HomeMy WebLinkAbout03.d. Approve use of revised administrative overhead percentageCentral Contra Costa Sanitary District
' BOARD OF DIRECTORS •
POSITION PAPER
Board Meeting Date: March 21, 2013
Subject: APPROVE REVISED ADMINISTRATIVE OVERHEAD PERCENTAGE
FOR FISCAL YEAR 2013 -14
Submitted By: Thea Vassallo, CPA, CMA Initiating Dept. /Div.:
Thea Vassallo, CPA, CMA Administration /Finance & Accounting
Finance Manager
REVIEWED AND RECOMMENDED FOR BOARD ACTION :l
C. Swanson
Provisional General Manager
ISSUE: The Fiscal Year (FY) 2013 -14 calculation of administrative overhead
percentage resulted in a 26% increase over the prior year. The overhead rate
increased from 194% to 220 %. Subsequently, there has been concern from outside
agencies and the Engineering Department - Environmental Services Division in its
calculation of the annual update for the Environmental and Development - Related Rates
and Charges. Board approval is needed to revise the annually updated administrative
overhead percentage.
RECOMMENDATION: Approve the revised rate of administrative overhead percentage
of 196% which averages the last three years. The 196% will be used for billing outside
agencies and calculating the annual Environmental and Development - Related Rates
and Charges. See Attachment 1.
FINANCIAL IMPACTS: Modest increase in revenues.
ALTERNATIVES /CONSIDERATIONS: Continue to use the original administrative
overhead percentage of 220% calculated for FY 13 -14 which was reviewed by the
Budget and Finance Committee and approved at the January 10, 2013 Board meeting.
Consider an overhead rate increase other than the three -year average.
BACKGROUND: In prior years, the purpose of calculating administrative overhead,
non -work hours, and employee benefits rates was 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. The increase in administrative overhead was
12% for FY 13 -14 mainly due to an increase in indirect costs and a decrease in salaries
due to several retirements and unfilled positions. See summary in Attachment 1.
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POSITION PAPER
Board Meeting Date: March 21, 2013
Subject: APPROVE REVISED ADMINISTRATIVE OVERHEAD PERCENTAGE
FOR FISCAL YEAR 2013 -14
Employee benefits consist of costs associated with retirement pension payments,
medical premiums, deferred compensation contributions in lieu of social security and
other similar benefits expressed as a percent of salaries. The FY 12 -13 budgeted
employee benefit figures are used for this calculation since they include up -to -date
pension and healthcare rates. The increase in employee benefits was 14% for
FY 13 -14 mainly due to an increase in retirement of $2.6M and healthcare of $1.2M.
See summary in Attachment 1.
The FY 13 -14 overhead rate of 220% was approved by the Board at the January 10,
2013 Board Meeting. Subsequently, at the February 19, 2013 Budget and Finance
Committee meeting, Environmental Services staff discussed the FY 13 -14 Board
approved overhead rate and its effects on the Environmental and Development - Related
Rates and Charges. The Budget and Finance Committee received the District's five -
year history of overhead at the March 4, 2013 meeting. On March 18, 2013, the
Committee will review staff's recommendation that a three -year average be used for
billing outside agencies and in calculating the annual Environmental and Development -
Related Rates and Charges. The original overhead percentages will be used internally
for charging to capital projects. Staff plans to further look at the District's method of
calculating overhead next year for the FY 14 -15 budget to determine if the three -year
average should continue to be used or if further adjustments or changes to overhead
are recommended.
RECOMMENDED BOARD ACTION: Approve the revised rate of administrative
overhead percentage of 196 %, which averages the last three years, for FY 13 -14. The
196% will be used for billing outside agencies and calculating the annual Environmental
and Development - Related Rates and Charges.
Attachments:
1 — History of Overhead
C: \Users \danderson \Desktop \FINAL Revised OH rate 13 -14 (2).doc
Fiscal Year
Admin O/H
Non -Work Hours
Employee Benefits
Total Overhead %
CENTRAL CONTRA COSTA SANITARY DISTRICT
History of Overhead
09/10
10/11
11/12
12/13
13/14
98
98
93
105
117
19
19
19
18
18
61
61
61
71
85
178 178 173 194 220
Attachment 1
3 Yr
5 Yr
Average
Average
105.0
102.2
18.3
18.6
72.3
67.8
195.7 188.6
Recommend
07/08 audit 08/09 audit 09/10 audit 10/11 audit 11/12 audit`
Indirect Costs 19,122,692 20,554,231 19,991,441 22,176,335 24,548,295
Salaries 19,502,722 21,020,359 21,544,549 21,201,139 20,949,444
= Admin O/H % 0.98 0.98 0.93 1.05 1.17
*Note - Salaries are the denominator. Salaries were lower due to several retirements and unfilled positions.
(Higher denominator results in lower OH %, Lower denominator results in higher OH %)
Retirement
Healthcare
= Employee Benefit Increase
2,578,521
5.6%
1,155,621
11.6%
3,734,142
14.0%
3/8/2013