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Honorable Mayor and Members of the City Council: BACKGROUND The City of Pleasanton provides a multitude of services to the public, examples of which include police and fire response and protection; recreational opportunities; issuance of permits and providing inspections on residential and commercial development and improvements. The costs to provide City services are paid for through taxes or user fees or a combination of each, depending on the nature of the benefit derived from the service. When the service is of general benefit and the benefit derived is community based (as in police patrol services and fire response) the cost to provide the service is funded through taxes. When the benefit derived is individually based, the cost to provide the service is recouped through fees. Attachment A (Categories of City Services) cites examples of City services; determines if the benefits are community or individual based; and, displays whether the cost of service is recouped from taxes or fees or both. The City's adopted fee policy states "it is the general policy of the City of Pleasanton to recover its cost of service from the individuals and/or groups served to the extent that individual members of the public are benefited from specific City facilities or personnel in a way different from that enjoyed by all citizens" (Attachment B - City of Pleasant on Fee Policy). It has been over ten years since the City has contracted to provide a cost allocation plan and user fee study. Various departments have been periodically increasing fees to reflect the increased cost of providing services. However, staff realizes that many fees are well below full cost recovery, particularly in the area of private development related services provided in the Engineering department, Fire inspection, and Current Planning and Enforcement. An evaluation by the Economic Development department (Attachment C), comparing Tri-Valley cities and other cities along the I 680 corridor from Fremont to Walnut Creek, indicates that the City of Pleasanton may be significantly undercharging for development related services in these departments. The results of a 2004-05 study of South Bay area cities are also included in Attachment C. The study indicates that many cities in the area are recovering a much higher percentage of private development related services compared to the City of Pleasanton. The General Fund therefore subsidizes the cost of providing these services in Pleasanton which is not consistent with the general fee policy noted above. Cost Allocation Plan and User Fee Study In doing a fee study, it is customary to first identify the indirect costs. This is done through a cost allocation plan. A cost allocation plan is developed by identifying and allocating all indirect costs associated with the direct cost of providing a service. Indirect costs have three layers: city-wide indirect costs; department-wide indirect costs; and, indirect costs within the program itself. Once identified, indirect costs are allocated to the various departments and functions. The formula for spreading indirect costs can vary depending on the supporting