The URL can be used to link to this page

Home My WebLink About8.3 Parks Service Pricing PolicyG~~~ OF Dp~~y /// ~ '`~~~~~ STAFF REPORT C I T Y C L E R K ``~~ ~ DUBLIN CITY COUNCIL File # ~LIFOR~ ~~~~_~~ DATE: September 21, 2010 TO: Honorable Mayor and City Councilmembers FROM: Joni Pattillo, City Manager SUBJECT: Parks and Community Services Pricing Policy Prepared By: Paul McCreary, Assistant Director of Parks and Community Services EXECUTIVE SUMMARY: The City Council will receive a report on the proposed pricing policy for programs and services conducted by the Parks and Community Services Department. FINANCIAL IMPACT: It is unknown at this time how much additional revenue could be generated annually if this policy is adopted by the City Council. The policy would be implemented as part of the Fiscal Year 2011-2012 budget preparation at which time the estimated increase in revenue would be determined. RECOMMENDATION: It is Staff's recommendation that the City Council adopt the proposed Pricing Policy or provide alternate direction to Staff. ,~ ~~,~ Submitted by: Parks and Community Services Director Reviewed by: Assistant City Manager Page 1 of 6 ITEM NO. g~.?J' BACKGROUND: In November 2008 the City Council adopted the Parks and Community Services Strategic Plan. This long range planning document identified seven strategies to focus on over the next ten years. One of the strategic goals (#4fl is to develop a cost recovery policy. This is also a City Council high priority objective (Goal III.A.1) for this fiscal year. The purpose of the policy is to: • Formalize the structure for calculating fees charged for Department services • Establish cost recovery levels with a clearer connection between core service values, the population served and the level of community benefit • Promote the best investment of General Fund resources • Provide a system for tracking the financial performance and identif in generating the designated minimum cost recovery y 9 programs not Attachment 1 is the proposed Pricing Policy. The proposed Pricing Policy is based on best practices used by other municipalities and recommendations from continuing education experts on establishing prices for community education and recreational activities. The following is an overview of the draft policy. Due to the economic recession the City has experienced a significant decrease in revenues from property tax, sales tax and interest earnings, as well as takeaways by the State of California. Prior to the decrease in these revenues the City was able to absorb most of the indirect costs of providing recreational services. However it has been estimated the City may face multi-million dollar deficits for several years. In order to have the least impact on services and achieve a structurally balanced budget, one strategy is to develop a Pricing Policy to increase cost recovery for services generally provided to specific populations. This Pricing Policy will provide guidance for annual adjustments to service fees. It will identify what services should recover 100% of the total cost (direct and indirect costs) of providing a service, and objective criteria for pricing services at lower levels. Establishing a Pricing Policy will allow the City of Dublin to continue to provide high-quality services in a financially sustainable manner. It will promote the best investment of General Fund resources to maximize the benefits of services to the greatest number of Dublin residents, and focus on initiatives or populations of priority to the City. The policy will continue to value preferential access and fee discounts to Dublin residents. OVERVIEW OF THE PRICING AND COST RECOVERY MODEL The Policy establishes guidance for Staff to have the flexibility to adjust fees to maximize revenue and differentiate pricing in response to fluctuations in the market or demand. It will also provide the ability to package programs and provide discounts to increase participation and/or promote new programs. The Policy is based on the "Parks and Community Services Cost Recovery and Pricing Model" depicted in Figure 1 on the following page. Page 2 of 6 FIGURE 1- PARKS AND COMMUNlTY SERVICES C~ST RECOVERY RfUt~ PRlC1NG MODEL DETERMINE: Costs Service Ualues Markei Conditions Demand General Fund Capacity DETERMINE ~ MODIFICATIONS: ---- Reduce Costs SET COST RECOVERY Reduce Recovery Target TARGETS Eliminate Program __._._ SET Fee too high? PRICtNG ~ IMPLEMENT Unsuccessfu!? PRICtNG EVAWATE IF: Cosr Can Be Reduced Recovery Con Belncreased Determinina Costs Direct costs by nature are usually easy to identify and relate to a specific service. However this is not the case for indirect costs. This policy will help to determine the total cost of providing a specific service by developing a system for allocating indirect costs to direct program costs. Direct costs are those solely associated with a particular service, such as After School Recreation, Swim Lessons, Adult Basketball Leagues, or the First Saturday events at the Heritage Center. Indirect costs are not identified with one particular service and are typically incurred for a joint purpose that benefits more than one service within the Department. The total cost of a service is the sum of the following direct and indirect costs. Direct Service Costs ~ The fixed and variable costs necessary to operate a specific program • Includes seasonal part time staff, supplies, equipment, and contracted services lndirect Program Coordination Costs • The fixed resources for the service area (i.e. Sports, Family Services, Preschool, Teens, Heritage and Cultural Arts, etc.) that do not vary with program participation • lncludes permanent staffing for customer service; program oversight by Coordinators, Supervisors, and Managers; and, other overhead supplies and services lndirect Department Administrative Costs • The share of the Department's executive management support • This includes permanent staffing, techno% gy, printing, advertising, intemal service funds, credit card processing, etc. lndirect Facility Overhead Costs • The day-to-day costs to keep the facility open and provide facility supervision, as well as on-going maintenance, repairs and equipment replacement. • lncludes facility attendants, supplies, utilities, contracted services, and repairs and maintenance Page 3 of 6 Determinina Service Values In order to maximize available General Fund resources to the greatest number of residents, the prioritization of how much of the total costs each service must recover is based on the: • Type of service • Target population • Level of community benefit and participation • Availability of alternative providers These criteria will be used by Staff to assign each Department service to one of three priority groups. These categories are used to set the minimum cost recovery rate for each activity. The following describes in more detail the criteria Staff will use to categorize services into the three priority levels. Priority 1- Core/Essential Services (Minimum Cost Recovery Rate: 0%) Priority 1 services have the lowest level of cost recovery and include activities that provide larger community benefit and can be accessed by the broadest cross section of the population. The public expects the City to provide these services and they are usually not provided by others. These services may be provided to a targeted population and/or be essential to the health, safety or livability of the community. Residents would consider these program subsidies a sound investment of public funds. Programs that may fit this category include some community events or senior services. Priority 2- Important Services (Minimum Cost Recovery Rate: 30%) Priority 2 services have mid-range cost recovery targets and include activities that provide some community benefit as well as individual or group benefit, and serve a significant number of residents. These programs service the needs of youth or seniors. The services may expand or enhance health and safety, or contribute to economic and community vitality. Although there may be other providers of these services, they can't provide residents with the same level of accessibility, efficiency or effectiveness as the City's services. Important services may include after school programs, preschool classes, swimming lessons, or the St. Patrick's Day Celebration. Priority 3- Discretionary Services (Minimum Cost Recovery Rate: 60%) Priority 3 services are discretionary and have the highest level of cost recovery. These activities serve a moderate number of residents, providing benefit to the individual or group, and minimal benefit to the greater community. They are typically specialized, and may be provided by the private sector or other agencies with the same level of accessibility, efficiency and effectiveness as the City's programs. These services are nice to have when additional funding is available. The public may not typically expect the City to provide these services, which may provide value beyond what is expected of the City. Examples of Priority 3 services include contracted specialty classes and camps, letters from Santa, concert series or adult sports leagues. Settina Cost Recoverv Tarpets and Establishinp Pri~es With the total costs identified and each activity categorized into a service riorit price is set for each activity. As noted each riori p Y group, then the Staff will also set a"target cost recovery rate" whichumay be higherubasedt oncthe mrate". analysis. When setting the price to be within the cost recovery range identified for the p iority level of the service, Staff will need to evaluate the fees charged by others and the demand for the activity to determine the feasibility of the proposed price. Page 4 of 6 If the price is too high compared to the market and there is little demand for the program, Staff will need to take one or more of the following actions: • Evaluate the feasibility of reducing costs • Provide a justification to the Department Administration for reducing the fee • Propose elimination of the activity the Department Administration If applying the Pricing Policy to an existing program will result in a significant fee increase in one year, Staff could also consider implementing the fee increase over a two or three year period. When conducting the market analysis, if the target price is below the market average, Staff should consider increasing the price to improve cost recove activity has high demand Staff should also determine if th myarketllwill bear a~feeeincrease to improve cost recovery. Annually, Staff will present the proposed pricing to the Heritage and Cultural Arts Commission and the Parks and Community Services Commission for a adopted Resolutions that gave the responsibility for ado tin proval. Past City Councils have Community Services Commission (Resolution #50-93) and the Her t ges ndt Cutural Arts Commission (Resolution #75-06) for programs under their respective purviews. During the ear the Parks and Community Services Director can adjust fees as long as cost-recovery ran es and target rates are maintained. This will allow for Staff to respond to fluctuations in the ma ket and demand, and provide the flexibility to package programs to increase participation and/or promote new programs. Any mid-year fee increase exceeding 10.0 percent will require the approval of the respective Commission. OTHER PRICING CONSIDERATIONS Non-Resident Rates Historically fees charged for non-residents compared to Dublin residents have been 15% more for programs, and 20% for facility rentals. Under the new Pricing Policy fees for non-resident programs will increase from 15% to 20% to be consistent with facility rentals. Following adoption of the Pricing Policy, Staff will update the City's promotional materials to re- package how these fee differentials are resented. surcharge" the differential will be featured as a"resident discount".t Thisbs a more nositesident of marketing the concept. p ve way Discounts and Variable Pricin As noted there will be situations when it is desirable to adjust the approved fee for a pro ram. The Parks and Community Services Director is authorized to offer reduced fees su h a introductory rates, family discounts and coupon discounts, or non prime-time pricin on a il S basis (not to exceed 18 months) to promote new recreation programs or resurrect exs tin oneot Other potential pricing strategies could include early registration discounts, in which the gurres price would be the early price, and the fee for regular registration would be higher. Packa nt discounts would lower the fee for customers that register for a group of classes. Staff will ge required to review the financial feasibility of variable ricin strate ies before bein a be the Parks and Community Services Director. p g g J pproved by Page 5 of 6 GUIDELINES FOR CHANGING PRICES The Learning Resources Network (LERN) is an international association of people who coordinate lifelong learning classes and recreation programs. The organization has over 40 years of research on best practices, and in particular has done extensive research on consumer response to pricing strategies. LERN has determined the psychological price breaks for community classes and pro rams. These are the points at which if the City raises the fee beyond a price point (listed below registration will decrease by an amount more than proportional to the price increase. Basicall the market grows accustomed to y Additionally the perception of the pncel aff ctse henpr~i e~po nt~r For ertain type of program. above $0.99 will cause demand to fall because people perceive $1.00 saa significant~ly h p hee price. This is sometimes referred to as "odd-number" ricin Accordin to LERN ricin g for community education and recreation are as followsp g g p 9 points $10Q ' $50 $200 $4,000 When raising fees Staff should consider where the existing fee is in relation to the price breaks and try to stay under the price break if possible. LERN also recommends trying to change only one digit of the price and making it end in a"5" or "9". For example if the price of an existing activity is $50, Staff could lower the fee to $49 to stay under the price break, end the price in a"9" and only change one digit. Alternatively, Staff could raise the price to $55 or $59 and meet the guidelines recommended by LERN. SUMMARY Staff presented the draft Pricing Policy to the Parks and Community Services Commission, the Heritage and Cultural Arts Commission and the Senior Center Advisory Committee to arner input. All three groups supported the policy as presented. Recurring comments from the Commissioners and Committee Members included that the policy was needed, well thou ht out and would position the Department to be more entrepreneurial. g If adopted by the City Council, Staff will work on the implementation of the policy as part of the Fiscal Year 2011-2012 budget preparation process. NOTICING REQUIREMENTS/PUBLIC OUTREACH: A copy of the Staff Report was distributed to the Heritage and Cultural Arts Commission Park , and Community Services Commission, and Senior Center Advisory Committee. S ATTACHMENTS: 1. Proposed Pricing Policy Page 6 of 6 ~~~~ M . . ~, ., . __ ;~4UU 1 a ~~~ ~ ~~ ~. ~ CITY OF DUBLIN PARKS & COMMIJNiTY SERVICES PRICIN~ PCJLI~Y ~ ~~+':x.~,~ 'yt § ; ~~$ ° sr ~~: >h' dw'~ Se3 ~ l~ .i.. ~> ~ ~ ~ ~i^ ~ . ~ ~` ~~..~ ~ ~ . ,.. , , ,,. . ..;_~ 5°"r e The City of Dublin promotes and supports a high quality of life which ensures a safe and secure environment that fosters new opportunities. ATTACHMENT 1 8• ~ ~-a~-~o a~~~ CITY OF DUBLIN Parks and Community Services Pricing Policy ACKNOWLEDGMENTS Tim Sbranti, Mayor Kasie Hildenbrand, Vice Mayor Don Biddle Kevin Hart Kate Ann Scholz Steve Jones, Chairperson Rich Guarienti, Vice Chairperson Alan Elias Angela Muetterties Anthony Totaro Matthew Reinemann, Student Commissioner Joni Pattillo, City Manager Chris Foss, Assistant City Manager Steve Minniear, Chairperson Sonal Nuckols, Vice Chairperson Anita Carr Kim Halket Connie Mack Dayna Tutino Georgean Vonheeder Leopold Diane Lowart, Parks and Community Services Director Paul McCreary, Assistant Director of Parks and Community Services Herma Lichtenstein, Parks and Facilities Development Manager John Hartnett, Heritage and Cultural Arts Manager Written by~ Paul McCreary, Assistant Director of Parks and Community~ Serti~ices B~sec~ or! polie~ies establislier~ l~~y t~~e eities of Davis, Moi~i~tai~~ View, Scrs~ Lir~is Dbis}~o anct San Mateo CITY OF DUBLIN 3~~ ~-~ Parks and tommunity Services Pricing Policy ~ i~~t~~~ t:~~ ~ tFt~~~~~~~ OVERVIEW ....................... ........ ...... Purpose of the Policy ...................... ................................................................................. 2 . .......................................................................................3 Summary of Cost Recovery and Pricing Model ....... ................................................................3 DETERMINING PROGRAM COSTS ..... . Direct and Indirect Program Costs ... ................................. .............................................. 5 ..... Direct Sen~ice Costs ............. ..................................................................................5 ............................ ....................................................................5 Indirect Program Coordination Costs ... Indirect Departrrtent Administrati ...............................................................................5 C Indirect Facilit~ Overhead Costs ... ve osts ......................................................................... 5 ....... Allocating Indirect Costs .......... ................................................................. ............... 5 ...... .......................................................................................5 SETTING COST REC~VERY TARGETS .. .. Calculating Cost Recovery Rate ......... ...... ........................................ ..... $ Prioritizing Service Values .......... .............. ................................................................... 8 ....... Priority 1- Core/Essential Services ......................................................................................8 . Priority 2 - Important Services ...... .....................................................................................8 . Priority 3 - Discretionary Services ... ......................................................................................9 ..... ................................................................................9 SETTING PRICES..........., ....... .............. Establishing Proposed Prices ........... ............. ......................................... ............].0 ........... .. Non-Resident Rates .............. ...................................................................................10 ............. Discounts and Variable Pricing ........... ...................................................................................10 ....... uidelines for Changing Prices .......... .....................................................................:. 11 ..... ... ................................................................................12 Page ~1 ~l ~ ~ ~ c'T" °F Parks and Community Services Pricing Policy DUBLIN mmunit Services Pa rks ~ ~o y Pricin Polic~/ ~ OVERVIEW Due to the economic recession the City has experienced a significant decrease in revenues from property tax, sales tax and interest earnings, as well as takeaways by the State of California. In the past these revenues allowed the City absorb most of the indirect costs of providing recreational services. However it has been estimated the City will face multi-million dollar deficits for several years. The City Council has already approved millions in prudent budget reductions to bridge the gap, and if revenues do not increase significantly the City's General Fund-supported services may be subject to greater reductions. In order to have the least impact on services and achieve a structurally balanced budget one strategy is to develop a Pricing Policy to increase cost recovery for services generally provided to specific populations. This Pricing Policy will provide guidance for annual adjustments to service fees. It will identify what services should recover 100% of the total cost (direct and indirect costs) of providing a service, and objective criteria for pricing services at lower levels. If a user-fee activity is not completely cost recovered, a General Fund operating subsidy is necessary. There are reasons for subsidies, such as activities that provide a greater community benefit. The level of cost recovery should consider the community-wide versus specia~VS ~elservi cesr while u erogees aoe appropriatee use of General Fund revenues is appropriate for community for services that are of special benefit to easily identified individuals or groups. Additional reasons to subsidize services include the desire of the City to target a specific population or activity, as well as for promotion and marketing benefits. Establishing a Pricing Policy will allow the City of Dublin to continue to provide high-quality programs in a financially sustainable manner. It will maximize the benefits of programs to the greatest number of Dublin residents, and focus on initiatives or populations of priority to the City. The policy will continue to value preferential access and fee discounts to Dublin residents. Page ~2 4~3~i g, .~~~~~~ CITY OF DUBLIN Parks and Community Services Pricing Policy The Parks and Community Services Strategic Plan identified a strategic goal (#4f) to develop a pricing policy. This will establish cost recovery levels and goals for programs and accomplish the following: • Formalize the structure for calculating fees • Establish cost recovery levels with a clearer connection between core service values, the population served and the level of community benefit • Promote the best investment of General Fund resources • Provide a system for tracking the financial performance and identif in the designated minimum cost recovery Y g programs not generating The Pricing Policy is based on best practices used by other municipalities and recommendations from continuing education experts on program pricing. The Policy establishes guidance for Staff to have the flexibility to adjust fees to maximize revenue and differentiate pricing in response to fluctuations in the market or demand. It will also provide the ability to package programs and provide discounts to increase participation and/or promote new programs. The Policy is based on the "Parks and Community Services Cost Recovery and Pricing Model" depicted in Figure 1 below. FIGURE 1- PARKS AND COt~9M(INITY SERVlCES C'tJST RECOVfRY AND PRlCING MODE1 DETERMINE: Cosis Service ~alues Markei Condirions Demand Genera! Fund Capacity DETERMINE MODIFICATIONS: Reduce Costs Reduce Recovery Target Eliminote Program Fee too SET COST RECOVERY TARGETS SET PRICING IMPLEMENT PRICING EVALUATE IF: Cosr Can Be Reduced Recovery Can Be Increosed Page ~3 (~ ~~ 1~ c~n oF parks and Community Services Pricing Policy DUBLIN In recognition of the wide variety of service values and revenue generating potential of various activities, Staff will assign each activity to one of three "service priority groups" based upon an assessment of service and cost recovery values. Specific cost recovery thresholds will be established for each service priority group and include both minimum and target levels of cost recovery. "Priority 1" activities will provide the greatest community-wide benefit and will have lower cost recovery targets than "Priority 3" activities which provide more of an individual or small group benefit, and therefore will have higher cost recovery thresholds. Cost recovery for activities directed to adults should be relatively high. While cost recovery for youth and senior activities should be relatively low. In those circumstances where services are similar to those provided in the private sector, cost recovery levels should be higher. Activities within each priority group will be reviewed and where appropriate may include specific considerations that may supersede the cost recovery thresholds identified for the group. Considerations could include market rates and demand, benchmarking to a specific competitor, the availability of alternative providers, or collection of fees is not cost effective. Both the Heritage and Cultural Arts Commission a a~ts Follow ng~the doption of the newoPricing Policy the annually adopt a Master Fee Resolutions for prog Commissions will still adopt annual Fee Resolutions. Howeee~'that no fee increasel may exceed 10%h the authority to adjust program fees during the fiscal year; exc p without the approval of the appropriate Commission. Additionally as part of the annual fee adoption process, the Commissions will review the performance of each activity compared to the Pricing Policy and make recommendations for adjustments to the Pricing Policy as deemed appropriate. The City Council must approve any future changes to the adopted Pricing Policy. Following the adoption of the Pricing Policy, strategies for achieving the target cost recovery rate will be established by Staff for each program area. These strategies may include immediate or gradual action depending upon the best interests of maintaining a strong program, achieving the target within a reasonable time period and current market conditions. Activities that do not meet the minimum cost recovery threshold will be reviewed by Staff to determine whether it is feasible to reduce costs or if the cost recovery target can be adjusted. Otherwise Staff will recommend eliminating the activity. For activities that exceed the cost recovery thresholds, Staff will determine the feasibility of increasing the cost recovery target. P a g e ~ 4 ~~~e~ CITY OF ~UBLIN 7~~ ~~ Parks and Community Services Pricing Policy DETERMINING PROGRAM COSTS Direct costs by nature are usually easy to identify and relate to a specific service. However this is not the case for indirect costs. This policy will help to determine the total cost of providing a specific service by developing a system for allocating indirect costs to direct cost programs. Direct costs are those solely associated with a particular service, such as After School Recreation, Swim Lessons, Adult Basketball Leagues, or the First Saturday events at the Heritage Center. lndirect costs are not identified with one particular service and are typically incurred for a joint purpose that benefits more than one service within the Department. The total cost of a service is the sum of the following direct and indirect costs. Direct Serz~ice Co~.ts • The fixed and variable costs necessary to operate a specific program • Includes seasonal part time staff, supplies, equipment, and contracted services Ir~rlirerl Pt~ogrr~ir~ Cot~rrlirr~fitic~u C~s~fs • The fixed resources for the service area (i.e. Sports, Family Services, Preschool, Teens, Heritage and Cultural Arts, etc.) that do not vary with program participation • Includes permanent staffing for customer service; program oversight by Coordinators, Supervisors, and Managers; and, other overhead supplies and services l~rrlirect Depi~~-tfrrnfrt Arlrrrzrlistrc~tiz~e Costs • The share of the Department's executive management support • This includes permanent staffing, technology, printing, pdvertising, internal service funds, credit card processing, etc. L-rrlirect Fczc~ility Oz~e~•he~~d Costs • The day-to-day costs to keep the facility open and provide facility supervision, as well as on- going maintenance, repairs and equipment replacement. • lncludes facility attendants, supplies, utilities, contracted services, and repairs and maintenance Allocating Indirect Costs Allocating indirect costs requires creating indirect cost rates or overhead rates for each of the cost areas identified above. The indirect cost rate is simply the ratio between indirect and direct costs. By applying the overall indirect cost rate to any specific direct cost program, the total cost of the program can be determined. Following is an example using the Preschool Program. Page ~5 g~~~ CITY OF Parks and Community Services Pricing Policy DUBLIN T'ABLE 1- FY 2010-2011 INDIPEt: L' OVERHEAD RATE FOR PRESCHOOL COORDINATION Direct Preschool Service Costs (A) $220,318 Indirect Preschool Service Costs (B) $93,572 Indirect Preschool Overhead Rate (= B/ A) .••••••••••• 0.424716 Dividing the indirect service costs by the direct service costs calculates the indirect overhead rate for the preschool division of the Department. In essence for every dollar of direct expenditures there is an additional $0.42 in cost for indirect preschool program coordination. In addition to the indirect program coordination costs, there are indirect department administration costs. For Fiscal Year 2010-2011 the indirect department overhead rate is 0.182916 of a program's total direct and indirect costs. Using the example above for preschool: TABLE 2-~`Y 2010-2011 DFPAR~I'MENT AD~7INLS"~RAT~VE OVERHEAD IZATE FOIZ PRFSCHDf3L Total Preschool Program Costs (A) ............................. $313,890 Indirect Department Admin Rate (B) .........................0.182916 Indirect Department Admin Costs (= A x B) ............... $57,416 Allocating indirect costs via an indirect cost rate assumes that all indirect costs are incurred proportionately to the direct cost of the program. However, this may not be a reasonable assumption in all cases, as the benefit received from certain types of support services may be more closely related to an indicator other than cost, such as program length or perbased on an hou lyrate persquare foot of seeforlrooms u~sed by allocates indirect facility overhead costs multiple programs, or based on a per squarld Glen Act vity Center~.eF~ollown g showpthe calculat onsfoh the preschool space in Shannon and the Emera Facility Overhead Costs for preschool. 'lABLE 3- F]` 2010-2U11 F'ACLLITY OPERAT101~'S O VEIZHEAD CO5TS $39~250 Activity Center Direct/Indirect Costs (A) ............................................... .......................................100% Percent of Square Feet for Preschool (B).....••••••••••••• Activity Center Facility Overhead Cost for Preschool (A x 8= C) ................. $39,250 $349,758 Shannon Center Direct/Indirect Costs (D) ................................................. Percent of Square Feet for Preschool (E) ...........................................................26% , 91, 230 Shannon Center Fac-lity Overhead Cost for Preschool (D x E= F) .............. ................................. $130,480 Total Preschool Facility Overhead Costs (= C+ F) Since the Preschool has exclusive use of these facilities 100% of these overhead costs are assigned to the preschool program. If multiple programs were using a room, then an hourly overhead rate would be assigned instead. The hourly overhead rate would be calculated by dividing the total overhead costs for a room by the annual usable hours for the facility (i.e. daily from 8:00 a.m. to 10:00 p.m.). Page ~6 9~~ ~~ ~~ CITY OF DUBLIN Parks ar~d Community Services Pricing Policy Based on the above example the following is a summary of the total cost of the preschool program for Fiscal Year 2010-2011: Tf1 BLE 4-£Y 2010-20Z 1 TOTAL PRESCHOOL PROGRANI COSTS Direct Preschool Program Costs ................................. $220,318 Indirect Preschool Coordination Costs ......................... $93,572 Indirect Department Administrative Costs .................. $57,416 Facility Overhead Costs .............................................. $130,483 Total Preschool Program Costs ............................... $501,789 This policy recognizes the principle that the cost of developing the information necessary to perform the cost allocations should not exceed the benefits likely to be gained. Calculating hourly facility overhead rates and the annual indirect cost rates is relatively easy using the EDEN finance and enterprise resource planning (ERP) system and the CLASS facility booking system. In a true cost accounting system, indirect costs would be calculated and allocated on an ongoing basis throughout the fiscal year based on actual costs. However frequent updating in a municipality would not serve any specific purpose such as price control in a manufacturing company, and would consume significant staffing resources. Therefore the indirect cost rates will be prepared annually as part of the budget preparation process. Page ~7 /a ~6 l'~ cirr oF DuBr.iN Parks and Community Services Pricing Policy SETTING C~ST RECOVERY TARGETS Once the total cost of a program has been identified there needs to be a method t hereven e collected for level of cost recovery for eac h activi ty. To c a l c u l a t e t h e c o s t r e c o v e r y r a t e, d i v i d e t a service by the tota l cost of providin g the service (including direct, indirect and facility overhead costs). The following is an example using the preschool again. lABLE 5- FY 2010-2017 PRESCHOOL PROGRAt~1 COST IZECOVERY RATE Total Preschool Revenue (A) $403,530 ............. $501,789 Total Preschool Program Costs (B)..••••••••••••••••••••••••••• B ......................................... Cost Recovery Rate (= A/ ) gp~~ The cost recovery rate determines how much a e~ g om he Gene al Fund revenue (user fees, sponsorships, grants, etc.) and how much subsidy will be need In order to maximize available General Fund resources to the greatest number of residents, the prioritization of subsidies is based on the: . Type of service . Target population . Level of community benefit and participation • Availability of alternative providers These criteria will be used by Staff to assign each Department service to one of three priority groups. These categories are used to set the minimum cost recovery rate and the targeted cost recovery rate for each activity. The following describes in more detail the criteria Staff will use to categorize services into the three priority levels. Priority 1 - Core/Essential Services Minimum Cost Recovery Rate: 0~ Priority 1 services have the lowest level of cost recovery and include activities that provide larger community benefit and can be accessed by the broadest cross section of the population. The public expects the City to provide these services and they are usually not provided by others. These services may be provided to a targeted population and/or be essential to the health, safety or livability of the community. Residents would consider these program subsidies a sound investment of public funds. Programs that may fit this category include recreational swimming , Heritage Center tours or picnic area rentals. page ~8 ~~ CITY OF DUBLW Priority 2 - Important Services Minimum Cost Recovery Rate: 30% i~~~~ Parks and Community Servites Pricing Policy Priority 2 services have mid-range cost recovery targets and include activities that provide some community benefit as well as individual or group benefit, and serve a significant number of residents. These programs service the needs of youth or seniors. The services may expand or enhance health and safety, or contribute to economic and community vitality. Although there may be other providers of these services, they can't provide residents with the same level of accessibility, efficiency or effectiveness as the City's services. Important services may include after school programs, preschool classes, swimming lessons, or the St. Patrick's Day Celebration. Priority 3 - Discretionary Services Minimum Cost Recovery Rate: 60% Priority 3 services are discretionary and have the highest level of cost recovery targets. These activities serve a moderate number of residents, providing benefit to the individual or group, and minimal benefit to the greater community. They are typically specialized, and may be provided by the private sector or other agencies with the same level of accessibility, efficiency and effectiveness as the City's programs. These services are nice to have when additional funding is available. The public may not typically expect the City to provide these services, which may provide value beyond what is expected of the City. Examples of Priority 3 services include contracted specialty classes and camps, letters from Santa, concert series or adult sports leagues. Page ~9 i~ ~~ ~~ CITY OF DuBL~N SETTING PRICES Parks and Community Services Pricing Policy With the total costs identified and each activity categorized into a service priority group, Staff can then set the price for each activity. As noted each priority group has a minimum cost recovery rate and a targeted cost recovery rate. When setting the price to be within the cost recovery range identified for the priority level of the service, Staff will need to evaluate the market rates and demand for the activity to determine the feasibility of the proposed price. If the price is too highre of t e follow ng act oensand there is little demand for the program, Staff will need to take one or mo . Evaluate the feasibility of reducing costs • Provide a justification to the Department Administration for reducing the fee . Propose elimination of the activity the Department Administration If applying the Pricing Policy to an existing program will result in a significant fee increase in one year, Staff could also consider implementing the fee increase over a two or three year period. When conducting the market analysis, if the target price is below the market average Staff should consider increasing the price to improve cost recovery, yet still remain competitive. If an activity has high demand Staff should also determine if the market will bear a fee increase to improve cost recovery. Annually, Staff will present the proposed pricing to the Heritage and Cultural Arts Commission and Parks and Community Services Commission for approval. During the year the Parks and Community Services Director can set and adjust fees as long as cost-recovery ranges and target rates are maintained. This will allow for Staff to respond to fluctuations in the market and demand, and provide the flexibility to package programs to increase participation and/or promote new p~mrun t Service'sComm ssion rease exceeding 10.0 percent will require the approval of the Parks and Co Y Historically fees charged for non-residents compared to Dublin residents havnon res dent programs will programs, and 20% for facility rentals. Under the new Pricing Policy fees for increase from 15°/o to 20% to be consistent with facility rentals. The Parks and Community Services Director is authorized to reduce or eliminate non-resident fee differentials when it can be demonstrated that: . The fee is reducing attendance and there are no appreciable expenditure savings from the reduced attendance. . It may be impractical or too costly to establish a system to identify and charge non-resident users. For example, checking residency status for drop-in activities that do not require pre-registration, such as Recreational Swimming, is impractical. Page ~10 ~~} ~ ~ ~ ~ ~P~ ~ CITY OF DUBLIN Parks and Community Services Pricing Policy Following adoption of the Pricing Policy, Staff will update the City's promotional materials to re-package how these fee differentials are presented. Rather than being a"non-resident surcharge" the differential will be featured as a"resident discount". This is a more positive way of marketing the concept. The Learning Resources Network (LERN) is an international association of people who coordinate lifelong learning classes and recreation programs. The organization has over 40 years of research on best practices, and in particular has a wealth of knowledge regarding pricing and marketing. Staff has reviewed information and training materials from LERN and has developed the variable pricing component of this policy based on the best practices recommended by LERN. As noted there will be situations when it is desirable to adjust the approved fee for a program. The Parks and Community Services Director is authorized to offer reduced fees such as introductory rates, family discounts and coupon discounts, or non prime-time pricing on a pilot basis (not to exceed 18 months) to promote new recreation programs or resurrect existing ones. Other potential pricing strategies could include early registration discounts, in which the current price would be the early price, and the fee for regular registration would be higher. Package discounts would lower the fee for customers that register for a group of classes. It can be shown that targeted, short-term discounts, for certain programs may be effective at garnering more participation. However Staff should be cautious about lowering prices permanently or across the board as a way to increase registration. In a recession enrollments drop, but those who still register are probably willing to pay the same or even higher prices because they need the class or service. Thus there can be less risk in boosting prices than in lowering them. For example there is an activity with a registration fee of $95 and 25 participants, and at that participation level the City nets $950 after paying direct expenses. If the fee were lowered to $75 there would need to be seven (28%) more registrations for the City to net the same amount. Alternatively if the price was raised to $125 then registrations could drop by six (24%) and still have the same level of income and profitability. Table 6 outlines this concept. TABLE b- COMPARISOt~' OF t'ROFITABIL(T}' AT L041'FR ANL1 HIGHF.R PRICING CURRENT LOWER HIGHER PRICE PRICE PRICE Registration Fee $95 $75 $125 Number of Registrations 25 32 19 Revenue Collected $2,375 $2,400 $2,375 Contract Payment (60% of revenue) $1,425 $1,440 $1,425 Net to City $950 $960 $950 Page ~ il ~~ ~ S ~ ~`~ ~~ DUBLIN Parks and Community Services Pricing Policy Staff will be required to review the financial feasibility of variable pricing strategies before being approved by the Parks and Community Services Director. LERN has done extensive research on consumer response to pricing strategies. They have determined psychological price breaks for community classes and programs. These are the points at which if the City raises the fee beyond a price point, registration will decrease by an amount more than proportional to the price increase. Basically the market grows accustomed to paying a certain amount for a certain type of program. Additionally the perception of the price affects the price point. For example raising a price above $0.99 will cause demand to fall because people perceive $1.00 as a significantly higher price. This is sometimes referred to as "odd-number" pricing. According to LERN pricing points for community education and recreation are as follows: $1p $50 $300 $20 $~5 $400 $25 $gp $500 $30 $100 $1,000 $40 $150 $50 $200 When raising fees Staff should consider where the existing fee is in relation to the price breaks and try to stay under the price break if possible. Additionally LERN recommends trying to change only one digit of the price and making it end in a"5" or "9". For example if the price of an existing activity is $50, Staff could lower the fee to $49 to stay under the price break, end the price in a"9" and only change one digit. Alternatively, Staff could raise the price to $55 or $59 and meet the guidelines recommended by LERN. P a g e ~ 12