Needing assistance with Budget proposal

ReadOnly; You MUST NOT circulate this without instructor permission.

1

PADM 5387: The DMV Budget Scenario
The Division of Motor Vehicles (DMV) is part of the State Department of Transportation
(DOT). The purpose of that department is to ensure the safety and free flow of people and goods
throughout the State by ensuring that there is a reliable system of transportation and motor
vehicle services. This mission is accomplished by funding the maintenance of the existing
transportation infrastructure, by adding to and improving the infrastructure, and by otherwise
operating a transportation system that minimizes congestion and promotes safety and the
economic growth of the State.
Among the key functions served by the DOT are:

• driver licensing and insurance;
• vehicle inspection;
• bridge and highway construction and maintenance; and
• public transit.

The current year budget for the DOT is $874 million. Of that amount, $96 million is budgeted to
be spent on the DMV, which has the following objectives:

• to provide customer-friendly, efficient motor vehicle services;
• to regulate drivers and motor vehicles to deter unlawful acts and protect the public safety;
• to further protect public safety by identifying vehicle safety problems; and
• to further protect the public by ensuring that all drivers carry insurance.

The State is currently preparing its budget for the coming fiscal year, which runs from September
1 through August 31. As the director of the DMV, you are responsible for three major areas:

• licensing, registration, and inspection of motor vehicles;
• driver licensing; and
• compulsory insurance.

A major issue for the coming year will be the overhaul of the driver’s license program to include
the latest enhanced digitized security technology. To cover this increased cost, the DMV is
planning to charge $5 more for new drivers’ licenses and license renewals. This charge is not
enough to fully cover the cost of the new licenses, but raising fees was a political hot potato
during the last session of the state assembly, and the Governor would be reluctant to propose any
further increase to that fee.
Another major initiative being planned for the DMV for the coming year is a centralized
computer system to verify that all registered vehicles are insured. Once the system is in place, the
DMV will be able to check insurance coverage not only when a vehicle is registered, but also
when law enforcement officers stop a vehicle, when the vehicle has its biannual safety
inspection, and at other times. The system will require an initial capital investment of $3 million
and operating costs of $1.30 per inquiry. It is expected that there will be 1 million uses of the
system spread evenly during the coming year. None of the capital investment cost appears as part
of the operating budget for the coming year.
To comply with the State’s 2017 Clean Air Act, the auto inspection program must be modified.
The DMV has estimated that it will cost $7.2 million to equip the state vehicle testing centers

Read Only; You MUST NOT circulate this without instructor permission.

2

with the necessary equipment for the new, stricter test. None of this cost will be part of the
operating budget for the DMV.
The DMV also expects to issue more licenses per month early in the year, as drivers try to avoid
the extra cost and documentation requirements associated with the new higher security licenses.
It expects to issue 923,456 licenses using the old technology, spread evenly throughout the first 4
months of the year, and 843,023 licenses using the new digitized technology, spread evenly
throughout the last 8 months of the year.
There are expected to be 342,587 vision tests, 847,129 written driving tests, and 429,222 road
tests in total for the year. These tests are expected to occur in the same proportion as the number
of licenses issued each month. It is expected that there will be 962,135 vehicle registrations and
1,106,455 annual vehicle inspections, and these will occur evenly throughout the year. Note that
the vehicle inspection number includes reinspections for vehicles that fail their initial inspection.
The sources of revenue for the DMV are as follows:

• auto license fees: $25 for the old-style license and $30 for the new improved digitized
license with all security features;

• vehicle registration fees: $53 per vehicle registered, on average;
• vehicle inspection fees: $35 for failing the inspection–otherwise no fee. It is expected

that 15 percent of the total number of vehicle registrations will result in inspection
failures and reinspections;

• state appropriation–for any balance not funded by fees; and
• transportation trust fund–for capital acquisitions.

The costs of running your department consist of personnel expenses, materials and supplies, and
a variety of purchased services. Personnel costs have a fixed administrative component of $6.5
million per year that is not affected by the DMV’s service volume. Administrators are paid
evenly throughout the year. Other personnel costs average $2 per transaction, regardless of
transaction type, including issuance of an auto license, vehicle registration, vehicle inspection, or
administration of any type of test. Materials and supplies cost $.30 per transaction. These costs
are incurred each month in direct relation to the number of transactions for the month. The $2
personnel and $.30 materials and supplies cost per transaction are not required for insurance
inquiries. Other departmental overhead costs include heat, electricity, and rent. Those costs are
fixed at $8 million, and are paid evenly throughout the year. Additionally, the DMV pays outside
contractors on the following fee schedule:

• $17 per vehicle inspected;
• $2 per vision test;
• $15 per road test;
• $5 per written test;
• $25 per license plate (30 percent of all vehicle registrations require new license plates);

and
• $10 per driver’s license (old style) and $37 per license (new digitized licenses).

The director of the DOT is hoping that DOT’s financial situation will allow for expanded
subsidies of public transportation. As such, she is hoping that each division of the DOT will at
least break-even, if not show a profit. Although you realize that the DMV will receive a state

Read Only; You MUST NOT circulate this without instructor permission.

3

subsidy to operate if needed, you know that your boss would be unhappy if such a subsidy is
needed for your division.

Questions
Using the computer spreadsheet template, prepare a budget for the DMV for the coming year,
based on the information you currently have. If the budget shows a deficit, you may need to
make some adjustments, so use formulas for your calculations. That way you will be able to
make changes in your worksheet and easily calculate updated results. Specifically:

1. Prepare a monthly operating budget for the DMV for the fiscal year ending August 31.
Determine the operating surplus and deficit for each month and for the year as a whole.

2. To what do you attribute the changing surplus/deficit pattern during the year?
3. What would happen to the overall deficit or surplus if the number of vehicles failing

inspections increased from 15 percent to 30 percent? Keep in mind that vehicles must be
reinspected, so this would also increase the total number of inspections. Does this give
the DMV a reason to make its standards tougher? Is this good policy?

4. Suppose the DMV can choose when to implement the new digitized licensing system.
What would happen to the finances of the DMV if the new licenses are implemented at
the beginning of the year and issued throughout the year.

Instruction

Use this template for your estimation report. Feel free to create sheets as you need.

SOLUTION:

For your final answers, you will need to work on a separate MS Word file.

Halfway drafts and feedback need to be reported in MS Word. Identify the student names who provided feedback.

These extra credit activities are to check and communicate for correcting mistakes, but not to just provide full answers.

For a complete assignment, submit all of the followings:

1) Final Budget Proposal in MS Word

2) Estimation Report in MS Excel: All your calculation process and function data must be recorded in this Excel report. Use multiple sheets in one document. Add as many sheets as you need for revisions and corrections. All your work processes must be based in this report so that the instructor can check every part of the proposal. No information missing in the estimation report can be included in the final budget proposal.

3) Optional—Halfway Drafts and Feedback in MS Word: Refer to the extra credit section in the syllabus for the instruction.

When you or your group submits pre- and post-feedback drafts with revisions, you will receive 2 extra points

When you give comments in 3 or more parts of other student or group’s budget draft, you will receive 3 extra points.

Base info

Division of Motor Vehicles

Budget Base Information Revenues Per Old Driver’s License Issued Per New Driver’s License Issued Per Vehicle Registration Per Failed

Vehicle Inspection Expenditures Fixed Personnel Personnel Cost Per Transaction Materials and Supplies Per Transaction Overhead Costs Vehicle Inspection
Vision Test Road Test Written Test License Plate Old Style Driver’s License New Digitized Driver’s License Per Inquiry into Insurance Database

Transactions

Old Style Drivers’ Licenses

to be issued

Sept.

through

Dec. Old Style Drivers’ Licenses to be issued

Jan.

through

Aug. New Style Drivers’ Licenses

to be issued Jan. through Aug. New Style Drivers’ Licenses to be issued Sept. through Dec. Vision Tests Written Driving Tests Road Tests Vehicle Inspections Registrations Inquiries into Insurance Database Additional Information Fail inspection Registrations get new license plates

Transactions

Sept.

Dec. Jan.

Aug.

Old Style Drivers’ Licenses
New Style Drivers’ Licenses

Vision Tests
Written Driving Tests
Road Tests
Vehicle Inspections
Registrations

Inquiries into Insurance Database

Transactions per Month

Oct.

Nov.

Feb.

Mar.

April

May

June

July

Total

Total Excluding Ins. Inquiries

Q1

Division of Motor Vehicles

April May June July

Total

Revenues

Expenditures

Department of Transportation

Draft Operating Budget

For the Next Fiscal Year

September

October

November

December

January

February

March

August

Excess/(Deficit) of Revenues over

Expenditures before State Subsidy

Q2

Answer to Q2.

Q3

Department of Transportation
Division of Motor Vehicles
Draft Operating Budget

September October November December January February March April May June July August Total
Revenues

Expenditures

Excess/(Deficit) of Revenues over

Expenditures before State Subsidy

	For the Upcoming Fiscal Year

Q4

Department of Transportation
Division of Motor Vehicles
Draft Operating Budget
For the Upcoming Fiscal Year

September October November December January February March April May June July August Total
Revenues

Expenditures

Excess/(Deficit) of Revenues over
Expenditures before State Subsidy