On May 7, 2019, the Preliminary Budget document for the FY 2019-20 was transmitted to the City Council and subsequently posted on the City’s website on May 24, 2019. On May 28, 2019, a Budget Workshop was held to discuss the proposed budget and fees for FY 2019-20.
FISCAL YEAR (FY) 2019-20 BUDGET:
The proposed FY 2019-20 expenditures are projected to be $131.5 million including General Fund operating expenditures of $40.8 million. The City's revenues are estimated to be $126.0 million including General Fund operating revenues of $41.5 million. The Capital Improvement Program for FY 2019-20 includes expenditures in the amount of $10.0 million.
APPROPRIATIONS LIMIT FOR FY 2019-20:
Cities are required to establish an appropriations limit for a new fiscal year by June 30 of the current fiscal year in accordance with Article XIIIB of the California Constitution - Gann Initiative. Each year, the appropriations limit is modified by two factors; one factor is a population-based factor; the second factor is an economic-based factor. The population factor that may be selected is the greater of the percentage increase in the City's population or the County's population. The economic factor that may be selected is either (a) the percentage change in the state's per capita personal income, or (b) the percentage change in the City's assessed valuation caused by new non-residential construction.
The population factor selected for FY 2019-20 is the City’s growth factor, which is an increase factor of 1.18 percent (per the State Department of Finance). The economic factor selected for the FY 2019-20 is the increase in the state's personal income per capita factor of 3.85 percent as this is the only economic factor available at this time.
The City may revise the prior year's calculation if it is determined that the percentage change factor for the new non-residential construction assessed valuation is in the best interest of the City rather than the percentage change in the personal income per capita factor. The County does not release the factor for the change in the assessed valuation caused by new non-residential construction until July of a fiscal year. Therefore, this factor is unknown at the time the City is required to adopt its appropriations limit.
The City's appropriations limit based on the above-mentioned growth factors for the FY 2019-20 is $319,953,761.
Community Facilities District (CFD) No. 10 (Fairfield Ranch) and CFD No. 2015-1 (Vila Borba) require an annual appropriations limit be approved which has been included in the attached resolution. The appropriations limit based on the above-mentioned growth factors for FY 2019-20 is $340,662,679 for CFD No. 10 (Fairfield Ranch) and $6,701,738 for CFD No. 2015-1 (Vila Borba).
MASTER SCHEDULE OF FEES, FINES & PENALTIES UPDATE:
On June 12, 2018, the City Council awarded the contract for a Cost Allocation Plan and Comprehensive User Fee Study (Fee Study) to Willdan Financial Services (Willdan). The purpose of the study was to identify the total cost of providing each City service, in a manner that is consistent with all applicable laws, statutes, rules and regulations governing the collection of fees and rates for charges by public entities, including meeting the requirements of the California Constitution and statutes (including Proposition 218), the California Code of Regulations and the Chino Hills Municipal Code (CHMC).
As part of a general cost recovery strategy, local governments adopt user fees to fund programs and services that provide limited or no direct benefit to the community as a whole. As cities struggle to maintain levels of service and variability of demand, they have become increasingly aware of subsidies provided by the General Fund, and have implemented cost-recovery targets. To the extent that governments use general tax monies to subsidize fees (therefore not require individuals to pay the full cost of the service), the government is limiting funds that may be available to provide other community-wide benefits. Unlike most revenue sources, cities have more control over the level of user fees they charge to recover costs, or the subsidies they can institute.
User fees are adopted to fund programs and services that provide limited or no direct benefit to the community as a whole. In the past, the City has adopted the full cost of service for most of its fees so as to not limit funds that may be available to provide community-wide benefits. The user fees are based on a cost recovery concept meaning that the amount of revenue generated from the fees may not exceed the estimated reasonable cost of providing the services. The user fees are calculated by multiplying the fully burdened hourly rates by the average time spent to provide the service directly related to the user fee. The fully burdened hourly rates are explained more fully below, but consist of direct costs and indirect costs. The indirect costs are the citywide overhead costs derived from the Cost Allocation Plan.
Cost Allocation Plan
The Cost Allocation Plan determines the appropriate allocation of costs from central service departments to the operating departments. Examples of central services are City Manager, City Clerk, City Attorney, Finance, and City Council. The direct cost centers, or departments and funds, that require support from central services and provide services directly to the community through their day-to-day operations, are called operating departments. Examples of operating departments are Police, Public Works, Community Services, and Building. The Cost Allocation Plan allocates the costs of the central services to the operating departments based on the nature of the functions of each central service, upon which the operating departments depend. This is done to determine the total cost associated with providing direct services. The overall goal of the cost allocation plan process is to allow cities to allocate a portion of the central service costs to the operating departments, thus 1) accounting for “all” costs, direct and indirect, for each operating department, and 2) facilitating the calculation of a fully burdened cost estimate of providing services to the public.
Fully Burdened Hourly Rate
As more fully explained in the Comprehensive User Fee Study Report the cost elements that are included in the calculation of fully burdened hourly rates (FBHR) are: 1) Salaries & benefits of personnel involved; 2) operating costs applicable to fee operations; 3) departmental support, supervision, and administration overhead; 4) internal service costs charged to each department; and 5) indirect city-wide overhead costs from central services calculated through the Cost Allocation Plan. An important factor in determining the FBHR is in the calculation of productive hours for personnel. This calculation takes the available workable hours in a year of 2,080 and adjusts this figure to account for the anticipated hours employees are involved in non-billable activities such as holidays, paid vacation, sick leave and mandatory breaks to obtain the number of productive hours. The remaining number, the productive hours, is 1,560 hours per year. Dividing the full cost by the number of productive hours provides the FBHR. To calculate each fee, the FBHRs are then multiplied by the time estimates for the amount of each employee’s time that is needed to provide a service. The product equals the cost of the service.
Master Schedule of Fees, Fines & Penalties
The Master Schedule of Fees, Fines & Penalties (Fee Schedule) is a compilation of user fees and charges of the City along with fines and penalties. The Fee Schedule is calculated to reimburse the City for costs reasonably borne by the City in providing direct services to particular individuals or groups rather than to the general populace of the City of Chino Hills, except as to 1) fees charged as a market participant (such as fees for event rental space which are not required to be charged based on costs of service), 2) fines, 3) penalties, and 4) permits issued with no or subsidized cost. Subsidization can be an effective public policy tool, since it can be used to reduce fees to encourage certain activities (such as compliance inspections to ensure public safety) or allow some people to be able to afford to receive services they otherwise could not at the full cost. In addition, subsidies can be an appropriate and justifiable action, such as to allow citizens to rightfully access services, without burdensome costs. However, these subsidies typically come out of the General Fund so they are a limited resource.
The attached Comprehensive User Fee Study Report includes the description, current fee, time data (if applicable) and the proposed fee, fine or penalty as well as the percentage of the fee that is subsidized, if any. Fines and penalties are established by applicable City ordinances but are included in the Fee Schedule for ease of administration. Article XIII C, Section 1(e)(5) excludes from Proposition 26’s definition of “tax” “[a] fine, penalty, or other monetary charge imposed by cities as a result of a violation of law.” Courts have held that penalties are distinguished from taxes in that they seek to regulate conduct rather than to generate revenue.
A notice regarding the amending of fees was mailed to interested parties on May 22, 2019. A public notice was published on May 25, 2019, and on June 1, 2019, in the Chino Hills Champion newspaper. The proposed fee schedule, data indicating the amount of cost, or estimated cost, required to provide the service for which the fee or service charges are levied and the revenue sources anticipated to provide the services, including General Fund revenues, was made available for public review in the City Clerk’s office on May 31, 2019.
The Government Code §66017 requires that certain fees shall be effective no sooner than 60 days following the adoption of the fee or charge or increase in the fee or charge. It is recommended that the Building fees and Development Services fees, as well as the Engineering fees that are listed under “Entitlement” and “Post-Entitlement” subheadings under consideration in the proposed resolution, be effective September 1, 2019, and all other fees, fines and penalties be effective July 1, 2019. This will enable staff sufficient time to update forms, applications, and computer software as necessary for the implementation of the fees.