This first section of the staff report provides background and context for the various issues surrounding the City Council’s consideration of fee updates. Topical issues are then discussed more completely in the Discussion section of the report.
Over the course of the past seven (7) months the City Council have received and reviewed fee study information and conducted six (6) separate working sessions concerning related policy issues. The timeline below provides a recap of the Council’s work to date on the fee study:
- Jan 2016 - Oct 2017 Staff and NBS work to prepare User Fee Study
- October 19, 2017 User Fee Study delivered to City Council
- October 24, 2017 User Fee Study delivered to BIA
- October 24, 2017 User Fee Study delivered to Chamber of Commerce
- November 7, 2017 City Council work session on User Fee Study
- December 5, 2017 City Council work session on User Fee Study
- January 16, 2018 City Council work session on User Fee Study
- February 6, 2018 City Council work session on User Fee Study
- April 3, 2018 City Council hearing
- May 1, 2018 City Council hearing
At its last discussion on May 1, 2018, Council continued its public hearing deliberations and determined it would hold off further consideration of the development related user fee update pending the adoption of the 2018/19 budget. The 2018/19 budget was adopted by Council at its June 19 meeting. At this time, development related user fees are returning to the Council for its further consideration. Additionally, at a separate public hearing on June 19, other City user fees not included in this staff report were considered. City Council directed those fees return for consideration along with the development related user fees. Staff will be discussing all fees in one combined presentation before the Council at its August 21 meeting. However, the information for the other City user fees is in a separate staff report.
Direction from the Municipal Code Concerning User Fees - Importantly, the Brea Municipal Code provides the Council direction regarding user fees. The Code outlines that “costs reasonably borne” be included within fees and that cost recovery be considered by the City Council—the code additionally defines such costs. The Code states that the City Council shall establish the percentage of recovery of costs reasonably borne in its establishment of fees. In other words, to answer the question: what is the correct amount of costs reasonably borne to pass along to customers receiving a service? Historically, as it relates to development user fees, Brea has followed the general industry practice to establish fees providing for its recovery of related costs to provide for services and this is the direction under which staff operate to develop its recommendations regarding fees. The pertinent Brea Municipal Code sections read:
§ 3.32.020 DEFINITION.
COSTS REASONABLY BORNE. As used and ordered to be applied in this chapter, are to consist of the following elements to the extent permitted by law:
A. All applicable direct costs including, but not limited to salaries, wages, fringe benefits, services and supplies, operation expenses, contracted services, special supplies and any other direct expense incurred; (reader note: these are essentially Labor and certain non-labor costs)
B. All applicable indirect costs including, but not restricted to, building maintenance and operations, equipment maintenance, communication, printing and reproduction, and like expenses when distributed on a rational proration system; (reader note: these are remaining non-labor costs that are included in the department and division budgets)
C. Fixed asset recovery expenses, consisting of depreciation of fixed assets, and additional fixed asset expense recovery charges calculated on the current estimated cost of replacement, divided by the approximate life expectancy of the fixed asset. A further additional charge to make up the depreciation not previously recovered and reserved in cash also shall be calculated and considered a cost so as to recover such unrecovered depreciation over the remaining life of the asset; (reader note: these are costs included within City-wide overhead)
D. General overhead, expressed as a percentage, distributing and charging the expenses of the City Council, City Manager, Finance Department, City Clerk, City Treasurer, City Attorney's office, community promotion, personnel, office, and all other staff and support service provided to the entire city organization; (reader note: also included within City-wide overhead)
E. Departmental overhead, expressed as a percentage, distributing and charging the cost of each department head and his or her supporting expenses as enumerated in paragraphs A., B., and C. of this section. (reader note: the fee study conducted also includes other reasonable costs such as division overhead which allocates the managerial, supervisory, and clerical costs, and training, meetings, and employee breaks, to the functional activities.)
('61 Code, § 23C.3) (Ord. 763, passed 10-16-84 ; Am. Ord. 857, passed 12-06-88 )
§ 3.32.030 ESTABLISHMENT OF FEES AND SERVICE CHARGES BY RESOLUTION OR ORDINANCE.
In accordance with the provisions of California Law, including, but not limited to Cal. Gov't Code §§ 66000 et seq., as same may be amended from time to time hereafter, the City Council shall establish in the manner prescribed by law fees and charges for regulations, products or services including the percentage of recovery of costs reasonably borne necessary to provide regulations, products or services.
('61 Code, § 23C.4) (Ord. 763, passed 10-16-84 ; Am. Ord. 825, passed - - ; Am. Ord. 826, passed - - ; Am. Ord. 857, passed 12-06-88 )
This section of the staff report will provide some additional background and context of the issues discussed to date by the City Council concerning the development related user fees. It will also touch upon background related to the proposed technology fee which was discussed during the recent budget adoption process.
The NBS Study - The Brea Fee Study (Attachment C) was conducted by NBS and basically covers development related fees for service. These fees are imposed to cover the reasonable costs to the City for processing entitlements; issuing licenses and permits; conducting inspections and other activities conducted by Planning, Building, Public Works and Fire Services. The purpose of the study was to identify all the allowable costs for a fully -burdened hourly rate and to ensure that the existing and
proposed rates do not exceed the cost of providing services.
As compared to past fee updates, the City approached this fee update through a comprehensive, professional cost of service analysis including a City-wide cost allocation plan as well as a much more complete information on direct and indirect departmental cost than in past efforts. Essentially, the more complete information identifies allowable costs that were previously not included in the City' s fee calculations and are not identified in the municipal code (i.e. the allocation of managerial, supervisory, and clerical costs, and time spent on training, meetings, and employee breaks, to the functional activities).
The results of the study show that based on budgeted costs for Fiscal Year 2016/ 17, the City overall is currently recovering 56% of allowable costs associated with providing these services. To clarify, the vast majority of the City's development and construction related fees are currently administered as an hourly rate charged to a customer based on the actual time spent working on a project; however, that hourly rate itself is outdated and is not currently capturing all the allowable costs the City incurs to perform this work. In other words, while City staff are charging time spent working on projects, the current hourly rates are recovering only 56% of allowable costs.
Technology Fee - Recently, the City Council discussed the proposed technology fee which is designed to recover the costs of providing new and additional upgrades to the City’s permitting and development processing systems. These upgrades come in the form of software programs and any necessary licensing, systems hardware, training, and related needs. For Brea, this is initially proposed as the implementation of the Accela permitting system which was purchased this past spring. When the City Council acted to purchase the Accela system, discussion included plans to consider a technology fee to help cover the initial purchase as well as on-going subscription costs, essentially passing those costs on to end users receiving the benefits of the system. The on-going funding collected is proposed to be used for the subscription fee, enhancing, and adding to this or other related systems to continually improve efficiencies and productivity related to development processing and records maintenance. These improvements to Brea’s approaches and systems for development processing have a key goals to keep the City current, competitive for economic development, and efficient—saving commercial developers and resident’s alike time and money. Through a comprehensive and phased system evolution such efficiencies will include the on-line submittal and web-portal communication concerning development plan check, real time ability to update records from internal Plan Review meetings, processes and field inspections, and interdepartmental communication concerning fee tracking and payment—e.g. between Community Development and Finance.
The proposed technology fee would add .06% charge to a building permit valuation. This factor is derived by taking the initial cost and on-going subscription for the system estimated at $60,500 and spreading it across the average annual permit activity of approximately $103M. The average annual permit activity is based upon actual permit activity from calendar years 2012-2017. So by example, a $100,000 project would pay a $60 technology fee as part of its permitting fees. Additional discussion of the proposed technology fee is provided later in this report.
Cities Comparisons of Development Related Fees - During the Council’s budget discussions on June 19 the question of what other cities charge for fees has been raised. This was an issue addressed within the NBS report, and discussion is provided starting on page 12 of the report, together with the information in Appendices B.1 and B.2 of the report. As discussed in the report, the question of comparing cities fees is not conclusive and must be approached with caution since often these comparisons are not “apples to apples” due to different factors considered within the various cities. Some cities capture fees via an hourly charge for staff time while others use a valuation system and still others adopt a flat fee for specific development processing. Each city surveyed has its own unique set of circumstances as well as likely great variation on what factors went into the cost analysis for providing such services. As such, it makes a comparison of different cities fees challenging at best, to reach meaningful conclusions.
For Brea’s fee update considerations we know this—the comprehensive process and data review provided via the NBS study is exhaustive and is the best basis for Council’s considerations of any fee adoption and policy considerations. It is the best information available to provide the Council full disclosure and listing of all eligible “costs reasonably borne” for your policy decisions. For other cities surveyed, without this same level of information and background, you have no assurance those cities reviewed and considered similar data in setting their fees. Nor do you have information on their budgets, budget policies, and related factors and considerations which went into establishing their fees—other cities may not have based their fees on estimated and reasonable costs of providing the service, you just don’t know—a comparative survey does not provide information about those cities cost recovery policies or issues they may face. Finally, and as discussed by NBS, some specific fee line items are simply not the same among cities. This can be due to varied terminology for similar services and knowing exactly what may be included within any task description and again, make comparisons hard to effectively conclude.
In summary, cities comparisons of fees can be helpful to an extent and is a data point within the information available to you. But the Council is cautioned to rely on this data out of context and as any conclusive and direct comparison to Brea fees for the reasons stated here and within the NBS report.
DISCUSSION
As noted earlier in this report, Council have had evolving discussions regarding the fee update over the course of the past 6+ months. From the Council’s most recent discussions, staff understand the following issues related to the fee update considerations of interest, include:
- Continued public input, Chamber of Commerce discussions
- Technology fee details and considerations
- Striking a balance between costs for services reasonably borne and fees for such service
Continued Public Input and Chamber of Commerce Discussions - Since the Council’s May 1 meeting and June 19 budget adoption staff have continued fielding questions and facilitating public input regarding the proposed fee updates.
Staff have met with the Chamber of Commerce CEO and its President as well as within a follow up meeting with the Chamber Leadership Board. Of key interest to the Chamber has been the issue of cost recovery understanding and to promote and realize on-going efficiencies and customer cost savings within the City’s permitting processes. The Chamber have expressed appreciation and understanding of the staff’s goals to recover costs for services benefiting end users as a sound business practice and reconfirmed their position that the City should continue to strive for efficiencies within its development review processes. The Brea Chamber have provided its written comments regarding the proposed fee update, and a copy of their recent correspondence is attached to this report (Attachment B).
Generally, staff would characterize the conversations with the public as focused upon what is the correct “balance” between cost to provide services and what to charge for related fees for services. Within these conversations has been suggestion that, a full and complete capture of costs to provide services should not be passed along to an end user. Recall, without yet concluding action, Council’s discussions to date have included such consideration where it feels general public benefit is served via a permit action. However the Council have not discussed such consideration where a permit fee more completely serves private interests rather than overtly achieves a public benefit. In representing some speakers viewpoints here, we understand their issue to be that if a commercial development realized by the City provides the City fiscal benefits such as taxes it generates, that this should be an offsetting consideration in what the City charges such development for user fees to achieve such development. Such consideration is within the Council’s purview and policy determinations for your user fees and is discussed further later in this report.
Technology Fee Details and Considerations - At its June 19 budget adoption the City Council directed staff to bring back additional details and consideration discussion for the proposed technology fee.
As discussed earlier in this report, the proposed technology fee is designed to cover costs associated with improvements to the City’s permitting process and development review. These improvements will be realized via implementing new technology to upgrade the City’s systems which deal with permit processing. Most specifically and immediately, the Council have approved implementing permit software systems from Accela and this work is underway. For better understanding of its abilities, a presentation of the Accela system features will be provided at the August Council hearing, its features including:
- Hosted permitting solution managed by an external vendor, allows City staff to focus on technical development review functions, less on permit software and related administration.
- Web portal technology allows Inspectors, Engineers, Planners to go from paper to real-time inspection and permit updates, saving staff and customer time.
- Expedites and accelerates the review process, improves customer service and enhances citizen engagement via mobile apps and on-line capabilities.
- Customers can apply, track, and pay for permits on-line with no need to travel to City offices.
At the time of Council’s approval to move forward with the Accela system staff discussed that funding for the system would, in part, be recovered via a technology fee charge which would be placed on development permits. In this way, the end users benefiting from the system will fund its costs rather than the City’s General Fund. Additionally, the technology fee is intended to provide for on-going and future evolution of our systems and features to keep the City current and responsive to the needs of development processing as technologies and related systems advance and expand. Certainly consideration of this fee remains within the Council’s purview and staff understand the Council desire to more comprehensively consider such a fee within context of the other fee updates proposed.
The implementation of the Accela system and its future evolution is something staff have discussed with The Chamber of Commerce and others over the past months. Staff would represent there has been general support for this technology and the efficiencies it can bring to our processes. The question, however, becomes an on-going one of how to pay for it. There, opinions vary and the Council will likely hear related comments at your public hearing—again, to date, no specific written comments on this issue have been received by staff.
An important consideration within the technology fee consideration regards off setting costs and savings. Specifically, it is our expectation that the new found efficiencies will bring the end user costs savings in time and process and thus “off set” the cost of the technology fee within a permit charge. While this is hard to quantify, by example, if the developer of a commercial building has the ability to submit plans on-line and electronically, literally thousands of dollars in printing costs can be saved, not to mention any travel time or postage for large transmittals and other associated costs. Moreover, as the systems features eventually translate to real time plan check corrections and inspection reporting and follow up, via electronic communication from City offices and remote field locations (e.g. handheld devices), and less staff time spent on those task, this savings is passed along to the end user resulting in a reduction in the permit and processing costs.
The technology fee is proposed as a .06% charge for construction permit valuation. So, by example, a $100,000 tenant improvement permit would be charged $60. For a tenant improvement job like this, a customer’s costs may vary, but if we assume a plan set of 20 sheets, with reproduction costs at $5 per sheet, that equates to “one time” printing of $100. A plan check typically requires up to 3-5 sets of plans be submitted and so this cost then goes to $300-$500. And, if we assume plan corrections and reprinting and resubmittal, that printing adds to an applicant’s costs as well. While the City will continue to require a “hard copy” of plans for the field and office sets once approved, the new permitting system will eliminate the multiple hard copy submittal and costs, the technology fee being comparatively lower than these expenditures to a customer.
Striking a Balance Between Costs for Services Reasonably Borne and Fees for Such Service - Staff have created a series of options to help assist the Council in its consideration of action to update fees for services. The options outlined below take Council discussion to date, and provide a range of possible fee adoption strategies up to full cost recovery as identified within the NBS study. Importantly, these are options which can be further modified to include the Council’s direction pending the conclusion of its discussions for fee policies.
OPTION 1 – Fee calculations reflect full cost recovery to provide services.
Implications – Hourly rates and permit fees as outlined in Attachment A. Provides for full cost recovery, no subsidy of costs by the City General Fund.
OPTION 2 – Fee calculations limited to include Labor, Non-Labor, and Citywide overhead costs.
Implications – This option includes the incremental costs of City-wide support services which assist the department providing services to the community, including development related functions. General Administrative functions such as City Manager’s Office, Finance Department, City Clerk, City Attorney’s Office, Human Resources, Communications/Marketing, Purchasing, Printing and Reprographics, and other administrative support services provided to the entire city organization, are reflected in this calculation option. This option would forego including incremental costs of support staff within the development related Departments and Divisions, the premise being those costs are primary to performing development related work and a service to the community—such a policy decision for fee calculation is within the purview of the City Council. Those costs would be subsidized by and paid from the General Fund. The Attachment A provides a summary of cost implications.
OPTION 3 – Fee calculations limited to include Labor and Non-Labor costs within the development related Departments and Divisions only (no Citywide or Dept/Division overhead costs).
Implications –– This option includes only Labor and Non-Labor costs within the development related Departments and Divisions. It does not include incremental costs of support staff outside those directly involved in development review functions. So, by example, this option would not reflect the costs of an Administrative Clerk providing general clerical support and/or counter support within the Community Development Department. The Citywide and Department and Division overhead costs would be subsidized by and paid from the City’s General Fund. The Attachment A provides a summary of cost implications.
In summary, these Options are provided for Council discussion and deliberation. Importantly, the range of options is not limited to these approaches and staff will be available at the hearing to respond to Council deliberations which may identify further options of interest.
Staff’s recommendation remains to base hourly staff rates for fees for full cost recovery of all eligible expenses to provide for development related services, pending any alternate policy direction from the City Council. This best practice approach assures that private development activities "pay their way" thus assisting the ability for General Fund resources to provide other important and desired services to the Brea community. However, the Brea Council could opt for a phased implementation toward full cost recovery via consideration of one of the optional calculations discussed. A first step of this type, with further consideration to be discussed at a future date, is something the Council may desire to weigh.
Flat Fee Permits - Of final note, recall, the latest Council discussions and direction regarding the various flat fees charged for development related activities is also reflected in the attached draft resolution within Exhibit A. Recall, the last discussions reduced the number of flat fees by taking some to a hourly rate deposit fee structure, modified most of the remaining flat fees toward full cost recovery (e.g. primary Public Works related permits), and, finally, proposed several flat fees to include subsidy from the General Fund where public safety and benefit goals could be realized (e.g. water heater permits). The proposed fee rates for overnight parking permits contained in the draft resolution remain as last discussed and, recall, these rates do cover the core staff time costs (Labor) expended in review of such permits. |