AGENDA #3a
BUDGET WORKING PAPER
TO: W. Calvin Horton, Town Manager
FROM: Bruce Heflin, Public Works Director
SUBJECT: Commercial Refuse Collection
DATE: June 12, 2002
At recent budget work sessions, the Council has discussed various commercial refuse collection services. Council members requested additional information related to the option involving expansion of commercial fees to cover all collections, including a new basic fee for once per week collections. In addition, a Council member asked if we could verify what private companies are charging customers for collection services. This follow-up report to the original budget working paper dated April 24, 2002, is in response to those requests.
BACKGROUND
Beginning in fiscal 2001-2002, the Council approved a change in commercial refuse collection in which a basic service level of one collection per container per week is provided at no fee; a fee schedule was approved for collections beyond this basic service based on container size and frequency of collection. During current budget deliberations for fiscal 2002-2003, the Council has been considering various commercial collection services, including elimination of the service by the Town altogether and expanding the fee schedule to include all services, including a new fee for the basic service of one collection per week.
One concern that has been discussed is the possibility that a new fee could be high enough that some businesses would choose to opt out of Town service. Those who leave could contract with private companies who may be price-competitive with the Town’s higher fees, and who might provide a service that is easier to use than the Town, especially with respect to separation of recyclable materials.
This concern partially results from our experience when the new fee system was established earlier this fiscal year. Actual commercial fee revenues have been less than originally anticipated because most businesses opted for the once weekly service, which is provided at no fee, rather than purchasing additional service from us. We had assumed that most of these businesses would need at least two weekly collections.
In the report of April 24, 2002, the option of a fee for all collections was based on a new fee schedule, including a basic service fee of $750 per year per container for one weekly collection. Using a starting date of October 1, 2002, and a 25% factor to allow for possible loss of customers because of the new fee, the projected revenue for next year was $390,000. This total included fees of $90,000 from businesses currently opting for service beyond the one weekly collection and $300,000 in new revenue. Annualized revenue from this fee structure should be at least $480,000.
DISCUSSION
A Council member asked what the basic fee would have to be that likely would minimize the loss of Town customers and revenue. While we cannot be certain what private haulers may charge (see discussion, below) nor what factors may influence businesses to choose one service over another, we believe that there are reasonable assumptions that would result in a fee structure to minimize customer and revenue loss.
The attached fee schedule includes a basic fee of $500 per eight cubic yard container per year for one collection per week, rather than the $750 fee identified in our April 24 report. Under this revised fee schedule, we project that with a starting date of October 1, 2002, for the new fee, total revenues next year would be about $272,000. This total includes $22,500 from businesses using the present system of fees for extra services during the first quarter of fiscal 2002-2003. We have applied a reduction factor of 20% to allow for possible loss of customers. Additional revenue in 2002-2003 would be about $182,000.
Now Proposed 9 Months
Service Level Annual Annual 2002-2003
*represents three months revenue using present fees for extra services; in 2003-2004, the new fee schedule would be in place and businesses presently purchasing extra services would be absorbed into the new fee schedule
In comparison, the suggested annual fee of $500 per eight cubic yard container for once weekly service is less than existing and proposed fees for comparable service in neighboring jurisdictions. For example, the City of Durham’s fee for similar service is $918, while the Town of Carrboro is considering a similar fee of $1,166.
The Town’s estimated annual total cost for commercial service is about $980,000, including overhead.
What do Private Haulers Charge for Service?
A Council member asked how much private haulers charge for service comparable to that provided by the Town. This information is difficult to obtain. Private companies consider the information proprietary and will usually not give it to us. Also, costs are highly variable for private haulers. Some of the cost factors they will consider include the number of containers to be served, the location and ease or difficulty of access, risk factors associated with the collection, the proximity of a potential customer to other customers (associated with routing efficiency) and business factors such as a company’s willingness to accept temporary losses or minimal profits to secure additional business to compete with other haulers (loss leaders).
We have heard from various sources (customers, other government agencies, private haulers who are willing to talk in “ranges of cost”) that weekly service for a single 8-yard container would normally cost between about $900 to $1200 per year. We have heard of businesses being quoted somewhat less and considerably more than that, based, we believe, on the factors previously noted.
ATTACHMENT
1. Revised fee schedule (p. 4).