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HomeMy WebLinkAboutItem U II October 25, 1999 TO: MAYOR YOST AND MEMBERS OF THE CITY COUNCIL FROM: KEITH TILL, CITY MANAGER SUBJECT: Proposed Amendments to the Agreement Creating the Orange County Fire Authority Summary of Request: City Council to approve proposed amendments to the Joint Powers Agreement creating the Orange County Fire Authority, which were unanimously approved by the Fire Authority Board of Directors on September 23, 1999. Background: Equity is an issue that pre-dates the Authority and is largely a by-product of the tax structure that has emerged in California following voter approval of Proposition 13. For OCFA, equity question is whether the cash contract fee -- or structural fire fund property tax that is received from a member jurisdiction -- bears a reasonable relationship to the cost of the service that a member receives. When forming OCFA, member agencies had agreed to review conditions after three year's experience to see if there might be some practical way of inserting more equity into OCFA's financing structure. Before Proposition 13, a specific fire tax rate had been established in Orange County to pay for fire protection. Some members of OCFA initially provided fire protection without a tax rate, and later, upon joining the Orange County Fire Department, began paying for fire protection on a fee for service basis. But after total property taxes were limited to one percent of a property's assessed value by Proposition 13, property tax rates were changed to fit a uniform, constitutionally mandated formula. When new cities were formed in Orange County and chose to remain a part of the Orange County Fire Department, the "post Proposition 13 Structural Fire Fund" continued in effect and presently pays for fire protection in thirteen cities plus the unincorporated areas of Orange County. Seven cities receive service on a "fee for service" or contract basis. The four original contract cities (Seal Beach, Placentia, Tustin and Stanton) were once referred to as "CAP" cities (i.e. the acronym for the cost allocation formula). The charge that was paid by these cities was based on a four-part formula that was suspended in the early 1990's. Since then the charges for these cities has been adjusted based on annual changes to OCFA's operating cost. The three newest contract cities (Buena Park, San Clemente, and Westminster) joined the department in the early to mid-1990s; their contract charge was established based on a "company cost" calculation. This calculation places a value on the resources that are assigned to a specific fire station. AGENDA ITEM ► • Proposed Amendments to the Joint Powers Agreement October 25, 1999 Page - 2 By the late 1980s, it had become apparent to the cities that were then served by the County fire department that the combination of fees and taxes was becoming an increasingly inequitable method for financing fire and EMS related services. These inequities were emerging due to the varying tax rates that were a part of the old "Pre-Proposition 13" taxing system, and the differences in assessed value growth rates between established or built-out communities, and newer or growing communities. This condition was an underlying rationale for the formation of the Authority. The cities wanted to explore options to the historical financing system and wanted to install a more balanced governance structure before considering any options that might improve equity. The Authority formed on March 1, 1995 with nineteen original members, including eighteen cities and the County. Since then, one additional city, Westminster, has contracted with the Authority, and in the process has merged its fire and EMS services with OCFA. Due to the complexity of the equity issue, the difficulty of arriving at practical solutions, and concern by some members that a joint powers authority (JPA) might be manipulated to achieve radical equity solutions, restrictions related to equity were placed in the agreement that formed the Authority. The following provisions were included in the agreement to provide.a greater level of certainty over how future equity issues would be dealt with: • A 3-year waiting period (after Authority formation) before any changes could be made in the cost of services to member agencies based on equity. This waiting period expired in March 1998. • A 2% limit for any equity adjustment to a member's cost of service. In anticipation of completing its third year of full operation by June 1998, the Authority in 1997 commissioned the Davis Company to evaluate financing and service practices (i.e. The Equity Study). The focus of the evaluation was placed on developing quantitative measures for current equity conditions, and on devising practical ways to correct inequitable conditions. The Davis Company submitted its Final Report on Equity to the Board of Directors in January 1999. The final report included several policy recommendations and suggested options to address the equity issues. After reviewing the final report, the Board of Directors created an Equity Working Group to review all issues raised during the Equity Study and to review findings and conclusions with the Board at a study session in May/June, 1999. This presentation was postponed to the July 22, 1999 Board of Directors Meeting. The Equity Working Group included five members of the Board of Directors who represented a cross section of interests in the equity issue (voting members) and employee and staff representatives who participated in an advisory capacity. Board member participants included: Frank McCoy, Cypress; Susan Ritschel, San Clemente; David Shawver, Stanton; Todd Spitzer, County of Orange; and Mike Ward, Irvine. I Proposed Amendments to the Joint Powers Agreement October 25, 1999 Page - 3 OCFA member agencies were asked to review the Final Report on Equity over the period February through April, to develop a written position, and to provide instruction to their respective board member. The Equity Working Group studied the responses from the member agencies, requested follow-up legal opinions from General Counsel, identified the critical policy issues, and developed consensus on their points of agreement. After considerable discussion and debate, at its final meeting in July, the Equity Working Group formulated policy recommendations for consideration by the Board of Directors. In making its recommendations to the Board of Directors, the Equity Working Group considered the need for long-term organizational stability of the OCFA as an overriding goal. Other goals that the working group considered important in making its recommendations were to: 0 Assure equal treatment of members, to the extent possible. 0 Address concerns of the donor members, to the extent possible. 0 Develop a uniform model for service contracts. 0 Address the inequities of the cost methodologies currently in use for the cash contract cities and recover costs for vehicle and equipment replacement and facilities maintenance currently borne by the SFF members. 0 Provide contract members with a predictable cost through a"cap" on cost increases. On July 22, 1999, the OCFA Board of Directors discussed the Equity Working Group's recommendations and voted to approve the recommended equity policies submitted by the Equity Working Group. Staff was directed to distribute the draft amendments to the Joint Powers Agreement Creating the Orange County Fire Authority to the member agencies for review and comment. The proposed amendments to the JPA agreement were reviewed with the City Manager Technical Advisory Committee (TAC) and with representatives of all member cities and the county. The Board of Directors unanimously approved the amendments at their meeting on September 23, 1999. Summary of Proposed Amendments: The proposed amendments were drafted by OCFA's General Counsel to reflect the agreement for resolution of equity issues approved by the Board on September 23, 1999. The proposed amendments also include several technical and administrative changes. Wording was added for clarity and to address concerns raised by representatives of member agencies. Key changes are summarized below: Page 7: Article I., 4., (T) Powers — permits, but does not require, the Board to determine compensation of directors (non-equity related). Proposed Amendments to the Joint Powers Agreement October 25, 1999 Page - 4 Pages 17-22: Article IV., 3. Contributions for Budgeted Amounts — sets forth cost methodology for cash contract charges. • Changes due date for cash contract payments from within 60 days to within 30 days of receipt of a billing. • Continues existing cost calculation methodology. • Provides that cost calculation methodology shall include the proportional share of long-term debt obligations. • Sets a cap of 3.5% on annual cost adjustments for the first five years; a cap of 4% for the next five years. • Includes charges for facilities maintenance, equipment replacement/depreciation, and vehicle replacement/depreciation. • Requires contract cities to be responsible for the incremental cost of new resources committed to their city. • Provides that repeated failure to make payments when due shall constitute grounds for expulsion from the Authority and/or the imposition of an Authority determined late fee. Pages 22-24: Article IV., 4. Equity— sets forth the proposed resolution of"equity" for structural fire fund (SFF) members. • Establishes a process whereby, on an annual basis, after review of audited financial statements, the Board considers whether sufficient unencumbered funds are available for Board-approved and Authority-related additional services or resources to over-contributing SFF members. • Provides for the use of the general methodology employed in Model 2A of the 1999 Davis Group equity report as the basis to determine the relative status of each member, unless otherwise directed by a two-thirds vote of all Directors representing SFF members. The base period status is compared without regard to the 10% variance factor in the Davis study to determine allocations to the Structural Fire Fund Entitlement Fund. • Provides that no SFF member will be required to make additional payments for service on account of equity. Page 24: Article IV., 5. Approval of Bonded Indebtedness • Requires a two-thirds vote of all members for issuance of long-term debt. • Specifies that any cash city that withdraws, after ceasing to be a member of the Authority, is not responsible for payment of its proportional share of long-term debt. Pages 25-26: Article VI., 1. Property Rights — describes member obligations with respect to property. • Provides that fire stations owned by cities shall be leased to OCFA for $1.00 per year. • Defines responsibility for capital improvements to cash contract city-owned and Authority- owned fire stations; requires cash contract city participation in the fire station maintenance and equipment and vehicle replacement/depreciation programs. Proposed Amendments to the Joint Powers Agreement October 25, 1999 Page - 5 Pages 30-34: Article VII. Withdrawal and Addition of Members — describes initial and subsequent contract terms and notice requirements for withdrawal. • Provides for an initial term of 10 years. • Sets forth notice of withdrawal requirements for cash contract cities; allows the cities of Buena Park, Stanton, and Westminster an extension of six months for notice and effective date of withdrawal. • Provides that membership terms automatically renew on the same terms and conditions as the prior term and with the same cap in effect in the last year of the prior term unless a city provides notice of withdrawal or the Board by a two-thirds vote of all Directors changes the terms. • Requires that a city's representative be removed from the Board if notice of withdrawal is given or is deemed to have been given by a city. • Clarifies that withdrawal of a SFF member may be subject to property tax transfer negotiations and such applicable notices as required by law. • Provides flexibility for the Board to set terms and conditions for new members of the Authority. • Requires the County to be a member for an initial 10-year term and provides for automatic renewals subject to the same provisions and exceptions applicable to the cities. If County withdraws, it remains liable for payment of the SFF's proportional share of any bonded indebtedness incurred prior to withdrawal. Page 35: Article IX., 4. Amendment — provides for amendment or modification of the agreement. • Requires a two-thirds vote of all members for amendments or modifications to the agreement. • Provides that no amendment shall change the cap, the cost calculation methodology or length of a term during the pendency of any term. FISCAL IMPACT: With the provision of a 3.5% cap in the first 5 years and a 4% cap the last five years, the city achieves a level of security not achievable through any known alternative. For example, had the cap been in place this year, the City's contract cost increase would have been under $88,000. The actual increase this year without the cap provision is $90,000. RECOMMENDATION: Approve the proposed Amendments to the Joint Powers Agreement Creating the Orange County Fire Authority (attached) and direct staff to return the signed Amended Orange County Fire Authority Joint Powers Agreement to the Orange County Fire Authority, Clerk of the Authority, by December 1, 1999.