Handbook for Solid Waste Officials
VOLUME I - EXECUTIVE SUMMARY
by Lisa A. Skumatz, Ph.D. and Cabell Breckinridge
Funded jointly by the U. S. Environmental Protection Agency,
iMf Region 10, Solid Waste Program, and the
^^ City of Seattle Solid Waste Utility
Printed an Recyded Paper
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VARIABLE RATES IN SOLID WASTE: HANDBOOK FOR SOLID WASTE OFFICIALS
VOLUME I - EXECUTIVE SUMMARY
by
Lisa A. Skumatz, Ph.D.
Cabell Breckinridge
June 1990
Funded jointly by the U.S. Environmental Protection Agency, Region 10,
Solid Waste Program, and the City of Seattle Solid Waste Utility
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VARIABLE RATES IN SOUD WASTE: HANDBOOK FOR SOUD WASTE OFRCIALS
t
TABLE OF CONTENTS
VOLUME I: EXECUTIVE SUMMARY
VOLUME II: DETAILED MANUAL oaae
PART I: FEASIBILITY. I. 1
1.0 Financial Impact Analysis I. 3
2.0 Variable Cost of Refuse Collection and Disposal I. 12
3.0 Waste Diversion Cost I. 29
4.0 Cost of Disposal vs. Cost of Diversion I. 54
5.0 Political Feasibility and Community Relations I. 56
6.0 Legal Changes I. 67
7.0 Options for Financing System Changes I. 70
8.0 Summary I. 73
PART II: RATE DESIGN CONSIDERATIONS. II. 1
1.0 Flat Fee Rate Options II. 5
2.0 Volume-Based Rate Options II. 12
3.0 Additional Volume-Based Rate System Issues II. 31
4.0 Rate Options for Low Income Customers. II. 64
5.0 Rate Options for Multi-Family Buildings II. 69
6.0 Summary II. 74
PART III: CONDUCTING A RATE ANALYSIS. III. 1
1.0 Estimating Demand III. 6
2.0 Revenue Requirements III. 22
3.0 Cost Allocation III. 29
4.0 Rate Design and Calculating Rates III. 36
5.0 Summary III. 40
PART IV: OPERATIONAL CHANGES IV. 1
1.0 Collection and Customer Service Changes IV. 5
2.0 Billing System Changes IV. 17
3.0 Planning Department Changes IV. 20
4.0 Timeline for Changes IV. 23
5.0 Summary IV. 25
PART V: CASE STUDIES V. 1
1.0 Seattle's Experience: Variable Can Rates V. 2
2.0 Bag/Tag Systems V. 46
3.0 Overviews of other Jurisdictions V. 51
PART VI: REFERENCES VI. 1
1.0 Bibliography VI. 2
2.0 Appendix A: Worksheet and Computer Aides VI. 9
3.0 Appendix B: EPA Standards for Recycled Paper Products VI. 10
4.0 Appendix C: Order Forms VI. 11
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VARIABLE RATES IN SOUD WASTE:
HANDBOOK FOR SOUD WASTE OFFICIALS1
VOLUME I. EXECUTIVE SUMMARY
THE WASTE DISPOSAL CRISIS
Landfill space is becoming a major nationwide crisis. Almost 40% of respondents to
a recent survey conducted by the American Public Works Association indicated that
their landfill space would run out within 5 years.2 In addition, this survey indicated
that 74% were currently doing nothing to reduce solid waste volume. There is a
nationwide disposal crisis, and it is affecting jurisdictions that are large and small,
urban and rural, all across the nation.
Locally, the crisis can manifest itself in rapidly increasing disposal tipping fees, in the
need to haul waste hundreds of miles for disposal, in mandatory recycling programs,
in struggles to comply with changing landfill standards, in public opposition to the
siting of needed new disposal facilities, or in barges filled with waste with no place
to dock.
What can jurisdictions do to solve this crisis? Traditional options include:
o building a new landfill,
o building an incinerator in hopes of extending the life of existing landfills, or
o more recently, jurisdictions have begun imposing mandatory recycling
programs.
Many jurisdictions are facing very significant economic investments in either closing
landfills, building new ones, or building incinerators. And the out-of-pocket costs of
these huge investments don't include the significant problems of siting, changing
regulations, public pressure, and long lead times.
1 This work was funded by a grant from the Environmental Protection Agency,
Region 10, Solid Waste Program, and by the City of Seattle Solid Waste Utility.
2 Solid Waste Collection & Disposal: 1987. by American Public Works Association
(APWA), 1987.
1
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IS THERE ANOTHER SOLUTION?
The problem would be reduced if residents could be provided incentives to
decrease waste, increase recycling, and do a number of other "good things".
However, there are many citizens who simply will not react to the crisis unless there
is an economic, or "pocketbook", reason to do so.
In most parts of the country, garbage is removed once or twice a week with the
revenues coming from one of two places:
o from a portion of the property tax, or
o from fixed bills for unlimited pickup (bills that do not vary with respect to the
amount of garbage taken away.)
Neither of these methods gives residents any incentive to reduce their waste. In
fact, with the property tax method, residents never even see a bill, and generally
have no idea how much it costs to remove their garbage every week. Areas with
these methods of payment have often had to resort to mandatory recycling
programs in order to try to reduce their amount of garbage.
Residents in several jurisdictions around the country have come to
recognize that you can achieve remarkable successes in recycling and
waste reduction without any mandatory features through one simple
measure: volume-based garbage rates.
WHAT ARE VOLUME-BASED RATES?
In volume-based rates, the level of payment varies with a measure of the volume of
waste disposed. Customers who use more service pay a higher rate, and those
who use less pay less.
There are two major types of volume-based rate designs in use which provide this
principle - customers putting out more waste pay higher fees:
o a subscribed variable can system, or
o a pre»paid bag, tag, or sticker system.
Briefly, a variable can system involves having customers select subscription levels
based on the normal number of cans of garbage they need to dispose of each
week. Their bills are calculated based on the subscribed service level, with higher
subscriptions leading to higher bills. The jurisdiction usually offers subscription
levels in standard 30-gallon increments (one can, two cans, etc.). Seattle and
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Olympia, Washington also offer smaller service levels that hold 19 and 10 gallons
respectively as a reward for small waste generators. Higher service levels are
charged higher rates.
Jurisdictions that employ a bag system charge a fee for each "official" bag that
includes the cost of disposal.3 This special fee then entitles that waste to be
collected. Under a bag or tag system, customers purchase special garbage bags
(or tags) from the jurisdiction or from outlets at a price that includes the cost of
disposal. The more bags of waste they put out, the more they must pay. This type
of system is in place in several communities in Pennsylvania, New Jersey, Michigan,
New York and several other states.
The key under both these systems is that the amount that customers pay increases
significantly as they use higher levels of service. Customers are not limited in what
they may dispose, but they are required to pay for what they use.
VOLUME-BASED RATES ARE AN EFFECTIVE RECYCUNG INCENTIVE
Volume-based rates have
proven to be an extremely
effective recycling incentive.
Since Seattle's introduction of
variable can rates in 1981,
Seattle's customers, eager to
reduce their bi-monthly
garbage bills, have reduced
the average number of cans
subscribed from 3.5 down to
just over 1 can. And the
recycling percentage in terms
of actual tons of waste
diverted (not just participation
rates) was over 24% before
the introduction of any Citv-
soonsored recycling
programs.
AVERAGE CANS SUBSCRIBED
PER SEATTLE HOUSEHOLD, 1981-1989
W*6 1960
Figure 1
3 The charge usually includes at least the cost of disposal. Some jurisdictions also
include a share of the system's fixed costs.
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SEATTLE SOLID WASTE TONNAGE, 1987-1989
Monthly Residential Tonnage
TONS (Thousands)
Volume-based rates have also contributed to the quick success of Seattle's city-
operated recycling programs, which provide customers a convenient opportunity to
reduce subscription levels by recycling materials they might otherwise have thrown
away. The City has achieved an amazing 75% sign-up rate in its curb/alley recycling
program. More important than sign-up statistics, however, is the amount of waste
diverted by the program. The program currently collects about 3,500 tons per
month, or an average of 63
pounds per participating
household. Over 60% of
Seattle's customers subscribe
to the City's new yard waste
collection and composting
program. In 1989, the
curbside yard waste program
diverted over 31,000 tons of
residential waste to a
composting facility.
In addition, based on an
analysis of numerous factors,
the Utility has determined that
the introduction of variable
can rates has helped slow the
growth of disposed tonnage.
There have been two factors
JAN
1987 Tons
1968 Tons
AUG SEP OCT NOV DEC
*- 1989 Tons
Figure 2
assisting this result. First, Seattle's rates increased to the level where customers
took notice. In addition, the rate structure provides clear rewards for reducing
waste. The steep rate structure adopted at the beginning of 1989 has been
particularly effective in achieving this goal. Customers can achieve real savings on
their garbage bills by participating in this program, and Seattle's customers
understand and take advantage of this.
Incentive-based rate design goes hand-in-hand with recycling and waste-reduction
programs, and is a critical part of integrated solid waste management. In Seattle,
the combination of rate incentives and additional recycling and diversion programs
has allowed Seattle to decrease the amount of waste it brings to the landfill by 24%
compared with 1988 levels (see Figure 2). Similar and dramatic reductions in
landfilled tonnage have also been noted at jurisdictions that have instituted bag
systems. Perkasie, Pennsylvania for instance, noted a 35-45% decline in tonnage
brought to its transfer stations in the first year after the introduction of their bag
system and recycling program.
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WHAT OTHER BENEFITS DO VOLUME-BASED RATES OFFER?
Volume based rates can benefit a community in a number of ways:
•. °° f f '
o • Customers receive an incentive to reduce disposal. -- /., .. ^
o The rates are fair - small users dont subsidize larger users. :
9;ll;i Incentives support recycling programs. £*'-#;' /
d Mandatory recycling can be delayed or avoided altogether.
o Fees make customers aware of the environmental consequences of
ikS; their actions. . "''-"'
A.:!':*:
Variable rates give customers a very clear reward for reducing the amount of waste
that they dispose of: they pay a distinctly lower bill. An additional benefit of the
system is that it does not favor any particular method of reducing waste - all
methods and programs are rewarded on an equal footing. Other benefits of
volume-based rates include:
Volume based rates are fair - customers who dispose of similar amounts of
waste pay similar amounts of money. Those who dispose of less, pay less.
Customers get control over the bill they pay. In addition, the rates reward all
methods of reducing waste including waste reduction and recycling.
Implementation of any city-sponsored recycling programs will be much more
successful with these rate incentives in place. The combination of variable
rates and convenient recycling programs makes for a much more integrated
garbage system, and gives customers good alternatives and choices.
Customers get a chance to show what they can do through voluntary rate-
induced waste reduction. Your programs need not be mandatory and
therefore your enforcement burden can be reduced, and you may still invoke
mandatory programs later if you don't achieve the goals you need.
This method gives customers a better idea of the actual cost of disposing of
waste and provides a better relationship between customer behavior and
rates. Masking the cost of garbage service all these years has made the cost
associated with new landfills and incinerators particularly hard to justify to
customers in some areas. It is difficult to condemn customers for making
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unwanted choices in their waste disposal behavior if they are not given the
information (generally costs of disposal reflected in price signals) to make
intelligent choices. Customer education is key to getting customers to work
with the system.
Pricing garbage services in this manner puts solid waste on an equal footing
with the way water and electricity services are priced. Customers pay based
on the amount of service they use, and have economic reasons to conserve.
Customers have accepted the principle for these utilities and have modified
behavior in response to the price incentives.
Using volume-based rates to reduce waste is quicker to implement than
building new capital facilities to handle additional waste. The rates provide an
environmentally sound alternative and can be implemented in a variety of
situations. In addition, they integrate well with programs and can help lead to
lower long-run system costs.
WHAT DO WE GAIN?
From a city management perspective, volume based garbage rates can gain
theCity:
o Time to site new disposal facilities.
o More options in terms of recycling vs. disposal investment
o Support of low volume dumpers and recycling groups
Variable rates and the additional awareness of the solid waste issue that they bring
have allowed a number of communities to propose aggressive waste reduction
goals. For example, Seattle has proposed a set of non-mandatory programs that
will bring it to an aggressive 60% recycling goal by the year 1996. Rate design is
an integral part of this program. Seattle considers its volume-based rates its most
effective recycling program. It can be yours too!
In addition, implementing volume-based rates is quicker than building new capital
facilities. Even if capital facilities will be needed, volume-based rates may help buy
extra time, and accustom customers to the idea of paying on the basis of service
provided. Implementing variable rates (and recycling programs) can help win
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support for additional disposal facilities because customers may recognize that the
jurisdiction has made a good faith effort to avoid siting additional disposal capacity
and is taking an integrated planning approach to the issue.
Variable rates can be implemented to reward voluntary reduction of waste by
customers. The jurisdiction can still hold out mandatory measures as a threat if
customers do not achieve the needed goals voluntarily. However, allowing customer
choice and emphasizing voluntary programs often produce less ill-will than
proceeding without giving customers a chance to "show what they can do".
Volume-based rates can produce a closer relationship between the costs and
revenues for a solid waste jurisdiction. Rather than a rate system that generates
revenues that do not vary with the amount of waste disposed, charging volume-
based rates will tend to generate higher revenues from customers that cost more to
serve.
Most importantly, volume-based rates are fair, provide excellent recycling incentives,
are environmentally sound, and can help slow or even reverse growth in tonnage
disposed.
WHO CAN IT WORK FOR?
Because the economic concepts underlying volume-based rates are universal, a
volume-based rate structure can help a wide variety of jurisdictions, including those:
o with collection performed by contract, franchise, municipal, or private
arrangements,
o that cover large, medium, or small numbers of customers, and
o in any part of the country.
Whether variable can rates make sense depends on an assessment of specific
circumstances, including those related to cost, timing, and political factors.
WHAT AFFECTS WHETHER IT WILL WORK IN OUR AREA?
Although costs are obviously a key factor, there are a number of other situations
that help make adoption of a volume-based rate system simpler and more politically
appealing:
o Hauling contracts, franchises, rates, or billing systems are up for a change.
o The jurisdiction faces any of a wide array of landfill or disposal problems,
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including a shortage of landfill space, high tipping fees, changing landfill
regulations, or public opposition or other difficulty siting new landfill or
disposal options.
o Jurisdictions in which the community wants to create recycling incentives to
increase participation in an established or planned recycling program or
satisfy local recycling advocates.
o The existing system is perceived as unfair and encourages abuse.
o The jurisdiction is running out of tax authority and can use the establishment
of separate rates to free up tax revenues.
o Medium to larger jurisdictions may have some advantages in being able to
spread implementation and fixed costs over more customers. However,
smaller jurisdictions may be able to be implemented more easily.
It may also be helpful if the solid waste jurisdiction is legally established as an entity
that must cover its costs via fees, e.g. a utility or enterprise fund.
Although the factors mentioned above can make adoption of variable rates simpler,
none are essential. A variable or volume-based rate system may be appropriate
anywhere.4
WILL IT PAY/CAN WE AFFORD TT?
The question is whether you can afford not to do it!
Continuing to landfill is becoming more and more expensive, especially if the true
costs of landfilling are considered (that means including costs of closing, difficulties
of replacement of the landfill, etc.). Extending the life of existing landfills pushes the
closure (and siting) costs out to later years, and means real dollar savings now that
can be invested in recycling programs, etc. with actual benefits to the solid waste
jurisdiction and its customers.
The final judgment of whether the new system will pay depends on a comparison of
the costs vs. the savings of the new system.
4 Jurisdictions that may not benefit financially from the introduction of variable rates
are those with long-term access to environmentally-sound landfill space and who are
far from recycling markets. There may still be non-financial reasons for implementing
such a system.
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The types of costs that will be incurred with the implementation of volume
based rates may include:
o Contractual changes
o Public information, outreach, and PR . . :
o Billing system changes
o Cost of 1 """_/
o Staffing increases, especially in customer service and field inspection
crews.
The operation of a solid waste system funded with volume based rates is almost
certain to be more expensive than a flat fee or tax-funded system. Thorough
planning involves examining potential cost increases and compare them with
potential savings.
Savings resulting from the change may include:
i • >
o Savings on current disposal costs , ,":",,
o Savings from extension of the fife of existing disposal sites
o Savings in crews and overtime at transfer, hauling, and disposal
facilities
o Improved utilization (and improved economies of scale) of recycling
programs.
The "benefits" described above are often referred to as "avoided cost1. Avoided cost
refers to money that does not have to be paid as a result of some activity, for
instance, disposing of an additional ton of waste. Considering avoided cost allows a
complete comparison of alternative investments, and allows planners to design their
least-cost system.
Using avoided cost analysis in 1988, Seattle found that the status quo system
(landfilling at a local site) was more expensive than investing in very aggressive and
expensive recycling programs, and long-hauling the remaining waste to an alternate
site.
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Local factors affecting cost-effectiveness may include:
o Costs and lifetimes of specific landfill or disposal alternatives
o Access to and strength of regional recycling markets
o How rural vs. urban the collection area is - distance between stops,
distance to landfiH, distance to recycling markets
o The portion of collection cost that varies with volume of waste
collected.
ISNT IT A LOT OF TROl
A volume-based system is more complicated than some alternative rate systems.
However, the steps involved in implementation are manageable. They include:
o Determining whether state law empowers your agency to bill for solid waste
on the basis of volume.
o Establishing an ordinance that makes solid waste service, or at least charges,
mandatory
o Establishing an ordinance that bans (and penalizes) illegal dumping and
burning of waste
o Establishing the solid waste entity as an enterprise fund (not essential, but
can be helpful)
o Assuring that there are convenient recycling alternatives (public or private)
o Creating a sensible system of rates on the basis of system costs and desired
changes in disposal behavior.
o Extensive public education/information efforts
o Preparation for some changes within the solid waste agency, including
increased staff in some areas (particularly billing and customer service),
changed responsibilities for some employees, and a possible refocusing of
the services that the utility offers.
Of course, establishing local political support is a key ingredient in the process.
Some obstacles to successful implementation are peculiar to individual volume
based systems. For example, variable can rates can require a complex billing
system, and pre-paid bags or tags may require a retail distribution system.
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New recycling and landfill legislation has helped make a volume-based rate system
an appealing option in many states. Existing law can affect the level of difficulty
associated with a move to a volume-based rate system.
The legal powers necessary for a solid waste agency to charge for refuse collection
on the basis of volume generally either already exist or can be created through a
local ordinance, if the local political climate permits. Some states may limit local
agencies' power. Unfortunately, therefore, legal questions must be answered on a
state-by-state basis.
Several legal situations can affect the ease with which a volume-based billing system
can be implemented. Ideally, a jurisdiction considering such a change would have
the following powers:
Legal Powers Needed: v
'*," '' '•
o Power to bill or set/approve rates
o RexJbil'rty to perform non-traditional services
o Power to prevent illegal dumping.
o Power to bill (municipal or contract system) or to set (or approve) rates for
"refuse franchisee. This power must include some means of enforcing
payment of bills. The power to make refuse service mandatory can also be
helpful.
o Rexibility to perform services other than traditional collection and disposal of
refuse. Laws that strictly limit ways in which refuse system funds must be
spent can complicate recycling efforts. Limited recycling options can affect
the desirability of a volume-based rate system.
o Power to prevent illegal dumping. Although the solid waste agency will
probably not enforce illegal dumping laws itself, there must be a strong
penalty for disposing of waste outside the system.
The powers listed above are generally available to jurisdictions that currently provide
refuse service. Having "flow control", or the power to direct where solid waste in the
jurisdiction must be deposited, may also be needed for a smoother system.
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WONT IT CAUSE A LOT OF PROBLEMS'?
Changing from fixed fees for unlimited pickup, or from a system where fees are
collected via taxes may not be a simple, problem-free process. However, most of
the potential problems are manageable, especially if you anticipate them.
Communities considering implementing volume based rates
should be prepared to address several of the following
problems:
O Confusion with the new system
o Resistance from customers who are not used to
paying bOts or who are unwilling to change behavior
o Otegai dumping or burning of waste
o Enforcement of the system
o Complaints by the poor
o Contractual or legal limitations on the flexibility of the
sold waste agency
o Change in trie responsibilities of your agency and staff
q ', Need for Increased staff (some temporary Increases
tor analytical tasks, and longer term increases needed
in customer service, etc.)
CAN THESE PROBLEMS BE HANDLED?
The answer is that the problems can be significantly reduced ~ if you anticipate
them and prepare for them.
Customer Confusion and Resistance: Working with the press and preparing mailers
can help customers understand the reasons for the change, can help with resistance
to behavioral changes, and can help explain the new system. Initial stories about
local problems related to solid waste, and about solutions that have worked in other
jurisdictions, can help increase understanding of solid waste issues. Repeated
mailers, television spots and bus cards can be helpful in reinforcing the new
behavior.
Illegal Dumping and Burning: Some increase in illegal dumping and burning can
sometimes be associated with variable can rates. Making sure that there are
convenient opportunities for customers to recycle waste and imposing regulations
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that provide penalties for illegal dumping are helpful. Requiring a minimum level of
service and minimum fee for all households can help reduce the problem. In
addition, getting a public attitude change that says illegal dumping isn't socially
acceptable (like the recent changes in the social perception of drunk driving) could
potentially go a very long way in mitigating problems of illegal dumping and burning.
While many areas have had trouble with illegal dumping in response to sharp
increases in refuse rates, Seattle does not appear to have experienced a significant
problem with illegal dumping or burning of waste. Other large cities may have
problems.5 However, it is difficult to get a very accurate or quantitative handle on
the problem. Seattle does not have a comprehensive program to pick up illegally-
dumped waste. Rather, some incomplete information is provided by street cleaning
crews, and are subject to complicating effects from seasonal labor availability and
other problems. Also complicating the problem is the fact that waste can easily be
dumped across jurisdictional lines, and burning can be difficult to detect or trace to
its source.
Enforcement: Enforcement may or may not be needed. For many years, Seattle's
Solid Waste Utility relied on an honor system for enforcement of service levels.
Although it is clear that some customers put out more waste than they were paying
for, on-site inspections indicated that the levels of abuse were not high, and were in
fact, offsetting.
Seattle's new collection system is much simpler to enforce. The contractors
provided 'official* semi-automated toters sized to the subscription level paid for. This
system greatly simplified enforcement, because any waste that is not in the official
toter is not paid for and is generally not collected, unless it has a pre-paid sticker on
it. A decision on enforcement in a particular jurisdiction may be able to be deferred
until after the system is in place for a while. However, provisions for enforcement
should be included in any contracts, long-term plans, etc.
5 There are several factors that may contribute to Seattle's relatively small problem
in this area: 1) there are few vacant lots in the City, 2) the Northwest has a strong
environmental ethic, 3) the areas has many private recyclers, city programs, and other
legitimate ways to reduce the amount of waste that needs to be disposed, and 4)
volume-based rates are not new to the area, so customers have had time to modify
their behavior.
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Low Income Assistance: Volume-based rates usually require the introduction of
mandatory charges.6 Variable rates are separate and discrete charges which
customers may not have seen explicitly before. They may be perceived as a burden
to low income customers. Establishing special rates for low income citizens, or
building "lifeline" components into the rates will mitigate the impact of mandatory
rates on customers with fixed or low incomes. Some jurisdictions offer carry-out or
backyard service for curbside rates for elderly customers.
Staffing Considerations: In-house problems can be reduced if management
prepares staff for changes in emphasis of the job, for instance realignment of staff
toward recycling efforts and away from traditional collection and disposal.
Management also need to prepare staff for growth in some areas in particular, some
of which will involve permanent increases and some more temporary. Management
may be able to cope with some of the burden in areas with short-term workload
through the use of temporary labor, or with loans of municipal employees or staff
from other sister agencies, or with consultants.
Although these steps take planning, they can set the stage for a very effective solid
waste system.
ARENT THERE OTHER RATE OPTIONS OUT THERE THAT ARE JUST AS GOOD?
No. Volume-based rates are equitable and provide better incentives than rate
designs that do not vary the charge with some measure of the amount of service
provided. They are fair, provide customers with choices, encourage all types of
waste reduction and recycling behavior, integrate well with new recycling and yard
waste programs, encourage participation in recycling programs without making them
mandatory, and can lead to an extension of the life of existing landfill space.
As a comparison, many jurisdictions are considering offering recycling credits, which
reduce garbage bills for people who participate in specific recycling efforts or
programs. While credits may be better than nothing, they are not the best
alternative because the amount of the credit is fixed, and does not give customers
an incentive to recycle more. In addition, credits for participating in "official"
recycling programs do not encourage careful buying in the first place (many
jurisdictions' first priority for waste reduction), backyard composting, re-use, or
recycling through private firms.
6 Requiring a minimum service level may lessen the illegal dumping incentive.
Mandatory service also prevents customers from going around the system (and fees)
by dumping directly at landfills or transfer stations.
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WHAT ADDITIONAL CONSIDERATIONS ARE INVOLVED IN DESIGNING THE
RATES?
System Design Decisions
o Choice of Bag/Tag vs. o Charges for Recycling or , ;
Variable Can System ' Diversion Programs *' ",' f'
o Subscription vs. Usage' o Rates for Multi-family
o Steepness of Rates Buildings
o Payments for "Extras" o Rates for Compacted Waste
o Curbside vs. Backyard o Alternatives for Low
Differentials Income Households
Choice of Variable Can vs. Baa/Tag Systems: The selection of the type of volume-
based rate system will depend on the evaluation of the tradeoffs of several factors in
the context of the jurisdiction's situation, including:
o Equity
o Complexity, implementation considerations, cost, and
o Revenue Stability.
There are pros and cons for each of these systems, and jurisdictions need to weigh
their particular needs.
A 'Variable can"-based system may be a good option for areas using semi-
automated toters, areas with problems of animals or rapid spoilage, places already
using a can system where customers may already own their own cans, or where a
flexible billing system is in place or can be borrowed from another utility. Variable
can rates also show customers the full cost of disposal in one bill. Can systems
may provide more stable revenues than bag systems, and may be easier to
forecast. Especially important is the fact that variable can rates also allow a great
deal of flexibility in the pricing increments between can subscription levels. The
jurisdiction can implement rates that provide very aggressive recycling/waste
reduction incentives with this system.
However, a variable can system has fairly high implementation costs, particularly
because of the complexity of the billing system needs. A fairly complex computer
system is needed that will keep track of each customer's selected subscription level,
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and will calculate bills accordingly. In addition, customer service costs may be
higher, and some confusion on the part of customers is fairly likely because
subscription levels will need to be selected.
Bags or pre-paid stickers generally charge for smaller increments of waste than a
variable can system, letting customers pay more precisely for the amount of service
they use. This provides a better link between customer behavior and the bill they
pay, and allows a better waste reduction/recycling incentive. In addition, the
purchase of the bags may provide a more immediate price signal to customers.
The billing system is much simpler, and customer questions and confusion can be
lower than with a variable can system. Enforcement may also be simpler. Although
bags are generally easier for collection staff to dump, allowing the bags or stickered
waste to be placed inside cans may help alleviate animal problems where that is a
difficulty.
Selection Between Variable Can and Bag/Tag System
Variable Can System ,,< Bag/Tag System : V ,
o Based on subscribed service o Pay for service actually used
o Full cost on bill o Immediate price signal
o Flexibility In pricing o Limited flexibility in
incremental 'can* levels , pricing incremental bags
o Relatively high bilfing, - o Fairly easy to Implement
: ,i;;i''.<^stomer^ervice, enforcement; and enforce
implementation costs o Size limits must be established
A bag or tag system will require the jurisdiction to set up a distribution system for
pre-paid garbage indicators, but allows the jurisdiction to avoid the cost of a billing
system. The jurisdiction must also establish and communicate (and presumably
enforce) clear limits on the size of items that may have stickers attached. However,
a bag system limits the agency to equal price differentials no matter how many bags
are put out by a household. This restricts the jurisdiction from charging increasingly
higher rates for additional waste.7
This can be mitigated to some degree if the household is issued a fixed number
of bags per year at a certain rate, but then additional bags are available at a
higher rate.
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If the jurisdiction attempts to charge for all the costs of disposal through the price of
the bag, it runs the risk of not recovering the system's fixed costs. It may be more
prudent to charge for the fixed cost of the collection/disposal system through a
separate charge to customers, and keep the cost of the bags closer to the Variable'
cost of the system (generally disposal). In this latter case, the "fixed" portion of the
system costs would be recovered through a "customer charge" on a regular periodic
bill, or through a tax mechanism8. Then bags or stickers could be purchased for an
additional fee that would reflect tne 'Variable cost" of the system, and would show
customers a savings if they dispose of less waste (use fewer bags or stickers).
Charging separately for the fixed portion of the collection/disposal system assures
that the fixed costs of the system will be recovered, and the system will remain
solvent. Attempting to charge for all costs on the price of bags can lead to revenue
instability and potential financial insolvency.
Choice of Subscription vs. Usage-based system: The best incentives are provided
by systems that charge customers based closely on the actual amount of waste
disposed. In this way, the customer's behavior is more directly associated with the
amount paid. A traditional subscribed system does not provide this incentive,
because their payments do not vary with weekly variations in waste. A pre-paid
bag/tag system does provide charges based on usage. Another option is to have
collectors record the number of items at each pick-up, and bill on that basis.
Pre-paid bag or tag systems are a good option, especially in that they may offer
charges based on smaller increments of waste and make it easier for customers to
vary the amount of waste they put out. However, the system must allow foe the
recovery of fixed costs in some manner, either included in the price of the bag or
perhaps through an additional "customer charge".
Subscription systems don't allow charges to vary based on the amount actually put
out for collection week to week, and may provide an incentive to completely fill up
the cans or bags paid for. These weaknesses may decrease the recycling incentive.
However, subscription systems can also work to remind customers to reduce to that
subscription level on weeks when waste might be higher. Subscription systems are
often easier to implement than systems that require the recording of items for each
pick-up, and provide revenue stability. Providing the option for pre-paid stickers or
bags in conjunction with subscription systems can improve the flexibility of the
system for customers with occasional higher garbage levels, and may reduce the
risk of illegal dumping.
8 The jurisdiction could charge this customer charge through its existing revenue
mechanism.
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Steepness of the Rate Structure: The steeper the extra charge for additional waste,
the greater the incentive to recycle. Jurisdictions may wish to steer clear of
excessively steep rates for two reasons.
1. An increased incentive to dump illegally.
2. Uncertainty of revenues.
Higher rates on extra service levels provide an incentive to reduce waste disposal by
a variety of means. Presumably, convenient programs may mitigate the problem of
customers selecting undesirable means of reducing waste, but the higher the cost,
the greater the incentive for customers to dump waste illegally.
Fixed costs of the system are incurred no matter what level of waste is disposed.
Pure cost-of-service pricing would not tend to lead to steeply increasing rates. This
arises for several reasons. One of the largest costs of providing solid waste service
is getting the trucks and labor to the house, a cost that will not vary much with how
much waste is put out for collection. In addition, many landfills are not priced at a
level that reflects the full cost of providing service.9 This will tend to reduce the
steepness of the rate structure because a large component of the variable cost (the
landfill fee) is underpriced compared to the long-term fully-inclusive price of disposal.
The revenues for higher levels of waste are generally less certain. In fact, the rates
and recycling programs are designed to reduce these higher levels of waste.
Departing from cost of service by shifting fixed costs to increase the steepness of
the rates may increase the risk of the jurisdiction not recovering the system costs.
Including these fixed costs through a customer charge or integrating them into the
"first-can" rate helps assure the agency's financial solvency, but will lead to rates that
are less steep.
9 Many jurisdictions do not charge appropriately for all the costs associated with
adding tonnage to a landfill. Costs that are often undervalued or omitted include
ultimate landfill closure costs and the cost of siting a replacement landfill.
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Selecting the steepness of the rates requires balancing;
Increased recyding/waste reduction Incentives .
vs* • , ',_,
Increased incentives for illegal dumping
and revenue uncertainty
Seattle instituted rates that are higher than cost-of-service for higher subscription
levels, and this approach was favored by the Utility, policy-makers, and citizen
groups. The amount of excess funds that were projected to be collected from
customers subscribing to higher can levels were used to reduce the rates for lower
can levels. This approach allowed Seattle to enhance its waste reduction and
recycling incentive in two ways: first, by implementing an enhanced 'penalty' for
large amounts of waste; and second, by increasing the 'reward' for disposing of
small waste volumes.10
Payments for "extras": "Extras" are cans or bags of waste that customers dispose of
in excess of their subscription levels. Under a subscription or variable can
approach, a system of payment for extras must be established to allow honest
customers to dispose of occasional extra garbage conveniently without illegal
dumping.
Care must be taken to assure than the price of one "extra" is greater than one-
fourth the cost of an additional permanent monthly service level (with weekly service,
or four pickups in the month). This becomes more complicated if the dollar
differentials between service levels are not constant across service levels, and if the
differentials vary for curbside vs. backyard service.
Differentials for Curbside vs. Backyard Service: Generally, backyard or carry-out
service is more expensive to provide than curbside or alley service. Allowing
customers to select - and pay for - the service arrangement of their choice can
save your system money and provide more service options to customers. The
savings may help pay for the switch to volume-based rates.
10 However, care must be taken in implementing this 'enhancement'. Recall that
the revenues for higher subscription levels are less certain, while subscriptions
at lower can levels are very certain. As the subsidy increases, the agency
increases the chances it will not recover the fixed revenues needed to run the
system.
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Jurisdictions currently show a wide range of differentials for these service
differences. Some charge only cost-of-service differentials (perhaps 10-20%).
Others charge as much as four times as much for backyard service. No matter
what the differential, jurisdictions report that at least 85-90% of customers select the
lower-priced service. Seattle charges 40% more for backyard service, and found
that over 95% of customers selected curb/alley service. Allowing customers to
choose the service type gives them control over the size of their bills and continues
the principle of providing a direct relationship between customer behavior and the
size of bill.
Charges for Recycling or Diversion Programs: One controversial area is whether
jurisdictions should charge separately for recycling or diversion programs. If these
services are provided, but not separately charged, the costs will be included in the
basic garbage rates. Not charging may enhance incentives to sign up for these
programs.
However, there are strong arguments that this may not be an equitable system.
Customers who do not use the program are charged. Although the jurisdiction may
seek to penalize customers who do not use the City's programs and do not recycle
or work to reduce their garbage, it is less clear that they would want to extend
those penalties to customers who reduce their garbage through private recyclers or
who reduce waste through careful purchasing or re-use. If the charge for recycling
programs is included in the basic customer charge, then the likelihood of recovering
the program costs is high, but these inequities are exacerbated. If the charges are
put on higher subscription levels, the penalties are directed more accurately at
customers who dispose of a great deal of waste, but the program costs are less
likely to be recovered, affecting financial stability.
Indeed, as the solid waste jurisdiction is more successful in diverting waste from the
landfill disposal stream to recycling and diversion programs, it reduces the revenue
base (number of cans or bags) over which to spread recycling costs, so the extra
cost per unit must increase. The result could be a system in which, as people
recycle more, they pay higher and higher garbage fees.
To avoid finding itself in this situation, the jurisdiction should consider charging a
separate (but relatively lower) fee for City-sponsored recycling, yard waste
collection/composting, and diversion programs. The fee may not recover all the
costs of the programs, but should provide an incentive for taking care of the waste
through careful purchasing (so that the waste is never produced in the first place),
private recycling programs, or other ways to remove the waste from the city's waste
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RELATIONSHIP BETWEEN DISPOSAL
PRIORITIES AND RATE INCENTIVES
Increasing
Priority
Waste Reduction. Careful
Buying, and Composting
Private Recycling
City-sponsored Recycling
and Waste Diversion Program
Garbage to Landfill or
Incinerators
NO CHARGE
HIGHEST RATE
Increasing
Rates
Well-designed Rates can Induce Customer Behavior
That Reflects Waste Disposal Priorities
and recycling system.11 As
the job of the solid waste
jurisdiction changes from one
of solely disposing of waste to
an integrated system of waste
disposal as well as waste
diversion and recycling, it may
be appropriate to charge
customers some portions of
the cost of these additional
services, since a fee-for-
service approach provides
greater long-term financial
stability and gives customers
greater control over their bills.
However, that doesn't mean it
is inappropriate to provide
some level of subsidy to these programs from garbage revenues. This approach
reinforces the waste disposal priorities that have been adopted in most jurisdictions.
Seattle provides a curbside recycling program for no additional charge,12 but
charges a $2.00 monthly subscription fee for the City's weekly curbside yard waste
collection and composting program. This charge is considerably below the $9.00
charged for an additional subscription level. The fee has not proved to be a big
deterrent to participation - over 62% of customers signed up for the program.
Customers have accepted the idea of paying for this diversion program.
Rates for Multi-family Buildings: Rate options for multi-family buildings can be
complex for any utility, but may be especially so for solid waste service. The
problems include:
o The tenant, or garbage-producer, is often not the bill-payer, so the rate
incentives are diluted and indirect.
o Garbage is usually disposed of in a joint area, so tenants may not feel
responsible if they over-dispose of waste because of the problem of
determining which tenant is responsible.
11 This approach may also mitigate the amount of harm to any existing private
recycling enterprises, and the potential for political fallout.
12 The cost of the recycling programs and planning are covered through the
garbage fees.
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o Rate equity can be difficult to maintain if two different systems (cans or bags;
vs. dumpsters) are available.
o Maintaining equity between multi-family and single-family rates as well as
between large and small multi-family buildings can be complex.
o The fact that some costs may be properly allocated on a building basis (e.g.
the stopping of a garbage truck), some on a household basis (e.g. landfill
closure), and some on a volume-basis (e.g. disposal) makes designing rates
for multi-family applications much more complex than for single-family
buildings.
o Offering a high degree of choice in subscription levels may complicate both
.billing and enforcement.
It would be possible to bill multi-family buildings on a fixed-fee basis (either per-
building, or perhaps more fairly, per-household). However, that approach would
eliminate any possibility of providing signals to either the property owner or the
tenants that reducing waste is a benefit.
Although the multi-family sector poses special problems, there are at least two
possible volume-based approaches that may be practical in multi-family buildings:
1) A bag or tag system, perhaps with a per-household customer charge,13 or
2) A variable can subscription approach.
Either system could be set up so that the owner is generally charged based on the
volume generated per complex. However, the former system has the possibility of
passing some of the direct incentives to the tenants. A per-household charge may
be assessed through a bill or through the property taxes.14 Then all the waste that
is in official pre-paid bags or that is tagged with pre-paid stickers would be picked
up. Presumably tenants could be made responsible for paying for the bags. This
system would tend to get some of the waste reduction incentives inherent in the
rates to the waste producers.
However, realistically, some buildings may need enforcement efforts to try to reduce
the amount of waste that is disposed in unofficial bags or waste that is not tagged.
This may be a problem, especially in larger, more anonymous buildings, and the
relevant ordinances may need to make the landlord ultimately responsible for paying
for this waste.
13 The customer charge would probably be billed to the building owner.
14 If used, this charge would generally be the landlord's responsibility.
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A variable can system is another alternative. Seattle's system of multi-family variable
can rates, in place since 1981, is complex. The City's billing system maintains
records of the number of apartment units in each multi-family building and requires
the building owner to select a subscription level.15 The multi-family rates are
charged with a structure that is identical to the single family rates for each apartment
unit.16,17 The system is very confusing and inflexible. However, the biggest
weakness of this system is the fact that if one tenant is a strong recycler, he/she
cannot generally reap the benefits of that behavior - the system is unable to get the
recycling incentive directly to the tenant.
Generally, the rates are included as part of the rent, so the incentives are very
diluted. If the objective is to induce customers/tenants to reduce waste, some non-
rate options may need to be employed. Passing an "opportunity to recycle"
ordinance requiring each complex to provide a convenient recycling opportunity may
assist in increasing recycling by these customers. Diversion credits may be
appropriate. A jurisdiction may choose to try alternatives on a small-scale or pilot
basis to find the option that works best in its area.
Rates for Compacted Cans or Dumosters: There may be a case for charging
differential rates depending on whether waste is compacted or not If landfill
charges are weight-based, this may be especially appropriate.18 However, in many
cases, compacted waste may not incur extra disposal charges, and therefore may
be priced the same as uncompacted waste.
In cases where a differential is appropriate, practical considerations may make it
impossible to charge additional amounts for compacted waste in cans, but may
15 The system gives owners two options. They may either sign up for a number
of cans that is equal to or larger than the number of units in the building (a five-
plex may sign up for five, six, seven, etc. cans). Alternatively, the entire building
may sign up for the mini-can service (that same five-plex would pay for and
receive five mini-cans of service per week).
16 Prior to 1989, Seattle charged multi-family rates lower than those charged to
single-family households to account for savings related to fewer stops and the
'clustering' of cans. However, the most recent analysis showed these savings
were very low and the lower rate was eliminated.
17 Therefore, a five-plex building subscribed to six cans would pay for five full one-
can subscriptions (including five customer charges) plus one additional can rate.
18 However, for the most part, transfer and hauling costs may vary more on the
basis of volume more than weight.
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allow additional charges for compacted dumpsters. This is the case in Seattle. The
Utility pays per-ton fees for landfill disposal and the Utility charges an additional fee
for compacted dumpsters, which brings dumpster rates closer to cost of service.
Seattle deals with compacted cans through a weight limit, which allows the City to
deny pick-up to gross weight-limit violators.
Options for Low Income Households: When mandatory fees are required, social
concerns may make special rates for classes of low income customers appropriate.
They are used by both electric and water utilities. If considering such a program,
the jurisdiction may want to consider:
o alternate eligibility criteria - all low income, low income with children, low
income elderly or handicapped, medical eligibilities, etc.
o the effect of alternate rates on billing system cost and efficiency
o how to determine eligibility.
o whether the rates should be lower throughout all volume-levels or whether
discounts should be truncated after a "basic" level of service.
o whether aid should take the form of lower rates, special services (such as free
backyard collection), or emergency funds.
o which classes should pay for the rate subsidy, and which rate subsidy design
is most equitable to all customers.
BUT VOLUME BASED RATES ARENT PERFECT. ARE THEY?
No. An enhancement of usage-based systems, metered systems that would allow
customers to pay for the exact amount19 of waste they dispose, would be better.
Systems based on smaller increments of waste are better, and could provide
recycling incentives that are more volume-sensitive. In addition, the more immediate
the payment, the more reinforcement provided. A more immediate payment for solid
waste service provides a stronger message to customers. Also, the current variable
rate alternatives present some inconvenience to customers: either they must decide
on a "normal" subscription level and call for changes; or they must purchase and
have on hand adequate supplies of bags or tags.20 Finally, volume-based measures
may not be the best unit to reflect the manner in which some jurisdiction's costs are
incurred.
19
and even type of waste
20 Both systems also represent some inconvenience for the jurisdiction. They may
need to carry inventories of various can sizes and deliver them, or they must have a
network for providing bags or tags as needed.
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However, trade-offs with ease of implementation and understandability must be
made. Workable compromises include a subscribed variable can system
(augmented, for flexibility, with pre-paid stickers for extras), or the pre-paid bag/tag
systems used in a number of jurisdictions.
One of the major objectives of variable rates is to establish a link between a
customer's solid waste disposal choices and the bill that the customer pays. This is
the key to providing an incentive to reduce the amount of waste disposed through
waste reduction and recycling. Variable rates systems, unlike tax methods or
systems with fixed bills for unlimited service, provide these incentives.
The volume-based methods of variable garbage rates discussed above are in place
now in a number of communities. They have generally worked very well, and have
provided far superior incentives for waste reduction and recycling. Some
modifications to the current volume-based methods could be considered. Variable
can systems could be modified with a variety of smaller can sizes - half cans,
quarter cans, etc. A variety of bag sizes could be introduced. This would not solve
the inconvenience problems that exist, and would not necessarily provide the
flexibility needed to maximize the waste reduction and recycling incentives.21
A system is always going to involve tradeoffs. Systems that are flexible are also
generally complicated. Systems that are very convenient are generally expensive.
Bag/tag and variable can systems provide many system benefits and have proven to
be very workable in a variety of cities. They provide good recycling and waste
reduction incentives, yet are reasonable to implement and explain to customers.
HOW DO I GO ABOUT DETERMINING WHETHER THIS SYSTEM WILL MAKE
SENSE IN MY JURISDICTION?
Making a decision about whether a variable rate system makes sense in a
jurisdiction requires recognizing that the rates structure is a critical piece of an
integrated solid waste management system. A move to a variable garbage rate
21 Experiments with weight-based rates are being conducted in two jurisdictions -
- Farmington, Minnesota, and an EPA-funded experiment in Seattle, Washington. These
projects are attempting to test the feasibility of retrofitting garbage collection trucks
with scales and electronic bar-coding equipment to allow billing of residential customers
by the actual number of pounds of waste disposed in their garbage can. Pounds
represent smaller increments of service, so the recycling incentive is strengthened, and
this type of program would be convenient for customers.
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system is often viewed as an accompaniment to a recycling system. Analyzing the
impacts of such complex and interrelated changes may seem an overwhelming task
to the local jurisdiction. In addition, because every solid waste jurisdiction is
different, there is no one rate and system configuration that can be implemented "as
is" into other jurisdictions. The decisions on system changes and design must be
made in the context of the jurisdiction's situation.
For those jurisdictions interested in pursuing an analysis of whether variable rates
make sense in their jurisdiction, there is a companion volume to this report. This
volume is entitled Variable Rates in Solid Waste: Handbook for Solid Waste
Officials. Volume II - Detailed Manual22. The second volume is designed to assist
solid waste officials in analyzing a number of aspects related to making decisions
about solid waste system changes, with detailed emphasis on factors related to
changes in the fee system.
The second report is fairly long and detailed, but addresses the variety of issues
that the jurisdiction must consider in evaluating the feasibility of a variable garbage
system. It then walks the reader through the steps needed in determining
appropriate design of the rates, determining the level of the rates, and associated
timeline and implementation issues.
The companion manual, Volume II. is divided into six parts.
Part I: Feasibility - Does a variable fee system make sense for our jurisdiction?
This part discusses financial factors that will help determine whether
implementing a variable rate system makes sense for a particular jurisdiction.
This includes an analysis of the variable cost of collection and disposal, costs
associated with waste diversion, and an analysis of the net costs or savings.
It helps guide the reader through the techniques involved in preparing a cost-
benefit analysis of variable rates and an integrated system. In addition, it
addresses the political, legal, financial, and community relations feasibility of a
system change.
Part II:Rate Design Considerations - Which variations on the basic fee system make
the most sense for our system?
This part assists a jurisdiction in making preliminary system rate design
22 This grant-funded volume is available for the cost of reproduction and mailing.
An order form is included at the end of this report..
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decisions and tradeoffs in terms of equity, incentives, implementation, revenue
considerations, and a variety of other factors. This section examines a
number of configurations and options for flat and variable fee alternatives, and
examines options for special customer groups. These basic structural
decisions are necessary before a detailed cost of service or rate study can be
conducted. This part also contains a fairly extensive analysis of the two
primary volume-based rate alternatives, the variable can and bag/tag systems.
Part III: Conducting' a Rate Analysis - How do we determine rates that cover our
costs of service and provide effective incentives to the customers?
This part walks analysts and decision-makers through the basic steps and
analyses needed to estimate a coherent system of rates for solid waste
services. The section discusses the complications of estimating the amount
and types of solid waste service that customers will demand, determining
revenue requirements, and the steps in making decisions on cost allocation
and rate design that will affect the ultimate calculated rates that the customer
will see and presumably react to.
Part IV: Operational Changes - Once we decide on a system and rates, how do we
go about implementing it and how long will it take?
This part discusses the operational changes that must be planned for and
implemented based on the fee system selected. It discusses timetables and
considerations for needed changes in the collection system, customer service
and billing system changes, and changes in planning and other staff.
Part V: Case Studies - What are examples of other systems with variable systems
in place and what can I learn from them?
This part summarizes basic characteristics of the rate structures and systems
in a number of other solid waste jurisdictions, including large and small
systems, and systems with private, contract, municipal, and franchise or
licensed collection. An evaluation of these case studies may provide insights
into the appropriateness or success of particular system choices in
jurisdictions with a variety of characteristics.
Part VI: References and Appendices
This part of the report includes a bibliography of helpful readings, worksheets,
and computer aids.
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SUMMARY
Many solid waste jurisdictions are facing tough challenges. Landfill space is
becoming a problem, and jurisdictions need ways to reduce the amount of waste
going to increasingly expensive disposal facilities. Expensive recycling programs are
being under-utilized. Variable rates give an economic incentive for customers to
reduce the waste they dispose of, and provide incentives for recycling and waste
reduction.
Variable rate systems are fair and effective, and provide a number of other
advantages, including:
o they can be implemented in a variety of situations
o the rates can be implemented relatively quickly
o variable rates can lead to system savings, and
o they integrate well with other programs, increase participation in recycling
programs, and reinforce waste-reducing behavior.
There is no doubt that, from a variety of perspectives, many jurisdictions could
benefit from replacing their current fixed-rate systems with volume-based rates.
Variable rate systems work, and make a great deal of sense from a system
perspective. Variable can or bag/tag rate structures have proven to provide very
effective recycling incentives in a number of communities. Seattle's variable can
system has been one of the City's most effective recycling programs. The rates are
a vital part of the Seattle's integrated solid waste system, and have allowed that
Utility to set an aggressive, but achievable. 60% recycling goal. Seattle's customers
have responded well to a rate structure that gives them alternatives and control, and
they have responded with high levels of private recycling, very high participation
levels in City-sponsored programs, significant reductions in service levels, and
significant decreases in the waste brought to landfills. In jurisdictions across the
country, customers can become an integral part of the solid waste system and an
important key to a solution to solid waste management problems.
The rest of this volume summarizes the topics covered in each part of the
companion volume, as well as its general conclusions.
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OVERVIEW OF VOLUME II - DETAILED MANUAL
SUMMARY OF PART I - FEASIBILITY
Determining whether a variable rate system is a feasible proposal for a community
requires examining the financial impacts; political and community relations impacts;
legal requirements and flexibility; and whether a change can be financed.
The financial feasibility analysis is based on the concept of avoided cost. The
avoided cost is the amount of money that the jurisdiction may save by not disposing
of one additional ton of waste, or the variable costs of the refuse disposal system.
The costs that may be avoided may include reduced collection costs, transfer costs,
or landfilling or processing costs.
The analysis will require a calculation of the current system's costs involved in
disposal of solid waste. For most systems, that will include both costs for collection
of waste plus costs of disposal. The level of the variable costs associated with the
collection systems will depend on whether the collection is municipal, contract,
franchisee!, or private. These will affect the structure of the costs, and the amount of
labor and collection equipment savings that may be realized. The variable portion of
the disposal costs depends on which portion of the costs in each part of the
disposal system are avoidable. Some or all of the following costs will figure into the
avoided cost calculation for the disposal (landfill or waste-to-energy) system,
including:
o transfer station costs
o hauling costs
o current tipping fees
o future tipping fees
o landfill closure and re-siting
o environmental costs
o cost of "put or pay" guarantees.
Variable rates provide an incentive for customers to find some way to put less
material into their garbage cans. This will likely involve some combination of
recycling, reducing waste through careful purchasing and reuse of products; and
possibly illegal dumping and burning.
A number of factors will affect the waste diversion costs, including:
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o Recycling program convenience and cost: Programs that are more
convenient to customers will achieve greater participation. However,
convenient programs also tend to cost more. Participation and convenience
will both affect the cost of the diversion program.
o Costs under different recycling arrangements: Whether the program is offered
through municipal staff, via contract, franchise, or private services will affect
the cost of the recycling programs.
o Volume to be achieved: The types and recovery rates of the materials
collected will affect the costs of the programs and the revenues to be
realized.
o Waste reduction costs and effectiveness: More effective waste reduction will
lower the economic and environmental costs associated with solid waste
management.
o Illegal dumping: The costs of coping with the effects of any additional illegal
dumping or burning should properly be considered in the analysis.
By comparing its particular costs of disposal vs. the costs of diversion, a jurisdiction
can determine whether the variable rates and their inherent recycling incentives will
probably be of financial benefit to the community.
However, there are other factors than financial impacts that also affect the feasibility
of introducing a variable rates system. These include political feasibility and the
impact on community relations. The basic tenet in this area is that it is critical that
the jurisdiction keep the public well-informed. This has two benefits: a system
change is more likely to be accepted; and well-informed customers will be easier to
serve. Volume II includes strategies for customer information, as well as a timetable
for a public relations plan.
Whether a variable rates system is feasible will also depend on the legal situation in
the community. Jurisdictions that have or establish the following legal rights will be
able to implement variable rates more easily:
o Power to bill or set rates for refuse services
o Flexibility to perform services other than traditional collection and disposal of
refuse
o Power to prevent illegal dumping.
Finally, to the extent that the jurisdiction must find funding for some of these
changes, it will be necessary to explore financing options. The jurisdiction may wish
to explore a combination of grants, bonds, advance billing, customer deposit, user
fees, surcharges, taxes, per capita fees, general fund, leases or leasebacks, or
contracting.
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SUMMARY OF PART II - EVALUATION OF SOLID WASTE
RATE DESIGN OPTIONS
When a jurisdiction begins to consider modifying its solid waste system by
introducing variable rates or designing recycling programs it will generally want to
analyze a broad range of solid waste rate design options and their implications on
the new system. In this part, a wide variety of rate design options and issues are
discussed and evaluated in detail. Both conceptual discussions and evaluations of
operational options are considered. Each jurisdiction should examine the options
and decide on the integrated system that best suits its particular situation.
Rate design options should be evaluated on the basis of their performance on
several important criteria:
o Recycling and waste stream reduction incentives
o Equity and economic efficiency
o Customer service, stability, and acceptability
o Implementation and maintenance-related criteria
o Enforcement
o Revenue-related criteria.
The analysis of the options led to the following general conclusions:
o Volume-based rate options (either a bag/tag or variable can system)
provide much better and more consistent waste reduction incentives
than the simpler fixed-fee alternatives. Volume-based rates encourage
a wide variety of waste reduction and recycling behavior, and do not
favor any particular program. They are fair and understandable, and
are reasonable to implement.
o Bag/tag systems have some advantages because the charges come
closer to reflecting actual usage of solid waste as opposed to charging
for subscribed levels of service. They may be especially appropriate in
smaller and medium-sized jurisdictions because they do not generally
require complicated billing systems, and the systems are fairly easy to
implement.
o Steeper rate structures (those that charge relatively higher amounts for
additional service levels) will enhance the recycling and waste reduction
incentives, but within limits. After a point, steeper structures will tend to
make illegal dumping too attractive, and the risks of not recovering the
revenue requirements becomes too large.
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Offering both backyard and curbside service options is preferred from
a customer service point of view. However, a higher rate should be
charged for backyard or carry-out service. This allows customers to
select the level and type of service they want, and gives them control
over their bill.
In conjunction with selecting a volume-based rate system, there is
almost certainly a need for a service level smaller a full can. and
perhaps a need for a smaller-than-standard bag.23 A very significant
portion of customers can, through careful buying and recycling, reduce
their service needs substantially, and it is counter-productive to
'truncate' those recycling incentives at too high a service level. It may
not make sense to offer the more unrealistic 'zero service' option. In
addition, providing a smaller volume container is probably preferable
and less confusing than offering bi-weekly pickup of waste.
A recycling credit is not a very useful enhancement to a volume-based
rate unless there is a need to draw attention to a jurisdiction-sponsored
program. Variable rates generally provide a more effective recycling
incentive.
Structuring the rates in the jurisdiction with a 'fee-for-service'
perspective is probably the best long-term approach. That includes
charging a separate (but smaller) fee for the use of recycling, yard
waste, or other programs. This enhances rate stability, and provides
the most appropriate price signals for customers' waste disposal
decisions. It also gives customers control over their bill, and assures
that their behavioral decisions are accurately reflected in their bills.
If feasible, and if costs at the jurisdiction are not totally volume-based, it
may be fair to charge slightly higher rates to customers with
compacted waste.
Some system of reducing the burden of the rates to segments of the
low income population may be appropriate.
These recommendations are based on an evaluation of several important criteria, but
will not be the right answer for every jurisdiction. There are tradeoffs and issues
23 Especially in areas with mature programs.
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associated with each rate and system option. Each jurisdiction should evaluate the
recommendations and alternatives in the context of the particular conditions in effect
in its area.
SUMMARY OF PART III - CONDUCTING A RATES ANALYSIS
Part III discusses the process and techniques for conducting a solid waste rates
analysis. .This part walks the reader through in conducting an integrated rates
analysis. There are four basic parts of a model to calculate rates. Part III highlights
both the basic steps along with some of the complexities associated. It also
contains numerous examples and illustrations to try to simplify the concepts.
The process of establishing rates involves four basic steps.
Module 1 - Demand: This step analyzes the demand for each type of service
offered for each customer class. Depending on the sophistication of the
analysis, the demand module may include a variety of socio-economic
variables, estimated equations and relationships, and starting values for the
variables.
The demand section generates estimates of a number of variables that are used in
the modules that follow. The work requires stepping through an analysis of
estimating customer counts, tonnage by type of service, forecasting recycling
tonnage and participation, disaggregating by customer type, and estimating variable
container subscriptions or purchases of bags.
Because the demand module contains a great deal of information that is likely to be
new to jurisdictions which do not use a volume-based rate system, the description of
this module is fairly long and detailed.
Module 2 - Revenue Requirements: This step analyzes the costs that would be
incurred meeting the demand for services estimated in the demand module.
The revenue requirements module evaluates all the activities that would be
required to provide the services on a cost-center basis.
The module considers staffing and equipment requirements, production and cost
relationships, and estimates the total costs. These, along with financial
considerations, provide an estimate of the total amount of revenues that need to be
collected from all sources, including rate and non-rate revenues. Some of the costs
will be relatively fixed; some will vary based on relationships. Specific costs may
vary based on the tonnage, number of customers served, proportion of costs that
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are fixed vs. variable, short-run vs. long run tradeoffs, the proportion that are capital
expenditures, the varying effects of inflation, and other factors.
The revenue requirements analysis needs to include every cost associated with
running the agency and providing service because the rates that are calculated must
produce enough revenue to cover those costs.
Module 3 - Cost Allocation: This module determines the way in which the
calculated total revenue requirements of the system will be borne by the solid
waste jurisdiction's customers. It generally attributes costs and non-rate
revenues to each customer class served based on the type and amount of
service delivered, and assigns costs both between rate classes, and within
rate classes.
The first step allocates costs between rate classes. For each customer/service
group or rate class (and subcategories) the cost categories are assigned by one of
several possible allocation methods. Costs might be allocated on the basis of the
number of customers, number of households, tonnage, proportionally, or some other
method. The result is a three-way "between categories" allocation matrix. Each
jurisdiction will determine an allocation mapping that is appropriate to its own
situation.
The first stage of the allocation established criteria for assigning total costs to each
of several general customer groups. For each of the customer categories and each
of the types (and components) of rates charged, the costs that were assigned to
that customer class are then allocated between the customers within the class and
among the set of components of the rates.
Note that cost allocation includes a great deal of judgment. The way in which costs
vary precisely based on which customers is often far from clear. A variety of
allocation methods are available, but there are also discretionary and policy factors
that may come into play. Examples are given below, but the ultimate allocations for
a jurisdiction must reflect information about its specific service and customer
patterns, and its policy and rate design objectives.
Module 4 - Rate Design: The rate design module determines: the form and
components of rates for the various customer classes and services; and the
relationships between rates that will be equitable and provide for consistent
incentives.
Rates must be assigned to all customer types and services. Some will be based
on actual cost of service. Others will be apportioned based on formulas. Policy
considerations will determine whether subsidies are appropriate for some customer
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sectors, or whether the jurisdiction wishes to deviate from calculated cost of service
to generate variable can rates with higher recycling incentives.
The solid waste jurisdiction needs to determine which customer sectors will be
charged for service via a strictly per-ton rate, which will be charged on the basis of
number of visits, which will receive subsidies or penalties based on incentives, and
which will have rates with other designs. It will also determine the structure of
subscription-based rates. Then the module calculates the levels of rates that will
recover the amount of revenues needed from each customer class and service type.
Equilibration: Going through these steps once will produce a set of rates, tons,
costs, revenues, and services. Generally, the series of steps must be
performed several times before the system reaches "equilibrium", or achieves
a set of consistent answers that lead to only small changes when the
modules are run again and the steps recalculate results.
Each of the modules contains assumptions, relationships, and calculations that
depend on the particular jurisdiction's situation. Because no two solid waste
jurisdictions are alike, even in the basics like services, costs, and customer types,
each rates model will be different. This section discusses some of the basic
approaches and generic relationships, which must then be tailored to the particular
jurisdiction being modelled. One thing to remember is that judgment is an important
part of all of these analyses. Equations are not a total substitute for "knowing" the
particular solid waste jurisdiction.
Moving to an integrated solid waste system with variable rates will involve a
considerable amount of staff work. The solid waste system, its customer groups,
revenue sources, services, and costs must be examined in detail and the
relationships understood by staff. The complexity of the solid waste system
determines the sophistication of the computer tools needed to complete the analysis.
However, the costs during start-up may be recovered in later years, and in general,
the overall system will be fairer and more sound in the longer run.
SUMMARY OF PART IV - OPERATIONAL CHANGES
Part IV of the Detailed Manual describes the significant changes that may be
necessary to successfully implement different variable rate schemes in a community.
Implementation of a new rates system will include significant changes in several
major areas. Some of the costs will be one-time, and others will be on-going.
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Collection and customer service: Changes for collection and customer service staff
will depend on the system design decisions made, especially in the following areas.
#•
o Enforcement: The type and level of impacts will be based on whether the
jurisdiction opts for: an honor system; company (or city) can system; pre-
paid bags or tags; or route books. These options have varying impacts on
equipment, collectors, and customer service.
o Number of service levels available.
o Number of other service options available: (e.g., backyard vs. curb)
o Whether exemptions and discounts are available.
o Whether other programs are being implemented at the same time.
Billing system: The level of changes that the system imposes because of billing
system needs will vary based on a number of related factors. The time for
implementation varies as the complexities increase.
o Whether a bag/tag system is put in: Unlike a variable can system, this option
does not generally require a complicated billing system.
o Billing flexibility needs: The number of services, the complexity of the
charges, the number of customer classes, and other factors will have a
significant impact on the cost of a billing system and the changes that will
need to be planned for.
o Data gathering requirements: The more information that must go into or be
able to be output from (either on-line for customer calls or for analytical
purposes), the more complex will be the billing system.
o Whether an existing billing system (e.g., for another city utility) might be
available to share.
Planning Department: A number of changes in the planning department will be
needed with the added complexities of a new rates and/or solid waste management
system. New staff and computer equipment will likely be needed because the
jurisdiction will need to design and calculate more complicated rates, and track the
performance of the system. Consultant services may also be a good idea,
especially at the initial stages.
Timelines:
This section also presents information on sample timelines for implementation of
solid waste rates or system changes.
An ideal timeline for a complex change would allow something more than two years
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for implementation. That may not always be possible with legislative, political, or
disposal facility pressures. A fairly significant set of system changes was planned
and implemented in Seattle in about 14 months, but that was a modification of an
existing variable can system.
A switch from a fixed-fee system to a bag/tag system was fully implemented in a
small community in about 9 months, including all planning, analytical, customer
contact, and implementation work.
SUMMARY OF PART V - CASE STUDIES
Part V, containing case studies, is divided into three sections. The first section
contains a very detailed discussion of the solid waste system in Seattle, Washington,
which introduced variable can rates in 1981. This section examines Seattle's rates
and programs before and after the major system changes that occurred in
1988/1989. It also summarizes the impacts of the changes on tonnage,
subscriptions, bills, and recycling.
The second section includes tables of basic information about the unit pricing
programs and recycling programs in fifteen communities around the nation.
The third section of the case studies part includes overviews of solid waste systems
in fourteen communities around the nation. It addresses background on the city
and the solid waste services provided. The discussions then address the topics of
collection and rates; recycling; and the status of the jurisdiction's landfill or waste
disposal facility.
The case studies present basic information on a variety of systems, including those
on both bag/tag systems and variable can subscription systems. These studies may
help guide jurisdictions making choices about the appropriateness of particular
system designs based on local factors, and the success of particular mixes of
system components.
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SUMMARY
Decisions on solid waste involve a number of complex questions and issues. The
purpose of the manual is to point out the potential benefits of moving toward
variable rates. The manual also discusses the potential costs of such a move.
There is no doubt that in the short run, a system or rates change involves
uncertainty and risk; tradeoffs in a number of areas; and a significant amount of
work. However, these are likely to be short-run transition phenomena. In the longer
run, the move to a variable rates system and an integrated approach to solid waste
management may provide lower system costs, and will allow the jurisdiction to
involve the customers in solving, rather than exacerbating, the solid waste crisis.
The tradeoffs and potential savings depend on the configuration of the system that
the jurisdiction designs and ths local economics. These local factors would
presumably be considered by the jurisdiction in determining the ultimate system
design. A variety of configurations can work - but understanding the options
available, as well as selecting and implementing the appropriate one for the
jurisdiction can be a very intimidating assignment.
This manual and its companion volume are designed to assist both managers and
analysts in carrying out an organized, comprehensive, and consistent analysis of the
options available in their jurisdiction, and to alert the managers to a broad range of
issues, interdependencies, options, suggestions, and solutions.
What has been learned during the research involved in this manual is that there are
several keys to developing a successful solid waste management system. These
key ingredients include: providing consistent incentives to customers; providing a
convenient system with service choices and a variety of legal alternatives for waste
management; doing high-quality planning and integrated systems analysis; and
providing an integrated system that works together to reinforce solid waste
management goals and objectives.
The conclusion reached via this research is that in a vast number of situations and
for a number of very good reasons, variable rates make a great deal of sense,
especially now. A move to a variable rate system is often considered when
recycling programs are introduced, although it is also appropriate to introduce
variable rates separately. Variable rates help provide incentives for customers to
reduce waste, and can help optimize use of recycling programs. They are feasible,
fair, and should be considered seriously, especially by jurisdictions that are:
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o needing to extend the life of current disposal facilities or need to delay siting
new facilities;
o facing legislative mandates for programs or goals,
o implementing recycling programs,
o trying to reduce the costs of their disposal systems
o facing political or public pressure,
o having difficulties financing the system through non-user fees, or
o having concerns about environmental issues.
Granted, a comprehensive analysis of the sort described in this document involves a
fair amount of work, and there are some jurisdictions for whom a system change
does not make financial sense (e.g. jurisdictions with long-term access to
environmentaHy-sound landfill space and who are far from recycling markets).
However, it is very likely worth the potential rewards to a great number of
jurisdictions.
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ORDER FORM
Variable Rates in Solid Waste: Handbook for Solid Waste Officials
Copies of the original bound editions of this document Volume I - Pvprutive Summary
or Volume II - Detailed Manual may be ordered through the either the National
Technical Information Service (NTIS) or the U.S. Environmental Protection Agency.
1. To order copies through the U.S. Environmental Protection Agency send a copy of
this order form to:
Winnie Hooker
U.S. Environmental Protection Agency
Region 10, Solid Waste Program
HW-072
1200 Sixth Avenue
Seattle, WA 98101
(206) 442-6641
Number of copies of Volume I - Executive Summary requested (@ $10.00 each)
Number of copies of Volume II - Detailed Manual requested (@ $37.20 each)
Please make checks payable to Future Impressions. The price of each document
reflects only the actual cost of printing and mailing.
NAME PHONE
ORGANIZATION.
ADDRESS
CITY STATE ZIP
2. To order copies through National Technical Information Services (NTIS)
call (703) 487-4650 for their prices and ordering instructions.
The document titles are:
EPA document number - EPA 910/9-90-012a
Skumatz, Lisa A., Ph.D., and Cabell Breckinridge, Variable Rates in Solid Waste:
Handbook for Solid Waste Officials. Volume l-Executive Summary. June 1990, 40 pages.
EPA document number - EPA 910/9-90-012b
Skumatz, Lisa A., Ph.D., and Cabell Breckinridge, Variable Rates in Solid Waste-
Handbook for Solid Waste Officials. Volume Il-Detailed Manual. June 1990, 310 pages.
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