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We evaluated and offer for your consideration three alternative methodologies for allocating the overhead costs <br />and income attributable to the game day parking program. <br />• The first alternative is consistent with the overhead allocation methodology the City uses in its own <br />internal overhead allocation plan, as well as in our dealings with federal, state and other local agencies <br />and reflects a calculation of allowable overhead costs as a percentage of direct labor costs. This approach <br />indicates an allowable overhead cost allocation percentage of 36% of direct labor costs attributed to the <br />Science Factory parking program. <br />• The second alternative calculates and allocates allowable overhead costs in proportion to the gross <br />revenues of the overall entity and its individual programs. This approach supports an allocation of 16% <br />of total allowable overhead costs to the parking program. <br />• The third alternative is a simplification of the first two, and allocates the gross receipts from the parking <br />program based on a pre - determined fixed percentage which correlates to the net income allocation using <br />either of the above two methodologies. <br />One of the challenges we faced,was our unfamiliarity with the character of some of the expenses included in the <br />overhead cost section of the Science Factory's P &L Statement and whether those would appropriately be <br />allocated to a for - profit parking program. Items which raised questions for us included professional fees <br />($29,626), meetings and conferences ($2,320) and membership dues ($1,918). It also appeared that some of the <br />items in the P &L overhead cost section had been previously charged as direct costs against the parking program <br />(waste disposal, bank fees) and were, therefore, pulled out of the overhead cost calculation. <br />Recommendations <br />1. If the decision is made to continue using a calculated net income approach to allocating revenues from <br />this program between the two parties, then the following changes should be made to the way these <br />calculations are made: <br />a. the allowable overhead cost allocation calculation should either be based on the relative gross <br />receipts of the respective programs or based on a calculation of overhead costs as a percentage of <br />relative direct labor; and <br />b. the direct labor charges should be based on actual documented labor costs for the program or, at a <br />minimum, on estimated percentages derived from a documented sample of time spent on the <br />program. <br />➢ Calculating either the direct labor costs or the allowable overhead costs as a flat percentage of gross <br />receipts is neither appropriate nor defensible. <br />2. Whether using either of the above recommended approaches in calculating allocable overhead costs, the <br />Science Factory share of net income should not exceed 50 -60 %. To do so would be grossly out of line <br />with other parking contract agreements the City has and would not be defensible, given the financial <br />responsibilities of ownership that the City bears with respect to these parking lot assets (construction, <br />maintenance, repairs, preservation). Because the Science Factory foregoes a certain percentage of their <br />admission fee revenues each year, due to the fact that the operation closes on game days for lack of patron <br />parking, it would be justifiable to grant a greater- than -50% share to the Science Factory. We would <br />suggest something in the 60% range. <br />3. Because of the complexity of the detailed accounting and calculations required to track discrete program <br />costs, allowable overhead costs, and direct labor and other costs, we recommend as an alternative that the <br />City and Science Factory adopt an agreement for allocation of gross revenues based on an allocation <br />percentage that is comparable to the result produced by either of the two more complex and detailed <br />calculations and allocations of net income. In our opinion, an 80 %/20% split of gross parking program <br />receipts between the Science Factory and the City of Eugene corresponds to a 60 %/40% split of net <br />income under either of the other two more complex methodologies. <br />Page 2 of 2 <br />