FINANCE: Accounting Method Reinvents Waste Programs Booming in Western

As "reinvention" gains ground in local governments nationwide, one focus is centered on solid waste programs. In many cases, municipalities have discovered a helpful budgeting tool, full cost accounting (FCA).

This system helps communities identify and assess the total costs associated with solid waste services. With this information, they can shape cost-cutting measures and foster better decision-making and long-term planning.

By accounting for all resources' costs - used or committed - FCA differs from cash flow accounting or other systems typically used by governments. Along with indirect (overhead) costs, such as administration and legal services, FCA incorporates both past and future expenses using depreciation and amortization.

Four states (Indiana, Georgia, North Carolina and Florida) mandate full cost accounting, while communities elsewhere are implementing it voluntarily. Although the challenges of scarce resources, incomplete records and a lack of a standardized methodology are daunting, FCA can benefit communities (see figure).

Houston, for example, used full cost accounting to identify the program elements that drive its solid waste costs. It highlighted collection costs, specifically labor and workers' compensation, as the largest line item in the program's budget.

Armed with this information, the city took measures to decrease these costs, including automating collection trucks and reducing crews through attrition. Full automation may save Houston between $5 and $7 million annually and reduce workers' compensation claims.

Houston also discovered that it could afford to implement a separate yard trimmings collection program. FCA demonstrated that the avoided disposal cost offset the cost to collect and compost yard trimmings - if no additional collection time was added.

The solution: cutting one of the twice-weekly trash collections and adding a yard trimmings pickup instead. (To provide adequate storage for refuse, the city supplied residents with several can options when it moved to automation.)

By using FCA in all city departments, Indianapolis reduced its fuel and maintenance costs by decreasing the number of trucks used and replacing some older, less efficient trucks. Through attrition, the city reduced the number of people on collection crews as well. The result: $16 million in savings and retention of city workers instead of privatization in three districts.

Los Angeles uses FCA to make managers more accountable for their programs and to encourage worker efficiency. Monthly, five sanitation department district managers receive full cost reports for all salary and wage expenditures and employee overtime hours.

The reports help managers compare their performance against one another and against other municipal programs. In addition, employee teams use the reports to identify cost cutting opportunities.

Many communities considering privatization find data generated from FCA to be useful in weighing pros and cons. For example, Palm Beach County, Fla., used this method to determine that it could provide landfill services for less money than a contractor. Conversely, Franklin, Ind., was able to provide more services through private contractors, including trash collection, disposal and recycling, while reducing costs by 36 percent.

Phoenix, on the other hand, has used both city and private solid waste service providers over the past decade. By using FCA, Phoenix reportedly sets its bids more accurately and better evaluates contractors' bids.

Communities instituting unit-based pricing (pay-as-you-throw) programs can use full cost accounting to establish fee structures that are equitable and still generate needed revenues. Seekonk, Mass., used this method to set rates for its unit-based pricing program. Additionally, FCA helped residents understand the fees they pay.

For more information on full cost accounting, contact: the U.S. Environmental Protection Agency (EPA), 401 M St., S.W., Washington, D.C. 20460. (703) 308-7253. Fax: (703) 308-8686.

For a free copy of EPA's Full Cost Accounting for Municipal Solid Waste: A Handbook, call: (800) 553-7672.