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. The cost allocation plan is updated annually to reflect the proposed budget for the upcoming year which then feeds into the Fully Burdened Hourly Rate.
Fully Burdened Hourly Rate
Fully burdened hourly rates (FBHR) are: 1) salaries & benefits of personnel involved; 2) operating costs applicable to fee operations; 3) departmental support, supervision, and administrative overhead; 4) internal service costs charged to each department; and 5) indirect Citywide 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. The FBHRs are then multiplied by the average time estimates for each employee involved in the process to calculate the full 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 Cost Recovery Analysis 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. All of the changes being proposed are highlighted in red font in the Cost Recovery Analysis. 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.
City Council April 14, 2020
At the April 14, 2020, City Council meeting, Council asked that the fee increases be brought back with an effective date of January 1, 2021, due to the COVID-19 pandemic's impact on businesses and residents, while fines and penalties become effective July 1, 2020, to ensure public safety. The Fee Schedule set to be effective July 1, 2020, keeps all fees at the current amount except those fees highlighted in red on Exhibit A. The amounts highlighted in red are changed for one of four reasons:
- Fine and penalty increases such as for parking in a red zone or fire lane;
- New fees to go along with new, recently adopted procedures, such as the new gate-guard fee, a street naming fee, etc.;
- Increases caused by changes in the statutory amount set forth by the Legislature; and
- Breaking the Water Lock-Off Fee and Reconnection Fee into two separate fees.
The Fee Schedule set to be effective January 1, 2021, includes all of the above increases in addition to the increases caused by increases in the fully burdened hourly rates.
Public Notice and Hearing
A notice regarding the amending of fees was mailed to interested parties on March 26, 2020. A public notice was published on March 28, 2020, and on April 4, 2020, 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 on March 30, 2020, electronically on the City's website or by appointment in the City Clerk’s office. The City Council held a public hearing on the proposed fees on April 14, 2020.
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 certain new fees, fee revisions and increases under consideration shown as Exhibit A in the first proposed resolution, be effective July 1, 2020, and the fees revisions and increases under consideration shown as Exhibit A in the second proposed resolution, be effective January 1, 2021. The July 1 date will enable staff sufficient time to update forms, applications, and computer software as necessary for the implementation of the fees.