Report Prepared by: Daryl Jordan, P.E., City Engineer
Title
SUBJECT: Public Hearing to Consider Adoption of a Resolution to Update and Establish User and Regulatory Fees for the Development Services Departments Effective July 1, 2026
REPORT IN BRIEF
Public hearing and adopt a resolution updating and establishing various user and regulatory fees for the Development Services Departments effective July 1, 2026.
RECOMMENDATION
City Council - Adopt a motion adopting Resolution 2026-10, A Resolution of the City Council of the City of Merced, California, Updating and Establishing Various User and Regulatory Fees.
Body
ALTERNATIVES
1. Approve as recommended; or,
2. Approve, subject to other than recommended by staff; or,
3. Refer to staff for reconsideration of specific items; or,
4. Continue item to a Future Council meeting; or,
5. Deny the request.
AUTHORITY
Charter of the City of Merced, Section 412. Adoption of ordinances and resolutions.
California Government Code Sections 66014, 66016.
CITY COUNCIL PRIORITIES
Fiscal Stability and Future Planning.
DISCUSSION
The Development Services Department retained ClearSource Financial Consulting (ClearSource) last year to conduct a comprehensive fee study of the City’s Building, Engineering, and Planning fees. The study provides an updated analysis of the City’s cost to deliver various fee-related services, along with findings and recommendations based on the completed user and regulatory fee review. This information is intended to assist the City Council in evaluating potential updates to the City’s fee structure. User and regulatory fees are established at the direction of the City Council following a duly noticed public hearing to consider the adoption of any new or revised fees.
The study was limited to examination, and possible update of service fees for:
• Planning Review: Entitlement review, planning permitting, review for project compliance with City Zoning Code.
• Land Development Engineering and Encroachment Permitting: Map review, development review, permitting for temporary use of City right-of-way.
• Building Review and Inspection: Building plan review, permitting, and inspection for construction.
• Fire Prevention and Risk Reduction: Plan review and inspection of construction and specialized operations for compliance with California Fire Code.
Items Not Examined in this Study
• Taxes and Assessments
• Utility Rates and Services Charges
• Development Impact Fees
• Franchise Fees
• Fines or Penalties
• Parks and Recreation and Administrative Services Fees
Many of these items are subject to different approval thresholds or are not subject to the same cost of service limitations as the fees examined as part of this study. Consequently, they are specifically excluded from the scope of this study.
Background
The City provides many services to ensure safe, orderly, and aesthetically pleasing development and construction within City limits. These services include, but are not limited to, project entitlement review, map check, and construction plan review and permitting. User and regulatory fees are the mechanism by which the City may recoup a portion, or all, of the costs associated with these services. By law, the City may receive fees commensurate with the cost of providing services (no more than the cost of providing services).
The services for which a city imposes a user or regulatory fee typically derive 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.
The proposed fees are intended to comply with applicable federal, state, and local laws including providing confirmation that the proposed fees and charges are not a tax as defined in Article 13C of the California Constitution and that the proposed fees are no more than necessary to cover the reasonable costs of the City’s activities and services addressed in the fees. Additionally, the manner in which the costs are allocated to a payor bears a fair and reasonable relationship to the payor’s burdens on, or benefits received from the activities and services provided by the City.
Industry best practices and California statutes are in harmony: 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.
Additionally, ongoing review and adjustment of fees provides multiple benefits, including:
• Increasing the availability of General Fund revenues to be used for services and activities available to all residents and businesses, such as public safety and public works services.
• Keeping pace with general cost inflation.
• Avoiding fee spikes that are more likely to occur when municipalities leave fees unchanged for a multi-year period.
• Providing fee payers, City Staff, and City policymakers with a pattern of consistency that provides information for forecasting and decision-making purposes.
• Helping meet fee-payer service level expectations by collecting fees to fund the existing level of services provided.
• Encouraging generational equity among fee payers by avoiding long-term stagnation of fees followed by significant fee increases.
Findings
During the course of study, information and analysis was generated and is discussed substantively throughout the attached user and regulatory fee report and its technical appendices. However, summarized in the subsequent finding’s statements are outcomes and proposals that may be of particular interest to City leaders and policymakers.
• The City may adjust fees and enhance cost recovery, without positioning itself as an outlier to comparable communities. Comparison information is included below.
• Full cost recovery is targeted from most proposed fees due to the regulatory nature of the fees and the high level of direct benefit resulting from construction activities including enjoyment of property enhancements, increased property values, and the desire to avoid having other Merced residents and businesses subsidize an individual's private construction activities. Cost of service information is included in the attached report.
• The anticipated fiscal impact of the proposed fee changes is approximately $1,150,000 in enhanced cost recovery.
Comparison of Current and Proposed Fees to Those Collected by Other Agencies
Similar fees are collected by communities throughout the region and the State. The proposed fee amounts do not exceed the City’s cost of service and are in-range of amounts charged by other jurisdictions.
In order to provide the City Council with additional information as it considers potential adjustments to fees, current and proposed fees were compared to amounts collected by other agencies. For sampling purposes, the fee comparison examined fees for:
|
• Chico |
• Clovis |
• Davis |
• Folsom |
|
• Fresno |
• Lodi |
• Madera |
• Manteca |
|
• Modesto |
• San Luis Obispo |
• Tracy |
• Turlock |
The City of Merced, consistent with other cities throughout the State, has an existing fee schedule that contemplates hundreds of potential unique requests for service. Consequently, an exhaustive comparison of all scenarios is unrealistic. Instead, comparison information for several targeted fee categories (e.g., high volume categories, fee categories, services that may involve a similar level of effort from community to community, services that may be of particular interest to community, etc.) are provided in order to provide the City Council with a reasonable sense of changes expected. For Merced, outcomes will show that new fees may range from low, mid, to upper end of regional fee spectrum depending on the service provided. This is common among municipalities due to differing levels of service and review included among various fee categories. Scenarios considered range from smaller scale projects to larger scale projects.
Outreach
The public has been notified regarding this item, as required by California Government Code Sections 66016 and 66018.
Staff also hosted a community and stakeholder meeting on February 25, 2026, offered in both in-person and virtual formats. During the meeting, attendees received a presentation from Clearsource outlining the fee study process and were given the opportunity to ask questions.
Staff Recommendation
• Adopt Resolution 2026-10, A Resolution of the City Council of the City of Merced, California, Updating and Establishing Various User and Regulatory Fees with the effective date of July 1, 2026.
IMPACT ON CITY RESOURCES
The anticipated fiscal impact of the proposed fee changes is approximately $1,150,000 in enhanced cost recovery for services provided.
Although the changes are anticipated to provide additional revenue, the revenue is not intended to be used to fund new services, rather the revenue is intended to offset the costs of providing existing services that are recoverable from fees.
ATTACHMENTS
1. Resolution and Fee Schedule
2. Illustration of Proposed Fee Changes
3. User and Regulatory Fee Study
4. Presentation