The City of Morro Bay recently sought proposals to conduct a new study on the fees it charges for services, with the likely outcome of raising them.
“The scope of services,” reads the City’s RFP, “includes a cost of services and user fee study, and comprehensive cost allocation plan.”
The cost allocation plan is how the City charges its “enterprise funds” i.e. water, sewer, transportation and harbor, to compensate City Hall for providing things like payroll, HR, administration and legal services.
The cost allocation or “intergovernmental transfers,” as it is listed in the current budget, top $2.5 million for Fiscal Year 2022-23 and ranks in the Top-5 in revenue sources to the General Fund.
Other line items that could be part of this study include fines and forfeitures ($108,000 budgeted in FY 22/23); revenues from use of money and property ($600,000); and licenses and permits ($582,000).
Assistant City Manager and Admin Services Director, Sarah Johnson-Rios, said they received five responses to its RFP but they had not yet selected a winner.
She expects the contract cost to fall “somewhere in the $40,000 to $50,000 range, approximately, depending on whether a User Fee Study is included and depending on the final scope of work identified and vendor selected.”
Johnson-Rios said the contract amount is small enough that the City Council won’t have to approve the contract in open session.
Such studies are done on a regular basis and Morro Bay is due for one. “An update to the cost allocation plan should be done every 3 years or so as a matter of best practice,” Johnson-Rios said, “according to the Government Finance Officers Association. Morro Bay’s last cost allocation plan was completed in 2019, so we are due for a routine update, which would be completed in 2023.”
She said the same goes for the user fees, which were also last updated in 2019 and should also be a 3-year schedule. But these fees are handled differently she said. They are adjusted for inflation in the intervening years between updates, and thus are constantly being raised in small bites.
“Such an update would cover the fees in the Master Fee Schedule currently,” she said, “as well as potentially other activities that are legally cost recoverable for which the City is not currently collecting fees [we do not anticipate a high number of new fees].”
The Cost Allocation Program was first installed by the City back in the later-1990s and followed the County’s enactment of a fee schedule for its services.
SB 2557 was the State’s response to a $3.5 billion 1990-91 budget shortfall under Gov. George Deukmejian who took away some $708 million of state support to counties for state mandated programs to balance his budget.
According to a State Legislative analysis of AB2286 (a law that expanded the original SB2557) in 1993, SB2557 allowed counties to “raise revenues locally in four ways: a) by charging cities, special districts, school districts, county offices of education, community college districts, colleges, and universities for booking arrested persons (i.e., booking fee); b) by charging cities and other local jurisdictions their proportionate costs of assessing, collecting, and allocating property tax revenues (i.e., property tax administrative fee); c) imposing utility user and business license taxes; and, d) limiting the shifts of property taxes from no- and low-property tax cities in the Trial Court Funding Act to 90% of their 1989-90 allocation.”
The State eventually opened the door for cities to recoup their costs for services as well, from enterprise funds and citizens.
Morro Bay’s fees are listed in the City’s “Master Fee Schedule” and the fees are increased annually by the inflation rate but actual costs generally increase faster than that, leading the City to conduct these updated studies and increase — or in rare occasions decrease — fees to catch up to the true costs of providing the services. And on rare occasions a study will show a certain fee to be obsolete and actually get removed from the fee schedule.
Under the City’s RFP schedule, a panel of City staffers will go over the proposals and pick one. Johnson-Rios said
prospective bidders had until Aug. 22 to submit proposals; with several weeks for City staffers to review the proposals and do interviews, and pick a winner around Sept. 16.
That contract award would be followed by negotiations on terms and price. The scheduled start date is Oct. 3 for the study, with completion next February.
If readers wanted to take a tutorial on the State’s cost allocation scheme, the State Controller’s Office has an online tutorial, see: www.sco.ca.gov/Files-ARD-Local/ccap_training_video_slides_with_narrative.pdf.