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Cost Recovery Model

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What is Cost Recovery

• Cost=Subsidy + Cost recovery

• Cost – all expenditures associated with a program

• Subsidy – how much of the cost of the unit is absorbed by someone other than the

consumer

• Cost recovery– All other revenue associated with the program

• Fees, grants, sponsors, etc.

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Why have a CR Policy?

• Est. a consistent and equitable pricing structure for the agency

• Helps policy makers see logic in price structure

• Shows distribution of services for all residents

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Cost Recovery Pyramid

• Designed for public agencies• Based on cost-benefit analysis

– Public, merit, private services• Most based on direct costs

– Some on indirect…unless indirects are tax supported

• Must be customized to the agency• Largest # of services at bottom, smallest at

top

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L 1: Mostly Community Benefit

• Largest level• Purpose

– Programs/parks to increase property value– Safety– Social needs– Quality of life

• Eg.– Low income, park development, marketing,

maintenance

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L 2: Considerable Community Benefit

• Purposes– Focus on skill building, introduce recreation– Individual & physical well being

• Programs– Drop in recreation– Ranger led activities– Beginner level instruction

• Traditionally expected programs• Heavy tax & minimal indiv reliance

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L 3: Balance Indiv/Comm Benefits

• Purposes– Intermediate skill building, recreation program

exposure• Programs

– Summer camps– Youth sports– Swim lessons

• Equitable tax & individual resources

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L 4: Considerable Individual Benefit

• Purpose– More specialized services– May be competitive

• Programs– Golf– Tennis leagues– Camp sites

• Considerable or complete cost recovery thru fees & charges (direct & indirect)

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L 5: Mostly Individual• Purpose

– Profit center potential– May be outside of core mission of agency– May be in enterprise fund

• Programs– Elite competitive sports– Facility rentals– Concessions

• Fully covered by individual• Recover direct, indirect & make a profit

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Example

• 5.Elite swimming or diving team

• 4. Swim team• 3. Swim lessons• 2. Pool• 1. Spray ground,

non-monitored lake

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Normal Parks & Recreation

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• Step 1 – Building on Your Organization’s Values, Vision, and Mission

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• Step 2 – Understanding the Pyramid Methodology, the Benefits Filter, and Secondary Filters

• Filters….

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Filter Definition

Benefit Who receives the benefit of the service? (Skill development, education, physical health, mental health, safety)

Access/Type of Service Is the service available to everyone equally? Is participation or eligibility restricted by diversity factors (i.e., age, ability, skill, financial)?

Organizational Responsibility Is it the organization’s responsibility or obligation to provide the service based upon mission, legal mandate, or other obligation or requirement?

Historical Expectations What have we always done that we cannot change?

Anticipated ImpactsWhat is the anticipated impact of the service on existing resources? On other users? On the environment? What is the anticipated impact of not providing the service?

Social Value What is the perceived social value of the service by constituents, city staff and leadership, and policy makers? Is it a community builder?

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• Step 3 – Developing the Organization’s Categories of Service

• Develop categories– Beginning instruction, special events

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• Step 4 – Placing the Categories of Service onto the Pyramid

– Place the programs on the pyramid keeping in mind the filters

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• Step 5 – Determining (or Confirming) Current Subsidy/Cost Recovery Levels– How prevalent is knowledge on cost recovery?– How do you track costs?

• Examples?

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• Step 6 – Defining Direct and Indirect Costs• Direct costs

– typically include all the specific, identifiable expenses associated with providing a service.

• Indirect costs– Overhead, administration– May be a percent assigned to recover

• Percent of indirect to recover???

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• Step 7 – Establishing Cost Recovery/Subsidy Goals

• Examples….

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• Review the programs at each level

• Agreement/disagreement among groups?