STAFF REPORT
Meeting Date:
May 12, 2026
NON APPEAL
23 SUBJECT: PUBLIC HEARING TO ADOPT A RESOLUTION UPDATING THE MASTER FEE SCHEDULE FOR FISCAL YEAR 2026/27
RECOMMENDATION: It is recommended that the City Council:
1. Open the public hearing and receive input;
2. Adopt the Resolution titled, “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
LAGUNA BEACH, CALIFORNIA, ADOPTING ITS MASTER FEE SCHEDULE AND
FINDING SUCH ACTIONS EXEMPT FROM THE CALIFORNIA ENVIRONMENTAL QUALITY ACT,” thereby approving the update Master Fee Schedule effective July 1, 2026; and
3. Find the action is not a project under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378.
SUMMARY OF THE MATTER
On April 14, 2026, the City Council held a study session to review the Community Development Department’s fees (specifically for planning and zoning fees) to determine whether they should be set at 100% full cost recovery in Fiscal Year 2026/27. The proposed fees included in Attachment 1 include the proposed fees presented at the April 14th study session with the following modifications: the proposed Appeal to City Council fee is reduced from $6,290 (the amount recommended in the 2021 fee study, adjusted for inflation since 2022) to $4,500; the Design Review-Major Design Review fee of $21,325 is changed to “actual cost with a minimum initial deposit of $10,000; and all Real Property Report fees were let unadjusted at $40 per report. In addition, Attachment 2 includes a comprehensive update to other City’s fees.
If the fees are approved, the fees would be effective July 1, 2026, with the exception of the Community Development Department’s fees, which would be effective July 12, 2026. A red-lined version of the Master Fee Schedule is presented in Attachment 2. A public notice for this public hearing was published in the Los Angeles Times on April 17, 2026. Staff recommends the City Council approve the Resolution included in Attachment 1. (Attachment 2 will serve as Exhibit A to the Resolution.)
DISCUSSION
State law allows cities to collect user fees to recover some, or all costs incurred in providing a specific discretionary service from which one or more individuals obtain a benefit. A discretionary service is defined as a service where the customer is identifiable and the service is measurable. Examples of the types of fees the City charges include city staff time, building permits, encroachment fees, plan check fees, recreation classes, license fees, etc.
State law, including Propositions 26 and 218, sets parameters under which user fees can be established and administered by public agencies. User fees may not exceed the estimated reasonable cost of providing the service for which the fee is charged. AS such, fees are based upon studies that calculate the full cost of providing specific discretionary services, including direct, indirect, and support costs. The City’s last Cost
PUBLIC HEARING TO ADOPT RESOLUTION UPDATING THE MASTER FEE SCHEDULE FOR FISCAL YEAR 2026/27
May 12, 2026
of Services Study was conducted in 2021 by Revenue & Cost Specialists LLC (RCS). This 300+ page document includes an analysis of the staff time and costs associated with several discretionary fees included in the City’s Master Fee Schedule (Attachment 4). As explained during the study session held on April 14th, staff applied an annual increase for 2023, 2024, and 2025, utilizing the annual CPI that was published in December for each year to compute the 2026 cost for each service.
Industry best practices recommend that a comprehensive review of the cost of services and fees be performed every three to five years. City staff is currently working on a comprehensive zoning code update and a design review efficiency ordinance. These ordinances, if approved by the City Council, will have an impact in the costs associated with certain fees included in the City’s Master Fee Schedule. Staff intends to request funding for a new comprehensive user fee study in a future budget cycle after the new Ordinances are approved and implemented.
The proposed Master Fee Schedule incorporates CPI increases to all Department fees. Some fees (Animal Shelter, for example) have been routinely adjusted by CPI annually. As a result, these fees represent a 3% CPI increase. However, other fees have not been routinely adjusted for CPI since 2022 (Building, Public Works and Fire Inspection Fees). Therefore, staff followed the same methodology used for the planning and zoning fees and applied CPI for 2023, 2024, and 2025 to adjust the City’s fee for inflation. The City’s business license application and renewal processing fees are increasing by 5% next year to align with contract increases with the City’s vendor for business license administration services, HdL. No adjustments were made to the City’s sewer connection fees or sewer rates because the City’s wastewater rate study project is reviewing these fees and rates. Staff anticipates the study will be completed by the end of the calendar year.
The proposed changes to the Master Fee Schedule also include the following new fees:
• Fire inspection fees that were approved by the City Council on May 24, 2022, with the adoption of Resolution No. 22.037, but not incorporated into the Master Fee Schedule document; • Unpermitted false alarm fees;
• Special event permit fees; and
• Appeal to Planning Commission or Design Review Board (per new efficiency Ordinance in progress).
Feedback from the Study Session on April 14, 2026
Staff received a number of questions and feedback during the City Council Study Session held on April 14th. One question involved the methodology and cost components used in the 2021 Cost of Services Study prepared by the City’s consultant, RCS, and the current subsidy the General Fund is funding for Community Development Department Fees. As previously noted, the complete 300+ page report is included as Attachment 4 to the staff report. RCS utilized a methodology called “the costs reasonably borne” analysis established by Section 8(c) of Proposition 4, now Article XIIB of the California Constitution and Proposition 26.
PUBLIC HEARING TO ADOPT RESOLUTION UPDATING THE MASTER FEE SCHEDULE FOR FISCAL YEAR 2026/27
May 12, 2026
This methodology involved interviewing City staff and reviewing documentation to understand and capture the costs associated with each discretionary service provided. The thorough report includes “Appendix B – Revenue and Cost Summary Worksheets Matched with Cost Detail Worksheets”.
This section of the report provides the consultants’ analysis supporting how the reasonable cost for each Zoning and Planning fee was determined, including the staff time and any third-party costs involved. The total costs are then divided by the average number of permits or applications processed for that service to determine the cost per unit and that is compared to the fee that was charged in 2021.
For example, a “Zoning Plan Check – Small” fee takes on average 8 hours of City staff time at a total cost of $388,253 (per the 2021 study) divided by 308 permits annually resulted in a per unit cost of $1,260.56 (the recommended fee in the 2021 study). In 2021, the City was charging $417 for a “Zoning Plan Check – Small” project. The General Fund subsidy was 33% in 2021.
On April 14th, some feedback suggested that increasing the reasonable costs determined in the 2021 Cost of Services Study by CPI for 2023, 2024, and 2025 was not a reasonable basis to determine the 2026 cost.
The utilization for CPI to determine inflation increases in costs is a universally accepted methodology across multiple business sectors, not just local government. For example, many of the City’s vendors for contracted services include an inflation factor in their contract that increases the annual contract price by CPI.
Secondly, utilizing CPI is more conservative than investing the staff resources to update each staff hourly rate included in the 2021 fee study with the fully burdened hourly rate for the staff position in the City’s Fiscal Year 2026-27 proposed budget. The annual CPI percentages used were 3.5% (2023); 3.4% (2024); and 3.0% (2025). The City’s actual personnel costs increased by more than this amount with average salary increases averaging 4% and benefit cost increases (including employee benefits and retirement costs) increasing an average of 8% annually during this period.
Regarding the current General Fund subsidy for the Community Development Department overall, using the Fiscal Year 2025/26 as a basis, the General Fund subsidy (the difference between the costs of the Building Division and Planning Division in comparison to building and planning fees collected) is $2 million for the Building Division and $2.8 million for the Planning Division.
There was discussion about the history of the City’s past practice to subsize Community Development fees and what has changed. Overall, the best practice is that discretionary services are funded by fees to those users of those services and not subsidized by the General Fund’s tax revenues so those resources can be used to fund municipal services that are not funded by fees (public safety, fuel modification, code enforcement, general government activities, for example).
The decision on how much of a discretionary service to subsize is a City Council policy decision. It could be that prior City Councils concluded the City’s tax revenues could afford to subsidize the Community Development Department’s activities. However, as service levels in the City have increased (increased public safety and fuel modification costs, for example) and the cost of delivering the discretionary services
PUBLIC HEARING TO ADOPT RESOLUTION UPDATING THE MASTER FEE SCHEDULE FOR FISCAL YEAR 2026/27
May 12, 2026
have also increased, the pressure on the General Fund’s other revenues suggests that the City’s user fees should be more aligned to the full cost recovery model.
A suggestion was made to consider a tiered approach to the City’s fee schedule to incentivize projects that can be completed in fewer reviews or hearings. City staff position is that the current fee schedule includes a tired structure. For example, many fees have a “minor” vs “major” category to distinguish the scope and size of a project. A “Zoning Plan Check” fee is segregated based on 3 reviews or less and then additional fees for more than 3 reviews. Staff can evaluate whether the current tiered structure should be modified in a future comprehensive fee study after efficiencies have been identified.
Finally, while we now propose an amended Appeals Fee of $4,500 (up from todays’ rate of $2,500 but down from our initial recommendation of $6,290), a suggestion was made to suggest a tiered structure for appeals. We appreciate that suggestion – but currently, appeals fees can be refunded if the City Council finds abuse of discretion. Additionally, Council members may “call for review” many items at no cost to concerned residents. Lastly, the cost of many appeals is significantly higher than even $6,290 per appeal.
We hope that the Council call-for-review provisions as well as the abuse of discretion fee refund can mitigate some of the concerns involving our recommendations. Staff can evaluate whether the current tiered structure should be modified in a future comprehensive fee study after efficiencies have been identified.
FINANCIAL ANALYSIS
The Fiscal Year 2026/27 Proposed Budget presented to the City Council during the study session held on May 12, 2026, included the impacts of the proposed fees. The additional General Fund revenue from the new proposed fees is approximately $832,000.
ENVIRONMENTAL ANALYSIS
The requirements of the California Environmental Quality Act ("CEQA") do not apply to the proposed action as it is not a "project" because there is no substantial evidence to show that the proposed action has the potential to result in a direct or reasonably foreseeable indirect physical change to the environment. (State CEQA Guidelines, section 15378(a). Further, this Ordinance does not qualify as a project pursuant to State CEQA Guidelines, section 15378 (b)(4) and (b)(5) as an amendment to the City’s Financia Guidelines and Budgeting Procedures is a government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment and it is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment.
ATTACHMENTS
1. Resolution to Adopt Master Fee Schedule for Fiscal Year 2026/27 (Pgs. 5-7)
2. Exhibit A to Attachment 1 – Master Fee Schedule (clean version) (Pgs. 8-39)
3. Proposed Changes to Master Fee Schedule (red-lined version) (Pgs. 40-86)
4. 2021 Comprehensive User Fee Study (Pgs. 87-416)
PUBLIC HEARING TO ADOPT RESOLUTION UPDATING THE MASTER FEE SCHEDULE FOR FISCAL YEAR 2026/27
May 12, 2026
Submitted By: .Michelle Bannigan Approved: .David A Kiff Michelle Bannigan, Director of
Administrative Services
Dave Kiff, City Manager
Report Prepared By: Coordinated With:
Michelle Bannigan, Director of Administrative
Services
Matthew Schneider, Director of Community
Development
Patrick Donegan, Assistant City Attorney
Alexis Braun, Acting Director of Transit and
Community Services
Mark McAvoy, Director of Public Works & Utilities
Kai Bond, Marine Safety Chief
Dante Chegini, Administrative Analyst (Finance)