CITY OF
MORRO BAY
User and Regulatory Fee Study
City Council | August 12, 2025
• Background
• Fundamentals and Terminology
• Study Findings and Recommendations
• Next Steps
MEETING AGENDA
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Background
• Communities generally use tax revenues to fund
services that provide general (community-wide)
benefit
• Public works
• Public safety
• Park maintenance and community recreation
• Communities use fees and charges (direct recovery)
to fund services that provide direct benefit
• Plan Review
• Permitting
• Inspection
BACKGROUND
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• City staff reviews the fee schedule annually
• Periodically the City performs a comprehensive fee study and uses the results of the study to inform proposed fee adjustments • In between fee studies, fees are typically adjusted by the annual change in regional cost inflation
• Prior fee study was completed in 2019
• Since that time fees have primarily been adjusted by annual change in regional cost inflation
• Other discrete fee modifications, as needed, to reflect changes in services
BACKGROUND
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• Building Fees - construction permit processing, plan check, and inspection
• Planning Fees - entitlement review and review for
compliance with zoning code
• Engineering Fees - engineering review of developmentrelated grading and public improvements • Non-Development Related Fees – reserved use of City
facilities, administrative fees, discrete public safety services
TYPES OF FEES EXAMINED
• This update DOES
NOT examine taxes,
assessments, utility
rates, development
impact fees, etc.
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Fundamentals and Terminology
• Legal requirements
• Encourage direct recovery of costs incurred
to serve private interests/benefit or respond
to individual actions
• Provide opportunity for relief to General
Fund or other Funds where costs are
incurred
• Enable continuity of service levels by
improving cost recovery levels
MUNICIPAL FEES
• Why do Cities
Review Fees and
Charge Fees for
Services?
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• Fees proposed are not taxes, as defined by
Article 13C of the California State Constitution
• Fees are set in accordance with parameters set
by Article 13C and by Section 66014 of the
California Government Code:
• Costs allocated to the payer should bear a fair or
reasonable relationship to the payer's burdens on or
benefits received from the governmental activity
• Fees should not exceed the reasonable cost of
providing the service for which the fee is charged
FEES ARE APPROVED BY THE CITY COUNCIL
The City Council has
authority to Directly
Approve User and
Regulatory Fees and
Increases to Fees
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• Full Cost of Service
• Cost Recovery
• Subsidy
TERMINOLOGY
These terms of art
have specific meaning
across California
municipalities and
within the City
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COST OF SERVICE
• The cost of service sets the
maximum limit of a cost-based
fee. It includes:
• Direct program costs for
labor, services, and supplies
• Departmental administration
• Citywide administration and
central support services
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100%
0%Cost Recovery Targeted
Hourly
Rate for
Personnel
Providing
Services
Time
Required
to Perform
the
Service
Cost of x = Service
Fully Burdened
Hourly Rates:
• Direct and indirect
labor costs
• Services and supplies
• Agency overhead
Estimated or
Known Times for
Providing Services
Maximum Fee
Amount
Exclusively individual benefit
Considerable individual benefit
Balanced individual and
community benefit
Considerable community benefit
Mostly community benefit
Entirely community-wide benefit
COST RECOVERY POLICY FRAMEWORK
Cost recovery
policy reflects
local values
regarding the
presumed
beneficiaries for
each program
area, ranging from
community
benefit to
individual
benefit
12 CLEARSOURCE PRESENTATION TO THE CITY OF MORRO BAY Cost Recovery Targeted
SUBSIDY
• The amount of a
program’s full cost of
service that is
supported by other
City revenue sources
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100%
0%Cost Recovery Targeted
Full Cost
of Service
($)
Revenue
from
Current
Fee ($)
City Subsidy
Maximum Level of
Cost Recovery =
100%
Current Level of
Cost Recovery =
X%
Minimum Level of
Cost Recovery =
0%
Study Findings and Recommendations
• Building, Planning, Engineering, Fire Code Review
• Full cost recovery is targeted for most services
• Fees are regulatory
• High level of direct benefit resulting from construction activities including enjoyment of property enhancements and increased property values
• Avoid having other Morro Bay residents and businesses subsidize private construction activities
DEVELOPMENT RELATED FEES
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• Establish fixed, consolidated fees for the City’s most common minor permits. This will allow applicants to easily estimate permit fees and allow staff to efficiently administer the fee calculation and collection process.
• Many development-related services require review by
multiple divisions/departments. Fees are structured to
recover the breadth of review.
• Minimize use of deposits and clarify fee descriptions to help applicants understand service received (e.g., plan review v. inspection).
DEVELOPMENT RELATED FEES
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• Fees for Harbor and Parks and Recreation Services are marketbased fees and are primarily proposed to be adjusted by the prior year change in annual cost inflation
• Before adjusting fees, staff considers demand for services, facility standard, and availability of similar services/facilities in the private sector or other locations
HARBOR AND PARKS AND RECREATION FEES
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• City Clerk, Finance, Police
• Fees adjusted to align to the City’s cost of service and/or amounts authorized by the State of California
ADMINISTRATIVE / NON-DEVELOPMENT FEES
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• Similar fees are collected by communities throughout the region and State
• Comparison agencies include:
• Atascadero
• Grover Beach
• Paso Robles
• City of San Luis Obispo
• County of San Luis Obispo
REGIONAL FEE COMPARISON
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• Proposed fee amounts do not exceed the City’s cost of service and are in-range of amounts charged by other jurisdictions. • For Morro Bay, outcomes will show that proposed fees may range from low, mid, to upper end of regional fee spectrum depending on the service provided. This is common among municipalities due to differing levels of service and review included among various fee categories.
• Scenarios considered range from smaller scale projects to larger scale projects.
REGIONAL FEE COMPARISON
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• Anticipated fiscal impact is $390,000 in additional General Fund revenue
• The primary purpose of the adjustments to the City’s fee schedule is to correlate fees to services provided.
• The City’s current and proposed fees seek to recover the City’s full cost of service for new development within the City and avoid cost recovery deterioration for non-development related fees. • Additional revenues expected from proposed changes to fees and charges are intended to offset the cost of providing existing services associated with those fee-related regulatory functions.
Additional fee revenue is not intended to fund new services.
FISCAL IMPACT
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• In order to generally maintain pace with regional cost inflation and/or the City's salary cost inflation, the City should continue to adjust its fees on an annual basis.
• A commonly used, reasonable inflation index is the annual change in the all-urban Consumer Price Index (CPI) representative of the region.
ANNUAL ADJUSTMENT TO FEES
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Next Steps
Conduct Public Hearing and Determine Whether to
Adopt Updated Fees and Charges
NEXT STEPS AND RECOMMENDATIONS
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Questions or Feedback