United States
Environmental Protection
Agency
and Emergency Response
(5306W)
EPA530-R-98-018
December 1998
www.epa.gov
Full Cost Accounting in Action
Case Studies of Six Solid Waste
Management Agencies
Printed on paper that contains at least 30 percent postconsumi
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FCA
FCA embodies several key concepts that distinguish it from cash accounting tech-
niques. The following list highlights the five basic tenets of FCA, all of which are used,
to some degree, in the case studies.
I, Accounting for costs rather than outlays. An outlay is an expenditure of cash to
acquire or use a resource. A cost is the dollar value of the resource as it is used. For
example, an outlay is made when a collection truck is purchased, but the cost of the
truck is incurred over its active life (e.g., 10 years). The cost of the truck needs to be
allocated over the period of its use because every year of use contributes to the det-
erioration of the truck's value.
2. Accounting for hidden costs. With FCA, the value of goods and services is reflected
as a cost even if no cash outlay is involved. A community might receive a grant from
a state, for example, to purchase solid waste equipment. This equipment has value,
even though the community did not pay for it in cash. The equipment, therefore,
should be valued in an FCA analysis.
3. Accounting for overhead and indirect costs to individual solid waste services. FCA
accounts for all overhead and indirect costs, including those that are shared with
other public agencies. Overhead and indirect costs might include administrative sup-
port, billing, data processing, legal services, and purchasing.
4. Accounting for past and future costs. FCA includes past and future costs that often
do not appear on annual budgets under cash accounting systems. Past (or upfront)
costs are initial investments necessary to implement MSW services such as the acqui-
sition of vehicles, equipment, or facilities. Future (or back-end) costs are costs that
will be incurred to complete MSW operations such as landfill closure and postclosure
care and post-employment health and retirement benefits.
5. Accounting for costs according to activities or paths. There are two ways of dis-
aggregating costs for an entire MSW system. You can focus on the activities that are
the building blocks of the system or the paths that MSW follows in the course of
integrated solid waste management (i.e., the point of generation through processing
and ultimate disposition). Activities include waste collection, operation of transfer
stations, transport, waste processing and/or disposal, and sale of by-products. MSW
paths include recycling, composting, waste-to-energy, and land disposal. Both the
path and the activity ways of looking at MSW costs can be useful. Understanding the
costs of each MSW activity often will be necessary for compiling the costs of the
entire system and helps you evaluate whether to provide a service yourself or con-
tract out for it. However, in considering changes that affect how much MSW ends up
being recycled, composted, converted to energy, or landfillcd—you should focus on
the costs of the different paths. Understanding the full costs of each path is an essen-
tial first step in discussing whether to shift the flows of MSW one way or another.
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Table of Contents
1. INTRODUCTION 1
2. BROWARD COUNTY, FLORIDA 5
Introduction 5
Background 5
FCA in Broward County 7
FCA in Action: Balancing Costs and
Financing of Long-Term Investments 8
Lessons Learned 9
3. CITY OF COLUMBIA, MISSOURI 14
Introduction 14
Background 14
FCA in Columbia 15
FCA in Action: Developing Cost-Based Prices for
Services and Customer Groups 17
Lessons Learned 18
4. CITY OF GLENDALE, ARIZONA 23
Introduction 23
Background 23
FCA in Glendale 24
FCA in Action: Analyzing Options for Residential Rate Relief 25
Lessons Learned 25
5. CITY OF INDIANAPOLIS, INDIANA 29
Introduction 29
Background 29
FCA in Indianapolis 30
FCA in Action: Developing Competitive Public Solid Waste
Service Bids and Contracts 31
Lessons Learned 32
6. SOUTHEASTERN PUBLIC SERVICE AUTHORITY OF VIRGINIA 35
Introduction 35
Background 35
FCA at SPSA 35
FCA in Action: Competing for Waste 37
Lessons Learned 38
7. CITY OF SAN DIEGO, CALIFORNIA 42
Introduction 42
Background 42
FCA In San Diego 43
FCA in Action: Automated Refuse Collection 44
Lessons Learned 45
8. FULL COST ACCOUNTING GLOSSARY 49
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1 .Introduction
Today's municipal solid waste (MSW) man-
agement systems are more complex than
ever. With each passing year, the number of
options available for managing MSW continues
to grow. Cities and counties now offer a range of
collection programs, from household hazardous
waste drop-off sites to curbside collection of
garbage, recyclables, yard trimmings, and white
goods. These programs use a variety of facili-
ties, including material recovery facilities, com-
post sites, waste-to-ener-
gy plants, and municipal
landfills.
With the growing
complexity of today's
waste management sys-
tems, solid waste man-
agers find it increasingly
difficult to track and
evaluate the costs and
benefits of their opera-
tions. Tracking costs is
particularly important, however, given the ris-
ing costs of waste management services. In fact,
failure to develop adequate cost data can have
serious consequences. Without full cost infor-
mation, for example, agencies might reject
potentially cost-effective options or overlook
opportunities to expand recycling and waste
reduction programs.
To help municipalities improve the cost-
effectiveness of their solid waste programs, the
U.S. Environmental Protection Agency (EPA)
promotes the use of full cost accounting (FCA).
FCA provides a common-sense approach to
identifying and controlling the costs of manag-
ing a solid waste program. It offers a framework
to aid decision-makers with short- and long-
term program planning, and it can help identify
measures for streamlining and improving opera-
tions. Knowing the full cost of MSW programs
Full cost amounting is a systematic
approach for identifying, summing, and
reporting the actual costs of solid waste
management, taking into account past
and future outlays, oversight and sup-
port service (overhead) costs, and
operating costs.
ensures fiscal accountability and enables agen-
cies to make more informed decisions, respond
better to citizens' needs, and more efficiently
address environmental concerns.
EPA developed this set of six case studies to
illustrate the ways that different agencies devel-
oped unique FCA systems and applied those
systems to address local issues. The issues
ranged from establishing user fees to cover ser-
vice costs to developing a financial strategy for
closing an ash landfill.
Although each case study
is unique, all of them
illustrate how FCA
became an integral part of
these agencies' everyday
budgeting, management,
and decision-making
processes. For each
agency, the use of FCA is
viewed as a good manage-
ment practice.
CASE STUDY ORGANIZATION
Each case study provides information on
MSW system operations and costs, describes
local FCA data and its development, and
explains how these data were used to address
one or more local issues. Because this publica-
tion focuses on agencies that have been using
FCA for the past 5 to 10 years, it does not
address the early planning stages of incorporat-
ing FCA into existing budget and accounting
procedures. Instead, each case study highlights
the overarching uses and benefits of FCA. For
information on planning for and implementing
FCA, refer to the EPA publication Full Cost
Accounting for Municipal Solid Waste: A
Handbook (see inside back cover for a list of
available publications).
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Each chapter of this report contains the fol-
lowing sections:
• Introduction. These sections introduce the
agencies and describe how and why each one
started using FCA. They summarize some of
the main points that will be discussed
throughout the case studies.
• Background. These sections provide an
overview of community demographics, ser-
vices provided by the agencies, annual bud-
get data, revenue sources, and, when applica-
ble, enterprise fund structures.
• FCA in [Case Study Site]. These sections
explain how the agencies use FCA, including
specific FCA tools and principles used. They
present influences that have affected each
agency's use of FCA, information about con-
tractors or special software used, and tech-
niques used to analyze costs.
• FCA in Action. These sections describe how
the agencies used FCA to address, evaluate,
or analyze recent local solid waste issues,
The examples are used to illustrate the FCA
principles and mechanisms used within the
structure of each particular agency.
• Lessons Learned. To assist other agencies
that might be evaluating the use of FCA,
these sections present suggestions and
insights that each agency gleaned from its
own experience. They also present other var-
ied uses of FCA that were not described
under FCA in Action.
METHODOLOGY
EPA began the case study selection process
based on a list of potential agencies compiled
over the past several years. This list consisted of
agencies identified through two nationwide
satellite programs on FCA in 1995 and 1996, an
FCA roundtable in 1996, and an FCA work-
group1 with representatives of recycling, govern-
ment, and other solid waste organizations and
agencies that has been meeting with EPA over
the past several years. The criteria used to select
case study agencies included:
• Data Availability. Agencies had disaggregat-
ed data on the cost of all solid waste manage-
ment services, including fully allocated indi-
rect/overhead costs, as well as complete data
on the tonnage of materials managed and
associated revenues. In short, agencies were
able to describe how their data are organized
and how they were developed.
• FCA Uses. Agencies used FCA successfully
to analyze one or more of the following
issues: implementation or modification of a
fee system, privatization of solid waste ser-
vices, and modification of an existing solid
waste system in a way that had major, short-
term cost implications.
• Distribution. Agencies represented a geo-
graphically and demographically diverse
group of MSW agencies across the United
States.
COMMUNITY PROFILES
This publication contains detailed case stud-
ies for the following communities:
Broward County, Florida — Office of
Integrated Waste Management
Broward County (population 1,070,047 in
1990) began using FCA more than a decade ago
to develop a financial strategy for closing an
existing landfill and to plan a new county
integrated waste management system. Today,
FCA is embodied in the financial, budgeting,
and accounting system used by the county's
Office of Integrated Waste Management
(OIWM). OIWM uses the system to assist in
managerial decision-making, facilitate commu-
nication with elected officials and municipali-
ties within the county, and ensure that users of
the county solid waste system are charged for
services on a fair and equitable basis. Recently,
Broward County used FCA to bring ash disposal
service charges in line with the useful life of its
ash disposal cells, ensuring that current and
future users of this resource bear its full cost.
1 The FCA workgroup consists of representatives from the following agencies and organizations: American Public Works
Association, International City Management Association, Maryland Department of the Environment, National Association
of Counties, National Solid Wastes Management Association, National Recycling Coalition, Solid Waste Association of
North America, the U.S. Conference of Mayors, and the U.S. Environmental Protection Agency (Office of Solid Waste).
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Columbia, Missouri — Public Works
Department
The Public Works Department in Columbia
(population 69,101 in 1990) began using FCA as
part of a citywide enterprise financing initiative
in the early 1970s, This effort required service-
based city agencies to develop user fees that
would provide sufficient revenue to cover ser-
vice costs. The department developed a spread-
sheet system that uses FCA principles to convert
budget and operating information into full cost
data. When this process was complete, the depart-
ment was able to clearly identify detailed ser-
vice costs and associated revenue requirements.
The department's FCA system also serves as
an important planning and performance analy-
sis tool. Since 1988, the department has added a
variety of residential diversion and processing
services and has invested substantial funds in
its landfill to ensure compliance with the
Subtitle D requirements of the Resource
Conservation and Recovery Act. In expanding
and improving its operations, the department
used its FCA system to plan, evaluate, select,
and integrate the most cost-effective service
options. Recently, Columbia used FCA to devel-
op separate residential, commercial, university,
and roll-off service charges and landfill tipping
fees that cover the majority of its annual operat-
ing costs.
Glendale, Arizona — Field Operations
Department
A combination of regional and local issues
motivated Glendale (population 180,038 in
1990) to begin developing an FCA system in the
early 1990s. Increased regional competition
from nearby, privately owned landfills with
lower tip fees resulted in a substantial reduc-
tion in waste flow to the Glendale landfill
between 1990 and 1995. Consequently,
Glendale's landfill tip fee revenues dropped by
50 percent. Faced with the prospect of increas-
ing local service rates, Glendale used an FCA
approach to develop a dynamic cost-based rate
model. The rate model continues to help the
Field Operations Department isolate the impor-
tant relationship between landfill costs, tip fee
revenues, and the rates for both collection and
disposal services. Glendale's use of the rate
model has enhanced and improved the cost and
efficiency of its solid waste system so that it
now has the lowest residential solid waste ser-
vice rate in the region.
Indianapolis, Indiana — Solid Waste
Division
Indianapolis (population 741,592 in 1990)
began using FCA in 1993 as part of a citywide
effort to provide the highest quality public
services to residents at the lowest cost. The
division began using FCA to facilitate the adop-
tion of market mechanisms—particularly com-
petitive bidding by public employees for solid
waste collection contracts—and to develop per-
formance indicators. Since the division began
competing against private haulers to provide
trash collection services, the city's solid waste
costs have decreased by more than $5 million.
The division relied on FCA to develop success-
ful competitive bids that have resulted in these
cost reductions.
Southeast Public Service Authority (SPSA) —
Virginia
The Southeast Public Service Authority
(SPSA), a regional agency (serving a population
of 1,012,789 in 1990) based in Chesapeake,
Virginia, began using FCA in 1988. Initially,
SPSA used FCA to guide the allocation of debt
service costs to its services and facilities. It then
set prices to recover these costs. In the "1990s,
SPSA faced increased competition for waste
from private landfills in the region. Using FCA,
SPSA was able to identify strategic pricing and
investment options which allowed it to keep
waste flowing to its facilities. Recently, SPSA
used FCA to evaluate the options for obtaining
additional landfill capacity.
San Diego, California — Environmental
Services Department
The Environmental Services Department in
San Diego (population 1,110,549 in 1990) has
been using FCA since the 1980s. FCA principles
are reflected in department practices, such as
the use of lease-purchase agreements to match
cost recovery as closely as possible to equip-
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ment lifetimes. In general, the department uses
FCA as a framework to analyze issues of partic-
ular importance. Recently, when considering
whether to implement an automated trash col-
lection system, the department used FCA to
determine whether cost savings could be
achieved by switching to a new system. The
findings provided the impetus the department
needed to make the switch from manual collec-
tion.
LESSONS LEARNED
"Know what your costs are so you can con-
trol them." This is a guiding principle of FCA,
which was stated succinctly by Lowell
Patterson, Director of Public Works in
Columbia, Missouri. While the communities
featured in the case studies consider FCA to be
an integral part of doing business, the solid
waste directors were able to isolate some of the
key lessons that might assist other communities
that are evaluating the use of FCA. Lessons
learned and general observations include:
• Structure budget and accounting systems so
they are consistent with the internal and
external services provided by the agency.
• Develop standard forms and procedures that
make FCA automatic.
Invest necessary resources up front to devel-
op FCA systems and allow sufficient time for
implementati on.
Maintain and update FCA systems on a regu-
lar basis.
Use FCA for management purposes rather
than just accounting.
Ensure that senior management is committed
to FCA.
Consider involving consultants with the
development and implementation of FCA
tools.
If needed, solicit technical support for staff
training, data development, and development
of an appropriate FCA system.
Recognize that using FCA often leads to
innovations and the adoption of other best
management practices and tools.
If long-term debt is an issue, try to match
financing terms with facility or equipment
life so that debt service expenses are in line
with the depreciated cost (or "economic
value") of the resource in question.
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2.Broward County, Florida
Office of Integrated Waste Management
INTRODUCTION
In the early 1980s, Broward County relied on
FCA to develop a state-of-the-art integrated
waste management system within the Broward
Solid Waste Disposal District (BSWDD). The
BSWDD is comprised of 24 of the 29 municipal-
ities in Broward County as well as all of the
county's unincorporated areas. The Office of
Integrated Waste Management (OIWM) was cre-
ated in 1991 to manage the integrated solid
waste management system on behalf of its mem-
ber jurisdictions.
OIWM's use of FCA today is strongly influ-
enced by its role as a contract administrator.
Virtually all of the OIWM's costs must be cov-
ered through fees or levies paid by member
jurisdictions that use the solid waste services.
Inter-local agreements restrict OIWM from
increasing annual fees for members by more
than 70 percent of the consumer price index in
any given year. Thus, OIWM relies on FCA to
ensure that costs do not fluctuate dramatically
from year to year based on capital requirements
and associated financing arrangements.
BACKGROUND
Located in the southern part of the state,
Broward County is one of the largest and most
densely populated counties in Florida. In addi-
tion to its permanent population, nearly 90,000
part-time residents reside in Broward County
during its peak season, and more than 3,000,000
tourists visit the county each year.
OIWM does not own most of the processing
and disposal capacity in the BSWDD, but rather
serves as a contract administrator. OIWM pro-
vides collection services, through franchised
haulers, to its unincorporated residents only
(who comprise about 44,000 single and 26,000
multifamily households in the unincorporated
areas of BSWDD). Its major focus is on the
county's resource recovery system (a combina-
tion of recycling, incineration and ash disposal,
!Demographic Characteristics,
Broward County, Florida,
Solid Waste Disposal District
Population (1990) 1,070,047
Area (square miles) 337
Density (persons per square mile) 3,1 75
Households 445,590
Household Income (1989 $) $30,731
Housing in 1- to 4-unit structures 55%
and landfilling), which all municipalities and
unincorporated areas in the BSWDD use. In
addition, it provides recycling, technical assis-
tance and contract services to government, insti-
tutional, and commercial establishments in the
county. OIWM does own and operate a small
landfill, which is used for non-combustible and
bulky materials that cannot be incinerated.
OIWM employs a staff of 80 to operate or
administer its system. Thirty-four are involved
directly with the landfill, while the remainder
devote their time to contract and general admin-
istration as well as outreach and technical assis-
tance. See Table 1 on page 11 for additional
details on services provided by OIWM.
Figure 1 on page 6 provides a breakdown of
the revenue sources for OIWM's operations.
OIWM's waste management activities are
financed through the following three inter-
linked enterprise funds:
• The Resource Recovery System Fund covers
costs associated with the facility-side of the
resource recovery system. This is the largest
of OIWM's three funds, representing 84 per-
cent, or roughly $83.5 million, of OIWM's
annual revenue of $100 million. Facility tip
fees (a direct user fee) make up 92 percent of
the revenue generated by this fund.
• The Unincorporated Area Waste Collection
Fund covers costs and revenues associated
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with providing collection services to unin-
corporated areas of the county. A special
assessment on those residential units receiv-
ing collection services comprises 88 percent
of this fund's revenues.
The Solid Waste Fund covers costs associat-
ed with recycling activities and closed facili-
ties. Recycling and tire disposal grants from
the state make up 71 percent of this fund's
revenues.
FIGURE 1: OIWM SOURCES OF REVENUE
(TOTAL REVENUE = $100,031,979)
SOLID WASTE (SW) FUND
$3,054,582
SCHOOL CONTRACT
OTHER SW FUND M(m9o/0
REV 6% /
TRANSFER FROM—^T
UAWC FUND
5%
INTEREST
EARNINGS
9%
UNINCORPORATED AREA WASTE COLLECTION
(UAWC) FUND $13,472,168
RESIDENTIAL
RECYCLING FEES COMMERCIAL
SALES 4% FEES SPECIAL
2% / s^ 5% ASSESSMENTS
\ J^ "^^^^^ / 88%
RECYCLING/TIRE
DISPOSAL GRANTS
71%
UAWC
13%
OTHER
UAWC -
FUND REV
1%
SW 3%
\
TRASH RECYCLING
RECYCLING FEES SALES
GRANT 2% 3%
OTHER RRS
FUND REV
1%
FACILITY
TIP FEES
92%
RESOURCE RECOVERY SYSTEM (RRS)
FUND $83,505,329
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FCA IN COUNTY
OIWM's role as a contract administrator
strongly influences its use of FCA. The agency's
member constituents (i.e., municipalities and
unincorporated areas) incur varying costs for
solid waste services. OIWM carefully tracks
these costs so it can collect fees that are suffi-
cient to cover its contractual obligations and
operational expenses. Moreover, OIWM is
restricted by inter-local agreements from
increasing annual rates for its members by more
than approximately 70 percent of the consumer
price index in any given year. OIWM, therefore,
must have an accurate understanding of both
short- and long-term costs.
OIWM uses a commercially available soft-
ware application to organize its accounting,
budgeting, and financing information. Inform-
ation in the software is organized based on
OIWM Enterprise Funds and
Related Activity-Based Cost
Centers
1. Unincorporated Area Waste Collection Fund
Cost Centers
• Mandatory Collection
• Mandatory Recycling
• Trash Transfer Stations
2. Solid Waste Fund Cost Centers
• Recycling Technical Assistance
• Pompano Incinerator (closed)
• Davie Landfill (closed)
• Waste Tire Grant
3. Resource Recovery System Fund Cost Centers
• Solid Waste Operations
• Solid Waste Landfill Closure
• Household Hazardous Waste
• Administration
• Resource Recovery Board
• North Resource Recovery Plant
• South Resource Recovery Plant
• South Ash Landfill
• Materials Recovery Facility
• Debt Service
• Debt Service Reserve
OIWM's enterprise fund structure and the 18
activity-based cost centers shown in the accom-
panying text box. Thus, the Unincorporated
Area Waste Collection Fund, which covers costs
associated with providing collection services to
unincorporated areas of the county, includes
"mandatory collection," "mandatory recycling,"
and "trash transfer" cost centers. Each cost cen-
ter is comprised of detailed cost components
such as personnel, contracts, administrative
expenses, and other operating costs.
OIWM is primarily an administrative agency;
therefore, its treatment of administrative and
overhead costs is particularly noteworthy.
OIWM accounts for both "external" and "inter-
nal" overhead costs. External overhead costs
include fees that OIWM pays to other county
departments for services such as printing, bud-
geting, and legal expenses. Table 2 on page 12
indicates that OIWM paid a total of §521,651 in
external overhead fees to other county depart-
ments during fiscal year (FY) 1996. The table
also provides details on the allocation pro-
cedures the county uses to charge OIWM for
these services. OIWM, in turn, assigns these
fees to each of its three enterprise funds based
on the respective fund's direct usage of external
overhead services. Thus, for example, the
Resource Recovery Fund incurred $287,160 in
external overhead costs for services provided by
other county departments.
Internal overhead expenses include OIWM
supervisory and administrative personnel as
well as OIWM's administrative operating and
capital expenditures. OIWM allocates costs
incurred for these expenses across the three
enterprise fund cost centers using a variety of
techniques. For example:
• The OIWM allocates administrative staff
salaries and associated fringe benefits based
on staff time spent or billed to specific cost
centers.
• OIWM allocates other operating expenses
(such as supplies, printing, utilities, dues,
and memberships) and small capital expen-
ses based on either the percentage of the
overall budget (excluding administration) the
fund cost center comprises or the percentage
of office space footage the cost center uti-
lizes.
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As an illustrative example, Table 3 on page 13
provides details on the specific types of admin-
istrative costs tracked for the Resource Recovery
Fund (note that this includes the $287,160 in
external overhead described in the preceding
paragraph), OIWM tracks similar types of admin-
istrative costs for the other two funds as well
(they arc not shown in the text box because they
are not as large as the administrative cost center
for the Resource Recovery Fund).
OIWM has also developed FCA techniques to
account for past and future outlays associated
with long term assets, such as its disposal capa-
city. For example, in considering landfill costs it
Accounting for Past Outlays at
the Broward County Landfill
1. $5,125,000
2. $4,000,000
3. $9,125,000
4. $4,282,759
5. $4,842,240
6. 3,300,000
7. 898,645
8. 2,401,355
9.
$2.02
Land Improvement
Site Development
Total Costs
[ Line 1 + Line 2 ]
Total Amortization as of
9/30/96
Una mortized Costs
[ Line 3 - Line 4 ]
Estimated Capacity (tons)
Tons Delivered
Through 9/30/96
Remaining Capacity
(tons) [ Line 6 - Line 7 ]
Cost Per Ton
[ Line 5 -^ Line 8 ]
accounts for land depletion costs, closure costs,
and land improvement costs. The text box above
illustrates a formula that OIWM uses to account
for land improvement costs in. its annual landfill
costs. Similar formulas are used to estimate cur-
rent costs of future outlays, such as closure and
postclosure care.
FCA IN ACTION: BALANCING COSTS AND
FINANCING OF LONG-TERM INVESTMENTS
Converting cash outlays for long-term
resources into costs is one of the principles of
FCA, While cash outlays for long-term assets are
often based on the type and term of financing
arrangements, costs are accrued over an. asset's
useful life. Thus, cash outlays for and costs of
long-term resources can differ. If, for example,
the term of a loan (or other financing mecha-
nism) differs from the operating life of a given
resource, then cash outlays for loan payments
will not reflect the accrued cost of the resource.
When resource costs and financing are out of
sync, problems can arise. The following discus-
sion illustrates this point for an important and
unique element of OIWM's integrated solid
waste system. Although the focus of the discus-
sion is on OIWM's ash disposal capacity, the
same general principles apply for many long-
term resources such as vehicles, transfer
stations, or recycling facilities.
In 1989, OIWM entered into a 20-year service
agreement with a private contractor to provide
incineration and ash disposal capacity for the
county. As part of this agreement, OIWM's con-
tractor agreed to finance development and con-
struction of ash disposal cells, and OIWM agreed
to reimburse the contractor for these financing
costs over the 20-year term of the service agree-
ment. The agreement allowed OIWM to essen-
tially spread the term of financing for the ash
disposal cells over a 20-year period.
OIWM anticipated needing two cells over the
20-year life of the agreement. The first cell was
constructed in 1991 and had a projected life of 8
to 10 years. After the first cell reached its capaci-
ty, a new cell would be built for ash disposed of
over the remaining life of the contract.
As mentioned in the previous section, OIWM
must collect fees from its member agencies that
are sufficient to cover its contractual obligations
and operational expenses and cannot raise fees
in any given year by more than 70 percent of the
consumer price index. In the first 5 years of the
operation, OIWM charged an ash disposal fee (a
component of the tip fee revenue shown in
Figure 1) based on cash outlays associated with
the 20-year financing agreement for cell one,
even though the cell would only last for 8 to 10
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years. Thus, during the first 5 years, annual tip
fee revenues were significantly lower than the
cost of ash disposal over the life of the 20-year
service agreement (see schematic below), creat-
ing the following problems:
1. If tip fees remained at or near 1990 through
1995 levels, revenues would be insufficient
in future years to cover costs associated with
construction and closure of the second cell
because OIWM could not raise fees by more
than 70 percent of the consumer price index
in any given year.
2. Between 1990 and 1995, users of the first cell
were not paying a tip fee that was based on
the 20-year financing, yet the first cell would
be depleted in 8 to 10 years. This meant that
costs associated with the first cell were effec-
tively being deferred and would need to be
covered in the tip fee charged to users of the
second cell.
To address these issues, OIWM devised a
way of spreading financing for both cells over
their useful life so financing, revenues, and cost
would balance and users of the landfill would
be responsible for bearing its full cost.
OIWM estimated that $10 million would be
required over the remaining 3 to 5 years of the
first cell's life to cover all outstanding costs
associated with its development, construction,
operation, and closure. Based on this estimate,
OIWM recommended that the county establish a
dedicated reserve fund that would set aside $2
million annually from incineration tip fees (no
increase in tip fees was needed because $0.90
per ton was already included in the tip fee for
general reserves). Although OIWM cannot use
the dedicated fund directly to pay off costs for
the first cell, it can use the fund to offset costs
associated with construction of the second cell.
Thus, forecasted cost increases resulting from
undercharging users of the first cell based on
financing terms instead of accrued costs could
be offset by cell two construction savings. As
OIWM reasoned with the county commission,
using the fund in this way would allow OIWM
to effectively "charge" users of the first cell on
an accrual basis for the full cost of the asset
provided to them. The county commission
approved OIWM's proposal.
LESSONS LEARNED
As a large regional agency, the Broward
OIWM has used FCA to help in its decision-
making processes. A major aspect of OIWM's
current use of FCA involves executing, adminis-
tering, and monitoring solid waste service con-
tracts. In addition, OIWM believes FCA
•
v>
3_
JO
"o
o
Conceptual Overview of Revenue, Cost, and
Disposal Capacity
mm mm mm mm mm mm mm mm mm mm mm mm mm mm
I
I
I
L _ _ _
________!
Ce!i 1 Operating Life 1991-1999
1990 2000
Year
Funding Imbalances for Ash
Revenue
Cost of Ash Disposal Over 20 Years
Cell 1 Cash Outlays
Cell 2 Operating Life 2000-2010
2010
-------
improved its credibility among its 24 member
communities and the unincorporated areas of
the county. OIWM indicates, for example, that
without FCA, it would not have been possible
for the agency to cap annual rate increases for
its members at 70 percent of the consumer price
index. FCA provided OIWM with a complete
picture of the system costs that were needed to
enter into such an arrangement.
Based on its experience with FCA, OIWM
offers the following advice:
• Structure budgets and accounting systems so
they are consistent with the internal and
external services provided by the agency.
OIWM uses 18 activity-based cost centers that
are consistent with the services it provides to
organize its budget, revenue, and cost infor-
mation.
Develop standard forms and procedures that
make FCA automatic. For internal budgeting
and accounting functions, OIWM uses off-
the-shelf software that has been customized
to reflect full allocation of costs to its activi-
ty-based cost centers. The software helps
accounting and managerial staff members
track and allocate costs.
Invest necessary resources up front to devel-
op the FCA system. OIWM spent 600 to 700
hours setting up its automated FCA account-
ing system and training staff in its use. With
the system now in place, accounting and
budgeting functions have been streamlined
and the system only requires about 8 hours
of staff time per month for maintenance and
data entry.
Other Uses of FCA in Broward
County, Florida, 1984 through
1998
Developing a financial strategy for closing an
existing landfill.
Planning and implementing a new integrated
system that included recycling and waste-to-
energy components.
Balancing costs, revenue, and financing for
long-term assets in order to develop fair and
equitable rates for the use of long-term
resources such as disposal capacity.
Responding to state reporting requirements
that require public solid waste service
providers to calculate and disclose the full cost
of solid waste services.
CONTACT:
Tom Henderson, Director
Broward County Office of Integrated
Waste Management
201 South Andrews Avenue
Ft. Lauderdale, FL 33301
Phone: 954 765-4208
E-mail: thenderson@co.broward.fl.us
-------
1: COUNTY OF
Solid
Sen/ices and
Facilities
Source
Reduction/Recycling
Outreach
Curbside Recycling
Household Hazardous
Waste (HHW)
Bulky Item Collection
Residential Trash
Collection
Institutional/Public
Recycling
Commercial Trash
Collection
Other Solid Waste
Management Services
Recycling Facilities
Waste-to-Energy
Facilities
Bulky Waste Drop-Off
Facilities
Landfills
Sen/ice
Provider
A=Agency
C = Contract
A
C
A and C
C
C
C
C
A
C
C
C
A and C
Tonnage
Managed
N/A
9,200
207
4,450
60,870
3,700
38,000
N/A
73,000
1,010,000
2,400
87,450
Comments
Provides outreach to the residential sector on source reduc-
tion and backyard composting, a buy-recycled campaign,
and a mobile recycling fair. Provides technical assistance to
businesses and unincorporated area apartment complexes.
Contracts for weekly collection from unincorporated 1 to 9
family structures and apartment complexes.
Operates one county-owned HHW collection site and
three special waste depots. Packaging and disposal is
contracted to a private company; OIWM provides out-
reach and administration.
Contracts for monthly bulky item collection from unincor-
porated 1 to 9 family structures.
Contracts for twice weekly collection from unincorporated
1 to 9 family structures.
Contracts for school recycling pickup, participates in gov-
ernment office recycling, and has incentive program to
clean up public tire piles.
Manages permits of three franchised haulers in the unin-
corporated areas of the county. Businesses can choose
among them as they please.
Runs an adopt-a-street program, a community cleanup
program, and a lot clearing program in the unincorp-
orated areas.
Contracts with a private company for the construction and
operation of a materials recovery facility (MRF). Revenue is
returned to participating cities. The MRF handles all resi-
dential material and a small amount of commercial mater-
ial.
Contracts with a private company to design, construct,
own, and operate two waste-to-energy facilities. These
facilities are capable of processing 4,500 tons of waste
per day. The county has a contractual requirement to pro-
vide 1 ,095,000 tons to the facilities each year.
Contracts operation of three drop-off sites that are used in
conjunction with unincorporated bulky waste service.
Owns and operates a landfill that handles noncombustible
and bulky materials; also has as-needed contract with a pri-
vate company. The landfill has an estimated life of 50 years,
or about 24 million cubic yards of remaining capacity.
-------
2: TO CITY FOR
(FY
Service
Motor Pool
Risk Management
Print Shop
County Attorney
Budget
Management
Management
Services
Information
Technology
Human Resources
Purchasing
Accounting
Other
Total
Allocation Method Used
Motor pool charges for services
Risk management charges for services
Print shop charges for services
Legal service fees per user department
Budget transactions processed
Number of employees per department and number of revenue
and expenditure transactions per department
Pieces of mail processed per department, number of stops per
department, radio units per department, and number of staff
hours per department served
Various allocation methods based on types of employees
Number of purchase order line items per department, number
of formal bids per department, and number of employees per
department
Number of revenue and expenditure transactions per depart-
ment, number of outstanding debt issues per department, and
number of payment vouchers processed per department
Costs are calculated for a wide variety of other specific indirect
expenses incurred by OIWM for services provided by other
county departments such as finance and administration ser-
vices, revenue collection, commission auditor, citizens service
center, intergovernmental affairs, public information, employ-
ment/small business development, charter review commission,
county commission, and county administrator. Various alloca-
tion techniques (e.g., direct charge, number of employees,
number of transactions, etc.) are used to calculate OIWM's
costs for these services depending on the service provided
Cost
$66,598
$5,188
$5,334
$2,615
$35,953
$10,234
$51,367
$33,188
$56,917
$67,654
$186,603
$521,651
-------
3: COUNTY
FOR (FY 1996)
Cost Component
Personnel
Executive Salaries
Regular Salaries
Overtime
PICA
Retirement
Group Insurance
Workers Compensation
Unemployment Compensation
Operating Expenses
Auditing Fees
Contractual Services
Contractual Services — Temporary Personnel
Travel Per Diem
Business Travel
Motor Pool Expenses
Auto Allowance
Telephone
Postage
Utilities — Electricity
Rent — Other
Rent — Office and Building
Rental Equipment
Self — Insurance
Equipment Maintenance
External Printing
Internal Printing
Cost Allocations (from County Central Services)
Office Supplies
Office Equipment
Safety Supplies
Dues and Memberships
Subscriptions
Miscellaneous Expenses
Capital Expenditures
Machinery and Equipment-New
Computer Hardware
Computer Software
TOTAL
Cost
$244,054
$598,992
$1,474
$66,274
$148,089
$73,540
$2,090
$0
$20,000
$9,065
$2,092
$5,135
$5,680
$3,795
$345
$16,919
$8,923
$15,615
$13,460
$172,879
$0
$7,240
$6,395
$2,474
$1,531
$287,160
$7,286
$1,498
$416
$5,435
$1,574
$3,362
$3,337
$44,645
$3,659
$1,784,433
-------
3. City of Columbia, Missouri
Public Works Department
INTRODUCTION
The Columbia, Missouri, Public Works
Department began using FCA in the early 1970s
as part of a citywide enterprise financing initia-
tive that required service-based city agencies,
like the Public Works Department, to develop
user fees that would provide sufficient revenue
to cover service costs. The first step in develop-
ing such fees was accounting for service cost.
To do this, the department developed a spread-
sheet system that uses FCA principles to con-
vert budget and operating information into full
cost data. When this process was complete, the
department was able to clearly identify detailed
service costs and associated revenue require-
ments.
Although developing cost-based service fees
provided the original impetus for using FCA in
Columbia, the department's FCA system also
has served as an important planning and perfor-
mance analysis tool. Since 1988, the department
has added new residential recycling and com-
posting services and has invested substantial
funds into its landfill to ensure compliance
with the Subtitle D requirements of the
Resource Conservation and Recovery Act. The
department has relied upon FCA to evaluate
and implement cost-effective new operations.
FCA helped the department control costs of
existing operations by providing a framework in
which specific cost centers can be evaluated on
a regular basis. Therefore, despite increased
service levels, the department's use of FCA has
helped it to maintain competitive service rates.
BACKGROUND
Located in Boone County, in central
Missouri, Columbia is a small but rapidly grow-
ing city of about 70,000 people. Two private col-
leges and the University of Missouri-Columbia
provide a student population that constitutes
more than a quarter of the city's population. As
a "college" town, a substantial percentage of
Demographic Characteristics,
City of Columbia, Missouri
Population (1990) 69,101
Area (square miles) 44
Density (persons per square mile) 1,570
Households 25,842
Household Income (1989 $) $22,059
Housing in 1- to 4-unit structures 66%
Columbia's population is highly educated and
transient in nature.
Columbia's Public Works Department provides
a full range of solid waste management services
(see Table 4 on page 20 for a description of the
solid waste services offered by the department).
It collects recyclables, yard trimmings, bulky
waste, and garbage from the entire residential
community. In addition, it competes with pri-
vate haulers to collect refuse from the commer-
cial sector, which generates more than 69 percent
of the solid waste collected by the department.
The department owns and operates a landfill that
is used by private and public haulers from
throughout the region. Approximately 44 percent
of the waste disposed of at the landfill is from
sources outside Columbia. At the landfill, drop-
off sites for recyclables, yard trimmings, and
household hazardous waste (HHW) are available
to all commercial and residential customers. To
oversee these services, the department has an
operating and administrative staff of approxi-
mately 61 full-time employees and 25 temporary
employees.
For FY 1998, the department's total operating
and capital budget was approximately $7.7 mil-
lion. Since the department is financed through
an enterprise fund, direct user fees and tip fees
support its budget expenditures. Figure 2 on
page 15 provides a breakdown of the depart-
ment's revenue sources.
-------
FIGURE 2: COLUMBIA PUBLIC WORKS DEPARTMENT SOURCES OF REVENUE
(REVENUE REQUIREMENT = $7.7 MILLION)
RESIDENTIAL USER FEES 40%
LANDFILL TIP FEES 21%
OTHER 2%
INVESTMENTS REVENUE 3%
UNIVERSITY SERVICE FEES 4%
COMMERCIAL USER FEE 18%
ROLL-OFF SERVICE
CHARGES
12%
FCA IN COLUMBIA
The Public Works Department's annual bud-
get expenditures provide a starting point for
FCA in Columbia. These expenditures are
tracked in the city's central financial system,
which organizes expenditures into "cost cen-
ters" that track detailed costs (such as labor,
materials, and insurance). The department has
20 operational cost centers in the central finan-
cial system, several of which have been added
in the past 10 years (see text box on page 16).
Although these cost centers provide much of
the raw data needed for FCA, the department
modifies this information in two ways:
1. Allocating expenditures into 10 service cate-
gories and/or customer groups defined by the
department. These categories include admin-
istration, district planning, recycling, com-
posting, residential, commercial, roll-off,
University of Missouri, landfill, and larvacid-
ing (mosquito control).
2. Converting cash outlays for a given service
category into costs. To convert these expendi-
tures, the department uses FCA techniques
such as depreciation, amortization, and full
allocation of administrative and overhead
costs to specific service categories.
The Public Works Department has created a
spreadsheet to assist in modifying financial
(e.g., cash and budget) data to full cost data.
The spreadsheet template and associated data
are shown in Table 5 on page 21. In general, cal-
culating full costs for the 10 service categories
involves the following steps:
• Directly assigning the 20 cost centers tracked
in the central financial system to one or more
of the department's 10 service categories (see
column 1 of Table 5—bold faced items are
department service categories, cost centers
appear indented under each boldfaced ser-
vice category). The department assigns cost
centers to service categories based on depart-
ment service definitions and customer classi-
fications. The recycling category in Table 5,
for example, includes curbside and drop-off
-------
r~
Public Works Cost Centers
Tracked in City's Central
Financial System
Administration
Solid Waste District*
Commercial Collection
Container Repair
Downtown Containers
Roll-Off Service
Residential Service
Landfill Operations
Composting*
Larvaciding
University Collection
Curbside Recycling*
Drop-Off Recycling*
Volunteer Program*
White Goods Collection
HHW*
Yard Trimmings Collection"
Debt Retirement
Closure and Postclosure*
Depreciation
** Indicates new cost center added within the past
1 0 years.
recycling as well as white goods, HHW, vol-
unteer education, and yard trimmings collec-
tion services. In many cases, a cost center
that is tracked individually in the city's cen-
tral financial system is assigned to more than
one of the department's 10 service categories.
For example, the administration, container
repair, and depreciation cost centers are
assigned not only to the recycling service cat-
egory but also to the residential, commercial,
roll-off, university, and landfill service cate-
gories. A description of how the department
allocates these shared costs among its service
categories is provided below.
Entering total annual operating budgets for
each of the cost centers (see column 2 of
Table 5). Total annual operating budgets for a
given cost center, for example, are based on
several detailed costs including personnel,
fringe, materials, supplies, and utilities.
• Assigning depreciation costs to service cate-
gories based on actual capital and equipment
usage by service category (see column 3 of
Table 5). Using depreciation information
results in comparable cost estimates that are
based on the economic value of resources
over their useful life instead of annual cash
outlays on resources, which can fluctuate
dramatically from year to year.
• Assigning landfill closure and postclosure
costs, which are tracked as a separate cost
center in the central financial system, to the
landfill services category (see column 5 of
Table 5).
• Allocating administration costs to service
categories based on the service center's per-
centage of budget size (see column 6 of Table
5). Administration costs include overhead,
indirect costs, and intergovernmental charges
for services provided by other city agencies.
The recycling operating budget ($841,621),
for example, represents about 14 percent of
the department's operating budget, minus
administration ($5,953,315). The recycling
service's share of administration costs, there-
fore, is 14 percent ($145,780) of the total
administrative budget ($1,025,911).
• Allocating container repair and roll-off ser-
vices used by several of the department's 10
service categories based on budget size (see
columns 7 and 8 of Table 5).
After allocating these costs, the department
calculates the full cost of services as shown in
the text box on page 18 (see column 9 of Table 5
for more details). While the department's annu-
al operating budget totals approximately $7 mil-
lion, the full cost of department services
increases to $9 million when costs associated
with depreciation, debt retirement, and closure
and postclosure are included (see columns 3
through 7 of Table 5). The budget differs from
the full costs of individual services as well.
These differences illustrate clearly the informa-
tion FCA can provide for solid waste program
managers.
-------
Columbia
Service Category
Administration
Recycling
Composting
Residential Service
Commercial Service
Roll-Off Service
Missouri University
Landfill Service
District Planner
Larvaciding
TOTAL
FCA Information
Operating Budget
$1,025,911
$841,621
$153,856
$1,536,451
$1,261,463
$405,013
$197,059
$1,477,505
$56,936
$23,411
$6,979,226
Full Cost*
$0
$1,086,963
$180,506
$1,965,192
$1,544,165
$482,350
$301,044
$ 3,307,137
$56,936
$27,466
$8,951,759
Includes allocated operating and non-operating costs.
FCA IN ACTION: DEVELOPING COST-BASED
PRICES FOR SERVICES AND CUSTOMER GiOUPS
Development of Columbia's landfill tip fee and
residential service charges—the two largest
sources of revenue for the city—illustrates how
the Public Works Department uses FCA to develop
cost-based rates for specific solid waste services.
Calculating Landfill Tip Fees
City of Columbia trucks, public haulers from
nearby communities, private haulers, and resi-
dential and. commercial establishments bring
waste to Columbia's landfill. All landfill cus-
tomers have access to the composting, recycling,
and HHW drop-off facilities located there. As a
result, landfill tip fees also must incorporate
costs for these services.
To calculate the landfill tip fee, the depart-
ment allocates certain compost and recycling
service costs to the landfill cost category as
shown in column 3 of Table 6 on page 22. The
department, for example, allocates the $180,506
compost service cost, which includes adminis-
tration and depreciation costs as well as the
annual operating budget to the landfill service
category. Similarly, it allocates drop-off recycling
and HHW costs to the landfill service category
as shown in column 3 of Table 6. Note, however,
that the re-allocated drop-off and HHW costs are
each $39,348 higher than the full costs for these
services shown in column 9 of Table 5. The
extra $39,348 reflects the department's assump-
tions about administration, container repair, and
depreciation costs incurred by these programs,
which must be transferred along with the other
program costs to the landfill cost center. The
remaining recycling category cost ($751,600)
represents the department's cost of providing
recycling services—including curbside recycling,
volunteer outreach, curbside white goods collec-
tion, and curbside yard trimming collection—
exclusively to residents in the city of Columbia.
In total, the Public Works Department re-
allocates $180,506 and $335,363 from the com-
post and recycling service categories, respective-
ly, to the landfill service category, increasing
overall landfill service costs by $515,869. The
revised full cost of the landfill ($3,823,006)
reflects the cost of the landfill and all of its asso-
ciated drop-off services. To derive the tip fees,
the department allocates this full cost across five
specific customer classes (i.e., residential, com-
mercial, roll-off, University of Missouri, and
waste disposed of by other public and private
haulers) based on the relative tonnage of waste
landfilled by each class (see column 5 in Table
6). Forty-four percent (56,597 tons) of waste dis-
posed of at the landfill, for example, is from
public or private haulers. Forty-four percent of
the total landfill cost is $1,694,606 (column 6 in
Table 6). Dividing this amount by 56,597 tons
disposed of by haulers other than the city yields
a tip fee of $29.94, as shown in column 8.
-------
Calculating Residential Service Fees
In addition to landfill tip fees, the Public
Works Department charges a monthly fee to city
residents to cover costs associated with the col-
lection of trash, bulky items, recyclables, and
yard trimmings. To develop the residential fee,
the department first calculates the costs associ-
ated with, all collection, processing, and dispos-
al services provided to residential customers.
As shown in Table 6, these costs include:
• 3751,600 for recycling service, which is the
full cost of all curbside collection programs,
net of drop-off recycling and HHW costs
(these are included in the landfill tip fee cal-
culation described above).
• 31,965,192 for garbage collection, including
administration, container repair, deprecia-
tion, and annual operating expenses (e.g.,
labor, materials, capital, and insurance).
• $654,793 in landfill tip fees, which is the
329.94 tip fee (described above) multiplied
by the tonnage of waste disposed of by
Columbia residents (21,869 tons).
After calculating costs for these services (see
column 7 of Table 6), the department divides the
resulting adjusted recycling and residential ser-
vice costs ($751,600 and $2,619,986, respectively)
by the number of residential households served
(approximately 33,000). The department then
divides this figure by 12 months to arrive at the
unit costs of $1.99 and $6.93, respectively (shown
in column 9 of Table 6). The sum of these values,
S8.92 per household per month, is the depart-
ment's monthly fee for residential service.
LESSONS LEARNED
The FCA system that the department uses to
calculate service costs and associated rates also
helps it improve performance and control costs.
The department uses the information provided
in Tables 5 and 6, for example, to evaluate the
incremental costs of services on a year-to-year
basis. Thus, if the cost of residential services
increases, the department can identify the
source and, if appropriate, implement cost con-
trol measures. In this way, the department's use
of FCA has helped it to maintain competitive
rates while increasing the level of services it
provides to its customers. Other general ways
the department has used FCA in the last 10
years are summarized in the text box below.
Based on its experience with FCA, the Public
Works Department offers the following advice:
• Use FCA for management purposes rather
than just accounting. Although the depart-
ment uses FCA to obtain a more accurate
understanding of solid waste service costs,
accounting is not the department's primary
motivation for using FCA. The department
uses FCA to improve pricing, planning, per-
formance, and decision-making.
• Allow FCA to grow out of the unique opera-
tions and services provided by a given depart-
ment or agency. Clearly defined services pro-
vide a structure for organizing costs and per-
formance data. Without clear service defini-
tions, it is difficult or impossible to assemble
and interpret useful cost information.
Other Uses of FCA in
Columbia, Missouri,
1987 through 1997
• Developing residential, commercial, university,
and roll-off service charges, and landfill tip
fees that together cover the full cost of operat-
ing the solid waste system.
• Identifying, implementing, and administering
cost-effective new programs and services,
including drop-off and curbside yard trimming
composting, white goods collection, and HHW
collection programs.
• Identifying incremental costs of specific services
and controlling costs by providing an analytical
framework in which the cost of a given service
can be compared against a previous year's
cost of service.
• Tracking costs associated with implementation
of RCRA Subtitle D requirements (see column 5
in Table 5 on page 21).
-------
• Maintain and update FCA systems on a regu-
lar basis. The department has developed
detailed record-keeping procedures at all lev-
els of its operations to enhance its ability to
track and evaluate the cost of services on a
regular basis. The department's timesheet
and other record-keeping systems, for exam-
ple, have been restructured to reflect the
eight specific service categories defined by
the department.
• Allow sufficient time for FCA systems to be
implemented. Developing the analytical
structure and associated record-keeping and
data collection procedures requires the most
time, effort, and staff training.
CONTACT:
Lowell Patterson, RE., Director
Public Works Department
RO. Box N
Columbia, MO 65205
Phone: 573 874-7250
E-mail: I patters® ma il.coin.missouri.edu
-------
4: OF (FY 1997)
Solid
Services and
Facilities
Source Reduction/
Recycling Outreach
Drop-Off Recycling
Curbside Recycling
Collection
Curbside Yard
Trimmings Collection
HHW
Bulky Item Collection
Residential Trash
Collection
Commercial Trash
Collection
Roll-Off Trash
Collection
University of Missouri
Trash Collection
Compost Facilities
Mulching Sites
Landfills
Miscellaneous
Services
Service
Provider
A=Ageney
C = Contracf
A
A and C
A and C
A
A
A
A
A
A
A
A
A
A
A
Tonnage
Managed
N/A
1,513
686
2,645
62
N/A
21,869
25,523
18,261
5,432
6,000
N/A
127,682
N/A
Comments
Full-time waste minimization coordinator and a volunteer net-
work to help with recycling and source reduction projects.
Collects from six drop-off areas daily. Transports materials to a
private processor. Both residents and nonresidents use drop-off
sites.
Offers curbside collection to single- through four-family houses
every other week as part of the monthly residential trash collec-
tion fee. Materials are processed at a private MRF.
Offers weekly yard trimmings collection to single- through four-
family households. Ten bags per year are included as part of the
residential monthly trash collection fee, while additional bags
are collected for $0.50 per bag.
Collects used oil from single- through four-family households
along with other recyclables; all residents may bring HHW to a
city-run facility. Approximately 1,525 vehicles dropped materials
off at the facility in 1996.
Collects on a call-in basis. Residents must pay $5 per white
good collected, while other bulky items are collected free of
charge. Roughly 95 tons of white goods are collected annually.
Offers weekly pickup to single- through four-family households.
Residents must use bags, but 75 bags per year are included in
the residential monthly trash collection fee. Apartment complex-
es also receive city collection.
Provides mandatory collection from all establishments that gen-
erate food. Others can use private haulers, but city collection is
cost-competitive.
Provides roll-off collection containers and services by request.
Provides collection services to the university, which is a large
enough account that it warrants its own budget category.
Operates a compost site at the landfill. Site is used by residen-
tial and nonresidential haulers.
Operates two drop-off mulching facilities. Both residents and
nonresidents use the drop-off facilities.
Collects 56 percent of incoming waste; the rest is brought in by
private haulers and imported from outside the city. The landfill
area available is estimated at 80 years, given its current usage.
Funds one full-time solid waste district planner through a state
grant. This category also covers costs for a larvadding program
(e.g., mosquito and fly control) from early spring until late fall.
-------
TABLE 5: FULL COST ACCOUNTING IN COLUMBIA (FY 1998)
1
SERVICE
Cost Center
ADMINISTRATION
Depreciation
SW DISTRICT
PLANNER
RECYCLING
Administration
Container Repair
Curbside
Drop-Off
Volunteer Program
White Goods
HHW
Yard Trimmings
Depreciation
COMPOSTING
Administration
Composting
Depreciation
RESIDENTIAL
Administration
Container Repair
Residential
Depreciation
COMMERCIAL
Administration
Commercial
Container Repair
Downtown Containers
Depreciation
ROLL-OFF
Administration
Container Repair
Roll-Off
Depreciation
MISSOURI
UNIVERSITY
Administration
Container Repair
Roll-Off
Missouri University
Depreciation
LANDFILL
Administration
Container Repair
Landfill
Depreciation
Interest Expense
Debt Retirement1
Closure & Postclosure
LARVACIDING
TOTALS
2
Operating
Budget
$1,025,911
$56,936
$841,621
$383,510
$150,202
$70,231
$19,281
$75,017
$143,380
$153,856
$153,856
$1,536,451
$1,536,451
$1,261,463
$1,064,505
$190,818
$6,140
$405,013
$197,059
$197,059
$1,477,505
$1,477,505
$23,411
$6,979,226
3
Depreciation
Allocation
$5,280
$41,420
$0
$139,710
$150,068
$50,023
$27,910
$892,815
$1,307,226
4
Debt
Retirement
$234,078
$175,000
$409,078
5
Closure &
Post-Closure
$268,000
$268,000
6
Admin.
Allocation
($1,025,711)
($5,280)
$145,780
$26,650
$266,133
$218,502
$70,153
$34,133
$255,923
$4,055
7
Container
Repair
$9,541
$22,898
($190,818)
$104,950
$38,164
$9,541
$3,816
8
Roll-Off
Services
$17,153
$31,448
($405,013)
$324,010
$32,401
9
Adjusted Full
Cost
$0
$0
$56,936
$1,086,963
$145,780
$9,541
$400,663
$181,650
$70,231
$19,281
$75,017
$143,380
$41,420
$180,506
$26,650
$153,856
$0
$1,965,192
$266,133
$22,898
$1,536,451
$139,710
$1,544,165
$218,502
$1,064,505
$104,950
$6,140
$150,068
$482,350
$70,153
$38,164
$324,010
$50,023
$301,044
$34,133
$9,541
$32,401
$197,059
$27,910
$3,307,137
$255,923
$3,816
$1,477,505
$892,815
$234,078
$175,000
$268,000
$27,466
$8,951,759
'Debt retirement is financial data that are generally not considered relevant to FCA.
-------
TABLE 6: DERIVATION OF COST-BASED RATES FOR SERVICES (FY 1998)
1
SERVICE
Cost Center
RECYCLING
Administration
Container Repair
Curbside
Drop-Offs
Volunteer
Program
White Goods
HHW
Yard Trimmings
Depreciation
COMPOSTING
Administration
Composting
Depreciation
RESIDENTIAL
Administration
Container Repair
Residential
Depreciation
COMMERCIAL
Administration
Commercial
Container Repair
Downtown
Containers
Depreciation
ROLL-OFF
Administration
Container Repair
Roll-Off
Depreciation
MISSOURI
UNIVERSITY
Administration
Container Repair
Roll-Off
Missouri University
Depreciation
LANDFILL
Administration
Container Repair
Landfill
Compost
Drop-Off Recycling
HHW
Depreciation
Interest Expense
Debt Retirement2
Closure &
Postclosure
LARVACIDING
TOTALS
2
Adjusted Cost
(from Table 5)
$1,086,963
$145,780
$9,541
$400,663
$181,650
$70,231
$19,281
$75,017
$143,380
$41,420
$180,506
$26,650
$153,856
$0
$1,965,192
$266,133
$22,898
$1,536,451
$139,710
$1,544,165
$218,502
$1,064,505
$104,950
$6,140
$150,068
$482,350
$70,153
$38,164
$324,010
$50,023
$301,044
$34,133
$9,541
$32,401
$197,059
$27,910
$3,307,137
$255,923
$3,816
$1,477,505
$892,815
$234,078
$175,000
$268,000
$27,466
$8,894,823
3
Service Cost
Re-Allocation
($335,363)
($220,998)
($xl 14,365)
($180,506)
$0
$0
$0
$0
$515,869
$180,506
$220,998
$114,365
$0
$0
4
Adjusted Service
Costs
$751,600
$465,588
$80,068
$23,216
$182,728
$0
$1,965,192
$1,544,165
$482,350
$301,044
$3,823,006
$27,466
5
Tons Processed
5,001
686
1,513
95
62
2,645
21,869
25,523
18,261
5,432
56,597
132,683
6
Landfill
Allocation
$654,793
$764,200
$546,764
$162,643
$1,694,606
$3,823,006
7
Adjusted Service
Cost
$751,600
$2,619,986
$2,308,364
$1,029,114
$463,687
$1,694,606
$27,466
$8,894,823
8
Cost Per Ton
$150.30
$679.01
$243.56
$69.08
$119.80
$90.44
$56.36
$85.86
$29.94
9
Cost Per Res.
Unit
$1.99
$1.23
$0.21
$0.06
$0.48
$6.93
$8.92
2 Debt retirement is financial data that are generally not considered relevant to FCA.
-------
4.City of Glendale, Arizona
Field Operations Department
INTRODUCTION
A combination of regional and local issues
motivated Glendale, Arizona, to begin using FCA
in the early 1990s. Increased regional competi-
tion from nearby, privately owned landfills with
lower tip fees resulted in a substantial reduction
in waste flow to the Glendale landfill between
1990 and 1995. Consequently, Glendale's landfill
tip fee revenues dropped by 50 percent. Faced
with the prospect of increasing local service
rates—which were already among the highest in
the region—in order to offset revenue losses,
Glendale developed an FCA system to isolate the
important relationship among landfill costs, tip
fee revenues, and the rates for both collection
and disposal services. Glendale's FCA system has
enhanced and improved the cost and efficiency
of its solid waste system so that it now has the
lowest residential solid waste service rate in the
region.
Glendale's use of FCA also was motivated by
a need to develop long-term reserves and finan-
cial plans for its integrated solid waste system.
In the late 1980s, approximately $600,000 in
landfill reserve funds was absorbed by the gen-
eral fund because the department did not have a
well articulated long-term spending plan.
Today, the department uses its FCA system to
ensure the existence of long-term reserve funds
and to justify the need for such funds.
BACKGROUND
Located in the "Valley of the Sun," just west
of Phoenix, Glendale is Arizona's fourth largest
city. During the 1980s, Glendale's population
grew by 52 percent, an expansion that continued
during the 1990s. The sanitation and landfill
divisions of the Field Operations Department
handle solid waste management operations in
Glendale. The department is a full-service solid
waste management agency, utilizing contractors
only for secondary sorting of recyclables and for
sorting and processing of household hazardous
waste (see Table 7 on page 27 for additional
Demographic Characteristics
City of Glendale, Arizona
Population (1990) 180,038
Area (square miles) 52
Density (persons per square mile) 3,462
Households 68,604
Household Income (1989 $) $35,769
Housing in 1- to 4-unit structures 50%
details on services and facilities provided by the
department). The Sanitation Division provides
trash collection services to all single and multi-
family households and select businesses on a
competitive basis. The Landfill Division operates
the city's landfill and recovery operations. In
total, the Field Operations Department has 72
employees, including five administrative and
managerial staff.
The sanitation and Landfill Divisions' total
combined budget was just over $13 million in
FY 1996. The largest budget category was its
residential (curbside) service operation
($6,020,141), followed by the sanitary landfill
budget ($4,285,568), and the commercial (con-
tainer) service budget ($3,224,527). Two self-
sustaining enterprise funds, the Landfill Fund
and the Sanitation Fund, generate revenues to
cover budgeted expenditures. The Landfill
Fund covers the costs of operating the landfill
and associated facilities. This fund derives near-
ly 88 percent of its revenues from landfill tip
fees. The Sanitation Fund covers residential and
commercial collection costs. Its revenues are
derived almost exclusively from the monthly
fees charged to residential homes and apart-
ments and commercial establishments.
Revenues from the two funds totaled more than
$14 million in FY 1996. A breakdown of rev-
enue sources for the combined funds is shown
in Figure 3 on page 24.
-------
FIGURE 3: GLENDALE'S SOURCES OF REVENUE (FY 1996)
(TOTAL REVENUE = $14 MILLION)
RESIDENTIAL RATES 42%
INTEREST INCOME 4%
TIP FEES 30%
COMMERCIAL RATES 24%
FCA IN GLENDALE
Glendale developed three FCA-based tools
to identify cost-based rates for services and
evaluate long-term cost and revenue impacts
associated with system and service changes.
These tools include a rate model, landfill fund-
ing model, and solid waste financial plan.
The rate model is a custom software applica-
tion the department uses to develop and ana-
Cost Centers in the Glendale
Rate Model
1. Sanitation Fund Cost Centers
• Commercial Collection
• Residential Collection
2. Landfill Fund Cost Centers
• Sanitary Landfill
• Gas Management
• Recycling
• Wood Waste Recovery
lyze rates over a short-term period (i.e., 5 years
or less). Revenue and detailed capital and oper-
ating costs are organized in the rate model by
fund and functional cost centers. For example,
the Sanitation Fund, which generates revenues
through monthly service fees, includes residen-
tial and commercial collection cost centers (see
text box at left). The rate model allows the Field
Operations Department to integrate all of its cost
and revenue centers in a single framework, so it
can analyze cost and revenue impacts associated
with system and service changes over time.
The landfill funding model helps the depart-
ment account for long-term costs associated
with the landfill. Input data in the model con-
sist of engineering estimates of future cash out-
lays that will be required for closure and post-
closure. Output data from the landfill cost
model consist of estimates of the annual
amount the department will have to set aside
over the useful life of the landfill in order to
cover all long-term outlays (see Table 8 on page
28 for a detailed description of parameters
-------
considered in the landfill cost model). Output
from the landfill cost model also is used as
input in the rate model.
The Field Operations Department's financial
plan is used for long-term planning and deci-
sion-making. It is the key mechanism through
which the department discusses broad financial
issues with city financial officials. These issues
include long-term needs for cash infusions,
investment strategies, and other issues pertain-
ing to the department's financial needs. The
financial plan is shaped in part by the output
from the department's rate model and landfill
funding model. For example, whereas the rate
model is used to assess costs, benefits, and rate
impacts associated with adding a new service,
the financial plan is used to outline a strategy
for financing the new service.
FCA IN ACTION: ANALYZING OPTIONS FOR
RESIDENTIAL RELIEF
The department uses the FCA tools described
in the preceding section to develop cost-based
rates for services and evaluate long-term cost
and revenue impacts associated with system
and service changes. To illustrate this process,
this section describes how the department
recently used its FCA system to evaluate the
cost, revenue, and subsequent rate impacts asso-
ciated with entering into landfill service agree-
ments with nearby communities.
Between 1990 and 1995, waste disposed of at
Glendale's landfill by sources outside the city
declined substantially due to increased com-
petition from nearby privately owned landfills
with lower tip fees. By 1995, only 25 percent of
landfill revenues were from non-city sources.
Because more than half of the city landfill's
costs are fixed, this decrease in revenue placed
pressure on the Field Operations Department to
either raise service rates or find alternative
sources of revenues.
The department used its rate model and
associated landfill funding model to identify
and evaluate costs and benefits associated with
alternative revenue sources. In particular, the
department was interested in the possibility of
entering into long-term service agreements with
surrounding communities to dispose of an addi-
tional 50,000 to 200,000 tons of waste at the
city landfill. The landfill funding model indi-
cated that handling the additional volume of
waste would only decrease the 50-year service
life of the landfill by a maximum of 3 years.
The rate model was used to analyze short-
and long-term costs (the latter calculated in the
landfill funding model) associated with import-
ing 75,000 additional tons per year. The rate
model results suggested that the additional
75,000 tons of waste would result in a $247,000
increase in annual landfill costs, which would
be more than offset by annual tip fee revenues
of $1.3 million. The $1.1 million revenue sur-
plus would allow Glendale to:
• Provide competitive tip fees of approximate-
ly $20 per ton for waste from surrounding
communities instead of the $26 per ton that
would be needed to cover costs without the
imported tonnage,
• Provide tip fees of $19.73 per ton for waste
collected by Glendale sanitation vehicles
instead of the $24 per ton that would be
needed to cover fixed costs without the
imported tonnage,
• Lower a planned monthly increase in
Glendale customer service rates from $0.90
per household to $0.25 per household and
eliminate rate increases for a multiyear
period. Residents paid $10,75 per month in
FY 1998.
Based on this analysis, the city council
directed the Field Operations Department to
execute long-term landfill agreements with two
nearby communities. These agreements provide
for an additional 65,000 tons of waste disposed
of at the city landfill annually over a 5-year
period.
LESSONS LEARNED
Increased competition and a desire to more
clearly articulate long-term cost and revenue
structures in order to sustain reserve funds
motivated Glendale to develop three interrelat-
ed FCA tools: the rate model, the landfill fund-
ing model, and the financial plan. These tools
are used in combination to inform short-term
rate making and long-term financial planning
-------
Other Uses of FCA in Glendale,
Arizona
Decreasing residential service rates by entering
into long-term solid waste service agreements
with nearby communities. Glendale has the
lowest single family residential MSW service
rate in the Phoenix metropolitan area.
Evaluating cost-effective options for expanding
recycling services. The city is currently using
an FCA approach to evaluate the cost and
rate impacts of five separate service options
for recycling.
Creating a landfill development plan that max-
imizes site life while minimizing cost. The city is
in the process of revamping its long-term plan
for the landfil to consider long-term cost
impacts associated with recreational end-uses
of the landfill site.
Expanding commercial collection services.
Glendale is using FCA to evaluate and revamp
commercial rate structures so that they take
into account economies of scale associated
with providing collection services to larger
commercial accounts.
functions such as those shown in the text box
above. FCA helped the department shape and
develop new solid waste policies by addressing
the needs of both its city council members—
who are chiefly concerned with keeping resi-
dential rates as low as possible—and its staff,
who must consider and justify the need for both
short- and long-term expenditures.
Based on its experience with FCA, Glendale
offers the following advice:
• Allow sufficient time to develop data collec-
tion procedures, Glendale spent approximate-
ly 2 years developing a data collection proto-
col that captured the correct data for its FCA
tools. The city found that data collection is
the most critical staff-training element.
• Ensure that senior management is committed
to FCA. FCA requires a substantial up-front
commitment of staff time for training and
implementation. Therefore, top level man-
agerial support is required.
• Before implementing an FCA system, identify
an issue of local concern that can be
addressed by FCA. Identifying a specific
issue to address with FCA can facilitate
development of a standard analytical struc-
ture and data collection protocol.
• Involve consultants with the development
and implementation of FCA tools. Glendale
used private consultants to help develop its
rate model, landfill funding model, and
financial plan. Consultants also provided the
Field Operations Department with the
detailed financial expertise it needed to
develop its FCA approach.
CONTACT:
Mike Hoyt, Director
Field Operations Department
6210 West Myrtle Avenue, Suite 1 1 1
Glendale, AZ 85301
Phone: 602 930-2602
E-mai: hoyt@ci.glendale.az.us
-------
7: OF
FACILITIES
Services and
Facilities
Recycling Programs
Wood and Yard
Trimmings Recovery
HHW
Bulky Item
Collection
Residential Trash
Commercial Trash
Transfer Stations
Landfills
Other Solid Waste
Management
Services
Other Facilities
Service
Provider
A=Agency
C = Contracf
A and C
A
A and C
A
A
A
N/A
A
A
A
Tonnage
Managed
2,000
6,000
N/A
20,442
83,000
63,000
N/A
214,100
469
N/A
Comments
Transports recycle bles from 1 7 drop-off sites to a
central location for sorting. Private recycling compa-
nies process sorted recyclables.
Accepts yard trimmings at the landfill and processes
as part of a green waste recycling program. Accepts
Christmas trees at drop-off sites seasonally. Wood is
separated from incoming loads, processed, and sold.
Provides HHW drop-off 1 day each year. Provided a
week-long curbside collection service for HHW in
1 997. Private contractor sorts, classifies, packages,
and arranges for transportation of HHW.
Collects residential bulky items monthy, including tree
limbs and brush, furniture, and appliances. Residents
also can bring bulky materials (about 1 2,500 tons
from 1 996 to 1 997) to the landfill throughout the
year at no cost.
Provides automated trash collection to all 41 ,778
residential customers twice weekly. Residents paid
$10.50 monthly from 1 996 to 1997.
Provides container services to all multifamily
dwellings and bin or roll-off service to commercial
establishments on a competitive basis with private
haulers. Serves 1 ,400 to 1 ,500 clients annually
through this program.
Closed transfer station from 1 995 to 1 996. Site is
now used for recycling sorting operations.
Operates landfill with approximately 50 years of
remaining capacity. From 1 996 to 1 997, the tip fee
for the city's sanitation vehicles was $24.25 per ton.
Provides annual residential "Spring Cleanup" and
dead animal collection.
Maintains a lot and building for collection vehicles.
-------
8: IN
Fiscal Year
Tonnage Disposed
Beginning Capacity
Ending Capacity
Cumulative Tons In Place
at End of Year
Lifetime Landfill Capacity
Cumulative Percent
Capacity Filled
Total Closure
Cost Estimate
Accrued Closure Costs
Annual Closure
Expenditures
Inflation Adjusted
Cumulative Closure
Expenditures
Remaining Accrued
Closure Liability
Total Postclosure Cost
Accrued Postclosure
Liability
Total Remaining Accrued
Closure and Postclosure
Liability
Any year from 1 996 through 2055.
Projected annual tonnage disposed of in the landfill plus engineering
estimate of fill.
Engineering estimate of tonnage capacity remaining in the landfill at the
beginning of the fiscal year.
Beginning capacity minus tonnage disposed of.
Beginning capacity, tonnage disposed of, and engineering estimate of
fill.
Engineering estimate of total tonnage capacity available over the life of
the landfill.
Cumulative tons in place at the end of any given year divided by lifetime
landfill capacity.
Engineering estimate based on hydroseeding costs, closure certification,
cover system construction costs, quality assurance, and quality control.
Total costs are estimated in 1 996 dollars and inflated at an annual rate
of 3 percent.
Cumulative percent capacity filled (in any given year) multiplied by total
closure cost estimate.
Annual amount spent on closure costs.
The sum of all previous and current annual closure expenditures during
any given year, assuming an annual inflation rate of 3 percent.
Accrued closure costs minus inflation-adjusted cumulative closure expen-
ditures.
Engineering estimate based on postclosure costs and long-term care
costs. Total costs are estimated in 1 996 dollars and inflated at an annua
rate of 3 percent.
Cumulative percent capacity filled (in any given year) multiplied by total
postclosure cost estimate.
Accrued closure liability plus accrued postclosure liability in any given
year during the landfill's expected lifetime.
-------
5.City of Indianapolis, Indiana
Solid Waste Division
INTRODUCTION
The Indianapolis, Indiana, Solid Waste
Division began using FCA in 1993 as part of a
citywide effort to provide the highest quality
public services to residents at the lowest cost.
The division began using FCA to facilitate the
adoption of market mechanisms—particularly
competitive bidding by public employees for
solid waste collection contracts.
Since the division began competing against
private haulers to provide trash collection ser-
vices, the city's solid waste costs have
decreased by more than $5 million. The divi-
sion relied on FCA to develop successful com-
petitive bids that have resulted in these cost
reductions. Experience in Indianapolis shows
that FCA can be instrumental in helping public
agencies succeed in a competitive market.
Demographic Characteristics
City of Indianapolis, Indiana
Population (1990) 741,592
Area (square miles) 373
Density (persons per square mile) 1,989
Households 296,297
Household Income (1 989 $) $29,000
Housing in 1- to 4-unit structures 72%
BACKGROUND
Indianapolis is located in Marion County, in
central Indiana. In 1970, many city and county
government functions were combined, creating
a "consolidated city." The consolidated city,
which includes most of the municipalities in
Marion County, explains many of the city's
demographic features including size, population
density, and housing mix (see text box above).
The Department of Public Works (DPW) is
one of six governmental departments in the
consolidated city. DPW is responsible for
administering all public and private service
contracts through its Contract Compliance
Division. DPWs Solid Waste Division provides
a range of residential solid waste services on a
competitive basis. The Solid Waste Division has
approximately 110 operations staff, all of whom
are union employees, and 13 administrative
staff.
The Solid Waste Division functions primarily
as a collection service provider that actively
competes with private haulers to provide solid
waste services to city residents. The consolidat-
ed city is divided into 12 trash collection dis-
tricts. Two of the 12 districts receive public col-
lection services, while the remaining 10 dis-
tricts are subject to a competitive bid process.
To enhance competition, the city does not allow
a single hauler to serve more than 3 districts
within the 10 districts that are subject to com-
petitive bid processes. Currently, the Solid
Waste Division provides collection services to 3
districts in the 10 districts competition zone, as
well as the 2 public collection districts. In total,
the 5 districts to which the division provides
hauling services represent nearly half of the
consolidated city's population. The division
also provides trash collection for public housing
and special events, offers drop-off services for
recyclables, operates a transfer station, and pro-
vides cleanup after numerous special events.
Residents seeking curbside recycling services
contract individually with private haulers.
DPW also contracts for essentially all trash
processing services, including the operation of a
waste-to-energy facility where much of the
city's trash is processed. Table 9 on page 33 pro-
vides a summary of solid waste management
services and facilities provided by the division,
and the tonnage of waste managed.
-------
Solid waste management services in
Indianapolis are financed through the following
two funds:
• The Sanitation Solid Waste Fund supports
collection services offered by the city and is
financed primarily through property taxes
and other revenue such as limited service
fees for bulky waste, special events, and dead
animal collection. Budgeted expenditures for
this fund were approximately $20.1 million
in 1997.
• The Solid Waste Disposal Fund is an enter-
prise fund that supports processing and dis-
posal fees and is financed largely through a
solid waste user fee of $32 per household per
year. Budgeted expenditures for this fund
were about $5.2 million in 1997.
A breakdown of the division's sources of rev-
enue is provided in Figure 4 below.
FCA IN INDIANAPOLIS
The Solid Waste Division uses a customized
spreadsheet application to develop its cost and
bid information. More than 100 separate costs
are allocated to 10 basic division service cate-
gories (see the text box on page 31) using a two-
step process:
1. Directly assigning costs associated with a sin-
gle category to that category. This step
accounts for more than $20 million of the
division's approximately $25.7 million in full
costs.
2. Spreading other major costs among categories
based on well-defined cost allocation proce-
dures.
The Solid Waste Division organizes costs
into one of five general cost categories: person-
nel expenses, supplies, contracts and other
costs, equipment, and nondivision administra-
tive costs (see Table 10 on page 34).
FIGURE 4: INDIANAPOLIS' SOURCES OF REVENUE (1997)
(TOTAL REVENUE = $25.3 MILLION)
OTHER REVENUE 9%
PROPERTY TAXES 65%
SOLID WASTE USER FEE 26%
-------
• ln<
Indianapolis FCA Information
SERVICES
Residential Trash Collection:
Manual
Automated
Heavy Trash
Illegal Dumping
Special and Support Services
Dead Animal Collection
Emergency Disposal
Leaf Diversion
Drop-Off Recycling
Final Disposal
Total
FULL
$14,795,360
$2,501,287
$1,063,193
$215,311
$1,129,533
$125,677
$306,261
$662,546
$1,211,052
$3,741,879
$25,752,099
ocificallv, the division:
• Assigns personnel expenses, including both
salary and non-salary expenses (i.e., costs
such as workers compensation and social
security taxes), directly to services.
• Allocates costs for supplies primarily in pro-
portion to direct labor hours provided for
each service.
• Assigns approximately SI5 million in con-
tract costs directly to specific division ser-
vice categories based on current contract
arrangements.
• Assigns equipment costs, primarily for col-
lection vehicles, to service categories based
on equipment usage rates by service cate-
gories.
• Allocates fleet service costs in proportion to
tonnage collected by each vehicle (or percent
of total tonnage collected).
• Allocates $1,129,533 in administrative
charges in proportion to the direct labor
hours provided for each service.
In addition to this cost information, the
spreadsheet includes performance factors such
as the tonnage collected, number of houses ser-
viced, and the number of crew members or
vehicles on route. This information helps the
division develop performance indicators that
track cost impacts associated with specific
changes in performance. The division, for exam-
ple, can calculate the full cost of collecting from
a specific collection district and provide a cor-
responding service "output" (i.e., houses ser-
viced or tons collected).
FCA IN ACTION: DEVELOPING COMPETITIVE
PUBLIC SOLID WASTE SERVICE
CONTRACTS
The Solid Waste Division began using FCA
in 1993 in response to a government reform
process instituted by the city's new mayor. To
ensure that taxpayers' dollars were being spent
as wisely as possible, the mayor pledged to
"provide customers with a dollar's worth of ser-
vice for every dollar it takes in taxes." The
mayor also promised to engage city agencies in
a "comprehensive effort to link costs and out-
comes and create a budget that [city] customers
could easily review." To follow through on
these promises, city officials were required to
identify each service provided, determine the
full cost of that service, analyze options for
reducing costs and/or increasing service quality,
and explain the results to the city's residents
and businesses. In addition, some city agencies
were required, for the first time, to compete
against private service providers to win city
contracts for services.
In 1993, Indianapolis made residential trash
collection an area of public-private competition.
Before 1993, densely populated portions of the
urban core received solid waste services from
the division, while residents living in outlying
areas contracted individually with private
haulers. When competition was introduced, the
consolidated city was divided into 12 collection
districts. Two of the 12 districts would continue
to receive public collection services, while the
remaining 10 districts were subject to a compet-
itive bid process.
FCA helped the Solid Waste Division devel-
op a competitive bid by revealing opportunities
for improving performance and streamlining
costs. For example, FCA revealed that certain
indirect supervision costs were excessive and
could be reduced or eliminated. In addition,
FCA helped the division link performance iiidi-
-------
cators and costs so it could accurately deter-
mine costs for fixed levels of service (i.e., costs
of providing collection services to a well-
defined collection district).
The Solid Waste Division won contracts with
the city in three collection districts—the maxi-
mum number of open districts that could be
served by a single service provider. After win-
ning the collection contracts, the division real-
ized a 30 percent improvement in performance
based on the number of houses served daily.
During the year following the advent of compe-
tition, increased efficiency and cost reduction
measures reduced the Solid Waste Division's
budget by S5.1 million.
LESSONS LEARNED
With the exception of Indianapolis, the sub-
jects of these case studies all receive the majori-
ty of their income from fees and payments relat-
ed to the provision of solid waste management
services. This gives the other case study sub-
jects a clear financial incentive to control the
cost of their services. Indianapolis receives the
majority of its revenues from property taxes, not
fees. The impact of this funding arrangement,
however, must be considered in the context of
the city's overall commitment to efficiency in
government. For Indianapolis, maximizing the
efficient use of taxpayer dollars through compe-
tition is, in fact, a major reason for the use of
FCA.
In Indianapolis' case, FCA has proven useful
in fostering public-private competition, result-
ing in both lower costs and improved perfor-
mance. Based on its experience with FCA, the
Solid Waste Division offers the following advice
for other communities:
• Solicit technical support, if needed, for staff
training, data development, and develop-
ment of an appropriate FCA system,
Consultants familiar with the FCA approach
and its requirements were useful during the
start-up phase, assisting in both data devel-
opment and staff training.
• Focus on implementing FCA concepts and
data development procedures to ensure the
FCA system is understood and being used.
As the division's use of FCA evolved, it
r
Other Uses of FCA in
Indianapolis, Indiana
• Developing an incentive-based compensation
system that shares the benefits of increased effi-
ciency and productivity with division workers.
• Rebidding collection service contracts. The divi-
sion has developed a custom spreadsheet
application for future city bid processes based
on lessons learned during the initial bid
process.
abandoned the original proprietary software
application provided by a consultant in favor
of a customized spreadsheet application it
can support and maintain with in-house
staff.
• Recognize that using FCA often leads to
innovations and the adoption of other best
management practices and tools. Once the
division knew its costs, it naturally became
interested in improving performance. This,
in turn, led to the division's use of other
tools and approaches such as geographic
information systems for route optimization.
CONTACT:
Charles Bardonner, Director, or
Stephanie Stevenson, Finance Manager
Solid Waste Management Division
2700 South Belmont Avenue
Indianapolis, IN 46221
Phone: 317327-5684
E-mail: sstevens@indygov.org
-------
9: OF
Solid
Services and
Facilities
Source Reduction
and Recycling
Outreach
Recycling Drop-Off
Programs
Leaf Composting
HHW
Bulky Item
Collection
(Division Tonnage
Only)
Residential Trash
(Division Tonnage
Only)
Institutional Trash
Other Solid Waste
Management
Services
Emergency Disposal
Response
Waste-to-Energy
Facilities (Includes
non-city waste)
Transfer Stations
Landfills
Service
Provider
A=Agency
C = Contract
A
A and C
A and C
A and C
A
A
A
A
A
C
A and C
C
Tonnage
Managed
N/A
9,000
6,594
N/A
9,319
119,367
4,581
N/A
N/A
677,000
N/A
Monofill:
175,275
Landfill:
8,300
Comments
(All tonnage estimates and comments relate to
division service unless otherwise noted.)
Division and DPW develop public service announce-
ments, publish information and promotional materi-
als, and present school and media programs.
Division transports recyclables from 30 drop-off sites
to a private facility.
Division collects leaves each fall and transports to a
private compost facility.
DPW provides residential drop-off services year-
round. A private contractor handles the HHW
received (7,000 participants in 1996).
Division collects heavy trash once per month. Each
household may set out up to two bulky items on
heavy trash days, including items containing chloro-
fluorocarbons.
Division collects from all low-density housing and
from designated multifamily structures generally con-
taining no more than 10 units.
Division collects garbage from public housing, parks,
and city departments.
Division provides dead animal collection; collects
from neighborhood clean-ups, parades, and other
events; and investigates illegal dumping.
Division responds to emergency city disposal needs,
including storms, tornadoes, snow removal.
DPW administers contract with the operator of waste-
to-energy facility, the Indianapolis Resource Recovery
Facility (IRRF). This facility receives waste from non-city
sources as well.
Division owns one small transfer station in
Indianapolis; residents can leave materials there for a
small fee. Operation of facility is contracted to private
service provider.
DPW provides monofill for disposal of ash from the
IRRF. The monofil tonnage noted here includes ash due
to all sources of waste brought to the IRRF. The city also
utilizes a private landfill for disposing of bulky materials.
City crews collect the landfilled tonnage noted.
-------
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6.Southeastern Public Service
Authority of Virginia
INTRODUCTION
The Southeastern Public Service Authority of
Virginia (SPSA) began using FCA in the mid
1980s. As SPSA operates under a 50-year sunset
provision, which requires that all debt obliga-
tions be paid off by 2017, it initially relied on
FCA to guide the allocation of debt service costs
to its services and facilities. It then set prices to
recover these costs.
In the 1990s, SPSA faced increased competi-
tion for waste from private landfills in the
region. Using its FCA system, SPSA was able to
identify strategic pricing and investment
options, which allowed it to keep waste flowing
to its facilities. Recently, SPSA used FCA to
evaluate the options for obtaining additional
landfill capacity.
BACKGROUND
SPSA is one of six regional solid waste
authorities in Virginia. It was formed in the
mid-1970s by an act of the state legislature to
provide southeastern Virginia with economical
and environmentally sound solid waste ser-
vices. SPSA member communities are the cities
of Chesapeake, Franklin, Norfolk, Portsmouth,
Suffolk, and Virginia Beach and the counties of
Isle of Wight and Southampton (see text box at
right). A board of directors appointed by the
member communities governs the authority.
Approximately 10 percent of SPSA's staff (50
out of 498 staff) provide administrative and
managerial support; the rest of the employees
are involved directly with SPSA's solid waste
operations, which include collecting recyclables
and processing and disposing of trash.
To provide its recycling and trash services,
SPSA operates an integrated solid waste man-
agement system that includes eight transfer sta-
tions and a regional landfill. SPSA also owns a
refuse-driven fuel (RDF) plant and operates an
RDF-fueled electricity and steam generating
plant, under contract to the U.S. Navy. Table 11
on page 39 provides a summary of the solid
waste management services and facilities pro-
vided by SPSA.
Because SPSA is an independent public
authority, it does not have access to "General
Fund" revenues to cover its costs. SPSA's opera-
tions are funded by tip fees, payments for RDF
and recyclables, income from its contract for
operating the Navy power plant, and several
other small sources of revenue. A breakdown of
SPSA's revenue sources is shown in Figure 5 on
page 36. As the figure shows, tip fees are
SPSA's most important revenue source.
Demographic Characteristics,
SPSA
Population (1990) 1,012,789
Area (square miles) 1,999.9
Density (persons per square mile) 506
Households 352,313
Household Income (1989 $) $30,662
Housing in 1- to 4-unit structures 78%
FCA AT SPSA
After SPSA was established, the authority
developed a budgeting system that allowed it to
accurately track the operating costs of each of
its services and facilities and the corresponding
income from tip fees and other sources. When
major facilities such as the RDF plant came on
line in the 1980s, SPSA recognized the need to
allocate debt service and overhead costs careful-
ly among its facilities. This allocation would
ensure that costs and revenues could be bal-
anced and that the authority's growing obliga-
tions for debt service were met. In 1987, the
need to allocate these costs led SPSA to modify
its budgeting system to accommodate FCA
information.
-------
FIGURE 5: SPSA'S SOURCES OF REVENUE (1995)
(TOTAL REVENUE = $58 MILLION)
TIP FEES 63%
INTEREST
EARNINGS
2%
RECYCLABLES INCOME 2%
MISCELLANEOUS
3%
RE-APPROPRIATION
40/0 RFDSALES8%
NAVY POWER PLANT CONTRACT
REIMBURSEMENT
18%
SPSA computes the full cost of each of its
services and facilities as the sum of direct and
indirect costs. Direct costs consist of operating
costs and other costs that can be assigned to
specific services and facilities. Indirect costs,
which must be allocated among SPSA's various
services and facilities, include environmental
management, administration, and debt service
costs (as explained in the following paragraphs,
SPSA's treatment of debt service comports with
the accrual accounting conventions). A summa-
ry of SPSA's FCA information for its RDF plant,
curbside recycling service, and compost facility
is provided in the text box on page 37. Table 12
on page 40 and Table 13 on page 41 provide
complete full cost data for each of SPSA's ser-
vices and facilities. The FCA information pre-
sented here is based on SPSA's FY 1995 budget.
This is the authority's most recent publicly
available data and provides a representative
example of the authority's current costs.
SPSA's debt service costs comprised 35 per-
cent of SPSA's FY 1995 budget. Because of the
"sunset provision", all debt must be paid by
2017. In order to meet this obligation, SPSA
must allocate debt service costs carefully among
its facilities and services and then recover the
costs through fees and charges. Initially, SPSA
allocated these costs based on the original cost
of the assets associated with each service or
facility. The use of original cost, however, can
lead to situations where equipment, such as a
fleet of trucks which has been fully depreciated
and replaced, continues to be assigned responsi-
bility for debt service costs. To resolve this
problem, SPSA adopted net cost (i.e., original
cost less depreciation) as the basis for the allo-
cation of debt costs. The use of net cost ensures
that fully depreciated equipment is not assigned
any responsibility for debt service costs. This
practice has also helped SPSA to structure
financing terms that are more consistent with
the life of the equipment or resources being
-------
financed such that SPSA debt service payments
are more consistent with what its depreciated
capital and equipment costs.
SPSA's allocation of debt service costs based
on net cost is consistent with the way in which
SPSA currently structures its financing. To
receive the best market rates, SPSA finances
groups of assets. The terms of the financing per-
mit SPSA to structure its payments so that each
asset in the group is paid for over its individual
useful life. This financing approach is a form of
accrual accounting that recognizes and recovers
costs over the useful life of the asset.
Ill SPSA FCA Information
Cost
Direct Cost
Indirect Cost
Total Cost
RDF
Plant
$4,783,697
$8,279,447
$13,063,144
Curbside
Recycling
Collection
$2,132,002
$1,280,877
$3,412,879
Compost
Facility
$363,118
$112,867
$475,985
FCA IN ACTION: COMPETING FOR WASTE
As a consequence of increased competition
during the 1990s, throughput at SPSA's RDF
plant declined 20 percent between 1994 and
1995. This reduction created problems because
SPSA is contractually obligated to provide cer-
tain minimum quantities of RDF to fuel the Navy
power plant. Failure to do so could have led to
the loss of the Navy plant as a guaranteed con-
sumer of the authority's RDF. SPSA developed
two responses to the reductions in throughput:
• Reducing tip fees for commercial waste
haulers using SPSA facilities.
• Adding a bulky waste shredder at the RDF
facility to allow a greater portion of waste to
be processed at the facility.
Both responses were based on analyses con-
ducted using FCA.
Historically, SPSA has processed substantial
amounts of waste collected by commercial
haulers. After the loss of flow control, there was
increasing competition for this waste from the
region's private landfills. Analysis of unit costs,
with and without the commercial haulers'
waste, allowed SPSA to quantify the impact of
losing the commercial haulers' waste. For exam-
ple, SPSA showed that loss of waste at the RDF
plant translated directly into higher por-ton
costs for debt and other fixed costs, driving unit
costs up. This meant that, with the loss of
waste, member communities would be charged
higher fees in order to cover SPSA's costs. SPSA
communicated the impact of lower throughput
to its member communities. Based on this infor-
mation, SPSA and its members decided to
lower tip fees for commercial haulers. This pric-
ing strategy has allowed SPSA to retain some of
the commercial haulers' waste.
During 1994 and 1995, the
amount of bulky materials in the
waste received at the RDF
increased. Bulky materials are prob-
lematic because the RDF plant can-
not process bulky waste. Unless
bulky waste is pre-processed into a
size acceptable at the RDF plant, it
has to be landfilled. SPSA decided
to investigate the purchase of a
shredder, to reduce bulky waste to a size that
the RDF plant could process. SPSA's analysis
began with an estimate of the amount of cur-
rently non-processable waste that could be
made processable by a bulky waste shredder. It
then considered the capital costs of the shred-
der, including delivery of all equipment and
materials; contractor's overhead and profit: sales
and use taxes; and engineering, design, and
construction administration. It also considered
operating costs for the shredder, including elec-
tricity, fuel, spare parts, and additional person-
nel costs. These capital and operating costs
were compared to the revenues and avoided
costs that would result from use of the shred-
der: SPSA considered revenue from the addi-
tional RDF sold: avoided transportation costs
for bulky waste; and avoided landfill costs for
bulky waste. SPSA used its FCA data to develop
the avoided costs, ensuring that the shredder's
benefits reflected the full avoided cost of trans-
portation and landfilling. SPSA estimated that
the payback period for investing in a bulky
waste shredder period would be less than 2
years, and therefore decided to go forward with
-------
installation of the shredder. Based on actual
costs and throughput, SPSA now estimates that
the shredder will pay for itself at the end of 3
years of operation.
LESSONS LEARNED
Specific issues that have confronted the
authority, particularly the allocation of debt ser-
vice costs, have guided FCA development and
use by SPSA. The following lessons learned by
SPSA also are related to these issues:
• Financing term should match facility life.
Initially SPSA financed all of its capital
costs, including items such as trucks and
transfer stations that have very different use-
ful lives, using the same 30-year bonds.
Difficulties in allocating debt service costs
arose because assets, such as the trucks, were
fully depreciated and retired from service
before the 30-year bonds were repaid. SPSA
now believes that it is more appropriate to
group assets by useful life and, to the extent
possible, to finance over the life of the assets.
This is essentially the same as accrual-based
accounting.
• Correct allocation of costs can be quite diffi-
cult. SPSA did not find FCA technically dif-
ficult to implement. The Authority's staff
developed SPSA's FCA system by building
on existing management and data systems.
Outside consultants were not used. From
SPSA's perspective the challenge was not
developing the system. Rather, the challenge
was developing appropriate allocation meth-
ods for important, but difficult-to-allocate,
items such as debt service costs.
• Use of a facility-based budgeting system
makes FCA easier to implement. In part,
SPSA found implementing FCA easy because
the authority's budgeting system is organized
by facility. Facility-based budgeting in turn
provided the framework within which SPSA
could develop its cost allocation procedures.
• FCA data are very useful when operating in a
competitive market. SPSA also has recently
used FCA to compare the cost of expanding
its own landfill with outside bids. SPSA's
analysis carefully documented the full cost
of the expansion and showed that its cost
was less than the outside bids. Based on
these results, SPSA's board authorized land-
fill expansion to meet its needs through
201,5.
• Use of FCA can improve pricing. SPSA has
learned that it can use its FCA data, particu-
larly its unit cost data, to better understand
the cost of its services, and to improve pric-
ing. Recently SPSA has focused its attention
on transportation costs, particularly for trans-
fer stations. Using its FCA data, SPSA has
been able to pinpoint areas where it can
reduce transportation costs, and thereby
reduce the price of its services. Similar
efforts have led to reductions in labor costs.
Contact:
John Hadfield, Executive Director
Southeastern Public Service Authority
P.O. Box 1346
Chesapeake, VA 23327-1 346
Phone: 757 420-4700
-------
11: OF
Solid
Services and
Facilities
Source Reduction
and Recycling
Outreach
Drop-Off Recycling
Curbside Recycling
HHW
Yard Trimmings
Mulching and
Composting
RFD Plant
Power Plant
Transfer Station
Regiona Landfill
Virginia Beach
Landfill
Tire Shredder
Ferrous Metals
Recovery Facility
Service
Provider
A=Agency
C = Contracf
A
A and C
A and C
A
A
A
A
A
A
C
C
C
Tonnage
Managed
(FY 1994-95)
N/A
2,080
1 1 ,000
4,133
N/A
516,172
367,055
531,754
392,361
179,442
N/A
1 1 ,000
Comments
Offers a classroom-based environmental education
program.
Provides more than 35 drop-off locations in the
region and delivers recyclables to a private recycling
facility.
Provides voluntary curbside recycling collection to
148,800 households and delivers recyclables to a
private recycling facility.
Provides drop-off sites for HHW at transfer stations,
the landfill, and the RDF plant.
Operates yard trimmings mulching facility; all yard
trimmings materials are initially processed at this site.
A yard trimmings composting facility is located at the
regional landfill. Approximately 40,000 cubic yards
of mulch and compost are produced annually.
Operates an RDF plant on Navy land. Contracts with
the Navy to supply at least 25,000 tons of RDF per
month. A bulky waste shedder was recently installed
to increase throughput.
Owned by the Navy but operated by SPSA. Fueled by
RDF from SPSA's plant. Provides steam and electricity
for the Navy.
Operates eight transfer stations in its service area.
Owns and operates regional landfill that was opened
in 1 985; only loads of waste that cannot be
processed at the RDF plant are landfilled (primarily
bulky items and construction and demolition materi-
als). Development of new cells currently underway
wil meet SPSA's need for landfilling through 201 5.
Contracts with Virginia Beach for disposal of RDF
residue and power plant ash.
Shreds car tires and uses them for fuel at the power
plant; truck tires are sold to be used as feedstock in
the manufacture of industrial equipment tires.
Approximately 260,000 tires are processed annually.
Operation is contracted to the private sector.
Cleans and processes ferrous metals extracted from
the feedstock at the RDF plant. Operation is con-
tracted to the private sector.
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TABLE 13: SPSA ANALYSIS OF FULL COST: DIVERSION SERVICES AND
FACILITIES
Full Costs
Direct Cost
Operating Cost
Maintenance Shop
Transportation Cost
Subtotal
Indirect Cost
Transportation
Environmental
Management
Maintenance Shop
Administrative Cost
Debt Service
Subtotal
Total
(Direct and Indirect)
Curbside
Recycling
Collection
$2,008,437
$123,565
$0
$2,132,002
$0
$6,350
$149,826
$359,417
$765,284
$1,280,877
$3,412,879
Tire Shredder
Contractor
$321,728
$7,165
$48,891
$377,784
$29,657
$550
$8,180
$14,785
$94,755
$147,928
$525,712
Ferrous Metals
System
$0
$0
$41,567
$41,567
$25,214
$250
$0
$14,285
$205,591
$245,341
$286,908
Compost
Facility
$254,293
$9,728
$99,097
$363,118
$60,111
$200
$11,106
$38,557
$2,892
$112,867
$475,985
Yard Waste
Facility
$365,116
$30,380
$92,382
$487,878
$56,040
$640
$34,684
$61,088
$249,812
$402,265
$890,143
Other
Recycling
Collection
$75,130
$26,397
$101,527
$0
$625
$21,385
$39,935
$42,383
$104,328
$205,855
Total From
Previous Table
$20,119,211
$113,841
$4,600,949
$24,834,001
$2,790,891
$867,155
$129,974
$1,474,787
$17,714,395
$22,977,202
$47,811,203
Grand Total
$23,143,915
$311,076
$4,882,886
$28,337,877
$2,961,913
$875,770
$355,155
$2,002,854
$19,075,112
$25,270,808
$53,608,685
-------
/.City of San Diego, California
Environmental Services Department
INTRODUCTION
FCA practices emerged over time in San
Diego Environmental Services Department
(BSD) as part of the city's routine budgeting and
planning activities. Today, FCA principles are
reflected in many of ESD's business practices.
For example, ESD's use of lease/purchase
arrangements allows the city to recover the cost
of vehicles over their useful life, and to mini-
mize cash accounting (i.e., recognizing the full
vehicle cost at the time of purchase). BSD also
uses FCA when analyzing solid waste services
provided by city employees and its contractors.
To ensure that its services are compared on an
"apples-to-apples" basis, BSD uses FCA to iden-
tify all of the costs associated with providing
solid waste services. Such comparisons provide
a credible, publicly defensible basis for ESD's
choices between contracting for services and
providing them itself.
BSD also uses FCA as a framework to analyze
issues of particular importance. When consider-
ing whether to implement an automated trash
collection system, for example, BSD used FCA
to determine the cost savings it could achieve as
a result. The findings of this analysis provided
the impetus the department needed to make the
switch from manual collection.
BACKGROUND
The city of San Diego, located in southern
California, has the sixth largest population in
the country. In the 1990s, the city grew about \
percent annually. The city's demographic char-
acteristics are summarized in the text box at
right.
BSD provides refuse collection and disposal
services to all single-family residences, and to
some small businesses and multifamily resi-
dences. Curbside recycling and yard waste col-
lection services are provided to a portion of the
city's residents. Drop-off household hazardous
waste collection events and recycling opportu-
Demographic Characteristics
City of San Diego, California
Population (1990) 1,110,549
Area (square miles) 331
Density (persons per square mile) 3,355
Households 406,096
Household Income (1989 $) $33,686
Housing in 1- to 4-unit structures 65%
nities are provided for all residents. BSD also
operates a landfill and a mulching site (see
Table 14 on page 48 for details on BSD services
and facilities). Although BSD uses contractors to
provide some of its services, the two core waste
management activities—residential trash collec-
tion and landfill operation—are both performed
by the department. BSD has a staff of 471
employees, with the majority employed in field
or operational positions.
ESD's total FY 1998 budget is approximately
$71.1 million. This includes $7.9 million for
capital improvements, and approximately $63.2
million for operating expenses and equipment.
Refuse collection is by far the largest budget cat-
egory, accounting for a total of $33.1 million out
of the total of $71.1 million, or about 47 percent.
BSD is funded by the Refuse Disposal
Enterprise Fund, which receives revenues pri-
marily from landfill tip fees, the city's General
Fund, and other smaller sources of revenue (i.e.,
fund balance). Figure 6 on page 43 provides a
breakdown of sources of revenue for the BSD.
-------
FIGURE 6: BSD SOURCES OF REVENUE (FY 1998)
(REVENUE REQUIREMENT = $71.1 MILLION)
OTHER REVENUE 11.3%
DISPOSAL FEES 51.4%
GENERAL FUND 37.3%
FCA IN SAN DIEGO
For San Diego, FCA does not have a fixed
scope or focus. BSD uses FCA on an "as-needed"
basis in studies of issues of particular impor-
tance. BSD has a process for conducting these
studies, using a combination of information
reported from the Financial Management
Department's Budget System, the AMRIS soft-
ware system (see text box at right), and other
data it processes manually to complete its
analyses of the issue in question. The analysis
of automated collection presented in the next
section illustrates this process.
The FCA principle of accounting for costs
rather than outlays is reflected in certain BSD
accrual basis business practices, such as the
department's use of lease-purchase agreements to
match cost recovery as closely as possible to
equipment lifetimes. When a significant number
of additional vehicles are required, or vehicle pur-
chase expense is significant, the city often uses a
lease/purchase arrangement for acquisition. For
AMRIS Job Order System
AMRIS (the Accounting and Management
Resource Information System), administered by
the Auditor and Comptroller, is the city of San
Diego's overall financial accounting system. The
AMRIS software package can allocate appropri-
ate fringe benefits and proportions of supplies,
services, mileage, equipment, rental, energy/util-
ities, and overhead to a specific user-defined
activity, through what is referred to as a "job
order." Job orders allow ESD to flexibly define
cost centers and to analyze them. ESD uses the
job order system to help identify the full costs of
services provided by ESD, and to determine fixed
fees and charges to recover these costs where
appropriate. For example, job order information
is used to charge other city departments for ser-
vices provided by the Environmental Services
Department.
-------
other motor vehicles, the city sets up a reserve
or sinking fund. These funds are designed to
accumulate the cost of replacement equipment
(if applicable) over a predetermined number of
years. In this way ESD spreads the cost of the
equipment over its useful life, and has money
available to pay for replacements. While cash
accounting for vehicle purchases (i.e., recogniz-
ing the full vehicle cost at the time of purchase)
cannot be completely avoided, these two proce-
dures minimize its use.
FCA IN ACTION: AUTOMATED
COLLECTION
The city of San Diego has provided munici-
pal refuse collection services to single family
residences, small multifamily residences and
small businesses since 1919 when voters initiat-
ed and approved a "People's Ordinance" which
mandated this service at no additional fee to cit-
izens. Because of the risky and physically chal-
lenging nature of the work, the risk of injury to
the collection workforce has always been a
major concern. To address this concern, in
1989, an initial study was conducted to evalu-
ate the feasibility of implementing an automat-
ed refuse collection system. The initial study
showed significant savings due to reduced
equipment and staffing needs as well as
decreased injuries and accidents. The initial
study recommended a pilot program to collect
data on the feasibility and cost-effectiveness of
an automated refuse collection system. The
pilot began in 1992 with 1,400 homes. It was
expanded to include an additional 700 homes
in 1993. Results from the pilot confirmed that
automation increases staff productivity and
decreases injuries.
Initially, a primary obstacle to automation
was the cost. Automated collection would
require more expensive trucks and specialized
containers. Since the city cannot charge citizens
for trash collection, the entire cost of the conver-
sion would have to come from the city's General
Fund. To make things worse, the recession was
beginning to seriously affect city revenues. As a
result, the city began to investigate the potential
for lease/purchase arrangements. An FCA-based
study was designed to determine if a reduced
Automated refuse collection involves a sanita-
tion truck driver manipulating a hydrau ically
powered arm to pick up containers specifically
designed to be used in the automated collection
process. While remaining in the cab, the driver is
able to lift the container, empty it into the truck,
place the container back on the ground, and
then drive to the next stop to repeat the process.
Automated collection eliminates the need for
sanitation workers to lift refuse cans.
Residents receiving automated collection ser-
vices are provided with a single container con-
structed of a durable polyethylene material.
These containers have wheels for ease of move-
ment and attached ids that help prevent odor
and restrict litter problems. The normal life span
of these containers is 1 0 years. The standard
container has a 96-gallon capacity, equa to
three standard trash cans. Residents requiring a
smaller container can select optional 64- or 32-
gallon containers.
workforce together with reduced injury-related
costs would offset the additional costs associat-
ed with leasing automated equipment.
The study began by identifying the scope for
automated collection in San Diego. Automated
collection would not be practical for the high-
density, narrow streets along the beach (Mission
Beach) and hard-to-collect areas on steep hills
or dead-end streets. Apart from these areas, 95
percent of all city refuse stops could be collect-
ed using the automated process. Next, to maxi-
mize the efficiency of automated collection,
equipment had to be fully utilized. Under the
manual system, once an assigned route was col-
lected the work day was considered complete.
With automated collection, crews were not lim-
ited by fatigue and so could work a full 8 hours.
Based on these assumptions, the costs and
staffing requirements for each collection option
were analyzed.
Key results from the study are shown in the
text box on page 45. With automated collection,
by 1999 the fleet would be 102 rather than the
126 vehicles, reducing the number of drivers
-------
^1 Comparison of Manual
Cumulative Impact: 1994-2004
Collection Costs:
Hard-to-Collect
Rest of City
Subtotal
Light Duty Over Budget
Container Lease Costs
Total Expenditures
Risk Management Savings
Grand Total
Annual Level
and Automated Collection for San
Manual
$59,582,177
$122,886,781
$182,468,958
$5,011,258
-0-
$187,480,216
-0-
$187,480,216
$17,052,747
Diego
Automated
$58,118,335
$89,046,394
$147,164,729
$1,144,466
$21,036,000
$169,345,195
-$4,398,650
$164,946,545
$14,999,686
and supervisors by 71. Over the 1994-2004 peri-
od, the city could save about $22.6 million;
approximately $18.8 million from reduced bud-
get expenditures, plus an additional $3.8 mil-
lion from reduced "light duty" costs, a hidden
cost of the manual operation incurred when
injured workers need to be reassigned less
strenuous work loads.
Use of FCA entered into the refined study in
a number of ways related primarily to indirect
and overhead costs:
• Reductions in staff levels reduced both
wages and benefits, each of which contribute
substantially to labor costs.
• Use of automated collection led to reduced
requirements for "light duty" for injured
workers, which typically involves less effi-
cient use of personnel.
• Use of automation reduced the risk of serious
injury, and the associated cost of risk man-
agement (e.g., insurance, workers' compensa-
tion, etc.).
The last two points, which would be exceed-
ingly difficult to quantify without a thorough
FCA approach, contributed a total of about $8.3
million out of total savings of $22.6 million.
The results of this study were published in
the City Manager's report of November 2, 1993.
San Diego's decision to automate collection was
based largely on these results. Since the adop-
tion of automated collection, BSD has used FCA
to analyze the automation of yard trimmings
and recycling collection. BSD is currently con-
sidering an arrangement in which the same
truck would be used to collect yard trimmings,
co-mingled recyclables, and trash on a bi-week-
ly schedule. As in the study of automated trash
collection, FCA allowed BSD to account fully
for all the costs and benefits of the innovative
collection system under consideration.
LESSONS LEARNED
San Diego has long used FCA to address
planning and performance issues related to the
solid waste services it offers. Based on its expe-
rience with FCA, San Diego has learned a num-
ber of useful lessons:
• Developing appropriate accounting systems
can foster the application of FCA.
Development of AMRIS and its job order sys-
tem has facilitated ESD's use of FCA.
• Careful accounting of indirect and overhead
costs can substantially affect the comparative
economics of solid waste management
options. Including reduced light duty costs
as well as savings on risk management costs
had a substantial impact on San Diego's
assessment of automated refuse collection.
• FCA can help solid waste management agen-
cies function in an increasingly competitive
solid waste industry. In principle, private
companies could supply collection and dis-
posal services of the type provided by BSD.
To remain competitive, ESD's services must
-------
be cost-effective. ESD uses FCA to ensure
that the costs of its services are compared to
others' on an "apples-to-apples" basis.
• Application of FCA is dependent on the type
of project being considered. FCA is not
appropriate for every routine planning and
operational decision that solid waste man-
agement agencies face. When major decisions
arise, however, or when, a need emerges for a
"big picture" understanding of future oppor-
tunities and challenges, FCA can be an
essential tool.
Contact:
Yvonne Williams
Environmental Services Department
9601 Ridgehaven Court, Suite 210
San Diego, CA 92123-1 636
Phone: 619 492-5076
-------
14: OF IN SAN
Solid
Services and
Facilities
Service
Provider
A=Agency
C = Contracf
Tonnage
Managed
Comments
Source Reduction/
RecyclingOutreach
A and C
N/A
ESD promotes residential waste minimization through
several initiatives, including a home composting pro-
gram and contracted public education programs. It
also provides technical assistance to city depart-
ments, businesses, apartment complexes, and local
military bases.
Drop-Off Recycling
A and C
ESD funds drop-off recycling through 48 park and
recreation centers throughout the city. The drop-offs
are unstaffed, and both ESD and contractors provide
collection. Revenue gained from the sale of materials
is returned to the park and recreation centers. ESD
also contracts out operation of the Miramar Buy Back
Center.
Curbside Recycling
A and C
24,000
Recyclables are collected weekly from roughly
82,000 single family households. ESD provides col-
lection for approximately half of them, while a private
company is contracted with to collect material from
the other half. Material is taken to private processing
centers.
Yard Trimmings
Collection
A
N/A
Yard trimmings are collected weekly from roughly
1 50,000 households. Material is taken to the
Greenery at the Miramar Landfill to be mulched.
HHW
A and C
200
Eight HHW collection events are held annually, the
operations of which are contracted to a private com-
pany. Residents can also bring used oi, antifreeze,
batteries, and oi filters to city-run recycling events
held throughout the year. ESD also has a "graffiti
exchange bank" to use paint collected to cover over
graffiti in the city.
A and C
N/A
Twenty-four community cleanups are conducted
annually. Residents can dispose of bulky items at this
event. ESD also has a contract with a private organi-
zation that requires it to hold 35 cleanups. The
Miramar Buy Back Center also accepts some bulky
items.
Residential Trash
Collection
A
314,000
The city provides weekly collection from 293,000
1- to 5-household structures located on public right-
of-ways. Gated communities (on private streets) are
excluded, as well as some multifamily units electing
to use their own collection service. The vast majority
of refuse is brought to Miramar Landfill, although
about 8,000 tons per year go to other landfills to
increase route efficiency.
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14: OF IN SAN
(CONTINUED)
Solid
Services and
Facilities
Service
Provider
A=Agency
C = Contract
Tonnage
Managed
Comments
Government
Recycling
C
222
More than 106 city offices participate in a paper and
container recycling program that is operated by a
contractor (currently at no charge to the city).
Commercial Trash
Collection
A
N/A
ESD collects from approximately 7,000 small busi-
nesses. The tonnage handled from this program is
included in the figure noted for Residential
Collection.
Other SWM Services
A
N/A
These services include abatement of i legal dumping,
litter, and undesired vegetation from public proper-
ties; public receptacle collection; dead animal collec-
tion; and enforcement of the solid waste provisions of
the Municipal Code.
Mulching Facilities
A
84,000
The "Greenery" mulching facility handles yard trim-
mings from the curbside program as well as drop-off
materials from residents and local landscapes. In
addition, ESD has an annual Christmas tree recycling
initiative, which encourages residents to drop off their
trees at one of more than two dozen locations
around the city.
Landfil
A
The city operates the Miramar Landfill, which is situ-
ated on Navy property and owned by the Navy. As
part of the lease agreement, the Navy pays no tip fee
for the waste it disposes of. The landfill handles most
(86 percent) of the city's waste and some waste from
outside the city.
Miscellaneous
Services
A
N/A
ESD runs several programs for other city facilities.
They include lead, asbestos, and hazardous materials
technical support and management, and under-
ground storage tank management.
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8.Full Cost Accounting
Glossary
Accrual basis accounting focuses on identifying
the cost (dollar value) of resources as they
are used. In order to match costs to resource
use, accrual accounting spreads costs over
the useful life of a resource using deprecia-
tion and/or amortization techniques.
Amortization is a method of determining the
annual costs associated with obligations for
future outlays. Landfill closure and postclo-
sure costs, for example, are often amortized
over the operating life of the landfill.
Back-end costs include expenditures to proper-
ly wrap-up operations and take proper care
of landfills and other municipal solid waste
facilities at the end of their useful lives; the
costs of post-employment health and retire-
ment benefits for municipal solid waste
workers also fall in this category.
Capital outlay means an outlay of cash to
acquire a resource that will be used in MSW
operations over more than \ year. If a com-
munity pays $500,000 for a collection fleet in
a given year, for example, this would repre-
sent a capital outlay. Capital outlays (past,
present, and future) must be converted into
annual costs for full cost accounting purposes.
Capital replacement funds are established to
ensure that sufficient cash reserves are avail-
able to replace long-term capital equipment.
Cash flow accounting, also known as cash basis
accounting or general fund accounting, is a
system where cash outlays are recorded as
they are actually paid out for goods and ser-
vices.
Cost means the dollar value of resources used
for municipal solid waste management.
Techniques such as depreciation are often
used to convert capital outlays into annual
costs. Assume that an outlay of $500,000 is
made for a collection fleet that is in use for 7
years, for example. Using straight-line depre-
ciation, accrual accounting systems would
assign an annual cost for the fleet of about
$71,429 over the life of the collection fleet.
Cost center is any solid waste management
activity that receives separate attention
through an account or group of accounts.
Debt service costs are annual expenses incurred
to pay back interest and principle on a loan.
Depreciation is a method of allocating the costs
of capital outlays over the useful life of the
resource, which is the period of time during
which the resource is expected to provide
services.
Direct costs are costs that are clearly and exclu-
sively associated with solid waste manage-
ment.
Enterprise funds are financial mechanisms used
by local governments to finance and operate
a given activity like a private business.
Agencies that use enterprise funds usually
must collect sufficient revenues to cover the
full cost of agency operations and services
provided.
Fixed costs include interest, depreciation, and
amortization for past or future landfill capital
outlays and other costs (e.g., security) that
cannot be reduced quickly in response to
lower waste tonnage.
Flow controls are legal authorities used by state
and local governments that require that
waste from a defined geographic area be
delivered to a specific processing, treatment,
or disposal facility.
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Full cost accounting is a systematic approach
for identifying, summing, and reporting the
actual costs of solid waste management, tak-
ing into account past and future outlays,
oversight and support service (overhead)
costs, and operating costs.
Future outlay means an expenditure of cash in
the future that is obligated by current or
prior activities.
General fund accounting — see cash flow
accounting.
Hidden costs are the dollar value of activities or
resources that appear to be free (i.e., no cash
outlay is made. For example, many small
towns have been deeded their landfills by
former owners. Reqardless of how it was
acquired, the landfill (asset) still has value,
which is consumed over time with use.
Thus, there is a cost even where there has
been no outlay.
Indirect costs are costs that are not exclusively
related to solid waste management but that
relate to more than one local government
activity. Such indirect costs for solid waste
management (and other local government
activities) can include accounting and pay-
roll, personnel, legal, purchasing, data pro-
cessing, records management, and executive
oversight (e.g., the mayor's salary and office
expenses).
Integrated solid waste management incorpo-
rates several different approaches for han-
dling the entire municipal solid waste
stream. Using a combination of approaches
allows each type of waste to be managed
according to environmental and economic
considerations, with priority going to source
reduction, reuse, and recycling, while reserv-
ing landfills as the least desirable waste man-
agement method. See also waste management
hierarchy.
Net cost per household indicates the amount of
service fees and assessments that must be
collected on average from each household to
pay for the full costs of solid waste manage-
ment, after taking into account any byprod-
uct revenues. The net cost per household
equals the net costs per year divided by total
households served.
Net cost per ton is the best common denomina-
tor for comparing the current costs of solid
waste management activities within or across
local government jurisdictions.
Operating costs are regularly recurring costs of
resources that are used over a relatively short
period of time (i.e., less than 1 year) in order
to support ongoing municipal solid waste
operations.
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Outlay is an expenditure of cash. See capital
outlay for more details.
Overhead costs arc the management and sup-
port costs of running a solid waste program.
Overhead costs might include legal services,
administration, data processing, billing, and
purchasing.
Routine cash outlays for solid waste manage-
ment activities are the same as the operating
costs of those activities.
Service revenues are derived from fees charged
for the amount of municipal solid waste ser-
vices used, such as unit pricing for solid
waste collection and tipping fees for waste
disposal.
Unit pricing charges solid waste generators
(e.g., primarily households) based on how
much they throw away. Also called variable
rate pricing and pay as you throw.
Up-front costs reflect the initial investments
and expenses necessary to start a municipal
solid waste activity. Up-front costs could
include permitting, education, and initial
capital outlays for capital equipment and
facilities.
Variable costs are regularly recurring operating
expenditures for MSW operations that can be
reduced quickly in response to changes in
service levels.
Waste management hierarchy emphasizes a
preferred order of management approaches:
source reduction (including reuse), recycling
(including composting), and waste combus-
tion with energy recovery and landfilling.
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For
on the
Tom Henderson, Director
Breward County Office of
integrated Waste Management
201 South Andrews Avenue
Ft. Lauderdale, FL 33301
Phone: 954 765-4208
E-mail: thenderson@co.broward.f!.us
COLUMBIA,
Lowell Patterson, RE., Director
Public Works Department
RO. Box N
Columbia, MO 65205
Phone: 573 874-7250
E-mail: lpatters@mail.coin.missouri.edu
GLENDALE,
Mike Hoyt, Director
Field Operations Department
621 0 West Myrtle Avenue, Suite 1 1 1
Glendale,AZ 85301
Phone: 602 930-2602
E-mail: hoyt@ci.glenda!e.az.us
INDIANAPOLIS,
Charles Bardonner, Director
Stephanie Stevenson, Finance Manager
Solid Waste Management Division
2700 South Belmont Avenue
Indianapolis, IN 46221
Phone: 317327-5684
E-mail: sstevens@indygov.org
PUBLIC
AUTHORITY, VIRGINIA
John Hadfield, Executive Director
Southeastern Public Service Authority
RO. Box 1346
Chesapeake, VA 23327-1 346
Phone: 757 420-4700
SAN DIEGO,
Yvonne Williams
Environmental Services Department
9601 Ridgehaven Court, Suite 210
San Diego, CA 92123-1636
Phone: 619 492-5076
For
on Full
EPA published several other documents
about FCA for solid waste managers. Free
copies of the following documents are available
from the RCRA Hotline, To order, call
800 424-9346 or TDD 800 553-7672, In the
Washington, DC, area, call 703 412-9810 or
TDD 703 412-3323.
• Full Cost Accounting for Municipal Solid
Waste: A Handbook (EPA530-R-95-041). This
document 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 hand-
book is not a step-by-step "how-to" docu-
ment, it does describe the steps involved
with implementing FCA for solid waste man-
agement. It is a comprehensive overview and
a valuable resource for local governments.
• Making Solid (Waste) Decisions With Full
Cost Accounting (EPA530-K-96-001). This
document is a short primer that explains the
basic concepts of FCA. It provides a summa-
ry of the benefits, challenges, and uses of
FCA, as well as five short case examples
about agencies that have used FCA success-
fully.
• Questions and Answers About Full Cost
Accounting (EPA530-F-98-003). This 15-page
booklet features some of the questions and
answers discussed during the 1996 nation-
wide, interactive satellite forum on FCA,
"Planning, Pricing, and Performance: The
Business of Solid Waste Management." The
forum featured a panel of four local govern-
ment solid waste managers and one policy
analyst who spoke about their experiences
using FCA.
In addition, check EPA's Web site for more
FCA information: .
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