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HomeMy WebLinkAbout04/16/1996, C-5 - COST ALLOCATION PLAN FOR 1995-97 CTCy Of San IUIS OBISPO MEE11 -DATE " sFROCOUNCIL AGENDA R PORT MEM NUMBER FROM: M: Bill Statler, Director of Finance Prepared by: Carolyn Dominguez, Accounting ManagerGD SUBJECT: COST ALLOCATION PLAN FOR 1995-97 CAO RECOMMENDATION Approve the cost allocation plan and enterprise fund reimbursements for 1995-97. DISCUSSION Background The City prepares a biannual cost allocation plan to identify the total cost of providing services to the citizens of San Luis Obispo based on the two-year Financial Plan adopted by Council. As discussed in the plan, City costs generally fall into two categories: direct costs - those that are readily identifiable with a specific program such as street maintenance, police protection, and water service; and indirect costs - those that benefit more than just one program such as finance, personnel, and legal services. In order to identify the total cost of delivery of services - direct and indirect - some methodology for determining and distributing indirect cost to direct cost programs needs to be developed, which is the purpose of the cost allocation plan. The introduction to the accompanying cost allocation plan fully sets forth its purpose, as well as the methodology used in allocating indirect costs to direct cost programs. Except for the addition of two new indirect cost areas established as part of the 1995-97 Financial Plan - geodata services and radio communications- the methodology used to prepare the plan has not changed since the Council approved the 1993-95 Cost Allocation Plan in February 1994. Enterprise Fund Reimbursements As noted in the cost allocation plan, one of its key uses is to determine the level of General Fund support to the enterprise funds,and to establish appropriate reimbursement amounts.The following summarizes the level of enterprise fund reimbursements calculated for 1995-96,which are within 3% of the estimated amounts reflected in the 1995-97 Financial Plan: 1995-96 Reimbursement Transfers Fund 1995-96 Budget 1995-96 Actual Variance Water 856,000 880,000 24,000 Sewer 682,600 707,400 24,800 Parkino 200.700 210.300 9.600 Transit 170,000 183,10013,100 Golf 76,700 87,400 10,700 Whale Rock 79,000 67,300 (11,700) Total Reimbursement 2,0657000 291359500 70,500 C-s-/ '"IIVNM�u►�u►I �� city of San LUIS OBISp0 COUNCIL AGENDA REPORT Grant Administration Recovering indirect costs related to administering grant programs is another key use of the cost allocation plan. Under federal cost accounting guidelines (Circular OMB A-87), the indirect cost .rate established under our cost allocation plan (34.2% for 1995-97) can be used in recovering administration, legal, accounting, personnel, building maintenance, and similar indirect costs that are incurred in delivering grant program services. For example, if we have identified $100,000 in direct grant program costs, we are allowed to recover up to $34,000 for the indirect costs we will also incur. We have already successfully used the cost allocation plan for two key grant programs: ■ Transit system. The U.S. Department of Transportation, Federal Transit Administration (FTA) reviewed and approved the 1993-95 Cost Allocation Plan in July 1995. The FTA approval is valid until there is a change in our accounting system, or the plan varies significantly from the rates approved in July 1995. ■ CDBG program. Under CDBG program guidelines, we are eligible for indirect cost recovery of up to 25% of direct program costs (or 20% of total program costs). The cost allocation plan fully supports this level of indirect cost recovery. Labor Rates The information provided in the cost allocation plan is also used as one of five cost factors in setting full-cost labor rates for City staff services. Provided in Appendix A of the plan is an excerpt from the City's Revenue Management Manual which sets forth City labor rates for each of the City's regular positions by functional area (public safety, public utilities, transportation, leisure, cultural & social services, community development, and general government). As reflected in these schedules, in addition to direct salary costs, there are other cost components that should be considered in determining the total hourly cost of staff services including: ■ Annual salary (except for Police officers as noted below, this is based on the top of the salary range for each position; 80% of all city employees are at the top of their salary range) ■ Benefits (retirement, workers' compensation, medicare, unemployment, and group insurance) ■ Productive hours (annual regular hours - generally 2,080 except for sworn fire staff-less vacation, sick leave, holidays and break hours) ■ Citywide indirect costs as set in the cost allocation plan (for services such as legal, ccounting, personnel, insurance, and building maintenance) ■ ;.;epartmental and program administrative costs The following summarizes how these five cost components are used in arriving at a full-cost hourly labor rate, using a Police Officer position as an example (first page of the labor rate schedules under "public safety" - page 44). 5-Z_ �����i�►I�IIIII��� ��III city of San lues OBISPO WN COUNCIL AGENDA REPORT Hourly Compensation The first step is to arrive at an hourly compensation cost (exclusive of organization-wide and departmental indirect costs) as follows: ■ Annual salary. In this case, this is $45,162 based on the 6th step of an 8-step range for a police officer (73% of the City's police officers are at step 6 or higher). ■ Benefits. The cost of benefits such as retirement, workers' compensation, medicare, and group insurance is added to the base salary. In this case, the total cost of benefits for a police officer is 50.6% of salary, for total compensation of $68,019. ■ Productive hours. To determine the hourly cost of services, we need to divide the total annual cost of salaries and benefits by the number of hours actually worked during the year. This is determined by taking the annual base of 2080 hours (52 weeks per year times 40 hours per week) and reducing it by paid time-off such as vacation, sick, and holidays. In this case, total productive hours in a year are 1,816, resulting in an hourly cost of $37.46 ($68,019 divided by 1,816). Indirect Costs Once the direct hourly compensation has been determined, we need to add the support costs incurred by the organization and the department. In the case of the Police Department,the cost allocation plan has identified $1,610,100 in organization-wide indirect costs for a ratio of indirect costs to direct departmental costs ($6,104,200) of 26.4%. In addition, we need to identify support costs internal to the department, such as dispatch, records, building maintenance, and department administration. This ratio of department support costs ($1,659,900) to direct costs ($4,444,300) is 37.4%.To avoid"double counting"for the same costs, the departmental indirect cost rate is only applied to "direct" positions; it is not allocated to "support" positions. Total Costs The full-cost hourly rate is then determined by adjusting the hourly total compensation cost (in this case, $37.46) by the organization-wide indirect cost rate (26.4%) and the departmental indirect cost rate (37.4%), for a total hourly cost of $65.01 per hour. FISCAL IMPACT As noted above, the 1995-97 cost allocation plan results in increased reimbursement transfers to the General Fund of $70,500 in 1995-96. Reimbursements for 1996-97 are adjusted by 3% which is consistent with the cost-of-living factors used in preparing the 1995-97 Financial Plan. S-3 ''���� ►►�nlllpn�lll�pl city of San tuts OBISPO COUNCIL AGENDA REPORT CONCURRENCES The cost allocation plan and labor rate schedules have been reviewed by department heads and fiscal officers. 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