United States
Environmental
Protection Agency
EPA530-F-98-003
February 1998
www.epa.gov/fullcost
Solid Waste and Emergency Response
SEPA Questions and
Answers About
Full Cost
Accounting
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® Printed on paper that contains at least 20 percent postconsumer fiber.
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In September 1996, the U.S.
Environmental Protection Agency
(EPA), in partnership with several
state and national solid waste and
governmental organizations, held its
second satellite forum on full cost
accounting (FCA). This interactive
videoconference, "Planning, Pricing,
Performance: The Business of Solid
Waste Management," reached an
audience of approximately 4,550 viewers
at 280 downlink sites nationwide. The
audience included solid waste managers,
elected officials, finance officers, recycling
coordinators, and others interested in
solid waste issues. The forum featured a
panel of four local government solid
waste managers and one policy analyst,
who spoke about their experiences with
FCA This booklet features some of the
questions and answers discussed during
the 2-hour forum.
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FCA FORUM PANELISTS:
• John Abernethy—Operations Manager for the Waste
Management and Recycling Division of Sacramento
County, California (population 1.2 million).
• Nancy Nevil—Solid Waste Manager for the city of
Piano, Texas (population 196,500).
• Lowell Patterson—Director of Public Works for the city
of Columbia, Missouri (population 75,000).
• Lynn Scarlett—Vice President of Research at the
Reason Foundation in Los Angeles, California.
• Elizabeth Treadway—Director of Environmental
Services for the city of Greensboro, North Carolina
(population 200,000).
Contents
WHAT IS FULL COST ACCOUNTING? ..1
1. Is there a standard definition of FCA? . . .1
2. How does FCA differ from what cities
already do? ...................... 1
3. Does FCA take into account all aspects of
integrated solid waste management? ... .2
4. Does FCA take into account the environ-
mental, health, and social costs of MSW
management? ..................... 2
5. Will the use of FCA discourage communi-
ties from considering the environment
when they consider solid waste manage-
ment options? .................... 3
6. Is it possible to implement FCA in the
absence of a general ledger accounting
system? ......................... 3
GETTING STARTED WITH FCA ..... 4
7. Why do communities begin using FCA? .4
8. Is there only one way to conduct FCA? . .5
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IMPLEMENTING EGA 5
9. How long does it take to implement FCA? ... 5
10. What is the greatest difficulty in imple-
menting FCA? 6
11. What is the ideal minimum or maximum
population required to use FCA? 6
BENEFITS OF FCA 7
12. What types of changes or benefits have
communities realized due to FCA? 7
13- Will using FCA save money? 9
14. Can FCA help compare opening a new
landfill versus building a waste-to-energy
incinerator? 10
15- Will the use of FCA promote or enhance the
regionalization of solid waste facilities? . . .10
FCA AND RATE SETTING 10
16. Can FCA help in setting up unit-based
fees ("pay-as-you-throw") ? 10
FCA AND RECYCLING 11
17. Can FCA help make recycling programs
profitable? 11
18. Does FCA help to support recycling? How? 12
PRIVATIZATION 12
19. Has FCA been effective in addressing pri-
vatization questions? 12
20. Can FCA guarantee that a certain service
won't be privatized? 12
21. What is the relevance of FCA for commu-
nities that contract out all of their solid
waste management services? 13
COST OF FCA 13
22. How is the cost of FCA best justified to
the public? 13
FCA RESOURCES . .15
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What Is Full Cost
Accounting?
1. IS THERE A STANDARD
DEFINITION OF FCA?
Yes. FCA is a method of accounting for all
monetary costs of resources used or committed
for municipal solid waste (MSW) services. FCA
provides decision-makers with the "whole pic-
ture" of MSW costs in their communities on
an ongoing basis. FCA goes beyond the limits
of cash flow accounting, which is often used by
local governments, by considering direct and
indirect (overhead) operating costs of MSW
services as well as upfront (past) and backend
(future) expenses. Knowing the complete costs
of MSW management enables local govern-
ment officials to make more informed decisions
about their programs, identify opportunities for
streamlining services, facilitate cost-saving
efforts, and better plan for the future.
2. HOW DOES FCA DIFFER FROM
WHAT CITIES ALREADY DO?
Many cities currently use budget-based, or
cash-flow, accounting—they report their cur-
rent costs and figure their expenditures in
terms of their current budget. The biggest dif-
ference between budget-based accounting and
FCA is the allocation of costs. FCA is based on
the functional allocation of resources. FCA
spreads costs over the life of a program or ser-
vice. It also includes overhead and future costs,
which might not be considered under budget-
based accounting. Many communities, for
example, face the problem of post-closure care
for their landfills. FCA can help them think
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about and plan for the costs associated with
closing their landfills.
3. DOES FCA TAKE INTO ACCOUNT
ALL ASPECTS OF INTEGRATED
SOLID WASTE MANAGEMENT?
Yes. FCA is about identifying all the activities
that communities undertake in their solid waste
programs including recycling and composting.
FCA helps managers create the best balance of
program components. It also helps managers
determine how they can deliver an integrated
set of components in the most efficient manner
possible. Many solid waste programs are created
by prior management or political decisions. In
these cases, FCA can help managers work more
efficiently within the established frameworks.
4. DOES FCA TAKE INTO ACCOUNT
THE ENVIRONMENTAL, HEALTH,
AND SOCIAL COSTS OF MSW
MANAGEMENT?
No. FCA does not account for these types of
costs. Noise, for example, is a type of social
cost associated with solid waste management.
A community might have trucks going up
and down the street due to a particular waste
management program. It is a real cost, but it
is not easily measurable. FCA also does not
include the costs of environmental impacts,
such as air emissions associated with methane
gas that might be coming from a landfill.
While these costs are not quantifiable
through FCA, they are still important consid-
erations that communities might examine
when making their decisions.
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5. WILL THE USE OF FCA
DISCOURAGE COMMUNITIES
FROM CONSIDERING THE
ENVIRONMENT WHEN THEY
CONSIDER SOLID WASTE
MANAGEMENT OPTIONS?
No. While FCA only takes into account the
tangible, monetary costs associated with solid
waste management, communities can and
should weigh environmental, social, and
health costs in their decision-making. Siting a
new landfill, for example, might be the least
expensive option for managing solid waste,
but a community might decide not to do it
for environmental reasons and might start a
recycling program instead.
FCA encourages communities to see each solid
waste management option in the context of the
solid waste system as a whole. FCA makes it
clear that changes in one program (e.g., recy-
cling) can have effects on other programs, such
as garbage collection, processing, and disposal,
as well as impacts on overhead costs.
6. IS IT POSSIBLE TO IMPLEMENT
FCA IN THE ABSENCE OF A
GENERAL LEDGER ACCOUNTING
SYSTEM?
Yes. FCA can be implemented for any solid
waste management system and any accounting
system. While detailed accounting data, such as
that provided by a general ledger system, can be
useful, it is not essential. Where accounting
data are limited or difficult to obtain, however,
more effort might be involved in setting up an
FCA system.
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O Getting Started
With FCA
7. WHY DO COMMUNITIES BEGIN
USING FCA?
There are many reasons why communities
begin using FCA. For example:
• To explain more clearly MSW costs to
citizens.
• It is mandated by law in some states.
• To help local governments run solid waste
program operations more like independent
businesses.
• To determine the cost of alternative waste
management options.
• To determine potential areas of cost savings.
In Sacramento County, California, the govern-
ment took over the refuse collection operation
from the private sector. At the same time, the
county established a landfill and two transfer
stations to serve the regional area. Smaller
cities in the county were concerned that they
would be charged a disproportionate share of
the cost of operating the landfill. The county
used FCA to demonstrate that the rates would
be fair to everyone.
In Greensboro, North Carolina, FCA grew out
of two initiatives. In the late 1980s, the state
moved FCA to a "highly recommended" status
within its solid waste laws, which provided an
impetus for local governments to begin prac-
ticing FCA. Greensboro's solid waste division
was determined to run its operation like a
business. The solid waste division runs both
collection and disposal, and it was critically
important that the division understood where
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the costs were, how to capture efficiencies, and
how to implement new programs. By imple-
menting FCA, the division now offers five dif-
ferent collection services and three different
services at the landfill and knows the cost of
each of those operations.
In Piano, Texas, the Solid Waste Department
wanted to know if offering other service levels
and restructuring their whole collection sys-
tem — such as picking up yard trimmings for
composting rather than for disposal — would be
less expensive. The department used FCA to
determine what each service level would cost.
Also, the department was attracted to the idea
of using FCA to benchmark its program against
other cities' programs.
8. IS THERE ONLY ONE WAY TO
CONDUCT FCA?
No. It is important for each community to
put the FCA process in perspective with its
waste management goals. Each community
will look at waste management costs different-
ly. Each will come up with a unique way to
establish a recordkeeping mechanism, keep
track of costs, and identify expenditures such
as equipment maintenance.
Implementing FCA
9. HOW LONG DOES IT TAKE TO
IMPLEMENT FCA?
It takes about 2 to 3 years to fully implement
FCA and get all employees comfortable with it.
Even then, the process will still evolve. In
Greensboro, North Carolina, it took 3 years to
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sort out FCA to a level of detail where staff
could effectively use it, and Greensboro contin-
ually adds elements to its system.
10. WHAT IS THE GREATEST
DIFFICULTY IN IMPLEMENTING
FCA?
One major FCA challenge communities often
face is getting other divisions, such as fleet
maintenance or the legal or personnel depart-
ment, to identify the costs they are charging to
the solid waste department.
Another difficulty can be getting the board or
city council to understand FCA. A community
might start setting up reserves for closure costs
of the landfill, for example. Then, if there is a
budget crisis, the board might want to tap into
those funds. They might not understand why
the funds have been set aside.
Another problem that solid waste managers
face is that FCA will give them different figures
from traditional general accounting or budget-
based accounting. They might face the problem
of politicians saying, "The budget says this;
how come you're telling me it costs that?"
11. WHAT IS THE IDEAL MINIMUM
OR MAXIMUM POPULATION
REQUIRED TO USE FCA?
FCA is not size-dependent. It is simply a
common-sense approach to managing money
and knowing where the money is being used.
Small communities should start by identifying
all the activities they are engaged in. For each
activity, they should identify the associated
costs, develop a mechanism to sum them up per
unit, and then report them. This formula is rel-
evant to a city, a county, or a single household.
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Finding the time, resources, and skills necessary
to set up an FCA system can be the principal
barrier facing a small city. Here, state grant pro-
grams can be of help. While these programs
often support capital additions, they can and
are being used to help localities develop FCA
capabilities.
FCA principles are the same in a large city like
New York. It is a matter of putting time and
energy into the process, which is an order of
magnitude more for New York. The data exist;
putting the resources in place to assemble it,
analyze it, allocate it, and set up appropriate
accounts might be more difficult.
Benefits of FCA
12. WHAT TYPES OF CHANGES OR
BENEFITS HAVE COMMUNITIES
REALIZED DUE TO FCA?
Communities have realized the following bene-
fits from using FCA:
• Rates or tipping fees are set correctly and
fairly.
• Budget requests are defended with clear data.
• Privatization questions are answered based on
complete cost data.
• More services are offered for less money.
In Los Angeles, California, the mayor was con-
cerned about the cost of solid waste manage-
ment, so the city began moving towards FCA.
Through that system, it has been able to set
benchmarks, make comparisons, and identify
efficiencies. FCA allows the city to figure out
how it can do better with its current programs.
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The city of Phoenix, Arizona, is another exam-
ple. Some years ago, the city began using FCA
and competing with the private sector for solid
waste services in different parts of the city. In
the initial bid rounds, the private sector won.
The public sector took its new accounting
information and decided that it had to do bet-
ter. The city then identified some areas where
efficiency could be improved and won back
some of the bids.
Sacramento County, California, also realized
new efficiencies in the area of collection. The
county was considering changing from a manu-
al, two-person collection system to an automat-
ed, one-person collection system. The public
supported the two-person system, but the cost
was prohibitive. The county educated the pub-
lic about the one-person system and explained
that if it worked, they might receive a rate
reduction for that service. With the new ser-
vice, the county was able to keep rates down
and stabilize them over the last 3 years.
Sacramento County also used FCA to change
the level of service provided for pickup of recy-
clables and compostables. The county decided
that weekly collection services were very expen-
sive for the services rendered. The county is cur-
rently involved in a pilot program that is exam-
ining every-other-week collection instead. The
county estimates that it can save $1.3 million in
this particular program with this change.
In Columbia, Missouri, FCA allows the public
works department to do meaningful cost com-
parisons in performance measurements with
other cities and track performance from year to
year. Columbia has used FCA to effectively
evaluate the impact new programs have on rates
and to set rates to assure financial stability.
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13. WILL USING FCA SAVE MONEY?
It depends. Ultimately, the more departments
know about what it takes to deliver a unit of
service, the more effectively they can manage
that unit cost. FCA points out where depart-
ments are inefficient, where they can look for
cost reductions, and where they might need to
change service delivery.
In Columbia, Missouri, the Public Works
Department has been able to take the break-
down of its unit cost and compare it to other
communities. If a similar community is provid-
ing the same recycling service as Columbia, but
at a lower rate, that illustrates an opportunity for
Columbia to change and become more efficient.
Columbia has increased its efficiency due to
comparisons like this, which, in turn, has result-
ed in cost savings. Communities must be sure to
make comparisons with communities that have
similar services and similar populations, however.
FCA also gives communities the ability to more
evenly match the rate they are charging for dif-
ferent services (e.g., residential versus commer-
cial) to the actual costs of those services.
Through FCA, Columbia found that the rate
charged for one element of its refuse service
carried the cost for some of the others. During
rate adjustments, Columbia was able to even
out the rates for all services.
FCA can help communities save or reserve
money, but that can lead to differing opinions
about what to do with the money. A community
might save reserves that it wants to allocate for
future uses, but others might want to give that
money back to residents in the form of a fee
reduction instead. FCA does not automatically
save money, however, and it cannot guarantee
that savings are returned to the customer.
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14. CAN FCA HELP COMPARE
OPENING A NEW LANDFILL
VERSUS BUILDING A WASTE-
TO-ENERGY INCINERATOR?
Yes. The principles of FCA are exactly the
same no matter how you apply them. FCA is
about identifying, reporting, and summing
up measurable costs. It can help communi-
ties compare one alternative to another and
understand the costs. The question really is,
"How can you make that comparison with-
out FCA?"
15. WILL THE USE OF FCA
PROMOTE OR ENHANCE THE
REGIONALIZATION OF SOLID
WASTE FACILITIES?
No. The use of an FCA approach will not, in
and of itself, determine whether any particu-
lar regionalization proposal is cost-effective.
That will depend on the proposal as well as
the characteristics of the region. Use of FCA
will help ensure that regionalization proposals
are analyzed properly.
FCA and Rate
Setting
16. CAN FCA HELP IN SETTING UP
UNIT-BASED FEES ("PAY-AS-YOU-
THROW")?
Yes. FCA can be a useful tool in developing fair
and equitable service fees. It also allows com-
munities interested in pay-as-you-throw pro-
grams to evaluate the effect, in terms of system
costs and revenues, of implementing such a
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program. When a pay-as-you-throw program is
implemented, for example, residents might
choose to recycle or compost at higher levels.
This behavioral change has a direct effect on
system costs and revenues. FCA can be used to
evaluate and anticipate these shifts in costs.
One of the problems some communities face
with pay-as-you-throw programs is balancing
systems costs and revenues. Seekonk,
Massachusetts, used FCA to understand the
base costs for its solid waste system. With
that information, the town was able to set its
flat and variable fees for its pay-as-you-throw
program. While FCA doesn't provide an
answer in terms of what a community should
charge on a variable-rate basis, it can provide
the baseline information to determine what
the base costs are.
In some circumstances, however, rate setting
still comes down to a political decision. A
community might determine an appropriate
rate using FCA but realize that it would not
be a great enough financial incentive to
encourage people to recycle, which might be a
community goal.
FCA and Recycling
17. CAN FCA HELP MAKE
RECYCLING PROGRAMS
PROFITABLE?
No. Waste will continue to be generated by the
residential and commercial sectors, communities
will continue to have some level of responsibili-
ty for managing it, and those services are going
to cost money. One of the challenges faced by
solid waste managers is to find the least-cost
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management options and, if the community has
a recycling component, to examine how it can
make that the most efficient system possible.
18. DOES FCA HELP TO SUPPORT
RECYCLING? HOW?
No. FCA does not champion recycling or any
other waste management option. It provides an
important tool for analyzing and improving
system performance and cost-effectiveness. A
community can use FCA to determine the best
way to provide recycling services, however.
Privatization
19. HAS FCA BEEN EFFECTIVE IN
ADDRESSING PRIVATIZATION
QUESTIONS?
Yes. Greensboro, North Carolina, faced this
issue, and FCA was instrumental in dealing
with it. When the city implemented its recy-
cling program, it was required to compete
against the private sector. To do that, the city
had to know what it was willing to spend to
implement the program. It was critical to be
able to value the program for the community
and decide whether the private sector could
meet Greensboro's standards and costs. Now
the city is running the service because it out-
performed the private sector.
20. CAN FCA GUARANTEE THAT A
CERTAIN SERVICE WON'T BE
PRIVATIZED?
No. FCA, in and of itself, cannot keep a service
from being privatized. However, FCA can show
whether it is better to privatize or not.
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2 1 . WHAT IS THE RELEVANCE OF EGA
FOR COMMUNITIES THAT
CONTRACT OUT ALL OF THEIR
SOLID WASTE MANAGEMENT
SERVICES?
Unless a community is entirely out of the
business of solid waste management — that is,
individual citizens simply subscribe directly
with a private hauler for service — local gov-
ernment is still going to have costs associat-
ed with the contract. The city will have
monitoring costs, various overhead costs,
and education costs, depending on the role
the government actually plays. Communities
need to know what they are paying out of
pocket for the contract as well as the other
overhead, monitoring, and contract-manage-
ment costs. FCA can help communities
understand and track these costs. This infor-
mation becomes critical when contracts are
up for renewal or new vendors offer services.
In fact, any competitive-contracting decision
would require knowledge of these costs
ahead of time.
Cost of FCA
22. HOW IS THE COST OF FCA BEST
JUSTIFIED TO THE PUBLIC?
FCA is an approach, not a fixed product. It is
possible to tailor a cost-effective FCA system to
meet the needs of most, if not all, solid waste
management systems. Assuming that FCA has
been implemented in an appropriate manner,
the cost can best be justified to the public by
publicizing the uses and benefits that solid
waste managers make of FCA, focusing on uses
that particularly interest the public. Stress that:
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(1) FCA allows solid waste managers to operate
their programs as an efficient streamlined busi-
ness, carefully accounting for all costs; (2) FCA
is the best way to get a handle on solid waste
related issues, such as privatization, and getting
these issues "right" can save the public money;
and (3) FCA might have up-front costs (e.g.,
data development, software installation, and
consulting assistance), but these costs purchase
a management information capability that can
save money over the long run.
This conference was sponsored by EPA
in partnership with:
• American Public Works Association
(APWA)
• International City/County Management
Association (ICMA)
• Maryland Department of Environment
• National Association of Counties (NACo)
• National Recycling Coalition (NRC)
• National Solid Waste Management
Association (NSWMA)
• Solid Waste Association of North America
(SWANA)
• U.S. Conference of Mayors
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FCA Resources
EPA has published several documents that are
useful for any community interested in learn-
ing about or implementing FCA.
• Making Solid (Waste) Decisions With Full
Cost Accounting (EPA530-K-96-001) is a
short primer that explains the basic concepts
of FCA and provides short case studies
about communities that have used FCA suc-
cessfully. It also presents some of the chal-
lenges of FCA and the relationships between
FCA and enterprise funds and pay-as-you-
throw programs.
• Full Cost Accounting for Municipal Solid
Waste: A Handbook (EPA530-R-95-041)
describes the key concepts and benefits of
FCA. It explains many of the financial terms
used in FCA and the specific costs that are
considered. While the handbook is not a
step-by-step "how-to" document, it does
describe the steps involved with implement-
ing FCA for solid waste management. It is a
comprehensive overview and a valuable
resource for local governments.
These documents can be ordered through
EPAs RCRA Hotline. Call 800 424-9346 or
for the hearing impaired call TDD 800 553-
7672. In the Washington, DC, area, call 703
412-9810 or TDD 703 412-3323. Web site:
www.epa.gov/fullcost.
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