CITY OF TALLAHASSEE
CITY COMMISSION AGENDA ITEM
ACTION REQUESTED ON: May 13, 2009
SUBJECT/TITLE: Update- Building Inspection Fund
TARGET ISSUE: Financial Viability of the Government Target Issue

STATEMENT OF ISSUE

As requested by the Commission at the April 15th, 2009 budget target issue meeting, this item provides an update from the reports provided on January 28, 2009 and specifically addresses the anticipated year- end deficit for the Building Inspection Fund. Current year-end projections indicate a FY 2009 deficit of approximately $824,000 in the Building Inspection fund. Coverage of the deficit position will require a loan from the Deficiencies Fund that had a balance as of $11.2 million (including prior year Building Inspection loans) as of September 30, 2008. The current projected transfer is greater than the originally budgeted amount of $273,225. Data on historic permit, inspection, and revenue is included. The item also addresses staff workload and the current fee structure.

FISCAL IMPACT

For FY 2009, an additional loan from the Deficiencies Fund to the Building Inspection Fund of approximately $609,200 will be required. This is based on the projected deficit of $824,000 adjusted for non-Florida Building Code costs such as code enforcement. The projected FY 2009 year-end balance for the Deficiencies Fund is $7.5 million after the Building Inspection loan and transfer required for the Fire Fund (no contribution is assumed for the General Fund).

OPTIONS FOR CONSIDERATION

1. Authorize staff to work with representatives of the construction industry to develop a proposal for modifying the current fee structure, to include automatic annual adjustments, to fully recover costs for implementation by July 15, 2009.
2. Authorize staff to work with representatives of the construction industry to develop a fee increase consistent with County fees that will fully cover all costs, to be implemented by July 15, 2009.
3. Direct staff to eliminate a minimum of three additional positions by either relocation, if available, or separation prior to the new budget year.
4. Authorize staff to discuss with the County the potential for combining the City and County building and permit functions.
5. Consider outsourcing services as an option for the future.
6. Provide other direction as appropriate.

Beckye Simpson, Budget Manager, Office of Budget & Policy

Anita Favors Thompson, City Manager

For Information, please contact: Beckye Simpson, ext. 8467.

SUPPLEMENTAL MATERIAL/ISSUE ANALYSIS
HISTORY/FACTS & ISSUES

BUILDING INSPECTION FUND

In FY05, legislation was passed requiring that revenue related to implementation of the Florida Building Code be segregated and used exclusively to offset the cost of implementation of the Code. An enterprise fund was implemented at the beginning of FY07 to accomplish this. For the first two years of full operation expenditures exceeded revenues by a total of $2.2 million, which was funded by loans from the Deficiencies Fund. For FY09, an additional loan of $273,000 is budgeted although the current estimate for the FY09 deficit in the fund is $824,000. Revised revenue and expenditure estimates are shown in the following chart:

The number of 1 & 2 family residential building permits issued in FY05 was 1,396, 1,088 in FY06, 857 in FY07 and 376 in FY08. This is a reduction of 73% since FY05. Total permits are also down with a reduction of 969 permits in FY08 (28%). This trend is expected to continue in FY09 with recovery not expected in the immediate future.

Two positions were eliminated during FY 2008 and one additional position was eliminated in November 2008. Subsequent to the January 28th report to the Commission, an additional five positions were reassigned to Energy Services to meet the increased demand for energy audits and three positions were transferred to Neighborhood Services to implement an enhanced code enforcement program. In addition, the deputy building official position has taken on additional duties of the vacant facilities management position and is being funded for 60% of his time from this source. Previously there were two positions, one in facilities management (General Fund) and one in building inspection (Building Inspection Fund). With this change, there is one position for all duties. In addition to the benefit to the Building Inspection Fund, this is a reduction in the General Fund of 40% of the cost for the previously authorized full time position.

INTRODUCTION

The Building Inspection Fund has not fully recovered the costs of the entire Building Inspection Division’s budget since inception. The following chart shows historical revenues and expenditures. As indicated in the chart below, deficits have occurred since FY2007, the first year of the fund. FY 2005 and FY 2006 are shown to provide operating perspective prior to initiation of the fund.

*Although the Building Inspection Fund was set up in this year, not all costs (such as allocations) were included in order to balance the budget.

There are several factors that affect the net position of building inspection operations.

1) Prior to becoming a fund, all costs were not captured in the building inspection budget:

• Allocated costs were added in FY 2007.
• The fund is now charged for a portion of the cost of the Renaissance Building debt service.
• Three additional positions were added in FY2007 in response to business community needs.

2) Some costs included in the fund are not directly related to implementation of the Florida Building Code and therefore cannot be recovered by building inspection fees (See Attachment A):

• Costs for services provided to the Underground Utilities Department (Water and Sewer) have been recovered by direct transfers since prior to inception of the fund.
• Costs associated with services for Underground Utilities Department (Gas) are being recovered beginning in FY 2009.
• Costs associated with code enforcement activities, services provided to the Fire Department, and other services provided to citizens are still un-recovered.
• If the FY 2009 projected deficit is adjusted to take out the costs associated with code enforcement and services provided to the Fire Department, the net position would be reduced by a minimum of $215,000 (direct cost only; does not include indirect costs), for a deficit of $609,200 vs $824,200. The General Fund will assume funding for the code enforcement activity in FY 2010 and this has been taken into consideration in the budget projections for FY 2010.

3) The fee structure is inadequate to recover costs:

• The initial fee study conducted in FY 2006 that established the fees for the Building Inspection Fund, was based on historical expenditure and revenue data.
• Prior year expenditure data did not include all costs of the service as indicated above.
• The number of permits and inspections used for calculation of the fees was at a cyclical high; in contrast to the past two fiscal years.

PERMITS, REVENUE, AND INSPECTION HISTORY

The following chart provides an historical depiction of permit revenue and the annual percentage change in revenue since FY 1993. The chart is not adjusted for permit fee increases that may have occurred during this time frame. From FY 1993 to FY 2002, the revenue trend was increasing at a moderate rate. This spiked in FY 2003, when revenues started to decline. The FY 2009 projected revenue does not appear to be too far from the level that might have been expected had the FY 2005 – FY 2008 spike not occurred.

The number of inspections, or workload associated with permit revenue, generally follows a similar trend, although inspection activity may lag somewhat. The following chart shows this relationship.

Attachment B provides additional detail on inspection and permit data.

INSPECTION WORKLOAD

The number of positions for building inspection, and related activities, has varied from a high of 42 in FY 2007 to a present low of 28.4. The following chart shows the historic workload by position and revenue generated per position. Although revenue peaked in FY 2003, the number of inspections did not peak until the following year, FY 2004. In that year, the number of inspections per position was significantly higher than for all other years. With this exception, workload through FY 2008 has remained fairly consistent with a maximum annual variance of 149 inspections per position. With the position reductions made in FY 2009, the workload ratio is consistent with prior years and actually slightly higher with a variance of 264 from the lowest year, FY 2005.

*This is the average number of positions for the year. The current staffing level is 28.4.

PERMIT FEES

As previously discussed, permit fees are not currently structured to fully recover costs of the division’s budget. The current fee study was based on permit activity prior to FY 2006 and therefore is not properly reflective of current construction activities. Based on this study, the current fee structure was implemented in March, 2006. Fees were increased by CPI (3%), as provided in the original fee study, in November, 2007. Also in February, 2007, a fee increase related to temporary storage (PODS) was implemented and in July, 2008, the rooming house fee was renewed. Prior to the FY 2006 rate study, FY 2002 was the last update of the fee schedule.

The City’s fees are significantly lower than fees charged by the County. The County Building Inspection Division has operated as an enterprise fund since it’s inception in 1972 and also experienced deficit positions in the early years of operation. However, with adjustments to permit fees the Division has been able to maintain a net positive position for the last 25 years. The City charges $.17 per square foot “under roof” for a single-family house while the County charges $.48 per square foot. Similarly, the City commercial charge of $.27 per square foot is less than the County charge of $.51 per square foot. The following chart shows the estimated impact of using the County’s fee structure for some of our major permitting activities during the past three years. Although the chart still reflects a deficit position in FY 2008 and FY 2009, these deficits would have been either totally or substantially eliminated if non-building code activities were excluded from cost of operations.

To completely eliminate the deficit position, including all costs, an increase of approximately 20.6% is required. The chart that follows gives examples of the actual increase in costs of permits associated with a 20% increase. Without a fee increase, the fund would need to cut seven additional positions (including the three positions in the code enforcement function) to eliminate the deficit.

*Additional fee is equivalent to a single moderately priced window.

OUTSOURCING

The Growth Management Department has collected information from various sources that have in the past, or currently, outsource or contract inspection activities (Attachment C). Based on this information, the cost charged per inspection ranged from $65.00/ hour to $180.00/ hour. One entity paid a percentage (95%) of permit fees for this service. To provide a basic comparison, the cost of using city staff vs using contract inspectors follows. A full time city employee would be expected to provide 1,840 hours of inspections, after all holidays, vacation and sick time are excluded. The average inspector pay with benefits is $63,220. Estimating 1,840 inspection hours at $65.00 provided by a contractor (the lowest figure provided in the survey), the cost to the city would be $119,600. During periods of abnormally high activity, this would seem to be a reasonable approach to meet customer expectations given that the services can be discontinued when no longer needed. This would be especially beneficial if services can be obtained at lower rate than those surveyed, although this is not likely in times of high demand.

FY 2010 PROPOSED BUDGET ADJUSTMENTS

To better reflect the costs associated with the Florida Building Code, the three positions currently performing city code enforcement activities will be moved to another unit in the Growth Management Department. An additional $50,000 in expenditure savings and $45,000 in revenue are also expected. Under the current fee structure, and with no further reductions in staff, this would continue to require a loan from the Deficiency Fund.

CONCLUSIONS

1) Although building inspections and permit revenue are cyclical, over time the trend has been moderate growth. Once the current cycle reaches bottom, it is expected that activity will begin to grow at a moderate rate. This is not likely to occur for at least eighteen months.
2) Because of the reductions already made in the Building Inspection Division, it appears that staff workload is currently in line with prior year workloads. However, it is possible that inspection activity may further decline in FY 2010 that could bring this below the prior year levels.
3) Some activities performed by the Building Inspection Division are not related to permitting and inspection and cannot be recovered through these fees. These costs should be identified outside the Florida Building Code cost center.
4) The current fee structure does not adequately reflect the total costs of the services provided. There is a significant fee range differential between the city and county fees, with the county fees being higher.
5) Although other options, such as outsourcing of inspections, are available, it does not appear that significant savings could be achieved at this time. This should be considered in the future if additional resources are required to meet workload.

OPTIONS

1. Authorize staff to work with representatives of the construction industry to develop a proposal for modifying the current fee structure, to include automatic annual adjustments, to fully recover costs for implementation by July 15, 2009.
2. Authorize staff to work with representatives of the construction industry to develop a fee increase consistent with County fees that will fully cover all costs, to be implemented by July 15, 2009.
3. Direct staff to eliminate a minimum of three additional positions by either relocation, if available, or separation prior to the new budget year.
4. Authorize staff to discuss with the County the potential for combining the City and County building and permit functions.
5. Consider outsourcing services as an option for the future.
6. Provide other direction as appropriate.

ATTACHMENTS

A. Non-Building Code Functions
B. Inspection and Permit Data
C. Memorandum- Contracting Inspections