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

1. SETTING RATES, CHARGES, FEES AND ASSESSMENTS Presented by: Glenn M. Reiter Glenn M. Reiter & Associates March 14, 2008 Calaveras LAFCO

2. Rate Setting Before Propositions General Reliance on Taxes Revenue Needed Was Met With Tax Increases Rate=Revenue Needed Assessed Value Growth Was Considered Good Since the AV Increased and Thus the Tax Rate Went Down The “User Pays” Concept Was Not the Word of the Day Funds Collected From Water Sales Many Times Were Used to Fund Other Purposes. (In Some Cases, This Practice is Still Going on)

3. 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

4. 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

5. 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?

6. Do You Need More Money? Why Do You Need More Money? Increased Labor Cost New or Increased Level of Service Loss of Revenue Aging Facilities Increased Energy Cost Debt Service New Regulations Increased Reliability Replacement of Facilities (GASB 34) Growth

7. Can You Mitigate the Amount Required? Cut Level of Service Automate Outsource Eliminate the Service Reduce Labor Force Across the Board Reductions

8. 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

9. Who is Responsible for Need? Special Customers Unusual Service Conditions Pressure Groups Environment Senior Citizen Resident Local Business Advocate

10. What Are Your Authorized Revenue Sources? Fee for Services Assessments Taxes Impact Fees Extraction Fees Tax Increment Special Taxes

11. Do You Need More Authority? Introduce Legislation

12. 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?

13. 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?

14. Mine Your Internal Resources Solicit Ideas From Your Staff They Work With the Policies Every day Reward Ideas Encourage Them to Challenge the Policies Example Trash Trucks Gross vs. Net Weight How Much Does the Driver Weigh?

15. 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

16. 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

18. 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…”

19. 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….”

20. 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

21. Bighorn-Desert View Water Agency v. Virjil Key Points Prop 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

22. “Catch 22” You Are Required to Set Rates to Cover: Operations Maintenance Replacement Debt Bighorn-Desert View Water Agency v. Virjil

23. 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”

24. “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

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

26. “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

27. “No assessment shall be imposed on any parcel which exceeds the reasonable cost of the proportional special benefits conferred on that parcel.” Assessments Glenn Reiter – Pag 26 of 48

28. 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.”

29. 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….”

30. 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….”

31. Test Will the Fee or ChargeStop if Service is Refused? Supreme Says NO!

32. 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

33. 218 Process Identify 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

34. 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

35. 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

36. 218 Continued If a Charge is Challenged Burden is on the Agency to Prove Position NOT THE CITIZEN

37. 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 Benefits Existing vs. Growth

38. 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

39. 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 Hearing Prepare an Understandable Mailed Notice and Newspaper Notice

40. 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?”

42. Graphic Results

43. Operating Results

44. Change in Operating Expense

45. Impact on O & M Coverage

46. 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 Does Be Prepared to Go Into Detail and Educate the Committee Be Thorough and Patient

47. Collecting Your Money Do the Billing Yourself or Service Bureau Is it Cost Effective? Do You Have the Capability? How Does it Affect Your Cash Flow? Put it on the Tax Bill If You Can How Does This Affect Your Cash Flow? Does This Remove You From Your Customers?

48. Thank You I am Happy to Answer Your Questions