HEALTH DEPARTMENT: STRUCTURED GAIN-SHARING PROGRAM

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HEALTH DEPARTMENT: STRUCTURED GAIN-SHARING PROGRAM

 

Problem Identification:
Departments with revenue-generating functions have little budgetary incentive to increase revenue streams because the funds generated through their activities flow directly into the City’s General Fund.

Recommended Action:
Institute a structured gain-sharing program to provide the Department a financial incentive to increase inspection efforts.

Classification:
Organizational, Revenue Enhancement

Functional/Operational Area:
Environmental Health

Estimated Annual Impact:
$200,000

Estimated Implementation Cost:
None

Barriers to Implementation:
Reluctance to change existing budgeting practices and install departmental gain-sharing agreements that involve budgetary monies from the City’s General Fund.

Projected Implementation:
90 – 120 days

Next Steps:
The leadership of the Finance and Health Departments should meet to establish aggressive goals for the Health Department’s revenue-generating activities and structure a gain-sharing agreement that provides future budgetary rewards to the Health Department for exceeding revenue goals.

Analysis:
The Department generates approximately $1.6 million a year in revenues, primarily through its food inspection and licensing efforts. Additional sources of revenue include animal and swimming pool licenses, as well as solid waste collection permits. The Department, however, currently has no financial incentive to increase its revenue-generating activities that have corresponding positive impacts on the overall level of public health in Baltimore because revenues collected flow directly into the City’s General Fund.

In general, the City government’s central administration offices (the Mayor’s Office and Finance Department) are reluctant to dedicate General Fund revenues in support of specific departmental operations. Additionally, it can be argued that while the specific revenues generated through these activities do not flow directly back into the Department’s budget, the City’s annual level of total General Fund support to the Department (nearly $18.4 million in FY2000) far exceeds the annual level of revenue generated by the Department.

While acknowledging the validity of these arguments, the City should consider instituting structured gain-sharing agreements to provide financial incentives for departments, such as the Health Department, to augment these revenue streams through enhanced enforcement activity. By establishing performance goals and providing departments an incentive through gain sharing to exceed performance goals, both the City’s General Fund and impacted departments can realize financial benefits.

As an example: the Health Department is projected to generate approximately $2 million in annual revenues in future fiscal years (including the implementation of the updated fee structure). Under a structured gain-sharing program, goals could be established where the Department could realize additional funding in future years if it exceeded its projected revenue goal. If a $2.1 million gain-sharing goal were established, the Department could retain some predetermined percentage of revenues generated above the $2.1 million performance goal. If the Department were to generate $2.2 million in revenues and be entitled to keep half of the revenues above the $2.1 gain-sharing goal, the City’s General Fund would realize a $150,000 benefit, while the Department would receive an additional $50,000 to support its operations.