HomeMy WebLinkAbout04. Updated Administrative Overhead PercentageCentral Contra Costa Sanitary District
' BOARD OF DIRECTORS
POSITION PAPER
Board Meeting Date: December 18, 2014
Subject., APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE OF
206% FOR FISCAL YEAR 2015 -16
Submitted By. Initiating Dept. /Div.:
Thea Vassallo, CPA, CMA Administration /Finance & Accounting
Finance Manager
REVIEWED AND RECOMMENDED FOR BOARD ACTION:
Roger S. Bailey
General Manager
ISSUE: Board approval is needed to revise the annually updated administrative
overhead percentage in order to recover the full cost of the indirect services provided by
the District.
RECOMMENDATION: Approve the use of the administrative overhead percentage of
206% for Fiscal Year (FY) 2015 -16.
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.
However, the District's calculation methodology was reviewed in detail using an outside
consultant and was modified last year. It is not recommended to modify the method
again as the new method was Board approved in April 2014. A modification to the
methodology would likely raise questions and objections due to a lack of consistency
and volatility in the rate.
BACKGROUND: In prior years, the purpose of calculating administrative overhead,
employee benefits, and non -work hours rates was to follow the Board's direction for the
District to recover the full cost of the indirect services it provides. 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.
Administrative overhead consists of all administrative indirect costs for the entire District
that are incurred for a common purpose benefiting more than one task. This rate
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POSITION PAPER
Board Meeting Date: December 18, 2014
Subject: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE OF
206% FOR FISCAL YEAR 2015 -16
includes retiree premiums, administration portion of Other Post - Employment Benefits
(OPEB) trust contributions for active and retired employees, and any additional
Unfunded Actuarial Accrued Liability (UAAL) payments allocated to administration.
Employee benefits consists 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.
Non -work hours consists of the value of vacation, sick leave, administrative leave,
birthday holiday, and earned overtime expressed as a percentage of annual work
hours.
During 2013, District staff in conjunction with Matrix Consulting Group (Matrix) reviewed
the methodology used by the District and analyzed other allowable methods used to
calculate overhead. Matrix issued its report in March 2014, which stated that the
methodology that the District previously used was compliant with state and federal
guidelines, and is consistent with other agencies and jurisdictions, so there was no
immediate need for change. It was suggested by several Board Members that staff
conduct further analysis as to the District's methodology for calculating the
administrative overhead percentage prior to presenting the matter for consideration for
FY 2014 -15. Consequently, District staff, with the help of Matrix, had proposed and
recommended a slightly different methodology for calculating the administrative
overhead percentage for FY 2014 -15 and beyond. The four main items addressed by
District staff and the consultant included the treatment of the following:
• Use of audited or budgeted benefits for the Benefits component
• Treatment of OPEB contribution for active employees and retirees
• Treatment of retiree premiums
• Treatment of additional UAAL payments
On April 3, 2014 the Board approved the following:
A change /clarification in methodology for calculating the District's administrative
overhead percentage, commencing with FY 2014 -15 as follows:
• Use audited benefits for the Benefits component of the calculation
• Allocate the OPEB contribution for active employees and retirees to their
respective departments, and include only the administrative portion in the
administrative component
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POSITION PAPER
Board Meeting Date: December 18, 2014
Subject: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE OF
206% FOR FISCAL YEAR 2015 -16
• Continue to treat retiree premiums as indirect, and include them in the
administrative overhead component
• Allocate any additional UAAL payments to their respective departments, and
include only the administrative portion in the administrative overhead component.
2. A single administrative overhead percentage of 194% for FY 2014 -15 to be used
for billing outside agencies, calculating the annual Environmental and
Development - Related Rates and Charges, and for internal use in charging to
Capital Projects (administrative and non -work hours percentages used); and
3. A three -year smoothing methodology going forward to adjust for volatility in the
rate, using FY 2014 -15 as the base year. The rate for FY 2015 -16 would be
based on two years and it would not be until FY 2016 -17 that an actual three -
year smoothing would be able to be utilized.
See Attachment 1 for an administrative overhead summary for the FYs 2015 -16 and
2014 -15.
COMMITTEE RECOMMENDATION: The proposed administrative overhead
percentage of 206% for FY 2015 -16 was reviewed by the Finance Committee at its
December 8, 2014 meeting. The Committee recommended Board approval.
RECOMMENDED BOARD ACTION: Approve the use of the administrative overhead
percentage of 206% for FY 2015 -16.
Attached Suoaortinq Documents:
1. Administrative Overhead Summary for FY 2015 -16
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Attachment 1
Central Contra Costa Sanitary District
Administrative Overhead Summary for FY 2015 -16
For the FY 2015 -16 Budget - Calculated using FY 2013 -14 Audited Financial Statements
Smoothed 2 -year Rate 206%
Comparison of Rate Before Smoothing 2014 -2015 2013 -2014
Employee Benefits 100% 81%
Administrative Overhead 99% 95%
Non -work Hours 18% 18%
Total 217% 194%
Summary of Increases
Employee Benefits
Retirement rate increases & additional UAAL contribution ( Admin deducted)
Administrative Overhead
Additional Admin allocation for additional UAAL payment
Inrrcaco
19%
4%
0%
24%
19 %1
4 %1
Last Year's for
Current Calculation
Comparison (For
- For 2015 -2016
2014 -2015)
Variance
Employee Benefits
100.26%
80.89%
19%
Administrative Overhead
99.12%
94.92%
4%
Non -work Hours
17.95%
18.00%
0%
217.33%
193.81%
24%
Smoothed 2 -year Rate 206%
Comparison of Rate Before Smoothing 2014 -2015 2013 -2014
Employee Benefits 100% 81%
Administrative Overhead 99% 95%
Non -work Hours 18% 18%
Total 217% 194%
Summary of Increases
Employee Benefits
Retirement rate increases & additional UAAL contribution ( Admin deducted)
Administrative Overhead
Additional Admin allocation for additional UAAL payment
Inrrcaco
19%
4%
0%
24%
19 %1
4 %1