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Unincorporated 94025 Program Fees: Exploring The Case For Change

Uploaded: Apr 1, 2014

It was just after midnight when Molly Kossow, a resident of the unincorporated Menlo Oaks area of Menlo Park, went to register her daughter for gymnastics and received the disappointing news that the class was completely full. Disappointed that his daughter would not be able to participate in her local city program (that she had taken before) with her school classmates, Molly's husband Jon sent a letter of inquiry to the City Council. After seeing a copy of Jon's letter to the City Council, I contacted the Kossows in an effort to jointly gather information and take a closer look at the impact of the current fee structure is having on unincorporated 94025 residents and to see if changes would benefit both city revenue and the sense of community in Menlo Park.

Background
Currently, there are two categories of registrants for Menlo Park city programs: residents and non-residents. Non-residents pay an extra 35% per class/ program that they wish to sign up for and are also subject to a 1 week waiting period for signups, giving incorporated residents their opportunity to first fill the class. The entire 35% surcharge goes to the city. Menlo Park considers unincorporated 94025 residents to be "non-residents" because, even though they live and shop within Menlo Park, they don't pay city fees. Roughly 17% of the property taxes they pay go to San Mateo County to pay for police services, etc. Their property taxes do, however, support the Menlo Park public school system, and the gymnastics class the Kossow's were trying to get their daughter into was designed for school-aged children. To be clear, even though a portion of the property tax paid by unincorporated 94025 residents flows to Menlo Park schools, they might as well be living in San Jose when it comes to enrolling in classes or camps.

I reviewed the activity guides and talked to the community services managers of Palo Alto, Redwood City and San Carlos and was surprised to learn that the 35% surcharge Menlo Park charges is approximately double what those local cities charge non-city residents. They average 15% for their non-resident surcharge. Even more intriguing was the fact that they treat their unincorporated residents as residents when it comes to signing up for classes and do not have any waiting periods. Palo Alto even permits Stanford, California residents who have children in the Palo Alto Unified School District to have resident status when signing up for programs. While one of their parks (Foothills) is limited to Palo Alto residents, unincorporated residents with the Palo Alto zip code are permitted. Los Altos does differentiate between incorporated and unincorporated, but only levies a flat $18 surcharge for each program. When I asked the community services heads from Palo Alto, Redwood City, and San Carlos the reasons why they chose to treat the two groups of residents the same, they gave two reasons: difficulty in managing the registration process (parsing within the same zip code) and the importance in creating a sense of community within the city.

Creating a sense of community is a highly worthwhile goal for a city government. Another important goal, however, is fiscal responsibility. On the heels of a comprehensive 2008 user fee study, Menlo Park adopted a complete "cost recovery" model, which prioritizes the city's financial health. The Community Services department has put a very deliberate focus on making programs self sustainable through the application of user fees versus receiving General Fund subsidies. Their efforts have been highly successful. Today, "youth programming" (which includes youth services, gymnastics and contract classes for kids) boasts a funding source split of General Fund / charges for services ratio of -18%/118%, -22%/122%, and -8/108% respectively. (This is much higher than adult classes and aquatics, which both have ratios of 35%/65%.)

Problems With The Current Structure
While the focus on cost recovery is a fiscally responsible thing to do, there are some unintended consequences that are having negative effects.

First, the 35% surcharge plus the penalty of a delayed registration wait time for unincorporated residents makes it difficult for unincorporated 94025 families to access and afford programs. A reasonable surcharge makes sense to make up for the lack of property tax revenue, but the delayed registration requirement serves as a penalty. With no "preferential" status in other cities, unincorporated 94025 residents are subject to being locked out of popular city programs altogether. For young families on a tight budget, the exorbitant cost of a 35% surcharge makes extracurricular activities through their city financially beyond reach.

That leads to 'a masked' problem for the city; Menlo Park may actually be losing out on potential revenue from those families who are forced to participate in another city's program or to not participate at all. Redwood City's relatively new SportsHouse programs have become quite successful. In a conversation I had with one of the program owners, he indicated anecdotally that many of their participants are from unincorporated areas of Menlo Park - families who found Menlo Park's programs too costly. That's lost opportunity with revenue leaving the city.

The third problem is the negative impact on Menlo Park small business owners. While Menlo Park certainly has many popular programs with waitlists-- gymnastics chief among them-- other programs have found the 35% surcharge negatively impacts their program capacity (and therefore is a lost opportunity for city revenue). Conversations with a number of the small business owners who run programs in Menlo Park confirm that the onerous size of the city's surcharge—particularly on unincorporated residents of Menlo Park who live within the key target market for these businesses—negatively impacts their revenue potential. For example, according to Kris Quintana, owner of a large martial arts program that holds classes at the Burgess Recreation Center, maximum capacity of her program is 160 students. Their current enrollment count is 82, just 51% of capacity. In breaking down her class rosters, Quintana states, "all told, I count 45 students who told me they would not be able to continue due to price. Most of these are Los Lomitas students who I had when they were in the lower level, less expensive classes. Once they hit the higher-level classes, that 34% surcharge had a huge impact. If we added them back in, we'd have 127 students and would be running at 79% capacity. That would not only better support my business, but would mean greater revenue to the city." Quintana so believes that the 35% is hurting her business that she has recently arranged to eat the cost herself; she will be lowering the percentage and paying for it out of her own pocket. It's clearly not an ideal solution, but it's a gamble she feels she has to make until a real solution can be found.

Interestingly—not all small businesses are being required to charge the 35% surcharge. Menlo Swim and Sport non-pool related classes (e.g. triathlon, fit classes, tennis) and camps do not carry the surcharge. When asked why that small business owner was not required to have the 35% surcharge (again, all of which goes to the City), the City responded that they had explored the possibility of those classes carrying the non-resident surcharge in 2011 but decided not to require the vendor to implement them, in part, due to the "potential negative impacts to business". This confirms our conclusion that the fees are discouraging business, reducing overall revenue and thus damaging rather than productive. Regardless of that, a consistent rationale and lower fees should be applied to all businesses– especially where capacity is low and vendors have indicated the surcharge is part of their low participation problem.

That takes us to the next step—crafting a win-win solution.

Getting To A Win- Win Solution
There are multiple ways the city can approach the fee issue. If the fees were cut in half for all non-residents and applicable to all classes and camps without the unfair imposition of a registration-waiting period, participation would rise, businesses would benefit and revenues would flow into the city. Maintaining a larger surcharge for non-94025 residents, but reducing the one for unincorporated Menlo Park could similarly achieve this result. Yet another approach might be to have unincorporated residents pay an annual fee. Incorporated Menlo Park residents pay approximately $130 per year / per household into the Community Services budget that comes out of the General Fund. Unincorporated 94025 residents could pay an annual surcharge or "program fee" to make up for their portion of the city's 1.6M resident contribution to the Community Services budget. In return, they could then have "resident" status in applying and playing for classes. Not only would the city make money off that annual fee, but also it might actually incent families to take MORE classes within the city to make that investment worthwhile. That increases volume and brings greater revenue to the city.

Getting to the right solution will take more analysis. The first step will be a willingness on behalf of the city to consider the opportunities.


Comments

Posted by Stu Soffer, a resident of Menlo Park: Linfield Oaks,
on Apr 1, 2014 at 11:49 am

Stu Soffer is a registered user.

There's a significant part of the calculus omitted - that is the 2001 Measure T bond measure, repaid through property tax levies to pay for the bonds intended to improve the aging recreation infrastructure. Burgess Park Pool, for example, was completely redesigned and overhauled as a result. Bond proceeds were used to touch improvements throughout Menlo Park City.

Web Link

Web Link

Returning to the issue of two-tier, or multi-tier recreation program fees for residents/non-residents, non-MP City residents (i.e., Menlo Park County or elsewhere), do not contribute to that levy. So it's arguable whether the 35% up charge on a program is comparable to $100's / year in the bond contribution.



Posted by Stu Soffer, a resident of Menlo Park: Linfield Oaks,
on Apr 1, 2014 at 11:49 am

Stu Soffer is a registered user.

There's a significant part of the calculus omitted - that is the 2001 Measure T bond measure, repaid through property tax levies to pay for the bonds intended to improve the aging recreation infrastructure. Burgess Park Pool, for example, was completely redesigned and overhauled as a result. Bond proceeds were used to touch improvements throughout Menlo Park City.

Web Link

Web Link

Returning to the issue of two-tier, or multi-tier recreation program fees for residents/non-residents, non-MP City residents (i.e., Menlo Park County or elsewhere), do not contribute to that levy. So it's arguable whether the 35% up charge on a program is comparable to $100's / year in the bond contribution.



Posted by Erin Glanville, a resident of Menlo Park: Menlo Oaks,
on Apr 1, 2014 at 12:35 pm

A very fair point Stu. I would argue that we still run into the issues I described. Too high of a surcharge results in lower capacity so less revenue into the city to pay back those bonds. Its worth investigating to see if we could arrive at a better solution for the city, small business owners like the example given, and local residents.


Posted by Stu Soffer, a resident of Menlo Park: Linfield Oaks,
on Apr 1, 2014 at 3:29 pm

Stu Soffer is a registered user.

The Measure T recreation bonds are paid back directly by property owners - not the city - on your yearly property tax statements.


Posted by Erin Glanville, a resident of Menlo Park: Menlo Oaks,
on Apr 1, 2014 at 3:55 pm

That's true and I should not have added "pay back the bonds". I still maintain that there are several problems and areas of lost opportunity. Is there an aspect to this you find of interest for the city to investigate?


Posted by Stu Soffer, a resident of Menlo Park: Linfield Oaks,
on Apr 1, 2014 at 4:30 pm

Stu Soffer is a registered user.



Not in the dialogue thus far is the anomaly created by the privatization of the Burgess Pool operation, and the 'feature creep' into privatization of the Tennis Courts. It's my understanding that pool fees may not be tiered, or minimally tiered for resident/non-resident. if so, there's no reason this could't fixed to be consistent with other public programs. As the revenue of the pool goes to the private operator, the non-resident differential should go the the city. Remember, its the city who makes these rules - or should. And its the MP resident property owners that paid for the new pool.

But I digress.



Posted by Stats, a resident of Menlo Park: South of Seminary/Vintage Oaks,
on Apr 1, 2014 at 11:04 pm

Erin,

You raise some important questions about how best to build a closer community while getting the most out of our community programs. I'm sure the city could look at mix of residents and non-residents per activity, plus utilization to model possible revenues with a smaller surcharge. The current surcharge seems little high, though compared to Menlo residents paying the 500$-1000$ yr. levy for Measure T, the non-resident pricing may actually be a better deal. I don't see the one week registration preference as a big deterrent.


Posted by OneBDay, a resident of Woodside: Emerald Hills,
on Apr 2, 2014 at 1:20 pm

The residents of Menlo Park should not be separated by incorporated/unincorporated. That is just foolish. If your home address is recognized by the USPS as Menlo Park, you live in Menlo Park. It is a really simple concept! It seems as if the politicians of Menlo Park create their guidelines as they see fit and without true transparent guidelines.

Why would Menlo Swim be the ONLY company that does not have to charge a surcharge? Why would a private company get near sole proprietary control of a public pool paid for by all Menlo Park residents? Why does Menlo Swim continue to receive special, and highly profitable, treatment? With the current set up, the incorporated Menlo Park residents are paying double for Menlo Swim open swim. All MP residents had to pay for the Measure T bond, and a non-resident fee when they go for open swim, doesn't seem to be fair.

The City of Menlo Park need to either: 1) no longer penalize unincorporated MP residents or 2) Have ALL companies charge the unincorporated rate. This is called transparent..


Posted by Peter Carpenter, a resident of Atherton: Lindenwood,
on Apr 2, 2014 at 6:22 pm

Peter Carpenter is a registered user.

It is illogical to talk about a sense of community when the residents in the unincorporated areas are not residents of the City of Menlo Park. It those residents wish to be part of the City of Menlo Park then they should petition the Local Area Formation Commission (LAFCO) to become part of the City of Menlo Park and have the issue put to a vote of the residents.

Web Link

A community should not be defined by the US Postal Service. Remember that Atherton used to be part of 94025 - what happens if the USPS decides to further subdivide 94025? That is not a logical way to make local government decisions.


Posted by John R., a resident of Menlo Park: Fair Oaks,
on Apr 2, 2014 at 6:32 pm

Thanks for thinking of the "Unincorporated Folks", we live here too! I hope that we can come to an agreement, seems like our fees are higher than other neighboring towns who also have these fees. Thanks Erin!


Posted by Peter Carpenter, a resident of Atherton: Lindenwood,
on Apr 2, 2014 at 7:29 pm

Peter Carpenter is a registered user.

" Defining ourselves by ZIP code rather than metropolitan region, county, or even city diminishes the sense of the commonwealth. "

The Tyranny of the ZIP Code
They don't just locate us. They define us
BY ANNA CLARK


Posted by Wow!!!, a resident of Menlo Park: Fair Oaks,
on Apr 3, 2014 at 9:32 am

YOur continued bias against the pools that you have because of your affilation SOLO has once again reared its ugly head. You are not to be taken seriously. Please clearly state your biases when you write your stories.

Furthermore, you are taking ridiculous leaps of fantasy when you state that unincorporated residents taxes go to the MP school district and that gymnastics classes are designed for school age children. The City of Menlo Park is a completely seprate entity and you are conflating two separate things and trying to tie them together to make your story more compelling.

Shame on you on both counts.


Posted by Erin Glanville, a resident of Menlo Park: Menlo Oaks,
on Apr 3, 2014 at 11:23 am

I stated a fact: Menlo Swim runs non-pool programs (e.g. tennis) that does not carry the 34% charge. When I asked the city why the difference, the City responded that they had explored the possibility of those classes carrying the non-resident surcharge in 2011 but decided not to require the vendor to implement them, in part, due to the "potential negative impacts to business". The City is correct, it does hurt some businesses. I am asking the question why should the same rationale not be applied to other business owners. Especially, where there is clearly low capacity. Increase capacity will lead to more revenue for the City of Menlo Park.

Regarding the taxes, residents of Menlo Oaks and unincorporated West Menlo property taxes go to support Laurel, Hillview, Las Lomitas, La Entrada and Menlo-Atherton High School. The North Fair Oaks unincorporated property taxes support the Sequoia Union High School District.


Posted by West Menlo Parent, a resident of Menlo Park: University Heights,
on Apr 3, 2014 at 11:34 am

West Menlo Parent is a registered user.

While the surcharge for non-residents is a little high, I'm okay with it. The week delay is the problem we face and one I hear about from many other families in unincorporated Menlo Park. Our kids attend the same schools as their friends who live in incorporated Menlo Park (Las Lomitas) yet get shut out of classes (esp. gymnastics). Given that we are paying extra and we are members of the MP community, registration for us should not be delayed by one week.

I understand that doing so means that those in incorporated MP may not get in sometimes, but it's the right thing to do when thinking about the community. Also consider that if our kids attend these classes, the parents and caregivers are likely to spend money in MP at shops and cafes after class. Otherwise that money will go to other cities where they are able to register their children. That is a lost revenue opportunity. The flip side is that if my daughter's good friend gets into a class in MP but mine does not, her friend's mother will switch her to a non-MP class so that the girls can be together. Another lost opportunity for the city and sense of "community".

The other option often discussed is to create additional sessions for high demand classes, but I haven't considered the cost/effort of doing so. At a high level, this may accommodate the needs to both incorporated and unincorporated residents.


Posted by fwiw, a resident of Woodside: other,
on Apr 3, 2014 at 11:45 am

> The week delay is the problem we face

The problem is that is that for classes which are full to capacity, it's a zero sum game. Somebody is not going to be able to attend. Stu S seems like he has a pretty good point that the one with priority should be the resident who is directly actually financing the bond measure which built the facilities.


Posted by hockeyite, a resident of Portola Valley: other,
on Apr 3, 2014 at 12:47 pm

As a non-resident, I'm an outsider. The economic equity needs addressing ; does one support the program with taxes or increased fees ? That can be resolved so everyone feels whole. The real bummer is to penalize the children and prevent them from continuing in a program IN their community. MP is their home too, waiting for one week to be enrolled effectively locks them out. The waiting period would be more understandable if the applicant were from a neighboring community not within Menlo Park.


Posted by Peter Carpenter, a resident of Atherton: Lindenwood,
on Apr 3, 2014 at 1:11 pm

Peter Carpenter is a registered user.

"MP is their home too"

This is an oxymoron - unincorporated areas are just that NOT incorporated into a local jurisdiction. What is so hard to understand about that?

Citizenship has both responsibilities and privileges and citizenship in the City of Menlo Park requires that you LIVE in the City of Menlo Park.


Posted by Erin Glanville, a resident of Menlo Park: Menlo Oaks,
on Apr 3, 2014 at 1:57 pm

Peter,
I want to acknowledge your points. Some communities make a choice to treat unincorporated and incorporated the same in order to foster a better sense of community (vs. a formal one). Of course, part of that is also to make it easier on their registration process. In the case of Palo Alto, they see a benefit to having kids who are from Stanford CA but go to Palo Alto schools be able to register with their classmates for Palo Alto city programs. Again, that is a choice they make and they see a benefit that makes up for the costs.

I've outlined what I see as the costs of our system and ask whether or not there might be some advantages to making changes. I believe there are and it is worthy of reviewing. I recognize that a sense of community is an emotional benefit. For me, it is worthwhile and I believe it translates into behaviors (e.g. Shopping locally ) that help keep Menlo Park financially healthy. We may disagree but I appreciate the distinction you are trying to make clear.


Posted by City of MP taxpayer, a resident of Menlo Park: Central Menlo Park,
on Apr 5, 2014 at 4:57 pm

Please don't confuse the school districts with the city of menlo park. They are not the same at all.

A surcharge makes sense. Non-residents don't pay like city of mp taxpayers do for the recreation bond measures, the city infrastructure, or to fill the city general fund. I do not know what amount makes sense but the fees in total should pay for the programs.

A registration delay is fair for the above reasons, too. If the capacity is inadequate, work on that.

The city should implement consistent policies regardless of whether the city administers the programs or a for-profit vendor like Swim Menlo does. And the residents of the city should benefit from the surcharge, not the vendor. Otherwise, the vendor would have an incentive to favor non-residents.


Posted by eat your cake too, a resident of Menlo Park: Felton Gables,
on Apr 5, 2014 at 7:00 pm

This has nothing to do with community. On a day-to-day basis, there's no difference between MP and unincorporated residents. Our kids go to the same schools and play on the same sports teams; we run into each other at the grocery and farmers' market. There is no us vs them, much as some of you might like to conjure up a rivalry.

Looking at my prop taxes, a chunk of extra $ goes to MP. That's in addition to the % of the property tax that the city already gets. So, yeah, when it comes to city programs and facilities, I don't have a problem with that.

Here's a solution that may have already been suggested and I missed it: offer unincorporated residents the opportunity to pay $x/year to be equivalent to MP residents -- signing up at the same time and paying resident rates. Seems like that would be a win all around and would be fair for everyone.

By the way, Menlo Swim should not be exempt from imposing the additional fees. No wonder the masters classes are filled with Atherton residents -- it's the best deal in town. Time for all of us taxpayers to stop subsidizing Tim Sheeper's private business.


Posted by Unincorporated Resident, a resident of Menlo Park: Menlo Oaks,
on Apr 12, 2014 at 2:43 am

Erin, you provided funding source splits for these programs in your original post. Are you saying that the fees from "youth programming" put money back into the General Fund? The format was a little confusing. But as I interpret it, you are saying that the gymnastics program receives 122% of its funding from charges to its participants.


Posted by Erin Glanville, a resident of Menlo Park: Menlo Oaks,
on Apr 12, 2014 at 9:02 am

Unincorporated,

I'm sorry if it was confusing. You are correct-- gymnastics receives 122% of its funding from charges to its participants. That does not mean that the 22% goes back into the General Fund. I asked the Assistant Manager for Community Services about this and here is his reply:

"Please keep in the mind that simply because a program is over 100% doesn't mean that it is "generating revenue" for the City. Many of the overhead costs for the departments that support these programs (including Finance/Payroll, Public Works/Maintenance, HR, IT, Capital Improvements Projects, Debt Repayment for facilities, etc) are not included in the direct program budgets. A consultant-led study estimated these overhead expenses to be, on average, approximately 24%. Therefore, not until the program exceeds 124% is it fully breaking even or "generating revenue". You'll note that no community services programs are at this point."


Posted by Menlo Park supporter, a resident of Atherton: West Atherton,
on Apr 12, 2014 at 1:51 pm

Many kids who live in Atherton also live within the Menlo Park City School District boundaries and attend the MPCSD pubic schools, which includes schools based both in Menlo Park AND Atherton. Given we have no retail in Atherton, we default to Menlo Park as our home town. As a matter of fact, we live so close to downtown that we walk in to town multiple times each week to have dinner, shop etc.

The town of Atherton has no Gymnastics facilities so we immersed ourselves in the Burgess program (our girls had been doing gymnastics at Burgess from the time they were toddlers). Just as those residents in the unincorporated areas of Menlo Park,we also have no "preferential" status in another city when it comes to Gymnastics and many other programs not offered in Atherton. AND, more importantly, our girls have wanted to do this activity with their MPCSD classmates.

We completely understand that because we don\\\'t pay Menlo Park property taxes, an upcharge is reasonable. However, the delayed registration policy is deeply dismaying. It\\\'s really tough on a young kid to hear that she can\\\'t do a sport with her close classmates who she\\\'s attended school with her whole life because she lives on one side of Valparaiso instead of the other, or to hear that although she was in the class last session, she can\\\'t continue on this session because she was locked out.

I hope that if any special considerations are made for those who live in the unincorporated areas, that these same considerations will be made for those who live in Atherton. We have the same circumstances: We support Menlo Park establishments and add to the sales tax base because we don\\\'t have retail of our own, our kids go to the same MPCSD schools and we don\\\'t have our own home town recreation program with gymnastics.


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