HomeMy WebLinkAbout02/12/2008, C3 - 2007-09 COST ALLOCATION PLAN counat Mafi�D� 2-12-08
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CITY OF SAN LUIS O B I S P O
FROM: Bill Statler, Director of Finance & Information Technology
Debbie Malicoat, Finance Manager
SUBJECT: 2007-09 COST ALLOCATION PLAN
CAO RECOMMENDATION
Approve the 2007-09 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,
information technology,insurance 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 2007-09 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 2005-07
Cost Allocation Plan in February 2006.
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 2007-08. In total, these amounts reflect a modest 3.9% increase
($152,600)from the 2007-09 Financial Plan estimate.
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2007-09 Cost Allocation Plan Page 2
2007-08 Reimbursement Transfers
budget Actual Variance 1,502,700 1,391,600 (111,100)
Sewer 1,423,200 1,643,100 219,900
Parking 442,200 460,900 18,700
Transit 305,300 280,900 (24,400)
Golf 123,600 157,300 33,700
W hale Rock 1 97,500 1 113,300 1 15,800
Total $ 3 894 500 $ 4,047,100 $ 152 600
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 2005-07
Cost Allocation Plan are summarized below, which account for virtually all of the change:
SummarE of Plan Chan es
Fund . Description Amount'
-
Water Fund ■ Decrease in CIP Project Engineering (196,400)
■ Increase in Finance Utility Billing allocation 21,100
■ Increase in allocation for facilities use 34,900
■ Increase in Vehicle Maintenance allocation 22,000
Sewer Fund i Increase in CIP Project Engineering 157,600
■ Increase in Finance Utility Billing allocation 121,000
Decrease in allocation for Public Works Administration (46,900)
Parking Fund ! Increase in allocation for Building Maintenance 25,900
■ Increase in Human Resources Administration 9,300
■ Decrease in allocation for Public Works Administration (17,500)
Transit Fund i Decrease in Transportation Planning&Engineering (10,400)
■ Decrease in allocation for Public Works Administration (11,200)
Golf Fund ! Increase in allocation for Vehicle Maintenance 12,600
■ Increase in allocation for Building Maintenance 7,500
■ Increase in Information Systems Support 3,900
■ Increase in Human Resources Administration 3,500
Whale Rock Fund ® Increase in allocation for City Administration 3,300
Increase in allocation for General Finance 2,800
■ Increase in allocation for Vehicle Maintenance 7,100
Total 150,100
As reflected above, the most significant changes are in Capital Improvement Plan (CIP) project
engineering, which reflect changes in design, inspection and project management services. The
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2007-09 Cost Allocation Plan Page 3
most significant change is in allocations to the Sewer Fund, which appropriately reflects its CIP
workload. 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-87), the indirect cost rate established under our Cost Allocation Plan (36.1% for 2007-09)
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 $36,100 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
(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. No significant changes in methodology 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). The only key exception is Police
Officers, where salary is based on the fifth step of the range,not the top step.
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.
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2007-09 Cost Allocation Plan Page 4
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.
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 2007-09 Cost Allocation Plan results in an increase of 3.9% in reimbursement
transfers to the General Fund of$152,600 in 2007-08 compared with budget estimates. For 2008-
09, these reimbursements will be adjusted by an additional 4%, which is slightly higher than the
cost-of-living factors used in preparing the 2007-09 Financial Plan, but consistent with recent
increases in the Consumer Price Index. If approved by the Council as part of the 2007-09 Cost
Allocation Plan, the revised reimbursements will be reflected in the Mid-Year Budget Review
scheduled for Council consideration on February 19, 2008.
ATTACHMENT
Golf Fund Cost Allocation Example
ENCLOSURE
2007-09 Cost Allocation Plan (Copy available for public review in City Clerk's office.)
G:Cost Allocation Plan/2007-09/Council Agenda Report
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ATTACHMENT
2007-09 cost allocation plan
EXAMPLE - GOLF FUND
ProgramIndirect Cost
Legislation& Policy Council Agenda Items $133,900 0.5% $700
City Administration Operating Budget 683,300 0.8% 5,600
Public Works Administration Work Load Analysis 938,200 0.3% 2,800
Engineering:CIP Mgt Work Load Analysis 1,301,000 0.0% -
Transportation Planning Work Load Analysis 600,500 0.0% -
Parks& Recreation Admin Work Load Analysis 677,000 5.0% 33,900
Legal Services Operating Budget 463,500 1.0% 4,700
City Clerk Services Council Agenda Items 471,100 0.5% 2,500
Human Resources Staffing ("FTE's") 878,100 1.7% 14,600
Risk Management Staffing ("FTE's") 1,280,400 1.7% 21,500
General Finance Operating Budget 828,400 1.0% 8,300
Payroll Staffing("FTE's") 172,500 1.7% 2,900
Utility Billing Water&Sewer Funds 436,000 0.0% -
Business TaxiTOT Gen Fund Oper Budget 127,500 0.0% -
Information Technology
Citywide Support Assigned Workstations 1,042,600 0.7% 7,300
Telemetry Water, Sewer,Whale Rock 96,400 0.0% -
Radios, Cell Phones, Pagers Assigned Equipment 602,200 0.4% 2,400
Telephones Assigned Telephones 267,800 0.9% 2,300
Copier Maintenance& Paper Operating Budget 33,500 0.9% 300
Postage Staffing ("FTE's") 41,500 2.2% 900
Ventures&Contingencies General Fund FTE's 90,000 0.0% -
Other Support Services Operating Budget 86,000 1.0% 900
Geographic Services(GIS) Work Load Analysis 361,700 0.7% 2,500
Building Maintenance Assigned Space 1,124,400 0.9% 10,000
Vehicle Maintenance Assigned Vehicle Value 925,000 2.5% 23,400
General Facilities Use Assigned Space 4,445,100 0.2% 91800
General Equipment Use Assigned Equipment 436,100 0.0% -
TOTAL 18,543,700 0.8%1 157,300
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 ($33,900)-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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