Calculating The Costs Of Waste Management

In a perfect world, solid waste management would operate economically. In reality, the Minnesota Pollution Control Agency (MPCA) is tackling this issue by evaluating the pricing structure of solid waste management.

One problem prevails in solid waste management: the difference between what residents pay for MSW services and what it actually costs.

The difference between the price and the true cost represents the amount a product or service is subsidized. Subsidized costs can hinder industry competition and eventually lead to higher prices for a product or service. When the price is closer to its true cost, resources can be distributed better and residents are encouraged to reduce waste.

In a full-cost pricing system, consumers pay only for the costs of managing their solid waste. For a full-cost pricing system to succeed, the public sector should educate citizens and businesses on the true costs of solid waste management and also follow up with strict enforcement.

Available Subsidies Within the solid waste management sector there are many different types of subsidies. Some subsidies are easily identifiable; others are hidden and difficult to assess.

To supplement tipping fees at publicly-owned municipal solid waste (MSW) facilities, subsidies can be used. These subsidies may include taxes, service charges and grants.

More difficult to identify subsidies include flat fees. For example, some municipalities charge every household a flat price per month for solid waste management service. Since this rate does not correlate to the amount of waste generated by a household, a two-person household, in actuality, is subsidizing the costs of an eight-person household.

Private haulers may also subsidize costs. To gain a greater share of the commercial market, some haulers might charge a commercial or business customer less than their costs. In this instance, the hauler may subsidize the commercial customer's costs with surplus revenues from residential customers.

Externalities are another form of a hidden subsidy. Externalities, for example, derive from landfill costs that were never factored into disposal prices. This includes contaminated surface water and groundwater cleanup costs; the costs to provide long-term care for landfill property and to monitor wells for contaminant release; and past-due environmental and human health costs.

Land disposal has always been expensive, but until recently solid waste managers did not realize just how expensive it really is. To identify all existing subsidies for a particular product or service would be nearly impossible. In an MPCA economic report, researchers focused on the amount of subsidy from indirect prices. Researchers believed the other forms of solid waste management subsidies to be fairly insignificant or too difficult to assess under time and financial constraints.

Contributing Factors Over the past 10 years, solid waste management costs in Minnesota and the rest of the nation have increased dramatically (see Figure I on page 42). Regulations and legislative policies that aim to incorporate the true costs of solid waste management into consumer prices are partially responsible for the increase. These policies, in turn, have changed the management of solid waste.

Minnesota, for example, has adopted legislation that discourages land disposal and promotes alternative waste management practices such as waste reduction, recycling, composting and incineration. Requirements for landfill liners, more rigorous groundwater monitoring and financial assurance for long-term care costs also have increased landfill costs and made alternative waste management practices more competitive and attractive.

To encourage such practices, the Minnesota Legislature has allocated financial and technical support. As a result, approximately one-third of MSW in Minnesota is recycled; one-third is composted and incinerated; and one-third is landfilled.

Even with increased landfill prices, incineration, composting and recycling still cannot compete with land disposal. In many cases, the public sector will purchase MSW facilities, in addition to the financial support available, to keep the alternatives viable. Within the last 10 years, a significant number of privately-owned municipal solid waste facilities have transferred into publicly owned facilities.

Approximately 85 percent of Minnesota's processing and disposal facilities are now owned by counties. The transfer to public facility ownership has increased price subsidies.

It is not cheap for a city, county or state to target specific materials in the waste stream. New recycling goals and legislative bans on yard waste, household hazardous wastes and other problem materials have increased solid waste management costs, specifically for public education and extended collection service.

Tighter budgets and other economic realities have taken a toll on local governments that are trying to meet financial assurance requirements at landfills and provide recycling, waste reduction and yard waste composting programs. At the same time, citizens are increasingly voicing concern for the high cost of solid waste management.

The Method Used The following steps were taken to arrive at solid waste management prices, costs and subsidies in Minnesota.

Identify information needed. Make a list of all the questions you want to answer when the report is complete. The MPCA was mandated to answer the following questions:

* To what extent do consumer prices include human health and environmental costs?

* What portion of consumer prices are subsidized?

* What external costs remain in solid waste management?

Define terms. Define the terms that will be used in the report to ensure universal understanding. The MPCA defined consumer prices, solid waste management costs, collection costs, processing and disposal costs, government program costs and subsidy.

Develop surveys. Work with a group of people when preparing a survey. The MPCA developed four surveys with the help of a review committee made up of various MSW professionals. The four surveys included one consumer price survey and three revenue and expense surveys: a collection cost survey, a MSW processing and disposal facilities cost survey (incinerators, composters, landfills) and a government programs cost survey.

The consumer survey (see chart) determines the price paid by residents for solid waste service; the revenue and expense surveys determine both the costs and the amount of subsidy for collection, MSW facility processing and disposal and government programs (recycling, household hazardous waste management, yard waste composting and waste reduction).

The MPCA used the following guidelines in developing its surveys:

* Word the survey questions in a neutral manner to prevent respondents from being biased to a particular response;

* Format the survey to include adequate space for respondents' answers;

* Select a legible type style. A curvy type or one that is too small may not be as effective;

* Limit the length of the survey to assure that the survey will be returned sooner and will have better quality data;

* Identify the purpose of the survey; and

* Conduct a test run of the survey to evaluate its effectiveness prior to distributing it.

Target surveys. The sample surveyed should represent the total population being evaluated. Statistically valid surveys provide the most reliable data to make accurate findings and to suggest ways for improvement. Because of time and cost constraints, the MPCA was limited in its ability to target the consumer price and collection cost surveys to their respective populations, households and garbage haulers. For example, the MPCA conducted the consumer price survey on the MPCA staff in the central and regional offices. Because the MPCA believed that revenue and expense information would be difficult to obtain from private haulers, the collection cost survey was targeted at cities that provide garbage collection as a public service.

The MPCA took a census approach, which surveys the entire population, to gather revenue and expense data from processing and disposal facilities and county governments.

As a public institution, the MPCA is required to handle all information as public information unless it falls into a protected category. Data that falls into a protected category includes any data that if made public would adversely affect a private company's competitive position. Recognizing the sensitive nature of private firms' revenue and expense information, the MPCA allowed the private companies to apply for confidential status. All confidentiality requests were granted. Since 1989, most private processing and disposal facility owners have provided detailed revenue and expense data under conditions of confidentiality.

Data from other sources was used to estimate commercial prices paid for solid waste management service and to supplement collection cost survey data. Information was also gathered on state-level solid waste program expenditures. Revenue and expense data was not collected for cities or townships.

Data entry and analysis. Select a computer spreadsheet software system that has the capacity to sort data into various components. Establish quality control checks to assure that the data is properly entered. In analyzing consumer survey data, establish a standard rate of collection, such as once per week. Also, convert all prices/collection charges in terms of monthly rates. Once the data is in a comparable format, sort it by container size and geographic region.

The MPCA established four container categories: 30-, 60- and 90-gallon container sizes and an unlimited container size category. Once the data was sorted by container size, each container category was sorted into two geographic regions: the metropolitan area (Twin Cities and surrounding counties) and Greater Minnesota (remaining counties). Once the data was properly sorted, the data analysis included summing and averaging various categories.

The MPCA calculated both geographic region and container weighted averages. Weighted averages factor in the proportion of responses from a category, making the larger responses count for more of the total. For example, given 65 responses from the metropolitan area and nine responses from Greater Minnesota, a weighted average container price for once-per-week disposal of a 30-gallon container of garbage would represent 88 percent of the metropolitan area data average and 12 percent of the Greater Minnesota data average.

To estimate the total price paid by Minnesota consumers for solid waste management, the MPCA used the following steps:

* Multiply the monthly average household solid waste price by 12 to estimate the annual average price per household per region;

* Multiply the annual regional average price by the number of households in each region to find out the total residential price paid for solid waste management service; and

* Add the regional averages together for an estimate of the state total residential price paid for solid waste management.

Information presentation. Use different terms throughout the report so people will relate easier to the data results. The MPCA, for example, stated consumer prices in terms of a percent of the state's gross domestic product, price per capita and as a percent of average household income. Also, use confidential data cautiously so individual facilities' revenue and expense data are not revealed.

The Results The MPCA found previous studies and data from its survey to be a useful first step to determine if prices cover solid waste costs.

After evaluating the research, the MPCA confirmed that solid waste management prices do not equal costs. In fact, researchers found that an estimated 131 million, or 18 percent, of costs are subsidized by local and state governments through taxes, service charges and grants. According to the report, Minnesota is accounting for the true costs of landfilling but a significant amount of landfill costs and processing facilities' costs are being subsidized (see Figure II on page 44).

While preparing this report, time limitations and financial restraints required the MPCA to use a methodology that relied heavily on volunteered information. As the first step in determining solid waste management prices, costs and the extent of subsidies, this approach proved useful.

The MPCA hopes to use more sophisticated statistical methods in the future to improve data accuracy. With accurate statistics, decision makers will have a firm foundation on which to base MSW management issues.