Planned Special Events: Cost Management and Cost Recovery Primer
Chapter 5: Developing a Planned Special Events Line Item
Regardless of a jurisdiction's cost recovery policy, introducing a line item to a department or city budget can be a useful cost management tool. A line item clearly identifies the costs incurred to host planned special events and is useful for policymakers who, when clearly confronted with the magnitude of the funds, will more closely consider the benefits that special events provide to the community versus the costs that are absorbed. For an administration that is interested in understanding how much planned special events cost each year, the line item is a way to motivate those involved in the tracking process to accurately record expenditures and receipts.
In Rochester, New York, staffing special events was the leading cause of police overtime over a 10-year period. Those costs can be anticipated.
Source: Democrat and Chronicle, 11/19/2006
Benefits of a Line Item
Adding a line item to the municipal budget for planned special events improves the transparency of department or municipal finances. This facilitates more effective decision-making by state and local leaders and encourages more productive citizen participation. Planned special events positively affect the community, but they come at a cost. Events generate direct benefits for some organizers and increase the stature and name recognition of the city. These effects ripple through the economy, creating indirect and induced effects. The costs of hosting events, however, are not necessarily paid by those who benefit from the event.
From an administrative perspective, including a well-justified line item in the budget clearly states the anticipated costs of planned special events and ensures that policy makers recognize the costs of the events. Accurately categorizing and forecasting costs will reduce unexpected expenditures which necessitate drawing-down the general fund and lead to political difficulties, especially concerning the use of overtime hours.
The recovery costs from individual events can also raise issues regarding free speech, support for charitable causes, or community-building needs. Direct cost recovery may not be an issue over which politicians want to risk popularity. An alternative is to fund the cost explicitly through the budgets of the affected agencies with a designated line item.
Anatomy of a PSE Line Item
An effective planned special events line item is a comprehensive forecast of how much the department or municipality expects to spend to host events during the upcoming year. It is the natural next step from cost tracking, because it only requires analyzing the data collected, estimating changes to individual items, and presenting the results clearly.
The more comprehensive and well-justified the line item is, the more useful a tool it can be. A city that can get all departments involved in special event planning and implementation to account for their expenditures and forecast them for the coming year has made substantial progress toward implementing the most appropriate policy for the community. Even if it is only used at the departmental level, the line item demonstrates responsible management practices. The more special event cost factors that are included in the line item, the better justified it will be to policymakers.
A line item can be as basic as budgeting for expected overtime or as detailed as including every cost a department or municipality incurs to fulfill its role in staging events. Similarly, the level of analysis can vary depending upon the budgeters' desire to be thorough. While the most accurate estimates anticipate how a variety of trends may affect costs, it is also possible to estimate costs by trends from previous years.
Bay City, Michigan hosts numerous regular special events, including the second biggest Independence Day celebration in the State of Michigan. Planned special events are an important part of community life that also creates economic benefits.
In 2000, the police department began including a line item for police overtime in its annual budget, according to Police Chief Michael Cecchini. Budgeting for overtime is a simple way of capturing the majority of special event costs, and it can be done simply. For the 2008 budget, Cecchini adjusted the previous year's overtime by a 2 percent cost of living adjustment. He feels that the presence of the line item is beneficial to the department and the city because it allows citizens and public servants to have a "total budget picture" from which to track costs in relation to benefits. It has also helped the police department stay on budget by reducing surprise costs.
Source: Interview with Police Chief Michael Cecchini, October 3, 2008
More detailed line items include several cost categories, as well as multiple indicators of future costs. For example, a line item for a city department of transportation may include overtime and regular hours spent on special events, as well as fuel, equipment, administrative overhead, and any other costs. Predicting those costs for the upcoming fiscal year could incorporate historic trends of costs and events, effects of anticipated new events, and the effects of any policy changes towards planned special events.
Calculating a PSE Line Item
There is no standard for forecasting costs when formulating a line item. What works best for one agency may not work well for another, because it largely depends on the resources and data available. Generally, however, the more detailed the forecast, the better.
Each department's ability to develop a well-justified forecast will depend on the level of detail of cost information that it currently collects. At the least, a department can modify its current-year expenses by adding an inflation adjustment. At best, a department that itemizes costs for each individual event can generate a very accurate estimate of the upcoming year's costs by estimating the following:
- The number of events and the size of each
- The changes in the amount of each itemized unit, such as overtime
- The change in cost per unit for recurring events
- The number of unexpected events based on historical trends
Tables 5.1 and 5.2 show how a hypothetical department of transportation budgets for planned special event costs. It is a simple method requiring only yearly aggregate data. The department of transportation, in this case, knows how many itemized units were used for the entire year for planned special events and their costs. From the total units used, it can then determine an average per event using the total number of events hosted. Therefore, the department has a basis from which to estimate the number of events, the average units used per event, and the price per unit for the upcoming year.
The first step is to estimate the number of events for the upcoming year, based on information about new events and the historical trend of new events. This process is shown in the first third of Table 5.1. The example shows that a regular Mardi Gras parade was cancelled, reducing the number of anticipated parades, and that if the trend of unexpected events were to continue, another three (rounded to the nearest whole number) would occur the following year.
|Current Year||Predicted Change||Proposed||Notes|
|Parades||5||-1||4||Mardi Gras parade cancelled|
|Golf tournaments||4||+2||6||Rotary and ABC, Co. tournaments added at SCC|
|Farmers' markets||26||0||26||No change|
|Street festivals||17||+3||20||New Turkish & Salvadorian festivals & crafts fair|
|Unexpected||52||+5.0%||55||5% average increase over 5 years|
|Regular hours||50||+5.0%||53||New overtime policy|
|Overtime||100||-5.0%||95||New overtime policy/ volunteer requirement|
|Fuel||150||-5.0%||143||New volunteer requirement|
|Equipment||--||--||--||No unit measure, priced per event|
|Regular hours||$35.00||2.70%||$35.95||COLA adjustment|
|Fuel||$3.60||9.50%||$3.94||Energy information administration estimate|
|Equipment*||$200||5.00%||$210||*Cost per event|
Next, the budgeter can adjust the number of units required to stage each event by estimating the effect of any changes in special events policies or management practices. This process is shown in the middle third of Table 5.1. For example, the new overtime policy is expected to require more special events shifts to be covered during regular hours, increasing the regular hours, while it also contributes to a decrease in overtime hours.
Third, the budgeter should estimate changes to factors that influence the price of each unit. This process is shown in the bottom third of Table 5.1. For example, the Energy Information Administration forecasts a 9.5 percent increase in fuel prices, resulting in a fuel cost estimate 34 cents higher than the current year.
Fourth, the budgeter multiplies the estimated number of events by the estimated units per event and their cost to get the projected expenses for the upcoming year, as shown in Table 5.2. For example, the estimated total of 111 planned special events multiplied by an estimated 53 hours of regular work time per event results in 5,883 estimated hours for the whole year. At an estimated rate of $35.95, the expected regular hours will cost the department $211,494.
Finally, the sum of all the special events items becomes the expenditure line item in the department budget, as shown in the lower portion of Table 5.2.
Averaging across number of events is a very basic way of using aggregate data. It may be more useful to use the unit per event attendee if that is possible, should aggregate attendee data be available. If resources are available, it is best to categorize costs by size or event type for estimation, or even estimate the cost for each event individually.
From a policy development perspective, an expenditure line item only provides half of the information necessary to calculate the total fiscal effect of planned special events on the municipal or departmental budget. The other half is the amount that the department or city expects to receive from fees and billing for cost recovery.
Depending on the structure of financing and cost recovery methods, the budgeting organization may wish to include costs and receipts together in a net cost line item or present forecasted receipts separately in the budget. For example, a department that recovers costs from event organizers itself must provide the city with a net cost line item for the city budget, in order to avoid billing the city and organizers for the same costs. On the other hand, if the city recovers special events expenditures into the general fund, then the department should submit a gross cost line item to the city, and the department responsible for recovering costs should produce a separate estimate as part of the budgeted revenues.
Estimating recoverable costs is similar to estimating costs. It can be done simply by trending recovered costs as a percentage of gross costs, or be more thorough and include items like the number of events, fee structures, recovery rates, and incidence of fee waivers.
|Item||Current Year Units||Unit Cost||Budget||Projected Units||Unit Cost||Budget|
|Fund||Current Year Budget||Projected Budget||Amount Proposed|
|Planned Special Events||$804,960||$865,930||$875,000|
|Downtown Shuttle Program||$189,000||$206,955||$208,000|
A planned special events line item is an excellent way for administrators, politicians, and the general public to account for and acknowledge the costs of events so they can be measured against the benefits they bring to the community. Line items improve expenditure control, provide management accountability, and facilitate evaluation of policy. Including special event costs in a line item ensures that all parties understand the substantial costs that special events have on a community and is a definitive step towards creating a planned special events policy.