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HomeMy WebLinkAbout03.07.2023 Finance Committee Agenda PacketCity Council Finance Committee Agenda March 7, 2023 Page 1 of 3 SARATOGA CITY COUNCIL FINANCE COMMITTEE MARCH 7, 2023 4:00 P.M. REGULAR MEETING Public Participation Information In accordance with Saratoga City Council’s Remote Public Participation Policy, members of the public may participate in this meeting in person at the location listed below or via remote attendance using the Zoom information below. Members of the public can view and participate in the meeting by: 1. Attending the meeting in person in the Linda Callon Conference Room located at 13777 Fruitvale Avenue, Saratoga CA 95070; OR 2. Accessing the meeting through Zoom * Webinar URL https://us02web.zoom.us/j/87190226599 * Webinar ID: 871 9022 6599 * Calling 1.669.900.6833 or 1.408.638.0968 Written Communication Comments can be submitted in writing at www.saratoga.ca.us/fc. Written communications will be provided to the members of the City Council and included in the Agenda Packet and/or in supplemental meeting materials. Public Comment Members of the public may comment on any item for up to three (3) minutes. The amount of time for public comment may be reduced by the Mayor. Meeting Recording Information In accordance with the Saratoga City Council’s Meeting Recording Policy, the City Council Finance Committee Meetings are recorded and made available following the meeting on the City website. City Council Finance Committee Agenda March 7, 2023 Page 2 of 3 CALL TO ORDER ROLL CALL Public Comment AGENDA ITEMS 1. Finance Committee Minutes Recommended Action: Review and approve the minutes for the February 7, 2023 meeting. Finance Committee Minutes 2. Retiree Healthcare Plan June 30, 2022, Actuarial Valuation and GASBS 75 Disclosure Report June 30, 2023 Recommended Action: Receive the GASBS 75 Disclosure Report. Memo - Retiree Healthcare Plan June 30, 2022 & Actuarial Valuation and GASBS 75 Attachment A - Retiree Healthcare Plan - June 30, 2022 GASBS 75 Accounting Information Attachment B - Retiree Healthcare Plan Slide Presentation 3. Draft Report on Cost of Services (User Fee) Study Recommended Action: Receive the Cost of Services (User Fee) Study Report Memo - Draft Report of Cost of Services (User Fee) Study Attachment A - DRAFT Report on Cost of Services (User Fee) Study ADJOURNMENT CERTIFICATE OF POSTING OF THE AGENDA, DISTRIBUTION OF THE AGENDA PACKET, COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT I, Gina Scott, Administrative Analyst for the City of Saratoga, declare that the foregoing agenda for the meeting of the City Council Finance Committee was posted and available for public review on March 2, 2023, at the City of Saratoga, 13777 Fruitvale Ave., Saratoga, CA 95070, and on the City’s website at www.saratoga.ca.us. Signed this 2nd day of March 2023 at Saratoga, California. Gina Scott, Administrative Analyst In accordance with the Ralph M. Brown Act, copies of the staff reports and other materials provided to the Committee by City staff in connection with this agenda, copies of materials distributed to the Committee concurrently with the posting of the agenda, and materials distributed to the Committee by staff after the posting of the agenda are available on the City City Council Finance Committee Agenda March 7, 2023 Page 3 of 3 website at www.saratoga.ca.us and are available for review in the office of the City Clerk at 13777 Fruitvale Avenue, Saratoga, California. In compliance with the Americans with Disabilities Act and the Governor’s Executive Order, if you need assistance to participate in this meeting, please contact the City Clerk at bavrit@saratoga.ca.us or call 408.868.1216 as soon as possible before the meeting. The City will use its best efforts to provide reasonable accommodations to provide as much accessibility as possible while also maintaining public safety. [28 CFR 35.102-35.104 ADA title II] City Council Finance Committee Minutes – February 7, 2023 Page 1 MINUTES SARATOGA CITY COUNCIL FINANCE COMMITTEE MEETING FEBRUARY 7, 2023 CALL TO ORDER The meeting was called to order at 4:10 p.m. ROLL CALL Present: Mayor Kookie Fitzsimmons, Council Member Page, Council Member Walia Also Present: James Lindsay, City Manager Nick Pegueros, Administrative Services Director Agnes Pabis, Finance Manager Gina Scott, Administrative Analyst REPORT ON POSTING OF THE AGENDA The Administrative Analyst reported the agenda for this meeting was properly posted on January 31, 2023. AGENDA ITEMS 1. Finance Committee Minutes Recommended Action: Approve the minutes for the January 10, 2023, Finance Committee Meeting. PAGE/FITZSIMMONS MOVED TO APPROVE THE MINUTES FOR THE JANUARY 10, 2023 FINANCE COMMITTEE MEETING. MOTION PASSED BY VERBAL ROLL CALL. AYES: PAGE/FITZSIMMONS NOES: NONE. ABSTAIN: NONE. 2. Fee Study Results Review Recommended Action: Receive the 2022-23 Comprehensive Fee Study Project results and provide input on City staff’s cost recovery recommendations. Gina Scott, Administrative Analyst, presented a brief overview of the Fee Study project and introduced Matrix Consulting Staff to provide a presentation of the Fee Study results. Finance Committee directed staff to return with additional fee analysis demonstrating the cumulative impact of increased fees, at various recovery levels and up-to full cost recovery, with any additional fees imposed by other agencies at building permit issuance. DIRECTION PROVIDED TO STAFF. NO VOTE TAKEN. 3 City Council Finance Committee Minutes – February 7, 2023 Page 2 3. Request for Proposals for Independent Auditing Services Recommended Action: Approve the request for proposal (RFP) for independent auditing services for the fiscal year ending June 30, 2023. Agnes Pabis, Finance Manager, presented an overview of the RFP for Auditing Services. Staff confirmed that the RFP requires the selected firm to provide independent audit services to West Valley Clean Water Authority, upon the Authority’s request, and under separate professional services contract with the Authority. Staff also highlighted that the independent auditor is selected by the City Council and requested that the Finance Committee designate two Councilmembers to serve on the RFP screening committee. PAGE/FITZSIMMONS MOVED TO APPROVE THE REQUEST FOR PROPOSAL FOR INDEPENDENT AUDITING SERVICES AND DESIGNATE COUNCIL MEMBER PAGE AND MAYOR FITZSIMMONS TO SERVE ON THE AUDITOR SCREENING COMMITTEE. MOTION PASSED BY VERBAL ROLL CALL. AYES: PAGE/FITZSIMMONS NOES: NONE. ABSTAIN: NONE. 4. November Finance Committee Meeting Recommended Action: Cancel the Finance Committee’s November 28, 2023 regular meeting, and schedule a special meeting the week of November 27th. Nick Pegueros, Administrative Services Director, identified a scheduling conflict with the November 28th regular meeting and requested an alternative meeting date on the week of November 27th. Committee Consensus Cancel the November 28, 2023 meeting, and schedule a special meeting on November 27, 2023, at 4:00 p.m., to receive the independent auditor’s report on the fiscal year ended June 30, 2023. CONSENSUS DIRECTION TO STAFF. NO VOTE TAKEN. 5. City Council Financial Policies and General Financial Operating Policies Review Recommended Action: Receive report on the annual Financial Policies for fiscal year 2023-24 and request changes or updates to the policies as well as completing a review of the City’s reserve policies. Nick Pegueros, Administrative Services Director, provided the committee with the City Council Financial Policies and the General Financial Operating Policies. 4 City Council Finance Committee Minutes – February 7, 2023 Page 3 James Lindsay, City Manager, proposed the idea of adding a Community Grant Reserve Policy. Consensus Direction Return with draft policy to provide greater certainty to community grant recipients through a new General Fund reserve policy. CONSENSUS DIRECTION TO STAFF. NO VOTE TAKEN. ADJOURNMENT PAGE/FITZSIMMONS MOVED TO ADJOURN THE MEETING AT 5:11 PM. MOTION PASSED BY VERBAL ROLL CALL. AYES: PAGE/FITZSIMMONS. NOES: NONE. ABSTAIN: NONE. Minutes respectfully submitted: Gina Scott, Administrative Analyst City of Saratoga 5 DATE: March 7, 2023 TO: Finance Committee FROM: Nick Pegueros, Administrative Services Director SUBJECT: Retiree Health Care Valuation and Disclosure Report (GASB Statement No. 75) Summary. This agenda item transmits the results of an actuarial valuation of the City's retiree medical benefit (Attachment A) as required by Governmental Accounting Standards Board (GASB) Statement No. 75. The valuation reflects an unfunded retiree medical benefit liability of approximately $2.3 million for the fiscal year ending June 30, 2023. The GASB does not mandate funding of unfunded retiree medical liabilities. However, the Finance Committee may recommend considering a funding strategy or policy, which City Council ultimately decides. City staff recommends Finance Committee consider adding a future agenda item to the Committee's work plan this Summer or Fall. Accounting Standard. GASB Statement No. 45 required employers to value and disclose obligations resulting from post-employment benefits other than pension, commonly referred to as "OPEB," beginning in fiscal year 2008-09. Effective 2017- 18, GASB replaced Statement No. 45 to expand OPEB valuation and disclosure requirements with Statement No. 75. Since Statement No. 75 replaced Statement No. 45, this report only references Statement 75 despite the valuation and disclosure requirement under Statement No. 45 beginning in 2008-09. Statement No. 75's direct impact on agencies subject to the GASB pronouncement is the requirement to value and disclose implicit subsidies inherent in pooled medical plans such as CalPERS medical. Implicit subsidies arise when pooled medical plans charge the same premium regardless of the insured's age or medical history and use excess premiums collected from some members of the pool to subsidize the premiums of other members. Under the implicit subsidy valuation, retiree medical benefits' true value is higher than the premium due to experience studies linking medical costs to age. Older individuals incur higher medical costs than younger individuals. Statement No. 75’s Applicability to Saratoga. Statement No. 75 applies to Saratoga due to our contract with CalPERS for employee medical under the Public Employees’ Medical and Hospital Care Act (PEMHCA.) PEMHCA requires contracting agencies to extend the option of medical insurance to retirees at the same cost for active employees. PEMHCA further requires employers to pay a minimum monthly amount toward the retiree’s medical premiums. For 2023, the PEMHCA minimum is $1,813 Saratoga complies with the PEMHCA requirement and contributes the minimum monthly amount for 21 retirees. Table 1 briefly summarizes the City's OPEB. 6 Table 1. Saratoga’s OPEB Summary Post-employment Benefits Other than Pension (OPEB) • Retiree medical • No retiree dental, vision, life, or Medicare reimbursement Eligibility • Retire directly from Saratoga (age 50 & 5 years CalPERS service or disability) • Surviving spouse receives 100% benefit if retiree elects CalPERS survivor annuity. Benefit Contribution (active1 and retired participants) City pays PEMHCA minimum monthly: 2022 2023 $149 $151 1 Active employees receive a cafeteria plan contribution from which to purchase insurance while employed Saratoga’s Compliance with the Accounting Standard. On review of City financial records for the close of 2021-22, City staff identified that the City’s financial statements do not comply with the GASB pronouncement on OPEB valuation and disclosure. We contracted actuarial firm Foster & Foster to perform the GASB Statement No. 75 actuarial analysis for inclusion in the June 30, 2023, financial statements. Foster and Foster have completed their study and will present their findings to the Finance Committee, Attachment B. Staff Recommendation. While there is no obligation to fund the OPEB liability, City staff recommends Finance Committee consider the cost-benefit of a funding policy. In the meantime, City staff will prepare the June 30, 2023 Annual Comprehensive Financial Report (ACFR) in full compliance with GASB standards and Generally Accepted Accounting Principles. We will also work with the City’s independent auditor to determine the proper corrective actions due to the late implementation of OPEB accounting standards. ATTACHMENTS A. Retiree Healthcare Plan – June 30, 2022 GASBS 75 Accounting Information B. Retiree Healthcare Plan Slide Presentation 7 City of Saratoga Retiree Healthcare Plan June 30, 2022 GASBS 75 Accounting Information As of Measurement Date June 30, 2021 Based on the June 30, 2022 Actuarial Valuation Doug Pryor, ASA, EA, MAAA Braeleen Scott, ASA, MAAA Kateryna Pryor Foster & Foster, Inc. December 15, 2022 Topic Page GASBS 75 Information Applicable Dates 1 Note Disclosures 2 Required Supplementary Information 12 Actuarial Certification 14 Supporting Calculations 15 Journal Entries 23 Actuarial Valuation Information Plan Summary 29 PEMHCA Premiums 31 PEMHCA Sample Claims 33 Data Summary 34 Actuarial Obligations 41 Additional Actuarial Assumptions 43 b:\ca-public\city_of_saratoga\opeb valuation\6.30.2022\gasbs_75\f&f_saratogaci_22-12-15_gasbs75_22-06-30_report_draft.pdf Contents 8 ■ Measurement date ■ Measurement period ■ Actuarial valuation date Update procedures were used to roll back the Total OPEB Liability from the valuation date (June 30, 2022) to the measurement date (June 30, 2021) and to the beginning of the measurement period (June 30, 2020). June 30, 2021 July 1, 2020 to June 30, 2021 June 30, 2022 Fiscal Year Ended June 30, 2022 Applicable Dates and Periods Applicable Dates City of Saratoga 1 GASBS 75 December 15, 2022 (DRAFT) ■ Plan type ■ OPEB trust ■ Special funding situation ■ Nonemployer contributing entities ■ Plan closed to new entrants Fiscal Year Ended June 30, 2022 Plan Information Note Disclosures Yes Single Employer No No No City of Saratoga 2 GASBS 75 December 15, 2022 (DRAFT) 9 ■ Inactives currently receiving benefits ■ Inactives entitled to but not yet receiving benefits ■ Active employees ■ Total Covered participant counts were available to the actuary as of the valuation date (June 30, 2022), but updated counts were not provided to the actuary as of the measurement date (June 30, 2021). Counts do not impact any other information shown in this report. TBD TBD TBD Covered Participants Number of Covered Participants TBD At June 30, 2021, the measurement date, the following numbers of participants were covered by the benefit terms: Note Disclosures City of Saratoga 3 GASBS 75 December 15, 2022 (DRAFT) ■ Total OPEB Liability (TOL) Note Disclosures 6/30/21 6/30/22 Measurement Date Measurement Date 6/30/20 6/30/21 2,108,403$ 2,260,718$ (2.16%)(2.21%) Total OPEB Liability Fiscal Year Ending City of Saratoga 4 GASBS 75 December 15, 2022 (DRAFT) 10 ■ ■ Changes for the year ● Service Cost ● Interest ● Changes of benefit terms ● Actual vs. expected experience ● Assumption changes ● Benefit payments* ■ Net Changes ■ *See the measurement period column on page 15 for details. (6/30/21 measurement date) Balance at 6/30/22 Note Disclosures Changes in Total OPEB Liability Balance at 6/30/21 151,726 2,108,403$ Total OPEB Liability - 49,241 2,260,718$ - (6/30/20 measurement date) 152,315 (64,030) 15,378 City of Saratoga 5 GASBS 75 December 15, 2022 (DRAFT) ■ ■ Total OPEB Liability ■ ■ Total OPEB Liability Sensitivity of Total OPEB Liability 1% Decrease (1.16%) Current Rate (2.16%) 1% Increase (3.16%) Discount Rate Note Disclosures 1,946,527$ 2,260,718$ 2,658,922$ Changes in the Discount Rate Changes in the Healthcare Trend Rate Healthcare Trend Rate 1% Decrease Current Trend 1% Increase 2,605,848$ 2,260,718$ 1,981,585$ City of Saratoga 6 GASBS 75 December 15, 2022 (DRAFT) 11 ■ OPEB Expense/(Income)* * See page 20 for OPEB expense/(income) detail, which is not a required disclosure. OPEB Expense/(Income) for Fiscal Year 2021/22 203,255$ Note Disclosures 2020/21 Measurement Period City of Saratoga 7 GASBS 75 December 15, 2022 (DRAFT) ■ ■ Changes in assumptions ■ ■ Total * See page 15 for details. Deferred Outflows/Inflows Balances at June 30, 2022 Note Disclosures June 30, 2022 Deferred Outflows of Resources Deferred Inflows of Resources -$ -$ Differences between expected and actual experience Employer contributions made subsequent to the measurement date* 85,855 - 13,381 - 72,474 - City of Saratoga 8 GASBS 75 December 15, 2022 (DRAFT) 12 ■ 2023 ■ 2024 ■ 2025 ■ 2026 ■ 2027 ■ Thereafter 1,997 3,396 1,997 Recognition of Deferred Outflows and Inflows of Resources Note Disclosures Deferred Outflows/(Inflows) of ResourcesFYE June 30 1,997 in Future OPEB Expense 1,997 $ 1,997 City of Saratoga 9 GASBS 75 December 15, 2022 (DRAFT) ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ CalPERS 2000-2019 Experience Study Significant Actuarial Assumptions Used for Total OPEB Liability Mortality Improvement Mortality projected fully generational with Scale MP-2021 Discount Rate 2.16% at June 30, 2021 June 30, 2022Actuarial Valuation Date Contribution Policy No pre-funding General Inflation Mortality, Retirement, Disability, Termination 2.21% at June 30, 2020 2.50% annually (Bond Buyer 20-Bond Index) (Bond Buyer 20-Bond Index) Actuarial Assumption June 30, 2021 Measurement Date Note Disclosures City of Saratoga 10 GASBS 75 December 15, 2022 (DRAFT) 13 ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ Significant Actuarial Assumptions Used for Total OPEB Liability Note Disclosures Actuarial Assumption June 30, 2021 Measurement Date Medicare - 7.50% for 2023, decreasing to an ultimate rate of 3.45% in 2076 Salary Increases Aggregate - 2.75% annually 3.50% annually Actives - 50% Merit - CalPERS 2000-2019 Experience Study Non-Medicare - 8.50% for 2023, decreasing to an ultimate rate of 3.45% in 2076 Medical Trend PEMHCA Minimum Increase Healthcare Participation at Retirement Retirees - current election City of Saratoga 11 GASBS 75 December 15, 2022 (DRAFT) ■ Changes in Total OPEB Liability ● Service Cost ● Interest ● Changes of benefit terms ● Actual vs. expected experience ● Assumption changes ● Benefit payments ■ Net Changes ■ Total OPEB Liability (beginning of year) ■ Total OPEB Liability (end of year) 49,241 - 151,726$ 2,260,718 - 2,108,403 15,378 (64,030) 152,315 2021/22 2020/21 Measurement Period Schedule of Changes in Total OPEB Liability and Related Ratios Required Supplementary Information City of Saratoga 12 GASBS 75 December 15, 2022 (DRAFT) 14 ■ ■ ■ * For the 12-month period ended on June 30, 2021 (Measurement Date). As reported by the City. Schedule of Changes in Total OPEB Liability and Related Ratios Required Supplementary Information 2021/22 Covered employee payroll* Total OPEB Liability as a percentage of covered employee payroll Total OPEB Liability 2,260,718$ 7,122,272 31.7% Measurement Date 6/30/21 City of Saratoga 13 GASBS 75 December 15, 2022 (DRAFT) Foster & Foster, Inc. December 15, 2022 Doug Pryor, ASA, EA, MAAA Foster & Foster, Inc. December 15, 2022 To the best of our knowledge, this report is complete and accurate and has been conducted using generally accepted actuarial principles and practices and complies with applicable Actuarial Standards of Practice. Additionally, in our opinion, actuarial methods and assumptions comply with GASBS 75, assuming 2021/22 implementation year. As the actuary, we have recommended the assumptions used in this report, and we believe they are reasonable. As members of the American Academy of Actuaries meeting the Academy Qualification Standards, we certify the actuarial results and opinions herein. Respectfully submitted, This report presents the City of Saratoga Retiree Healthcare Plan 2021/22 disclosure under Governmental Accounting Standards Board Statement No. 75 (GASBS 75). This report may not be appropriate for other purposes, although it may be useful to the City for the Plan’s financial management. This report is based on information provided by the City which we relied on and did not audit. The June 30, 2022 valuation is based on plan provisions and participant data provided by the City, all of which we relied on and did not audit. We reviewed the census data for reasonableness. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as: plan experience differing from that anticipated by the assumptions; changes in assumptions; changes expected as part of the natural progression of the plan; and changes in plan provisions or applicable law. Actuarial models necessarily rely on the use of estimates and are sensitive to changes. Small variations in estimates may lead to significant changes in actuarial measurements. Due to the limited scope of this assignment, we did not perform an analysis of the potential range of such measurements. Actuarial Certification Braeleen Scott, ASA, MAAA The Journal Entries in this report are provided for the City's convenience and are not an actuarial communication. Therefore, this actuarial certification does not apply to the Journal Entries. City of Saratoga 14 GASBS 75 December 15, 2022 (DRAFT) 15 ■ ■ ■ ■ ■ Measurement period (7/1/20 to 6/30/21): $64,321 Fiscal year (7/1/21 to 6/30/22): $72,474 Measurement Period Measurement Date to FYE 7/1/20 to 6/30/21 7/1/21 to 6/30/22 Employer Contributions Supporting Calculations Cash benefit payments 29,340$ 33,032$ Implied subsidy benefit payments 34,690 39,055 Total benefit payments 64,030 72,087 Administrative expenses 291 387 Total employer contributions 64,321 72,474 City of Saratoga 15 GASBS 75 December 15, 2022 (DRAFT) *Participants with no liability excluded for the purpose of calculating the average. 6/30/22 641.5 years 83 7.7 years 7.7 years July 1, 2020 (beginning of the measurement period) was not a valuation date and no census data was available to the actuary as of that date. Therefore, the average of the expected remaining service lives was estimated as follows: Valuation Date Total expected remaining service lives* Covered participants* Average of the expected remaining service lives as of valuation date Average of the expected remaining service lives as of 7/1/20 (not less than 1 yr) Average of the Expected Remaining Service Lives Supporting Calculations City of Saratoga 16 GASBS 75 December 15, 2022 (DRAFT) 16 - - Initial Recog Period Amount Recognized in OPEB Expense for FY 21/22 22/23 26/27 27/28+23/24 25/26 - Differences between Expected and Actual Experience Recognition of Deferred Outflows/Inflows at June 30, 2022 Supporting Calculations 21/22 - - - - Fiscal Year 24/25 - Total - - - - - - - Deferred Balances June 30, 2022 Outflows (Inflows) - - - - Initial Amt - City of Saratoga 17 GASBS 75 December 15, 2022 (DRAFT) Recognition of Deferred Outflows/Inflows at June 30, 2022 Supporting Calculations 1,997 3,396 Changes of Assumptions 1,997 22/23 23/24 24/25 25/26 26/27 Initial Recog Period 1,997 1,997 Amount Recognized in OPEB Expense for FY 21/22 27/28+ 21/22 7.7 1,997 1,997 Fiscal Year Total 1,997 1,997 1,997 1,997 1,997 1,997 3,396 Deferred Balances June 30, 2022 Outflows (Inflows) 13,381 - 13,381 - Initial Amt 15,378 City of Saratoga 18 GASBS 75 December 15, 2022 (DRAFT) 17 ■ ■ ■ 1,997 22/23 23/24 24/25 25/26 Changes of Assumptions Total 27/28+ - 3,396 26/27 - 1,997 1,997 1,997 1,997 1,997 3,396 1,997 1,997 Thereafter 1,997 Recognition of Deferred Outflows/Inflows in Future OPEB Expense - - - - Supporting Calculations 1,997 Differences between Expected and Actual Experience City of Saratoga 19 GASBS 75 December 15, 2022 (DRAFT) ■ Service Cost ■ Interest on Total OPEB Liability ■ Administrative expense ■ Changes of benefit terms ■ Recognition of deferred outflows/(inflows) ● Experience ● Assumptions ■ OPEB Expense/(Income) Components of GASBS 75 OPEB Expense - 2020/21 Supporting Calculations 203,255 2021/22 151,726$ 49,241 1,997 291 - Measurement Period City of Saratoga 20 GASBS 75 December 15, 2022 (DRAFT) 18 ■ ■ ■ ■ Components of GASBS 75 OPEB Expense Portion of Year Supporting Calculations Calculation of Interest on Total OPEB Liability Discount Rate Dollar Amount 2020/21 Measurement Period Interest 2.21% (708) 100% 2.21% 100% 46,596$ 3,353 49,241 50%2.21%Benefit payments (64,030) 2,108,403$ 151,726 Total interest Total OPEB Liability Service Cost City of Saratoga 21 GASBS 75 December 15, 2022 (DRAFT) ■ Total OPEB Liability ■ Fiduciary Net Position ■ Net OPEB Liability ■ Deferred inflows of resources ■ Deferred (outflows) of resources ■ Balance Sheet Check: ■ Balance Sheet 6/30/21 ● OPEB Expense/(Income) ● Employer Contributions* ■ Balance Sheet 6/30/22 * See the measurement period column on page 15 for details. GASBS 75 Balance Equation Supporting Calculations Fiscal Year Ending 6/30/21 6/30/22 Measurement Date Measurement Date 6/30/20 6/30/21 2,247,337 (64,321) 203,255 2,108,403$ 2,108,403$ 2,260,718$ - - 2,108,403 2,260,718 - - - (13,381) 2,108,403 2,247,337 City of Saratoga 22 GASBS 75 December 15, 2022 (DRAFT) 19 ■ ■ ■ ■ ■ ■ Check -$ (64,321) 72,474 - - 291 - Employer Contributions Journal Entries The entries below assume cash benefit payments, Trust contributions, and administrative expenses have been charged to OPEB Expense when paid, and that no accounting entries have been made for the current year implied subsidy payment, which is recorded as a reduction to active employee health care costs. See page 15 for details. Debit (Credit) (136,795) 136,795 Active employee health care costs - (implied subsidy payments 7/1/21 to 6/30/22) OPEB Expense - (for contributions paid 7/1/21 to 6/30/22)- (39,055) (33,419) Net OPEB Liability - (for Contributions paid 7/1/20 to 6/30/21) OPEB Expense - (for admin fees paid 7/1/20 to 6/30/21) OPEB Expense - 7/1/20 to 6/30/21 contributions Deferred Outflow - 7/1/21 to 6/30/22 contributions 64,030$ - City of Saratoga 23 GASBS 75 December 15, 2022 (DRAFT) Following records the impact of current year OPEB expense ■ Deferred Outflows* ■ Deferred Inflows** ■ OPEB Expense/Credit *** ■ Net OPEB Liability Check * ** *** Summary Journal Entries - OPEB Expense Journal Entries Debit (Credit) 13,381$ -$ - - 202,964 - - (216,345) 216,345 (216,345) Total OPEB expense, $203,255, equals $202,964 plus $291 admin fees from page 23. See page 27 for details. See page 26 ('Subtotal' row) for details. City of Saratoga 24 GASBS 75 December 15, 2022 (DRAFT) 20 ■ ■ Deferral: Changes of assumptions ■ Total deferred outflow/inflow ■ Net OPEB Liability (NOL) ■ Contributions after the Measurement Date ■ Net Impact Check: ■ Total OPEB expense/(income) for FYE 2022 Journal Entries 13,381 - - (2,260,718) Ending Balances at June 30, 2022 Debit (Credit) -$ -$ Deferral: Differences between expected and actual experience 13,381 - - - 2,247,337 - 2,260,718 (2,260,718) 203,255 - City of Saratoga 25 GASBS 75 December 15, 2022 (DRAFT) ■ ■ ■ ■ ■ Journal Entries Reconciliation of Deferred Outflows Deferred Outflows Opening Balance - Debit Journal Entry - Debit Journal Entry - (Credit) Ending Balance - Debit Detail for page 24 Change in assumptions - 13,381 - 13,381 Differences between actual and expected experience -$ -$ -$ -$ Subtotal - actuarial deferrals - 13,381 - 13,381 72,474 (64,321) 72,474 Total Deferred Outflows 64,321 85,855 (64,321) 85,855 Contributions after the Measurement Date 64,321 City of Saratoga 26 GASBS 75 December 15, 2022 (DRAFT) 21 ■ ■ ■ Journal Entries Reconciliation of Deferred Inflows Deferred Inflows Opening Balance - (Credit) Journal Entry - (Credit) Journal Entry - Debit Ending Balance - (Credit) Detail for page 24 - - - Differences between actual and expected experience -$ -$ -$ -$ Change in assumptions - - - - Total Deferred (Inflows) - City of Saratoga 27 GASBS 75 December 15, 2022 (DRAFT) ■ Total OPEB (Liability) ■ Fiduciary Net Position ■ Net OPEB (Liability) ■ Deferred (inflows) of resources ■ Deferred outflows of resources ■ Balance Sheet Impact Deferred Outflows include contributions after the measurement date. Reconciliation of Deferred Outflows/(Inflows) Journal Entries Summary of Balances Fiscal Year Ended 6/30/21 6/30/22 Measurement Date Measurement Date 6/30/20 6/30/21 (2,108,403)$ (2,260,718)$ 64,321 85,855 (2,044,082) (2,174,863) - - (2,108,403) (2,260,718) - - City of Saratoga 28 GASBS 75 December 15, 2022 (DRAFT) 22 Plan Summary  Eligibility  Service or disability retirement directly from the City under CalPERS (age 501 with 5 years of service for employees)  Retiree Medical Benefit  City contributes monthly the PEMHCA minimum benefit for retirees ($149.00 in 2022, $151.00 in 2023)  The retiree pays the remainder of the premium for the healthcare plan elected in CalPERS  City pays CalPERS administrative fee (0.25% of total premium for 2021/22)  Surviving Spouse Benefit  Available to surviving spouses of retirees who elect CalPERS survivorship benefits  Implied Subsidy  Employer cost for allowing retirees to participate at active rates  Dental, Vision & Life  None 1 Age 52 for Miscellaneous PEPRA employees. City of Saratoga 29 Actuarial Valuation December 15, 2022 (DRAFT) ■ ● General trend: ● Sample active age 40, retire age 60: ■GASB defers to Actuarial Standards of Practice. ■ ● ● Implied Subsidy Plan Summary Requires implied subsidy valued for community rated plans such as PEMHCA. Effective with all valuations on or after March 31, 2015. For PEMHCA, employer cost for allowing retirees to participate at active rates. Premiums PEMHCA Cost of $600 Active $1,200 $500 Active $700 Retiree In May 2014, Actuarial Standards Board released revised Actuarial Standards of Practice (ASOP) No. 6: $600 Retiree 25 30 35 40 45 50 55 60 64 Blended Premium 600 600 600 600 600 600 600 600 600 Cost by Age 400 420 460 500 550 600 640 700 800 $300 $400 $500 $600 $700 $800 City of Saratoga 30 Actuarial Valuation December 15, 2022 (DRAFT) 23 Anthem Select Anthem Traditional Blue Shield Access+ Blue Shield Trio Health Net SmartCare Kaiser UnitedHealthcare Alliance UnitedHealthcare Group UnitedHealthcare Edge Western Health Advantage Anthem EPO Del Norte PERS Platinum PERS Gold Premiums Actuarial Valuation Information 2022 PEMHCA Monthly Premiums Region 1 Plan Non-Medicare Eligible Medicare Eligible Single 2-Party Family Single 2-Party 1,080.57 Family $ 1,015.81 $ 2,031.62 $ 2,641.11 $ 360.19 $ 720.38 $ 1,080.57 1,304.00 2,608.00 3,390.40 360.19 720.38 1,059.33 1,116.01 2,232.02 2,901.63 353.11 706.22 1,059.33 898.54 1,797.08 2,336.20 353.11 706.22 907.59 1,153.00 2,306.00 2,997.80 n/a n/a n/a 857.06 1,714.12 2,228.36 302.53 605.06 883.95 1,020.28 2,040.56 2,652.73 n/a n/a n/a n/a n/a n/a 294.65 589.30 1,041.63 741.26 1,482.52 1,927.28 314.94 629.88 944.82 n/a n/a n/a 347.21 694.42 n/a 1,057.01 2,114.02 2,748.23 n/a n/a 1,057.01 701.23 2,114.02 1,402.46 2,748.23 1,823.20 381.94 377.41 763.88 754.82 1,145.82 1,132.23 City of Saratoga 31 Actuarial Valuation December 15, 2022 (DRAFT) Anthem Select Anthem Traditional Blue Shield Access+ Blue Shield Trio Health Net SmartCare Kaiser UnitedHealthcare Alliance UnitedHealthcare MA UnitedHealthcare MA Edge Western Health Advantage Anthem EPO Del Norte PERS Platinum PERS Gold 1,178.13 1,200.12 2,400.24 3,120.31 420.02 840.04 1,260.06 825.61 1,651.22 2,146.59 392.71 785.42 n/a 760.17 1,520.34 1,976.44 331.11 662.22 993.33 1,200.12 2,400.24 3,120.31 n/a n/a 1,073.10 n/a n/a n/a 299.68 599.36 899.04 n/a n/a n/a 357.70 715.40 n/a 913.74 1,827.48 2,375.72 283.25 566.50 849.75 1,044.07 2,088.14 2,714.58 n/a n/a $ 2,934.96 n/a 888.94 1,777.88 2,311.24 361.90 723.80 1,085.70 1,174.50 2,349.00 3,053.70 n/a n/a 1,085.70 1,210.71 2,421.42 3,147.85 413.59 827.18 1,240.77 1,035.21 2,070.42 2,691.55 361.90 723.80 $ 413.59 $ 827.18 2023 PEMHCA Monthly Premiums Region 1 Plan Non-Medicare Eligible Medicare Eligible Single 2-Party Family Single 2-Party Family $ 1,240.77 $ 1,128.83 $ 2,257.66 Premiums Actuarial Valuation Information City of Saratoga 32 Actuarial Valuation December 15, 2022 (DRAFT) 24 ■■ ■■ Age $804 832 896 1,138 1,387 1,674 938 1,191 1,453 1,753 $705 728 785 996 1,215 1,966 1,235 1,505 1,817 Age 55 60 65 1,665 Health Net SmartCare 903 25 35 45 972 $873 F Anthem Select 903 972 518 718 1,188 1,607 MF $842 871 $423 495 MF 537 745 1,231 Anthem Traditional 1,665 2,133 60 1,522 1,369 1,321 1,187 65 1,960 1,659 1,706 1,440 738 55 1,106 1,111 953 1,235 1,506 958 35 460 796 386 680 45 649 862 550 M F 25 $391 $768 $326 $655 1,721 PPO Medical Claims Costs 2023 Sample estimated monthly claims costs Region 1 – Non-Medicare Eligible PERS Gold MF 2,133 2,0591,817 PERS Platinum 1,466 993 1,134 1,344 1,535 686 537 744 601 434 1,231 $459 $371 M $459 $443 MF $873 F Region 1 – Non-Medicare Eligible PEMHCA Sample Claims HMO Medical Claims Costs 2023 Sample estimated monthly claims costs M UnitedHealthcare AllianceKaiser City of Saratoga 33 Actuarial Valuation December 15, 2022 (DRAFT) 6/30/22 ■ Actives ● Counts 62 ● Average » Age 49.9 » City Service 11.1 » CalPERS Service 14.5 ■ Retirees (Benefiting Only) ● Counts 21 ● Average » Age 72.4 » Retirement Age* 61.7 * Excludes survivors. Participant Statistics Actuarial Valuation Information City of Saratoga 34 Actuarial Valuation December 15, 2022 (DRAFT) 25 Active Medical Coverage Anthem Select - - 2 - 2 June 30, 2022 Medical Plan Single 2-Party Family Waived Total - - Actuarial Valuation Information 1 34 Health Net SmartCare - 1 - - 1 Kaiser 13 7 14 - Anthem Traditional - 1 6 PERS Gold - 1 1 - 2 PERS Platinum 1 2 3 - 62 Waived - - - 16 16 Total 14 12 20 16 City of Saratoga 35 Actuarial Valuation December 15, 2022 (DRAFT) Active Medical Coverage by Age Group Actuarial Valuation Information June 30, 2022 Age Single 2-Party Family Waived Total 7 Under 30 1 - - - 1 30-34 4 - 1 2 2 35-39 3 - 1 5 9 40-44 - - 2 - 16 62 11 45-49 - 2 5 1 8 50-54 2 1 5 3 9 55-59 2 3 6 2 13 60-64 2 4 - 3 49.9 Average Age 65+ - 2 - - 2 Total 44.1 58.4 50.4 48.0 14 12 20 City of Saratoga 36 Actuarial Valuation December 15, 2022 (DRAFT) 26 Total 8 13 11 8 10 9 3 62 65+ - - - 1 1 - - 2 4 3 13 60-64 - 2 2 1 2 2 55-59 - 4 - 1 1 - 9 50-54 1 1 2 1 5 1 - 11 45-49 3 - 1 2 - 2 - 8 - - 9 40-44 - 1 1 - - - 35-39 3 2 1 2 1 - 2 30-34 1 3 3 - - - - 7 25-29 - - 1 - - - - 1 Under 25 - - - - - - - - Age <1 1-4 5-9 10-14 15-19 20-24 25+ Total Actuarial Valuation Information Active Age Service Distribution June 30, 2022 City Service City of Saratoga 37 Actuarial Valuation December 15, 2022 (DRAFT) Retiree Medical Coverage by Age Group Actuarial Valuation Information June 30, 2022 Age Single 2-Party Family Waived Total 1 Under 50 - - - - - 50-54 - - - 1 8 55-59 - - - 1 1 60-64 2 4 1 1 6 65-69 4 1 - 4 9 70-74 1 1 - 4 2 75-79 2 - - 4 6 80-84 - - - 2 42 Over 85 4 1 - 4 9 Total 13 7 1 21 City of Saratoga 38 Actuarial Valuation December 15, 2022 (DRAFT) 27 Waived 10 - - - 3 3 Total 2 4 1 3 2 1 PERS Gold - 1 - - PERS Platinum 1 1 - - Total Retiree Medical Coverage Under Age 65 June 30, 2022 Kaiser 1 2 1 - 4 Medical Plan Single 2-Party Family Waived Actuarial Valuation Information City of Saratoga 39 Actuarial Valuation December 15, 2022 (DRAFT) Waived 32 UnitedHealthcare 1 1 - - 2 Total 11 3 - 18 PERS Platinum 4 2 - - 6 - - - 18 18 Kaiser 5 - - - 5 Actuarial Valuation Information Anthem Select 1 - - - 1 Medical Plan Single 2-Party Family Waived Total Retiree Medical Coverage Age 65 & Over June 30, 2022 City of Saratoga 40 Actuarial Valuation December 15, 2022 (DRAFT) 28 ■ ● Actives ● Retirees ● Total ■ ● Actives ● Retirees ● Total ■ ■ 3.54% Discount Rate June 30, 2022 Actuarial Obligations Actuarial Valuation Information Present Value of Benefits Cash Subsidy Implied Subsidy Total 1,382,661$ 933,577$ 2,316,238$ Actuarial Accrued Liability 717,391 193,831 911,222 2,100,052 1,127,408 3,227,460 655,565 439,036 1,094,601 717,391 193,831 911,222 1,372,956 632,867 2,005,823 (Projected 2022/23) 74,809 47,023 121,832 (2022/23) 39,045 46,165 85,210 Service Cost Pay-As-You-Go Cost City of Saratoga 41 Actuarial Valuation December 15, 2022 (DRAFT) 2032 159,270 87,731 71,539 2024 2025 2026 2027 2029 2028 63,689 72,499 136,188 67,617 83,166 150,783 2030 2031 48,231 58,975 107,206 51,958 70,743 122,701 56,038 59,034 115,072 59,830 76,633 136,463 41,520 55,369 96,889 44,715 48,396 93,111 June 30, 2022 Cash Subsidy Implied Subsidy Total 39,045$ 46,165$ 85,210$ Fiscal Year Ended 2023 Projected Benefit Payments Actuarial Valuation Information City of Saratoga 42 Actuarial Valuation December 15, 2022 (DRAFT) 29 ■ ■ ■ ■ ■ ■ ■ ■ ■ Actuarial Assumption Waived Retiree Re- election None Actuarial Valuation Information Additional Actuarial Assumptions June 30, 2022 Medicare Eligibility All participants assumed to be Medicare eligible and elect Medicare plans at age 65 Surviving Spouse Participation 100% if eligible Actives: Males 3 years older than females Retirees: Males 3 years older than females if spouse birth date not available Spouse Age City of Saratoga 43 Actuarial Valuation December 15, 2022 (DRAFT) ■ ■ ■ ■ Data Quality Our valuation used census data provided by the City and CalPERS OPEB data extract. We reviewed the data for reasonableness and resolved any questions with the City. We believe the resulting data can be relied on for all purposes of this valuation. June 30, 2022 Actuarial Assumption Actuarial Modeling Our valuation was performed using and relying on ProVal, an actuarial model leased from WinTech. Our use of ProVal is consistent with its intended purpose. We have reviewed and understand ProVal and its operation, sensitivities and dependencies Additional Actuarial Assumptions Actuarial Valuation Information City of Saratoga 44 Actuarial Valuation December 15, 2022 (DRAFT) 30 ■ ■ ■ ■ ■ ■ ■ ■ CalPERS 2000-2019 experience study was used Actuarial Valuation Information Additional Actuarial Assumptions Actuarial Assumption Basis for Assumptions No experience study performed for this Plan June 30, 2022 Medical coverage and participation based in part on Plan experience Mortality improvement is a Society of Actuaries table Inflation based on our estimate for the Plan’s long time horizon Age-based claims costs were developed by Axene Health Partners based on demographic data provided by CalPERS, Axene’s proprietary AHP Cost Model, and Society of Actuaries studies. Medical trends were based on expectations over the short term blended into long term medical trends developed using the Society of Actuaries Getzen Model of Long-Run Medical Cost Trends. City of Saratoga 45 Actuarial Valuation December 15, 2022 (DRAFT) This page intentionally blank Actuarial Valuation Information City of Saratoga 46 Actuarial Valuation December 15, 2022 (DRAFT) 31 City of Saratoga Retiree Healthcare Plan June 30, 2022 Actuarial Valuation June 30, 2023 GASBS 75 Disclosure Doug Pryor, Senior Consulting Actuary Foster & Foster,Inc. March 7,2023 32 VALUATION SUMMARY Benefits Eligibility •Retire directly from City under CalPERS (age 50 & 5 years CalPERS service1 or disability) Medical •City pays PEMHCA minimum monthly: 2022 2023 $149 $151 Surviving Spouse •100% of retiree benefit continues to surviving spouse if retiree elects CalPERS survivor annuity Other •No dental, vision, life, Medicare reimbursement •Implicit rate subsidy included 1 March 7, 2023 DRAFT 1 52 for Miscellaneous PEPRA members. 33 VALUATION SUMMARY Implied Subsidy Cost for allowing retirees to participate at active rates. General trend: $300 25 30 35 40 45 50 55 60 64 Blended Premium 600 600 600 600 600 600 600 600 600 Cost by Age 400 420 460 500 550 600 640 700 800 March 7, 2023 DRAFT 2 $400 $500 $600 $700 $800 34 VALUATION SUMMARY March 7, 2023 DRAFT 3 Premiums 2023 PEMHCA Monthly Premiums (Region 1) Plan Non-Medicare Eligible Medicare Eligible Single 2-Party Family Single 2-Party Family Anthem Select $1,128.83 $2,257.66 $2,934.96 $413.59 $827.18 $1,240.77 Anthem Traditional 1,210.71 2,421.42 3,147.85 413.59 827.18 1,240.77 Blue Shield Access+1,035.21 2,070.42 2,691.55 361.90 723.80 1,085.70 Blue Shield Trio 888.94 1,777.88 2,311.24 361.90 723.80 1,085.70 Health Net SmartCare 1,174.50 2,349.00 3,053.70 n/a n/a n/a Kaiser 913.74 1,827.48 2,375.72 283.25 566.50 849.75 UnitedHealthcare Alliance 1,044.07 2,088.14 2,714.58 n/a n/a n/a UnitedHealthcare MA n/a n/a n/a 299.68 599.36 899.04 UnitedHealthcare MA Edge n/a n/a n/a 357.70 715.40 1,073.10 Western Health Advantage 760.17 1,520.34 1,976.44 331.11 662.22 993.33 Anthem EPO Del Norte 1,200.12 2,400.24 3,120.31 n/a n/a n/a PERS Platinum 1,200.12 2,400.24 3,120.31 420.02 840.04 1,260.06 PERS Gold 825.61 1,651.22 2,146.59 392.71 785.42 1,178.13 35 VALUATION SUMMARY March 7, 2023 DRAFT 4 Participant Statistics 6/30/22 ■Actives ●Counts ●Average »Age » City Service » CalPERS Service 62 49.9 11.1 14.5 ■Retirees (Benefiting Only) ●Counts ●Average »Age » Retirement Age* 21 72.4 61.7 36 VALUATION SUMMARY March 7, 2023 DRAFT 5 Actuarial Assumptions Assumption June 30, 2022 Valuation ■Discount Rate ■3.54% at June 30,2022 (Bond Buyer 20-Bond Index) ■2.16% at June 30, 2021 (Bond Buyer 20-Bond Index) ■Medical Trend ■Non-Medicare -8.50% for 2023, decreasing to an ultimate rate of 3.45% in 2076 ■Medicare -7.50% for 2023, decreasing to an ultimate rate of 3.45% in 2076 ■PEMHCA Minimum Increase ■3.50%annually ■Healthcare Participation at Retirement ■Actives -50% ■Retirees -current election 37 VALUATION SUMMARY Historical Muni Bond Rates March 7, 2023 DRAFT 6 38 VALUATION SUMMARY March 7, 2023 DRAFT 7 Projected Benefit Payments Fiscal Year Ended Cash Subsidy Implied Subsidy Total 2023 $39,045 $46,165 $85,210 2024 41,520 55,369 96,889 2025 44,715 48,396 93,111 2026 48,231 58,975 107,206 2027 51,958 70,743 122,701 2028 56,038 59,034 115,072 2029 59,830 76,633 136,463 2030 63,689 72,499 136,188 2031 67,617 83,166 150,783 2032 71,539 87,731 159,270 39 VALUATION SUMMARY March 7, 2023 DRAFT 8 Actuarial Obligations June 30,2022 2.16% Discount Rate Cash Subsidy Implied Subsidy Total ■Present Value of Benefits ●Actives ●Retirees $1,382,661 717,391 $933,577 193,831 $2,316,238 911,222 ●Total 2,100,052 1,127,408 3,227,460■Actuarial Accrued Liability ●Actives ●Retirees 655,565 717,391 439,036 193,831 1,094,601 911,222 ●Total 1,372,956 632,867 2,005,823■Service Cost (2022/23) 74,809 47,023 121,832 40 GASBS 75 March 7, 2023 DRAFT 9 Applicable Dates and Periods Fiscal Year Ended June 30,2023 ■Measurement date June 30,2022 ■Measurement period July 1, 2021 to June 30,2022 ■Actuarial valuation date June 30,2022 41 GASBS 75 March 7, 2023 DRAFT 10 Footnote Disclosure Changes in Total OPEB Liability Total OPEB Liability ■Balance at 6/30/22(6/30/21 measurement date)$2,260,718 ■Changes for the year ●Service Cost 157,573 ●Interest 51,457 ●Changes of benefit terms - ●Actual vs. expected experience - ●Assumption changes (391,838) ●Benefit payments*(72,087) ■Net Changes (254,895) ■Balance at 6/30/23 (6/30/22 measurement date) $2,005,823 42 GASBS 75 March 7, 2023 DRAFT 11 Footnote Disclosure Sensitivity of Total OPEB Liability ■Changes in the Discount Rate Discount Rate 1%Decrease (2.54%) Current Rate (3.54%) 1%Increase (4.54%) ■Total OPEB Liability $2,278,428 $2,005,823 $1,782,043 ■Changes in the Healthcare Trend Rate Healthcare Trend Rate 1%Decrease Current Trend 1%Increase ■Total OPEB Liability $1,740,776 $2,005,823 $2,337,252 43 GASBS 75 March 7, 2023 DRAFT 12 OPEB Expense/(Income) for Fiscal Year 2022/23 Measurement Period 2021/22 ■Service Cost $157,573 ■Interest on Total OPEB Liability 51,457 ■Administrative expense 387 ■Changes of benefit terms - ■Recognition of deferred outflows/(inflows) ●Experience - ●Assumptions (50,888) ■OPEB Expense/(Income)158,529 44 GASBS 75 March 7, 2023 DRAFT 13 Employer Contributions Measurement Period 7/1/21 to 6/30/22 ■Cash benefit payments $33,032 ■Implied subsidy benefit payments 39,055 ■Total benefit payments 72,087 ■Administrative expenses 387 ■Total employer contributions 72,474 45 GASBS 75 March 7, 2023 DRAFT 14 GASBS 75 Balance Equation ■Balance Sheet 6/30/22 $2,260,718 ●OPEB Expense/(Income)158,529 ●Employer Contributions*(72,474) ■Balance Sheet 6/30/23 2,346,773 46 GASBS 75 March 7, 2023 DRAFT 15 GASBS 75 Balance Equation Fiscal Year Ending 6/30/22 6/30/23 Measurement Date 6/30/21 Measurement Date 6/30/22 ■Total OPEB Liability $2,260,718 $2,005,823 ■Fiduciary Net Position -- ■Net OPEB Liability 2,260,718 2,005,823 ■Deferred inflows of resources -340,950 ■Deferred (outflows) of resources -- ■Balance Sheet 2,260,718 2,346,773 47 QUESTIONS? March 7, 2023 DRAFT 16 48 DATE: March 7, 2023 TO: Finance Committee FROM: Nick Pegueros, Administrative Services Director SUBJECT: Draft Report of Cost of Services (User Fee) Study Saratoga contracted Matrix Consulting to conduct a Comprehensive Cost of Services Study to document the full cost of fee-based services provided to the community. The study results offer a defensible analysis for City Council to set user fees at a rate up to the full cost of provided services in compliance with the California Constitution. Attachment A transmits an updated draft report on user fees. The Finance Committee received a high-level overview of the study from Matrix at the February 7 meeting. Attachment A includes the analysis requested by the Committee for the impacts of full cost recovery at the line-item fee level. The draft report also includes fee surveys for several other fees. The Committee also requested a “final bill” for building permits on a new home, comparing current fees at the 80%, 90%, and 100% cost recovery level and including fees charged by external agencies. City staff is collecting the requested information for external agencies and will provide those results in a presentation. ATTACHMENT A. Draft Report on Cost of Services (User Fee) Study 49 Report on Cost of Services (User Fee) Study CITY OF SARATOGA, CALIFORNIA DRAFT REPORT January 2023 50 Table of Contents 1. Introduction and Executive Summary 1 2. Legal Framework and Policy Considerations 4 3. User Fee Study Methodology 7 4. Results Overview 9 5. Building 10 6. Code Compliance 14 7. Engineering 17 8. Finance & Administrative Services 19 9. Planning 21 10. Development Services Surcharges 25 11. Cost Recovery Considerations 29 Appendix – Comparative Survey 34 51 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 1 1. Introduction and Executive Summary The draft report, which follows, presents the results of the Cost of Services (User Fee) Study conducted by the Matrix Consulting Group for the City of Saratoga, California. 1 Project Background and Overview The City of Saratoga last conducted a formal fee study over 10 years ago, in 2006. The purpose of this study is to evaluate and determine the full cost (direct and indirect) of providing a variety of city services. The Matrix Consulting Group analyzed the cost-of- service relationships that exist between fees for service activities in the following areas: Building, Code Compliance, Engineering, Finance, and Planning. The results of this Study provide a tool for understanding current service levels and the cost for those services. 2 General Project Approach and Methodology The methodology employed by the Matrix Consulting Group is a widely accepted “bottom up” approach to cost analysis, where time spent per unit of fee activity is determined for each position within a Department or Program. Once time spent for a fee activity is determined, all applicable City costs are then considered in the calculation of the “full” cost of providing each service. The following table provides an overview of types of costs applied in establishing the “full” cost of services provided by the City: Table 1: Overview of Cost Components Cost Component Description Direct Fiscal Year 2023 Budgeted salaries and allowable expenditures. Indirect Program, departmental, clerical, and Citywide support. Together, the cost components in the table above comprise the calculation of the total “full” cost of providing any service, regardless of whether a fee for that service is charged. The work accomplished by the Matrix Consulting Group in the analysis of the proposed fees for service involved the following steps: • Department / Program Staff Interviews: The project team interviewed department / program staff regarding their needs for clarification to the structure of existing fee items, or for addition of new fee items. 52 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 2 • Data Collection: Data was collected for each permit / service, including time estimates. In addition, all budgeted costs and staffing levels for Fiscal Year 2023 were entered into the Matrix Consulting Group’s analytical software model. • Cost Analysis: The full cost of providing each service included in the analysis was established. • Review and Approval of Results with City Staff: Department management has reviewed and approved these documented results. A more detailed description of user fee methodology, as well as legal and policy considerations are provided in subsequent chapters of this report. 3 Summary of Results When comparing FY23 fee-related budgeted expenditures with fee-related revenue the City is under-recovering its costs by approximately $897,000 and recovering 76% of its costs. The following table shows by major service area / discipline, the revenue collected, the total annual cost, the resulting difference, and associated cost recovery percentage. Table 2: Annual Cost Recovery Analysis Service Area Total Revenue Total Annual Cost Difference Cost Recovery % Building $1,415,635 $1,918,480 ($502,845) 74% Code Compliance $8,135 $10,376 ($2,241) 78% Engineering $863,966 $901,677 ($37,712) 96% Finance $20,675 $43,490 ($22,815) 48% Planning $571,140 $902,278 ($331,138) 63% TOTAL $2,879,551 $3,776,302 ($896,751) 76% The departments / divisions listed above are all are facing under-recoveries. The City’s largest under-recovery is related to the Building Division at $502,845, followed by Planning at $331,138. Overall, Building and Planning’s deficits highlight the disparity between the current fees charged and the actual cost of providing the service. Therefore, the City should closely evaluate these service areas and increase fees where appropriate to help bridge this gap. The detailed documentation of the Study will show an over-collection for some fees (on a per unit basis), and an undercharge for most others. The results of this analysis will provide the Department and the City with guidance on how to right-size their fees to ensure that each service unit is set at an amount that does not exceed the full cost of providing that service. 53 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 3 The display of the cost recovery figures shown in this report are meant to provide a basis for policy development discussions among Council members and City staff, and do not represent a recommendation for where or how the Council should act. The setting of the “rate” or “price” for services, whether at 100 percent full cost recovery or lower, is a policy decision to be made only by the Council, with input from City staff and the community. 4 Considerations for Cost Recovery Policy and Updates The Matrix Consulting Group recommends that the City use the information contained in this report to discuss, adopt, and implement a formal Cost Recovery Policy, including a mechanism for the annual update of fees for service. 1 Adopt a Formal Cost Recovery Policy The Matrix Consulting Group strongly recommends that the Council adopt a formalized, individual cost recovery policy for each service area included in this Study. Whenever a cost recovery policy is established at less than 100% of the full cost of providing services, a known gap in funding is recognized and may then potentially be recovered through other revenue sources. The Matrix Consulting Group considers a formalized cost recovery policy for various fees for service an industry Best Management Practice. 2 Adopt an Annual Fee Update / Increase Mechanism The purpose of a comprehensive update is to completely revisit the analytical structure, service level estimates and assumptions, and to account for any major shifts in cost components or organizational structures that have occurred since the City’s previous analysis. It’s recommended the City adopts the practice of conducting comprehensive analyses every three to five years as this practice captures any changes to organizational structures, processes, or any new service areas. In between comprehensive updates, the City should utilize published industry economic factors such as Consumer Price Index (CPI) or other regional factors to update the cost calculations established in the Study on an annual basis. Alternatively, the City could also consider the use of its own anticipated labor cost increases such as step increases, benefit enhancements, or cost of living raises. Utilizing an annual increase mechanism would ensure that the City receives appropriate fee increases that reflect growth in costs. 54 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 4 2. Legal Framework and Policy Considerations This section of the report is intended to provide an overview regarding overall legal rules and regulations as well as general policy considerations for fees for service. A “user fee” is a charge for service provided by a governmental agency to a public citizen or group. In California, several constitutional laws such as Propositions 13, 4, and 218, State Government Codes 66014 and 66016, and more recently Prop 26 and the Attorney General’s Opinion 92-506 set the parameters under which the user fees typically administered by local government are established and administered. Specifically, California State Law, Government Code 66014(a), stipulates that user fees charged by local agencies “…may not exceed the estimated reasonable cost of providing the service for which the fee is charged”. 1 General Principles and Philosophies Regarding User Fees Local governments are providers of many types of general services to their communities. While all services provided by local government are beneficial to constituents, some services can be classified as globally beneficial to all citizens, while others provide more of a direct benefit to a specific group or individual. The following table provides examples of services provided by local government within a continuum of the degree of community benefit received: Table 3: Services in Relation to Benefit Received “Global” Community Benefit “Global” Benefit and an Individual or Group Benefit Individual or Group Benefit • Police • Park Maintenance • Fire Suppression • Recreation / Community Services • Fire Prevention • Building Permits • Planning and Zoning Approval • Site Plan Review • Engineering Development Review • Facility Rentals Funding for local government is obtained from a myriad of revenue sources such as taxes, fines, grants, special charges, user fees, etc. In recent years, alternative tax revenues, which typically offset subsidies for services provided to the community, have become increasingly limited. These limitations have caused increased attention on user fee activities as a revenue source that can offset costs otherwise subsidized (usually) by the general fund. In Table 3, services in the “global benefit” section tend to be funded primarily through voter approved tax revenues. In the middle of the table, one typically finds a mixture of taxes, user fee, and other funding sources. Finally, in the “individual / 55 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 5 group benefit” section of the table, lie the services provided by local government that are typically funded almost entirely by user fee revenue. The following are two central concepts regarding the establishment of user fees: • Fees should be assessed according to the degree of individual or private benefit gained from services. For example, the processing and approval of a land use or building permit will generally result in monetary gain to the applicant, whereas Police services and Fire Suppression are examples of services that are essential to the safety of the community at large. • A profit-making objective should not be included in the assessment of user fees. In fact, California laws require that the charges for service be in direct proportion to the costs associated with providing those services. Once a charge for service is assessed at a level higher than the actual cost of providing a service, the term “user fee” no longer applies. The charge then becomes a tax subject to voter approval. Therefore, it is commonly accepted that user fees are established at a level that will recover up to, and not more than, the cost of providing a particular service. 2 General Policy Considerations Regarding User Fees Undoubtedly, there are programs, circumstances, and services that justify a subsidy from a tax based or alternative revenue source. However, it is essential that jurisdictions prioritize the use of revenue sources for the provision of services based on the continuum of benefit received. Within the services that are typically funded by user fees, the Matrix Consulting Group recognizes several reasons why City staff or the Council may not advocate the full cost recovery of services. The following factors are key policy considerations in setting fees at less than 100 percent of cost recovery: • Limitations posed by an external agency. The State or an outside agency will occasionally set a maximum, minimum, or limit the jurisdiction’s ability to charge a fee at all. An example includes time spent copying and retrieving public documents and / or transportation permits. • Encouragement of desired behaviors. Keeping fees for certain services below full cost recovery may provide better compliance from the community. For example, if the cost of a permit for changing a water heater in residential home is higher than the cost of the water heater itself, many citizens will avoid pulling the permit. 56 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 6 • Benefit received by user of the service and the community at large is mutual. Many services that directly benefit a group or individual equally benefit the whole community. Examples include Planning Design Review, historical dedications, and certain types of special events. The Matrix Consulting Group recognizes the need for policies that intentionally subsidize certain activities. The primary goals of a User Fee Study are to provide a fair and equitable basis for determining the costs of providing services and ensure that the City complies with State law. 3 Summary of Legal Restrictions and Policy Considerations Once the full cost of providing services is known, the next step is to determine the “rate” or “price” for services at a level which is up to, and not more than the full cost amount. The Council is responsible for this decision, which often becomes a question of balancing service levels and funding sources. The placement of a service or activity within the continuum of benefit received may require extensive discussion and at times fall into a “grey area”. However, with the resulting cost of services information from a User Fee Study, the Council can be assured that the adopted fee for service is reasonable, fair, and legal. The City will need to review all fees for service in this analysis and where subsidies are identified increase them to reduce the deficit, and where over-recoveries are identified the fee must be reduced to comply with the law. 57 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 7 3. User Fee Study Methodology The Matrix Consulting Group utilizes a cost allocation methodology commonly known and accepted as the “bottom-up” approach to establishing User Fees. The term means that several cost components are calculated for each fee or service. These components then build upon each other to comprise the total cost for providing the service. The following chart describes the components of a full cost calculation: The general steps utilized by the project team to determine allocations of cost components to a particular fee or service are: • Calculate fully burdened hourly rates by position, including direct & indirect costs. • Develop time estimates for the average time spent to deliver each service included in the study. • Distribute the appropriate amount of other cost components to each fee or service based on the staff time allocation basis, or another reasonable basis. The results of these allocations provide detailed documentation for the reasonable determination of the actual cost of providing each service. One of the key study assumptions utilized in the “bottom up” approach is the use of time estimate averages for the provision of each fee related service. Utilization of time estimates is a reasonable and defensible approach, especially since experienced staff members who understand service levels and processes unique to the City developed these estimates. The project team worked closely with City staff in developing time estimates with the following criteria: • Estimates are representative of average times for providing services. Extremely difficult or abnormally simple projects are not factored in the analysis. DIRECT (Salaries, Benefits, Productive Hours) INDIRECT (Departmental Admin, Services & Supplies, Citywide Overhead etc.) Total Cost 58 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 8 • Estimates reflect the time associated with the position or positions that typically perform a service. • Estimates provided by staff are reviewed and approved by the department / division, and often involve multiple iterations before a Study is finalized. • Estimates are reviewed by the project team for “reasonableness” against their experience with other agencies. • Estimates were not based on time in motion studies, as they are not practical for the scope of services and time frame for this project. • Estimates match the current or proposed staffing levels to ensure there is no over- allocation of staff resources to fee and non-fee related activities. The Matrix Consulting Group agrees that while the use of time estimates is not perfect, it is the best alternative available for setting a standard level of service for which to base a jurisdiction’s fees for service and meets the requirements of California law. The alternative to time estimating is actual time tracking, often referred to billing on a “time and materials” basis. Except in the case of anomalous or sometimes very large and complex projects, the Matrix Consulting Group believes this approach to not be cost effective or reasonable for the following reasons: • Accuracy in time tracking is compromised by the additional administrative burden required to track, bill, and collect for services in this manner. • Additional costs are associated with administrative staff’s billing, refunding, and monitoring deposit accounts. • Customers often prefer to know the fees for services in advance of applying for permits or participating in programs. • Departments can better predict revenue streams and staff needs using standardized time estimates and anticipated permit volumes. Situations arise where the size and complexity of a given project warrants time tracking and billing on a “time and materials” basis. The Matrix Consulting Group has recommended taking a deposit and charging Actual Costs for such fees as appropriate and itemized within the current fee schedule. 59 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 9 4. Results Overview The motivation behind a cost of services (User Fee) analysis is for the City Council and Departmental staff to maintain services at a level that is both accepted and effective for the community, and to maintain control over the policy and management of these services. It should be noted that the results presented in this report are not a precise measurement. In general, a cost-of-service analysis takes a “snapshot in time”, where a fiscal year of financial and operational information is utilized. Changes to the structure of fee names, along with the use of time estimates allow only for a reasonable projection of subsidies and revenue. Consequently, the Council and Department staff should rely conservatively upon these estimates to gauge the impact of implementation going forward. Discussion of results in the following chapters is intended as a summary of extensive and voluminous cost allocation documentation produced during the Study. Each chapter will include detailed cost calculation results for each major permit category including the following: • Modifications: discussions regarding any proposed revisions to the current fee schedule, including elimination or addition of fees. • “Per Unit” Results: comparison of the full cost of providing each unit of service to the current fee for each unit of service (where applicable). • Annualized Results: utilizing volume of activity estimates annual subsidies and revenue impacts were projected. The full analytical results were provided to City staff under separate cover from this summary report. 60 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 10 5. Building The Building Division is responsible for reviewing building proposals and construction for adherence to state and local codes and laws. The fees examined within this study relate to review and inspections of residential and commercial buildings, photovoltaic installations, grading, mechanical, electrical, and plumbing improvements. The following subsections discuss fee schedule modifications, detailed per unit results, and projected annual revenue impacts for the fee-related services provided by Building. 1 Fee Schedule Modifications In discussions with Building staff, the following fee schedule modifications were proposed: • Removed Fees: The following Energy Calculation Review fees were removed as these are now standard reviews for all plans and accounted for in the Building Permit and Plan Review fees: - New Non-Residential Structure - New Residential Structure - Addition to Non-Residential Building - Addition to Residential Building - Application for Moving Permits • Expansion of Valuation Based Fees: The City’s current Building Permit Fee valuation table ranges stop at a high of $1,000,000. However, it was determined that this amount is too low and does not accurately calculate fees for high-cost projects. As such, two additional ranges were added: $5,000,000 and $10,000,000. This table expansion will account for much larger cost projects that do not actually take an exponential increase in the amount of time to plan review and inspect. • New Fees: A ‘Re-check Plan Review’ fee was added to help account for significant additional plan review of projects. This fee would be applied only when a project has exceeded the estimated hours accounted for in a base permit or plan review fee. The modifications noted above ensure that the proposed fee schedule more accurately reflects the services being provided by the Building Division. 61 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 11 2 Detailed Results The Building Division collects fees for building permits, commercial and residential photovoltaic, grading, re-roofs, retaining walls, landslide repairs, mechanical heating and air conditioning, electrical, plumbing, and building inspections. The total cost calculated for each service includes direct staff costs and departmental and citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. Table 4: Total Cost Per Unit Results – Building Fee Name Current Fee Total Cost Difference Building Permits Fees Valuation $1 to $2,000 $78 $162.45 ($84) $2,001 base fee $78 $162.45 ($84) Each additional $1,000 up to $25,000 $17.50 $16.48 $1 $25,001 base fee $490 $541.48 ($51) Each additional $1,000 up to $50,000 $12.60 $21.66 ($9) $50,001 base fee $805 $1,082.97 ($278) Each additional $1,000 up to $100,000 $9.80 $10.83 ($1) $100,001 base fee $1,242 $1,624.45 ($382) Each additional $1,000 up to $500,000 $7 $9.21 ($2) $500,001 base fee $4,042 $5,306.55 ($1,265) Each additional $1,000 up to $1,000,000 $5.90 $10.18 ($4) $1,000,001 base fee $7,010 $10,396.50 ($3,387) Each additional $1,000 up to $5,000,000 $4.56 $3.90 $1 $5,000,001 base fee $25,250.00 $25,991.26 ($741) Each additional $1,000 up to $10,000,000 $4.56 $2.60 $2 $10,000,001 base fee $48,050.00 $38,986.89 $9,063 Each additional $1,000 $4.56 $1.30 $3 Plan Check Fee 65% 66% -1% Photovoltaic Residential Roof Mount Actual Costs 15KW and above $15 $20 ($5) Ground Mount Actual Costs Commercial 0-8 KW $690 $612 $78 9-48 KW $925 $769 $156 49 KW and above $2,260 $1,763 $497 Grading Permits Less than 100 Cubic Yards $510 $524 ($14) Over 100 Cubic Yards Base $510 $524 ($14) Each additional 100 Cubic Yards $125 $217 ($92) Plan Check Fee $545 $582 ($37) Other Valuations Demolition Actual Costs Reroofs - Residential Actual Costs 62 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 12 Fee Name Current Fee Total Cost Difference Landslide Repair Permit At discretion of Building Official Retaining Walls Masonry / Concrete $165 $395 ($230) Wood $85 $297 ($212) MEP Permits Mechanical Permits - Heating and Air Conditioning Permits Minor Remodels, Residential/Commercial without associated building permit $0.10 $0.18 ($0.08) Major Remodels, Residential/Commercial without associated building permit Actual Costs Miscellaneous permits without associated building permit Actual Costs Plan Check Fee 25% 86% -61% Electrical Permits Minor Remodels, Residential/Commercial without associated building permit $0.10 $0.18 ($0.08) Major Remodels, Residential/Commercial without associated building permit Actual Costs Miscellaneous permits without associated building permit Actual Costs Plan Check Fee 25% 85% -60% Plumbing Permits Water Heater Replacement $80 $199 ($119) Minor Remodels, Residential/Commercial without associated building permit $0.10 $0.18 ($0.08) Major Remodels, Residential/Commercial without associated building permit Actual Costs Miscellaneous permits without associated building permit Actual Costs Plan Check Fee 25% 85% -60% Building Inspection Services Other Inspection Fees Inspection Outside of Normal Business Hours Actual Costs Re-Inspection Fees Assessed Under Section 305(h) of the Uniform Administrative Code Actual Costs Inspections or plan review for which no fee is specifically indicated Actual Costs Permit Extension – prior to expiration Actual Costs Permit to Final (only if all inspections except final have been completed) Actual Costs Alternative Materials or Methods of Construction Request Actual Costs Duplicate Permit Card Actual Costs Stockpiling Permit $310 $325 ($15) Re-check Plan Review New $196 Generally, Building fees are under-recovering with the largest under-recovery found in ‘Building Permits Valuation - $1,000,001 Base Fee’ at $3,387. The largest over-recovery is in “Photovoltaic – Commercial – 49 KW and above” at $497. 63 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 13 3 Annual Revenue Impacts Based on prior year workload information (FY21-22) the Building Division has a deficit of approximately $500,000. The following table shows by major fee category the revenue at current fee, the total projected annual cost, and the resulting difference: Table 5: Annual Revenue Impacts – Building Fee Name Revenue at Current Fee Annual Cost Difference Valuation $1,368,755 $1,832,517 ($463,763) Photovoltaic $5,520 $7,292 ($1,772) Grading Permits $2,895 $4,297 ($1,402) Other Valuations $85 $297 ($212) Mechanical Permits $12,547 $22,081 ($9,534) Electrical Permits $7,688 $13,738 ($6,050) Plumbing Permits $18,145 $38,257 ($20,112) TOTAL $1,415,635 $1,918,480 ($502,845) The Building Division has a 74% annual cost recovery, which reflects a $502,845 deficit. The largest component of the deficit is valuation fees, which experiences a deficit of $463,763, followed by plumbing permits which have a deficit of $20,112. This analysis indicates that right-sizing the valuation permits based upon the new proposed system as well as plumbing permits will have a significant impact on the Division’s ability to recover its costs. 64 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 14 6. Code Compliance The Code Compliance Division is responsible for ensuring compliance and overseeing enforcement of municipal codes and state laws. The fees examined within this study relate to animal permits, noise exemption, special events, code violation citations, sign retrieval, abandoned vehicles, and business regulation permits. The following subsections discuss fee schedule modifications, detailed per unit results, and projected annual revenue impacts for the fee-related services provided by Code Compliance. 1 Fee Schedule Modifications In discussions with Code Compliance staff, the following fee schedule modifications were proposed: • Removed Fees: The ‘Off-street Vehicle Permit’ fee was removed as Code Compliance staff no longer issues these permits. • Consolidated Fees: The following fees appeared more than once in the City’s master fee schedule and were consolidated to clarify the true fee charged for these services: - Special Event permit - Noise Exemption permit The modifications noted above ensure that the proposed fee schedule more accurately reflects the services being provided by Code Compliance. Furthermore, it is recommended that all Business Regulation Permits be moved to the Code Compliance section of the master fee schedule to better identify who provides those services. 2 Detailed Results The Code Compliance Division collects fees for animal permits, noise exemption, special events, code violation citations, sign retrieval, abandoned vehicles, and business regulation permits. The total cost calculated for each service includes direct staff costs and departmental and citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. 65 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 15 Table 6: Total Cost Per Unit Results – Code Compliance Fee Name Current Fee Total Cost Difference Code Compliance Permits Animal – Kennel Permit $130 $345 ($215) Animal – Horse Permit $130 $345 ($215) Noise Exception Permit $55 $86 ($31) Enforcement Fees & Penalties Administrative Citation Fee First Violation $105 $250 ($145) Second Violation $205 $500 ($295) Subsequent Violations $510 $1,000 ($490) Administrative Citation Late Payment Penalty Within 30 days after due date 10% 10% 0% Exceeding 30 days after due date 10% 10% 0% Notice of Code Violation Removal of Notice of Code Violation $510 $518 ($8) Sign Retrieval Fees (per calendar year) First Occurrence N / A $259 N / A Second Occurrence $25 $259 ($234) Subsequent Occurrences $45 $259 ($214) Sign Abandonment Actual Costs Sheriff Office Enforcement Fees Abandoned Vehicle Fee $255 $255 $0 Administrative General Fees Subpoena Summons Response Actual Cost $777 N / A Appeals - Public Hearings Code Compliance Appeal $410 $1,036 ($626) Business Licenses Business Regulation Permits Bingo Permit Application Fee $50 $130 ($80) Circus and Carnivals (Fairs) Permit Application Fee $100 $173 ($73) Clean Up Deposit $500 $500 $0 Firearms Sellers Permit Application Fee $300 $518 ($218) Sellers Permit Renewal Fee $250 $259 ($9) Massage Establishments Permit Application Fee $750 $518 $232 Permit for Managing Employee $350 $359 ($9) Permit for Massage Practitioner $350 $259 $91 Examination Fee As set by the Examiner Background Investigation / Fingerprinting As set by the Sheriff Appeal Hearing - Permit Denial $500 $691 ($191) Appeal Hearing - Permit Suspension or Revocation $1,500 $1,036 $464 Motion Picture Filming Permit Application Fee $500 $345 $155 Clean-up At discretion of Community Events Official Special Event Permit Application Fee $300 $345 ($45) Clean Up Deposit $250 $250 $0 66 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 16 Most fees charged by Code Compliance are under-recovering, with the largest under- recovery being ‘Appeals – Public Hearings – Code Compliance Appeal’ at $626. The largest over-recovery is within the Massage Establishments section, ‘Appeal Hearing – Permit Suspension or Revocation’ at $464. 3 Annual Revenue Impacts Based on prior year workload information (FY21-22) the Code Compliance Division has a deficit of approximately $2,000. The following table shows by major fee category the revenue at current fee, the total projected annual cost, and the resulting difference: Table 7: Annual Revenue Impacts – Code Compliance Fee Name Revenue at Current Fee Annual Cost Difference Code Compliance Permits $2,475 $3,886 ($1,411) Admin Fees $410 $1,813 ($626) Business Regulation Permits $5,250 $4,677 $573 TOTAL $8,135 $10,376 ($2,241) The Code Compliance Division has a 78% annual cost recovery, which reflects a $2,241 subsidy. The largest component of the subsidy is Code Compliance Permits, including noise exception permits, which have the highest workload of all code compliance fees and experience a deficit of $1,411. Administrative fees also show an annual subsidy of $626. Conversely, business regulation permits show a surplus of $573. Updating these fees based upon the new proposed system will enable the Division to recover its costs fairly and equitably for code compliance permits, administrative fees, and business regulation permits. 67 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 17 7. Engineering The Engineering Division is responsible for ensuring private development projects are constructed in accordance with City guidelines and standards, through the reviewing of engineering plans and specifications. The fees examined within this study relate to review and inspections of right-of-way repairs and improvements, subdivisions, and heavy equipment rentals. The following subsections discuss fee schedule modifications, detailed per unit results, and projected annual revenue impacts for the fee-related services provided by Engineering. 1 Fee Schedule Modifications In discussions with Engineering staff, two minor fee schedule modifications were proposed, including adding ‘Oversized Load Permit’ to the fee schedule, and renaming the ‘First $50,000 Estimated Construction Cost’ Improvement Plan Check fee to be a base fee rather than a minimum charge. These modifications ensure that the proposed fee schedule more accurately reflects the services being provided by the Engineering Division. 2 Detailed Results The Engineering Division collects fees for improvement plan checks, review and inspections of subdivisions, encroachments, major repairs or capital improvements, equipment rentals, tree and bench dedications, and public works map & plan checks or inspection services. The total cost calculated for each service includes direct staff costs and departmental and citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. Table 8: Total Cost Per Unit Results – Engineering Fee Name Current Fee Total Cost Difference Engineering Fees Engineering Design & Administrative Review $1,020 $1,129 ($109) Improvement Plan Check Service Fee First 50,000 Estimated Construction Cost base fee $5,100 $7,589 ($2,489) Over 50,000 Estimated Construction Cost 5% 2.11% 3% Inspection Fees For Subdivisions & Building Site Improvements 200% 119% 81% Tentative Subdivision Map, 1 lot $2,550 $3,641 ($1,091) Each Additional Lot $500 $579 ($79) 68 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 18 Fee Name Current Fee Total Cost Difference Engineering Permits Encroachment Permits Permit Application Fee for pipes, drains, conduits, utility service connections, routine O&M work by utility agencies, and permanent encroachments. $510 $1,190 ($680) Major Repairs or Capital Improvements by Utility Agencies / Companies Up to $250,000 14% 9.73% $0 Between $250,000 and $500,000 $35,700 $24,324 $11,376 Engineer's Estimate over $250,000 8% 17.87% ($0) Over $500,000 $56,100 $89,367 ($33,267) Engineer's Estimate over $500,000 7% 2.94% $0 Oversized Load Permit $25 $524 ($499) Equipment Rentals Heavy Equipment, Vehicles, and Construction Tools & Equipment Rentals Actual Cost Security Deposit To be determined by Fleet Manager Miscellaneous Tree and Bench Dedications 50% Actual Cost Additional Public Works map checks, plan checks, or inspection services Actual Cost Generally, Engineering fees are under-recovering. The largest under-recovery relates to ‘Major Repairs or Capital Improvements by Utility Agencies / Companies – Over $500,000’ at $33,267. The largest over-recovery relates to ‘Major Repairs or Capital Improvements by Utility Agencies / Companies – Between $250,000 and $500,000 at $11,376. 3 Annual Revenue Impacts Based on prior year workload information (FY21-22) the Engineering Division has a subsidy of approximately $38,000. The following table shows by major fee category the revenue at current fee, the total projected annual cost, and the resulting difference: Table 9: Annual Revenue Impacts – Engineering Fee Name Revenue at Current Fee Annual Cost Difference Encroachment Permits $140,760 $328,363 ($187,603) Major Repairs or Capital Improvements by Utility Agency $723,206 $573,314 $149,892 TOTAL $863,966 $901,677 ($37,712) The Engineering Division has a 96% annual cost recovery, which reflects a $37,712 subsidy. Encroachment permits are the source of this subsidy, with a total deficit of $187,603, which is partially balanced by the Major Repairs or Capital Improvements by Utility Agency annual surplus of $149,892. By re-considering fees within both categories to represent cost of service more accurately, the subsidy could be eliminated. 69 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 19 8. Finance & Administrative Services The Finance & Administrative Services Department is responsible for overseeing and supporting the City’s financial, administrative, and technology related operations. The fees-related services examined within this study relate to business licensing. The following subsections discuss fee schedule modifications, detailed per unit results, and projected annual revenue impacts for the fee-related services provided by the Finance & Administrative Services Department. 1 Fee Schedule Modifications In discussions with Finance staff, the following fee schedule modifications were proposed to the current fee schedule: • Removed Fees: The following fees should be moved from Finance’s section of the fee schedule to an alternative department / division’s section as they are not processed by Finance staff. - Business Regulation Permits were moved from the Finance fee schedule to the Code Compliance fee schedule as these services are performed by Code Compliance Staff. - Notary Fees were moved from the Finance fee schedule to the Clerk / General Administration fee schedule as these services are only provided by Clerk staff. • Combined Fees: The ‘Duplicate certificate’ fee was combined with the ‘Address change or correction’ fee to make a singular fee called ‘Address change or correction / Duplicate Certificate.’ The modifications noted above ensure that the proposed fee schedule more accurately reflects the services being provided by Finance staff. 2 Detailed Results The Finance & Administrative Services Department collects fees for business licensing. The total cost calculated for each service includes direct staff costs and departmental and citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. 70 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 20 Table 10: Total Cost Per Unit Results – Finance Fee Name Current Fee Total Cost Difference Business Licenses Processing Fees (Non-Refundable) a. New application $35 $49 ($14) b. Application renewal $20 $49 ($29) c. Address change or correction $15 $24 ($9) e. Business license listing $35 $32 $3 Overall, Finance experiences an under-recovery for every fee charged except for ‘Business license listing,’ which over-recovers by $3. The largest under-recovery is ‘Application renewal’ at $29. 3 Annual Revenue Impacts Based on prior year workload information (FY21-22) the Finance Department has a deficit of approximately $23,000. The following table shows by fee category, the revenue at current fee, the total projected annual cost, and the resulting difference: Table 11: Annual Revenue Impacts – Finance Fee Name Revenue at Current Fee Annual Cost Difference Business Licenses Processing Fees (Non-Refundable) a. New application $6,475.00 $9,025.11 ($2,550) b. Application renewal $14,080.00 $34,344.21 ($20,264) c. Address change or correction $15.00 $24.39 ($9) e. Business license listing $105.00 $96.59 $8 TOTAL $20,675 $43,490 ($22,815) The Finance & Administrative Services Department has a 48% annual cost recovery, which reflects a $22,815 subsidy. The largest component of the subsidy is from application renewals, which experiences a $20,264 deficit. This indicates that a significant portion of the subsidy would be eliminated by adjusting the application renewal fee to more accurately reflect staff time spent on this service. 71 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 21 9. Planning The Planning Division is responsible for ensuring development applications comply with zoning regulations and ordinances. Additionally, they are responsible for long-range planning activities to inform policy decisions related to the growth and development of the City. The fees examined within this study relate to appeals, annexation, technical review, general plan services, conditional use, environmental impact reporting, among others. The following subsections discuss fee schedule modifications, detailed per unit results, and projected annual revenue impacts for the fee-related services provided by Planning. 1 Fee Schedule Modifications In discussions with Planning staff, the following fee schedule modifications were proposed to the current fee schedule: • Removed Fees: The following fees were removed as the Planning Division no longer provides these services: - Construction Trailer Permit - Satellite Dish Antenna Permit - Storage Permit - Landscape Bond Acceptance Fee - Request for Continuance - Project Notification Sign - Planning Process Orientation Class - Fence Enclosure – Application Review • Re-named Fees: The following three fees were changed to better reflect services offered by the City: - ‘Plan Submittal Orientation’, re-named as ‘Pre-Application Review’ - ‘Base Fee, Less than 10 lots’, re-named as ‘Base Fee, 4 or less lots’ - ‘Each additional lot over 10’, re-named as ‘Over 4 lots’ • New Fees: The following fees were added to account for newer services offered by the City: - After-the-fact Tree Removal Permit (More than 3 trees) - SB9: Urban Lot Split - SB9: Two Unit Development - Over the Counter (OTC): Minor (e.g., AC Units) 72 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 22 - Over the Counter (OTC): Major (e.g., Swimming Pool, Gazebo, etc.) - Outside vendor Surcharge The modifications noted above ensure that the proposed fee schedule will more accurately reflect the services being provided by the Planning Division. 2 Detailed Results The Planning Division collects fees for appeals, annexation, technical review, general plan services, conditional use, environmental impact reporting, among others. The total cost calculated for each service includes direct staff costs and Departmental and Citywide overhead. The following table details the fee name, current fee, total cost, and difference associated with each service offered. Table 12: Total Cost Per Unit Results – Planning Fee Name Current Fee Total Cost Difference Planning Permits Tree Removal Permit Tree Removal Permit $130 $321 ($191) After-the-Fact Tree Removal Permit (Up to 3 trees) $415 $568 ($153) After-the-Fact Tree Removal Permit (More than 3 trees) Actual Cost Planning Fees Appeals Appeal of Administrative Decision to Planning Commission per City Code Section 15-90.010 $410 $2,476 ($2,066) From Planning Commission to City Council per City Code Section 15-90.020 $615 $2,476 ($1,861) Application Extension Fee $2,550 $1,340 $1,210 Planning Services Annexation Annexation Request $5,000 $5,000 $0 Waiver Request $510 $486 $24 City Attorney Services Actual Costs Noticing Services (Mailing List) Actual Costs Final Planning Inspections $170 $239 ($69) Technical Review Application (up to 3 reviews) $510 $1,032 ($522) Re-Review $208 ($208) Special Reports and Studies Actual Cost Traffic and Economic Studies/Other Special Reviews Actual Costs Williamson Act Contract Application or Contract Cancellation $5,000 $5,000 $0 Zoning Ordinance Amendment $3,500 $3,500 $0 Complex Project Fee Actual Costs General Plan Services General Plan Amendment $3,500 $3,500 $0 73 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 23 Fee Name Current Fee Total Cost Difference Pre-Development Application Services Pre-Application Review New $416 ($416) Property Profile $105 $208 ($103) Planning Application Reviews Conditional Use Permit Administrative Review $3,470 $2,801 $669 Planning Commission Review $4,490 $9,498 ($5,008) Design Application Review Administrative Review $3,470 $5,246 ($1,776) Planning Commission Review $5,305 $9,221 ($3,916) Environmental Application Review Department of Fish & Game EIR Fee per AB 3158 Actual Costs Department of Fish & Game Negative Declaration Fee Actual Costs Environmental Assessment Fee $1,500 $1,500 $0 Mitigated Negative Declaration Fee Actual Costs Environmental Impact Report Administrative Fee Actual Costs Monitoring of Mitigation Measures Actual Costs Exception – Application & Permit Planning Commission Review $1,840 $2,448 ($608) Heritage Preservation Application & Reviews Mills Act Application Actual Costs Historic Compliance Review $245 $1,041 ($796) Application for Designation No Charge $1,319 Permit Application Fee No Charge $416 Appeal Fee No Charge $2,476 Lot Adjustment – Application Review Application for Lot Line Adjustment $1,530 $2,392 ($862) Application for Merger of Parcel $1,530 $2,392 ($862) Application for Reversion to Acreage $1,530 $2,392 ($862) Modification of Approved Application Review $2,550 $2,318 $232 Sign – Application Review Administrative Review $310 $662 ($352) Planning Commission Review $1,840 $2,261 ($421) Sound Wall Application Review $1,020 $662 $358 Temporary Use Application Review Administrative Review $435 $555 ($120) Planning Commission Review $2,655 $3,010 ($355) Tentative Map Subdivision – Application Review Base Fee, 4 or less lots Actual Costs $4,697 N / A Each additional over 4 lots $150 $7,725 ($7,575) Subdivision Final Map $5,000 $10,198 ($5,198) Variance – Application Review $2,755 $3,069 ($314) Water Efficiency Landscape – Application Review $2,500 $2,500 $0 Arborist Services Arborist Consultant Services/ Field Inspections Actual Costs Arborist Review Fee $1,000 $1,500 ($500) Arborist Review of Tree Appeal $255 $2,568 ($2,313) Tree Fines Penalty Outside vendor Surcharge SB9 Urban Lot Split New $4,047 N / A Two Unit Development New $5,246 N / A 74 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 24 Fee Name Current Fee Total Cost Difference Over the Counter (OTC) Minor (e.g., AC Units) New $104 N / A Major (e.g., Swimming Pool, Gazebo, etc.) New $1,249 N / A Other Services Certificate of Compliance $2,500 $2,500 $0 Geotechnical Review $5,000 $5,000 $0 Lot Line Adjustment Engineering Fees $2,500 $2,500 $0 Map Checking Fees $2,500 $2,500 $0 Traffic Review Fee $2,500 $2,500 $0 Stormwater Design Review Fee $2,500 $2,500 $0 City Surveyor $2,500 $2,500 $0 Vendor Surcharge New 25% N / A Generally, Planning fees are under-recovering. The largest under-recovery relates to ‘Tentative Map Subdivision – Application Review - Each additional lot over 4’ for $7,575. The largest over-recovery is the Planning Appeal Application Extension Fee for $1,210. 3 Annual Revenue Impacts Based on prior year workload information (FY21-22) the Planning Division has a deficit of approximately $331,000. The following table shows by major fee category, the revenue at current fee, the total projected annual cost, and the resulting difference: Table 13: Annual Revenue Impacts – Planning Fee Name Revenue at Current Fee Annual Cost Difference Planning Permits $45,370 $112,191 ($66,821) Planning Services $71,400 $144,422 ($73,022) Planning Application Reviews $292,870 $459,665 ($166,795) Arborist Services $49,000 $73,500 ($24,500) Other Services $112,500 $112,500 $0 TOTAL $571,140 $902,278 ($331,138) The Planning Division has a cost recovery of approximately 63%, reflecting a subsidy of $331,138. Each of the major fee categories show an under-recovery except for “Other Services,” which recovers at-cost. The largest subsidy is found in Planning Application reviews at $166,795, followed by planning service at $73,022. Planning permits, specifically in the tree removal category, experience the highest workload and show a subsidy of $66,821. Updating these fees based on the cost of service would help reduce subsidy in the Planning Division. 75 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 25 10. Development Services Surcharges There are two typical surcharges assessed as part of the development review process – General Plan Maintenance Fee and Technology fee. The City of Saratoga currently charges a General Plan Maintenance fee as part of the building phase and a Software Technology Fee during both the Planning and Building phase. The following subsections discuss the calculation of the General Plan Maintenance and Software Technology Fees. 1 General Plan Update Fee The City of Saratoga currently assesses a General Plan Maintenance Fee as part of its building process. The fee is meant to account for updates to the general plan, zoning ordinance, housing elements, and other long-range planning activities that are part of the larger General Plan. This is a typical fee charged by many jurisdictions. The City of Saratoga currently charges this fee as a percentage of building valuation. The General Plan Maintenance fee is governed by Government Code Section 66014(b) which states that fees “may include the costs reasonably necessary to prepare and revise the plans and policies that a local agency is required to adopt before it can make any necessary findings and recommendations.” This code states that fees can be charged against zoning changes, zoning variances, use permits, building inspections, and filing applications. More typically, the fee is charged during the building permit phase to ensure any development project, which gets to the building phase, makes enough of an impact to require the need for an update to the Zoning Code or the General Plan. This fee should only be applied to major building permits (i.e., new or remodel / tenant improvements) rather than standalone permits for water heaters or electrical outlets. The project team used budget information for Saratoga’s Advanced Planning Division to determine the annual city cost associated with long-range planning. In addition to this budgeted cost, the project team used citywide overhead calculated through the Full Cost Allocation Plan to determine the fully burdened cost associated with Advanced Planning. The following table shows the total annual costs identified in the Advanced Planning Budget, Citywide Overhead, and the resulting fully burdened cost of Advanced Planning. Table 14: General Plan Maintenance Fee Cost Components Cost Category Total Annual Cost Advanced Planning Budget $207,376 Citywide Overhead $138,940 TOTAL $346,316 76 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 26 The total annual costs associated with Advanced Planning Plan are approximately $346,000. To assess this fee as a percentage of building project valuation, the project team took the annual cost associated with Advanced Planning and divided it by the total building valuation for FY22. The following table shows this calculation: Table 15: General Plan Maintenance Fee Calculation Category Amount Total General Plan Annual Maintenance Cost $346,316 Total FY22 Building Valuation $113,255,672 General Plan Maintenance Fee .306% As the table indicates, the calculated General Plan Maintenance Fee is .306% of building valuation. The following table compares the city’s current fee to the full cost fee calculated through this study: Table 16: General Plan Maintenance Fee Per Unit Result Comparison Category Current Fee Full Cost Surplus / (Deficit) General Plan Maintenance Fee .285% .306% (.021%) The City’s current fee is .285% of the building valuation. While the full cost fee would result in an increase of the City’s current fee from .285% to .306%. For example, if a project is valued at $100,000, the current General Plan Maintenance Fee would be $285 while the full cost would be $306. As part of this analysis, the project team conducted a comparative survey of other local jurisdictions and their assessment of the General Plan Maintenance Fee. Like other comparative efforts, the survey below simply shows the fees charged by the jurisdiction and does not include the basis upon which the other jurisdictions calculated or developed their fee. The following table shows the results of this comparative analysis: Table 17: General Plan Maintenance Fee – Comparative Survey Jurisdiction Fee Amount Campbell 8% of building permit fee Cupertino $0.22 – $0.45 per square foot Los Altos N / A Los Altos Hills $239 flat fee Los Gatos 0.5% building valuation1 Palo Alto 0.112% of building valuation 1 Los Gatos also charges the general plan maintenance fee based on 10% of zoning change and subdivision fees. 77 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 27 Five of the six surveyed jurisdictions charge a General Plan Maintenance Fee. The way the fee is charged varies based upon percentage of valuation (Los Gatos, Palo Alto), percentage of permit fees (Campbell), per square foot (Cupertino), and per permit (Los Altos Hills). Of those cities that charge the fee as a percentage of building valuation, the City of Saratoga’s current fee of .285% is the highest. Updating the City’s General Plan Maintenance fee will allow Saratoga to better recover for its long-range planning efforts. 2 Technology Surcharge Fee The City currently collects a Software Technology Planning Permit fee of 7.25% which is applied only to Planning permit fees and a Software Technology Building Permit fee of $20 per application. A Software Technology Fee allows the City to support the costs associated with the City’s permitting system, staff time for managing the systems, acquiring the system, mobile devices used for permitting, etc. The project team used the City’s IT and GIS related costs for all development-related activities to determine annual technology costs. The following table shows by cost category the resulting annual cost: Table 18: Technology Surcharge Fee Cost Components Cost Category Planning Building Engineering Total Annual Cost IT Service – IS Charge $103,704 $49,383 $39,506 $192,593 GIS System Services -LYNX $16,250 $16,500 $32,750 IT Equipment – IS Charges $9,000 $9,000 $7,500 $25,500 GIS License Support - ESRI $8,200 $33,420 $6,250 $47,870 TOTAL $298,713 Based upon the items needed to provide development-related software technology services, the annual software technology-related costs are approximately $299,000 for the City of Saratoga. The project team determined that the most relatable nexus for the Software Technology Fee is proportionate to the permit fee. This means, the greater the permit fee, the greater the Software Technology Fee as there is more software utilization and storage space for larger projects. Therefore, the project team took the total Software Technology Annual Cost and divided it by the annual fee-related cost associated with Building, Planning, and Engineering. The following table shows this calculation: Table 19: Technology Fee Calculation Category Amount Total Technology Annual Costs $298,713 Total Projected Development Annual Cost $1,587,002 Technology Fee as % of Permit Fee 19% 78 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 28 Based upon this calculation, the City’s Technology fee would be 19% of the permit fee. Therefore, if a planning application fee is $1,000 then the current Software Technology fee would be $72.50, while the full cost fee would be $190. Similarly, if a building application fee is $1,000 then the current Software Technology fee would be $20 while the full cost fee would be $190. With these scenarios in mind, the percentage-based structure clearly enables the Software Technology fee to be more proportionately distributed based upon the projects and their impact upon the system. As part of this analysis, the project team conducted a comparative survey of other local jurisdictions and their assessment of a Technology Fee. Like other comparative efforts, the survey below simply shows the fees charged by the jurisdiction and does not include the basis upon which the other jurisdictions calculated or developed their fee. The following table shows the results of this comparative analysis: Table 20: Technology Fee – Comparative Survey Jurisdiction Fee Amount Campbell 2% of building permit fee Cupertino N / A Los Altos 8% of building/MEP permits Los Altos Hills N / A Los Gatos 4% of development application fee Palo Alto N / A Half of the surveyed jurisdictions charge a Technology fee and of these jurisdictions, all charge their technology fee as a percentage of the permit fee. Saratoga’s calculated full cost of 19% of the permit fee is higher than all other surveyed jurisdictions. Updating the City’s software technology fee will allow Saratoga to fund the current costs for its development-related permitting needs. 3 Surcharge Funds It is a best practice to collect and account for General Plan Maintenance and Technology surcharges in separate accounts. Prior to implementation, the City should ensure that a separate fund or subaccount is designated to house the General Plan Maintenance Surcharge and an additional fund or subaccount to house the Technology Surcharge. This will ensure compliance with funding requirements, enable appropriate allocation of funds to general plan or technology-related activities, and mitigate any potential issues with comingling of funds. 79 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 29 11. Cost Recovery Considerations The following sections provide guidance regarding how and where to increase fees, determining annual update factors, and developing cost recovery policies and procedures. 1 Fee Adjustments This study has documented and outlined on a fee-by-fee basis where the City is under and over collecting for its fee-related services. City and Department management will now need to review the results of the study and adjust fees in accordance with Departmental and City philosophies and policies. The following dot points outline the major options the City has in adjusting its fees. • Over-Collection: Upon review of the fees that were shown to be over-collecting for costs of services provided, the City should reduce the current fee to be in line with the full cost of providing the service. • Full Cost Recovery: For fees that show an under-collection for costs of services provided, the City may decide to increase the fee to full cost recovery immediately. • Phased Increase: For fees with significantly low cost recovery levels, or which would have a significant impact on the community, the City could choose to increase fees gradually over a set period of time. The City will need to review the results of the fee study and associated cost recovery levels and determine how best to adjust fees. While decisions regarding fees that currently show an over-recovery are generally straight forward, the following subsections, provide further detail on why and how the City should consider either implementing Full Cost Recovery or a Phased Increase approach to adjusting its fees. 1 Full Cost Recovery Based on the permit or review type, the City may wish to increase the fee to cover the full cost of providing services. Certain permits may be close to cost recovery already, and an increase to full cost may not be significant. Other permits may have a more significant increase associated with full cost recovery. Increasing fees associated with permits and services that are already close to full cost recovery can potentially bring a Department’s overall cost recovery level higher. Often, 80 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 30 these minimal increases can provide necessary revenue to counterbalance fees which are unable to be increased. The City should consider increasing fees for permits for which services are rarely engaged to full cost recovery. These services often require specific expertise and can involve more complex research and review due to their infrequent nature. As such, setting these fees at full cost recovery will ensure that when the permit or review is requested, the City is recovering the full cost of its services. 2 Phased Increases Depending on current cost recovery levels some current fees may need to be increased significantly to comply with established or proposed cost recovery policies. Due to the type of permit or review, or the amount by which a fee needs to be increased, it may be best for the City to use a phased approach to reaching their cost recovery goals. As an example, you may have a current fee of $200 with a full cost of $1,000, representing 20% cost recovery. If the current policy is 80% cost recovery, the current fee would need to increase by $600, bringing the fee to $800, to comply with the current policy. Assuming this service is something the City provides quite often, and affects various members of the community, an instant increase of $600 may not be feasible. Therefore, the City could take a phased approach, whereby it increases the fee annually over a set period until cost recovery is achieved. Raising fees over a set period of time not only allows the City to monitor and control the impact to applicants, but also ensure that applicants have time to adjust to significant increases. Continuing with the example laid out above, the City could increase the fee by $150 for the next four years, spreading out the increase. Depending on the desired overall increase, and the impact to applicants, the City could choose to vary the number of years by which it chooses to increase fees. However, the project team recommends that the City not phase increases for periods greater than five years, as that is the maximum window for which a comprehensive fee assessment should be completed. 2 Annual Adjustments Conducting a comprehensive analysis of fee-related services and costs annually would be quite cumbersome and costly. The general rule of thumb for comprehensive fee analyses is between three and five years. This allows for jurisdictions to ensure they account for organizational changes such as staffing levels and merit increases, as well as process efficiencies, code or rule changes, or technology improvements. 81 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 31 Developing annual update mechanisms allow jurisdictions to maintain current levels of cost recovery, while accounting for increases in staffing or expenditures related to permit services. The two most common types of update mechanisms are Consumer Price Index (CPI) and Cost of Living Adjustment (COLA) factors. The following points provide further detail on each of these mechanisms. • COLA / Personnel Cost Factor: Jurisdictions often provide their staff with annual salary adjustments to account for increases in local cost of living. These increases are not tied to merit or seniority, but rather meant to offset rising costs associated with housing, gas, and other livability factors. Sometimes these factors vary depending on the bargaining group of a specific employee. Generally, these factors are around two or three percent annually. • CPI Factor: A common method of increasing fees or cost is to look at regional cost indicators, such as the Consumer Price Index. These factors are calculated by the Bureau of Labor Statistics, put out at various intervals within a year, and are specific to states and regions. The City of Saratoga should review its current options internally (COLA) as well as externally (CPI) to determine which option better reflects the goals of the Department and the City. If choosing a CPI factor, the City should outline which CPI should be used, including specific region, and adoption date. If choosing an internal factor, again, the City should be sure to specify which factor if multiple exist. 3 Policies and Procedures This study has identified areas where the City is under-collecting the cost associated with providing services. This known funding gap is therefore being subsidized by other City revenue sources. Development of cost recovery policies and procedures will serve to ensure that current and future decision makers understand how and why fees were determined and set, as well as provide a road map for ensuring consistency when moving forward. The following subsections outline typical cost recovery levels and discuss the benefits associated with developing target cost recovery goals and procedures for achieving and increasing cost recovery. 82 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 32 1 Typical Cost Recovery The Matrix Consulting Group has extensive experience in analyzing local government operations across the United States and has calculated typical cost recovery ranges. The following table outlines these cost recovery ranges by major service area. Table 21: Typical Cost Recovery Ranges by Department Department / Program Typical Cost Recovery Ranges Building 80-100% Code Compliance 50-70% Engineering 70-100% Finance 20-40% Planning 50-80% Information presented in the table above is based on the Matrix Consulting Group’s experience in analyzing local governments’ operations across the United States and within California and reflects typical cost recovery ranges observed by local adopting authorities. The following graph depicts how Saratoga compares to industry cost recovery range standards. Overall, the City’s cost recovery varies. Engineering and Planning are within typical cost recovery levels. Finance and Code Compliance are above typical cost recovery. Building is below the typical cost recovery range. 74% 78% 96% 48% 63% 0% 20% 40% 60% 80% 100% Bu i l d i n g Co d e C o m p l i a n c e En g i n e e r i n g Fin a n c e Pla n n i n g Co s t R e c o v e r y % Current Revenue Cost Recovery vs. Typical Revenue Cost Recovery Typical Cost Recovery Current Cost Recovery 83 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 33 2 Development of Cost Recovery Policies and Procedures The City should review the current cost recovery levels and adopt a formal policy regarding cost recovery. This policy can be general in nature and can apply broadly to the City as a whole, or to each department and division specifically. A department specific cost recovery policy would allow the City to better control the cost recovery associated with different types of services being provided and the community benefit received. 84 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 34 Appendix – Comparative Survey As part of the Cost of Services (User Fee) study for the City of Saratoga, the Matrix Consulting Group conducted a comparative survey of development service fees. The Department identified six (6) Bay Area jurisdictions to be included in the comparative survey: Campbell, Cupertino, Los Altos, Los Altos Hills, Los Gatos, and Palo Alto. The project team then reviewed public documents (i.e., agenda items, staff reports, budgets, fee schedules, and ordinances), and or contacted jurisdictions to get comparative information. While this report will provide the City with a reasonable estimate and understanding of the true costs of providing services, many jurisdictions also wish to consider the local “market rates” for services as a means for assessing what types of changes in fee levels their community can bear. However, a comparative survey does not provide adequate information regarding the relationship of a jurisdiction’s cost to its fees. The following sections detail various factors to consider when reviewing comparative survey results, as well as graphical comparisons of current fees and total calculated costs for various permits issued or services provided by the City of Saratoga. 1 Economic Factors To provide additional context to the comparative survey information, the project team collected economic factors for the jurisdictions included. Three important economic factors to consider when comparing fees across multiple jurisdictions are: population, budget, and workforce size. The following tables rank each jurisdiction from smallest to largest for each of these economic factors: Table 22: Ranking of Jurisdictions by Population Jurisdiction 2020 Population2 Los Altos Hills 8,489 Saratoga 31,051 Los Altos 31,625 Los Gatos 33,529 Campbell 43,959 Cupertino 60,381 Palo Alto 68,572 2 Population data is pulled from April 2020 census. 85 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 35 Table 23: Ranking of Jurisdictions by Citywide Total Budget3 Jurisdiction FY23 Budget Palo Alto $965,945 Los Altos Hills $25,243,147 Saratoga $39,403,018 Los Altos $73,284,282 Los Gatos $80,570,995 Cupertino $130,587,325 Campbell $160,256,949 Table 24: Ranking of Jurisdictions by FTE Jurisdiction FY22/23 FTE Los Altos Hills 54 Saratoga 57 Los Altos 136 Los Gatos 165 Campbell 171 Cupertino 225 Palo Alto 1,018 Based on the data shown in the previous tables, the City of Saratoga ranks on the low end of surveyed jurisdictions in terms of population, budget, and FTE count. 2 Recency Factor While the previous comparative information can provide some perspective when comparing the City of Saratoga’s fees with surveyed jurisdictions, other key factors to consider are when a jurisdiction’s fee schedule was last updated and when the last comprehensive analysis was completed. The following tables detail when each surveyed jurisdiction last updated their fee schedule and last conducted a fee study. Table 25: Last Fee Schedule Updated Jurisdiction Response Campbell 7/1/21 Los Altos Hills 8/23/21 Palo Alto 6/20/22 Los Altos 7/1/22 Los Gatos 7/1/22 Cupertino 7/18/22 3 To ensure appropriate comparisons, full operating budget (all funds) has been used for all jurisdictions. 86 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 36 Table 26: Last Fee Study Conducted Jurisdiction Response Los Altos Hills 2014 Cupertino 2015 Palo Alto 2014 Campbell N / A Los Altos N / A Los Gatos N / A Of the jurisdictions which the project team was able to find data, one has conducted a fee study within the last five years. However, most jurisdictions do adjust their fees annually. It is important to note that even though jurisdictions may have conducted fee studies, fees are not always adopted at full cost recovery. The comparative results will only show the adopted fees for the surveyed jurisdictions, not necessarily the full cost associated with the comparable service. 3 Additional Factors Along with keeping the statistics outlined in the previous sections in mind, the following issues should also be noted regarding the use of market surveys in the setting of fees for service: • Each jurisdiction and its fees are different, and many are not based on the actual cost of providing services. • The same “fee” with the same name may include more or less steps or sub- activities. In addition, jurisdictions provide varying levels of service and have varying levels of costs associated with providing services such as staffing levels, salary levels, indirect overhead costs, etc. Market surveys can run the risk of creating a confusing excess of data that will obscure rather than clarify policy issues. Because each jurisdiction is different, the Matrix Consulting Group recommends that the information contained in the market comparison of fees be used as a secondary decision-making tool, rather than a tool for establishing an acceptable price point for services. 87 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 37 4 Comparative Survey Results As part of this study, the project team conducted a survey of how the City’s current user fees and calculated full cost compare to other identified jurisdictions. The following subsections provide a comparative look at several fee-related services provided by the City versus the surveyed jurisdictions. 1 Water Heater Replacement Currently, Saratoga charges an $80 fee to permit a water heater. Through this study, the project team calculated the full cost of this service to be $199. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is below all comparable jurisdictions surveyed and is closest to Los Altos Hills’ fee of $82. Saratoga’s full cost is above all comparable jurisdictions and is closest to Campbell’s fee of $155. The jurisdictional average for water heater replacements is $113. It should be noted that historically, these fees are set below cost recovery to ensure permit compliance. 2 Residential ADU –$100,000 Valuation and 500 sq. ft. Currently, Saratoga charges a $2,049 fee, including plan check and permit costs, for a 500 sq. ft. residential accessory dwelling unit (ADU) valued at $100,000. Through this study, the project team calculated the full cost of this service to be $2,700. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. $0 $50 $100 $150 $200 $250 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Water Heater Replacement Fee Average 88 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 38 Saratoga’s current fee is below the jurisdictional average of $2,803 and is closest to Los Altos Hills’ fee of $1,881. Saratoga’s full cost is also below the jurisdictional average and is closest to Palo Alto’s fee of $2,746. The highest fee is charged by Cupertino at $4,003. 3 Single Family Home - $450,000 Valuation and 2,000 sq. ft. Currently, Saratoga charges a $6,092 fee, including plan check and permit costs for a 2,000 sq. ft. single family home valued at $450,000. Through this study the project team calculated the full cost of this service to be $8,055. The following graph shows how the department’s current fee and full cost compare to the surveyed jurisdictions. Saratoga’s current fee is below all comparable jurisdictions and is closest to Los Altos Hills’ fee of $7,079. Saratoga’s full cost is also below the jurisdictional average and is closest to Los Altos’ fee of $8,464. The highest fee is charged by Campbell at $13,770. 4 New Commercial Building - $1.5 Million Valuation and 5,000 sq. ft. Currently, Saratoga charges a $15,329 fee, including plan check and permit costs, for a 5,000 sq. ft. new commercial building valued at $1.5 million. Through this study, the project team calculated the full cost of this service to be $20,520. The following graph $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Residential ADU ($100,000; 500 sq.ft.) Plan Check Permit Fee Average $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Single-Family Home ($450,000; 2,000 sq.ft.) Plan Check Permit Fee Average 89 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 39 shows how the department’s current fee and full cost compare to the surveyed jurisdictions. Saratoga’s current fee is below the jurisdictional average of $26,517 and is closest to Cupertino’s fee of $13,475. Saratoga's full cost is also below the jurisdictional average and is closest to Los Altos Hills’ fee of $22,671. Palo Alto charges the highest fee at $41,213. 5 Commercial Office Tenant Improvement (TI) - $250,000 Valuation and 1,200 sq. ft. Currently, Saratoga charges a $3,782 fee, including plan check and permit costs, for a 1,200 sq. ft. commercial office tenant improvement valued at $250,000. Through this study, the project team calculated the full cost of this service to be $4,995. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is below all comparable jurisdictions and is closest to Los Altos Hills’ fee of $4,109. Saratoga’s full cost is also below the jurisdictional average of $5,999 and is closest to Los Altos’ fee of $5,164. The highest fee is charged by Cupertino at $7,704. $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto New Commercial Building ($1.5 million; 5,000 sq.ft.) Plan Check Permit Fee Average $0 $2,000 $4,000 $6,000 $8,000 $10,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Office Tenant Improvement ($250,000; 1,200 sq. ft.) Plan Check Permit Fee Average 90 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 40 6 Improvements - $50,000 Valuation Currently, Saratoga charges a $15,300 fee, including plan check and inspection, to permit an improvement valued at $50,000. Through this study, the project team calculated the full cost of this service to be $31,812. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee and full cost are higher than all comparable jurisdictions and are closest to Los Gatos’ fee of $13,141. The lowest fee is charged by Los Altos Hills at $1,326, which is charged as a deposit. 7 Improvements - $250,000 Valuation Currently, Saratoga charges a $45,300 fee, including plan check and inspection, to permit an improvement valued at $250,000. Through this study, the project team calculated the full cost of this service to be $25,893. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is above the jurisdictional average of $23,435 and is closest to Los Gatos’ fee of $46,490 which is the highest fee charge by all comparable jurisdictions. Saratoga full cost is also above the jurisdictional average and is closest to Palo Alto’s fee of $27,212. Los Altos Hills has the lowest fee, which is charged as a deposit. $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Improvements -$50,000 Fee Average $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Improvements -$250,000 Fee Average 91 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 41 8 Encroachment Application Currently, Saratoga charges a fee of $510 for an encroachment permit application. Through this study, the project team calculated the full cost of this service to be $1,190. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is below the jurisdictional average of $630 and is closest to Los Gatos’ fee of $1,370. Saratoga’s full cost is above the jurisdictional average and is closest to Palo Alto’s fee of $1,481, which is the highest of all comparable jurisdictions at $1,481. 9 Tree Removal Permit Currently, Saratoga charges a fee of $130 for tree removal permits. Through this study, the project team calculated the full cost of this service to be $321. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is below the jurisdictional average of $262.53 and is closest to Los Alto’s fee of $82. Saratoga’s full cost is above the jurisdictional average and is closest to Cupertino’s fee of $301. Palo Alto charges the highest fee at $443. $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Encroachment Application Fee Average $- $100 $200 $300 $400 $500 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Tree Removal Permit Fee Average 92 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 42 10 Appeal to Planning Commission Currently, Saratoga charges a fee of $410 for appeals to the Planning Commission. Through this study, the project team calculated the full cost of this service to be $2,476. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is below the jurisdictional average and is closest to Cupertino’s fee of $347. Saratoga’s full cost is higher than all comparable jurisdictions and is closest to Los Gatos’ fee of $934. The lowest fee is charged by Campbell at $200. It should be noted that appeal fees are often set well below cost recovery so as not be a barrier for the community. 11 Conditional Use Permit – Planning Commission Review Currently, Saratoga charges a fee of $4,490 for conditional use permits requiring planning commission review. Through this study, the project team calculated the full cost of this service to be $9,498. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Appeal to Planning Commission Fee Average $- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Altos Hills Los Gatos Palo Alto Conditional Use Permit -Planning Commission Review Fee Average 93 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 43 Saratoga’s current fee is below the jurisdictional average of $7,149 and is closest to Campbell’s fee of $4,142. Saratoga’s full cost is above the jurisdictional average and is closest to Cupertino’s fee of $7,048. The highest fee is charged by Palo Alto at $13,413. 12 Temporary Use Application – Administrative Review Currently, Saratoga charges $435 for administrative review of a temporary use application. Through this study, the project team calculated the full cost of this service to be $555. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee and full cost are below the jurisdictional average of $2,500 and are lower than all comparable jurisdictions. Cupertino charges the highest fee at $4,256. 13 Sign Application Review Currently, Saratoga charges a $310 fee for administrative review of a sign application. Through this study, the project team calculated the full cost of this service to be $662. The following graph shows how the department’s current fee and full cost compared to the surveyed jurisdictions. Saratoga’s current fee is below the jurisdictional average of $532 is the closest to Los Gatos’ fee of $328. Saratoga's full cost is above the jurisdictional average and is closest to Cupertino’s fee of $481. Palo Alto charges the highest fee at $1,161. $- $1,000 $2,000 $3,000 $4,000 $5,000 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Palo Alto Temporary Use Application -Admin Review Fee Average $- $200 $400 $600 $800 $1,000 $1,200 $1,400 Saratoga - Current Fee Saratoga - Full Cost Campbell Cupertino Los Altos Los Gatos Palo Alto Sign Application Review -Admin Fee Average 94 DRAFT Cost of Services (User Fee) Study Report City of Saratoga, CA Matrix Consulting Group 44 5 Summary Based upon the comparative survey, the full cost calculated is generally higher than the current fee charged. Most of the fees compared in this survey showed full costs that exceeded the average fee charged by comparable jurisdictions. However, as many of the jurisdictions have not conducted a fee study in the last ten years, it is not accurate to compare these fees. It is important to note that the results of this survey only show the fees adopted by council, not the cost recovery policy decisions for departments or a jurisdiction. As such, the results of this survey should be used as a secondary decision- making tool. 95