AGENDA #3e

BUDGET WORKING PAPER

TO:                  W. Calvin Horton, Town Manager

FROM:            Bruce Heflin, Public Works Director

SUBJECT:       Information about the Cost Of Commercial Refuse Collection

DATE:             June 5, 2000

The Town Council requested certain information at recent budget work sessions related to commercial refuse collection. The following information discusses (1) a comparison between Town costs and those in the private sector for such service and (2) an increase in the present Town fees for optional extra commercial pickups each week to better reflect the actual service costs.

Comparison of Town and private sector costs for commercial collections

Based on an analysis of Sanitation costs by program using 1998-99 audited data and full cost accounting principles, we identified various unit service costs by program. Using these base data and an annual 3% increase in each of the following two years to reflect increases in our operational costs since 1998-99, we find that commercial collections average about $900 annually per container for those businesses serviced by a side loading garbage truck and $1,350 annually for those serviced by a front loading truck. The cost of a side-loader is lower than that of a front-loader. These averages include costs for collection, which are variable costs, and those for disposal, which are fixed in terms of the tipping fee charged for disposal at the Orange Regional Landfill for such waste.

We have found that data related to charges by private vendors for collecting commercial refuse are difficult to obtain because of the proprietary nature of such business charges. We do know that the major vendors that service this area charge an amount based in part on the number of containers emptied, whereas the Town presently provides two collections per week for each business irrespective of the number of containers at that business. The annual fees which the Town charges, discussed above, are for two extra collections per week; again, these fees do not vary based on the number of containers at a business receiving this extra service. Also, private haulers would service businesses using either a rear loading or front loading truck; the Town has about 175 commercial customers that are served using a side loading truck.

Based on limited information we have obtained in the past and our knowledge of private haulers in general, we believe that the unit costs for collection that a typical private hauler would charge a business for basic service would exceed two to three times the estimated costs noted above associated with Town service. For example, Finley Forest Condominiums presently use twenty-four containers. If they were charged a private rate of $100 per month for once weekly collection per container, then their annualized cost could reach about $29,000. We believe this would be a likely private rate that they would have to pay. Finley Forest currently receives twice a week service, so there is no charge by the Town at all.

Private vendors have several costs that are passed on to their customers that the Town, as a public entity, does not incur. First, private haulers must pay commercial license fees and various other fees and taxes. Second, they must build a profit margin into their cost analysis.

Possible increase in fees for extra commercial weekly pickups

The charging of user fees is an equitable method of recovering some of the costs of providing sanitation services that exceed those routinely provided and funded from the general fund.  Fees are based on estimated actual costs. 

Extra dumpster service fees for extra collections per week of commercial refuse rose to  full cost in 1992-93.  The increase in fees to recover actual costs was phased over two years.  The commercial establishment benefits from the convenience of the extra pickups and the public benefits from minimizing odors, reducing blowing trash and reducing the number of refuse containers in the community.  Our long term goal was to reduce the number of establishments needing extra service by providing recycling opportunities and waste reduction education.  This service was reduced to two extra collections in 1995-96, with accompanying reduction in fees. The current fees for 2 times per week additional service are $775 per year for businesses serviced by side-loading trucks and $1,200 per year for those serviced by front-loading trucks.

Since the reduction in extra collections in 1995-96, two main trends have occurred. First, some businesses have chosen to have more containers and not pay for additional collections. We project that businesses using this extra service will have 15% fewer containers involved next year than were involved in 1997-98 (cf., side-loading served containers down 25%; front-loading served containers down 13%). Second, we provide the basic two weekly collections to more containers at businesses and apartments than previously.

Our budget request for next year assumes revenues from extra collections for the current number of 9 side-loading serviced containers and 41 front-loading serviced containers, to which current rates are applied. Thus, the projected revenue for 2000-01 is $56,000. Based on an analysis of Sanitation costs by program  using 1998-99 audited data as noted above, we find that the current fees do not recover all of our costs for collection and disposal of commercial municipal solid waste (MSW).

We have identified an optional increase in the existing flat fees based on type of truck servicing the container that would recover an amount closer to our estimated average costs. We believe that an increase from $775 to $900 for side-loading serviced containers and an increase from $1,200 to $1,350 for front-loading serviced containers would more accurately reflect the actual costs of servicing them. These fees could yield an estimated additional $7,450 compared to the $56,000 in our budget request for next year. This is based on no change in the current number of containers receiving the optional extra weekly collections. In the past, when fees have been increased, we have experienced some decrease in the number of businesses requesting this optional service. Accordingly, we could realize less than the $7,450 increase

The major advantage of this option would be a recovery of an amount that is closer to our operating unit costs for this service; the main disadvantage would be the additional cost assessed businesses using the optional service and the fact that some businesses might drop needed extra service, thus presenting odor and overflowing trash problems in their immediate neighborhoods.

Other Issues

We previously submitted a budget working paper discussing options for changing commercial refuse collection services. We understand that the Council is interested in a comprehensive analysis of the options related to this issue and that we will be undertaking such an analysis prior to next year’s budget process. One aspect of this analysis could be the use of a new fee based on the number of containers a business has for collection. We presently provide a basic service of twice weekly collections irrespective of the number of containers involved at each business location. More than 70 businesses have more than one container, ranging from two to twenty-four. As indicated above, those businesses likely would be charged by a private company partly based on the number of containers serviced.