Fiscal Implications:

The City’s annual General Fund contribution in FY 2007 for fire services as a member of the Belmont-San Carlos Fire Department is approximately $5.3 million. This contribution was anticipated to increase to approximately $6.5 million had the proposed fire assessment of $1.2 million been approved (with enhancements to the provision of fire service including the addition of staffing for a cross-staffed truck company, equipment and building reserves, funding of costs for retiree medical benefits and a contribution towards the annual JPA Revenue Adjustment).

Background:

The City of San Carlos (City) and the Belmont Fire Protection District (District) have worked cooperatively in preparing an amended and restated Joint Powers Agreement (JPA) for provision of fire services within our respective cities, effective July 1, 2006. The JPA contemplated a revised budget and funding formula contingent upon approval of a fire assessment in both San Carlos and Belmont. At the same time, the JPA provided for retention of the existing budget level and funding formula (i.e., 50/50) if the measure failed in either or both of the jurisdictions.

The balloting period closed in each City during the week of November 20. Ballots were tabulated and the measure failed in both jurisdictions. Consequently, the Belmont-San Carlos Fire Department budget remains unchanged and the funding formula remains at 50/50. The financial issues which led to consideration of the measure remain, however, and each entity must consider implications thereto moving forward.

The amended and restated JPA contemplated this possibility by providing each entity with the option to withdraw from the JPA in a six-month time frame should either measure fail. To exercise this one-time provision, either or both of the agencies would need to take action prior to the end of the calendar year (i.e., December 31, 2006) for termination of the JPA effective June 30, 2007. As of January ’07, withdrawal by either entity requires advance notice of at least 18 months prior to the date of dissolution as has been the case in the JPA agreement since its inception.

Now What?

The one decision that is markedly altered by time constraints is the withdrawal option. If neither party withdraws, existing funding and service levels are basically kept intact. Of course, the enhancements contemplated within the proposed assessment budget are not funded. And, the funding formula remains at 50/50.

Staff believes that relations between the two entities have improved during the course of the past year. Furthermore, progress has been made in filling vacant positions, establishing new rules and regulations for operation, realizing long term labor agreements, and restoring morale within the Belmont-San Carlos Fire Department.

City staff understands that District revenues have grown in recent years to accommodate the existing budget levels; these revenues may exceed the District’s direct annual costs toward the Department. We mention this here, not to pass judgment upon, nor influence the allocation of these resources within the District, but only as a point of information for the City Council in contemplating options with respect to the City of San Carlos’ capacity to match potential future allocations from the District.

The City of San Carlos has shifted resources internally by making budget reductions in Administration, Police, Planning and Parks and Recreation while increasing allocations toward Fire this past year. The City’s ability to match future District contributions may, at least in the short term, require consideration of further reductions in Administration, Parks, Planning and Police even with retention of the existing 50/50 funding scenario. Of course, this situation is only exacerbated if any further consideration is given to alternative funding scenarios requiring San Carlos to contribute a greater percentage of existing or future funding costs (e.g., a 3% shift in the formula equates to an additional $330,000 assuming an $11 million budget).

Staff believes there is merit in continued consideration of regional efficiencies in the provision of public safety services. This is consistent with objectives within the City’s Strategic Plan: “Explore additional avenues for cost savings and regionalization and report the results to the City Council” by February 15, 2007. At the same time, however, staff believes that such efforts should be exercised in a studied and professional manner, and without the crisis management mode that might be required should either or both entities exercise their option to withdraw from the Belmont-San Carlos Fire JPA prior to December 31, 2006 (i.e., allowing only 6 months to dissolve the existing entity and find alternative service).

The City is not in total of control of the situation given the JPA partnership with the District. Accordingly, staff is renewing efforts to contact neighboring cities and districts as a precautionary step to ensure continued fire protection services within the City.

A Formula?

The Belmont Fire Protection District proposed a revised funding formula as part of the amended and restated JPA. A formula was devised which accepted assessed valuation as a significant factor thereby shifting the cost distribution within the Department toward San Carlos (i.e., but only with the proviso that funding measures pass in both cities). Accepted assessment methodology that governs Fire Assessment Benefit Assessments does not recognize assessed value as a legitimate methodology for computation of fire assessment costs. Accordingly, other factors were necessarily utilized in preparing proposed assessments.

Staff recognizes that the District may wish to revisit the formula concept (i.e., there seems to be some history relating to a previous annexation largely unrelated to the cost of providing fire service today). Other fire service providers responding to previous requests for service within the District and City submitted proposals based upon cost of service. Accordingly, proposals for each entity were identical in expense in that both entities have two stations and requested similar coverage (see Attachment 1). While this suggests that other entities might again submit proposals, if requested, based upon cost of service, staff understands that districts in communities elsewhere in California may have alternative formula methodologies in use.

We do not categorically reject the formula concept. We do believe however, that any formula ultimately agreed upon should be primarily weighted upon cost thereby providing incentives for cost efficiencies while allowing flexibility in service/cost decisions. If the decision is made that one entity should legitimately bear more expense than a partner, that entity should receive more service as well in order to legitimately and legally justify the differential in cost.

Alternatives:

Options available to the City Council include:

1. Authorize the City’s Belmont-San Carlos Fire Department’s representatives and staff to work with the Belmont Fire District representatives as equal partners in an effort to sustain fire protection services as provided by the Belmont-San Carlos Fire Protection Department; or

2. Authorize staff to prepare a letter noticing the City’s intent to withdraw from the Belmont-San Carlos Fire Department effective June 30, 2007 and initiate solicitation of alternative fire service proposals; or

3. Authorize staff to immediately solicit updated proposals for alternative fire services with a report for consideration December 11, 2007; or

4. Authorize City representatives and staff to pursue regional fire service consolidation and/or contracts jointly with the District through the Belmont-San Carlos Fire Department; or

5. Provide staff with alternative direction.

Respectfully submitted,

Mark Weiss, City Manager

Attachments: 1. Comparison of Fire Service Options for San Carlos & Belmont (during 2005-06)

Comparison of Fire Service Options for San Carlos & Belmont

(Cost in Millions in 2005-06 Dollars)

	SC Cost	Unfunded	SC Total	Bel Cost	Unfunded	Bel Total
CDF	$3.94	$0.96	$4.90	$3.94	$0.96	$4.90
San Mateo	$4.87	$0.96	$5.83	$4.87	$0.96	$5.83
Menlo Park	$5.20	$0.96	$6.16	$5.20	$0.96	$6.16
Redwood City	$5.21	$0.96	$6.17	$5.21	$0.96	$6.17
South County Fire	$4.83	$0.19	$5.02	$4.83	$0.19	$5.02

Notes:

1. Figures are for 2005-06, would need to be updated for 2006-07 and 2007-08

2. Redwood City numbers include mark up amount estimate of $100,000/year

3. Redwood City and Menlo Park withdrew from consideration to provide Fire Services during the process. San Mateo and CDF remained interested.

4. Unfunded costs assume PERS costs of $1.53 Million/Year for “side fund” payoff (13 years) and retiree medical liability of $385,000/Year (20 years) for both agencies.

5. Does not include one-time costs for Vacation Payout, Workers Comp Costs, Balance on Truck # 13.