Presented by: Glenn M. Reiter Glenn M. Reiter & Associates March 14, 2008 Calaveras LAFCO

© 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)


• 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


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


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?


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


Can You Mitigate the Amount Required?

• Cut Level of Service

• Automate

• Outsource

• Eliminate the Service

• Reduce Labor Force

• Across the Board Reductions


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


Who is Responsible for Need?• Special Customers

• Unusual Service Conditions

• Pressure Groups

• Environment

Senior Citizen Resident

Local Business Advocate


What Are Your Authorized Revenue Sources?

• Fee for Services

• Assessments

• Taxes

• Impact Fees

• Extraction Fees

• Tax Increment

• Special Taxes


Do You Need More Authority?

Introduce

Legislation


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?


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?


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?


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


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



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…”


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….”


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


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


• “Catch 22”You Are Required to Set Rates to

Cover:OperationsMaintenanceReplacementDebt

Bighorn-Desert View Water Agency v. Virjil


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”


“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


“Assessment- Means any levy or charge upon real property by an agency for special benefit conferred upon real property”

Definitions


“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


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.”


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….”


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….”


Test• Will the Fee or

ChargeStop if Service is Refused?• Supreme Says NO!


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


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


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


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


218 Continued

If a Charge is ChallengedBurden is on the Agency to Prove

Position NOT THE CITIZEN


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


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


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?”


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%


Graphic Results


Operating Results


Change in Operating Expense


Impact on O & M Coverage


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


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?


Thank You

I am Happy to Answer Your Questions

Documents

Presented by: Glenn M. Reiter Glenn M. Reiter & Associates March 14, 2008 Calaveras LAFCO