HomeMy WebLinkAboutStaff Report 356-07City of Palo Alto
City Manager’s Report
TO:
ATTN:
FROM:
DATE:
SUBJECT:
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
CITY MANAGER
SEPTEMBER 18, 2007
RECOMMENDATION TO
DEPARTMENT:
COUNCIL
COMMUNITY SERVICES
CMR: 356:07
TO ADOPT A RESOLUTION
APPROVING A CLASS COST RECOVERY POLICY APPLICABLE TO
COMMUNITY SERVICES DEPARTMENT CLASSES AND CAMPS
RECOMMENDATION
Staff requests the Finance Committee recommend to the City Council adoption of a resolution
approving a class cost recovery policy (Attachment A).
BACKGROUND
On October 17, 2006; the City Auditor presented’ to the Finance Committee an "Audit of
Community Selwices Department Class Cost Recovery". This audit covered fee-based classes
and camps encompassing recreation, arts, sciences, open space, and interpretive programs for
youth and adults. The audit findings concluded the Community Services Department (CSD)
recovered 97% of direct costs and 73% of full costs. "Direct cost" is defined as instructor
contracts, staff salaries, benefits, and supplies and materials. "Full cost" is inclusive of
department and citya¥ide overhead. Approximately $2.1M of $2.9M of full cost was recovered
through program fees, leaving about $750,000 in General Fund subsidy.
The audit findings resulted in a need for a policy choice on whether or not the City should
subsidize classes and, if so, to what level. The audit recommended that CSD should propose,
and the City Council adopt, a resolution regarding a cost recovery policy that includes cost
recovery goals for broad categories of CSD classes. Included for each category should be: (1) a
minimum level of acceptable cost recovery, (2) a target level of cost recovery, and (3) other fee
setting considerations.
At its October 17, 2006 meeting, the Finance Committee questioned the level of subsidy
provided by other cities and the fees charged by Palo Alto. The audit did not specifically address
the levels of subsidy by other cities, but did compare fees. During the audit, staff visited several
cities, including the City of San Mateo, which has implemented cost recovery targets by category
of classes. Palo Alto has set prices higher than other communities based on what the market
would support in comparison with other municipalities.
CMR:356:07 Page 1 of 3
In accepting the audit, the Finance Committee concluded that there is a need for a structured
policy to be in place. At the same time, the Finance Committee suggested staff propose a policy
with appropriate levels of subsidy, to be brought back to the Finance Committee. In addition, the
Committee voted unanimously to direct staff that $250,000 of the current subsidy be recovered.
Staff addressed this direction through fee increases in the 2007-09 Adopted Operating Budget.
An excerpt of the minutes from the October 17, 2006 Finance Committee meeting is in
Attachment B.
DISCUSSION
The proposed policy is based on a collaboration of CSD staff and is modeled on the City of San
Mateo’s cost recovery policy. Staff has developed the policy in consultation with the City
Auditor’s Office, Administrative Services Department, and City Attorney’s Office. On February
27, 2007, the Parks and Recreation Commission reviewed a draft of the policy, asked questions,
and offered feedback and support for the policy (Attachment C).
The policy consists of four broad categories of CSD programs, each with minimum and target
cost recovery levels. The four categories range from community benefit to personal benefit,
representing opposite ends of a cost recovery spectrum. Programs of Community Benefit are
those that provide a value desirable for the health and development of the Palo Alto community.
Some characteristics of community benefit programs are environmental stewardship, cultural
understanding, safety, and youth and teen development. Programs of personal benefit are those
that provide a value to individuals such as financial enhancement, leisure time experiences, and
professional development. Programs classified as being of community benefit wilt cost-recover
less than programs classified as being of personal benefit.
The cost recovery minimum and target levels are established in relation to a percentage of direct
cost, with 15% and 35% above direct cost representing department and citywide overhead
(indirect costs) respectively. Upon policy implementation and as program costs are evaluated,
cost recovery levels and percentages may be adjusted over time.
RESOURCE IMPACT
Over the next two years there is potential to cover 100 percent of direct costs and more than 35
percent of City overhead. In the longer term it’s difficult to estimate cost recovery levels due to
the ever changing economic environment, but the goal of the Community Services Department
and the intent of the policy is to, at the least, sustain cost recovery levels attained at the end of
two years, and, optimally, maximize cost recovery levels without jeopardizing participation and
the quality of the programs.
POLICY IMPLICATIONS
Adoption of a Community Services Department Class Cost Recovery Policy will provide
consistent direction to staff in determining an appropriate program mix, fee setting, and budget
expenditures.
ENVIRONMENTAL REVIEW
This recommendation is not a project under the California Environmental Quality Act.
CMR:356:07 Page 2 of 3
ATTACHMENTS
At-tachment A:
Attachment B:
Attachment C:
Attachment D:
Resolution
Draft Class Cost Recovery Policy
Except of Minutes from 10/17/06 Finance Committee meeting regarding
presentation of Audit of Community Services Department Class Cost
Recovery
Excerpt of Minutes from 2/27/07 Parks and Recreation Con/mission
meeting including presentation of Draft Class Cost Recovery Policy
PREPARED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
LAM DO
Senior Administrator,
Community Services Department
RICHARD
Director Services
Assistant City Manager
CMR:356:07 Page 3 of 3
NOT YET APPROVED Attachment A
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF PALO ALTO APPROVING A CLASS
COST RECOVERY POLICY APPLICABLE TO COMMUNITY SERVICES
DEPARTMENT CLASSES AND CAMPS
WHEREAS, the City of Palo Alto, through its divisions of Recreation & Golf,
Arts & Sciences, and Open Space & Parks, provides fee-based classes and camps, which the
Community Services Department (the "Department") offers as a part of its recreation, art,
science, and open space interpretative programs; and
WHEREAS, the Department’s strategic plan includes an initiative to concentrate
its financial and budgetary resources on sustaining and enhancing core services to the
community; and
WHEREAS, the Department has developed a Class Cost Recovery Policy (the
"Policy") that has guidelines directing classes and camps into cost recovery groups, each of
which has minimum and target cost recovery levels; and
WHEREAS, the Policy places classes and camps into one of the four cost
recovery groups, namely, Group I, commtmity benefit, Group II, majority community benefit,
Group III, equal community benefit and personal benefit, and Group IV, majority personal
benefit, such that the programs falling in the community benefit group will cost recover less than
programs falling in the personal benefit group; and
WHEREAS, the Parks and Recreation Commission provided to the Department
its feedback on the development of the Policy at its regular meeting held on February 27, 2007;
and
WHEREAS, the Finance Committee at its regular meeting held on September 18,
2007, provided its comments to City staff and approved such Policy, and any amendments
thereto, by a vote of A-Z;
NOW, THEREFORE, the Council of the City of Palo Alto does hereby
RESOLVE as follows:
SECTION 1. The Council hereby approves of the Community Services
Department’s Class Cost Recovery Policy, attached hereto and incorporated herein by reference
as "Exhibit A".
SECTION 2. The City Manager or. designee is authorized to continue to
establish and implement recreation, art, science, and open space interpretative programs, classes
and camps in accordance with the Class Cost Recovery Policy.
070904jb 0072970
NOT YET APPROVED
SECTION 3. The Council finds that the adoption of this resolution does not
constitute a project under the California Environmental Quality Act, and therefore no
environmental assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Community Services
Director of Administrative Services
070904jb 0072970 2
Draft Attachment B
Class Cost Recovery Policy
The Community Services Department (CSD) offers a variety of programs within its
various divisions such as recreational activities, arts and sciences classes, and open
space interpretive programs. The following Class Cost Recovery Policy is to be used as
a guideline to establish cost recovery targets for fee-based classes and camps within the
divisions of Recreation & Golf, Arts & Sciences, and Open Space & Parks.
Included in CSD’s Strategic Plan is an initiative to "focus energy and (budgetary)
resources on sustaining and enhancing core services". Through implementation of this
Class Cost Recovery Policy, the department aims to establish cost recovery levels while
providing core services and meeting the social needs of the community.
The policy takes into consideration: (1) minimum level of acceptable cost recovery, (2)
target level of cost recovery, and (3) fee setting considerations. Cost recovery levels are
inclusive of direct and indirect costs. Indirect costs include both department and City
overhead.
Although each program has set minimum and target cost recovery levels, other fee
setting considerations may factor into the pricing of registration fees. Fee setting
considerations may either increase or decrease fees and place cost recovery outside of
the minimum and target levels. These factors include, but are not limited to, market
rates, programs for those with special needs, new programs still being established, and
population served. However, within each of the three divisions offering fee-based
classes, the division-wide cost recovery should meet minimum cost recovery levels.
Once a program is determined to be within the purview of the Class Cost Recovery
Policy, program fees are to be established using the Class Cost Recovery Model and
adjusted as needed. The model is included in the pages to follow.
Each fee-based class or camp is placed in one of four Cost Recovery Groups. The
groups range from Community Benefit to Personal Benefit, representing opposite ends
of a cost recovery spectrum. Programs rated as Community Benefit will cost recover
less, while programs rated as Personal Benefit will cost recover more. This cost
structure is in line with the department’s mission statement: "Engaging individuals and
families to create a strong and healthy community, through parks, open space,
recreation, social service, arts, and sciences."
The four Cost Recovery Groups are:
Group I:
Group I1:
Group II1:
Group IV:
Community Benefit
Majority Community Benefit
Equal Community Benefit and Personal Benefit
Majority Personal Benefit
Division managers, along with input from program coordinators and supervisors,
determine the value of a class or camp for placement within one of the four groups.
1 Draft
Draft
Each group has a cost recovery range inclusive of a minimum cost recovery and a target
cost recovery.level. This detail is reflected in pages to follow.
On an annual basis, programs are to be reviewed to ensure the established cost
recovery levels are met and adjustments made.
Recovered Costs
Direct costs are expenses incurred in correlation to a class being offered. These costs
would not be incurred if a class were not offered. Typical direct costs are instructor fees
and supplies and materials.
Department indirect costs cover overhead costs incurred by the department for
administrative support, program supervision, utilities, and some maintenance. Some of
these costs would probably be incurred regardless whether a class is offered or not.
City indirect costs encompass citywide overhead, administrative, and facility
maintenance costs. Some of these costs would probably be incurred regardless of
whether a class is offered or not.
Department indirect cost is estimated to be 15% of direct cost while both department and
City indirect costs are estimated to be 35% of direct cost. Theses estimates are subject
to change as programs are reviewed and to reflect changing overhead costs.
2 Draft
Draft
Class Cost Recovery Model
This model is to be used by Program Coordinators, Supervisors, and Division Managers
to plan, evaluate program cost recovery, and determine expenses, revenues, and course
registration fees.
I
Retool Prograrn tO Ireduce cost~i I
Lower I
Recovery Targ?t; I
or Elimina!~ I
Program~
Unsuccessful Successful ?
Draft
Draft
Class Cost Recovery Guidelines
In conjunction with the Cost Recovery Model, the following guidelines are to be used to
place classes and camps into one of the four Cost Recovery Groups.
Process:
1)
2)
3)
Set a cost recovery range for each Cost Recovery Group, with minimum and
target recovery levels.
Evaluate and place each existing program in a Cost Recovery Group.
Determine guidelines to be used to place future new programming into a Cost
Recovery Group.
Parameters:
1)Apply to fee-based class and camp programs.
2)Generally, cost recovery for children’s programs will be less than adult programs.
3)Some programs may cost recover less than the minimum level. However, other
programs will need to make up for the difference.
4) Approximately 15% above Direct Costs covers Department Overhead, subject to
adjustment.
5) Approximately 35% above Direct Costs covers both Department and City Overhead,
subject to adjustment.
6) Other fee considerations should be taken into account, such as, but not limited to,
market pricing, competition from other service providers, new program being
established, and population served.
Cost Recover Gry~s, Cost Recovery Minimum and Cost Recover Tar ets:
Group I: Community Benefit
¯Cost Recovery Minimum:
¯Cost Recovery Target:
Group
Less than Direct Cost
Direct Cost
I1: Majority Community benefit
°Cost Recovery Minimum:
¯Cost Recovery Target:
Group
Direct Cost
115% Direct Cost
II1: Equal Community and Personal Benefit
¯Cost Recovery Minimum:
¯Cost Recovery Target:
115% Direct Cost
Up to 135% Direct Cost
Group IV: Majority Personal Benefit
¯Cost Recovery Minimum:
¯Cost Recovery Target:
135% Direct Cost
135% Direct Cost
4 Draft
Draft
Characteristics of Community Benefit vs. Personal Benefit programs
The four Cost Recovery Groups represent a cost recovery "spectrum". Programs
classified as being of Community Benefit will cost recover less than programs classified
as being of Personal Benefit.
Division managers, along with input from program coordinators and supervisors,
determine the value of a class or camp for placement within one of the four cost
recovery groups.
Group I:
Group I1:
Group II1:
Group IV:
Community Benefit
Majority Community Benefit
Equal Community Benefit and Personal Benefit
Majority Personal Benefit
Below are characteristics to define Community and Personal benefit, opposite ends of a
cost recovery "spectrum". The opposite ends are represented by Group I and IV. As
most programs have aspects of both benefits, they are placed within the spectrum in
either Group II or III.
Community Benefit Characteristics Personal Benefit Characteristics
Youth and Teen Development
Safety
Early Childhood Development
Environmental Stewardship
Fitness/Healthy Lifestyle for youth
Connecting / Involving People w/Community
Service Back to Community
Encourages Volunteerism
Cultural Understanding
Cross-Generational Understanding
Unique Experiences not provided by other
organizations
Life Skills for Self Independence
Diversity of Experience
Community Policing - Public Involvement
Sustaining our Resources
Leisure Time Experiences
Financial Enhancement
Stress Reduction
Mental / Physical Health for adults
Professional Development
Competitive Sports for adults
Personal Enhancement
Weight Loss
Fitness for adults
Fashion/Beauty/Personal Enhancement
Classes already provided by other
organizations for adults
Life-Long Learning
Skill Building
Social Networking / Contacts for
personal gain
Draft
Excerpt from October 17, 2007 Finance Committee Meeting Minutes
Attachment C
Regular Meeting
October 17, 2006
ADJOURNMENT:
Oral Communications .........................................................................................2
Audit of Community Services Department Class Cost Recovery ................2
Recommendation Regarding Rent Charged by the General Fund to the
Refuse Fund on Unopened Portions of Landfill ..............................................5
Options for Enhancing Revenues and Decreasing Expenses in the
General Fund with the Desired Outcome of Increasing Funding for
Infrastructure and other City Priorities ...........................................................9
Discussion for Future Meeting Schedules and Agendas ...............................17
The meeting adjourned at 9:40 p.m .........................................18
10/17/06 FIN:I
Chairperson Kishimoto called the meeting to order at 7:05 p.m. in the
Council Conference Room, 250 Hamilton Avenue, Palo Alto, California.
Present:Kishimoto, Beecham, Klein, IVlossar
Absent:None
1. Oral Communications
None.
2. Audit of Community Services Department Class Cost Recovery
City Auditor Sharon Erickson said the purpose of the review was to
determine to what extent the charges covered the cost of classes offered by
the City of Palo Alto. Staff found charges from the Community Services
Department (CSD) classes covered approximately $2.1 million of the $2.9
million full cost, which left approximately $750,000 in unrecovered costs.
The result was a policy choice as to whether or not the City wanted to
subsidize classes and to what level. Staff’s recommendation was that the
policy choices go to the Council, the targets be set, and staff would adjust
class prices. Staff found three other subsidiary issues: 1) the large number
of refunds and transfers impacted staff work load; 2) minimum enrollment
targets were not always consistently set or met; and 3) the differential that
Palo Alto charged for nonresidents fees was sometimes lower than other
cities.
Senior Accountant Renata Falk said the Auditor’s Office reviewed 18 broad
categories of classes using data from fiscal year 2004-05. Eight categories
recovered direct costs, and one category recovered the full costs. Reference
was made to pages 11 and 12 of the Audit of Community Services
Department Class Cost Recovery, which listed the 18 categories. The
Auditor’s Office found a cost recovery policy would be helpful on providing
guidance as to what type of classes the community might like subsidized
versus classes that participants should bear more of the cost. The
recommendation is that CSD should propose, and the City Council should
adopt, a cost recovery policy that includes goals for broad categories of
Community Services classes. :Included for each category would be: 1)
minimum level of acceptable cost recovery; 2) a target level of cost
recovery; and 3) other fee-setting considerations. The Auditor’s Office
recommended the CSD should annually review and document the actual cost
recovery results for broad categories of classes and use the data for setting
prices accordingly. Another recommendation is that C, SD do the following:
1) set prices that take into consideration the cost recovery policy adopted by
10/17/06 FIN:2
the City Council; 2) provide staff with updated templates to facilitate price-
setting; and 3) retain price setting templates to document the assumptions
underlying pricing decisions. The Auditor’s Office found the number of
cancelled classes increased the number of refunds. Refunds generated work
and administrative services where a check needed to be issued. The
Auditor’s Office recommended the CSD should reduce the number of
cancelled classes and track the percentage of classes offered that are
canceled. Another recommendation was that CSD should decide on a
reasonable amount of time classes remain open in the CLASS system after a
quarter ends and ensure the system is closed timely. The Auditor’s Office
looked at minimum enrollment targets and found there were minimum
targets for each class but they were not consistently met. The
recommendation was that CSD establish minimum enrollment levels that
relate to cost recovery goals and criteria be documented to be used to
decide whether to offer a class that does not meet its minimum enrollment
requirement. The Auditor’s Office found the differential Palo Alto charged for
nonresident class participants was lower than that of several nearby cities,
and recommended that CSD consider increasing the class price differential
for nonresidents, when it was reasonable, in the context of market pricing
and reliance on nonresident enrollment.
Director of Community Services Department Richard .]ames said the most
significant recommendation was for the Council to set a cost recovery policy.
The fee reduction program was in place. Money was lost when people took
the reduction in price.
Council Member Mossar clarified the direct costs included salary and
benefits.
Ms. Falk said the direct costs included salary and benefits if the costs were
relevant, i.e., a City employee teaching a class.
Administrative Services Director Carl Yeats said only the portion of costs
included in the allocated cost being sent to the department were in the
budget.
Mr. Benest said prices would go up if 100 percent if cost recovery were
added.
Ms. Erickson said future costs were not included.
Council Member Klein questioned whether other cities subsidized classes to
the same level as Palo Alto.
10/17/06 FIN:3
Ms. Falk said staff did not look specifically at the level of subsidies in other
cities but only looked at prices of classes.
Ms. Erickson said staff visited the City of San Mateo, who was implementing
the cost recovery targets by category of classes.
Council Member Klein questioned whether the Council or the department
made any conscious decisions about the level of subsidy.
Ms. Falk said the last policy in Palo Alto was in the early 1990s, which
appeared to be a Citywide policy approved after an extensive cost recovery
study.
Council Member Klein questioned why Palo Alto’s prices were higher than in
other communities.
Mr. ]ames said the prices were what the market would support. Staff
checked prices in other communities on a regular basis and, traditionally,
prices .were set higher than other communities.
Ms. Erickson said the Auditor’s Office did not make a recommendation as to
where the City should go. The first thing necessary to be done was to
decide, as a community, what types of classes should be subsidized. That
was a policy decision the Auditor’s Office could not determine.
Council Member Mossar questioned when the Finance Committee should
have the conversation about the target for the next year.
Council Member Beecham said the Finance Committee needed to talk about
the overall policy on the General Fund subsidy for individuals.
Council Member Klein said his suggestion was that Mr. James makes a
proposal to the Finance Committee as to what CSD felt were appropriate
levels of subsidies.
Chairperson Kishimoto clarified the Finance Committee would make a
recommendation on a macro target.
Council Member Beecham said a scheme that provided rationale was
needed. One approach was that the General Fund subsidized individuals and
the classes.
Council Member Mossar said AYSO paid a small portion of what it cost the
City to maintain the fields that AYSO used.
10/17/06 FIN:4
Chairperson Kishimoto said she noticed only 40 percent of classes were
signed up online and questioned whether there were incentives to sign up
online.
Mr..lames said availability of signing up online at any time was an
advantage. Online registrations cost the City less because less staff would be
needed. CSD aimed for 50-60 percent online registrations.
Chairperson Kishimoto suggested CSD staff look at incentives for getting
more people to register online. She also noted that Palo Alto was one of the
only communities with an Art Center and questioned whether there was any
regional pooling or marketing of classes.
Mr..]ames said Palo Alto was in the top of the country as far as variety of
programs.
Council Member Mossar agreed a policy was necessary but suggested asking
for the course offerings, the goal, and the purpose.
Mr. _lames said the Strategic Plan addressed many of Council Member
Mossar’s questions.
Ms. Erickson suggested the Finance Committee accept the report and staff
would follow through with the recommendations. The Auditor’s Office
followed up once a year with open audit recommendations.
Mr..]ames hoped to implement the recommendations during the next budget
cycle.
MOTION: Council Member Beecham moved, seconded by Mossar, that the
Community Services Department come back to the Finance Committee with
an allocation scheme to recover $250,000 in the budget from the current
subsidy, showing what impact it would have on the classes, and that the
Community Services Department provi,de rationale for the recommendation
through the policy.
MOTION PASSED 4-0.
Recommendation Regarding Rent Charged by the General Fund to the
Refuse Fund on Unopened Portions of Landfill.
Director of Administrative Services Carl Yeats said staff brought an audit
recommendation on collecting past land fill rent, which was the rent on
1 O/17/06 FIN: 5
Playing Areas - Charleson & Losch
Culture of Fitness - Trailer
Strategic Funding - Losch
APPROVED
Appointment of Commission representative to the PlanninR and
Transportation/Park and Recreation Commission revie~v of the Draft FY2007-
2011 Capital Improvement Project Bud~oet
Staff Betts requested a volunteer from the Commissioners who would be interested
in being a representative for the PARC. The first meeting is scheduled for April 12th
from 3pm - 5pro. Commissioner Losch volunteered and Commissioner Charleson
volunteered to be alternate.
COMMENTS AND ANNOUNCEMENTS:
1. Staff Betts announced the ribbon cutting for the Arastradero Gateway Educational
Facility. There will be an Open House on March 3rd from Noon - 4pm.
2. Staff Betts announced that there were five more candidates for the open PARC
commissioner positions. The Commissioners were encouraged to advise the council
with any recommendations. The names and dates for interviews would be sent to the
existing commissioners when announced.
3. An invitation for all Commissioners to attend a meeting on Roche Emergency and
Sustainability progams was handed out. The date will be February 28, 2007 at 4pro.
4. Staff Betts announced that the Commissioners would be receiving a request to fill out
the annual Form 700 - Business Conflict of interest statement. The deadline for this
is set for April 2. Staff Betts reminded the Commissioners that they would need to
send back signed even if they didn’t have anything to claim.
5. Date for the Joint Council Study Session is set for April 23, 2007.
TENTATIVE AGENDA FOR MARCH 27, 2007 MEETING
,~" r,~,o~.,~,,,, Vice Chair - Postponed until the April meeting
4. Status repo~ on 10,000 Step Challenge
6.Activities Coordinated by Canopy which suppo~ Parks, Open Space and Golf
Facilities
ADJOURNMENT
Adjourned at 8:20 pm
February 30, 2007 APPROVED PARC Minutes 2