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2010041909 - Addendum - adoption of resolution continuing certain department fees, rates, and charges, and amending certain fees rates and chargesOWN ~F ,~„~ ~~s ~psas COUNCIL AGENDA REPORT MEETING DATE: 4/19/10 ITEM NO: ~j ADDENDUM I DATE: APRIL 16, 2010 TO: MAYOR AND TOWN COUNCIL FROM: GREG CARSON, TOWN MANAGER °2~ SUBJECT: ADOPTION OF A RESOLUTION CONTINUING CERTAIN DEPARTMENT FEES, RATES, AND CIiARGES, AND AMENDING CERTAIN FEES, RATES, AND CHARGES FOR FY 2010/11 Attached for Council information is an excerpt from the User Fee Study Report which outlines the methodology used in determining activity based cosfing. PREPARED BY: JE RUY~/BUDGET MANAGER N:\FINANCE\Fee Schedule\20I0 i t\Us r F e Addendum #2.doc Reviewed by: ~_Assistant Town Manager Town Attorney Clerk Administrator Finance Community Development ~; ~~ :~~ ~ ~~ ~~ ~ 4 This entire report is made of readily recyclable materials, including the bronze wire binding and [he front and back covet, which arc madc firm past-consmner recycled plastic bottles s ( t t 1 t"~~rtn rf t.~s Gatos, Ca3¢t~+rs.9a A~r.I ?t~7'} ~ar~tas~ehensa,~~ tls~a F~~ Sff~.ar3y Fape: 2 ~~~~~ The detailed costing methodology is based on the principles of activity based costing. This approach seeks to calculate costs at an operational level based on the time staff invests in core business processes. This provides the ability to understand staff time and cost for each staff position providing fee generating services. Figure 1 graphically illustrates this methodology. Figure 1. Cost of Service and Fee Setting Methodology Step 3 Step 4 Sep 5 Step 1: Collect Data -This first step involves discussions with staff to identify those positions within each department that provide and support direct services. It also involves collecting departmental budget and expenditure data, identifying the salary and benefits for each position, and identifying non-personnel expenditures, as well as any departmental and Town wide overhead. Step 1 Step 2 Towns tan Lc~s Gatos, Ca3itrzr.ria ~§r3Pi~ ~~~~1 Cosngaraha,~save Usar Fee "study Pare 4 Calculating fully loaded hourly rates and the cast of service -Once the total time for each direct and induect service is estimated, the cost of service is calculated by using the fully loaded hourly rates for each staff member or position that is involved with the service. The fully loaded hourly rate for each employee is based on the employee's salary and benefit costs plus a share ofnon-personnel and Town overhead costs divided by the employee's available work hours (i.e. 2,080 hours minus all leave hours). The change to this was with the business license processing fee. For this fee, we calculated the annual costs for processing business licenses as part of the preparation for the indirect cost allocation plan. Then based on interviews with staff we determined the approximate amount of annual time that is spent processing new business license compared to a renewal of a business license. We then assigned an annual cost based on these total time estimates. ~ Gathering activity or volume data - A critical element in the analysis is the number of times a given service is provided on an annual basis. This is critical data for three reasons: It allows a calculated prof ection of current revenue based on current prices. This is compared with actual revenue to see if there is a close match, as the data should match. It allows for a calculated projection of revenue at full cost. This is compared to actual expenditures to see if there is a close match, as the data should match. It allows for a calculation of total hours consumed. Hours consumed must closely match actual hours available. If any of the three calculations do not approximate actual numbers, then time estimates and/or volume data need to be reevaluated. These are critical quality checks for costing accuracy. Step 3: Calculating the full cost of services -This third step calculates the full cost of service for each direct service in a department. In the previous step, the cost of service was calculated for each direct and indirect service. In this step the cost layers are brought together to establish the full cost of service for a specific direct service or activity. As previously mentioned the cost of each direct service is calculated. To determine the full cost of service, the cost of indirect services is allocated to each direct service. The indirect services costs are allocated to each direct service based on each direct services proportion of labor spent processing each permit and application. By summing the direct and allocated indirect costs and multiplying that by the activity data, a total cost of service is calculated for both an individual service and the operating unit as a whole. Step 4: Set cost recovery policy -Once the full cost of services is calculated for each direct service in a department, the cost of service for that direct service is then compared to the revenue generated by the fee charged for the service. This cost recovery analysis identifies the cost recovery level for that direct service. We are not aware of specific policies for the recovery of costs for these services. Depending on such policies and other considerations, the level of cost recovery is a policy decision that should be made for each type of direct service. Step 5: Set fees Based on any new, existing, or revised cost recovery policies, the recommended fees can be established. The recommended fees will be established based on Town staff recommendations and Council discussion in the future. ~ r„= @R