ULAI
FROM:
DATE
Placentia City Council
AGENDA REPORT
CITY COUNCIL
CITY ADMINISTRATOR
INTERIM DIRECTOR OF FINANCE
APRIL 19, 2022
SUBJECT: CONTINUED PUBLIC HEARING: ADOPTION OF PROPOSED OVERHEAD
COST ALLOCATION STUDY AND COMPREHENSIVE FEE AND RATE
SCHEDULE
FISCAL
IMPACT: The proposed fee changes as of July 1, 2022, are intended to recover the cost of providing existing services associated with those fee -related regulatory functions and other programs.
SUMMARY:
On October 5, 2021, the City Council approved a professional services agreement with ClearSource Financial Consulting ("ClearSource") to prepare an overhead cost allocation study and comprehensive fee and rate schedule. The City Council opened the public hearing on April 5, 2022 and received a presentation from ClearSource at which time the Council voted to continue the public hearing to the regularly scheduled Council meeting of April 19, 2022. This item provides findings and recommendations from the recently completed user and regulatory fee study. This item includes an updated fee schedule proposed for adoption by the City Council. Prior to adopting new or increased fees, the City Council shall conduct a public hearing. At the conclusion of the public hearing, City Council shall determine whether to adopt the updated schedule of user and regulatory fees. If updated fees are adopted, Staff recommends a July 1, 2022, effective date for fee changes.
The user and regulatory fee study provides an up-to-date analysis of the City's current costs of providing fee -related services. This information can be used by the City Council as it considers potential updates to fees. User and regulatory fees are set at the direction of the City Council at the conclusion of a public hearing to consider adoption of any new fees or fee increases.
The services for which a city imposes a user or regulatory fee typically derive from an individual person or entity's action, request, or behavior. Therefore, except in cases where there is an overwhelming public benefit generated by a city's involvement in the individual action, a fee for service ensures that the individual bears most, if not all, of the cost incurred by the City to provide that service. When a fee targets 100% or full cost recovery," the individual is bearing the entirety of the cost. When a fee targets less than full cost recovery, another city revenue source — in most cases, the General Fund — subsidizes the individualized activity.
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Apr. 19, 2022
City Council Agenda
April 19, 2022
Industry best practice and California statute are in harmony: User and regulatory fees should be set according to the estimated reasonable cost of service and should bear a fair and reasonable relationship to the payer's burdens on, or benefits received from the activities and/or services provided by the City.
Additionally, ongoing review and adjustment of fees provides multiple benefits, including:
• Increasing the availability of General Fund revenues to be used for services and activities available to all residents and businesses, such as public safety services. • Keeping pace with general cost inflation.
• Avoiding fee spikes that are more likely to occur when municipalities leave fees unchanged for a multi-year period.
• Providing fee payers, City staff, and City policymakers with a pattern of consistency that provides information for forecasting and decision-making purposes. • Helping to meet fee -payer service level expectations by collecting fees to fund the existing level of services provided.
• Encouraging generational equity among fee payers by avoiding long-term stagnation of fees followed by significant fee increases
o The last comprehensive fee update was completed in 2018 and prior to that completed in 2012 and 2007; Prior to 2007, the City's fee schedule had not been updated since 1990.
Fee Categories that Were Examined in this Study
This study specifically examined fee categories including, but not limited to:
• Building Fees, such as permitting of new construction or modifications to existing structures
• Planning Fees, such as entitlement review and review for compliance with the zoning code
• Land Development Engineering Fees, such as public improvement review • Encroachment Permit Fees, for work or activities conducted in the City right-of-way ■ Fire Prevention Fees — such as plan review and inspection for compliance with Fire Code • Police Department Fees — such as vehicle impound fees Items Not Examined in this Stud
This study specifically excluded examination of the following:
• Development Impact Fees
• Taxes
• Assessments
• Fines or Penalties
• Franchise Fees
• Utility Rates and Services Charges
These items are subject to different approval thresholds or are not subject to the same cost of service limitations as the fees examined as part of this study. Consequently, they are specifically excluded from the scope of this study.
City Council Agenda
April 19, 2022
RECOMMENDATION:
It is recommended that the City Council consider the following actions:
Continue the Public Hearing to consider amending the Placentia Comprehensive Fee Schedule for certain fees, rates, and charges for various City user services; and
2. Receive the Staff report, consider all public testimony, and discuss the proposed fees; and
3. Close the public hearing; and
4. Adopt Resolution No. R-2022-17, a Resolution of the City Council of the City of Placentia, California, establishing and adopting certain City fees, rates, and charges for various City services with an effective date of July 1, 2022, for Fiscal Year 2022-23.
DISCUSSION:
The proposed fees are intended to comply with applicable federal, state, and local laws including providing confirmation that the proposed fees and charges are not a tax as defined in Article 13C of the California Constitution and that the proposed fees are no more than necessary to the cover the reasonable costs of the City's activities and services addressed in the fees. Additionally, the manner in which the costs are allocated to a payor bear a fair and reasonable relationship to the payor's burdens on, or benefits received from the activities and services provided by the City.
The Costs of Service
Central Service s/Gove rn m enta I
Administration/Management
Materials/Services/Supplies
Indirect Service Labor
Direct Service Labor
Fee -Based Cost Recovery
100% = "Full Cost Recovery"
Co s t Recovery Target by Service:
• Public/Private Benefit Policies
• MorketSensitivity
• Compliance
• Fiscal Constraints/Considerations
in the Organization
0%= Other Fund Subsidy
Nearly every service for which a fee is imposed can be illustrated as follows, contrasting the components of the full cost of service, which is the maximum fee amount justified, against the local agency's goals for cost recovery:
City Council Agenda
April 19, 2022
Based on the consultant's experience working with municipalities throughout California, most fee - paying stakeholders and City council members accept high-cost recovery targets for development -related fees as long as:
• The elements of the cost of service and assumptions are clearly communicated. • The City clearly communicates that only eligible costs are included in fees.
Building Fees
• Current fees recover the full cost of providing fee -related services. • Cities throughout the State typically target full cost recovery from building permit fees. • Full cost recovery is targeted from proposed fees.
Planning Fees
• Current fees recover less than the full cost of providing services. ■ Due to the nature of development within California, many projects take a significant amount of resources over a multi -month and potentially multi-year timeframe, depending on project complexity and magnitude.
• Costs of service have been recalibrated and proposed fees target full cost recovery for the vast majority of fee -related services.
Land Development Engineering and Encroachment Permit Fees • The Department uses a combination of outside service providers and internal Staff to perform certain plan review and inspection activities. The proposed fee structure encourages recovery of City costs in addition to contract service provider costs, while developing fixed fees intended to scale to reflect project complexity. • The proposed fees are calculated based on project characteristics such as the number of sheets reviewed, the number of acres inspected, or the type of project reviewed and inspected. These modifications are consistent with industry trends in calculating fees for service.
Fire Prevention Fees
• Adopting a comprehensive array of fees will allow the City to continue to use fixed fee billings rather than deposit -based billings while continuing to focus on recovery of costs. • Use fee methodology that results in lower fees for less complex projects and higher fees for more complex projects (i.e., a nexus between fees and typical service requirements).
FISCAL IMPACT:
Additional revenues expected from the Proposed Master Fee Schedule are intended to offset the cost of providing existing services associated with those fee -related regulatory functions and other programs. Additional fee revenue is not intended to fund new services. Changes to fees are for cost recovery purposes only.
City Council Agenda
April 19, 2022
Prepared by:
Stephen Erlandson
Interim Director of Finance
Attachments -
Reviewed and approved:
Damie rrula
City Administrator
1. Resolution R-2022-17 - Establishing and Adopting Certain Fees
2. Notices of Public Hearing, Adjustment of Various Fees
3. Fee Study Report
4. ClearSource PowerPoint Presentation, dated April 5, 2022