An effective rate study may aid in appropriately funding solid waste services, preventing substandard service levels, replenishing solid waste reserves, increasing flexibility, identifying fiscal opportunities, and promoting conscious rate setting. This multi-faceted tool will serve any solid waste system in a variety of ways.
By Giorgio Castro, M.Sc., Sarah Gustitus-Graham, Ph.D., P.E., Montana Meeker, and Marc J. Rogoff, Ph.D
Fiscally sustainable solid waste management requires rate setting that is based on a current and thorough understanding of the costs of solid waste services. However, a desire to keep local government “lean and mean” can result in stagnant rates, despite rising costs for critical labor, equipment, and capital improvements. The dilemma of stagnating rates can affect systems that offer collection, disposal, processing, or a combination of solid waste services.
During the past two years, Geosyntec Consultants, Inc. was engaged by four Florida communities to conduct solid waste rate studies. The unique goals of each of these four rates studies illustrate the multi-faceted value of solid waste rate setting. Specifically, the utility of rate studies showcased by these four projects includes the following goals:
• Replenishment of solid waste reserves to ensure consistent service and coverage for necessary capital outlays
• Ensuring the sustainability and efficiency of the waste management system well into the future
• Assessing the fiscal opportunities provided by importing out-of-county waste, and the benefits of this revenue for local residents
• Ensuring sufficient reserves for near-future facility expansion
While each of these rate studies was undertaken to address one of these needs, an effective rate study can address one or all of these needs and more for your community.
The Essentials of Solid Waste Rate Making
The process of setting rates begins with a holistic look at a solid waste operation’s fiscal health. Many solid waste organizations use an enterprise system of accounting, which divides revenues and costs out into separate cost centers. Figure 1, page 74, illustrates an example of separate accounts that may make up a solid waste enterprise fund. Each of these separate accounts should be assessed for historic trends that will guide projections of future cash flow. Revenue is typically gathered under one account, and may fluctuate because of customer numbers, sale of recovered materials, volume collected or disposed, fees imposed, and investment income. Program or system costs such as salaries and benefits, operation and maintenance, administration, capital or vehicle replacement, legal fees, closure and post closure landfill care, and debt service are often separated into different cost centers and are affected by local and national economic conditions (i.e., labor and material costs, interest rates).
Historic balances and cash flows of each cost center become the basis of development for Pro Forma Models (Models) that are used to provide preliminary planning-level cost estimates. These cost estimates, in turn, become the basis for proposing appropriate solid waste rates. Typically, Models can be developed as spreadsheet programs that project annual revenues and costs to operate and maintain the solid waste system and provides a means for comparing alternative operational, institutional, and facility scenarios. These models can also address major capital and operational costs to operate the system.
To project revenues and costs into the future, key assumptions must be made regarding yearly solid waste quantities, demographic information, escalation factors for waste growth and costs, administration, personnel, and utility costs, transport, and processing costs. Costs can be estimated using published information on the municipal system, experience with similar projects, input from the private solid waste industry, other published information, and planning-level cost estimates. Over- or under-estimation of these charges will distort the anticipated cost of the full program, and, therefore, projections should be conservatively developed.
Illustrative Florida Rate Studies
City of Pensacola
The City of Pensacola’s Fleet and Sanitation Department (Pensacola) provides a variety of sanitation services, including once a week, automated collection of single-family homes and commercial businesses for 20,934 customers. This rate study stands out among the four discussed, herein, for being based on 1) a city rather than a county, and 2) a collection service rather than disposal service. Pensacola provides collection of household garbage, single-stream recycling, yard waste, and bulk waste collection. Other important services provided include container maintenance, a rotating city-wide bulk pickup event, event recycling, and storm debris cleanup and management.
At the onset of this study, Pensacola had a rate ordinance requiring the monthly garbage collection fee to be automatically adjusted based upon the percentage difference in the most recent annual Consumer Price Index (CPI). Despite this ordinance Pensacola’s solid waste reserves had been gradually depleted over the past five years, and no longer complied a city policy to maintain a reserve balance of 15 percent of operating costs.
Geosyntec forecasted the annual projected revenue by considering variables including the CPI and customer growth rate. This projected revenue was compared to the revenue that would be required to replenish reserves and accumulate funds for upcoming capital outlays. The difference between the projected and necessary revenue was used to develop proposed rate increases that are projected to help Pensacola increase their resiliency and maintain their independence as a city-operated solid waste collection service. After further discussion with Pensacola staff and presenting to the City Council, an increased rate structure was adopted.
The Escambia County Waste Services Department (Escambia County) is a complex organization responsible for managing and operating a comprehensive solid waste management system. This includes a variety of different programs and facilities designed to handle various types of waste, including household hazardous waste, yard waste, white goods, and waste tires. Additionally, Escambia County operates a landfill gas-to-electricity program, a waste transfer station, and a citizen convenience center. However, the most notable aspect of Escambia County’s system is the Perdido Landfill, which serves as a Class I and Class III disposal site.
Escambia County has traditionally financed capital improvements using cash rather than debt and intends to continue doing so in the future. The primary objective of the rate study was to develop a tool that would enable Escambia County to assess their financial standing under multiple projected scenarios. Specifically, the ability to retain sufficient reserves to cover rising operational costs while also funding reserves for a near-future Greenfield landfill expansion was a key focus. Escambia County’s primary source of revenue is derived from tipping fees at the landfill and transfer station, which have historically been sufficient to cover operations and reserves. To assess whether this would be sustainable at current rates, Geosyntec conducted a five-year financial forecast including three potential scenarios with varying CPI and tonnage projection inputs.
This rate study was unique for the large, upcoming capital investments proposed for design, permitting, and construction of new landfill cells in an adjacent Greenfield property. The model included flexibility that enables the County to adjust macroeconomic indicators directly to continually assess their projected position as trends in inflation, labor shortages, and tonnages continue to evolve. The Model from this study has become a comprehensive financial tool that enables Escambia County to continue to assess the fiscal sustainability of their solid waste system.
Putnam County’s Sanitation Department (Putnam County) includes an active Class I landfill, citizen convenience centers, and long-term care (LTC) and maintenance of three closed landfills. The system is funded in large part by assessments levied on Putnam County residents, as well as other various fees, sales of recyclables, and returns on investments. In fiscal year 2019, Putnam County also began accepting out-of-county waste, which added an additional revenue stream to the system.
At the onset of the rate study, Putnam County was in the unique position of having decreased solid waste assessments for residents over the last several years. This benefit to citizens had been made possible thanks in large part to the revenues from the introduction of out-of-county waste. The primary goal of this rate study was to assess appropriate rates and quantities for out-of-county waste that would prevent raising the Putnam County resident’s waste assessments in the next 10 years. An additional goal was to determine the feasibility of escrowing for closure and all 30 years LTC for their facility by the end of the landfill’s lifespan. Successfully escrowing the entirety of required LTC should prevent Putnam from having to levy a LTC-funding tax or assessment on citizens after the closing of the landfill.
Revenue projections were determined based on population estimates for Putnam County, as well as tonnage projections for out-of-county waste based on historic and current trends. A key feature of the Putnam model was an exhaustive table of rates for in-county assessments, out-of-county tipping fees, and other service fees were developed that allowed Putnam County staff to customize rate structures. The projected fiscal impact of each customized rate structure was summarized to allow staff to determine rates that were both palatable to in- and out-of-county customers, and beneficial to Putnam’s fiscal health.
Santa Rosa County
Santa Rosa County’s Solid Waste Department (Santa Rosa County) owns and manages multiple components dedicated to processing and disposing Class I and Class III wastes at the Santa Rosa County Central Landfill. The Class I and Class III cells at the Central Landfill are the sole Class I and III disposal areas currently available in Santa Rosa County. Santa Rosa County anticipated an increase in costs outpacing the existing Solid Waste rate increase structure and contracted with Geosyntec to develop an assessment of the impact of several different rate increase structures on the fiscal health of the solid waste system.
Santa Rosa County provided historical data and present-day context that Geosyntec used to create a baseline scenario for comparison. Some regionally specific factors that were added to this baseline included:
• Santa Rosa County saw an unusually high influx of waste in 2020 and 2021 because of Hurricane Sally. Geosyntec adjusted the model’s tonnage projections to correct for this anomaly.
• Santa Rosa County anticipated that a significant portion of Class III waste may be diverted in 2023 to external facilities. Geosyntec created options within the model allowing the user to adjust the model’s output based on anticipated or actual diversion of different types of waste year-over-year.
Geosyntec’s model compared three different rate structures and a potential per-ton Environmental Fee (specifically created to fund environmental programs separate from typical solid waste operations) to the designated baseline. The rate structures were developed through conversations with Santa Rosa County staff and analysis of the Central Landfill’s needs. In particular, high upcoming capital costs are needed for expansion and facility development. The analysis needed to be robust enough to aid County staff in their internal decision-making and strategic planning process, and the output needed to be comprehensible to stakeholders and decision-makers without solid waste backgrounds, including the County Board of Commissioners and the public.
Geosyntec used multiple mediums to deliver this analysis to different stakeholders: a detailed financial model was provided to County Staff and the Board of Commissioners, and summary documents and presentations were delivered to the public. After Santa Rosa County and Geosyntec staff presented the results to the Santa Rosa County Board of Commissioners, one of the rate structures proposed was enacted by the Board, and the $1 per ton Environmental Fee was approved.
The Benefits of Rate Studies
These four examples of solid waste rate making demonstrate how effective solid waste management rate studies are essential for the long-term sustainability of waste management systems and can serve multiple purposes.
In addition to the strict analysis of finances in a rate study, the team’s extensive experience in the industry enables identification opportunities to improve the efficiency and effectiveness of clients’ solid waste management services. Through this work, clients have achieved cost savings in a variety of ways from improving the routing and scheduling of collection trucks, to reducing waste through recycling and other diversion programs, and in some instances were able to implement various sustainability initiatives.
Lastly, periodic evaluations of the solid waste rates can also help municipalities provide equitable services to all customers. For example, by considering the impact of the solid waste rate on different segments of the population, such as low-income families and senior citizens, municipalities can facilitate a more affordable rate structure. They can also consider alternative pricing structures, such as volume-based pricing or tiered pricing, to ensure that the rate reflects the actual cost of providing services to each customer. A rate study may also be crucial when considering privatizing a municipal solid waste operation.
A holistic approach, combined with conservative projections, can help ensure realistic estimates of costs and revenue. An effective rate study may aid in appropriately funding solid waste services, preventing substandard service levels, replenishing solid waste reserves, increasing flexibility, identifying fiscal opportunities, and promoting conscious rate setting. This multi-faceted tool will serve any solid waste system in a variety of ways. | WA
Giorgio Castro, M.Sc. is a Professional specializing in financial and economic analysis focused on solid waste advisory services at Geosyntec Consultants. He can be reached at (202) 854-2698 or e-mail [email protected].
Sarah Gustitus-Graham, PhD, PE is an Engineer specializing in landfill design and compliance at Geosyntec Consultants. She can be reached at (813) 379-4407 or e-mail [email protected].
Montana Meeker is a Solid Waste Advisory Analyst at Geosyntec Consultants in Austin, TX. She can be reached at (210) 461-7661 or e-mail [email protected].
Marc J. Rogoff, Ph.D. is a Senior Consultant specializing solid waste advisory services at Geosyntec Consultants in Tampa, FL. He can be reached at (813) 810-5547 or e-mail [email protected].
The authors would like to thank four clients: Amy Miller, Deputy City Administrator, City of Pensacola, FL; Don Seitz, Solid Waste Director, Escambia County, Florida; Michael Schmidt, Environmental and Public Works Director, Santa Rosa County, FL; and Jay Tilton, Solid Waste Director, Putnam County, FL.