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

2. 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.

3. Indirect Cost Allocation Plan
Allocating Overhead Functions
Indirect Cost Allocation Plan

4. 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.

5. 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

6. Productive Hourly Rates
Calculating Fully Loaded Costs
Productive Hourly Rates

7. 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 = $ per hour

8. 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

9. Calculating the Full Cost of Town Services
User Fee Study

10. 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

11. 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.

12. Available Cost Recovery
Full Cost
Current Revenue
Potential Additional Revenue (for full cost recovery)
Building
$ 1,569,388
$ ,354,800
$ ,588
Planning
$ ,239
$ ,685
$ ,554
Engineering
$ ,741
$ ,000
$ ,741
Park Facilities
$ ,800
$ ,000
$ ,800
Totals
$ 2,141,168
$ ,784,485
$ ,683

13. 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).

14. 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.

15. Results of Planning Analysis

16. 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.

17. 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).

18. Comparing Costs and Revenues

19. 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

20. 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.

21. 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.

22. 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)

23. 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

24. 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”

25. 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”

26. Building Fee Comparisons

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

28. Building Cost Comparison

29. Planning Cost Comparison

30. Engineering Cost Comparison

31. 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.

32. 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.

33. Happy to Take Questions
Thank you.
Happy to Take Questions