Item Title: Consideration of Letter of Agreement to Amend and Restate the South County Fire Authority Joint Powers Agreement and Update on Fire Services in San Carlos

Recommendation
The South County Fire Authority Board has recommended that the City Council approve the proposed Letter of Agreement (see copy attached). Staff will work with the Special Legal Counsels of both agencies to use the terms in the Letter of Agreement that are agreed to by both agency boards to amend and restate the South County Fire Authority Joint Powers Authority (JPA) agreement for fire services in the City of San Carlos and the Belmont Fire Protection District.

Fiscal Implications
The City’s 2005-06 General Fund budget for Fire Services includes $4.83 million for the San Carlos 50% share of the costs for operating the 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 the 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 an estimated amount of $13,282,495 in the first year (2006-07) and would increase the estimated 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 and the cost sharing formula would remain at 50% of the costs for each agency rather than the new formula proposed in the letter of agreement.

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 Authority 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 17th 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 April 24, 2006. At that meeting, the Council approved an appropriation of $100,000 to cover costs at South County Fire Authority through the end of the current fiscal year. The Council also discussed the fifth draft of the Letter of Agreement and provided comments to the City’s Fire Board Members (Mayor Grocott and Council Member Grassilli) to take back to the full Fire Board for discussion and consideration.

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 the South County Fire Authority and amending its Joint Powers Authority (JPA) document 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 May 15th. 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 on May 3rd and is now at Draft 6. A copy of this draft is attached for the Council’s review.
2. PERS Retirement and Retiree Medical Costs – A presentation by the actuarial firm of Bartel & Associates will be made at the May South County Fire Board Meeting on May 10th on this topic. The initial report from the actuary indicates that South County Fire’s PERS retirement obligation (side fund) is $12.8 Million (vs. $13.5 Million projected) and the agency’s retiree medical benefit obligation is $3.76 Million to $5.47 Million (vs. $1 Million projected). There is also an option to refinance the PERS retirement obligation (the “Fresh Start” option) so that it is spread over 15, 20 or 30 years vs. 13 years so that the first year costs would drop from $1,303,346 in the first year to $768,546 in the first year (30 year formula). Staff will work to analyze these figures and integrate them in to the 10 Year Fire Services projected budget mentioned above.
3. Fire Services Assessment Calculations and Timing – Work on the proposed Fire Services Assessment revenue measure by Muni Financial Services continues. The consultant has obtained detailed information on property usage and parcels in both agencies. The consultant remains on track to have a report available on the proposed assessment levels and revenue to be raised by the proposed assessment measure by May 26th. This timing 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.
4. 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 and restated 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 discussion of Fire Services in San Carlos on March 27, 2006 and the fifth draft was discussed by the City Council at the April 24, 2006 Council Meeting. Since that time, the document has gone through a revision at the Fire Board level. The City has also received comments on the draft letter of agreement from the President of the Firefighters Union in San Mateo, IAFF Local 2400 (see attached copy). A copy of the sixth draft of the Letter of Agreement is attached to this staff report for your review and consideration tonight.

City Council Comments on the Draft Letter of Agreement
During the April 24, 2006 Council meeting, the City Council received a report from the Staff on the previous draft letter of agreement. At that meeting, the Council was in general agreement with the Letter of Agreement with the exception of four Sections and some key points. The Sections that the Council wished to discuss and review further were:

• Section 10 – Governing Board of Successor Joint Powers Authority
• Section 11 – Composition of Facilities and Paramedic Services (Service Level)
• Section 12 – Limitation on Authority of Successor Joint Powers Authority
• Section 13 – Fire Chief and City Manager’s Duty to Review Major Items
• Section 14 – Fire Chief (Reporting Arrangement)

In terms of specific areas of interest in the draft Letter of Agreement, the Council discussed these items:

1. Where is the level of Fire Service decided – by each agency (City of San Carlos and Belmont Fire Protection District) or does the Fire Board and the other agency have to approve any increases/decreases in Fire Service Levels the cities may wish to make?
2. Does the language in Section 11 mandate the described level of Fire Service or is it a statement of intent about a desirable level of Fire Service?
3. Do we need to add language to permit more agencies to join the JPA in the future?
4. What is the process to address tie votes on the Fire Board? Is a resolution or “mediation” process needed in these instances?
5. Should major issues be resolved by the two City Councils rather than at the Fire Board?
6. Would items over $100,000 be subject to approval by both agencies as well as the Fire Board?
7. Should day to day operational matters of the Fire Authority be addressed by the Fire Chief and the two City Managers rather than the Fire Board?
8. If the two City Councils review major issues, should we eliminate the Fire Board and leave it with the Fire Chief and two City Managers as a Management Team?
9. Can the proposed fire services assessments be different amounts in each Agency?
10. Need to look at cost of Fire Services in San Carlos by household – not just now, but over 10 and 15 years from now before setting the fire assessment amount.
11. Sections 1 and 11 appear to be inconsistent; one agency may have the desire or funding to have more Fire Stations than the other.

Fire Board Amendments to the Proposed Letter of Agreement
At the May 3, 2006 Special Meeting of the South County Fire Board, the comments of the San Carlos City Council were discussed and considered. During that meeting, changes were made to Sections 11 and 12 of the Letter of Agreement. The Board also clarified that it was their intent that a change in Fire Services Levels would require the approval of both agencies and the Fire Board. The key changes to the Proposed Letter of Agreement are as follows:

• Section 11 – Add the word “initially” to describe the service level and number of fire stations in each agency at the start of the term of the new JPA.
• Section 12 – This section was expanded to refer three more topics to the two parent agencies of the Fire Services JPA:

1. Major changes in the level of service.
2. Increasing the number of member agencies in the Successor Joint Powers Authority.
3. When votes on major issues occur at the Successor Joint Powers Authority Board meetings.

The “Weak JPA” Model at the Livermore-Pleasanton Fire Department
In recent meetings of the San Carlos City Council and the South County Fire Board, there has been discussion of moving to a "Weak JPA" format for key decisions at South County Fire under the Letter of Agreement and Fire Services JPA. During those discussions, it was noted that the Weak JPA concept was based on the operation of the Livermore-Pleasanton Fire Department.

I did some research on that Fire Department by contacting the Staff at the City of Pleasanton. I was told that the two cities do have a Joint Powers Agreement in place but neither City treats the Fire Department as a separate agency. Instead they treat it as a department with each City determining its own fire service level, hiring its own fire department employees, management is provided by the two City Managers and policy direction comes from a City Council Subcommittee in each community. The Council Subcommittees consist of the Mayor and one additional City Council Member.

So while this approach is a weak JPA, it is different than what is envisioned for the successor agency to the South County Fire Authority. A copy of the JPA agreement and a description of its operation is attached for your information and reference.

Next Steps
Staff recommends that the City Council review and discuss the proposed Letter of Agreement. We are interested in your comments on the document. Once we have direction from the Council on the Letter of Agreement, Staff will work with the Special Legal Counsels of both agencies to develop a Joint Powers Authority (JPA) document. This JPA document will cover fire services in the two agencies as a successor to the existing JPA agreement for fire services. It will use the provisions of the Letter of Agreement that both agencies have agreed to upon the review of each agency.

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.