are not final and are based on the staff's analysis of three major elements of the costs of providing services for which a fee was charged: (1) the basic personnel and related overhead costs associated with direct provision of the service at the branch level and below; (2) the costs associated with supervision and review at the division and bureau or office level; and (3) costs of the Commissioners' offices, the General Counsel's Office and the Office of Plans and Policy. A description of how these costs were developed and why they were allocated to specific fee categories is set out below.

A number of considerations should be observed in reviewing this system of cost accounting.

(1) Cost estimates are based on 1970 expenses (or, in the case of
unique fee categories first imposed in 1975, on 1975 expenses)
since the purpose of this exercise is to recalculate what would
have been a lawful fee in 1970 (or 1975, where applicable)
based on the D.C. Circuit's most recent guidelines. These costs
will be used only to calculate refunds and will apply regardless
of when a fee was actually paid, i.e., if the recalculated fee is
$3.50 and the original fee was $10.00, the refund will be $6.50
regardless of whether the $10.00 was paid in 1970 or a later
year.

(2) Costs presented in Attachment A reflect only those costs that
have been assigned to this point. Although we believe that the
final recalculated schedule will not vary substantially from
what is presented in Appendix A, there is the possibility that
some additional expenses will be allocated (e.g., a portion of
hearing and enforcement costs) which would increase the
recalculated fees and thus reduce refunds.

(3) The costs set out in Appendix A necessarily involve some
estimates and some projections. This has been necessary
because of a lack of sufficiently detailed data for the early
years of the 1970-76 period and because the Commission does
not maintain cost accounting data in specific enough detail to
have been useful for this purpose. However, the cost data that
we have developed provide a reasonably precise estimate of
the costs associated with these service categories during the
relevant period. A review of the basic data upon which
Appendix A is based will, we believe, support that view. As
the court pointed out, "Any computation such as [these] must
necessarily be based on numerous approximations and can
only be expected to be accurate within reasonable limits."
NCTA v. FCC, 554 F.2d 1094, 1105 (D.C. Cir. 1976).

(4) The format of the recalculated schedule does not track
precisely earlier schedules. Filing and grant fees, for example,
have been combined. The short descriptive titles of the new
fee categories, however, should provide adequate guidance at
this time.

Description of Costing Analysis?

a. Direct Processing Costs

The following is a detailed discussion of how the costs were compiled. The Commission in recalculating a proper fee schedule must initially identify the services rendered for which it could legally charge a fee and, having done so, delineate those activities which went into providing those services. Based on that analysis, each bureau and office in the Commission undertook to analyze its activities at the branch level and below and to make its best estimate based on the professional judgment and experience of the personnel involved. The bureaus and offices calculated the average number of work hours that went into each element of professional and nonprofessional activity and that made up every service for which the Commission charged a fee. Although somewhat different approaches were taken in each bureau based on its particular needs, the focus was to reconstruct for the 1971 Fiscal Year the type and extent of work activity that went into providing each service.

The foregoing data prepared by each bureau were provided in work hours or fractions thereof. These figures were converted into compensation dollars using fiscal year 1971 tables (or 1975 where appropriate). The basic compensation cost was figured by using the General Schedule grades of the professional and nonprofessional personnel involved, assuming a step level of 4, and multiplying the hourly rate for the grade and step by the number of hours indicated by the bureaus' and offices' analysis. (The hourly rates used for making these calc ulations came from salary tables numbers 54 and 60 for the 1970 and 1975 fees, respectively.)3 The results of these computations established the basic personnel costs of providing each service.

The next step was to establish the personnel benefit cost associated with this basic compensation cost. An average benefits cost for the Commission as a whole was first determined. This figure was obtained by calculating total Commission benefits paid, in the correct fiscal year, as a percentage of total Commission compensation paid for each year. This percentage rate was then applied to the basic compensation costs outlined above, resulting in a dollar amount of personnel benefits for each category of service. The total of this figure and the basic 2 There have been inserted in the docket file in this proceeding more detailed explanatory material along with all of the work sheets used to develop the costs in Phase II.

3 These hourly rates assume a full 2080-hour work year. To adjust these figures to take into account such non-productive time as holidays, annual leave, sick leave, training, etc., totals were multiplied by a factor of 1.215. (This is a standard factor based on an estimate of 1712 productive work hours annually.)

* Personnel benefit costs include such items as the agency's contributions to employee retirement, health insurance, etc.

manpower compensation figure derived earlier provided the total direct manpower costs for each fee category.

Third, the appropriate amount for "other objects" (i.e., general overhead) costs was calculated for each category. The first step in this calculation was to list those other objects which could be related to the overall support of the Commission and therefore associated with all of the services for which fees were charge, e.g., rent, utilities, mail, etc. The starting point was the actual amount obligated for these various other objects during the two relevant years, FY 1971 and FY 1975. These overhead costs were then broken down on a cost per Commission work year basis. Those cost elements applicable only to the Commission's headquarters operation were spread over total Commission work years less the work years associated with the Commission's field offices. The costs were then assigned to each fee category on a pro rata basis related to total direct work hours required for application processing.

The total of the three elements described above plus the Executive Director support costs described below constituted the "Branch" costs which are set out in column 3 of Appendix A.

b. Indirect Costs

Executive Director Support Costs. These costs included the manpower and overhead costs associated with functions performed by the Office of the Executive Director for the Commission as a whole. These functions included financial management, personnel, procurement, administrative services and records management. These costs were developed by starting with the personnel compensation expended by the functional divisions and adding the appropriate cost for benefits. To this was added an overhead cost based on work hours associated with these divisions for the fiscal years 1971 and 1975. The sum of all personnel and overhead costs were then broken down on a per Commission work hour basis and applied to each fee category.

Bureau and Division Office Costs. These costs were developed in several steps. Each Bureau and Office was directed to provide an estimate of the percentage of total time spent by supervisory personnel at the bureau and division level along with their professional and nonprofessional staff in supervising the services for which fees were charged. Work hours for these personnel were converted to compensation to which were added amounts for personnel benefits, other objects and other indirect costs. The total office cost figure for each Bureau and Division was charged against each fee category in proportion to the Branch cost of processing each fee category and number of applications processed. Time devoted to non-fee areas such as rulemaking, enforcement or policy related matters was not included. The totals of these supervisory costs are set out in column 4 of Appendix A. c. Commissioners, General Counsel, Plans and Policy.

The final element in the cost allocation process is the apportionment

of the costs of the Commissioners' offices, the Office of General Counsel, and the Office of Plans and Policy. These costs have been treated as a general overhead type of cost since it has been concluded that they each provide a general type of support service that is essential to providing the services with which we are concerned here. Costs of compensation benefits, other objects and Executive Director support for these organizations were obtained and converted to a work hour rate which was multiplied by the hours and fractions of hours required to provide the services in each fee category. These figures for each fee category are set out in Column 5 of Appendix A.

The costing analysis described above has resulted in a recalculated cost-based schedule of fees for fees of $20 and less. The total recalculated costs for each fee category are set out in column 6 of Appendix A. In the Phase I cost recalculations we rounded the total cost to the nearest dollar. However, because of the much smaller amounts involved in Phase II, we are proposing to use the actual dollars and cents totals without any rounding.

Administration of the Refund Program

Three major factors have had to be taken into consideration in developing procedures for administering Phase II of the refund program: (1) The Commission's records are not structured to permit us to make refunds on our own initiative, although it is possible to use those records as a basis for verification of refund requests. Thus it has been necessary to plan for a system smaller to that used in Phase I in which written requests for refund are filed with the Commission on a form specially designed for that purpose. (2) Refunds in Phase II will generally be paid to individuals and generally involve only one or two fees. Thus unlike Phase I, which in many cases involves many refunds of complex fees to corporations, it will be possible to use a much simpler refund request form and instructions for Phase II. (3) It is anticipated that more than two million refund requests may be received under Phase II. Thus it has been necessary to integrate data processing into the refund system to the full extent possible.

With these considerations in mind, the basic procedure for obtaining refunds under Phase II will involve filling out a simple one-page form which will require only the minimum information necessary to insure that the requester is entitled to a refund. Our experience with the Phase I form and instructions indicate that the instructions can be quite simple, perhaps as little as one page. Also made available with the form and instructions will be tables showing the amount of the refund, if any, for each fee in the Phase II categories.

As was the case with Phase I, the requester will be required to sign a statement on the form whereby he agrees to accept the amount claimed as full satisfaction of any claim which he may have for refund of the particular fee in question. The purpose of this provision is to allow this phase of the refund program to proceed immediately where

individuals are satisfied with the refund proposed. It is possible that renewed litigation will result from the initiation of Phase II and the waiver provision will prevent such litigation from interfering with refunds to those parties who are satisfied with the amount the Commission has proposed. The waiver provision is even more important to Phase II than it was to Phase I because of the substantially larger number of refund requesters involved in Phase II.

An additional factor that will have substantial impact on administration of Phase II refunds is the minimum refund amount specified by Section 1.1103(b) of the Commission's rules, 47 C.F.R. 1.1103(b). That section provides that in the case of overpayment of a fee, a refund will be made only if the overpayment is greater than $3. This section has been in the rules since the 1970 schedule of fees was adopted. It has never been questioned in any of the extensive litigation that has arisen out of the 1970 and subsequent fee schedules. The minimum refund rule was not adopted as a means avoiding refunds but as a recognition of the substantial administrative burden involved in refunding very small amounts of money.

Of the 53 fee categories involved in Phase II, 29 are not eligible for refunds because the Commission's recalculated cost of providing the service in those categories exceeded the amounts of the original fee. The impact of the $3 minimum refund rule is to eliminate an additional 12 categories which would otherwise be eligible for $1, $2, or $3 refunds. The most significant category involves the nearly 8 million $4 CB license fees paid during 1975 and 1976. But for the minimum refund rule, these licensees would be entitled to a $2 refund.

Naturally, we are sensitive to the position of those who argue that the Commission is obligated to pay whatever refund is due, no matter how small. However, we believe that consideration must be given to the enormous administrative burden that would be placed on the Commission if it were required to process a potential of 8 million more refund requests for refunds of $3 and less. Moreover, consideration must be given to the fact that these fees were very small to begin with. The bulk of the fees in this category were CB license fees of $4 for a five-year license. If any consideration at all were to be given to the value of those licenses to CB radio operators, a fee of 80 cents per year would have to be characterized as a minimal fee.5 We encourage parties to provide us with their views on the application of the minimum refund rule in these circumstances from both a policy and legal perspective.

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"The Court of Appeals appeared to recognize this type of situation when it stated: “ .. [W]e do not demand precise equality between the value conferred and the fee charged. To be valid, a fee need only bear a reasonable relationship to the cost of the services rendered by the agency. . . . Considerations of administrative convenience may certainly be taken into account as one factor in the calculation. For example, the FCC could probably reasonably justify a minimum fee for small stations. NCTA, 189 DC at 249.

"