CASE STUDY

Fee Study Steps: Building the Business Case to Increase Fees in CA State Government

CPS-HR can provide your agency with a fact-based fee study.  Many California State agencies rely on fee revenue to support programs. The fees are intended to cover the cost of the organization’s services to the fee payers. The California Constitution Article XIII governs fees and requires that: 1) fees be set at a level no more than necessary to cover the reasonable costs of the governmental activity; and 2) the fee bears a reasonable relationship to the payer’s burden on, or benefits received from, the governmental activity.

There are two primary types of fees: user fees and regulatory fees.

·      User fees include fees such as state park entrance fees and garbage fees, where the user pays for the cost of a specific service or program.

·      Regulatory fees include fees such as fees on restaurants to pay for health inspections and fees on the purchase of beverage containers to support recycling programs. Regulatory fees pay for programs that place requirements on the activities of businesses or people to achieve particular public goals or help offset the public or environmental impact of certain activities.

This article will describe the rationale for conducting a fee study, the fee study process, and the mechanisms used to provide youragency with the authority to collect and expend the new fee revenues.

 

Rationale for Conducting a Fee Study

Agencies that rely on fee revenue may experience fluctuations due to economic conditions, legislation that expands programs or increases services (and is silent with regard to the authority to collect or expend fees), or other reasons beyond their control. A fee study is necessary to first determine whether a fee adjustment is necessary to perform the required level of service. If an adjustment is necessary, a fee study will calculate how much of a fee adjustment will be needed to meet program requirements.

The goal of a fee study is to determine the appropriate fee levels for the recovery of the costs to the organization at a specified level of service associated with the fees.

A well-reasoned and independent fee study garners the support from elected members of state and local governments, boards or commissions, and industry stakeholders.

 

Fee Study Process

A large portion of an organization’s costs are related to its employees. One of the more accurate ways to determine the “reasonable cost of the governmental activity” related to those fees is through an examination of the time staff (and a corresponding dollar amount for their time) spent on each of the work processes related to the fees as part of the fee study. Additionally, operational expenditures (e.g. external costs paid to other agencies related to legal enforcement actions, facilities costs, etc.) should be appropriately recovered by the fees they support.

Below are the steps CPS-HR implements to complete a Fee Study.

1.       Program Overview

First, focus on gaining an understanding of the programs and work requirements designated as a part of the study. You should first conduct interviews with managers and/or supervisors of the designated programs to develop a programmatic overview, identify key roles of staff, primary work functions, and subject matter experts (SME) within the line staff, and ask for available program procedure/process documentation, duty statements, etc. Additional interviews should be conducted with the designated SMEs to characterize the nature of the program work, outlining major steps and players in the processes, and discussing available methods to quantify the workload.

2.       Task and Metric List Development

Identify and create task lists that capture the entirety of the work performed in the department or studied positions. Meet with SMEs to refine and standardize the task lists to ensure tasks are clear, mutually exclusive, and comprehensive of the studied department or positions. Define historical workload volume statistics (e.g. number of licenses processed, number of exams administered, number of enforcement actions taken) linked to the finalized tasks for three years to identify workload trends.

3.       Work Allocation Time Study

Incorporate the standardized task list into work allocation time study spreadsheets. Distribute the time study to all participating supervisors to identify the percentage of time each of their staff spends on each task over the course of a year. Share the completed spreadsheet a second level manager to review and validate it for accuracy prior to finalization.

4.       Revenue and Expense Analysis

Conduct an analysis of the historical and projected revenue and expenditures to demonstrate the underlying financial causes leading to the need for a fee increase. This analysis should also determine the amount of needed additional revenue to achieve program requirements and hit a financial reserve target.

5.       Fee Costing Analysis  

Finally, combine the worktime allocation survey data, workload volume statistics and the financial projections to calculate recommended fee levels. Based on feedback from management, and with considerations for industry practices, perform minor adjustment to the recommended fee levels. The goal of this task is to set fees at levels to recover the costs associated with employees’ time spent working on processes related to the various fees and also recover operational costs attributed to the various fees. Project the revenues and expenditures out three to five fiscal years.

Authority to Collect and Expend the Recommended Fee Levels

Agencies need both the authority to collect fees at new levels and the authority to expend the new fee revenues.  Authority to collect is either prescribed in statute, limited in statute, or delegated to a commission or board. For each, work with your Department of Finance analyst throughout the process. If your fee levels are prescribed in statute, or if your new recommended fees will exceed a statutory cap, you will need to amend the statute through either a policy bill or a budget trailer bill.[1]

Most agencies need both the authority to collect and expend. If this is the case, the Department of Finance analyst may recommend submitting a Budget Change Proposal with trailer-bill language that will provide both the authority to collect and expend through the budget process. A fee study will be necessary to provide justification for the Budget Change Proposal.

If your agency is under a board or commission that possesses the authority to readjust fees, the fee study will be necessary for the board members or commissioners to work with industry representatives to justify the changes. Regardless of whether the board or commission approves the adjusted fees, if the agency will need to expend at a level higher than previous years, it will need a Budget Change Proposal.

CPS-HR consultants can provide you with a well-reasoned and defensible fee study.  The timeline for when to conduct a fee study and submit a Budget Change Proposal can be found here.  


[1]Unless statute provides for a continuous appropriation, then no separate authority to expend is needed.

This article will describe the California state legal mechanism needed to increase fees along with recommended Fee Study process to provide justification to increase fees.
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This article will describe the California state legal mechanism needed to increase fees along with recommended Fee Study process to provide justification to increase fees.
Fee Study Steps: Building the Business Case to Increase Fees in CA State GovernmentDOWNLOAD
Chris Atkinson

Chris has over 10 years of experience working in private sector consulting, local government, and in internal consulting capacities. He specializes in organizational performance assessment and its several focus areas. He has assisted numerous organizations to assess problem areas and make recommendations for improvement so that they can target resources and achieve significant performance improvement.

About CPS HR Consulting

CPS HR Consulting is a self-supporting public agency providing a full range of integrated HR solutions to government and nonprofit clients across the country.  Our strategic approach to increasing the effectiveness of human resources results in improved organizational performance for our clients.  We have a deep expertise and unmatched perspective in guiding our clients in the areas of organizational strategy, recruitment and selection, classification and compensation, and training and development.