HomeMy WebLinkAbout05/06/2003, BUS 6 - ENGINEERING DEVELOPMENT REVIEW FEES r.
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C I TY OF SAN LU IS O B I S P O
FROM: Timothy Scott Bochum,Acting Public Works Director
Prepared By: David Elliott,Administrative Services Managed �jj
SUBJECT: ENGINEERING DEVELOPMENT REVIEW FEES
CAO RECOMMENDATIONS:
1. Review and discuss the need for adjustments to engineering development review fees
2. Conceptually approve adjustments to engineering development review fees that will ensure 100
percent cost recovery,as required by adopted City policy
3. Direct staff to return with a proposed fee structure for Council consideration on June 3,2003
DISCUSSION
The fee revenue collected for engineering development review (EDR) services in 2002-03 will be
substantially lower than what was budgeted. This report summarizes the reasons for the shortfall
and recommends an approach for adjusting EDR fees and revenue budgets to better reflect the costs
of delivering the associated services.
Background
The EDR Section of Public Works Department delivers two types of fee related services:
1. It reviews final tract maps, final parcel maps, final lot line adjustments, and encroachments
into the public right of way. In addition, it oversees design and construction of subdivision
improvements. For these services where Public Works is the lead department, the City by
policy should recover 100 percent of direct and indirect costs through EDR fees.
2. It also reviews private building and development projects for which Community Develop-
ment is the lead department. For most of these services the City should recover 45 percent
of direct and indirect costs through planning and building fees.
The focus of this report is EDR fees. Possible adjustments to planning and building fees are
beyond the scope of this report and will be considered later in the process of reviewing the 2003-
05 Financial Plan.
In the year 2000 the City contracted with a consultant to prepare a user fee cost recovery study that
included calculation of the fees needed to recover 100 percent of the EDR service costs. Current
EDR fees are based on this cost recovery study.
Council Agenda Report—Engineering Development Review Fees
Page 2
Projected Shortfall in Fee Revenue for 2002-03
For 2002-03 the City budgeted$282,800 in EDR fee revenue. In a recent review of various revenue
accounts,Finance noticed that EDR fee revenue seemed to be well below the amount budgeted.
Further analysis based on revenue received through March 31, 2003 showed that the City will
probably receive only $153,500 of EDR revenue for all of 2002-03. Consequently, the projected
shortfall in EDR revenue for 2002-03 is $129,300.
Factors Contributing to the Shortfall
In an effort to explain this $129,300 shortfall, Public Works thoroughly re-examined the
calculations and underlying assumptions of the cost recovery study. This analysis revealed two
primary factors that are contributing to the current shortfall:
1. According to the cost recovery study, the City should be budgeting only $233,800 each year
in EDR fee revenue, rather than $282,700. The higher amount seemed reasonable because of
extraordinarily high fee revenues over the last three full fiscal years:
1999-00 $374,488
2000-01 $533,329
2001-02 $393,160
Fee revenue has been exceptionally high because of several major development projects.
Unfortunately, this situation masked the potential shortfall experienced in the current fiscal
year. This factor accounts for $49,100 of the shortfall.
2. Except for encroachment permit fees, the number of EDR fees the City will collect in 2002-
03 will be substantially lower than the number stated in the cost recovery study. This factor
accounts for$46,000 of the shortfall. (See Attachment 1.)
Other Concerns about EDR Fees
The analysis also disclosed two significant concerns about EDR fees that are not directly related to
the current revenue shortfall:
1. Because of apparent miscommunication between the consultant and City employees, the cost
recovery study materially understated the hours spent on fee-related activities. As a result,
only 54 percent of direct and indirect EDR costs are included in cost recovery calculations.
A recent staff survey of EDR employees showed that actually 94 percent of costs should be
recovered. (See Attachment 2.)
2. Since the cost recovery study was completed, there have been position reclassifications and
reallocations of indirect Public Works Administration costs. There have also been
significant increases in staffing costs and workers compensation insurance costs. For these
Council Agenda Report—Engineering Development Review Fees
Page 3
reasons, the total direct and indirect costs associated with EDR fees have risen from
$223,800 for 1999-00 to $565,000 for 2003-04. These costs are not reflected in current fee
levels.
Recommended Approach for Adjusting EDR Fee Levels and Revenue Budgets
Council action to adjust EDR fees would occur in June 2003. The Council would consider a
proposed fee structure on June 3, 2003, and consider adoption of a revised fee schedule on June
17, 2003. Possible adjustments would take effect on September 1, 2003 because state law
requires a minimum 60-day period between the adoption date and the effective date.
The purpose of this report is to recommend the assumptions that should guide potential
adjustments. There are three primary variables that control EDR fee levels and revenue budgets:
a)the direct and indirect costs of EDR activities b)the hours spent on fee-related activities and
c) the number of fees collected. With this in mind, staff is recommending that the following
assumptions be used:
1. Direct and indirect costs for EDR activities should be based on base budgets for 2003-04. If the
objective is to recover 100 percent of costs,the basis for those costs should be as accurate and
up-to-date as possible.
2. The hours spent on EDR fee-related activities should be based on the recent staff survey..
Because of apparent miscommunication, the method for establishing fee-related hours in the
cost recovery study was obviously flawed. Using it again would lead to erroneous conclusions.
3. The number of fees collected should generally be based on the annual average collected over
the past four years. Again,the numbers estimated in the cost recovery study were inaccurate for
several fee categories and would lead to incorrect fee and revenue levels if used again. The
number of fees that will be collected for some fee categories in 2002-03 will be extraordinarily
low. Consequently, some short-term downward adjustment to revenue levels might be
appropriate.
It should be noted,though,that the relationship in a given fiscal year between fees collected and fee-
related hours may sometimes be tenuous. For instance, the fee for a large final tract map might be
collected in one fiscal year, while most of the work related to reviewing that map might occur over
the next two or three fiscal years. Hence, required staffing levels do not correlate well to revenue
collected in single year. Nonetheless, when revenue is averaged over several years,there should be
some correlation.
In addition, staff will recommend revised fee structures for selected fee categories in order to better
match the fee collected with the actual cost of delivering the service.
(0
Council Agenda Report—Engineering Development Review Fees
Page 4
FISCAL IMPACT
Under the recommended assumptions, estimated annual fee revenue would increase from $233,800
to $565,000 to match the total costs associated with the fees collected. (See Attachment 3.)
ALTERNATIVES
Of the three variables that control EDR fee levels,the values for hours spent on fee-related activities
and number of fees collected must be adjusted because they were erroneous to begin with in the cost
recovery study. On the other hand, the value for total direct and indirect costs was correct in the
cost recovery study, although it has become out-of-date since then. A case could be made that this
value should not be changed until another cost recovery study is completed,an objective staff would
like to accomplish before the 2003-04 Mid-Year Budget Review. Under this alternative, estimated
annual fee revenue would increase from$233,800 to $362,400. (See Attachment 3.)
ATTACHMENTS
Attachment I —Number of EDR Fees Collected Annually
Attachment 2—Annual Development Fee-Related Hours, Cost Recovery Study vs. Staff Survey
Attachment 3 —EDR Fee Revenue under Various Bases for Hours and Costs
B Council Agenda Reports\2003 agenda reports\Engineering Development Review Fees.doc
Attachment I
Number of
EDR Fees Collected Annually
Annual
Per Average
Cost 1999-00 Projected
Recovery to for
Study 2002-03 2002-03
Improvement Plan Check 20 9 2
Construction Inspection 17 7 3
Tract Map(Final) 5 3 0
Parcel Map(Final) 6 5 2
Lot Line Adjustment Agreement(Final) 10 7 5
Encroachment Permit-Miscellaneous 10 53 98
Encroachment Permit- Curb,Gutter, and Sidewalk 130 114 113
Encroachment Permit- Trenched Excavation 34 101 95
Encroachment Permit- Bored Excavation 34 45 87
Transportation Permit 60 67 83
Flood Zone Determination 100 100 100
Attachment 2
Annual Development Fee-Related Flours
Cost Recovery Study vs. Staff Survey
Annual Annual
Fee-Related Fee-Related
Hours per Hours per
Study Staff Survey
EDR Fees
Improvement Plan Check 960 767
Construction Inspection 918 2,129
Tract Map(Final) 325 256
Parcel Map(Final) 264 221
Lot Line Adjustment Agreement(Final) 60 68
Encroachment Permit-Miscellaneous 50 186
Encroachment Permit- Curb,Gutter, and Sidewalk 156 570
Encroachment Permit-Trenched Excavation 442 838
Encroachment Permit- Bored Excavation 442 752
Transportation Permit 15 74
Flood Zone Determination 50 260
Subtotal EDR Fees 3,682 6,121
Planning and Building Fees 927 1,838
Total Annual Fee-Related Hours 49609 7,959
Total Annual Working Hours (1) 89515 8,515
Ratio of Fee-Related Hours to Total Hours 54.1% 93.5% (2)
(1) Five employees- three engineers in Engineering Development Review Program
and two inspectors in CIP.Project Engineering Program.
(2) The remaining 6.5 percent is spent on activities that are not fee-related, such as
training and staff meetings.
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