Good afternoon, everyone.

Welcome to the economic development committee work session.

We have quite a few things to go over today.

We're gonna start with item number one, and that's with the Department of Permitting Services.

Last to discuss uh here's their comments about fees.

Look forward to that conversation.

And we're gonna I'm gonna ask our um legislative analyst.

Mr.

Yeah, it's really dark over there.

I don't know why.

Um Mr.

Ali to kick us off.

And if somebody can please turn on those lights, because it's the lights.

We can't see these guys.

We see you, but not a wave your hand.

But not as much as we like to see you.

Um talking about the lights.

But you can kick us off while they fix that.

Thank you.

Okay.

Sounds good.

Uh good afternoon.

Uh item one is the Department of Permitting Services.

Uh, the county executive, so on the cover page here is recommending an increase of 1.7 million dollars uh from the FY26 budget.

They're recommending two new positions and then also 1.5 million dollars in compensation adjustments.

Uh they do receive an up uh an operating budget equity tool analysis, which is uh stated they have shown a sustained commitment to advancing racial equity and social justice.

Um also, as the chair noted, uh they are proposing to increase fees using a split rate approach where commercial fees would increase by 25% and residential permit fees would increase uh by 10 percent.

Council staff will be recommending a flat increase for your consideration uh instead of the county executives proposal.

Okay, just to walk you through the packet um on page two, you can see the summary of the change in the the budget.

On page two and three provided a summary of all the divisions of DPS and the work that they do, as well as the number of FTEs that they've uh had uh by division in FY26.

Um page three uh and four show some accomplishments for the year, and that's also included in the presentation that they'll be providing.

Um it's also attached on the circle pages.

Um as I noted, uh they received an OBET analysis, and I believe it was a score of seven.

Um and you can see what the analysis stated um in section D on page four.

Um I also have conducted a base budget review uh for DPS.

That was the one department that I did as part of the base budget review and uh thing that council staff did, and you can see that here.

So we basically just pull out all of their operating expenses.

I have the full report attached in the circle pages as well, so you can see the breakdown of operating expenses by division.

Uh you can see their contracts, how much they're spending on furniture, administrative, and all that kind of thing.

Um I've also noted some of the contracts that they have, notably they have a one million dollar contract uh with the green bank to provide technical support for uh building an energy code compliance.

Um just following up on an issue that has been discussed over the last couple of years, but um DPS had a very large fund balance over the past few fiscal years, spurred largely through the pandemic because they had artificially low costs and a lot of uh activity, and so their fund balance uh grew.

They had conducted a fee study in 2023 to understand how to manage this.

Um ultimately the fee study found that their fees were actually below cost recovery.

So even though they were making a lot of money, um the fees were actually priced below what it costs to provide that service, but because they had a fund balance, the consultant recommended not changing fees and letting attrition basically eat into the fund balance, and that's basically happened now, and we are in the state where uh the fund balance is now below the policy level of 30 percent, which the council increased it to um in FY25.

Um section F just shows the changes.

Um I've sort of pulled out a number that's not shown in the budget, uh, the 7.4 million.

And this number is just to for you to sort of grasp and and sort of get a sense of scale of how much more revenue they're assuming through their fee increase.

So if there was no fee increase, um their revenues would be uh 7.4 million less than what the county executive is showing in his budget.

Um, so just sort of diving into this fee rate increase issue.

So uh the county executive as I said is uh recommending a split rate increase, 25% for commercial fees and 10% for residential fees.

The most recent fee increase was in uh FY20, and that was a 3% increase.

Um and DPS will note that as well in their presentation.

Um as I already noticed what the fee study had stated, and so you know, in the last two years a fee rate was not increased, even though it could have been pursued at that time.

Um of the reasons though that this attrition has happened faster than maybe anticipated is DPS has some say over their operating expenses in terms of the FTEs that they employ.

Um they're an enterprise fund, so they can also sort of grow their revenues or shrink their their fees to match their activity.

Um but importantly, they are not actually in control of the cost to five to have the staff because the wage and compensation is decided by the council, not by DPS.

So while they're an enterprise fund and they do get to control their fee rates and they do get to control to some extent the number of staff that they have, they're not in control of the amount that they have to pay that staff.

And so that is a cost that's sort of slightly outside of the sort of enterprise sort of setup that they have.

Um and so this year when uh permitting activity declined and their operating expenses are very high, which the fee study found compared to their revenues, um, that ate into their fund balance and now they're uh well below the 30% requirement.

Um you can see the the gap uh that's projected for FY27 on figure one, um, and you can see how much uh operating expenses would exceed revenues if there was no fee increase.