CITY OF SAN CARLOS

COUNCIL STAFF REPORT

Council/RDA Meeting Date: April 24, 2006

Item Title: Consideration of Letter of Agreement for Successor JPA for Fire Services and Update on Fire Services in San Carlos

Recommendation
The South County Fire Authority Board has recommended that the City Council approve the attached Letter of Agreement. Once a Letter of Agreement is adopted by both agencies, Staff will work with the Special Legal Counsels of both agencies to use the Letter of Agreement to develop a new Joint Powers Authority (JPA) document as a successor to the existing JPA for fire services.

Fiscal Implications
The City’s 2005-06 General Fund budget for Fire Services includes $4.83 million for the San Carlos 50% share of South County Fire Authority. In the coming 2006-07 budget preparation cycle, Fire Services (like all other General Fund budgets) will be initially assigned a 2% CPI increase (to $4.92 Million) and then potential reductions of 5% ($4.67 Million), 10% ($4.43 Million) and 15% ($4.17 Million) to balance the General Fund Budget and address the City’s General Fund Structural Budget Deficit.

At the City Council Meeting on February 27, 2006, the City Council took action to continue receiving Fire Services from South County Fire Authority at the current level of expenses until the passage of a proposed revenue measure. If the revenue measure passes, the South County Fire Authority budget would increase to $13,282,495 in the first year (2006-07) and would increase the San Carlos cost of fire service from South County Fire from $4.83 Million to $7.07 Million in the first year (2006-07) increasing to $10.06 Million in the tenth year (2015-16). If the proposed revenue measure did not pass, the South County Fire Authority costs to both agencies and the cost sharing formula would remain at current levels.

Any difference between the City’s General Fund contribution to South County Fire ($4.17 Million to $4.92 Million in 2006-07) plus this potential new revenue amount (estimated at $1.92 Million) and the actual cost of South County Fire services ($7.07 Million in the first year and increasing each year thereafter) would be made up by additional General Fund program cuts (68% of the General Fund’s expenses are in the Police, Fire and Parks & Recreation budgets) or new revenue measures in the City General Fund.

Background
This is the 16th meeting that the City Council has held on the topic of Fire Services since December 2004 when notice was given by the Belmont Fire Protection District to dissolve the South County Fire Authority and a similar notice was later adopted by San Carlos at the recommendation of the City Attorney to protect San Carlos’ position in this matter. The City Council last met on the topic of Fire Services in San Carlos on March 27, 2006.

Update of Activities Since Last City Council Meeting
Since the last meeting of the San Carlos City Council, several items related to the continuation of South County Fire Authority have occurred. Staff as well as San Carlos representatives to the South County Fire Authority Board (Mayor Grocott and Council Member Grassilli) will be ready to discuss these items in more detail at the Council Meeting of April 24th. The highlights of these activities include:

1. Draft Letter of Agreement – The draft of the Letter of Agreement was discussed at the South County Fire Authority Board and is now at Draft 5. A copy of the draft last seen by the City Council (Draft 3) and the current version (Draft 5) is attached for the Council’s review.
2. Fire Services Assessment Calculations and Timing – Work on the proposed Fire Services Assessment revenue measure by Muni Financial Services has begun. The consultant estimates that they will have a report available on the proposed assessment levels and revenue to be raised by the proposed assessment measure by May 26th which would enable the matter to be referred to the San Carlos City Council and the Belmont Fire Protection District in time for the first meeting in June of each agency.
3. Legal Review of Assessment Revenues and Method – The City’s Special Counsel in this matter (Joan Cassman) has met with the Special Counsel in Belmont and the South County Fire Authority regarding the questions raised by the San Carlos City Council regarding accounting for and segregating the proceeds from the proposed Fire Services Assessment. A memo has been issued by the Special Legal Counsel of each agency that conducting separate assessment elections in the City of San Carlos and the Belmont Fire Protection District would be the recommended way to proceed to insure that the assessment can continue to be collected if South County Fire Authority or a successor Fire JPA were to be dissolved at some point in the future.
4. South County Fire Authority Budget – A South County Fire Authority budget for the next two fiscal years (2006-07 and 2007-08) is being developed. This document would include projected revenues at South County Fire that are available to offset Fire Service costs as well as funds from each agency to pay for Fire Services – both with and without the proposed Fire Services Assessment revenue measure. The budget work will also include a 10 year projection of revenues and expenses in the near future.
5. Fire Services Time Line – The City Manager has developed a Fire Services time line that shows the major activities between now and January 1, 2007 relating to the continuation off the South County Fire Authority. It is included in Draft 5 of the Letter of Agreement as Attachment B.
6. Hazardous Materials Unit Cost Reimbursement – A presentation on this topic will be made to the Countywide Emergency Services Council on April 20, 2006 during that agency’s 2006-07 budget discussions. South County Fire staff will present information on the program’s administrative costs in an effort to get those costs included in the 2006-07 budget year. There is also a discussion about increasing the notice time of the agreement from 30 days to 18 months in exchange for the prior years administrative cost reimbursement.
7. Cost of Current Liabilities – Work continues by the Belmont Finance and Human Resources staff members to calculate the amount of current liabilities at South County Fire Authority. This involves a contract with Bartel & Associates on PERS Retirement and Retiree Medical costs (results due at the May meeting of the South County Fire Board) as well as refining Workers Compensation and other costs.

Draft Letter of Agreement
As noted above, On February 27, 2006 the San Carlos City Council adopted a motion by Vice Mayor Tom Davids to continue Fire Services in San Carlos through South County Fire Authority. A similar motion was adopted by the Belmont Fire Protection District on February 28, 2006.

Since that time, the South County Fire Authority Board has discussed the adoption of a Letter of Agreement that would reconcile the differences between the motions adopted by the two agencies and would form the basis for an amended or new Joint Powers Authority for Fire Services. An initial Letter of Agreement based on the two agency actions was drafted at the start of March and has been amended at each of the subsequent South County Fire Authority Board regular and special meetings.

The third draft of the Letter of Agreement was part of the City Council’s last discussion of Fire Services in San Carlos on March 27, 2006 and is attached for your reference. Since that time, the document has gone through two more revisions. A copy of the fifth draft of the Letter of Agreement is attached to this staff report for your review and consideration tonight.

Key Items to Review in Draft Letter of Agreement
In analyzing the draft Letter of Agreement now before the City Council, Staff sees several areas that we believe are worthy of consideration and discussion. They include:

Funding Formula (Item #1)
The proposed funding formula changes the cost of Fire Services in San Carlos from the current 50/50 split between the City of San Carlos and the Belmont Fire Protection District to the following formula:

Population 25.0%

Assessed Valuation 25.0%

Number of Fire Stations 12.5%

Number of Companies 12.5%

Number of Employees 12.5%

Total Number of Service Calls 12.5%

TOTAL 100%

In draft 3 of the Letter of Agreement, it was stated that the first year formula would be 53% San Carlos and 47% Belmont with the agency shares changing annually after that. At the most recent meeting of the South County Fire Authority Board, that initial determination of funding formula was deleted. Staff is gathering information from the South County Fire Authority to determine what the initial and future year formulas might look like.

Staff would also note that the Commercial Square Footage figures shown on page 2 of Exhibit “A” are not available in San Carlos. So this factor is not part of the Fire Services Assessment calculations at this time.

Effective Date of New Funding Formula (Item #7)
The effective date of the new funding formula for Fire Services is the due date on the first revenue billings generated as a result of a successful revenue measure. A successful revenue measure is defined as one that is passed in both agencies (see item #6, paragraph 2).

Here it should be noted that the schedule of the proposed funding measure for Fire Services envisions passage after the date to place the revenue measure on the 2006-07 property tax bills. As a result, property owners would need to be “hand billed”. The consultants at Muni Financial Services have informed the South County Fire Authority Board that hand billed assessments generally result in a 50 – 60% collection rate.

With this in mind, it will be important in the coming fiscal year starting on July 1st to budget for fire services with the assumption of no revenue measure initially (a so called “gap budget”). If the proposed Fire Services revenue measures pass in both agencies during the fiscal year, it would be wise to adopt a revised budget that only assumes this lower rate of collection in the first year.

In subsequent years, the agencies can anticipate receipt of the full amount of the revenue measure. This is due to the County’s plans to pay these funds to both agencies (if the revenue measure passes) in exchange for rights to all late penalties and assessments pursuant to the Teeter Plan law in California.

Composition of Facilities and Paramedic Services (Item #11)
In the draft Letter of Agreement the original intent language to provide two Engine Companies with Paramedic Services at each has been changed to a requirement. Staff notes that this language, as written, would preclude either agency from either adding or reducing this level of service without approval by the other agency. As noted in Staff’s comments on Item # 1, it may be necessary to change the levels of Fire Services due to financial considerations. The City Council may not wish to delegate this authority over City Services and the City Budget in San Carlos to the South County Fire Authority or the Successor Fire JPA Board as proposed in Item # 11.

Limitation on Authority of Successor Joint Powers Authority (Item #12)
There have been several discussions at the South County Fire Board level on which decisions should be referred back to the San Carlos City Council and the Belmont Fire Protection District Board as part of converting the new Fire Services JPA to a “weak JPA” format. At this point, the proposal is to limit this category to actions on the budget, budget amendments and labor agreements. Staff would recommend broadening this list a bit to include the Acquisition of Property, the use of Eminent Domain to Acquire Property, entering into contracts over $100,000 and settlements over $100,000 as well.

Alternatives

1. Approve the draft Letter of Agreement as recommended by the South County Fire Authority Board of Directors.
2. Approve the draft Letter of Agreement as recommended by the South County Fire Authority Board of Directors with modifications desired by the City Council.
3. Receive the update on Fire Services in San Carlos but defer action on the draft Letter of Agreement until June when the Proposed 2006-07 City Budget comes before the City Council for consideration.
4. Provide the Staff with alternative direction.

Respectfully submitted by:

Brian Moura
Assistant City Manager

Approved for submission by:

Mark Weiss
City Manager

Attachments:
1. Draft 5 – Proposed Letter of Agreement Regarding Continuation of South County Fire Authority (Dated April 24, 2006) (PDF or Flash Paper , 2.8Mb)
2. Draft 3 – Proposed Letter of Agreement Regarding Continuation of South County Fire Authority (Dated March 24, 2006) (PDF or Flash Paper , 120Kb)