Eureka City Council/Humboldt #1 Fire Protection District Special Joint Meeting

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Call to Order and Attendance

City of Eureka: Mayor Bergel, Councilmember Castellano, Councilmember Moulton, Councilmember Fernandez, Councilmember Bauer, and Councilmember Contreras-DeLoach present.

Humboldt Fire District: Chair Wattle, Director Murias, Director Herbst, and Director Williams present.

Public Comment

No comments

Humboldt Bay Joint Powers Authority Study Session

Presented by Fire Chief Sean Robertson, Finance Director Lane Millar, and Consultant Stewart Gary of Citygate Associates

Primary goal of the meeting is to cultivate an equitable relationship between two parent organizations, City of Eureka and Humboldt #1 Fire Protection District, to enhance the longevity of the Joint Powers Authority (JPA), ensure financial sustainability for foreseeable future.

Achieve this goal by promoting fairness and balance in partnerships and operations, establish foundation to support the organization’s growth, resilience, and success.

Ground rules for this historic first joint meeting of the parent entities of the JPA; this is an open discussion of issues and solutions, no expectations of immediate resolution or unanimity. Here to introduce and discuss potential cost sharing ratios.

History of the JPA

Took 40 years to get to this point, beginning with a Joint Fire Services Committee

Created Auto Aid agreement in 90s which dropped response barriers for each agency, agreement to help each other out, no matter where it was in jurisdiction. This pushed efforts to consolidate forward, Joint Fire Services Committee provided reports in 1993 and 2003 to City Council and Humboldt Fire District boards, faced challenges to consolidate at those times.

Standards of Coverage study presented in 2007, this study was prepared by Citygate Associates.

Specific consolidation study presented in 2010, foundational document for JPA:

Included template JPA agreement and merger models. Consultant Gary to discuss what has changed in intervening years.

Why JPA Revisions

JPA agreement originally written to be adapted as conditions change. Designed in 3 phases with periodic revisions built in, 3 phases since accomplished.

Revisions in 2018 addressed what would happen with employees in event of dissolution of JPA, defined finance director and treasurer duties, revised budgeting process. These revisions were ratified by council and district.

Revisions in 2019 addressed excess revenue sharing and reserve apportionments, not ratified but put into practice.

Staff has been working to identify and address issues, including how to handle excess revenue and reserve allocation.

Goal of having full parent organization meeting is to engage all members in revisions, to ensure full understanding of how JPA functions. Ours is a unique entity, few other JPAs exist in California between fire districts and cities.

Outline planned by Fire Chief and Finance Director, began with 2x2 meetings with members from City Council and Humboldt Fire District Board. Feedback indicated meeting should focus on cost allocation ratio, as this decision will drive all other items. Staff worked with Citygate to develop best practices for this step.

Why are JPA, why to remain JPA

Reasons identified in 2010 study, hold true to today: redundant services only separated by political boundaries, cost savings with merged administration, enhanced customer service with fully merged operations, enhanced recruitment abilities, improved training and operational functions. City and Humboldt Fire District have been very successful together. Level of training, professionalism, and cohesion is much greater now than before consolidation.

Funding from parent agencies

City allocates from General Fund, primarily on revenues generated from sales tax. Humboldt Fire District pays from General Fund, from property tax and benefit assessment revenue. Each parent agency contributes; City 65%, District 35%, this rate is determined by current cost allocation ratio.

Current state of JPA

Minimum staffing currently is 56.5 FTE (one part-time inspector), down from 63 FTE. All reductions at chief level, from 2011, assistant and battalion chiefs.

2023-2024 budget is $10.3 million, with approximately $2.5 million in reserves.

Services now include incorporated medic program that was initiated on Humbolt Fire District side, enhanced capabilities for medical calls for service, make up approximately 60% of calls for service. Developed water rescue team and volunteer dive team, search and rescue, community CERT volunteer group, among others.

Cost Allocation Ratio

Presentation from Stewart Gary, Citygate Associates. Stewart is a retired fire chief and has worked with creating and dissolving unique JPAs in California.

Generically, two entities under JPA share something, and must determine how to allocate cost. Components to consider when determining allocation include calls for service, population, stations and staffing, assessed value can be used, but may be lopsided when comparing property values in rural versus urban areas.

Firefighting isn’t expensed by the times used, it is a safety blanket for the community and a standby service to be available for emergency, not provided to minimum number of calls.

Current components to cost allocation:

• Calls for service (double weighted)
• Population
• Personnel in stations
• Uncertain methodology for selection of current cost ratio, do not have complete historical data for this decision--staff could not find in digital or written archives

Blended rate in 2010 study recommended at 61%/39%, which is closer to the current suggested goal rate of 60/40 split.

Fire JPA Cost Sharing Common Practices

Viewed as fair for both hard costs and intangibles, and should stand test of time and common sense, can withstand evolvement of agencies

• Typical measures
• Population
• Assessed value
• Calls for service
• Counts of station, personnel

Blended measure formulas are common, and provide for differences in consumption of services

Financial Analysis Review

Staff built two models, JPA cost and standalone cost for City and Humboldt Fire District. Reviewed by Citygate, found models meet best practices.

Seven service cost ratios %/% (city/district), do include assumptions of what costs will be based on historical information

• General fire admin 100/100
• Battalion Chief FTE 62.5/37.5
• Some admin staff 33/67
• Line firefighter staffing 62.5/37.5
• Cost of payroll benefits 60.06/39.94
• Number of stations 60/40
• Number of incidents 72/28, this is an illustration of zoning as the city is denser than the Humboldt Fire District

Operational costs excluding shared or City overhead services, City is stretching existing overhead and personnel to meet JPA needs, and unable to quantify all costs. Citygate believes costs ratios are well grounded.

Using above metrics and adopted budget, total operational costs ratio 60.2/39.8. Divorce costs may not include costs of services that would need to be contracted by Humboldt Fire District. Requirements from state and federal governments for fire service minimum headquarters unit means that any headquarters has capacity to handle 8-10 stations. If there are only 2-3 stations, results in much higher duplicative overhead expense if JPA is severed.

Staff will continue to review finances and report

Financial Analysis Impact

Changing any cost allocation ratio in budget that is over $10 million means that small changes can have significant financial impacts. Going from 65%-35% cost sharing to 60%-40% is not likely in the short term. The purpose of this exercise is to determine most equitable split, and in the best interest to produce long-term financial plans to help understand the consequences of 60/40 ratio. The plan will produce a policy for capital reserves, a fund balance policy, and a pension policy. Staff will bring the report back for input and correction. After approval, bring to agencies for adoption

Questions

Councilmember Fernandez asked that, understanding issues with locating historical documents, were other alternatives considered besides JPA. Answer: three models were analyzed in consolidation study: JPA, annexation, contract for services. Contract for services shifts all control to one entity—prior to that there had been talks with Calfire, then known as CDF, but not aware of discussions with other service providers. The issue with contract is that shifts complete control to one entity and was not seen as a good outcome at the time. Annexation, of City by Humboldt Fire District, would not generate enough property tax revenue.

Director Williams asked for clarification of what a fund balance is. Answer: Fund balance is another word for ‘reserves’, money set aside for a rainy day.

Director Williams noted that there is a capital reserve policy and a fund balance policy, and asked if those were the same thing. Answer: One is dedicated to operations, the other is for replacing items like engines. The fund balance policy also is where to discuss how to handle excess revenue, which has been a source of inequity in the previous 7 years—no fair mechanism for how to handle excess. This policy would establish a fair mechanism.

Councilmember Fernandez asked where are cost adjustments would be made to move from the current 65/35 split to the goal of the 60/40 split. Answer: those decisions would be made in the building of the strategic financial plan. This discussion is for guidance, to bring the general proposal to both entities, and if everyone is open to the idea, staff would bring specific proposals for a transition plan incorporating policy and agreement revisions to the JPA for review, correction, and further direction. Specifically, there are adjustments on the Humboldt Fire District side that can be made, as well as the City side. Staff does not want to focus on details at this meeting, but instead come back and present the proposed plan. Plan would have options over 3 and 5 years. It is the opinion of staff and the consultant that this transition is doable, sustainable, and the long-term outcome would be better for both entities.

Councilmember Fernandez clarified the purpose of the meeting. Answer: Determine that the separate entities are okay with direction and work and thought put into work so far, that it is logical and can withstand tests of time. Additionally, these types of maintenance should be occurring more frequently down the road.

Councilmember Castellano asked if there had been projection of the different tax revenues into the future, and how this change in cost sharing would be affected in the future. Answer: that kind of projection would be part of the analysis presented to the JPA in the financial plan. Would look backwards to see what could be expected going forwards—not a perfect method but is best practice. With enough history, can get a good idea about growth for both parent entities

Councilmember Castellano noted that timeline would be related to analysis. Answer: Last three years have been challenging to establish projections into the future, issues at the county level with the Auditor-Controller's office have meant that budget projections have not been accurate. Luckily, inaccuracies have been in the favor of the Humboldt Fire District; have been receiving more funds than what had been budgeted for. Reviewing other tools to produce a better projection. Have not done a specific financial analysis for the JPA in the time of the organization, and the work done up to now has prepared to get to the place to start the work. Consultant added and clarified that what the staff is suggesting is best practices. Should renew and review cost allocation every 3-5 years. The district is a more constrained revenue ecosystem and should have 5-year projection and reserves policy to say that the JPA cannot charge more than Humboldt Fire District can afford, to also keep minimum safe reserves, and to replace or repair major equipment at regular intervals. Humboldt Fire District must be solvent to include those issues. If Humboldt Fire District has period where excess funds are collected, or there is a deficit of funds from a drop in property tax revenues, there should be policy to refer to. Staff will take strategic multiyear review of revenue, allocate reserves for emergencies separate from planned replacement of big-ticket items, and is part of multiyear model. Humboldt Fire District is constrained, cannot set tax rate year over year to respond to actual needs of JPA or Humboldt Fire District, and has fixed pool of parcels to generate revenue. If there is not a 5-year plan, the JPA would not know if they are spending too much cash.

Councilmember Castellano asked about the effects of changing wildfire in region, is there cost assessment of the needs to support the region in increased response to wildfire, is there a need to build up staffing or infrastructure to responding to greater need. Answer: on the local level, need to maintain capacity to respond to other areas to offer mutual aid. Are seeing effects of climate change, having more fires in the county, and more fires in more populated areas. Humboldt Fire District has a water tender and wildland engine, they are needed in outlying areas. Apparatus replacement is projected to meet increasing need. Working with Office of Emergency Services, OES is preparing for increased need, emergency shelters, and planning escape routes. Having global perspective of county’s capacities and needs will be relevant to the needs of the JPA

City Manager Slattery noted that the staff has worked very hard in the last few months together, is truly impressive and is appreciative of Director Millar and Chief Robertson. JPA Chair Wattle agreed

Councilmember Castellano asked if the members of the Humboldt Fire District agree about the proposed change in cost-sharing ratios. Vice Chair Murias responded that the change is necessary to keep the marriage of the two entities alive, and that it is inevitable. Chair Wattle noted that the Humboldt Fire District has more growth and growth opportunities than the City, and that the cost sharing allocation has not been revisited in that time and Chair Wattle is in support. Vice Chair Murias noted that the JPA has been in effect for 7 years, and it is time to review the cost allocations. Secretary Herbst believes that this is a good move, but would like to see numbers, and would like to make sure that any change is sustainable for both the District and the City. Director Williams noted that he has seen the population increase in the Humboldt Community Service District and describes it as an insignificant change and has reservations about adjusting the cost sharing beyond what the Humboldt Fire District can afford. Noted that Humboldt Fire District is losing fire staff to agencies that are paying more. He personally believes that the pay should be raised for fire staff and is concerned that would not be able to be accomplished by increasing cost allocation from Humboldt Fire District to JPA. Would also like to understand what portion of the City’s sales tax revenue is paid by Humboldt Fire District residents, and if that could be considered in the cost sharing portion. [Note: it is not possible to track which residents are paying what portion of sales tax; that is not information that is gathered by either the State, or by retailers who remit sales tax to the State for distribution.] Director Williams is not opposed but has concerns about sustainability and the abilities of Humboldt Fire District to meet increased costs. Chair Wattle responded to Director Williams that increasing the share of the cost of the JPA to Humboldt Fire District would not limit the ability to raise wages for fire staff, as the wages are an external cost, and the cost sharing is an internal cost. Chief Robertson noted that sustainability is a necessity for the JPA to function, and everyone would like to know what the numbers are, that is how the JPA will make decisions. Chief Robertson also noted that a transition plan is important, and that staff is not interested in creating a cost share that is not sustainable by either parent entity. What is being reviewed is opportunities for both parents to enable sustainability to be done in different ways. Staff will be able to present more information at the next regular JPA meeting and can take direction after that discussion. A goal of strategic financial plan is to provide competitive pay to employees. Chief Robertson is optimistic about the plans based on relationships that have been built, and the desire to codify the items that have not yet been codified.

Councilmember Bauer remarked that he appreciates and respects the work that has gone into the JPA to make an equitable path to fund the shared agency and understands that there is a long way to go still. Councilmember Bauer is concerned that discussion of how each entity spends their own tax revenue within each entity is a divisive issue and does not want to see that being brought into the discussion. Is confident that the agencies can work together to find the best way to fund the JPA.

Public question asked how often this would be revisited. Answer: the agreement would be revisited every 3 years. Have not happened since formation of JPA due to circumstances. Consultant also responded that erosion could happen in time spans, and that meeting every three years is a truing up of policies. Slattery also responded that setting policy is important for if there are points in the future where there isn’t the same type of relationships between staff, boards, and members.

Public comment noted that in the time since the JPA was established, no one who was in leadership at that time is in leadership now, and some items were taken for granted at that time. Had a lot of change in leadership in the time since. Now with stable board and city council, believes that the leadership sees the benefits of this merger. [Unintelligible comment]

Next Steps

Staff will bring plans to the JPA at the next regular meeting for review and direction.