Unpacking Operations: Cost Recovery
Written by Jenna Katsaros
In this article we unpack community recreation operations by diving into cost recovery.
Benchmarking
Each year we reach out to BRS designed community recreation centers across the country and request operational data from the previous fiscal year. The facility operators who provide this data make up the BRS Benchmark Network.
Our benchmark network provides data that we translate into real-world performance predictions on what it takes to operate a recreation center. This helps to inform communities who may be considering a new facility, and it helps BRS advance the design of community recreation centers based on input from actual operators.
By benchmarking the operational performance of community recreation centers across the country, we see consistency related to expenses and, to some degree, revenues. However, we do not find any consistency with cost recovery. Why is that?
“The first step in establishing a cost recovery goal for a community recreation center is to seek wisdom from your community members and, of course, from your agency leadership and Council or Board.”
– Jenna Katsaros
Cost recovery = It’s all Greek to me!
In short, cost recovery is a goal based on a philosophy. The word philosophy comes from Greek philosophia, which translated means “love of wisdom.” The first step in establishing a cost recovery goal for a community recreation center is to seek wisdom from your community members and, of course, from your agency leadership and Council or Board.
A cost recovery philosophy is rooted in values, of the agency and the community, regarding how tax dollars should be allocated and what and who should be subsidized. It includes elements such as the agency’s mission, community expectations, priorities and fee tolerance, and an examination of how budgets are structured.
A community might support a facility that cannot generate enough revenues to pay for operations if they are willing to subsidize the deficit with tax dollars. The result is a lower cost recovery goal with generally an increase in accessibility for community members across all socio-economic levels.
A community might not support a facility that cannot pay for its operations and will need to create pricing strategies to reduce or eliminate subsidies. The result is a higher cost recovery goal with potentially less accessibility across all socio-economic levels. Suppose a community decides the recreation center must pay for its own operation. General fund (tax) dollars or other revenues cannot be used to support it. In that case, the fee structure may be cost-prohibitive for some community members.
In other words, once you understand the philosophy, pricing strategies are one way of achieving cost recovery goals.
We should also note that in developing a cost recovering philosophy, you need an understanding of the costs of providing services, including direct and indirect costs. If it all feels a little daunting, fear not, as there are businesses that specialize in assisting park and recreation agencies with this effort.
Compare with Caution!
We all love comparisons. We like to know how we “fit” or “rate” in relation to something similar. Elected officials really love comparisons. And why not? Comparing allows us to measure ourselves and our efforts. However, be advised to thoroughly understand the information you are seeking to measure yourself against.
At a recent park and recreation conference, the presenter mused that park and recreation professionals wear their cost recovery rates like a badge of honor, “We’re at 95%! Oh yeah!” Everyone laughed because we knew it was true! But when you hear this, or if you are the one saying it, keep in mind that different agencies may structure budgets, well, differently.
For example, some agencies do not include maintenance or janitorial expenses with their facility expenses because another department pays these. Others do not include utilities, which can comprise 15% of total expenses, for the same reason. When we talk about a facility’s cost recovery rate, facility operators may truthfully – but unintentionally – share a higher rate because they are not factoring in all the expenses. A big part of the BRS benchmarking effort is gathering data, asking questions, and clarifying expenses to understand exactly what the numbers represent.
When looking at one recreation center’s cost recovery rate, keep in mind that its philosophy likely differs from any other center. An agency is successful if it meets its cost recovery goal – whether that goal is 100% or not.
Please reach out if you have any questions or thoughts on this topic.
A big thanks to the amazing recreation professionals who make up the BRS Benchmark Network. They generously share their time and are a pleasure to connect with.
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