September 28, 2016 | 8:30 AM
New Mexico Solid Waste & Recycling Conference
Full Cost Accounting and Solid Waste Rate Structuring
Presenter:
Mr. David S. Yanke
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Workshop Agenda
A. Background
B. Full Cost Accounting methodology
C. Detailed example
D. Summary
E. Questions and answers
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
NewGen Strategies & Solutions, LLC
• NewGen is a management consulting firm specializing in providing economic, strategic, stakeholder, and sustainability services
• 37 person firm with offices in Austin, Dallas, Denver, and Nashville
Solid WasteWater/
Wastewater
Energy Gas
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Goals of this Workshop
Aid cities, counties, etc. in identifying all
solid waste costs
Help to establish solid waste rates
Assist in their solid waste
planning
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Full Cost Accounting Defined
• Modified cash basis versus Accrual basis
• Accrual basis may result in a potential cash
shortfall
• Cities budget and operate on a cash basis
• Investment community’s familiarity with cash
basis
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Modified Cash Basis
• Salaries, wages, and
benefits
• O&M costs
• Predevelopment costs
• Closure/Post-Closure
care costs
• Principal payments
• Interest expense
• Cash capital outlays
Accrual Basis
• Salaries, wages, and
benefits
• O&M costs
• Predevelopment costs
• Closure/Post-Closure
care costs
• Depreciation expense
• Interest expense
Comparison
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Cost Components – Terminology
• Direct Costs– Salaries, wages, and benefits
– Debt service
– Annual cash capital outlays
– General O&M
– Equipment O&M
– Predevelopment costs
– Closure/post-closure care costs
– Contract services
– Utilities
– Professional services
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Cost Components – Terminology (cont’d)
• Indirect Costs
– Administration/City Manager
– Purchasing department
– Finance department
– HR department
– City Council
– Legal department
– City engineer
– Management information systems
– General insurance
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Full Cost Accounting Process Flow Chart
Identify MSW Direct Costs
Identify MSW Indirect Costs
Identify Cost Per Program
Identify Cost Per Customer Class
Calculate Rates
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 1: Identify MSW Direct Costs
Direct Costs (abbreviated list)
1. Salaries, Wages & Benefits
2. Vehicle Capital Costs
3. Annual Vehicle Expenses
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Employee Salary Benefits Percentage of ProgramAmount to Program
Mandy Sines $40,000 $10,00075% MSW Collection25% Recycling Collection
$37,500$12,500
Robert Recycler $50,000 $10,00050% MSW Collection50% Recycling Collection
$30,000$30,000
Identify MSW Direct Costs
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 1: Identify MSW Direct Costs
Direct Costs (abbreviated list)
1. Salaries, Wages & Benefits
2. Vehicle Capital Costs
3. Annual Vehicle Expenses
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VehicleVehiclePrice
Amortized Life
Amortized Cost
Percentage of Use in Program
Annual Cost by Program
Front-Load $350,000 10 $35,00075% MSW Collection25% Recycling Collection
$26,250$8,750
Side-Load $300,000 7 $42,85775% MSW Collection25% Recycling Collection
$32,143$10,714
Rear-Load $175,000 7 $25,000 100% Recycling Collection $25,000
Identify MSW Direct Costs
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 1: Identify MSW Direct Costs
Direct Costs (abbreviated list)
1. Salaries, Wages & Benefits
2. Vehicle Capital Costs
3. Annual Vehicle Expenses
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Vehicle ID
FuelRepair Labor
SuppliesTotal Annual Cost
Percentage of Use in Program
Total Annual Cost by Program
SW185 $15,00075% MSW Collection25% Recycling Collection
REC102 $20,00075% MSW Collection25% Recycling Collection
SW190 $17,000 100% Recycling Collection
Identify MSW Direct Costs
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Cost Components
• Indirect cost allocation methodologies
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Internal Assessment
EmployeeBased
Other
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 2: Identify MSW Indirect Costs
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Identify MSW Indirect Costs
Indirect Costs (abbreviated list)
1. Administration/City Manager
2. Purchasing Department
3. Finance Department
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DepartmentDept.Budget
% Attributable to MSW Dept.
$ Attributable to MSW Dept.
Purchasing $500,000 25% $125,000
Finance $700,000 30% $210,000
TOTAL $335,000
Internal Assessment Method
Part 1
* Oftentimes indirect cost allocation to Environmental Services Department is already done!
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 2: Identify MSW Indirect Costs
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Identify MSW Indirect Costs
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MSW Program% of TotalMSW Direct Costs
Total fromPart 1 Table
Indirect Cost to Program (% of Total MSW x Total from Part 1)
MSW Collection 50% $335,000 $167,500
Disposal 25% $335,000 $83,750
Recycling Collection 15% $335,000 $50,250
Yard Waste 10% $335,000 $33,500
100% $335,000
Internal Assessment Method
Part 2
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 2: Identify MSW Indirect Costs
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Identify MSW Indirect Costs
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DepartmentDepartment Budget
Purchasing $500,000
Finance $700,000
Total $1,200,000
Employee Based Method
Part 2
MSW Employees 100
Total Municipal Employees 500
Ratio (MSW:Total) .20
Amount Allocated to MSW $240,000
Part 1
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 2: Identify MSW Indirect Costs
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Identify MSW Indirect Costs
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Employee Based Method
Part 3
MSW ProgramSW Employeesby Program
% of TotalMSW Employees
$ Amountfrom Part 2
Indirect Cost to Program (% of Total MSW x Total from Part 1)
MSW Collection 40 40% $240,000 $96,000
Disposal 25 25% $240,000 $60,000
Recycling Collection 32 32% $240,000 $76,800
Yard Waste 3 3% $240,000 $7,200
100 100% $240,000
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Direct costs
• Directly assigned whenever
possible (example: salaries,
debt issues, etc.); or
• Allocated based on
professional judgement or
estimate by City Staff
(example: public education
program); or
• Allocate based on composite
of “directly assigned” costs
Indirect costs
• Allocated based on
composite of “directly
assigned costs”
Allocation of Costs by Program
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 3. Identify Cost Per Program
Collection Disposal Recycling Yard Waste
Direct Costs
Salaries, Wages & Benefits
Vehicle Capital Costs
Annual Vehicle Costs
Total Direct Costs
Total Indirect Costs(Employee Based or Internal Assessment)
Other Revenue
Interest Income
Sale of Recyclables
Total Other Revenue
(Total Direct Costs + Total Indirect Costs – Total Other Revenue)
TOTAL FULL COST
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Identify Cost Per Program
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Allocation of Program Costs by Customer
Class
• This step is not necessary for all cities
• Typically two customer classes
• Same allocation methodology used
– Directly assign; or
– Allocate based on professional judgement; or
– Allocate based on composite
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Residential
Commercial
Customer Classes
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 4. Identify Cost Per Customer Class
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Identify Cost Per Customer Class
Program Cost Residential Commercial Other
Direct Costs
Salaries, Wages & Benefits
Annual Vehicle Expense
Vehicle Capital Costs
Total Direct Costs
Total Indirect Costs(Employee Based or Internal Assessment)
Other Revenue
Interest Income
Sale of Recyclables
Total Other Revenue
(Total Direct Costs + Total Indirect Costs – Total Other Revenue)
TOTAL FULL COST
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Development of User Fees
• Determine billing units
• Calculate rates for each program
• Implement rates which are cost of service based
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Per Household Per TonPer Container(residential or commercial)
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Step 5. Calculate Rates
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Calculate Rates
Program RatesMSW
CollectionDisposal
RecyclingCollection
Yard Waste
Total
Total Full Cost
Billing Units (households, dumpster “lifts”, tons, etc.)
Cost per Billing Unit
NEWGEN STRATEGIES AND SOLUTIONS, LLC
Overview
• City in Texas
• Population of
approximately
40,000
• ~$4.7 million
revenue requirement
• Various solid waste
services
TransferStation
Commercial
Residential
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Solid Waste Services Offered
Residential
• Refuse collection (weekly collection via side-load trucks)
• Curbside recycling (included in monthly fee)
• Heavy trash/Large waste collection (on-call service)
• Yard waste (2-3 times per month)
Commercial
• Front load dumpster (2, 4, 6, 8 CY – up to five days per week)
• Roll-off (20, 30, or 40 CY – up to five days per week)
Transfer Station (7:30 am – 5:00 pm, Mon-Sat)
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Project Approach
1. Methodology overview
2. Development of the “Test Year”
3. Allocation of costs to service categories (programs)
4. Allocation to customer classes
5. Determination of billing units
6. Calculation of the cost of service
7. Current rate recovery
8. Proposed rates for consideration
9. Projected revenue with rate increases
10. Policy issues and recommendations
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
1. Methodology Overview
• Development of the “Test Year”
– Total revenue the utility will need to recover to fund all
expenses associated with the provision of services.
• Development of revenue requirement forecast
– Revenue requirement adjusted to project changes in
costs due to inflation, salary increases, new
equipment, etc.
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
1. Methodology Overview (cont’d)
• Allocation of costs to service categories
– Represent the primary solid waste services provided
by the city
• Allocation to customer classes
– Grouped based on the customer classes that will
recover each category’s costs. (residential refuse and
recycling, commercial front load, etc.)
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
1. Methodology Overview (cont’d)
• Determination of billing units
– Example: cart rate charged by customer
• Calculation of the cost of service
– Distribute costs for each customer class utilizing the
appropriate billing units
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
2. Development of the Test Year
• Selection of the test year
– Compare budget to prior FY financials
– Must reflect expenses that occur regularly
• Make adjustments to achieve a normalized test year
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
2. Development of the Test Year
• Develop the revenue requirement forecast
– Inflationary assumptions used to develop the forecast
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
3. Allocation of Costs to Service Categories
• Critical step in determining adequate rates to
reflect the cost of providing service
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Residential Refuse
• Solid Waste
• Yard Waste
• Heavy Trash
Commercial Refuse
• Front Load Dumpster
• Roll-Off
• Non-Profit
Recycling Collection
• Residential Curbside
• Recycling Drop-off Center
Transfer Station
• Transfer Station
• Brush
• Disposal
• Administration
NEWGEN STRATEGIES AND SOLUTIONS, LLC
3. Allocation of Costs to Service Categories
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• Allocations to “Commercial Collection”
NEWGEN STRATEGIES AND SOLUTIONS, LLC
4. Allocation to Customer Classes
• Allocate service category costs to each
customer class
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
5. Determination of Billing Units
• Determine cost of service by dividing the cost of
service by the appropriate billing units
• Cart billing units
– Flat monthly fee for each cart account
– Zero percent growth for conservative analysis
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
5. Determination of Billing Units
• Commercial Front Load (3 components)
– Frequency of collection
– Volume of disposal capacity
– Number of containers
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
5. Determination of Billing Units
• Commercial Roll-Off Collection
– Conservative analysis (zero percent growth)
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
6. Calculation of the Cost of Service –
Example Calculation
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In FY 2015, a six-cubic yard container collected
three times per week (13 collections per month)
would result in the following monthly rate:
$25.08 + $7.53 × 13 + $2.57 × 6 × 13 = $323.43
Container Fee
Cost Per Collection
Cost Per CYMonthly Charge
NEWGEN STRATEGIES AND SOLUTIONS, LLC
7. Current Rate Recovery
• Forecasts projected revenue recovered using
current rates
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
8. Proposed Rates for Consideration
• Consultant expertise guides the proposed rates
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
9. Projected Revenue with Rate Increases
• Revenue projection assumes the proposed rates
are effective at the beginning of each fiscal year
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NEWGEN STRATEGIES AND SOLUTIONS, LLC
Summary
• Full cost accounting is a systematic method for
identifying, summing, and reporting costs
incurred in providing services
• Can use to determine the true costs of MSW
management
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E. Questions and Answers
Mr. David S. Yanke
Direct: (512) 649-1254
Cell: (512) 773-5494
3420 Executive Center Drive
Suite 165
Austin, TX 78731
Phone: (512) 479-7900
Fax: (512) 479-7905