Indirect Cost Allocation Plan, Hourly Rate Calculations, and User Fee Study Presentation by Daniel B Edds, MBA, PMP Council Presentation Town of Atherton:

Objectives of Project Prepare a “Full Cost” Indirect Cost Allocation Plan; Calculate fully loaded productive hourly rates for each Town and contract staff position; and Calculate the full cost of user fees. Provide a comparison survey with local benchmark communities.

Indirect Cost Allocation Plan Allocating Overhead Functions Indirect Cost Allocation Plan

Indirect Cost Allocation Plan Allocates costs of overhead functions based on a consumption model; Methodology of allocating costs was designed by the Federal Office of Management & Budget (OMB). Purpose is to identify the Town-wide overhead costs for calculating staff rates and the full costs of user fees.

Allocation Statistics Used (Sample Only) Town Function Allocation Statistic Used Town Council à Percentage of agenda items per department Agenda Packets Agenda Items per department Human Resource FTE per department General Ledger GL transactions per department Payroll Number of checks Banking Expenditures per department Maintain Town facilities Cost per department

Productive Hourly Rates Calculating Fully Loaded Costs Productive Hourly Rates

Calculation of Annual Productive Hours Method for Town Staff Calculation of Annual Productive Hours Annual Work Hours 2080 Less Vacation -200 Less Sick Leave -96 Less Paid Holidays -104 Less Daily Work Breaks -105 Less Annual Training -40 Total Annual Productive Hours 1535 Position A Total labor $100,000 Total benefit $50,000 Allocated materials & supplies $5,000 Allocated department overhead $7,500 Allocated Town overhead $10,000 Total Position Cost $172,500 Fully loaded productive hourly rate: $172,500/1535 = $112.38 per hour

Method for Contract Staff Contract Staff Productive Hourly Rate Calculation Contract Staff Cost $125.00 Allocated Materials & Services $1.25 Allocated Departmental Overhead $7.50 Allocated Town Overhead $15.00 Total Cost / Contract Hour $148.75 Calculated as a % of total labor

Calculating the Full Cost of Town Services User Fee Study

Driver Based Costing Models Labor Cost Dept M & A Customer Service Application Intake Eng Plan Review Eng Inspection Project Mgt Council Presentation Lot line adjustment Final parcel map Utility connection Driveway approach Financial Inputs Process Inputs Service Cost Hypothetical sample only

Quality Assurance Model Focus on quality process; Internal staff review; Our projections of current revenue must match actual revenue; Total hours assigned must match total hours available; and Projected revenues = Actual or budgeted expenses.

Available Cost Recovery   Full Cost Current Revenue Potential Additional Revenue (for full cost recovery) Building $ 1,569,388 $ 1,354,800 $ 214,588 Planning $ 269,239 $ 185,685 $ 83,554 Engineering $ 203,741 $ 168,000 $ 35,741 Park Facilities $ 98,800 $ 76,000 $ 22,800 Totals $ 2,141,168 $ 1,784,485 $ 356,683

Guiding Principles (Development Services) Adopted prices must be aligned with costs, (State requirement). Private development should pay for its self, or the general public should not subsidize private development (policy or practice for most municipal agencies).

Additional Fees and Charges Technology Surcharge ($44,270). Purpose is to provide a revenue stream to acquire, update, and maintain permitting technology. General Plan update surcharge ($27,000). Purpose is to provide a revenue stream to maintain the General Plan.

Results of Planning Analysis

Results on Building Analysis General Fees were restructured to better reflect the type of projects being completed in the Town and the actual cost of plan review and inspection. Fee calculations reflect the full cost to the Town to provide plan review and inspection services.

Results on Building Analysis Specific Added several flat fees (reroofing); Several non-habitable project types were turned into flat fees to better reflect the actual cost of plan review and inspection (pools, patios, and gazeboes); and Valuation based fees need to increase by 10.4%. Result: better alignment of the final price with cost (lower price in most cases).

Comparing Costs and Revenues

Types of Building Fees Flat fees which assumes the time for plan reviewing and inspection is relatively constant for each project type. Examples include: Pools Patios Gazebos Reroofs

Types of Building Fees Valuation based fees which uses a service requirement factor X a multiplier to calculate a fee for plan review and inspection. Examples include: New home construction Major remodels of habitable construction; and Major remodels of non-habitable construction.

Why a Service Requirement? Objective: a measure of effort and energy that is required by the town to provide plan review and inspection services, which are independent of construction costs. Prices of construction varies with markets and commodities. Town costs are constant and non aligned.

Example of a Valuation Fee Calculation Project: 5,000 SF Single Family Residence: 5000 SF X $350/SF = $1,750,000 (service requirement factor) X $3.65 / $1000 of valuation = $6,387 (price of permit) X 45% = $2874 (price of plan review) Total permit and plan review fees: = $9,261 (Overly simplified for illustration purposes only)

Atherton Calculation Example Construction Type Service Requirement: / SQ Ft # Sq Ft Service Requirement Factor New Habitable Construction $350 10,000 $3,500,000 Remodeled Habitable Construction $300 $3,000,000 New or Remodeled Non-Habitable Construction $200 2,000 $400,000

Atherton Calculation Example Construction Type Service Requirement Factor Base Fee Multiplier Final Fee New Habitable Construction $3,500,000 $5,609 $3.65/$1000 of valuation $12,775 Remodeled Habitable Construction $3,000,000 $10,950 New or Remodeled Non-Habitable Construction $400,000 $994 $5.60/$1000 of valuation $2,240 State law requires the final fee to be a “reasonable estimate of cost”

Atherton Calculation Example Total annual costs were evaluated to adjust the multiplier. Results showed that these needed to go up by 10.4% Construction Type Service Requirement Factor Base Fee Multiplier Final Fee New Habitable Construction $3,500,000 $5,609 $3.65/$1000 of valuation $12,775 Remodeled Habitable Construction $3,000,000 $10,950 New or Remodeled Non-Habitable Construction $400,000 $994 $5.60/$1000 of valuation $2,240 State law requires the final fee to be a “reasonable estimate of cost”

Building Fee Comparisons

Building Fee Comparisons 8,000 SF 2 Story New Home, 4,000 SF Basement, 12,000 total SF

Building Cost Comparison

Planning Cost Comparison

Engineering Cost Comparison

Observations Much of the current under recovery of cost is due to the lack of an indirect cost allocation plan; Development related costs are in line with benchmark communities; and Contracting has probably lowered cost.

Recommendations Council to set cost recovery targets and let staff set individual fee levels to match: Direct Costs? Indirect Cost (department, Town, both)? Fund balances? Funding mechanism for technology and general plan updates? Adopt technology and General Plan update surcharges; Update user fees by labor CPI annually; and Full cost review in 3-5 years.

Happy to Take Questions Thank you. Happy to Take Questions