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HomeMy WebLinkAbout8.3 Conceptual Parks & Community Services Pricing Policy F 0 19 ...1* AGENDA STATEMENT �l� PARKS AND COMMUNITY SERVICES COMMISSION �IFOR MEETING DATE: August 16, 2010 SUBJECT: Conceptual Parks and Community Services Pricing Policy Report by Paul McCreary, Assistant Director of Parks and Community Services ATTACHMENTS: 1. Conceptual Pricing Policy RECOMMENDATION: Receive report and provide input on conceptual pricing plan FINANCIAL STATEMENT: None DESCRIPTION: In November 2008 the City Council adopted the Parks and Community Services Strategic Plan. This long range planning document identified seven strategies to focus on over the next ten years. One of the strategic goals (#4f) is to develop a cost recovery policy. This is also a City Council high priority objective this year. The purpose of the policy is to: • Formalize the structure for calculating fees • Establish cost recovery levels with a clearer connection between core service values,the population served and the level of community benefit • Promote the best investment of General Fund resources • Provide a system for tracking the financial performance and identifying programs not generating the designated minimum cost recovery Attachment 1 is the conceptual Pricing Policy proposed by Staff. The conceptual Pricing Policy is based on best practices used by other municipalities and recommendations from continuing education experts on establishing prices for community education and recreational activities. Staff will be presenting the conceptual plan to the Department's Advisory Committees and Commissions to garner input on the draft policy. That input will be used to develop the final policy for City Council consideration on September 21, 2010. If adopted by the City Council, Staff will work on the implementation of the policy as part of the Fiscal Year 2011-2012 budget preparation process. RECOMMENDATION: Staff recommends that the Parks and Community Services Commission receive the report and provide input. COPIES TO: ITEM NO.:8.3 G:\PARKS COMMISSION\AGNDSTMT\2010\8-16 Item 8.3 Conceptual Pricing Policy.doc CITY OF DUBLIN PARKS & COMMUNITY SERVICES CONCEPTUAL PRICING POLICY VERSION 1.0 City of Dublin, California AUG 2010 y The City of Dublin promotes and supports a high quality of life which ensures a safe and secure environment that fosters new opportunities. ATTACHMENT 1 CITY OF DUBLIN Parks and Community Services Conceptual Pricing Policy ACKNOWLEDGMENTS City Council Tim Sbranti, Mayor Kasie Hildenbrand, Vice Mayor Don Biddle Kevin Hart Kate Ann Scholz Parks and Community Services Heritage and Cultural Arts Commission Commission Steve Jones, Chairperson Steve Minniear, Chairperson Rich Guarienti, Vice Chairperson Sonal Nuckols, Vice Chairperson Alan Elias Anita Carr Angela Muetterties Kim Halket Anthony Totaro Connie Mack Matthew Reinemann, Student Commissioner Dayna Tutino Georgean Vonheeder Leopold City of Dublin Executive Staff Joni Pattillo, City Manager Chris Foss, Assistant City Manager Department Management Staff Diane Lowart, Parks and Community Services Director Paul McCreary, Assistant Director of Parks and Community Services Herma Lichtenstein, Parks and Facilities Development Manager John Hartnett, Heritage and Cultural Arts Manager Written by Paul McCreary, Assistant Director of Parks and Community Services Based on policies established by the cities of Davis, Mountain View, San Luis Obispo and San Mateo p DUBLIN Parks and Community Services Conceptual Pricing Policy Table of Contents OVERVIEW 2 Purpose of the Policy 3 Summary of Cost Recovery and Pricing Model 3 DETERMINING PROGRAM COSTS 5 Direct and Indirect Program Costs 5 Direct Service Costs 5 Indirect Program Coordination Costs 5 Indirect Department Administrative Costs 5 Indirect Facility Overhead Costs 5 Allocating Indirect Costs 5 SETTING COST RECOVERY TARGETS 8 Calculating Cost Recovery Rate 8 Prioritizing Service Values 8 Priority 1—Core/Essential Services 8 Priority 2—Important Services 9 Priority 3—Discretionary Services 9 SETTING PRICES 10 Establishing Proposed Prices 10 Non-Resident Rates 10 Discounts and Variable Pricing 11 Guidelines for Changing Prices 12 Page ( 1 CITY OF DUBLIN Parks and Community Services Conceptual Pricing Policy Parks & Community Services Conceptual Pricing Policy OVERVIEW Due to the economic recession the City has experienced a significant decrease in revenues from property tax, sales tax and interest earnings, as well as takeaways by the State of California. In the past these revenues allowed the City absorb most of the indirect costs of providing recreational services. However it has been estimated the City will face multi-million dollar deficits for several years. The City Council has already approved millions in prudent budget reductions to bridge the gap, and if revenues do not increase significantly the City's General Fund-supported services may be subject to greater reductions. In order to have the least impact on services and achieve a structurally balanced budget one strategy is to develop a Pricing Policy to increase cost recovery for services generally provided to specific populations. This Pricing Policy will provide guidance for annual adjustments to service fees. It will identify what services should recover 100%of the total cost (direct and indirect costs) of providing a service, and objective criteria for pricing services at lower levels. If a user-fee activity is not completely cost recovered, a General Fund operating subsidy is necessary. There are reasons for subsidies, such as activities that provide a greater community benefit.The level of cost recovery should consider the community-wide versus special service nature of the program or activity. The use of General Fund revenues is appropriate for community-wide services, while user fees are appropriate for services that are of special benefit to easily identified individuals or groups. Additional reasons to subsidize services include the desire of the City to target a specific population or activity, as well as for promotion and marketing benefits. Establishing a Pricing Policy will allow the City of Dublin to continue to provide high-quality programs in a financially sustainable manner. It will promote the best investment of General Fund resources to maximize the benefits of programs to the greatest number of Dublin residents, and focus on initiatives or populations of priority to the City. The plan will continue to value preferential access and fee discounts to Dublin residents. Page 12 • DUBLIN Parks and Community Services Conceptual Pricing Policy Purpose of the Policy The Parks and Community Services Strategic Plan identified a strategic goal (#4f) to develop a pricing policy. This will establish cost recovery levels and goals for programs and accomplish the following: • Formalize the structure for calculating fees • Establish cost recovery levels with a clearer connection between core service values, the population served and the level of community benefit • Promote the best investment of General Fund resources • Provide a system for tracking the financial performance and identifying programs not generating the designated minimum cost recovery Summary of Cost Recovery and Pricing Model The Pricing Policy is based on best practices used by other municipalities and recommendations from continuing education experts on program pricing. The Policy establishes guidance for Staff to have the flexibility to adjust fees to maximize revenue and differentiate pricing in response to fluctuations in the market or demand. It will also provide the ability to package programs and provide discounts to increase participation and/or promote new programs. The Policy is based on the "Parks and Community Services Cost Recovery and Pricing Model" depicted in Figure 1 below. FIGURE 1 - PARKS AND COMMUNITY SERVICES COST RECOVERY AND PRICING MODEL DETERMINE: Costs Service Values Market Conditions Demand General Fund Capacity DETERMINE MODIFICATIONS: Reduce Costs SET COST RECOVERY Reduce Recovery Target TARGETS Eliminate Program A I SET Fee too high? PRICING IMPLEMENT Unsuccessful? PRICING Successful? I EVALUATE IF: Cost Can Be Reduced — Recovery Can Be Increased Page 13 CITY OF DUBLIN Parks and Community Services Conceptual Pricing Policy In recognition of the wide variety of service values and revenue generating potential of various activities, Staff will assign each activity to one of three "service priority groups" based upon an assessment of service and cost recovery values. Specific cost recovery thresholds will be established for each service priority group and include both minimum and target levels of cost recovery. "Priority 1" activities will provide the greatest community-wide benefit and will have lower cost recovery targets than "Priority 3" activities which provide more of an individual or small group benefit, and therefore will have higher cost recovery thresholds. Cost recovery for activities directed to adults should be relatively high. While cost recovery for youth and senior activities should be relatively low. In those circumstances where services are similar to those provided in the private sector, cost recovery levels should be higher. Activities within each priority group will be reviewed and where appropriate may include specific considerations that may supersede the cost recovery thresholds identified for the group. Considerations could include market rates and demand, benchmarking to a specific competitor, the availability of alternative providers, or collection of fees is not cost effective. Both the Heritage and Cultural Arts Commission and the Parks and Community Services Commission annually adopt a Master Fee Resolutions for programs. Following the adoption of the new Pricing Policy the Commissions will still adopt annual Fee Resolutions. However, the Resolutions will provide Staff with the authority to adjust program fees during the fiscal year; except that no fee increase may exceed 10% during the fiscal year without the approval of the Commissions. Additionally as part of the annual fee adoption process, the Commissions will review the performance of each activity compared to the Pricing Policy and make recommendations for adjustments to the Pricing Policy as deemed appropriate. The City Council must approve any future changes to the adopted Pricing Policy. Following the adoption of the Pricing Policy, strategies for achieving the target cost recovery rate will be established by Staff for each program area. These strategies may include immediate or gradual action depending upon the best interests of maintaining a strong program, achieving the target within a reasonable time period and current market conditions. Activities that do not meet the minimum cost recovery threshold will be reviewed by Staff to determine whether it is feasible to reduce costs or if the cost recovery target can be adjusted. Otherwise Staff will recommend eliminating the activity. For activities that exceed the cost recovery thresholds, Staff will determine the feasibility of increasing the cost recovery target. Page 14 Car or DUBLr IN Parks and Community Services Conceptual Pricing Policy DETERMINING PROGRAM COSTS Direct and Indirect Program Costs Direct costs by nature are usually easy to identify and relate to a specific service. However this is not the case for indirect costs. This plan will help to determine the total cost of providing a specific service by developing a system for allocating indirect costs to direct cost programs. Direct costs are those solely associated with a particular service, such as After School Recreation, Swim Lessons, Adult Basketball Leagues, or the First Saturday events at the Heritage Center. Indirect costs are not identified with one particular service and are typically incurred for a joint purpose that benefits more than one service within the Department. The total cost of a service is the sum of the following direct and indirect costs. Direct Service Costs • The fixed and variable costs necessary to operate a specific program • Includes seasonal part time staff, supplies, equipment, and contracted services Indirect Program Coordination Costs • The fixed resources for the service area (i.e. Sports, Family Services, Preschool,Teens, Heritage and Cultural Arts, etc.)that do not vary with program participation • Includes permanent staffing for customer service;program oversight by Coordinators, Supervisors, and Managers; and, other overhead supplies and services Indirect Department Administrative Costs • The share of the Department's executive management support • This includes permanent staffing, technology, printing, advertising, internal service funds, credit card processing, etc. Indirect Facility Overhead Costs • The day-to-day costs to keep the facility open and provide facility supervision, as well as on- going maintenance, repairs and equipment replacement. • Includes facility attendants, supplies, utilities, contracted services, and repairs and maintenance Allocating Indirect Costs Allocating indirect costs requires creating indirect cost rates or overhead rates for each of the cost areas identified above. The indirect cost rate is simply the ratio between indirect and direct costs. By applying the overall indirect cost rate to any specific direct cost program, the total cost of the program can be determined. Following is an example using the Preschool Program. Page 15 u Ciro of DUBLIN Parks and Community Services Conceptual Pricing Policy TABLE 1 -FY 2010-2011 INDIRECT OVERHEAD RATE FOR PRESCHOOL COORDINATION Direct Preschool Service Costs (A) $220,318 Indirect Preschool Service Costs (B) $93,572 Indirect Preschool Overhead Rate (= B/A) 0.424716 Dividing the indirect service costs by the direct service costs calculates the indirect overhead rate for the preschool division of the Department. In essence for every dollar of direct expenditures there is an additional $0.42 in cost for indirect preschool program coordination. In addition to the indirect program coordination costs, there are indirect department administration costs. For Fiscal Year 2010-2011 the indirect department overhead rate is 0.182916 of a program's total direct and indirect costs. Using the example above for preschool: TABLE 2-FY 2010-2011 DEPARTMENT ADMINISTRATIVE OVERHEAD RATE FOR PRESCHOOL Total Preschool Program Costs (A) $313,890 Indirect Department Admin Rate (B) 0.182916 Indirect Department Admin Costs (=A x B) $57,416 Allocating indirect costs via an indirect cost rate assumes that all indirect costs are incurred proportionately to the direct cost of the program. However, this may not be a reasonable assumption in all cases, as the benefit received from certain types of support services may be more closely related to an indicator other than cost, such as program length or percentage of square feet of dedicated space. The Pricing Plan allocates indirect facility overhead costs based on an hourly rate per square foot of use for rooms used by multiple programs, or based on a per square foot cost for spaces dedicated to one program, such as the preschool space in Shannon and the Emerald Glen Activity Center. Following shows the calculation for the Facility Overhead Costs for preschool. TABLE 3-FY 2010-2011 FACILITY OPERATIONS OVERHEAD COSTS Activity Center Direct/Indirect Costs (A) $39,250 Percent of Square Feet for Preschool (B) 100% Activity Center Facility Overhead Cost for Preschool(A x B= C) $39,250 Shannon Center Direct/Indirect Costs (D) $349,758 Percent of Square Feet for Preschool (E) 26% Shannon Center Facility Overhead Cost for Preschool(D x E=F) $91,230 Total Preschool Facility Overhead Costs (=C+ F) $130,480 Since the Preschool has exclusive use of these facilities 100%of these overhead costs are assigned to the preschool program. If multiple programs were using a room, then an hourly overhead rate would be assigned instead.The hourly overhead rate would be calculated by dividing the total overhead costs for a room by the annual usable hours for the facility(i.e. daily from 8:00 a.m. to 10:00 p.m.). Page 16 Cin of DUBLIN Parks and Community Services Conceptual Pricing Policy Based on the above example the following is a summary of the total cost of the preschool program for Fiscal Year 2010-2011: TABLE 4-FY 2010-2011 TOTAL PRESCHOOL PROGRAM COSTS Direct Preschool Program Costs $220,318 Indirect Preschool Coordination Costs $93,572 Indirect Department Administrative Costs $57,416 Facility Overhead Costs $130,483 Total Preschool Program Costs $501,789 This plan recognizes the principle that the cost of developing the information necessary to perform the cost allocations should not exceed the benefits likely to be gained. Calculating hourly facility overhead rates and the annual indirect cost rates is relatively easy using the EDEN finance and enterprise resource planning (ERP) system and the CLASS facility booking system. In a true cost accounting system, indirect costs would be calculated and allocated on an ongoing basis throughout the fiscal year based on actual costs. However frequent updating in a municipality would not serve any specific purpose such as price control in a manufacturing company, and would consume significant staffing resources. Therefore the indirect cost rates will be prepared annually as part of the budget preparation process. Page 17 CITY OF DUBLIN Parks and Community Services Conceptual Pricing Policy SETTING COST RECOVERY TARGETS Calculating Cost Recovery Rate Once the total cost of a program has been identified there needs to be a method to determine the desired level of cost recovery for each activity. To calculate the cost recovery rate, divide the revenue collected for a service by the total cost of providing the service (including direct, indirect and facility overhead costs). The following is an example using the preschool again. TABLE 5-FY 2010-2011 PRESCHOOL PROGRAM COST RECOVERY RATE Total Preschool Revenue (A) $403,530 Total Preschool Program Costs (B) $501,789 Cost Recovery Rate (=A/ B) 80% The cost recovery rate determines how much a program must generate in revenue (user fees, sponsorships, grants, etc.) and how much subsidy will be needed from the General Fund. Prioritizing Service Values In order to maximize available General Fund resources to the greatest number of residents, the prioritization of subsidies is based on the: • Type of service • Target population • Level of community benefit and participation • Availability of alternative providers These criteria will be used by Staff to assign each Department service to one of three priority groups. These categories are used to set the minimum cost recovery rate and the targeted cost recovery rate for each activity. The following describes in more detail the criteria Staff will use to categorize services into the three priority levels. Priority 1 — Core/Essential Services Minimum Cost Recovery Rate: 0% Priority 1 services have the lowest level of cost recovery and include activities that provide larger community benefit and can be accessed by the broadest cross section of the population. The public expects the City to provide these serves and they are usually not provided by others. These services may be provided to a targeted population and/or be essential to the health, safety or livability of the community. Residents would consider these program subsidies a sound investment of public funds. Programs that may fit this category include recreational swimming, Heritage Center tours or picnic area rentals. Page 18 CITY OF DUBLIN Parks and Community Services Conceptual Pricing Policy Priority 2 — Important Services Minimum Cost Recovery Rate: 30% Priority 2 services have mid-range cost recovery targets and include activities that provide some community benefit as well as individual or group benefit, and serve a significant number of residents.These programs service the needs of youth or seniors. The services may expand or enhance health and safety, or contribute to economic and community vitality. Although there may be other providers of these services, they can't provide residents with the same level of accessibility, efficiency or effectiveness as the City's services. Important services may include after school programs, preschool classes, swimming lessons, or the St. Patrick's Day Celebration. Priority 3 — Discretionary Services Minimum Cost Recovery Rate: 60% Priority 3 services are discretionary and have the highest level of cost recovery targets. These activities serve a moderate number of residents, providing benefit to the individual or group, and minimal benefit to the greater community. They are typically specialized, and may be provided by the private sector or other agencies with the same level of accessibility, efficiency and effectiveness as the City's programs. These services are nice to have when additional funding is available. The public may not typically expect the City to provide these services, which may provide value beyond what is expected of the City. Examples of Priority 3 services include contracted specialty classes and camps, letters from Santa, concert series or adult sports leagues. Page 19