HomeMy WebLinkAboutStaff Report 9664
City of Palo Alto (ID # 9664)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 10/16/2018
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Summary Title: User Fee Cost Recovery Policy and Police/CSD Fees
Title: Staff Recommends That the Finance Committee Recommends That the
City Council Approve the Updated User Fee Cost Recovery Policy and Discuss
Police and Community Services Department Fe es
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that the Finance Committee recommend the City Council to
1. Adopt an update to the User Fee Cost Recovery Level Policy (Attachment A) to include
language clarifying certain types of fees are not subject to state laws limiting fees to cost
recovery.
2. Review and provide feedback on augmenting the City’s Municipal Codes in association
with either removing obsolete, or updating existing, Police Department fees from the
Municipal Fee Schedule.
Background
User Fee Cost Recovery Level Policy
The City Auditor’s Office issued an audit on April 17, 2017 the Community Services Department
(CSD) Fee Schedule Audit, which included a review of CSD’s procedures around municipal f ee
setting. The full audit report can be found:
https://www.cityofpaloalto.org/civicax/filebank/documents/56884 . The audit objectives were
to determine if CSD fees recover an adequate level of costs of providing service and
appropriately subsidize various City programs depending on the level of benefit to the
community versus the individual in accordance with the City’s current User Fee Cost Recovery
Level Policy. The City Auditor’s Office found that the department’s cost recovery level
guidelines, consisting of four cost ranges, are not aligned with the City’s User Fee Cost Recovery
Level Policy and recommended to revise the current Policy to clarify categories of fees that are
not subject to state laws limiting those fees to cost recovery. Given this audit recommendation,
staff examined and made updates to the current User Fee Cost Recovery Level Policy. Details
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on these proposed changes can be found in the Discussion section b elow, as well as in
Attachment A.
Police Department Fees
At the May 16th, 2018 meeting, the Finance Committee noted that some of the Police
Department (PD) fees may be outdated and recommended examining existing fees to
determine whether certain fees need to be updated or even deleted. Staff examined existing
PD fees, and findings are presented in the Discussion section below.
Discussion
User Fee Cost Recovery Level Policy
The City provides a variety of services and programs to the public that benefit the entire
community, including individuals and local businesses. The City’s fee-based services and
programs must adhere to the City’s User Fee Cost Recovery Level Policy, which was adopted by
the City Council on May 18, 2015 (CMR #5735). Table 1 below summarizes the three levels of
cost recovery allowed under the current policy.
Table 1: Current User Fee Cost Recovery Levels
Cost
Recovery
Level Group
Cost Recovery
Percentage
Range
Policy Considerations
Low 0% - 30% • No intended relationship between the amount paid and the
benefit received
• Fee collection would not be cost effective and/or would
discourage compliance with regulatory requirements
• No intent to limit the use of the service
• Public at large benefits even if they are not the direct users of
the service
• Affordability of service to low‐income residents
• The service is heavily supported through donations
Medium 30.1% - 70% • Services which promote healthy activities and educational
enrichment to the community
• Services having factors associated with the low and high cost
recovery levels
High 70.1% - 100.0% • Individual users or participants receive most or all of the benefit
of the service
• Other private or public sector alternatives provide the service
• The use of the service is specifically discouraged
• The service is regulatory in nature
Current policy aligns with the requirements outlined in the State Constitution. Specifically,
Propositions 13, 218, and 26 have placed both substantive and procedural limits on local
governments’ ability to impose fees and charges. Collectively, these state constitutional
amendments provide safeguards against taxes being imposed without a vote of the people.
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Proposition 26 in particular contains a general articulation of the cost of service principle and
includes a requirement that the local government
bears the burden of proving by a preponderance of the evidence that a levy,
charge, or other exaction is not a tax, that the amount is no more than necessary
to cover the reasonable costs of the governmental activity, and that the manner
in which those costs are allocated to a payor bear a fair or reasonable
relationship to the payor’s burdens on, or benefits received from, the
governmental activity. (California Constitution, Article XIII C, Section 1).
Certain types of fees, such as fines, penalties and/or late charges, or any charge imposed for
entrance to or use of, as well as the purchase, rental, or lease of local government property, are
exempted from the provision quoted above and not required to be based on actual costs of
providing service. Instead, these types of fees are more typically governed by local market
rates, reasonableness and potentially other policy factors. Certain fees, primarily found in CSD
activities, such as facility rental fees, golf course greens fees for example, fall into this category,
where fee rates are more appropriately set based on local market rates. Consequently, these
fees are not bound to certain cost recovery levels and can even have rates that are higher than
the full cost recovery level, if appropriate. As outlined in the audit, currently CSD applies the
criteria in Table 2 as a general guideline to determine an appropriate cost recovery level.
Table 2: CSD Fee Cost Recovery Guideline
Cost Recovery Level Group Programs and Services
Low • Programs targeted at low-income or special needs
populations
• Human Services programs
• Programs supported by Friends groups
• Facility rentals by non-profit partners
• Classes aimed at teaching an essential life-skill or a skill aimed
at increasing safety, such bike safety
• Programs aimed at decreasing teen stress such as
participating in the Mitchell Park Teen Center
Medium • Group classes, camps and workshops
• Sports league registrations
• Field and facility rentals for programs providing services to
majority Palo Alto residents
High • Private lessons for residents
• Facility rentals for private events for residents
Very High • Private lessons for non-residents
• Facility rentals for private events for non-residents & for-
profit entities
• Golf course greens fees
• Birthday parties and other private special event packages
Staff recommends updating the Policy to include a provision to clarify the category of fees that
are exempted from state laws limiting rates to full cost recovery. This update will bring the
City’s municipal fee policy in alignment with the City Auditor’s recommendation, as well as the
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full scope of services and programs the City offers. Proposed changes to the cost recove ry levels
are shown below in Table 3. For details, refer to the Attachment A.
Table 3: Proposed User Fee Cost Recovery Levels
Cost Recovery
Level Group
Cost Recovery
Percentage Range Policy Considerations
Low 0.0% - 30.0% • No intended relationship between the amount paid and the
benefit received
• Fee collection would not be cost effective and/or would
discourage compliance with regulatory requirements
• No intent to limit the use of the service
• Public at large benefits even if they are not the direct users of the
service
• Affordability of service to low-income residents
Medium 30.1% - 70.0% • Services which promote healthy activities and educational
enrichment to the community
• Services having factors associated with the low and high cost
recovery levels
High* 70.1% - 100.0+%* • Individual users or participants receive most or all of the benefit
of the service
• Other private or public sector alternatives provide the service
• The use of the service is specifically discouraged
• The service is regulatory in nature
*Certain types of fees, such as fines, penalties and/or late charges, or any charge imposed for entrance to or use
of, as well as the purchase, rental, or lease of local government property, are not bound by state laws that limit to
full cost recovery.
Police Department Fees
At the May 16th, 2018 meeting, the Finance Committee directed staff to review existing Police
Department (PD) fees to determine if some of the fees can be considered obsolete and deleted
from the Municipal Fee Schedule.
Per the Finance Committee’s direction, staff examined existing PD fees specifically. Staff first
reviewed to determine which fees have not been charged in recent years and assessed if fees
may be considered obsolete. After this review, staff has identified 14 fees that have not had
any activity over the past 5 years. From these fees, staff has grouped them into ones that are
recommended for deletion and ones that are recommended for further review and possible
deletion or adjustment in the future. It is important to not e that a number of these fees were
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added through changes to the City’s Municipal Code; therefore, deleting these fees would also
require removing relevant Municipal Code sections. Attachment B outlines the two groups of
fees. Those that staff recommends to be deleted as they are no longer necessary are listed in
Table 4 below.
There are a number of other fees that staff identified as being potentially obsolete or needing
to be updated for a number of reasons. A complete list of these fees with staff
recommendation can be found in Attachment B. Any potential implications of making
adjustments need to be researched further, and staff will return to the Finance Committee with
more concrete recommendations as part of the annual Municipal Fee Schedule update pr ocess
in May, 2019.
Table 4: Obsolete Police Department Fees
Fee Title Last
Transaction
Annual # of
Transaction
(Past 5 years)
Municipal
Code Section
Hot Tub Sauna - Employee (New) Unknown 0 4.56.060
Hot Tub Sauna - Employee (Renewal) Unknown 0 4.56.070
Hot Tub Sauna – New Unknown 0 4.56.030
Hot Tub Sauna - Renewal Unknown 0 4.56.040
Hot Tub Sauna - Sale or Transfer of Interest Unknown 0 4.56.140
Mechanical Amusement Device Establishment Unknown 0 4.10.120
Billiard Room (non-refundable) Unknown 0 4.52.020
Bowling Alley (non-refundable) Unknown 0 4.52.020
Carnival Unknown 0 4.52.020
Circus Unknown 0 4.52.020
Rodeo – New Unknown 0 4.10.070
Bingo Establishment 4-6 years ago 0 4.51.160
Bingo Employee – New 4-6 years ago 0 4.51.160
Bingo Employee - Renewal 4-6 years ago 0 4.15.160
Resource Impact
Based on discussions with the Finance Committee and the City Council, any changes to fee rates
for existing fees, such as potentially establishing a lower Special Event Permit fee rate for
residents and/or non-profit organizations will have an impact on associated fee-based
revenues. These potential changes and their impacts are anticipated to be discussed through
the development of the FY 2020 Operating Budget and FY 2020 Municipal Fee Schedule. The
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elimination of the fees discussed above is not anticipated to have impacts on current fee
revenue, since they are not currently being charged.
Policy Implications
Recommendations in this staff report are consistent with existing City policies. Updates to th e
User Fee Cost Recovery Level Policy is still in accordance with Proposition 26 since
recommended changes simply clarifies category of fees that are exempt from the requirement
where the amount of new or increased fees and charges is no more than necessary to cover the
reasonable cost of the City service, and the manner in which those costs are allocated to a
payor bears a fair and reasonable relationship to the payor’s burden on, or benefits received
from, such a City service.
Environmental Review
Updating the User Fee Cost Recovery Level Policy, Municipal Codes, and the Municipal Fee
Schedule do not constitute a project as defined in Public Resource Code Section 21065 for the
purpose of the California Environment Quality Act.
Attachments:
• Attachment A - User Fee Cost Recovery Level Policy
• Attachment B - Police Department Fees
Staff Report #9664 - Attachment A
Page 1 of 2
USER FEE COST RECOVERY LEVEL POLICY
BACKGROUND
The City provides a variety of services to the public which benefit the entire community or individual
residents or businesses. For certain services such as regulatory fees, arts and science classes, or
recreational classes, the City has partially or fully recovered the cost for providing these services, which
would have been otherwise paid from the General Fund.
Propositions 13, 218, 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 without a vote of the people.
POLICY STATEMENT
It is the policy of the City of Palo Alto to set Municipal Fees based on cost recovery levels in lieu of fully
subsidizing fee-related activities with General Fund dollars. The cost recovery levels are reflective of the
following policy statements.
1. Community-wide vs. Private Benefit: Funding services such as Police patrol services only through
taxpayer dollars is appropriate for services that benefit the entire community. When the service or
program provides a benefit to specific individuals or businesses such as the issuance of building permits,
it is expected that individuals or businesses receiving that benefit pay for the costs to provide that
service.
2. Service Recipient vs. Community Benefit: For regulated activities such as development review and
Police issued permits, it is appropriate that the service recipient such as an applicant of a building permit
pay for the permit although the community at large benefits from the regulation.
3. Consistency with City Goals and Policies: City policies and City Council goals related to the
community’s quality of life are factors in setting cost recovery levels. For example, fee levels can be set
to promote healthy habits, facilitate environmental stewardship, or discourage certain actions (e.g. false
alarms).
4. Elasticity of Demand for Services: The level of cost recovery can affect the demand for services. A
higher level of cost recovery could ensure the City is providing services such as recreational classes or
summer camps for children and youth without over stimulating a market with artificially low prices.
Such low prices, which are a reflection of a high General Fund subsidy, may result in waiting lists and
attract participants from other cities; however, high cost recovery levels could negatively impact the
demand for such services from low income individuals, special needs individuals, and seniors.
5. Availability of Services from the Private Sector: High cost recovery levels are generally sought in
situations where the service is available from other sources in order to preserve taxpayer funds for
other General Fund funded City services. Conversely, services that are not available from other sources
Staff Report #9664 - Attachment A
Page 2 of 2
and are typically delivered when residents experience an emergency typically have low or zero cost
recovery levels.
Based on these policy statements, the table below overlays certain cost recovery levels grouped in low
(0.0% to 30.0%), medium (30.1% to 70.0%), and high (70.1% to 100.0+%) cost recovery percentage
ranges. It is important to note that these groupings provide policy guidance and are not absolute. Some
policy statements may weigh more heavily than others, which may result in a different cost recovery
level grouping for particular fees. For example, fees for recreational activities are expected to be set in
general at the medium cost recovery level; however, fees for recreational activities for which there is a
high demand may have a high cost recovery level due to high enrollment levels per class.
Additionally, while state laws limit most categories of fees to the reasonable cost of providing the
service, certain types of fees, such as fines, penalties and/or late charges, or any charge imposed for
entrance to or use of, as well as the purchase, rental, or lease of local government property, are not
bound by those laws that limit to full cost recovery. Instead, these types of fees are more typically
governed by local market rates, reasonableness and other policy driven factors. Therefore, these fees
can potentially have rates higher than the full cost recovery level.
It is important to note that Municipal fees are reviewed annually by the Finance Committee and
subsequently by the City Council as part of approval of the Municipal Fee Schedule.
Table 1: User Fee Cost Recovery Levels
Cost Recovery
Level Group
Cost Recovery
Percentage Range Policy Considerations
Low 0.0% - 30.0% • No intended relationship between the amount paid and the
benefit received
• Fee collection would not be cost effective and/or would
discourage compliance with regulatory requirements
• No intent to limit the use of the service
• Public at large benefits even if they are not the direct users
of the service
• Affordability of service to low-income residents
Medium 30.1% - 70.0% • Services which promote healthy activities and educational
enrichment to the community
• Services having factors associated with the low and high
cost recovery levels
High* 70.1% - 100.0+% • Individual users or participants receive most or all of the
benefit of the service
• Other private or public sector alternatives provide the
service
• The use of the service is specifically discouraged
• The service is regulatory in nature
*Certain types of fees, such as fines, penalties and/or late charges, or any charge imposed for entrance to or use
of, as well as the purchase, rental, or lease of local government property, are not bound by state laws that limit to
full cost recovery.
Attachment B ‐ Police Department Fees
Recommended for Deletion
Fee Subgroup General Recommendation Fee Title *Last Transaction Palo Alto
Statute
Billiard Room (non‐refundable)Unknown 4.52.020
Bingo Employee ‐ New 4‐6 years ago 4.51.160
Bingo Employee ‐ Renewal 4‐6 years ago 4.15.160
Bingo Establishment 4‐6 years ago 4.51.160
Bowling Alley (non‐refundable)Unknown 4.52.020
Carnival Unknown 4.52.020
Circus Unknown 4.52.020
Delete recommended due to obsolescence and high risk to
City liability potentially resulting in collecting this permit.
Mechanical Amusement Device
Establishment
Unknown 4.10.120
Hot Tub Sauna ‐ Employee (New)Unknown 4.56.060
Hot Tub Sauna ‐ Employee (Renewal)Unknown 4.56.070
Hot Tub Sauna ‐ New Unknown 4.56.030
Hot Tub Sauna ‐ Renewal Unknown 4.56.040
Hot Tub Sauna ‐ Sale or Transfer of Interest Unknown 4.56.140
POL ‐ Rodeo Delete recommended due to obsolescence, outdated and no
longer used.
Rodeo ‐ New Unknown 4.10.070
POL ‐ Hot Tub / Sauna
POL ‐ Adult Entertainment
Delete recommended due to obsolescence, outdated and no
longer used.
Delete recommended due to obsolescence or overlap with
other permit.
Attachment B ‐ Police Department Fees
Recommended for Further Review
Fee Subgroup General Recommendation Fee Title *Last Transaction Palo Alto
Statute
Closing‐out Sale 4‐6 years ago 4.34.020
Closing‐out Sale Renewal (Two Maximum) 4‐6 years ago 4.34.020
Massage Establishment ‐ New 2017 4.54.040
Massage Establishment ‐ Non‐Certified
(New)
None
Massage Establishment ‐ Non‐Certified
(Renewal)
2018 None
Massage Establishment ‐ Renewal 2018 4.54.040
Massage Establishment ‐ Sale or Transfer of
Interest
4.54.150
Massage Establishment ‐ Sole Proprietor
(New)
None
Massage Establishment ‐ Sole Proprietor
(Renewal)
2018 None
Massage Practitioner ‐ Non‐Certified (New)2018 None
Massage Practitioner ‐ Non‐Certified
(Renewal)
2018 None
Massage Technician ‐ New 2018 None
Massage Technician ‐ Renewal 2018 None
Solicitation for Commercial Purpose 2018 4.32.020
Solicitor Employee (Under Master License)4.10.055
Solicitor/Peddler Master License 2018 4.10.055
Taxicab ‐ Driver 2018 4.42.220
Taxicab ‐ Master License (New)2018 None
Taxicab ‐ Master License (Renewal)2018 None
Taxicab ‐ Vehicle Inspection for Each
Vehicle
2018 None
Taxicab Driver ‐ Replacement or Transfer
Fee
2018 None
POL ‐ Adult Entertainment
POL ‐ Taxicab
POL ‐ Massage
Establishment
Update in progress, this permit is also covered county‐wide,
and under a state senate bill so the city needs to align
ordinance. The Code Enforcement Officer is currently
working on this with the Attorney's Office.
Move recommended to another department that regulates
more business that is related to this function than police
does.
Consolidate/Update Recommended due to overlapping
requirements with state permits.
Update: Non‐Profits have to follow the same process/rules
as For‐Profits. Certain updates can reduce liability, for
example having a "do not solicit" list and performing a
background check for all businesses, including non-profits.
Unknown
Unknown
Unknown
UnknownPOL ‐ Miscellaneous