Cost Of Service Fee Analysis

Finance Department

November 8, 2010Michelle Mitchell, Director

Table of Contents

I. Background

II. Issues

III. Recommendations– Cost of Service Fee Increases

IV. Process Improvement Detail

V. Recommendations for Centralized Billing & Collection

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Background

• FY2011 Adopted Budget includes an increase of $15 million in fee revenue to cover cost of services in General Fund.

• The City of Houston provides services and issues permits as part of its governmental activities.

• State law allows cities to recover the cost of providing services.

• No specific state statutes govern the fee setting process.• Fees cannot be excessive or more than is reasonably

necessary to cover the cost of service. • City departments recorded more than 5 million

transactions in 2010 for services, fines and permits for approximately $150 million dollars.

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Issues

• Houston’s cost of services have increased over the past few years (e.g. personnel, materials, supplies, etc) and we have not addressed the increased cost to the City. Some of the fees have not been increased since 1981 and the last increase for most fees is 2008 or prior.

• The City does not have a process to routinely review the cost of service fees to determine whether the fee is adequately recovering the cost of the service or permitting activity.

• The City does not have an effective process to collect on past due receivables.

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Recommendations

• Increase the annual rate of permits and fees.– The FY2011 impact to the General Fund is an approximate

increase of $3.3 million as of 12/1/10, and – The FY2011 impact to the Special Revenue Fund is an

approximate increase of $7.4 million as of 12/1/10. • Improve billings and collections process. • Draft an omnibus ordinance for all cost of service charges. • Implement annual fee escalators based on appropriate indexes.• Standardize a $3 administrative fee for each credit card transaction.

The financial impact for the City is approximately $500,000.

If Council approves the increases for both Ambulance and the fees recommended, we still need to identify $8.5 million in additional revenue or expenditure cuts.

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Recommended Cost of Service Fee Increases General and Special Revenue Fund

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Dept. Fund Permit/Fee/Fine Name and Description Current

Annual Fee

Proposed New Annual Fee Amount

(2)

FY2011 Revenue

Estimated Revenue Increase

Annualized New

Revenues

12/1/2010 Increase

Revenues (7 mths)

Date of Last

Change

ARA 1000 Sexually Oriented Businesses 60-475 250-2000 11,870 87,600 99,470 51,100 1997Library 1000 Fees and Fines .20-5.00 .25-6.00 600,000 120,000 720,000 70,000 2001

Planning 1000 Platting Fees 180-550 230-700 2,000,000 600,000 2,600,000 350,000 2001Fire 1000 Fire False Alarm Penalties 300 360 903,395 180,679 1,084,074 105,396 2002Fire 1000 Commercial Fire Alarm Permit Renewal Fee 25 50 229,930 229,930 459,860 134,126 2002

Health 1000 Swimming Pool Inspection Fee 85 230 364,300 524,545 888,845 305,985 2002ARA 1000 Parking Citations Paid 32 38 7,604,188 700,000 8,304,188 408,333 2004ARA 1000 Contract Parking Revenue 12 15 540,500 164,500 705,000 95,958 2007ARA 1000 Parking Meter Revenue .25-1.50 .30-1.80 4,790,000 958,000 5,748,000 558,833 2007

Health 1000 Food Dealer Permits Based on Size 200-780 240-936 2,810,110 544,150 3,354,260 317,421 2007Health 1000 Mobile Food Vendor License 300 535 180,000 178,985 358,985 104,408 2007ARA 1000 Limousine Permits 400 500 543,000 136,000 679,000 79,333 2008ARA 1000 Taxi Vehicle Permit- Annual 400 500 908,000 227,000 1,135,000 132,417 2008Fire 1000 Various Fire Department Permits Hazardous Materials 75-500 90-600 4,779,980 955,996 5,735,976 557,664 2008

Sub Total General Fund 26,265,273 5,607,385 31,872,658 3,270,975 Police 2200 Automotive Parts Rebuilder Renewal 60 200 7,860 18,340 26,200 10,698 1981Police 2200 Automotive Rebuilder and Dismantler License Renewal 200 590 20,400 39,780 60,180 23,205 1981Police 2200 Automotive Storage Lot Operator Renewal 100 310 12,100 25,410 37,510 14,823 1981Police 2200 Dealer - Vehicles, Parts, Accessories (new or used)

Renewal140 460 18,340 41,920 60,260 24,453 1981

Police 2200 Dealer In New Motor Vehicles Renewal 100 310 87,800 184,380 272,180 107,555 1981Police 2200 Retail Supply Dealer Renewal 40 150 74,520 204,930 279,450 119,543 1981Police 2200 Salesman Renewal 15 60 36,180 108,540 144,720 63,315 1981Police 2200 Used Parts & Used Accessory Dealer Renewal 200 360 85,200 68,160 153,360 39,760 1981Police 2200 Wholesale Jobber & Retail Supply Dealer Renewal 100 350 8,600 21,500 30,100 12,542 1981Police 2200 Automotive Repair Facility License Renewal 200 470 568,400 767,340 1,335,740 447,615 1987Police 2200 Body Shop Facility With Storage Privileges Renewal 300 470 5,400 3,060 8,460 1,785 1999Police 2200 City Administrative Fee Auto Impound Release Fee 10 20 1,350,000 1,350,000 2,700,000 787,500 2004Police 2200 Wrecker PATSA Truck Fee 500 660 436,000 139,520 575,520 81,387 2004PWE 2301 Building Construction Fees - Various .05-81mm .06-81mm 33,151,600 6,081,660 39,233,260 3,547,635 2007ARA 2201 Residential and Commercial Burglar Alarms 30-70 35-200 6,000,000 973,500 6,973,500 567,875 2008ARA 2201 Panic Alarms False Alarms 100-500 120-600 1,000,000 200,000 1,200,000 116,667 2008

Health 2423 Waste Generators Permit Fee 50 92 1,473,365 553,031 2,026,396 322,601 2008Health 2002 Ambulance Inspection and Operator Permits 40-500 100-1000 279,200 315,950 595,150 184,304 2008Police 2200 Non Safe Clear Tow Fee (1) 140 152 - 1,600,000 1,600,000 933,333 -

Sub Total Special Revenue Funds 44,614,965 12,697,021 57,311,986 7,406,596 Total Recommended Cost of Service Fee Increase 70,880,238$ 18,304,406$ 89,184,644$ 10,677,570$

Note: (1) Surcharge fee for City of Houston administration cost (offset to Safe Clear). Currently, all revenues are collected by tow company. (2) Based on what cost to the City is to provide the services.

Process Improvement Detail

• Create citywide policies for billing and collection activities.

• Centralize billing and collection to achieve standard best practices and take advantage of scale to negotiate best vendor pricing.

• Improve debt collection techniques (e.g. phone calls, mailings, negotiated settlements and credit bureau reporting).

• Implement ongoing oversight of the outside billers and collectors ensuring productivity measures are maximized.

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Recommendations for Centralized Billing and Collection

• Review the monthly activities of the outsourced billers and collectors.

• Receive and monitor performance metrics from all billers and collectors.

• Review monthly listings of outstanding receivables.• Receive and reconcile monthly billings from outsourced

billers and collectors.• Review and reconcile all charge off requests.• Review and reconcile all negotiated collection settlements.• Monitor contract performance.• Participate in the RFP process for new contracts.• Prepare periodic reports for the Mayor and City Council.

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