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Public Works explains indirect cost plan; capital overhead rate falls below 82%
Summary
Budget manager Victoria Chan told the commission that Public Works had simplified rates and reduced capital overhead (just under 82%) and operating rates (just under 98%) after reorganization and overhead cuts; staff said many centrally loaded costs (rent, shops maintenance, DT services) are fixed and encouraged securing more project funding to sustain rates.
Victoria Chan, budget manager for San Francisco Public Works, briefed the commission on the department’s indirect cost plan and how the agency allocates compensation, paid time off and overhead to client projects.
Chan broke the plan into two main components: compensation and benefits (direct salaries, fringe benefits and paid time off) and overhead (administrative support, rent, centrally loaded work orders). She explained that certain centrally loaded obligations are largely fixed and outside department control, including rent for 49 South Van Ness, central shops and fuel, Department of Technology infrastructure charges, workers’ compensation and controller systems allocations.
Chan said the department consolidated bureau and division rates into simplified capital and operating rates; the capital overhead rate is now just under 82% and the operating rate just under 98%, reflecting reorganization efficiencies and aggressive overhead budget reductions. She noted that paid time off is a large line-item in the department’s expenditures because it includes direct staff who charge to projects as well as administrative staff.
Commissioners asked how indirect costs are applied to client departments and whether there is flexibility to migrate to citywide software (in the earlier permitting discussion); Chan reiterated that the department applies a uniform hourly rate to billed project hours and that contracts include termination-for-convenience clauses to allow migration if needed.
Why it matters: the indirect cost plan determines how the department recovers administrative expenses from capital and operating projects and affects the price charged to client departments; changes to the rate and the department’s ability to secure external project funds affect city general fund exposure.
Next steps: staff will continue overhead reduction efforts and pursue external project funding to keep rates stable while meeting budget instructions from the mayor’s office.
