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Cost-Recovery Fees and Fee Setting Methodology

Cost-Recovery Fees and Fee Setting Methodology. Nick Villalpando Chief Financial Officer. Budget Assumptions/Philosophy. Ninety-eight percent of DIR’s funding comes from fees charged to government entities who use DIR services.

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Cost-Recovery Fees and Fee Setting Methodology

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  1. Cost-Recovery Fees and Fee Setting Methodology Nick Villalpando Chief Financial Officer DIR Board Meeting | July 17, 2012

  2. Budget Assumptions/Philosophy • Ninety-eight percent of DIR’s funding comes from fees charged to government entities who use DIR services. • Administrative (cost-recovery) fees are set at levels intended to be sufficient to recover DIR’s operating costs. • Due to inherent uncertainties with forecasting customer demand for DIR services, actual revenues may be more or less than amounts needed to recover costs for a given year. • Costs associated with overhead activities and other functions that DIR is mandated to perform are allocated to each cost- recovery program. DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  3. Indirect Cost Activities • Indirect Administration • Executive Administration • General Counsel • Human Resources • Finance and Accounting • Information Resources • Communications and Strategic Partnerships • Indirect Other • Information Technology Policy and Guideline Development • Statewide Technology Planning • Statewide Security • Indirect Costs are allocated to cost-recovery programs based on full time equivalent positions DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  4. Fee Evaluation and Setting Process 1. Determine total operating expenses to be recovered by administrative fees • Direct Program Costs and Indirect Costs (Administration and Other Costs) 2. Forecast customer demand for goods and services • Consider multiple factors that impact customer demand • Determine impact of vendor pricing on volume and estimated fee revenue 3.Set fees at levels that will recover operating costs based on forecasted customer consumption • Finance Division Recommendation • Executive Director Approval • DIR Board Approval 4. Monitor financial operating results throughout the year to determine if DIR is generating revenue at level needed to recover cost; take corrective action if necessary DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  5. Operating Expenses to Be RecoveredCooperative Contracts DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  6. Administrative FeesCooperative Contracts • Fees are paid to DIR by vendors who sell goods and services to eligible customers • Vendor prices charged to customers include the DIR fee • Current administrative fees range from 0.25% to 0.50% of vendor sales • Current FY13 revenue estimate is $5.8 million – based on $1.5 billion customer volume DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  7. Operating Expenses to Be RecoveredData Center Services DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  8. Administrative FeesData Center Services • DIR charges a 2.95% administrative fee to DCS customers • The fee is applied to the monthly customer invoice based on amounts charged by DCS vendors • Current FY13 revenue estimate is $4.3 million – based on $152 million customer volume DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  9. Operating Expenses to Be RecoveredCommunications Technology Services DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  10. Administrative FeesCommunications Technology Services • CTS division delivers a range of services to customers • Capitol Complex Telephone System (CCTS) • TEX-AN Statewide Telecommunications • Wireless Services • Services are divided into three categories for fee setting • Vendor-provided services (voice minutes, circuits, wireless, etc.) • DIR-provided services (CCTS line charges, voice mail, data, etc.) • DIR-provided customer-specific solutions DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  11. Current Administrative FeesCommunications Technology Services • Vendor-provided services • 2% to 12% administrative fees • Current FY13 revenue estimate is $10.1 million • DIR-provided services • Pricing varies based on service type • Current FY13 revenue estimate is $6.3 million • DIR-provided customer-specific solutions • Pricing varies based on service type • Current FY13 revenue estimate is $187 thousand • Total Current FY13 Administrative Fee Revenue Estimate is $16.6 million • Based on the following customer volumes (total $228.1 million): • CCTS – $4.3 million • TEX-AN – $74.1 million, • Wireless & Local Services – $149.7 million DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  12. Operating Expenses to Be RecoveredTexas.gov DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  13. Operating Expenses to Be RecoveredIndirect Expenses DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  14. Operating Expenses to Be RecoveredTotal Agency DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

  15. Next Steps • DIR Finance team to prepare final administrative fee and FY2013 operating budget recommendations for Executive Director approval • Obtain DIR board approval at August 30 board meeting DIR Board Meeting | July 17, 2012 Cost-Recovery Fees

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