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CONTRACT FOR COMPREHENSIVE DEVELOPMENT IMPACT FEE STUDY
RECOMMENDATION
It is recommended that the City Council authorize, by motion, the execution of an amendment to the professional services master contract with Economic & Planning Systems, Inc. for the second phase of a comprehensive development impact fee study (Attachment A).
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Summary
In accordance with Strategic Initiative III.3, a fee simplification/reduction project at the City's Permit Center is underway. A Phase 1 fee study, completed in 2013, laid the legal and policy groundwork for a transition from a full cost recovery model to an in-market range model. A Phase 2 study (a review of CDD permit and processing fees) is now underway. A Phase 3 study (a review of Public Facility Fees) will be programmed for FY2014-15.
Staff, with the assistance of Economic & Planning Systems, Inc. has prepared a work program for the conduct of the Phase 2 fee study during 2014. A portion of this work is underway pursuant to a Purchase Order capped at the City Manager's signature authority of $32,123. To complete the balance of the work program, Council's authorization is required up to a total contract cost of $80,000 (inclusive of the Purchase Order).
Economic & Planning Systems, Inc. is on the Citywide Vendor Pool List of Firms. As such, a contract amendment is attached for consideration and authorization by the Council.
DISCUSSION
Background
On June 12, 2012, the City Council approved an Implementation Action Plan for the re-missioning, reorganization, re-tooling, re-feeing and transition of multi-departmental services at the City's Permit Center from a regulatory to a customer service based operation. On August 28, 2012, the Council furthered this objective by approving an Action Matrix, which accompanied a report by the Urban Land Institute regarding Downtown Revitalization.
Focused work activities now completed/underway include: a top to bottom redesign of the Building Permit process; posting of monthly turnaround response targets and results; simpler, clear forms and checklists; daily triage review of all submitted applications and plan sets so as to provide customers with an early warning about errors and omissions; an EZ Permit same-day, over-the-counter permit process for home remodels and commercial/office tenant improvements; in-progress permitting for high priority economic development projects; the opening of a satellite Building office at the Port of Stockton, etc. Also underway is a Reorganization Plan of the functions and staffing of the Community Development Department, as well as a Consolidation Plan with the Fire Prevention Bureau for transitioning plan check and inspection work to the Building & Life Safety Division of the Community Development Department. The objective is to have one set of eyes on routine projects, at a savings of cost, time and angst to the customer. Repeat customers is the goal of the Permit Center staff, rather than hearing about another construction project that went under the radar without the benefit of a permit inspection, got caught, and now comes to us as a Code Enforcement case.
Fee simplification/reduction lies at the heart of really making a difference in the relationship of the City's Permit Center to the development community, be it master plan developers or small home remodelers. Additionally, the California Fee Mitigation Act requires a periodic review of development fees to maintain a nexus between permit costs and the level of service provided. Therefore, in 2013, staff, with the assistance of Economic & Planning Systems, Inc. conducted a Phase 1 fee study that included an econometric forecast of development demand over the next 25-years, a regional market fee analysis, and an economic assessment of Stockton's current fee schedule on market forces. That study also contributed to framing strategies in the Draft Plan of Adjustment to exit from municipal bankruptcy.
The Phase 1 fee study provided a historical review of how the City's fees came to be so complex and comparatively costly. The study pressed for a transition from a full cost recovery model to an in-market range model. The term "in-market range" means comparable pricing with other local cities and the County for similar types of development services. The study also provided the policy and legal justifications for prioritizing an update to the development fees, beyond other pressing demands of staff.
The topic of permit fees is closely linked to the City's budget and economic development policies. Over the years, the City expanded and increased permit fees in an effort to keep up with the rising demand for staff services to issue permits. In the robust housing market of the mid 1990's to mid 2000's, characterized by high volume permit activity and urban/suburban development, this strategy proceeded with little notice or concern. At times, the Permit Center couldn't issue permits fast enough. In some regards a pay-to-play mentality arose. Higher fees allowed for the recruitment and retention of staff and other work-arounds to accommodate the high volume of development activity.
All that changed with the mortgage market meltdown, the Great Recession, and eventually the City's declaration of municipal bankruptcy. The City's development fee schedule was suddenly characterized as an impediment to economic recovery and out of line with the legal premise that fee rates have a proportional relationship with service delivery costs. All the while, dramatic reductions in staffing matched the free-fall of development activity, leaving behind a complex schedule of development fees, some 1600+ line items, a loss of institutional knowledge about the fee system, and mixed priorities for remaining and newly recruited staff.
Going Forward
Moving from a development fee schedule that is based upon a full cost recovery model to an in-market range model has fundamental policy and financial implications. Understanding and pricing those implications is the prime objective of the Phase 2 fee study. The General Fund is a likely source for making up the cost differential for providing development services under an in-market range model, if adopted. Knowing ahead of time what the cost implications will be to the General Fund is imperative and will help inform the Council's conversation about that policy choice.
The scope of work for the Phase 2 fee study is best viewed as several work programs that, when taken together, form a comprehensive strategy for getting the City's development fees back on-track as fair, reasonable and in-line with nearby cities and the County. Of equal importance is a lasting budget policy that sustains the operations of the City's Permit Center, builds a reserve fund that bridges the ebb and flow of development cycles and revenues, and provides a separate funding source for updates of the General Plan, Development Code and other non-project specific work. Also of equal importance is that the strategy produces a development fee system that is simple for staff to learn, run and explain.
Actual changes to the CDD permit and processing component of the City's Fee Schedule will be presented to the Council for consideration in a workshop later this spring. Any changes to the more costly Public Facility Fees must await the completion of further legal and policy groundwork (a Phase 3 fee study that is anticipated to be conducted in FY2014-15).
The component work programs of the Phase 2 fee study include:
1. The study will refresh, update and distinguish between functions that benefit permit applicants versus the broader community, relative to legal provisions in the California Fee Mitigation Act and the City's full cost recovery policy.
2. The study will address the variation in permit activity year-to-year given historical trends and expected future levels of permit activity. As such, the econometric forecast of future development activity that was prepared in Phase 1 will be updated and converted into a recurring forecasting effort. As part of this effort, the consultant will train staff to conduct future updates through references to available data sources and the use of various trend-line analysis tools. Then all City departments will have access to a single monitoring and forecasting program in support of planning, capital improvement programming, and related budgeting activities.
3. Work will continue on cost allocation analysis of current staff levels and level of effort for various types of permit activity. Staff and the consultant are looking at eliminating outdated fee types and reducing charges for service to match service delivery costs. Considerable work has been conducted under the Purchase Order to completely restructure the manner in which certain fees are levied, so as to reduce complexity and work steps in fee computation.
4. A policy basis for cost recovery will be identified, considering the distribution of benefit from permit work performed by staff. The study will also identify what other cities are doing to address variations in revenues that ebb and flow with the economy. Identifying how those cities are prepared to sustain levels of service and core capacity through economic cycles is a key component of work.
5. A completely new fee schedule for development services, with far fewer and more understandable line items, and fee rates that match service delivery costs, are expected outputs of this work. A draft schedule for FY 2014-15 will be prepared, along with related policy and administrative recommendations, and brought forth for consideration by the Development Oversight Commission and the City Council in workshops. Once direction is received from the Council, a formal proposed fee schedule will be prepared and brought forth for consideration of adoption.
6. The consultant will assist staff with implementing the adopted fee schedule. A key aspect of this work will be integration of the fee schedule and policy and administrative directives into a new web-based permit tracking system (to be procured separately from this work program).
7. The consultant will recommend a new infrastructure financing policy and inter-departmental framework for updating the City's Public Facility Fees, one that eventually guides the update and related infrastructure financing efforts. It is understood that a planned update to the General Plan and related Capital Improvement Program may delay action on major reforms. Nonetheless, the consultant and staff are going to continue to articulate reforms and, as possible, introduce interim measures to meet infrastructure debt obligations while driving down fee rates.
8. The consultant will advise staff on alternatives to financing infrastructure other than through Public Facility Fees. What other cities are currently doing in this regard will be identified, and an assessment and prioritization of options available for Stockton will be made.
9. The consultant will advise staff on the financial implications of three high profile planning efforts throughout 2014: the implementation of the Climate Action Plan, assuming adoption; the preparation of a work program for a Downtown Specific Plan; and the preparation of a work program for a comprehensive update of the General Plan, Development Code and Capital Improvement Program. Staff will receive expert advice on financing requirements unique to Downtown transit-oriented development and adaptive reuse of commercial buildings and old hotels and office space for mixed use development, as well as financial policies and mechanisms used in other communities in support of the objectives and policies for growth under the General Plan.
10. The consultant will advise staff on the financial implications of current General Plan policies and programs that have a bearing on the need for and cost of municipal infrastructure, operations and maintenance costs. Options for amending these policies and programs will be identified for consideration in the forthcoming comprehensive update of the General Plan.
Contract Details
The City routinely utilizes professional consultants on an as needed basis for specific projects. In order to streamline the process of retaining a consultant, the City maintains a citywide vendor pool of professional firms. On July 10, 2010, the Council adopted Resolution 10-0242 approving professional services contracts with qualified professional firms that provide planning, design and construction expertise. These firms were identified through a Request for Qualifications process. The submissions were assessed by a selection committee, and 254 firms were found to be qualified in their respective fields. Master contracts with each firm were then executed for a term of five-years. When a firm is retained for a specific project, a contract amendment is issued. The contract amendment is brought to the Council for authorization when the contract cost exceeds the City Manager's signature authority, as is the present case.
Economic & Planning Systems, Inc. is uniquely qualified to provide the component work programs of the Phase 2 fee study identified above. The firm is currently providing similar analyses for the cities of Fairfield, Vacaville, San Luis Obispo, and Mammoth Lakes. Moreover, the firm is very familiar with the economic conditions of the Delta region, having conducted numerous studies and analyses for local agencies over many years, including the City of Stockton, County of San Joaquin and the San Joaquin Council of Governments.
Matters of fee setting are presented to the Development Oversight Commission for their review and recommendations. Final fee restructuring and setting authority rests solely with the City Council. Both of those bodies conduct workshops and fee setting hearings in duly noticed public meetings.
FINANCIAL SUMMARY
Adequate funds are allocated in the FY2013-14 Budget, under 048-1810-510.20-65 to conduct the Phase 2 fee study. The contract amendment for the Phase 2 fee study is priced at $80,000, inclusive of the $32,123 Purchase Order that Economic & Planning Systems, Inc. is currently working under.
Attachment A - Amendment to Professional Services Master Contract with Economic & Planning Systems, Inc.