HomeMy WebLinkAbout04/21/2009, B1 - STRATEGIC BUDGET DIRECTION: COST OF SERVICES STUDY REVIEW FOLLOW-UP council M°�enoah 04-21-09
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C I TY OF SAN LU IS O B I S P O
FROM: Bill Statler, Director of Finance &Information Technology
Debbie Malicoat, Finance Manager
SUBJECT: STRATEGIC BUDGET DIRECTION: COST OF SERVICES STUDY REVIEW
FOLLOW-UP
RECOMMENDATION
Review the results of the recent cost of services study and provide strategic budget direction
regarding implementation.
DISCUSSION
Background
On February 24, 2009, the Council reviewed the results of a cost of services study prepared by
Maximus. The Council did not take any action at that time; rather, staff's recommendation was
to discuss implementation of the cost of services study at the "Strategic Budget Direction"
meeting on April 14, 2009, with any fee increases adopted with the budget on June 16, 2009.
Based on Council discussion at the April 14 meeting, a more detailed review of the proposed fee
increases and their role in balancing the 2009-11 budget was continued to the April 21, 2009
meeting.
Summary of Study Findings and Recommendations
Attached is the agenda report from the February 24, 2009 meeting, which provides an overview
of the study findings and key recommendations. (The full study has been previously distributed
to the Council and a hard copy is available for review in the City Clerk's office; an electronic
version is on the City's web site at www.slocity.oru.)
Based on the City's user fee cost recovery policies, the study showed $1.7 million in added
General Fund revenues if its findings and recommendations were fully implemented. However,
as noted in the February 24 agenda report, given the current construction market and mid-year
revenues estimates, we anticipate that revenues from development review fees will be
approximately 67% of the amount estimated in the study($917,500 versus $1,369,400), resulting
in revised added revenues of$1.3 million versus the $1.7 million initially shown in the study.
The following is a summary of the key study findings and recommendations for General Fund
revenues, adjusted for anticipated reductions in development review feesasnoted above.
Strategic Budget Direction: Cost of Services Study Follow-Up Page 2
Cost Recovery Summary
C
-
Cost Recovery Revenue Potential
At Policy
Proposed Full Cost Based on
Total Cost Current Levels Recovery Polic
Police 474,261 318,098 323,096 156,163 4,998
Fire 1,231,346 502,330 808,558 729,016 306,228
Recreation 3,887,755 1,163,930 1,177,514 2,723,825 13,584
Development Review-Planning 1,471,143 986;043 1,298,514 485,100 312,471
Building&Safety 1,549,392 1,049,878 1,384,553 499,514 334,675
Engineering 923,011 528,106 792,693 394,905 264,587
General Government 1 296,1001 258,2751 296,1001 37,8251 37,825
Total General Fund 9,833,008 4,806,660 6,081,028 5,026,348 1,274,368
The complete analysis of cost recovery and other considerations for the City's user fee services
are presented by program area in Sections 2 through 6 of the Maximus report; and detailed
schedules are provided in the Technical Appendix. Staff is also developing a"decision-tree"that
shall be presented during the April 21 meeting to assist Council in working through the study
recommendations in order to provide final direction to staff.
EWLEMENTATION RECONEKENDATION
As discussed in the Strategic Budget Direction report to the Council on April 14, 2009, we
conservatively assumed $1 million from implementation of the cost of services study findings.
Detailed recommendations will be presented at the April 21,2009 meeting.
ATTACIIMENT
Council Agenda Report, February 24, 2009,"Cost of Services and User Fee Study"
PREVIOUSLY DISTRIBUTED
Cost of services study prepared by Maximus (hard copy provided to Council and available in
City Clerk's office and on the City's web site at www.sloci .org)
G:Cost of Services Study/2008/Council Agenda Report,4-21-09
ATTACHMENT
council mme..DW 02-24-09
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CITY OF 'SAN LUIS OBISPO
FROM`. Bill Statler,Director of Finance&Information Technology
Jennifer Thompson,Revenue Supervisor
SUBJECT: COST OF SERVICES AND USER FEE STUDY
RECOMMENDATION
Review and discuss the results of a cost of services and user fee study prepared by Maximus.
REPORT-IN-BRIEF
The City of San Luis Obispo engaged Maximus consultants to conduct a detailed and
comprehensive review of its user fee generating services. This study was to update the findings
of a similar study in 2000. The fees covered in this study are for operating services in Planning,
Building and Safety, Fire Prevention,.Police,Utilities and Recreation.
Maximus employed proven and objective methodologies (Appendix B in the Maximus report) to
calculate the actual cost of'serdices and used their experience to guide the City regarding the
appropriate costs to be included in the development of its fees. Through this study, Maximus
determined the full cost of each of the services for which user fees are currently being charged or
could be charged under State guidelines and the City's user fee cost recovery policies. This cost
includes all appropriate direct and indirect costs associated with providing each service,
including direct support costs from other divisions.
The study provides the City with cost of service information that the City can consider, along
with existing city policy, for fee setting purposes. This information will be useful in determining
what role, if any, additional revenues can play.in closing the $10.4 million budget gap facing the
City in 2009-11.
The Heart of the Policy Matter. While this may not seem to be a great time to consider fee
increases, it is important to remember that this process is about properly "calibrating" the "fair
share"responsibility for costs driven by specific users of City services. Striking the right balance
is important because any "excessive" subsidies are paid by the general taxpayer with resources
that could otherwise be used to support vital general core services, such as street maintenance,
flood protection and public safety. Therefore, it is even more important to assure good
stewardship in the area of cost recovery during a time when we will be reducing core services.
No Action Recommended at this Time. No Council action is recommended at this time: the
sole purpose of.February 24 is to present the results of this study. However, with Council
concurrence, recommendations regarding its implementation will be made to the Council as part
of the"Strategic Budget Direction" meeting scheduled for April 14,2009, with any fee increases
adopted with the budget, on June 16, 2009. In most cases, any fee increases adopted at that time
would become effective on July 1,2009.
J
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Cost of Services and User Fee Study Page 2
DISCUSSION
Background
Under the City's user fee cost recovery policy(B-9 through B-13 of the 2007-09 Financial Plan
and excerpted in the Maximus report), we should review and update service charges on an
ongoing basis to ensure that they keep pace with changes in the cost-of-living as well as changes
in service levels and delivery methods. In implementing this policy, the City has adopted the
strategy of comprehensively analyzing.service costs on a periodic basis, with five years as the
target ("benchmark analysis', with interim adjustments annually based on changes in the
consumer price index. The last "benchmark analysis" was performed in 2000. Accordingly, the
Council approved a comprehensive evaluation of service costs and related revenues as part of the
2005-07 Financial.Plan.
Project Scope
Maximus' task was to answer five basic questions:
1. What does it cost the City to provide various services?
2. Are these costs reasonable?
3. What are current cost recovery levels?
4. What fee changes are necessary to achieve adopted cost recovery policies?
5. What changes to current revenues can the City expect if recommended fees are implemented?
As part of this study, Maximus was also requested to review, evaluate and make
recommendations as appropriate on the following matters:
1. Existing policies,plans and cost of service information.
2. Reasonableness of City costs, given City service levels and policies as well as practices of
other agencies in California.
3. Comparison of costs with existing recovery levels. This should include service areas where
the City is currently charging for services as well as areas where we do not but perhaps
should in light of our cost recovery policies and practices in other cities.
4. Comparison of existing and proposed City fees in key benchmark areas with those charged by
other agencies in San Luis Obispo County as well as comparable cities outside of the County.
5. Other matters that may come to their attention during the course of their review that should
be considered by the City.
Summary of Findings and Recommendations .
Maximus' study methodology, findings and recommendations are comprehensively set forth in
the attached report. The Executive Summary (Section 1) provided on page 1 of the report
provides a concise but comprehensive overview of key findings and recommendations. The
l
ATTACH
Cost of Services and User Fee Study Page 3
following is an excerpt from the report on service costs, current fee recovery and proposed fee
recovery based on the City's user fee cost recovery policies.
Cost Recove Pro am
Cost Recovery Summary
Cost Recovery Revenue Potential
At Policy
Proposed Full Cost Based on
Total Cost Current levels Recovery Policy
Police 474,261 318,098 323,096 156,163 4,998
Fire 1,231,346 502,330 811,399 729,016 309,069
Recreation 3,887,755 1,163,930 1,177,514 2,723,825 13,584
Development Review-Planning 1,471,143 986,043 1,452,417 485,100 466,374
Building&Safety 1,549,392 1,049,878 1,549,392 499,514 499,514
Engineering 923,011 528,106 923,011 394,905 394,905
General Government 296,100 258,275 296,100 37,825 37,825
Total General Fund 9,833,008 4,806,660 6,532,929 5,026,348 1;726,269
Water Fund 231,768 179,921 231,768 51,847 51,847
Sewer Fund 89,395 71,744 89,395 17,651 17,651
Total Water&Sewer Funds 321,163 251,665 321,163 69,498 69,498
TOTAL 10,154,171 5,058,325 6,854,092 5,095,846 1,795,767
Note:Given the current construction market, it is likely that increases in development review fees, which total about
$1.4 million, will generate less than shown in-the table above. Based on mid years estimates, we estimate that fee
revenues would be 67%of this amount($938,000).
The complete analysis of cost recovery and other considerations for the City's user fee services
are presented by program area in Sections 2 through 6 of the Maximus report; and detailed
schedules are provided in the Technical Appendix.
Key Changes
The study reviews 185 fees. Of these:
C 107 are recommended for increase
15 are recommended for decrease
63 stay the same
The following summarizes the key changes from a policy perspective.
1. Building Permits: Change in Methodology. The City currently bases building permit and
plan check fees on construction valuation tables published periodically by the building
officials' national organization (ICBO). Consequently, the City building and safety fee
revenue largely correlates with construction valuation. Based on recommendations from
Maximus, the study proposes an alternate method of calculating building-related fees that
more accurately links the fee charged to the community and the cost of providing the
services.
Maximus recommends a methodology "nexus" that builds cost structure based upon
establishing time estimates for each phase of project plan check and inspection for each
IAT .`:HMENT
Cost of Services and User Fee Study Page;4
building type and size. The result for new construction permits is a unit cost per square foot
and in the case of miscellaneous permits and sub-trade items, a cost per unit. The resulting
fees are intended to be fair to both the applicant and the jurisdiction—definitive,practical and
legal while remaining revenue neutral compared with the prior valuation fee methodology.
While the Council may want to consider changing the current policy for full cost recovery
from building permit services, it is important that we move to the "nexus" rate structure in
ensuring that our fee structure meets State cost recovery guidelines.
2. Engineering Development Review Services. Engineering Development Review provides
support to both the Planning and Building functions. The current fee structure does not
provide cost recovery for these services, and as such, the study recommends adding a
surcharge for these services to be collected at time of building permit issuance. On the other
hand, by better allocating costs, the study recommends a significant reduction (about half) in
encroachment permits.
3. Fees at less than 100% Cost Recovery., In compliance with its adopted policy, the City has
set a number of its fees at less than 100% cost recovery to promote certain policy objectives;
for example the community benefits of the program, such as recreation activities; or to
encourage regulatory compliance, such as fire and life safety inspections of multi-dwelling
properties. These are identified in Section 1. In addition to these, the following fees are
recommended for less than 100% cost recovery because they are also fees for services where
we want to encourage voluntary compliance or there are community-wide benefits:
• Police. Property Return Fee, Massage Technician Permit, Massage Technician Permit
Renewal, Taxi Permit and Taxi Permit Renewal.
• Building Permits. Water Heater Replacements; Forced Air Unit Replacement, Electrical
Service Upgrade (200 amps or less), Photovoltaic Unit Installation (residential only) and
Gas Fire Inserts(retrofit from wood-burning fireplaces).
4. Appeal Fees. Included in the group of fees where the City policy is low or no cost recovery
are appeals. Currently, the City's policy is to charge $100 for planning related appeals; and
no fee for all other appeals to the Council. The Council may wish to revisit its policy on
planning-related appeal fee cost recovery, because the cost of processing appeals is.far more
than $100. Whatever level is judged appropriate, we recommend that the appeal fee be the
same amount for all appeals of staff or advisory body decisions to the Council, not.just
planning related ones. Appeals of Tree Committee decisions are the most recent examples
where significant staff costs have been incurred in processing non-planning appeals and
where a modest fee would be appropriate. The fee to:file an appeal should be set at a level
such that frivolous appeals are discouraged, yet meritorious ones are not discouraged. Staff
thinks an appeal fee of $200 — $250 would be appropriate. If City Council indicates an
interest in increasing or otherwise modifying appeal fees; staff will return in mid-April with
additional information for Council consideration.
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Cost of Services and User Fee Study Page 5'
5. Recreation Fee Designations. As part of this fee study, Parks & Recreation staff reviewed
the current fee descriptions and corresponding recovery levels currently approved in the
City's fee policies. Staff recommends a small number of changes to the recreation
classifications and descriptions in the City's fee recovery policy to more accurately reflect the
current environment and practices. These changes are proposed in order to bring the policy
into alignment with the current and historic cost recovery levels. Staff reviewed the
community-wide versus individual benefitsof these programs as well as market price
sensitivity and determined that in a few cases there are circumstances that warrant revision of
the cost recovery policy. In special events, staff recommends that major community events
(such as parades) and departmental events (such as Christmas in the Plaza) be revised from
mid range cost recovery to low cost recovery; reflecting the overall community-wide benefits
from such events. They are also recommending that the annual Triathlon be set at high rather
than mid range cost recovery due to this event being predominately targeted toward adults
and current policy reflects a high cost recovery level for other adult sports. Staff also
recommends that childcare be set at mid-range rather than high cost recovery. A complete
list of cost recovery levels is provided in Section 4 of the Maximus report.
Costs Are Reasonable
As noted above, a key element of Maximus' workscope was not only to determine the cost of
providing various City services, but also to form an opinion as to the reasonableness of those
costs. A fair criticism of many cost studies in setting fees is that they are solely revenue-driven:
if revenues are not recovering costs, then the solution must be to increase revenues: However,
the problem may not be that revenues are too low, but that costs are too high. The Maximus
study concludes that City costs are reasonable.
Implementation
As noted above, the purpose of this report is to review and discuss the information developed by
.Maximus: no Council action is recommended at this time.
However, as part of our budget-balancing strategy in closing the General Fund$10.4 million gap
identified in the five-year fiscal forecast presented to the Council in December 2008, with.
Council concurrence,recommendations regarding its implementation will be made to the Council
in the "Strategic Budget Direction" meeting scheduled for April 14, 2009. We recommend that
any fee increases be adopted with the 2009-11 Financial Plan, which is scheduled for June 16,
2009. In most cases, any fee increases adopted at that time would become effective on July 1,
2009. A key exception includes development review fees: under Government Code Section
66010 (AB1600), increases in these types of fees cannot go into effect until 60 days after their
adoption. As such, we recommend that any develop review fee increases become effective
September 1,2009.
CONCURRENCES
All appropriate City departments have been extensively involved in completing the Cost-of-
Services Study. In terms of other stakeholders,over 60 organizations and individuals have been
3:cami t-�
Cost of Services and User Fee Study Page 6
notified of this first presentation of the Study, including banks, planning consultants,ECOSLO,
Residents for Quality Neighborhoods, San Luis Obispo Property Owners Association,the Sierra
Club, and the Chamber of Commerce. The notice sent to these stakeholders is provided as
Attachment.2.
FISCAL IMPACT
There are no direct fiscal impacts associated with this review of the study findings. The decision
to revise fees based on the City's adopted cost recovery policies should be made in the larger
context of the 2009-11 Financial Plan. However, it should be noted that even if the full
recommendations of the study relating to the General Fund were implemented (generating an
added $1.3 million, after adjusting for decreases in development related fees due to current
market conditions), it would represent a modest 12%of the$10.4 million gap facing us.
ENCLOSURE
1. Cost of services study prepared by Maximus(hard copy provided to Council and
available in City Clerk's office)
2. Public notice
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G:Cost of Services Study/2008/Council Agenda Report,2-2409
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February 17,2009
Results of Cost of Services Study
In accordance with the City's user fee cost recovery policies,the City reviews and updates service charges on
an ongoing basis to ensure that they keep pace with changes in the cost-of-living as well as changes in
service levels and delivery methods. ht implementing this policy, the City has adopted a strategy of
periodically analyzing all City service costs and related revenues on a comprehensive basis, with interim
changes on an annual basis as noted above. The primary purpose of this comprehensive analysis is to answer
four basic questions:
■ What does it cost the City to provide various services?
■ Are these costs reasonable?
■ What are current cost recovery levels?
■ What fee changes are necessary to achieve cost recovery policies?
The City has contracted with a nationally-recognized cost accounting firm—Maximus—to help us prepare a
comprehensive evaluation of a broad range of City service costs and related revenues;including public
safety, development review and recreation services. This review also includes a new fee structure for the
City's building permits, moving away from fees based on permit valuation to one based on the specifics of
the project, including occupancy type and scale of the project. The results provide us with technically sound
cost-of-service information in setting fees in accordance with State guidelines and the City's user policies.
In conjunction with the mid-year budget review,we will present the results of this study to the Council on:
Tuesday,February 24,2009
7:00 pm(Meeting Start Time)
Council Chambers,990 Palm Street
Next Steps. No action will be taken by the Council at the February 24 meeting: its purpose is solely to
present the results of this study. However, it is likely that recommendations regarding its implementation
will be made to the Council as part of the "Strategic Budget Direction" meeting scheduled for April 14,
2009. It is likely that any fee increases will be adopted with the budget, which is scheduled for June 16,
2009. In most cases,any fee increases adopted at that time would become effective on July 1,2009.
For More Information. As noted above, we will be presenting the results of this study to the Council on
February 24,2009. Additionally,upon request,I will be happy to meet with you or your organization at your
convenience to discuss this study and the City's user fee policy with you. The study in its entirety is
available on the City's web site at:.www.slocity.ora/finance/reports.asp. Please call me at 781.7125 or email
me at bstatler@slocity.org if you have any questions concerning the study or the community review process.
Sincerely,
jt'�
Bill Statler,Director of Finance&Information Technology
® The City of San Luis Obispo is committed to Including persons with disabilities In all of our services, programs and activities.
Telecommunications Device for the Deaf(805)781-7410. �Q — j
1 � 1
APR 15 2U�y 1490 Descanso #2
San Luis Obispo, CA 93405
April 11, 2009
To San Luis Obispo City Council Members:
I am writing this letter in support of and praise for the Laguna Lake Golf
Course. As a tax payer in San Luis Obispo I have often had the
opportunity to play the golf course. It is very well maintained and always a
pleasure to play golf there.
As a long time part time employee working in the pro shop at the golf
course, I receive many compliments about the beautiful course from local
golfers and tourists alike. Special thanks for the condition of the course
must go to Todd Bunte, Golf Course Supervisor, and his two
greenskeepers. I have been a public employee all of my adult life and
have never seen a public employee more Industrious and dedicated than
Todd is. It is through his leadership and his example to the greenskeepers
that the course is so well maintained.
I sincerely hope that the City of SLO will keep golf affordable. For some
reason non-golfers view golf as a rich mans sport. Such thinking is
definitely not true. Many Laguna Lake golfers are seniors living on
retirement incomes which dwindle in purchasing power each year. Please
don't price them out of sport that can be enjoyed by young and old alike.
Yours truly,
P lis She
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