HomeMy WebLinkAbout02/02/2010, C6 - 2009-11 COST ALLOCATION PLAN council M=W*D=
2-2-10
j acenaa nepoRt 1�Nmba CX
CITY OF SAN LU 15 O B I S P U
FROM: Bill Statler, Director of Finance& Information Technology
Sallie McAndrew, Accounting Supervisor
SUBJECT: 2009-11 COST ALLOCATION PLAN
RECOMMENDATION
Approve the 2009-11 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 2009-11 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 2007-09
Cost Allocation Plan in February 2008.
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 2009-10. In total, these amounts reflect a modest 3% decrease
($142,800) from the 2009-11 Financial Plan estimate.
2009-11 Cost Allocation Plan Page 2
2009-10 Reimbursement Trans ers
Fund Budget Actual Variance 1,524,500 1,669,300 144,800
Sewer 1,789,700 1,438,400 (351,300) i
Parking 500,400 538,500 38,100
Transit 300,700 350,200 49,500
Golf 169,700 168,300 (1,400)
Whale Rock 1 121,800 1 99,300 1 (22,500)
Total $4,406900 $4,264,000 $142 800
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 2007-09
Cost Allocation Plan are summarized below, which account for virtually all of the change:
Summary of Plan Chan es
ChangeFund bescription Amount Fund ■ Decrease in allocation for Public Works Administration (31,400)
® Increase in CIP Project Engineering 281,800
i Decrease in allocation for City Clerk Services (22,200)
■ Decrease in Human Resources Administration (24,900)
■ Decrease in allocation for General Finance (15,500)
■ Decrease in Finance Utility Billing allocation (34,200)
Sewer Fund ■ Decrease in CIP Project Engineering (241,200)
■ Decrease in Human Resources Administration (19,200)
■ Decreese in Finance Utility Billing allocation (34,200)
s Decrease in allocation for Public Works Administration (20,700)
■ Decrease in allocation for Vehicle Maintenance (42,000)
Parking Fund ■ Increase in allocation for Public Works Adminstration 9,300
E Increase in Transportation Planning&Engineering 20,600
■ Increase in allocation for City Clerk Services 8,800
Transit Fund ■ Increase in allocation for Public Works Administration 21,400
■ Increase in allocation for IT Citywide Support 6,100
■ Increase in allocation for Geographic Information Services 14,500
Whale Rock Fund ® Decrease in allocation for Public Works Administration (2,900)
■ Decrease in allocation for General Finance (3,900)
■ Decrease in allocation for IT/Radios. (4,700)
■ Decrease in allocation for Vehicle Maintenance (4,000)
■ Decrease in allocation for Facilities Use (3,900)
Total ($142,400)
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
most significant changes are in allocations to the Water Fund (up from 2007-09) and the Sewer
e6-;�'
2009-11 Cost Allocation Plan Page 3
Fund (down from 2007-09), which appropriately reflects their CII' workload for the next two
years.
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 organization-wide indirect cost rate established under our Cost Allocation Plan
(35.6% for 2009-11) 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 $35,600 for the indirect costs we will also incur. We have 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 65%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.
C� -3
2009-11 Cost Allocation Plan Page 4
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.
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 2009-11 Cost Allocation Plan results in a decrease of 3% in reimbursement,
transfers to the General Fund of$142,800 in 2009-10 compared with budget estimates. For 2010-
11, these reimbursements will be adjusted by an additional 2%, which is the cost-of-living factor
used in preparing the 2009-11 Financial Plan. If approved by the Council as part of the 2009-11
Cost Allocation Plan, the revised reimbursements will be reflected in the Mid-Year Budget Review
scheduled for Council consideration on February 23,2010.
ATTACHMENT
Golf Fund Cost Allocation Example
ENCLOSURE
2009-11 Cost Allocation Plan
Copies are available for public review in City Clerk's office and on the City's web site at:
http://www.slocit .ororg,/finance/costallocation.asp
G:Cost Allocation Plan/2009-1 I/Council Agenda Report
FATTACHMENT
2009-ti cost allocation plan
EXAMPLE - GOLF FUND
Indirect Cost Program Base of Allocation In direct Cost % Allocation
Legislation& Policy Council Agenda Items $135,600 1.3% $1,700
City Administration Operating Budget 696,500 0.8% 5,300
City Clerk Services Council Agenda Items 328,000 1.3% 4,200
Public Works Administration Work Load Analysis 1,093,700 0.3% 3,300
Engineering:CIP Mgt Work Load Analysis 1,379,300 0.0% -
Transportation Planning Work Load Analysis 582,900 0.0%, -
Parks&Recreation Admin Work Load Analysis 650,300 5.0% 32,500
Legal Services Operating Budget 549,900 0.9% 5,200
Human Resources Staffing("FTE S") 660,100 1.7%, 11,200
Risk Management-Workers Comp Staffing("FTE's") 876,600 1.7% 14,800
Risk Management-All Other Staffing("FTEs") 1,558,300 1.7%, 26,800
General Finance Operating Budget 794200 1.0% 7,600
Payroli Staffing("FTE§") 164,000 1.7%, 2,800
Utility Billing Water&Sewer Funds 393,800 0.0% -
Business TaxrrOT Gen Fund Oper Budget 114,500 0.0% -
Information Technology
Citywide Support Assigned Workstations 1,062,900 0.5% 5,800
Telemetry Water,Sewer,Whale Rock 112,000 0.0%
Radios,Cell Phones Assigned Equipment 476,100 0.4% 1,700
Telephones Assigned Telephones 220,500 1.1%, 2,400
Copier Maintenance&Paper Operating Budget 31,900 0.9%, 300
Postage Staff ng("FTEs") 43,100 2.3% 1,000
Ventures&Contingencies General Fund FTEs 80,000 0.0%. -
Other Support Services Operating Budget 68,100 0.9% 600
Geographic Services(GIS) Work Load Analysis 410,700 0.6% 2,500
Building Maintenance Assigned Space 1,038,900 0.2% 2,500
Vehicle Maintenance Assigned Vehicle Value 927,300 2.9%, 26,800
General Facilities Use Assigned Space 4,445,100 0.2%, 9,300
General Equipment Use I Assigned Equipment 690,100 1 0.0%,
TOTAL 19;584,400 1 0.9% 168,300
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 0.9% of allocated
indirect costs. The largest indirect cost allocation-department administration ($32,500)-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.
� �