Are we as Bellaire taxpayers subsidizing, more than we should be, fee-supported services and amenities? Are our taxes, based on property values, offsetting the cost of our water and wastewater usage, and solid waste collection, on our utility bills? The City’s recent user fee and cost allocation study, completed in time for consideration in the development of next year’s budget, confirms what we expected all along but previously could not well quantify.
The main takeaways from the extensive and detailed study report are that our current user fee schedules are lagging significantly behind the actual costs of providing services, and that the Enterprise (utility) Fund isn’t carrying its share of administrative and overhead costs. If fully realized, the study’s recommendations would result in an increase of nearly $1.1 million in annual fee-based revenues, and an additional $449,000 in the yearly overhead transfer from the Enterprise to the General Fund.
Whether and to what extent the study results are implemented is ultimately a policy question for the City Council. As are the decisions on where that extra money would go, and/or the amount of any offsetting reductions in property taxes. The exercise isn’t so much about generating new revenue streams as it is about making sure we’re matching our costs to their appropriate funding sources.
This deep dive into the actual cost of providing services is critically important, because it’s inherent in our city budgets that anytime a fee-based service is not completely paid for by the user, that necessarily means the taxpayer is subsidizing the rest. There are often good reasons for that, such as with our public swimming pools for example. These amenities benefit the community as a whole, contributing to our residential character and quality of life (which is in turn reflected in our property values), even for those taxpayers who don’t personally frequent them. Quantifying that intangible benefit and setting the appropriate level of taxpayer subsidy is a question of policy, but it’s one the City Council is ill-equipped to decide without knowing the total costs and the fee structure needed to recoup them.
The Council’s cost recovery goals will differ depending on the nature of the service. While some degree of taxpayer subsidy is appropriate for public swimming pools, for something like building permits, the benefits are pretty much limited to the individual applicant and should thus be paid for entirely by permit fees. Whereas at the opposite end of the spectrum are services like police protection; you’re obviously not going to be charged a fee every time a patrol car comes down your block.
As for the cost allocation plan, its focus is on the centralized administrative services that support Enterprise Fund activities, to ensure those indirect costs are fully captured and reimbursed to the General Fund. The goal being to avoid an unintended property tax-funded subsidy of our utility billings. In recent years our interfund transfers have ranged from $500,000 to the current $624,000; the study shows it should actually be much higher, at $1,072,932. Incidentally, this data could also strengthen our applications for federal and state utility infrastructure grants.
Emphasizing that implementation of the study’s findings is a policy matter for the City Council to decide, staff have not prematurely committed us to anything in the proposed fiscal year 2022 budget. What they have done, however, is to present as “decision items” requiring Council direction some proposed expenditures, the presumptive funding source for which are the recommended user fee and overhead transfer increases. These include: covering rising health insurance rates, a restructuring of the City’s pay plan, staffing our reserve EMS unit at peak demand, incentive pay for police dispatchers, continuation of the automated license plate reader pilot project, and an environmental engineering services contract as requested by our citizen Environmental Sustainability Board. Again, staff have not assumed any policy direction, but if Council wants to proceed with these expenditures the study provides a likely funding source for them.
This is the first time we’ve conducted a formal study like this. Historically, the City has internally reviewed the fees charged by certain departments, primarily just by comparing them against the market. That approach obviously does not take into account the actual and complete costs of providing services. We’ve also relied on an internal cost allocation plan in coming up with the amount of the annual overhead transfer, but it’s so outdated that frankly no one knows when and how it was developed. Among the study deliverables is a proprietary model that can be updated and maintained in-house moving forward.
The $35,000 study easily pays for itself even if only partially implemented. And even if not, it was well worth it for the education and for giving us added confidence that as taxpayers we aren’t subsidizing what we shouldn’t be, or more than we should be, as determined by the City Council as a policy decision informed by good data.
The main takeaways from the extensive and detailed study report are that our current user fee schedules are lagging significantly behind the actual costs of providing services, and that the Enterprise (utility) Fund isn’t carrying its share of administrative and overhead costs. If fully realized, the study’s recommendations would result in an increase of nearly $1.1 million in annual fee-based revenues, and an additional $449,000 in the yearly overhead transfer from the Enterprise to the General Fund.
Whether and to what extent the study results are implemented is ultimately a policy question for the City Council. As are the decisions on where that extra money would go, and/or the amount of any offsetting reductions in property taxes. The exercise isn’t so much about generating new revenue streams as it is about making sure we’re matching our costs to their appropriate funding sources.
This deep dive into the actual cost of providing services is critically important, because it’s inherent in our city budgets that anytime a fee-based service is not completely paid for by the user, that necessarily means the taxpayer is subsidizing the rest. There are often good reasons for that, such as with our public swimming pools for example. These amenities benefit the community as a whole, contributing to our residential character and quality of life (which is in turn reflected in our property values), even for those taxpayers who don’t personally frequent them. Quantifying that intangible benefit and setting the appropriate level of taxpayer subsidy is a question of policy, but it’s one the City Council is ill-equipped to decide without knowing the total costs and the fee structure needed to recoup them.
The Council’s cost recovery goals will differ depending on the nature of the service. While some degree of taxpayer subsidy is appropriate for public swimming pools, for something like building permits, the benefits are pretty much limited to the individual applicant and should thus be paid for entirely by permit fees. Whereas at the opposite end of the spectrum are services like police protection; you’re obviously not going to be charged a fee every time a patrol car comes down your block.
As for the cost allocation plan, its focus is on the centralized administrative services that support Enterprise Fund activities, to ensure those indirect costs are fully captured and reimbursed to the General Fund. The goal being to avoid an unintended property tax-funded subsidy of our utility billings. In recent years our interfund transfers have ranged from $500,000 to the current $624,000; the study shows it should actually be much higher, at $1,072,932. Incidentally, this data could also strengthen our applications for federal and state utility infrastructure grants.
Emphasizing that implementation of the study’s findings is a policy matter for the City Council to decide, staff have not prematurely committed us to anything in the proposed fiscal year 2022 budget. What they have done, however, is to present as “decision items” requiring Council direction some proposed expenditures, the presumptive funding source for which are the recommended user fee and overhead transfer increases. These include: covering rising health insurance rates, a restructuring of the City’s pay plan, staffing our reserve EMS unit at peak demand, incentive pay for police dispatchers, continuation of the automated license plate reader pilot project, and an environmental engineering services contract as requested by our citizen Environmental Sustainability Board. Again, staff have not assumed any policy direction, but if Council wants to proceed with these expenditures the study provides a likely funding source for them.
This is the first time we’ve conducted a formal study like this. Historically, the City has internally reviewed the fees charged by certain departments, primarily just by comparing them against the market. That approach obviously does not take into account the actual and complete costs of providing services. We’ve also relied on an internal cost allocation plan in coming up with the amount of the annual overhead transfer, but it’s so outdated that frankly no one knows when and how it was developed. Among the study deliverables is a proprietary model that can be updated and maintained in-house moving forward.
The $35,000 study easily pays for itself even if only partially implemented. And even if not, it was well worth it for the education and for giving us added confidence that as taxpayers we aren’t subsidizing what we shouldn’t be, or more than we should be, as determined by the City Council as a policy decision informed by good data.
