MONTHLY CASH BUDGET
The (fictional) City of Coho (population 48,000) is a commercial and residential hub in the central region. It has experienced steady population growth over the past 10 years and is expected to add 8,000 new residents in the next two decades.
Many of Coho’s long-time residents have retired or are near retirement age. Coho’s current Mayor, Nevena Bailey, sees this trend as a strategic opportunity. She believes many young, talented people will soon have to care for elderly family members and friends. In her view, building high-quality “aging infrastructure” will help attract new residents to Coho.
Bailey crafts a plan to create Coho Adult Day Services, Inc. (CADS). Under the adult day services (ADS) model, seniors live at home but spend most of each day at an ADS facility with relevant services like supervised recreation, educational programming, on-site nursing staff, and preventative health care. This model allows seniors to enjoy the benefits of independence but with a lesser burden on their caretakers. A few local non-profits provide these services, but not on the scale Bailey has in mind.
To get the initiative moving, Bailey persuades the city commission to subsidize CADS at an annual rate of $120,000. This yearly payment will come from the City’s General Fund. She also convinces Coho Memorial Hospital to donate a recently vacated outpatient clinic to house CADS. A construction manager who serves on the city planning commission says the facility can open immediately but will require at least $240,000 in renovations during the first three years of operations to bring the building in compliance with regulatory codes. The renovated facility could accommodate 85 attendees, in his estimation.
The city commission also asks the City of Coho Finance Department staff to gather information needed to prepare an operating budget for CADS’ first year.
Staff collects the following information about the basic legal and financial requirements for operating an adult day services center. Federal and state regulations require one licensed nurse practitioner on the premises and one licensed practical nurse (LPN) for every ten attendees. Comparable facilities also have one certified staff assistant for every 20 attendees. These assistants do custodial work, assist with group activities, and handle other day-to-day tasks. The market wage for LPNs is $35 per hour, and the wage for staff assistants is $22.50 per hour. At most facilities, the nurse practitioner also handles staffing, budgeting, and other administrative duties. A typical annual salary for this practitioner/administrator position is $86,000. Most facilities also employ a recreation coordinator at an annual salary of approximately $42,000. The recreation coordinator plans in-house activities, field trips, and other programs. These additional activities cost $25.00 per attendee per day (including food, materials, transportation, and other costs).
The Coho City Commission stipulates that since the city is subsidizing the service, CADS employees should be included in its health care and retirement plan (even though they will not be City employees). The average premium for City employees’ health insurance – regardless of the type of coverage, co-pays, and other differences – is $850/month. The City contributes $680/month, or 80 percent of the total cost, toward each employee’s premium (in addition to the $120,000 General Fund appropriation). Employees pay the rest. The city must also contribute 8.5 percent of the wages for the practitioner/administrator, recreation coordinator, and LPNs toward pensions and other post-employment benefits (OPEB). All employees receive two weeks of paid vacation and five personal days. The Center must pay 7.65 percent of salaries as a social security contribution and eight percent of salaries for unemployment and disability benefits for all employees.
The facility must be certified by the National Adult Day Services Association at a cost of $5,000/year. The practitioner/administrator and LPNs must also earn five continuing education units (CEUs) per month to maintain their individual certifications, and the staff assistants must earn three CEUs per month. On average, LPN CEUs cost $25/credit and staff assistant CEUs are $15/credit.
The facility must also carry $5,000,000 in hazard insurance coverage. Local insurance brokers offer that coverage for $2,500/month. Individual employees must be trained and re-certified at an annual cost of $250 per employee per year. Water, electricity, wastewater, stormwater, trash collection, telephone, and other utilities are expected to cost $1,250/ month.
The service will open in January and will be available Monday through Friday from 8:30 am-4:30 pm. The expected initial enrollment is 45 seniors. Enrollment is expected to grow at a rate of three percent, compounded monthly. Families will be required to pay a monthly fee based on an eight-hour day, 22 days a month schedule. The fee will not vary if less than a full day or less than a full month of daycare is used.
Prepare a monthly budget for CADS and answer the following questions:
- What should CADS charge each attendee per month for the service to break even?
- How does the break-even fee change if enrollment grows instead at 1.5 percent per month? At five percent per month?
- Identify three strategies to reduce the monthly break-even fee by 15 percent. Explain the potential impacts of these strategies on the quality and effectiveness of CADS services.
- Many adult day service centers operate “extended day” programs for families that need care for additional hours in the afternoon. Design an extended day program for CADS that would provide care for 10 percent of CADS attendees from 4:30 p.m. to 6:00 p.m. Prepare a program budget that separates the full-day program from the extended-day program and allocates relevant indirect costs to each. Based on your design and analysis, should CADS offer an extended day program?
- Coho Seniors is based on the Daycare Budget developed by Professor William Duncombe. ↵