United States
Environmental Protection
Agency
Solid Waste and
Emergency Response
(5305W)
EPA530-R-99-006
January 1999
www.epa.gov/payt
&EPA Rate Structure Design
Setting Rates for a
Pay-As-You-Throw Program
Printed on paper that contains at least
20 percent postconsumer fiber.
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Rate Structure Design
Setting Rates for a
Pay-As-You-Throw Program
Prepared by
Janice L. Canterbury and Gordon Hui
U.S. EPA Office of Solid Waste
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Contents
Introduction 3
I. Maximizing the Power of Economic Incentives to Achieve Municipal Solid Waste (MSW) Goals 5
Benefits of Using Economic Incentives and Price Responsiveness 5
Establishing Community MSW Goals 6
Basic Methods of Rate Structure Design 6
Common Pricing Systems for Pay-As-You-Throw (PAYT) 7
II. First Method of Setting PAYT Rates: Drawing From Comparable Communities 9
III. Second Method of Setting PAYT Rates: Using the Six-Step Rate Structure Design (RSD) Process...12
1. Forecast Residential MSW Amounts 14
2. Determine the Types of MSW Services To Be Provided 16
3. Estimate Net Costs of MSW 17
4. Determine PAYT Revenues and MSW Program Cost Coverage 19
5. Calculate PAYT Rates 19
6. Adjust MSW Services and PAYT Rate Structure 24
IV. Refinements in Setting PAYT Rates 25
Direct and Indirect Costs 25
Other Factors to Consider in Setting PAYT Rates 27
Case Studies 28
Glossary 34
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Introduction
Overview
The purpose of this booklet is to provide community planners and officials with an overview of two
basic methods for setting rates within a Pay-As-You-Throw (PAYT) program. The booklet introduces
and explains both conceptual and practical considerations for setting PAYT rates. It draws largely
from the experience of many PAYT communities that are satisfied with their approach to rate struc-
ture design. This booklet does not provide a formula or recipe for rate setting but, instead, discusses the key
steps and points to consider as you develop a rate structure that can best support your own community's
goals.
What Is PAYT?
PAYT is an economic incentive that encourages citizens to reduce waste. Unlike traditional municipal
solid waste (MSW) management systems, where residents pay for waste services through taxes or a flat fee,
under PAYT systems, residents are charged for MSW services based on the amount of trash they discard.
More than 4,000 communities across the country have implemented PAYT programs. These programs
represent a concrete step that local officials can take to make their MSW management efforts more eco-
nomically and environmentally sustainable.
What Are the X3-E' Benefits of PAYT?
PAYT offers three key benefits that can help communities move toward greater sustainability:
• Environmental Sustainability. PAYT helps protect the environment. Charging residents a fee for each
bag or can of trash generated gives them an incentive to discard less waste. The typical result is a signif-
icant increase in waste prevention and recycling.
• Economic Sustainability. PAYT is economically viable for a broad range of communities. In fact, most
communities considering PAYT focus first on the economics. Well-designed programs enable commu-
nities to generate the revenues they need to cover MSW program costs.
• Equity. PAYT is widely seen as a more equitable arrangement. Under PAYT, community residents who
throw away less pay less.
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What Is Rate Structure Design?
Rate structure design (RSD) is determining the price you charge per unit of solid waste set out for col-
lection, processing, and/or disposal. All decisions about your program—from choosing a container type to
maximizing resident participation—eventually feed into your rate structure. An effective rate structure
should generate the revenues needed to cover the costs of service. By providing an economic incentive for
residents to reduce their waste, an effective rate structure can also reduce those costs.
This booklet provides RSD information from a national perspective. It is important to remember that
there are no 'cookie cutters' for PAYT; no two MSW programs share the same bottom line. Communities
with successful PAYT programs base the fees they charge on their own unique goals and circumstances.
This is one reason why PAYT rates vary widely among programs. The tools and information in this book-
let will help you design a PAYT rate structure that works for your community.
This booklet also provides a collection of rate-setting success stories from five communities. These testi-
monials are presented in the words of the officials who developed the programs. They offer real-world
examples of how different communities have approached the challenge of arriving at PAYT rates that are
consistent with their own community's goals.
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Maximizing the Power of Economic Incentives
to Achieve MSW Goals
The power of PAYT to reduce waste is contained in the rate structure of a program. The process of
designing a rate structure, therefore, is critical in maximizing this power. This section explains how
PAYT's economic power works and provides an overview of the two basic methods for designing a rate
structure. This section also helps you choose a pricing system for your PAYT program—a key step in
the rate structure design (RSD) process.
Benefits of Using Economic Incentives and Price Responsiveness
Traditionally, communities have raised the rev-
enues to cover MSW program costs in ways
that are entirely disconnected from the amount
of MSW services used by residents in their
jurisdictions. Most U.S. communities, for example,
charge for MSW services by either levying a proper-
ty tax or billing all residents an equal amount.
Residents in these communities usually lack infor-
mation on the costs of the MSW services they use.
As a result, citizens often act as if MSW services are
free. No matter how much or how little these
individuals use the services, they incur no financial
consequence and reap no financial benefit. People
typically respond to (apparently) free services by
overusing them. In most communities, this results
in unnecessarily large amounts of garbage with
excessive costs for which the local citizens must
then pay.
In contrast, PAYT introduces price incentives,
based on market values, into individuals' decisions,
which then collectively determine a community's
pattern of generation, collection, processing, and
disposal of MSW. It does this by pricing MSW pro-
gram services in a way that reflects the resources
(e.g., labor, equipment, fuel, and land) needed to
dispose of household materials that are no longer
useful—regardless of whether they were purchased
(e.g., leftover food, discarded packaging, or broken
products) or grown (e.g., grass clippings and tree
trimmings).
This price signal gives residents information to
decide on the actions they should take to set out
less trash and more recyclables. Pricing MSW ser-
vices also provides individuals with the opportunity
to take actions that can make a financial difference.
Both aspects of price—the information it provides
and the opportunity it provides residents to reduce
their MSW service expenses—cause individuals in
PAYT communities to conserve on MSW services
just as they conserve on any other service or prod-
uct that has a price. PAYT provides a continuing
motivation to residents to reduce their expenses for
MSW services by managing their waste materials in
a more environmentally sustainable fashion.
Many PAYT communities have demonstrated
the power of economic incentives; they have sharply
lowered the amounts of trash they dispose of and
also significantly increased recycling rates. Price
signals can steer residents to engage in a variety of
waste reduction activities. Residents, for example,
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might be motivated to reduce the amount of
excess packaging of products they buy, reuse prod-
ucts or packaging materials, share magazine sub-
scriptions, donate used clothing or furniture to
charities, recycle more materials, and compost and
grasscycle organics.
Under PAYT, all of these waste reduction activ-
ities can provide an economic advantage to the
resident. In serving as a continuing reminder to
reduce waste, PAYT serves as a powerful educa-
tional tool supplementing the efforts of MSW
planners, recycling coordinators, and environmen-
tal organizations striving to enhance waste reduc-
tion activities within a community.
Growing numbers of communities are turning
to PAYT and thereby shifting toward managing
MSW services as they would any other utility. The
aggregate result is a significant reduction in waste.
Collectively, PAYT programs are succeeding in
aligning millions of citizens' efforts to conserve
their own financial resources with the overall goal
of conserving the nation's natural resources.
Establishing Community
MSW Goals
h n effective RSD aligns the power of
I economic incentives with a community's
^LJ specific MSW goals. It is essential, therefore,
I to clearly define those goals in advance of
implementing PAYT. Clear goals can help you
determine your approach to the RSD process; your
pricing system, container types, and billing system;
your public education techniques; and other key
aspects of your PAYT program.
Examples of MSW goals in PAYT
communities include:
• Reducing MSW amounts.
• Increasing recycling rates.
• Increasing composting rates.
• Reducing the total cost of the MSW
program.
• Increasing equity among citizens.
• Generating revenues to cover MSW costs.
Basic Methods of Rate Structure
Design
Once you establish your community's MSW
goals, the next step in implementing PAYT is
to choose a pricing system (see pages 7-8)
and establish the rates. As PAYT programs
have spread across the country, communities have
acquired valuable experience about determining an
appropriate price to charge per container. Planners
use a wide variety of methods to arrive at a price.
The method you choose will depend on your
community's goals and resources and the size and
the complexity of your MSW program.
This booklet describes two general approaches
that encompass most of the methods used: using
data from comparable communities, and building
from your own community's data using a six-step
process. These approaches to RSD are described in
detail in Sections II and III, respectively.
In calculating an appropriate unit price for
their program, some municipalities conduct an in-
depth analysis of costs. Performing this detailed
level of analysis requires a greater amount of staff
expertise. Some communities use accountants
skilled in utility rate setting for this work. For
more information about initiating a comprehen-
sive cost analysis for the RSD process, see Section
IV.
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Common Pricing Systems for Pay-As-You-Throw
'ach of the two methods of RSD are compatible with the following commonly used pricing systems
(or combinations of systems) that have been successfully implemented in communities across the
Country.
I
Communities commonly choose among three basic types of PAYT pricing systems: proportional, vari-
able, or multi-tiered, or a combination of these. Each system has its own advantages and disadvantages.
One pricing system, for example, offers greater revenue stability while another creates a stronger waste
reduction incentive to residents.
To decide which pricing system is best for your community, consider your community's MSW pro-
gram goals (e.g., increasing recycling or keeping administrative costs low). After familiarizing yourself with
the tradeoffs associated with each price system, determine which is most likely to meet your goals.
Proportional
Proportional systems create the most direct relationship between trash amounts and price. Residents
are charged the same amount of money for each unit of waste they set out for collection (e.g., $1.50 for
each 30-gallon bag). The price is based upon the number of bags, tags, or stickers (usually sold at local
retail stores or municipal offices) a resident uses.
Advantages
• Provides a strong waste reduction incentive.
Since residents must pay for the collection of
each bag they place at the curb, they have a
strong incentive to reduce waste and increase
recycling and composting. (It should be noted
that each of these PAYT pricing systems will
likely provide a waste reduction incentive, but
proportional pricing tends to give the strongest
relative price signal for citizens to reduce waste.)
• Potentially lowers MSW program costs and is
simple to manage. Residents typically purchase
bags directly from the municipality or from
local retail outlets. Compared with options that
require a billing mechanism, this system can
result in lower administrative costs.
Disadvantages
• Not a cost-based pricing system. Most costs for
MSW services (e.g., costs of labor, equipment,
and fuel associated with collection) are directly
built into a community's overall MSW system
rather than the per container costs tied to
changes in quantities of trash discarded.
Proportional rates do not reflect the cost struc-
ture of most MSW programs.
• Potential revenue uncertainty. Since propor-
tional pricing links all revenues to residents'
trash set outs, a proportional system exposes all
revenues to the uncertainty of residents'
responses to the introduction of price signals.
This can lead to significant over- or under-
recovery of needed MSW revenues. In addition,
for bag programs, residents might buy and store
many bags at once to use them over time. This
surplus buying may create revenue fluctuations
for the MSW agency.
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Variable Rate
Variable rate pricing means charging different amounts per unit of garbage. Residents subscribe
to one of several different container size options (typically, these are 32- to 64-gallon sizes, although
they can range from 10 to 96 gallons in capacity). The community bills residents based on their
subscription level. For the garbage that residents discard above their subscription level, they must
pay an additional fee.
Under a variable rate system, the price charged for subsequent containers may increase or
decrease, depending on the community's PAYT program goals. A household that pays $1.50 per
week for a 32-gallon can subscription level, for example, might be charged either $1.00 or $2.00 for
each additional 32-gallon can it sets out in weekly collections.
In addition, container sizes used for set outs above the subscription level can be varied. Some
communities offer only one container size for additional set outs. Others ask residents to use con-
tainers that are larger or smaller than their subscription-level container size. Residents pay the fee
for extra garbage by purchasing specially marked or colored bags (or tags/stickers that can be affixed
to the bags), or the trash collectors can count the additional set outs at the time of collection and
bill residents accordingly.
Advantage
• Increased control over the waste reduction
incentive. MSW authorities can charge a
price for additional containers that is higher
than the subscription-level price if their goal
is to create a strong incentive to reduce and
recycle. Some MSW departments, however,
are concerned that residents might dispose
of their waste in undesirable ways if they feel
the pricing system is unfair. To avoid this,
additional containers can be charged at a
lower price than the subscription-level price.
Disadvantage
• Potentially higher costs. Communities must
offer residents a choice of subscription levels,
provide them with containers in varying
sizes, and bill accordingly. Haulers may need
to count set outs during collection. As a
result, these systems might be more expen-
sive to implement and administer (especially
during the startup phase).
Two-Tiered or Multi-Tiered
Two-tiered or multi-tiered systems help communities achieve revenue stability. Similar to the
billing systems used by telephone and water utilities, residents subscribe to a base level of service,
for which they pay a flat fee. These 'first-tier' fees can be assessed through local taxes or through a
monthly or quarterly charge, often included in a utility or other municipal bill. These fees can be
used to cover the fixed portion of a community's solid waste program costs (e.g., accounting, per-
sonnel, purchasing, and executive oversight). Residents then pay a 'second-tier' fee based on the
amount of waste they set out. Second-tier fees can be either variable rate or proportional. These fees
are often used to cover variable costs (e.g., collection, transport, and disposal).
Advantage
• Provides revenue stability. Multi-tiered
systems allow communities to ensure that
the program's fixed costs will be covered, no
matter how much residents reduce waste and
increase recycling (and thereby decrease
PAYT revenues).
Disadvantage
• Potentially generates a lower waste reduc-
tion incentive. The total cost of trash services
might not be apparent to residents when part
of the program cost (first-tier fee) is charged
at a flat rate or hidden in taxes. This may
lessen the incentive for residents to reduce
and recycle.
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First Method of Setting PAYT Rates
Drawing From Comparable Communities
^ome communities start the rate structure design (RSD) process by examining programs in success-
§ ful PAYT cities or towns with similar MSW programs, services, and/or demographic profiles. In
I this case, it may be particularly useful to look at communities with comparable disposal costs and
M tipping fees, complementary programs, and pickup frequencies. After learning what size containers
these communities use and the price they charge for each, you can adjust your rates to fit your com-
munity's goals. You also might simply use other communities' rates as a starting point for your own,
more extensive calculations (see Section III).
The map on pages 10-11 offers a sample of PAYT rate structures across the country in 1998. The
communities shown have implemented many different program variations, from variable rate systems
using a combination of bags and cans to proportional systems based on the sale of tags or stickers. All
of these communities have set rates that allow them to meet their unique program goals. Use this map
to learn more about rates and PAYT program variations in use today. (For a more comprehensive
matrix of PAYT communities, check EPA's Web site at .)
Starting with rates used by comparable communities might initially be the simplest approach to
RSD. Eventually, though, you might need to revise your community's rates to more reliably cover
costs, more effectively encourage waste reduction, or more vigorously achieve other community goals.
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Auburn, WA
Population: 36,000
Start Date: 1968
Price per Container:
$8.87 per month for one 30-gal-
lon can per week; or $19.60 per
month for one 60-gallon can per
week
Pendleton, OR
Population: 15,000
Start Date: 1935
Price per Container:
$12.35 per month for one
32-gallon bag per week;
or $25 per month for one
90-gallon can per week
Pittsburg, CA
RATE STRUCTURE DE
St. Cloud, MN
Antigo, Wl
Population: 8,000\
Start Date: 1990 ^
Price per Container:
$1.50 per sticker
(30 gallons)
Population: 48,000
Start Date: pre-1990
Price per Container:
$18 per month for one
32-gallon bag per week;
or $21 per month for
one 96-gallon can per
week
Number of
communities
with PAYT
0
Population: 49,000
Start Date: 1991
Price per Container:
$2.00 per 32-gallon bag
10
Population: 180,000
Start Date: 1990
Price per Container:
$6.45 per month for one
64-gallon can per week; or
$10.10 per month for one
100-gallon can per week
Population: 2,000
Start Date: 1992
Price per Container:
$2.00 per30-gallon
bag; $6.00 per 90-
gallon can
Population: 129,000
Start Date: 1991
Price per Container:
$11.15 per month for one
95-gallon can;
$12.50 per month for each
additional 95-gallon can
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Darien, IL
Aurora, IL
Lansing, Ml
Utica, NY
Population: 18,000
Start Date: 1990
Price per Container:
$1.50 per bag
(60 Ib. maximum)
Population: 130,000
Start Date: 1976
Price per Container:
$1.50 per 30-gallon
bag
Population: 69,000
Start Date: 1989
Price per Container:
85Stonington, CT
Population: 1,000
Price per Container:
85
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Second Method of Setting PAYT Rates
Using the Six-Step RSD Process
| second method of rate structure design (RSD) is to review data on your community's waste gener-
I ation, program costs, and other relevant factors to arrive at your own PAYT rates. These calcula-
JJ tions can be simple or complex, depending on the kinds of data and the amount of expertise you
I have available. You will need to estimate the amounts of solid waste generated under PAYT, the
types of MSW services that will be provided, and the net costs of MSW services. To help develop these
estimates, communities often use simple worksheets or more complex tools such as computer software.
While this method takes some time and effort, it may produce a rate structure in which you have greater
confidence. The method has six basic steps as outlined below.
Forecast residential MSW amounts. Forecast the annual tonnage of MSW you
expect to collect once PAYT has been implemented.
Determine the types of MSW services to be provided. Determine the types of MSW
services that will be provided to residents (e.g., collection of trash, recyclables, and com-
postables) and the types of containers and billing options to be used under PAYT.
Estimate net costs of MSW Estimate your net costs using the information developed
above on forecasted amounts of MSW and the types of services that will be provided.
Net MSW costs incorporate MSW costs less any revenues from complementary pro-
grams (e.g., sale of recyclables, composting, and trash or bulky waste pickup).
Determine PAYT revenues and MSW program cost coverage. Based on MSW costs
and your coverage objectives, calculate the estimated revenues you need to generate.
This may be more or less than net MSW costs, depending on your community's other
goals and financial resources.
12
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Calculate PAYT rates. Select a pricing system that is appropriate for your community
after considering the pros and cons of the alternative systems (see pages 7-8). Based on
the pricing system you select and the forecasted amounts and costs of MSWyou expect
under PAYT, calculate the price level necessary to pay for your program.
Adjust MSW services and PAYT rate structure. If the PAYT price level seems too
high, consider less costly or more efficient MSW services and/or choose a PAYT pricing
system that encourages greater reduction in your community's solid waste (and hence
MSW costs). Then recompute the PAYT price level. Continue making adjustments
until all of your community's objectives are met by the PAYT rate structure.
The six-step RSD process is detailed in this section using the example of a hypothetical community
named 'Midtown.' Midtown is establishing a PAYT rate structure. It has a population of 35,000 (17,500
households). A task force comprised of diverse community stakeholders determined the town's MSW
goals, which are:
To
encourage waste prevention
• To increase composting and recycling
• To maintain MSW revenue stability
Midtown currently has a curbside recycling program for collecting glass, aluminum, and newspaper.
It will add collection of plastics, mixed paper, and steel cans. The city also decided to launch an aggres-
sive education and outreach program on backyard composting and grasscycling in order to reduce the
organics in its waste stream.
The example of Midtown is intended to help explain the basic RSD concepts. We encourage you to
apply this six-step process to your own community's specific needs as you explore MSW program options
and their implications for reduced solid waste tonnage, increased recycling, and PAYT revenues. This
example is not intended to be a precise formula — there are no cookie cutter recipes for RSD! Rather, it is
a methodology; a step-by-step analysis of the factors to consider when designing your own rates. Keep in
mind your own community's goals, MSW services, costs, and revenue needs — which could differ greatly
from this example — and be sure to use your own community's data when applying this approach.
To gather the necessary information, you might need to consult your community's MSW program
records or the finance office in your town, city, or county government. You can base your estimates on
community demographic and waste generation data. Other useful sources of information include local
private haulers or the MSW offices of nearby PAYT communities.
Key terms and concepts used in this section of the booklet are listed on the following page. Refer to
this list, as necessary, as you work through the six-step process outlined in this section; additional useful
terms are referenced in the glossary on page 34.
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Key Terms and Concepts
Base year: The year prior to implementation of
PAYT, which can be used as a baseline against
which potential PAYT impacts are measured.
Projection year: The year during which PAYT has
been implemented and resident response has
leveled out in response to the price incentives
(e.g., through reduced waste generation and
increased recycling).
Complementary programs: MSW services (e.g.,
curbside/drop-off recycling, composting, and
bulky waste pickup) that supplement basic
trash collection and disposal.
Waste reduction: The combined reduction in
MSW that is discarded, resulting from greater
waste prevention, increased reuse and recy-
cling, and more backyard and municipal com-
posting.
Direct costs: These costs are readily assignable to
a particular MSW activity such as collection,
processing, or disposal.
• Collection and transportation costs: Direct
costs for trash and recyclables pickup, trans-
portation, and temporary storage in transfer
stations. These costs usually rise (or fall) as the
level of MSW activity changes, although not
always in exact proportion, and sometimes
with a time lag. Major components include
costs of labor, equipment, and/or contract
payments.
• Processing costs: Processing costs of recy-
clables and other direct costs related to the
postcollection management of recyclables.
• Disposal costs: Landfill tipping fees, incinerator
costs, and disposal costs for residuals.
Indirect (overhead) costs: The management and
support costs of operating the MSW program
(including any indirect costs from centralized
local government functions that are allocated
to the MSW program's budget). These costs
support the entire MSW system and are often
relatively fixed costs, but they must be allocat-
ed among services and their associated rates
on some basis (e.g., tonnage, full-time equiva-
lents required, etc.).
Forecast Residential
MSW Amounts
The first step involves estimating the amount of
waste you will collect from the residents in
your community during the base year and
projection year. To obtain accurate calcula-
tions, you will need to isolate residential wastes
from commercial wastes. Including commercial
waste inflates both the total weight of MSW and
the costs to be covered by the PAYT program. This
will lead to inaccurate PAYT rate calculations. (If
your community intends to collect commercial
waste as part of your PAYT program, you will need
to design a separate rate structure based upon
dumpster size and collection frequency.)
A. MSW collected in the projection year, without
PAYT.
Estimate the MSW tonnage you currently col-
lect per household in a year. Adjust this amount
for any likely changes in your community's pop-
ulation in the projection year.
B. MSW collected in the projection year, with
PAYT.
Make a preliminary estimate of how much the
residents in your community will increase their
waste reduction efforts in response to PAYT
Successful PAYT communities recommend that
it is better to overestimate reductions in trash
set outs rather than to underestimate waste
reduction efforts. This will ensure a sufficient
revenue flow. (You can later revise this waste
reduction estimate once you have developed
more information such as the types of MSW
services that will be provided, the pricing system
that is best for your community, and the level of
PAYT rates; see Section IV for more informa-
tion.) Based on this estimate, calculate the
MSW tonnage per household you expect to col-
lect in the projection year under PAYT
Table 1 on page 15 illustrates how Midtown
calculated its residential MSW amounts in the pro-
jection year with and without PAYT
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Weighing the Difference With PAYT
A national study reports a 14- to 27-percent reduction in trash (by weight) in PAYT communities that
had no recycling program or that simply retained their existing recycling program. Communities that
adopted PAYT in combination with new or expanded recycling programs achieved even higher percent-
age reductions in trash. Cities that did not change their recycling program with the introduction of PAYT
typically experienced increases of 32 to 59 percent in the weight of materials recycled. (Unit Pricing of
Residential solid Waste: A Preliminary Analysis of 212 U.S. Communities by Marie Lynn Miranda and
Sharon LaPalme, June 4, 1 997, Nicholas School of the Environment, Duke University.)
The percentage of waste reduction your community can anticipate will also be significantly influ-
enced by such factors as the extent of your public outreach, the range of complementary programs
offered, and the expected rate of resident participation.
MSW in Projection Year, Without PAYT
Tons of MSW collected in base year
-j- Number of households (1 7,500) in base year
= Tons per household per year
X Number of households (18,750) in projection year
= Tons of MSW in projection year without PAYT
MSW in Projection Year, With PAYT
Tons in projection year without PAYT
X MSW multipliers from PAYT*:
(1.00 - 0.30 drop in trash)
(1 .00 + 0.40 rise in recyclables)
= Tons of MSW in projection year with PAYT
Percent drop in MSW due to PAYT, projection year:
Trash
28,000
1.60
30,000
30,000
xO.70
21,000
- 30%
Recyclables
7,000
0.40
7,500
7,500
x 1.40
10,500
+ 40%
Total MSW
35,000
2.00
37,500
31,500
- 1 6%
* Since Midtown will expand its recycling program and plans to offer an aggressive education and out-
reach program on backyard composting and grasscycling, it estimates a 30 percent reduction in trash
tonnage and a 40 percent rise in recyclables with PAYT. Midtown expects total MSW tonnage to drop by
about 16 percent with PAYT.
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K
Determine the Types
of MSW Services To Be
Provided
ext, you will determine the collection
options, the types of MSW services to be
provided to residents, the customers to be
included, and the container type to use.
A. Collection options
Examples include collection of trash, recy-
clables, compostables, and/or bulky items.
B. Type and frequency of service
Some examples are backyard pickup, curbside
pickup, or rural drop-off. Collection frequencies
include semiweekly, weekly, biweekly, and
monthly.
C. Customers to be covered by PAYT program
Examples include single-family housing, small
multifamily housing units, and large multi-
family housing units.
D. Container type and capacity
Select the container type and size (volume) you
plan to use in your PAYT program. Typical
container types are:
• Bags. Trash bags, usually 20 to 30 gallons in
capacity, are often used in PAYT programs.
Residents purchase the specially marked bags
from municipal offices or retail stores.
• Cans. Some communities use cans, ranging
from 10 to 96 gallons in capacity. These sys-
tems often operate on a subscription basis
under which residents choose the can size
they wish to use.
• Stickers or tags. Some communities sell resi-
dents stickers or tags to affix to each container
of trash they generate. Containers must not
exceed prescribed volume or weight limits.
• Compost bins. Some communities provide
bins to residents for backyard composting.
After you have chosen a container type, esti-
mate its average weight. There are several ways to
do this. The most accurate method for estimating
the weight of the (filled) containers is to conduct a
waste audit. Obtain samples of filled trash contain-
ers from representative households in your com-
munity. Sample from large households, one- or
two-person house-holds, and elderly residents in
the proportions they occur in your community.
Weigh the samples to derive volume-to-weight
conversions for your community.
You can also estimate the weight of containers
using local or national data, although the average
weight of a container of garbage can vary from one
community to another (e.g., a filled 30-gallon bag
may weigh 24 to 48 pounds). In addition, you
might want to adjust expected weights upward to
account for the tendency of residents to compact
more trash under PAYT. Table 2 on page 17 shows
Midtown's container selection and estimated
weight under its PAYT program.
For tag or sticker systems, decide on the vol-
ume and weight of containers your program will
permit. Keep in mind that some communities have
reaped an unexpected windfall because residents set
out less trash than is permitted by the sticker or
bag. If residents set out only 25 pounds in a bag
priced to allow 30 pounds, for example, the com-
munity retains the difference, which can quickly
add up to a substantial surplus.
If you plan to use more than one container size,
identify the volume and weight per container for
each container size. Offering more than one con-
tainer size (or smaller containers) offers customers
several advantages, especially those residents
already producing small amounts of trash, such as
singles, childless couples, and retirees. These indi-
viduals can reduce waste only slightly and still see a
drop in costs. If only 30-gallon containers are
offered, for example, a resident that normally pro-
duces 60 gallons of trash per month would only
see savings by cutting waste in half (to 30 gallons a
month). If 20- and 30-gallon containers are
offered, however, the resident could reduce waste
to 40 or 50 gallons per month and still pay less.
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Table 2. Selection of Container and
Volume-to-Weight Conversion
Container Type
Cans
Bags /
Stickers
Volume
(gallons)
30
Weight With PAYT
(pounds)
30*
* Midtown's residents currently set out 30-gallon bags that average 27 pounds. Midtown estimates that
the weight of the bags is likely to increase by about 10 percent under PAYT, to 30 pounds per bag.
Estimate Net Costs of MSW A-Direct costs
Hext, you will identify the cost components of
your solid waste program. Since no two com-
munities record and report their cost infor-
mation in the same way, this discussion is
intended to provide only general guidance and
should be customized to reflect information avail-
able in your community. Whenever possible, try to
isolate MSW program costs from other public ser-
vice or utility costs in your community's budget
(see Section IV for further discussion). One of the
most important steps in planning for PAYT is to
identify where and why MSW activities (and their
costs) will shift when you implement PAYT.
Under PAYT programs, there can be one-time
startup costs (e.g., capital investment for garbage
carts or compost bins, or costs for an education
and outreach campaign). Some new costs can be
ongoing costs (e.g., administration and staffing
costs associated with billing residents for services).
But most of the cost changes with PAYT involve
cost shifting and, usually, a reduction in overall
ongoing costs as total MSW amounts fall.
For each of the following categories, consider
which costs, if any, could increase temporarily
during the transition to the PAYT program or
shift permanently to a higher or lower level
under PAYT.
Itemize your MSW program's current direct
costs for collecting trash, recyclables, and com-
postable materials; processing recyclables and com-
postables; and disposing of trash and residuals.
These costs must then be allocated to the MSW
pathways available (see Section IV for a discussion
of pathways; for Midtown, trash or recyclables are
the available MSW pathways). Then identify if any
of these costs increase temporarily or shift perma-
nently under PAYT. Direct labor, fuel, and equip-
ment costs could be less under PAYT than under a
traditional program, for example, particularly if the
reduced amount of waste results in less frequent
MSW collection. Do not include the costs associ-
ated with operating a municipally owned landfill
or materials recovery facility under disposal and
processing costs if they are already included in
your indirect costs.
The cost of processing recyclable and com-
postable materials might rise as more citizens use
these service options rather than the trash service.
Disposal costs usually decrease under PAYT since
there tends to be less waste for disposal.
B. Indirect (overhead) costs
Itemize the current indirect costs of your MSW
program. Then identify which, if any, of these
indirect costs might increase temporarily or shift
permanently under PAYT. Introducing PAYT can
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Table 3. MSW Net Costs in Projection Year
(in thousands of dollars)
Without PAYT
Direct Costs
Collection
Transport and storage
Disposal/processing
+ Indirect Costs
= MSW Gross Costs
- Recyclable Revenues
= MSW Net Costs Without PAYT
With PAYT
Direct Costs*
Collection
Transport and storage
Disposal/Processing
+ Indirect Costs
= MSW Gross Costs
- Recyclable Revenues
= MSW Net Costs With PAYT
Percent change in MSW net costs
in projection year, due to PAYT
Trash
$900
200
900
400
2,400
0
$2,400
$760
190
630
320
1,900
0
$1,900
Recyclables
$390
100
135
200
825
225
$600
515
135
190
245
1,085
315
$770
Total MSW
$1,290
300
1,035
600
3,225
225
$3,000
1,275
325
820
565
2,985
315
$2,670
-11%
* Midtown has decided to fund PAYT startup costs from a separate fund, so as not to distort the initial PAYT
rates it sets.
lead to temporary increases in the costs of some
staffing positions, such as MSW public outreach
specialists and customer service representatives.
These individuals are responsible for educating res-
idents and responding to questions, which are far
more numerous at the beginning of the new PAYT
program.
C. Net costs
Add together all of the estimated ongoing costs
(direct and indirect) of your MSW program under
PAYT. Subtract any net revenues from comple-
mentary programs to arrive at your MSW program
net costs. Compare the projected year costs under
your current program with those under PAYT.
Separately consider one-time startup costs. Decide
whether to fund these from other sources or from
PAYT fees.
Midtown's net costs in the projection year are
illustrated above in Table 3-
MSW Cost Resources
More detailed information on MSW costs is
provided in Section IV of this booklet. You can
also consult the U.S. Environmental Protection
Agency's (EPA's) Full Cost Accounting for
Municipal Solid Waste Management: A Hand-
book, EPA530-R-95-041, September 1997, or
EPA's Full Cost Accounting Web site at
.
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IT
Determine PAYT Revenues
and MSW Program Cost
Coverage
n the previous step, you calculated the MSW
net costs in the projection year with PAYT. Now
you must determine the level of revenues the
PAYT program must generate to achieve your
community's goals. Depending on your goals, you
may want PAYT fees to cover all or part of your
MSW program costs, or you may want the PAYT
fees to generate revenues that exceed your MSW
program net costs. Consider the following:
• You might decide to cover less than 100 percent
of current MSW program costs if your PAYT
program exempts residents living in multi-
family housing units and your community
draws from other revenue sources to cover the
costs of those MSW services.
• You might decide to cover 100 percent of cur-
rent MSW program costs if you operate your
MSW program as an enterprise fund.
• You might decide to cover more than 100 per-
cent of current MSW program costs if you use
PAYT fees to cover current MSW program
costs and pay for other MSW costs (e.g., land-
fill closure or siting) and/or cover a budget
shortfall for non-MSW expenses (e.g., public
education).
ff"
Calculate PAYT Rates
PAYT rates can provide clear price signals to
encourage residents to engage in specific
waste reduction activities. Now that you have
forecasted MSW tonnage with PAYT, deter-
mined the MSW service costs to be covered by
PAYT, and chosen a container size and estimated
its average weight, you are ready to choose a PAYT
pricing system and calculate your rates. Refer to
pages 7-8 in Section I to compare the pros and
cons of commonly used PAYT pricing systems
(i.e., proportional, variable, or two-tier). Choose
the one that is most consistent with your commu-
nity's goals. This section shows how to calculate
your initial (provisional) rates under each of these
three systems.
A. Proportional Rates
A proportional pricing system is the simplest
type of system for which to calculate a rate. Under
this pricing system, each container is the same size
and the same price.
Number of containers
First, you will need to estimate the number of
containers you expect will be set out each year.
Convert your forecasted annual trash tonnage
under a PAYT program into pounds of trash per
year (i.e., multiply the number of tons by 2,000).
Divide that number by the average weight (in
pounds) of the trash container you have selected.
The result is the estimated total number of con-
tainers of trash the residents in your community
will generate each year under PAYT.
To develop a proportional rate, divide the
MSW program costs to be covered by PAYT rev-
enues by the number of containers of trash you
expect with a PAYT program in place. The result
is the initial (provisional) price per container each
household will pay under a proportional PAYT
system.
Midtown calculated a rate under a proportional
pricing system (Table 4) and established a price of
$1.90 per bag. If municipal officials in Midtown
determine that $1.90 per bag is too high and resi-
dents resort to undesirable methods of waste dis-
posal, other pricing options include two-tiered
pricing (see page 21), covering less than 100 per-
cent of solid waste costs with PAYT revenues (i.e.,
using tax revenues to help defray solid waste costs),
or charging separately for recycling and waste dis-
posal.
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Table 4. Calculating Proportional
PAYT Rates
PAYT Proportional Rate Calculation
Tons of trash in projection year (with PAYT)
X 2,000 pounds per ton = Pounds of trash
-j- 30 pounds (Average weight per 30-gallon bag)
= Number of 30-gallon bags per year with PAYT
MSW costs to be covered by PAYT revenues
•*• 1,400,000 (number of 30-gallon bags
per year with PAYT) = PAYT rate
Example from Midtown
21,000
42,000,000
1,400,000
$2,670,000
$1.90*
In this example, Midtown operates its MSW program as an enterprise fund and plans to fully cover
ongoing MSW net costs with its PAYT revenues (and generate a small buffer fund to cover the
uncertainties in the estimates). Assuming Midtown provides free recycling services, the price per
bag is rounded to $1.90.
If Midtown decided to charge a separate fee for
recyclables to cover its net cost, for example, it
could apply this same proportional rate approach
to both trash and recyclables. In this case,
Midtown might charge $41 per household per year
to cover net costs of recycling services (i.e., net
recyclable costs of $770,000 divided by the num-
ber of households (18,750) = $41.07) and $1.40
per bag (i.e., costs of trash services ($1,900,000)
divided by the number of bags with PAYT
(1,400,000) = $1.36) to cover net costs of trash
services.
B. Variable Rates
Variable rate pricing is the most flexible pricing
system, but it can also be the most complex. With
variable rates, the per-gallon price differs by the
size of container set out by the resident. In some
communities, containers are all the same size. In
other communities, containers can be different
sizes.
Number of containers
After selecting the container sizes, you must
estimate the weight of each filled container. In
addition, you must estimate the percentage of your
community's trash you expect will be set out in
each container size. (This estimate can be devel-
oped during the same trash container sampling
exercise you carry out to estimate volume-to-
weight conversions by container size.)
Multiply the total number of pounds of trash
you expect with PAYT times the percentage of
trash you expect will be set out in the first contain-
er size. Then divide the result by the expected aver-
age weight this container size will be when set out
under a PAYT program. The result is the estimated
number of containers of this size you can expect
under PAYT. Next, repeat this calculation to
develop estimated numbers for each of the other
container sizes you permit under the PAYT pro-
gram. Table 5 shows Midtown's container selec-
tions and estimated weight per container filled.
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Table 5. Selection of Container and
Volume-to-Weight Conversion
Container Type
Cans /
Cans /
Bags
Tags/Stickers
Volume
(gallons)
32
64
Weight With PAYT*
(pounds)
35
55
Percent of
Trash by
Container Size
40%
60%
* Midtown's PAYT Task Force projects more trash compaction in the smaller, 32-gallon cans.
Allocating MSW net costs
To calculate a variable rate structure, you must
also determine the proportion of MSW net costs
that will be covered by the revenues from each
container size. As discussed in Section I, you may
decide to charge higher per-gallon rates for larger
or additional containers (to encourage waste pre-
vention) or lower per-gallon rates for larger or
additional containers (to reflect the cost structure
where there are significant fixed costs). Table 6 on
page 22 shows how Midtown calculated a variable
rate structure for 32- and 64-gallon cans covering
40 percent of its MSW costs with the small can
and 60 percent of its costs with the large can.
Alternatively, if Midtown decided to charge a
separate fee for recyclables to cover its net costs, it
could apply this approach to both trash and recy-
clables. In this example, it might charge $41 per
household per year (as in the preceding propor-
tional rates example). Midtown might charge
$1.60 per 32-gallon can (i.e., 40 percent of trash
costs (0.40 x $1,900,000) divided by the number
of 32-gallon cans (480,000) = $1.58) and $2.50
per 64-gallon can (i.e., 60 percent of trash costs
(0.60 x $1,900,000) divided by the number of
64-gallon cans (458,182) = $2.49). This would
generate sufficient revenues to cover total MSW
net costs plus a small buffer fund to cover uncer-
tainties in the estimates.
C. Two-Tier Rates
Under a two-tier pricing system, residents sub-
scribe to a base level of service for which they pay
a flat fee (first-tier fee) that may be assessed
through local taxes or through direct billing.
Second-tier fees, on the other hand, are based on
the amount of waste that residents throw away.
Many communities use the simplest version, a
two-tier pricing system with a proportional sec-
ond-tier rate. Some communities, however, use
more complicated rate structures. The most com-
plex are multi-tier pricing systems with variable
rate pricing for the second and higher tiers.
Number of containers
Estimate the number of containers set out per
year with PAYT. If you plan to use only one con-
tainer size, follow the approach in the proportional
rates section (page 19); if you plan to use several
container sizes, follow the approach in the variable
rates section (page 20-21).
Cost basis per tier
Some communities use revenues from the first-
tier fees to cover fixed costs and revenues from the
second tier to cover direct collection and disposal
costs. Other communities use revenues from the
first tier to cover direct and indirect collection
costs, and revenues from the second tier to cover
-------
PAYT Variable Rate Calculation
Tons of trash in projection year (with PAYT)
X 2,000 pounds per ton
= Pounds of trash with PAYT
Pounds of trash X 0.40 (Portion of trash in 32-gallon cans)
= Pounds of trash in 32-gallon cans with PAYT
-j- 35 (Average pounds per 32-gallon can)
= Number of 32-gallon cans per year with PAYT
MSW program costs to be covered by PAYT
X 0.40 (Portion of costs to be covered by
revenues from 32-gallon cans)
•*• 480,000 (Number of 32-gallon cans set out with PAYT)
= Price per 32-gallon can with PAYT
Pounds of trash X 0.60 (Portion of trash in 64-gallon cans)
= Pounds of trash per year in 64-gallon cans with PAYT
-j- 55 (Average pounds per 64-gallon can)
= Number of 64-gallon cans per year with PAYT
MSW program costs to be covered by PAYT
X 0.60 (Portion of costs covered by revenues
from 64-gallon cans)
•*• 458,182 (Number of 64-gallon cans set out with PAYT)
= Price per 64-gallon can with PAYT
Example from Midtown
21,000
42,000,000
32-gallon cans
16,800,000
480,000
$2,670,000
$1,068,000
$2.23*
64-gallon cans
25,200,000
458,182
$2,670,000
$1,602,000
$3.50*
In this example, Midtown operates its MSW program as an enterprise fund and plans to fully cover
ongoing MSW costs with its PAYT revenues. It has decided to cover 40 percent of MSW costs with the
revenues from 32-gallon cans and 60 percent of MSW costs with the revenues from 64-gallon cans.
Midtown has chosen a variable rate structure it believes will achieve its goal of encouraging waste
reduction while taking into account the cost concerns of large families. Based on this calculation, it plans
to charge $2.25 per 32-gallon can and $3.50 per 64-gallon can.
-------
direct disposal costs only. As discussed in Section I,
the greater the costs to be covered by first-tier fees,
the more stable the PAYT revenue stream; the
greater the costs to be covered by second-tier fees,
the greater are the community's waste reduction
and recycling incentives.
Two-tier price
Once you decide which costs will be covered by
the revenues from each pricing tier, calculate the
amount each household is billed each year by the
first-tier fee by dividing first-tier costs by the
number of households. (Divide the result by
four to develop quarterly billings per household.)
Calculate the second-tier charge per container by
dividing the second-tier costs by the number of
containers set out per year, if you are using
proportional second-tier pricing. (If you are using
variable second-tier pricing, follow the approach
shown in the variable rates section.) Table 7 shows
how Midtown calculated a two-tier rate.
PAYT Two-Tier Rate Calculation
Portion of MSW net costs to be covered by first-tier fees
+ Portion of MSW net costs covered by second-tier fees
= Total MSW net costs to be covered by PAYT revenues
First-Tier Rate
Portion of MSW net costs to be covered by first-tier fees
•*• 18,750 (Number of households)*
= Annual MSW net costs per household
-j- 4 quarters = Quarterly PAYT bill per household
Second-Tier Rate
Portion of MSW net costs covered by second-tier fees
•*• 1,400,000 (Number of 32-gallon bags per year)
= Price per 32-gallon bag
Example From Midtown
$1,090,000
$1,580,000
$2,670,000
$1,090,000
$58.13
$14.53
$1,580,000
$1.13*
In this example, Midtown operates its MSW program as an enterprise fund and decides to fully cover
ongoing MSW net costs with its PAYT revenues. It has chosen a two-tier rate structure it believes will
strongly encourage waste reduction. It has decided to cover fixed costs for trash, plus net costs of recy-
clables ($320,000 + $770,000 = $1,090,000), with revenues from the first-tier billing. The remaining
direct costs for trash are covered by second-tier fees per bag. Based on this calculation, Midtown rounds
off the calculated figures and provisionally plans to charge households $14.50 per quarter and $1.15
per bag.
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Adjust MSW Services and
PAYT Rate Structure
y now, you have developed a PAYT rate
structure that reduces trash, increases recy-
cling, and generates revenues sufficient to
cover your designated costs of MSW services.
At this point, these are still provisional rates. It is
important to know where your estimated costs and
revenues are most sensitive to the underlying
assumptions. It is also important to be sure your
assumptions on some steps (such as percentage
reduction in trash or increase in recyclables) are
consistent with your assumptions on other steps
(such as types of MSW services provided, effort
devoted to public education and outreach, or
PAYT rate and pricing system). This review may
cause you to raise or lower your provisional rates to
some degree.
To gain some confidence in your rate structure
design—or to be aware of where you need to
improve the quality of your underlying data—go
back to the key decision points to see how higher
or lower estimates would affect the final outcome.
If you must avoid a shortfall in revenues, con-
sider using more conservative estimates. Assume
that residents will aggressively reduce waste, for
example, or that community population might not
grow as rapidly as expected. These conservative
assumptions result in lower levels of estimated
waste and, therefore, higher expected PAYT rev-
enues. Alternatively, you could simply acknowledge
the need for a safe margin of revenues and then
raise rates accordingly, without making assump-
tions about population or waste reduction changes.
Key Decision Points
Below are several key points to keep in
mind as you consider your provisional rates
and make adjustments.
• Forecasting residential MSW amounts. In
Step l,you estimated the number of
households in the projection year.
Consider the impact on your rate structure
of greater or lesser population levels in
the projection year.
• Expected waste reduction impact of PAYT.
In Step 1, you estimated the levels of
reduced trash, increased trash com-
paction, and increased recycling resulting
from residents' responses to PAYT price
incentives. Reconsider the strength of resi-
dents' responses in light of the type of
pricing system you have chosen and the
level of your provisional PAYT rates.
Calculate alternative rate structures after
assuming greater or lesser responsiveness
from residents. Consider expanding edu-
cation and outreach activities to ensure
high rates of participation.
• Estimated weight of trash containers.
Consider the impact on your unit price if
the actual average weight of filled trash
containers is higher or lower than your
estimate.
• MSW costs. Vary these to see how reason-
able variations above or below your best
estimate could affect the unit price need-
ed. Consider raising the rate structure to
ensure your MSW net program costs are
covered and then lower them later if you
generate excess revenues.
This kind of analysis can be done on
worksheets (e.g., paper and pencil or
electronic) or through specialized computer
programs designed to apply sensitivity analy-
sis and iteratively develop a PAYT rate
structure that is based on internally consistent
assumptions and that best meets your
community's needs.
-------
Refinements in Setting PAYT Rates
I our community may decide to include in the PAYT rate all the direct and fixed costs of the activities
needed to support each of the MSW services available to residents. This section provides a more
'detailed discussion of MSW costs, their allocation among MSW pathways and activities, and related
issues a community might wish to consider when calculating PAYT rates.
Direct and Indirect Costs
^k esidents often have many choices for recover-
jing or discarding materials. They may be able
^Lc to set out trash, recyclables, and compostable
I materials at the curb. They also may be able
to take items to drop-off centers, or a transfer sta-
tion or landfill. Local governments that provide
MSW services send a message to residents through
the fees they charge for each of these services. A
major factor in deciding what to charge for MSW
services should be the cost of each service. The
following discussion can help you determine these
service costs.
A. MSW pathways and activities
Pathways for MSW choices track the activities
through which each type of material proceeds.
MSW pathways (see page 26) include recycling,
composting, waste-to-energy, and landfilling.
MSW activities include waste collection, operation
of transfer stations, transportation of waste, waste
processing and disposal, and sale of byproducts.
After being picked up at a residence, for example,
trash may be taken to a transfer station and then
hauled to a landfill and buried. Some activities
may serve more than one pathway. The landfill in
this system, for example, is part of the pathway for
trash collection, recyclables collection, yard trim-
mings collection, and drop-offs by residents.
B. Direct costs
Costs directly attributable to an activity are
sometimes relatively easy to allocate. If different
trucks provide collection and transport for differ-
ent types of MSW services, for example, you can
allocate the cost of each truck to the appropriate
service. If the same trucks are used for collecting
trash as well as recyclables or yard trimmings, how-
ever, you should allocate those costs on some rea-
sonable basis, such as the time a truck is used for
each service. Similarly, landfill costs must be allo-
cated to each pathway that uses the landfill. Since
landfill tipping fees are usually based on weight,
the weight of MSW dumped at the landfill might
be an appropriate basis for allocating landfill costs
among the MSW activities. In sum, it is important
to develop a reasonable way to identify the costs
associated with providing each MSW service to
residents and then a way to allocate them among
activities.
C. Indirect costs
Indirect MSW costs are usually spread over sev-
eral MSW activities. A greater effort is required to
identify the costs and to allocate them to the
appropriate activity. The general manager of the
MSW program, for example, is a necessary part of
all MSW services. A person answering the tele-
phone to take questions or complaints from resi-
dents is also essential for the smooth operation of
the entire MSW program, as are the staff who bill
for MSW services or handle MSW payables. All of
these indirect costs must be identified and allocat-
ed on a fair basis.
One simple approach to allocating indirect
costs is to estimate the tonnage of waste that each
MSW service processes. Then the indirect cost can
be allocated to each MSW service in proportion to
the amount of waste it processes. Some communi-
ties may want (or need) to make even more precise
allocations. Whatever allocation method is used,
however, it is important that the allocation of indi-
rect costs should be seen as fair by those who are
charged for MSW services.
25
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Figure 1: MSW Pathways and Activities
r
Solid Waste - Generic Flow Chart
Collection
Activity
Mixed Waste
Collection
Recyclables
Collection
Yard Trimmings
Collection
Transfer
Station
Activity
Transfer
Station
| Transfer j j Transfer j
Station Station
Transport
Activity
I Transport i-
i—"—*• 1 i———
j Transport Transport
Solid
Waste
Facility
Activity
Waste-to-
Energy
Landfill
I
Material
Recovery Facility
Composting
Facility
Sales
Activity
Sale of
Energy
Sale of
Energy
Sale of
Recyclables
Sale of
Compost
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Other Factors to Consider in
Setting PAYT Rates
getting rates on the basis of the full costs of each
I MSW service can generate sufficient revenues
\ to cover MSW costs. Yet there may be other
M public policy considerations that could suggest
higher or lower PAYT rates as described below.
A. Front- and back-end costs
The costs discussed so far occur at the same
time as service delivery. Other costs are incurred
before or after service delivery, however, and must
also be included to have a full picture of the
resources being used to provide MSW services.
Front-end costs for a landfill, for example, may
include site preparation, liners, monitoring wells,
and the costs of holding public meetings to obtain
site approval. Back-end costs include landfill clo-
sure as well as postclosure monitoring and
maintenance. Even though these costs occur before
or after the actual provision of service, they are an
essential part of the job and should be included in
the basis for calculating PAYT rates.
B. Policy considerations
Your community may have MSW priorities
based on other policy considerations. A local gov-
ernment, for example, may want to encourage
materials recovery and composting but discourage
landfilling. It may decide to charge less than full
cost for options that it considers 'desirable' and
more than full cost for options that are 'undesir-
able.'
C. Pricing complementary services
Many PAYT communities motivate waste
reduction behavior by charging only for trash ser-
vices and then collect and process recyclables and
compostables for free. To some, this approach
appears to most directly meet public policy objec-
tives. Other communities charge for certain com-
plementary services, however. These charges reflect
the economic resources expended in recycling
activities and, at the same time, may encourage
residents to make greater efforts in waste preven-
tion, reuse, and backyard composting activities.
D. Revenue stability
One of the most common goals of MSW agen-
cies is to guarantee revenue stability. To achieve this
goal, many communities use a two-tiered rate. This
kind of pricing system recognizes that some costs
are fixed and others are variable. PAYT rates can be
set so that revenues cover designated costs in the
first tier despite the reduction in MSW amounts.
An MSW billing system, for example, may use the
same resources regardless of how much MSW the
community discards each month.
On the other hand, given that residents typical-
ly respond to PAYT rates by generating less waste,
the second-tier rates can cover the costs for the
reduced amounts of waste that are discarded. Also,
costs for the landfill (such as expenses for equip-
ment and operators) will eventually drop if the
landfill receives less waste each month. The num-
ber of operators could be reduced through attrition
or transfers to another activity. These lower costs
can be covered by the second-tier fees. Direct costs
and the revenues from second-tier fees tend to rise
and fall by similar amounts as MSW amounts
increase and decrease. (Discussed in Overview on
page 3, and in the Midtown example.)
To further assist your own community's RSD
efforts, you might attend workshops or choose a
software program to calculate more advanced rate
structures. Additionally, EPA offers several
resources on PAYT, rate setting, and full cost
accounting as described in the box below.
Resources
For updated information on rate setting and
pricing and other available resources, visit EPA's
PAYT Web site at and the
Full Cost Accounting Web site at
. Two useful resources on
these Web sites are Pay As You Throw: Lessons
Learned About Unit Pricing, EPA530-R-94-004,
April 1994, and Full Cost Accounting for
Municipal Solid Waste Management: A Handbook,
EPA530-R-95-041, September 1997- These doc-
uments can also be ordered at no charge from
EPA's RCRA hotline at 800 424-9346 (TDD
800 553-7672).
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Case Studies
• very community approaches the process of designing a rate structure for its PAYT program different-
ly. In this section you will learn how five communities met this challenge. These case studies repre-
,^^m sent a range of different pricing systems, container choices, and population sizes. The stories were
%• written by the local officials who initiated or now run their community's PAYT program.
Program success is the thread that runs through each of the stories. As the following testimonials illus-
trate, there is no one correct price or approach to pricing that will make PAYT a success. There are many
different paths local officials can take. Review the stories to learn more about rate structure design (RSD)
and how you might set appropriate prices for your program.
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Oconee County, Georgia
Oconee is a fast-growing, semirural county
covering 186 square miles with a popula-
tion of 25,000. The major portion of the
population is located in the northern end
of the county with more than 160 subdivisions.
The southern portion is primarily rural.
The county started its PAYT program in
May 1994 as a result of the necessary closing of
our landfill (rather than meeting Subtitle D
landfill requirements). We began by developing
a comprehensive understanding of the areas we
were presently serving and planned to serve
with the new system. After privatization was
discussed and rejected, we contracted with a
neighboring county with an approved landfill.
Other counties were charging $1.50
and, based on the cost of operating
the drop centers and disposing of the
trash, that was about as high as we
thought we could go.
Residents are offered the choice of contract-
ing with a private collector or using the coun-
ty's volume-based Blue Bag program. Residents
that use the program buy the blue bags from
retail outlets and haul their garbage to one of
the county drop centers, where there are
dumpsters for source-separated recyclables
and blue bags. Residents are not charged for
recycling.
The bag is 32 gallons in size and costs citi-
zens $1.50 at retail outlets. The price of the
bag was determined through bid prices from
vendors and included a 10-cent profit for
retailers. Tipping fees and hauling costs were
also considered in determining this price.
A $1.50 per-bag price was determined to be
the maximum amount that would ensure pub-
lic cooperation in this new program, though it
does not reflect the cost of the program to the
penny. Other counties were charging $1.50
and, based on the cost of operating the drop
centers and disposing of the trash, that was
about as high as we thought we could go
(although the actual cost is slightly less than
that).
All county officials and a Citizen's Solid
Waste Task Force were involved in detailed pre-
planning of the new system. It was decided the
changeover would be made as rapidly as possi-
ble rather than doing it in stages. Once in
place, total recycling tonnage increased 36 tons
over the previous fiscal year, and this equates to
approximately $26,000 in cost avoidance of
tipping fees. We have a workable program,
acceptable to the public, and one that is not
incurring additional excessive expenses in view
of the rapid population growth of the county.
Population:
Start date:
Rate structure:
Price: $1.5
25,000
1994
Proportional
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Trinity County, California
Trinity County began a PAYT incentive pro-
gram in September 1996. The county is
spread out over about 3,100 square miles
with only 13,000 residents. We offer a com-
bined drop-off and curbside collection program.
The $5.00 per cubic yard fee is based
on the county's cost for landfilling the
MSW. Other costs are covered under a
'benefit assessment,' the first tier of our
multi-tiered system. Each household
unit is charged $100 per year, which
covers administration, some mainte-
nance of the landfill, and other costs.
Before we considered the program, we
decided it was necessary to do some kind of a
revenue increase. The County Board decided
that rather than raise the benefit assessment
across the board, it would institute tipping fees
charged per household. That way, those people
who are recycling heavily or are a single person
in a household and don't generate very much
garbage are getting a break for not creating
waste.
Under our program, residents are charged
$5-00 per cubic yard for disposal at the county's
drop-off transfer station and landfill. Residents
who have refuse pickup are charged $1.00 for
each 33-gallon can, which is based on the coun-
ty's estimate that there are approximately six cans
in a cubic yard. The $5-00 per cubic yard fee is
based on the county's cost for landfilling MSW.
Other costs are covered under a 'benefit
assessment,' the first tier of our multi-tiered
system. Each household unit is charged $ 100
per year, which covers administration, some
maintenance of the landfill, and other costs.
The combination of the benefit assessment and
tipping fees covers what it costs to maintain the
landfill and transfer sites, all administrative fees,
and everything else that is involved in solid
waste. It also includes long-term care of the
landfill and operation of recycling drop-off
centers at two of the eight transfer stations.
We also encourage participation in recycling
by adding an additional incentive through ben-
efit assessment discounts. Residents who bring
in recyclable materials are given a discount
($0.025 per pound of the weight of the recy-
clables they bring in) off their benefit assess-
ment, with a ceiling of 40 percent of their
annual assessment. Businesses are limited to a
25 percent discount. The program has been
very successful for us, and hopefully more
communities will institute these types of pro-
grams—helping us reach goals of 50 percent
reduction in waste or more!
Population:
Start date:
Rate structure:
13,000
1996
Multi-Tier
Price: $1 00 per year for first-tier fee; $5.00
per cubic yard or $1.00 per 33-gallon
can for second-tier fee
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Platteville, Wisconsin
The city of Platteville is a small university
community in southwest Wisconsin, home
of the University ofWisconsin-Platteville.
The current Platteville recycling and solid
waste program began on March 5, 1990. The
intent of the program is to encourage recycling
through a PAYT program. All single and
duplex residential units in Platteville are
allowed one 35-gallon clear bag or garbage can
up to 50 pounds per week per residence. The
city provides a bin for recycling, which is col-
lected curbside on the same day as the garbage
pickup. This is paid through the city taxes.
The $1.00 fee takes into account the
cost of the bag, the incentive for stores
to carry the bags (stores are charged 90
cents for the $1.00 bags), and adminis-
trative costs (including a portion of
salaries and other line items).
Any solid waste beyond the 35-gallon bag
or garbage can must go in a special plastic bag
that citizens can purchase for $1.00. The city
sells these bags at City Hall and has worked
with local supermarkets and convenience stores
to sell the bags. The $1.00 fee takes into
account the cost of the bag, the incentive for
stores to carry the bags (stores are charged 90
cents for the $1.00 bags), and administrative
costs (including a portion of salaries and other
line items).
The price also includes 40 to 50 cents per
bag for collection, hauling, and tipping fees.
Costs to collect yard trimmings and operate the
compost pile are also included. In addition, we
considered the potential for people to surrepti-
tiously dump garbage: if the price is too high,
people will find ways to illegally dump garbage.
Based on these factors, we determined the best
rate to be $1.00.
These efforts are encouraged by state law in
Wisconsin. Beginning in 1997, all responsible
units (a municipality or group of municipali-
ties) must develop a volume-based fee system
such as PAYT, unless the responsible unit
diverts for recycling at least 25 percent (by
volume or weight) of the solid waste collected.
Through its PAYT program, the city of
Platteville has surpassed this goal.
Population:
Start date:
Rate structure:
10,000
1990
Multi-Tier
Price: Local taxes for first-tier fee (includes
one 35-gallon can/week); $1.00 per
35-gallon bag for second-tier
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Lansing, Michigan
f e are the city of Lansing, Michigan. The
Public Service Department's Waste
Reduction Services provides recycling
and refuse services to our residents. Fifty
percent of our single-family housing units are
rental units. We compete with all the private
haulers in the city on a daily basis to fund our
refuse collection program.
We arrive at our rates for refuse
services by adding all costs for
the program and dividing by the
estimated number of bags to be
collected (based on analysis of
previous years).
Lansing started offering a refuse bag pro-
gram in 1976. We currently charge $1.50 for
each 30-gallon bag for refuse services. We arrive
at our rates for refuse services by adding all
costs for the program and dividing by the esti-
mated number of bags to be collected (based on
analysis of previous years). Administrative sup-
port from other city departments is paid for
along with wages, equipment, utilities, supplies,
landfill fees, insurance, bag cost, and miscella-
neous operating expenses out of the revenue
that is generated by the refuse bag sales.
The refuse bag program is a true enterprise
fund operation. The $1.50 per-bag fee is for
refuse collection costs only and is based on the
actual costs. It does not pay for any other pro-
grams, nor is the refuse program subsidized in
any way. Our recycling program is paid for out
of an annual $55 per-unit fee. This can be bro-
ken down as $25 for recycling collection, $18
for yard trimmings, and $12 for education and
promotion.
In conjunction with the refuse bag program,
a bulk collection program was started to sepa-
rate large waste item collections from the refuse
collections and help keep the bag cost down.
Recently, the bulk item fee was raised to $20 so
there would be no subsidy necessary from the
general fund. For all our services, the system
has to be run like a business, which competes
against the private waste haulers in the city.
Population:
Start date:
Rate structure:
130,000
1976
Proportional
Price: $1.50 per 30-gallon bag
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Wilmington, North Carolina
The city of Wilmington instituted PAYT in
November 1992, after the tipping fee paid
by the city jumped 150 percent, from $25
to $60 per ton. Following a successful pilot
program, the city council adopted PAYT for
the city at large.
The city's program operates out of an enter-
prise fund that is required to be solvent.
Residents pay $12.10 per month for weekly
collection of a 40-gallon cart or $15-10 per
month for weekly collection of a 90-gallon cart.
A second 90-gallon cart can be added to the
weekly collection for an additional $6.40, or
residents can request twice-a-week collection of
the 90-gallon cart for $30 per month. Stickers
can be purchased for 33-gallon bags for over-
flow garbage for $1.00 per sticker.
We basically used a form of full cost
accounting to allow us to identify all of
our costs. Then, we worked with some
of our residents and collection crews to
measure set-out rates and the number of
pounds per pickup.
The two biggest factors influencing these
prices are tipping fees and the cost of the city's
refuse collection contract. A private contractor
provides once-a-week refuse collection for
about 45 percent of the households. The city
provides the second pickup for residents that
request it, in addition to providing refuse ser-
vice to the remaining households. It also pro-
vides weekly recycling and yard trimmings
pickup and bulky collection on demand to the
entire area. Tipping fees for refuse as well as
yard trimmings and administrative costs
(including fees paid back to the general fund
for services provided to the solid waste program
such as human resources and finance) all must
be covered in the fees collected. Since the city is
required to give low-income and elderly people
a reduced rate, however, some monies are
received from the general fund to cover this
cost.
We basically used a form of full cost
accounting to allow us to identify all of our
costs. Then, we worked with some of our resi-
dents and collection crews to measure set out
rates and the number of pounds per pickup.
We then divided these figures to arrive at our
prices. The department spent a lot of time with
spreadsheets to come up with our final figures.
With the change to once-a-week collection,
the city was able to save $400,000 the first year.
Twice-a-week collection is still available, but
only 2 percent of the population now uses this
option, and 35 percent has changed to the
smaller 40-gallon cart.
Staff considers the program a success. Most
people understand the relationship between
garbage generation and their garbage bill. Less
waste is going to the landfill and incinerator.
People are recycling more, and most people's
garbage bill has decreased with the more equi-
table billing system of the PAYT program.
Population:
Start date:
Rate structure:
62,000
1992
Variable Rate
Price: $12.10 per month for 40-gallon cart
$15.10 per month for 90-gallon cart
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Glossary
Administrative costs. The management and sup-
port costs of running the solid waste program.
Includes both labor costs and other expenses.
Back-end costs. Expenditures to properly wrap up
operations and take proper care of landfills and
other MSW facilities at the end of their useful
lives.
Base year. The year prior to implementation of
PAYT, often used as a baseline against which
potential PAYT impacts are measured.
Capital outlays. Expenditures to acquire a resource
that will be used in MSW operations over more
than 1 year.
Collection costs. Recurring costs for the collection
of trash and recyclables, including labor, equip-
ment costs, and contract payments.
Complementary programs. Municipal services
designed to supplement basic trash collection
and disposal, such as recycling, composting of
yard trimmings, and bulky waste collections.
Direct costs. Costs that are clearly and exclusively
associated with MSW management (e.g., collec-
tion, transport, processing, and disposal costs).
Disposal costs. Tipping fees, processing costs, and
other costs related to the management of MSW
and recyclable materials.
Enterprise funds. Mechanisms used by local gov-
ernments for activities that can be financed and
operated like a private business.
Full cost accounting. A systematic approach for
identifying, summing, and reporting the actual
costs of MSW management, taking into
account past and future outlays, oversight and
support service (overhead) costs, and operating
costs.
Indirect costs. Cost that are not exclusively related
to portions of MSW management but that
relate to more than one local government activi-
ty. Such indirect costs (and other government
activities) can include accounting and payroll,
personnel, legal, purchasing, data processing,
records management, and executive oversight
(e.g., the mayor's salary and office expenses).
Net cost. The full cost of an MSW management
activity or path minus its byproduct revenues.
The net cost divided by the tons of waste man-
aged yields the net cost per ton for that activity
or pathway.
Operating costs. Regularly recurring costs of
resources used over a short period of time (typi-
cally 1 year or less) to support ongoing MSW
operations (e.g., wages, salary benefits, mainte-
nance, and rents).
Projection year. The year of implementation of
PAYT, when residents have responded to the
price incentives and when their reductions in
waste generation and increases in recycling have
stabilized. (The actual implementation time will
vary among different sized cities and complexi-
ties of programs.)
Rate structure design (RSD). The process of
determining the price to charge residents for
each container of garbage they set out for col-
lection. It includes community choices about
pricing systems, container types, and the goals
they set out to achieve.
Up-front costs. The initial investments and
expenses necessary to start an MSW activity or
pathway.
34
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Pay-As-You -Th row
Products and Tools
EPA has developed a series of
products that can help you learn
more about PAYT and the rate-
setting process:
Pay-As-You-Throw: Lessons
Learned About Unit Pricing, a
complete guide to PAYT.
Pay-As-You-Throw Success
Stones, a collection of community
testimonials.
The Pay-As-You-Throw Tool Kit,
which includes guidebooks, a
workbook, software, and a
videotape to help communities
implement PAYT.
A series of fact sheets for different
stakeholders is also available. To get
a copy of any of these products, call
the EPA Pay-As You-Throw
Helpline toll free at 1-888-
EPA-PAYT, or find them
www.epa .gov/payt.
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