HomeMy WebLinkAbout14 - PH-3 - Establishing and Adopting Fees and Serv - 6/1/20211
CITY COUNCIL AGENDA REPORT
MEETING DATE: June 1, 2021 ITEM NUMBER: PH-3
SUBJECT: ESTABLISHING AND ADOPTING FEES AND SERVICE CHARGES RELATED
TO CANNABIS BUSINESS PERMITS AND CONDITIONAL USE PERMITS
PURSUANT TO CHAPTER VI OF TITLE 9 AND ARTICLE 21 OF CHAPTER IX
OF TITLE 13
DATE: June 1, 2021
FROM: FINANCE DEPARTMENT
PRESENTATION BY: CAROL MOLINA, FINANCE DIRECTOR
FOR FURTHER INFORMATION
CONTACT:
CAROL MOLINA, FINANCE DIRECTOR
714-754-5036
RECOMMENDATION:
Staff recommends that City Council approve the attached resolution establishing and
adopting fees in connection with cannabis conditional use permits and business permits
and related approvals to implement the new retail cannabis program throughout the City
approved by the voters under Measure Q.
BACKGROUND:
On November 3, 2020, voters approved Measure Q authorizing the City Council to
adopt ordinances to establish retail cannabis regulation, taxation, and zoning
requirements.
The City partnered with ClearSource Financial Consulting, a firm with expertise in the
laws and best practices regarding the establishment of user fees and charges, to
develop fees for new Measure Q retail cannabis business and to review existing fees
for Measure X manufacturing and distribution businesses. This process was conducted
to ensure that all fees for Cannabis businesses in the City represent the reasonable
cost of providing permit application and processing services to this growing sector of
Costa Mesa’s economy.
ClearSource met with each city department that will play a role in Measure Q Cannabis
business permit applications. Each department provided information about their
respective services related to reviewing and processing cannabis applications, then
time and cost estimates were developed for the cost of service fee to be calculated.
The formula used to derive the cost of service was guided by the Federal Office of
Management and Budget’s (OMB) A-87 guidelines for full cost allocation which reflects
an assigned hourly rate that includes the following: direct and indirect labor costs,
services and supplies, and overhead, multiplied by the estimated time needed to
perform the service. ClearSource used the data provided by city staff to develop all fees
and determine the cost of recovery.
2
ANALYSIS
The fees were structured in accordance with the industry’s best practices and California
statute. User and regulatory fees should be set according to the estimated reasonable
cost of service and should bear a fair and reasonable relationship to the payer’s
burdens on, or benefits received from the activities and/or services provided by the City.
On a recurring basis, staff reviews existing user and regulatory fees and rates as a
basis for recovering allowable costs of certain City services. The services for which a
city imposes a user or regulatory fee typically derives from an individual person or
entity’s action, request, or behavior. Therefore, except in cases where there is an
overwhelming public benefit generated by a city’s involvement in the individual action, a
fee for service ensures that the individual bears most, if not all, of the cost incurred by
the City to provide that service. When a fee targets “100% or full cost recovery,” the
individual is bearing the entirety of the cost. When a fee targets less than full cost
recovery, another City revenue source – in most cases, the General Fund – subsidizes
the individualized activity.
With the City having already adopted Measure X fees for the Cannabis Business Permit
(CBP) and Conditional Use Permit (CUP), as part of the citywide fee study,
ClearSource was able to update the original fee based on more recent data regarding
the estimated cost of service for Measure X, and also develop mew Measure Q fees.
Time estimates for processing Measure X cannabis applications has improved due to
institutional knowledge that staff gained from processing applications for existing
businesses. Based on the current staff hours required, Measure X fees are
recommended to be adjusted with a slight decrease.
Measure Q fees for the new retail cannabis businesses were developed with an
updated review of the application process that resembled processes for Measure X,
with certain modifications. The calculation of cost of service levels for Measure Q
applications was slightly lower than for Measure X businesses based on retail uses. As
a result, the difference between Measure X and Measure Q fees are not substantial.
Staff provided different types of regulations that are required for different cannabis uses
regardless of a retail only component.
ClearSource also analyzed both the Major and Minor CBP and the CBP employee
badge fee for cost recovery. It was determined that the fees currently set for the Major
and Minor CBP did not capture the full cost of service. To right size the fee, the fee
increased and is now reflective of 100% full cost recovery. Staff is proposing cost
recovery levels at 100% for all fees.
The City is proposing only one new fee, which is the biannual CBP renewal fee.
Currently, the City requires cannabis businesses renew their CBP every two years at no
cost despite the staff time and effort involved in reviewing the cannabis business permit
renewals. From the inception of business operations, regulation occurs annually with a
biannual renewal. With a zero dollar fee, the cost of regulation and of processing the
CBP renewal permit has been completely subsidized by the City.
3
Staff is proposing to recover costs as allowed for a full cost recovery of business
renewals. As part of the fee study, utilizing information from direct staff outreach, data
from HdL, and ClearSource, it was found that most cities assess an annual renewal fee.
In comparison to other cities, Costa Mesa’s proposed annualized fee is on the lower
end of the spectrum. It is important to clarify that an apples to apples comparison was
not possible. Every city develops a regulatory structure that is in line with that city’s
goals and anticipated regulation level which may encompass more than just a
regulatory permit fee. However, what is clear is that establishing a fee for the renewal
process is recommended in order to achieve full cost recovery.
The City has proposed regulations, standards, and permitting processes for cannabis
businesses. The attached resolution establishes fees intended to offset the costs of
permit processing, regulation of cannabis businesses, and employee badges.
ENVIRONMENTAL DETERMINATION
Pursuant to the provisions of the California Environmental Quality Act (“CEQA”)
(California Public Resources Code Sections 21000 et seq.) and State CEQA guidelines
(Sections 15000 et seq.) the Measure Q and the fee resolution establishing and adopting
fees related to cannabis business permits is exempt from CEQA pursuant to CEQA
Guidelines Section 15061(b) (3), because it can be seen with certainty that there is no
possibility that these actions may have a significant effect on the environment.
ALTERNATIVES CONSIDERED:
City Council may approve staff’s recommended full cost recovery proposed fees.
Council may also not approve the recommended actions and direct staff accordingly.
FISCAL REVIEW:
The anticipated revenue impact of adopting the proposed use permit fees and cannabis
business permit fees is approximately $1,056,000 per year. Revenues will offset the
costs of permit application review and on-going business regulation. Actual revenues
will vary based on actual permits received.
LEGAL REVIEW:
The City Attorney’s Office has reviewed this Agenda Report and Resolution and approves
them as to form.
CONCLUSION:
Staff recommends that City Council approve the attached resolution establishing and
adopting fees and service charges related to cannabis business permits and conditional
use permits to offset the costs of permit processing for cannabis businesses.
4
CAROL MOLINA KIM HALL BARLOW
Director of Finance City Attorney
JENNIFER LE
Director of Economic and
Development Services
ATTACHMENTS: 1 Resolution Establishing and Adopting Fees in Connection
with Conditional Use Permits and Cannabis Business
Permits
2 Cannabis Use Permit and Business Permit Fee Presentation
RESOLUTION NO. 2021-xx
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF COSTA MESA, CALIFORNIA, ESTABLISHING AND
ADOPTING FEES TO PROCESS APPLICATIONS FOR
CANNABIS BUSINESSES ALLOWED PURSUANT TO
MEASURE X AND MEASURE Q
THE CITY COUNCIL OF THE CITY OF COSTA MESA HEREBY FINDS AND
DECLARES AS FOLLOW S:
W HEREAS, pursuant to the provisions of the California Constitution and the laws
of the State of California, the City of Costa Mesa is authorized to adopt and implement
rates, fees, and charges for municipal services; provided, however, that such rates, fees,
and/or charges do not exceed the estimated reasonable cost of providing such services;
and
W HEREAS, the City Council of the City of Costa Mesa had heretofore established
various schedules of rates, fees, and charges for services provided by the City for
processing conditional use permits and business permits, including but not limited to
those conditional use permits and business permits related to marijuana/cannabis
businesses authorized by Measure X (2016) as amended; and
W HEREAS, the City Council of the City of Costa Mesa now desires to establish
the various schedules of rates, fees, and charges for services provided by the City for
processing conditional use permits and business permits related to all cannabis
businesses authorized by Measure X (2016) and Measure Q (2020) and set forth in
Ordinance Nos. 2021-08 and 2021-09 (amending Titles 13 and 9, respectively) of the
Costa Mesa Municipal Code) as introduced concurrently herewith; and
ATTACHMENT 1
W HEREAS, California Government Code Section 66016 requires notice to be
given and data made available at specified times prior to the adoption of increases in
existing rates, fees, and charges, or the adoption of new rates, fees, and charges for use
permits and building inspections sometime hereinafter at a public meeting of the City
Council; and
WHEREAS, California Government Code Section 66018 requires notice to be
published in accordance with California Government Code Section 6062a and data made
available concerning rates, fees, and charges prior to conducting a public hearing with
respect to the adoption of increases in rates, fees, and charges, or the adoption of new
rates, fees, and charges for which no other procedure is provided by law; and
WHEREAS, pursuant to California Government Code Section 66016, the City
Council has held at least one public hearing and received oral and written presentations
thereat with respect to "user fees" prior to the adoption of this Resolution; and
WHEREAS, pursuant to California Government Code Section 66018, the City
Council has conducted and concluded a duly noticed public hearing with respect to the
rates, fees, and charges prior to the adoption of this Resolution; and
WHEREAS, the City Council desires to establish fees associated with the review
of applications for all cannabis businesses authorized by the City of Costa Mesa as set
forth herein; and
WHEREAS, all legal prerequisites to the adoption of this Resolution have
occurred;
NOW , THEREFORE, BE IT RESOLVED as follows:
Section 1: The City Council hereby finds and determines that based upon the
data, information, analysis, oral and written documentation presented to the City Council
concerning the rates, fees, and charges described in Exhibit "A" attached hereto and by
this reference incorporated herein, the rates, fees, and charges set forth in said Exhibit
"A" do not exceed the established reasonable cost of providing the service for which the
rates, fees, or charges are levied.
Section 2: The rates, fees, and charges set forth in Exhibit “A” as further
described below, are hereby adopted and approved as the rates, fees, and charges
for the services identified for each such rate, fee, and/or charge:
Exhibit "A"— Cannabis Business Permit and Conditional Use Permit and Related Fees
Section 3: The rates, fees, and charges set forth in Exhibit "A" shall be effective
and shall be implemented commencing June 1, 2021, except for the Conditional Use
Permit fee, which will take effect on August 1, 2021, which is at least 60 days after
Council adoption.
Section 4: Severability. If any section, subsection, sentence, clause, phrase
or portion of this Resolution is for any reason held to be invalid or unconstitutional by
the decision of any court of competent jurisdiction, such decision shall not affect the
validity of the remaining portions of this Resolution. The City Council of the City of
Costa Mesa hereby declares that it would have adopted this Resolution and each
section, subsection, sentence, clause, phrase, or portion thereof, irrespective of the fact
that any one or more sections, subsections, sentences, clauses, phrases or portions be
declared invalid or unconstitutional.
Section 5: The City Clerk shall certify to the passage and adoption of this
Resolution and enter it into the book of original Resolutions.
PASSED, APPROVED AND ADOPTED ON June 1, 2021.
____________________________
John Stephens, Mayor
ATTEST: APPROVED AS TO FORM:
_____________________________ _______________________________
Brenda Green, City Clerk Kimberly Hall Barlow, City Attorney
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss
CITY OF COSTA MESA )
I, BRENDA GREEN, City Clerk of the City of Costa Mesa, DO HEREBY CERTIFY
that foregoing Resolution No. 21-xx was duly passed and adopted by the City
Council of the City of Costa Mesa at a regular meeting held on June 1, 2021, by the
following roll call vote, to wit:
AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:
IN W ITNESS W HEREOF, I have hereby set my hand and affixed the seal of the City
of Costa Mesa on June x, 2021.
_________________________________
BRENDA GREEN, CITY CLERK
Exhibit A
Cannabis Business Permit and Conditional Use Permit and Related Fees
Description
Conditional Use Permit
Proposed
Fee
1 Conditional Use Permit - Measure X Facility $21,529
2 Conditional Use Permit - Measure Q Facility $18,499
Marijuana Business Permit - Initial Application
3 Measure X Facility $20,380
4 Measure Q Facility $19,732
Marijuana Business Permit - Renewal Application
5 Measure X Facility $16,996
6 Measure Q Facility $16,348
Marijuana Business Permit Modification - Major
7 Measure X Facility $3,099
8 Measure Q Facility $3,099
Marijuana Business Permit Modification - Minor
9 Measure X Facility $1,300
10 Measure Q Facility $1,300
Marijuana Business Permit - Employee Badge
11 Measure X Facility $631
12 Measure Q Facility $631
CITY OF COSTA MESA
CANNABIS USE PERMIT
AND BUSINESS PERMIT FEE ANALYSIS
SCHEDULED FOR JUNE 1, 2021 CITY COUNCIL REVIEW
ATTACHMENT 2
OVERVIEW
WITH ADOPTION OF MEASURE X
Ü The City currently collects fees
for:
- Conditional Use Permit Application
Review and Processing
- Marijuana Business Permit Issuance
• Initial Permit Issuance
• Modification of Permit
- Marijuana Business Employee Badge
Issuance
Fees were originally adopted to address
businesses authorized to operate under
the guidelines and standards adopted
as part of the City’s Measure X
RECENTLY ADOPTED MEASURE Q
Ü The City has recently adopted
Measure Q , which will allow
for additional marijuana
related businesses. To ensure
fees reflect the costs of
permitting and regulating
marijuana related businesses:
- Anticipated costs of permitting and
regulatory services have been
calculated
- Proposed fees have been drafted for
City Council review
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 2
DERIVING THE COST OF SERVICE
Apply fully burdened hourly labor rates to time required to perform
Hourly Rate for
Personnel
Providing
Services
Fully Burdened Hourly
Rates:
Ü Direct and indirect
labor costs
Ü Services and supplies
Ü Agency overhead
Time Required tox Perform the
Service
Estimated or Known
Times for Providing
Services
=Cost of Service
Maximum Fee Amount
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 3
EVALUATING COST RECOVERY
Compare full cost of service to revenues available to fund activities
Set policy for targeted recovery within the spectrum
City Subsidy
Revenue from
Current Fee ($)
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA
Maximum Level of Cost
Recovery = 100%
Current Level of Cost
Recovery = X%
Minimum Level of Cost
Recovery = 0%
4
Full Cost of
Service ($)
PERMIT TYPES
Description Frequency
1 Conditional Use Permit One-Time
2 Marijuana Business Permit - Initial Application One-Time
3 Marijuana Business Permit - Renewal Application Two-Year Permit
4 Marijuana Business Permit Modification - Major As Needed
5 Marijuana Business Permit Modification - Minor As N ee ded
6 Marijuana Business Permit - Employee Badge As Ne eded
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 5
COST OF SERVICE ANALYSIS
COST RECOVERY ANALYSIS
Ü Conditional Use Permit
- One-Time Permit to Determine Whether Proposed Facility Meets Requirements for
Approved Use
- Requires In-Depth Review from Multiple City Departments
Des cription
Conditional Us e Permit
Curr ent
Fee s
Cost of
Se rvice
Propos ed
Fee
Fee
Change
Proposed
Recovery
1 Conditional Use Permit - Measure X Facility $27,508 $21,529 $21,529 ($5,97 9) 100 %
2 Conditional Use Permit - Measure Q Facilit y n/a $1 8,499 $18,499 n/a - new 100 %
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 6
COST OF SERVICE ANALYSIS
COST RECOVERY ANALYSIS
Ü Business Permit
- Initial Permit: Issued to Authorize Business to Operate. Permit fees intended to recovercosts of initial authorization and on-going business regulation through permit renewal
- Renewal Permit:
• Two-year permit to authorize and regulate on-going business operations. Fee is currently $0 (nocharge). City cost recovery is currently 0%.
• Regulation of cannabis facilities continues during life of the business. City costs of servicecontinue (e.g. field inspections for compliance with terms of use permit)
• Consider recalibration of renewal permit fee to match cost of service
Des cription
M arijuana Bus ines s Per mit - Initial Application
Curr ent
Fee s
Cost of
Se rvice
Propos ed
Fee
Fee
Change
Proposed
Recovery
1 M eas ure X Facili ty $21,525 $20,380 $20,380 ($1,14 5) 100 %
2 M eas ure Q Facility n/a $19,732 $19,73 2 n/a - new 100%
M arijuana Bus ine ss Per mit - Renewal Application
3 M eas ure X Facili ty $0 $16,996 $16,99 6 $16 ,996 100 %
4 M eas ure Q Facility n/a $16,348 $16,34 8 n/a - new 100%
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 7
COST OF SERVICE ANALYSIS
COST RECOVERY ANALYSIS
Ü Business Permit Modification and Employee Badge Issuance
- Business Permit Modification: Fee collected to review requests for modifications to terms
of business permit.
- Employee Badge Issuance: Fee collected per employee.
Descripti on
Marijuana Business Permit Modification - Major
Current
Fee s
Cost of
Service
Proposed
Fee
Fee
Change
Proposed
Re cove ry
1 Measure X Facility $2,516 $3,099 $3,09 9 $583 100%
2 Measure Q Facility n/a $3,099 $3,099 n/a - new 100%
Marijuana Business Permit Modifi cation - Minor
3 Measure X Facility $995 $1,300 $1,300 $305 100%
4 Measure Q Facility n/a $1,300 $1,300 n/a - new 100%
Marijuana Business Permit - Employee Badge
5 Measure X Facility $341 $631 $631 $290 100%
6 Measure Q Facility n/a $631 $631 n/a - new 100%
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 8
COST OF SERVICE ANALYSIS
COST RECOVERY ANALYSIS
De scription Curre nt
Fee
Cost of
Service
Proposed
Fee
Cost
Recovery
1 Marijuana Business Permit - Renewal A pplication $0 $16,348 $16,348 100%
Annualized Amount = $8,174 per year
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 9
FEE COMPARISON
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 10
Cannabis Business - Annual Business Permit
Redwood City $29,530
Vista $28,001
Sacramento $23,610
Placerville $22,841
Modesto $21,740
Grover Beach $20,000
Oakland $15,151
Santa Ana $14,282
Salinas $9,854
Vallejo $8,288
Costa Mesa - Proposed (Annualized)$8,174
Long Beach $2,946
Costa Mesa - Current $0
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000
Source: Figures developed using information provided by HDL, with additions by City of Costa Mesa and ClearSource.
COST OF SERVICE ANALYSIS
COST RECOVERY ANALYSIS
<<< 100% cost recovery
CLEARSOURCE REPORT TO THE CITY OF COSTA MESA 11
A nnual Re ve nue at Revenue atDescriptionVolumeFullProposed
Conditional Us e Permit
1 Conditional Use Pe rmit - Me asure X Facilit y 2 $4 3,058 $43,0 58
2 Conditional Use Permit - Me asure Q Facility 15 $277,48 5 $277,48 5
Marijuana Business Permit - Ini tial Application
3 Me asure X Facilit y 2 $40,760 $40 ,760
4 M eas ur e Q Facil ity 1 5 $2 95,980 $295 ,980
Marijuana Busi ne ss Pe rmit - R ene wal A pplicati on
5 M eas ur e X Facility 6 $10 1,976 $10 1,976
6 M eas ur e Q Facil ity 8 $1 30 ,784 $130 ,784
Marijuana Bus iness Pe rmi t M odification - Major
7 M eas ur e X Facility 1 $3 ,09 9 $3,0 99
8 M eas ur e Q Facil ity 1 $3,0 99 $3,09 9
Marijuana Busine ss Permit Modification - M inor
9 M eas ur e X Facility 1 $1 ,30 0 $1,3 00
10 Me as ure Q Facil ity 1 $1,3 00 $1,300
Marijuana Busines s Permit - Employee Badge
11 Me asure X Facilit y 100 $63,0 50 $63 ,050
12 Me as ure Q Facil ity 150 $94 ,57 5 $94,57 5
13 Total $1 ,056,46 5 $1,056,465
CITY OF COSTA MESA
USER AND REGULATORY FEE UPDATE
DISCUSSION & QUESTIONS
TERRY MADSEN | PRINCIPAL CONSULTANT
tmadsen@clearsourcefinancial.com | 831.288.0608
www.clearsourcefinancial.com