AGENDA #2b

 

BUDGET WORKING PAPER

 

TO:                  W. Calvin Horton, Town Manager

 

FROM:            Bill Terry, Interim Public Works Director

 

SUBJECT:       Commercial Refuse Collection

 

DATE:             May 19, 2004

 

 

At the budget work session on April 28, 2004, the Council discussed a budget working paper related to options for elimination of commercial refuse collection services. The Council requested follow-up information about the possibility of eliminating commercial service for businesses only, while retaining service to multi-family residential complexes.

 

BACKGROUND AND DISCUSSION

 

We estimate that the annualized saving for elimination of commercial refuse collections for businesses only, while retaining services to multi-family complexes, would range between  $205,000 and $310,000, depending on whether or not any personnel layoffs would result. This range is based on an analysis of data for fiscal year 2002-03, the most recent fiscal year for which we have audited cost accounting data.

 

We submitted a budget working paper dated April 28, 2004, in which we identified potential net savings with elimination of commercial service assuming: 1) no layoffs ($543,500 annualized), and 2) assuming elimination of existing positions ($646,000 annualized). These amounts included elimination of service to multi-family residential customers. Analysis of full cost accounting totals for FY 2002-03 shows the net cost of providing multi-family service is about $340,000 per year. This amount is derived using the portion of total commercial pick-ups (616 sites per year) that are used by businesses (59%, or 363 sites). The remaining 41% (253 sites) are used by multi-family complexes.

 

The range of projected savings using the above data is $205,000 under the option of  retaining all current personnel ($543,000 minus $340,000) and  $310,000 under the option of eliminating personnel ($646,000 - $340,000).

 

We note that the net savings for elimination of commercial services to businesses is estimated based on data that are not current and that we would wish to refine our analysis in more detail prior to actual elimination of this service. We believe that the amounts derived provide a reliable general range of savings that would be realized annually if this service change were to occur. The method of transition to this change would determine initial actual annual savings. For example, would we start the change on July 1, 2004, or later? What would we receive for sale of assets? Would such receipts be earmarked for use in the vehicle replacement fund (all or a portion)? Should this change be achieved without layoffs of current employees? If not, what time would be required to achieve reduction through attrition?

 

With respect to an issue raised related to use of private contract versus use of in-house crews for commercial refuse collection services, we cannot say with confidence what the cost comparisons would be. We would need to prepare a request for proposal for distribution to local providers of commercial service. The likely bids would be based on proprietary information available to us. We can generalize that we do not believe any savings related to conversion to contracted service would be significant, if any. We also believe that any contract with a private vendor would contain escalation clauses, making future cost estimating difficult.

 

If the Council wishes that we pursue the use of private contracted services, then we would propose preparation of bid specifications for distribution to private vendors. Also, we would prepare an in-house proposal using the same specifications so that comparisons between the two choices could be made.