Fundamentals of Fees, Assessments, and Parcel...

Michael ColemanFiscal Policy Advisor

CSMFO / League of Calif [email protected]

CaliforniaCityFinance.com530.758.3952

Fundamentals of Fees, Assessments, and Parcel Taxes

Tim SeufertManaging Director

N B [email protected]

www.nbs.com800.434.8349

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• Fundamental Concepts of Government Revenue• User Fees and Regulatory Fees• Community Financing Districts (CFDs)• General v Special Benefit• Utility Rates and Property Related Fees• Development Impact Fees, Dedications and Exactions• Economic Development Tools - Post Redevelopment

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Cities Vary, Counties Vary, Special Districts Vary… and so do their finances

Geography: proximity, climate, terrain, accessCommunity Character / Vision: Land use

Bedroom? Industrial? Tourist? Rural? etc. Size – urban / ruralGovernance / service responsibilities

full service city - vs.- not full serviceCounties – amount of urban development in unincorporatia

Statewide generalizations often mask trends among sub-groups

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The Mechanics of Government Revenue

Who decides? oStatewide voters /

ConstitutionoState law / LegislatureoLocal votersoLocal law / City Council

Who pays?visitors, residents, businesses, etc.

What rate / base?

$per gallon, % per price, depreciated value, etc.

How’s it allocated?

situs; pooled / population, etc.

Who collects? &

enforces payment?

What is the $ used for? general, water,

roads, parks etc.

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TaxesCharges which pay for public services and facilities that provide general

benefits. No need for a direct relationship between a taxpayer’s benefit and the tax paid.Cities may impose any tax not otherwise prohibited by state law.

(Gov Code § 37100.5)The state has reserved a number of taxes for its own purposes including:

cigarette taxes, alcohol taxes, personal income taxes.General & Special

General Tax - revenues may be used for any purpose.• Majority voter approval required for new or increased local tax

Special Taxes - revenues must be used for a specific purpose.• 2/3 voter approval required for new or increased local tax• Parcel tax - requires 2/3 vote

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California Constitution: only two types of taxes may be imposed upon a parcel of property:

So a parcel tax requires two-thirds voter approval regardless of how (or if) the proceeds are restrictedFlat per-parcel rate or per use, size, number of unitsTo distinguish from property tax, ordinance should say excise tax for revenue raising purposes on the use of municipal services (rather than property ownership)Rates should show rough proportionality to use of services

1. an ad valorem property tax

2. a special tax receiving two-thirds voter approval

Parcel Taxes

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1. an ad valorem property tax

2. a special tax receiving two-thirds voter approval

Any levy, charge or exaction of any kind imposed by a California government, is a taxexcept:

• User Fees and Assessments*: for a privilege/benefit, service/productPlanning permits, development fees, parking permits, user fees, copying fees, recreation classes, gas / electric utility services, security services, wholesale water services, transit services. etc.

• Regulatory Fees*: regulation, permits, inspectionsPermits for regulated commercial activities (e.g., dance hall, bingo, card room, check cashing, taxicab, peddlers, catering trucks, massage parlor, firearm dealers, etc.); fire, health, environmental, safety permits; police background checks; pets; bicycle licenses.

• Rents: charge for entrance, use or rental of government propertyFacility/room rental fees, room rental fees, equipment rental fees, on and off-street parking, tolls, franchise, park entrance, museum admission, zoo admission, tipping fees, golf green fees, etc

• Penalties for illegal activity, fines and forfeitures, etc. Parking fines, late payment fees, interest charges and other charges for violation of the law.

• A payment that is not imposed by governmentIncludes payments made pursuant to a voluntary contract or other agreement that are not otherwise “imposed” by a government’s power to coerce.

Fees and the Rest California Constitution per Prop218(1996, Prop26(2010), etc.

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Taxes and Fees/etc.Approval Requirements (California Constitution)

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Taxes Fees State/Fed Aid Rents, penalties Other

Source: CaliforniaCityFinance.com computations from data from California State Controller (revenues). Does not include data from the following cities that failed to report: Beaumont, Hawthorne, Imperial, La Habra, Lindsay, Placerville, Stockton, Taft, and Westmorland.

California City Revenues

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Source Author’s computations from State Controller reports

Other

Hotel Tax

BusnLic Tax

Utility User Tax

Franchises

Sales & Use Tax

Property Tax

OtherPlanningStreetsLibrary

Parks&Rec

Police

Fire

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Revenues Exenditures

Discretionary Revenues and SpendingTypical Full Service City

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California County Revenues

Source: CaliforniaCityFinance.com computations from data from California State Controller.

Counties are hybrid local/state

state/federal programs: Aid to families (CalWORKS), food stamps, foster care, In-Home Support Services (IHSS), alcohol & drug treatment.

countywide services: jails, courts, elections, property tax collection & allocation.

“city” services to . unincorporated areas

Taxes Fees State/Fed Aid Rents, penalties Other

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California Special District Revenues

Source: CaliforniaCityFinance.com computations from data from California State Controller.

Typical Non-Enterprise (e.g., Fire, Parks)

Typical Enterprise (e.g., Water, Sanitation)

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Regulatory Fees, User Fees and Other Charges

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Regulatory fee revenue may be used to mitigate the past, present, or future adverse impact of the fee payer’s operations, as long as the fee bears a reasonable relationship to the burden caused by those charged. The use of proceeds from regulatory fees does not have to confer benefits or privileges on the fee payer.

Regulatory Fees – examples

Sinclair Paint Co. v State Board. of Eq. (1997)

Waste hauler surcharge used to fund a no-costprogram to dispose of

household toxic materials(e.g., paint, solvents)

and appliances.

Fee for fire prevention brush management near

canyons, hillsides, etc. Some revenues fund

emergency preparedness education program.

Water conservation inspection fee, a

portion used to fund a rebate program for

the installation of low volume water fixtures.

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A charge imposed to recover the reasonable costs to a local government for issuing licenses and permits, performing investigations, inspections, audits, enforcing agricultural marketing orders, administration and enforcement of the regulations. -Regulatory Fee under Proposition 26Does NOT include: fees/charges to mitigate the past, present, or future adverse impact of the fee payer’s operations.

☞ OK if adopted prior to Nov 2, 2010

Proposition 26 Aimed at Sinclair

Waste hauler surcharge used to fund a no-costprogram to dispose of

household toxic materials(e.g., paint, solvents)

and appliances.

Fee for fire prevention brush management near

canyons, hillsides, etc. Some revenues fund

emergency preparedness education program.

Water conservation inspection fee, a

portion used to fund a rebate program for

the installation of low volume water fixtures.

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A charge imposed to recover the reasonable costs to a local government for issuing licenses and permits, performing investigations, inspections, audits, enforcing agricultural marketing orders, administration and enforcement of the regulations.

Regulatory Fee

A charge for specific benefit or privilege, service or product granted directly to the payor not provided to those not charged does not exceed the reasonable costs to the local government

of the benefit, privilege, service or product.

User Fee

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“The question of proportionality is not measured on an individual basis. Rather it is measured collectively, considering all rate payors. Thus, permissible fees must be related to the overall cost of the governmental regulation. They need not be finely calibrated to the precise benefit each individual fee payor might derive. What a fee cannot do is exceed the reasonable cost of regulation with the generated surplus used for general revenue collection. An excessive fee that is used to generate revenue becomes a tax.”

Calif. Farm Bureau Fed’n v. StateWaterRes.Control Bd., 51Cal.4th 2012

Fees: Calibrated to Precise Benefit?

User Fees: Differential Rates, Discounts, Waivers

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Smells like a tax if … the cost of providing the discount, fee waiver, or differential rate is

diverted to other fee payers who must pay for the same benefit, privilege, service or product, or

the fee or charge paid by the other fee payers exceeds the cost of providing the benefit, privilege, government service.

Permit fee for fishing in a public reservoir

(i.e., for a privilege or benefit) ◆ waived for local residents

Ceramics class fee (i.e., for a service or product)

◆ discounted for seniors / students

Gas service charge (i.e., for a service or product)

◆ discounts to low income customers

A charge for entrance to or use of local government property, or the purchase, rental, or lease of local government property.

• “reasonable cost” and waiver/discount limits do not apply• may charge whatever the market will bear

• Rates do not have to be cost justified• Revenue may be used for general purposes

Rents

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Fee for use of community amphitheater

◆ discounted for non-profit groups

Fee for use of city owned boats at city reservoir

◆ discounted for local residents

Bridge toll◆ waived for high

occupancy vehicles

A fine, penalties, or other monetary charge imposed by a court or local government as a result of a violation of law.

Fines and Penalties

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Five percent charge for late

payment of water utility bill.

Fine of $1,500 for violation of regulation prohibiting

any person from throwing a lighted cigarette onto

park property

Water conservation fine on over users,

a portion used to fund a rebate program for the

installation of low volume water fixtures.

CSMFO Revenue Fundamentals II:Special Financing Districts (SFD)

Tim SeufertNBS

Develop Priorities

Choose SFD

Tool(s)

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The fundamental process

Priorities

1Community needs and desires, fully vetted…

Priorities and policies

PrioritiesSFD

Tools

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Choosing funding and financing tools

Capital vs. services

Ongoing services

One-time capital

investment

SFD options

Capital vs. services

Taxes vs. Assessments

California Constitution

SFD revenue tools: The short list

1 Community Facilities District, or CFD

2 “Special” Parcel Tax

3 Special Assessment Districts

4 The others: Property-related fee, EIFD?

Financing tools: A short list

1 Municipal bonds, taxable or exempt

2 State Revolving Funds/iBank/Other

3 P3?

4 Bank Loans

Use of CFDs for developments…

Community infrastructure or provision of services

Let’s talk economic development…

Downtown revitalization or conference center/hotels

Infill Development

Downtown Burlingame Avenue

Source: LAO

• Years of neglect and lack of consensus

• Funding challenges

• Interests coalesce

• Special assessment passed

San Francisco SOMA Plan Area

• Opt in CFDs

• Max revenues

• Trade off for increased height limits

Let’s talk infrastructure…

Water/Wastewater/Recycled Water

Streets and Storm Drains

Civic Improvements

Los Carneros Recycled Water

• Special assessment • Recycled water infrastructure• Strong community support

Santa Cruz County Libraries

• CFD • Renovate and rebuild libraries• Community-wide support

Let’s talk services…

Stormwater/NPDES

Schools and Libraries

Public Safety

Let’s keep talking about services…

Groundwater (GSA/GMA)

Inspections/Code Enforcement/Prop 64/Etc.

???

SF Bay Restoration Authority

• Parcel tax across 9 counties • Bay restoration, and sea level rise?• Voter approved tax

“Fun” facts: 36-66” sea level rise forecast, with 11,000,000 passengers per year at OAK, and 35,000 residents in Foster City…

City of Culver City

• Parcel tax for stormwater/NPDES • Creek restoration/environmental perspective• Voter approved tax

CFDs and Parcel taxes

NOT BENEFIT-BASED

•Reasonable metrics

•Achieves local goals and policies

APPROVAL MECHANISM

• Voter approved, still 2/3 required

• CFD landowner vote(s)

SAMPLEPROJECTS

• Schools and libraries

• New development

• Open space acquisition and maintenance

Special Assessments

ARE BENEFIT-BASED

• General benefit

• Rigor of assessment engineering

• Still viable…

APPROVAL MECHANISM

• Property-owner

• Protest ballot

• 50% + protest?

SAMPLE PROJECTS

• Infrastructure, new and replacement

• Ongoing maintenance

• PBIDs/CBDs

Property-related Fee (not water, sewer, trash)

ANALYTICAL RIGOR

• Voluntary nature?

• Analytical analysis

APPROVAL MECHANISM

• “Property-based fees” balloted

SAMPLES

• Palo Alto Storm drain fee

• CSA fees for roads, fire, etc.

Examples

Case studies:

1. CFD for public safety

2. Parcel tax for recreation and park

services

3. Benefit assessment for fire services

INITIAL FORMATION ONGOING

CFD: Vacaville (developer-driven)

NEEDS AND POLICY AIMS

•Provide public safety services

•Mitigate negative fiscal impacts

•Fairness to payers

FORMATION AND APPROVAL

• Research and analysis

• Develop RMA (tax formula)

• Ballot and waiver (2/3)

ANNUAL ADMIN

• Tracking, calculating, and collections

• Responding to inquiries

• Annual reporting


Parcel tax: GVRD


•Maintain parks

•Provide services for many users



• Research and poll

• Educate and inform

• Develop tax formula

• Mailed ballot election (2/3)

ANNUAL ADMIN


• Responding to inquiries



Benefit assessment: ECCFPD


•Maintain fire suppression services (Post 13 district)



• Community discussions

• Detailed research

• Educate and inform

• Dev assessment

• Protest ballot (50%)

ANNUAL ADMIN


• Annual Engineers Report

• Inquiries


Annual administration process

Agency Reports

Customer Service

(inquiries)

State Reporting

Delinquency Management

AnalyzeBudgets

TrackParcels

Calculate Annual Charges

Funds Tracking

Continuing Disclosure

BondCalls

Recommended resources

Additional Resources:

• League Municipal Revenue Handbook

• NBS’ SFD Primer and Compendium

• League and CSDA Proposition 218

Implementation Guides

CSMFO Revenue Fundamentals II:Utility Rate Discussion

Tim SeufertNBS

Utility rates and property-related fees

• Utility rates for water, sewer, trash• Other “property-related fees”• Capacity/connection fees

What the heck?

• Terminology: Fee vs rate vs tax

• Three “exceptions”

• Who provides service?

What is in the Gumbo?

• Drought effects

• Legal challenges

• Revenue instability

• Recycled water needs (DPR anyone?)

• Groundwater issues and challenges

• Critical capital infrastructure needs

Legal challenges and more…

Bighorn case started it all…

• San Juan Capistrano tiered rate challenge

• Palmdale customer class case

• Wastewater challenges

• Town of Hillsborough penalties

• Etc.

[+ class actions?]

Revenue instability

$9.67 Mil.$6.4 Mil.

$10.77 Mil.

$13.25 Mil.

$. Mil.

$5. Mil.

$10. Mil.

$15. Mil.

$20. Mil.

$25. Mil.

Cost Structure Rate Revenue

Cost vs. Revenue Structure

Fixed Variable

53% Variable47% Fixed

67% Variable33% Fixed

Risk!

Fines and Penalties

Encouraging conservation, beyond tiers

Communication

Incentives and Rebates

More on communication

What’s happening at the Utility?

Financial Updates

Capital Projects

Conservation Messaging

Rebate Programs

New Regulations

Customers

• Infrastructure needs

• Revenue doesn’t cover costs

• Cost-of-service is out of balance

• Conservation impacts

• How does the increase affect customers?

• Who feels the most pain?

Keys to a successful rate setting process

Public Outreach Strategy

Tell a Complete Story

Prior Cost Cutting

Measures

Operational Efficiencies

Bill Impacts

Senate Bill 814

Objective: During a state of emergency or local water supply shortage, establish a method to identify and discourage excessive water use.

Targeted water usage: Single-family residential customers or individually metered (or sub metered) multi-family residential customers.

How to comply: Rate structure or excessive use ordinance and penalties.

Meeting SB 814 requirements

Rate Structure

• Addition to base rates to discourage excessive use

• Tiered rates

• Water budgets

• Rate surcharges

Excessive UseOrdinance

• Definition/procedure to identify and address excessive water use

• Process to issue written warnings and perform site audit

• Penalty or fine of up to $500/hcf used above excessive use threshold

OR

Draft Framework - Executive Order B-37-16

Four Main Objectives:

Use Water More Wisely

Eliminate Water Waste

Strengthen Local Drought Resilience

Improve Agricultural Water Use Efficiency and Drought Planning

Anatomy of a water/sewer rate study

Financial Plan & Revenue

Requirements

Cost-of-ServiceAnalysis

RateDesign

Developing a cost basis for rates

Accounting/Cost

Water Supply

System Design/Operation

Case in point on wastewater…

City of Sausalito study

• Volumetric rates

• Enhanced analysis of customer classes

and usage data

• Better synchronicity between residential

and non

• Marin Grand Jury comments

Storm drain fees?

Still need analysis and approval process

• Property-related fee?

• Parcel tax?

• G.O. bond?

• DIF?

• Etc.

Trash, recycling, composting…

Trash, recycling, composting…

Some of the issues:

• Conundrum of encouraging more recycling vis a vis cost

• Cost allocation/rate setting between different sizes of cans, and residential vs. commercial

• Developing [expensive] composting systems for green waste

Connection fees or capacity charges

Some of the issues:

• Akin to Development Impact Fees (DIF)

• Cost-based fees, share of current infrastructure, portion of future improvements or hybrid

• ADU or “granny units” discussions

Noteworthy possible developments

Coming soon?

• ACA – 1

• New legislation about ADUs

• Court cases

• What else?

Recommended resources

Additional Resources:

• League Municipal Revenue Handbook

• League and CSDA Proposition 218

Implementation Guides

• NBS publications:

1. Special Financing District Primer

2. Rates & Fees Compendium

3. Stormwater 10-step funding plan

4. CFD booklet

Tim Seufert

Questions and Comments

800-434-8349

[email protected]

Capital Financing

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Examples of Capital Assets

Land and improvements

Facilities

Infrastructure (water, sewer,

streets)

Vehicles and Equipment

Pay as You Go (Pay-Go) versus Pay as You Use (Debt)

Source/Tool Approval Rules NotesDeveloper fees & exactions

Condition of development

Limited, one time

User Fees (Revenue Bond)

Majority protest for water, sewer, refuse

Use limited to purpose of fee

General Obligation Bonds (property tax)

2/3 voter approval (citywide)

ad valorem tax increaseLowest interest costNeeds big communitywide interest

Special Benefit Assessment

Majority protest of payers (weighted)

“special benefit” to property that pays also for maintenance

C.F.D. Special (Parcel) Tax

2/3 voter approval -if

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New Infrastructure Financing Tools after the

Redevelopment Apocalypse

Uses: public facilities and “projects of communitywide significance” purchase, construction, expansion, improvement, seismic retrofit of real or tangible property with a useful life of 15 years or greater:

Enhanced Infrastructure Financing Districts (EIFDs)SB628 (Beall) in 2014 Gov Code Sec 53398.50

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Projects on a closed military base consistent with approved base reuse plans

Industrial structures for private use Transit priority projects Projects which implement a sustainable

communities strategy Mixed-income housing developments Facilities constructed to house providers

of consumer goods and services Child care facilities

Highways, interchanges, ramps and bridges, arterial streets, parking and transit facilities

Sewage treatment, water reclamation plants and interceptor pipes

Facilities for the transfer and disposal of solid waste, including transfer stations and vehicles

Facilities to collect and treat water for urban uses Flood control levees and dams, retention basins,

and drainage canals Parks, recreational facilities, open space and libraries Brownfield restoration and other environmental mitigation

Property tax increment of city*

Uses: May plan and fund: Rehabilitation, repair, upgrade or construction of public infrastructure brownfields cleanup low- and moderate-income housing seismic retrofits of existing buildings owner or tenant improvement loans assistance to businesses for certain industrial and manufacturing uses.

May issue long term debt, backed by property tax increment. Voter approval is not required

25% of tax increment must be used to increase, improve, preserve affordable housing

May use eminent domain

Community Revitalization and Investment Authorities (CRIAs)

AB2 (Alejo) in 2015 Gov Code Sec 62000

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May be used in a revitalization area w/ 80%: An annual median household income is less than 80% statewide annual

median income Three of the four following conditions:

1. A nonseasonal unemployment rate 3% higher than the statewide median2. Crime rate 5% higher than the statewide median3. Deteriorated or inadequate infrastructure: streets, sidewalks, water,

sewer, parks4. Deteriorated commercial or residential structures.

Or… a former military base.

Community Revitalization and Investment Authorities (CRIAs)

AB2 (Alejo) in 2015

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