REPORT/RECOMMENDATION TO THE BOARD OF SUPERVISORS
OF SAN BERNARDINO COUNTY
AND RECORD OF ACTION
June 27, 2023
FROM
LEONARD X. HERNANDEZ, Chief Executive Officer, County Administrative Office
SUBJECT
TitleTitle
Internal Service Fund Rate and Departmental Recharge Adjustments
EndEnd
RECOMMENDATION(S)
RecommendationRecommendation
Approve annual adjustments to Internal Service Fund rates and departmental recharges effective July 1, 2023, as outlined in Attachments A through J.
(Presenter: Matthew Erickson, County Chief Financial Officer, 387-5423)
BodyBody
COUNTY AND CHIEF EXECUTIVE OFFICER GOALS & OBJECTIVES
Operate in a Fiscally-Responsible and Business-Like Manner.
FINANCIAL IMPACT
Approval of the 2023-24 Internal Service Fund (ISF) rates and departmental recharges for services provided to other County departments, Board Governed Special Districts, and other agencies will result in a total increase in revenues of $39.2 million, which is primarily due to changes in the Department of Risk Management (Risk Management) premiums, along with Innovation and Technology Department (ITD) and Project and Facilities Management Department (PFMD) rate increases. This amount includes an estimated increased use of Discretionary General Funding (Net County Cost) of $12.5 million, primarily due to changes in Risk Management and PFMD charges. The costs for the rate increase, along with additional Discretionary General Funding, have been planned for and included in the County’s 2023-24 Recommended Budget.
BACKGROUND INFORMATION
ISFs are a financial mechanism used by the County to recover costs incurred by one department when performing services or procuring goods on behalf of other departments or agencies. Departments and agencies pay ISF departments through established service rates. The internal service departments that provide such services include Fleet Management (Fleet), ITD, Purchasing Department (Purchasing), and Risk Management. Human Resources Department (Human Resources, Real Estate Services Department (RESD), PFMD, and the Assessor-Recorder-County Clerk (ARC) also develop departmental recharges to recover costs. Additionally, Printing Services (formerly under Purchasing), for which service rates are also established, is now part of the County Communications Group.
County Policy 05-07 states that ISF rates are established by the Board of Supervisors (Board). Adjustments to ISF rates, and departmental recharges effective July 1, 2023, will allow those departments to recover the full cost of providing services to County departments, Board Governed Special Districts, and other agencies. County Policy 11-03 requires any County department, agency, or Special District to utilize the services of internal service departments when those services are necessary, which allows the ISF department to provide economical services and maintain prudent cost control. Exceptions to this policy are approved on a case-by-case basis by the internal service department, with any permanent exceptions approved by the County Administrative Office (CAO) - Finance and Administration. For ISFs, the proposed rates are recommended to recover costs, ensure adequate working capital, and maintain appropriate designated reserve balances for capital asset purchases and replacement, unexpected expenses, and revenue shortfalls. ISF service rates are typically reviewed annually and adjusted, if needed, to ensure full cost recovery and appropriate fund balances and cash reserves.
The following departments currently charge ISF service rates and/or departmental recharges. Additionally, details on the proposed 2023-24 rates and recharges are reflected in the corresponding attachments.
Fleet Management (Attachment A)
Fleet provides acquisition, maintenance, repair, modification, and disposal services for the majority of County vehicles and equipment, with the exception of the Sheriff/Coroner/Public Administrator. Fleet charges rates for both Garage and Motor Pool services.
• Fleet’s main garage in San Bernardino includes four shops (automotive, heavy duty, welding/metal fabrication, and generator services), as well as a parts room and fuel station. Fleet also operates five smaller service centers in outlying locations (Barstow, Needles, Rancho Cucamonga, Twentynine Palms, and Victorville) and 62 strategically located fueling sites. Fleet also provides lock-up services, including security related duties, emergency field services, wet hosing, and fuel tank management.
• Fleet operates a Motor Pool that has ownership and/or maintenance responsibility for approximately 2,100 vehicles/equipment assigned to or used by County departments. Approximately 90% of the vehicles are assigned to various County departments, with the remaining vehicles available from the Motor Pool for daily use. Fleet also provides Department of Motor Vehicles registration services.
Fleet’s proposed changes to Garage rates are projected to result in a net revenue increase of $577,529. Overall, Fleet is proposing some increases and decreases to Garage rates. These rate changes are primarily due to increased Services and Supply costs, Board approved Memoranda of Understanding (MOUs) increases, increased parts and fuel costs, and increased vehicle replacement costs.
Fleet’s proposed changes to Motor Pool rates are projected to result in a net revenue increase of $452,937. For Motor Pool rates, Fleet is also proposing a combination of increases and decreases. These rate changes are primarily due to the rate changes in various sizes and classes of vehicle rentals as a result of the overall cost increases in labor, parts, and vehicle replacements.
Combined, approval of the proposed changes to Fleet’s Garage and Motor Pool rates is projected to have a net impact of approximately $1 million in increased revenue. There is no anticipated use of additional Net County Cost.
Innovation and Technology Department (Attachment B)
The ITD ISFs provide the following major services: Computer Operations, Telecommunication Services, and Business Solutions Development (BSD).
• Computer Operations rates fund operation and support of enterprise systems such as the County’s Information Technology (IT) infrastructure, which is comprised of the management and support of computer systems and server management services for physical and virtual servers, data recovery, email, Wide Area Network (WAN), internet, IT security, virus protection, desktop support services, and the County’s enterprise data center. Other enterprise systems provided by Computer Operations include the County’s mainframe, enterprise content management (document imaging), and data storage and backup.
• Telecommunication Services rates fund the design, operation, maintenance, and administration of the County’s phone network, the microwave transport network, Virtual Private Network (VPN) access, paging system, and the County’s Regional Public Safety Radio System.
• BSD provides programming and consulting services to County departments for the development, enhancement, and maintenance of business solutions on a variety of hardware and software platforms.
The majority of ITD’s funding is derived from service rates charged to County departments for maintenance, support, and enhancement services for County computer systems, enterprise data and other related services, and the use of the County’s telecommunication services and networks.
Overall, proposed changes in the 2023-24 ITD rates result in an increase in revenue of $6.5 million. This is primarily due to changes in projected service demand and increased operating costs to provide services. The net revenue increase includes the use of additional Net County Cost of $1.2 million.
Purchasing Department (Attachment C)
In addition to the procurement of County goods and services, Purchasing manages two ISF programs - Mail/Courier Services and Surplus Property and Storage Operations. Previously, Purchasing managed the Printing Services ISF. For 2023-24, Printing Services are transferring to the County Communications Group.
• Mail/Courier Services provides mail handling and interoffice mail/courier delivery. Mail handling includes various expedited shipping services to County agencies, departments, Special Districts, the Superior Court, and some municipalities. This ISF also provides automated mailing services such as inserting, folding, tabbing, and labeling.
• Surplus Property and Storage Operations manages storage and disposition of property for County departments. This division reallocates used furniture and equipment to maximize the return on surplus assets, including contracts with auctioneers and recyclers to reduce solid waste in County landfills.
Overall, the Purchasing rate revenue for 2023-24 is projected to increase by $614,333. The increase is primarily due to increased operating costs, as well as to maintain an appropriate fund balance and cash reserves in the Mail/Courier Services ISF. The increase in revenue also reflects an increase in demand for services. There is no anticipated use of additional Net County Cost.
Department of Risk Management (Attachment D)
Risk Management administers the County’s self-insured workers’ compensation, public liability, property conservation, safety and risk reduction programs, and its insured programs. All programs are paid from self-insurance funds and are funded by County departments and Board Governed Special Districts. Each is billed for their specific coverage for the cost to pay losses and excess insurance premiums under the self-insured programs, and the cost of insurance for the insured programs.
The total proposed premiums to be collected in 2023-24 are increasing by $24.5 million from 2022-23. This increase results in an overall net increase to Net County Cost of $8.3 million primarily due to increases in Worker’s Compensation, Property, Auto, and Law Enforcement Liability. The increase in premiums is due to several factors, such as an increase in the total insured values, which impacts the overall cost of excess insurance coverage. Additionally, there has been an occurrence of significant claims resulting from events such as fires, natural disasters, and other catastrophic incidents. Lastly, the insurance market has experienced an upswing in excess insurance premiums industrywide, or “hardening”, due to stricter underwriting practices. The overall Net County Cost increase is partially offset by a reduction in the Medical Malpractice insurance program. The premium increases are consistent with County Policy 05-01, which targets an 80% confidence level in all Risk Management self-insurance funds as determined by a yearly actuarial study. Rate adjustments are made based on Board-approved premiums.
Human Resources Department (Attachment E)
The Employee Benefits and Services Division of Human Resources administers the County’s health, dental, vision, deferred compensation, and life insurance plans as well as its integrated leave programs. These services are reviewed annually to determine the cost and are funded through a combination of revenue and departmental recharges. Departmental recharges are billed to County departments based on budgeted staffing.
The 2023-24 proposed departmental recharge for the Employee Benefits and Services Division is increasing from $1.7 million to $1.9 million. This results in an estimated increase to Net County Cost of $57,276.
Real Estate Services Department (Attachment F)
The RESD Leasing and Acquisition Division (LAD) consists of two rate charging sections: Leasing and Property Management and Appraisal and Acquisitions.
• The primary responsibilities of the Leasing and Property Management section are to negotiate and administer revenue and expenditure leases on behalf of County departments.
• The Appraisal and Acquisitions section provides appraisal, acquisition and relocation assistance for County departments and other agencies.
Rates for expenditure leases are based on a percentage of annual lease costs for all leases with payments of $36,000/year and greater. Hourly rates are charged for all other services, including revenue leases and expenditure leases below the $36,000/year threshold. The department estimates an overall increase in revenue of $547,883 to ensure full cost recovery, which reflects increases in salary and benefits and administrative overhead. There is no anticipated use of additional Net County Cost.
Project and Facilities Management Department (Attachments G and H)
PFMD is responsible for the oversight of the County Project Management (PM) and the Facilities Management (FM) divisions. The FM and PM divisions both charge user rates.
• FM provides maintenance, custodial, and grounds services for County facilities. FM bills departments directly for Basic Services for department-occupied space, including normal, routine activities and preventative maintenance. These Basic Services do not include major maintenance over $5,000, which is funded in the Capital Improvement Program (CIP). Basic Services performed by FM are based on annual average costs per square foot for maintenance, custodial, and grounds services.
FM uses Hourly Rates to charge County departments and other agencies for additional grounds, custodial, and maintenance services that are requested throughout the year on an as needed basis and are not included in Basic Services. These rates are calculated based on work requisition volume estimates based on historical data.
• PM is responsible for planning and implementing the design and construction of capital projects. PM recovers costs for project management and inspection services through rates charged to capital projects for these services. Estimates of these costs are included within each CIP project budget.
For 2023-24, revenue for FM Basic Services is expected to increase by $4.5 million, resulting in additional Net County Cost of $2.9 million. The increase is primarily due to inflation, increases in service and labor costs, Board approved MOU increases, as well as increased square footage to be maintained.
For 2023-24, revenue for FM Hourly Rates revenue is expected to decrease by $381,041. This decrease is due to an estimated decrease in billable hours for 2023-24. There is no anticipated use of additional Net County Cost.
The 2023-24 PM proposed rate changes result in an increase in reimbursements of $1.4 million primarily due to two indirect positions added in 2022-23. Additionally, five billable positions are proposed to be added in 2023-24 to manage PFMD’s increased workload in a more efficient manner. Other increases include Board approved MOU increases and increased indirect costs. There is no anticipated use of additional Net County Cost.
Assessor-Recorder-County Clerk (Attachment I)
The ARC administers the County Archives to support County departments by identifying, collecting, preserving, and arranging County records with historical and permanent research value. The ARC also ensures that these records are available to County departments by retrieving and refiling them, as requested.
The ARC charges service rates to County departments that use Archives in order to adequately fund and improve Archives operations. Costs to the departments are based on usage. The Archives relocated to a larger facility in 2022-23, which has allowed for increased storage space, and the service rates have been adjusted to reflect this change.
The proposed rate changes for the ARC result in an estimated decrease in revenue of $24,444 primarily due to a decrease in costs. There is no anticipated use of additional Net County Cost.
County Communications Group (Attachment J)
The County Communications Group was established in 2022-23 to support County departments’ marketing needs by providing consistent high-quality graphic design, videography, photography, and in-house printing services. For 2023-24, Printing Services fund was transferred from Purchasing to the County Communications Group to provide a centralized communication approach and ensure the “One County, One Voice” objective.
The County Communications Group is funded by a combination of Discretionary General Funding (Net County Cost), rate revenue based on actual salaries, and rate revenue based on full cost recovery.
The proposed rate changes for Printing Services will result in an estimated increase in revenue of $340,955 primarily due to increases in salaries and benefits, and material costs required to ensure full cost recovery, as well to maintain appropriate fund solvency. There is no anticipated use of additional Net County Cost.
PROCUREMENT
Not applicable.
REVIEW BY OTHERS
This item has been reviewed by County Counsel (Julie Surber, Principal Assistant County Counsel, 387-5455) on April 28, 2023; Risk Management (Victor Tordesillas, Director, 386-8623) on May 2, 2023; Finance (Ivan Ramirez, 387-4020, Penelope Chang, 387-4886, Garrett Baker, 387-3077, Abigail Grant, 387-4603, Erika Rodarte, 387-4919, Administrative Analysts) on April 24, 2023; and County Finance and Administration (Paloma Hernandez-Barker, Deputy Executive Officer, 387-5423) on April 26, 2023.