The Real Truth About Full Cost Allocation

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The Real Truth About Full Cost Allocation

• Transit Coordination Best Practices Forum
• February 21, 2006
• St. Paul, Minnesota

Linda Elfstrand, Director, TRI-CAP Transit
Connection Sarah Brodt Lenz, Program
Administrator, Mn/DOT Office of Transit
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Why Do I Need To Know This?

• Good business practice
• Negotiate contracts
• NTD reporting
• Stands up to audit scrutiny

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What if I Operate More Than One Kind of
Transportation Service?

• With a clear formula, you can be sure that
• everyone is paying a fair share
• bill out passengers are paying the appropriate
  percent of the total costs
• public funding is not unduly burdened

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How Do I Figure It Out?

• Determine what part of your budget is
• General public bus
• General public volunteer
• Non-public volunteer
• Agency-only
• Other transportation service

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Sample Program Budget
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Determining the overall average is not enough!
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Fixed and Variable Costs

• Fixed costs do not vary with the number of hours
  or miles of operation
• e.g. administrative salaries, building expenses
• Variable costs are linked to number of hours or
  number of miles
• e.g. fuel, maintenance, sometimes driver wages

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• How much does it really cost to deliver service
  to a specific agency to or to a specific
  clientele?

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Sample Bus Operations Costs
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Bus Unit Costs

• Hourly Rate
• 138,000 / 6,000 23.00 per hour
• Mileage Rate is based in variable costs
• 24,000 / 50,000 .48 per mile
• Overhead Factor
• 308,000 / 115,000 1.37

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Annual Cost of Operations Overhead Factor X
(Hourly Rate x Annual Hours of Operation)
(Mileage Rate X Annual Miles of Operation)
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Annual Total Cost 1.37 X (23.00 X Annual
Hours of Operation) ( .48 X Annual Miles of
Operation)Cost of Operating the Agency Bus
Service (31.51 X 2,000) ( .66 X 10,000)
69,620
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Are Volunteer Drivers Really Cheaper?
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Volunteer Unit Costs

• Passenger Trip Rate is based on hour costs
• 4,000 / 2,400 1.67 per trip
• Mileage Rate is based in variable costs
• 27,000 / 60,000 .45 per mile
• Overhead Factor
• 308,000 / 115,000 1.37

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Annual Total Cost 1.37 X ( 1.67 X Annual
Passenger Trips) ( .45 X Annual Miles of
Operation)Contract Cost ( 2.30 X 1,800)
( .62 X 45,000) 32,040
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Costs vs. Funding

• If a service segment costs more than the revenues
  generated, you have a problem. You can
• Ignore the problem
• Borrow from other funding streams
• Reduce the amount of service provided, or
• Negotiate a more appropriate rate

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Other Considerations

• Including depreciation
• Disallowed costs
• Excess revenues over expenses
• Local share
• Contributions to the transit account

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Its Your Decision

• How you deal with cost recovery is a local
  decision
• Work through your budget in light of this
  information on cost allocation and do whats
  right for you
• Remember, THERE IS NO FREE RIDE!

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You can reach us at

• Linda Elfstrand, Tri-CAP Transit Connection
• [phone] ext. 217
• linda.elfstrand_at_tricap.org
• Sarah Brodt Lenz, Minnesota Department of
  Transportation
• [phone]
• sb.lenz_at_dot.state.mn