presented by: glenn m. reiter glenn m. reiter & associates march 14, 2008 calaveras lafco
DESCRIPTION
SETTING RATES, CHARGES, FEES AND ASSESSMENTS. Presented by: Glenn M. Reiter Glenn M. Reiter & Associates March 14, 2008 Calaveras LAFCO. Rate Setting Before Propositions. General Reliance on Taxes Revenue Needed Was Met With Tax Increases Rate= Revenue Needed Assessed Value - PowerPoint PPT PresentationTRANSCRIPT
© SDI September 6-7, 2007 Glenn Reiter – Page 1 of 48
Presented by:
Glenn M. ReiterGlenn M. Reiter &
Associates
March 14, 2008
Calaveras LAFCO
SETTING RATES, CHARGES, FEES AND ASSESSMENTS
Rate Setting Before PropositionsGeneral Reliance on Taxes
Revenue Needed Was Met With Tax IncreasesRate=Revenue Needed
Assessed ValueGrowth Was Considered Good Since the AV Increased and Thus the Tax Rate Went DownThe “User Pays” Concept Was Not the Word of the DayFunds Collected From Water Sales Many Times Were Used to Fund Other Purposes. (In Some Cases, This Practice is Still Going on)
© SDI September 6-7, 2007 Glenn Reiter – Page 3 of 48
• Sometimes Rates Were Set in Relationship to What Other Agencies Were Charging
• There Was No Relationship to Cost of Service
• Rate Setting For Services Was Relatively Refined But Not Subject to the Degree of Scrutiny we have Today
Rate Setting Before Propositions
© SDI September 6-7, 2007 Glenn Reiter – Page 4 of 48
Perception of Value
• TV and the Media Have Defined What the Consumer Wants or Thinks They Need
• Access to Competitive Prices and Comparison Conscious
• Public Services Are Not Competitive and Thus Frustration
© SDI September 6-7, 2007 Glenn Reiter – Page 5 of 48
New Rules• The Public Expects More For Its Dollar
• Uninterrupted Service is a Given
• Basic Community Services
Are Expected to be Low Cost• Cable TV versus Water Service
Question?
Why Will People Pay $2.00 for a
Pint of Bottled Water and Complain if
Tap Water Costs $0.002 Per Gallon?
© SDI September 6-7, 2007 Glenn Reiter – Page 6 of 48
Do You Need More Money?Why Do You Need More Money?
Increased Labor CostNew or Increased Level of ServiceLoss of RevenueAging FacilitiesIncreased Energy CostDebt ServiceNew RegulationsIncreased ReliabilityReplacement of Facilities (GASB 34)Growth
© SDI September 6-7, 2007 Glenn Reiter – Page 7 of 48
Can You Mitigate the Amount Required?
• Cut Level of Service
• Automate
• Outsource
• Eliminate the Service
• Reduce Labor Force
• Across the Board Reductions
© SDI September 6-7, 2007 Glenn Reiter – Page 8 of 48
Fixed Versus Variable Cost
• Are All Your Costs Fixed? Labor? Material? Equipment? Outside Service?
• Most Agencies Treat Labor As a Fixed Cost-the Others Variable
© SDI September 6-7, 2007 Glenn Reiter – Page 9 of 48
Who is Responsible for Need?• Special Customers
• Unusual Service Conditions
• Pressure Groups
• Environment
Senior Citizen Resident
Local Business Advocate
© SDI September 6-7, 2007 Glenn Reiter – Page 10 of 48
What Are Your Authorized Revenue Sources?
• Fee for Services
• Assessments
• Taxes
• Impact Fees
• Extraction Fees
• Tax Increment
• Special Taxes
© SDI September 6-7, 2007 Glenn Reiter – Page 11 of 48
Do You Need More Authority?
Introduce
Legislation
© SDI September 6-7, 2007 Glenn Reiter – Page 12 of 48
Are the Revenue Sources Adequate to Collect Fairly and Equitably?
• Does One Charge Fit All?
• Do You Need Multiple Revenue Sources?
• Do You Have a Special Charge for Special Services?
• Are a Select Few the Beneficiaries?
© SDI September 6-7, 2007 Glenn Reiter – Page 13 of 48
Policies
• Policy Drives Cost• Are Your Policies Still Appropriate?• What is the Cost of Compliance with the
Policies?• Can You Adopt New Policies and Reduce
Cost?
© SDI September 6-7, 2007 Glenn Reiter – Page 14 of 48
Mine Your Internal Resources
• Solicit Ideas From Your Staff• They Work With the Policies Every day• Reward Ideas• Encourage Them to Challenge the Policies
ExampleTrash Trucks Gross vs.
Net WeightHow Much Does the Driver
Weigh?
© SDI September 6-7, 2007 Glenn Reiter – Page 15 of 48
Basic Rules For Setting Rates, Charges, and Assessments
• Constitution
• Prop 13 B, C, D, 218
• Bighorn- Desert View Case
• The Need to Demonstrate
a Nexus and Proportionality
• Charge for the Reasonable Cost of
Providing the Service
© SDI September 6-7, 2007 Glenn Reiter – Page 16 of 48
Charge Versus Value of Service
• Maintain Accurate Job Costing Records
• Provide Solid Information on What Products or Services Cost
• Check the Market and See How You are Doing
• The Public Expects Competitive Pricing Even in the Public Sector
© SDI September 6-7, 2007 Glenn Reiter – Page 17 of 48
© SDI September 6-7, 2007 Glenn Reiter – Page 18 of 48
Constitution• Article XIII B Section 8 (c)
“Proceeds of taxes shall include, but not be restricted to, all tax revenues and the proceeds to an entity of government, from (1) regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service…”
© SDI September 6-7, 2007 Glenn Reiter – Page 19 of 48
State Law
Government Code Section 66013“(a) Notwithstanding any other provision
of law, when a local agency imposes fees for water connections or sewer connections, or imposes capacity charges, those fees or charges shall not exceed the reasonable cost of providing the service for which the fee or charge is imposed….”
© SDI September 6-7, 2007 Glenn Reiter – Page 20 of 48
Case Law• Richard K. Ehrlich v City of Culver City
• Nolan v California Coastal Commission
• Dolan v City of Tigard
• Beaumont Investors v Beaumont-Cherry Valley
Water District
• Bixel Associates v City of Los Angeles
• Bighorn-Desert View v Virjil
© SDI September 6-7, 2007 Glenn Reiter – Page 21 of 48
Bighorn-Desert View Water Agency v. Virjil
Key PointsProp 218 Applies to Water/Sewer Rates (We
Did Not Believe it Did)
Service Could be Refused and No Charge -
Thus Not a Property-Related Charge
Voters Can Use the Initiative Process
Mailed Notice to PROPERTY OWNERS
© SDI September 6-7, 2007 Glenn Reiter – Page 22 of 48
• “Catch 22”You Are Required to Set Rates to
Cover:OperationsMaintenanceReplacementDebt
Bighorn-Desert View Water Agency v. Virjil
© SDI September 6-7, 2007 Glenn Reiter – Page 23 of 48
Definitions
“Fee or Charge: Means any levy other than
an ad valorem tax, a special tax or an
assessment, imposed by an agency upon
a parcel or upon a person as an incident of
property ownership, including user fees or
charges for a property-related service”
© SDI September 6-7, 2007 Glenn Reiter – Page 24 of 48
“Property Related Service - Means a public service
having a direct relationship to property ownership”
“Special Benefit - Means a particular and distinct
benefit over and above general benefits conferred
on real property located in the district or to the
public at large. General enhancement of property
value does not constitute “Special Benefit”
Definitions
© SDI September 6-7, 2007 Glenn Reiter – Page 25 of 48
“Assessment- Means any levy or charge upon real property by an agency for special benefit conferred upon real property”
Definitions
© SDI September 6-7, 2007 Glenn Reiter – Page 26 of 48
“Parcels within a district that are owned or
used by any agency, the State of California
or the United States shall not be exempt
from assessment unless the agency can
demonstrate by clear and convincing
evidence that such publicly owned parcels
in fact receive no special benefit.”
Public Property
© SDI September 6-7, 2007 Glenn Reiter – Page 27 of 48Glenn Reiter – Pag 27 of 48
“No assessment shall be
imposed on any parcel
which exceeds the
reasonable cost of the
proportional special benefits
conferred on that parcel.”
Assessments
© SDI September 6-7, 2007 Glenn Reiter – Page 28 of 48
Special Benefit
“The proportionate special benefit derived by
each identified parcel shall be determined
in relationship to the entirety of the capital
cost of a public improvement or the
maintenance and operation expense of a
public improvement or for the cost of the
property related service being provided.”
© SDI September 6-7, 2007 Glenn Reiter – Page 29 of 48
Legal Challenge
“In any legal action contesting the validity of
any assessment, the burden shall be on
the agency to demonstrate that the
property or properties in question receive a
special benefit over and above the benefits
conferred on the public at large….”
© SDI September 6-7, 2007 Glenn Reiter – Page 30 of 48
Procedures
“Reliance by and on any parcel map
including, but not limited to, an
assessor’s map, may be considered a
significant factor in determining
whether a fee or charge is imposed as
incident of property ownership….”
© SDI September 6-7, 2007 Glenn Reiter – Page 31 of 48
Test• Will the Fee or
ChargeStop if Service is Refused?• Supreme Says NO!
© SDI September 6-7, 2007 Glenn Reiter – Page 32 of 48
What To Do About Past Rates
1. Do Nothing
2. Send Mail Notice to Each Property
Owner and Follow the Rules to Re-
Confirm Your Current Rates
© SDI September 6-7, 2007 Glenn Reiter – Page 33 of 48
218 ProcessIdentify the Beneficiaries
Identify the Benefit to the Property
Identify the Cost of Providing the Benefit
General Benefit Does Not Fit the Test
Library Service is Not a Specific Benefit to property-It is a General Benefit to the Population
© SDI September 6-7, 2007 Glenn Reiter – Page 34 of 48
218 (Continued)
• Registered Engineers Report
• Specific Detail in Describing the Benefit and the Cost in Relation to the Specific Benefit
• Describe the Proportionality of the Charge and Benefits
• Mailed Notice and Ballot
© SDI September 6-7, 2007 Glenn Reiter – Page 35 of 48
218 (Continued)• Weighted Vote
In Proportion to Assessment
• Can Have Some Form of Escalator
• The Process Does Not Have to Be
Repeated if There is No Increase in
Charge or in the Manner of Calculating
• Is Still Subject to Referendum
• Public Notice and Hearing Required
© SDI September 6-7, 2007 Glenn Reiter – Page 36 of 48
218 Continued
If a Charge is ChallengedBurden is on the Agency to Prove
Position NOT THE CITIZEN
© SDI September 6-7, 2007 Glenn Reiter – Page 37 of 48
Impact Fees
• Becoming More Popular• Not Subject to Prop 218• They Are Subject to Government Code
Requirements (AB 1600)• Key Element is Developing Impact Fees• Costs Have to be Defined as to Who
BenefitsExisting vs. Growth
Impact Fees• Protects the Existing User From Growth Induced Costs
• Must Work With Local Developers and Building Groups to
Avoid Challenges
Contact with Such Groups as the BIA (Building Industry
Association)
• Develop a Detailed Data Document Describing the Benefits
and How They Were Distributed
• Maintain Detailed Cost Records to Back up Cost Estimates
and Who Benefits
© SDI September 6-7, 2007 Glenn Reiter – Page 39 of 48
Selling the Rate or Assessment• Develop All Supporting Information in a Format that
Can be Understood by the Public.An Engineer’s Report Should be Readable to the
Lay Person
Use Graphs, Pictures to Get Your Point Across
Prepare For the Public HearingPrepare an Understandable Mailed Notice and
Newspaper Notice
0
10
20
30
40
50
60
70
80
90
1997 1998 1999 2000
EastWestNorth
© SDI September 6-7, 2007 Glenn Reiter – Page 40 of 48
Revenue Model
• Develop a Revenue Model to Test the Impact on the Rate Payer or Property Assessed and the Revenue Derived
• Make It Interactive to Test “WHAT IF?”
© SDI September 6-7, 2007 Glenn Reiter – Page 41 of 48
AssumptionsItem
1 General Inflation 8
2 Construction Inflation 8
3 Interest Borrowing 12
4 Retail Sales 7 ft
5 Fixed Service Charge 2 ft
6 Pumping Charge 6 ft
7 Misc Charges/Billling 7 ft
8 Interest 12 ft
9 Other 1 ft
3.75%
3.75%
2.75%4.75%
$0.133082.00%64.00%4.000%
2.500%
3.500%
3.200%
7.00%4.75%
0.00%
6.000%5.000%
© SDI September 6-7, 2007 Glenn Reiter – Page 42 of 48
Graphic Results
© SDI September 6-7, 2007 Glenn Reiter – Page 43 of 48
Operating Results
© SDI September 6-7, 2007 Glenn Reiter – Page 44 of 48
Change in Operating Expense
© SDI September 6-7, 2007 Glenn Reiter – Page 45 of 48
Impact on O & M Coverage
© SDI September 6-7, 2007 Glenn Reiter – Page 46 of 48
Citizens’ Committee
If Appropriate, Work With a Citizens’ Committee to Sell Your Program.
Caution — Do Not Just Have the Committee Rubber Stamp What the Agency DoesBe Prepared to Go Into Detail and Educate the CommitteeBe Thorough and Patient
© SDI September 6-7, 2007 Glenn Reiter – Page 47 of 48
Collecting Your Money
• Do the Billing Yourself or Service BureauIs it Cost Effective?Do You Have the Capability?How Does it Affect Your Cash Flow?
• Put it on the Tax Bill If You CanHow Does This Affect Your Cash Flow?Does This Remove You From Your
Customers?
© SDI September 6-7, 2007 Glenn Reiter – Page 48 of 48
Thank You
I am Happy to Answer Your Questions