FIACCT 07-10_00 Revenues- Cost Formula for Fees

Fee Agency

A state department or agency authorized to establish fees.

Cost Formula

A method of computing a fee amount based on related costs and
expected volume of services.

Direct Cost

Costs incurred that are specifically identifiable to providing the
service for which the fee is charged.

Indirect Cost

Costs incurred to provide services that cannot be identified
readily and specifically with a particular service, including
overhead costs.

A.

Agencies should use the following cost formula as a guideline when establishing fees:
(direct costs + indirect costs) / the expected volume of fees to be charged = fee amount
In limited cases, to be reasonable, a fee amount may reflect public policy considerations, as
approved by the Governor and by the Legislature through their authorization of fees in the
Appropriations Act.

B.

Generally, agencies should adopt fees that are reasonable, fair, and reflect the full cost of
services provided. Agencies should document the costs and allocation methods used to set
fees and ensure that this documentation is auditable. Agencies should justify any applicable
costs that it excludes from a cost formula. The costs and allocation methods should be
consistently applied.

C.

Agencies will comply with all the requirements of UCA 63J-1-504. This policy deals only
with the cost formula requirement of this statute.

D.

Several fees have an impact on free revenues. Changes in these types of fees need to be
coordinated with the Governor’s Office of Planning and Budget so that their impact can be
evaluated.

E.

When setting fees, agencies should follow any directives or guidelines issued by the
Legislature or a legislative-established commission, board, or council whose responsibilities
include overseeing services and fees. This policy does not take precedent over, supersede, or
otherwise change those directives or guidelines.

F.

Agencies should include direct and indirect costs in their cost formula as follows:

1. Direct Costs
   These costs include salaries and benefits for employees who work directly on providing the service. It also includes supplies, travel, equipment and depreciation, building operations, maintenance and depreciation, and any other specifically identifiable cost that is incurred as a direct result of providing the service.
   
2. Indirect Cost
   These costs include the related share of salaries, benefits, supplies, travel, equipment and depreciation, building operations, maintenance and depreciation, and other overhead type costs incurred that cannot be specifically identified with a particular service but indirectly support the service. Such costs include department administration, accounting, personnel, clerical and technical support, etc. Agencies may also include their share of the Statewide Cost Allocation indirect costs (contact the State Division of Finance, Financial Reporting Section, for the amounts).
   
   Indirect costs should relate to the specific service to which they are allocated. The allocation methods used should provide a reasonable and equitable allocation of costs to the service. For example, indirect costs are commonly allocated based on the proportion of direct salaries and wages of the specific service to the total of all direct salaries and wages in a department. Depreciation on buildings is commonly allocated based on the square footage used by those employees directly providing the service.
   
   Note: Depreciation expenses are included in FINET for agencies that have their assets on the FINET Fixed Asset Subsystem. Contact the Division of Facilities Construction and Management (DFCM) for depreciation amounts on buildings used by the agency. For other assistance contact the State Division of Finance.
   

G.

Regardless of whether a cost is assigned as direct or indirect, once assigned, each cost is to be
treated consistently in like circumstances.

H.

All requested fee changes must be included with an agency’s annual budget submission to the Governor’s Office of Planning and Budget for evaluation. The Governor may, at his
discretion, approve, modify, or reject the proposed fee change as part of his budget
recommendations to the Legislature. (UCA 63J-1-504 (7)).

All fee changes approved by the Governor are submitted to the Legislature. The Legislature,
at its discretion, may modify or reject recommended fee changes. All fees must be authorized
by the Legislature in an Appropriations Act.

I.

Cost formulas should be annually reviewed and approved by the fee agency executive
director, chief financial officer, and fee setting committee or board, if applicable, prior to
submitting budget requests to the GOPB.

Responsibility

Action

Agency

Develop and document cost formulas that support the fee amounts
being charged by the fee agency.

Submit suggested fee amounts to the GOPB annually as part of the
budgetary process.

GOPD

Review suggested fee amounts submitted by agencies. Make any
necessary adjustments and forward the fee schedules to the
Legislative Fiscal Analyst with the Governor’s budget
recommendations.

Legislature

Review suggested fee amounts recommended by the Governor.
Make any necessary adjustments and approve each fee in the
appropriations acts.

Finance

Assist agencies as needed in developing a cost formula and
identifying costs to be included in the cost formula.