Modified Deposit Fees to the Rescue

After calculating the full cost for a current development-related application, the RCS effort turns to the process of cost recovery by recommending a fee that can be easily administered by city staff. Most cities already have a mix of flat fee and deposit-based fees. This article will discuss the pros and cons of each and also discuss a third alternative, the modified deposit-based fee.

Flat Fee

This fee is the easiest for city clerical staff to administer. The dollar amount of the fee is known in advance by the applicant. The accuracy of the cost is greatest when there is a minimal amount of staff time included in the cost.

However, the greater the amount of staff time, the greater the deviation from the actual cost for a specific application. A flat fee based on the cost is fairly accurate, on average, when there are multiple occurrences of the application; but, for a specific application, the fee could be too high or too low. This problem with the flat fee has limited its use to relatively low dollar fees.

Deposit-Based Fee

The fee that most accurately reflects the true cost of an application is the deposit-based fee. Since this fee includes the actual cost of staff time recorded, it will generally recover more costs for a city.

However, it also has problems. Often staff with just ministerial duties on an application will not record their time. Although this time is minimal, it can add up over many applications.

Applicants feel that this fee leaves them in the dark regarding their total fee obligation. Sometimes, this feeling is expressed as giving city hall a blank check.

Additional clerical staff is often required to track the staff time/cost and the remaining balance on the deposit. This additional cost can fail to get in the billings to the applicants.

Nevertheless, where city staff have been concerned with over/under charging, a deposit fee has been adopted. Since charging a flat fee for the low-cost applications and using a deposit-based fee for the high-cost applications makes sense, the only decision is what should be the cut-off point between them. I’ve seen the break-point as low as $1,000 and going up from there. The economic question becomes balancing the additional cost of tracking deposits against the benefit of greater accuracy.

Modified Deposit-Based Fee

To achieve the cost recovery of a deposit-based fee with the simplicity of a flat fee, RCS pioneered the modified deposit-based fee. This particular type of fee works by making two simplifying assumptions: (1) Project Planners and/or Project Engineers are generally the only staff positions where the time varies by project size; and (2) the remaining staff time is fixed because their actions are ministerial and rarely vary with the size of the project.[i]

By making these two assumptions, RCS can recommend a flat fee that covers the ministerial functions plus the minimum amount of work by the project planner/engineer that the application will take. That flat fee is referred to as the “Base Fee for the initial ‘x’ number of hours of the Project Planner” with larger projects covered by the phrase “any additional hours beyond ‘x’ are charged $XXX against a deposit to be determined” where $XXX represents the Fully-Burdened Hourly Rate of the Project Planner. This wording can be easily modified to include the Project Engineer and any other position that might have additional time based on the project size. It can also indicate that additional hours are added in blocks of 2 or more hours and that the time is charged for any portion of an hour.

This modified deposit-based fee is easier to administer as deposit tracking is generally limited to only the project planner/engineer. All of the ministerial positions and the deposit clerk are included in the base fee so that their time is always captured. Plus, the applicants have a better idea of what their total cost will be.

Note: [i] In RCS experience, most of the professional planners and engineers are used interchangeably on a time-available basis. For example, staff will indicate that an associate or an assistant planner will perform the work depending on which position has time available or particular expertise. RCS creates a “combo” position that includes the cost of these interchangeable positions and refers to it as the project planner in the costing process. Whereas ministerial positions perform a discrete function either clerical, technical or supervisory.