1. Cost Of Service Fee Analysis Finance Department November 8, 2010 Michelle Mitchell, Director

2. Table of Contents I.Background II.Issues III.Recommendations –Cost of Service Fee Increases IV.Process Improvement Detail V.Recommendations for Centralized Billing & Collection 2

3. Background FY2011 Adopted Budget includes an increase of $15 million in fee revenue to cover cost of services in General Fund. The City of Houston provides services and issues permits as part of its governmental activities. State law allows cities to recover the cost of providing services. No specific state statutes govern the fee setting process. Fees cannot be excessive or more than is reasonably necessary to cover the cost of service. City departments recorded more than 5 million transactions in 2010 for services, fines and permits for approximately $150 million dollars. 3

4. Issues Houston’s cost of services have increased over the past few years (e.g. personnel, materials, supplies, etc) and we have not addressed the increased cost to the City. Some of the fees have not been increased since 1981 and the last increase for most fees is 2008 or prior. The City does not have a process to routinely review the cost of service fees to determine whether the fee is adequately recovering the cost of the service or permitting activity. The City does not have an effective process to collect on past due receivables. 4

5. Recommendations Increase the annual rate of permits and fees. –The FY2011 impact to the General Fund is an approximate increase of $3.3 million as of 12/1/10, and –The FY2011 impact to the Special Revenue Fund is an approximate increase of $7.4 million as of 12/1/10. Improve billings and collections process. Draft an omnibus ordinance for all cost of service charges. Implement annual fee escalators based on appropriate indexes. Standardize a $3 administrative fee for each credit card transaction. The financial impact for the City is approximately $500,000. If Council approves the increases for both Ambulance and the fees recommended, we still need to identify $8.5 million in additional revenue or expenditure cuts. 5

6. Recommended Cost of Service Fee Increases General and Special Revenue Fund 6

7. Process Improvement Detail Create citywide policies for billing and collection activities. Centralize billing and collection to achieve standard best practices and take advantage of scale to negotiate best vendor pricing. Improve debt collection techniques (e.g. phone calls, mailings, negotiated settlements and credit bureau reporting). Implement ongoing oversight of the outside billers and collectors ensuring productivity measures are maximized. 7

8. Recommendations for Centralized Billing and Collection Review the monthly activities of the outsourced billers and collectors. Receive and monitor performance metrics from all billers and collectors. Review monthly listings of outstanding receivables. Receive and reconcile monthly billings from outsourced billers and collectors. Review and reconcile all charge off requests. Review and reconcile all negotiated collection settlements. Monitor contract performance. Participate in the RFP process for new contracts. Prepare periodic reports for the Mayor and City Council. 8