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HomeMy WebLinkAbout16 O.C.F.A. STUDY 04-05-99AGENDA DATE' APRIL 5, 1999 NO. 16 4-5-99 Inter-Com( TO: FROM: SUBJECT: HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL ,~/-' WILLIAM A. HUSTON, CITY MANAGER/.~~ ORANGE COUNTY FIRE AUTHORITY EQUITY STUDY RECOMMENDATION: That the City Council: 1. Respond to each of the Equity Study's recommendations (summarized in this memorandum and on pages 7 and 8 of the Equity Study); 2. Direct staff to forward the City Council's comments regarding the Equity Study to the OCFA Board of Director's committee, which will submit final recommendations to the full Board in June; . Direct staff to submit a report to the City Council following action by the OCFA Board of Directors on the Equity Study. The Tustin staff report, which could be finalized by Fall 1999, would provide the City Council with options for fire services. This would entail an analysis of service levels/costs for options to whatever final action is taken by the OCFA Board of Directors on the Equity Study. Orange County Fire Authority Equity Study April 5, 1999 Page 2 of 4 FISCAL IMPACT: If OCFA adopts the recommendations set forth in the Equity Study, the City's annual contract for fire services would increase at least $864,165. The report proposes that the increase be spread over a twelve-year period at a cost of $69,881 per year. The City's contract would also increase each year based on OCFA's increased operating expenses. Another potential future cost increase yet to be defined would be the City's proportionate share of OCFA's program to replace assets and construct a new headquarters facility. DISCUSSION: The Equity Study provides background information on the origination of the equity issue and the various points of view as to the cause of the deviations between revenue generated by OCFA members and the cost to provide regional fire services. The issue is compounded by two key factors: . The Structural Fire Fund tax rate for the non-cash contract cities varies from one jurisdiction to another. That is because Proposition 13 and AB-8 (enacted by the State to implement the provisions of Proposition 13) locked each jurisdiction's Structural Fire Fund rate in as a proportionate share of the overall property tax rate at the time Proposition 13 was enacted. Revenue generated by the Structural Fire Fund property tax rate no longer beam a relationship to the actual cost of fire services for each jurisdiction. Assessed value and growth in assessed value over time determines the amount of Structural Fire Fund revenue generated. Since the amount generated is a function of the underlying assessed value of a particular community and its rate of growth, Structural Fire Fund revenue is going to vary from city to city. . The basis for setting the cost of fire services for cash contract members of the OCFA varies. There are seven cities which contract with OCFA for fire services. These cities did not have a dedicated property tax rate for fire services, i.e., Structural Fire Fund rate, when Proposition 13 was enacted. As a result, for these cities the cost of fire services is borne directly by each city's General Fund. The equity issue is further complicated by the fact that the four original cash contract cities (Tustin, Placentia, Seal Beach and Stanton) pay on one basis and the three newest contract cities (Buena Park, San Clemente and Westminster) pay on another. There is not a uniform methodology for setting contract costs. The Equity Study focuses on two questions: 1. What does it cost to provide regional fire services to each member of the JPA? 2. What are the alternatives for creating some degree of parity between the cost to provide service and revenue generated by Structural Fire Fund and cash contract cities? The analysis related to the questions above is detailed in the Equity Study. The end result of the analysis is a set of three policy options to be decided by the OCFA Board of Directors: Orange County Fire Authority equity Study April 5, 1999 Page 3 of 4 Option Continue with the status quo which means equity.adjustments (a maximum two percent adjustment per year) would not be imposed. However, this option provides that the method for calculating the contract price for the original four contract cities would be modified to coincide with the newer contract cities. Option 1 refers to the "company cost" methodology for setting the cost for contract cities. This methodology would result in an increase in the City of Tustin's contract up to $1,059,156 per year. The Equity Study uses two methodologies to set the cost of OCFA services. The "company cost" methodology is based on expenses that can be directly or indirectly allocated to each fire station. Direct costs for each station are computed based on the type and number of apparatus assigned to each station. Overhead costs are also assigned to each station (general administration, technical services, and communications). The other costing methodology, the "uniform cost to serve," is described in the Option 2 discussion which follows. It is important to keep in mind that OCFA could take the position that if a "uniform cost to serve" method (the methodology used to compute the equity costs as described in Option 2) is not used, then the contracts for the original four contract cities could be adjusted upwards notwithstanding the two percent per year limit on equity adjustments set forth in the JPA. Under this option, the four newest contract cities would have their contract price adjusted upward by 9.5 percent. Option 2 As an alternative to the above, OCFA would utilize the "uniform cost to serve" methodology for valuing the cost of fire services for each jurisdiction. This methodology is the approach recommended by the Equity Study. The "uniform cost to serve" methodology is a different means of establishing contract price (as opposed to the company cost methodology). It is based on a regional cost allocation formula that assigns a one-third each weight to each member's population, assessed value and consumption or use of OCFA resources (this factor is based on calls for service). The use/consumption factor for the City of Tustin is based on: · All responses from Stations 21, 37 and 43 to a location in the City of Tustin; · Responses from other OCFA stations to a location in the City of Tustin, i.e., initial or second response from stations outside Tustin; · Mutual aid responses to a location in the City of Tustin; i.e., a non-OCFA agency;. · Mutual aid responses from Stations 21, 37 and 43 to a location outside the City of Tustin are not counted. The methodology described above is referred to in the Equity' StUdy as Simplified Option 2A--One Region. Each member's cost of fire services is computed by applying its percentage derived through the three-part formula against the total OCFA budget. The City of Tustin's share of the OCFA budget is approximately five percent under this option. With this methodology, members that are "over-funded" would receive a rebate each year or the amoUnt would be held in trust by OCFA. There are significant legal questions as to whether OCF^ can grant rebates to the General Fund of Orange County Fire Authon'ty Equity Study April 5, 1999 Page 4 of 4 cities having a Structural Fire Fund tax rate. For "under-funded" cash contract members, their contract price would be adjusted two percent per year until the gross under-funded amount is fully paid and becomes part of the base amount of the annual contract. As indicated in the Fiscal Impact section of this memorandum, the City of Tustin's contract would increase $864,165 payable over twelve years. In addition, the contract price would increase each year at a percentage equal to the increase in the OCFA annual budget. Under-funded Structural Fire Fund cities would contribute the two percent equity adjustment by cash payments to OCFA. Option 3 A third option, in addition to either of the above options, would provide the following: a. Review the equity status of each member every fire years; b. Require minimum five-year membership in OCFA for cash contract cities; c. Require a three-year notice to withdraw from OCFA; d. Continue to adjust annually the cost for cash contract members based on changes in OCFA operating cost (in addition to the two percent equity charge, where applicable); eo Collect additional fees from an under-funded member if growth causes the need for expanded fire services. For the City.of Tustin, this means OCFA would expect the City to pay for any additional incremental costs to serve the Tustin Legacy project as it develops. Not addressed in the Equity Study, but considered during preparation of the study, is how to sPread the cost of asset replacement among the members. There is the possibility that the City's contract price could increase by an additional amount if OCFA decides to enact a fee for replacement of assets (fire stations, apparatus, etc.). This question of how to price OCFA services is a very complex one and greatly compounded by California's dysfunctional means of financing local government. An issue that troubles some OCFA members is that the Equity Study attempts to fix a statewide dysfunctional financing system by creating a new one at the OCFA level. The result is some OCFA members feel the Equity Study recommendations place the burden on them to resolve a condition over which they have no control. Whether the proposed fix to OCFA's equity issue creates disparate treatment among members is a policy issue, not just a monetary issue. It is safe to conclude that no option will completely satisfy all OCFA members. The OCFA Board of Directors will take an action on the Equity Study in June. Each member will then need to decide whether or not OCFA services will be cost-effective into the future given the ground rules for contracting with OCFA for fire services. Attachment: Final Report--Equity Issues Related to the Financing of OCFA Services January 8, 1999 0 .< 0 0 0 I e- o .5 ! II . UNC YBL WST VPK TST STN SLB $CP SCL PLA MVO LKF LGN LGH LAP IRV DPT CYP BPK o~,~ o ~ S o ~E ir.~u- CD > u.I z wwwl~ ~0 I =0