At the outset of the study, we developed a pro forma financial model using an Excel template developed by SCS Engineers, an environmental engineering consulting and contracting firm, to develop projections for collection, recycling, and disposal and to calculate different rate structures. Then we began working through the eight steps.
1. Gather historical expenses and revenues. Data from the six cost centers over the last five years was plugged into the pro forma model to establish a baseline.
2. Identify test year. A test year is how much money the division must take in within a calendar year to fully recover operating costs.
3. Refine revenue requirements. The test year revenue requirement was multiplied by five to calculate a single, five-year revenue requirement. We then projected likely increases related to inflation, labor, facility and vehicle maintenance, and planning using a 2% consumer price index adjustment.
4. Calculate revenue offsets. Sales of recyclables dropped off at the county’s two customer convenience centers.
5. Allocate system costs. The team worked to assign administrative and overhead costs to the six cost centers based on assumed historic use.
6. Calculate tonnage delivered by customer class. We estimated the average residence would generate 0.92 tons of waste annually through 2027.
7. Estimate number of assessment units. Reasonable estimates were developed of future number of parcels in the sanitation district over the next five-year period using population and building permit estimates.
8. Set tipping tee. The cost of service for each customer class was determined by distributing the costs of each across the total number of billing units of each.
The result: 3 rate options
This analysis produced a business case for three scenarios that we presented to county decision makers:
- no change in rates and assessments
- full recovery of all costs
- CPI adjustment only.
They chose the first option, deciding not to raise rates or assessments for the three years of the county’s existing contract. At the end of that time, the pro forma model will be used to estimate potential escalation costs when the county begins contract renegotiations.
The rate study was well-received by county managers and enabled them to assess the division’s financial health in an efficient and timely manner.
Richard Allen is solid waste manager for Charlotte County, Fla.; e-mail firstname.lastname@example.org. Marc Rogoff is an SCS Engineers project director who focuses on sustainable material management planning issues; e-mail email@example.com.