That the City Council approve and authorize the City Manager to execute an Agreement with ClearSource Financial Consulting of Aptos, California, in the amount of $58,500 for a Comprehensive User Fee Study, Cost Allocation Plan and Indirect Cost Rate Study.

At the August 5, 2024, City Council meeting, staff presented City Council with General Fund cost offsets, revenue opportunities, and budget balancing measures. One suggestion approved by the City Council at that meeting was directing staff to undertake a fee study with the goal of 100% cost recovery. This recommendation is consistent with the City Council’s adopted Goals and Objectives, and is consistent with the 2019 Fiscal Review Committee’s recommendation to “Better align user fees with costs of services, such as administrative fees, business license fees, animal license fees, rental/vacancy fees, etc.”

There are a variety of fee-based services provided by the City to individuals and entities for their benefit, such as licenses, permits, and inspections. Local governments may levy charges that amount to no more than necessary to cover the costs reasonably borne in providing the governmental activity. User fees help to ensure the City accurately assesses its costs for providing such services and is not subsidizing fee based services with General Fund monies that could otherwise be used for City-wide programs and projects.

The City’s last comprehensive fee study was performed in 2015 and included a process where certain eligible fees could be adjusted by the change in the Consumer Price Index (CPI) each year. It is generally recommended that an updated fee study be completed every few years to accurately capture any new services being provided, account for changes in processes, and to match fees to the cost of providing certain services. Additionally, the fee study can provide a reasonable and defensible methodology for the calculation of indirect costs that can then be assessed as administrative expenses on eligible grants and during audits.

Staff released a Request for Proposals for the provision of these services, and the table below shows the four consulting firms that responded, along with their cost proposal.

A committee of City staff from various departments evaluated the proposals and interviewed the top two firms. While cost was a consideration, other factors considered included the firms background in providing the requested services, experience of personnel assigned, staff expertise and recent public sector experience with these services. After a reveiw of qualifications and the results of the interview process, the evaluation committee unanimously agreed that ClearSource Financial Consulting appeared to provide the best combination of staff expertise, firm experience, and cost for the services being sought by the City. Therefore, staff recommends the City Council approve and authorize the City Manager to execute an agreement with ClearSource Financial Consulting to complete a Comprehensive User Fee Study, Cost Allocation Plan, and Indirect Cost Rate Study for the City. Once the study is completed, staff will submit an updated fee schedule for Council review and adoption at a future public hearing.

Funding for the Comprehensive User Fee Study, Cost Allocation Plan, and Indirect Cost Rate Study was budgeted in the FY 25-26 Capital Improvement Projects (CIP) budget. The adopted budget provided $85,000 for this project; however ClearSource Financial has proposed to complete this work for $58,500, therefore no additional funding is necessary at this time. If the study supports adjustments to City fees, subject to City Council review and approval, there may be additional revenues generated in the future to offset the City's cost for providing certain services.