Special Notice / Hearing: 10-day newspaper publication__
Vote Required: Majority
To: Honorable Board of Supervisors
From: Louise F. Rogers, Chief, San Mateo County Health
Heather Forshey, Director, Environmental Health Services
Subject: Revised Program Fees: Introduction of Ordinance Amending Sections of the San Mateo County Ordinance Code and Authorizing the Automatic Annual Adjustment of Fees
RECOMMENDATION:
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Introduction of an ordinance amending the Environmental Health Services fee schedule, amending Sections 5.64.060 and 5.64.070 of the San Mateo County Ordinance Code, relating to imposition and collection of fees for enforcement of state public health laws, and authorizing the automatic annual adjustment of fees pursuant to changes in the Consumer Price Index and Cost-of-Living Adjustments, and waive the reading of the ordinance in its entirety.
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BACKGROUND:
Section 101325 of the California Health and Safety Code permits recovery of costs incurred enforcing state public health laws and regulations. Pursuant to San Mateo County Ordinance Code Chapter 5.64, Environmental Health Services (EHS) fees are presently established by ordinance by the Board of Supervisors and are effective in both cities and unincorporated areas of the County, where applicable.
EHS provides unique, primarily mandated public health protection services, community and business education, and regulatory oversight and enforcement through the technical expertise and consultation of its professional staff. Historically, less than one percent of the total revenue for EHS’ operations has been from the County’s General Funds. EHS inspection programs are intended to be fully fee-supported.
EHS fee increases were last approved by this Board in October 2022, after being delayed in spring 2020 and again in spring 2022 by concerns over impacts fee increases might have on businesses during and after the pandemic. Prior to the increase approved in 2022, the last fee increase was approved by this Board in June 2015. Beginning in FY 2018-19, EHS began experiencing a structural deficit due to dramatically increased costs, which have continued to grow. A fee study was completed in FY 2019-20 by an outside consultant for consideration by this Board in March 2020, but the fee package did not come before this Board until May 3, 2022, with the fee package proposed for implementation beginning July 1, 2022. At that time, this Board declined to vote on fee increases.
A fee package was brought to the Board again in October 2022 and approved in November 2022. This fee package addressed some, but not all, additional cost increases to date since the FY 2019-20 fee study. Costs that were not addressed in the 2022 fee package included the FY 2023-24 Cost-of-Living Adjustment to employee salaries, all employee benefit increases and associated costs since FY 2019-2020 and increases in costs of services and supplies and internal service department charges, all of which were impacted by recent, unexpected, and significant inflationary pressures. Additionally, implementation of the fee increases approved in November 2022 was delayed until July 1, 2023, to reduce impact on recovering businesses after the pandemic. This delay depleted EHS’ remaining one-time savings and further exacerbated its structural deficit. In short, under the current fee schedule, revenues needed to perform mandated services are not keeping up with growing costs. The current EHS fully burdened hourly rate, approved by this Board in November 2022 and on which current fees are based, is $249. At this rate, based on current fees, the current cost recovery for EHS is 80%--significantly below the full-cost recovery rate of 96% (accounting for the 4% of work that is generally not recoverable with fees, such as some nuisance complaints and environmental sampling).
DISCUSSION:
The proposed Fee Ordinance Amendment achieves three goals:
1. Amends EHS’ current fee schedule, effective January 9, 2025 (30 days after anticipated adoption of the ordinance), to partially reduce the gap between the costs of current service levels and fee revenues through December 31, 2025, while not allowing for complete cost recovery so as to mitigate potential impacts on regulated entities;
2. Amends EHS’ fee schedule effective January 1, 2026, to further reduce the gap between service levels and fee revenues and authorizes automatic annual adjustment of fees beginning January 1, 2026, in parallel with changes in the Consumer Price Index (CPI) and agreed upon Cost-of-Living Adjustments (COLA) to employee salaries and benefits, so EHS’ future fees can more closely align with the costs of future service levels; and
3. Amends the County Ordinance Code to allow future EHS fee changes by resolution, rather than ordinance, to streamline any future amendments and mirror similar provisions of the Ordinance Code.
Goals 1-3:
1. Amend EHS’ Fee Schedule to Partially Cover Current Costs
If the Fee Ordinance Amendment is passed, fees outlined in the new fee schedule (Attachment A to this memo) would go into effect January 9, 2025.
For EHS to receive “full” cost recovery (96%) in the second half of FY 2024-25, fees would need to be increased by 25% effective January 9, 2025, increasing the fully burdened hourly rate from $249 to $311. For this projection, the $311 hourly rate was calculated by taking FY 2024-25 budgeted gross appropriations (i.e., all expenses) of fee-funded programs, and dividing by the number of hours needed to implement those fee-funded programs (i.e., to service all existing regulated entities and projects). The hourly rate of $311 also reflects an increase of 3.2% for salary cost increases only, using the CPI for All Urban Consumers, San Francisco-Oakland-Hayward, CA for FY 2023-24. The fee for each type of permit is calculated using the EHS hourly rate multiplied by the average amount of direct time needed to provide the service associated with the fee.
Recognizing the hardship a one-time 25% increase would have on regulated entities, EHS proposes an alternate approach to fee increases for the 2025 calendar year. Effective January 9, 2025, the hourly rate would increase from $249 to only $286, instead of $311. The cost recovery versus budgeted expenses would increase from 80% to 86% by the end of FY 2024-25. Then, on January 1, 2026, the base hourly rate would increase again from $286 to $311, spreading the proposed 25% increase over two years.
2. Amend EHS’ Fees to Cover Future Costs Using CPI and COLA
In addition to increasing the base hourly rate to $311, beginning January 1, 2026, the fees would be further adjusted to incorporate (1) the Consumer Price Index (CPI) for All Urban Consumers, San Francisco-Oakland-Hayward, CA published for FY 2024-25 for all non-salary and non-benefits costs; and (2) the Board-approved COLA effective January 1, 2026, for employee salaries and benefits. For example, if a hypothetical CPI of 2.5% and a COLA of 5% are used, the hourly rate will be $332 beginning January 1, 2026. It is estimated that under this approach EHS’ cost recovery would increase from 86% to 90%.
On each subsequent January 1, the hourly rate will incorporate the percent change to the CPI for the preceding fiscal year for all expenses, except for salaries and benefits. Salary and benefits costs would increase by the COLA effective as of the January 1 on which the fees are changed. Using COLAs for changes to salary and benefits costs more closely captures the actual cost increases for this specific, and largest, expense. If on January 1 of any year there is no Board-approved COLA in effect, the CPI for the preceding fiscal year will be used for all expenses.
EHS proposes to automatically adjust fees in line with COLAs and CPI on the basis that the COLAs are known and approved increases on salaries and benefits, and CPI is a reasonable, though conservative, estimate of increased service costs not related to salaries and benefits that occur over time. Additionally, by increasing fees modestly annually, this automatic adjustment would provide businesses a more predictable fee structure and reduce the impacts of larger, less frequent fee increases. Several other jurisdictions, including City and County of San Francisco, Sacramento County, Butte County, Mariposa County, Madera County, and Orange County, follow the practice of utilizing automatic increases based on published CPI. At regular intervals of two to four years, EHS intends to return to this Board to realign fees with actual costs after performing a comprehensive review.
Reserves will subsidize the anticipated revenue shortfall from this approach for a period through FY 2026-2027. A subsidy of $1.8M in FY 2024-2025 is already budgeted. It is estimated based on conservative estimates of CPI and COLAs that an additional $2.22M in FY 2025-2026 and $2.38M in FY 2026-2027 will be needed. Even with annual fee adjustments incorporating changes to the CPI and COLA, however, total fee recovery will not exceed 90% because the CPI and COLA are conservative estimates of cost increases. Each year without an additional adjustment to the fees beyond the CPI and COLA will increase the subsidy required to offset costs.
3. Amend the Ordinance Code to Allow Amendment of EHS Fees by Resolution
Chapter 5.64 of the Ordinance Code provides the requirements for fees for enforcement of state public health laws, including setting forth the current EHS fee schedule in Section 5.64.070. Chapter 5.64 presently requires this Board to pass an ordinance if it wants to amend EHS fees. In light of the recommendation above that this Board allow for future annual increases in EHS fees tied to CPI and COLA increases (unless such fees are otherwise amended by this Board), and to streamline future amendments, the proposed Fee Ordinance Amendment amends certain sections of Chapter 5.64 to allow EHS fees to be set by resolution, rather than ordinance, and removes the EHS fee schedule from the Ordinance Code.
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All public notification requirements have been met for this agenda item, including publication for 10 days in a newspaper regularly published once a week or more often. The Board held a public hearing on this item on November 19, 2024.
The proposed fee amendment would secure funding to cover the cost of the public health protection activities carried out by EHS. Inspections and investigations help protect the public’s health by ensuring that food, water, and housing are safe and healthy, and waste and hazardous materials are handled and disposed of safely and legally.
The Hourly Rate Fee methodology and CPI/COLA calculation have been reviewed and approved by County Executive’s Office and the ordinance has been reviewed and approved by the County Attorney’s Office as to form.
PERFORMANCE MEASURE:
|
Measure |
FY 2023-24 Actual |
FY 2024-25 Estimated |
|
Cost Recovery of Fee-Supported Programs |
80% |
86% |
EQUITY IMPACT:
EHS has conducted outreach regarding this new fee schedule by notifying impacted businesses and operators via US mail and email. EHS provided all such notification in three languages: Spanish, (simplified) Chinese, and English. Increased fees will directly support EHS’s mission of protecting the public health of all individuals in San Mateo County by ensuring that food, water, and housing are safe and healthy and waste and hazardous materials are handled and disposed of safely and legally.
EHS provides multilingual and culturally appropriate services and outreach to advance environmental health goals, such as safe food handling practices, healthy living practices, and safe and healthy apartment building maintenance.
FISCAL IMPACT:
The proposed fee package takes effect January 9, 2025, and will be automatically adjusted using the COLAs and CPI annually thereafter, as described herein, unless otherwise approved by the Board, with EHS returning to the Board on regular intervals of every two to four years, to realign fees with actual costs after performing a comprehensive review of fees. Net County Cost of $1.8M in FY 2024-2025 (already budgeted), $2.22M in FY 2025-2026 (estimated) and $2.38M (estimated) in FY 2026-2027 is allocated for this action.
ATTACHMENT:
A. Proposed Environmental Health Services Fee Schedule, effective Jan. 9, 2025