Fees for service

They’re at it again.

A little more than a month ago, Council voted to increase the fees charged to Alamedans for “fire prevention services” by a total of $1,876,194 over a four-year period.

Tuesday, the Council members will be asked to raise the fees charged for a variety of “permit services.”  The total increase this time comes to $921,065 – annually.

If Council approves the new fees, the costs of residential construction in Alameda will go up – for developers (who may be able to afford the new fees) and even ordinary citizens (who may not).

Suppose, for example, you’re a developer seeking a CEQA exemption and a density bonus for your project.  Be prepared to pay $6,493 for an environmental review of the exemption request and to deposit $6,000 for a staff review of the density-bonus application.  At present, there is no charge for either service.

Or suppose you’re a homeowner contemplating putting an “Accessory Dwelling Unit” in your backyard (as our housing advocates would encourage you to do).  Be prepared to pay a $649 “ADU clearance” fee and a $1,515 fee for design review (if the unit requires it).  These, too, are new charges.

The new fee schedules are based on two studies by a consulting firm called NBS that purport to estimate the cost of providing specific services to Alameda residents.  According to the staff reports, the goal of the studies was “to ensure that existing fees do not exceed the costs of service and to provide an opportunity for the City Council to re-align fee amounts with the adopted cost recovery policies.”  (Notably, neither study found any instance where the fee charged by the City was too steep.)

It’s not exactly clear from the staff reports when and by whom those “cost recovery policies” were adopted or what exactly they are.  Apparently, it is considered – by someone – necessary or desirable for the City to charge user fees high enough to recover nearly 100% of the estimated cost of the “permit services” provided by the planning and building divisions.  (Under state law, the fee can’t exceed 100% of cost.)

But not so for the “permit services” provided by the public works department – there, the City is content to recoup only 42% of estimated costs – or the “fire prevention services” provided by the fire department – there, under the new schedule, user fees will pay for 48% of estimated costs in the first year, rising to 59% in the fourth year.

Is there something else going on here beyond a mere desire to recover costs?

You betcha.

For one thing, new fees can be used to finance new programs.  Indeed, Fire Chief Edmond Rodriguez explicitly linked his proposal to create a new $355,000-a-year “division chief/fire marshal” position – and buy the marshal a $70,000 staff car – to an increase in “fire prevention” fees.

The amounts in the new fee schedule for the fire department “were calculated to cover the expense of the additional position’s salary and benefits,” the Chief wrote in the March 5 staff report.  The fee increases would not take care of any future increases in CalPERS pension contribution rates, the report warned, but, at the Council meeting, the Chief promised that “we’re always going to . . . ensure that the addition of the fire marshal position has no impact in the future to the General Fund.”

The pitch worked.  Vice Mayor John Knox White expressly justified his vote for the new position on the expectation that the fee increases would pay for the additional costs.  He had spoken with Chief Rodriguez about the staffing proposal soon after having taken office, Mr. Knox White said.  “I told him at that point in time that as long as they could bring something forward that provided a needed service, that had a net zero impact on the General Fund, that I would be open to supporting it.”

(Of course, Mr. Knox White also might have been influenced by the endorsement and $10,116.17 in financial support he got from the Alameda firefighters’ union in his successful campaign.  If so, he failed to mention it when he explained his vote.)

More broadly, the fee increases can result in additional revenue for the City at a time when it desperately needs it.

According to the March 2019 mid-cycle budget update, the City will incur an operating loss – i.e., expenditures will exceed revenues – of $174,235 in fiscal year 2018-19.  And the future looks even bleaker:  the five-year forecast presented to Council last June showed operating deficits in the General Fund of $576,000 in FY 2019‑20, $2,918,000 in FY 2020‑21, and $4,660,000 in FY 2021‑22.

Already, Council has proposed, and the voters have approved, two tax measures designed to produce more cash for the General Fund:  the “modernization” of the utility users’ tax in 2016 and the half-cent increase in the sales tax in 2018.  According to the latest budget report, UUT revenue jumped from $8,368,124 in FY 2015-16 to a projected $9,494,000 in FY 2018-19.  The sales tax increase only took effect this month, but the ballot measure represented that it would yield an additional $5 million every year.

But the tax well may have run dry.  If so, the focus may shift to increasing user fees – or adding new ones – as a way to generate the funds needed to cover the anticipated operating deficits.

According to the March 2019 budget report, “program revenues” are projected to be $6,744,500 in FY 2018‑19.  Presumably, this total includes all of the user fees now being charged by the City.  Assuming that the funds produced by the two most recent rounds of fee increases find their way into the General Fund, this total would jump by $1.5-to-$2.0 million a year.  That still may not be enough to get rid of the operating deficits, but it’s a start.

So what’s next?  If it seems to be getting to the point where living in Alameda is like flying on United Airlines, well, you may not have seen anything yet.

For starters, there is one other major City department that has not yet been subject to a “fee study” that could be cited to justify an increase in the fees it charges to Alameda residents:  recreation and parks.

According to the staff report presented to Council last December, rec‑and‑parks fees are not determined strictly on the basis of the cost of providing specific services.  “Fees are intended to recover costs as a whole system while balancing the benefits for the community and individuals,” the report stated.  “For example, programs that are available to a broad section of the community as well as at-risk populations, such as the free Parks and Playgrounds program, free Summer Rec Baseball, Mastick Senior Center activities or Recreation Afterschool Program (RAP), have a lower cost recovery rate than programs with individual benefit to specific user groups, such as facility rentals or adult sports leagues, with a higher cost recovery rate to offset and balance the total budget.”

But there’s no reason why a Council searching for additional revenue sources needs to stick to that policy.

Under the two-year budget adopted in June 2017, “fee-based” rec‑and‑parks programs are expected to generate revenue of $2,875,000 in FY 2018-19.  But this amounts to only 60% of the costs associated with the programs for which those fees are charged.  The difference is made up out of the General Fund (a budgeted transfer of $1,856,000 in FY 2018-19).

If Council adopted a 100% “cost recovery policy” for the “fee-based programs” offered by the rec-and-parks department, it would create an additional $1,905,000 in fee revenue, thereby eliminating, or at least reducing, the need to transfer money from the General Fund and freeing up an equivalent amount of funds for deficit reduction – or something else.

Recreation and Parks Director Amy Wooldridge told us that she did not have “any immediate plans or contracts for a fee study” for her department, but we’re sure that, if NBS were assigned the task, they could come up with ideas.  We can even think of a few of our own.

Take the Jean Sweeney Open Space Park for example.  Everyone in Alameda may be able to use the park grounds, but not everyone wants to use the bike path.  So why not keep admission to the park free but charge an access fee to bikers?  The tricyclist in our household says she likes the bike path so much that she’d be willing to pay a buck or so for the privilege of riding there.  Maybe the members of Bike Walk Alameda would do the same.

And then there’s the library.

From the standpoint of cost recovery, the library department is even worse than the rec-and-parks department.  In FY 2018-19, “program revenues” are budgeted to be $2,394,000, which represents only 52% of total costs.  Again, a transfer from the General Fund – $2,097,000 in FY 2018-19 – will be needed to make up the difference.

Moreover, it appears from a review of the annual staff reports that the fees charged by the library have remained the same since FY 2012-13 (except for a small change in staff billing rates adopted in December 2018).  Indeed, the City even eliminated one charge – for “material reserves” – in the most recent fee schedule.

Think of what NBS could come up with if it were turned loose on the library!  And we’ve got our own ideas here, too.  From time to time we relive our college days by reading microfilm of old newspapers at the Alameda Main Library – for free.  But it costs money to keep those rolls in boxes and to hire staff to organize and retrieve them.  Why shouldn’t the City charge researchers a user fee to pay for this service?

If the result of a fee study for the library were to move the cost-recovery percentage from 52% to 100%, another $2,234,000 would go into the City’s coffers.  That would enable Council to make a significant dent in the operating deficits – as long as it doesn’t decide to spend the newfound cash on something else, like hiring more firefighters.

We are, of course, being a little bit facetious about the latter alternative:  Surely, even the current Council majority would not impose additional fees on parks and library users in order to get more money to give to the fire department.  Or at least we hope not.

Likewise, we’re really not arguing that the City ought to charge a fee for each and every service it provides.  An Alameda resident should be entitled to get something from her government for her taxes without having to pay for it separately.

But since we’ve started down this path, why stop here?  Indulge us as we “think outside the box” for just a moment.

When we read about the social-welfare programs being proposed by the “progressive” candidates for the Democratic presidential nomination, we give particular attention to how they intend to pay the cost.  Senator Elizabeth Warren has put forward an idea that caught our eye:  a tax on a family’s wealth above $50 million at 2% a year, with an additional surcharge of 1% on wealth over $1 billion.

Which got us thinking:  Why not do something similar in Alameda?  True, taxing Alamedans based on their net worth at the levels in the Warren plan probably wouldn’t generate much revenue.  (Know any of your neighbors who are worth $50 million?)  But maybe Council could identify particular high-end assets and tax those Alameda residents who own them.

Owners of luxury cars might be one target.  If you have a $100,000 Tesla in your garage, you’d owe the City $2,000 a year.  Not only does this raise money for the General Fund, it also increases the cost of automobile ownership, which may lower the number of single-occupancy-vehicle trips and thereby reduce carbon-dioxide emissions.  In some circles they’d call that a “win-win.”

We’d hope that Council members Knox White, Oddie and Vella would endorse our plan.  Unfortunately, Mayor Marilyn Ezzy Ashcraft might be opposed.  Ever see the car in the Mayor’s parking space at City Hall?  Alas, we’re told it’s a Tesla.

Sources:

Fire department user fees: 2019-03-05 staff report re new fee schedule & division chief; 2019-03-05 Ex. 1 to staff report – Fee Study

Planning/building & public-works department user fees: 2019-04-16 staff report re planning, etc. fees; 2019-04-16 Ex. 1 to staff report – Fee Study

General Fund budget: 2017-06-06 Ex. 2 to staff report – Budget Summary General Fund and All Other Funds; 2019-03-19 Ex. 1 to staff report – 2018-19 Mid-Year Budget Update Amendments

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Hall and tagged , , , , , . Bookmark the permalink.

5 Responses to Fees for service

  1. Eric Strimling says:

    How do we compare to other Cities, such as San Leandro or Pleasanton, in terms of fees for services?

    I do like the local income tax idea though.

  2. carol says:

    Last time I looked, the Ashcrafts have a Tesla and a Porsche 911. Double luxury tax there.

  3. Steve Gerstle says:

    If the mayor and council are truly concerned about the affordability crisis, they should push for tax and fee control in addition to rent control.

  4. carol says:

    Last time I used the microfiche rolls in the library, they were self-service. Like a Forrest Gump box of chocolates.

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