Fee Structure Methodologies

CALAFCO 2010 Annual Conference

October 7, 2010

Fee Structure Methodologies

Presentation of various methodologies and the legal requirements for establishing a nexus. Rich Bottarini and Scott Browne will present their understanding of fee structures and explain the legal requirements which must be considered, highlighting the importance of transparency, fairness, and ample justification in this process.

General Observation

Most LAFCOs have comprehensive and clearly-articulated fee schedules and policies.

Since 2001, more pressure on LAFCOs by cities and districts to fund LAFCO operations from fees.

OverviewElements of a Fee Schedule

How Important are Fees?

What is Your Existing Policy?

LAFCOs’ Fee Structures

Determining Your Hourly Rate

Direct Costs

Indirect Costs

Flat, or Fixed, Fees v. Time & Materials Fees

General Goal of Most Fee Schedules and Studies

The purpose of most fee studies is to determine the full cost of operations and the maximum fees that may be assessed, given actual expenditure requirements.

This does not mean that a fee will be charged; it documents only what can be legally charged.

Full Cost

“Full cost” includes all legitimately eligible direct and indirect costs associated with providing each service, including direct support costs from other divisions, plus overhead.

The more complete fee schedules include: Identification of Action or Application

Amount of Deposit or Fee

Description of Charges

Deposit Updates/Replenishments

Waivers

Due and Payable Prior to Finalization of Application

Staff Charge-Out Rates

lafco

Elements of A Fee Schedule

How important Are Fees?

2007 CALAFCO Survey found: Average budget recovery by fees was around 12.88% Highest recovery reported rate was 45% by Plumas. Lowest reported was 0-1% by Inyo, Alpine and Stanislaus.

30 of the 58 LAFCOs responded. Sonoma LAFCO recovery rate in 2007 was 10%. Example: LAFCO fees collected in 2009 saved the Bennett

Valley Fire Protection District $96.30 out of a District budget of $680,000.

Not very!! Well, it depends on whether you are paying the bill.

What is your existing policy?

Does your Commission have a Fee Policy? Does it:

Provide guidance on collection – timing and deposits?

Articulate the relationship of fees to services provided?

Provide for waivers?

Does it include a annual review or CPI Adjustment?

Allocate revenues to offset apportionments to funding agencies?

Set a cost recovery goal?

Is your fee policy in the Fee Resolution?

2.2 LAFCO FEES 2.2.1 Application of Fees

(a) Starting with February 7, 2007, the Commission shall review fees every two years and adopt a fee schedule for the purpose of recovering the costs pursuant to the Cortese-Knox-Hertzberg Act (§56383(a) ,§56384, §66016). See Section 7.2, Fee Schedule.

(b) The schedule of fees shall not exceed the estimated reasonable cost of providing the service for which the fee is charged and shall be imposed pursuant to §66016 and §56383.

(c) No petition shall be deemed filed until the fee has been deposited (§56383(c)).

(d) Any individual or entity that requests a LAFCO initiated study or service review of special district changes of organization or reorganization shall be responsible for required fees. Fees are due immediately after LAFCO acts to initiate the study. LAFCO will encourage cooperatively developed fee sharing agreements for LAFCO initiated multi-agency service reviews.

Example: El Dorado LAFCO

Types of Fees

• Time and Material:

Fee based on hourly rate applied to applications X actual number of hours worked

• Flat, or Fixed, Fee:

Fee based on a reasonable estimate of the cost of providing the service

• Variations:

Most common variation is the fee based on acreage or on number of parcels.

Summary of LAFCO Fee StructuresRecent Survey of LAFCOs’ Fee Schedules – Predominant Types of Fees•22 - Time and Material •11 – Flat, or Fixed, Fee based on time studies• 9 - Variations – Acreage or parcels• 9 - Combinations

Most are combinations of time and material, fixed fees and acreage. Few are true to one methodology.

Basic

All fee schedules start with a staff hourly rate structure.

Direct Costs

Direct costs are staff salaries and benefits (labor) directly related to the applications function, supported by time estimate studies. Salary and benefits are converted into productive hours so that vacation and leave time are not factored into the direct costs. For example, a full time staff person represents 2,080 paid hours per year, of which 1,800 hours are considered to be “work hours.” To account for breaks, meetings, etc. that are not technically “billable hours,” discount “work hours” by 300, or about 14%, to arrive at the 1,500 “billable hours.”

Indirect Costs

Indirect costs represent all costs that are neither direct costs nor excluded costs. Examples of indirect billable costs are staff time spent in training, or general office operations, services & supplies cost, such as office rent, and lastly, the calculated overhead. To get an indirect cost rate, total the indirect costs of salaries & benefits and services & supplies and divide it by the total direct salary and benefits (labor). The rate is in the form of the percentage of the direct costs.

Other Costs

Cost of the legally required “constitution” – Spheres of Influence and Municipal Service Reviews

How do you determine your hourly rate?

First, direct costsDirect costs are staff salaries and benefits (labor), directly related to the applications function. Salary and benefits are converted into productive hours so that vacation and leave time are not factored into the direct costs. For example, a full time staff person, represents 2,080 paid hours per year, of which 1,800 hours are considered to be “work hours”. To account for breaks, meetings, etc. that is not technically “billable hours”, the auditor discounted the “work hours” by 300, to arrive at the 1,500 “billable hours”. The Auditor then calculated an “indirect” percentage cost portion for those hours, by dividing 300 by 1,800 to arrive at the 16.7% indirect cost portion.

How do you determine your hourly rate?

Direct Costs and Indirect Rate

BudgetPortionIndirect Direct Indirect Excluded

Salary & Benefits

Asst Executive Officer 118,727 0.167 98,939 19,788 0

Executive Officer 133,163 0.167 110,969 22,194 0

Secretary to the Commission 71,147 0.167 59,289 11,858 0

Commissioners 8,248 0.500 0 4,124 4,124

TOTAL SALARIES & BENEFITS 331,285   269,198 57,964 4,124

Continued

Services & Supplies

COMMUNICATIONS 1,568 1.104 0 1,325 0

MEMBERSHIPS 3,349 1.000 0 3,349 0

OFFICE EXPENSE 4,500 1.000 0 4,500 0

POSTAGE 3,000 1.000 0 3,000 0

PRINTING SERVICES 750 1.000 0 750 0

PROFESSIONAL/SPECI 4,400 0.000 0 0 4,400

COUNTY SERVICES 22,552 1.000 0 22,552 0

LEGAL SERVICES 40,000 0.250 15,000 10,000 15,000

AUDIT/ACCOUNTING S 3,500 1.000 0 3,500 0

PUBLIC/LEGAL NOTICE 3,000 1.000 0 3,000 0

SMALL TOOLS 3,960 1.000 0 3,960 0

TRAVEL EXPENSE 9,000 1.000 0 9,000 0

PRIVATE CAR EXPENSE 6,800 1.000 0 6,800 0

DATA PROCESSING 10,200 1.000 0 10,200 0

UNCLM-OT-BETWEEN E 1,590 0.333 0 530 1,060

TOTAL SERVICES & SUPPLIES 118,169   15,000 82,466 20,460

EXPENDITURE TOTAL 449,454   284,198 140,430 24,584

The second factor is the indirect rate.

Indirect costs represent all costs that are neither direct costs nor excluded costs. Examples of indirect billable costs are staff time spent in training, or general office operations, and services & supplies cost, such as office rent, and lastly, the calculated county overhead. To get an indirect cost rate, the Auditor totaled the indirect costs of salaries & benefits, and services & supplies and divided it by the total direct salary and benefits (labor). The rate is in the form of the percentage of the direct costs.

The rate is in the form of the percentage of the direct costs. Many agencies use the A-87 calculations.

How do you determine your hourly rate?

Direct Costs and Indirect Rate

140,430

Indirect Cost Rate = -------------- = 52.2%

269,198

To calculate the billing rates, the Auditor determined the direct salary and benefits costs for each staff member and divided it by the number of service hours per year. That calculation provides the direct rate. To get the total rate with indirect costs (overhead), the auditor takes the hourly rate and multiplies it by the Indirect Cost Rate (the percentage of direct costs) and adds that amount to the original hourly rate.

 

How do you determine your billing rate?

 LAFCO Billing Rates: Executive Officer Assistant EO Commission Clerk

Direct Salary & Benefits 98,939 110,969 59,289

Service Hours 1,418 1,773 1,330

Rate (Without OH) 69.75 62.59 44.59

Rate (With OH) 106.14 95.24 67.85

Yes

Cost of the legally required functions – Spheres of Influence and Municipal Service Reviews. These are documents that form the basis of all decisions.

Are there other costs?

LAFCOs are Independent

Hourly Rates Differ:

Executive Officer: Range from $60 to $200 per hour Average Executive Officer charge rate is $121 per hour based on a

sample of 22 Executive Officers

Clerks: Range from $35 to $150 per hour Average Clerk charge rate is $71 per hour based on a sample of 18

Clarks

Findings of Recent Survey

LAFCOs are Independent

Some call it long-term planning, others maintenance of the “constitution;” however it is described, the law requires LAFCO to maintain Spheres of Influence and conduct Municipal Service Reviews.

Some cities and counties charge a General Plan maintenance fee on all planning applications or building permits to cover the cost of updating the General Plan. Four of the LAFCOs surveyed recently charge a Sphere of Influence maintenance fee on all applications.

Why is the fee permissible? Based on the law, approvals can be challenged and the challenges upheld if the basic requirements of the law have not been met.

That Other Factor

LAFCO as a:

The applicant pays the deposit and……….

The Commission requests annexation of extra properties to meet Commission goals.

Neighbor decides to run up the bill.

The neighbor requests a reconsideration (LAFCO does not have appeals)

Who pays?

The applicant or the appellant?

Concerns -Time and Materials

LAFCOs are Independent

Many consultants recommend, wherever appropriate, the adoption of flat, or fixed, fees instead of variable Time and Material (T&M) fees. The four primary benefits of flat fees are:

Flat fees are easier for customers to budget, which helps applicants to plan their expenses.

Flat fees are easier for the staff to describe to customers, resulting in less customer confusion as to the actual costs of a project.

Staff may cease tracking their time and expenses associated with individual projects, which frees up significant time that would otherwise be burdened as an administrative overhead.

Flat fees tend to recover more of the actual cost than time and material fees, because staff typically under-report time on their tracking systems.

Why Flat, or Fixed, Fees

Task Professional Staff (hours) Clerk/Secretary (hours) Total (hours)

Pre Application 4.0 2.0 6.0

Receive application 1.0 0.0 1.0

Set up files and schedule 0.0 2.0 2.0

Send referral letters 0.0 2.0 2.0

Prepare mailing lists 0.0 1.0 1.0

Application check 2.0 0.0 2.0

CEQA Determination 0.0 0.0 0.0

Determine if the application is inhabited 0.0 2.0 2.0

Prepare & send Certificate of Filing 0.0 1.0 1.0

Prepare staff report and resolution 16.0 0.0 16.0

Review & finalize staff report 1.0 0.0 1.0

Prepare the staff report packet and mail to Commissioners, proponents and anyone requesting notice

0.0 2.0 2.0

LAFCO Meeting 1.0 0.5 1.5

File CEQA Notice 0.0 0.0 0.0

Finalize Resolution 1.0 0.3 1.3

Prepare & send notice of determination to applicant 0.2 0.5 0.7

Recordation of maps 0.2 4.0 4.2

Send Recorded Certificate of Competition to agencies and applicant

0.0 2.0 2.0

Send finalized material to State Board of Equalization 0.0 2.0 2.0

Close file and scan contents 0.0 1.0 1.0

Total per Application 26.4 22.3 48.7

LAFCOs are Independent

Although many consultants recommend the adoption of flat, or fixed, fees instead of variable Time and Material (T&M) fees, four primary reasons not to use flat fees are:

Flat fees do not cover the cost of large or controversial projects. The neighbor who is a “time bandit,” is there a method to switch

mid- stream? The methodology is easier to challenge, in that they are only

estimates. Samples may be too small to develop a reasonable cost

estimate.

Why Not Flat, or Fixed, Fees

Not Recommended Fee Structure

SCHEDULE OF PROCESSING FEES

Annexations and Detachments Acreage Fee

Less than 5 $ 640 5 to 10 $ 890 10 to 25 $ 1,265 25 + $ 2,625

Agreements to PayWho is responsible to pay?

DiscussionsWhy charge fees?

Flat or fixed Fees?

Who pays for reconsideration?

Sonoma LAFCO Website:

www.sonoma-county.org/lafco

California Association of Local Agency Formation Commissions Website

www.calafco.org

Sonoma LAFCO:

575 Administration Drive, Room 117-DSanta Rosa, CA 95403

(707)565-2577, Fax: (707) 565-3778