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HomeMy WebLinkAbout8.2 Draft PC&S Pricing Policy 4 . OF 1)U~~2 82 AGENDA STATEMENT HERITAGE AND CULTURAL ARTS COMMISSION MEETING DATE: September 9, 2010 SUBJECT: Draft Parks and Community Services Pricing Policy Report Prepared by Paul McCreary, Assistant Director of Parks and Communiry Services ATTACHMENTS: 1) Draft Pricing Policy RECOMMENDATION: Receive report and provide input FINANCIAL STATEMENT: None DESCRIPTION: 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 (#4 fl is to develop a cosf recovery policy. This is also a City Council high priority objective far this fiscal year. The purpose of the policy is to: • 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 identifying programs not generating the designated minimum cost recovery Attachment 1 is the draft Pricing Policy proposed by Staff. The draft 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. Following is an overview of the draft policy. BACKGROUND 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. COPIES TO: ITEM NO.: 8.2 G:U-IERITAGE COMMISSIONWGENDA_STMTS\2010\9A Item 82 Pricing Policy.doc 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 programs in a financially sustainable manner. It will promote the best investment of General Fund resources to maximize the benefits of programs to the greatest number of Dublin residents, and focus on initiatives or populations of priority to the City. The plan 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 below. FIGURE 1- FARKS AND COMMUNITY SERVKES COST RECOVERY AND PRIGNG MODEL DETERMINE: Costs Service Values Market Conditions Demand General Fund Capaciry DETERMINE MODIFICATIONS: SET COST RECOVERY Reduce Costs TARGETS Reduce Recovery Target Eliminate Program SET Fee too high? PRICING IMPLEMENT Unsuccessful? PRICING Successfui? EVALUATE IF: Cost Can 8e Reduced Remvery Can 8e Inaeased Determining 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 plan 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. 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. 2of5 Direct Service Costs • The fixed and variable costs necessary to operate a specific program • Includes seasonal part time staff, supplies, equipment, and contracted services Indirect 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 • Includes permanent staffing for customer service; program oversight by Coordinators, Supervisors, and Managers; and, other overhead supplies and services Indirect Department Administrative Costs • The share of the Department's executive management support • This includes permanent staffing technology, printing, advertising, internal service funds, credit card processing, etc. Indirect 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. • Includes facility attendants, supplies, utilities, contracted services, and repairs and maintenance Determining Service Values In order to maximize available General Fund resources to the greatest number of residents, the prioritization of how much of the direct and indirect 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 recreational swimming, Heritage Center tours or picnic area rentals. 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 3 of 5 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. Setting Cost Recoverv Targets and Establishing Prices 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". Staff will also set a"target cost recovery rate" which may be higher based on the market analysis. 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 fees charged by others and the demand far the activity to determine the feasibility of the proposed price. If the price is too high compared to the market and there is little demand far 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 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 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°/a to 20% to be consistent with facility rentals. 4of5 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. Discounts and Variable Pricin~ 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. Staff will be required to review the financial feasibility of variable pricing strategies before being approved by the Parks and Community Services Director. 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. 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 (listed below), 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: r,.s $20 $75 $400 $30 $100 $1,000 rn T $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. SUMMARY Staff will be presenting the document to the Department's Advisory Committees and Commissions to garner input on the draft policy. That input will be used to develop the final policy for City Council consideration on September 21, 2010. 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. RECOMMENDATION: Staff recommends that the Heritage and Cultural Arts Commission receive the report and provide input. 5 of 5