Memorandum
City of Lawrence
Planning & Development Services
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TO: |
Scott McCullough, Director, Planning & Development Services
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FROM: |
Barry Walthall, Building Codes Administrator
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CC: |
Margene Swarts, Asst. Director, Planning & Development Services
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Date: |
March 29, 2010
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RE: |
Budgeting Issues, Contractor Licensing Program
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This report is intended to evaluate the City’s licensing program for building contractors and identify possible program improvements. Because of the challenge with budgeting for contractor continuing education costs, and because any significant changes to the program will likely affect the City’s budgeting process, the primary focus for evaluation is on issues that impact the budget. This evaluation will include the licensing process, program fees, continuing education and licensing regulations found in Chapter V, Article 15 of the City Code.
Licensing Process
The contractor licensing program began in July 2005. To qualify for licensure an applicant must prove their credentials, experience, and possession of liability and workers compensation insurance. Acceptable credentials include any one of the following:
The application includes a “work experience” affidavit for the applicant to document experience. Certificates of insurance, with the City of Lawrence listed as a certificate holder, are required to confirm possession of appropriate insurance.
Contractor licenses are issued on a calendar year basis to expire on December 31st of each year, and the department is required to send renewal notices to each license holder no later than November 1st of each year. To be eligible to renew, every licensee must demonstrate continued insurance coverage, and document completion of a minimum of eight hours of continuing education relative to the construction industry.
Program Fees
The City Code currently sets the contractor license fee to be $200. At the inception of the program, decisions were made that allowed for differing fees dependent on circumstances under which licenses may be approved, principally determined by the number of continuing education hours the City would be paying for a particular contractor.
The standard $200 fee is collected for the typical contractor that has a single qualifying party and does not possess a Johnson County Contractor Licensing Program (JCCL) license. Under this circumstance, the City anticipates paying for eight hours of training at a cost of $135. For contractors with multiple qualifying parties, $200 is collected plus $135 for each additional qualifying party in excess of one; a license with two qualifying parties is $335, a license with three qualifying parties is $470, etc.
Alternatively, contractors with JCCL licenses receive training that is included in the cost of their JCCL license and thus it was perceived the City was “double dipping” by charging the full license fee for these dual JCCL/Lawrence licensed contractors. Under this circumstance, and with proof of the JCCL license, staff collects $65 rather than the standard $200 because the City does not incur the expense for education.
To date, this practice has seemed logical and has been well received by dual JCCL/Lawrence licensed contractors as well as the Lawrence Home Builders Association; however, it has caused confusion during the annual renewal period. This confusion has resulted in delays of license renewals pending receipt of the correct payment amount. Additionally, it may not be equitable for non JCCL-licensed Lawrence contractors that receive their education hours from JCCL programs. These contractors pay for education that they are not receiving. Staff frequently receives inquiries from contractors regarding the discounted rates for these dual license holders, and experiences occasional difficulty communicating this reasoning. Separating education costs and implementing a uniform license fee would reduce confusion and delays and improve customer satisfaction.
The City should also consider other types of fees not currently collected, particularly license application fees and exam sponsorship fees.
There is currently no fee for applying for a license. For trade licenses, and in the past for mechanical, electrical, and plumbing contractor licenses, first year license fees are/were higher than renewal license fees to reflect the staff review needed to verify an applicant’s credentials. This may involve contacting past employers, researching other jurisdictions or States licensing programs for comparison to the Lawrence program, contacting insurance companies and testing agencies in addition to normal administrative work associated with renewal of licenses. Costs for administration of the program exceeded revenues created in 2009, as demonstrated elsewhere in this report. An application fee for new licenses would partially or fully offset any shortfall. Another benefit of charging an application fee would be to ensure applicants are earnest about the application, and would more likely be able to demonstrate appropriate credentials for approval.
One of the acceptable credentials for eligibility for a license is successful completion of a certification exam. The City sponsors candidates for exams and currently does not collect fees for this service. The process involved with exam sponsorship includes review of applicants’ credentials to confirm eligibility, completing relevant portions of the exam registration form, receiving exam results and notifying applicants, issuing certification cards for successful applicants, and maintaining a database of exam scores. Staff estimates around 125 applicants are sponsored annually. Staff is aware of only one other jurisdiction that provides this service for free; other jurisdictions typically charge fees up to $50. Prior to 2002 the City charged $15 to sponsor candidates for certification exams.
The following table provides a listing of current and proposed fees, along with comparison of fees collected by other Cities for similar services:
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Jurisdiction |
Contractor License Fee (Annual) |
Contractor License Application Fee |
Exam Sponsorship Fee |
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Lawrence |
$200 |
$0 |
$0 |
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Lawrence Proposed |
$65 |
$50 |
$50 |
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Johnson County |
$200 |
$100 |
$50 |
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Topeka |
$103-$403 |
$50 |
$50 |
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Wichita |
$100-$400 |
$30 |
$25 |
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Salina |
$60 |
$0 |
$0 |
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Manhattan |
$100 |
$0 |
$5 |
Staff recommends separating education from license fee collections and implementing a uniform contractor licensing fee of $65. Additionally, staff recommends implementing a contractor license application fee of $50, and an exam sponsorship fee of $50.
This fee structure would result in reduced gross revenue, but would eliminate expenditures for contractor education. This is theoretically “budget neutral”, but in reality reduces revenues slightly because not all contractors take advantage of continuing education paid for by the City. However, it does relieve the City of the commitment, and budget uncertainty, of having to provide funds for contractor education.
A comparison of revenues utilizing both the existing fee structure and proposed fee structure for 2011 is estimated to be as follows:
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Contractor Education Fees |
Contractor License Fees |
License Application Fees |
Exam Sponsorship Fees |
Contractor Education Expenses |
Projected License Revenue |
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Current Fee Structure |
$84,375 |
$43,875 |
0 |
0 |
$65,000 |
$63,250 |
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Proposed Fee Structure |
$0 |
$43,875 |
$5,000 |
$6,250 |
$0 |
$56,625 |
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Difference |
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$6,625 |
Continuing Education
Contractor licenses are issued to a contracting company, with one or more “qualifying parties” listed as license holders. Every qualifying party is required to complete at least eight hours of continuing education each calendar year.
Since the inception of the contractor licensing program in 2005, the City has had an agreement with Johnson County Contractor Licensing (JCCL) to provide continuing education for Lawrence license holders. JCCL provides annual continuing education covering a wide range of construction and code related topics at bi-annual seminar programs in the spring and fall of each year. These seminars have been held at the Overland Park Convention Center, and have included dozens of courses over a three- or five-day time period. Instructors are typically either nationally recognized code experts, local trainers with appropriate credentials, or experts in specific subject matter. Reviews of the training programs have been generally positive.
The City has been paying for Lawrence licensed contractors to attend the JCCL training at the rate of $16.66 per hour, which is approximately $135 for eight hours of training. This cost has been passed on to the license holder as part of the license fee.
Staff recommends exploring alternatives to the current arrangement with JCCL to provide for contractor education. The current system creates confusion for contractors about when education costs will be paid by the City and when they must be paid by the contractor. The program was established with the intent that only JCCL would be providing education for Lawrence contractors, and other sources would not be accepted. With the prevalence of continuing education requirements for contractors and tradesmen in Kansas the last two years, acceptable alternative training has become more available. By removing the City as the “middle man” for payment of education fees to JCCL, more opportunity would be created for contractors to select the training best suited for their individual needs.
Perhaps the biggest improvement that could be made to the licensing program would be to provide consistent annual continuing education opportunities locally. To date, opportunities for contractors to obtain continuing education without traveling outside the City of Lawrence have been limited. The Building Safety Division coordinated a seminar on the 2006 International Residential Code in December 2007 and partnered with the Midwest Code Institute and C&M Enterprises on a program on plumbing, mechanical, electrical, and residential codes in December 2009. Both programs were successful, and attendees were very pleased with not having to travel to receive education.
Disassociating the collection of fees for contractor education from the license fee structure will encourage private education providers to enter the Lawrence continuing education market. Staff will work to encourage local continuing education opportunities by working with vendors to provide City “sponsored” education. By sponsoring education programs the City can participate in the selection of education topics and instructors without investing resources other than minimal staff time and effort.
Revenues vs. Expenditures
Annual revenues and expenditures for the licensing program are provided in the following table:
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Year |
License and Cont. Ed. Fees |
Cont. Ed. Expenditures |
Program Admin Costs |
Net Revenue |
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2006 |
$95,180 |
$41,973 |
$65,142 |
$(11,935) |
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2007 |
$106,175 |
$34,785 |
$65,956 |
$5,434 |
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2008 |
$123,365 |
$45,659 |
$64,875 |
$12,831 |
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2009 |
$117,803 |
$63,035 |
$63,554 |
$(8,786) |
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2010[1] |
$115,000 |
$63,450 |
$65,000 |
$(13,450) |
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2011[2] |
$56,625 |
$0 |
$65,000 |
$(8,375) |
Staff estimates that resources approximately equal to .7 FTE are expended annually to administer the City’s licensing program. This includes processing license applications and license renewals, sponsorship of certification exams, working with insurance and continuing education, other administration, overhead and enforcement. Referencing data contained in the 2009 Year End Revenues and Expenditures Report on the regulation of building activity, the approximate cost of resources expended per FTE was $90,792 (total expenditures of $785,353 divided by 8.65 FTE assigned to regulation of building activity, multiplied by .7 FTE estimated resources expended). Therefore it is estimated that total expenses related to administration and enforcement of licensing regulations for 2009 was approximately $63,554. Using this methodology, expenditures for licensing administration and enforcement exceeded revenues by $8,786. The same methodology was used to calculate net revenues for program years 2006 through 2009 as shown in the table below.
Not all contractors take advantage of the JCCL education program for which fees are collected. There were 688 contractor licenses of all types issued in 2009. If all eligible contractors had attended JCCL training at the City’s expense in 2009, the amount expended for continuing education would have been about $92,880, or 146% of the amount actually expended, and 79% of license revenues. These funds collected but not expended could be considered to offset the shortfall. However, the number of contractors taking advantage of this education opportunity has increased, and we anticipate this gap in expenditures over revenues will also increase in the future.
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2006 |
2007 |
2008[3] |
2009 |
2010[4] |
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# of Licensed Contractors |
397 |
405 |
715 |
688 |
675 |
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# of Contractors w/education paid by the City |
310 |
257 |
338 |
466 |
470 |
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# of Contractors Eligible for Payment by the City |
397 |
393 |
621 |
517 |
515 |
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Maximum City Commitment for Contractor Education Expenditures |
$53,595 |
$53,055 |
$83,835 |
$69,795 |
$69,525 |
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Actual Contractor Education Expenditures |
$41,973 |
$34,785 |
$45,659 |
$63,035 |
$63,450 |
In addition to other benefits discussed in this report, disassociating contractor education expenses from the fee structure would also simplify the budgeting process. Currently, budgeting for contractor education is an inexact science, and because the City has a commitment to pay for education regardless of the amount budgeted, there is potential for expenditures to exceed funds budgeted (but not fees collected). The above table indicates a trend of increasing expenditures for education despite stable or declining numbers of licenses issued. Staff believes the main factors contributing to this trend are increased awareness of contractors that the training is available as part of their license fee, and increased availability of local training.
Summary
There are a number of recommendations in this report intended to address equity for contractors that may be double paying for education, eliminate confusion, allow for improvements in the license approval process, and more directly account for monies collected and expended, which may be implemented with little budgetary impact or increase in workload:
1. Disassociate costs for contractor education from the license fee structure and collect a contractor license fee of $65.
2. Discontinue the practice of paying for contractor education through JCCL.
3. Implement a license application fee of $50 for applicants for new licenses.
4. Implement an exam sponsorship fee of $50 to cover the cost of administrative review of sponsorship applications.
Additionally, there may be code changes required to implement these recommendations. If these changes are approved during the budget process, staff will draft the relevant code changes for eventual approval by the City Commission.
Staff has discussed these concepts with the Lawrence Home Builders Association and understands that the association supports the concepts outlined in this memo. While the city is disassociating education with licensing in the program, the city remains committed to working to bring education in a consistent manner to Lawrence for the benefit of the contractors. We believe we can do that without including continuing education as a component of the licensing program.