoption of proposed Joint Resolution No. 2023-67 and Resolution HWD 2023-24.
BACKGROUND
The City charges user fees for the various services provided. Services such as these are requested of the City’s departments but involve limited or no direct benefit to the community as a whole. Without recovering the cost to provide these services, the City would have to use general tax monies to provide these individualized benefits, in effect subsidizing the cost of providing the service, which would impact the limited funds that might otherwise be available for community-wide benefits.
In order to enact fees, the City must follow a series of laws enacted by the California legislature starting with Proposition 13 (1978), which rules the limitation on property taxes. Subsequently, Proposition 4 (1979) determined the difference between a tax and a fee, wherein a fee must be no greater than the cost of providing the service. Unlike the private sector, the City cannot establish user fees above their cost in order to generate a profit. As such, the City may only set fees at a level to recover the full estimated cost of providing the service (user fee).
As such, the City relies on fee studies to determine the appropriate fees, and has three groupings of fees that are included in the ‘City Fee Schedule’.
Development Impact Fees (DIF) – This grouping of fees was developed by a fee study which was completed during FY 2017-18 by DTA (David Taussig and Associates), and more recently during FY 2020-21 for drainage. The DIF rates were last approved by the City Council on February 1, 2022. Further increase to this grouping will necessitate a new DIF study and approval.
Water and Sewer Rate – During FY 2017-18, the Board of Directors of the Hesperia Water District conducted a Proposition 218 hearing and subsequently approved rates on November 21, 2017. The last increase to the water and sewer rates occurred on December 01, 2021. Like DIF, further rate increases will necessitate a new Water and Sewer rate study.
General City-wide fees – All other fees assessed by the City.
Since Fiscal Year 1999-2000, staff has prepared the study and supporting documentation for all general City-wide fees (user fees) for City Council approval. Staff adhere to the principle that a user fee should recoup the costs of providing services that benefit individuals or companies. Further, the user fee should be borne by the individuals or companies receiving the service, and not the entire community. Using this principle, the objective of a user fee is to recover as much as (but no more than) 100% of the cost to provide the service, from the individuals or companies that benefit from the services being provided.
Given that many fees have not been updated in a number of years, the FY 2022-23 Budget included funding to engage a consultant to prepare a comprehensive User Fee Study. The purpose of this study is to ensure that all fees are applicable, meet state law, and recoup the cost of providing the service. The City released a Request for Proposal (RFP), which three consultants responded to the City. Ultimately, the proposal submitted by Willdan Financial Services (Willdan) was deemed the most responsive/responsible. On November 09, 2022, the City engaged Willdan to complete the study for approximately $30,000.
The principal goal of the User Fee Study was to determine the full cost of the services provided by the City. In addition, Willdan established a series of additional objectives including:
Developing a rational basis for setting fees;
Identifying subsidy amount, if applicable, of each fee in the model; Ensuring compliance with State law;
Developing an updatable and comprehensive list of fees; Maintaining consistency with City policies and goals; and Creation of a model that can be updated by the City should fees need to be changed based on current conditions.
To properly develop the user fee study, Willdan, in conjunction with the Finance Division, conducted a series of meetings with each department to review the current fees and assist the departments in identifying the applicable costs (time) spent to provide services. Each department conducted an in-depth review of their processes to determine the applicable cost of providing services for the basis of the user fee. The following areas are included in the user fee study:
Animal Control
Miscellaneous City Fees
Building (Not including Developer Impact Fees) – Includes Building & Safety, Planning, and Engineering Business License
Public Safety
Water District Fees (Not including Water and Sewer Rates) It should be noted that Willdan was the consultant to update the City’s Indirect Cost Allocation plan during FY 2016-17. The indirect cost allocation essentially determines the General Fund’s overhead charges applicable to all other City funds, which include the Water District. This is important in that the indirect cost allocation plan is used to determine some fees in the user fee study. As an objective of the scope for the user fee study, Willdan created a model that allows staff to review and update fees as needed, with City Council approval. The data from the indirect cost allocation plan can be uploaded to the user fee model to capture the current overhead rates.
ISSUES/ANALYSIS
A review of City-wide fees by a consultant has not occurred since prior to FY 1999-2000. While fees have been updated, such updates have been done internally with many fees not being adjusted for a number of years. Of the 517 different types of fees, 24 are recommended to be added, 222 are being recommended to increase, 49 would decrease, and there would be no change to the remaining 222 fees. The following table details the changes by area.
Department/Fee Category
No. of Fees Added
No. of Fees Increased
No. of Fees Decreased
No. of Fees with No Changes
Avg.
Estimated Fee Increase
Animal Control
5 61
12 44
2%
Miscellaneous Fees
9 6
4 34
1%
Building & Safety
6 69
16 33
23%
Planning
2 45
10 7
43%
Engineering
1 22
1 43
58%
Business License
0 3
3 30
-0.5%
Public Safety
0 5
0 11
1%
Water District (Non-Utility Rate)
1 11
3 20
11%
*Note: In addition to the changes noted above, there are three fees with a recommended change in the basis for calculation, as identified in the User Fee Study.
Attached to this staff report is the User Fee Study report, which provides the detail for the fee changes. Specifically, Appendix C, starting on page 27 of the report, details the current fee and recommended change. It should be noted, that the Appendix details the full cost for services, percentage of subsidy, or amount not charged, and the new fee. The following details three sample recommendations with 1. No Change, 2. Reduction, and 3. Increase:
Business License (Page 40 – Item 1) – The current fee is $50 and the results of the study reflect a total cost of $63.07; however, the recommendation is to maintain the $50 fee at a 21% subsidy.
Plan Review-New Residence (Page 38 – Item 132) – The current fee is $285 for the first 1,000 square feet (sq ft) plus $0.215 per square foot over 1,000 sq ft. For example, a 2,000 sq ft house would generate $495 for this fee type. It is recommended that this fee be increased to a flat fee of $445. With the proposed fee, any house exceeding 1,745 sq. ft. would see a reduction for this fee type.
General Plan Amendment (Page 43 – Item 13) – The current fee is $695 and based on the study, it is determined that the total cost be $2,578. Currently, the City is subsidizing $1,883 of this fee type. It is recommended that the fee match the City’s cost of $2,578.
If approved, the changes to the fees would become effective March 01, 2024, generating additional revenue through the remaining four months of the fiscal year.
In addition, as labor effort and costs associated with the provision of services can fluctuate over time, an element in the development of any fee schedule is that it has the flexibility to remain current. Therefore, an inflationary factor has been included in the proposed resolution to allow the City Council, by resolution, to annually increase or decrease the fees. The resolution provides for the ability to annually adjust the User Fee Schedule by the Consumer Price Index (CPI) for the Riverside-San Bernardino-Ontario area using the year-over-year percentage change from September to September of not less than 0% and no more than 5%. Such increase would be subject to approval by the City Council on an annual basis and, if approved, the first CPI increase would occur March 01, 2025.
FISCAL IMPACT
It is estimated that, based upon the FY 2023-24 Revenue Budget, the annualized General Fund revenues could increase by approximately $324,000 annually. The largest General Fund revenue increases would derive from Engineering Permit and Plan Check Fees ($122,000), Business License Administrative Fees ($86,000), Animal Control License and Apprehension Fees ($59,000), Building Fees ($35,000), and General Plan Update Fees ($22,000).
The annualized Water District revenues could increase by approximately $187,000 annually, based upon the FY 2023-24 Revenue Budget, largely due to anticipated increases to the Water Meter Service Fees ($145,000) and Delinquency Fees ($42,000).
ALTERNATIVES
Provide alternative direction to staff.
ATTACHMENTS
User Fee Study Report – December 2023
Resolution No. 2023-67 and Resolution HWD No. 2023-24
City of Hesperia STAFF REPORT City of Hesperia STAFF REPORT City of Hesperia
STAFF REPORT
City of Hesperia
STAFF REPORT
Staff Report to the Mayor, Council Members and Chair and Board Members of the Hesperia Water District User Fee Study
December 19, 2023