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HomeMy WebLinkAbout6A - Pricing Methodology and Recreation Activity Fund Analysis ProjectMemo To: The Pazks and Recreation Advisory Boazd From: Janice Geden CPRP, Director of Pazks and Recreation Date: July 18, 2007 RE: Parks and Recreation Financing Analysis Project Attached is a copy of the memo that went to City Council regarding the Parks and Recreation financing analysis project. The purpose of the memo is to provide the PRAB and City council with a proposed new process and timeline to conduct an analysis of the Pazks and Recreation Department's pricing methodology and fmancing structure for recreation programs and services. The memo is being submitted to the Parks and Recreation Advisory Board (PRAB) for review and comment. This item is on the agenda for the City Council business meedng on Tuesday, July 24 under Matters from the City Manager. Feedback received from the PRAB at its July business meeting will be given to City Council on July 24. Attachments 7/18/2007 CITY OF BOULDER CITY COUNCIL AGENDA ITEM MEETING DATE: JULY 24, 2007 AGENDA TITLE: Discussion and Consideration of a Motion to Endorse the City Manager's Proposed Parks and Recreation Financing Analysis Project PRESENTER/S: Frank Bruno, City Manager Stephanie Grainger, Deputy City Manager Jan Geden, CPRP, Director of Parks and Recreation Bob Eichem, Finance Director EXECUTIVE SUMMARY: The purpose of this agenda item is to provide City Council with a proposed new process and timeline to conduct an analysis of the Parks and Recreation DepartmenYs pricing methodology for recreation programs and services and the structure of the Recreation Activity Fund (RAF). As part of the acceptance of the master plan, City Council directed staff to delay fee increases for rental agreements with Boulder Aquateens and Boulder Aquatic Masters (BAM) until an analysis of how fees and chazges are assessed to non-profit and community organizations that rent facilities from the department was completed and reviewed by City Council. Between January and March of 2007, staff presented information to the Pazks and Recreation Advisory Boazd (PRAB) about the departmenYs pricing methodology, the determination of cost recovery andlor subsidy through the Core Services Business Model (CSBM) and the department's work with non-profit and other community organizations. At the March 19, 2007 business meeting, a motion was made and unanimously passed by the PRAB (all members present) to continue to implement the CSBM. The PRAB also recommended establishing a work group to explore how organizations can participate in reducing their fees and the appropriate placement of non-profit and community organizations in the CSBM. The PRAB noted that it might take some significant time to conduct a fair and equitable process and that the findings of the analysis might coincide with the two yeaz review of the CSBM scheduled for the end of 2008, as was outlined in the master plan. Although the PRAB recommended continued implementation of the CSBM, staff feels that without objectively addressing the issues that have been raised regarding the CSBM and identifying a sustainable funding structure for the RAF, the concerns regazding AGENDA ITEM # PAGE_1_ pricing and cost recovery will continue to surface. As such, staff recommends conducting a thorough analysis of the department's pricing methodology and financing structure for recreation programs and services to determine the best pricing methodology or approach, whether it is the CSBM or another model. This agenda item outlines the components and costs of the process and the timeline (Attachment: A) for conducting the aforementioned analysis. Staff is proposing the following elements and process: • Conduct a benchmarking analysis of financing structures and pricing methodologies of other pazks and recreation agencies throughout the country recognized for best management practices to see how the city of Boulder compares. • Conduct a financial review of the Recreation Activity Fund (RAF) and develop short-term and long-term sustainable funding options. • Convene a City Manager's Work Group for Parks and Recreation (CMWPR) to make recommendations to the City Manager regarding the pricing methodology and funding structure for recreation programs and services. The proposed project is estimated to be completed by June 2008. STAFF RECOMMENDATION: Staff recommends that City Council move to endorse the City Manager's planned course of action to conduct an in-depth analysis of the recreation division's financing structure and current pricing methodology and to establish a work group to make recommendations of pricing methodologies and funding structures; and to endorse the City Manager's planned freezing of fees for non-profit and community organizations (Option C) until June 2008. Key Issues Identification: A primary objective for the department and the city organization is to have a sustainable financing structure for parks and recreation programs and services and a fair and equitable pricing methodology to be applied to all users. COUNCIL FILTER IMPACTS: Economic: The departmenYs long term outlook for financial sustainability emerged as one of the critical issues in the recently adopted master plan. One of the master plan goals is to "become economically sustainable." The master plan calls for the restructuring of the RAF as part of the departmenYs financial sustainabiliry program. The RAF needs to be structured in a way that is responsive to changing needs, directs General Fund subsidy appropriately and improves the sustainability of recreation programs and services. Environmental: The department currently employs environmentally sustainable practices to reduce costs associated with programs. For example, photovoltaic panels contribute to the energy supply necessary to operate the aquatic facilities at the North Boulder Recreation Center. Energy audits are currently being conducted at the other AGENDA ITEM # PAGE_2_ two recreation centers to determine additional practices that can be implemented to reduce energy costs. Social: This analysis will look at key issues that affect the departmenYs ability to sustain its programs and determine the appropriate use of General Fund subsidies. The department's most highly subsidized programs currently serve disadvantaged and underrepresented populations. Sustaining this service provision is a key element of the city's social sustainability efforts. OTAER IMPACTS Fiscal: Staff is evaluating consultants to assist with the benchmazking study and analysis of the RAF for the purpose of developing sustainability options. Additional information regazding the cost of the project will be provided at the July 24 City Council meeting. Funding for the project is anticipated to come from one-time salazy savings in the Parks and Recreation General Fund and the .25 Sales Tax Fund for administration. Staff time to support the project will be absorbed as part of the department's ongoing work program. In December 2006, City Council directed the department to defer fee increases for two programs until such time as the non-profit analysis was completed. The staff recommendation for freezing fees will result in an appropriation of $75,657 from the fund balance of the RAF. Since the fees outlined in the staff recommendation are not codified, any proposed changes to fees assessed to non-profit and community organizations can occur either at the end of the study in June or within the 2009 budget process. If recommendations to consider alternative fee structures are incorporated into the 2009 budget process, fees for non-profit and community organizations would need to stay frozen until January 1, 2009. Freezing fees until the end of yeaz would have no impact on the projected revenue shortfall in staffs recommendation as the greater percentage of contracts and special events aze negotiated by the end of the second quarter each year and the freeze amounts were projected on that basis. BOARD AND COMMISSION FEEDBACK: This proposal will be presented to the PRAB at its July 23 business meeting for review and comment. Feedback from the PRAB will be presented to City Council at its July 24 business meeting. PUBLIC FEEDBACK: Over the past yeaz, representatives from some aquatics rental groups have provided feedback regazding pricing and cost recovery. Specifically, these groups have requested that their cost recovery expectations be lowered and their placement in the CSBM be adjusted. Feedback from the public on this proposed analysis received at PRAB's July 23 business meeting will be presented to City Council on July 24. BACKGROUND: At its March 19, 2007 business meeting, the PRAB conducted a public hearing on the departmenYs pricing methodology and cost recovery tool, the CSBM. At that time, the AGENDA ITEM # PAGE_3_ department provided the PRAB six options related to allocating subsidy to non-profit and community organizations. A motion was made and passed unanimously by the PRAB (all members present) to continue to implement the CSBM as originally presented in the Master Plan. During the public hearing, PRAB received feedback from some members of the aquatics community regazding their categorization in the CSBM and the department's current pricing methodology that includes facility use costs as the basis for determining rental fees and chazges. The feedback from these groups indicated that they believe they aze being inappropriately chazged higher fees compazed to other rental groups. As part of the motion to continue implementing the CSBM, the PRAB recommended that staff establish a group to work with the department to address the following: • How organizations can participate to help reduce their fees without impacting the balance of other department programs and services; and • The appropriate placement of not-for-profit and community organizations within the CSBM. Although the PRAB recomnnended proceeding with the implementation of the CSBM, staff believes that it is important to determine how other parks and recreation agencies, both locally and nationally, are addressing pricing and financing. Additionaliy, staff would like to conduct a thorough analysis of the structure and financing of the RAF. To that end, staff is proposing an analysis consisting of the following elements: • Conduct a benchmarking analysis of financing structures and pricing methodologies of other pazks and recreation agencies throughout the country recognized for best management practices to see how the city of Boulder compazes. • Conduct a financial review of the Recreation Activity Fund (RAF) and develop short-term and long-term sustainable funding options. • Convene a City Manager's Work Group for Pazks and Recreation (CMWPR) to make recommendations to the City Manager regazding the pricing methodology and funding structure for recreation programs and services. BENCHMARKING ANALYSIS The first element of the proyect is to conduct a benchmazking analysis that reviews and compazes the financial condition, funding sources and pricing policies and methodologies of the following: • Gold Medal Award winning agencies; • Commission for Accreditation of Pazks and Recreation (CAPRA) accredited agencies; • City of Boulder peer cities; and • Loca1 Colorado parks and recreation agencies. AGENDA ITEM # PAGE_4_ The Gold Medal Award The Gold Medal Awazd is sponsored by the American Academy for Pazk and Recreation Adminish~ation (AAPRA) and is awarded by the National Recreation and Park Association (NRPA) for excellence in Pazk and Recreation Management. Areas evaluated in the Gold Medal Award include long range planning, funding including revenue and expenditure sources and uses, facilities, challenges, projects, environmental stewazdship, awards, citizen support, use of technology, evaluation and special needs populations. The Gold Medal Awazds aze open to all municipal pazks and recreation districts as well as the 50 state park systems. Selection of agencies for the study will focus on several variables beginning with the general population range to Boulder. In this case, it is anticipated that the analysis will focus on fiscal policy and management of award winners and finalists between the period of 2002 to 2006. This component of the benchmazking study will provide an East Coast, Southern, Midwest and West Coast perspective in that regazd. CAPRA The benchmazking analysis will also include a review and comparison of CAPRA accredited parks and recreation agencies. The CAPRA accreditation program was developed by the AAPRA to assist park and recreation professionals and lay citizenry in evaluating an agency's overall operational system. CAPRA administers a rigorous program based on self-assessment and peer review using national standazds of best practice to better promote the quality of pazk and recreation agency service and delivery systems. To become CAPRA accredited, a parks and recreation agency must show evidence of compliance with thirty-six mandatory standazds considered fundamental to quality operations. Two fundamental standards under fiscal policy and management will be the primary focus in this benchmarking study, fiscal policy and fees and chazges. The CAPRA standazd for fiscal policy states that "an agency will set guidelines for management and control of revenues, expenditures and investment of funds are clearly in writing and the legal authority clearly established. Policy of an agency must comply with the higher authority of the "parent organization ° and be based on appropriate enabling legislation... Financial policy should include assurances that low-income portions of the population will not be denied access. " The CAPRA standard for fees and chazges states "there should be an established policy on the type of services for which fees and charges may be instituted and the basis for establishing the amount of such fees and charges. Recognition should be given to the function of income producing and subsidized activities as well as "break-even " activities. ° Such policies should be regularly evaluated. " This element of the benchmazking study will include pazks and recreation agencies achieving CAPRA accreditation in cities with a population of 70,000 to 150,000. Currently, there aze 66 parks and recreation CAPRA accredited agencies nationwide and AGENDA ITEM # PAGE_5_ 26 agencies in the applicable population categories. The study will look at a sampling of these 26 agencies based on population and other variables that compaze to the city of Boulder. Peer Cities and Local Agencies: The final element of the study will be a comparison to Boulder's peer cities and local communities. The comparison will include but not be limited to: • Pricing policies • Pricing methodologies • Cost recovery models • Funding Sources o Stability o Percentage of subsidy o Subsidized programs • Financing structure for recreation programs and services The study will also include a literature review of the above mentioned topics and an analysis of all the data collected. A final report will be produced and the CMWPR's recommendations will be included. FINANCIAL ANALYSIS OF THE RECREATION ACTIVITY FUND A financial analysis of RAF is listed as an Action Plan item in the department's master pian. The department recommends conducting this analysis in order to assess the existing methodology and financing structure for recreation programs and services. Staff is currently working in conjunction with the Finance Department to identify a financial firm with a high level financial background to conduct this analysis. Costs associated with this analysis will be provided at the July 24 City Council meeting. The RAF was created in 2001. Prior to that time, all recreation programs and services were included in the city of Boulder's General Fund. The RAF was created so that all revenues generated by recreation programs would be retained in the fund and not be retained in the General Fund. This allowed for excess revenues to be directed into a fund balance that could provide support to programs when revenues were impacted by weather or other uncontrollable variables. Subsequent to the creation of the fund there was a major economic downturn that impacted the General Fund and the RAF. General Fund subsidies were reduced, and the sustainability of the funding structure came into question. Due to these circumstances, it is recommended that the proposed financial analysis be undertaken. This quantitative and qualitative financial analysis will include: • The definition of the RAF • The purpose of the fund and why it was structured in its current form • A analysis of whether the RAF has performed as intended • An analysis of any unintended consequences and their impact on the programs, the community and the city organization. AGENDA ITEM # PAGE_6_ • A recommendation regarding whether the RAF is a sustainable way to fund recreation programs in the future for the city of Boulder • Options and other recommendations This report will require a performance analysis of the rationale behind the creation of the RAF and to see whether the intent of the fund establishment has been met. As such, it is appropriate to have an outside objective firm conduct the analysis rather than having the Finance Department make judgments based on decisions made by previous City Councils, management and another city department. The role of the Finance Department in this analysis will be to: • Provide all central financial information needed during the course of the review and provide insights into the decision to create the fund in 2001 • Provide any information needed regarding budgeting, finance and accounting for programs in the city of Boulder that may be needed during the course of the review • Provide finance department insight into the advantages and disadvantages of the structure of the RAF • Provide any other information needed during the course of the review • Provide Finance staff support on an as needed basis CONVENE A CITY MANAGER'S WORK GROUP FOR PARKS AND RECREATION (CMWPR) The City Manager's Office, will establish a CMWPR to review and compare information about the department and other local and national parks and recreation agencies relative to pricing methodologies and financing structures. The CMWPR will provide recommendations on these areas to the City Manager. The City Manager will appoint members to this work group. The CMWPR will convene in September 2007 and work simultaneously with the benchmarking and RAF analysis on specific topics including: • The Department of Parks and Recreation Overview - purpose, structure, issues and challenges • The city of Boulder Parks and Recreation 2006 Master Plan • The city of Boulder's financial condition and the work of the Blue Ribbon Commission on Financial Sustainability • The department's pricing methodology. • The benchmarking study. • The financial analysis of the RAF. Staff proposes that the CMWPR consist of the following members of the Boulder community: • Two PRAB members • A Representative from each of the following groups: o Aquatics o EXPAND o Youth Soccer AGEIVDA ITEM # PAGE 7 o Pottery Lab o Boulder Housing Partners o Reservoir Events o Recreation Center User o Boulder Valley School District o The FinancialBanking Community o Chamber of Commerce o Public Administration professor o A Front Range Parks and Recreation professional not employed by the cit~~ of Boulder The department is currently in the process of workina with the City Manager's Office to identify potential members of the group. Staff will provide information on the final appointments to the CMWPR in a Weeklv Information Packet update to City Council. The CMWPR will present its findings and recommendations t~ the City Manager by June 2008 and the City Manager will bring to City Council options and recommendations on potential fundin~ options and fee structures for immediate implementation or as part of the 2009 budget process. FREEZING FEES - OPTIONS AND RECOMVIEtiDATION During the duration of this project. the dcpartment is proposing to freeze specific fees at 2007 levels until June 2008. The department has quantified fees for recreation programs and rentals to certain non-profit and community organizations. The table below shows options and associated revenue gaps for freezing fees. The options are: • A: Freeze all fees • B: Freeze all rental fees • C: Freeze all rental fees for non-profit and community organizations • D: Freeze all aquatic rentals for non-protit and community organizations • E. Do not freeze any fees AGENDA ITEM # PAGE_8 Option A: Freeze All Fees Option A freezes fees assessed to all recreation programs and services. The fees include all rentals and codified fees. Examples of rentals include special events and picnic rentals at the reservoir, sports special events and leagues, and aquatics rentals. Examples of codified fees include activity fees for department managed programs such as camps, annual passes, punch cards and drop in fees. Although this option accounts for all of the recreation division's fees and chazges, it creates the lazgest financial impact, representing a revenue shortfall of $418,000. It subsidizes for-profit organizations and community groups and would require a revenue source outside of the RAF or equivalent service reductions to implement. Option B: Freeze All Rental Fees Option B freezes fees assessed to all recreation division rentals. Rental agreements for non-profit and for-profit organizations aze included in this category. Examples of rentals include, but are not limited to, youth soccer and baseball leagues, aquatic rental contracts with organizations such as Boulder Valley School District (BVSD), Boulder Swimming, BAM and Aquateens and reservoir special events and picnics. This option produces a revenue shortfall of $118,388. It applies to all rentals and rental groups, and does not differentiate between for-profit and non-profit organizations. Although this option has a lesser financial impact than Option A, it also subsidizes for- profit organizations and community groups. Option C: Freeze all rental fees for non profit and community organizations Option C freezes fees assessed to non-profit and community organizations that rent facilities from the recreation division. Examples in this category include, but aze not limited to, youth soccer and baseball leagues, aquatic rental contracts with the BVSD, Boulder Swimming, BAM and Aquateens and all reservoir and picnic rentals associated with non-profit organizations. This option differentiates between for-profit and non-profit organizations. Option C produces a revenue shortfall of $75,657. It delays fee increases to all non-profit and community organizations that rent facilities from the department until an analysis of how fees and charges aze assessed to all recreation programs is completed. Option D: Freeze all aquatic renta[ fees for non profit organiZations As part of the acceptance of the master plan, City Council asked staff to delay fee increases for two aquatic organizations. This option freezes fees assessed to those organizations and other non-profit aquatic groups that rent facilities from the department, including the BVSD, Boulder Swimming, BAM and Aquateens. This option produces a revenue shortfall of $7,770. Option E: Do not freeze any recreation fees This option does not require freezing fees, however, some recreation fees would increase based upon cost recovery requirements necessary to sustain all programs, services and AGENDA ITEM # PAGE_9_ facilities currently provided by the recreation division. It aligns with the PRAB's recommendation to continue to implement the CSBM. This option has no financiai impact to the RAF. ANALYSIS AND STAFF RECOMMENDATION Option A freezes a11 recreation fees and chazges across-the-board. This option has the largest fiscal impact and would require a revenue source outside of the RAF or equivalent service reductions to implement. It would substantially affect revenue projections in the departmenYs proposed 2008 budget. Additionally, this option subsidizes for-profit organizations and community groups. Option B applies to all recreation division rental agreements regardless of for-profit or non-profit designation. Staff does not support this option because providing a subsidy to for-profit organizations does not seem appropriate. Option D delays fee increases for a subset of aquatic groups who have rental contracts with the recreation division. Although this is the least expensive option, it delays fee increases to a small percentage of the total number of non profit organizations that currently rent Facilities from the department. Staff does not recommend this option as it may be perceived as providing preferential treatment through financial subsidization to one interest over others. Option E does not require freezing fees and maintains the recreation division's current pricing methodology. Staff does not recommend this option as it does not support recent policy direction provided to the department by City Council. Staff recommends Option C, freezing all rental fees for non-profit and community organizations. Option C aligns most closely with the direction that City Council gave staff in December 2006 (delaying fee increases to two aquatic groups while staff conducted an analysis of how fees and charges are assessed to non-profit and community organizations that rent facilities from the departrnent). This option freezes fees for all non-profit rental agreements through June 2008. k'UNDING OPTION C: Option C requires freezing fees for all non-profit rental groups at 20071evels through June 2008. In turn, an alternative funding source needs to be identified in order to bridge the revenue shortfall in Option C(or any of the proposed options, except Option E). Staff is proposing three considerations for funding the shortfall created by freezing fees: • Supplemental appropriation of one-time money from the General Fund • One-time allocation from the City Manager's contingency funding • Supplemental appropriation from the RAF fund balance AGENDA ITEM # PAGE_10_ Consideration A: Supplementa[Appropriation of One-Time Money from the General Fund: An option for funding the revenue gap created from freezing fees can be attained from a supplemental appropriation of one-time money from the General Fund. One-time General Fund revenue will need to be appropriated through the business plan and budget process. Pursuing one-time funding through the 2008 budget process does not cover the revenue shortfall created by freezing fees in 2007. One-time funding outside of the budget process would require either identifying a new funding source in the city's General Fund or using General Fund Reserves. There is no new revenue sources currently projected for the departmenYs General Fund subsidy. General Fund reserves are typically used for city emergencies or impediments to essential General Fund services. An allocation from these reserves would require a payback mechanism from new funds that are not already budgeted. Using General Fund reserves for reasons other than those mentioned above can negatively affect a city's bond rating. Consideration B: One Time Allocation from the City Manager's Contingency Funding The City Manager's contingency funding could be considered to fund Option C, but those funds aze already committed for 2007. Requests for 2008 contingency funds will be considered by the City Manager and evaluated with all other proposals for those funds. Consideration C: SupplementalAppropriation from the RAF Fund Balance: The fund balance from the RAF is an option to bridge the funding shortfall created by freezing fees. Over the past three years, the department implemented budget reductions, operating efficiencies and increased recreation revenues that resulted in improved fund projections. In 2006 recreation division revenues exceeded projections by 10 percent. In 2008, budget projections for the RAF reflect a positive fund balance of $288,000 in 2013. Currently, the RAF is showing a five percent increase in projected revenues amounting to approximately $450,000. The increases in revenues have had a positive effect on the fund balance but will not resolve the long-term issues related to the fund. They can be considered only as a one-time option for freezing fees. Staff is recommending Consideration C, using a one-time appropriation from the RAF fund balance to bridge the revenue shortFall associated with freezing fees, until the completion of the project in June 2008. Although the projections for the RAF have improved, the structure of the fund and the volatility of its revenue sources can change fund projections from year-to-yeaz. As a result, staff does not recommend more than a one-time appropriation out of the RAF reserves. In the event that during the course of this project the departmenYs revenues are impacted by weather or other conditions requiring financial support from the reserves, staff may request a supplemental appropriation from the General Fund if RAF reserves are insufficient. AGENDA ITEM # PAGE_l 1 The unpredictabie nature of the current revenue sources of the RAF, along with the structure of the fund, will continue to challenge its long-term sustainability regazdless of the option chosen to bridge the shortfail for freezing fees. Using fund balance from the RAF can be considered a one-time investment in an analysis designed to recommend sustainable funding options for recreation programs and services. NEXTSTEPS In the neaz term, staff will proceed with coordinating the benchmarking analysis, financial analysis of the RAF and continue to work with the City Manager's Office to identify the members of the CMWPR. Staff will provide monthly project updates to the PRAB and will provide City Council with an update in October 2007 regarding the progress to date. If City Council supports stafPs recommendation to freeze fees for the duration of the above mentioned project, staffwill begin the implementation process immediately. ATTACHMENTS: Attachment A: Parks and Recreation Pricing and Financing Analysis Project Timeline AGENDA ITEM # PAGE_12_ Parks and Recreation Pricing and Financing Analysis Project Proposal to PRA and City Council Finalize Membershi of CMWPR Hire Consutant fc RAF Analysis Study Session Pre for CMWPR Benchmarking analysis RAF Analysis ~ G~ m o CMWPR Meetings D -~i ~ Findings to the CMO ~: D ~ m .., ~ ~ ~ ~ ~ ~ ,~ ~ Staff ~ CMO