Coho Case Analysis

MEMORANDUM

To: Mayor Bailey and Coho City Commission From: City of Coho Finance Department Re: The Operating Budget for CADS’ First Year Date: 10/29/2012

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Your plan for the new Coho Adult Day Services, Inc. program is taking shape. While the service is relatively expensive in the first year due to low initial enrollment numbers and slow projected growth, with careful cost management we can offer CADS at a rate accessible to many Coho seniors and their families. Based on an initial expected enrollment of 15 clients and a growth rate of 3.5% per month, we’ll need to charge $1,958.15 per person, per month in order to have our projected revenues cover the expected costs for the first year. This rate is the average break-even user fee for the year, thus some months we will run a deficit if the program is solely reliant on enrollment fees. In order to operate with a positive cash balance in the first half of the year, we request that the City of Coho provide the $30,000 subsidy as a lump sum at the beginning of the year rather than as smaller monthly increments. Additionally, projected growth rates affect the break-even fee. If enrollment growth is only 1.5% per month, the monthly break-even fee rises to $2,034.64. If instead we have faster growth of 5%, the monthly break-even fee drops to $1,916.18. To make the program more financially accessible, I’ve included several strategies to reduce the monthly break-even fee of $1,958.15 by 15%, a savings of $294 per month. With an average of 18 attendees per month for the first year, this means we would need to cut program expenses by $5,292 each month. Strategy 1: Total Monthly Savings $5,240 First, we transfer the remaining health insurance premium responsibility to employees. This saves a total of $680/mo (rising to $850/mo as we add staff). We deem this a reasonable employee contribution; however the less competitive benefits may make it difficult to...