HomeMy WebLinkAbout7.2 P&CS Draft Pricing Policy 11/C��111;
19 --�/,8� AGENDA STATEMENT
v 1�� SENIOR CENTER ADVISORY COMMITTEE
?i/FO MEETING DATE: September 2, 2010
SUBJECT: Parks and Community Services Draft Pricing Policy
Report Prepared by Paul McCreary, Assistant Director of Parks
and Community 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 (#4f) is to develop a cost recovery policy.
This is also a City Council high priority objective this 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.
Staff will be presenting the conceptual plan to the Department's Advisory Committees and Commissions
to gamer 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 the Advisory Committee receive the report and provide
input.
COPIES TO:
• ITEM NO.: 7.2
G:\SRADVCMTE\Statements\2010\9-2-10 Item 7 2 PCS Services Pricing Policypm.doc
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DUBLIN
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PARKS & COMMUNITY SERVICES
CONCEPTUAL PRICING POLICY
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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
6ITY OF
DUBLIN Parks and Community Services Conceptual Pricing Policy
ACKNOWLEDGMENTS •
City Council
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Tim Sbranti, Mayor
Kasie Hildenbrand,Vice Mayor •
Don Biddle
Kevin Hart •
Kate Ann Scholz •
Parks and Community Services Heritage and Cultural Arts
Commission
Commission
Steve Jones, Chairperson Steve Minniear, Chairperson
Rich Guarienti,Vice Chairperson
Sonal Nuckols,Vice Chairperson
A
Alan Elias Anita Carr
Kim Halket
Angela Muetterties
Connie Mack
Anthony Totaro
Matthew Reinemann,Student Commissioner Dayna Tutino -
Georgean Vonheeder Leopold
City of Dublin Executive Staff
Joni Pattillo,City Manager
Chris Foss,Assistant City Manager •
Department Management Staff
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
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Written by Paul McCreary, Assistant Director of Parks and Community Services
Based on policies established by the cities of Davis, Mountain View, San Luis Obispo and
San Mateo
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DCITY Of
UBLIN Parks and Community Services Conceptual Pricing Policy
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Table of Contents
OVERVIEW 2
Purpose of the Policy 3
Summary of Cost Recovery and Pricing Model 3
DETERMINING PROGRAM COSTS 5
Direct and Indirect Program Costs 5
Direct Service Costs 5
Indirect Program Coordination Costs 5
Indirect Department Administrative Costs 5
Indirect Facility Overhead Costs 5
Allocating Indirect Costs 5
SETTING COST RECOVERY TARGETS 8
Calculating Cost Recovery Rate 8
Prioritizing Service Values 8
Priority 1—Core/Essential Services 8
Priority 2—Important Services 9
Priority 3—Discretionary Services 9
SETTING PRICES 10
Establishing Proposed Prices 10
Non-Resident Rates 10
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Discounts and Variable Pricing 11
Guidelines for Changing Prices 12
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CITY OF
LUBLIN Parks and Community Services Conceptual Pricing Policy
& Community
Parks Services
Conceptual Pricing Policy
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 special service nature of the program or activity. The •
use of General Fund revenues is appropriate for community-wide services,while user fees are appropriate
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 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.•
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Df1Tr Of
UBLIN Parks and Community Services Conceptual Pricing Policy
Purpose of the 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 identifying programs not generating
the designated minimum cost recovery
Summary of Cost Recovery and Pricing Model
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 COMMUNITY SERVICES COST RECOVERY AND PRICING MODEL
DETERMINE:
Costs
Service Values
Market Conditions
Demand
General Fund Capacity
DETERMINE
MODIFICATIONS: I SET COST RECOVERY I
Reduce Costs TARGETS
Reduce Recovery Target
• Eliminate Program
^ I I SET
Fee too high? PRICING
IMPLEMENT
Unsuccessful? PRICING Successful?
EVALUATE IF:
Cost Can Be Reduced —
. • Recovery Can Be Increased
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CITY OF
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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 and the Parks and Community Services Commission
annually adopt a Master Fee Resolutions for programs. Following the adoption of the new Pricing Policy the
Commissions will still adopt annual Fee Resolutions. However,the Resolutions will provide Staff with the
authority to adjust program fees during the fiscal year; except that no fee increase may exceed 10%during
the fiscal year without the approval of the Commissions. 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.
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UBLIN Parks and Community Services Conceptual Pricing Policy
DETERMINING PROGRAM COSTS
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Direct and Indirect 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 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.
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
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.
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TABLE 1-FY 2010-2011 INDIRECT OVERHEAD RATE FOR PRESCHOOL COORDEVATION
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'-FY 2010-2011 DEPARTMENT ADMINISTRATIVE OVERHEAD RATE FOR PRESCHOOL
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 percentage of square feet of dedicated space. The Pricing Plan
allocates indirect facility overhead costs based on an hourly rate per square foot of use for rooms used by
multiple programs,or based on a per square foot cost for spaces dedicated to one program,such as the
preschool space in Shannon and the Emerald Glen Activity Center. Following shows the calculation for the
Facility Overhead Costs for preschool.
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TABLE 3-FY 2010-2011 FACILITY OPERATIONS OVERHEAD COSTS
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Activity Center Direct/Indirect Costs (A) $39,250
Percent of Square Feet for Preschool (B) 100%
Activity Center Facility Overhead Cost for Preschool(A x B=C) $39,250 •
Shannon Center Direct/Indirect Costs(D) $349,758
Percent of Square Feet for Preschool (E) 26%
Shannon Center Facility Overhead Cost for Preschool(D x E=F) $91,230
Total Preschool Facility Overhead Costs (=C+F) $130,480
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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.).
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DPITY OF
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Based on the above example the following is a summary of the total cost of the preschool program for
Fiscal Year 2010-2011:
TABLE 4-FY 2010-2011 TOTAL PRESCHOOL PROGRAM.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
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This plan 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.
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DCM OF
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SETTING COST RECOVERY TARGETS
Calculating Cost Recovery Rate
Once the total cost of a program has been identified there needs to be a method to determine the desired
level of cost recovery for each activity: To calculate the cost recovery rate, divide the revenue collected for
a service by the total cost of providing the service (including direct, indirect and facility overhead costs).
The following is an example using the preschool again.
TABLE 5-FY2010-2011 PRESCHOOL PROGRAM COST RECOVERY RATE
Total Preschool Revenue(A) $403,530
Total Preschool Program Costs (B) $501,789
Cost Recovery Rate (=A/B) 80%
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The cost recovery rate determines how much a program must generate in revenue (user fees, sponsorships,
grants,etc.)and how much subsidy will be needed from the General Fund.
Prioritizing Service Values
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
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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 serves 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. S
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DCITY OF
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SETTING COST RECOVERY TARGETS
Calculating Cost Recovery Rate
Once the total cost of a program has been identified there needs to be a method to determine the desired ,
level of cost recovery for each activity: To calculate the cost recovery rate, divide the revenue collected for
a service by the total cost of providing the service (including direct, indirect and facility overhead costs).
The following is an example using the preschool again.
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TABLE 5-FY2010-2011PRESCHOOL PROGRAM COST RECOVERY RATE
Total Preschool Revenue (A) $403,530
Total Preschool Program Costs (B) $501,789
Cost Recovery Rate (=A/B) 80% •
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The cost recovery rate determines how much a program must generate in revenue (user fees, sponsorships,
grants, etc.)and how much subsidy will be needed from the General Fund.
Prioritizing Service Values
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 serves 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.
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CITY Of
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SETTING PRICES
Establishing Proposed 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 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 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 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 Parks and Community Services Commission.
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. 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.
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DCITY OF
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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 Pricing
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 6-COMPARISON OF PROFITABILITY AT LOWER AND HIGHER PRICING
CURRENT LOWER HIGHER
PRICE PRICE PRICE
Registration Fee $95 $75 $125
Number of Registrations 25 32 19
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• 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
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Parks and Community Services Conceptual 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.
Guidelines for Changing Prices
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:
s i i "€a llt E $30
` I
20,
40
$75 � r, $ 0
{spa t; � n E� a,� § i N, 0.�
{ t 4 a24i ". x �
x is, ;� 4Q 'f ul &,w*. =) t
$50
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.
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