Financial policies

Allocation model

2. Allocation models 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 during each budget process.
  • 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.


2.2.1 Definition of ISFs

  • Fleet Services – includes all fleet units such as vehicles, on-road and off-road equipment, mobile equipment, rolling stock, trailers, boats, associated components, and associated maintenance costs.
  • Information Technology – includes all IT hardware and software licenses and maintenance agreements, and IT department staff.
  • Self Insurance – worker’s compensation and tort liability.
  • Property Services – leasing, space management, construction management, and security.

2.2.2 ISF Policies

In addition to using cost allocation models to recover costs:

  • The City shall use management and governance practices to ensure that applicable expenses are incurred by the correct internal service department. Departments may not make direct purchases of items covered by these internal services unless they agree to be held responsible for all associated and ongoing costs.
  • Unless otherwise noted, costs for these services are assumed to continue into perpetuity. For example, vehicles are assumed to be replaced on schedule; leased space is assumed to be needed each year.
  • Reasonable inflationary assumptions for these internal services shall be developed in partnership with Finance & Property Services.
  • For each of the ISF activities, departments are responsible to request funding to cover expansions of service, for example if a department will need more vehicles or more space. Internal Service providing departments are responsible for clarifying for departments what goods and services are covered under the Current Service Level.
  • Where available, funding for these services may include available cash balance to the extent the individual ISF exceeds its target cash balance.

2.3 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 timely for their own budget-setting processes and in accordance with the City’s revenue policies.