Raftelis led efforts to prepare an indirect cost study and cost allocation plan for the City of Key West. The primary purpose of the project was to identify and allocate the cost of providing services internally, quantifying and capturing the cost of services provided by the City’s General Fund to the enterprise funds and internal services funds, and to ensure that each department and fund and department has its true cost identified. The City’s General Fund is supported by ad valorem tax revenue, charges for services, intergovernmental revenue, and various fees and charges.
The project entailed completing a series of interviews with City staff to gather information, identify costs, and determine reasonable methods of cost allocation, developing an Excel-based cost allocation model to calculate the proportionate share of costs to each fund, providing instruction and training to City staff on the use of the Excel tool, and documenting the cost allocation methodology in a report.
The steps in the process included:
Each department was identified and classified as Support, Recipient or Support/Recipient depending upon whether it provided services to other departments or whether it was a recipient of General Fund services. Budgeted operating expenses by department were used as a starting point for determining the allocable costs. Cost were allocated using a variety of allocation methods, including number of full-time equivalent staff, number of computer seats, revenue of each department, budgeted cost of each department, among others. The cost allocation methodology that was developed for the City is shown the diagram below.
Once the cost allocation methodology was developed, we prepared a Microsoft Excel tool that is used by the City to update the cost allocations on an annual basis. We also prepared a document that described the cost allocation methodology in detail.
In addition to the development of the indirect cost allocation plan, we assisted the City in establish a methodology for calculating payment-in-lieu-of taxes, franchise fees, and right-of-way fees as a way for the General Fund to recover costs the government enterprises.