BUDGET WORKING PAPER

TO: W. Calvin Horton, Town Manager

FROM: George Small, P.E., Director of Engineering

SUBJECT: Budget Working Paper: Engineering Inspection Fees

DATE: April 12, 2000

The Engineering Department calculates, collects, and administers fees for inspection of construction within and/or affecting public rights-of-way. This includes utility trenching, road improvements, drainage improvements, and related work.

We presently charge $3.50 per linear foot of full or partial street improvement, and $1.00 per linear foot of utility trench within or adjacent to public right-of-way. We also charge $50.00 for inspection and re-inspection of driveways constructed on existing streets (i.e. those driveways that were not part of the original street construction.)

We presently have two Engineering Inspectors with primary inspection responsibilities and one Senior Engineering Coordinator who supervises the inspectors and assists with inspection duties. We review Engineering Department fees annually to determine if adjustments are necessary.

COST OF ENGINEERING INSPECTION SERVICES

Our analysis of salary, benefits, and indirect costs associated with Town engineering inspection positions is as follows:

	SALARY AND BENEFITS	INDIRECT COSTS (13%)	TOTAL TOWN COSTS
Senior Engineering Coordinator	$63,000	$8,200	$71,200
Engineering Inspector	$51,000	$6,600	$57,600
Engineering Inspector	$44,000	$5,700	$49,700

TOTAL $178,500

Engineering staff are diversified in their job responsibilities, and we estimate that our Senior Engineering Coordinator spends approximately 50% of work time on inspection related duties; our Engineering Inspectors spend approximately 75% of work time on inspection related duties.

Using these percentages, we estimate the Town’s present cost of providing engineering inspection services is approximately $116,000 annually or approximately $30 per inspection hour.

FEES AND REVENUE FROM ENGINEERING INSPECTIONS

In reviewing engineering inspection requirements as they relate to fees collected, we think that the approximate number of inspection staff-hours which would be “ideal” for thorough inspection of typical work is approximately fifteen staff-hours per 100 linear feet of standard street construction and approximately four staff-hours per 100 linear feet of standard utility construction.

The following tabulation shows the estimated Town cost of performing a thorough inspection of 100 linear feet of standard street and utility as compared to the fees we receive for such inspection services:

TASK	FEE	COST	FEE/COST
Inspect 100 Linear Feet Street	$350.00	$450.00	78%
Inspect 100 Linear Feet Utility	100.00	$120.00	83%
TOTAL	$450.00	$570.00	79%

The tabulation of costs versus fees for engineering inspections under ideal conditions shows that the Town would recoup approximately 79% of its costs with the present fee schedule. However, during periods of significant new development activity, we cannot devote as much time to each unit of new construction as would be ideal. Therefore, on an hourly unit cost basis, we would recoup more than the above 79% of our cost for engineering inspections during busy construction periods.

Our annual engineering inspection revenue last year under the current fee schedule was $108,000. That was a relatively busy year during which the Town recouped 90% or more of engineering inspection costs. When and if activity decreases, we would expect to spend more time inspecting each unit of construction, thereby reducing the ratio of revenue to cost and moving it closer to the 79% level discussed previously.

PROPOSED FEES REVISIONS

Because development activity levels vary significantly from year to year, thus creating volatility in our engineering inspection fee revenues, we try to set our fees such that the average annual revenue generated from fees over time would approximately equal our annual costs, thereby allowing the Town to balance engineering inspection costs and revenues over the long term.

We assume that the Town will experience varying levels of development activity in future years. We would expect activity to range from lower levels during which we can put in more inspection hours on each project, to higher levels during which we must spread our inspection time over more projects. This being the situation, we suggest raising our fees as shown below to balance costs and revenues on average over the coming years.

WORK ITEM	CURRENT FEE	PROPOSED FEE
Street Inspection	$3.50	$4.00
Utility Trench Inspection	$1.00	$1.10
Driveway Inspection (and/or re-inspection)	$50.00	$50.00

The proposed fees reflect an increase of 10-15% over the current fees. We think the proposed fees would balance costs and revenues for engineering inspection services during periods of moderate development activity. During slow periods we would recoup approximately 90% of our costs and during busy periods we would recoup approximately 110% of our costs.

Conceptually, we believe it is reasonable to recoup all or most of our inspection costs since both the general public and private developer benefit from comprehensive inspection of improvements during construction. The developer is provided with assistance in quality control and construction efficiency, thereby reducing potential costs of repairing/replacing substandard work and reducing the risk of future reprisals from dissatisfied buyers and/or public officials. The general public benefits by being assured of quality construction which is safe, functional, economical, and does not require high costs for future repair and maintenance.

We think that the proposed fees would recoup the costs for Town engineering inspection services, based on the resources and time we are able to expend, when averaged over years of both high and low development activity.