HomeMy WebLinkAbout7.2 Development Overhead Rates
STAFF REPORT CITY CLERK
File #390-10
CITY COUNCIL
DATE:October 2, 2012
TO:
Honorable Mayor and City Councilmembers
FROM:
Joni Pattillo, City Manager
SUBJECT:
Analysis of Financial Impact of A Reduction In Development Overhead Rates
Prior To December 1, 2012
Prepared by Paul S. Rankin, Administrative Services Director
EXECUTIVE SUMMARY:
On September 18, 2012 the City Council conducted a public hearing and adopted a Master Fee
Schedule based on a comprehensive fee study completed by Capital Accounting Partners. The
new fee schedule includes both fee increases and fee decreases that are scheduled to become
effective December 1, 2012. The City Council directed Staff to return with an analysis of the
financial implications if the reduction in overhead rates were applied in advance of the current
December 1, 2012 effective date.
FINANCIAL IMPACT:
The financial impact will be based on the activity levels incurred during the two months. The
City estimates that approximately $115,000 in Staff costs cannot be recovered due to a
requirement in State Law requiring a waiting period for fee increases. One Developer and a
representative of the Building Industry Association requested an earlier implementation of
decreases in overhead rates, which are estimated to save development applicants $214,000 if
implemented October 1, 2012.
RECOMMENDATION:
Staff recommends that the City Council receive the information and make a determination if the
overhead rate reduction should be implemented prior to the December 1, 2012 effective date. If
the City Council desires to modify the effective date Staff recommends that they select either
October 1, 2012 or November 1, 2012 as the new effective date. If an early implementation of
decreased overhead rates is desired it would be appropriate for the City Council to adopt the
resolution selecting the new effective date.
Submitted By Reviewed By
Administrative Services Director Parks & Community
Services Director
ITEM NO. 7.2
Page 1 of 4
DESCRIPTION:
The purpose of this report is to provide the City Council with additional analysis of the financial
impact of implementing decreases in overhead rates that are currently scheduled to occur
December 1, 2012. The original effective date was presented to have conformity of all fee
changes occurring at the same time.
Background
The adopted fees and overhead rates were developed using study data from a comprehensive
cost allocation plan and detailed calculations to determine the full cost of services.
The Study proposed restructuring and reducing overhead rates. Overhead or indirect costs are
allocated to internal Staff time as well as consultant costs. The data was gathered at a lower
level than the previous study, and estimated costs associated with Consultants working primarily
outside the City facilities were segregated from those that receive additional support from City
facilities.
The result of the proposed methodology is that cumulatively the overhead added to all contract
services is less, while the Staff hourly rates have increased. The new structure also allows for
the application of different overhead rates depending on whether or not the Consultant is
working from City facilities. For those Consultants working from City facilities an allocation has
been made for overhead related to support functions associated with that service. The following
tables show the changes in the Overhead and Composite Staff Rates.
PERCENTAGE CITY OVERHEAD RATES APPLIED TO
COST OF SERVICES PROVIDED BY CONTRACT SERVICE PROVIDERS (Non City Staff)
FULL COST Adopted Rate
CATEGORY CURRENT
(Based on Fee Study) Effective 12/1/12
PLANNING
84.63%
Off Site – Consultants (New)
44% 44%
84.63%
On Site – Consultants 54% 54%
44%
BUILDING 49.51% 46%
ENGINEERING
59.64%
Off Site – Consultants (New)
37% 37%
59.64%
On Site - Consultants 41% 41%
25%*
CITY ATTORNEY 84.63% or 59.64% 44%
44%**
CITY-WIDE GENERAL (New)
N/A 44%
* Note: The City Attorney overhead starts at a subsidized lower rate of 25% and will phase in an annual
escalation over a four year period to bring it up to the full city-wide rate of 44%.
COMPOSITE CITY STAFF HOURLY RATES (INCLUDING OVERHEAD COSTS)
FOR DEVELOPMENT USER FEES BILLED BASED ON TIME EXPENDED
CLASSIFICATION CURRENT FULL COST PROPOSED
(Based on Fee Study)
PLANNING $128 $213 $213
BUILDING $123 $164 $164
ENGINEERING $129 $215 $213
New- ENGINEERING INSPECTION $129 $151 $151
Page 2 of 4
Estimated Impact If Overhead Rate Changes Prior To December 1, 2012
As presented at the City Council meeting on September 18, 2012, while decreases in fees do
not require a waiting period, increases or new fees related to Development cannot be effective
prior to 60 days following their adoption. Therefore, although the current decreases in overhead
rates can be accommodated, the increased Staff composite rates cannot be implemented prior
to the required waiting period. One of the reasons for the increase in the Staff Rate charged to
developers is the new methodology and the reduction in overhead recovered from contract
consultant activities.
Staff estimated the Staff and Consultant billings for the period October 1, 2012 to November 30,
2012 based on the Development applications currently being processed. The calculations are
estimates based on expected activities over the two month period. The analysis examined the
costs using the Master Fee Schedule as adopted.
A total of 1,822 hours of City Planning, Engineering and Inspection Staff time expected to be
applied to projects billed on a time and materials basis. The difference between the current and
the proposed City Staff Rates is $115,000. Since the City cannot implement these rates for at
least 60 days from September 18, 2012 the developers receiving these services will receive a
windfall / subsidy of the services provided by the City.
An early implementation of the lower overhead rates would also reduce the estimated amount to
be paid by development projects by approximately $214,000. This would reduce the costs to
applicants on over 25 different projects. The implementation of only the overhead rate decrease
places an increased burden on the City General Fund since the full Staff rate must be
implemented after the 60 day waiting period.
Factors Considered in Selecting the Current Effective Date
The adopted effective date of December 1, 2012 accomplishes the following:
1) Provides adequate time for the required set-up in the City computer system, insuring the set-
up is efficient and all changes are addressed at the same time. Segregating selected fees will
require duplicated Staff time to implement fees on different dates.
2) Allows new Staff to become familiar with the tasks required to make changes and builds an
understanding of the design of the newer fees and charges and how they are reflected in the
billing system.
3) The selected date meets the requirements in California Government Code Section 66017,
which requires certain fee changes to be effective 60 days after the action is taken. This law
addresses new and increased development related fees. (Therefore the City Council is not
precluded from considering the decrease in overhead rates at an earlier date).
4) The Composite Staff Rates are scheduled to increase and are subject to the 60 day waiting
period, while the Indirect Consultant overhead rate is decreasing. Implementing the two
elements at the same time balances the total estimated costs (both direct and indirect).
Page 3 of 4
5) It avoids providing a windfall / subsidy of service costs given that the City must wait 60 days
to increase the composite Staff rates and supports the goal of development supporting costs
incurred.
For these reasons Staff believes that the current implementation timing of December 1, 2012 is
consistent with efforts to have the fees managed as a single program. However, if the City
Council desires to have the overhead fee rates changed at an earlier date, it is recommended
that this be done by Resolution. Staff would also request that the City Council select a date of
either October 1, 2012 or November 1, 2012. The Consultant billings which are subject to the
overhead allocation are typically submitted for a monthly period. The change in the overhead
rate would be effective for the services provided on and after the selected date.
NOTICING REQUIREMENTS/PUBLIC OUTREACH:
Copies of the Staff Report were provided to:
Mr. Joe Guerra, Dublin Crossing Venture LLC (Argent Management)
Ms. Crisand Giles, Building Industry Association (BIA)
ATTACHMENTS:
1. Draft Resolution making a change in effective date for the reduction
of overhead rates applied to development services rendered on a
time and materials basis
Page 4 of 4
RESOLUTION NO. ___ - 12
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
* * * * * * * * * * *
CHANGE IN THE EFFECTIVE DATE FOR THE REDUCTION OF OVERHEAD RATES
APPLIED TO DEVELOPMENT SERVICES RENDERED ON A TIME AND MATERIAL
BASIS
WHEREAS,
the City Council conducted a public hearing regarding the adoption of user
fees on September 18, 2012; and
WHEREAS,
proper notice of said public hearing was given in all respects as required by
law; and
WHEREAS,
the City Council adopted a resolution adopting a master fee schedule for
services provided by the City; and
WHEREAS,
the master fee schedule includes both fee increases and fee decreases which
are scheduled to take place effective December 1, 2012; and
WHEREAS,
at the September 18, 2012, City Council meeting the City Council also
directed Staff to return with an analysis of the financial implications if the reduction in overhead
rates was applied in advance of the current December 1, 2012 effective date; and
WHEREAS
, Staff provided the City Council with additional analysis of the financial impact
of implementing decreases in overhead rates two months sooner than December 1, 2012; and
WHEREAS
, Staff estimates it would reduce the amount paid by development projects for
indirect costs (overhead) by approximately $214,000; and
WHEREAS,
Staff estimates it would also provide a windfall to development projects
receiving the City’s direct services (Staff time) of approximately $115,000. The California
Government Code Section 66017 requires a 60 days waiting period to implement the increase in
Staff billing rates for development services; and
WHEREAS,
the City Council reviewed the Staff Report and it is the desire of the City
Council that the overhead rate reduction should be implemented with an effective date of
___________________, 2012
NOW, THEREFORE, BE IT RESOLVED
that the new fees and any increases in fees
shall be effective beginning December 1, 2012
BE IT FURTHER RESOLVED
that the overhead rates for development services shall
be effective beginning __________, 2012
ATTACHMENT 1
BE IT FURTHER RESOLVED
that the new master fee schedule and any new fees
developed shall be automatically adjusted annually using the adjustment methodology in the
adopted City Council Policy on Fee Recovery.
PASSED, APPROVED AND ADOPTED
this 2nd day of October, 2012, by the
following vote:
AYES
:
NOES
:
ABSENT
:
ABSTAIN
:
______________________________
Mayor
ATTEST
:
_________________________________
City Clerk
ATTACHMENT 1