Cost Recovery And community benefits Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Cost Recovery And community benefits Pat O’Toole, Principal Pat O'Toole, GreenPlay,LLC

What we aim to accomplish Identify the structure and uses of the Pyramid Cost Recovery Methodology Discuss how to create a comprehensive cost recovery, pricing and resource allocation philosophy based on community benefit and your agency’s mission Use the pyramid model to allocate subsidy/tax funding where most appropriate

Cost Recovery Philosophy & Pricing Policy Overall Agency Cost Recovery Philosophy & Pricing Policy Funding Sources Traditional Funding Alternative Funding Philanthropic Grants Partnerships Donor Programs & Capital Campaigns Volunteers / In-kind Service Single Agency Multi-Party Marketing Partnerships & Sponsorships General Fund Revenue Bonds Impact Fees Various Other Taxing Methods Fees & Sales

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Today’s Conditions Increased competition for the “leisure dollar” Increased operating expenses (e.g., utilities, fuel, personnel, supplies) Disinterest in service reductions or increased fees and charges Continuing demand for services with no/limited additional funding Pat O'Toole, GreenPlay,LLC 4

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Public parks and recreation agencies are now shifting to more corporate or business-like models to sustain systems Q: “How much subsidy should be directed to a service if an individual derives a greater benefit than the community as a whole?” Pat O'Toole, GreenPlay,LLC 5

What’s our cost recovery and subsidy allocation philosophy?

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Distinctions Pricing Policy Philosophy We must speak a common language! Pat O'Toole, GreenPlay,LLC

Pyramid Methodology Management tool utilized by agencies across the country Articulates the level of benefit that services provide Aligns with the issue of core services Allows for logical determination of: resource allocation subsidy/cost recovery goals future fees and charges Justifies decisions

What are the benefits? Community and governing body “buy-in” A fair, equitable, and simple structure based on agency values, vision and mission An effective tool for future decisions Financial sustainability The ability to “tell our story” and be accountable for and responsible with resources

How does this work? Provides a framework for discussion Uses examples to make you think You cannot simply adopt another agency’s philosophy

Pyramid Methodology – 10 steps Build on Organizational Values, Vision and Mission Understanding the Pyramid – the Benefits Filter and Secondary Filters Develop the Organization’s Categories of Service Sort Categories of Services Determine (or confirm) Current Subsidy/Cost Recovery Levels Define Direct and Indirect Costs Establish Subsidy/Cost Recovery Goals Understand and Prepare for Influential Factors and Considerations Implement Evaluate

Step #1: Build on Organizational Values, Vision and Mission The City of Farmington Parks, Recreation, and Cultural Affairs Department is dedicated to providing the opportunity for people to play, to laugh, to grow, to learn, and to engage in enriching their quality of life. Our department recognizes the strength in: Consistency and Fairness Service and Integrity Loyalty and Respect

Consensus Building – Stakeholder Participation Governing Bodies Staff Community

You are expected to serve those who “pick up the tab” Taxes – General or Dedicated Funds Mandatory Fees Fees & Charges Alternative Funding

Step 2: Understand the Pyramid - Benefits Filter and Secondary Filters Grounded in a primary “benefit” filter and secondary filters Helps answer the question, “Where should subsidy be used?

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Who Expects to Benefit? Tax Sources/GF Fees and Charges Program fees Permits Rentals Alternative Funding Grants Donors Sponsors “Those who invest expect to benefit” “Those who pay expect to benefit” “Those who contribute expect to benefit” Pat O'Toole, GreenPlay,LLC 16

The Foundational Level of the Pyramid Mostly Community Benefit (All taxpayers) Benefits the community as a whole May increase property values and public safety, address social needs, and enhance basic quality of life of all residents.

The Benefits Filter in Action MOSTLY INDIVIDUAL - elite swimming or diving team CONSIDERABLE INDIVIDUAL - swim team INDIVIDUAL/COMMUNITY - swim lessons CONSIDERABLE COMMUNITY - pool MOSTLY COMMUNITY - spray ground, non- monitored lake

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 For the Outdoor Folks MOSTLY INDIVIDUAL - marina concessions CONSIDERABLE INDIVIDUAL - boat launch or reserved camp site INDIVIDUAL/COMMUNITY - monitored nature garden or interpretive park CONSIDERABLE COMMUNITY - non-reserved camp site or public fishing pier MOSTLY COMMUNITY - non-monitored open space park or trail Pat O'Toole, GreenPlay,LLC 19

Secondary Filters Access/Type of Service Organizational Responsibility Historical Expectations Anticipated Impacts Social Value

Step 3: Develop Categories of Service - Examples Non-Monitored Parks and Recreational Facilities Drop-In Monitored Access (non- instructional) Camps After School Programs Preschool Tournaments/Leagues Activities- Beginner/Novice Activities -Intermediate Activities-Advanced/Competitive Merchandise for Resale Concessions/Vending Social Services Social Clubs Trips Amusement or Tourism Attraction Special Events Partnered or City-Offered Exclusive Use Non-profit and Government Exclusive Use For-profit and Private Exclusive Use Government Leased, management services

Step 4: Sorting Services onto the Pyramid Causes discussion Values emerge Develops consensus

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 A fun exercise with your colleagues . . . Pat O'Toole, GreenPlay,LLC

Sample Programs Tournaments Art Programs Teen Programs Admissions – Public Swim Fitness Classes Concessions Facility Rentals Swim Lessons Senior Activities Adult Sports Youth Sports Birthday Parties Golf Programs After School Program Therapeutic Programs Day Camps Community-side Special Events Environmental Education Programs

Determine (or confirm) Current Subsidy/Cost Recovery Levels Step 5: Determine (or confirm) Current Subsidy/Cost Recovery Levels

Cost = Subsidy + Cost Recovery Costs: all identifiable expenses associated with a particular unit of service Subsidies: tax funding and mandatory fees Cost Recovery: all revenue sources associated with that service fees and charges grants sponsorships donations (capital campaigns) other, non-taxpayer sources

Cost Recovery and Subsidy 40% 60% = 100% 80% 20% = 100% 100% +20%

Step #6: Define Direct and Indirect Costs Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Step #6: Define Direct and Indirect Costs Direct Costs: Specific, identifiable expenses (fixed and variable) associated with providing a service or program These expenses would not exist without the program or service. Pat O'Toole, GreenPlay,LLC 28

Indirect Costs Overhead (fixed and variable) including administrative costs These costs would exist without any specific services and might also be attributed to facility operations (in which case they are direct expenses to the facility or park operations)

Step #7: Establish Subsidy Allocation/ Cost Recovery Goals Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 Step #7: Establish Subsidy Allocation/ Cost Recovery Goals Think about subsidy allocation first - cost recovery will follow Overall goals will be determined based upon placement in the Model Don’t forget the agency’s values, vision and mission It is critical to consider current cost recovery/subsidy levels - baseline -Select formulas as tools for implementation -Course Correction -Establish Goals -Meet New Goals -Align Cost Recovery Goals with the Market Pat O'Toole, GreenPlay,LLC 30

Farmington Parks, Recreation, and Cultural Affairs Subsidy Allocation/Cost Recovery Goals - Example 12/27/2018 Pat O'Toole, GreenPlay,LLC (c) 2008 GreenPlay, LLC www.greenplayllc.com 31

Farmington Parks, Recreation, and Cultural Affairs Subsidy Allocation/Cost Recovery Goals - Example 12/27/2018 Pat O'Toole, GreenPlay,LLC (c) 2008 GreenPlay, LLC www.greenplayllc.com 32

Subsidy Allocation/Cost Recovery Goals - Example

Step 8: Understand and Prepare for Influential Factors and Considerations Commitment Trends Politics Marketing Cost to Provide Economic Conditions Financial Goals

Step 9: Implementation Educate all staff on your new philosophy Develop implementation strategies including alternative funding and fee adjustments Continue to foster “buy-in” from staff, governing bodies and citizens

Step #10: Evaluation Evaluate the effectiveness of your new philosophy during the next budget cycle Make adjustments as necessary

Farmington Parks, Recreation, and Cultural Affairs 12/27/2018 The Leading Edge in Parks, Recreation and Open Space Consulting Pat O’Toole, Principal PatO@GreenPlayllc.com 303-345-1804 Chris This tool assists with the agency philosophy and the development of “cost recovery” policies to assist in achieving financial sustainability. Copyright © 2001, 2003, 2008, 2012 GreenPlay LLC Pat O'Toole, GreenPlay,LLC 37