1. 2010 User Fee Study RESULTS ORIENTATION 2010 User Fee Study RESULTS ORIENTATION Presentation to the Missoula City Council by: Chad Wohlford, MPPA September 29, 2010 WOHLFORD CONSULTING

2. © Wohlford Consulting - 20101 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

3. © Wohlford Consulting - 20102 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

4. Wohlford Consulting3 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:

5. Wohlford Consulting4 USER FEE STUDY APPROACH & METHODOLOGY

6. © Wohlford Consulting - 20105 USER FEE STUDY Project Objectives (More Than Just Numbers) USER FEE STUDY Project Objectives (More Than Just Numbers) q Establish Objective and Transparent Fee Information  Understand the Full Cost of Services (Direct and Indirect)  Develop Insight and a Rational Basis for Setting Fees q Understand Subsidies and Revenue Impacts  Understand User Fees Principles and Context  Enhance Fairness and Equity  Ensure Compliance with State Law  Simplify Fee Schedules

7. © Wohlford Consulting - 20106 Project Study Areas Determine the Full Cost of Services for: OPG / Planning Public Works – Engineering Fire Inspections Police Business Licensing

8. © Wohlford Consulting - 20107 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

9. © Wohlford Consulting - 20108 USER FEE CONCEPTS

10. © Wohlford Consulting - 20109 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

11. © Wohlford Consulting - 201010 Fees vs. Taxes (1) Building Permits; Some Rec. Programs (2)Youth Programs (3)Comp. / Adv. Planning (4)Police Patrol Examples:

12. © Wohlford Consulting - 201011 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)

13. © Wohlford Consulting - 201012 FEE STUDY METHODOLOGY

14. © Wohlford Consulting - 201013 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)

15. © Wohlford Consulting - 201014 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 #1: 10 Intake0.5 $ 50 $ 25 10 $ 250 Plan Check1.5 $ 100 $ 150 10 $ 1,500 Inspection2 $ 100 $ 200 10 $ 2,000 Filing0.5 $ 50 $ 25 10 $ 250 S&B Total:4.5 hrs. $89 (avg.) $ 400 10 $ 4,000 Other Cost$ 100 10 $ 1,000 TOTAL COST $ 50010$ 5,000 Current Fee $ 30010$ 3,000 SUBSIDY $20010$2,000

16. © Wohlford Consulting - 201015 $ 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)

17. © Wohlford Consulting - 201016 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

18. © Wohlford Consulting - 201017 FEE SETTING CONCEPTS

19. © Wohlford Consulting - 201018 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.

20. © Wohlford Consulting - 201019 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

21. © Wohlford Consulting - 201020 Fees vs. Taxes (1) Building Permits; Some Rec. Programs (2)Youth Programs (3)Historic Preservation (4)Police Patrol Examples:

22. © Wohlford Consulting - 201021 FINDINGS and RESULTS

23. © Wohlford Consulting - 201022 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 (i.e., taxes)

24. © Wohlford Consulting - 201023 $ 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)

25. © Wohlford Consulting - 201024 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 %

26. © Wohlford Consulting - 201025 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

27. © Wohlford Consulting - 201026 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.

28. © Wohlford Consulting - 201027 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%

29. © Wohlford Consulting - 201028 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%

30. © Wohlford Consulting - 201029 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%

31. © Wohlford Consulting - 201030 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%

32. © Wohlford Consulting - 201031 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%

33. © Wohlford Consulting - 201032 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%

34. © Wohlford Consulting - 201033 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

35. © Wohlford Consulting - 201034 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.

36. © Wohlford Consulting - 201035 “Typical” Recommendations (From Other Consultant Studies) Staff Rates @ 100% Cost-Recovery ($0 subsidy) Most Fees @ 100% Cost-Recovery ($0 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

37. © Wohlford Consulting - 201036 QUESTIONS? Chad Wohlford, Project Manager chad@wohlfordconsulting.com For further information, please contact: