Discussion
of Issues
Issue 1:
Should the Commission approve FTRI’s proposed budget as
presented in Attachment A for Fiscal Year 2017/2018, effective September 1,
2017, and should the Commission reduce the current Telecommunications Relay
Service (TRS) surcharge from $0.11 per month to $0.10 per month?
Recommendation:
No. Staff recommends that the Commission reduce FTRI’s
proposed budget expenses for Fiscal Year 2017/2018 by $81,954 for Regional Distribution
Center (RDC) expenses and by $36,000 for Legal expenses as presented in Option
1. Staff recommends that the Commission order the incumbent local exchange
companies, competitive local exchange companies, and shared tenant providers to
discontinue billing the $0.11 monthly surcharge, and bill the $0.10 surcharge
for Fiscal Year 2017/2018, effective September 1, 2017. Staff also recommends
that the Commission order FTRI to require detailed, itemized bills from its
legal counsel and conduct in-house analyses for
Insurance-Health/Life/Disability and Retirement expenses. Staff recommends that
FTRI be ordered to provide the results of its analyses to staff by January 31,
2018. (Fogleman, Long, Williams)
Staff Analysis:
Traditional
Telecommunications Relay Service
Minutes of use for traditional TRS have been declining. The
traditional TRS cost to FTRI as approved in Sprint’s contract is currently $1.09
per session minute. Sprint’s projections indicate that traditional minutes will
continue to decline during the 2017/2018 Fiscal Year. Traditional relay users
are transitioning to the following services:
·
Internet Protocol (IP) Relay
·
Video Relay Service (VRS)
·
Captioned Telephone (CapTel) Service
·
Internet Protocol Captioned Telephone Service
·
Internet Protocol Speech-to-Speech (STS) Service
·
Wireless Service
CapTel
Service
CapTel service uses a specialized telephone that provides
captioning of the incoming call for a deaf or hard of hearing person. Sprint’s
projections show that CapTel minutes of use will also decrease during the 2017/2018
Fiscal Year. The CapTel cost to FTRI as approved in the Sprint contract is
currently $1.63 per session minute.
Florida
Telecommunications Relay Inc. Budget
Attachment A reflects FTRI’s 2017/2018 Fiscal Year
proposed budget, which was reviewed and adopted by FTRI’s Board of Directors
prior to filing with the Commission. The proposed budget includes a decrease in
expenses of approximately $1,230,462 from the Fiscal Year 2016/2017 Commission
approved budget.
The FTRI 2017/2018 proposed budget projects total
operating revenues to be $6,224,425 and total expenses to be $5,969,260. Based
on the projected revenues and expense reductions, FTRI believes the
Telecommunications Relay surcharge should be reduced by $0.01 from $0.11 to $0.10
per access line for the 2017/2018 Fiscal Year.
Sprint’s estimated Fiscal Year 2017/2018 traditional
Telecommunications Relay surcharge minutes of use are 824,498 at a rate of
$1.09 per minute for a total of $898,703. Sprint’s estimated CapTel minutes of
use for Fiscal Year 2017/2018 are 810,223 at a rate of $1.63 per minute for a
total of $1,320,663.
The biggest decrease in expense in the budget arises from
relay provider services, resulting in $972,673 in savings when compared to the Fiscal
Year 2016/2017 Commission approved budget.
A comparison of FTRI’s Fiscal Year 2016/2017 Commission
approved budget, FTRI’s estimated revenues and expenses, and FTRI’s Fiscal Year
2017/2018 proposed budget as filed is shown in Table 1 below.
Table 1
FTRI Budget Comparison
|
|
Commission
Approved
2016-2017
|
FTRI
Estimated 2016-2017
|
FTRI
Proposed
2017-2018
|
|
Operating Revenue:
|
|
|
|
|
Surcharges
|
$7,297,393
|
$7,177,537
|
$6,170,576
|
|
Interest Income
|
34,188
|
48,424
|
53,849
|
|
Total Operating Revenue
|
$7,331,581
|
$7,225,961
|
$6,224,425
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
Relay Provider Services
|
$3,192,039
|
$2,664,000
|
$2,219,366
|
|
Equipment & Repairs
|
1,524,034
|
1,397,499
|
1,335,920
|
|
Equipment Distribution & Training
|
953,908
|
873,742
|
855,892
|
|
Outreach
|
574,626
|
574,626
|
558,976
|
|
General & Administrative
|
955,115
|
930,947
|
999,106
|
|
Total Expenses
|
$7,199,722
|
$6,440,814
|
$5,969,260
|
|
|
|
|
|
|
Annual Surplus
|
$131,859
|
$785,147
|
$255,165
|
|
Surplus Account
|
15,983,096
|
16,552,936
|
17,337,883
|
|
Total Surplus
|
$16,114,955
|
$17,338,083
|
$17,593,048
|
Source: FTRI’s Fiscal Year 2017/2018
proposed budget.
Analysis
In its budget filing, FTRI acknowledges that access lines
have decreased at the rate of 4.8 percent during the past three years (2014-2016)
and acknowledges that it believes that trend will continue as more consumers
transition from landline phones to other technologies. As a result, FTRI’s
revenues will be reduced as the number of access lines declines, holding the
surcharge constant. Continued efforts by FTRI to reduce expenses are important.
Based on having third quarter data for Fiscal Year 2016/2017,
staff developed its own estimate of FTRI’s expenses for Fiscal Year 2016/2017.
This data is presented in Attachment B. For most expenses, staff used actual
data from June 2016 through March 2017 and estimated the fourth quarter by
averaging the first three quarters of the fiscal year. The exception is for
Outreach where staff was informed that FTRI will spend the remaining funds in
that account in the fourth quarter. Staff’s estimates were then used as one
element in evaluating FTRI’s proposed budget. Attachment B includes FTRI’s
budgeted information for comparison purposes. Below is staff’s review of selected
items from FTRI’s proposed budget expense by category.
Category I – Relay Services
The basis of the relay service expense is the minutes of
use as projected by Sprint. Sprint’s historical projections have proven to be
reasonable and it has multi-state experience with such projections. As a
result, staff believes that the estimates for Fiscal Year 2017/2018 are
reasonable and should be used for budgetary purposes.
Category II – Equipment & Repairs
Category II expenses reflect the purchases of equipment to
be distributed to clients and the repairs that FRTI must do to keep the
equipment in working order. Staff has reviewed FTRI’s work papers to determine
the amounts of equipment purchased for the year. FTRI’s equipment budget
reflected declines in equipment distribution, but includes equipment orders to
maintain a sufficient inventory to serve its clients. FTRI used contract
pricing for equipment multiplied by the number of units it plans to order over
the course of the year. After comparing FTRI’s proposed budget with its own
estimates for Fiscal Year 2016/2017, staff believes that FTRI’s proposed budget
for Category II expenses is reasonable and supported in its work papers.
Category III – Equipment Distribution &
Training
Category III reflects the cost of distribution of
equipment throughout the state and the training of consumers in the use of the
equipment. FTRI contracts with non-profit Regional Distribution Centers (RDCs)
to perform these functions throughout Florida. Currently there are 24 RDCs.
FTRI proposes a budget for Freight-Telecomm Equipment of
$40,442 for Fiscal Year 2017/2018. This represents about a 3 percent increase
from staff’s estimate for Fiscal Year 2016/2017. FTRI anticipates that it will
experience increased expenses as the warranties of several equipment models have
expired. As a result, FTRI will be responsible for the shipping of units for
repair and replacement at FTRI’s expense. As a result, staff believes FTRI’s
proposed budget is reasonable for this item.
The largest component for Category III relates to FTRI’s
support of the RDCs. Staff notes that FTRI has added an additional RDC from
last year. FTRI reports that of the $814,950 in its proposed budget, $732,762 is
related to contracts supporting the distribution centers. FTRI’s contracts with
RDCs vary the support amount based on the number of clients they assist. More
funds are provided for connecting a new client, while fewer funds are provided
to assist existing clients in the system.
The second largest expense for this line item of $70,048,
relates to the maintenance and charges to support FTRI’s database. Additional
costs are related to laptops and air card connectivity for access to FTRI’s database
system by RDCs with sufficient activity to justify offsite distribution. The
laptops and air cards represent an additional $11,640.
Category IV – Outreach
FTRI has requested $558,876, a decrease of $15,650 from
last year’s budget for Outreach. This represents a reduction by 2.7 percent
from last year. FTRI believes that newspaper outreach is reaching more eligible
consumers and that it has had strong positive results. FTRI has indicated that
it plans on spending the remaining funds from its FPSC approved budget in the
fourth quarter. As a result, staff’s estimate for Fiscal Year 2016/2017
reflects that amount (Attachment B). RDCs are responsible for some of the
outreach for regional events that are approved and funded by FTRI.
Category V – General & Administrative
Category V reflects the expenses associated with FTRI’s operations
such as office and furnishings, employees, contracted services (auditors,
attorney, and computer consultants), computers and other operating expenses (such
as insurance and retirement). The number of staff at FTRI has remained the same
from last year.
Staff acknowledges that the correlation between the
decline in minutes of use and technology substitution for General and
Administrative expense is not as direct as the correlation associated with
service delivery and equipment distribution. However, staff believes efforts to
control General and Administrative expenses are of equal importance.
Option 1: Staff Adjustments to FTRI’s Proposed
Budget
FTRI’s
proposed 2017/2018 budget presents reduced expenses in Categories I-IV. However,
staff believes additional reductions can be made in both Category III -
Equipment Distribution & Training, and Category V - General &
Administrative expenses. In staff’s analysis, staff compared actual expenses
for the first three quarters and estimated the fourth quarter (using an average
of the first three quarters) for Fiscal Year 2016-2017 to compare with FTRI’s
proposed budget. In addition, staff reviewed the budget working papers supplied
by FTRI. Based on this review, staff recommends the following adjustments and/or
continued monitoring of the following expenses:
·
Regional Distribution Centers
·
Legal
·
Insurance-Health/Life/Disability
·
Retirement
FTRI recognizes that access lines have decreased at the
rate of 4.8 percent during the past three years (2014 - 2016) and that this trend
will likely continue. As discussed earlier, Relay and CapTel expenses from
Sprint (Category I) are projected to decline as a result of reduced minutes. In
addition, Equipment & Repairs expenses (Category II), Equipment
Distribution & Training expenses (Category III), and Outreach expenses
(Category IV) are projected to decline. FTRI’s proposed budget recognizes this
trend as reflected in the proposed expense reductions associated with Categories
I-IV. It is reasonable that FTRI’s proposed budget would present expense
reductions in categories I-IV given the technology shift phenomenon.
Regional Distribution Centers (RDCs)
For costs related to the RDCs (Category III), staff notes
that FTRI’s proposed budget includes a reduction relative to both FTRI’s
approved budget (10 percent) and its estimated expenses (2 percent) for Fiscal
Year 2016/2017. However, the rate of decline does not appear to correspond with
the decline that was reported in the first three quarters of Fiscal Year
2016/2017.
As noted earlier, staff’s estimates are based on the first
three quarters of Fiscal Year 2016/2017 and use an average of those quarters to
estimate the last quarter. FTRI’s proposed budget would be an increase of approximately
11 percent when compared to staff’s estimate for Fiscal Year 2016/2017. FTRI’s
own estimate for Fiscal Year 2016/2017 already reflected a reduction of $76,226
when compared to its approved budget. Most of the expenses related to the RDCs
are related to RDC contracts. Since the expense of these contracts declines as
the number of clients declines, it is reasonable to assume that the trend will
continue and at best, level off. While FTRI did provide supporting work papers as
requested for its proposed budget, that data did not include actual third
quarter expenses. By comparison, staff’s estimate did include third quarter data.
Staff believes that third quarter data does not support FTRI’s proposed
estimate. As a result, staff recommends FTRI’s budget for RDCs be reduced by
$81,954 to $732,996, which is staff’s estimate for Fiscal Year 2016/2017.
Legal Fees
Based on a review of supporting documents relating to Legal
expense, staff has concerns regarding these expenses. FTRI has had the same law
firm on retainer for many years. The attorney attends the board meetings and
writes the minutes, reviews Request For Proposals, reviews contracts, and
advises on legal issues as they arise. It would appear that paying the attorney
an hourly rate may be more cost effective than paying a retainer. At a minimum,
staff recommends that such legal invoices should be itemized with date of
services, charges for the services, and a detailed description of the services
provided by legal counsel.
Staff recommends that FTRI’s proposed 2017/2018 Fiscal
Year budget line item for Legal expense be reduced by $36,000. Staff requested
that FTRI provide any contracts, letters of engagement or other agreements for
legal services. FTRI submitted a long-standing contract for legal services for
a flat retainer of $72,000 per year, excluding any travel or litigation costs.
The monthly invoices submitted did not show sufficient detail of services performed,
hours spent, hourly rate, or other relevant information for staff to have a
basis to justify the contract amount. At $370 per hour, approximately 195 hours
would have to be spent to justify the retainer. The current contract retainer
is over twice the amount the Commission recently approved to litigate a Class B
water and wastewater rate case.
Staff is not convinced that the contract amount is
required to perform the regular annual non-litigation services for FTRI. Based
on staff’s review of the information provided, we conclude that the billable
minutes associated with the services contracted may be more in line with an expense
of $36,000. More detailed billing information is necessary to allow for further
analysis in next year’s budget. Staff recommends that FTRI collect such billing
information to include itemized invoices to FTRI with date of services, charges
for the services, hours of service, price per hour, and a detailed description
of the services provided by legal counsel.
In-House Analyses
Insurance
FTRI
provides health, dental, vision, basic life, short-term disability, and long-term
disability insurance to its employees. While this insurance may be beneficial
to the employee, it goes beyond what an organization must offer its employees. Currently,
employees pay part of the premiums related to their health insurance, which may
include dental and vision. We believe that FTRI should compare the benefits
offered based on its size and similarly situated organizations.
Retirement
Currently,
11.1 percent of salaries are contributed to a retirement account for the
employees. Employees are not required to pay for any of their retirement. The
retirement budget is based on estimated compensation for ten employees, a three
percent salary increase, and estimated overtime ($49,406). In addition, this includes
a retirement plan surcharge of 2.78 percent on gross compensation for the first
half of the budget year and a 5.55 surcharge for the second half of the year
($18,538). In addition there is a charge of $5,790 to the Pension Benefit Guarantee
Cooperation. NTCA Retirement and Security is FTRI’s retirement plan provider.
NTCA has made plan cost increases and funding requirements changes. FTRI has
decided to maintain the current contribution of 11.1 percent; however, employee
future benefits are reduced from a 1.83 to a 1.54 benefit accrual rate with
this decision. Future cost increases are under evaluation by FTRI.
Staff recommends that FTRI conduct in-house analyses for the
expense items for Insurance-Health/Life/Disability and Retirement and submit
its findings to the Commission. These analyses should include price quotes from
other providers for insurance and retirement plans. The insurance and
retirements benefits should include benefits offered by comparably-sized
nonprofit and for profit entities. Staff recommends that FTRI submit the
results of the analysis to staff by January 31, 2018 for review.
Surcharge
Staff recommends that the Commission order the incumbent
local exchange companies, competitive local exchange companies, and shared
tenant providers to discontinue billing the $0.11 monthly surcharge, and bill
the $0.10 surcharge for fiscal year 2017/2018, effective September 1, 2017.
Option
2: The Budget as Proposed by FTRI
In Option 2, FTRI’s proposed Fiscal Year 2017/2018 budget
operating revenue of $6,224,425 and proposed budget expenses of $5,969,260 would
be approved, and the current TRS surcharge of $0.11 per access line per month
would be reduced to $0.10. FTRI’s proposed 2017/2018 budget presents reduced
expenses in Categories I-IV. The proposed budget was approved by FTRI’s Board
of Directors.
As discussed earlier, Relay and CapTel expenses from
Sprint (Category I) are projected to decline as a result of reduced minutes. In
addition, Equipment & Repairs expenses (Category II), Equipment
Distribution & Training expenses (Category III), and Outreach expenses
(Category IV) are projected to decline. FTRI’s proposed budget recognizes this
trend as reflected in the proposed expense reductions associated with Categories
I-IV.
Although staff recommends approval of FTRI’s proposed
budget, staff believes a continued effort to reduce expenses is needed. As
stated earlier, staff recommends that the Commission order FTRI to require
detailed, itemized bills from its legal counsel and conduct an in-house
analysis for expense items for Insurance-Health/Life/Disability and Retirement.
Staff recommends that FTRI be ordered to provide the results of the analysis to
staff by January 31, 2018 for review.
Conclusion
Staff
believes FTRI’s expense reductions in Categories I-IV are steps in the right
direction to better position FTRI in a changing industry. However, a sustained
effort is necessary for FTRI to strategically position itself in a rapidly
changing environment. In staff Option 1, staff has identified four expense
line items in FTRI’s proposed 2017/2018 budget that should be reduced or warrant
further analysis. These include RDC, Legal, Insurance-Health/Life/Disability,
and Retirement expenses.
Staff recommends that the
Commission reduce FTRI’s proposed budget expenses for Fiscal Year 2017/2018 by
$81,954 for RDC expenses and by $36,000 for Legal expenses as presented in
Option 1. Staff recommends that the Commission order the incumbent local
exchange companies, competitive local exchange companies, and shared tenant
providers to discontinue billing the $0.11 monthly surcharge, and bill the
$0.10 surcharge for Fiscal Year 2017/2018, effective September 1, 2017. Staff
also recommends that the Commission order FTRI to require detailed, itemized
bills from its legal counsel and conduct in-house analyses for Insurance-Health/Life/Disability
and Retirement expenses. Staff recommends that FTRI be ordered to provide the
results of the analyses to staff by January 31, 2018.
