HomeMy WebLinkAbout02/07/2006, C2 - 2005-07 COST ALLOCATION PLAN council �°°e
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CITY OF SAN LUIS OBISPO
FROM: Bill Statler,Director of Finance &Information Technology
Carolyn Dominguez,Finance Manager
Debbie Malicoat, Accounting Supervisor
SUBJECT: 2005-07 COST ALLOCATION PLAN
CAO RECOMMENDATION
Approve the 2005-07 Cost Allocation Plan.
DISCUSSION
Background
The City prepares a formal Cost Allocation Plan bi-annually to identify the total cost of providing
specific services in San Luis Obispo based on the two-year Financial Plan adopted by the Council.
As discussed in the plan, costs in virtually all organizations—both in the private and public
sectors—generally fall into two categories:
1. Direct Costs. Readily identifiable with a specific program, such as street maintenance, police
protection and water service.
2. Indirect Costs. Benefit more than just one program, such as finance, human resources and legal
services.
In order to identify the total cost of delivering services—both direct and indirect—some
methodology for determining and distributing indirect costs to direct cost programs needs to be
developed, which is the purpose of the Cost Allocation Plan: to allocate indirect costs in a
reasonable and consistent manner.
The introduction to the accompanying 2005-07 Cost Allocation Plan fully sets forth its purpose as
well as the methodology used in allocating indirect costs to direct cost programs. The basic
methodology used to prepare the plan has not changed since the Council approved the 2003-05
Cost Allocation Plan in February 2004.
Uses of the Cost Allocation Plan
Enterprise Fund Reimbursements. As noted in the introduction to 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 2005-06. In total, these amounts reflect a modest 3% increase
($115,000)from the 2005-07 Financial Plan estimate.
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2005-07 Cost Allocation Plan Page 2
2005-06 Reimbursement Transfers
Budget Actual Variance
Water 1,28.1,300 1,446,700 165,400
Sewer 1,195,100 1,213,400 18,300
Parking 466,900 418,800 (48,100)
Transit 301,800 280,800 (21.000)
Golf 109,000 117,100 8,100
Whale Rock 100.,100 1 92,400 1 (7,700)
Total $ 35454,200 $ 39569920-0 $ 115 000
While individual fund differences can be attributed to a wide range of changes, including increases
in the operating budgets of both direct and indirect programs, key differences from the 2003-05
Cost Allocation Plan are summarized below, which account for virtually all of the change:
Summary of Plan Chan es
ChangeFund Description
Water Fund ■ Increase in CIP Project Engineering 124,000
® Increase in allocation for cell phones 7,200
■ Decrease in General Finance allocation (16,100)
■ Adjustment for USA Marking Program 47,700
Sewer Fund ■ Increase in CIP Project Engineering 48,800
■ Decrease in Vehicle Maintenance allocation (14,100)
■ Decrease in General Finance allocation (11,300)
■ Decrease in allocation for Legal Services (2,600)
Parking Fund ■ Decrease in CIP Project Engineering (42,500)
■ Decrease in allocation for City Clerk services (8,000)
Transit Fund ■ Decrease in CIP Project Engineering (18,400)
Golf Fund ® Increase in allocation for City Clerk services 4,500
■ Increase in allocation for Legislation&Policy services 1,200
IN Increase in telephone and cell phone allocation 2,700
Whale Rock Fund ® Decrease in CIP Project Engineering (24,300)
■ Adjustment for Habitat Conservation Plan 15,000
Total 1139800
As reflected above, the most significant changes are in CIP project engineering, which reflect
changes in design, inspection and project management services. The most significant change is
in allocations to the Water Fund, which appropriately reflect its CIP workload.
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2005-07 Cost Allocation Plan Page 3
Attached is a detailed example of how the Cost Allocation Plan works using the Golf Fund as an
example.
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-133), the indirect cost rate established under our Cost Allocation Plan (35.1%for 2005-07)
can be used in recovering administration, legal, accounting, human resources,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 $35,100 for
the indirect costs we will also incur. We have already successfully used the Cost Allocation Plan
for two key grant programs:
1. Transit System. The U.S. Department of Transportation, Federal Transit Administration
(FIFA), 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. No significant changes have been made since then.
2. Community Development Block Grant (CDBG) Program. Under CDBG program
guidelines, we are eligible for administrative cost recovery of up to 25%of direct program costs
(or 20% of total program costs), The Cost Allocation Plan is one element of support for our
administrative cost recovery in this program.
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. The plan includes schedules
that set forth 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 significant cost
components that should be considered in determining the total hourly cost of staff services,
including:
1. Annual Salary. Generally based on the top of the salary range for each position (about 60% of
all City employees are at the top of their salary range).
2. Benefits. Retirement, workers' compensation, Medicare,.unemployment, group insurance and
other paid benefits.
3. Productive Hours. Annual regular hours (generally 2,080, except for sworn fire staff at 2,912
hours annually) less vacation, sick leave,holidays and break hours.
4. Citywide Indirect Costs. As set in the Cost Allocation Plan, services such as legal,
accounting, human resources,insurance and building maintenance.
5. Departmental and Program Administration and Support Costs. Support costs internal to
the operating departments (like records and dispatch in the Police Department) that are not
allocated as part of the Cost Allocation Plan.
2005-07 Cost Allocation_Plan Page 4
The introduction to the labor rates section of the plan fully describes the methodology used in
determining hourly labor rates. As noted in this introduction, while the Cost Allocation Plan itself
is updated bi-annually, labor rates are revised at least annually each July to stay current with salary
and benefit changes.
FISCAL IMPACT
As noted above, the 2005-07 Cost Allocation Plan results in an increase of 3% in reimbursement
transfers to the General Fund of$115,000 in 2005-06 compared with budget estimates. For 2006-
07, these reimbursements will be adjusted by an additional 2.5%, which is consistent with the cost-
of-living factors used in preparing the 2005-07 Financial Plan. If approved by the Council as part
of the 2005-07 Cost Allocation Plan, the revised reimbursements will be reflected in the Mid-Year
Budget Review scheduled for Council consideration on February 21,2006.
ATTACHMENT
Golf Fund Cost Allocation Example
ENCLOSURE
2005-07 Cost Allocation Plan (Copy available for public review in City Clerk's office.)
G:Cost Allocation Plan/2O05-07/Council Agenda Report
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ATTACHMENT
2005-07 cost at-Location plan
EXAMPLE - GOLF FUND
ProgramIndirect Cost.
Legislation& Policy Council Agenda Items $102,900 1.7% $1,700
City Administration Operating Budget 605,000 0.6% 3,700
Public Works Administration Work Load Analysis 1,018,100 0.1% 1,000
Engineering: CIP Mgt Work Load Analysis 1,335,900 0.0% -
Transportation Planning Work Load Analysis 496,400 0.0% -
Parks&Recreation Admin Work Load Analysis 620,700 5.0% 31,000
Legal Services Operating Budget 416,400 1.0% 4,000
City Clerk Services Council Agenda Items 398,800 1.7% 6,600
Human Resources Staffing("FTE's") 630,800 1.7% 10,600
Risk Management Staffing("FTE's") 1,056,500 1.7% 18,000
General Finance Operating Budget 701,600 1.0% 6,800
Payroll Staffing ("FTE's") 144,000 1.7% 2,400
Utility Billing Water&Sewer Funds 279,900 0.0% -
Business TaxtTOT Gen Fund Oper Budget 111,600 0.0% -
Infonnation Technology
Citywide Support Assigned Workstations 795,900 0.4% 3,000
Telemetry Water,Sewer,Whale Rock 139,900 0.0% -
Radios, Cell Phones, Pagers Assigned Equipment 446,000 0.4% 1,600
Telephones Assigned Telephones 242,700 0.9% 2,100
Copier Maintenance& Paper Operating Budget 29,300 1.0% 300
Postage Staffing ("FTE's") 47,900 2.3% 1,100
Ventures&Contingencies General Fund FTE's 90,000 0.0% -
Other Support Services Operating Budget 107,400 0.9% 1,000
Geographic Services(GIS) Work Load.Analysis 327,800 0.0% -
Building Maintenance Assigned Space 1,023,300 0.2% 2,500
Vehicle Maintenance Assigned Vehicle Value 682,500 1.5% 10,300
General Facilities Use Assigned Space 3,447,900 0.3% 9,400
General Equipment Use Assigned Equipment 449,000 0.0% -
TOTAL 1 15,748,200. 1 0.7% 117,100
Similar summaries for all direct cost programs are provided on pages 6 through 11 of the Cost Allocation Plan.
The Golf Fund accounts for 1.0% of direct program costs, compared with receiving 0.8% of allocated
indirect costs. The largest indirect cost allocation-department administration ($31,000)-accounts for
about 25% of the total indirect costs allocated in this example. We believe this shows that the Cost
Allocation Plan provides a "reasonable" basis for allocating indirect costs-which is its purpose: to
identify indirect costs,and to allocate them to direct programs in a logical and consistent manner.
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