Guiding Principles for Contracting Policies by variablepitch336

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									CITY COUNCIL STUDY SESSION ITEM Item: 3e SUBJECT Financial policy review for Development Services STAFF CONTACT Jocelyn Mathiasen 425 452-6168 Mike Brennan 425 452-4113 Permit Services Oversight Committee (PSOC) DIRECTION NEEDED FROM COUNCIL __ Action X Discussion Information General feedback on the recommendations and identified issues is requested at this time. Given the depth and complexity of the issues involved, a follow-up discussion may be scheduled provide additional data and obtain specific policy direction from Council. Staff will prepare a fee ordinance to implement Council policy direction, and anticipates Council action on the fee ordinance on August 6, 2003. BACKGROUND In September 2002 the City Manager launched the Development Service Initiative (DSI) to improve the level of service and the efficiency of the development review function in Bellevue. The goal of the improvement program is to make the system predictable, efficient, and understandable to the people who use it, while insuring that the quality, appropriateness, and safety of development is maintained. Since the project was launched, significant strides have been made, including: • • • • • The establishment of performance goals for permit review and issuance A performance monitoring program to track both system and individual performance Customer feedback mechanisms to assess and respond to our applicants’ issues and concerns Process changes to reduce time-lines and increase predictability for our customers A significant cultural shift oriented to facilitation of appropriate development through the review and inspections process.

While more work remains to be done, the efforts to-date have already resulted in significant improvements that have been noted and commented on by a broad range of customer groups. This past year development services departments chose to forgo annual rate adjustments to provide time for a more comprehensive analysis of rates and recovery policies to be reviewed through the DSI effort. The intent of the extended review was to ensure that the city’s development services fiscal policies supported the goals of DSI - a Fast, Predictable, One-City experience for our citizens and clients.

This presentation lays out several basic recommendations for reforms to the development services fiscal structure and describes the potential fiscal impacts of implementing these recommendations. The major focus is on the methodology for setting hourly rates and allocating certain costs, since this is the area where we have identified barriers to holistic management of the development review function. POLICY ISSUES Currently, hourly rates for Land Use, Transportation, Utilities, and Fire are set based on rate recovery policies set by Council in 1991 for Land Use and in 1995 for the other departments. At the time, the rates were established on a department-by-department basis, with different rates established based on types of cost. The recovery percentages set by Council in 1991 and 1995 are outlined in Attachment 1. The policies set did achieve their purpose, which was to allocate costs between permit customers and the general fund. However, the current rate philosophy falls short of meeting the DSI objectives in several respects. • • • Inconsistent fund models and reserve structures provide some departments with more flexibility to respond to fluctuations in workload than others. There is no consistent link between the type of service being provided to the permit applicant and the cost they are being charged, making the fees difficult to explain or justify. Central support costs (e.g., the Amanda computer system, the permit center, and the billing system) are paid for by applicants for only two functions, resulting in unintended subsidies of one function by another and added costs to the General Fund. The fee system is highly complex and requires significant consultant support and time to assess costs of service and update rates for each department

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Addressing the current flaws in the fee system is critical to ensuring the sustainability of DSI’s Fast, Predictable, One-City commitment to the community. ANALYSIS AND RECOMMENDATIONS To guide the review and updating of the development services fiscal structure, PSOC developed a proposed set of guiding principles for funding development services. Council feedback on these principles is requested. Proposed Guiding Principles • • • • • • Fees should be regionally competitive while allowing for timely, high-quality services Permit applicants should pay for the direct services that they receive, adjusted to account for broader community benefits Fiscal management should be development-services wide, not department by department The funding structure should support the management of development services as a line of business, through economic cycles and fluctuations in work-load Fees should be predictable and understandable to the customer The fee system should be efficient and cost-effective to manage

As a result of our analysis of the existing fee structure, and based on the proposed guiding principles, the staff recommends changes to the current fee methodology in three areas.
1) Adopt a simplified rate model, establishing cost recovery objectives based on the type of service being delivered to the permit applicant, not based on the department delivering the service.

Setting cost recovery objectives based on the type of service being delivered provides a more understandable and consistent approach for setting fees, with common objectives across departments and functions. This is consistent with the one-city philosophy of the DSI effort. It also results in a model that it is simpler and easier to maintain and update than the current one. Following is a proposed model for setting cost recovery objectives based on the type of service:
Policy Development X% Public Information X% Pre-Submittal Discretionary Review X% X% Central Support Functions X% Engineering Review X% Inspection X%

The specific cost recovery objectives would be established by Council. In addition to the cost recovery targets, Council could chose to support a policy of subsidizing certain permit types that provide a broad community benefit or where the permit cost is a barrier to people obtaining permits. Two possible examples would be certain fire permits and permits for home maintenance work. 2)
Reallocate Central Support Costs so that they are more equitably distributed across functions

Over the past ten years the city has consolidated and centralized permit support services to improve customer service and increase efficiency. These services include the permit center, the AMANDA permit tracking system and the billing system. Currently, the costs for these services are entirely borne by the Building Division (100% cost recovery) and the Land Use Division (approximately 35% cost recovery). This distribution of cost has several unintended consequences including: • • • The General Fund subsidizes a significant share of costs through the Land Use recovery rate Rates for Utilities, Fire and Transportation permits do not reflect the cost of these services The city has no established rate recovery policy for shared services costs

Reallocating a portion of the central support costs would be more equitable, because the costs would be allocated to the permit applicants who are receiving the service. This is in line with the principle that applicants should pay for the direct services that they receive.
3) Establish a Development Services-Wide Reserve and Work-Load Strategy

Development services is a heavily cyclical function, as we have witnessed over the past ten years. When business activity is increasing, it is critical that we are able to respond quickly by adding staff and consultants to maintain timelines, ensuring that developers are not hindered in their ability to

secure financing and move forward with projects and so that businesses can quickly get approvals for tenant improvements to start up or expand their operations. When business activity is decreasing, we need to be able to respond appropriately with reductions in costs and staffing to protect the financial health of the function. At all times we need to be able to retain a basic level of skills, qualifications, and expertise to ensure that we are able to effectively support all aspects of development services. Over the last two years, the Building and Land Use Divisions were affected by the drop in development activity to the point that these Divisions took a $1.4 million budget reduction for 200304. Reductions included contract services, 8 LTE positions, 6 FTE positions and delayed implementation of technology initiatives. Other development services departments made similar adjustments. While all functions followed a similar pattern of expanding and contracting with the last development cycle, it is clear from experience that each department has varying capabilities to respond to changes in development activity. In the past the effect has been uneven staffing to workload ratios resulting in bottlenecks and overall slow-downs in permit application turn around timelines. A comprehensive reserve and workload management strategy would address many of the issues facing the development services function. Specifically, an integrated strategy could provide the policy basis for making changes in staffing and resource levels (both up and down) and further insulate the General Fund from dramatic resource demand swings associated with development cycles. It would also allow all functions to respond in a timely manner when work-load increases so that we can continue to meet our performance targets and not act as a drag on the development community. The proposed goal of a reserve and workload management strategy would be to: • • • Ensure that all functions can respond effectively to economic cycles, both up and down Further insulate the General Fund from dramatic cost swings, especially as development activity increases Manage to established core staffing levels to retain institutional knowledge and core service levels

One key component of this would be to expand the scope of our permitting reserves, which are currently only provided for Land Use and Building, to provide other permitting functions with similar flexibility to manage staffing to match workload. FISCAL IMPACTS The fiscal impacts of the proposed policy changes would depend on which recommendations are adopted and on the cost recovery objectives set by Council. During the Council presentation, staff will provide examples of how the different policy changes might affect rates, development costs for permit applicants, and the city budget. ISSUES FOR DISCUSSION Initial feedback and discussion is requested on the following questions: Are the proposed Guiding Principles appropriate?

1) Simplified Model a) b) c) Should cost recovery objectives be set by functions rather than by department? What should the cost recovery objectives be? Should certain permit types that provide a broad public benefit be subsidized?

Recommendation: The staff recommends implementation of the simplified model with cost recovery objectives being set by function. One scenario would involve cost recovery targets of zero for policy development, public information, and pre-submittal work; 50 % for discretionary review; and 100 % for engineering review and inspection. The proposed scenario is regionally competitive and would achieve the guiding principles listed above. 2) Central Support Costs a) b) Should central support costs be re-distributed? To the extent that this results in a reduction in the general fund subsidy for development services, how should these savings be allocated?

Recommendation: The staff recommends redistribution of central support costs. General fund savings could be used to subsidize certain permit types, to help seed reserves for other functions, and/or could be retained by the general fund. 3) Workload Management Strategy a) b) c) Should the existing reserve strategy for Land Use and Building be expanded to cover other functions? How quickly and aggressively should the reserve be built? How should the reserve be paid for?

Recommendation: The staff recommends expanding the reserve to cover fire, transportation, and utilities. This could be funded by allocating some of the reserve savings from the redistribution of support costs to expand reserves to the other functions, and then adding a modest amount ($1 - $2) to hourly rates for these functions to support the reserves on an ongoing basis. The reserves would then be monitored over time to ensure that the dollar amount is appropriate. To build up reserves more quickly, the Council might consider using some of the General Fund savings from redistribution of central support costs. ATTACHMENT 1. Current Cost Recovery Targets

Attachment 1: Current Targets


								
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