Rate Studies / Cost of Service Studies

Rate Studies / Cost of Service Studies

Municipal operators of solid waste enterprises send an important pricing signal to customers through their service rates and tipping fees. Charges to customers must generate adequate revenue over the near and long term. In addition, they must reflect the value of individual services, and align with the agency’s mission and values. Moreover, they must capture the nexus between the cost of service, and the fee charged to the customer.

For local government managers, the best approach to setting rates for solid waste collection and disposal is to be proactive, and to set rates with an eye toward the relationship between current cash reserves, and the agency’s long term financial plans.

Align Rates with the Agency’s Mission and Values

The rates established by the solid waste enterprise must reflect its mission and values. The best way to accomplish this is to design rates to achieve the following solid waste rate-making objectives:

  • Generate adequate revenues to meet the City’s financial obligations.
  • Generate adequate cash reserves pursuant to the City’s Financial Policies.
  • Comply with legal, regulatory and debt covenant requirements.
  • Achieve fairness and rate equity among customers and among customer classes.
  • Design rates that are simple and easy for ratepayers to understand.
  • Provide customers with an economic incentive to recycle.
  • Set rates that are competitive in relation to nearby jurisdictions.
  • Minimize significant changes to customer rates (i.e., keep rates stable over time).

Financial Challenges Faced by Solid Waste Enterprise Funds

As a local government manager responsible for a solid waste enterprise fund, you may find yourself facing one or more of the following challenges:

  • Low or Decreasing Cash Reserves – Cash reserve policies vary from agency to agency; the minimum cash reserve target balance for most solid waste enterprise funds is 25%. Agencies with landfills and transfer stations often have higher target reserve balances. Downward trends in cash reserve balances may indicate the need for an updated financial plan.
  • Long Time Since Rates were Adjusted – Service rates or tipping fees left unadjusted for more than five years often result in the need for significant future adjustments. In many cases, the longer rates are left unadjusted, the greater the need for significant future increases.
  • New Environmental Regulations - Mandatory recycling laws and changing waste diversion requirements often require new or modified services that were not anticipated during the last financial plan.
  • Changing Solid Waste Landscape – Changing world markets can lead to volatile changes in the market price of recyclable commodities. The closure of disposal facilities often result in extraordinary changes in the local agency’s operating costs.

Being Proactive

Many jurisdictions periodically conduct a formal cost of service analysis and rate study to make sure they are on the right track. The purpose is to conduct and in-depth analysis of their current revenues and expenditures, and to establish a set of periodic rate adjustments, and develop a financial plan.

The staff at MSW Consultants are recognized experts in solid waste cost analysis, rate setting, and long term financial planning. We have conducted solid waste rate studies for several jurisdictions with both collection and landfill operations.

The President of MSW Consultants, David Davis, is a Certified Management Accountant, and has presented and published several articles on solid waste cost accounting and rate-making. He is also the co-author of the American Public Works Association (APWA) solid waste rate making manual.

Case Study: City of Anaheim

In 2010 and 2015, we assisted the OCCMA, which represents all the incorporated cities in Orange County, in negotiating a long-term waste disposal agreement with the County of Orange. The County owns and operates the three landfills used by the Cities.

In 2010, the OCCMA and the County negotiated a new long term Waste Disposal Agreement with a value of over $1 billion. MSW Consultants served as lead analyst. Work included reviewing the County’s extensive landfill tip fee model, and evaluating the reasonableness of the County’s projected tons, revenues, operating expenses, and capital expenditures. We also identified and quantified key deal points, and recommended negotiating strategies. In 2015, we again assisted the OCCMA in re-negotiating the Waste Disposal Agreement.

Cities We Have Served

Have a look at the different ways we have helped these cities. How can we help you?