HomeMy WebLinkAbout05. Administrative Overhead Percentage for FY 2016-17Central Contra Costa Sanitary District
BOARD OF DIRECTORS
POSITION PAPER
Board Meeting Date: December 17, 2015
5.
Subject: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE OF
216% FOR FISCAL YEAR 2016 -17
Submitted By: Initiating Dept.lDiv.:
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.
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 calculating 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
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 was consistent with other agencies and jurisdictions, so there was no
Page 1 of 3
[FA
POSITION PAPER
Board Meeting Date: December 17, 2015
Subject: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE OF
216% FOR FISCAL YEAR 2016 -17
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
Fiscal Year (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 employee benefits component
• OPEB contribution for active employees and retirees
• Retiree premiums
• 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
• 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 be used for billing outside
agencies, calculating the annual Environmental and Development 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 2016 -17, 2015-
16 and 2014 -15.
Page 2 of 3
POSITION PAPER
Board Meeting Date: December 17, 2015
Subject: APPROVE UPDATED ADMINISTRATIVE OVERHEAD PERCENTAGE OF
216% FOR FISCAL YEAR 2016 -17
ALTERNATIVES /CONSIDERATIONS: The administrative overhead calculation
methodology could be modified resulting in an increased or reduced percentage. 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.
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.
COMMITTEE RECOMMENDATION: The proposed three -year smoothed
administrative overhead percentage of 216% for FY 2016 -17 was reviewed by the
Finance Committee at its December 8, 2015 meeting. The Committee recommended
Board approval.
RECOMMENDED BOARD ACTION: Approve the use of the administrative overhead
percentage of 216% for FY 2016 -17.
Attached Supporting Documents:
1. Administrative Overhead Summary for FY 2016 -17
Page 3 of 3
ATTACHMENT 1
Central Contra Costa Sanitary District
Administrative Overhead Summary
For the 2016 -17 Budget - Calculated using 2014 -2015 Audited Financial Statements
Comparison of Rate Before Smoothing
Current Year
2014 -2015
Increase
Employee Benefits
Calculation
Last Year
Two Years ago
Year
2016 -2017
2015 -2016
2014 -2015
Employee Benefits
113.04%
100.26%
80.89%
Administrative Overhead
106.63%
99.12%
94.92%
Non -work Hours
18.12%
17.95%
18.00%
Total
237.79%
217.34%
193.81%
Smoothed Rate
216%
206%
194%
Admin Overhead:
3 year
2 year
Inception
Comparison of Rate Before Smoothing
2015 -2016
2014 -2015
Increase
Employee Benefits
113%
100%
13%
Administrative Overhead
107%,
99%
8%
Non -work Hours
18%
18%
0%
Total
238%
217%
20%
Summary of Increases
Variance in total is due to
Employee Benefits:
rounding
Employee Benefits:
Retirement rate increases & additional $5M UAAL contribution 11%
All other combined variances 2%
Total 13%
Admin Overhead:
Salaries & Technical Services due to filling of vacancies
Increase in retirement contribution
OPEB retiree premiums paid & all other
Total
Comparison of Rate Before Smoothing (Prior Year)
2014 -2015
2013 -2014
Increase
Employee Benefits
100%
81%
19%
Administrative Overhead
99%
95%
4%
Non -work Hours
18%
18%
0%
Total
217%
194%
23%
Summary of Increases
Employee Benefits:
Retirement rate increases & additional $5M UAAL contribution
19%
Admin Overhead:
Additional Admin allocation for additional $5M UAAL payment
4%
C:\ Users \danderson\AppData \Local \Microsoft \Windows \Temporary Internet Files \Content.Outlook \IM9F5ZMU \Copy of Attachment 1 to PP.xlsx