Study: City fees not recovering full cost of service, requiring subsidy

Martin Kidston

(Missoula Current) A fee study conducted on behalf of the City of Missoula found that most departments within Development Services aren't currently charging the full cost of the services they provide, with some requiring a subsidy as high as 80%.

But how the City Council chooses to address the fee imbalance will come down to policy choices in the months and years ahead.

The city recently hired Wohlford Consulting to examine the fees. In simple terms, the resulting figures consider the true cost of providing the service versus the fee paid by the customer and the resulting difference between the two.

“All the costs you see in the results are specifically associated with what one staffer is doing, in every case,” said consultant Chad Wohlford. “They relate directly from staff effort and are based on the size and complexity of their service. All these costs are the basis for making decisions and setting policies and goals for cost recovery.”

According to the study, the services provided by Development Services aren't recovering the full cost of providing that service. In one case, the full cost incurred by building services stood at $2.7 million, though the program recovered only 60% of that through fees, resulting in a $1 million subsidy.

In other areas, the cost of planning services was $2.1 million, though under the current structure, it only recovered $427,000 through fees, requiring a subsidy of more than $1.6 million. In contrast, business licensing recovered nearly 90% of its service costs, requiring a subsidy of roughly $70,000.

The subsidy comes from the city's General Fund, and these days the city's budget is tight, leaving fee recovery as one potential area to increase revenue.

Wohlford said that fee recovery comes down to local policies set by City Council. Some cities seek full fee recovery while others don't. In cases where the true cost of providing a service isn't recovered in fees, most cities take a phased approach in increasing fee costs.

“That allows your customers to plan for it and build that into their costs and business plans,” he said.

When setting fees, Wohlford added that local policy choices may also consider benefit. In some cases, such as permitting a swimming pool, the city could charge the full cost of its services since a pool provides a personal benefit. But in contrast, the city could subsidize some costs for services that provide more of a public benefit, such as housing.

Development Services is currently examining its fees and is expected to make a recommendation to City Council on future fee schedules.

“The work has not concluded simply because the study is over,” said city COO Eric Hallstrom. “Fee revenue is an important piece of our long-term budget strategy, and we have to be thoughtful about it. We have good information now about what our current costs are, and it allows us to make some decisions driven by more relevant information.”