HomeMy WebLinkAbout03.d. Approve updated Administrative Overhead Percentage for FY 2013-14Central Contra Costa Sanitary District ' BOARD OF DIRECTORS POSITION PAPER Board Meeting Date: January 10, 2013 subject: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE FOR FISCAL YEAR 2013 -14 Submitted By Initiating Dept. /Div.; Thea Vassallo, Finance Manager Administrative / Finance & Accounting REVIEWED AND RECOMMENDED FOR BOARD ACTION; T. Vassallo Ann Farrell, General Manager ISSUE: Board approval is requested to adopt the annually updated administrative overhead percentage. RECOMMENDATION: Approve the use of the administrative overhead percentage of 220% for Fiscal Year 2013 -14. FINANCIAL IMPACTS: The administrative overhead percentage is calculated annually for the purpose of recovering administrative overhead and employee benefit costs when charging to capital projects, recovering full costs for services provided to another agency, company or developer, and for customer billings involving labor costs. ALTERNATIVES /CONSIDERATIONS: The administrative overhead calculation methodology could be modified resulting in an increased or reduced percentage. This is not recommended as a modification to the methodology would likely raise questions and objections due to a lack of consistency. BACKGROUND: In an effort to set the rate early enough to be used for the calculation of rates and charges and the negotiation of the Clean Water Program contract, staff brings the annual updated percentage to the Board every year by the first meeting in January. The purpose of calculating administrative overhead, non -work hours, and employee benefits rates is to follow the Board's direction for the District to recover the full cost of the direct services it provides. Administrative overhead consists of indirect costs that are incurred for a common purpose benefiting more than one task. Indirect costs include expenses such as Administrative Department expenses, General Manager, and Department Director salaries and benefits, secretarial salaries and benefits, self- insurance fund expense, depreciation expense, and the GASB 45 annual contribution, including retiree healthcare premiums. N:\ADMINSUP\ADMIN \FINANCE MANAGER \Position Papers\2012\2013 -2014 Admin OH Position Paper- draft.docPage 1 of 2 POSITION PAPER Board Meeting Date: January 10, 2013 subject APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE FOR FISCAL YEAR 2013 -14 Non -work hours consist of the value of vacation, sick leave, administrative leave, birthday holiday, and earned overtime expressed as a percent of salaries. Employee benefits consist of costs associated with retirement pension payments, medical premiums, deferred compensation contribution in lieu of social security and other similar benefits expressed as a percent of salaries. The 2012 -13 budgeted employee benefit figures are used for this calculation since they include up -to -date pension and healthcare rates. The total overhead percentage is calculated using the most recent audited financials. The total overhead percentage approved last year for use in the 2012 -13 budget was 194 %. This year, based on the 2011 -12 audited financial statements and the 2012 -13 budgeted employee benefits, the calculation results in an administrative overhead percentage of 220% which would take effect in 2013 -14. The current calculation of the administrative overhead portion is higher mainly due to the GASB 45 OPEB Annual Required Contribution (ARC) increasing from $7.0 million to $8.3 million. Administrative staff employee benefits, technical services and legal services cost increases also increased this component of total overhead. The employee benefits calculation increase is due to substantial increases in pension contributions (due to the second phase of de- pooling that increased our terminal pay assumption) and healthcare premium increases. For the 2013 -14 Fiscal Year, the following rate would apply: Administrative Overhead Non -Work Hours Employee Benefits Total Overhead Recommended Prior Year for 2013 -14 2012 -13 117% 105% 18% 18% 85% 71% 220% 194% The Administrative Overhead Percentage for FY 2013 -14 was reviewed by the Budget and Finance Committee at the January 7, 2013 meeting. RECOMMENDED BOARD ACTION: Approve the use of the administrative overhead percentage of 220% for Fiscal Year 2013 -14. N:\ADMINSUPWDMIN \FINANCE MANAGER1Position Papers\2012\2013 -2014 Admin OH Position Paper- draft.docPage 2 of 2