Staff recommends that the City Council authorize staff to conduct a Building Safety and Planning Fee Study. This study will provide data needed to determine if the City’s development related fees are in compliance with state law and will provide a basis for future rate setting. This study will include the development of a citywide cost allocation plan for costs associated with central services. This plan is needed to determine the true cost of providing development-related services.

Staff further recommends that the City Council approve a contract with DMG Maximus (formerly David M. Griffith & Associates, LTD) for the performance of the fee study and development of the citywide cost allocation plan. The cost of the Building Safety and Planning Fee Study will be in an amount not to exceed $27,500. The cost of the cost allocation plan will be in an amount not to exceed $20,000. The agreement also allows for the reimbursement to the consultant of up to $2,000 for out-of pocket expenses. A budget modification for $49,500 is proposed in this report to cover the costs of this study.

There are several critical factors which must be considered when setting development-related fees, including: full recovery of all costs associated with the related service; equity between the users of the services; and possible subsidy of fees in furtherance of approved public policies. An informed decision cannot be made on any of these issues without knowing the true cost of providing the related services.

Additionally, state law provides that development related fees (planning, building safety, engineering) cannot exceed the costs of providing the service, without a vote of the people (Government Code 66014 (a)). Recent legislation, legal opinion and court action have become ever more rigorous in evaluating the extent to which building fees match costs, and the building industry has shown an increasing level of interest in the basis for development-related fees in a number of municipalities.

A comprehensive evaluation of the City's development related fees and the development of a citywide indirect cost allocation plan will provide the data needed to determine the City's compliance with state law. Such a study would also provide the City Council with the data needed to make informed decisions when setting development-related fees.

The proposed study will focus upon defining the true cost (direct and indirect) of providing building safety and planning services. A list of specific fees and services covered by this study is provided for Council's review as Attachment A.

A key component of the proposed cost analysis will be the development of a citywide cost allocation plan for central services (e.g. Finance, Office of the City Manager, etc.) costs. Staff recommends that this plan use guidelines established by the Federal government (OMB Circular A-87) as the basis for allocating overhead costs. Use of the Federal guidelines, along with a rigorous multiple step-down, cross allocation methodology, will ensure that overhead costs are allocated in a fair, consistent and defensible manner.

This study will include the calculation of costs and (possible) subsidies of the cities current fee structure and may identify candidates for new fees.

At the conclusion of the study, estimated at February 1999, a proposed development fee structure will be presented to the City Council. The goal is to have any revisions to the existing fee structure implemented in Fiscal Year 1999/2000.

Staff has identified four firms that have provided similar services for other California cities. Based on a survey of a number of other entities and the City’s own experience, staff is recommending that the City Council authorize an agreement with DMG Maximus for the completion of the proposed study of a cost allocation plan.

DMG Maximus is one of the nation's and California's leading firms in providing local government cost of services analysis. This firm has worked for all 58 California counties and over 125 cities. Their computer models for cost analysis set the standard for studies of this type. Further, DMG Maximus has provided services to the City of Sunnyvale in the areas of mandated cost and emergency cost recovery. We have been extremely satisfied with their expertise.

The cost of the Building Safety and Planning Fee Study will be in an amount not to exceed $27,500. The cost of the cost allocation plan will be in an amount not to exceed $20,000. The agreement also allows for the reimbursement to the consultant of up to $2,000 for out-of-pocket expenses. These amounts are comparable to that which was paid by other government entities for similar studies.

The outlay of $49,500 in Fiscal Year 1998/99 will cover the cost of the fee study and cost allocation plan.

Any further fiscal impact, either positive or negative, will depend upon the outcome of this study.

A budget modification for $49,500 is requested to cover the cost of this project, as follows:

Notice has been provided through the publication of the City Council agenda.

1. Authorize staff to proceed with the Building Safety and Planning Fee Study and development of a citywide cost allocation plan. Also authorize staff to contract with DMG Maximus for the completion of this study and authorize a budget modification in an amount not to exceed $49,500.
2. Authorize staff to proceed with the Building Safety and Planning Fee Study and development of a citywide cost allocation plan. Direct staff to propose an alternative consultant for the completion of this study.
3. Do not authorize staff to proceed with the Building Safety and Planning Fee Study.

It is recommended that the City Council approve alternative number 1.

Approved by:

Robert S. LaSala
City Manager