Sustainable Funding Strategies for Local Government Recycling Programs
The current economic downturn has significantly affected the traditional funding sources used to support local government recycling programs.
For example, many recycling programs are funded with landfill tipping fee revenues. An impact of the current recession is that disposal tonnages, and hence revenues, have dropped significantly.
In states such as Pennsylvania and Florida, municipal recycling programs are subsidized by grants from state governments. The current recession has caused these funding sources to be reduced or even suspended as state governments struggle to balance their own budgets.
The economic downturn has underscored the need for sustainable funding sources for local government recycling programs. In the words of Andrew Clough, the city of Berkeley, CA’s deputy director of public works: “The whole business model for recycling and garbage has been to incentivize recycling ... We’re going to have to do a new business model.” (Kuruvila, “Recycling Push Puts Berkeley’s Budget in Dumps.” Article, February 9, 2010. www.SFGate.com.)
The SWANA Applied Research Foundation’s (ARF) Recycling Group decided to target this topic for investigation during fiscal year 2010 (September 2009 through June 2010). This article presents highlights from a research memorandum developed with input and guidance provided by the ARF Recycling FY 2010 Group Subscribers who are listed in Table 1. (The SWANA Applied Research Foundation was founded in 2001 with the purpose of conducting collectively defined and funded applied research on pressing solid waste issues. It is funded by local governments and other organizations that contribute a “penny per ton” of waste managed to the foundation on an annual basis. For more information on the SWANA Applied Research Foundation, please contact Jeremy O’Brien, director of applied research, SWANA, 301-585-2898.)
Costs of Recycling Services
Developed in the 1990s, local government recycling services were often implemented based on an erroneous assumption: namely, that the revenues from the sale of the recovered recyclables and the accompanying reductions in refuse collection and disposal costs would equal or exceed the costs of the services. In other words, the recycling services would pay for themselves.
Over the last 20 years, it has become clear that this is not the case and that, as a result, sustainable funding sources are needed to cover the net costs associated with these services. (It is recognized that some local government recycling services that do not require the provision of curbside collection services can cover their costs through the sale of recovered materials and avoided disposal cost savings. An example is a drop-off yardwaste composting facility.)
To understand the necessity as well as the magnitude of sustainable funding, it is helpful to analyze the costs, savings, and revenues associated with a typical local government recycling service: the weekly curbside collection of residential recyclables. One of the most popular recycling services offered by local governments, more than 8,600 curbside recyclables collection programs were reported in the United States in 2007. (Franklin Associates. Municipal Solid Waste in the United States: 2007 Facts and Figures. www.epa.gov/osw/nonhaz/municipal/msw99.htm)
As municipal waste collection service managers know all too well, the provision of a weekly curbside collection service for residents—whether one is collecting wastes or recyclables—is an expensive proposition. For example, the mobilization of a collection vehicle and crew can typically cost on the order of $250,000 per year. If a collection crew serves 1,200 households per day (i.e., 6,000 households per week), the service is provided on a weekly basis, and each household sets out an average of 10 pounds of recyclables per week (i.e., 20% of its residential waste), these costs equate to $41.67 per household per year ($3.47 per household per month) and $160 per ton of recyclables collected.
It has often been argued that these costs are offset by the sale of recyclables and the reduction in collection and disposal costs. With respect to savings in waste collection services, these are generally nonexistent for the following reason.
A refuse collection crew typically makes two trips to the disposal facility each day, with the second trip consisting of a partial load. (Routes are designed in this manner due to the natural variability that exists in the seasonal generation of waste.) As a result, the off-route time—i.e., the time needed to travel to and from the route, disposal facility and equipment yard—remains the same. In addition, the time the crew takes to service each residence does not change if less waste is set out by the resident. Since the on-route and off-route times do not change, generally there are no savings in waste collection costs.
There are savings, however, in disposal costs if the local government does not own the disposal facility, since tipping fees would have to be paid by the local government if the waste tonnages diverted through recycling were disposed in a landfill. (Alternatively, if the local government owns the landfill, waste tonnages diverted through recycling will result in lower tipping-fee revenues at the landfill.) In the above example, this translates to a disposal cost savings of $7.80 per household per year in light of the 0.26 tons per household per year that are recycled and assuming a disposal cost savings of $30 per ton. Therefore, the net costs of the weekly curbside recyclables collection is reduced to $33.87 per household per year ($2.82/household/month) or $130 per ton.
Municipal governments generally do not receive revenues from the sale of the collected recyclables. As indicated in the above example, the disposal cost savings associated with curbside recycling are not nearly enough to offset the collection service costs. Therefore municipal governments must find funding sources to cover these net costs.
Traditional Funding Approaches
A 2001 study on worldwide recycling markets listed the major sources of recycling program funding in the early 1990s (see Table 2). As described below, the current recession has shown that a number of these funding approaches are inherently unsustainable and cannot be relied on to provide funding for recycling services over the long term.
- Landfill tipping fees—Landfill tipping-fee revenues have historically served as a common funding source for local government recycling programs. In this approach, landfill tipping fees are generally set based on market conditions rather than disposal service costs. The difference between the tipping-fee rate and the service cost is often used to fund recycling services. For example, in one southeastern US community, landfill tipping fees averaged $33 per ton while landfill costs averaged $27 per ton in 2009. This revenue-cost differential of $6 per ton generated almost $1.5 million in net revenues, which were used to fund waste reduction, recycling, and special waste management programs. Landfill tipping fees, however, are not a sustainable funding source for local recycling programs. As stated by Mary Lou Van Deventer, president of the Northern California Recycling Association, “The refuse fund has been a cash cow for the city and it can be again ... One problem in its structure is that it taxes the devil (garbage) to finance the angels (recycling). In that case, the angels don’t have sustainable financing without the devils, so if the angels do a really good job, you need more devils. That’s a bad position to be in. The angels need their own self-sustaining financing.” (Bhattacharjee, R. “Council Weighs Budget Woes, Recycling Revenues,” The Berkeley Daily Planet, February 11, 2010.)
- Pay-as-you-throw—Pay-as-you-throw (PAYT) is another popular approach used to implement and incentivize curbside recycling programs. In this approach, residents are charged for solid waste collection services based on the amount of waste they set out for collection. Alternatively, they are not charged anything for recyclables collection services, regardless of the quantities of recyclables they set out for collection. In economic parlance, the decision not to charge for recyclables collection sends a false economic signal to the resident by indicating that the service does not cost anything and is therefore free. As discussed above, the collection of recyclables at the curb is an expensive service due to the need to deploy additional collection crews and trucks. Furthermore, in PAYT programs, the funding required to provide the curbside recycling service is dependent on the net revenues received from waste collection service subscriptions. The reliance on waste collection fees to pay for recyclables collection services is ultimately an unsustainable funding option since residents are encouraged to switch to the ‘free’ recyclables collection service and reduce their use of the revenue-generating waste collection service.
• State grants—In states such as Florida and Pennsylvania, state grants are a significant funding source for local governments to fund their recycling programs. In the case of Pennsylvania, the state funding is generated by a $2 per-ton surcharge on waste disposed in landfill. As the current recession has resulted in disposal tonnages to dropping by as much as 20%, this funding source has been affected. Even in states that do not rely on disposal surcharges for revenues, recycling program funding has been placed in jeopardy as these states struggle to cut programs and services to balance their budgets.
Sustainable Funding Alternatives
Sustainable funding mechanisms for local government recycling programs, which have been reviewed in two recent publications (R.W. Beck. Building Sustainable Funding Recycling Programs: Technical Report For Pennsylvania Local Governments. Harrisburg, PA: Pennsylvania Department of Environmental Protection. April 2005. 52 pp.) (USEPA. Guidebook of Financial Tools: Paying For Environmental Systems. August 2008. www.epa.gov/efinpage/guidebook.htm) generally fall into two categories: taxes and fees.
Taxes are by far the largest source of revenue for state and local governments. Fees, with the exception of user fees that raise significant revenue, are much less universally used and generate far less revenue than taxes.
There are a number of other secondary funding sources that can be used to supplement these primary funding mechanisms. These include revenue sharing of MRF revenues by municipalities that provide recyclables collection services, collection and disposal franchise fees, carbon-offset credits for recycling and license fees for waste haulers. These secondary funding sources, however, don’t eliminate the need for primary sustainable funding sources. A number of the more effective and/or innovative taxes and fees that can provide sustainable funding for recycling programs are discussed below.
- Solid waste collection taxes—Taxes can be imposed on solid waste collection services to fund recycling programs. For example, the state of Minnesota requires waste management service providers within its borders to charge waste collection taxes, called solid waste management taxes, to their customers. Seventy percent of the revenues from Minnesota’s solid waste management tax, or at least $33.76 million, are deposited into the state’s Solid Waste Fund. The remainder is deposited into Minnesota’s general fund with biennial appropriations for county recycling block grants and related solid waste activities. Since solid waste collection services are generally considered to be essential to promote public health and sanitation, the use of such taxes can be considered a sustainable funding method.
- Litter taxes—Litter taxes are imposed on businesses that produce, distribute, or sell consumer products that contribute to litter problems. These taxes are levied by state governments and municipalities. For example, the state of Virginia levies a litter tax on manufacturers, wholesalers, distributors, and retailers of consumer products. Ninety-five percent of Virginia’s litter tax revenues are used for litter prevention and recycling grants. The other 5% of Virginia’s litter tax revenues goes to the Virginia Department of Environmental Quality to administer the grant program and provide support for the Litter Control and Recycling Fund Advisory Board.
- Service fees—Service fees are charges that are collected directly from residential and/or businesses customers that utilize recycling services. These fees are generally included on a monthly or bimonthly utility bill. As an example, the city of Hopkins, Minnesota, collects refuse with automated trucks on a weekly basis while a private contractor collects single-stream recyclables every other week. The city includes a line item for recycling on their monthly utility bill with the following charges:
(1) a $2.75 fee for “recycle/yard waste,”
(2) a refuse fee ranging from $11 to $14.45 based on the size of the container
(3) a water and sewer fee,
(4) a storm sewer fee,
(5)a state solid waste management fee,
(6)a state health fee, and
(7) a county solid waste management fee.
- Availability fees—An availability fee can be charged to persons who have an opportunity to benefit from a solid waste management facility. For example, according to the North Carolina statutes, “The board of county commissioners may impose a fee for the use of a disposal facility provided by the county. A fee for availability may not exceed the costs of providing the facility and may be imposed on all improved property in the county that benefits from the availability of the facility. In determining the costs of providing and operating a disposal facility, a county may consider solid waste management costs incidental to a county’s handling and disposal of solid waste at its disposal facility, including the costs of the methods of solid waste management specified in G.S. 130A-309.04(a) of the Solid Waste Management Act of 1989.” Based on this statute, Mecklenburg County, North Carolina, adopted an availability fee in 1993 of $10 per residence (both single and multifamily) per year. This fee, which is now $12 per year, is used to pay for a variety of recycling facilities, as well as programs that manage items banned from landfill disposal, such as white goods.
While the funding mechanisms for local government recycling programs reviewed above are sustainable, it is likely that it will be very difficult to implement any of these mechanisms in the current economic and political climate.
Reducing Funding Requirements
Reducing the costs of local government recycling services represents an indirect but effective means of meeting the need for sustainable funding for these services. Examples of strategies that have been recently used by local governments to reduce recycling service costs and associated funding requirements include the following:
- Reduction in service frequency—In an effort to improve efficiencies and reduce costs, a growing number of local governments are reducing the frequency of curbside recyclables collection from a weekly to a biweekly or monthly basis. In reducing the frequency of the curbside collection service, some municipalities are also switching to single-stream recycling (i.e., the setout and collection of commingled recyclables in lidded, rollout containers). For example, the city of Charlotte, North Carolina, began collecting residential recyclables in a single-stream fashion in July 2010. At the same time, the city reduced its collection frequency from weekly to biweekly collection and increased the types of materials accepted for collection to include empty aerosol cans and all plastics with the exception of plastic No. 6. A new, 96-gallon cart was provided to each residence to facilitate the change in service. The city, which serves about 202,000 residences and small businesses, estimates that it will save $15 million over five years by collecting recyclables in a single stream and by reducing the frequency of curbside collections. (Boone, M. “New Recycling Bins Roll Out Next Month”, NewsChannel 36, February 9, 2010) These savings represent about 40% of the costs incurred to provide the weekly bin-based curbside recycling collection service.
- Introduce competition into service delivery—A strategy available to local governments that do not provide services, either directly or indirectly, is to develop a system where private entities compete for the ability to serve the jurisdiction. If a local government currently provides recyclables collection services using in-house crews and equipment, cost savings and operational efficiencies can be achieved through a competitive service procurement process called “managed competition.” In this process, public and private sector service providers are invited to respond to a request for proposals (RFP) to provide recyclables collection services to a designated service area for a specified contract term. The RFP process and contract requirements must be designed to create a level playing field that enables public agencies and private companies to compete fairly to provide the requested services. Cities such as Phoenix, Arizona, and Charlotte, North Carolina, have used managed competition to save substantial costs in the delivery of services ranging from landscape maintenance through refuse and recyclables collection.
Local government recycling services have historically been viewed and promoted as free services. In addition, these services have been funded with unsustainable mechanisms such as landfill tipping fees. Based on decades of experience, the truth is that local government recycling services are costly and require sustainable funding sources.
Traditional sustainable funding mechanisms include property taxes, user fees and availability fees. However, it will be very difficult to implement any of these mechanisms in the current economic and political climate.
The need for recycling program funding can be reduced through cost-reduction efforts, including reducing the frequency of recyclables collection and creating a competitive service environment.
In today’s economy, it is more important than ever to accurately report the environmental and other benefits—such as reduced waste disposal needs—that accrue to communities that implement cost-effective recycling programs. If these benefits to the local community are both substantiated and clearly communicated, it is much more likely that sustainable funding strategies—such as the implementation of user fees to pay for these services—will be approved and embraced by the local community.
Author's Bio: Jeremy K. O'Brien, P.E., is director of applied research for the Solid Waste Association of North America.