Cost Recovery - Now More Than Ever

Posted by Jamie Sabbach on Apr 27, 2020

The point of adopting a cost recovery philosophy is not to make a profit, rather, to be thoughtful and responsible with financial resources. Perhaps even more importantly, it’s about optimizing tax-payer dollars and the benefits a community realizes based upon your spending decisions.

Among the biggest challenge the public-sector faces are managing historic customer and community expectations that tax dollars foot the bill for most or all governmental services including parks and recreation. The uncharted territory in which many professionals now find themselves includes the reality that subsidy dollars only be directed to services that provide for the greatest public good, and an expectation of heightened cost recovery or excess revenue generation for services that provide more individualized benefit and not a broader impact on the community as a whole.

Cost Recovery is Quite Simple

Though it has been adopted by several organizations, cost recovery may still be a relatively new concept for some. Quite simply, cost recovery is about recovering or offsetting the costs (expense) associated with delivering services.

The point of adopting a cost recovery philosophy is not to make a profit, rather, to be thoughtful and responsible with financial resources. Perhaps even more importantly, it’s about optimizing tax-payer dollars and the benefits a community realizes based upon your spending decisions.

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It’s Time to Pivot

The business of public parks and recreation is at a critical crossroad with untold impacts resulting from the global pandemic. However, it is important that we keep in mind that many key issues profoundly impacted the profession prior to the effects of Covid-19. These included:

  • special interest pressure
  • increasing customer demands
  • community inequities
  • competition for taxpayer dollars
  • stable or declining revenues with increasing costs
  • antiquated financial accounting processes
  • rapidly changing demographics; and
  • maintenance backlogs and deteriorating infrastructure

Most of these issues will all compound due to our current health and economic crisis.

Operating from a foundation built upon sound business principles does indeed challenge conventional wisdom in the public sector. It charges employees with being more diligent about their management decisions with the expectation that they justify how resources are used. It requires the establishment of agency cultures that reflect an interest in defensible management practices and justifying how tax dollars are spent. It encourages productivity and the pursuit of opportunities for efficiency and revenue growth knowing that these efforts can help strengthen systems for the long term. And by applying business principles the long-held notion that certain services can continue to be subsidized because they always have been or because there is a demand that they are is challenged.

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The Cost Recovery Conversation Has Never Been More Important

Our economy is driven by consumer spending and the service industry, both of which have been traumatized. As a major service industry, parks and recreation has been placed on notice. Facilities are closed, playgrounds are in timeout, and activities and events have been cancelled for the foreseeable future. While all of these decisions have been made with the health and welfare of communities top of mind, the economic fallout is profound and will not be quantified for some time.

The COVID-19 crisis has created an urgent need for agencies to better understand their financial realities in order to prepare themselves for the uncertainties that lie ahead. What better way to help your agency and ultimately your community than by instilling financial discipline, understanding the cost of providing services in order to make informed decisions moving forward, and adopting financial management practices and policies that will help strengthen your system for the long haul. This is what cost recovery is all about.