Loading...
HomeMy WebLinkAbout1999-08-08 City Council (5)city of Palo Alto C ty Manager’s Report TO:HONORABLE CITY COUNCIL 9 FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE, SERVICES DATE:FEBRUARY 8, 1999 CMR:135:99 SUBJECT:RESPONSE TO COUNCIL REQUEST REGARDING POTENTIAL COST RECOVERY OPTIONS FOR A ONE-STOP DEVELOPMENT CENTER AT 285 HAMILTON REPORT IN BRIEF When the City Council approved funding to acquire leased space and to pay for associated support costs to create a one-stop Development Center, as requested in CMR:368:98, Council directed staff to retum with an analysis and recommendation regarding full cost recovery for the Development Center. This report responds to that request and presents a detailed analysis of ongoing costs and revenues associated with the Development Center; discusses the calculation of citywide overhead costs; examines previous levels of cost recovery mandated by the Council for the services to be offered at the Development Center, reviews how other communities have managed cost recovery at their development centers; and, presents possible fee increases and new fees.. CMR:135:99 Page 1 of 9 RECOMMENDATION Staff recommends that the City Council: Direct staff to return to Council with revisions to the Municipal Fee Schedule with the Midyear Report to implement the changes detailed below, to achieve cost recovery. (The impact of these changes to individuals using the Development Center are shown on Attachment A.) mo Implement the Fee Table 1A in the 1997 Uniform Building Code (UBC), which is projected to increase Development Center revenues by 12 percent or $228,552 in 1999-00. (UBC fee increases were last implemented in January 1996.) C° Implement a change in the minimum permit fee from $25.00 to $40.00, which is projected to increase revenues by $22,000 in 1999-00. Implement an increase for new residential construction for electrical, plumbing, and mechanical permits, from a per-unit charge to a flat rate of five cents per square foot for each. This is projected to increase revenues by $44,000 in 1999-00. Direct staff to undertake an update of the 1990 User Fee Study in FY 1999-00, specifically for the fees that will be charged at the Development Center, and to return to Council with recommendations for revisions to cost recovery levels and fee adjustments. This would include an examination of what costs should be included when calculating the full cost of services, including a possible change in the way overhead charges are allocated throughout City departments, and an examination of the level at which cost recovery should be measured (at the major activity level, the functional area level, the department level, or citywide). Direct staff to revisit the issue of cost recovery levels citywide in the next two years, and return to Council with revised cost recovery proposals, along with an improved methodology for calculating cost recovery for all fees charged by the General Fund and a discussion of what is the appropriate level at which cost recovery should be sought (by major activity, functional area, department, or citywide). BACKGROUND In CMR:368:98, staffasked the City Council to approve funding to acquire leased space and to pay for associated support costs to create a one-stop development center. As part of CMR:135:99 Page 2 of 9 approving the lease and funding, the City Council directed staff to conduct an analysis and recommend changes in fees to achieve full .cost recovery, and recommend appropriate changes to the Municipal Fee Schedule. At that time, the Council approved funding of $286,537 for one-time costs associated with preparing the new space for its use by City staff, including moving expenses. The Council also approved funding for ongoing lease payments, support costs (taxes, insurance, and assessments), electrical utilities, and janitorial service, totaling $383,529 per year ($357,960 funded by the General Fund, $25,569 funded by the Utilities Funds). For both the one-time and ongoing expenses, the funding came from both the General Fund and from the Utilities Funds, pro-rated based upon respective use of the space. The Development Center will be composed of staff from five functions in the City: Building Inspection (Planning and Community Environment Department), Planning (Planning and Community Environment Department), Public Works Engineering (Public Works Department), Fire Prevention (Fire Department), and Utilities (Utilities Department). The Utilities group is excluded from the analysis in this report because it is supported by Utility rates. (The Utilities Department will pay its pro-rated share of rent, which has been accounted for in the following analysis.) DISCUSSION This report includes an analysis of the .ongoing costs and revenues associated with the Development Center; discusses the calculation of citywide overhead costs; examines previous levels of cost recovery mandated by the Council for the services to be offered at the Center; reviews how other communities have managed cost recovery at their development centers; and develops options to achieve various levels of cost recovery at the Development Center. Costs and Revenues In order to calculate the ’cost recovery levels of the various services to be provided at the Development Center, it was necessary to accurately determine the ongoing costs and revenues associated with the services provided. Attached to this report is a detailed description of the methodology utilized (Attachment B), and details of the salary and benefit costs associated with the Development Center (Attachment C). Citywide Overhead As is City practice, and per previousCouncil direction, citywide overhead was included in the calculation of the cost of providing DeveloPment Center services. As can be seen in Attachment D, citywide overhead adds significant cost to the services provided by the CMR:135:99 Page 3 of 9 Building Inspection and Planning functions. While these charges are most likely appropriate for the Planning Division, they are overstated for the Building Inspection services. This is because of the way that citywide overhead is calculated. The manner in which overhead is allocated in the Mission Driven Budget (MDB) is different from how it was allocated in previous budgets. MDB allocates citywide overhead at the department level instead of at the division level (because MDB eliminated the division structure). Thus, with MDB, the only way to allocate overhead to activities is by fulltime equivalent (FTE). This can lead to disproportionate overhead charges in a specific functional area. For example, for the Planning Department as a whole, there is significant use of administrative services (such as legal and financial), which leads to higher overhead charges. These charges have increased in recent years, due to special projects such as the Comprehensive Plan, Sand Hill Road and the increase in other Planning Division activities. These costs are charged at a department level and spread per FTE. Although Building Inspection, another division in the Planning Department, makes relatively little use of such services, it is nevertheless disproportionately charged. Staffhas included the current MDB overhead charges in the analysis of Development Center costs, but recommends that a consultant look at the allocation of citywide overhead, as well as looking at what amount of overhead is appropriate to include in the calculation of full cost recovery. Cost Recovery In 1990, the City Council adopted staff’s recommendations regarding appropriate cost recovery levels for various types of City services. These levels were developed with the assistance of the consultant David M. Griffith and Associates (DMG), and after public hearings and committee meetings. The recovery levels recommended were based upon the type of service offered. Public services (providing general benefit to the public) were set at zero cost recovery; individual services (providing benefits that accrue to those who consume them) were set at 100 percent cost recovery; and merit services (providing benefits for both the individual user and the community at large) were set ranging from 1 to 99 percent cost recovery. The previously mandated levels of cost recovery for each function at the Development Center are summarized on Attachment D. Using the information developed through the analysis of costs and revenues at the Development Center, staff was able to estimate what the level of cost recovery would be for the various functions at the Development Center (shown on Attachment D). Staffbelieves that the disproportionate allocation of citywide overhead, discussed above, artificially deflates the cost recovery levels of Building Inspection services. CMR:135:99 Page 4 of 9 Other Communities Of the communities contacted regarding their development centers, only Mountain View took cost recovery into consideration. To achieve cost recovery in Mountain View, an overhead factor of about 50 percent is applied to charges set by the Ud3C. More information on other communities is presented in Attachment E. Recommendation Staff’s recommendation (to implement the 1997 UBC, with its 12 percent fee increase, and increase selected Building Inspection fees) provides an interim solution designed to minimize the amount of General Fund support needed for the ongoing costs of the Development Center (General Fund support Will be $63,408 annually or 18 percent of total costs). The recommendation allows staff time to more completely analyze the current levels of cost recovery at the Center, to examine how Palo Alto development fees compare to those in other communities, and to analyze the allocation ofcitywide overhead. Once completed, staff will return to the Council with further recommendations regarding cost recovery at the Development Center. ALTERNATIVES TO STAFF RECOMMENDATION There are several alternatives to the recommendation by staff. Altemative 1 -- Implement the UBC and Increase Selected Other Fees Under this scenario, sufficient new revenues would be raised in 1999-00 to cover the ongoing General Fund share of lease and support costs of the new space ($357,960 annually). To achieve this, Council could adopt all of the elements of the staff proposal (implement the 1997 update to the UBC, implement a change in the minimum permit fee from $25.00 to $40.00, and implement an increase for new residential construction for electrical, plumbing, and mechanical permits, from a per-unit charge to a flat rate of five cents per square foot per permit), plus direct the Public ,Works and Planning Departments to propose fee increases to generate an additional $63,408in revenue associated with the Development Center, and to return to Council with that proposal. Staff does not recommend this option. Unlike the recommendation from staff, it requires raising fees without an opportunity to review how these fees compare to those of comparable communities and without an opportunity to examine what should be considered in the calculation of full cost recovery and what levels of cost recovery to seek for the services provided. In addition, it would require significant increases in fees. For the development services provided by Planning and Public Works, a portion is performed at the Development Center and a portion at City Hall. When developing cost and revenue estimates, staff took this division into account and allocated only a portion of costs and revenues to the CMR:135:99 Page 5 of 9 Development Center for each function (23 percent for Planning services and 43 percent for Public Works). This pro-rating would hold for any new revenue raised, so the additional revenue raised would have to be significantly greater than $63,608, since Development Center services by Planning are credited with 23 percent of new revenue, and Development Center services by Public Works are credited with 43 percent of new revenue. Alternative 2 -- Increase Fees To Immediately Bring The Services Provided At The Development Center To Council Approved Levels of Cost Recovery This option would require the Planning Division and Public Works to increase revenue associated with the Development Center to meet cost recovery levels previously established by the City Council. The steps to accomplish this are detailed below. 1.Implement the fees changes already proposed by staff, plus: Building Inspection would have to raise an additional $435,068 in fees in order to be at 100 percent cost recovery. This would result in fees being at 36 percent above current levels, when combined with the UBC increase. Fire Inspection services would have to raise an additional $3,034 to be at 100 percent cost recovery. When combined with the UBC increase (which also changes Fire fees), this would result in an overall rate increase of 14 percent. In order for the Planning Division to meet the cost recovery goal of 75 percent at the Center, it would need to increase its fees by $1,063,774, of which $244,668 would be credited to the Center. Currently, the Planning Division generates $1,016,280 in fees annually associated with development work. When combined with the UBC increase, (which also changes Planning fees), fees would have to be increased by 105 percent to meet the 75 percent cost recovery goal. In order for Public Works to meet its Council directed cost recovery goal of 100 percent, it would need to increase its development related fees by $867,553, of which $373,048 would be credited to the Development Center. Currently Public Works generates $229,814 in fees annually associated with development work. Fees would have to be increased by 378 percent to meet the 100 percent goal. If the City Council adopts this alternative, staff will need to return with a proposal for the actual fees to be increased. CMR:135:99 Page 6 of 9 Staffdoes not recommend this option. As with Alternative 1, it requires raising fees without an opportunity to review how the fees compare to those of comparable communities and without an opportunity to examine what should be considered in the calculation of full cost recovery and what levels of cost recovery to seek for the services provided. The amount fees would have to be raised for this alternative is much greater than for Alternative 1 because of the way Planning and Public Works development services are performed by staff at both the Development Center and City Hall. Alternative 3 -- Increase Fees to Make the Development Center 100 Percent Cost Recovery This alternative would require that all functions at the Development Center be at 100 percent cost recovery. Staffrecognizes that this exceeds the cost recovery levels established by the Council, but felt it was worthwhile to examine the steps that would be necessary to have the Center at full cost recovery. These are detailed below. 1.Implement the changes already proposed by staff, plus: Building Inspection would have to raise an additional $435,068 in fees and Code Enforcement would have to raise $259,829 for the whole function to be at 100 percent cost recovery. This would result in fees being at 50 percent above current levels, when combined with the UBC increase. Fire Inspection services would have to raise an additional $3,034 to be at 100 percent cost recovery. When combined with the UBC increase (which also changes Fire fees), this would result in an overall rate increase of 14 percent. For the Planning Division to meet cost recovery of 100 percent at the Development Center, it would need to increase its fees by $1,769,926, of which $407,083 would be credited to the Center. Currently, the Planning Division generates $1,016,280 in fees annually associated with development work. Fees would have to be increased by 174 percent to meet the 100 percent recovery goal. In order for Public Works to meet its Council directed cost recovery goal of 100 percent; it would need to increase its development related fees by $867,553, of which $373,048 would be credited to the Development Center. Currently Public Works generates $229,814 in fees annually associated with development work. Fees would have to be increased by 378 percent to meet the 100 percent goal. Staff does not recommend this option. As with Alternative 1 and Alternative 2, it requires raising fees without an opportunity to review how the fees compare to those of comparable CMR:135:99 Page 7 of 9 communities and without an opportunity to examine what should be considered in the calculation of full cost recovery and what levels of cost recovery to seek for the services provided. As with Alternative 2, the amount that fees would have to be raised to meet cost recovery goals is quite significant because of the way Planning and Public Works development services are performed by staff at both the Development Center and City Hall. Finally, to achieve 100 percent cost recovery for the Center would represent a policy change, because it would require Planning services and Code Enforcement to meet new cost recovery goals. Previously Planning has been at 75 percent cost recovery and Code Enforcement at zero percent cost recovery. RESOURCE IMPACT " The implementation of the staff recommendation would result in annual revenue increases to the City of $294,552. POLICY IMPLICATIONS The recommendations in this report are consistent with existing City policy. TIMELINE Upon approval of one of the recommendations by the City Council, staff will include the appropriate fee adjustments with the Midyear Report. These fee adjustments will require a 60-day period after adoption and prior to the increases taking effect. ENVIRONMENTAL REVIEW This is not a project for the purposes of California Environmental Quality Act review. ATTACHMENTS Attachment A: Attachment B: Attachment C: Attachment D: Attachment E: The Effect of Increasing the UBC Cost Recovery Calculation Methodology Salary and Benefit Costs at the Development Center Costs, Revenues, and Cost Recovery at the Development Center Other Communities CMR:135:99 Page 8 of 9 PREPARED BY: Shannon Gaffiaey, Senior Financial Analyst DEPARTMENT HEAD APPROVAL: CARL YEA~/~, Director, Administrative Services CITY MANAGER APPROVAL: CC: Manager Susan Frank, Palo Alto Chamber of Commerce CMR:135:99 Page 9 of 9 ATTACHMENT B Cost Recovery Calculation Methodology Salary Costs The salary costs were calculated based upon the number of FTE working at the Development Center, including a consideration of whether or not the FTE were full or part time. Salary figures used were 1998-99 control points for each position. Benefits for management and SEIU employees were calculated as being an additional 36 percent (this accounts for the additional cost of two percent at 55); for non-management Fire Department employees they were calculated at 31 percent because they have a different retirement package. A summary of positions at the Development Center and their salary and benefits costs is contained in Attachment B. Rent Costs A per work space rent charge was calculated, regardless of whether a position was full or part time, because each distinct position will require a work space. The rent was calculated for a 12 month period, and included general support costs, utilities, and janitorial services. The rent calculations took into account the fact that the Utilities Department will pay for the use of two work stations by its staff housed at the Development Center, at an annual contribution 0f$25,569. Non-Salary Costs The non-salary costs were calculated differently for each area. Included were all indirect and direct costs, as well as departmental administration and citywide overhead. The goal was to capture the cost of doing business through calculating the non-salary expenses associated with the staffto be housed at the Development Center. In some cases, this included all non-salary expenses in a functional area. In other cases, expenses were calculated by pro-rating expenses based upon the percentage of FTE to be housed at the Development Center. Expenses used are from the 1998-99 adopted budget. Revenues As with non-salary .costs, revenues were calculated differently for each area. In some cases revenues included all or most revenues in a functional area. In other cases, they were calculated using a pro-rated share across activities. Staff decided to take a conservative approach to revenues, and used those from the 1998-99 adopted budget. It is possible that as a part of the 1999-00 budget process, which is currently underway, revenues will be adjusted somewhat. Building Inspection Costs. The Building Inspection staffwill require 19 work stations at the Development Center, and all staffwill work full time on Development Center work. All of the Building Inspection functions will move to the Development Center, as well as associated non- salary costs. This includes expenses associated with the Sand Hill Road project. The citywide overhead charges for Building Inspection are quite high, as a result of how such charges are allocated. The Mission Driven Budget (MDB) allocates citywide overhead at the department level instead of at the division level (because MDB eliminated the division structure). Thus, with MDB the only way to allocate overhead to activities is by FTE. This can lead to disproportionate overhead charges in a specific functional area. In the Planning Division, there is significant use of administrative services (such as legal and financial), which leads to higher overhead charges. These. charges have increased in recent years due to special projects such as the Comprehensive Plan, Sand Hill Road and the increase in other plann!ng activities. These costs are charged at a department level and spread per FTE. However, Building Inspection makes relatively little use of such services, and thus is disproportionately charged. Revenue Building Inspection bases its fees and fee schedule upon the Uniform Building Code. All the revenues attributed to Building Inspection will be generated by the Development Center staff. Cost Recovery. There are two distinct types of work completed by the Building staff-- building inspection (17 FTE) and code enforcement (two FTE). For the Building Inspection function, Council directed that cost recovery be at 100 percent. There are no fees associated with Code enforcement and thus zero cost recovery. Planning Costs Planning staffwill require four work stations, although there will only be a total of 3.5 FTE at the Center. Non-salary costs are difficult to capture for this area. Unlike the Building Inspection work, the work performed by Planning Division staff at the Development Center will be a part of an overall effort performed by staffthere and at City Hall. The staff at the Development Center will serve as application processors and information resources. Once an application is filed, it will be sent to City Hall where it will be managed by staff until complete. Thus, the staff at the Development Center represent the first stage of a process, rather than a distinct process in itself. Staff has estimated non-salary costs by determining which areas of the Planning Division budget are related to permit applications and processing, and has assigned the Dev.elopment Center staff their pro-rated share of these expenses. Revenue It is difficult to segregate the revenues that apply specifically to the Development Center staff due to the continuum of services provided. Again, staff estimated revenues by identifying the areas of the Planning Division budget which related to revenues generated by permit applications and processing, and assigned the Development Center staff their pro-rated share of these revenues. It should be noted that the work to be performed at the Development Center does not specifically generate revenue because it is more referral and information services than actual processing. However, it is a critical customer service and an integral part of the overall permit processing operation. Cost Recovery_ Council directed that cost recovery be at 75 percent. Fire Prevention Costs The Fire Department will require two work stations at the Center, but will only have 1.5 FTE dedicated to this function. Non-salary costs were developed as a percentage of major activities in the budget which support Development Center work. One-time expenses such as those for the Emergency Operations Center at City Hall were excluded. Revenues The fees charged for Fire services are set by the Uniform Building Code and are actually collected by Building Inspection, which in turn passes them on to the Fire Department. Cost Recovery. While the City Council has directed that fire prevention services be at 75 percent cost recovery, building inspection services are to be 100 percent cost recovery. While it is Fire staff which performs these services, the fees are set by the Uniform Building Code and collected by Building Inspection. Public Works Costs The Public Works Department will require three work stations and have three full time FTE working at the Center. There will be four staff remaining at City Hall, with a total of seven people working on development related work in the Public Works Department. Staff pro-rated the non-salary expenses in relevant major activities by the percentage of FTE to be housed at the Development Center. This included a pro-rated share of expenses associated with Sand Hill Road. Revenue The revenues associated with development work are budgeted for in one functional area, Private Development. The revenues in this-functional area were pro-rated based on the percentage of staff working at the Development Center. The revenues included a pro- rated share associated with Sand Hill Road. Cost Recovery ~ The City Council had set cost recovery for such services at 100 percent. ATTACHMENT C Salary and Benefit Costs at the Development Center Function Inspection Services Planning Fire Public Works Utilities Total Costs Total Total Total Position Title (Number of FTE) Chief Building Official (1) Assistant Building Official (1) Supervisor, Building Inspection (1) Staff Secretary (1) Office Specialist (1) Building Planning Technician (3) Building Inspector (3) Building Inpector Specialist (3) Plan Check Engineer (3) Code Enforcement Officer (2) Building Planning Technician (2) Associate Planner (1) Planning Manager (.5) Fire Inspector (1) Fire Protection Manager (.5) Engineering Technician (3) Engineering Estimator (2) 1998-99 Salary $93,308 $80,121 $68,848 $42,099 $39,852 $138,963 $171,972 $183,516 $2O5,545 $110,072 $92,642 $58,780 $41,080 $78,249 $43,274 $150,258 NA $1,598,579 Benefits $33,591 $28,844 $24,785 $15,156 $14,347 $50,027 $61,910 $66,066 $73,996 $39,626 $33,351 $21,161 $14,789 $24,257 $15,579 $54,093 NA $571,576 Total Cost $126,899 $108,965 $93,633 $57,255 $54,199 $188,990 $233,882 $249,582 $279,541 $149,698 $1,542,643 $125,993 $79,941 $55,869 $261,803 $102,506 $58,853 $161,359 $204,351 NA $2,170,155 Other Communities ATTACHMENT E The communities are listed in alphabetical order. Most other communities house their Development Center or One-Stop Center in City Hall, and thus did not have to take into account additional costs for leasing a center. Fremont The center is in a public building. Building and Safety Inspections are 100 percent cost recovery. Planning is supported in part by the General Fund. When the Center opened there were some incremental increases in fees. Mountain View Prior to the establishment of its Development Center, in about 1992, Mouhtain View had a consultant come in and measure the overhead associated with the work at the Center so that a cost overhead factor could be developed. The City Council had indicated that it wanted development work to be 100 percent cost recovery. The overhead factor includes stafftime, administrative costs, and rent. It is approximately 50 percent above the fees set by the UBC. Prior to implementing the increased fees, public hearings were held and public notices were mailed. There was no reaction in the development community to the increased fees. San Jose San Jose does not have a Development Center. Rather, it is a single permit center for small developers and individual homeowners. Large development projects are on a different track. There were no additional fees added as part of creating its single permit center, nor were any fees increased. San Leandro The Center is housed in City Hall. The Center is viewed more as an economic development tool in which the intangible returns outweigh the costs. The Center is estimated to be 50 percent cost recovery. Santa Clara The Center is housed in a public building. The City’s focus was customer service rather than cost recovery. Building permit fees are 100 percent cost recovery, and Building overall is close to cost recovery. The services least close to cost recovery are those associated with Planning. Sunnyvale The Center in Sunnyvale is located in City Hall. When the Center was begun, the City began to charge for fire permits and increased plan checking fees. The Building Division is 100 percent cost recovery. Planning, Fire, and Public Works are supported by the General Fund.