Financial policies

2. Allocation model policies

The City employs cost allocation models for a variety of purposes:

• Recovery of indirect costs for grants, capital projects, internal and external work-for-others.
• Internal Service Funds cost recovery.
• To support activities and services of departments which are funded by the General Fund and provide services to other departments which are supported by other fund types.
• Provide for a mechanism to calculate the total cost of service when determining user fees and charges.

The primary methodology used is Activity-Based-Costing which links the cost of the service provided to the consumption of the service. In addition, cost allocation models should conform to the following principles:

• Cost allocation models should recover indirect labor, depreciation, general and administrative costs, and costs from other allocation models.
• Cost allocation models should abide by grant agreements, contracts and other applicable Federal, State and local guidelines.
• Cost allocation models should be reviewed and updated annually.
• Costs shall be allocated to the fullest extent possible while maintaining service levels and fund balances that are in line with city policies. When feasible, costs deemed non-allocable (for example, un-utilized space in leased facilities) shall be allocated to a non-department specific cost center in the General Fund to maintain the level of funding needed in the Internal Service Fund. If fund balances exceed minimum level, funds may be used to reduce the allocations to the general fund departments.

2.1 General Fund allocation model

The City will recover costs within the General Fund related to services it provides to non-General Fund departments. The allocation of those costs shall be based on a consistent methodology, applied enterprise-wide and developed and administered by the Finance and Property Services Department.

The General Fund overhead allocation model is not self-balancing in nature; costs that should be borne by one department will not be subsidized by another unless it is determined by the Finance and Property Services Department that a phase-in period is necessary.

The General Fund overhead allocation model will adhere to the applicable policies set forth for Internal Service Funds.

2.2 Internal Service Funds (ISFs)

All ISFs use cost allocation models to recover costs.

2.3 Fleet Services Division (Equipment Services Fund)

The Fleet Services Division (FSD) of the Public Works Department procures, equips, and maintains an enterprise-wide fleet.

Fleet defined

For the purposes of this document “Fleet Units” or “Units” will be used when referring to the following: City vehicles, on road and off road equipment, mobile equipment, rolling stock, trailers, boats, and associated components/attachments.

Fleet acquisitions

1. All Fleet units shall be purchased through and maintained by FSD. Exceptions may be granted on a case by case basis by the Director of Public Works or the City Coordinator or designee.
2. The benefitting department shall request funding through the annual budget process, or provide funding through their discretionary budget, for additional units or the underfunded portions of replacement units.

• The purchase of a Fleet unit may be funded from a number of different sources including but not limited to: accumulation in the Fleet replacement fund, net debt bonds, General Fund appropriation, fund balance in enterprise or internal service funds, State or Federal capital grants.
• All funds, including State and Federal capital grant money, that are to be used for the purchase of Fleet units will be paid or contributed to the FSD Fund upon initial purchase of the Fleet unit.
• The funding for the purchase of a replacement unit includes the replacement amount accumulated through the Fleet Services Division rental fee for the specific unit with any shortfalls funded by the using department through the annual budget process or discretionary budget.

3. Unless purchased for specific closed-ended projects, all units are assumed to be replaced at a later date in accordance with the replacement plan established by FSD.

• Exceptions may be granted on a case by case basis by the Director of Public Works or the City Coordinator or designee, if it is determined that an enterprise fund or internal service fund unit will either not be replaced in the future or will be replaced on a pay-as- you-go basis using fund balance. The enterprise or internal service department, in cooperation with the Finance and Property Services Department, must be able to substantiate that funding will be available at the time of replacement. The benefitting department will need to include in its operating budget the ongoing charges for the FSD administrative costs for each item.
• FSD will establish a monthly replacement/rental fee for the replacement of that unit with a similar unit.
• The benefitting department must include in its annual budget the total rental fee due to Fleet Services for the units for that budget year.
• The rental fee will be charged monthly to the department’s budget through the City of Minneapolis Fleet Management and accounting system. Cost recovery schedules are available from FSD.
• The rental fee for each unit includes depreciation, an inflationary factor, and administrative charges.
• The City of Minneapolis is self-insured and any claims or tickets against the City will be charged to the benefitting department.
• Departments with a history of claims or tickets against the City may be required by the City Coordinator or designee to set and maintain a balance and related discretionary budget in the self-insurance fund to reduce the financial impact of such claims. Any uses of the balance and related discretionary appropriation should be replaced in the following year budget; a decrease in the history of claims or tickets against the City should cause a reduction of the balance and return of the discretionary appropriation to the department.
• All other charges associated with the unit will be charged to the benefitting department.

2.4 Information Technology (Intergovernmental Services Fund)

The Information Technology (IT) department provides enterprise-wide purchasing, strategy, development, and maintenance services for the City’s IT infrastructure.

IT defined

For the purposes of this document, IT is inclusive of hardware - including handheld equipment that requires City-maintained software to function, and software - including software as a service (SAAS) applications. IT does not include salary costs of business-side application managers.

IT acquisitions

All IT shall be purchased through the IT department. Exceptions may be granted on a case by case basis with the approval of the Chief Information Officer, or the City Coordinator or designee. An IT Governance Committee, composed at minimum of the City Coordinator, Chief Finance Officer, and Chief Information Officer, shall review all proposed IT purchases annually and may recommend a set of priority IT projects based on current resource constraints and applicable City values, goals, and objectives.

Except for the acquisition of new desktop or laptop computers as part of the City’s annual refresh cycle, the IT allocation model shall not collect in advance to cover costs associated with the purchase of new IT.

IT licenses and maintenance

The IT allocation will include funding for application licenses and maintenance contracts for all IT systems which have been expressly approved by the City Council - including increases to license or maintenance fees upon contract renewals. The IT allocation will also include recovery of administrative costs and fund an adequate reserve as defined in these policies.

The IT allocation will not include application licenses or maintenance contracts for IT systems developed or procured at department discretion.

2.5 Self-Insurance (excluding medical and dental self-insurance)

The Risk Management division of the Finance & Property Services department manages the City’s self-insurance program.

The Self-Insurance allocation for Workers’ Compensation and Tort Liability will recover costs to pay claims and other legal liabilities. Estimates for Workers’ Compensation and Tort Liability are developed by an outside actuarial firm and assessed to departments based on historic experience.

2.6 Property services (Property Services Fund)

The Property Services division of the Finance & Property Services department provides leasing, space management, construction management services and security services to all City departments.

The Property Services allocation will recover costs of providing the services listed above. Rent estimates will be based on all known information as of March 1 of the year prior to the year for which costs are being allocated. Any additional rent costs beyond what is included in the allocation are the responsibility of the department incurring the expense.

2.7 One-time costs assessed

One-time cost increases may be assessed to internal service funds if the financial condition of the fund meets the City’s financial policies.

2.8 Management support charges to independent boards

The management support charges to the Independent Boards are based upon standard practices for allocating costs. The method and procedure to calculate the prorated costs and collection of the charge are finalized and communicated to the Independent Boards by December 31 of each year in accordance with the City’s revenue policies.