HomeMy WebLinkAbout2008-03-19 Agendafile:IIIF:/Apps/WEBDATAIInternetlEconomicDevelopmentCommitteeAgendaslag03-1 9-08.htm
SSW PO
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F CITY OF NEWPORT BEACH
cit_ oRA ECONOMIC DEVELOPMENT COMMITTEE
AGENDA
MEETING DATE: Wednesday, March 19, 2008
TIME: 8:00-9:00 A.M. Please arrive 5 min. prior
PLACE: City of Newport Beach Council Chambers
Roll Call and Introductions
MEMBER UPDATES AND ANNOUNCEMENTS
DISCUSSION ITEMS
1. Approval of Minutes of February 20, 2008
2. Presentation on the Resort at Pelican Hill by Ellen Adelman, Vice President Marketing & Sales for Irvine
Co. Resort Properties
3. Presentation on the 2008 Newport Beach Film Festival by Gregg Schwenk
4. Review of Cost of Services Study by Glenn Everroad, Revenue Manager
5. EQAC Representative's Report
ITEMS FOR A FUTURE AGENDA
PUBLIC COMMENTS
ADJOURNMENT
NEXT EXECUTIVE COMMITTEE MEETING: Wednesday, April 2, 2008
8:00 A.M. — NEWPORT BEACH CHAMBER OF COMMERCE
NEXT REGULAR MEETING: Wednesday, April 16, 2008
8:00-9:00 A.M. — CITY COUNCIL CHAMBERS
Page 1
CITY OF NEWPORT BEACH
GENERAL FUND
USER FEE STUDY FINDINGS
FEBRUARY, 2008
PREPARED BY:
PRM
PUBLIC RESOURCE MANAGEMENT GROUP, LLC
455 Capitol Mall, Suite 600, Sacramento, CA 95814 Tele: 919-882-2116 Fax: 916-443-3411
www.prmgroup.net
Providing Professional Services to Government
A Subsidiary of MGT of America, Inc.
MGT
G* AMEN ICA, INC.
www.mqtamer.com
TABLE OF CONTENTS
Section Page
I. Executive Summary 1
Introduction 1
Study Scope & Objectives 1
Study Findings 2
Methodology 4
Economic & Policy Considerations 6
Recovery Level Comparison 7
Building Department 8
III. Planning Department 15
IV. Public Works - Engineering Division 20
V. Police Department 25
VI. Fire Prevention and EMS 31
VII. Recreation & Senior Services Department 43
VIII. Revenue Division 54
IX. Code & Water Quality Enforcement Division 60
X. Utilities Division 63
XI. Library Department 66
XII. Citywide Copy / Public Records Charges 68
XIII. Flat Fee comparison 72
1. EXECUTIVE SUMMARY
INTRODUCTION
Public Resource Management Group (PRM) is pleased to present the City of Newport Beach (City) with this
summary of findings for the cost of services study for fee -related activities.
The City has not undertaken a detailed cost of services study since 1996. Since that time, the City has made
cost of living adjustments to the original calculations, but has largely maintained the fee structure that had been
adopted. The City is interested in accurately reporting the true cost of providing various fee -related services,
and exploring the possibilities of modifying current fees to better reflect the increasing cost of providing services
over time. The City contracted with PRM to perform this cost analysis using the adopted 2006-2007 fiscal
year budget and staffing information. Additionally, all other staff information was provided through the period
ending December 2007. Fees should be reviewed on a regular basis and adjusted in accordance with
established city policies on user fee cost recovery. Typically a detailed study, such as this, is undertaken every 3-
5 years with CPI adjustments in the intervening years.
This report is the culmination of the past twelve months work between PRM and city management and staff.
PRM would like to take this opportunity to acknowledge all city management and staff who participated on
this project for their efforts and coordination. Their responsiveness and continued interest in the outcome of
this study contributed greatly to the success of this study.
STUDY SCOPE AND OBJECTIVES
This study included a review of fee-for-service activities within the following departments/divisions:
• Building
• Planning
• Pubic Works - Engineering
• Police
• Fire — Prevention and EMS
• Recreation & Senior Services
• Revenue
• Code & Water Quality Enforcement
• Utilities
• Library
The study was performed under the general direction of the Revenue Manager with the participation of
the above-mentioned departments and divisions. The primary goals of the study were to:
• Define what it costs the city to provide various fee -related services.
• Determine whether there are any opportunities to implement new fees.
• Identify service areas where the City might adjust fees based on the full cost of services and other
economic or policy considerations.
• Develop revenue projections based on recommended increases (or decreases) to fees.
• Provide comparative data for local jurisdictions and other PRM clients.
The information summarized in this report addresses each of these issues and provides the City with the tools
necessary to make informed decisions about proposed fee adjustments and the resulting impact on general fund
revenues.
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STUDY FINDINGS
While the purpose of this study is to identify the cost of fee -related activities, one of the outcomes of the
analysis is to provide a complete picture of the full cost of all services offered. It is necessary to identify all
costs, whether fee -related or not, so that there is a fair distribution of all citywide and departmental overhead
costs (discussed in the following section of this report) across all activities, thereby ensuring a definitive
relationship between the cost of the service and the fee that is charged. No service should be burdened with
costs that cannot be directly or indirectly linked to that service.
Therefore, the first task in this study is to separate the fee-for-service activities from the non -fee activities. Some
non -fee related activities are appropriately funded by general fund monies (or other special revenue or impact
fee sources), such as most public safety services or capital improvement projects. The costs of these other
services are identified and set aside from the user fee services.
Exhibit I below displays the split of the total costs of each department (including citywide and departmental
overhead) into either user fee -related or other service costs. Of the $66 million in total costs analyzed, $21.9
million (or 33%) of that total is related to user fee services. It is this $21.9 million that is the focus of this study
and represents the total potential for user fee -related revenues for the City.
Total Costs by User Fee Area
Exhibit I
Source - Fiscal Year 2006-2007
Department
Total
Costs
Costs, User
Fee Services
Costs, Other
Services
Revenue
$1,864,489
$507,246
27%
$1,357,243
73%
Engineering
$5,558,206
$783,520
14%
$4,774,686
86%
Utilities
$963,067
$487,958
51%
$475,109
49%
Recreation
$9,116,018
$6,435,669
71%
$2,680,349
29%
Library
$6,563,193
$634,220
10%
$5,928,973
90%
Planning
$3,053,238
$2,342,137
77%
$711,101
23%
Fire - Prevention
$1,563,364
$845,020
54%
$718,344
46%
Fire - EMS
$2,979,332
$2,963,197
99%
$16,135
1%
Police
$27,867,904
$1,290,788
5%
$26,577,116
95%
Code Enforcement
$984,253
$52,217
5%
$932,036
95%
Building
$5,620,661
$5,620,661
100%
$0
0%
Total:
$66,133,725
1 $21,962,633
33%
$44,171,092
67%
The next exhibit (following page) identifies the source of funds for the user fee services. Exhibit II breaks down
the $21.9 million in user fee services between costs that are currently recovered through user fee charges and
the remaining subsidy. Overall, the City is experiencing a 58% cost recovery level for its fee -related services.
Within each department, current cost recovery levels range from 4% for Revenue to 98% for Fire Prevention.
The information about individual fees may be found in subsequent sections of this report.
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Source of Funds
User Fee Activites
Exhibit II
Source - Fiscal Year 2006-2007
Department
Costs, User
Fee Services
Funded by
User Fees
Subsidy
Revenue
$507,246
$19,261
4%
$487,985
96%
Engineering
$783,520
$482,913
62%
$300,607
38%
Utilities
$487,958
$179,418
37%
$308,540
63%
Recreation
$6,435,669
$2,735,227
43%
$3,700,442
57%
Library
$634,220
$30,150
5%
$604,070
95%
Planning
$2,342,137
$1,494,624
64%
$847,513
36%
Fire - Prevention
$845,020
$830,752
98%
$14,268
2%
Fire - EMS
$2,963,197
$2,888,664
97%
$74,533
3%
Police
$1,290,788
$247,733
19%
$1,043,055
81%
Code Enforcement
$52,217
$6,300
12%
$45,917
88%
Building
$5,620,661
$3,852,582
69%
$1,768,079
31%
Total:
$21,962,633
1 $12,767,624
58%1
$9,195,009
42%
Exhibit II indicates that user fees recover 58% of full cost, leaving 42% or $9,195,009 to be funded by other
funding sources. This $9.2 million represents a "window of opportunity" for the City to increase fees and
general fund revenues, with a corresponding decrease in the subsidization of services by the general fund.
While it is not likely (nor would PRM recommend) that the City completely recover all costs through increased
or new fees, it is possible for the City to implement moderate increases to current fees and new fees for some
services.
The study's primary objective is to provide the City's decision -makers with basic data needed for setting fees.
This report details the full cost of services, and presents proposed fees and projected revenues based on
recommended user fee cost recovery levels. Recommendations were based upon careful consideration of the
results of the cost analysis, historical cost recovery levels, and market comparisons of other cities.
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Exhibit III below summarizes the financial analysis of the City's user fee program. It is estimated that adoption
of the recommended cost recovery policy would increase the specified fee revenue by $5,036,808 (a 39%
increase over the revenue currently being collected for these activities by the City on an annualized basis).
This would bring the overall cost recovery level up to 81% for these activities.
User Fee Revenue Analysis
Recommended Revenues
Department
Costs, User
Fee Services
Subsidy
Revenue
$507,246
$487,985 96%
Engineering
$783,520
$300,607 38%
Utilities
$487,958
$308,540 63%
Recreation
$6,435,669
$3,700,442 57%
Library
$634,220
$604,070 95%
Planning
$2,342,137
$847,513 36%
Fire - Prevention
$845,020
$14,268 2%
Fire - EMS
$2,963,197
$74,533 3%
Police
$1,290,788
$1,043,055 81%
Code Enforcement
$52,217
$45,917 88%
Building
$5,620,661
$1,768,079 31%
Total:
$21,962,633
$9,195,009 42%
METHODOLOGY
Exhibit III
Source - Fiscal Year 2006-2007
A cost of service study analyzes two components of costs: the direct costs associated with providing each fee-
for-service activity, and the indirect costs that support these activities. A brief discussion of each of these
components follows. (A complete, detailed report of calculations is provided as an attachment to this report).
Direct Costs. The direct costs associated with fee-for-service activities were analyzed in great detail in this
study. PRM worked with staff within each of the ten divisions to develop the analysis that is summarized in
the following sections of this report. The fiscal year 2006-2007 adopted budget was used to identify direct
costs.
The first step in the process was to identify staff time spent directly on each of the user fee activities. Each staff
person involved in the user fee services identified time spent to complete each task associated with all user fee
services. Annual volume statistics were also gathered in order to develop total annual workload information.
Salary and benefit dollars were assigned to the time estimates to come up with the direct staff costs.
Indirect Costs. A proportionate share of other operating expenses and internal department administrative
costs were layered onto the direct costs as departmental overhead. Citywide overhead costs coming from the
cost allocation plan (described below) were also added in as indirect overhead. These two items were
components of the indirect costs: 1) departmental overhead, and 2) citywide overhead. The cost of each
activity is then compared to the fee currently charged, and the extent of cost recovery is identified.
Cost Allocation Plan. Many of the costs that support all city programs and services are budgeted in
centralized activities such as 1) Administrative Services, which provides payroll, budgeting, accounting and
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Revenues @
Increased /
Current Fees
Recommended
(Decreased)
Recovery
Revenue
$19,261
4%
$507,246
100%
$487,985
2534%
$482,913
62%
$725,683
93%
$242,770
50%
$179,418
37%
$490,970
101%
$311,552
174%
$2,735,227
43%
$3,428,068
53%
$692,841
25%
$30,150
5%
$30,150
5%
$0
0%
$1,494,624
64%
$2,324,803
99%
$830,179
56%
$830,752
98%
$845,020
100%
$14,268
2%
$2,888,664
97%
$2,963,197
100%
$74,533
3%
$247,733
19%
$972,524
75%
$724,791
293%
$6,300
12%
$52,217
100%
$45,917
729%
$3,852,582
69%
$5,464,554
97%
$1,611,972
42%
$12,767,624
58%
$17,804,432
81%
$5,036,808
39%
A cost of service study analyzes two components of costs: the direct costs associated with providing each fee-
for-service activity, and the indirect costs that support these activities. A brief discussion of each of these
components follows. (A complete, detailed report of calculations is provided as an attachment to this report).
Direct Costs. The direct costs associated with fee-for-service activities were analyzed in great detail in this
study. PRM worked with staff within each of the ten divisions to develop the analysis that is summarized in
the following sections of this report. The fiscal year 2006-2007 adopted budget was used to identify direct
costs.
The first step in the process was to identify staff time spent directly on each of the user fee activities. Each staff
person involved in the user fee services identified time spent to complete each task associated with all user fee
services. Annual volume statistics were also gathered in order to develop total annual workload information.
Salary and benefit dollars were assigned to the time estimates to come up with the direct staff costs.
Indirect Costs. A proportionate share of other operating expenses and internal department administrative
costs were layered onto the direct costs as departmental overhead. Citywide overhead costs coming from the
cost allocation plan (described below) were also added in as indirect overhead. These two items were
components of the indirect costs: 1) departmental overhead, and 2) citywide overhead. The cost of each
activity is then compared to the fee currently charged, and the extent of cost recovery is identified.
Cost Allocation Plan. Many of the costs that support all city programs and services are budgeted in
centralized activities such as 1) Administrative Services, which provides payroll, budgeting, accounting and
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information systems support, 2) General Services, which provides building maintenance and custodial services,
and 3) City Manager, which provides public information and general government support services. The costs
of these activities and other centralized services are considered indirect overhead that support fee-for-service
activities, as well as other programs and functions within the city.
As part of this study, PRM developed an indirect cost allocation plan that identifies and distributes these
indirect costs to all operating programs and functions within the City's organizational structure. The cost
allocation plan takes a detailed approach to analyzing indirect costs. PRM interviewed staff and analyzed data
within each central activity to determine:
1. What indirect support functions are provided (e.g. payroll, legal services, building maintenance,
etc).
2. How to allocate centrally budgeted personnel and other operating expenses into these functions.
3. Which departments receive benefit from these services (e.g. payroll services benefit all departments
that have budgeted staff, City Hall maintenance benefits all departments that are housed within
City Hall).
4. How to identify the best method of allocating these costs to the users (e.g. information technology
services are allocated based on the number of users and applications in each department).
The end result of this analysis is the allocation of all indirect costs to all operating departments and programs.
The indirect costs are then added to the direct costs to determine the full cost of all city operations — whether
fee -related or not. This accounting exercise is important in that it can result in an increase in general fund
revenues for reimbursement of support for user fee services and state or federally funded programs.
The next section is a discussion about economic and policy considerations which may help facilitate the
discussion on what cost recovery levels are appropriate for Newport Beach. To assist in that discussion, PRM
offers the following comments relative to what we have seen in other agencies:
• Development -related fees (planning and building) generally should have high cost recovery levels (at
or close to 100%). Exceptions may be made for services such as appeal fees, or those provided
exclusively to residential applicants.
• Recreation and other community services fees generally have very moderate cost recovery levels.
Many programs continue to be provided free of charge, regardless of cost. Youth and seniors
programs tend to have the lowest cost recovery levels (15% to 50%). Miscellaneous classes tend to
have moderate cost recovery levels (50% to 85%), and adult sports programs have higher cost
recovery levels (60% to 85%).
• No fee should be set higher than 100% cost recovery, without disclosure about the reasons why (e.g. a
fine or penalty element, or the acknowledgement of one activity subsidizing another).
• If the proposed fee increase is significant, many agencies will opt to phase in the increase over a period
of three to five years.
• Comprehensive reviews should be undertaken every three to five years, with minor cost of living
adjustments made on an annual basis.
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ECONOMIC & POLICY CONSIDERATIONS
Calculating the true cost of providing city services is a critical step in the process of establishing user fees and
corresponding cost recovery levels. Although it is the most important factor, other factors must also be given
consideration. City decision -makers must also consider the effects that establishing fees for services will have on
the individuals purchasing those services, as well as the community as a whole. The following economic and
policy issues help illustrate these considerations.
• It may be a desired policy to establish fees at a level that permits lower income groups to participate in
services that they might not otherwise be able to afford.
• A consideration of community -wide benefit versus specific benefit should be considered for certain
services (e.g. teen after-school programs).
• In conjunction with the second point above, the issue of who is the service recipient versus the service
driver should also be considered. For example, code enforcement activities benefit the community as a
whole, but the service is driven by the individual or business owner that violates city code.
• Elasticity of demand is a factor in pricing certain city services; increasing the price of some services
results in a reduction of demand for those services, and vice versa.
• Public sector agencies have a monopoly on providing certain services within its boundaries, such as
development -related services. However, other services, such as recreation leagues and classes, may be
provided by neighboring communities, and therefore demand for these services can be highly
dependent on what else may be available at lower prices.
• Pricing services can encourage or discourage certain behaviors. Some examples of this would be to
establish a low fee for a water heater permit to encourage homeowners to ensure their water heater is
properly installed, or setting false alarm response fees on an incremental scale to discourage multiple
false alarm calls.
• It may be impractical to establish a cost recovery system for some services or the collection of fees may
be costly and difficult to administer. Some of the fees that are charged after a service has been
provided might fall under this category, for example. false alarm response fees and code enforcement
violations.
• A portion, 25%, of city staff long range planning costs were reallocated across current planning
activities. Many cities chose to include higher amounts or none at all. This is a policy consideration that
staff would like additional thoughts on.
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COST RECOVERY COMPARISONS
The chart below displays various city recovery levels. These numbers were taken from recent PRM clients. In
order to provide Newport Beach with the greatest "apples to apples" comparison, please note that these
clients have undertaken the same study as Newport Beach, using the same processes and methodologies.
PLANNING
ENGINEERING
Recovery rates
Recovery rates
current
recommended
current
recommended
Campbell
26%
50%
Campbell
55%
63%
Chino Hills
12%
50%
Chino Hills
7%
66%
Cupertino
n/a
100%
Cupertino
n/a
100%
Emeryville
34%
100%
Emeryville
81%
100%
Huntington Beach
83%
100%
Huntington Beach
75%
100%
La Habra
51%
n/a
La Habra
29%
n/a
La Mesa
19%
50%
La Mesa
41%
100%
Long Beach
71%
99%
Long Beach
53%
72%
Los Alamitos
7%
53%
Los Alamitos
24%
92%
Los Gatos
65%
100%
Los Gatos
91%
100%
Placer County
n/a
100%
Placer County
n/a
100%
Whittier
41%
74%
Whittier
52%
100%
Pittsburg
19%
49%
Pittsburg
78%
82%
Santa Barbara
38%
n/a
Santa Barbara
62%
n/a
Redlands
78%
99%
Redlands
56%
96%
Newport Beach
64%
99%
Newport Beach
62%
93%
POLICE
RECREATION
Recovery rates
Recovery rates
current
recommended
current
recommended
Folsom
15%
68%
Antioch
69%
69%
Hollister
61%
98%
Folsom
40%
44%
Huntington Beach
69%
79%
Hollister
64%
74%
La Habra
10%
n/a
Huntington Beach
62%
64%
Lemoore
52%
87%
Irvine
28%
n�a
Los Alamitos
39%
70%
La Habra
48%
n/a
Long Beach
25%
96%
Long Beach
44%
59%
Whittier
64%
70%
Los Alamitos
55%
56%
Pittsburg
59%
62%
La Mesa
41%
41%
Santa Barbara
32%
not in scope
Whittier
21%
29%
Redlands
79%
97%
Pittsburg
26%
29%
Newport Beach
20%
77%
Santa Barbara
43%
n/a
Redlands
16%
16%
FIRE - PREVENTION
Newport Beach
43%
59%
Recovery rates
current
recommended
Folsom
29%
100%
Hollister
47%
99%
Huntington Beach
56%
69%
La Habra
22%
n/a
Long Beach
94%
94%
Lemoore
73%
100%
Modesto
42%
100%
Redlands
22%
33%
Newport Beach
98%
100%
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