Chapter 11 – Financial Responsibility

Goal 4

Manage the Utility’s finances responsibly, with equitable rates that promote waste reduction and recycling.

This chapter describes Waste ReSources’ current financial position and presents the objectives and strategies for managing the Utility in a fiscally responsible manner, with fair and equitable rates. The objectives and strategies are in response to challenges and opportunities described in Chapter 7.

To accomplish this goal, 2015-2020 objectives are:

•    Ensure that customer rates are equitable and reflect a balance between the cost of providing service and the goals of waste prevention and recycling.

•    Seek opportunities to increase revenue from non-fee sources.

As a context for the planned financial strategies, the following sections address the Utility’s revenue and expenditures, customer rates and rate structure, and resources needed for Plan implementation.

11.1 Revenue and Expenditures

Like other City utilities, Waste ReSources operates as an Enterprise Fund; it is managed like a business without a profit motive. The Utility raises revenues from fees for services and receives no funding from taxes or levies. Some services — the drop box program for C&D and recycling, and commercial recycling services — are offered in a competitive environment. The Utility strives to recover only its expenses, while maintaining sufficient cash flow and charging customers fairly.

Table 11-1 summarizes Waste ReSources’ finances over the past three years, showing revenues, expenditures, fund equity, and reserves. Operational efficiencies and conservative budget management result in a reserve fund nearly double the State requirement. These funds have been used to smooth customer rate increases.

By State law, the Utility is required to keep a cash reserve matching at least 10 percent of its budget. Net equity is the total amount of reserves available. Amounts exceeding 10 percent can be used to buy down customer rates or used for capital expenses, such as trucks or equipment needs.

Table 11-2 and Table 11-3 show 2015 budget detail for the major categories of revenues and expenses.

Table 11-1 Revenue, Expenditures and Budget Classification

 

2015

2014

2013

2012

 

Budget

Est. Actual

Actual

Actual

REVENUE

Intergovernmental

0

54,294

52,943

58,713

Charges for Services

9,911,275

9,388,619

8,592,413

8,609,686

Other Revenue

97,253

89,784

95,799

112,112

Total Revenues

10,008,528

9,532,697

8,741,155

8,780,511

EXPENDITURES

Salaries

1,822,857

1,669,667

1,617,358

1,646,842

Personnel Benefits

843,830

779,837

750,382

744,994

Supplies

538,991

475,260

447,864

457,203

Other Services & Charges

3,961,435

3,847,275

3,617,746

3,585,741

Intergovernmental Services

1,184,830

1,048,398

1,006,825

1,019,231

Interfund Payments

1,830,197

1,642,158

1,650,253

1,666,972

Capital Outlays

0

16,394

12,692

28,104

Operating Transfers Out

12,500

12,500

12,500

31,229

Total Expenditures

10,194,640

9,491,489

9,115,620

9,180,316

Net Gain or (Use) of Fund Equity from Operations

(186,112)

41,208

(374,465)

(399,805)

Estimated Fund Equity January 1 Available for Appropriations

1,167,450

1,126,242

1,500,707

1,900,512

Estimated Fund Equity December 31 before reserve requirement

981,338

1,167,450

1,126,242

1,500,707

(Less) Operating Reserve

(1,000,850)

(953,270)

(874,120)

(878,050)

Estimated Fund Equity Available for Appropriations After Reserve

($19,512)

$214,180

$252,122

$622,657

Operating Reserves Based on Original Budget. Requirement:

10%

10%

10%

10%

Revenue

Nearly all (99.9%) of the Utility’s revenue is from customer fees and charges, with minor amounts from the sale of scrap metal, grants and investment earnings.

Table 11-2 summarizes projected Utility revenue from the 2015 budget. This revenue covers implementation of ongoing Plan strategies. Implementing new start-up programs, such as commercial recycling and bundling organics fees, will require additional annual revenue and significant start-up costs shown in Table 11-6.

Table 11-2 Waste ReSources 2015 Operating Budget – Revenue

Program/Service

Drop Box

Residential Curbside Waste Collection

Commercial Curbside Garbage Collection

Yard Waste Curbside Collection

Total

Customer Fees and Charges

$2,378,878

$3,272,700

$3,455,200

$536,300

$9,999,078

Investment Earnings

$200

$500

$600

$150

$1,950

Other – Scrap Sales

$0

$8,000

$0

$0

$8,000

Total

$2,379,078

$3,281,200

$3,455,800

$892,750

$10,008,528

Expenditures

Table 11-3 summarizes Utility expenditures, as shown in the 2015 budget, excluding additional expenditures required by this Plan.

The major expenditure categories in all services are:

•    Compensation (including wages, salaries and benefits).

•    Disposal costs.

•    Equipment operation, maintenance and replacement.

Table 11-3 Waste ReSources 2015 Operating Budget – Expenditures

Program/Service

Drop Box

Residential

Commercial

Organics

Total

Collections

$2,339,700

$3,165,714

$3,260,480

$1,017,519

$9,784,413

Waste Prevention and Reduction

$26,370

$164,136

$159,228

$60,493

$410,227

Total

$2,366,070

$3,329,850

$3,420,708

$1,078,012

$10,194,640

11.2 Customer Rates and Rate Structure

Waste ReSources customer billing is related to water meter service. Most customers are billed bi-monthly along, with their other utility services. Some Waste ReSources customers receive monthly billing. These include some high-volume water customers who get monthly billing for budgeting purposes, customers who share a water meter with another business but need separate solid waste services, and most drop box and compactor customers.

All residential and commercial customer rates for carts and dumpsters are set on a pay-as-you-throw basis, meaning that those who need larger containers pay a higher rate. Drop box and compactor customers pay a hauling fee separate from the disposal and recycling fee. The disposal and recycling fee is passed directly to the customer. This results in customers paying only for the amount they dispose of and recycle. Residential customers have a rate incentive to recycle more. Current monthly fees can be found in Olympia Municipal Code, Section 04.24.010 C.

Services and Customer Classes

As described in Chapters 4 and 5, Waste ReSources provides service to four major customer classes. These customer classes are reflected in the Utility’s operating budget as shown in Table 11-3.

1.    Drop box (or compactor) collection and hauling. Large-volume waste generators for whom it is cost-effective to use a large container such as a drop box or compactor, either occasionally and short term or frequently and long term.

2.    Curbside collection of single-family residential waste (garbage and recyclables). Single-family and smaller multi-family residential households that need frequent collection of relatively small volumes.

3.    Collection of commercial garbage. Businesses and larger multi-family properties that need frequent collection of small, moderate and large volumes.

4.    Collection of residential and commercial organic materials. Organics customers who generate regular small and moderate volumes.

Volume-Based Rates

Garbage collection rates are based on container type and size, and pick-up frequency. Charging by volume (size and type of container) provides an incentive to recycle more and generate less garbage. The “pay-as-you-throw” system means drop box, residential and commercial customers who throw out less can downsize their garbage containers and pay less. Current technology is not yet reliable enough to allow the Utility to charge by weight.

Recycling Rate Incentive

Garbage collection fees are 20 percent lower for single-family residential customers who subscribe to recycling collection service. This incentive is possible because the revenue from the sale of recyclable materials partially offsets processing fees, making recycling much less expensive than landfill disposal. Table 11-4 shows the amount saved by recycling compared to landfill disposal.

Table 11-4 Recycled Material Savings, 2014

Year

Tons Recycled

Net Cost

(Processing minus Material Value Received)

Cost if Landfilled ($119/ton)

Savings

2014

4,800

$155,500

$566,000

$410,500

Almost 99 percent of Olympia’s single-family residential customers subscribe to collection with recycling. They source-separate traditional recyclables (plastic bottles, jugs and tubs, glass bottles and jars, tin and aluminum cans, beverage cartons, and paper and cardboard) from their garbage.

This rate incentive is one reason for the success of Olympia’s residential recycling program. Multi-family customers also receive commingled recycling service at no additional cost.

Organics Collection Rates

Separate fees are charged for curbside collection of organic materials. Single-family residential customers can get a 95-gallon cart picked up every other week for an additional $8.83  per month (2015 rate). This service is promoted primarily to residential customers, although it is available to multi-family and some commercial customers upon request. Commercial customers wishing to divert food waste can get containers ranging in size from a 95-gallon cart to a 2-yard dumpster. Commercial organics collection is weekly and fees vary by container size. The fee is proportional to frequency of pick up.

Bundling the residential organics fee into garbage would give all customers an equal incentive to divert organics. Based on the Residential and Commercial Cost of Service Study (Appendix 5), implementing bundled organics would increase residential rates by at least 3 percent.

Commercial Recycling as an Incentive

With a few exceptions, Waste ReSources does not collect recycled materials from commercial customers; they may choose to subscribe to recycling services from a private hauler. Private recycling collectors prefer to collect only materials such as paper, cardboard and aluminum that have the highest value and provide the highest margin. The City’s goal is to recycle as much as possible, for which a market exists, high margin or not.

This Plan includes five strategies aimed at increasing commercial recycling. In particular:

•    Obtaining reliable data on commercial recycling would enable Waste ReSources to accurately calculate the overall recycling rate (Strategies 2A3, 2A4).

•    Collecting recyclables from commercial customers would fill a niche for those requiring small volume and commingled collection. The service could be fee-based or embedded with garbage fees (Strategy 2D1).

City-provided commercial recycling would increase the net cost of commercial container collection by an estimated 3 to 4 percent. (See Appendix 5, Residential and Commercial Collection Service Studies, pages 68 through 73, for a detailed analysis of alternative commercial recycling scenarios.

11.3 Resources Needed for Plan Implementation

This Plan includes 13 objectives for 2015 to 2020, aimed at the goals of waste reduction, increased recycling and composting, safe and efficient operations, and financial responsibility and equitable rates. To achieve these objectives, the Plan outlines 48 strategies. These are summarized in Chapter 1 and described in Chapters 8 through 11. Implementation dates and priorities are in Chapter 7, Table 7-1.

Many strategies continue or build upon existing programs, while some are new. This section reviews the staffing and revenue required to implement this Plan. As the customer base expands, additional revenue will be generated from customer rates. Rate increases will be used to adjust for inflationary costs, as necessary. Waste ReSources will apply for grants that align with the Plan strategies, as they become available.

Staffing

Implementing this Plan will likely result in a net increase in employees. Due to operational and management efficiencies, the Utility currently operates with one fewer employee than it did in 2008. However, projected growth in the residential sector and expanding organics collection is expected to require the addition of at least one truck and driver. Moreover, the addition of commercial recycling could result in additional staffing needs in the long term. Table 11-5 shows the expected change in staffing levels between 2008 and 2015.

•    Waste Prevention and Reduction Program includes two Senior Program Specialists and one Program Specialist. The Program Planning Supervisor position is no longer budgeted. The Waste Prevention team reports to the Waste ReSources Director.

•    Changes to the Collections Program since 2008 include a reduction from 19 to 16 collectors, due to collection efficiencies. Two of these positions were reclassified; a Maintenance Worker II for container repair and maintenance, and a second Lead Worker.

•    The Billing Specialist was reclassified as an Accounting Technician and reports to the Waste ReSources Director.

 

Table 11-5 Waste ReSources Staffing, 2008 vs. 2015

Position

2008

2015

Administration

Line of Business Director/Associate Line of Business Director

1

1

Program Assistant

0

1

Accounting Technician

0

1

Collections

Operations Supervisor

1

1

Lead Worker

1

2

Refuse Collector

19

16

Maintenance Worker I

1

1

Maintenance Worker II (Container Repair)

0

1

Billing Specialist

1

0

Waste Prevention

Program and Planning Supervisor

1

0

Senior Program Specialist

2

2

Program Specialist

1

1

Total

28

27

Additional Funding Requirements

Implementation of the planned objectives and strategies may require additional resources. These resources may be needed for startup of commercial recycling and bundling organics to cover additional containers, equipment, an additional collector, design and printing of educational materials, and consulting fees for assistance with rates and rate structures.

As shown in Table 11-6, additional revenue for these annual resource needs will come from customer rate increases and new customers. Start-up costs are primarily additional carts needed for implementation and educational materials. Bundling organics also includes purchase of an additional route truck.

Table 11-6 Potential Added Annual Expenditures for Plan Implementation by Service

Service

Main Driver

Annual Amount

Start-up Cost

Funding Source

Residential

Bundle organics

$109,000

$750,000

Customer rates

Commercial

Commercial

$149,000

$50,000

Customer rates

Total

 

$107,605

 

 

11.4 2015-2020 Objectives and Strategies

By implementing this Plan over the next six years, Waste ReSources aims to continue balancing cost of service with customer fees and promoting waste reduction. The objectives and strategies planned to accomplish this are described in the following sections.

In preparing this Plan, Waste ReSources commissioned a cost of service study to identify opportunities for efficiencies, additional diversion, future rate reviews, and modeling alternative services. A baseline cost of service study identified the need to minimize commercial rear-load collection to the extent possible and consider an alternative rate to offset the higher cost of collection compared to front-load. The study also presented recycling market research, identifying opportunities to decrease recycling costs overall. (See Appendix 5, Residential and Commercial Collection Service Studies.)

Objective 4A Ensure that customer rates are equitable and reflect a balance between the cost of providing service and the goals of promoting waste prevention and recycling.

Strategy 4A1 Continue the current rate incentives for waste reduction and recycling.

The volume-based “pay as you throw” system (charging by size and type of container) provides an incentive to recycle more and generate less garbage. Current technology is not yet reliable enough to allow the Utility to charge by weight with on-board scales. Also, garbage collection fees are 20 percent lower for single-family residential customers who subscribe to recycling collection service.

Strategy 4A2 Continue to offer reduced and special rates for low-income customers and those needing roll-out service (driver rolls cart to curb).

This strategy is part of the broader city-wide rate program that provides discounted rates for residential customers who qualify as low income and disabled, or low-income senior citizens (age 62 and over). Residential customers who are unable to get their cart to the curb and back can apply for roll-out service for a nominal fee.

Strategy 4A3 Continue to use debt and reserves responsibly to smooth customer rate impacts.

Over the past few years, operational efficiencies and conservative budgeting resulted in reserves in excess of the required 10 percent. Historically, these funds have been used to smooth customer rates.

Strategy 4A4 Consider bundling fees for residential organics service with garbage and recycling fees.

Over the longer term, Waste ReSources will continue to work toward bundling organics, so customers do not have to pay an additional fee to add composting collection, and costs would be spread evenly among all customers. Such a change will take time to evaluate, because it would likely result in a large increase in materials and require major operational changes; for example Waste ReSources could no longer collect all food and yard waste on one day a week. Since compostable materials make up about a third of single-family waste in the garbage (Chapter 3, Table 3-5), this strategy would substantially impact Olympia’s overall quantity of waste in the landfill.

Strategy 4A5     Consider an alternative rate structure for commercial collection, based on the cost of collection.

The cost of service study (Appendix 5) showed that rear-load collection is partially subsidized by front-load collection. Waste ReSources uses two rear-load trucks for commercial containers (dumpsters and carts) in hard-to-access areas, including Downtown. These trucks are smaller and require two operators, making them more expensive to operate than front- and side-load trucks. Waste ReSources will evaluate the options of continuing to have all commercial rate-payers subsidize this service, or charging some customers more if rear-load trucks are used. Waste ReSources is also planning operational efficiencies to reduce the cost of rear-load collection. (See Chapter 10.)

Objective 4B Seek opportunities to increase revenue from non-fee sources.

Strategy 4B1 Seek the best value in recycling processors.

This strategy seeks to maximize the City’s return on sale of its commingled recyclables and reduce risk. Currently, Waste ReSources delivers recyclables to Waste Connections/LeMay and pays a transfer and processing fee. Waste ReSources then receives 70 percent of the amount paid to Waste Connections/LeMay by the materials recovery facility in Tacoma. The Utility’s recycling market research suggested better returns might be possible (Appendix 5). A first step would be for Waste ReSources to haul test loads directly to a material recovery facility. Results of test loads could be used to inform next steps, such as a request for proposals for a new recycling processor agreement. This strategy would be developed in conjunction with the expanded drop-off and transfer site at the old City Hall Fire Training Pad site (Strategy 2F1).

Strategy 4B2     Continue to seek grant funding to develop waste reduction and recycling programs.

Since 2008, Waste ReSources has regularly and successfully applied for Washington State Coordinated Prevention Grant (CPG) funding to help fund new and innovative programs. The Utility will continue to apply for this grant and seek other grant funding opportunities to help offset the cost of delivering waste reduction and recycling programs. While grant funding is not a major revenue source, it helps establish programs that do not generate their own revenue. Examples of grant-funded program start-ups are residential and commercial food waste collection, the grasscycling program, and recycling and composting at public events.