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Is It Time to Re-Evaluate Cost Recovery Goals?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By James Flick
March 18, 2024

When did your community last evaluate cost recovery goals for programs and services?

The challenges local government administrators face have evolved significantly in recent years after the COVID-19 pandemic. There have been significant shifts in demographics, which have changed community needs. Local governments have had to embrace new technology to transform service delivery. There has been an enhanced focus on environmental sustainability and green initiatives, and the volatile economy has increased the costs of goods and labor. This evolution has created budgeting challenges for public administrators and elevated the need to reevaluate cost recovery goals to avoid cutting programs or services.

Cost recovery policies establish funding support or subsidy levels for a particular program or provided service. Outside of government-run utilities, it is impractical to charge a fee on top of local taxes for some services offered to the community. Cost recovery policies, therefore, are generally user fees charged for programs or services used by a smaller community sub-section. They are grounded in the idea that since only a portion of the community benefits from the programs or services, users should contribute to their costs. Examples of programs or services that typically have cost recovery goals include:

  • Youth Sports and Recreation Programs
  • Pools
  • Community events
  • Recreation Centers
  • Libraries
  • Special event spaces
  • Municipal golf courses

The fees can vary depending on the level of community benefit. For example, golf courses strongly benefit an individual and, therefore, may have a cost recovery goal of more than 100%, whereas community-wide events may have a minimal cost recovery goal.

Cost recovery policies help clarify service levels, identify how much programs are subsidized versus others, and establish revenue sources for a department or municipality to support program enhancements, growth or improve customer service. The reevaluation process involves engaging staff for input and conducting a community needs assessment. A community needs assessment collects information from residents and other stakeholders to:

  • Understand who uses community programs
  • Identify service gaps
  • Determine what programs or services should be subsidized vs. those that could be fully sustained through fees

Along with the community needs assessment, benchmarking can be helpful in the evaluation process. Benchmarking gathers information from various sources to provide context and compare how other municipalities offer services to the community and operate. Understanding what other municipalities charge for the same or similar programs or services can help inform changes to current cost recovery policies.

The information gathered from the community needs assessment and benchmarking will help answer the following questions and make recommendations for existing cost recovery policies:

  • What is the total cost (including overhead and facility maintenance/investments) to provide the program or service?
  • Who benefits most from service, large portions of the community or an individual?
  • Who generated the need and, therefore, the service’s cost?
  • Do community values support subsidizing specific programs or services?
  • Will the level of the fee impact the demand for the program or service?
  • Are current fee schedules aligned with communities with similar demographics?

Throughout this process, it is essential to be mindful of issues of equity and access. Vulnerable populations within a community may struggle to access programs or services with fees. Therefore, each program or service may have a different cost recovery goal based on the population it serves. These targeted subsidies may mean that a service or program in one area may have a higher cost recovery goal than the same program or service in another area of the community, or fees for a program or service are different based on factors such as household income.

After making any necessary adjustments to the cost recovery policies, staff can identify grant opportunities, pursue public-private partnerships or seek out sponsors to further limit the need to use general funds to provide subsidies or help achieve the revised goals.

Finally, public administrators must develop a means to measure success against financial and community-oriented objectives. Key performance indicators (KPIs) should be established to assess the impacts of changing fee schedules. Some examples of KPIs include measuring:

  • Revenue generated from fees against the cost recovery goals
  • Community satisfaction levels
  • Program participation levels

Measuring these and other metrics will help inform future evaluation of cost recovery policies, which should be done consistently.

Often, day-to-day operations keep public administrators from revisiting policies that are in place. However, as community needs and priorities shift and costs rise, government leaders must set aside time to reevaluate those policies to align them with the changing environment. Cost recovery is one policy often left unchanged for several years. So, given the changes that have occurred since the pandemic, I ask again: When was the last time your community evaluated cost recovery goals for programs and services?

Author: James Flick received his Master of Public Administration from Northern Kentucky University, where he has also served as an Adjunct Instructor teaching Public Policy, Budgeting, Ethics, and more. He is currently a Senior Consultant with Raftelis, a local government and utility management consulting firm, and was recently appointed President of ASPA’s Greater Cincinnati Chapter.

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