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Home My WebLink About07.01 Master Schedule of Fees 1 Staff Report G��°��c� AGENDA ITEM *: �.* �°s'•.,.,.�q,s.••'�� May 8� 201g cbt�x;�y ct�' ReviewedNerified B �• City Manager TO: Honorable Mayor and Finance Director �1✓.Yi Members of the City Council To Be Presented By: Will Kolbow THRU' Rick Otto Cons Calendar _ City Mgr Rpts . City Manager Council Reports _ Legal Affairs Boards/Comm Public Hrgs FROM: William Kolbow��, X Admin Reports Plan/Environ Finance Director 1. SUBJECT Master Schedule of Fees 2. SUMMARY Staff presented the preliminary findings of the User Fee Study conducted by Matrix Consulting Group at the Apri124, 2018 Budget Study Session. The City Council provided feedback and had questions regarding several fees. This report provides an update based on that feedback. 3. RECOMMENDED ACTION Provide direction. 4. FISCAL IMPACT None at this time. 5. STRATEGIC PLAN GOAL(S) 2. Be a Fiscally Healthy Community b. Analyze future fiscal needs and potential revenue opportunities. d. Effectively manage and develop City assets. 6. GENERAL PLAN IMPLEMENTATION Not applicable. ITEM� • � 1 5/8/18 7. DISCUSSION and BACKGROUND In December 2017, the City Council engaged Matrix Consulting Group to conduct a User Fee Study. Staff presented the findings from this study to the Council at the April 24, 2018 Budget Study Session. The Council provided feedback and posed several questions regarding various fees. Buildin�Fees and Permits—Valuation Basis vs. Square Foota�e Currently, the City charges for plan check and building permits on the basis of valuation. Under this method, plan check fees are charged using a nationally published table that assigns a dollar amount to various types of construction and occupancy types. Additionally, the table was adopted as part of the previous User Fee Study conducted in 2007 and has not been updated since. (For example, a type IA single-family residence is valued at $120.93 per square foot, using the 2006 International Building Code.) Since this standardized rate is over ten years out of date and based on nationwide data, it is based on substantially lower-than-market rates for Southern California. As a result of the table being off base in relation actual values, staff will often query the applicant for an estimated valuation of their project. This can lead to significant subjectivity in the fees, with essentially the same square footage construction incurring different costs based on its location within the City and type of construction materials, but not its actual size. There are several issues with this approach. First, building permit fees can vary greatly with the economy, as the values assigned are based on economic conditions at the time the permit is requested. Second, this method relies on estimates from developers, which are highly speculative, and can also lead to widely varying fees for similar projects. Further, the varying valuations can lead to similar projects that use different materials to be charged different fees, even though the service provided by the City is the same. The study found the City currently recovers approximately 79% of the its costs. Staff is recommending two changes. First, change from the valuation method to the square footage method for both plan check and building permit fees. Collecting fees by square footage will remove subjectivity from the building fee process and will allow for a more consistent revenue stream from these fees. It will also more equitably charge customers for fees for similar work. This will cause a shift of how fees are currently distributed, with high value projects, in general, paying lower fees while smaller projects, such as small tenant improvements, will pay more. In addition, to streamline the process, staff is recommending a number of flat fees for various small types of projects, such as new doors, fences, and photovoltaic systems (i.e. solar panels). A representative of the local chapter of the Building Industry Association (BIA) attended the Budget Study Session. In subsequent discussions, the representative indicated that the BIA is supportive of the concept of moving from the valuation method to the square footage method. The second recommended change is to increase fees to recover 100% of the City's costs. Because building fees are a benefit specific to the services provided to the payor, these are expenditures the City would not otherwise incur if the services were not being provided. ITEM 2 5/8/18 Deposit-Based Fees For land use development fees, applicants pay the actual cost of the service provided. At the time the land use application is submitted, the applicant is required to deposit a set amount based on the type of land use entitlement necessary for the project (i.e. Zone Change initial deposit is $1,000; Major Site Plan Review is $3,000). The study found, in the majority of cases, the initial deposits are significantly inadequate to cover the costs of processing the projects. As a result,the City must keep billing the applicant for more money, which leads to the applicant's frustration and misunderstanding of the actual cost of the entitlement process. Staff is recommending increases to a variety of deposits to more closely align with actual costs. It is not our intention to over-collect, but to ensure the difference between the deposit and actual cost is relatively small. Within that context, the City Council specifically had concerns over the Design Review deposit for projects within Old Towne, where the study determined the average cost for design review is $6,942, but the current required deposit is only $500. Based on this disparity, staff had recommended a deposit of $4,000. The Council's concern was that residents would resort to avoiding the deposit and fees by doing some smaller projects without going through proper entitlement review. Therefore, since projects involving design review can vary greatly in regards to complexity and staff time, we are recommending, for historic districts, deposits of$1,500 for residential projects, $4,000 for commercial projects, and $500 for sign and sign program reviews. Outside of historic districts, the deposit will be $1,000 for all project types. While these amounts may still be insufficient for many of the projects requiring design review, the incremental increase in the deposit amount may be better received by our applicants. Alcoholic Beverage Control (ABC Licenses Currently, the City charges a $1,600 fee for a new Alcoholic Beverage Control (ABC) license permit. However, the study found that the cost to process a new ABC license application averages $8,317. Further, the study found that Santa Ana is the only other city to charge a set fee ($5,000). Other cities utilize a deposit-based system and then charge based on actual cost. As discussed above, other land-use applications are charged based on a deposit. Since there can be some variation on the cost of processing an application, staff is recommending a $7,500 deposit far an ABC license, and charging based on actual cost. Summary While the proposed FY 19 General Fund budget is balanced, there remains the need to address the Master Schedule of Fees to ensure maintenance of the City's long-term fiscal health. As rising expenditures continue to apply pressure, it is critical to capture the appropriate amount of revenue that closely reflects our cost for services. The City should strive for 100% cost recovery specifically in cases where services benefit a single entity, such as for a building permit, fire inspection, encroachment permit, or an ABC license. As far other services, such as park and recreation programs, special event permits, and library service fees, the City has determined full cost recovery is not necessary as those programs benefit the public at-large and provide important community enrichment services. ITEM 3 5/8/18 Staff's recommended fees would generate $7.4 million in the General Fund, an increase of$1.5 million, or 26%. The General Fund collection rate would increase to 75%. The City Council expressed concern over the increase in fees, due in part to the length of time that has elapsed since fees were last increased. Going forward, staff intends to review fees on an annual basis and recommend incremental adjustments at the time of budget adoption to keep pace with the increased cost of doing business. Further, we intend to repeat a thorough fee study, similar to the one conducted by Matrix, every five years to evaluate changes in how we provide services. O_ptions In further analyzing the fees after receiving the City Council's feedback, staff has determined the following options: 1) Approve the Master Schedule of Fees as recommended by staff. We would bring this for formal adoption in June, concurrent with the FY 2018-19 budget. 2) Lower the proposed increases for developer-related services and provide an updated recommended Master Schedule of Fees for adoption. Staff would bring this for formal adoption in June, concurrent with the FY 2018-19 budget. 3) Consider adoption of fee adjustments at a later time. 8. ATTACHMENTS April 19, 2018 Fee Study Memo—Listing of Recommended Fees DRAFT Report on the Citywide Cost of Services (User Fee) Study by Matrix Consulting Group ITEM 4 5/8/18