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2010 User Fee Study RESULTS ORIENTATION Presentation to the Missoula City Council by: Chad Wohlford, MPPA September 29, 2010 WOHLFORD CONSULTING ---PAGE BREAK--- © Wohlford Consulting - 2010 1 TODAY’S GOALS • Basic Project Orientation • Understand Study Background, Concepts, and Methodologies • Build Confidence in the Process and its Results • Discuss Fee-Setting Issues • Introduce and Explain the Final Study Results • Answer Questions ---PAGE BREAK--- © Wohlford Consulting - 2010 2 Wohlford Consulting • Project Consultant: Chad Wohlford, MPPA • Practice owner & Missoula’s on-site consultant • 13+ years of cost and management consulting • 12+ years as a government analyst/manager • Former State Director (CA/NV) for a large national consulting corporation • Designated “expert witness” / published reference • Past Clients: • 70+ cities, counties, states, and districts, including Missoula in 2003/2004 • 30+ program areas studied ---PAGE BREAK--- Wohlford Consulting 3 Key Project Components • COST ALLOCATION PLAN: (Completed in 2009) Determine the fair distribution of City administration (overhead) costs to the operating departments • USER FEE STUDY: Determine the full cost of providing individual services to City customers 2 Different, but Related, Studies: ---PAGE BREAK--- Wohlford Consulting 4 USER FEE STUDY APPROACH & METHODOLOGY ---PAGE BREAK--- © Wohlford Consulting - 2010 5 USER FEE STUDY Project Objectives (More Than Just Numbers) Establish Objective and Transparent Fee Information Understand the Full Cost of Services (Direct and Indirect) Develop Insight and a Rational Basis for Setting Fees Understand Subsidies and Revenue Impacts Understand User Fees Principles and Context Enhance Fairness and Equity Ensure Compliance with State Law Simplify Fee Schedules ---PAGE BREAK--- © Wohlford Consulting - 2010 6 Project Study Areas Determine the Full Cost of Services for: OPG / Planning Public Works – Engineering Fire Inspections Police Business Licensing ---PAGE BREAK--- © Wohlford Consulting - 2010 7 Project Focus • A Study of the Cost of Services of User Fee Activities at Current or Expected Performance Levels • Not a Management Analysis • Performance or Productivity • Efficiency or Effectiveness • Service Level or Quality • Staffing or Organizational Structure • Comparison of Operations or Services ---PAGE BREAK--- © Wohlford Consulting - 2010 8 USER FEE CONCEPTS ---PAGE BREAK--- © Wohlford Consulting - 2010 9 User Fee Definition User Fee: A fee or rate charged to an individual or group that receives a private benefit from services provided by the City. Not a Tax: • The service is usually a discretionary activity requested by the fee payer. Not Intended to Address Impacts: • Impact Fees for Infrastructure • In Lieu Fees or Assessments ---PAGE BREAK--- © Wohlford Consulting - 2010 10 Fees vs. Taxes Source of Service Funding User Fees User Fees User Fees Taxes (GF) Taxes (GF) Taxes (GF) 0% 100% 100% Private Benefit Some Public Benefit Some Private Benefit 100% Public Benefit Building Permits; Some Rec. Programs Youth Programs Comp. / Adv. Planning Police Patrol Examples: ---PAGE BREAK--- © Wohlford Consulting - 2010 11 Common Fee Concepts User Fees Should Be: • Based on the Cost of Services: Not arbitrary Not unintentionally subsidized or profitable Not unfairly subsidized “Estimated reasonable” cost standard • Fair and Equitable • Consistent with City Goals / Objectives • Compliant with State Law • Dynamic (to address updates & anomalies) ---PAGE BREAK--- © Wohlford Consulting - 2010 12 FEE STUDY METHODOLOGY ---PAGE BREAK--- © Wohlford Consulting - 2010 13 Cost-Based Methodology Overview • Business-Case Cost Analysis: • Rational / Linear Process (Unit Cost Build-up) • Fees Relate to Staff Effort • Fees Vary Based Upon Size and Complexity • Not Based on “Tax” Concepts • Not Revenue Goal Oriented • Calculation Factors: • Staff Time to Complete Activities and Services • Direct Cost of Individual Staff Positions • Rational Distribution of Overhead and Support • Billable (Cost-Recovery) Hourly Rates • Full Cost = Potential Fee (starting point) ---PAGE BREAK--- © Wohlford Consulting - 2010 14 Simplified Conceptual Approach Service ("Fee“) / Activity Time to Complete 1 Activity (hours) X Productive Hourly Rate = Full Cost or Potential Unit Fee X Annual Volume of Activity = Annual Cost or Potential Revenue FEE 10 Intake 0.5 $ 50 $ 25 10 $ 250 Plan Check 1.5 $ 100 $ 150 10 $ 1,500 Inspection 2 $ 100 $ 200 10 $ 2,000 Filing 0.5 $ 50 $ 25 10 $ 250 S&B Total: 4.5 hrs. $89 (avg.) $ 400 10 $ 4,000 Other Cost $ 100 10 $ 1,000 TOTAL COST $ 500 10 $ 5,000 Current Fee $ 300 10 $ 3,000 SUBSIDY $200 10 $2,000 ---PAGE BREAK--- © Wohlford Consulting - 2010 15 $ Supervision and Support $ Capital, Growth, & Other Costs “Full Cost” Includes: $ Direct Salaries & Benefits $ Services and Supplies $ Department Administration $ Indirect Activities $ Cross-Department Support $ Citywide Administration (CAP) ---PAGE BREAK--- © Wohlford Consulting - 2010 16 Quality Control Processes • Guidance to City Staff • Applied Experience (normal range – data/results) • Involvement of Knowledgeable City Staff • Reasonableness Tests • Balance and Cross-Check • Challenge and Questioning • Historical Review • Internal City Review • Consultant Review ---PAGE BREAK--- © Wohlford Consulting - 2010 17 FEE SETTING CONCEPTS ---PAGE BREAK--- © Wohlford Consulting - 2010 18 User Fee Definition User Fee: A fee or rate charged to an individual or group that receives a private benefit from services provided by the City. Not a Tax: • The service is usually a discretionary activity requested by the fee payer. • If a User Fee does not cover the City’s cost for the service, taxes (General Fund) pay for the remainder. ---PAGE BREAK--- © Wohlford Consulting - 2010 19 Fee Setting (Pricing) Considerations • Fairness and Equity • Consistency with City Public Policy • Cost Recovery • Subsidization • Social Impacts / Affordability • Revenue Impacts • Activity Incentives / Disincentives • Impact on Demand (elasticity) • Legal Compliance • Other Factors • Comparable Fees • Constituencies Affected ---PAGE BREAK--- © Wohlford Consulting - 2010 20 Fees vs. Taxes Source of Service Funding User Fees User Fees User Fees Taxes (GF) Taxes (GF) Taxes (GF) 0% 100% 100% Private Benefit Some Public Benefit Some Private Benefit 100% Public Benefit Building Permits; Some Rec. Programs Youth Programs Historic Preservation Police Patrol Examples: ---PAGE BREAK--- © Wohlford Consulting - 2010 21 FINDINGS and RESULTS ---PAGE BREAK--- © Wohlford Consulting - 2010 22 The Meaning of “Results” • Study “Results” will show the FULL COST of Services – Fee and Non-fee • Results will not be the Fees: City Council will set the Fees • “Recommended” fees will come later • Some Fee recommendations will likely not be at 100% of Full Cost • “Subsidy” is the gap between the Fee and the Full Cost • Subsidies are normally covered by General Fund Revenues taxes) ---PAGE BREAK--- © Wohlford Consulting - 2010 23 $ Supervision and Support $ Capital, Growth, & Other Costs “Full Cost” Includes: $ Direct Salaries & Benefits $ Services and Supplies $ Department Administration $ Indirect Activities $ Inter-Department Support $ Citywide Administration (CAP) ---PAGE BREAK--- © Wohlford Consulting - 2010 24 Sample UNIT COST Results – OPG/Planning (How to Read the Results Worksheets) • Sample fees shown in order to demonstrate the results format for all fee areas (as will be included in the consultant’s report) Fee Title Current Fee / Deposit Full Cost per Unit Surplus / (Subsidy) per Unit Full Cost Recovery Rate Wall Sign Permit $ 52 $ 113 61) 46 % Zoning Compliance Permit – Residential $ 78 $ 206 128) 38 % Board of Adjustment Variance – Residential $ 428 $ 2,023 1,595) 25 % Comp Plan Amendment - Commercial $ 6,951 $ 7,067 116) 98 % Subdivision – Minor – 5 lots $ 6,760 $ 9,608 2,848) 70 % Subdivision – Minor – Final Plat Review $ 324 $ 1,423 1,099) 23 % ---PAGE BREAK--- © Wohlford Consulting - 2010 25 The Nature of Revenue Results • Revenue and Unit Fee Comparison: • Current Fee vs. Full Cost • Former Structure (department fees) vs. New Structure (city fees) • Revenue results provide a common basis for comparison, not budget numbers • Based on consistent assumptions and/or projections of annual activity levels for each fee • Revenue estimates in the study may not match budgeted or actual revenues collected • Actual future revenue levels will change: • Fee-setting by the City Council • Activity levels (market conditions) • Change in the “mix” of services and fees • Timing of the implementation of the fees and revenue collection ---PAGE BREAK--- © Wohlford Consulting - 2010 26 General Findings • All Departments have a significant overall current fee subsidy • Billable hours (one measure of productivity) are consistent with other studies. • Some fees have a surplus, but greater numbers and volumes of subsidized fees result in overall subsidies. • 88% of current fees in the study are subsidized • All Staff Hourly Rates are less than full cost – averaging significantly under 50% cost-recovery. • Current hourly rates are significantly lower than those from other cities’ studies. ---PAGE BREAK--- © Wohlford Consulting - 2010 27 OPG / Planning Full Cost Results • 93% of current fees under-recover full cost • Staff rates are only 38% (avg.) of full cost • Affects deposit-based fees • Deposit-based fee revenues = deposit • Combined City-County results FULL COST: Annual Cost of Fee-Related Services CURRENT REVENUE: Projected @ Annual Current Fees CURRENT SURPLUS / (SUBSIDY): Annual Difference COST RECOVERY RATE: Current / Full Cost $ 1,181,000 $ 634,000 547,000) 54% ---PAGE BREAK--- © Wohlford Consulting - 2010 28 Engineering Full Cost Results • 57% of current fees under-recover full cost • Volumes in subsidized fees are enough to create an annual subsidy of $79,000 • All staff rates are significantly less than full cost FULL COST: Annual Cost of Fee-Related Services CURRENT REVENUE: Projected @ Annual Current Fees CURRENT SURPLUS / (SUBSIDY): Annual Difference COST RECOVERY RATE: Current / Full Cost $ 1,263,000 $ 1,184,000 79,000) 94% ---PAGE BREAK--- © Wohlford Consulting - 2010 29 Fire Full Cost Results • 100% of current fees under-recover full cost (no fees currently charged) • All staff rates are significantly less than full cost • Results include common or traditional subsidized or no-cost services, such as periodic life and safety inspections. FULL COST: Annual Cost of Fee-Related Services CURRENT REVENUE: Projected @ Annual Current Fees CURRENT SURPLUS / (SUBSIDY): Annual Difference COST RECOVERY RATE: Current / Full Cost $ 536,000 $ 0 536,000) 0% ---PAGE BREAK--- © Wohlford Consulting - 2010 30 Police Full Cost Results • 76% of Police fees under-recover full cost • Staff rates are only 26% (avg.) of full cost • Results include approximately $1.1M of Accident Investigation and Report costs ($687 cost vs. $5 current fee) FULL COST: Annual Cost of Fee-Related Services CURRENT REVENUE: Projected @ Annual Current Fees CURRENT SURPLUS / (SUBSIDY): Annual Difference COST RECOVER Y RATE: Current / Full Cost $ 1,451,000 $ 126,000 1,325,000) 9% ---PAGE BREAK--- © Wohlford Consulting - 2010 31 Business Licensing Full Cost Results • 54% of current fees under-recover full cost • Volumes in subsidized fees are enough to create an annual subsidy of $534,000 FULL COST: Annual Cost of Fee-Related Services CURRENT REVENUE: Projected @ Annual Current Fees CURRENT SURPLUS / (SUBSIDY): Annual Difference COST RECOVERY RATE: Current / Full Cost $ 1,306,000 $ 772,000 534,000) 59% ---PAGE BREAK--- © Wohlford Consulting - 2010 32 Citywide Annual Full Cost Results Department / Division FULL COST: Annual Cost of Fee- Related Services CURRENT REVENUE: Projected (annual) @ Current Fees SURPLUS / (SUBSIDY) (Current Revenue – Full Cost) CURRENT COST RECOVERY RATE (Current / Full Cost) OPG/Planning $ 1,181,000 $ 634,000 547,000) 54% Engineering $ 1,263,000 $ 1,184,000 79,000) 94% Fire $ 536,000 $ 0 536,000) 0% Police $ 1,451,000 $ 126,000 1,325,000) 9% Business Lic. $ 1,306,000 $ 772,000 534,000) 59% TOTALS: $ 5,737,000 $ 2,716,000 3,021,000) 47% ---PAGE BREAK--- © Wohlford Consulting - 2010 33 CITYWIDE RESULTS SUMMARY • Current overall annual subsidy of $3.0 million • Overall Cost Recovery Rate for Fee Services Only is 47% • The subsidy includes $1.1 million for Accident Investigation and Reports, which is unlikely to be collected • Potential revenue increase (to Full Cost) of $1.9 million • Without a fee increase or reductions in operating costs, common taxes (General Fund) or other funds will continue to provide subsidies to fee payers ---PAGE BREAK--- © Wohlford Consulting - 2010 34 Next Steps • City Staff will consider general fee-setting and cost recovery goals and solicit direction from the Council. • City Staff will distribute Consultant's final report and detailed lists of cost results and findings. • City Staff will work to develop “Recommended” fees for the Council’s consideration (based on Council goals). • City Council will set the final fee levels and establish the implementation date. • Departments will update fee schedules and reprogram electronic permit systems. • New fees will go into effect on the designated date. • Council may set an overall cost-recovery policy to guide future staff action. ---PAGE BREAK--- © Wohlford Consulting - 2010 35 “Typical” Recommendations (From Other Consultant Studies) • Staff Rates @ 100% Cost-Recovery subsidy) • Most Fees @ 100% Cost-Recovery subsidy) • Sample Exceptions: • Public Safety Fees (causing excessive non-compliance) • Appeal Fees • Fees Charged to Partner Community Groups • Fees Limited by the State or Other External Entities • Fees Charged to Disadvantaged Groups • Phased Approaches ---PAGE BREAK--- © Wohlford Consulting - 2010 36 QUESTIONS? Chad Wohlford, Project Manager [EMAIL REDACTED] For further information, please contact: