Citywide User Fee and Cost Recovery Studies
City Council Meeting– February 1, 2022
Discussion Topics
2 • Background Information
• Citywide User Fee and Cost Recovery Study – Methodology and Status • Study Results by Department with Departmental Recommendations:
Public Works Department
Energy Resources Department
3 Background Information
What are the City’s Fees and Charges?
4 • Two categories of fees and charges:
• Rent and penalties are included by convenience in the master fees and charges schedule but are not fees, and rents and penalties are set at the City’s discretion
Charged for the use
of a public service or
program
User Fees
Charged to recover
costs to regulate or
mitigate fee payer’s
activities
Regulatory
Fees
How Rates for Fees and Charges are established
5 Cost of
Service
Rates (per Propositions 218 & 26) may not exceed the
“estimated reasonable cost” of providing the service,
program, etc.
Above Cost
of Service
Below Cost
of Service
City policy requires fees to be set at the cost of the service, except where there is a greater public benefit through the use of a lower fee
In many instances, the City sets fees lower than cost of service to achieve other goals such as program participation, being competitive, maximizing of revenues, residents’ needs, and ability to pay, etc.
What is the Process to Adopt and Update Fees Rates?
6 • To capture annual cost increases the City has implemented an annual inflation adjustment, subject to annual review for appropriateness • Master Fees and Charges Schedule typically adopted each year with the Budget
• Mid-year minor adjustments are usually made in a periodic fee adjustment Council Letter either submitted by the Budget Office or a department • The next citywide fee adjustment letter is anticipated for April 2022 Fee Rate Changes Impact to Revenue Budgets
7 • Fee adjustment Council Letters include estimated theoretical revenue impacts of any proposed fee change
• The amounts budgeted in a year are not necessarily the same as the theoretical impact
• Changes to budgeted revenues are evaluated holistically as part of the proposed budget process and take into account a variety of factors such as the stability and certainty of revenue source and anticipated volume 8 Citywide Fee Study Methodology and Status
Citywide Fee Study Project Overview
9 • In FY 19, at the City Council’s direction, staff initiated an updated citywide fee study to conduct a comprehensive cost of service analysis to determine the full business cost of providing each service and the subvention (subsidy) rates for services
• A multi-year project with all City fees evaluated, but there will be exceptions such as where there are separate rate studies or rates are set by external agencies • For each department, the study will:
Identify and review the fees charged by each department Calculate the full service cost, with indirect and direct costs associated with the fees Determine the subvention rates (subsidy level) by comparing the fee revenue to the full cost of service
Provide recommendations
Project Status
10 • The project is moving forward on a “rolling-basis” with multiple departments at any one time. The study is anticipated to conclude by the end of 2022 • The 1st Round is completed and was presented to the City Council on April 6, 2021, and covered Development Services, Parks, and Health & Human Services (partial analysis) Departments
• The 2nd Round includes Energy Resources and Public Works Departments, with Police Department’s results and recommendations to be presented as part of the next project round
• The 3rd round is in progress and includes Fire, City Manager, and Health & Human Services Departments. Preliminary results and department recommendations are anticipated, at the earliest, summer 2022
Methodology Overview
11 • Identify service centers and the cost components including:
Direct Cost – Salaries, benefits, and operating expenses Indirect Costs – General and departmental overhead, including administration and citywide indirect costs (from Indirect Cost Plan)
• Calculate the fully burdened hourly rates (FBHR) per position that includes direct and indirect costs
• Determine positions and staff time spent supporting each service • FBHR is then multiplied to the time spent by position to allocate costs to the service • Identify subvention rates by comparing the fully allocated service costs to current fee revenues received
Study Results and Department Recommendations
12 • Each of the studies found that departments were generally under recovering for calculated service costs.
• A summary of cost recovery and subvention rates at both current fee levels and revenue is as follows:
Department Total
Calculated
Service Cost
Current Fee
Revenue
Total Profit/
(Subvention)
Cost
Recovery
%
Subvention
%
Public Works $4,220,930 $3,300,455 ($920,475) 78% 22%
Energy Resources $9,824,891 $8,320,666 ($1,504,225) 85% 15% TOTALS $14,045,821 $11,621,121 ($2,424,700) 83% 17%
Study Results and Department Recommendations
13 • Study recommends fee levels to provide full cost recovery where appropriate for services
• Each department has reviewed the Study results and has made specific recommendations for their fees that include:
No changes to current fees
Rate increases and decreases to current fees
New and revised fee structures to align with services • While the majority of departments’ recommendations align with the study’s recommendations, the department may deviate based on various factors
Overall Impact of Department Recommendations
14 Fund Group Theoretical Revenue Impact*
General $439,302
Gas ($104,525)
TOTAL $334,777
Table 1: Summary of Department Recommendations
* Theoretical annual impact – budget and actual revenue may vary - budgeted amount will be determined during the budget process Table 2: Summary of Theoretical Revenue Impact from Department Recommendations Department Total Department
Recommendations
No Changes Decreased Increased Restructured Deleted New Public Works 117 15 24 22 27 23 6
Energy Resources 81 17 3 16 35 8 2
Next Steps
15 • Departments will present an overview of their studies and proposed fee recommendations for the City Council’s feedback
• On April 12, 2022, a City Council item will include all recommended fee changes as a result of the Study and as presented to the City Council today
16 PUBLIC WORKS DEPARTMENT
Cost of Services Study and Summary of
Recommendations
Cost of Services Study Introduction
• The Public Works Department has over 280 fees
o Of those fees, 102 are included as part of the study. The fees excluded from the study include:
Environmental Services (Refuse) related fees – separate rate study Parking Management related fees – not determined by cost of service
Parking Citation / Violation fees – not determined by cost of service Pipeline Franchise Fees – not determined by cost of service Streetlights – Determined by a separate costing process 17 Study Findings Summary: Revenue & Cost by Service
18 Service Total
Calculated
Service Cost
Current Fee
Revenue
Total Profit/
(Subvention)
Cost
Recovery
%
Subvention
%
Engineering Services $1,995,440 $1,605,520 ($389,920) 80% 20% Traffic Engineering Services 671,570 1,091,887 420,317 163% -63% Field Operations Services 565,666 31,888 (533,778) 6% 94% Stormwater Services 988,254 571,160 (417,094) 58% 42% TOTAL $4,220,930 $3,300,455 ($920,475) 78% 22%
Cost Recovery and Subvention Rates Based on Current Fee Levels Proposed FY 22 Mid-Year Recommended Changes Overview
19 • Department recommendations include rate increases and rate decreases to meet cost recovery and operational needs, as well as changes in fee structures to better streamline processes.
• The total estimated theoretical annual revenue impact from the recommended changes is as follows:
Fund Group Theoretical Revenue Impact
General $439,302
Key Items & Considerations
20 • Proposed changes will restructure and streamline the existing fee structure for: temporary street occupancy permitting, and inspection and excavation fees. • Many fees have been updated to reflect changes in the permitting process and true cost of recovery for City services.
• Installation of no parking signs, curb painting, light shield installation, minor revision of existing permits, and streetlight installation have been added to the fee schedule. • To avoid a steep spike in costs for popular services, rate increases recommended by the study will be phased-in over three years for driveway tip, curb painting on request, preferential parking, and no parking signs.
• A separate traffic control plan review fee is recommended to reflect the true cost of service. • Wireless telecommunication facility review fees have increased to reflect the true cost of service.
Summary of Proposed FY 22 Mid-Year Recommendations
21 Department Recommendations Service Area
No changes (fees and charges are currently
set at cost recovery and operational need)
Micro Mobility Fees
Rate Decreases to align with cost recovery
and operational need
Public Art Permits, Traffic Control Plan Review, Tract
Map Review, Lot Line Adjustments, Street and Alley
Vacation
Summary of Department Recommendations
Total Department
Recommendations
No Changes Decreased Increased Restructured Deleted New 117 15 24 22 27 23 6
Summary of Proposed FY 22 Mid-Year Recommendations (continued) 22 Department Recommendations Service Area
Rate Increases to align with cost
recovery and operational need
Permit Processing and appeals, Stormwater Compliance
Inspections, Parcel Map Review, Wireless
Telecommunication Facility permits
New Fee Structures (to Align with
Service Provision)
Inspection Citation Fee, Permit Inspection, Temporary
Street Occupancy Permits, No Parking Sign Installation, Tree Trimming Out of Cycle, Curb/Driveway Painting,
Light Shield Installation, Revision of Existing Permit
Rates set below cost recovery to
encourage program participation and
promote equitable access to services
Driveway Parking Permit Program, Driveway Tip and Curb
Painting Requests, Preferential Parking, Temporary No
Parking Signs
Comparisons to Other Jurisdictions & Agencies
23 If recommendations are approved:
• Permit fees will be in line with other local agencies • Engineering services fees (parcel maps, easements, inspection, etc.) will be in line, or slightly lower, than other local agencies • Stormwater NPDES Inspection Fees will be in line with other local jurisdictions
• A new Traffic Control Plan Review fee is recommended which will be in line with other local agencies
24 ENERGY RESOURCES DEPARTMENT
Cost of Services Study & Summary of
Recommendations
Cost of Services Study Introduction
• The Energy Resources Department currently has a total of 81 fees reported in the Master Fees and Charges Schedule, of which 75 fees were reviewed as part of the cost of service study.
• The Department fees are across various service categories:
Construction & Pipeline
Gas Services
Engineering & Construction
Utility Services/Call Center
• Across all services reviewed, the study found that the department is currently at cost recovery of 85 percent (15 percent subsidize by Gas revenue). 25 Study Findings Summary: Revenue & Cost by Service
26 Service Total
Calculated
Service Cost
Current Fee
Revenue
Total Profit/
(Subvention)
Cost
Recovery
%
Subvention
%
Gas Services $2,327,293 $2,146,590 ($180,703) 92% 8%
Utility Services/Call Center 22,140 7,548 (14,592) 34% 66% Construction & Pipelines 632,050 1,170,821 538,771 185% -85% Engineering & Construction 6,843,408 4,995,707 (1,847,701) 73% 27% TOTAL $9,824,891 $8,320,666 ($1,504,225) 85% 15%
Cost Recovery and Subvention Rates Based on Current Fee Levels Proposed FY 22 Mid-Year Recommended Changes Overview
27 • Department recommendations are to move forward with 56 rate changes based on the recommendations from the Study to restructure majority of the fees in order to recoup our costs and maintain operational needs
• If all Study recommendations are accepted, then the estimated theoretical annual revenue is $80,675
• The total estimated theoretical annual revenue impact for partial acceptance of the recommended changes is as follows:
• Fee revenue generated within the Gas Fund Group is restricted and used to support utility operations
Fund Group Theoretical Revenue Impact
Gas ($104,525)
Key Items & Considerations
28 • Full cost recovery is not being recommended for all fees as some relate to utility customers and the Department believes increasing these rates would cause a hardship during this rebound period from the COVID-19 pandemic. • The Department’s decision to move forward with the changes to the 56 rate items was based on infrastructure/operational needs per this Study and therefore are related to new construction, engineering, meters, and meter installations which are derived upon a contractor and/or developer’s request for gas service.
Summary of Proposed FY 22 Mid-Year Recommendations
29 Department Recommendations Service Area
No changes (fees and charges are currently set
at cost recovery and operational need)
The Study validated the current rate of 8 fees within the Gas and Utility areas are acceptable and are at cost recovery.
Fee changes recommended by Study but not
accepted by department at this time
The 9 fees not moving forward per the Department’s
decision are charges related to gas services and utility services. Energy Resources will review this at a later time and present to the City Council in the future if the
Department decides to move forward with the
recommendations by the Study
Summary of Department Recommendations
Total Department
Recommendations
No
Changes
Decreased Increased Restructured Deleted New
81 17 3 16 35 8 2
Summary of Proposed FY 22 Mid-Year Recommendations
(continued)
30 Department Recommendations Service Area
Rate Decreases to align with cost recovery
and operational need
Engineering and Construction – Feed Analysis, Project
Administration and Process Engineering Agreements
Rate Increases to align with cost recovery and
operational need
Gas Services – Installation and purchase of meters.
Pipeline Construction – New pipeline and altering services Fee Restructures (to Align with Service
Provision)
The restructured fees accepted by the Department affect all service areas, Gas, Engineering/Construction, Pipeline
Construction, Utility/Call Center.
Comparisons to Other Jurisdictions & Agencies
31 • Due to the uniqueness and complexities of Energy Resources’ rate structures and types, fees are not easily comparable across agencies. Particularly, Engineering and Pipeline Constructions are managed distinctively by each city’s governing body.
• Historically, though we consider consumer utility costs for the Southern California Gas Company (SoCalGas) to ensure fair and equitable rates, specific fees are not compared with the agency as we are a municipality and mandated to follow local/State guidelines.
• The City is generally under-recovering for costs within the Public Works and Energy Resources Departments
• The recommendations proposed by departments generally align with Study recommendations for full-cost recovery, where appropriate • Deviations from the Study recommendations include setting fees lower than cost of service to achieve other goals such as residents’ needs and ability to pay, etc. • Theoretical revenue increases resulting from proposed changes will be evaluated as part of proposed budget processes
• Proposed changes to the Master Fees and Charges Schedule, inclusive of these recommendations, is scheduled to return to the City Council on April 12, 2022 Wrap-up
32