2010 user fee study results orientation 2010 user fee study results orientation presentation to the...

2010 User Fee StudyRESULTS ORIENTATION2010 User Fee Study

RESULTS ORIENTATION

Presentation to the Missoula City Council by:

Chad Wohlford, MPPA

September 29, 2010

WOHLFORD CONSULTING

© Wohlford Consulting - 2010 2

TODAY’S GOALSTODAY’S GOALS• Basic Project Orientation• Understand Study Background,

Concepts, and Methodologies• Build Confidence in the Process

and its Results• Discuss Fee-Setting Issues• Introduce and Explain the Final

Study Results• Answer Questions


Wohlford ConsultingWohlford Consulting

• Project Consultant: Chad Wohlford, MPPA• Practice owner & Missoula’s on-site consultant• 13+ years of cost and management consulting• 12+ years as a government analyst/manager• Former State Director (CA/NV) for a large national

consulting corporation• Designated “expert witness” / published reference

• Past Clients:

• 70+ cities, counties, states, and districts, including Missoula in 2003/2004

• 30+ program areas studied

Wohlford Consulting 4

Key Project ComponentsKey Project Components

• COST ALLOCATION PLAN:

(Completed in 2009)

Determine the fair distribution of City administration (overhead) costs to the operating departments

• USER FEE STUDY:

Determine the full cost of providing individual services to City customers

2 Different, but Related, Studies:

Wohlford Consulting 5

USER FEE STUDYAPPROACH &

METHODOLOGY

USER FEE STUDYAPPROACH &

METHODOLOGY


USER FEE STUDY Project Objectives(More Than Just Numbers)

USER FEE STUDY Project Objectives(More Than Just Numbers)

Establish Objective and Transparent Fee Information

Understand the Full Cost of Services (Direct and Indirect)

Develop Insight and a Rational Basis for Setting Fees

Understand Subsidies and Revenue Impacts Understand User Fees Principles and

Context Enhance Fairness and Equity Ensure Compliance with State Law Simplify Fee Schedules


Project Study AreasDetermine the Full Cost of Services

for:

Project Study AreasDetermine the Full Cost of Services

for:

OPG / Planning

Public Works – Engineering

Fire Inspections

Police

Business Licensing


Project Focus• A Study of the Cost of Services of

User Fee Activities at Current or Expected Performance Levels

• Not a Management Analysis• Performance or Productivity• Efficiency or Effectiveness • Service Level or Quality • Staffing or Organizational Structure• Comparison of Operations or Services


USER FEECONCEPTSUSER FEECONCEPTS


User Fee DefinitionUser Fee:

A fee or rate charged to an individual or group that receives a

private benefit from services provided by the City.

Not a Tax: • The service is usually a discretionary

activity requested by the fee payer.

Not Intended to Address Impacts: • Impact Fees for Infrastructure• In Lieu Fees or Assessments


Fees vs. TaxesFees vs. Taxes

Source of Service Funding

User Fees

User Fees

User Fees

Taxes (GF)

Taxes (GF)

Taxes (GF)

0%

100%

100%PrivateBenefit

(1)

SomePublicBenefit

(2)

SomePrivateBenefit

(3)

100%PublicBenefit

(4)

(1) Building Permits; Some Rec. Programs

(2) Youth Programs

(3) Comp. / Adv. Planning

(4) Police Patrol

Examples:


Common Fee ConceptsUser Fees Should Be:

• Based on the Cost of Services: Not arbitrary Not unintentionally subsidized or profitable Not unfairly subsidized “Estimated reasonable” cost standard

• Fair and Equitable• Consistent with City Goals / Objectives• Compliant with State Law• Dynamic (to address updates & anomalies)


FEE STUDYMETHODOLOGY

FEE STUDYMETHODOLOGY


Cost-Based Methodology Overview

• Business-Case Cost Analysis:• Rational / Linear Process (Unit Cost Build-up)• Fees Relate to Staff Effort• Fees Vary Based Upon Size and Complexity• Not Based on “Tax” Concepts• Not Revenue Goal Oriented

• Calculation Factors:• Staff Time to Complete Activities and Services• Direct Cost of Individual Staff Positions• Rational Distribution of Overhead and Support• Billable (Cost-Recovery) Hourly Rates

• Full Cost = Potential Fee (starting point)


Simplified Conceptual ApproachSimplified Conceptual ApproachService ("Fee“) / Activity

Time to Complete 1 Activity (hours)

XProductive

Hourly Rate

=

Full Cost or

Potential Unit Fee

X

Annual Volume

of Activity

=

Annual Cost or

Potential Revenue

FEE #1: 10

Intake 0.5 $ 50 $ 25 10 $ 250

Plan Check 1.5 $ 100 $ 150 10 $ 1,500

Inspection 2 $ 100 $ 200 10 $ 2,000

Filing 0.5 $ 50 $ 25 10 $ 250

S&B Total: 4.5 hrs. $89 (avg.) $ 400 10 $ 4,000

Other Cost $ 100 10 $ 1,000

TOTAL COST $ 500 10 $ 5,000

Current Fee $ 300 10 $ 3,000

SUBSIDY $200 10 $2,000


$ Supervision and Support$ Capital, Growth, & Other Costs

“Full Cost” Includes:

$ Direct Salaries & Benefits$ Services and Supplies

$ Department Administration$ Indirect Activities

$ Cross-Department Support $ Citywide Administration (CAP)


Quality Control Processes

• Guidance to City Staff• Applied Experience

(normal range – data/results)

• Involvement of Knowledgeable City Staff• Reasonableness Tests• Balance and Cross-Check• Challenge and Questioning• Historical Review• Internal City Review• Consultant Review


FEE SETTINGCONCEPTS

FEE SETTINGCONCEPTS


User Fee DefinitionUser Fee:

A fee or rate charged to an individual or group that receives a

private benefit from services provided by the City.

Not a Tax: • The service is usually a discretionary

activity requested by the fee payer. • If a User Fee does not cover the City’s

cost for the service, taxes (General Fund) pay for the remainder.


Fee Setting (Pricing) Considerations

• Fairness and Equity• Consistency with City Public Policy

• Cost Recovery• Subsidization• Social Impacts / Affordability• Revenue Impacts• Activity Incentives / Disincentives

• Impact on Demand (elasticity)• Legal Compliance• Other Factors

• Comparable Fees• Constituencies Affected


Fees vs. TaxesFees vs. Taxes

Source of Service Funding

User Fees

User Fees

User Fees

Taxes (GF)

Taxes (GF)

Taxes (GF)

0%

100%

100%PrivateBenefit

(1)

SomePublicBenefit

(2)

SomePrivateBenefit

(3)

100%PublicBenefit

(4)

(1) Building Permits; Some Rec. Programs

(2) Youth Programs

(3) Historic Preservation

(4) Police Patrol

Examples:


FINDINGSand

RESULTS

FINDINGSand

RESULTS


The Meaning of “Results”• Study “Results” will show the FULL COST

of Services – Fee and Non-fee• Results will not be the Fees: City Council

will set the Fees• “Recommended” fees will come later• Some Fee recommendations will likely not

be at 100% of Full Cost• “Subsidy” is the gap between the Fee and

the Full Cost• Subsidies are normally covered by

General Fund Revenues (i.e., taxes)


$ Supervision and Support$ Capital, Growth, & Other Costs

“Full Cost” Includes:

$ Direct Salaries & Benefits$ Services and Supplies

$ Department Administration$ Indirect Activities

$ Inter-Department Support $ Citywide Administration (CAP)


Sample UNIT COST Results – OPG/Planning

(How to Read the Results Worksheets)

Sample UNIT COST Results – OPG/Planning

(How to Read the Results Worksheets)

• Sample fees shown in order to demonstrate the results format for all fee areas (as will be included in the consultant’s report)

Fee Title

Current Fee /

DepositFull Cost per Unit

Surplus / (Subsidy) per Unit

Full Cost Recovery

Rate

Wall Sign Permit $ 52 $ 113 ($ 61) 46 %

Zoning Compliance Permit – Residential $ 78 $ 206 ($ 128) 38 %

Board of Adjustment Variance – Residential $ 428 $ 2,023 ($ 1,595) 25 %

Comp Plan Amendment - Commercial $ 6,951 $ 7,067 ($ 116) 98 %

Subdivision – Minor – 5 lots $ 6,760 $ 9,608 ($ 2,848) 70 %

Subdivision – Minor – Final Plat Review $ 324 $ 1,423 ($ 1,099) 23 %


The Nature of Revenue Results• Revenue and Unit Fee Comparison:

• Current Fee vs. Full Cost• Former Structure (department fees) vs. New Structure (city fees)

• Revenue results provide a common basis for comparison, not budget numbers

• Based on consistent assumptions and/or projections of annual activity levels for each fee

• Revenue estimates in the study may not match budgeted or actual revenues collected

• Actual future revenue levels will change:• Fee-setting by the City Council• Activity levels (market conditions)• Change in the “mix” of services and fees• Timing of the implementation of the fees and revenue collection


General Findings• All Departments have a significant overall current fee

subsidy• Billable hours (one measure of productivity) are consistent

with other studies.• Some fees have a surplus, but greater numbers and

volumes of subsidized fees result in overall subsidies.• 88% of current fees in the study are subsidized• All Staff Hourly Rates are less than full cost – averaging

significantly under 50% cost-recovery.• Current hourly rates are significantly lower than those from

other cities’ studies.


OPG / Planning Full Cost ResultsOPG / Planning Full Cost Results

• 93% of current fees under-recover full cost• Staff rates are only 38% (avg.) of full cost

• Affects deposit-based fees

• Deposit-based fee revenues = deposit• Combined City-County results

FULL COST:Annual Cost of

Fee-Related Services

CURRENT REVENUE:

Projected @ Annual

Current Fees

CURRENT SURPLUS / (SUBSIDY):

Annual Difference

COST RECOVERY

RATE: Current / Full

Cost

$ 1,181,000 $ 634,000 ($ 547,000) 54%


Engineering Full Cost ResultsEngineering Full Cost Results

• 57% of current fees under-recover full cost• Volumes in subsidized fees are enough to

create an annual subsidy of $79,000• All staff rates are significantly less than full

cost



CURRENT REVENUE:

Projected @ Annual

Current Fees


Annual Difference

COST RECOVERY


Cost

$ 1,263,000 $ 1,184,000 ($ 79,000) 94%


Fire Full Cost ResultsFire Full Cost Results

• 100% of current fees under-recover full cost (no fees currently charged)

• All staff rates are significantly less than full cost

• Results include common or traditional subsidized or no-cost services, such as periodic life and safety inspections.



CURRENT REVENUE:

Projected @ Annual

Current Fees


Annual Difference

COST RECOVERY


Cost

$ 536,000 $ 0 ($ 536,000) 0%


Police Full Cost ResultsPolice Full Cost Results

• 76% of Police fees under-recover full cost• Staff rates are only 26% (avg.) of full cost• Results include approximately $1.1M of

Accident Investigation and Report costs ($687 cost vs. $5 current fee)



CURRENT REVENUE:

Projected @ Annual

Current Fees


Annual Difference

COST RECOVERY RATE:

Current / Full Cost

$ 1,451,000 $ 126,000 ($ 1,325,000) 9%


Business Licensing Full Cost ResultsBusiness Licensing Full Cost Results

• 54% of current fees under-recover full cost• Volumes in subsidized fees are enough to

create an annual subsidy of $534,000



CURRENT REVENUE:

Projected @ Annual

Current Fees


Annual Difference

COST RECOVERY


Cost

$ 1,306,000 $ 772,000 ($ 534,000) 59%


Citywide Annual Full Cost ResultsCitywide Annual Full Cost Results

Department / Division

FULL COST:Annual Cost

of Fee-Related

Services

CURRENT REVENUE:Projected

(annual) @ Current Fees

SURPLUS / (SUBSIDY)

(Current Revenue – Full

Cost)

CURRENT COST

RECOVERY RATE

(Current / Full Cost)

OPG/Planning $ 1,181,000 $ 634,000 ($ 547,000) 54%

Engineering $ 1,263,000 $ 1,184,000 ($ 79,000) 94%

Fire $ 536,000 $ 0 ($ 536,000) 0%

Police $ 1,451,000 $ 126,000($

1,325,000) 9%

Business Lic. $ 1,306,000 $ 772,000 ($ 534,000) 59%

TOTALS: $ 5,737,000 $ 2,716,000($

3,021,000) 47%


CITYWIDERESULTS SUMMARY

• Current overall annual subsidy of $3.0 million

• Overall Cost Recovery Rate for Fee Services Only is 47%

• The subsidy includes $1.1 million for Accident Investigation and Reports, which is unlikely to be collected

• Potential revenue increase (to Full Cost) of $1.9 million

• Without a fee increase or reductions in operating costs, common taxes (General Fund) or other funds will continue to provide subsidies to fee payers


Next Steps• City Staff will consider general fee-setting and cost

recovery goals and solicit direction from the Council.

• City Staff will distribute Consultant's final report and detailed lists of cost results and findings.

• City Staff will work to develop “Recommended” fees for the Council’s consideration (based on Council goals).

• City Council will set the final fee levels and establish the implementation date.

• Departments will update fee schedules and reprogram electronic permit systems.

• New fees will go into effect on the designated date.

• Council may set an overall cost-recovery policy to guide future staff action.


“Typical” Recommendations(From Other Consultant

Studies)• Staff Rates @ 100% Cost-Recovery ($0 subsidy)

• Most Fees @ 100% Cost-Recovery ($0 subsidy)

• Sample Exceptions:• Public Safety Fees (causing excessive non-compliance)• Appeal Fees• Fees Charged to Partner Community Groups• Fees Limited by the State or Other External Entities• Fees Charged to Disadvantaged Groups

• Phased Approaches


QUESTIONS?

Chad Wohlford, Project [email protected]

For further information, please contact:

2010 user fee study results orientation 2010 user fee study results orientation presentation to the...

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