REPORT TO COUNCIL
SUBJECT
Title
Action to Approve a Resolution Establishing a Citywide Payment Acceptance and Processing Fees Policy to Charge Processing Fees and Set Transaction Limits
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure
BACKGROUND
The City of Santa Clara (“City”) accepts payment cards, credit and debit, as a form of payment for most fees at eleven Point of Sale (POS) locations citywide: City Hall Municipal Services, City Hall Permit Center, Police Administration Building, Fire Permits Division, Central Park Library, Mission Branch Library, Northside Branch Library, Community Recreation Center, Youth & Teen Center, Senior Center, and Mission City Memorial Park. In addition to on-site locations, the City also offers customers the following payment methods online for utility bills, business taxes and fees, development related permits, police and fire related permits, recreation classes, and library fees and fines: (1) automatic credit card payment programs (auto-pay), (2) payment cards, and (3) eChecks.
The City also accepts other payment methods, including cash onsite, checks onsite and via mail, and electronic fund transfers directly to City bank accounts.
While payment card transactions have become an increasingly convenient option for customers, these transactions result in additional costs to the City due to the processing fees associated with accepting payment cards. City’s payment processing fees ten years ago (Fiscal Year 2014/15) totaled approximately $1.8 million and increased to approximately $2.2 million in Fiscal Year 2019/20. For Fiscal Years 2022/23 and 2023/24, payment processing fees totaled $3.9 million and $4.0 million, respectively, with the majority attributed to industrial and commercial utilities customers, followed by development related permit issuances, and business license applications and renewals.
Currently, the City absorbs all payment card and eCheck processing fees, with the exception of direct third-party Police-related parking and alarm online permitting portals pursuant to Adopted Municipal Fee Schedule (Resolution No. 24-9316) and Parks & Recreation activities-related fees pursuant to its Cost Recovery Policy (Resolution No. 22-9082).
DISCUSSION
After observing the increased use of payment cards and eChecks, and the corresponding rise in costs, staff recommends adoption of a citywide Payment Acceptance and Processing Fees Policy (Policy) to mitigate the growing fiscal impact of these costs. Staff analyzed City’s payment card transactions and researched other local public agencies’ practices and policies to formulate a solution to best recover payment processing costs.
City currently absorbs all payment card and eCheck processing fees charged by merchant services providers and Payment Brands (such as Visa, MasterCard, and American Express) totaling approximately $4.0 million on transactions of approximately $215.1 million in FY 2023/24, as follows:
Table 1: FY 2023/24 Payment Processing Fees
|
Transaction Type |
Gross Amount |
Fee Amount |
|
Utilities: Commercial/Industrial |
$ 125,496,025 |
$ 2,906,711 |
|
Utilities: Individuals |
62,657,503 |
440,112 |
|
Permit Center - Development Related |
21,142,148 |
567,133 |
|
Business Tax & License |
5,136,856 |
86,813 |
|
Cemetery |
624,388 |
8,653 |
|
Police |
82,763 |
1,202 |
|
Library (Main) |
8,165 |
240 |
|
TOTAL |
$ 215,147,848 |
$ 4,010,864 |
Under the proposed policy, processing fees will be applied on all payments made to the City using payment cards and eCheck with limited exceptions for donations and special events. To further lessen costs associated with this type of transactions, the Policy will establish transaction limits.
This Policy will benefit the City by eliminating approximately $4 million of processing fees per year and maximizing cost recovery. Additionally, it will provide equity to all payment cards and eCheck users and deliver consistency across all departments; and finally, it will help prevent fraud and manage abuses stemming from credit card usage.
Below is a summary of major service areas covered by the recommended Policy:
Table 2: Recommended Processing Fees Summary
|
Apply Processing Fee? |
Transaction Type |
City Service |
Examples |
|
|
|
|
|
|
|
YES |
Utilities |
Electric, Water, Sewer, Solar, Storm Drain, Fiber Optic, Recycling or Refuse |
- Residential, Commercial and Industrial Utility Bills |
|
|
YES |
Permit Center / Development Related |
Building Services, Fire Permits, Planning Services, Public Work Services |
- Building Permits |
|
|
|
|
|
- Plan Review Fees |
|
|
|
|
|
- Fire Annual Renewable Permits |
|
|
YES |
Taxes |
Business License Tax, Transient Occupancy Tax |
- Annual Business Tax |
|
|
|
|
|
- Monthly/Quarterly Transient Occupancy Tax |
|
|
YES |
General City Payments |
|
|
|
|
|
|
Library |
- Book Sales |
|
|
|
|
|
- Garbage Tags |
|
|
|
|
Triton Museum Special Permits |
- Outdoor Events |
|
|
|
|
Miscellaneous Payments |
- City Property Damage |
|
|
|
|
Parks & Recreation1 |
- Classes & Activities |
|
|
|
|
|
- Theater |
|
|
|
|
|
- Facility Rentals |
|
|
|
|
|
- Athletic Field Rentals |
|
|
|
|
|
- Cemetery |
|
|
|
|
Police |
- Parking Permits1 |
|
|
|
|
|
- Alarm Permits1 |
|
|
|
|
|
- Records |
|
|
|
|
|
- Fines & Citations |
|
|
NO |
Donations |
Various Services |
- Help Your Neighbor |
|
|
NO |
Parks & Recreation Payments |
Seasonal Events |
- Art & Wine Festival |
|
|
|
|
Special Events |
- Movies & Swim |
|
|
1 Credit card fees are assessed by third-party vendors utilized to manage classes, rentals, and ticket sales. |
|
|
Transaction Amount Limits |
Commercial |
Resident |
|
|
Minimum |
$5 |
$5 |
|
|
Maximum# |
$100,000 |
$7,500 |
|
|
#Maximum transaction limit does not apply to Cemetery and Industrial customers. |
The Policy will be implemented in phases to coincide with the City’s deployment of new customer portals and payment systems. Outreach to the community of each effected Municipal Fee area will start at least 60 days prior to Policy enactment, including but not limited to signage at City POS locations, mailers, bill inserts and notifications on the City’s website on impacted pages with payment instructions and online portal links.
Payment processing fees will be a fixed percentage applied to the total transaction amount, and will be clearly stated and itemized separately as its own charge on all payment receipts. Customers using a payment card or eCheck will be explicitly informed of all fees and offered the option to choose another payment method to avoid processing fees. Processing fees are paid directly to third-party merchant services providers, not to the City. Typical fee percentages range between 2.0% - 3.5% for payment cards and 0.15% - 1.0% plus $0.30 - $0.50 per transaction for eChecks.
The City will continue to offer existing payment options with no processing fees, including cash onsite, checks onsite and via mail, and electronic fund transfers directly to City bank accounts.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of a California Environmental Quality Act (“CEQA”) pursuant to section 15378(b)(5) of Title 14 of the California Code of Regulations in that it is an administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
Approval and implementation of the Policy will benefit the City an estimated minimum of $4.0 million of cost avoidance annually once fully implemented, with the largest in the Utilities Enterprise Funds ($3.3 million), followed by the Building Development Services Fund ($567,000), and General Fund ($88,000). The processing fee will also be incorporated into the City’s Municipal Fee Schedule.
COORDINATION
This report has been coordinated with the City Attorney’s Office and following departments: Community Development, Electric Utility, Fire, Information Technology, Library, Parks & Recreation, Police, Public Works, and Water & Sewer Utilities.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov> or at the public information desk at any City of Santa Clara public library.
RECOMMENDATION
Recommendation
Approve a Resolution Establishing a Payment Acceptance and Processing Fees Policy.
Staff
Reviewed by: Kenn Lee, Director of Finance
Approved by: Jovan D. Grogan, City Manager
ATTACHMENTS
1. Resolution
2. Payment Acceptance and Processing Fees Policy