Kraus' Recreation and Leisure in Modern Society 10th Edition by Daniel McLean, Linda Dayer-Berenson, Brian Luke Seaward, Amy Hurd

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Cost Recovery as an Example of the Changing Financial Picture of Public Parks and Recreation
As government endeavors to balance competing community needs with existing and planned resources, public park and recreation agencies increasingly are looking for new ways to generate revenue or income from existing and new resources. This process requires public agencies to balance public need with the expectation to provide programs, facilities, and services. Many public agencies, especially at the municipal level, have struggled with how to do this. The process of cost recovery has gained increasing adoption among public agencies.
Cost recovery is a process used by public agencies to price their services on a break-even basis, or so that "approximately the same amount of resources are recovered through pricing as are expended in production and delivery." a The idea behind cost recovery is to determine the amount of money that might be recovered from each program and service based on the merit and purpose of the service.
Cost recovery approaches attempt to define what should be paid for by tax revenues (basic services) and what should be provided and recovered fully or partially through fees, charges, and other nontax revenue sources. Cost recovery is about identifying acceptable levels of basic services, merit services, and private services. Communities tend to organize levels of service similarly. The levels of services are explained later. There are benefits to implementing cost recovery processes. First, and maybe most important, government can divert tax dollars to areas of greater need. Second, cost recovery allows municipal agencies to improve opportunities. Without cost recovery, most public agencies would be unable to maintain services at current levels. Third, cost recovery is an information tool allowing agencies to determine user perceptions of value of a product or service and user preferences. Agencies respond through adjustments in prices, services, and offerings. Fourth, cost recovery is a means of expanding recreation and park opportunities.
Figure depicts a comparison of subsidies, or those costs paid by tax dollars, versus those costs recovered from users. The three levels of service, as previously mentioned, are public service, merit service, and private service. Public services are provided for the public good, meeting the needs of a broad constituency of community members. The benefits focus on public outcomes or on the ability to provide services that result in strengthening the community. Merit services fall in between public and private services, and the measure of these services focuses on who benefits the most. Is it the user or the public In most cases, both benefit at some level, but this does not meet the criteria of public good. The user is then expected to pay for part of the cost of the delivery of the program. Private services focus on the user receiving all or most of the benefit and the public receiving little or no benefit.
FIGURE Cost Recovery: Subsidy and Recovery Models

Figure 1 illustrates that public services receive a majority of their subsidy from tax dollars while private services receive little or no support from tax dollars. It reinforces the notion of supporting public good programs with higher tax subsidy and requiring special interest groups and individuals who receive a private service to pay for all or most of the service.
Cost recovery is about identifying acceptable levels of basic services, merit services, and private services. Communities tend to organize levels of service similarly. The levels of service are explained later.
Cost recovery is traditionally represented by four levels of recovery, ranging from no recovery (public), to partial recovery, break-even recovery (merit), and finally, generation of revenue at or beyond the cost of the program (private). The determination of cost recovery is based on equity. For example, the Tucson, Arizona Parks and Recreation department identifies three levels of equity: (1) public services, (2) merit services, and (3) private park and recreation services. These three levels are generally applied nationally, with some communities making modifications in levels and/or definitions. Boulder, Colorado identifies five levels of cost recovery: (1) basic services, (2) merit services, (3) enhanced services, (4) specialized services, and (5) enterprise services. The difference revolves around the idea that there might be intermediate steps that give the agency greater flexibility in cost recovery.
How Are Cost Recovery Models Implemented
Designing a cost recovery model that meets the needs of the agency, the governing body, and the public served can be challenging. Most agencies implementing a cost recovery model endeavor to include the public in the process. Doing so strengthens the public's perception of the agency's commitment to serving the entire community.
Once a cost recovery plan is adopted, the agency engages in several tasks associated with implementing the plan. First, each program or service provided by the agency is reviewed and fees are adjusted. There are several ways to do this. The fees can be adjusted upward or downward immediately, based on how they fit in the cost recovery model. Fees can be adjusted over a period of time, especially if there are significant increases, thus delaying the full impact on the participant. Or fees can be deferred by the agency for a specific reason. Implementation of a cost recovery program can be controversial for an agency, even with public input, because of the perceived and real impact on program participants and those using services. Typically, a public relations program is mounted that strives to explain the purpose, need, and process of cost recovery, as well as how it affects the public.
Cost recovery is primarily a financial tool used by public agencies to assist in fees, charges, and decision making and validates a rationale for making decisions.
How does cost recovery help a public agency