The DMV

The Division of Motor Vehicles (DMV) is part of the StateDepartment of Transportation (DOT). The purpose of that departmentis to ensure the safety and free flow of people and goodsthroughout the State by ensuring that there is a reliable system oftransportation and motor vehicle services. This mission isaccomplished by funding the maintenance of the existingtransportation infrastructure, by adding to and improving theinfrastructure, and by otherwise operating a transportation systemthat minimizes congestion and promotes safety and the economicgrowth of the State. Among the key functions served by the DOTare:

? driver licensing and insurance

? vehicle inspection

? bridge and highway construction and maintenance

? public transit The current year budget for the DOT is $874million.

Of that amount, $96 million is budgeted to be spent on the DMV,which has the following objectives:

? to provide customer-friendly, efficient motor vehicleservices;

? to regulate drivers and motor vehicles to deter unlawful actsand protect the public safety;

? to further protect public safety by identifying vehicle safetyproblems; and

? to further protect the public by ensuring that all driverscarry insurance. T he State is currently preparing its budget forthe coming fiscal year, which runs from September 1 through August31.

As the director of the DMV, you are responsible for three majorareas:

? licensing, registration, and inspection of motor vehicles;

? driver licensing; and

? compulsory insurance.

A major issue for the coming year will be the overhaul of thedriver’s license program to include the latest enhanced digitizedsecurity technology. To cover this increased cost, the DMV isplanning to charge $5 more for new drivers’ licenses and licenserenewals. This charge is not enough to fully cover the cost of thenew licenses, but raising fees was a political hot potato duringthe last session of the state assembly, and the Governor would bereluctant to propose any further increase to that fee. Anothermajor initiative being planned for the DMV for the coming year is acentralized computer system to verify that all registered vehiclesare insured. Once the system is in place, the DMV will be able tocheck insurance coverage not only when a vehicle is registered, butalso when law enforcement officers stop a vehicle, when the vehiclehas its biannual safety inspection, and at other times. The systemwill require an initial capital investment of $3 million andoperating costs of $1.30 per inquiry. It is expected that therewill be 1 million uses of the system spread evenly during thecoming year. None of the capital investment cost appears as part ofthe operating budget for the coming year. To comply with theState’s 2011 Clean Air Act, the auto inspection program must bemodified. The DMV has estimated that it will cost $7.2 million toequip the state vehicle testing centers with the necessaryequipment for the new, stricter test. None of this cost will bepart of the operating budget for the DMV. The DMV also expects toissue more licenses per month early in the year, as drivers try toavoid the extra cost and documentation requirements associated withthe new higher security licenses. It expects to issue 923,456licenses using the old technology, spread evenly throughout thefirst four months of the year, and 843,023 licenses using the newdigitized technology, spread evenly throughout the last eightmonths of the year. There are expected to be 342,587 vision tests,847,129 written driving tests, and 429,222 road tests in total forthe year. These tests are expected to occur in the same proportionas the number of licenses issued each month. It is expected thatthere will be 962,135 vehicle registrations and 1,106,455 annualvehicle inspections, and these will occur evenly throughout theyear. Note that the vehicle inspection number includesre-inspections 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 forthe new improved digitized license with all security features;

? vehicle registration fees: $53 per vehicle registered, onaverage;

? vehicle inspection fees: $35 for failing theinspection—otherwise no fee. It is expected that 15 percent of thetotal number of vehicle registrations will result in inspectionfailures and re-inspections;

? state appropriation—for any balance not funded by fees;and

? transportation trust fund—for capital acquisitions.

The costs of running your department consist of personnelexpenses, materials and supplies, and a variety of purchasedservices. Personnel costs have a fixed administrative component of$6.5 million per year that is not affected by the DMV’s servicevolume. Administrators are paid evenly throughout the year. Otherpersonnel costs average $2 per transaction, regardless oftransaction type, including issuance of an auto license, vehicleregistration, vehicle inspection, or administration of any type oftest. Materials and supplies cost $.30 per transaction. These costsare incurred each month in direct relation to the number oftransactions for the month. The $2 personnel and $.30 materials andsupplies cost per transaction are not required for insuranceinquiries. Other departmental overhead costs include heat,electricity, and rent. Those costs are fixed at $8 million, and arepaid evenly throughout the year.

Additionally, the DMV pays outside contractors on the followingfee 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 registrationsrequire new license plates)

? $10 per driver’s license (old style) and $37 per license (newdigitized licenses) The director of the DOT is hoping that DOT’sfinancial situation will allow for expanded subsidies of publictransportation. As such, she is hoping that each division of theDOT will at least break-even, if not show a profit. Although yourealize that the DMV will receive a state subsidy to operate ifneeded, you know that your boss would be unhappy if such a subsidyis needed for your division. Using a computer spreadsheet, preparea budget for the DMV for the coming year, based on the informationyou currently have. If the budget shows a deficit, you may need tomake some adjustments, so use formulas for your calculations. Thatway you will be able to make changes in your worksheet and easilycalculate updated results. Specifically, 1. Prepare a monthlyoperating budget for the DMV for the fiscal year ending August 31.Determine the operating surplus and deficit for each month and forthe year as a whole. Use one page or worksheet in your spreadsheetto list all of the base information, and another for the operatingbudget. [Hint: It may be easier to prepare the budget if you add athird page or worksheet to calculate the number of transactionseach month.

(Please use excel and show the equations)