1. AVERAGE COST LISTS NATIONAL EFFICIENCY WORKSHOP JULY 19, 2006 ST. LOUIS, MISSOURI

2. PRESENTERS  Ed Brzostek, EQIP Program Specialist  Larry Edmonds, Economist

3. AVERAGE COST LISTS  National Bulletin about to be released on use of average cost  States must use average cost for all structural practices and flat rates all management practices for FY 2007

4. AVERAGE COST LISTS FOR FY 2007  Actual cost type methods “AA” and “AM” will no longer be accepted by ProTracts in FY 2007  Average Cost Type (AC) cannot have a value of $0  FR cost type cannot have a value of $0  Each practice and practice component on your cost list must list a dollar value greater than 0.

5. AVERAGE COST LISTS – State actions needed  Develop a methodology to determine an appropriate average cost for each structural practice and practice component (Larry Edmonds)  Determine method of calculating rates for incentive payments for all management practices (Larry Edmonds)

6. AVERAGE COST LIST - STREAMLINING  Reduce practice components to the minimum possible  Set up ranges to cover various conditions – Example: 550 Range Planting – heavy - $15/AC 550 Range Planting – medium - $10/AC 550 Range Planting – light - $5/AC

7. STREAMLINING COST LISTS  Some state costs list have as many as 120 component items for an a waste storage facility  Need to revisit these and think of other more efficient ways of accounting for waste storage facility payments

8. Ag Waste Facility – Alternative to 120 component items  313 Waste Storage Facility – Excavation and embankment - $1.30 / CY  313 Waste Storage Facility – Concrete reinforced and formed - $440/ CY  - 313 Waste Storage Facility Dry Waste Storage - $6/ SF  313 Waste Storage Facility – Barrel or Riser - $2/ DIFT

9. Another alternative for Ag Waste Facility  313 Waste Storage Facility – 0 CF to 5000 CF - $5/CF  313 Waste Storage Facility – >5000 CF but< 10000 CF - $3.50/CF  - 313 Waste Storage Facility >10000 CF $1.50/CF

10. Another option of streamlining Ag Waste Facility Payments  313 Waste Storage Facility – 0 AU to 50 AU - $120/AU  313 Waste Storage Facility > 50 AU but < 100 AU - $100/ AU  - 313 Waste Storage Facility >100 AU - $80/ AU

11. Irrigation Conveyance Pipeline – Some states presently offer pages of component options –  Other alternatives – one set of prices for each pipe type by using diameter in inches per foot of pipe.  IWC, Pipeline – DI.IN/FT including all appurtenances and installation - $5/DI.IN/FT – Steel $4/DI.in/FT – PVC

12. Other Irrigation Cost List Options  Consider paying for irrigation system by the acre  Irrigation System, Sprinkler - $500/AC  Irrigation System, Center Pivot - $800/AC  Irrigation System, Micro - $1600/AC

13. Payment Schedule for FY 2008  Use of payment schedule for all practices – no more % cost share amount in contract documents or on 1245s.  Payment schedule planned to be realigned for each planned year of beginning with FY 2007 contract for at least first 3 years

14. Payment Schedule for FY 2008  Planned to be applied to FY 2007 contract practices scheduled in FY 2008 and subsequent years  Upgrade of planned year cost list to occur at begin of each new fiscal year  Additional dollars proposed to come from current year funding

15. Payment Schedule for FY 2008  ProTracts module being developed for automated practice cost data sampling  Field offices will be selected for obtaining cost data  Instruction will be developed on how field offices should collect proper sample data  States will then have another source for analyzing practice costs

16. Payment Schedule for FY 2008  FY 2007 appendix will contain language for cost list realignments to occur in FY 2008  States will use FY 2007 average cost information as a basis for realigning costs to the payment schedule that will begin in FY 2008

17. Payment Schedule for FY 2008  Beginning in FY 2008 payments on FY 2007 and later contracts will be made from the current year cost list.

18. Feedback & Questions  Will this system work well in your state  What are your concerns  What additional assistance is needed to help states  Suggestions  Comments  Concerns

19. Cost List Development and Documentation  Larry Edmonds

20. We are moving from average cost to typical cost.  We will increase the workload at the state office and reduce workload developing cost list at the field office.  Our well trained economist and practice specialist are able to develop an adequately documented cost list in 10- 20% of a staff year.  The first year of incentive payment documentation will require twice the typical time allocation.

21. Here is a simple example of the limitations of “average cost”  How much does it cost to dig post holes for a fence?

22. 3rock hole digging equipment

23. Power Auger Cost  Power Auger $329 Big R, Great Northern Supply,  8 inch auger bit $129  Auger 24” extension for 4 ft holes $45  Auger cutter $10  Hand grinder to sharpen cutter $54.95  Grinding Wheels $5.95 about 4 per season.

24. Other post digging equipment  Steel handled post hole digger purchased at farm yard sale for $.50. Use for rocky sites.  Wooden handled post hole digger purchased at farm auction $5.00.  Flat headed pry bar (2) $20 from Big R supply for rocky sites.  16 Pound Mall with new $9 handle purchased at farm sale for $4.00.  79 dodge one ton purchased in 1985 at forest service sale in Missoula for $2,000.  Pack Mule and pack saddle to haul equipment up on rocks $4,000.  Number 2 shovel $25 Big R supply.

25. This unit with auger can probably put a hole down through asphalt. Cost is probably more than $50,000.

26. Conclusion  We have difficulty explaining the physical properties of the system to our customers when we use an average.  Typical provides a system we can explain and we can provide some decision information on the O & M which is the most glaring weakness in our present average system.

27. EFOTG SECTION ONE CTA Cost List  Practice number  Short description  Cost of the Practice  Life Span of the Practice  Operation and Maintenance Cost  Average Annual Cost of the Practice

28. EFOTG CTA COST LIST HAS TWO PURPOSES  Practice Cost is the basis for payment  The average annual cost is used to populate the ranking tool.

29. FY 2007 PROGRAM PAYMENT LIST  Use multiple practice lines as needed, big, small, east, west, etc.  Every cost list line will have an associated line on the CTA cost  Document we do not exceed program authority.

30. 2007 DOCUMENTING INCENTIVE PAYMENTS  Describe the opportunities.  Describe the barriers  Describe the strategy

31. PREPARING FOR 2008 Develop comprehensive practice cost. What are the barriers to implementation Information, education, research Permits, licenses Administration Risk Associated Costs

32. Barriers to moving to Incentive Payments basis.  Obligate FA  Meet Goals.  Obstacle example: $1000 FA. $150 TA  Currently paying $100 payment 10 contracts. TA $150  Reduce payment $50 payment 20 contracts. TA $150.

33. Questions