DATE:
September 17, 2024
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:
Revised User Fee Study
RECOMMENDED ACTION
It is recommended that the City Council and the Board of Directors of the Hesperia Water District consider amending the City-wide fee schedule related to the User Fee Study, and the adoption of proposed Joint Resolution No. 2024-35 and Resolution HWD 2024-14.
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 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 for the three groupings of fees that are included in the ‘City Fee Schedule’ shown below:
Development Impact Fees (DIF)
Water and Sewer Rate
General City-wide fees
In FY 2022-23, the City conducted an Request for Proposal (RFP) to engage a consultant to prepare a comprehensive User Fee Study. At the conclusion of the RFP process, Willdan Financial Services (Willdan) was awarded the contract 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. The study would identify the fee amounts that would allow the City to recoup as much as (but no more than) 100% of the cost to provide the service to the individuals or companies that benefit from the services being provided, instead of the cost being burdened by the entire community. As a part of that study, Willdan established a series of objectives which included, developing a rational basis for setting fees; identifying subsidy amount, if applicable, of each fee in the model; ensuring compliance with State law; maintaining consistency with City policies and goals; and the creation of a model that can be updated by the City should fees need to be changed based on current conditions.
Willdan held meetings with each department to review the current fees and identify the applicable costs (time) spent to provide services for each of the following areas:
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) The resulting fee study was presented and adopted by the City Council at the December 19, 2023 council meeting, with the changes to the fees effective March 1, 2024.
ISSUES/ANALYSIS
After the implementation of the fee changes, it was discovered by City staff that the fully burdened hourly rate calculations within Willdan’s rate model calculation had omitted the inclusion of the benefits costs portion for City staff’s time for City services. Upon discovery, City staff notified and directed Willdan to correct and update the model and fee study report to correct the hourly rate calculations. Additionally, City staff provided updates to specific fee items and staff time data to correct discrepancies discovered after the original fee study implementation. These updates more accurately reflect the fee items needed and the appropriate staff processing time. Of the 524 different types of fees, 7 are recommended to be added, 189 are being recommended to increase, 3 would decrease, and there would be no change to the remaining 322 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
0 0
0 123
0%
Miscellaneous Fees
0 13
0 42
6%
Building & Safety
6 78
3 37
88%
Planning
1 58
0 6
62%
Engineering
0 23
0 44
24%
Business License
0 7
0 30
3%
Public Safety
0 0
0 16
0%
Water District (Non-Utility Rate)
0 10
0 24
16%
*Note: In addition to the changes noted above, Mobile Home regulatory fees were added to the Building fee schedule. These are set by the State and so are included for reference to the public. 1 fee in Building changed in the structure for how it is determined.
Attached to this staff report is the updated 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 fees adopted in December and the recommended changes. The following details three areas in which the recommended fee changes are expected to have a notable impact:
Business License Administration Fees – Business licenses are comprised of two components, the Business License Fee and the Administration Fee. While the Business License Fee to monitor the program is recommended to remain fixed at $50 (a $54 fee subsidy), the Administration Fee to process new licenses and license renewals is recommended to increase to $207 and $103 respectively in order to match the City’s cost.
Building Fees – New Single-Family Residence – The building fees, not including Developer Impact Fees, charged for new single-family residential homes consists of multiple items, such as plan review, inspection, automation, and various administrative fees. Of these building fees, the largest recommended fee increase involves plan review fees, one of which is recommended to increase from a flat fee of $445 to a flat fee of $1,182 for the first 1,000 square feet (sq ft) plus $0.21 per square foot over 1,000 sq ft. For example, a 2,000 sq ft house would generate $1,392 for this fee type, which represents the minimum staff time needed to review the plans along with the fee increase based on the size of the residence to reflect the additional review time needed for larger plans. In total, building fees on a 2,000 sq ft house would change from $2,841 to $4,197, an increase of $1,356.
Engineering Permit and Plan Check Fees – Engineering charges fees related to issuing permits and performing plan checks for the grading and inspections on new residential, commercial, and industrial development projects. The individual recommended fees, which can vary depending on the size and quantity of the projects, represents the City staff time needed to properly review and inspect each project. Based upon the current level of development activity in the FY 2024-25 Budget, the City would receive an additional $84,000 in revenue from fully recovering the City’s staff costs from the recommended fees.
August 6, 2024 City Council Meeting - The revised fee study was presented to the City Council at the August 6, 2024 City Council meeting to identify corrections to the fully burdened hourly rate calculations within the Willdan rate calculation model and provide updates to other specific fees as described below. The revised fee study was continued for further discussion as directed by the City Council.
If approved, the changes to the fees would become effective December 01, 2024, generating additional revenue through the remaining seven months of the fiscal year.
CITY GOAL SUPPORTED BY THIS ITEM
Financial Health – Maintain a balanced budget and adequate reserves.
FISCAL IMPACT
It is estimated that, based upon the FY 2024-25 Revenue Budget, the annualized General Fund revenues could increase by approximately $579,000 annually. The largest General Fund revenue increases would derive from Business License Administrative Fees ($270,000), Building Fees ($172,000), Engineering Permit and Plan Check Fees ($84,000), Conditional Use Permit Fees ($27,000) and Site Plan Review ($26,000).
The annualized Water District revenues could increase by approximately $13,000 annually, based upon the FY 2024-25 Revenue Budget, largely due to anticipated increases to the Fire Flow Test Fees ($8,700) and Construction Meter Set-up Fees ($4,600).
ALTERNATIVES
Provide alternative direction to staff.
ATTACHMENTS
Resolution No. 2024-35 and Resolution HWD No. 2024-14
Revised User Fee Study Report – 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 Revised User Fee Study
September 17, 2024