CITY OF SEBASTOPOL CITY COUNCIL
AGENDA ITEM REPORT FOR MEETING OF: May 5, 2026
=========================================================================================== To: Honorable Mayor and City Councilmembers
From: Ana Kwong, Administrative Services Director
Responsible Department: Administrative Services
Subject: Cost Allocation Plan Options for FY 2026-27
=========================================================================================== RECOMMENDATION:
That the City Council review, discuss and provide direction to staff on the selection of the preferred Cost Allocation Plan implementation, which will establish the cost allocation framework and resulting interfund charges for FY 2026– 27 City Budget.
Process for Implementation:
1. Select one of the cost allocation options presented.
2. Apply an annual Consumer Price Index (CPI)–based inflationary adjustment for subsequent fiscal years.
3. Conduct a comprehensive Cost Allocation Plan study every three to five years to reassess the methodology and underlying assumptions.
PROCESS OF AGENDA ITEM:
a. Presentation of the agenda item by the Administrative Services Director b. Introduction of Consultant
c. Questions and Discussion from Councilmembers
d. Public Comment Period
e. Council Deliberation and Motion
EXECUTIVE SUMMARY:
This report proposes for consideration the City’s cost allocation plan methodology used for allocating indirect costs, which sets the interfund charge for services budgeted in the utility enterprise funds. TheCity has been using the current cost plan allocation methodology for two years and the methodology utilized is “full cost” recovery. Full cost recovery is the policy of recovering all expenses incurred—both direct and indirect (overhead)—whenever a department provides goods or services to others. It requires capturing all costs attributable to an activity, including central service costs, to ensure sustainability.
Since the last update to the cost allocation plan, there has been discussion about whether modifications to the plan should be considered. City staff have received input from community members and the Enterprise Fund Oversight Committee on the current method of cost allocation and whether the changes to the existing full cost recovery method could increase accuracy. In response, staff worked with the consultant to review the methodology and develop several options for consideration.
BACKGROUND
The purpose of the City’s Cost Allocation Plan is to identify the total costs of providing specific City services. Why is a separate cost accounting analysis required to do this? Because in almost all organizations—whether in the private or the public sector—the cost of producing goods or delivering services can be classified into two basic categories: direct and indirect costs.
“Direct costs” by their nature are usually easy to identify and relate to a specific service; such as supplies, materials, staff salaries and benefits, or consultant fees that support a single department or project. However, this is not the case for “indirect costs.” Indirect costs, commonly referred to as "overhead costs" or central services, are for support services that are shared by multiple departments, such as accounting, payroll, administration, human resource; legal Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
fees, information technology (IT) services for the entire municipality; or operating and maintenance costs for city hall or other buildings shared by multiple departments. As such, if we want to know the “total cost” of providing a specific service, then we need to develop an approach—a plan—for reasonably allocating indirect costs to direct cost programs. Although indirect costs are generally not readily identifiable with direct cost programs, their cost should be included if we want to know the total cost of delivering specific services.
The City’s Water and Wastewater utilities rely on a variety of administrative and support services that are provided through the General Fund (Fund 100). These services include functions such as financial management, human resources, legal services, information technology, and overall management and oversight.
Because these services support the operation ofthe utilities, a portion of their cost is allocated to the Water Fund (Fund 500) and Wastewater Fund (Fund 510). These allocations are recorded as Interfund Charges – Cost Plan (Account 4998).
In simple terms, this means the Water and Wastewater funds reimburse the General Fund for the support services they receive. This accounting practice helps ensure that each fund pays its fair share of City services and that the General Fund—supported primarily by taxes—is not covering costs that are associated with operating the utilities.
The current cost allocations are based on a comprehensive Indirect Cost Allocation Plan developed during FY 2023- 24, reviewed and approved by City Council on February 20, 2024, and published on the City’s website with other key documents.1
During the development of FY 2025-26 budget, the City engaged ClearSource Financial Consulting, who prepared the previous comprehensive plan, to conduct an update to the analysis for use in budget development for FY 2025-26.
It is important to stress that the goal of the Cost Allocation Plan is a reasonable allocation of indirect costs, not a “perfect” one. This approach is consistent with the requirements of Proposition 218 and 26, which allows rate revenue to be paid to cover the reasonable estimated cost of services provided by the General Fund. There is no one correct way to allocate costs, and different agencies use different approaches. By their very nature, indirect costs are difficult to link with direct costs. As such, in developing an allocation approach, it is important to keep this goal in mind as we balance the cost and of effort of complicated allocation methods with the likely benefits from the end results.
The Indirect Cost Allocation Plan is solely focused on recovery of central support costs, commonly referred to as overhead. The Indirect Cost Allocation Plan does not replace additional decisions the City makes in developing its annual budget, which includes direct allocation of shared expenses, such as certain direct labor positions, materials, services, and supplies.
The City provides many shared support services—such as accounting, payroll, billing, Information Technology, and human resources—that benefit all departments. Instead of charging these costs randomly, the City uses a cost allocation plan to divide them fairly and logically among the departments that use them.
An explanation of how the current allocations are calculated are listed below for the current cost allocation plan methodology:
How the Allocation Works:
Step 1 — Determine the “Cost Pools” – Example: The Administrative Services’ total budget less any direct services (such as Business Licenses) becomes a cost pool — a bucket of money that needs to be divided fairly. 1 https://www.cityofsebastopol.gov/your-government/key-documents/ Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Step 2 — Decide How to Split or Allocate each Cost Pool - To divide the cost fairly, the plan uses a logical and measurable factor for each Cost Pool. Example: For the Administrative Services Department, the Cost Pools and their corresponding Allocation Factors are:
Cost Pool How It Is Shared (Allocation Factor)
Citywide Accounting Net Operating Expense
Utility Billing & Support Number of utility accounts
Payroll Amount of staff time
Accounts Payable Services and supplies spending
Accounts Receivable Amount of revenue collected
IT Management Number of employees
Human Resources Amount of staff time
EXAMPLE:
➡ Net Operating Expenses
This is simply each department’s operating budget (minus items such as debt, capital, and transfers). The idea is that departments with larger or more complex operations use more finance time, so they should pay a larger share. This method is standard across many agencies.
Step 3 — Apply the Formula
Here’s what happens behind the scenes using Net Operating Expenses as an example.
1. We calculate what percentage of Citywide Net Operating Expenses each department represents.
2. We multiply that percentage by the Administrative Services cost pool.
3. That number becomes the department’s allocated “share.” Example: Based on allocable cost pool of Administrative Services budget of $1,411,268 If Water represents 10% of Citywide operating expenses, then Water would receive 10% of the Finance cost.
This is what you see in the allocation worksheets. For example:
• Water receives $48,834 (1st allocation) and $5,716 (2nd allocation) for a total of $54,550. • Sewer receives $84,128 (1st allocation) and $9,846 (2nd allocation) for a total of $93,974.
Why There Are Two Steps (First and Second Allocation)
First Allocation:
The Administrative Services Department provides services to all operating departments. Therefore, the Administrative Services cost is allocated broadly to all departments.
Second Allocation:
Central service departments (City Manager, Finance, City Clerk, etc.) don’t keep those costs—they pass them through to the final end users.
For example:
• Finance receives part of the City Manager cost.
• But since Finance also supports all departments, that portion is redistributed (“second allocation”) to the final service departments such as Planning, Building, Police, Water, Sewer, etc.
This ensures no central service department ends up “holding” overhead that should be passed along. For additional contexts, please refer to the attachment titled Finance Allocable Expense.
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
DISCUSSION:
On September 15, 2025, ClearSource attended a Budget Committee meeting to provide an overview of potential revisions to theCity’sCost Allocation Plan (CAP) methodology. Staff andClearSource presented a conceptual proposal to transition from the City’s current full-cost allocation approach to a methodology based on federal cost principles.
Federal cost principles are federal regulations (primarily 2 CFR Part 200/Uniform Guidance) that establish standards for determining allowable, reasonable, and allocable costs when charging grant funds. They ensure costs are necessary for performance, consistent with policies, and apportioned based on benefits received, preventing overcharging. This proposed change would exclude certain overhead and indirect costs that are currently allocated across City funds and, if implemented, could result in a material fiscal impact to the General Fund.
During the discussion, Councilmember Phill Carter (Budget Committee Member) raised concerns regarding the potential magnitude of the annual impact to the General Fund and recommended that any methodology changes, if pursued, be implemented gradually through a phased approach. ClearSource clarified that the proposed methodology would rely on actual prior-year expenditures rather than adopted budget figures, which could affect both the timing and scale of financial impacts.
Following discussion, the Budget Committee agreed that no further analysis should move forward until the City’s existing Cost Allocation Plan was reviewed in detail. The Budget Committee further recommended that this item be postponed to allow for additional review and policy discussion prior to Council consideration.
Subsequently, the Enterprise Fund Oversight Committee (EFOC) was formed and held its first meeting in January 2026.
A list of the Committee’s duties is listed below for information:
Duties. The Committee shall act in an advisory capacity to the City Council and no express authority or power to act on behalf oftheCity is hereby delegated. To carry outits stated purpose,theCommittee shall perform the following duties:
a) Reviewing Annual Budgets and Financial Reports: The Committee will analyze the financial health of the Enterprise Funds, ensuring that budgets and financial statements reflect accurate and sustainable practices. b) Analyzing Rate Studies and Rate Adjustment Proposals: The Committee will evaluate proposed rate changes, including providing recommendations on cost allocation methods to ensure fairness and financial viability. c) Evaluating Long-Term Financial Planning and Capital Improvement Needs: The Committee will assess capital improvement plans (CIP), master plans, and long-term financial forecasts related to Enterprise Fund operations, ensuring that projects are properly prioritized and funded and that master planning efforts align with Enterprise Fund financial sustainability.
d) Engage with the public and other stakeholders to ensure that the community’s interest and concerns are reflected in the Committee’s recommendations.
e) Such other duties as assigned by the City Council.
f) Shall submit an annual report to the Council in early June before the next fiscal year budget is adopted.
The Budget Committee and Enterprise Fund Oversight Committee conducted meetings to discuss the proposed cost allocation plan. The table below was presented at these public meetings. is listed below. Additional information can be found at the following links: https://www.cityofsebastopol.gov/boards-commissions-committees/budgetcommittee/?dpt=&search_month=3&search_year=2026 Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Current
for
FY2025-26
Scenario A
for
FY 2026-27
Scenario B
for
FY 2026-27
Scenario 1
for
FY 2026-27
Scenario 2
for
FY 2026-27
Scenario 3
for
FY 2026-27
Fiscal Year Basis for Allocated
Expenditures
FY 2024-25
Budget
FY 2024-25
Actual
FY 2024-25
Actual
Inflation over
FY 2024-25
Budget-Based
CAP
Inflation over
FY 2024-25
Budget-Based
CAP
Inflation over
FY 2024-25
Budget-Based
CAP
Inclusion of City Attorney as an Allocated
Cost Pool Yes No No Yes No No
Inclusion of City Council as an Allocated
Cost Pool Yes Yes No Yes Yes No
Exclusions of Costs Based on Federal Cost
Claiming Principles No No Yes No No No
Assumption / Variable in Plan Iteration
Cost Allocation Plan Iteration Alternative Paths
The following options have been developed for discussion. Each option represents a different approach to applying or revising the Cost Allocation Plan for FY 2026–27. It’s important to note that the City’s Cost Allocation Plan was developed through a structured and established process. The current methodology was informed by interviews with City staff, reflects operational responsibilities, and was based on widely recognized industry standards for municipal cost allocation.
The Cost Allocation Plan, consistent with standard practice, incorporates reasonable estimates and defined assumptions and is developed through a systematic approach to ensure appropriate allocation of shared costs across funds. The City remains committed to providing clear, factual information to support transparency and understanding of the Cost Allocation Plan and its methodology.
Following is a table showing an overall resulting interfund charges on the water and wastewater utilities and impact to the General Fund for each of the options:
Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
1 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Status Quo" $ 866,492 $ 974,739 $ 44,908
2 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Excluding City Attorney" $ 773,874 $ 828,478 $ (193,971) 3 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Excluding City Attorney & City Council" $ 722,058 $ 771,232 $ (303,033) A
CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney $ 770,772 $ 816,504 $ (209,047) B
CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney & Other Items Not
Allowed in Federal Cost Claiming $ 717,187 $ 755,874 $ (323,262) Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
To further break down the impact with each option for the City Council’s consideration:
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Option 1:
Use the prior year’s Cost Allocation Plan, apply a 2.5% inflationary adjustment, and carry the adjusted allocations forward to FY 2026–27. The result of this adjustment will yield this outcome.
Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
1 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Status Quo" $ 866,492 $ 974,739 $ 44,908
Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
Option 2:
Same as Option 1, but excluding City Attorney costs from the general allocation methodology. Identifiable City Attorney costs would be directly allocated to the enterprise funds. The result of this adjustment will yield this outcome.
Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
2 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Excluding City Attorney" $ 773,874 $ 828,478 $ (193,971) Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
Option 3:
Same as Option 1, but excluding both City Attorney costs (with identifiable costs directly allocated to the enterprise funds) and City Council costs from the allocation methodology.
Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
3 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Excluding City Attorney & City Council" $ 722,058 $ 771,232 $ (303,033) Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
Scenario A:
Recalculate the Cost Allocation Plan using actual FY 2024–25 expenditures to calculate FY 2026–27 allocations, excluding City Attorney costs, with identifiable costs allocated directly to the enterprise funds.
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
A
CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney $ 770,772 $ 816,504 $ (209,047) Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
Scenario B:
Recalculate the Cost Allocation Plan using actual FY 2024–25 expenditures, excluding City Attorney costs (allocated directly to the enterprise funds) and excluding any costs that are not allowable under federal cost principles, such as governmental oversight, travel, and similar non-allowable expenditures.
Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
B
CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney & Other Items Not
Allowed in Federal Cost Claiming $ 717,187 $ 755,874 $ (323,262) Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
Note: The impact to the general fund for Options 1-3 and Scenario A & B are before any City Attorney direct charges are accounted for. The impact will be decreased by the amount of the direct charges.
As reflected in the five options presented above, Scenario B results in the greatest reduction when compared to the other alternatives. This option is based on an iteration of the Cost Allocation Plan based on prior year actual expenditures rather than budgeted amounts, providing a more accurate reflection of costs incurred.
One additional option, which falls outside the consultant’s current scope of work, would involve departments tracking staff time in greater detail and using that information as the basis for directly charging certain salary and benefit costs to the Enterprise Funds. Some departments began time tracking in mid-February, and the data collected may reasonably be used to support allocation of payroll-related expenses from the General Fund to the Enterprise Funds.
A similar approach could also be applied to certain contracted services where costs can be clearly attributed.
While direct charging may increase transparency for specific costs, it does not eliminate the use of estimates. In practice, staff time allocations, salary and benefit charges, and related costs are typically based on proportional assumptions even when detailed time-tracking systems are in place. In addition, many supporting infrastructure and overhead costs—such as information technology, facilities, utilities, administrative support, building maintenance, office supplies, equipment rental, and telecommunications—cannot be directly measured and would continue to require allocation using reasonable assumptions.
Implementing a broader direct-charge model would require increased time tracking, data collection, and administrative effort across departments. As a result, this approach represents a policy and operational consideration that would require separate City Council direction if pursued.
In parallel, the City consulted with two neighboring agencies of similar size to Sebastopol—Cotati and Cloverdale—to better understand their respective approaches to cost allocation. A summary of their methodologies is provided in the Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
attached materials. The City’s consultant has offered a professional opinion that adopting another agency’s precise methodology is not recommended, as cost allocation practices are not one-size-fits-all and approaches effective for one agency may not be appropriate for another agency. These cities are simply presented as examples of alternative approaches.
For all options under consideration, future annual updates may be implemented by applying a Consumer Price Index (CPI)–based inflationary adjustment to provide a streamlined and sustainable approach for ongoing updates. For example, if the combined Water and Sewer interfund charge for FY 2026–27 is $1,500,000 and a 3 percent inflation factor is applied based on the San Francisco–Oakland–Hayward–San Jose CPI, the adjusted total would be $1,545,000 in FY27-28 and the split evenly, $772,500 would be allocated to the Water Fund and $772,500 to the Sewer Fund.
The Cost Allocation Plan has been the subject of extensive review and discussion over an extended period, and updating it yearly is not in the best practice for cities and is not operationally or fiscally sustainable. Applying an inflation factor in subsequent years between periodic comprehensive Cost Allocation Plan studies would provide predictability and stability in financial planning, allow staff to redirect time and resources to other critical operational priorities, and maintain consistency in cost recovery. It is a best practice to complete a comprehensive Cost Allocation Plan update at least every five years.
STAFF ANALYSIS:
Staff is recommending that the Council move forward with Option A (Scenario A) with CPI Based Inflation Adjustment Under this option, the City would adopt Option A, as developed and presented by the consultant, which applies a full cost allocation methodology using standardized allocation factors consistent with industry practices. The plan would be adjusted using a 2.5% inflation factor based on the Consumer Price Index (CPI) to maintain alignment with changing cost levels. Legal fees related to the water and wastewater matters would be directly charged to the Enterprise Funds estimated to be $50,000 annually to be divided equally between water and wastewater.
BUDGET COMMITTEE REVIEW & ENTERPRISE FUND OVERSIGHT COMMITTEE REVIEW:
The joint meeting of the Budget Committee and the Enterprise Fund Oversight Committee was held on March 30, 2026, during which the committees reviewed the cost allocation plan outcomes presented by ClearSource. The committees requested a recommendation from the consultant, and based on the feedback received and the results of the refreshed cost allocation plan, ClearSource recommended—and staff concurred—that Scenario A be used with a 2.5% inflation factor based on CPI as a placeholder. This approach allows the FY 2026–27 budget development process to continue moving forward.
Subsequently, the Enterprise Fund Oversight Committee met on April 28, 2026, and reaffirmed support for Scenario A; with one member present in opposition. Committee members voting in favor included Chair Phill Carter, Vice Chair Greg Dabel, and Committee Member Oliver Mark; Committee Member Kate Haug opposed, and Committee Member Mary Meihaus was absent.
CITY COUNCIL GOALS/PRIORITIES/ AND OR GENERAL PLAN CONSISTENCY:
This agenda item represents the City Council goals/priorities as follows:
Goal 4 – High Performance Organization
Achieving staffing/ Program targets that match best standards and efficiency/operational staffing efficiencies/baseline budgets/performance management
This agenda item represents the City Council General Plan Consistency (if applicable):
N/A
FISCAL IMPACT:
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
In the currently adopted budget, $6,000 has been set aside for the routine annual update of the City’s Cost Allocation Plan (CAP). Dependent upon the methodology chosen, there will be impacts to the General Fund compared to the status quo.
COMMUNITY OUTREACH:
This item has been noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to schedule meeting date. The City has also used social media to promote and advertise the City Council Meeting Agenda Items.
As of the writing of this agenda item report, the City has not received any public comment. However, if staff receives public comment from interested parties following the publication and distribution of this agenda item report, such comments will be provided to the City Council as supplemental materials before or at the meeting.
RESTATED RECOMMENDATION:
That the City Council review and choose how city costs are shared across programs and services for FY 2026–27.
It is recommended that the Council:
1. Pick one of the cost allocation options presented.
2. Adjust costs each year for inflation using the Consumer Price Index (CPI).
3. Every three to five years, do a full review to make sure the method is still accurate and fair.
CITY COUNCIL OPTION(S):
That the Council select the following option:
Option 1 – Adopt Option A (Scenario A) with CPI-Based Inflation Adjustment (Recommended) Under this option, the City would adopt Option A, as developed and presented by the consultant, which applies a full cost allocation methodology using standardized allocation factors consistent with industry practices. The plan would be adjusted using a 2.5% inflation factor based on the Consumer Price Index (CPI) to maintain alignment with changing cost levels. Legal fees related to the water and wastewater matters would be directly charged to the Enterprise Funds estimated to be $50,000 annually to be divided equally between water and wastewater.
Option 2 – Select one of the remaining four options identified in the table below Water Wastewater
Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures $ 845,358 $ 950,965 $ -
1 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Status Quo" $ 866,492 $ 974,739 $ 44,908
2 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Excluding City Attorney" $ 773,874 $ 828,478 $ (193,971) 3 Inflation-Adjusted Charge in FY 2026-27
Based on Current Year CAP Outcomes
"Excluding City Attorney & City Council" $ 722,058 $ 771,232 $ (303,033) B
CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney & Other Items Not
Allowed in Federal Cost Claiming $ 717,187 $ 755,874 $ (323,262) Interfund Charge for FY 2026-27
Assumption / Variable in Plan Iteration
ATTACHMENTS:
Indirect Cost Allocation Plan Presentation
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Administrative Services Department – Finance Allocable Expense Cost Allocation Plan Methodology Used by Neighboring Agencies (Cotati and Cloverdale) APPROVALS:
Department Head Responsible for Agenda Item: Approval Date: 3/6/26 CEQA Determination (Community Development/Planning): Approval Date: N/A The action is not a project under the California Environmental Quality Act (CEQA).
Administrative Services (Financial): Approval Date: N/A Costs authorized in City Approved Budget: Yes ☐ No ☐ N/A Account Code: 100-14-01-4210-000-000000-000 $6,000
City Attorney Approval Approval Date: __4/29/26_______
City Manager Approval: Approval Date: __4/29/26_______
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
CITY OF
SEBASTOPOL
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• An interfund charge for service (4998 Interfund Charges – Cost Plan) assessed on certain enterprise funds to reimburse the General Fund for central oversight, management, and support services • Updates the Indirect Cost Allocation Plan developed in 2024 and updated in 2025, which replaced an allocation methodology previously established in 2001 • Outcomes presented here should inform budget development for next Fiscal Year 2026-27 • Specific direction was provided by the City to evaluate the impacts of alternative allocated cost pools, all of which result in decreased cost recovery to the General Fund in varying amounts, caused by reduced allocable costs serving as the basis for interfund charges Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• Directly assigned
through budgeting
and ongoing cost
accounting
• Allocated through
budgeting and/or cost
accounting or through
a cost allocation plan
(CAP)
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Prior
for
FY 2025-26
Scenario A
for
FY 2026-27
Scenario B
for
FY 2026-27
FY 2024-25
Budget
FY 2024-25
Actual
FY 2024-25
Actual
Yes No No
No No Yes
Assumption / Variable in Plan Iteration
Cost Allocation Plan Iteration
Fiscal Year Basis for Allocated
Expenditures
Inclusion of City Attorney as an
Allocated Cost Pool
Exclusions of Costs Based on Federal
Cost Claiming Principles
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
•
•
Scenario A Scenario B
Expenditure Year Basis for Allocated Costs 2024-25 Budget 2024-25 Actual 2024-25 Actual 100-10 | City Council $ 195,825 $ 172,504 -$
100-11 | City Manager $ 698,385 $ 826,812 $ 805,112
100-12 | City Attorney $ 647,900 -$ -$
100-13 | City Clerk $ 335,603 $ 331,395 $ 326,337
100-14 | Finance / Administrative Services $ 1,411,268 $ 1,353,783 $ 1,331,447 100-23 | Engineering $ 258,296 $ 212,414 $ 212,393
100-41-02 | Public Works - Corporation Yard $ 471,275 $ 491,133 $ 490,889 100-41-06 | Public Works - Governmental Building 212,539 $ $ 164,750 $ 164,750 100-00 | Non Departmental $ 146,940 $ 97,126 $ 97,126
Total Allocable Central Services Cost $ 4,378,031 $ 3,649,917 $ 3,428,053 Difference from Prior Plan $ (728,115) $ (949,978)
ALLOCATED ORGANIZATIONS
FY 2025-26
Plan
FY 2026-27 Plan
Allocable Cost Pool
Central Services Department or Division
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• A rational method to distribute
costs which support multiple
activities across the City • Processes costs that cannot be easily assigned to an end
beneficiary without effort
disproportionate to the results
achieved • Attributes the allocated cost to
the City’s direct public services • Allocated costs are commonly referred to as “overhead” • Informs a variety of cost
recovery opportunities
* Frequently referred to in this plan as a “Central Services Function.” Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• Allocate across the entire organization without bias for ability or preference to pay • Root allocated costs in recent or current documented fiscal year with confidence in reported or budgeted expense items • Use allocation metrics based on readily available and replicable information to reflect current conditions, not created solely for cost allocation • Generate allocated shares that reasonably reflect service or benefit received or represent an acceptable proportionality between benefitting units • Attempt to avoid large swings from year to year unless underlying organizational change has occurred and warrant such swings • Create a tool and method to support annual update and application of continually improving metrics • Be mindful of downstream impacts to cost of service-based rates/fees (Prop 218, Prop 26), and transparent accounting for other programs Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• The CAP uses data from
existing City systems,
industry methods, and staff
time estimates to derive a
functional cost pool to be
allocated from each cost
center • The CAP sets a readily
accessible and replicable
basis for reasonably
allocating each function to
benefitting departments
Prior Plan Scenario A Scenario B
100-10 | City Council $ 195,825 $ 172,504 -$
Administrative Oversight 48,956 43,126 - Compensated Labor Hours (Approx. FTEE) General Fiscal Oversight 48,956 43,126 - Net Operating Expense Capital Fiscal Oversight 97,912 86,252 - Capital Asset Value (Infrastructure) 100-11 | City Manager $ 698,385 $ 826,812 $ 805,112
Administrative Management 126,046 206,698 Compensated Labor Hours (Approx. FTEE) 201,273 General Fiscal Management 352,246 206,721 Net Operating Expense 201,296 Capital Fiscal Management 220,092 413,392 Capital Asset Value (Infrastructure) 402,542 100-12 | City Attorney $ 647,900 -$ -$
Citywide Service 647,900 - - Net Operating Expense
100-13 | City Clerk $ 335,603 $ 331,395 $ 326,337
Citywide Service 335,603 331,395 Net Operating Expense 326,337 100-14 | Finance / Administrative Services $ 1,411,268 $ 1,353,783 $ 1,331,447 Citywide Accounting / Budget 500,543 596,036 Net Operating Expense 577,411 Utility Billing & Support 340,734 304,493 Utility Accounts 302,241 Payroll 95,362 82,482 Compensated Labor Hours (Approx. FTEE) 81,769 Accounts Payable 83,442 72,171 Services & Supplies Expense 71,548 Accounts Receivable / Cash Receipts 47,681 41,241 Revenues Receipted 40,885 Information Technology Management 162,408 154,749 Personnel Count 154,803 Human Resources 181,098 102,612 Compensated Labor Hours (Approx. FTEE) 102,790 100-23 | Engineering $ 258,296 $ 212,414 $ 212,393
Technical Support - Public Projects 258,296 212,414 Capital Asset Value (Infrastructure) 212,393 100-41-02 | Public Works - Corporation Yard $ 471,275 $ 491,133 $ 490,889 Department Administrative Management 235,637 245,567 Public Works Personnel Count 245,445 Department Fiscal Management 235,637 245,567 Public Works Modified Operating Expense 245,445 100-41-06 | Public Works - Governmental Building 212,539 $ $ 164,750 $ 164,750 Governmental Facility Maintenance 212,539 164,750 Personnel Count 164,750 100-00 | Non Departmental $ 146,940 $ 97,126 $ 97,126
Personnel Services 74,520 86,095 Compensated Labor Hours (Approx. FTEE) 86,095 Information Technology Services 72,420 11,031 Personnel Count 11,031 Total Allocable Central Services Cost $ 4,378,031 $ 3,649,917 $ 3,428,053 Central Services Department/Division
and Functional Cost Pool Created by the Plan
Allocable Cost Pool
Allocation Basis
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• This is the resulting
spread of the total $3.65
million in allocated
central services costs to
departmental designation
in the CAP for Scenario A.
(The spread is not materially
different for Scenario B.) • This informs Indirect Cost Rates (ICRs), which are
used to determine
interfund charges for
service.
These are department “designations” in the CAP, not always exact departments in the City’s accounting and organization structure. These departmental designations are structured to consolidate divisions of like services and produce expressions of Citywide overhead reasonable and undistorted to the underlying direct service provided by the grouped divisions.
22.4%
21.1%
19.4%
11.1%
9.5%
7.9%
2.9%
2.2% 1.9% 1.0% 0.5%
Public Works - Wastewater Utility
Public Works - Water Utility
Police
Public Works
Unclassified / CIP, ISF, Transfer
Fire & Prevention
Planning
Public Works - Community Facilities
General Government
Building
Engineering
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
•
•
•
•
•
Prior Plan Scenario A Scenario B
Planning 15.2% 11.6% 10.8%
Building 16.4% 12.3% 11.6%
Engineering 11.1% 7.6% 7.1%
Fire & Prevention 24.1% 18.6% 17.8%
Police 17.5% 13.9% 12.8%
Public Works 31.4% 27.6% 26.7%
Public Works - Community Facilities 23.4% 22.7% 21.9%
Public Works - Water Utility 37.2% 35.5% 33.0%
Public Works - Wastewater Utility 24.3% 21.6% 20.0%
Composite for the City 16.6% 13.7% 12.4%
INDIRECT COST RATES
(RATIO OF RECEIVED OVERHEAD TO RECEIVER'S DIRECT COSTS) Departmental Designation in the CAP
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
These values are
directly comparable to
values presented in the
FY 2025-26 adopted
budget, accounted as
“4998 Interfund
Charges – Cost Plan.”
Distribution
of Outcomes
Distribution
of Outcomes
500 | Water $ 770,772 21% $ 717,187 21%
510 | Wastewater $ 816,504 22% $ 755,874 22%
$ 1,587,276 43% $ 1,473,061 43%
Other Non-General Funds Not Previously Charged $ 129,504 [a] 4% $ 123,758 [a] 4% 100 | General Fund - Remaining Central Services Borne 1,933,137 $ 53% $ 1,831,234 53% Total Central Services Allocated in this Plan $ 3,649,917 100% 3,428,053 $ 100% Maximum Charge
in This Plan
Interfund Charge for Service
Fund Receiving an SCENARIO A SCENARIO B
Interfund Charge for Service
and Reimbursing the General Fund
Reimbursement to the General Fund
for Allocated Central Services in this Plan
Maximum Charge
in This Plan
[a] The City would need to evaluate eligibility and sufficiency of funding sources to accept the calculated charge from this Plan.
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Water
Finance / Admin. Services - All General
Fund
City Manager
Public Works - Corporation Yard
Engineering - All General Fund
Programs
City Council
City Clerk
Non Departmental
Public Works - Governmental Building
City Attorney
Wastewater
Finance / Admin. Services - All General
Fund
City Manager
Public Works - Corporation Yard
Engineering - All General Fund
Programs
City Council
City Clerk
Non Departmental
Public Works - Governmental Building
City Attorney
Received by
Water
Received by
Wastewater
100-14 | Finance / Administrative Services:
Citywide Accounting / Budget $ 63,483 $ 110,284
Utility Billing & Support $ 162,058 $ 162,058
Payroll $ 6,374 $ 5,806
Accounts Payable $ 11,064 $ 3,032
Accounts Receivable / Cash Receipts $ 16,880 $ 22,647
Information Technology Management $ 5,555 $ 4,685
Human Resources $ 7,929 $ 7,223
100-11 | City Manager $ 181,933 $ 200,781
100-41-02 | Public Works - Corporation Yard $ 149,777 $ 102,480 100-23 | Engineering $ 73,404 $ 75,345
100-10 | City Council $ 42,000 $ 46,403
100-13 | City Clerk $ 36,787 $ 63,907
100-00 | Non Departmental $ 6,973 $ 6,325
100-41-06 | Public Works - Governmental Building $ 6,555 $ 5,528 100-12 | City Attorney -$ -$
Total Allocated Central Services Cost Received 770,772 $ $ 816,504 Central Services Department/Division
or Functional Cost Pool Created by the Plan
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Water
Finance / Admin. Services - All General
Fund
City Manager
Public Works - Corporation Yard
Engineering - All General Fund
Programs
City Clerk
Non Departmental
Public Works - Governmental Building
City Council
City Attorney
Wastewater
Finance / Admin. Services - All General
Fund
City Manager
Public Works - Corporation Yard
Engineering - All General Fund
Programs
City Clerk
Non Departmental
Public Works - Governmental Building
City Council
City Attorney
Received by
Water
Received by
Wastewater
100-14 | Finance / Administrative Services:
Citywide Accounting / Budget $ 61,236 $ 106,381
Utility Billing & Support $ 160,391 $ 160,391
Payroll $ 6,299 $ 5,738
Accounts Payable $ 10,932 $ 2,995
Accounts Receivable / Cash Receipts $ 16,686 $ 22,386
Information Technology Management $ 5,538 $ 4,670
Human Resources $ 7,918 $ 7,213
100-11 | City Manager $ 176,433 $ 194,687
100-41-02 | Public Works - Corporation Yard $ 149,165 $ 102,062 100-23 | Engineering $ 73,172 $ 75,108
100-13 | City Clerk $ 35,936 $ 62,429
100-00 | Non Departmental $ 6,949 $ 6,304
100-41-06 | Public Works - Governmental Building $ 6,533 $ 5,509 100-10 | City Council -$ -$
100-12 | City Attorney -$ -$
Total Allocated Central Services Cost Received 717,187 $ $ 755,874 Central Services Department/Division
or Functional Cost Pool Created by the Plan
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• Total reimbursement to the
General Fund would decrease
from utility funds in FY 2026-27
in both scenarios: • This increases cost burden on
the General Fund compared to
current fiscal year recovery • $209,048 additional burden to the General Fund in Scenario A • $323,263 additional burden to the General Fund in Scenario B
500 | Water $ 770,772 $ 845,358 $ (74,586)
510 | Wastewater $ 816,504 $ 950,965 $ (134,461)
$ 1,587,276 $ 1,796,323 $ (209,048)
Other Non-General Funds Not Previously Charged $ 129,504 100 | General Fund - Remaining Central Services Borne 1,933,137 $ Total Central Services Allocated in this Plan $ 3,649,917 500 | Water $ 717,187 $ 845,358 $ (128,171)
510 | Wastewater $ 755,874 $ 950,965 $ (195,091)
$ 1,473,061 $ 1,796,323 $ (323,263)
Other Non-General Funds Not Previously Charged $ 123,758 100 | General Fund - Remaining Central Services Borne 1,831,234 $ Total Central Services Allocated in this Plan $ 3,428,053 Reimbursement to the General Fund
for Allocated Central Services in this Plan
Fund Receiving an
Interfund Charge for Service
and Reimbursing the General Fund
Interfund Charge for Service - SCENARIO B
Maximum Charge
in This Plan for
FY 2026-27
Current Charge
in FY 2025-26
Budget
Change
in This Plan
Reimbursement to the General Fund
for Allocated Central Services in this Plan
Current Charge
in FY 2025-26
Budget
Change
in This Plan
Fund Receiving an
Interfund Charge for Service
and Reimbursing the General Fund
Interfund Charge for Service - SCENARIO A
Maximum Charge
in This Plan for
FY 2026-27
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• Outcomes continue to
represent an overall decrease
in historical levels of General
Fund cost recovery from the
utilities, due to the recent
implementation of a new
Indirect Cost Allocation Plan
FY 2023-24
[a]
FY 2024-25
[b]
FY 2025-26
[c]
FY 2026-27
[d] $-Change %-Change
SCENARIO A
500 | Water $ 1,363,096 $ 852,863 $ 845,358 $ 770,772 $ (592,324) -43% 510 | Wastewater $ 1,113,046 $ 908,934 $ 950,965 $ 816,504 $ (296,543) -27% $ 2,476,143 $ 1,761,797 $ 1,796,323 $ 1,587,276 $ (888,867) -36%
SCENARIO B
500 | Water $ 1,363,096 $ 852,863 $ 845,358 $ 717,187 $ (645,910) -47% 510 | Wastewater $ 1,113,046 $ 908,934 $ 950,965 $ 755,874 $ (357,172) -32% $ 2,476,143 $ 1,761,797 $ 1,796,323 $ 1,473,061 $ (1,003,082) -41% [a] Based on values derived from a cost allocation methodology established in 2001. [b] Based on a new Indirect Cost Allocation Plan developed in 2024. [c] Based on an update to the Indirect Cost Allocation Plan in 2025. [d] Based on an update to the Indirect Cost Allocation Plan with material changes to allocable costs from prior two years in 2026.
Reimbursement to the General Fund
for Allocated Central Services
Total Four-Year Change
Fund Receiving an
Interfund Charge for Service
and Reimbursing the General Fund
Reimbursement to the General Fund
for Allocated Central Services
Interfund Charge for Service by Year
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• Review these outcomes at Committee(s) level
• Examine alternate paths (next slide)
• Receive and accept the final Cost Allocation Plan
or alternate path at City Council level
• Apply results in budget development for Fiscal
Year 2026-27 by using the dollar values presented
as the budgeted interfund charge (4998, Interfund
Charge-Cost Plan)
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Additional Scenarios 1-3
are described at right and
compared to the
previously presented
Scenarios A-B.
Water Wastewater Impact to
General Fund
0 Budgeted Charge in FY 2025-26
Based on CAP
Use of Budgeted Expenditures
$ 845,358 $ 950,965 -$
1 Inflation-Adjusted Charge in FY 2026-27
Based on Prior Year CAP Outcomes
"Status Quo"
$ 866,492 $ 974,739 $ 44,908
2 Inflation-Adjusted Charge in FY 2026-27
Based on Prior Year CAP Outcomes
Excluding City Attorney
$ 773,874 $ 828,478 $ (193,971)
3 Inflation-Adjusted Charge in FY 2026-27
Based on Prior Year CAP Outcomes
Excluding City Attorney & City Council
$ 722,058 $ 771,232 $ (303,033)
A CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney
$ 770,772 $ 816,504 $ (209,048)
B CAP-Based Charge in FY 2026-27
Use of Prior Year Actual Expenditures
Excluding City Attorney & Other Items
Not Allowed in Federal Cost-Claiming
$ 717,187 $ 755,874 $ (323,263)
Assumption / Variable in Plan Iteration
Interfund Charge for FY 2026-27
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Administrative Services Department
1st Allocation
Agenda 11 Pg # Agenda 11 Pg #
Citywide
Accounting
Utility Billing &
Support Payroll Accounts Payable
Accounts
Receivable IT Mgt HR
Citywide
Accounting
Utility Billing &
Support Payroll Accounts Payable
Accounts
Receivable IT Mgt HR
67 $500,543 $340,734 $95,362 $83,442 $47,681 $162,408 $181,098 $47,571 $32,383 $9,063 $7,930 $4,532 $15,435 $17,212 67 Distribution to All Services Distribution Only to Direct Services Net Operating
Expense Utility Accounts
Compensated
Labor Hours
Services &
Supplies Exp
Revenues
Receipted Personnel Count
Compensated
Labor Hours
Net Operating
Expense Utility Accounts
Compensated
Labor Hours
Services & Supplies
Exp
Revenues
Receipted Personnel Count
Compensated
Labor Hours
73-77 9.8% 50.0% 7.2% 15.4% 38.5% 3.3% 7.2% 12.0% 50.0% 7.6% 18.1% 38.5% 4.0% 7.6% 73-77 Equals Equals
Allocated Expense Allocated Expense
81 $48,834 $170,367 $6,899 $12,886 $18,357 $5,414 $13,101 $5,716 $16,192 $693 $1,436 $1,743 $614 $1,317 87 1 Direct Services
2 2nd Allocation
3 Allocation Basis Each functional cost pool is assigned an allocation basis. This determines the degree to which City departments receive the costs. The determination was done based on information in existing City reports, staff interviews, common industry methods, or combination of these sources.
Defintion
Multiplied by Allocation % Multiplied by Allocation %
Allocation Basis3 Allocation Basis3
TOTAL TOTAL
An allocable cost pool is a bucket of related costs that gather together so it can fairly spread (allocate) them across the function that provide the service.
Example:
Group similar costs into one “pool.” such as several people share a house. The total internet, PG&E are considered cost pool Then decide how much of that pool each person should pay based on how much they use or benefit from the service - .eg someone working from home all day might pay more than someone who only uses it at night.
Finance Allocable Expense
Overhead is allocated across all organizations Citywide - this shows the portion allocated to Water 2nd Allocation2 24-25 Budget less Direct Services1 $1,447,765 - $36,497 First Allocation Overhead Received from other Departments to be Redistributed Percentage of budgeted amounts that are considered direct. Each account has its own rationale for allocation. See Exhibits 4, pg 67 and Exhibit 3 pg 58 Portion of Citywide services that were allocated in the first allocation that are recevieved by department to be reallocated. This department is a service department, so any services received must be reallocated to the deparmtents that are benefitting. $1,411,268 $134,127
Total Water
$303,569
Allocable Cost Pool Allocable Cost Pool
$275,858 $27,711
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
Administrative Services Department
1st Allocation
Agenda 11 Pg # Agenda 11 Pg #
Citywide
Accounting
Utility Billing &
Support Payroll
Accounts
Payable
Accounts
Receivable IT Mgt HR
Citywide
Accounting
Utility Billing &
Support Payroll Accounts Payable
Accounts
Receivable IT Mgt HR
67 $500,543 $340,734 $95,362 $83,442 $47,681 $162,408 $181,098 $47,571 $32,383 $9,063 $7,930 $4,532 $15,435 $17,212 67 Distribution to All Services Distribution Only to Direct Services Net Operating
Expense Utility Accounts
Compensated
Labor Hours
Services &
Supplies Exp
Revenues
Receipted Personnel Count
Compensated
Labor Hours
Net Operating
Expense Utility Accounts
Compensated
Labor Hours
Services &
Supplies Exp
Revenues
Receipted Personnel Count
Compensated
Labor Hours
73-77 16.8% 50.0% 6.6% 5.9% 51.6% 2.8% 6.6% 20.7% 50.0% 7.0% 7.0% 51.6% 3.4% 7.0% 73-77 Equals Equals
Allocated Expense Allocated Expense
81 $84,128 $170,367 $6,284 $4,948 $24,598 $4,565 $11,935 $9,846 $16,192 $632 $552 $2,338 $518 $1,199 87 1 Direct Services
2 2nd Allocation
3 Allocation Basis
Defintion
Each functional cost pool is assigned an allocation basis. This determines the degree to which City departments receive the costs. The determination was done based on information in existing City reports, staff interviews, common inudstry methods, or combination of t
TOTAL TOTAL
$306,825 $31,277
Total Sewer
$338,102
An allocable cost pool is a bucket of related costs that gather together so it can fairly spread (allocate) them across the function that provide the service.
Example:
Group similar costs into one “pool.” such as several people share a house. The total internet, PG&E are considered cost pool Then decide how much of that pool each person should pay based on how much they use or benefit from the service - .eg someone working from home all day might pay more than someone who only uses it at night. $1,411,268 $134,127
Finance Allocable Expense
Overhead is allocated across all organizations Citywide - this shows the portion allocated to Sewer 2nd Allocation2 24-25 Budget less Direct Services1 $1,447,765 - $36,497 First Allocation Overhead Received from other Departments to be Redistributed Allocable Cost Pool Allocable Cost Pool
Multiplied by Allocation % Multiplied by Allocation %
Allocation Basis3 Allocation Basis3
Percentage of budgetted amounts that are considered direct. Each account has its own rationale for allocation. See Exhibits 4, pg 67 and Exhibit 3 pg 58 Portion of Citywide services that were allocated in the first allocation that are recevieved by department to be reallocated. This department is a service department, so any services received must be reallocated to the deparmtents that are benifitting.
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
MEMORANDUM
Date: March 2026
Subject: Cost Allocation Options
================================================================================= This memo provides an overview of a neighboring city’s model for allocating General Fund departmental costs to the Enterprise Funds.
City of Cotati
The agency uses an internal cost allocation plan built primarily on historical employee time tracking, but with several distinct purposes:
Time tracking and payroll
• City Council: Each Councilmember is counted as 0.5 Full Time Equivalent (FTE) where costs are allocated across general fund, water, sewer, and successor agency based on informed historical overall time spent on agenda items and board appointments. The current allocation for all members is 26%, 11%, 11% and 2% accordingly.
• All Employees: Time tracked across multiple functional categories and used as the basis for cost allocation.
o City Manager allocation is 60% General Fund, 15% Water, 15% Sewer, and 10% Successor Agency.
o City Clerk allocation is 76% General Fund, 11% Water, 11% Sewer and 2% Successor Agency.
Enterprise fund allocations
• City-wide expenses are allocated to enterprise funds using the City-Wide combined all staff FTE allocation.
Utility Customer Service Support Survey
• Utility Billing work (both front- and back-office functions) occurs throughout the day. • There is no restricted timeframe limiting Utility Billing support activities. After-hours support is provided via police dispatch and on-call public works.
==================================== #### ======================================= City of Cloverdale
Cost Allocation Approach
• The process begins with total General Fund departmental budgets.
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026
• From those totals, salaries already charged to enterprise funds are excluded before any allocation is calculated.
• The remaining expenses are then allocated between the General Fund and enterprise funds using established allocation drivers.
Allocation Methodology
• Most departments are allocated based on total revenue. • Human Resources costs are allocated based on the number of employees. • City Clerk costs are allocated based on the number of agenda items processed. • These metrics are intended to represent the most reasonable cost drivers for each department.
General Fund Retention Percentage
• For departments allocated based on revenue, 45% of the allocable costs remain with the General Fund. • The remaining portion is distributed among enterprise funds in proportion to each fund’s share of total revenue.
• The 45% figure is described as a long-standing and reasonable percentage, historically tied to how wages and departmental effort are split between the General Fund and enterprise funds.
Utility Customer Service Support Survey
• Utility Billing work (both front- and back-office functions) occurs throughout the day. • There is no restricted timeframe limiting Utility Billing support activities.
The budget-based allocation model, with clear exclusion of already-identified enterprise fund salaries, the use of reasonable cost drivers by department, and a consistent General Fund retention percentage. Her approach reinforces that even identifiable expenses remain allocated in nature, rather than treated as purely “direct charges.”
Agenda Item Number 12 Agenda Item Number 12
City Council Meeting Packet of May 5, 2026