Transcript South & West Area Business Association

Fee Structure Methodologies
CALAFCO 2010 Annual Conference
October 7, 2010
Fee Structure Methodologies
Presentation of various methodologies and the legal requirements for establishing a
nexus. Rich Bottarini and Scott Browne will present their understanding of fee structures
and explain the legal requirements which must be considered, highlighting the
importance of transparency, fairness, and ample justification in this process.
General Observation
Most LAFCOs have comprehensive and clearly-articulated fee
schedules and policies.
Since 2001, more pressure on LAFCOs by cities and districts to
fund LAFCO operations from fees.
Overview
Elements of a Fee Schedule
How Important are Fees?
What is Your Existing Policy?
LAFCOs’ Fee Structures
Determining Your Hourly Rate
Direct Costs
Indirect Costs
Flat, or Fixed, Fees v. Time & Materials Fees
General Goal of Most Fee Schedules
and Studies
The purpose of most fee studies is to
determine the full cost of operations and the
maximum fees that may be assessed, given
actual expenditure requirements.
This does not mean that a fee will be
charged; it documents only what can be
legally charged.
Full Cost
“Full cost” includes all legitimately eligible
direct and indirect costs associated with
providing each service, including direct
support costs from other divisions, plus
overhead.
Elements of A Fee Schedule
The more complete fee schedules include:

Identification of Action or Application

Amount of Deposit or Fee

Description of Charges

Deposit Updates/Replenishments

Waivers

Due and Payable Prior to Finalization of Application

Staff Charge-Out Rates
How important Are Fees?
Not very!! Well, it depends on whether you
are paying the bill.




2007 CALAFCO Survey found:
 Average budget recovery by fees was around 12.88%
 Highest recovery reported rate was 45% by Plumas.
 Lowest reported was 0-1% by Inyo, Alpine and Stanislaus.
30 of the 58 LAFCOs responded.
Sonoma LAFCO recovery rate in 2007 was 10%.
Example: LAFCO fees collected in 2009 saved the Bennett
Valley Fire Protection District $96.30 out of a District budget of
$680,000.
What is your existing policy?
Does your Commission have a Fee Policy? Does it:

Provide guidance on collection – timing and deposits?

Articulate the relationship of fees to services provided?

Provide for waivers?

Does it include a annual review or CPI Adjustment?

Allocate revenues to offset apportionments to funding
agencies?

Set a cost recovery goal?

Is your fee policy in the Fee Resolution?
Example: El Dorado LAFCO
2.2 LAFCO FEES
 2.2.1 Application of Fees
 (a) Starting with February 7, 2007, the Commission shall review fees every two years
and adopt a fee schedule for the purpose of recovering the costs pursuant to the
Cortese-Knox-Hertzberg Act (§56383(a) ,§56384, §66016). See Section 7.2, Fee
Schedule.

(b) The schedule of fees shall not exceed the estimated reasonable cost of providing the
service for which the fee is charged and shall be imposed pursuant to §66016 and
§56383.

(c) No petition shall be deemed filed until the fee has been deposited (§56383(c)).

(d) Any individual or entity that requests a LAFCO initiated study or service review of
special district changes of organization or reorganization shall be responsible for
required fees. Fees are due immediately after LAFCO acts to initiate the study. LAFCO
will encourage cooperatively developed fee sharing agreements for LAFCO initiated
multi-agency service reviews.
Types of Fees
•
Time and Material:
Fee based on hourly rate applied to applications X actual
number of hours worked
•
Flat, or Fixed, Fee:
Fee based on a reasonable estimate of the cost of
providing the service
•
Variations:
Most common variation is the fee based on acreage or on
number of parcels.
Summary of LAFCO Fee Structures
Recent Survey of LAFCOs’ Fee Schedules –
Predominant Types of Fees
•
22 - Time and Material
•
11 – Flat, or Fixed, Fee based on time studies
•
9 - Variations – Acreage or parcels
•
9 - Combinations
Most are combinations of time and material, fixed
fees and acreage. Few are true to one
methodology.
Basic
All fee schedules start with a staff
hourly rate structure.
How do you determine your hourly rate?
Direct Costs
Direct costs are staff salaries and benefits (labor) directly related to the applications function, supported by time
estimate studies. Salary and benefits are converted into productive hours so that vacation and leave time are
not factored into the direct costs. For example, a full time staff person represents 2,080 paid hours per year, of
which 1,800 hours are considered to be “work hours.” To account for breaks, meetings, etc. that are not
technically “billable hours,” discount “work hours” by 300, or about 14%, to arrive at the 1,500 “billable hours.”
Indirect Costs
Indirect costs represent all costs that are neither direct costs nor excluded costs. Examples of indirect billable
costs are staff time spent in training, or general office operations, services & supplies cost, such as office rent,
and lastly, the calculated overhead. To get an indirect cost rate, total the indirect costs of salaries & benefits
and services & supplies and divide it by the total direct salary and benefits (labor). The rate is in the form of the
percentage of the direct costs.
Other Costs
Cost of the legally required “constitution” – Spheres of Influence and Municipal Service Reviews
How do you determine your hourly rate?
First, direct costs
Direct costs are staff salaries and benefits (labor), directly related to
the applications function. Salary and benefits are converted into
productive hours so that vacation and leave time are not factored into
the direct costs. For example, a full time staff person, represents
2,080 paid hours per year, of which 1,800 hours are considered to be
“work hours”. To account for breaks, meetings, etc. that is not
technically “billable hours”, the auditor discounted the “work hours” by
300, to arrive at the 1,500 “billable hours”. The Auditor then
calculated an “indirect” percentage cost portion for those hours, by
dividing 300 by 1,800 to arrive at the 16.7% indirect cost portion.
Direct Costs and Indirect Rate
Budget
Portion
Indirect
Direct
Indirect
Excluded
Asst Executive Officer
118,727
0.167
98,939
19,788
0
Executive Officer
133,163
0.167
110,969
22,194
0
71,147
0.167
59,289
11,858
0
8,248
0.500
0
4,124
4,124
269,198
57,964
4,124
Salary & Benefits
Secretary to the Commission
Commissioners
TOTAL SALARIES & BENEFITS
331,285
Continued
Services & Supplies
COMMUNICATIONS
1,568
1.104
0
1,325
0
MEMBERSHIPS
3,349
1.000
0
3,349
0
OFFICE EXPENSE
4,500
1.000
0
4,500
0
POSTAGE
3,000
1.000
0
3,000
0
750
1.000
0
750
0
4,400
0.000
0
0
4,400
COUNTY SERVICES
22,552
1.000
0
22,552
0
LEGAL SERVICES
40,000
0.250
15,000
10,000
15,000
AUDIT/ACCOUNTING S
3,500
1.000
0
3,500
0
PUBLIC/LEGAL NOTICE
3,000
1.000
0
3,000
0
SMALL TOOLS
3,960
1.000
0
3,960
0
TRAVEL EXPENSE
9,000
1.000
0
9,000
0
PRIVATE CAR EXPENSE
6,800
1.000
0
6,800
0
10,200
1.000
0
10,200
0
1,590
0.333
0
530
1,060
PRINTING SERVICES
PROFESSIONAL/SPECI
DATA PROCESSING
UNCLM-OT-BETWEEN E
TOTAL SERVICES & SUPPLIES
118,169
15,000
82,466
20,460
EXPENDITURE TOTAL
449,454
284,198
140,430
24,584
How do you determine your hourly rate?
The second factor is the indirect rate.
Indirect costs represent all costs that are neither direct costs nor
excluded costs. Examples of indirect billable costs are staff time
spent in training, or general office operations, and services & supplies
cost, such as office rent, and lastly, the calculated county overhead.
To get an indirect cost rate, the Auditor totaled the indirect costs of
salaries & benefits, and services & supplies and divided it by the total
direct salary and benefits (labor). The rate is in the form of the
percentage of the direct costs.
The rate is in the form of the percentage of the direct costs. Many
agencies use the A-87 calculations.
Direct Costs and Indirect Rate
140,430
Indirect Cost Rate
=
-------------269,198
= 52.2%
How do you determine your billing rate?
To calculate the billing rates, the Auditor determined the direct salary and benefits
costs for each staff member and divided it by the number of service hours per year.
That calculation provides the direct rate. To get the total rate with indirect costs
(overhead), the auditor takes the hourly rate and multiplies it by the Indirect Cost Rate
(the percentage of direct costs) and adds that amount to the original hourly rate.
LAFCO Billing Rates:
Executive Officer
Assistant EO
Commission Clerk
98,939
110,969
59,289
Service Hours
1,418
1,773
1,330
Rate (Without OH)
69.75
62.59
44.59
106.14
95.24
67.85
Direct Salary & Benefits
Rate (With OH)
Are there other costs?
Yes
Cost of the legally required functions –
Spheres of Influence and Municipal Service
Reviews. These are documents that form
the basis of all decisions.
LAFCOs are Independent
Findings of Recent Survey
Hourly Rates Differ:
Executive Officer:

Range from $60 to $200 per hour

Average Executive Officer charge rate is $121 per hour based on a
sample of 22 Executive Officers
Clerks:

Range from $35 to $150 per hour

Average Clerk charge rate is $71 per hour based on a sample of 18
Clarks
LAFCOs are Independent
That Other Factor
Some call it long-term planning, others maintenance of the
“constitution;” however it is described, the law requires LAFCO to
maintain Spheres of Influence and conduct Municipal Service
Reviews.
Some cities and counties charge a General Plan maintenance fee
on all planning applications or building permits to cover the cost of
updating the General Plan. Four of the LAFCOs surveyed recently
charge a Sphere of Influence maintenance fee on all applications.
Why is the fee permissible? Based on the law, approvals can be
challenged and the challenges upheld if the basic requirements of
the law have not been met.
LAFCO as a:
Concerns -Time and Materials
The applicant pays the deposit and……….
 The Commission requests annexation of extra properties to
meet Commission goals.
 Neighbor decides to run up the bill.
 The neighbor requests a reconsideration (LAFCO does not
have appeals)
 Who pays?
 The applicant or the appellant?
LAFCOs are Independent
Why Flat, or Fixed, Fees
Many consultants recommend, wherever appropriate, the adoption of flat, or
fixed, fees instead of variable Time and Material (T&M) fees. The four primary
benefits of flat fees are:
 Flat fees are easier for customers to budget, which helps applicants to
plan their expenses.
 Flat fees are easier for the staff to describe to customers, resulting in
less customer confusion as to the actual costs of a project.
 Staff may cease tracking their time and expenses associated with
individual projects, which frees up significant time that would otherwise
be burdened as an administrative overhead.
 Flat fees tend to recover more of the actual cost than time and material
fees, because staff typically under-report time on their tracking
systems.
Task
Professional Staff (hours)
Clerk/Secretary (hours)
Total (hours)
Pre Application
4.0
2.0
6.0
Receive application
1.0
0.0
1.0
Set up files and schedule
0.0
2.0
2.0
Send referral letters
0.0
2.0
2.0
Prepare mailing lists
0.0
1.0
1.0
Application check
2.0
0.0
2.0
CEQA Determination
0.0
0.0
0.0
Determine if the application is inhabited
0.0
2.0
2.0
Prepare & send Certificate of Filing
0.0
1.0
1.0
Prepare staff report and resolution
16.0
0.0
16.0
Review & finalize staff report
1.0
0.0
1.0
Prepare the staff report packet and mail to
Commissioners, proponents and anyone requesting
notice
0.0
2.0
2.0
LAFCO Meeting
1.0
0.5
1.5
File CEQA Notice
0.0
0.0
0.0
Finalize Resolution
1.0
0.3
1.3
Prepare & send notice of determination to applicant
0.2
0.5
0.7
Recordation of maps
0.2
4.0
4.2
Send Recorded Certificate of Competition to agencies
and applicant
0.0
2.0
2.0
Send finalized material to State Board of Equalization
0.0
2.0
2.0
Close file and scan contents
0.0
1.0
1.0
Total per Application
26.4
22.3
48.7
LAFCOs are Independent
Why Not Flat, or Fixed, Fees
Although many consultants recommend the adoption of flat, or fixed,
fees instead of variable Time and Material (T&M) fees, four primary
reasons not to use flat fees are:




Flat fees do not cover the cost of large or controversial
projects.
The neighbor who is a “time bandit,” is there a method to
switch mid- stream?
The methodology is easier to challenge, in that they are only
estimates.
Samples may be too small to develop a reasonable cost
estimate.
Not Recommended Fee Structure
SCHEDULE OF PROCESSING FEES
Annexations and Detachments
Acreage
 Less than 5
 5 to 10
 10 to 25
 25 +
Fee
$ 640
$ 890
$ 1,265
$ 2,625
Agreements to Pay
Who is responsible to pay?
Discussions
Why charge fees?
Flat or fixed Fees?
Who pays for reconsideration?
Sonoma LAFCO Website:
www.sonoma-county.org/lafco
California Association of Local Agency
Formation Commissions Website
www.calafco.org
Sonoma LAFCO:
575 Administration Drive, Room 117-D
Santa Rosa, CA 95403
(707)565-2577, Fax: (707) 565-3778