Are your solid waste assets being efficiently and effectively managed?
Marc J. Rogoff, Ph.D., Project Director, SCS Engineers, Tampa, Florida; Chair, APWA Solid Waste Management Committee
Bruce Clark, P.E., DEE, Project Director, SCS Engineers, Tampa, Florida
Your city or county manager has summoned you and your immediate supervisor to a meeting downtown. The focus of the meeting is to discuss the spiraling cost of the solid waste system; your ending fund balance is creeping into the red and vehicle and equipment replacement have been left unaddressed for several years because of cash flow issues. He has invited the rest of his executive team—the Finance, Human Resource, and Purchasing Directors—to help come up with a viable business strategy to either get your department back "in the black" or plot out a way to privatize many, if not all, of your programs. Boy, it sounds like you have got your work cut out!
Does this scenario sound familiar? Many solid waste agencies are increasingly finding themselves at similar management, and seemingly insurmountable financial crossroads. Pressure from ratepayers has caused public agencies to scrutinize their costs of providing essential public services. Further, demands from city or county managers to defer customer rate increases until after the next election cycle also oftentimes means that fleet replacement needs are delayed. A sound fleet maintenance and replacement program is essential to the reliability and cost-effectiveness of a solid waste management program. Equipment that is constantly breaking down, requires expensive repairs, or becomes obsolete to maintain due to age detracts from an organization's ability to function efficiently. In comparison, equipment that is well-maintained and constantly reliable contributes to enhanced employee morale.
How can you measure your performance?
Not unlike other industries, solid waste management has typical benchmarks or standards by which an individual solid waste agency can be measured. More benchmarking information and data, such as for operations and maintenance costs and useful service lives, are constantly being made available for these purposes. If used wisely, these data and information can provide valuable guides on the cost competitiveness of a solid waste agency's operations relative to industry standards. Armed with that type of information, a manager can assess where improvements would yield the most benefits and develop a plan to initiate the changes.
To illustrate, the authors have recently completed several cost of service studies for agencies with major solid waste collection operations. Using several of the benchmarks shown in Table 1, we were able to show public decision-makers that the maintenance costs for these municipal solid waste collection and disposal operations were at the higher end of these typical industry standards. Our recommendations were for the cities to consider replacing their residential collection units earlier than expected in order to reduce the upward spiral in their repair and maintenance costs as these units age. In these particular cases, for example, the anticipated savings in vehicle maintenance costs would be realized by reducing vehicle cycle time from seven to five years.
Do your rates match your level of service?
In addition to the use of industry benchmarks, a cost of solid waste service study also requires an agency to analyze operational policies and procedures in order to help reduce costs, improve services, and enhance overall system revenues. As shown in Figure 1, a cost of service study can be a starting point for a formal plan of action to conserve cash, identify department practices and industry benchmarks, confirm the appropriateness of current levels of service, and address needed program changes, if any. Table 2 lists some illustrative cost savings and revenue enhancement ideas shown on recent studies completed by the authors. Typically, often what is found is that the solid waste agency is not charging enough to recoup the costs of the level of service provided to its customers. In other words, the agency is providing some "free or nearly free services" compared to those provided by other neighboring jurisdictions.
Consequently, a discussion must be conducted with the community's decision-makers through a rate analysis to determine the revenues needed to provide a desired level of service. Based on the results of this input, a politically acceptable rate structure can be developed, while at the same time, allowing the agency to improve its cash flow to pay for anticipated increases in personnel, benefits, capital improvements, and used vehicle replacements. The use of powerful financial modeling programs can enable the analyst to develop a variety of "what if" financial scenarios that can discern the most appropriate type of rate structure which will provide the required revenue sufficiency for the agency.