Transfer Station Economics

Michael Fickes

The economy might be in the doldrums, but it's not all doom and gloom — at least not for transfer stations. Charged with the task of lubricating solid waste management operations, transfer stations help to hold down transportation costs and make the waste collection and disposal system more economical.

The concept is simple: collection trucks go into a facility carrying a little waste, garbage is consolidated, then semi-trailers leave the facility carrying a lot. So what factors contribute to efficient transfer station operations?

Not the economy, according to industry experts. Rising and falling economic conditions seem to have relatively little affect on basic transfer station operation, says John Dempsey of consulting firm HDR Inc.'s Omaha, Neb., office. “Given that garbage is for the most part a constant, the impact of a softening economy on transfer station operations is largely limited to a decline in deliveries,” he says. “This may change the cost per ton slightly.”

Suppose a transfer station's fixed costs include $100,000 per year for debt service and $100,000 a year for operations, Dempsey explains. And suppose further that this facility handles 70,000 tons per year. Dividing fixed costs by tons yields a fixed cost per ton of $2.86.

A flagging economy might hypothetically reduce tonnages by 10 percent or 7,000 tons. But by Dempsey's calculations, this might only raise the fixed cost per ton by 29 cents. “In the grand scheme of things, a 29 cents change in the cost per ton will not change the economics of transfer,” he says.

Additionally, fixed costs represent slightly less than half of the total costs incurred by a facility. Variable hauling and disposal costs account for the rest. So when tonnage declines, hauling and disposal costs decline as well.

All in all, the dynamics governing transfer station operations involve forces other than economic ups and downs.

What Recession?

So while the public talks about a recession, the North Platte transfer station in the city of North Platte, Neb., has experienced several years of increasing volumes, with no let-up as the national economy has slowed. “What recession?” asks LeRoy Swain, street sanitation supervisor for the city.

According to Swain's records, volumes in the 12 months from Nov. 2000 to Oct. 2001 totaled 33,503 tons, up just more than 500 tons from the previous 12 months. The facility, which serves a community of 25,000 people, averages about 125 tons per day and approximately 33,000 tons per year.

The waste-tipping fee of $37.75 increased by $1.50 from one year ago, along with overall volume. Other fees include $20 per ton for yard waste, $27 per ton for clean wood and $7 per ton for tires.

The city sets its transfer tipping fees to keep pace with charges at the landfill it uses 75 miles to the north in Perkins county. The transfer fees plus an $11.25 collection fee paid by residents support the lion's share of costs for North Platte's solid waste operations, whether the economy is up or down.

Marginal Volumes

Although some transfer stations may be recession-proof, not all facilities have it as easy as North Platte. When setting tipping fees for future transfer station operations, most managers estimate income and costs in terms of projected tonnage.

Setting rates on a tonnage slightly below what the projections indicate, allows additional tonnage to provide margin for costs, says Scott Pasternak, a senior consultant with Reed, Stowe & Yanke LLC, an Austin, Texas-based waste management consulting firm. The extra income can support other programs or provide a cushion to soften the effect of any volume declines that may affect the cost performance of the facility.

While it is true that the economy does not affect transfer station costs in general, particular circumstances can alter this. “Depending on what your margins are, a declining economy that reduces volume can affect transfer station finances,” Pasternak says. “If the revenue generated by the last 20,000 tons of volume through a transfer station goes directly to the bottom line and a municipal solid waste department depends on that revenue to support other operations, reductions in that volume could have an [adverse] effect.”

Washington's Jefferson County Transfer Station will deal with such a problem in 2002, according to Dennis Bates, Jefferson county's solid waste foreman.

Marginal transfer volumes are particularly important to the county's approach to solid waste management. At the transfer station, a high tipping fee of $113.96 covers the costs of several services — household hazardous wastes disposal, recycling, landfill closure and the transfer station itself. The tipping fee also pays for consumer education in relation to recyclable materials and household hazardous waste disposal.

These costs come on top of debt service payments on $2.5 million borrowed to build the transfer station following the closure of a local landfill. Finally, the County pays a $48 per ton fee for material shipped from the transfer station to a landfill.

Since the transfer station was built in 1995, Bates says that volumes increased steadily until 2000. Between 1999 and 2000, for example, tonnage rose from 17,580 to 19,050.

This year, however, tonnage has fallen with the economic downturn. Projections suggest that tonnage will reach about 18,550, a decline of about 500 tons. Next year's projections suggest that volume will remain at that level, but the transfer station will see a decline in annual transfer revenues of $56,980. In light of the transfer station's responsibility for funding other activities, such revenue declines will create problems.

As a rule, increases in recycling volumes reduce tonnage flowing through a local transfer station. Jefferson county hasn't had to face this problem. Recycling volumes have dropped of late. But the extra volume flowing through the transfer station doesn't represent a windfall. Instead, it has created a need to support the recycling facility with ever-greater subsidies from the transfer station.

Worse, volumes aren't likely to rebound much beyond 1999 levels when the economy begins to expand again. The county's political preference favors limited-growth policies, which eliminate the possibility of increased trash volumes from new residents and businesses.

Add to this the hue and cry about the facility's $100-plus tipping fee. The outcry has prevented the municipality from increasing its fees for three years, now.

“We need to raise our rates, but we haven't been able to,” Bates says. “Instead we have cut services. We've closed all but one consumer drop-off site. We've also cut the hours we work at the transfer station. Instead of seven days, we're now open five days, and we operate fewer hours per day.”

In effect, the approach to recycling and solid waste disposal in Washington, which is unique among the 50 states, has placed the state's transfer stations at the mercy of the cycles affecting the general economy.

Operating On Subsidies

On the other side of the coin, transfer station systems can benefit from receiving, not paying, subsidies.

In Eugene, Ore., the Lane County Waste Management Department supports a network of 17 transfer stations, none of which make enough to cover costs. The largest of these facilities handles approximately 5,000 tons per year, while the smallest deals with about 500 tons a year.

“None of our transfer stations pay for themselves,” says Leonard Gosda, a Lane County Waste Management supervisor. “We provide transfer services as a customer service for the public. Only commercial accounts can deliver to our landfill, not the public.”

How much money do the transfer stations lose? “Big time losses,” says Gosda, who declines to offer specific figures. “We've suggested closing our lower-volume transfer facilities, but our county commissioners view transfer as an important public service, no matter what the cost. On the other hand, our landfill makes money and subsidizes the transfer operation.”

In Lane county, the landfill acts as the linchpin for the waste management operation, Gosda explains. When something threatens the landfill's economics, the county responds swiftly. Four years ago, for example, a competing landfill opened to the north of Lane County and set its tipping fees at one-half the rate. Understandably, commercial haulers began moving waste to the north.

Additionally, new materials recovery facilities (MRFs) have opened in recent years, cutting volumes flowing through the transfer stations and into the county landfill.

“The new landfill and MRFs took a lot of revenue away from us,” Gosda says. “We were hurting.”

To handle the problem, Lane County created a policy patch and began charging haulers $16 per ton to take waste out of the county. In response, haulers have gradually returned to the county's landfill.

While this may sound like a difficult system to manage, Gosda doesn't find it so. “We all operate on the same management team,” he says. “We don't look at our transfer operation as something separate from the landfill. We look at the total budget for transfer and landfill operations. From that point of view, we're making money. Not a lot. And that money is being invested to support a 50-year closure plan that will eventually be used by the landfill.”

As time passes, Gosda says the fund will grow and earn interest, which gradually improves the county's financial situation. “In other words, covering our costs is getting easier,” he says, despite short-term problems such as a current decline in trash volumes caused by the declining economy.

Calling it an “enterprise fund,” Pasternak enthusiastically recommends Lane county's technique of managing fee-based solid waste operations in a single account. “An enterprise fund is a dedicated account into which all fees from solid waste operations flow,” he says. “The real key to this approach is that the money cannot be moved into a municipality's general fund and ultimately used to support other operations. If you employ an enterprise fund for solid waste operations, you won't be significantly affected by issues such as declining tax revenues during a recession.”

According to Pasternak, solid waste operations around the country have begun to migrate toward enterprise fund accounts. “There are more enterprise fund solid waste utilities in the southwestern part of the country,” he adds. “On the East Coast, you generally see more support coming from tax revenues. But there is a trend toward enterprise funds. If in future years, property taxes begin to decline, you could see more movement toward this technique.”

Another advantage of enterprise funds involves enabling components of solid waste organizations to perform under less severe financial pressure. This may allow transfer stations to maintain the efficiency of a large solid waste collection and disposal organization, without having to support other components of the system at the same time.

Michael Fickes is Waste Age's business editor.