Welcome to the Department for the Aging’s training module on Creating a Realistic Budget. This module is part of the Department’s training series on preparation of competitive RFPs. A program budget is a budget designed for a specific activity or program. This budget includes expenses for a specific program. Organizations set a budget based on the cost to run the program for the coming year using three main cost centers: administration, program, and fundraising. The costs associated with these “centers” are grouped into two categories – Personnel Services and Other Than Personnel Services. All budgets must be in accordance with NYC’s Health and Human Services budget policies and procedures. For more information, please review the City of New York Health and Human Services: Cost Policies and Procedures Manual at the web address below. Finally, in order for a budget to be finalized and submitted to a given funder, the organization’s Board of Directors must meet to approve the budget and document the approval in the Board minutes. When creating a realistic budget, a program looks to develop a plan to spend funds allocated for goods or services. This critical tool will help the program appropriately manage any and all finances throughout the life of the RFP. Budgets submitted to the Department for the Aging (DFTA) are reviewed to ensure that they are realistic estimates for successful service provision and accuracy. Let’s take a brief look at two of this critical tool’s major categories: Personnel Services (PS) and Other Than Personnel Services (OTPS). Budgeting for Personnel Services (PS) begins with determining the number of staff your program will need in order to successfully provide the services noted in the RFP. You must then determine which personnel service classification will be assigned to which staff member. Staff may fall into a number of classification categories, including: (1) full-time employees, i.e., individuals who work 35 hours or more per week; (2) part-time employees, i.e., individuals who work 20 hours or less per week, (3) exempt or salaried employees and/or (4) non-exempt or hourly employees. Employees who work at 21 to 34 hours per week may be considered part-time. How your staff are classified can be determined by the organization, collective bargaining process and the Fair Labor Standards Act (FLSA). Once these staffing issues are decided, the program must decide on whether or not fringe benefits will be offered. A Fringe Benefit is any non-wage compensation or benefits granted to employees by employers in addition to the employee’s base salary. Benefits offered can include, but are not limited to, various insurances, paid or unpaid leave, retirement plans, discounts and tuition assistance. A program’s decision to offer Fringe Benefits to their staff is a key component of creating a realistic budget. This decision forces the program to think through what benefits they will be asking DFTA to reimburse for above and beyond an employee’s base salary. Once the decision has been made to offer fringe benefits, programs may then decide to calculate a Fringe Benefit Rate. Fringe Benefit Rates are useful in helping to manage fringe rates when developing a budget. In essence, these rates, which are percentages, help reduce the risk of non-compliance with regard to fringe rate benefits and enables the program to simplify accounting processes for these benefits. Fringe Benefit Rates are calculated by dividing the total fringe expense by the total payroll expense. Please use the previous year’s information to calculate this rate. As seen in Example 1, a Fringe Benefit Rate is calculated for an employee by taking their benefits and dividing by the wages paid to them for the hours worked on the job. Fringe Benefit Rates can also be calculated by adding the fixed dollar amounts of all benefits. In other words, programs can decide to pool benefit costs for a certain assigned group of employees and then divide this total amount by the total salaries for that assigned group. This calculation is shown in Example 2. In this example, once you have this percentage, the salary requested for each individual on a proposed budget can be multiplied by the applicable fringe benefit rate percentage to determine each individual’s specific fringe rate benefit amount. A budget’s second major category is Other Than Personnel Services (OTPS), which are expenses related to operating the program, facility, or administrative functions. Many PTPS costs are unit price driven. When crafting your budget, a program may want to consider expenses that are: (1) related to staff headcount, such as telephone, travel, office supplies, postage costs, and membership dues for professional organizations; (2) “fixed” costs that do not change on a month-to-month basis such as rent or insurance; (3)”variable” or seasonal such as utilities and telephone usage; (4) “irregular,” such as insurance payments for general liability or automobiles, which are paid out once or twice a year and/or (5) “scheduled” like rent or mortgage payments. What is most important is that you make reference to the RFP contract to ensure that the OTPs items listed on your budget are allowable and within the RFP’s scope. One key OTPS line item is related to the type of facility usage the program has. The question of whether your program rents or owns their space will impact this line item. For example, if the program rents their space, they would include the full amount on this line item. However, if the program owns its facility space, their maintenance costs would take into account other issues such as mortgage payments, certain utilities (e.g., heating oil) and other maintenance contracts and supplies. Once all PS and OTPS costs have been taken into account and the program’s budget is finalized, the next step is to identify what costs are direct and what costs are indirect. Direct costs are associated with providing direct provisions of services to the program. Examples of direct costs include a salary for a cook or case manager, or food items for home delivery meals. In contrast, indirect costs are administrative in nature. An example of an indirect cost would be a salary for a bookkeeper or Executive Director. While these costs do provide benefits to the program operation, they cannot be readily identified with a provider’s budget. Information regarding the allowable costs and methodologies for calculating the indirect/Administrative Cost can be found in the City of New York Health and Human Services: Cost Policies and Procedures Manual. Currently the RFP policies and procedures in NYC allows for a 10% de minimis rate on indirect costs. In essence, if a program’s indirect costs are 10% or below their total budget costs, the funding source will waive this cost for the program. More information about this can also be found in the Policies and Procedures Manual. The final step in this budget process is the development of a Budget Narrative. The Budget Narrative explains what the numbers in the budget spreadsheet represent and how your organization arrived at them. The narrative should state clearly and concisely where the amounts in each budget category will come from and what they will cover. All expenses should relate clearly to the project narrative and scope of the RFP contract. This concludes the Creating a Realistic Budget training module. DFTA hopes this training will be a useful tool for your program as you pursue RFP submissions to the Department for the Aging. Thank you!