City Council Meeting - FINAL

11.B.

Meeting Date:	06/20/2017
From:	Rick Tadder, Management Services Director

Information

TITLE:

Consideration and Adoption of Ordinance No. 2017- 16: An ordinance of the City Council of the City of Flagstaff, Arizona amending the Flagstaff City Code, Title 3, Business Regulations, Chapter 3-10, User Fees, to increase or modify fees for Planning, Engineering, and Fire Department services and amending procedures related to annual review and adjustment of fees; amending Title 4, Building Regulations, Chapter 4-03, International Building Code, to provide for adoption of fees by resolution; providing for penalties, repeal of conflicting ordinances, severability, and establishing an effective date.

RECOMMENDED ACTION:

1) Read Ordinance No.2017-16 by title only for the final time
2) City Clerk reads Ordinance No. 2017-16 by title only (if approved above)
3) Adopt Ordinance No. 2017-16

Executive Summary:

City staff, with the assistance of MGT America, has completed user fee studies for Planning and Development, Engineering, Fire, and Recreation services. The studies calculate the full cost of providing such services and the current cost recovery. Staff presented an overview of the results to the City Council at the February 15, 2017 Budget Retreat. During the retreat, Staff recommended the following cost recovery: 53% of Planning and Development costs, 100% of Engineering costs, and 73% of Fire costs. Staff recommended that Recreation fees remain the same with a result of a lower overall cost recovery of approximately 38%. Staff has completed the community outreach and is now requesting the adoption of fee changes.

Financial Impact:

The proposed new fee schedules, if adopted, will generate an increase in operating revenues for the General Fund. The proposed new Planning and Development fees (set at 53% cost recovery) will provide an approximate $280,000 annual increase to revenues. The proposed new Engineering fees (set at 100% cost recovery) will provide an approximate $960,000 annual increase to revenues. The proposed new Fire fees (set at 73% cost recovery) will provide an approximate $160,000 annual increase to revenues. The Fiscal Year 2018 Budget includes expenditures that rely on these new revenues. Should the Council decide to adopt user fees at different levels of cost recovery, the City Manager will need to reconsider budget expenditures.

Policy Impact:

Staff recommends that Council adopt user fees based on the cost recovery rates described in this staff report to support policy goals embodied in the Fiscal Year 2018 Budget.

Connection to Council Goal, Regional Plan and/or TeamFlagstaff Strategic Plan:

Increased revenues in the General Fund provides resources to help advance Council Goals, Regional Plan, and the Team Flagstaff Strategic Plan.

Has There Been Previous Council Decision on This:

Staff presented to Council during the February 15, 2017 Budget Retreat.

Options and Alternatives:

1) Approve Ordinance 2017-16 with the user fee schedules as presented by staff.
2) Amend Ordinance 2017-16 with adjustments to the user fee recovery policy and adjust the schedules accordingly.
3) Amend Ordinance 2017-16 by adjusting or deleting specific fees on the schedule.
4) Amend Ordinance 2017-16 by phasing in certain user fees increases over a set period of time per Council direction.
5) Do not approve Ordinance 2017-16 and provide staff direction regarding the funding of services identified for user fees.

Background and History:

The City of Flagstaff has historically charged user fees for numerous City services. User fees must be related to the costs of providing the service. In Fiscal Year 2015, the City entered into contact with MGT Consulting Group (MGT) to provide a comprehensive user fee study to evaluate Planning and Development Services, Engineering, Fire, and Recreation services fees. MGT is a nationwide professional services firm that delivers a diverse range of services for public sector organizations and has been providing financial services for over 30 years. The company is a leading expert in many financial services including cost analysis and user fee development. The City has used MGT for our annual cost allocation plan and federal indirect rate proposal. The last time the City did a comprehensive user fee study was for these City services was in Fiscal Year 2009.

MGT uses the methodology of Full Cost Calculation to determine to cost of each user fee. This entails including all the costs related to delivering service such as direct staff time and expenditures, Section and Divisional indirect costs, and City wide indirect costs. The study was performed under the general direction of the Finance Section with participation from several key staff members from each affected Division or Section. Staff defined all the services provided as well as determined the costs to provide each service. During this process staff allocated specific level of staff effort to perform each service. Staff not only provided an updated cost of providing service for existing fees, they identified several services that the City has been providing without charging a user fee. Upon completion of the full cost of service plan, staff reviewed the results, discussed the results with MGT and management, and provided recommendations for changes to existing fees as well as new fees for services to Council on February 15, 2017. Below is a summary of results and recommendations.

Planning and Development Services:
The Planning and Development Services Section (Planning) consist of programs for Current Planning, Comprehensive Planning, Building Safety and Code Compliance. Planning staff analyzed all services in the current study and are presenting 49 user fees for consideration which includes 10 new service fees that were identified. The last complete study of Planning user fees occurred in 2009.  Council approved rates based on a 50% cost recovery policy. The new user fee study shows that Planning is currently recovering 37% of service costs.

Planning and Development Services fees fall in two general categories: flat fees and tiered fees. Tiered fees include a flat fee plus either a per acre or per lot fee. All of these fees were last increased in 2013. At that time Planning fees increased by 42% in part to fund an Associate Planner position. The estimated cost recovery was 71% of the costs to provide the service. It should be noted that the current study was much more comprehensive in identifying not only our costs within the Section, but also administrative overhead associated with organization support. So while the costs of providing services has increased, the current study captures costs not previously included.

Planning is recommending a mix of recovery percentages based on the type and purpose of the application. Applications which are required at the beginning of the process and are intended to help an owner decide if they wish to proceed with a project such as concept plan and concept plat have been kept well below the full cost recovery. For several services the sample size for the study year only included one application, which does not reflect an average of several applications. Staff is recommending 100% cost recovery for 16 of the 23 flat fees presented in the study.

There are also a number of tiered fees which include a flat base fee and an additional fee based on the acreage or number of lots of the project. These include zoning map amendments, general plan amendments and subdivisions.   After completing the cost analysis for these fees, it became extremely difficult to identify which portion of the fee should be increased, either the base or increment. For this reason, staff is recommending a uniform 20% increase on all tiered fees. The fee table provides examples of projects with a sample acreage size or lot count.

Staff has also identified a number of services which currently have no fee. New fees are shown on the bottom of the spreadsheet and include a fee for the review of lighting permits, temporary uses and home occupations.

Engineering:
The Engineering Section consists of programs for Transportation Engineering, Development Engineering and Construction Inspection & Testing.   Engineering staff analyzed all services in the current study and are presenting 11 user fees for consideration of which includes 3 new service fees that were identified. The last complete study of Engineering user fees occurred in 2009.  Council approved rates based on a 50% cost recovery policy. The new user fee study shows that Engineering is currently recovering 36% of service costs.

Engineering Section currently has eight (8) fee categories. These fees were established in the last MGT study in 2009 except that the Materials Testing fee was established in FY14 at the time that we eliminated our Laboratory and then contracted these services to private sector. Materials Testing fee is based on 100% recovery of the amount paid to the private sector service provider. All other fees are based on the 50% cost recovery policy established by City Council.

The current MGT study has shown that our actual revenue collected from the established fees is not tracking with the established cost recovery policy and adjustments are required to either target the current cost recovery policy or another level of recovery as directed by City Council. In addition, we have identified three (3) new service fees that will help staff more accurately charge our customers for the services we provide. In the case of the Inspections (capital improvements) we have recognized that a 1% credit is due since Development Engineering Project Managers are not involved with capital projects to the extent they are involved with private development projects. We have created a new Parking Lot Maintenance Permit to help existing businesses comply with current standards for handicapped parking spaces (including van accessibility) and parking stall/isle widths. And, we have formally established an in-lieu fee for chip seal treatments associated with new pavements. This fee is collected for all new asphalt pavement placed and transferred to the Street Maintenance Program for installation as part of the city-wide annual maintenance projects.

Staff recommends that the cost recovery for fees that are associated with project site plan approval (Traffic Impact Analysis) remain at the current cost recovery policy of 50%. For all other engineering fees, that are associated with construction of public improvements (soils reports, construction plan review, inspections, materials testing and parking lot maintenance permits), staff recommends that a cost recovery of 100% be established so that public funds are not supplementing construction of developments.

Fire:
The Fire Department provides services to the community through the extension of Operations (Emergency Medical Services, Fire Suppression, Special Operations), Wildland Fire Management, Community Risk Reduction, and Emergency Management.
The services for which fees are collected are categorized as follows:

Development Permits (Construction) which recover costs typically for plan review and inspection of new/modified life safety/fire protection systems.
Operational Permits which recover costs supporting permit issuance for special fire and life safety risks caused by storage or operations in businesses as identified by the International Fire Code.
Special Events which recover plan review and inspection costs to ensure minimum Fire and Life Safety Standards are in place for special events.
Wildfire Management which recover costs associated with plan review, inspections, and services in support of the implementation of the Wildland Urban Interface code.
Staff/Labor which recover costs of special inspections or standby of emergency response personnel.

The Fire Department fee schedule is expanded significantly to address gaps in the user fee schedule and inequities caused by lack of scale, e.g. the same for plan review/inspections for a 5000 square foot structure and a 250,000 square foot structure. The existing fee schedule is approximately 15 user fees across the range of services listed above. The new study recommends 80 user fees to address the full range of services/permits issued by the fire department while also addressing the issue of scale. The existing policy target for cost recovery for fire department services is established at 30%. The study estimates the Fire Department recovery rate currently is 24%.

Staff recommends a mixed level of cost recovery based upon Council, community, and feedback. The recommendations for cost recovery are as follows:

Development Permits: 100%
Operational Permits: 40%
Special Events: 100%-50% for Non-Profit Events.
Wildfire Management: 9%
Staff Labor: 100%

Recreation:
The Recreation Section consist of programs to run four activity centers, adult athletics, and community services/events. The new user fee study shows that Recreation is currently recovering 46% of service costs and cost recovery will be lowered to 38% as a result of new minimum wage requirements. During the February 15, 2017 Budget Retreat, staff recommended to not change any existing user fees. Council agreed with staff's recommendation and therefore no increase is being presented at this time.

Title 4 Amendments:
This ordinance will also address an update to Title 4 as it relates to Building permits and fees. In the past building permit fees were adopted by motion. The ordinance will provide that building permit fees be adopted by resolution. Proposed increases to building permit fees are being presented in a separate staff report. The ordinance also includes clerical revisions, and removes references to outdated methodology.

Community Benefits and Considerations:

The City is considering the adoption of the FY 2018 budget which includes an incremental revenue increase in the amount of $670,000 to be generated through new or increased rates of existing user fees. Should the City not adopt these fees, the City Manager will evaluate the continuation of certain program expenditures to keep the City budget balanced.

Expanded Options and Alternatives:

Inform and Involve

On February 15, 2017 the City held a Budget Retreat which was open to the public to attend. On April 6, 2017, the City posted a Notice of Proposed New or Increased Fees on the City website and provided notification through City social media resources. This process is required pursuant to Arizona Revised Statute Section 9-499.15.

In addition City staff provided outreach to the community by meeting directly with certain business groups as well as having two open houses with several agencies invited to attend.

Special Events Coordinators (March 14th - Fire)
Fire Protection Contractors (April 4th – Fire)
Northern Arizona Builders Association (April 12th - Fire)
Planning & Zoning Commission (April 26th - Planning/Engineering)
Northern Arizona Builders Association (May 10th - All)
Chamber of Commerce (May 18th – Fire)
Transportation Commission (June 7th)

Open Houses April 27th & May 1st (All) invitees included:

Northern Arizona Association of Realtors
Chamber of Commerce
Consultants and Contractors
Developers & Applicants
Utility Companies
Downtown Business Alliance
Neighborhood Groups
Friends of Flagstaff’s Future

Attachments
Ord. 2017-16
Fee Change Crosswalk
User Fee Study
Planning Outreach Document
Fire Outreach Document
Fire Outreach City Comparison
Engineering Outreach Document