STAFF REPORT - CITY COUNCIL/SUCCESSOR AGENCY/PUBLIC FINANCE AUTHORITY

Financial Services Director recommends the approval of the Comprehensive Fee Schedule for the annual consumer price index (CPI) update effective January 1, 2020 as approved by Resolution No. 3789 on January 4, 2018 for development and other miscellaneous services. 

A fee is a charge imposed on an individual or business for a service that the individual or business chooses to receive.  A fee may not exceed the estimated reasonable cost of providing the particular service or facility for which the fee is charged, plus overhead.  Examples of fees included building permits, copy charges, and fire plan check fees.

Proposition 13, 218, 4, and 26 have placed both substantive and procedural limits on cities’ ability to impose fees and charges.  Collectively these constitutional amendments provide safeguards against taxes being imposed with a vote of the people.  Proposition 26 contains a more general articulation of the cost of service principle an includes a requirement that the local government bear the burden of proof that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to recover the reasonable costs of the government activity, and that the manner in which those costs are allocated to a customer bear a fair or reasonable relationship to the customer’s burden on, or benefits received from, the governmental activity. 

Willdan was retained in 2017 to perform this service cost study.  The intent of the study was to determine the following in regard to those services:

1.    What does it cost the City to provide these services?

2.    What fee changes are necessary to achieve the City’s policies on cost recovery?

The primary purpose of this review is to identify the costs of providing service to requesting individuals or organizations so as to fairly and equitably set fees for those specific services.  Th goal is to neither make a profit on nay service, nor unintentionally subsidize any fee-oriented area.  A service qualifies for the “fee” designation when the activity benefits a specific individual or group, as opposed to the public at large. 

It is generally accepted that recovery of costs should be in direct proportion to the individual/specific gain for services received.  For example, private development activity that benefits specific individuals generally is expected to pay fees that reflect 100% cost recovery.  There are circumstances and programs which typically justify a subsidy such as youth, senior, and library services.  The cost of these services is subsidized while the user receives benefits for which he or she does not fully pay. 

Willdan developed a cost model based on “full cost,” which includes direct and indirect costs, including support costs from other departments.  Direct costs include salaries and benefits attributed to each service.  Indirect costs are not readily identifiable with a direct operating program but rather, are incurred for a joint purpose that benefits more than one cost objective.  Indirect costs include accounting, legal services, human resources and building maintenance. 

Resolution No. 3789 passed on January 4, 2018 provided authorization to the City to adjust the fees based on the San Francisco area annual consumer price index (CPI) annually every January 1^st.  Since the annual CPI factor for the prior year is not available until the middle of January, staff is requesting to use the annualized CPI factor between the months of October to October to become effective every January 1st.  The CPI factor used for the 2020 Fee update is 3% increase over October 2018 to October 2019. 

Revenues generated from the proposed fees are unable to be determine at this time due to the unknown variable of the volume of these services to be provided in the current fiscal year and upcoming years.