As part of a Cost of Services Study we are usually asked to provide the full cost of Recreation services and then make recommendations to adjust these fees. But, as there is a direct connection between the costs and the resulting fees for most other departments in a city, identifying the full costs of Recreation services usually has little direct impact on what fees can then be charged. This is because these fees are market-based fees in which the customer can merely decide not to “purchase” the service if they feel the fee is beyond the value they receive.
So, what do we do with Recreation costs? They still exist and knowing those costs must provide some value, right? And, of course, the answer is yes, this is important information. But it is information that is used to start a conversation with the community about what they value and what they are willing to subsidize. Most Recreation programs require some level of subsidy or they would be provided by the private sector.
So, who gets subsidized and by how much? By identifying the fully allocated cost of the program and comparing that to the revenues you can then identify the subsidies for each program. But that fully allocated cost includes many fixed costs that will not go away if the program goes away, such as full-time departmental staff, fields and facilities, and city-wide administrative costs. While the fully allocated cost is good to know, it really does not provide useful information when trying to determine the actual level of subsidy.
But, by peeling away these costs and only looking at the remaining direct program costs we can get a truer picture. These direct program costs typically involve direct part time salaries and benefits, as well as direct operating supplies and expenses. When we now compare these direct program costs to the program revenues, we can see the direct subsidy of each program. When we also add the number of users into the mix, we can see the amount of subsidy provided to each program participant. This becomes a much more meaningful number.
The next step is to use this direct subsidy information to have a conversation about what programs the community wants to subsidize and which it does not, knowing that a decision to not subsidize a program may mean that program goes away.
Many communities have used a form of Recreation Program Pyramid to facilitate this discussion. The lower that a program is on the pyramid, the greater the amount of subsidy. And, conversely, the higher on the pyramid the lower the amount of subsidy. A typical program at the bottom of the pyramid and provided at no cost to the user is a Youth Park program. A typical program at the top of the pyramid is an Adult Softball program that is charged the full direct cost of the program, or maybe even higher. The number of levels in the pyramid is determined by the amount of subsidy categories that is preferred, but it usually has four or five.
The next level of review is to start adding back in other costs that we removed earlier, like facility and filed costs, to give a more complete picture. For one agency, we worked with City staff to develop a model to give that fuller picture. The departmental user puts in the basics of the program, including direct staff and supplies cost, the number of participants, the amount of hours used at a field or facility, and where on the Pyramid this program has been placed. The model then calculates a fee range to fit within the current placement on the pyramid. Staff can use this information to set the fee or determine that the program as currently constructed does not work.
Obviously, determining the costs of Recreation programs has many important uses. It provides the base of information that allows the community to determine what it values and what it expects out of its Recreation programs. It’s now up to you to determine what level of review is needed for your agency. Let us know how we can help.