The Facts

The (fictional) City of Hilltown (population 48,000) is a commercial and residential hub in the central region of the State of New York. It has experienced steady population growth over the past ten years and is expected to add 8,000 new residents in the next two decades. Many of Hilltown's long-time residents have retired or are near retirement age. Hilltown's current Mayor, Nevena Niktam, sees this trend as a strategic opportunity. She believes many young, talented people will soon have to care for elderly family members and friends. Building a high-quality "aging infrastructure" will, in her view, help attract new residents to Hilltown. In 2022, Niktam crafted a plan for the creation of Hilltown Adult Day Services (HADS), a governmental enterprise managed by the citys Parks and Recreation Department. Under the adult day services (ADS) model, seniors live at home but spend a portion 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 his or her caretaker(s). A few local nonprofits provide these services but not on the scale Niktam has in mind. The mayor would like to begin HADS in Fiscal Year 2024 (July 2023 to June 2024). She expects that the city will need to provide some subsidy to get the project moving. It is reasonable to expect that the city will contribute as much as $45,000 from the general fund. Anything more would require significant political negotiation. The city government will make the transfer to HADS once the facility is open. HADS will take possession of the building and the land from the city in July 2023. The city planning commission said that the facility could open in August 2023, but it requires at least $150,000 in renovations and equipment during the first three years of operations to bring the building in compliance with regulatory codes. $40,000 in renovations and equipment needs to be completed/acquired before opening (a local bank will finance with a 10-year note at 3% APR). Payment on the bank loan is due every month. The remaining $110,000 in renovations will take two years (July 2024 to June 2026) to complete and need to be financed with 30-year mortgage at 4.5% APR (anticipated rate). State laws permit the facility to accommodate 60 attendees once all renovations have been made. After the initial renovations are completed, the facility will accommodate up to 45 attendees. Staff has 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 (NP) on the premises at all times. The NP also normally handles staffing, budgeting, and other administrative duties. A typical annual salary for this practitioner/administrator position is $86,000. Regulations also require one licensed practical nurse (LPN) for every 10 attendees. The wage for LPNs is $29.50/hour. 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 wage for staff assistants is $15/hour. Most facilities also employ a recreation coordinator at an annual salary of approximately $35,500. The recreation coordinator plans in-house activities, field trips, and other programs. On average, these additional programs and activities cost $14.00 per attendee per day (including food, materials, transportation, and other costs). Salaries are paid on a monthly basis, disbursed one week after the end of each month. Salaried employees have paid sick leave/vacation, while hourly workers do not accrue leave. Neither have absentee rates large enough to be of consequence. Since this is a city enterprise, HADS employees have the same health care and retirement benefits as all other Hilltown employees. The average premium for Hilltown employees' health insurance - regardless of the type of coverage, co-pays, and other differences - is $750/month. The employer contributes $638/month toward each employee's premium. Employees pay the rest. The employer must also contribute 6.5 percent of the wages for the practitioner/administrator, recreation coordinator, and LPN's toward pensions and other post-employment benefits (OPEBs). Assume 6.2% of the wages are employer cost for social security and 1.45% of the wages are employer cost for Medicare. Employers contributions to health insurance, pension, social security and Medicare are paid every month. Benefits are paid on a monthly basis, disbursed one week after the end of each month. The facility must be certified by the National Adult Day Services Association at a cost of $5,000/year. The certification fee is due at the beginning of the calendar year, and it is not prorated for late certifications. The facility must also carry $4,000,000 in hazard insurance coverage. Local insurance brokers offer that coverage for $2,500/month and provide a $50 discount if paid two weeks in advance. Individual employees must be trained and recertified at an annual cost of $500 per employee; these individual costs should be paid either at hire or at the beginning of the fiscal year for existing employees. Utilities (e.g., water, electricity, wastewater, stormwater, trash collection, and telephone) cost $1,000 per month. Supplies cost $700 month. Human Resources expects that each new employee costs them $3,000 in recruiting, training and administrative costs. HADS must always have at least $10,000 in cash on hand at all times. If it ever doesnt have this money, it must borrow from the city finance department at 1% APR (compounded monthly). HADS can begin operations in August 2023, and Niktam expects a beginning enrollment of 34 attendees with a steady monthly growth rate. The service is available Monday through Friday from 8:30am-5:00pm, with hourly workers having a half hour lunch break where they clock out. Feel free to determine the number of working hours per month for wages to be the total number of working hours in 52 weeks, divided by 12 months.

Answer the following questions (make sure to answer all the questions):

Throughout the year, what is the break-even price to charge attendees? The city wants a single price for the entire year and doesnt want the price to change every month.

What is the financial effect if attendee growth rates are less than or greater than 3.5%?

How is the attendee price effected if city changes the general fund contribution?

What issues or factors do you believe are relevant to future budgets?