2Printed on paper that contains at least 20 percent postconsumer fiber.
Rate Structure Design

Setting Rates for a 

Pay-As-You-Throw Program

Prepared by 

Janice L. Canterbury and Gordon Hui

U.S. EPA Office of Solid Waste

Acknowledgments

Paul Baily

Sharon Dickerson

George Garland

John Gibson

Angie Leith

Paul Ligon

Terry Martin

Jim Morris

Ellen Ryan

Pat Vieira
1

Introduction ............................................................................................................................................3

I. Maximizing the Power of Economic Incentives to Achieve Municipal Solid Waste (MSW) Goals.......5

Benefits of Using Economic Incentives and Price Responsiveness .......................................................5

Establishing Community MSW Goals................................................................................................6

Basic Methods of Rate Structure Design .............................................................................................6

Common Pricing Systems for Pay-As-You-Throw (PAYT)..................................................................7

II. First Method of Setting PAYT Rates: Drawing From Comparable Communities...............................9

III. Second Method of Setting PAYT Rates: Using the Six-Step Rate Structure Design (RSD) Process...12

1. Forecast Residential MSW Amounts.............................................................................................14

2. Determine the Types of MSW Services To Be Provided ................................................................16

3. Estimate Net Costs of MSW.........................................................................................................17

4. Determine PAYT Revenues and MSW Program Cost Coverage ...................................................19

5. Calculate PAYT Rates...................................................................................................................19 

6. Adjust MSW Services and PAYT Rate Structure...........................................................................24

IV. Refinements in Setting PAYT Rates.................................................................................................25

Direct and Indirect Costs..................................................................................................................25

Other Factors to Consider in Setting PAYT Rates.............................................................................27

Case Studies..............................................................................................................................................28

Glossary....................................................................................................................................................34

Contents

3

Overview

T

he purpose of this booklet is to provide community planners and officials with an overview of two

basic methods for setting rates within a Pay-As-You-Throw (PAYT) program. The booklet introduces

and explains both conceptual and practical considerations for setting PAYT rates. It draws largely

from the experience of many PAYT communities that are satisfied with their approach to rate structure design. This booklet does not provide a formula or recipe for rate setting but, instead, discusses the key

steps and points to consider as you develop a rate structure that can best support your own community’s

goals.

What Is PAYT? 

PAYT is an economic incentive that encourages citizens to reduce waste. Unlike traditional municipal

solid waste (MSW) management systems, where residents pay for waste services through taxes or a flat fee,

under PAYT systems, residents are charged for MSW services based on the amount of trash they discard.

More than 4,000 communities across the country have implemented PAYT programs. These programs

represent a concrete step that local officials can take to make their MSW management efforts more economically and environmentally sustainable.

What Are the 3-E’ Benefits of PAYT? 

PAYT offers three key benefits that can help communities move toward greater sustainability:

• Environmental Sustainability. PAYT helps protect the environment. Charging residents a fee for each

bag or can of trash generated gives them an incentive to discard less waste. The typical result is a significant increase in waste prevention and recycling.

• Economic Sustainability. PAYT is economically viable for a broad range of communities. In fact, most

communities considering PAYT focus first on the economics. Well-designed programs enable communities to generate the revenues they need to cover MSW program costs.

• Equity. PAYT is widely seen as a more equitable arrangement. Under PAYT, community residents who

throw away less pay less.

Introduction

‘
4

What Is Rate Structure Design?

Rate structure design (RSD) is determining the price you charge per unit of solid waste set out for collection, processing, and/or disposal. All decisions about your program—from choosing a container type to

maximizing resident participation—eventually feed into your rate structure. An effective rate structure

should generate the revenues needed to cover the costs of service. By providing an economic incentive for

residents to reduce their waste, an effective rate structure can also reduce those costs. 

This booklet provides RSD information from a national perspective. It is important to remember that

there are no ‘cookie cutters’ for PAYT; no two MSW programs share the same bottom line. Communities

with successful PAYT programs base the fees they charge on their own unique goals and circumstances.

This is one reason why PAYT rates vary widely among programs. The tools and information in this booklet will help you design a PAYT rate structure that works for your community. 

This booklet also provides a collection of rate-setting success stories from five communities. These testimonials are presented in the words of the officials who developed the programs. They offer real-world

examples of how different communities have approached the challenge of arriving at PAYT rates that are

consistent with their own community’s goals.

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5

Maximizing the Power of Economic Incentives

to Achieve MSW Goals

I

T

raditionally, communities have raised the revenues to cover MSW program costs in ways

that are entirely disconnected from the amount

of MSW services used by residents in their

jurisdictions. Most U.S. communities, for example,

charge for MSW services by either levying a property tax or billing all residents an equal amount.

Residents in these communities usually lack information on the costs of the MSW services they use.

As a result, citizens often act as if MSW services are

free. No matter how much or how little these 

individuals use the services, they incur no financial

consequence and reap no financial benefit. People

typically respond to (apparently) free services by

overusing them. In most communities, this results

in unnecessarily large amounts of garbage with

excessive costs for which the local citizens must

then pay. 

In contrast, PAYT introduces price incentives,

based on market values, into individuals’ decisions,

which then collectively determine a community’s

pattern of generation, collection, processing, and

disposal of MSW. It does this by pricing MSW program services in a way that reflects the resources

(e.g., labor, equipment, fuel, and land) needed to

dispose of household materials that are no longer

useful—regardless of whether they were purchased

(e.g., leftover food, discarded packaging, or broken

products) or grown (e.g., grass clippings and tree

trimmings). 

This price signal gives residents information to

decide on the actions they should take to set out

less trash and more recyclables. Pricing MSW services also provides individuals with the opportunity

to take actions that can make a financial difference.

Both aspects of price—the information it provides

and the opportunity it provides residents to reduce

their MSW service expenses—cause individuals in

PAYT communities to conserve on MSW services

just as they conserve on any other service or product that has a price. PAYT provides a continuing

motivation to residents to reduce their expenses for

MSW services by managing their waste materials in

a more environmentally sustainable fashion. 

Many PAYT communities have demonstrated

the power of economic incentives; they have sharply

lowered the amounts of trash they dispose of and

also significantly increased recycling rates. Price 

signals can steer residents to engage in a variety of

waste reduction activities. Residents, for example,

Benefits of Using Economic Incentives and Price Responsiveness

T

he power of PAYT to reduce waste is contained in the rate structure of a program. The process of

designing a rate structure, therefore, is critical in maximizing this power. This section explains how

PAYT’s economic power works and provides an overview of the two basic methods for designing a rate

structure. This section also helps you choose a pricing system for your PAYT program—a key step in

the rate structure design (RSD) process. 
might be motivated to reduce the amount of

excess packaging of products they buy, reuse products or packaging materials, share magazine subscriptions, donate used clothing or furniture to

charities, recycle more materials, and compost and

grasscycle organics. 

Under PAYT, all of these waste reduction activities can provide an economic advantage to the 

resident. In serving as a continuing reminder to

reduce waste, PAYT serves as a powerful educational tool supplementing the efforts of MSW

planners, recycling coordinators, and environmental organizations striving to enhance waste reduction activities within a community.

Growing numbers of communities are turning

to PAYT and thereby shifting toward managing

MSW services as they would any other utility. The

aggregate result is a significant reduction in waste.

Collectively, PAYT programs are succeeding in

aligning millions of citizens’ efforts to conserve

their own financial resources with the overall goal

of conserving the nation’s natural resources.

Establishing Community 

MSW Goals

A

n effective RSD aligns the power of 

economic incentives with a community’s

specific MSW goals. It is essential, therefore,

to clearly define those goals in advance of

implementing PAYT. Clear goals can help you

determine your approach to the RSD process; your

pricing system, container types, and billing system;

your public education techniques; and other key

aspects of your PAYT program.

Examples of MSW goals in PAYT 

communities include:

• Reducing MSW amounts.

• Increasing recycling rates.

• Increasing composting rates.

• Reducing the total cost of the MSW 

program.

• Increasing equity among citizens. 

• Generating revenues to cover MSW costs.

Basic Methods of Rate Structure

Design 

O

nce you establish your community’s MSW

goals, the next step in implementing PAYT is

to choose a pricing system (see pages 7-8)

and establish the rates. As PAYT programs

have spread across the country, communities have

acquired valuable experience about determining an

appropriate price to charge per container. Planners

use a wide variety of methods to arrive at a price.

The method you choose will depend on your

community’s goals and resources and the size and

the complexity of your MSW program.

This booklet describes two general approaches

that encompass most of the methods used: using

data from comparable communities, and building

from your own community’s data using a six-step

process. These approaches to RSD are described in

detail in Sections II and III, respectively. 

In calculating an appropriate unit price for

their program, some municipalities conduct an indepth analysis of costs. Performing this detailed

level of analysis requires a greater amount of staff

expertise. Some communities use accountants

skilled in utility rate setting for this work. For

more information about initiating a comprehensive cost analysis for the RSD process, see Section

IV.

6

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Advantages

• Provides a strong waste reduction incentive.

Since residents must pay for the collection of

each bag they place at the curb, they have a

strong incentive to reduce waste and increase

recycling and composting. (It should be noted

that each of these PAYT pricing systems will

likely provide a waste reduction incentive, but

proportional pricing tends to give the strongest

relative price signal for citizens to reduce waste.)

• Potentially lowers MSW program costs and is

simple to manage. Residents typically purchase

bags directly from the municipality or from

local retail outlets. Compared with options that

require a billing mechanism, this system can

result in lower administrative costs.

Disadvantages

• Not a cost-based pricing system. Most costs for

MSW services (e.g., costs of labor, equipment,

and fuel associated with collection) are directly

built into a community’s overall MSW system

rather than the per container costs tied to

changes in quantities of trash discarded.

Proportional rates do not reflect the cost structure of most MSW programs.

• Potential revenue uncertainty. Since proportional pricing links all revenues to residents’

trash set outs, a proportional system exposes all

revenues to the uncertainty of residents’

responses to the introduction of price signals.

This can lead to significant over- or underrecovery of needed MSW revenues. In addition,

for bag programs, residents might buy and store

many bags at once to use them over time. This

surplus buying may create revenue fluctuations

for the MSW agency. 

7

Common Pricing Systems for Pay-As-You-Throw

E

ach of the two methods of RSD are compatible with the following commonly used pricing systems

(or combinations of systems) that have been successfully implemented in communities across the

country.

Communities commonly choose among three basic types of PAYT pricing systems: proportional, variable, or multi-tiered, or a combination of these. Each system has its own advantages and disadvantages.

One pricing system, for example, offers greater revenue stability while another creates a stronger waste

reduction incentive to residents.

To decide which pricing system is best for your community, consider your community’s MSW program goals (e.g., increasing recycling or keeping administrative costs low). After familiarizing yourself with

the tradeoffs associated with each price system, determine which is most likely to meet your goals. 

Proportional

Proportional systems create the most direct relationship between trash amounts and price. Residents

are charged the same amount of money for each unit of waste they set out for collection (e.g., $1.50 for

each 30-gallon bag). The price is based upon the number of bags, tags, or stickers (usually sold at local

retail stores or municipal offices) a resident uses. 

t i 

I
Advantage

• Increased control over the waste reduction

incentive. MSW authorities can charge a

price for additional containers that is higher

than the subscription-level price if their goal

is to create a strong incentive to reduce and

recycle. Some MSW departments, however,

are concerned that residents might dispose

of their waste in undesirable ways if they feel

the pricing system is unfair. To avoid this,

additional containers can be charged at a

lower price than the subscription-level price.

Disadvantage

• Potentially higher costs. Communities must

offer residents a choice of subscription levels,

provide them with containers in varying

sizes, and bill accordingly. Haulers may need

to count set outs during collection. As a

result, these systems might be more expensive to implement and administer (especially

during the startup phase).

Variable Rate

Variable rate pricing means charging different amounts per unit of garbage. Residents subscribe

to one of several different container size options (typically, these are 32- to 64-gallon sizes, although

they can range from 10 to 96 gallons in capacity). The community bills residents based on their

subscription level. For the garbage that residents discard above their subscription level, they must

pay an additional fee. 

Under a variable rate system, the price charged for subsequent containers may increase or

decrease, depending on the community’s PAYT program goals. A household that pays $1.50 per

week for a 32-gallon can subscription level, for example, might be charged either $1.00 or $2.00 for

each additional 32-gallon can it sets out in weekly collections.

In addition, container sizes used for set outs above the subscription level can be varied. Some

communities offer only one container size for additional set outs. Others ask residents to use containers that are larger or smaller than their subscription-level container size. Residents pay the fee

for extra garbage by purchasing specially marked or colored bags (or tags/stickers that can be affixed

to the bags), or the trash collectors can count the additional set outs at the time of collection and

bill residents accordingly.

Two-Tiered or Multi-Tiered

Two-tiered or multi-tiered systems help communities achieve revenue stability. Similar to the

billing systems used by telephone and water utilities, residents subscribe to a base level of service,

for which they pay a flat fee. These ‘first-tier’ fees can be assessed through local taxes or through a

monthly or quarterly charge, often included in a utility or other municipal bill. These fees can be

used to cover the fixed portion of a community’s solid waste program costs (e.g., accounting, personnel, purchasing, and executive oversight). Residents then pay a ‘second-tier’ fee based on the

amount of waste they set out. Second-tier fees can be either variable rate or proportional. These fees

are often used to cover variable costs (e.g., collection, transport, and disposal).

Advantage

• Provides revenue stability. Multi-tiered 

systems allow communities to ensure that 

the program’s fixed costs will be covered, no

matter how much residents reduce waste and

increase recycling (and thereby decrease

PAYT revenues).

Disadvantage

• Potentially generates a lower waste reduction incentive. The total cost of trash services

might not be apparent to residents when part

of the program cost (first-tier fee) is charged

at a flat rate or hidden in taxes. This may

lessen the incentive for residents to reduce

and recycle. 

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9

s

ome communities start the rate structure design (RSD) process by examining programs in successful PAYT cities or towns with similar MSW programs, services, and/or demographic profiles. In

this case, it may be particularly useful to look at communities with comparable disposal costs and

tipping fees, complementary programs, and pickup frequencies. After learning what size containers

these communities use and the price they charge for each, you can adjust your rates to fit your community’s goals. You also might simply use other communities’ rates as a starting point for your own,

more extensive calculations (see Section III). 

The map on pages 10-11 offers a sample of PAYT rate structures across the country in 1998. The

communities shown have implemented many different program variations, from variable rate systems

using a combination of bags and cans to proportional systems based on the sale of tags or stickers. All

of these communities have set rates that allow them to meet their unique program goals. Use this map

to learn more about rates and PAYT program variations in use today. (For a more comprehensive

matrix of PAYT communities, check EPA’s Web site at <www.epa.gov/payt>.)

Starting with rates used by comparable communities might initially be the simplest approach to

RSD. Eventually, though, you might need to revise your community’s rates to more reliably cover

costs, more effectively encourage waste reduction, or more vigorously achieve other community goals. 

First Method of Setting PAYT Rates

Drawing From Comparable Communities

II
10

Number of 

communities 

with PAYT

Auburn, WA

Population: 36,000

Start Date: 1968

Price per Container:

$8.87 per month for one 30-gallon can per week; or $19.60 per

month for one 60-gallon can per

week

Pittsburg, CA

Population: 48,000

Start Date: pre-1990

Price per Container:

$18 per month for one 

32-gallon bag per week;

or $21 per month for

one 96-gallon can per

week

Imperial , NE

Population: 2,000

Start Date: 1992

Price per Container:

$2.00 per 30-gallon

bag; $6.00 per 90-

gallon can

Plano, TX

Population: 129,000

Start Date: 1991

Price per Container:

$11.15 per month for one

95-gallon can;

$12.50 per month for each

additional 95-gallon can

St. Cloud, MN

Population: 49,000

Start Date: 1991

Price per Container:

$2.00 per 32-gallon bag

Pendleton, OR

Population: 15,000

Start Date: 1935

Price per Container:

$12.35 per month for one

32-gallon bag per week;

or $25 per month for one 

90-gallon can per week

Antigo, WI

Population: 8,

Start Date: 19

Price per Cont

$1.50 per stic

(30 gallons)

R A T E S T R U C T U R E D 

Glendale, CA

Population: 180,000

Start Date: 1990

Price per Container:

$6.45 per month for one

64-gallon can per week; or

$10.10 per month for one

100-gallon can per week

11-25

0

1-10

26-50

51-10

500+

101-500
Oconee County, GA

Population: 25,000

Start Date: 1994

Price per Container:

$1.50 per 32-gallon bag

Aberdeen, MD

Population: 13,000

Start Date: 1993

Price per Container:

40¢ per sticker (20

gallons); 80¢ per

sticker (32 gallons)

Wilmington, NC

Population: 62,000

Start Date: 1992

Price per Container:

$12.10 per month for

one 40-gallon can per

week; or $15.10 per

month for one 90-gallon

can per week 

Borough of Woodstown,

NJ

Population: 3,000

Start Date: 1992

Price per Container:

90¢ per 15-gallon bag;

$1.80 per 30-gallon bag

Stonington, CT

Population: 1,000

Price per Container:

85¢ per 20-gallon

bag; $1.50 per 34-

gallon bag

Worcester, MA

Population: 170,000

Start Date: 1992

Price per Container:

25¢ per 15-gallon

bag; 50¢ per 30-

gallon bag

Fryeburg, ME

Population: 3,500

Start Date: 1993

Price per Container:

$1.00 per sticker

(30 lb. maximum)

Utica, NY

Population: 69,000

Start Date: 1989

Price per Container:

85¢ per 16-gallon bag;

$1.40 per 32-gallon

bag

Lansing, MI

Population: 130,000

Start Date: 1976

Price per Container:

$1.50 per 30-gallon

bag

Aurora, IL

Population: 119,000

Start Date: 1991

Price per Container:

67¢ per 14-gallon

bag; $1.35 per 

sticker (32 gallons)

Darien, IL

Population: 18,000

Start Date: 1990

Price per Container:

$1.50 per bag

(60 lb. maximum)

000

90

ainer:

ker 

D E S I G N : S A M P L E R A T E S

1
12

A

second method of rate structure design (RSD) is to review data on your community’s waste generation, program costs, and other relevant factors to arrive at your own PAYT rates. These calculations can be simple or complex, depending on the kinds of data and the amount of expertise you

have available. You will need to estimate the amounts of solid waste generated under PAYT, the

types of MSW services that will be provided, and the net costs of MSW services. To help develop these

estimates, communities often use simple worksheets or more complex tools such as computer software.

While this method takes some time and effort, it may produce a rate structure in which you have greater

confidence. The method has six basic steps as outlined below.

III

Second Method of Setting PAYT Rates

Using the Six-Step RSD Process

Forecast residential MSW amounts. Forecast the annual tonnage of MSW you

expect to collect once PAYT has been implemented.

Determine the types of MSW services to be provided. Determine the types of MSW

services that will be provided to residents (e.g., collection of trash, recyclables, and compostables) and the types of containers and billing options to be used under PAYT.

Estimate net costs of MSW. Estimate your net costs using the information developed

above on forecasted amounts of MSW and the types of services that will be provided.

Net MSW costs incorporate MSW costs less any revenues from complementary programs (e.g., sale of recyclables, composting, and trash or bulky waste pickup).

Determine PAYT revenues and MSW program cost coverage. Based on MSW costs

and your coverage objectives, calculate the estimated revenues you need to generate.

This may be more or less than net MSW costs, depending on your community’s other

goals and financial resources.

1

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III

Calculate PAYT rates. Select a pricing system that is appropriate for your community

after considering the pros and cons of the alternative systems (see pages 7-8). Based on

the pricing system you select and the forecasted amounts and costs of MSW you expect

under PAYT, calculate the price level necessary to pay for your program. 

Adjust MSW services and PAYT rate structure. If the PAYT price level seems too

high, consider less costly or more efficient MSW services and/or choose a PAYT pricing

system that encourages greater reduction in your community’s solid waste (and hence

MSW costs). Then recompute the PAYT price level. Continue making adjustments

until all of your community’s objectives are met by the PAYT rate structure.

The six-step RSD process is detailed in this section using the example of a hypothetical community

named ‘Midtown.’ Midtown is establishing a PAYT rate structure. It has a population of 35,000 (17,500

households). A task force comprised of diverse community stakeholders determined the town’s MSW

goals, which are: 

• To encourage waste prevention

• To increase composting and recycling

• To maintain MSW revenue stability

Midtown currently has a curbside recycling program for collecting glass, aluminum, and newspaper. 

It will add collection of plastics, mixed paper, and steel cans. The city also decided to launch an aggressive education and outreach program on backyard composting and grasscycling in order to reduce the

organics in its waste stream.

The example of Midtown is intended to help explain the basic RSD concepts. We encourage you to

apply this six-step process to your own community’s specific needs as you explore MSW program options

and their implications for reduced solid waste tonnage, increased recycling, and PAYT revenues. This

example is not intended to be a precise formula—there are no cookie cutter recipes for RSD! Rather, it is

a methodology; a step-by-step analysis of the factors to consider when designing your own rates. Keep in

mind your own community’s goals, MSW services, costs, and revenue needs—which could differ greatly

from this example—and be sure to use your own community’s data when applying this approach.

To gather the necessary information, you might need to consult your community’s MSW program

records or the finance office in your town, city, or county government. You can base your estimates on

community demographic and waste generation data. Other useful sources of information include local

private haulers or the MSW offices of nearby PAYT communities.

Key terms and concepts used in this section of the booklet are listed on the following page. Refer to

this list, as necessary, as you work through the six-step process outlined in this section; additional useful

terms are referenced in the glossary on page 34.

5

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14 section III

Forecast Residential 

MSW Amounts

T

he first step involves estimating the amount of

waste you will collect from the residents in

your community during the base year and

projection year. To obtain accurate calculations, you will need to isolate residential wastes

from commercial wastes. Including commercial

waste inflates both the total weight of MSW and

the costs to be covered by the PAYT program. This

will lead to inaccurate PAYT rate calculations. (If

your community intends to collect commercial

waste as part of your PAYT program, you will need

to design a separate rate structure based upon

dumpster size and collection frequency.)

A. MSW collected in the projection year, without

PAYT.

Estimate the MSW tonnage you currently collect per household in a year. Adjust this amount

for any likely changes in your community’s population in the projection year.

B. MSW collected in the projection year, with

PAYT.

Make a preliminary estimate of how much the

residents in your community will increase their

waste reduction efforts in response to PAYT.

Successful PAYT communities recommend that

it is better to overestimate reductions in trash

set outs rather than to underestimate waste

reduction efforts. This will ensure a sufficient

revenue flow. (You can later revise this waste

reduction estimate once you have developed

more information such as the types of MSW

services that will be provided, the pricing system

that is best for your community, and the level of

PAYT rates; see Section IV for more information.) Based on this estimate, calculate the

MSW tonnage per household you expect to collect in the projection year under PAYT.

Table 1 on page 15 illustrates how Midtown

calculated its residential MSW amounts in the projection year with and without PAYT.

Base year: The year prior to implementation of

PAYT, which can be used as a baseline against

which potential PAYT impacts are measured.

Projection year: The year during which PAYT has

been implemented and resident response has

leveled out in response to the price incentives

(e.g., through reduced waste generation and

increased recycling).

Complementary programs: MSW services (e.g.,

curbside/drop-off recycling, composting, and

bulky waste pickup) that supplement basic

trash collection and disposal.

Waste reduction: The combined reduction in

MSW that is discarded, resulting from greater

waste prevention, increased reuse and recycling, and more backyard and municipal composting.

Direct costs: These costs are readily assignable to

a particular MSW activity such as collection,

processing, or disposal.

• Collection and transportation costs: Direct

costs for trash and recyclables pickup, transportation, and temporary storage in transfer

stations. These costs usually rise (or fall) as the

level of MSW activity changes, although not

always in exact proportion, and sometimes

with a time lag. Major components include

costs of labor, equipment, and/or contract

payments.

• Processing costs: Processing costs of recyclables and other direct costs related to the

postcollection management of recyclables.

• Disposal costs: Landfill tipping fees, incinerator

costs, and disposal costs for residuals. 

Indirect (overhead) costs: The management and

support costs of operating the MSW program

(including any indirect costs from centralized

local government functions that are allocated

to the MSW program’s budget). These costs

support the entire MSW system and are often

relatively fixed costs, but they must be allocated among services and their associated rates

on some basis (e.g., tonnage, full-time equivalents required, etc.).

Key Terms and Concepts 1
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III

Table 1. Calculating MSW Tonnages

* Since Midtown will expand its recycling program and plans to offer an aggressive education and outreach program on backyard composting and grasscycling, it estimates a 30 percent reduction in trash

tonnage and a 40 percent rise in recyclables with PAYT. Midtown expects total MSW tonnage to drop by

about 16 percent with PAYT.

A national study reports a 14- to 27-percent reduction in trash (by weight) in PAYT communities that

had no recycling program or that simply retained their existing recycling program. Communities that

adopted PAYT in combination with new or expanded recycling programs achieved even higher percentage reductions in trash. Cities that did not change their recycling program with the introduction of PAYT

typically experienced increases of 32 to 59 percent in the weight of materials recycled. (Unit Pricing of

Residential solid Waste: A Preliminary Analysis of 212 U.S. Communities by Marie Lynn Miranda and

Sharon LaPalme, June 4, 1997, Nicholas School of the Environment, Duke University.)

The percentage of waste reduction your community can anticipate will also be significantly influenced by such factors as the extent of your public outreach, the range of complementary programs

offered, and the expected rate of resident participation.

Weighing the Difference With PAYT

Midtown

MSW in Projection Year, Without PAYT Trash Recyclables Total MSW

Tons of MSW collected in base year 28,000 7,000 35,000

÷ Number of households (17,500) in base year 

= Tons per household per year 1.60 0.40 2.00

× Number of households (18,750) in projection year

= Tons of MSW in projection year without PAYT 30,000 7,500 37,500

MSW in Projection Year, With PAYT

Tons in projection year without PAYT 30,000 7,500

× MSW multipliers from PAYT*:

(1.00 - 0.30 drop in trash) ×0.70 

(1.00 + 0.40 rise in recyclables) × 1.40

= Tons of MSW in projection year with PAYT 21,000 10,500 31,500

Percent drop in MSW due to PAYT, projection year: - 30% + 40% - 16%
16 section III

Determine the Types

of MSW Services To Be

Provided

N

ext, you will determine the collection

options, the types of MSW services to be

provided to residents, the customers to be

included, and the container type to use.

A. Collection options

Examples include collection of trash, recyclables, compostables, and/or bulky items.

B. Type and frequency of service

Some examples are backyard pickup, curbside

pickup, or rural drop-off. Collection frequencies

include semiweekly, weekly, biweekly, and

monthly. 

C. Customers to be covered by PAYT program

Examples include single-family housing, small

multifamily housing units, and large multifamily housing units.

D. Container type and capacity

Select the container type and size (volume) you

plan to use in your PAYT program. Typical

container types are: 

• Bags. Trash bags, usually 20 to 30 gallons in

capacity, are often used in PAYT programs.

Residents purchase the specially marked bags

from municipal offices or retail stores.

• Cans. Some communities use cans, ranging

from 10 to 96 gallons in capacity. These systems often operate on a subscription basis

under which residents choose the can size

they wish to use. 

• Stickers or tags. Some communities sell residents stickers or tags to affix to each container

of trash they generate. Containers must not

exceed prescribed volume or weight limits.

• Compost bins. Some communities provide

bins to residents for backyard composting.

After you have chosen a container type, estimate its average weight. There are several ways to

do this. The most accurate method for estimating

the weight of the (filled) containers is to conduct a

waste audit. Obtain samples of filled trash containers from representative households in your community. Sample from large households, one- or

two-person house-holds, and elderly residents in

the proportions they occur in your community.

Weigh the samples to derive volume-to-weight

conversions for your community. 

You can also estimate the weight of containers

using local or national data, although the average

weight of a container of garbage can vary from one

community to another (e.g., a filled 30-gallon bag

may weigh 24 to 48 pounds). In addition, you

might want to adjust expected weights upward to

account for the tendency of residents to compact

more trash under PAYT. Table 2 on page 17 shows

Midtown’s container selection and estimated

weight under its PAYT program.

For tag or sticker systems, decide on the volume and weight of containers your program will

permit. Keep in mind that some communities have

reaped an unexpected windfall because residents set

out less trash than is permitted by the sticker or

bag. If residents set out only 25 pounds in a bag

priced to allow 30 pounds, for example, the community retains the difference, which can quickly

add up to a substantial surplus.

If you plan to use more than one container size,

identify the volume and weight per container for

each container size. Offering more than one container size (or smaller containers) offers customers

several advantages, especially those residents

already producing small amounts of trash, such as

singles, childless couples, and retirees. These individuals can reduce waste only slightly and still see a

drop in costs. If only 30-gallon containers are

offered, for example, a resident that normally produces 60 gallons of trash per month would only

see savings by cutting waste in half (to 30 gallons a

month). If 20- and 30-gallon containers are

offered, however, the resident could reduce waste

to 40 or 50 gallons per month and still pay less. 

2
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Table 2. Selection of Container and

Volume-to-Weight Conversion

* Midtown’s residents currently set out 30-gallon bags that average 27 pounds. Midtown estimates that

the weight of the bags is likely to increase by about 10 percent under PAYT, to 30 pounds per bag.

Estimate Net Costs of MSW

N

ext, you will identify the cost components of

your solid waste program. Since no two communities record and report their cost information in the same way, this discussion is

intended to provide only general guidance and

should be customized to reflect information available in your community. Whenever possible, try to

isolate MSW program costs from other public service or utility costs in your community’s budget

(see Section IV for further discussion). One of the

most important steps in planning for PAYT is to

identify where and why MSW activities (and their

costs) will shift when you implement PAYT.

Under PAYT programs, there can be one-time

startup costs (e.g., capital investment for garbage

carts or compost bins, or costs for an education

and outreach campaign). Some new costs can be

ongoing costs (e.g., administration and staffing

costs associated with billing residents for services).

But most of the cost changes with PAYT involve

cost shifting and, usually, a reduction in overall

ongoing costs as total MSW amounts fall. 

For each of the following categories, consider

which costs, if any, could increase temporarily

during the transition to the PAYT program or

shift permanently to a higher or lower level

under PAYT.

A. Direct costs

Itemize your MSW program’s current direct

costs for collecting trash, recyclables, and compostable materials; processing recyclables and compostables; and disposing of trash and residuals.

These costs must then be allocated to the MSW

pathways available (see Section IV for a discussion

of pathways; for Midtown, trash or recyclables are

the available MSW pathways). Then identify if any

of these costs increase temporarily or shift permanently under PAYT. Direct labor, fuel, and equipment costs could be less under PAYT than under a

traditional program, for example, particularly if the

reduced amount of waste results in less frequent

MSW collection. Do not include the costs associated with operating a municipally owned landfill

or materials recovery facility under disposal and

processing costs if they are already included in

your indirect costs.

The cost of processing recyclable and compostable materials might rise as more citizens use

these service options rather than the trash service.

Disposal costs usually decrease under PAYT since

there tends to be less waste for disposal.

B. Indirect (overhead) costs

Itemize the current indirect costs of your MSW

program. Then identify which, if any, of these

indirect costs might increase temporarily or shift

permanently under PAYT. Introducing PAYT can

3

Container Type Volume Weight With PAYT

(gallons) (pounds)

Cans

Bags ✓ 30 30*

Stickers 

Midtown
18 section III

* Midtown has decided to fund PAYT startup costs from a separate fund, so as not to distort the initial PAYT

rates it sets.

lead to temporary increases in the costs of some

staffing positions, such as MSW public outreach

specialists and customer service representatives.

These individuals are responsible for educating residents and responding to questions, which are far

more numerous at the beginning of the new PAYT

program.

C. Net costs

Add together all of the estimated ongoing costs

(direct and indirect) of your MSW program under

PAYT. Subtract any net revenues from complementary programs to arrive at your MSW program

net costs. Compare the projected year costs under

your current program with those under PAYT.

Separately consider one-time startup costs. Decide

whether to fund these from other sources or from

PAYT fees.

Midtown’s net costs in the projection year are

illustrated above in Table 3.

Table 3. MSW Net Costs in Projection Year 

(in thousands of dollars)

More detailed information on MSW costs is

provided in Section IV of this booklet. You can

also consult the U.S. Environmental Protection

Agency’s (EPA’s) Full Cost Accounting for

Municipal Solid Waste Management: A Handbook, EPA530-R-95-041, September 1997, or

EPA’s Full Cost Accounting Web site at

<www.epa.gov/fullcost>.

MSW Cost Resources

Midtown

Without PAYT Trash Recyclables Total MSW

Direct Costs

Collection $900 $390 $1,290

Transport and storage 200 100 300

Disposal/processing 900 135 1,035

+ Indirect Costs 400 200 600

= MSW Gross Costs 2,400 825 3,225

- Recyclable Revenues 0 225 225

= MSW Net Costs Without PAYT $2,400 $600 $3,000

With PAYT

Direct Costs*

Collection $760 515 1,275

Transport and storage 190 135 325

Disposal/Processing 630 190 820

+ Indirect Costs 320 245 565

= MSW Gross Costs 1,900 1,085 2,985

- Recyclable Revenues 0 315 315

= MSW Net Costs With PAYT $1,900 $770 $2,670

Percent change in MSW net costs 

in projection year, due to PAYT -11%
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Determine PAYT Revenues

and MSW Program Cost

Coverage

I

n the previous step, you calculated the MSW

net costs in the projection year with PAYT. Now

you must determine the level of revenues the

PAYT program must generate to achieve your

community’s goals. Depending on your goals, you

may want PAYT fees to cover all or part of your

MSW program costs, or you may want the PAYT

fees to generate revenues that exceed your MSW

program net costs. Consider the following:

• You might decide to cover less than 100 percent

of current MSW program costs if your PAYT

program exempts residents living in multifamily housing units and your community

draws from other revenue sources to cover the

costs of those MSW services.

• You might decide to cover 100 percent of current MSW program costs if you operate your

MSW program as an enterprise fund.

• You might decide to cover more than 100 percent of current MSW program costs if you use

PAYT fees to cover current MSW program

costs and pay for other MSW costs (e.g., landfill closure or siting) and/or cover a budget

shortfall for non-MSW expenses (e.g., public

education).

Calculate PAYT Rates 

P

AYT rates can provide clear price signals to

encourage residents to engage in specific

waste reduction activities. Now that you have

forecasted MSW tonnage with PAYT, determined the MSW service costs to be covered by

PAYT, and chosen a container size and estimated

its average weight, you are ready to choose a PAYT

pricing system and calculate your rates. Refer to

pages 7-8 in Section I to compare the pros and

cons of commonly used PAYT pricing systems

(i.e., proportional, variable, or two-tier). Choose

the one that is most consistent with your community’s goals. This section shows how to calculate

your initial (provisional) rates under each of these

three systems. 

A. Proportional Rates

A proportional pricing system is the simplest

type of system for which to calculate a rate. Under

this pricing system, each container is the same size

and the same price. 

Number of containers

First, you will need to estimate the number of

containers you expect will be set out each year.

Convert your forecasted annual trash tonnage

under a PAYT program into pounds of trash per

year (i.e., multiply the number of tons by 2,000).

Divide that number by the average weight (in

pounds) of the trash container you have selected.

The result is the estimated total number of containers of trash the residents in your community

will generate each year under PAYT. 

To develop a proportional rate, divide the

MSW program costs to be covered by PAYT revenues by the number of containers of trash you

expect with a PAYT program in place. The result 

is the initial (provisional) price per container each

household will pay under a proportional PAYT 

system.

Midtown calculated a rate under a proportional

pricing system (Table 4) and established a price of

$1.90 per bag. If municipal officials in Midtown

determine that $1.90 per bag is too high and residents resort to undesirable methods of waste disposal, other pricing options include two-tiered

pricing (see page 21), covering less than 100 percent of solid waste costs with PAYT revenues (i.e.,

using tax revenues to help defray solid waste costs),

or charging separately for recycling and waste disposal. 

4

5
20 section III

Table 4. Calculating Proportional 

PAYT Rates

* In this example, Midtown operates its MSW program as an enterprise fund and plans to fully cover

ongoing MSW net costs with its PAYT revenues (and generate a small buffer fund to cover the 

uncertainties in the estimates). Assuming Midtown provides free recycling services, the price per 

bag is rounded to $1.90.

If Midtown decided to charge a separate fee for

recyclables to cover its net cost, for example, it

could apply this same proportional rate approach

to both trash and recyclables. In this case,

Midtown might charge $41 per household per year

to cover net costs of recycling services (i.e., net

recyclable costs of $770,000 divided by the number of households (18,750) = $41.07) and $1.40

per bag (i.e., costs of trash services ($1,900,000)

divided by the number of bags with PAYT

(1,400,000) = $1.36) to cover net costs of trash

services.

B. Variable Rates 

Variable rate pricing is the most flexible pricing

system, but it can also be the most complex. With

variable rates, the per-gallon price differs by the

size of container set out by the resident. In some

communities, containers are all the same size. In

other communities, containers can be different

sizes.

Number of containers

After selecting the container sizes, you must

estimate the weight of each filled container. In

addition, you must estimate the percentage of your

community’s trash you expect will be set out in

each container size. (This estimate can be developed during the same trash container sampling

exercise you carry out to estimate volume-toweight conversions by container size.) 

Multiply the total number of pounds of trash

you expect with PAYT times the percentage of

trash you expect will be set out in the first container size. Then divide the result by the expected average weight this container size will be when set out

under a PAYT program. The result is the estimated

number of containers of this size you can expect

under PAYT. Next, repeat this calculation to

develop estimated numbers for each of the other

container sizes you permit under the PAYT program. Table 5 shows Midtown’s container selections and estimated weight per container filled.

PAYT Proportional Rate Calculation Example from Midtown

Tons of trash in projection year (with PAYT) 21,000

× 2,000 pounds per ton = Pounds of trash 42,000,000

÷ 30 pounds (Average weight per 30-gallon bag)

= Number of 30-gallon bags per year with PAYT 1,400,000

MSW costs to be covered by PAYT revenues $2,670,000

÷ 1,400,000 (number of 30-gallon bags 

per year with PAYT) = PAYT rate $1.90*

Midtown
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Allocating MSW net costs

To calculate a variable rate structure, you must

also determine the proportion of MSW net costs

that will be covered by the revenues from each

container size. As discussed in Section I, you may

decide to charge higher per-gallon rates for larger

or additional containers (to encourage waste prevention) or lower per-gallon rates for larger or

additional containers (to reflect the cost structure

where there are significant fixed costs). Table 6 on

page 22 shows how Midtown calculated a variable

rate structure for 32- and 64-gallon cans covering

40 percent of its MSW costs with the small can

and 60 percent of its costs with the large can.

Alternatively, if Midtown decided to charge a

separate fee for recyclables to cover its net costs, it

could apply this approach to both trash and recyclables. In this example, it might charge $41 per

household per year (as in the preceding proportional rates example). Midtown might charge

$1.60 per 32-gallon can (i.e., 40 percent of trash

costs (0.40 x $1,900,000) divided by the number

of 32-gallon cans (480,000) = $1.58) and $2.50

per 64-gallon can (i.e., 60 percent of trash costs

(0.60 x $1,900,000) divided by the number of

64-gallon cans (458,182) = $2.49). This would

generate sufficient revenues to cover total MSW

net costs plus a small buffer fund to cover uncertainties in the estimates.

C. Two-Tier Rates

Under a two-tier pricing system, residents subscribe to a base level of service for which they pay

a flat fee (first-tier fee) that may be assessed

through local taxes or through direct billing.

Second-tier fees, on the other hand, are based on

the amount of waste that residents throw away.

Many communities use the simplest version, a

two-tier pricing system with a proportional second-tier rate. Some communities, however, use

more complicated rate structures. The most complex are multi-tier pricing systems with variable

rate pricing for the second and higher tiers.

Number of containers

Estimate the number of containers set out per

year with PAYT. If you plan to use only one container size, follow the approach in the proportional

rates section (page 19); if you plan to use several

container sizes, follow the approach in the variable

rates section (page 20-21).

Cost basis per tier

Some communities use revenues from the firsttier fees to cover fixed costs and revenues from the

second tier to cover direct collection and disposal

costs. Other communities use revenues from the

first tier to cover direct and indirect collection

costs, and revenues from the second tier to cover

Table 5. Selection of Container and

Volume-to-Weight Conversion

* Midtown’s PAYT Task Force projects more trash compaction in the smaller, 32-gallon cans.

Container Type Volume Weight With PAYT* Percent of 

(gallons) (pounds) Trash by

Container Size

Cans ✓ 32 35 40%

Cans ✓ 64 55 60%

Bags

Tags/Stickers

Midtown
22 section III

* In this example, Midtown operates its MSW program as an enterprise fund and plans to fully cover

ongoing MSW costs with its PAYT revenues. It has decided to cover 40 percent of MSW costs with the

revenues from 32-gallon cans and 60 percent of MSW costs with the revenues from 64-gallon cans.

Midtown has chosen a variable rate structure it believes will achieve its goal of encouraging waste

reduction while taking into account the cost concerns of large families. Based on this calculation, it plans

to charge $2.25 per 32-gallon can and $3.50 per 64-gallon can. 

Table 6. Calculating a Variable 

Rate Structure

PAYT Variable Rate Calculation Example from Midtown

Tons of trash in projection year (with PAYT) 21,000

× 2,000 pounds per ton 

= Pounds of trash with PAYT 42,000,000

32-gallon cans

Pounds of trash × 0.40 (Portion of trash in 32-gallon cans)

= Pounds of trash in 32-gallon cans with PAYT 16,800,000

÷ 35 (Average pounds per 32-gallon can) 

= Number of 32-gallon cans per year with PAYT 480,000

MSW program costs to be covered by PAYT $2,670,000

× 0.40 (Portion of costs to be covered by

revenues from 32-gallon cans) $1,068,000

÷ 480,000 (Number of 32-gallon cans set out with PAYT) 

= Price per 32-gallon can with PAYT $2.23*

64-gallon cans

Pounds of trash × 0.60 (Portion of trash in 64-gallon cans) 

= Pounds of trash per year in 64-gallon cans with PAYT 25,200,000

÷ 55 (Average pounds per 64-gallon can) 

= Number of 64-gallon cans per year with PAYT 458,182

MSW program costs to be covered by PAYT $2,670,000

× 0.60 (Portion of costs covered by revenues

from 64-gallon cans) $1,602,000

÷ 458,182 (Number of 64-gallon cans set out with PAYT) 

= Price per 64-gallon can with PAYT $3.50*

Midtown
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* In this example, Midtown operates its MSW program as an enterprise fund and decides to fully cover

ongoing MSW net costs with its PAYT revenues. It has chosen a two-tier rate structure it believes will

strongly encourage waste reduction. It has decided to cover fixed costs for trash, plus net costs of recyclables ($320,000 + $770,000 = $1,090,000), with revenues from the first-tier billing. The remaining

direct costs for trash are covered by second-tier fees per bag. Based on this calculation, Midtown rounds

off the calculated figures and provisionally plans to charge households $14.50 per quarter and $1.15

per bag.

Table 7. Calculating a Two-Tier Rate Structure

direct disposal costs only. As discussed in Section I,

the greater the costs to be covered by first-tier fees,

the more stable the PAYT revenue stream; the

greater the costs to be covered by second-tier fees,

the greater are the community’s waste reduction

and recycling incentives. 

Two-tier price

Once you decide which costs will be covered by

the revenues from each pricing tier, calculate the

amount each household is billed each year by the

first-tier fee by dividing first-tier costs by the 

number of households. (Divide the result by 

four to develop quarterly billings per household.)

Calculate the second-tier charge per container by

dividing the second-tier costs by the number of

containers set out per year, if you are using 

proportional second-tier pricing. (If you are using

variable second-tier pricing, follow the approach

shown in the variable rates section.) Table 7 shows

how Midtown calculated a two-tier rate.

PAYT Two-Tier Rate Calculation Example From Midtown

Portion of MSW net costs to be covered by first-tier fees $1,090,000

+ Portion of MSW net costs covered by second-tier fees $1,580,000

= Total MSW net costs to be covered by PAYT revenues $2,670,000

First-Tier Rate

Portion of MSW net costs to be covered by first-tier fees $1,090,000

÷ 18,750 (Number of households)*

= Annual MSW net costs per household $58.13

÷ 4 quarters = Quarterly PAYT bill per household $14.53

Second-Tier Rate

Portion of MSW net costs covered by second-tier fees $1,580,000

÷ 1,400,000 (Number of 32-gallon bags per year)

= Price per 32-gallon bag $1.13*

Midtown
24 section III

Adjust MSW Services and

PAYT Rate Structure

B

y now, you have developed a PAYT rate

structure that reduces trash, increases recycling, and generates revenues sufficient to

cover your designated costs of MSW services.

At this point, these are still provisional rates. It is

important to know where your estimated costs and

revenues are most sensitive to the underlying

assumptions. It is also important to be sure your

assumptions on some steps (such as percentage

reduction in trash or increase in recyclables) are

consistent with your assumptions on other steps

(such as types of MSW services provided, effort

devoted to public education and outreach, or

PAYT rate and pricing system). This review may

cause you to raise or lower your provisional rates to

some degree. 

To gain some confidence in your rate structure

design—or to be aware of where you need to

improve the quality of your underlying data—go

back to the key decision points to see how higher

or lower estimates would affect the final outcome.

If you must avoid a shortfall in revenues, consider using more conservative estimates. Assume

that residents will aggressively reduce waste, for

example, or that community population might not

grow as rapidly as expected. These conservative

assumptions result in lower levels of estimated

waste and, therefore, higher expected PAYT revenues. Alternatively, you could simply acknowledge

the need for a safe margin of revenues and then

raise rates accordingly, without making assumptions about population or waste reduction changes.

Below are several key points to keep in

mind as you consider your provisional rates

and make adjustments.

• Forecasting residential MSW amounts. In

Step 1, you estimated the number of

households in the projection year.

Consider the impact on your rate structure

of greater or lesser population levels in

the projection year.

• Expected waste reduction impact of PAYT.

In Step 1, you estimated the levels of

reduced trash, increased trash compaction, and increased recycling resulting

from residents’ responses to PAYT price

incentives. Reconsider the strength of residents’ responses in light of the type of

pricing system you have chosen and the

level of your provisional PAYT rates.

Calculate alternative rate structures after

assuming greater or lesser responsiveness

from residents. Consider expanding education and outreach activities to ensure

high rates of participation.

• Estimated weight of trash containers.

Consider the impact on your unit price if

the actual average weight of filled trash

containers is higher or lower than your

estimate.

• MSW costs. Vary these to see how reasonable variations above or below your best

estimate could affect the unit price needed. Consider raising the rate structure to

ensure your MSW net program costs are

covered and then lower them later if you

generate excess revenues.

This kind of analysis can be done on

worksheets (e.g., paper and pencil or 

electronic) or through specialized computer

programs designed to apply sensitivity analysis and iteratively develop a PAYT rate 

structure that is based on internally consistent

assumptions and that best meets your 

community’s needs.

6 Key Decision Points
2

Refinements in Setting PAYT Rates

IV

Y

our community may decide to include in the PAYT rate all the direct and fixed costs of the activities

needed to support each of the MSW services available to residents. This section provides a more

detailed discussion of MSW costs, their allocation among MSW pathways and activities, and related

issues a community might wish to consider when calculating PAYT rates.

Direct and Indirect Costs 

R

esidents often have many choices for recovering or discarding materials. They may be able

to set out trash, recyclables, and compostable

materials at the curb. They also may be able

to take items to drop-off centers, or a transfer station or landfill. Local governments that provide

MSW services send a message to residents through

the fees they charge for each of these services. A

major factor in deciding what to charge for MSW

services should be the cost of each service. The

following discussion can help you determine these

service costs.

A. MSW pathways and activities

Pathways for MSW choices track the activities

through which each type of material proceeds.

MSW pathways (see page 26) include recycling,

composting, waste-to-energy, and landfilling.

MSW activities include waste collection, operation

of transfer stations, transportation of waste, waste

processing and disposal, and sale of byproducts.

After being picked up at a residence, for example,

trash may be taken to a transfer station and then

hauled to a landfill and buried. Some activities

may serve more than one pathway. The landfill in

this system, for example, is part of the pathway for

trash collection, recyclables collection, yard trimmings collection, and drop-offs by residents. 

B. Direct costs

Costs directly attributable to an activity are

sometimes relatively easy to allocate. If different

trucks provide collection and transport for different types of MSW services, for example, you can

allocate the cost of each truck to the appropriate

service. If the same trucks are used for collecting

trash as well as recyclables or yard trimmings, however, you should allocate those costs on some reasonable basis, such as the time a truck is used for

each service. Similarly, landfill costs must be allocated to each pathway that uses the landfill. Since

landfill tipping fees are usually based on weight,

the weight of MSW dumped at the landfill might

be an appropriate basis for allocating landfill costs

among the MSW activities. In sum, it is important

to develop a reasonable way to identify the costs

associated with providing each MSW service to

residents and then a way to allocate them among

activities. 

C. Indirect costs

Indirect MSW costs are usually spread over several MSW activities. A greater effort is required to

identify the costs and to allocate them to the

appropriate activity. The general manager of the

MSW program, for example, is a necessary part of

all MSW services. A person answering the telephone to take questions or complaints from residents is also essential for the smooth operation of

the entire MSW program, as are the staff who bill

for MSW services or handle MSW payables. All of

these indirect costs must be identified and allocated on a fair basis. 

One simple approach to allocating indirect

costs is to estimate the tonnage of waste that each

MSW service processes. Then the indirect cost can

be allocated to each MSW service in proportion to

the amount of waste it processes. Some communities may want (or need) to make even more precise

allocations. Whatever allocation method is used,

however, it is important that the allocation of indirect costs should be seen as fair by those who are

charged for MSW services.
s

e

c t i o

n I V

26

Figure 1: MSW Pathways and Activities

Collection

Activity

Transfer

Station

Activity

Transport

Activity

Solid

Waste

Facility

Activity

Sales

Activity

Transfer

Station

Mixed Waste

Collection

Recyclables

Collection

Yard Trimmings

Collection

Transfer

Station

Transport Transport

Transfer

Station

Transport

Waste-toEnergy Landfill

Material

Recovery Facility

Composting

Facility

Sale of

Compost

Sale of

Recyclables

Sale of

Energy

Sale of

Energy

Solid Waste – Generic Flow Chart
t i 

I V

2

Other Factors to Consider in

Setting PAYT Rates 

S

etting rates on the basis of the full costs of each

MSW service can generate sufficient revenues

to cover MSW costs. Yet there may be other

public policy considerations that could suggest

higher or lower PAYT rates as described below.

A. Front- and back-end costs

The costs discussed so far occur at the same

time as service delivery. Other costs are incurred

before or after service delivery, however, and must

also be included to have a full picture of the

resources being used to provide MSW services.

Front-end costs for a landfill, for example, may

include site preparation, liners, monitoring wells,

and the costs of holding public meetings to obtain

site approval. Back-end costs include landfill closure as well as postclosure monitoring and 

maintenance. Even though these costs occur before

or after the actual provision of service, they are an

essential part of the job and should be included in

the basis for calculating PAYT rates.

B. Policy considerations

Your community may have MSW priorities

based on other policy considerations. A local government, for example, may want to encourage

materials recovery and composting but discourage

landfilling. It may decide to charge less than full

cost for options that it considers ‘desirable’ and

more than full cost for options that are ‘undesirable.’ 

C. Pricing complementary services

Many PAYT communities motivate waste

reduction behavior by charging only for trash services and then collect and process recyclables and

compostables for free. To some, this approach

appears to most directly meet public policy objectives. Other communities charge for certain complementary services, however. These charges reflect

the economic resources expended in recycling

activities and, at the same time, may encourage 

residents to make greater efforts in waste prevention, reuse, and backyard composting activities.

D. Revenue stability

One of the most common goals of MSW agencies is to guarantee revenue stability. To achieve this

goal, many communities use a two-tiered rate. This

kind of pricing system recognizes that some costs

are fixed and others are variable. PAYT rates can be

set so that revenues cover designated costs in the

first tier despite the reduction in MSW amounts.

An MSW billing system, for example, may use the

same resources regardless of how much MSW the

community discards each month. 

On the other hand, given that residents typically respond to PAYT rates by generating less waste,

the second-tier rates can cover the costs for the

reduced amounts of waste that are discarded. Also,

costs for the landfill (such as expenses for equipment and operators) will eventually drop if the

landfill receives less waste each month. The number of operators could be reduced through attrition

or transfers to another activity. These lower costs

can be covered by the second-tier fees. Direct costs

and the revenues from second-tier fees tend to rise

and fall by similar amounts as MSW amounts

increase and decrease. (Discussed in Overview on

page 3, and in the Midtown example.)

To further assist your own community’s RSD

efforts, you might attend workshops or choose a

software program to calculate more advanced rate

structures. Additionally, EPA offers several

resources on PAYT, rate setting, and full cost

accounting as described in the box below.

For updated information on rate setting and

pricing and other available resources, visit EPA’s

PAYT Web site at <www.epa.gov/payt> and the

Full Cost Accounting Web site at

<www.epa.gov/fullcost>. Two useful resources on

these Web sites are Pay As You Throw: Lessons

Learned About Unit Pricing, EPA530-R-94-004,

April 1994, and Full Cost Accounting for

Municipal Solid Waste Management: A Handbook,

EPA530-R-95-041, September 1997. These documents can also be ordered at no charge from

EPA’s RCRA hotline at 800 424-9346 (TDD

800 553-7672).

Resources
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Case Studies

E

very community approaches the process of designing a rate structure for its PAYT program differently. In this section you will learn how five communities met this challenge. These case studies represent a range of different pricing systems, container choices, and population sizes. The stories were

written by the local officials who initiated or now run their community’s PAYT program.

Program success is the thread that runs through each of the stories. As the following testimonials illustrate, there is no one correct price or approach to pricing that will make PAYT a success. There are many

different paths local officials can take. Review the stories to learn more about rate structure design (RSD)

and how you might set appropriate prices for your program.
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O

conee is a fast-growing, semirural county

covering 186 square miles with a population of 25,000. The major portion of the

population is located in the northern end

of the county with more than 160 subdivisions.

The southern portion is primarily rural.

The county started its PAYT program in

May 1994 as a result of the necessary closing of

our landfill (rather than meeting Subtitle D

landfill requirements). We began by developing

a comprehensive understanding of the areas we

were presently serving and planned to serve

with the new system. After privatization was

discussed and rejected, we contracted with a

neighboring county with an approved landfill. 

Residents are offered the choice of contracting with a private collector or using the county’s volume-based Blue Bag program. Residents

that use the program buy the blue bags from

retail outlets and haul their garbage to one of

the county drop centers, where there are

dumpsters for source-separated recyclables

and blue bags. Residents are not charged for

recycling. 

The bag is 32 gallons in size and costs citizens $1.50 at retail outlets. The price of the

bag was determined through bid prices from

vendors and included a 10-cent profit for

retailers. Tipping fees and hauling costs were

also considered in determining this price.

A $1.50 per-bag price was determined to be

the maximum amount that would ensure public cooperation in this new program, though it

does not reflect the cost of the program to the

penny. Other counties were charging $1.50

and, based on the cost of operating the drop

centers and disposing of the trash, that was

about as high as we thought we could go

(although the actual cost is slightly less than

that). 

All county officials and a Citizen’s Solid

Waste Task Force were involved in detailed preplanning of the new system. It was decided the

changeover would be made as rapidly as possible rather than doing it in stages. Once in

place, total recycling tonnage increased 36 tons

over the previous fiscal year, and this equates to

approximately $26,000 in cost avoidance of

tipping fees. We have a workable program,

acceptable to the public, and one that is not

incurring additional excessive expenses in view

of the rapid population growth of the county.

Other counties were charging $1.50

and, based on the cost of operating

the drop centers and disposing of the

trash, that was about as high as we

thought we could go.

Population: 25,000

Start date: 1994

Rate structure: Proportional

Price: $1.50 per 32-gallon bag

Oconee County, Georgia
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T

rinity County began a PAYT incentive program in September 1996. The county is

spread out over about 3,100 square miles

with only 13,000 residents. We offer a combined drop-off and curbside collection program.

Before we considered the program, we

decided it was necessary to do some kind of a

revenue increase. The County Board decided

that rather than raise the benefit assessment

across the board, it would institute tipping fees

charged per household. That way, those people

who are recycling heavily or are a single person

in a household and don’t generate very much

garbage are getting a break for not creating

waste.

Under our program, residents are charged

$5.00 per cubic yard for disposal at the county’s

drop-off transfer station and landfill. Residents

who have refuse pickup are charged $1.00 for

each 33-gallon can, which is based on the county’s estimate that there are approximately six cans

in a cubic yard. The $5.00 per cubic yard fee is

based on the county’s cost for landfilling MSW. 

Other costs are covered under a ‘benefit

assessment,’ the first tier of our multi-tiered

system. Each household unit is charged $100

per year, which covers administration, some

maintenance of the landfill, and other costs.

The combination of the benefit assessment and

tipping fees covers what it costs to maintain the

landfill and transfer sites, all administrative fees,

and everything else that is involved in solid

waste. It also includes long-term care of the

landfill and operation of recycling drop-off

centers at two of the eight transfer stations.

We also encourage participation in recycling

by adding an additional incentive through benefit assessment discounts. Residents who bring

in recyclable materials are given a discount

($0.025 per pound of the weight of the recyclables they bring in) off their benefit assessment, with a ceiling of 40 percent of their

annual assessment. Businesses are limited to a

25 percent discount. The program has been

very successful for us, and hopefully more

communities will institute these types of programs—helping us reach goals of 50 percent

reduction in waste or more!

Population: 13,000

Start date: 1996

Rate structure: Multi-Tier

Price: $100 per year for first-tier fee; $5.00

per cubic yard or $1.00 per 33-gallon

can for second-tier fee

Trinity County, California

The $5.00 per cubic yard fee is based

on the county’s cost for landfilling the

MSW. Other costs are covered under a

‘benefit assessment,’ the first tier of our

multi-tiered system. Each household

unit is charged $100 per year, which

covers administration, some maintenance of the landfill, and other costs.
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T

he city of Platteville is a small university

community in southwest Wisconsin, home

of the University of Wisconsin-Platteville.

The current Platteville recycling and solid

waste program began on March 5, 1990. The

intent of the program is to encourage recycling

through a PAYT program. All single and

duplex residential units in Platteville are

allowed one 35-gallon clear bag or garbage can

up to 50 pounds per week per residence. The

city provides a bin for recycling, which is collected curbside on the same day as the garbage

pickup. This is paid through the city taxes.

Any solid waste beyond the 35-gallon bag

or garbage can must go in a special plastic bag

that citizens can purchase for $1.00. The city

sells these bags at City Hall and has worked

with local supermarkets and convenience stores

to sell the bags. The $1.00 fee takes into

account the cost of the bag, the incentive for

stores to carry the bags (stores are charged 90

cents for the $1.00 bags), and administrative

costs (including a portion of salaries and other

line items). 

The price also includes 40 to 50 cents per

bag for collection, hauling, and tipping fees.

Costs to collect yard trimmings and operate the

compost pile are also included. In addition, we

considered the potential for people to surreptitiously dump garbage: if the price is too high,

people will find ways to illegally dump garbage.

Based on these factors, we determined the best

rate to be $1.00.

These efforts are encouraged by state law in

Wisconsin. Beginning in 1997, all responsible

units (a municipality or group of municipalities) must develop a volume-based fee system

such as PAYT, unless the responsible unit

diverts for recycling at least 25 percent (by

volume or weight) of the solid waste collected.

Through its PAYT program, the city of

Platteville has surpassed this goal.

Platteville, Wisconsin

The $1.00 fee takes into account the

cost of the bag, the incentive for stores

to carry the bags (stores are charged 90

cents for the $1.00 bags), and administrative costs (including a portion of

salaries and other line items).

Population: 10,000

Start date: 1990

Rate structure: Multi-Tier

Price: Local taxes for first-tier fee (includes

one 35-gallon can/week); $1.00 per

35-gallon bag for second-tier fee
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W

e are the city of Lansing, Michigan. The

Public Service Department’s Waste

Reduction Services provides recycling

and refuse services to our residents. Fifty

percent of our single-family housing units are

rental units. We compete with all the private

haulers in the city on a daily basis to fund our

refuse collection program.

Lansing started offering a refuse bag program in 1976. We currently charge $1.50 for

each 30-gallon bag for refuse services. We arrive

at our rates for refuse services by adding all

costs for the program and dividing by the estimated number of bags to be collected (based on

analysis of previous years). Administrative support from other city departments is paid for

along with wages, equipment, utilities, supplies,

landfill fees, insurance, bag cost, and miscellaneous operating expenses out of the revenue

that is generated by the refuse bag sales. 

The refuse bag program is a true enterprise

fund operation. The $1.50 per-bag fee is for

refuse collection costs only and is based on the

actual costs. It does not pay for any other programs, nor is the refuse program subsidized in

any way. Our recycling program is paid for out

of an annual $55 per-unit fee. This can be broken down as $25 for recycling collection, $18

for yard trimmings, and $12 for education and

promotion.

In conjunction with the refuse bag program,

a bulk collection program was started to separate large waste item collections from the refuse

collections and help keep the bag cost down.

Recently, the bulk item fee was raised to $20 so

there would be no subsidy necessary from the

general fund. For all our services, the system

has to be run like a business, which competes

against the private waste haulers in the city.

We arrive at our rates for refuse

services by adding all costs for 

the program and dividing by the

estimated number of bags to be

collected (based on analysis of 

previous years).

Population: 130,000

Start date: 1976

Rate structure: Proportional

Price: $1.50 per 30-gallon bag

Lansing, Michigan
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T

he city of Wilmington instituted PAYT in

November 1992, after the tipping fee paid

by the city jumped 150 percent, from $25

to $60 per ton. Following a successful pilot

program, the city council adopted PAYT for

the city at large.

The city’s program operates out of an enterprise fund that is required to be solvent.

Residents pay $12.10 per month for weekly

collection of a 40-gallon cart or $15.10 per

month for weekly collection of a 90-gallon cart.

A second 90-gallon cart can be added to the

weekly collection for an additional $6.40, or

residents can request twice-a-week collection of

the 90-gallon cart for $30 per month. Stickers

can be purchased for 33-gallon bags for overflow garbage for $1.00 per sticker. 

The two biggest factors influencing these

prices are tipping fees and the cost of the city’s

refuse collection contract. A private contractor

provides once-a-week refuse collection for

about 45 percent of the households. The city

provides the second pickup for residents that

request it, in addition to providing refuse service to the remaining households. It also provides weekly recycling and yard trimmings

pickup and bulky collection on demand to the

entire area. Tipping fees for refuse as well as

yard trimmings and administrative costs

(including fees paid back to the general fund

for services provided to the solid waste program

such as human resources and finance) all must

be covered in the fees collected. Since the city is

required to give low-income and elderly people

a reduced rate, however, some monies are

received from the general fund to cover this

cost. 

We basically used a form of full cost

accounting to allow us to identify all of our

costs. Then, we worked with some of our residents and collection crews to measure set out

rates and the number of pounds per pickup.

We then divided these figures to arrive at our

prices. The department spent a lot of time with

spreadsheets to come up with our final figures.

With the change to once-a-week collection,

the city was able to save $400,000 the first year.

Twice-a-week collection is still available, but

only 2 percent of the population now uses this

option, and 35 percent has changed to the

smaller 40-gallon cart. 

Staff considers the program a success. Most

people understand the relationship between

garbage generation and their garbage bill. Less

waste is going to the landfill and incinerator.

People are recycling more, and most people’s

garbage bill has decreased with the more equitable billing system of the PAYT program.

We basically used a form of full cost

accounting to allow us to identify all of

our costs. Then, we worked with some

of our residents and collection crews to

measure set-out rates and the number of

pounds per pickup.

Population: 62,000

Start date: 1992

Rate structure: Variable Rate

Price: $12.10 per month for 40-gallon cart

$15.10 per month for 90-gallon cart

Wilmington, North Carolina
34

Administrative costs. The management and support costs of running the solid waste program.

Includes both labor costs and other expenses.

Back-end costs. Expenditures to properly wrap up

operations and take proper care of landfills and

other MSW facilities at the end of their useful

lives.

Base year. The year prior to implementation of

PAYT, often used as a baseline against which

potential PAYT impacts are measured.

Capital outlays. Expenditures to acquire a resource

that will be used in MSW operations over more

than 1 year.

Collection costs. Recurring costs for the collection

of trash and recyclables, including labor, equipment costs, and contract payments.

Complementary programs. Municipal services

designed to supplement basic trash collection

and disposal, such as recycling, composting of

yard trimmings, and bulky waste collections.

Direct costs. Costs that are clearly and exclusively

associated with MSW management (e.g., collection, transport, processing, and disposal costs).

Disposal costs. Tipping fees, processing costs, and

other costs related to the management of MSW

and recyclable materials.

Enterprise funds. Mechanisms used by local governments for activities that can be financed and

operated like a private business.

Full cost accounting. A systematic approach for

identifying, summing, and reporting the actual

costs of MSW management, taking into

account past and future outlays, oversight and

support service (overhead) costs, and operating

costs.

Indirect costs. Cost that are not exclusively related

to portions of MSW management but that

relate to more than one local government activity. Such indirect costs (and other government

activities) can include accounting and payroll,

personnel, legal, purchasing, data processing,

records management, and executive oversight

(e.g., the mayor’s salary and office expenses).

Net cost. The full cost of an MSW management

activity or path minus its byproduct revenues.

The net cost divided by the tons of waste managed yields the net cost per ton for that activity

or pathway.

Operating costs. Regularly recurring costs of

resources used over a short period of time (typically 1 year or less) to support ongoing MSW

operations (e.g., wages, salary benefits, maintenance, and rents).

Projection year. The year of implementation of

PAYT, when residents have responded to the

price incentives and when their reductions in

waste generation and increases in recycling have

stabilized. (The actual implementation time will

vary among different sized cities and complexities of programs.)

Rate structure design (RSD). The process of

determining the price to charge residents for

each container of garbage they set out for collection. It includes community choices about

pricing systems, container types, and the goals

they set out to achieve.

Up-front costs. The initial investments and

expenses necessary to start an MSW activity or

pathway.

Glossary
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