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Pat Klaers July 22, 1999 Page Two DISCUSSION The decision on whether or not to run an in-house engineering group will hinge largely on what the goals and objectives are. There are many, many different levels of in-house service that could be implemented. I will suggest four. (I am sure there are many more but this will at least serve as a starting point for your thoughts.) The attached chart attempts to layout some generalized functions, staffing levels, and potential revenue to be generated by the scenarios. If the goals are only financial one must carefully consider all of the costs. The simple chart indicates that significant ad valorem contributions are necessary with smaller staffs. A decision to get into a staff of some size will be required before the group approaches a break,.even point. That staff will of course need to be equipped and housed. The assumptions on equipment follow the chart. The costs of housing the group and other non-labor overhead costs are not recognized in this simple analysis but of course they are there. One must also bear in mind that this group will need to have the opportunity to handle meaningful projects each year from which to generate revenue. Those projects will have to be within the technical purview of the group. It would be unwise for the City to try to staff itself to handle all of the differing kinas of technical work that it will encounter. There are non-financial advantages to having an in-house engineering group. There can be greater day-to-day accessibility in some cases (One should not overestimate that availability. This decreases as more project work is taken on.) This is somewhat mitigated with our present arrangement in Elk River. Conversely, however, there is the loss of some flexibility. Using a consulting City Engineer allows the City to contract for the engineering services that are required and nothing more. If a certain specialty is required, the City does not have to maintain that expertise in-house idling away until the time for its need arrives. If there are upturns or downturns in the economy the City never needs to be concerned with having too little or too much staff. Fast track projects can be implemented very quickly and do not have to wait until an in-house staff can get to them. Nevertheless, I believe that there is a level at which an in-house engineering group is a reasonable decision for a City. In order for that to be the case, the City must be at an age and a population base where there is a predictable workload that warrants staffing up to handle it. That is, the community must be a mature community with the majority of its infrastructure ready for or approaching reconstruction. This allows for the in-house group to establish its base load each year and to select projects that are within its size ability and technical capacity to handle. Those projects that fall outside of that range should be given to consultants. With the rapid growth experienced by the City in the last 8-10 years, Elk River may not yet have met this criterion. Many cities that are still on the growth curve such as Apple Valley and Cottage Grove have put off the establishment of an in-house engineering staff. Other smaller mature cities such as Prior Lake, West St. Paul, and Mendota Heights have in-house staffs. I would enjoy discussing this issue with you in greater detail if you think that would be helpful. O:\PROJ\90013SCSm\13S-2203ojUIWWard R. Green Company CONSULTING ENGINEERS