As an astute governmental finance professional, you already know the impact on the Fully Burdened Hourly Rate (FBHR) caused by salary and benefit changes. The purpose of this article is to alert you to what can happen to the FBHR when there are changes to the Cost Allocation Plan (CAP).
The CAP plays a major role in the FBHR. A sampling of recent projects showed that the CAP ranged from a little less than 30% to slightly more than 50% of the FBHR. You can easily calculate this for your own agency by dividing the CAP portion of the FBHR by the total FBHR.
It makes sense that the CAP effect can be significant because it is the final repository of all overhead and indirect costs that haven’t otherwise been allocated. For example, Information Technology (IT) can be allocated directly to the departments by the use of an Internal Service Fund (ISF). This approach has the advantage of being able to include asset replacement costs in the billing and the accumulation of an asset replacement reserve in the ISF. But, as a consequence, IT costs are removed from the CAP.
The following organizational or accounting changes are examples where the FBHR is impacted. The finance professional needs to determine if the impact is significant enough to trigger the need for an update to service charges:
The CAP might include building maintenance and replacement spread to the departments in each building. If there is a new building, the operation and replacement costs may have a large impact on some or all of the FBHRs. Or, the building costs could be removed from the CAP and an ISF for office rental could be established.
Department and General overhead are spread through the CAP. If there is an increase or decrease in staffing, this may trigger the need to review the FBHRs. This is especially true if the allocation factors for the overheads are employee counts. Examples of this are: staffing to perform new rental occupancy inspections could lower the CAP due to the same overhead cost spread over a larger staff. The corollary would be increases in the CAP when activities are contracted and employee counts lowered.
The California Constitution doesn’t care if you undercharge for a service but, if any of the above conditions cause your agency to overcharge, that will create a legal liability. If you find your FBHRs have decreased, then so should their related service charges.