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HomeMy WebLinkAbout2016-11-15 Finance Committee Summary Minutes FINANCE COMMITTEE EXCERPT MINUTES 1 Special Meeting Tuesday, November 15, 2016 Chairperson Filseth called the meeting to order at 6:06 P.M. in the Community Meeting Room, 250 Hamilton Avenue, Palo Alto, California. Present: Filseth (Chair), Holman, Schmid, Wolbach Absent: 3. Development Services Cost of Services Study Including Fiscal Year 2017 Fee Proposals. Chair Filseth: With that we move to Item 3, Development Services Cost of Services Study. I don’t see anybody from the public in here, so I assume there are no public speakers to this topic. If there are any please speak up. Okay, thank you very much. Welcome Development Services, Peter. Peter Pirnejad, Development Services Director: We need a microphone. Well, hello. It used to be so informal, now it’s so formal. Well, okay, let me start from the top. Peter Pirnejad, Development Services Department Director. It’s a pleasure to be here. We’re going to be going over our proposed fee changes to nonvaluation based fees. It’s going to be a two-part process. This is the first part before you and I was just about to say that we’re going to share the mike with Office of Management and Budget and our key consultant that did the actual fee study. So basically Development Services is a matrix department. We have bits and pieces of many different departments and divisions within those departments and the trick is to try to figure out how to coordinate all of their efforts to make sure that we have a predictable, transparent and efficient process that meets all the codes of state, regional, local as well as adopt local amendments to meet the needs of the community and the Council. So tonight we’re talking about our fee structure because we have been directed to be cost recoverable, and that’s the direction we have been actively moving towards. We have been pretty successful at it over the last few years, since we’ve actually formed the department. Now we’re trying to refine that edge a bit more and be cost recoverable in each of those various divisions and departments. So Development Services, as you know, is a very tight sliver of activity and I put up this slide to sort of emphasize that we are talking about activity that’s EXCERPT MINUTES 2 Finance Committee Excerpt Minutes November 15, 2016 within private property and post entitlement, so we’re not talking about work that’s happening in the public right of way, we’re not talking about work that’s happening in the planning circles as it relates to the California Environmental Quality Act (CEQA), land use, development agreements, zone changes, general plan amendments. We’re really talking about, nondiscretionary items, ministerial items that are coming before us to do reviews of their building permit activity. So to that extent, we’re an enforcement agency. We’re trying to make sure that departments or applicants comply with code standards and understanding that those code standards come from a variety of different perspectives, Public Works, Planning, Fire, Utilities, etc. So when we did our Cost of Services Study we were talking about making sure that we are fully cost recoverable, ensuring that the applicant pays their entire share of what it would take to recover the entire cost, fully loaded, fully burdened, the cost of providing that service to them. It is broken up into two parts. The first part is the plan check fee, which covers all the plan checking, all the diffe rent departments, which is normally, the majority of which is a valuation-based process. Then the second is a permit-based fee, which covers all the inspection activity after the permit is issued. So with that I will pass it on to Jessie, but I’ll make sure to jump in if there’s any questions or I need to fill in any blanks. Jessie Deschamps, Senior Management Analyst: Thanks. Jessie Deschamps, Senior Management Analyst with the Office of Management and Budget, previously the Senior Management Analyst at Development Services. I’m part of the team that worked on this project. So just to give kind of a high - level overview, the objective of this is to calculate the total cost of fee - generating services, and with that said, to analyze these fees consistent with the City adopted cost recovery policy, which established a high, medium and low recovery range. Since participants receive most or all of the benefit from the services provided, this falls within the high category, so the fees in front of you are set at 100 percent recovery. Just to highly summarize the methodology, this is activity-based costing method as completed by our consultant, who is here tonight. It’s to identify staff positions, productive hours and direct and indirect activities and costs and to calculate a fully burdened hourly rate, upon which indirect and direct cost layers are added on top to come up with a total fee. So in terms of next steps, should Finance Committee recommend that we go forward, the Staff would provide notice of a public hearing to which Council must adopt the municipal fees by Ordinance. Upon adoption, the effective date would come 60 days following the adoption. So with that said, we have Staff here, we have our consultant here to answer any questions. Chair Filseth: Super, thanks very much. Questions? Council Member Schmid. EXCERPT MINUTES 3 Finance Committee Excerpt Minutes November 15, 2016 Council Member Schmid: I think Council has probably given clear direction. The cost recovery is our goal, our target. I like the study. I think it was very helpful, very detailed to look at each specific thing. One big issue that the City is concerned about is affordability of housing. We are basically pricing out 90 percent of the population from living here or staying here. So I look at some of the numbers that result from this study and, you know, i t’s surprising and shocking. If you look at, I’ll just take for example, green building, Packet Page 298. Currently residents are paying $677 for new construction and you want to double that. Residential renovation currently $56 per review, going up to $1,000 per review. Just examples like that. So what can you give me in general? I guess you have these broken out into all kinds of pieces and parts, can you give me an idea on the residential side of one, new resident being built, or two, renovation. I guess if you look at the age of our housing stock, virtually everywhere in town we’re reaching the age of needing to renovate, so what are the costs currently and under the proposals for those two categories, new housing and renovation of existing housing? Mr. Pirnejad: So I can explain the methodology that we used. Council Member Schmid: The methodology is clear. I’m concerned about the outcome. Mr. Pirnejad: Right, so the outcome in the Fee Study isn’t broken up by the type of construction. It’s broken up into the amount of work, the number of hours it would actually take to do the work. So when we charge a fee, it would depend on what they were proposing and that proposal would determine the fee. So it’s, we don’t have scenarios built that would address a typical new construction versus a typical remodel. There’s lots of different scenarios that would require different sets of fees be assessed to those different scenarios. We could talk about like specific fees. Council Member Schmid: Okay, under green buildings, it says alterations and additions for single family homes less than 1,000 square feet. Currently $56, new proposed fee $1,097. Now that is 20 times as high. What’s taking place? Mr. Pirnejad: So with our Green Building Program, we’ve done many things to address the community needs, the Council’s direction to create a more robust Green Building Program. That program includes things such as low- flow fixtures, landscaping review, additional Title 20, energy compliance and all of these things have required that we revisit our process and ensure that EXCERPT MINUTES 4 Finance Committee Excerpt Minutes November 15, 2016 we’re able to provide the necessary level of review to meet all of those code requirements. Those fees haven’t been updated well before I have been here. I haven’t even heard of the last time we’ve updated fees. Back when that Green Building Fee was first assessed my assumption is that our process was much more simple than it is today. So maybe Dan can speak to the process that we went through to actually collect that fee. It was based on time. Council Member Schmid: Okay, let me add one point to my question. I was just looking at the permit, but if you add landscaping, you said landscaping used to be zero and now it’s $894. So you’re going from $56 to $1,900. Mr. Pirnejad: Yeah, the landscaping fee, it’s an interesting story. It started with the Governor Executive Order to require that we provide additional review for all landscaping. So it was something that wasn’t even something that we would review through a permitting process. People would just landscape their yards. Over the last 3-6 years, we’ve seen a lot of new regulations, partly because of the drought, that has mandated us to do an exceptionally higher level of review, forcing us to create processes and systems and add contractors to do those reviews that previous years we didn’t have to do. Council Member Schmid: Yeah, I guess I’m just concerned, trying to get a picture in my mind of taking an old, say an Eichler that’s 65 years old and saying, oh, I need to look at the water system, look at the backy ard, look at the walls, and what’s, not the cost of the contracting, what is the City going to charge me. Mr. Pirnejad: Right. We’re seeing on average, we were just looking at that. The average, on average the fees are somewhere between doubling and tripling, because again, we haven’t looked at these fees probably as far back as six or seven years or more. This is, I think the second or third attempt we’ve had at a fee study, and we finally feel like we’ve brought before you a fee study that really is able to capture all the costs, the indirect costs, as well as the, you know, the fully burdened rate. Council Member Schmid: I guess the danger is that someone would say, oh, I’m just going to avoid that. Either I won’t refurbish my home which needs it, or I’ll not report it, which neither one we want to encourage. Mr. Pirnejad: Well, based on experience, I haven’t seen people not pull permits. The number of Code Enforcement violations that we get for people EXCERPT MINUTES 5 Finance Committee Excerpt Minutes November 15, 2016 working without permits is very low compared to other cities, so that’s not a concern. Council Member Schmid: Yeah, okay. Mr. Pirnejad: The concern that people aren’t renovating their homes doesn’t seem to, I don’t see that the values, the property values of these homes have quadrupled over the last five years, so there is definitely value in the home to be able to refinance or pull a second or whatever it is that they’re doing, or if they, or if it switches hands, there’s plenty of money to be spent on these projects. And again, the permit fees are a fraction of the cost of the renovations. Council Member Schmid: Can you give me an idea of that fraction? Is it a standard five percent or 10 percent? Mr. Pirnejad: Not for these fees. These are nonvaluation-based fees. When we come back with valuation-based fees, those are a percentage. Council Member Schmid: No, I mean can you give me an idea of what percentage your new fees would be of a renovation. Mr. Pirnejad: It would depend on the renovation. James Keene, City Manager: Are we taking up valuation-based fees tonight? Mr. Pirnejad: No, nonvaluation-based fees. Council Member Schmid: No, I’m just trying to get an idea of… Chair Filseth: (Inaudible) Mr. Pirnejad: Oh, geeze, not in Palo Alto. Mr. Keene: Well, I mean you guys deal with this all the time. Just like identify a project that could be roughly relevant and say that it’s $2,000 worth of permit fees for the green build, I mean, well what is it? Chair Filseth: To give an example, a $100,000 valuation on Page 298. EXCERPT MINUTES 6 Finance Committee Excerpt Minutes November 15, 2016 Mr. Pirnejad: So, again, since we’re not looking at valuation-based fees, but… Mr. Keene: He’s not saying you calculated based on valuation, but if you could give somebody the bill, they could calculate the ratio of the permit. That’s what he’s asking for, an example. Mr. Pirnejad: A kitchen remodel, for example, would be in Palo Alto $60,000. (crosstalk) I didn’t want to like scare anybody, but yeah. Council Member Schmid: So if you’re dealing with the gas line and electricity, what kind of permit fees are there? Mr. Pirnejad: Well, there’s building permit fees and then there’s things like utility hookup fees and meter fees and the installation of those meters, which (crosstalk) so we’re not updating utility fees. Mr. Keene: Just the fees we’re updating, tell him how much it is. Mr. Pirnejad: A few thousand dollars, roughly speaking. I mean, you’re talking about fixtures, you talking about lighting, you’re talking about maybe some minor… Council Member Schmid: Would the Fire Department come in? Mr. Pirnejad: Yes sir. Council Member Schmid: Okay. Let’s see, one other question. You say you’ve looked carefully at your cost and you’re using hours of work at 1,600, what happens to the other hours of work? Who pays? Mr. Pirnejad: We’ll get Dan to answer. Dan Edds, Capital Accounting Partners: So your question revolves around the calculation of productive hours. Excuse me, doing that we would start out with a standard 2,080 hours and then we’re subtracting out vacation time. We actually do that on an individual basis. Subtracting out paid holida y time, sick leave. We do actually use the full allowable amount for sick leave. We assume that’s essentially a budget expense to the City. Then we’re also subtracting out meeting time, time for training, building inspectors as well as plan reviewers all have standard training that they have to maintain for their EXCERPT MINUTES 7 Finance Committee Excerpt Minutes November 15, 2016 certifications, so we’re subtracting that time out, as well as the standard staff meeting every Monday morning at 10:00 A.M.. So when we do all those calculations invariably it comes down to 1,600 hours, depending upon the seniority of the staff. I’ve had cities that were around 1,400, but you know, people have been there for 30 years. I think around 1,600 hours is very, very standard. Council Member Schmid: Yeah, I guess that’s what, 12 weeks of time, and you would think in the focused department that a lot of that nonworking time is actually looking at records, talking to others about what should be done, new learning. It’s not down time. A lot of it is actually extremely valuable time, sharing notions and ideas, but this doesn’t get reimbursed. Mr. Edds: Well, we build it into the productive hourly rate, so as the number of productive hours comes down, that rate goes up. So, you know… Council Member Schmid: So you’re productive rate would pay for those hours. Mr. Edds: Yeah, that’s the only way we come to full cost recovery. Council Member Schmid: Okay. Chair Filseth: You load it as overhead on the productive hours. Mr. Edds: Yes. Council Member Schmid: One question, on Page 315, there’s a discussion there of reserves. You recommend getting reserves. I don’t understand why an operating department would need a reserve. What are you reserving for? If you’re a policeman or a fireman or utility, you have to deal with emergencies and you need a fund to get assets there in a crisis. But here you’re just responding to clients. If a problem comes up you don’t have clients, you don’t respond. So what’s the reserve for? Mr. Pirnejad: So as we slowly creep towards a full enterprise fund or maybe a partition general fund, we want to make sure we have all the revenues to operate outside the general fund from fee revenue. What we’re seeing is that the market is very cyclical. It’s very dynamic. It’s hard to predict the ebbs and flows. We can predict the general trends, but it’s harder to predict, you know, complete bottoming, so in those cases where we have a EXCERPT MINUTES 8 Finance Committee Excerpt Minutes November 15, 2016 bottoming, we can’t cycle staff out that quickly so we need a reserve in order to absorb that cushion so we’re not having to bleed between funds, one fund paying for a second fund. Fire Department paying for you know, Public Works fees and Building Department paying for Planning fees. Council Member Schmid: I thought there was a number of consultants or people that you would draw in as activity increases. Mr. Pirnejad: Yeah, but even those we can draw, but we can’t draw them that fast, where we would immediately, you know, let go five consultants if we saw a slight blip, because that blip could be just you know, a slight correction, and then we might see activity come back. Bringing those contractors back on isn’t as simple as flipping a switch, so the reserve would allow to absorb those tiny fluctuations if you will, and respond to major corrections. Council Member Schmid: So the full time staff would be increasing, is that your implication of building reserves? Mr. Pirnejad: The full time staff would be increasing? Council Member Schmid: The number of full time staff would increase, which would create a need for reserves? Mr. Pirnejad: No, the reserve would be created to absorb any fluctuations in the market that we would respond to say a decrease in permit activity by assessing whether it’s a minor correction or a trend. If it’s a trend, then the first thing that would happen is we downsize our contract staff, depending on where the activity is slowing. If it’s in the plan check, then we would downsize the plan check staff. If it’s in inspections, the inspection staff. Full time staff would be the last, because that’s where our core institutional knowledge lies and all the fees that we need to transfer over to the new contractors as we bring them on board. So that’s, but the argument is, having done this before with Dan, that cushion is to absorb. Mr. Keene: Thank you. So first, obviously, this whole move has been to not subsidize from the public good, private benefits. To get those aligned really closely and have the full cost, but we do have these ups and downs cyclical. I don’t see where, we’re identifying this is a need. Do we have a specific recommendation tonight as to what we want to do, and then secondly, I would be curious, I’m trying to understand how we would actually build the reserve, because… EXCERPT MINUTES 9 Finance Committee Excerpt Minutes November 15, 2016 Council Member Schmid: General Fund? Mr. Keene: Well, I mean, how do we build the reserve, because on the one hand we really can’t overcharge somebody for, I mean, we’re charging them 100 percent of our cost to do something. It seems problematic to me to start charging people some carrying costs for the fund as a whole, as some hedge for the future. You know, it kind of runs against the whole idea of the cost. Mr. Pirnejad: I’ll let Dan address. I mean, it’s a two-part answer. Mr. Keene: Because I don’t like the general fund answer, by the way. Chair Filseth: Can I ask a clarifying question before you answer? You know, hearing you describe it, it kind of sounds like a receivables issue. I mean, is it the case that somebody goes and does the work, right, and then you have to pay them, and then you have to collect the fee from the customer like a month later or two months. Is that the issue? Mr. Pirnejad: That’s a great analogy of how the plan check and inspection works. We collect a plan check fee and it might take us six months or a year to do that plan check. Then we collect a permit fee and it might take 18 months to continue to monitor that construction through inspections. Chair Filseth: Okay, but you collect the fee from the homeowner upfront. So you don’t need to finance it, so this isn’t a finance thing. Lalo Perez, Chief Financial Officer: And keep in mind, you’re paying the Staff, whether it’s contract or permanent, every month. Chair Filseth: Sure, but if I understand what Peter said, I mean, you know you sort of have fluctuations. The baseline is covered with the permanent staff and above the baseline is covered with contractors, right. So presumably there’s not that issue with the permanent staff, if I understand what you said. Mr. Pirnejad: Right, so… Chair Filseth: I was wondering if there is a receivable issue on the contract, but it doesn’t sound like it. The homeowner pays upfront. EXCERPT MINUTES 10 Finance Committee Excerpt Minutes November 15, 2016 Mr. Pirnejad: Right and just to be clear that we’re not recommending a reserve in this nonvaluation-based fee. It’s something that we need to come back and visit, but I’ll let Dan. Mr. Edds: The issue of reserves, there’s a couple of things going on, actually you’ve touched on both of them. One is as you just said, is a large project comes in on June 30 and you collect a fee. It may take 6, 8, 10, 12, 24 months to complete that. So a reserve helps buffer that issue where you collected a fee, but then the actual service has to be provided over the next several months, if not years. The other issue is just to maintain your staffing, and as Peter said, the institutional skill sets of your core staff, so you don’t want to lose that institutional knowledge of the regulations that’s required to build in the City of Palo Alto. With regards to looking or factoring in reserves as a cost, generally the way I do this, or the way I recommend is if you need an extra, you know, two percent, just layer that on top of the actual fee. When I presented that to any number of California building official representatives, I have yet to have one say, no you can’t do that. Everybody says, has told me we want the City to maintain the skill sets that they need so we can have a high quality of service over a long period of time, and not have these fluctuations where one month they are totally strapped and it takes a day or two to get an inspection made and then the next month after that then everybody is fine. The reserves really are designed to provide a high level of service that is stable over time, and my experience is that, especially since we have been coming out of the recession, is that many of my clients, virtually all of my clients are scrambling to catch up. I have had them where the general finance has actually made loans to the building function, the Building Department, to the Development Services Department, and now those are having to be paid back. If those reserves were adequate, that would have a lesser impact. The other thing about reserves that I like to point out is they are not necessarily fund balances. Then the two are very different. But the point of a reserve is really to fund staffing model through various fluctuations of building activity, what most of us would do in our business anyway, have reserves set aside. Mr. Pirnejad: That’s correct. We are going to come back when we do our valuation-based fees, to address the reserve policy. Mr. Perez: We would have guidance, specific guidance and specific target areas. It could be technology, replacement of systems, conversion from paper to electronics, online enhancement beyond what the shop currently has, so we will have very specific targets. EXCERPT MINUTES 11 Finance Committee Excerpt Minutes November 15, 2016 Council Member Holman: Just, so my understanding that’s not the recommendation now, but also how do we end up in the, I’ll call it a deficit or staff deficit, because it might be somebody draws a permit on let’s say January 1, but you don’t actually collect the other inspections for some time, but you have other work that’s already back before that, so isn’t there a constant, I don’t know how to say this right, but isn’t there a constant flow of work coming through those, so that you don’t really have a deficit? Because it’s not like you’re starting with zero every time. Mr. Pirnejad: Correct. So there are encumbrances that carry forward, but as we talked about, the fee comes in, it’s paying for work going forward. What we tend to see is that the work that’s coming in the door is hard t o predict. So we look at planning trends, we look at building trends, Consumer Price Index (CPI), other indicators, to get a sense if the economy is slowing or not, because unlike other industries, in the building trades, it’s a very quick change. So you might see some drastic movement because if there was something that happened with the price of steel or, you know, if there was uncertainty in the market because of the political environment, all of a sudden projects stop. Commercial projects might stop, but residential projects might continue to go forward. So we’re developing those models, developing dashboards to be more predictable in terms of how we watch these trend lines. There is a continuous flow of revenues, but it’s not always enough to keep the existing staffing levels, so the hope is that the money we receive for a building permit would sustain all the activity necessary to provide that level of service that they paid for with that permit, but if revenues stop, then we need to be able to downsize quickly to respond to that slowing of the economy behind that permit that paid its fair share. Council Member Holman: So this is also an argument for why these fees should potentially be adjusted every year, because as we have staff cost increases annually, so these should really be adjusted every year. Mr. Pirnejad: I’m sure Dan would love that. Council Member Holman: And well, our City budget would too. Mr. Keene: So if I may say two things. One is I do think the two examples that were given about the sort of the fiscal years and the cash flow, the revenue flow, then when the work is done, it strikes me that most of that can be handled by clearly setting up a special revenue fund or an enterprise fund or whatever, so we don’t get into this issue of it just flowing back into the general fund. So that will take care of that and I have been an advocate EXCERPT MINUTES 12 Finance Committee Excerpt Minutes November 15, 2016 of that for years, from the get go and have used that approach before. But, again, this other idea of trying to keep the kind of stable, steady state which does require some buffering funding through reserves, I was being a little facetious about where it’s going to come from, but the need to have it is important, and I think this is a useful analogy, sort of like your investment portfolio, right, which is most people would generally recommend is be careful about jumping in and out of the market, because the ability to, you might be able to say, well, I’m going to sell now because things are really going bad, but more often than not, to be able to be there on the upswing is when people really get burned. They suddenly, if they’re not in the market, and all of a sudden things really go back up and they don’t get in in time, because it happens fast. And this is a little bit what happens more in the building area is we have some buffer by having a contract employee. It makes it easier to bring and pull, I mean push and pull, but they’re a portion of what we have, so we can use that as an almost, I want to say Federal Reserve or monetary policy stuff to kind of keep things health or whatever. But at some point, if we really go in and we have to lay off or you know, cut back on existing staff, we could have big then upswing, and then getting new people here and on board when our customers want them, you know, is really an issue. So in some sense you would way we want to be able to carry people a little more. We’re not going to completely feast or famine, so we’re ready when somebody comes in because we will have all kinds of issues when suddenly say, gosh, you not only do you not have the people, they don’t have enough experience here, they don’t understand the processes, they don’t know the context, all of those things. So just something to think about when we talk about it later. Council Member Holman: There are different ways to right size. Council Member Wolbach: So also I’m a bit concerned about something that Council Member Schmid mentioned earlier and it’s just the question of what it means for somebody who owns a home and is remodeling or is doing minor or substantial work on their home, or also for people who are trying to do the one kind of development where we have a growing reconditioning of the community that we need, which is residential development. I am particularly concerned about say people who are house rich, but don’t have a lot of income. They have had their house for a couple of decades, don’t have a lot of money coming in and might be on a fixed income, and I am looking at some of these fees and I am a little bit concerned. You know, I’m actually not, I don’t know if I would say that the $56 fee for renovation became $1,000. I’m not sure exactly how to read this because the definitions look like they were changed. This is on Packet Page 298 under Green Building. It looks like you’re deleting a couple, adding a couple. I’m not sure if they EXCERPT MINUTES 13 Finance Committee Excerpt Minutes November 15, 2016 translate exactly. There is a note about valuation. It’s kind of hard to read, the print is small, but it looks like there is a note about valuation for the old ones that are getting deleted and no note about valuat ion in the new ones. It looks like under 1,000 square feet is not much cheaper than over 1,000 square feet. Then on landscaping, those are pretty hefty fees for landscape reviews, almost $900 just for a single-family home. I did hear the reasoning. Then on the following Page, on Packet Page 299 under plumbing permits, we’re looking at a lot of Fees that are going up to $100, $200 from say $5 or $28 a piece. I am wondering for all of these, do we have any kind of low to moderate income discounts or, I mean, again my concern is policy implications of not the person who just bought, you know, a $2.5 million piece of property that has a home on it and they want to remodel it. I’m thinking of people who were here, Palo Alto residents who are here now. We were talking earlier about how a lot of homes in Palo Alto, you know, if you sold them would be worth $2.5 million, but a quarter of them are currently valued at $300,000. So anything you can do to alleviate my concerns here. I’m not precise in my request or my recommendation, just wondering if there is anything, you know. I’m concerned looking at these numbers, what it means for a lot of Palo Alto residents and I’m wondering if I’m missing something. Mr. Pirnejad: Well I would just draw a little bit of realizatio n to the, like replacement fees, water heater replacement, roof replacement, those fees are not out of line with what other cities typically would charge. So we haven’t priced the routine maintenance type fees, say house rich, income poor residents struggling to make their utility payment for example, would still be able to re-roof their house. The cost of the permit wouldn’t be more than the cost of the roofing, wouldn’t be a deterrent. Where the pricing of the permit starts to escalate quickly is when you’re doing major work, when you’re doing major remodeling, major retrofitting, which requires construction, demolition, debris monitoring, requires green building compliance, that’s the type of work where you’re really doing some major retrofits and major renovations. And again, the fees are set at minimum cost recovery, so absolute net zero cost recovery, so we’re not generating a profit. We’re not putting money into any kind of reserve yet. Council Member Wolbach: I guess what I’m getting at is, this is the policy question for us to consider, are there times when we actually do want to subsidize, you know, a resident and provide it as a service to them, get his costs defrayed rather than doing full cost recovery. Mr. Pirnejad: I think for affordable housing projects, there’s other types of tax incentives, rebates, subsidies, grants that are available to subsidize say EXCERPT MINUTES 14 Finance Committee Excerpt Minutes November 15, 2016 affordable housing. And again, the cost of that construction would make the permit fee pale in comparison. The only way to subsidize the actual permit fee would be through a general fund subsidy, because we couldn’t use somebody else’s building permit revenue to offset the cost of somebody else’s building permit revenue or fees. That’s the concern. Council Member Wolbach: So as that relates to this, does that mean we are legally unable to reduce any of these fees and if we did want to subsidize it, we would have to find it somewhere else and then move it back into this. Mr. Pirnejad: We would have to bring it from the General Fund. Council Member Wolbach: Okay. And help me understand, and I should remember, please remind me, when these landscape plan reviews would be needed for a single-family residence. So I see landscape plan reviews, single family residential, $894. Who would that apply to? Just if you totally tore down your house, scrapped everything, did it from scratch? Mr. Pirnejad: Essentially, so if you remember almost a year ago, I came to the Council with the proposal that says, if you do anything to your landscape we would want a permit. We pulled back from that and we just stuck to the state minimum, which is 1,000 square feet. So you would have to do again a major renovation to your home that’s impacting the landscaping that would kick in the landscaping review fee. Council Member Wolbach: But if somebody just wanted to redo their landscaping, just wanted to redo their garden, tear out a lawn and put in drought resistance stuff, no permit? Mr. Pirnejad: They would not need a permit. Council Member Wolbach: Okay, that does help alleviate a lot of my concern on that. (crosstalk) I’m not going to speak to that. And, okay, this is a bit cut off, at least in our printed version in what I’m looking at here, on the following page, Page 299, of these fees that go from, this is under plumbin g permits, all of these fees that go from say $5 up to $81, $97 from $5 or $28 up to $195, there is something about it being a flat fee per permit. Is it that those tend to get grouped together when somebody remodels their kitchen? I can’t actually read what it’s supposed to say there. EXCERPT MINUTES 15 Finance Committee Excerpt Minutes November 15, 2016 Mr. Pirnejad: Well, maybe I can ask Dan to provide more clarity, but what we did is some of the fees went up, some of them went down, because we took a look at how we were collecting the fee, and then tried to assess it to a fully burdened rate that took into account how much time it took to do each of those activities. So if you look at a fixture, the per fixture account may have gone up in terms of the permit fee, only because we really took a hard look at how long does it take to do all the activities necessary to enforce code compliance with that specific fixture. And again, we haven’t looked at those fees in close to a decade, so it’s much more exact than it used to be and the methodology is much more of a science than it was before. I’ll let Dan add any flavor to that. Mr. Edds: Sure, thank you. A couple of things. Number one, specifically with the plumbing fees as well as electrical, mechanical, there is also an admin base fee, which is actually going to go down, and the other thing is in developing these, the cost for these services, we actually looked at how are the inspections made. So that your example, Councilman, what used to be a $5 fee, we actually looked at how that specific service is processed in terms of the inspection and administrative piece. I don’t know how the $5 was calculated but I can say how we calculated this one and it’s based on the inspection time to get out there and actually do the inspection. Council Member Wolbach: Okay, and again, going back to the question of discounts or subsidies or things like that, I’m again thinking about lower to middle income residents, do you happen to know if we do provide any discounts or subsidies to some of these low or moderate income and retrofitting or the work that they’re doing is something they need to do in order to maintain the health and safety of the building? Let’s say maybe you’re a retiree, you’ve been in your house a long time, your house is falling apart and really needs some work just to keep it habitable. Do you know if we do provide in the City organization, discounts or subsidies of any kind for at least the fee aspect of that. Mr. Pirnejad: In Development Services we don’t have any kind of incentive, but Utilities has certain incentive programs to, say, switch over to an all- electric water heater or other types of programs that are incentive based. We, all of our fees are fee-based. We don’t have any incentives or any way to provide that discount, again, unless there was some outside agency or general fund contribution. Council Member Wolbach: Okay, so it sounds like tonight’s not the time to push for that, but I guess maybe we can bookmark that for a future EXCERPT MINUTES 16 Finance Committee Excerpt Minutes November 15, 2016 discussion, because it’s something like what you’re describing with utilities, might be appropriate to consider, but again, unless the Chair thinks I’m wrong, it sounds like, and from what I’m hearing from Staff, it sounds like that’s a future discussion beyond the purview of this. Council Member Holman: Yeah, just a point on it, so going along with two comments that have been made previously, I mean I can see how some of the fees would be disincentives to get a permit. Now if you look at a plumbing fixture, if you add $97 to, excuse me, it would be $81 to replacing a toilet, I mean what’s the cost of a toilet? You’re adding significantly, so I can see how people wouldn’t get permits. And this came up in a little different way about mechanical equipment being in setbacks, and people needing to move them, you know, to make them compliant but we didn’t want the compliance to keep them from coming in to get a permit to do it right, so I mean, we can’t argue both ways. I mean reality exists in both occasions. You can’t argue in just one way. Mr. Pirnejad: Well, just drawing from personal experience in other jurisdictions, Palo Alto is kind of an exception to the rule. By and large, we don’t have an issue of people not pulling permits for work. The people that wouldn’t pull a permit for a toilet wouldn’t pull that permit if that fee was $10 or if it was $100, they just wouldn’t pull a permit. But again, those circumstances, based on my assessment is few and far between. The fee is really a function of how long does it actually take an inspector to schedule the inspection, drive out to the site, take a look at the toilet, make sure it is Code compliant, installed, doesn’t contaminate the water supply and is installed properly. It is one visit, but again, we’re talking about a fully burdened rate, so. Council Member Holman: I understand that. To go to Cory’s point earlier though, I don’t, and respectfully seriously, I don’t know how anybody could know who would or wouldn’t pull a permit depending on the permit cost. How would anybody know? Mr. Pirnejad: Your assessment? Council Member Wolbach: Actually, just a couple of real quick questions. So, if you have a toilet or a sink or showerhead in your place. You go to Home Depot, pick up a new one, put it in, that requires one of these $81, $97 fees? Mr. Pirnejad: That’s correct. EXCERPT MINUTES 17 Finance Committee Excerpt Minutes November 15, 2016 Council Member Wolbach: Again, to this point, I respectfully just disagree that I think anecdotally I think there is a lot of work that is done in Palo Alto which is not permitted. Mr. Pirnejad: I have a lot of faith in our residents. Council Member Wolbach: I have, that’s a commentary statement. Council Member Holman: And we just add $81 to it. Council Member Wolbach: And how much is a showerhead or a new sink or a faucet? Mr. Pirnejad: All I can say is the cost of the permit is strictly a function of how long does it take to issue the permit, support that issuance of the permit, pay for the inspector to go out there, come back, the fully burdened rate yada, yada. Council Member Holman: So I’m going to make a little bit of an argument here for, it’s off topic, acknowledging that, that the goal of Code Enforcement is to get compliance, but we’re subsidizing Code Enforcement tremendously by not charging penalties and fees, you know, at a much earlier time, rather than waiting for multiple offences before ever charging anything. So we’re subsidizing code enforcement but we’re perhaps creating burdens by doing what’s the responsible thing to do here in terms of fees, so it’s just a comment. Council Member Schmid: I’ll move the Staff recommendation. Chair Filseth: Second. MOTION: Council Member Schmid moved, seconded by Chair Filseth to recommend the City Council adopt an Ordinance amending the Development Services Municipal Fees as described in Attachment A of the Staff Report, based on the completion of a Cost of Services Study (Attac hment B) and adjusted by the annual inflator applied to Municipal Fees from Fiscal Year 2016 to Fiscal Year 2017. Chair Filseth: Do you care to speak to your Motion? EXCERPT MINUTES 18 Finance Committee Excerpt Minutes November 15, 2016 Council Member Schmid: Yeah, I think the goal of the Council always has been to cover your costs. I think that you’ve got good evidence for what you presented to us. I think the sense of the Council is to be sensitive about homes, but with that I think we should move ahead. Thank you. Chair Filseth: It looks very thorough. Thank you very much. Do you have a comment? All in favor? Motion passes unanimously. Thank you very much. MOTION PASSED: 4-0 ADJOURNMENT: The meeting was adjourned at 9:11 P.M.