Cost

Overhead

Depreciation

Amortization

Full Cost Accounting for

Municipal Solid Waste 

Management: A Handbook

United States 

Environmental Protection 

Agency

EPA 530-R-95-041

September 1997

http://www.epa.gov

1EPA

Solid Waste

and Emergency Response

5305W
Contents

About This Handbook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

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

Chapter 1 – Introducing Full Cost Accounting . . . . . . . . . . . . . . . . . . . . . . 5

Chapter 2 – The Scope of FCA for MSW . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter 3 – Compiling FCA Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Chapter 4 – Allocating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Chapter 5 – Reporting FCA Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Appendix A – An Illustration of Using FCA for MSW Management . . . . . 59

Full Cost Accounting Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
EPA developed this Handbook to help you implement full cost accounting

(FCA) in your community. The Handbook will help you better understand

the costs of the municipal solid waste (MSW) services you provide, answer

key questions you might have about FCA, and guide you through the implementation process. You’ll learn how to assemble necessary data, calculate full cost

information from the available data, and report the results of your FCA analysis

to government officials and residents. Case studies, presented in boxes throughout

the Handbook, provide snapshots of how other communities across the country

have implemented FCA and are reaping its rewards. Key terms and concepts are

italicized on first reference, and their definitions are included in the Glossary.

This Handbook can answer only some questions about FCA. Because of the

diversity of accounting practices and rules and differences in the size and nature

of local government MSW programs, there is no single recipe for success. Rather,

the goals of this Handbook are to introduce key FCA terms and concepts and to

prepare readers for the types of issues that will likely arise in conducting FCA.

The Handbook does not try to present step-by-step “how-to directions” on initiating an FCA system. It also does not provide detailed instructions for handling all

issues that are likely to arise or recommend particular forms to use in compiling

and reporting FCA for MSW. While economic concepts, such as fixed and variable costs, are illustrated in Chapter 5, the Handbook does not attempt to demonstrate how to apply economics to integrated solid waste management system

decisions.

This Handbook focuses on costs that are relatively easy to value in the marketplace. Other important costs that decision-makers and planners might want to

consider include potential liability costs for property damage or personal injury,

costs of remediating potential future releases, social costs, environmental externalities, and upstream and downstream life-cycle costs. This Handbook defines and

describes these costs, but does not explain how to value them or incorporate them

into decision-making. Consideration of the full spectrum of costs can be called

“true cost accounting,” which is beyond the scope of this Handbook.

This Handbook is a first step toward helping you understand the costs of

MSW management in your community. It builds on local government experience

with FCA and reflects input EPA has solicited from a diverse national peer review

group. EPA welcomes comments on the Handbook, as well as information about

how using FCA has helped your community. Comments should be submitted to

the RCRA Hotline at 800 424-9346 or TDD 800 553-7672. In the Washington,

DC, area, call 703 412-9810 or TDD 703 412-3323. The Hotline is open

Monday through Friday, 9:00 a.m. to 6:00 p.m., Eastern Standard Time. 

2

About This Handbook
Full cost accounting (FCA) is a systematic approach for identifying, summing,

and reporting the actual costs of solid waste management. It takes into

account past and future outlays, overhead (oversight and support service) costs,

and operating costs. Knowing the full costs of municipal solid waste (MSW) management can help you make better decisions about your solid waste program, improve

the efficiency of services, and better plan for the future. FCA can help you compile

the detailed cost information you need to understand what

MSW management costs and to communicate these costs to

the public.

As of July 1997, four states (Florida, Georgia, Indiana,

and North Carolina) require local governments to use FCA in

reporting MSW costs to citizens. In addition, the Texas

Natural Resource Conservation Commission developed an

FCA workbook to help municipalities determine rates that

reflect the full cost of providing solid waste services. Many

localities in other states are also applying FCA concepts and

are finding them important and useful tools to help manage

their solid waste programs.

FCA can be a new way of thinking about MSW management for some communities. For others, it can be simply an

extension of current management practices. Understanding

the benefits of FCA can help ease its implementation in your

community. FCA can help you:

• Identify What MSW Management Costs. When

municipalities handle MSW services through general tax funds, the costs of

MSW management can get lost among other expenditures. Even if an effort

is made to identify solid waste costs, it is easy to overlook some of them. You

can have more control over MSW costs when you learn what those costs are.

• See Through the Peaks and Valleys in MSW Cash Expenditures. Using

techniques such as depreciation and amortization, FCA produces a more

accurate picture of the costs of MSW programs, without the distortions that

can result from focusing solely on a given year’s cash expenditures.

• Explain MSW Costs to Citizens More Clearly. FCA helps you collect and

compile the information needed to explain to citizens what solid waste management actually costs. Although some people might think that MSW management is free (because they are not billed specifically for MSW services),

others might overestimate its cost. FCA can result in “bottom line” numbers

that speak directly to residents. In addition, you can use FCA results to

respond to specific public concerns.

• Adopt a Businesslike Approach to MSW Management. By focusing attention on costs, FCA fosters a more businesslike approach to MSW management. Consumers of goods and services increasingly expect value, which

3

Introduction

FCA supports your:

• Informational goals by determining

and reporting how much MSW management costs.

• Management goals by identifying

potential cost savings and providing a

sound basis for management decisions

such as privatizing services.

• Planning goals by documenting current benchmarks that can be used when

making or evaluating projections.

FCA Helps You Meet Your Goals
4

means an appropriate balance between quality and cost of service. FCA can

help identify opportunities for streamlining services, eliminating inefficiencies, and facilitating cost-saving efforts through informed planning and decision-making.

• Develop a Stronger Position in Negotiating with Vendors. When considering privatization of MSW services, you can use FCA to learn what it costs

(or would cost) to do the work. As a result, FCA better positions public

agencies for negotiations and decision-making. FCA also can help communities with publicly run operations determine whether their costs are competitive with the private sector.

• Evaluate the Appropriate Mix of MSW Services. FCA gives you the ability to evaluate the net cost of each element of your solid waste system: recycling, composting, waste-to-energy, and landfilling. FCA can help you avoid

common mistakes in thinking about solid waste management, notably the

error of treating avoided costs as revenues.

• Fine-Tune MSW Programs. As more communities use FCA and report the

results, you might be able to “benchmark” your operation to similar cases or

norms. This comparison can suggest options for “re-engineering” your current operation. Further, when cities, counties, and towns know

what it costs to manage MSW independently, they can better identify any savings that might come from working together.

FCA can complement two other practices: unit-based pricing (or

pay-as-you-throw) programs and enterprise funds. Unit-based pricing

programs charge solid waste generators based on how much they

throw away. They can be an equitable means of recovering the full

costs of solid waste management. FCA can help identify a unit pricing rate structure that will generate the revenues needed to cover the

costs of providing the service. Enterprise funds are mechanisms used

by local governments for activities that can be financed and operated

like a private business. FCA is inherent in the concept and operation

of enterprise funds, which are intended to cover program costs

through a dedicated source of user fees.

FCA is not a substitute for management analysis and decisionmaking; it is simply a tool to use in gaining information on and

reporting the costs of your solid waste program. It can help you

answer questions about what certain MSW services cost and why

changes to some services don’t automatically result in savings on your

bottom line. For example, many residents or government officials

might think that an increase in your community’s recycling rate

should translate into a decrease in the costs of solid waste management. Depending on the costs of running your recycling program, as

well as fluctuations in the market for recyclables and fixed costs of

landfill disposal and waste-to-energy, recycling might or might not be

saving your community money. FCA can help identify the costs of

recycling, land disposal, and other solid waste services, helping you

gain a better picture of the costs of MSW management in your community. 

Indianapolis has an excellent

credit rating and a solid reputation for having its financial

house in order. Yet when the new

mayor took office in 1992, he

was amazed at what city officials

did not know about their budgets. They knew that the city

took in more money than it

spent but did not know how

much any single activity cost.

While city officials could detail

how much the various department budgets increased annually,

they did not know how much it

cost to fill one pothole or install

a traffic signal.

When city officials started calculating how much it cost to pick

up a ton of trash, they uncovered

surprising information. They

found that there were separate

budgets for the garage, trucks,

gas, and drivers. As a result, no

one knew the full costs of providing the trash collection service.1

Case in Point

Indianapolis, Indiana
5

Historically, local governments have tended to use cash flow accounting

(also called general fund accounting) to track the flow of current financial resources (dollars). This accounting system records outlays when

cash is actually paid for goods and services. It helps government agencies

account for the expenditure of tax dollars and other public funds.

While FCA is consistent with generally accepted

accounting principles, it serves different goals and audiences than traditional government accounting reports.

FCA is not the same as cash flow or general fund

accounting. FCA focuses on the flow of economic

resources (assets) and accrues (i.e., recognizes) costs as

resources are used or committed, regardless of when

money is spent. Because solid waste management can

entail significant expenditures both before and after the

operating life of management facilities, focusing solely on

the use of current financial resources misrepresents the

costs of MSW management and can be misleading. 

The Government Accounting Standards Board, in its Generally Accepted

Accounting Principles (GAAP),2 endorses the use of accrual accounting practices like FCA. Many cities and counties are required to conform to GAAP.

Unfortunately, accrual accounting is not fully implemented or used in day-today solid waste management. Most local government accounting, even under

GAAP, still focuses on the use of financial resources. FCA is a better measure of

the costs of MSW management because it recognizes the full costs of all

resources used or committed in support of operations.

Exhibit 1-1 lists the spectrum of costs associated with MSW management,

along with examples. This Handbook focuses on three major types of costs that

are relatively easy to determine:

• Up-front costs comprise the initial investments and expenses necessary to

implement MSW services.

• Operating costs are the expenses of managing MSW on a daily basis.

• Back-end costs include expenditures to properly wrap up operations and

take proper care of landfills and other MSW facilities at the end of their

useful lives; the costs of post-employment health and retirement benefits

for current MSW workers also fall in this category.

An FCA report differs from current municipal accounting and reporting practices that

address different goals and audiences. For

the most part, local government financial

statements (including enterprise fund

accounting) do not focus on the flow of economic resources or use the accrual basis of

accounting, which are cornerstones of FCA.

Understanding the

Costs Used in FCA

Chapter 1

Introducing

Full Cost Accounting

How FCA Is Different
6

These three categories together cover the “life cycle” of MSW activities from

“cradle” (up-front costs) to “grave” (back-end costs).3

These costs give an accurate and useful accounting for management and reporting. 

The other categories of costs listed in Exhibit 1-1 can be included in the

scope of FCA, but require special consideration, as noted below. These costs are:

• Remediation costs at inactive sites. Many local governments have inactive

MSW landfills that require “corrective action” for known contamination

of ground water, soil, or surface water. These remediation costs can be

relatively well estimated,4 though with somewhat more uncertainty than

other types of engineering projects such as roadbuilding. 

Including these costs in FCA is a matter of choice.

Because remediation costs are real and must be paid, they

can be included; moreover, they are the result of past

solid waste management practices and are thus relevant.

On the other hand, incorporating such remediation costs

for inactive landfills, which are not strictly costs of current MSW management, could give a misleading impression of current MSW costs.

The decision to include remediation costs depends on

the intended use of the FCA information. For example, if

you are using FCA to document the revenue needs of an

MSW program, you might want to include costs entailed

by inactive sites. If you intend to use FCA to reveal the

current economics (e.g., cost per ton) of current MSW management or compare your performance to other communities or state benchmarks, you might

want to exclude inactive site costs from such calculations.

• Contingent costs are costs that might or might not be incurred at some

point in the future. These costs can best be described in probabilistic

terms: their expected value, their range, or the probability of their exceeding some dollar amount. Examples include the costs of remediating

In 1992, Lafayette and West Lafayette,

Indiana, reported substantially different

average costs per household for solid waste

management. The difference turned out to

largely reflect costs for yard waste and

cleanup of a former landfill; West Lafayette

included those costs in its calculations

while Lafayette did not.

Factors to consider in determining how to handle remediation expenditures are:

• Probability of occurrence

• Status of sites

Known need to remediate

(noncontingent cost)

Potential future need to

remediate (contingent cost)

Include in FCA as operating

cost

Optional (might not turn

out to be a cost)

Optional (not a cost of current activities)

Optional (might not arise

and not related to current

activities)

Active Site Inactive Site

Case in Point

Lafayette, Indiana

Remediation Costs
7

unknown or future releases of pollutants, such as leaks from currently

operating municipal landfills. Contingent costs also include the liability

costs of compensating for as yet undiscovered or future damage to property or persons adversely affected by MSW services. Both of these types

of contingent costs can be projected, but not very precisely. (In contrast,

where there is a known need to remediate, costs can be projected much

more precisely.) Insurance premiums for appropriate coverages, if available, could serve as surrogates for the contingent liability costs of property damage and personal injury. You will need to decide whether or not

to include these elements in FCA.

• Environmental costs are the costs of environmental degradation that cannot be easily measured or remedied, are difficult to value, and are not

subject to legal liability. Such environmental costs often are termed

Exhibit 1-1

Types and Examples of MSW Management Costs

Up-Front Costs

• Public education and outreach

• Land acquisition

• Permitting

• Building construction/modification 

Operating Costs

• Normal costs

- Operation and maintenance (O&M)

- Capital costs

- Debt service

• Unexpected costs 

Back-End Costs

• Site closure

• Building/equipment decommissioning

• Post-closure care

• Retirement/health benefits for current employees 

Remediation Costs at Inactive Sites

• Investigation, containment, and cleanup of 

known releases

• Closure and post-closure care at inactive sites

Contingent Costs

• Remediation costs (undiscovered

and/or future releases)

• Liability costs (e.g., property 

damage, personal injury, natural

resources damage) 

Environmental Costs

• Environmental degradation

• Use or waste of upstream resources

• Downstream impacts 

Social Costs

• Effects on property values

• Community image

• Aesthetic impacts

• Quality of life 
8

“externalities” by economists. To truly capture all of the important lifecycle cost elements, some people advocate assessing the upstream (and

downstream) environmental costs of resource use, pollution, and waste

entailed in providing goods and services. For example, manufacturing and

transporting MSW management equipment and vehicles can entail environmental impacts prior to their use, such as depletion of nonrenewable

mineral resources, air and water pollution, and waste generation. In addition, downstream environmental impacts can also arise from the eventual

decommissioning or ultimate disposal of the MSW equipment and vehicles. You’ll need to decide whether your FCA efforts should attempt to

include environmental and upstream/downstream costs, for which widely

accepted measurement and valuation methodologies do not yet exist.

• Social costs are adverse impacts on human beings, their property, and their

welfare that cannot be compensated through the legal system. Social costs

(also termed “social externalities”) are similar to environmental externalities and are sometimes grouped together under an umbrella term. Just as

with environmental externalities, the costs of social externalities can be

difficult to determine. While FCA focuses on costs that can be valued

readily in the marketplace, understanding social costs is important for

planning efforts. Social costs include the impacts of MSW transport on

neighborhoods along the routes taken, as well as the impacts of MSW

facilities themselves. Issues of “environmental justice” can arise for planners when any of the following fall disproportionately on certain social

groups: (1) adverse effects on property values, community image, and

aesthetics; (2) opportunity costs of alternative and future land uses; and

(3) noise, odor, and traffic. This Handbook does not attempt to monetize

social costs or describe methodologies for doing so, although some references5-7 are provided from a growing body of knowledge aimed at better

characterizing and valuing these impacts.

Exhibit 1-2 lists the types of costs that can be included in FCA and summarizes

the methodologies for estimating those costs. 

When summing costs, a key question to consider is “whose costs to include?”

FCA can include: 

• Local government solid waste organization costs only

• All local government costs

• Costs incurred by private sector service providers not covered above

• Costs incurred by the customer base not covered above

• Residential, commercial, or all customers

• Costs incurred by volunteer and nongovernmental groups

Whose Costs FCA

Can Include
Your state’s laws might determine which of these

costs to include. For example, the Indiana FCA law

requires local governmental units that provide solid waste

management to calculate and report both the full and per

capita costs of such services. In Indiana, costs should be

included for any MSW service a community provides

either directly or indirectly through contract or franchise

services. Services provided independently by private companies not under municipal contract or franchise are not

included.

Local Government Costs. Communities that handle

MSW management through enterprise funds frequently

employ a form of FCA, often defining the scope in terms

of all or most local government costs, but sometimes

9

If an Indiana town owns and operates a

landfill but performs no collection services,

should collection costs be included in FCA?

If the town has nothing at all to do with

collection, collection costs should not be

included. If the town monitors the performance of private waste collection firms or

otherwise expends resources to oversee collection services, then the town’s costs should

be included in FCA. If the town contracts

for or franchises collection services, collection costs should be included.

Case in Point

Including Collection Costs 

in Indiana

Exhibit 1-2

FCA Methodologies

Cost Category Methodology 

Up-front Costs Identify up-front outlays

Uncover hidden costs and include oversight and support outlays

Depreciate up-front outlays 

Operating Costs Identify operating outlays

Depreciate capital outlays

Uncover hidden costs

Add in oversight and support outlays 

Back-End Costs Estimate back-end outlays

Include oversight and support outlays

Amortize estimated back-end outlays 

Remediation Costs Estimate outlays and duration; annualize 

Contingent Costs Estimate probability and magnitude of costs

Estimate expected value; annualize 

“Environmental Costs” Describe environmental “externalities”

Monetize (e.g., contingent valuation, damage function approach)

“Social Costs” Describe social “externalities”

Monetize (e.g., contingent valuation, damage function approach)
10

solely in terms of the costs incurred by the government unit responsible for

MSW. State and local accounting rules and practices can strongly influence

financial accounting and reporting for MSW enterprise funds.

Service Vendor Costs. Where MSW services are

provided independently of local governments, vendors

bill or charge their customers to recover their costs

and some profit. The prices set for these customers

become the costs incurred by the customer base. These

costs are quite clear to customers and need not be part

of FCA. On the other hand, FCA can be used to

describe the costs of the complete MSW system by

adding local government costs to costs paid directly by

citizens.

Service Customer Costs. The customer base also

incurs costs not covered above that are usually not

measured or valued, but could be included in FCA.

These costs reflect the customers’ time and materials

costs of separating and preparing recyclables, putting

MSW on the curbside for pickup, and so on. Because these costs are not hidden from the customers (who incur them directly), they can be omitted from

FCA, which aims to uncover costs that are not necessarily clear to customers or

public officials.

Types of Customers. Another important issue is deciding whether FCA

should be applied to residential, commercial, industrial, institutional, or all system customers. It can be useful to account separately for commercial, industrial,

institutional, and residential customers and not combine the costs of serving

such potentially different customer bases.

Costs of Volunteers. Volunteers and nongovernmental organizations also

might incur costs not covered above to support MSW management. For example, many community groups (and businesses) have volunteered to “adopt”

stretches of roads and highways for litter control. Volunteer help might take the

form of “paper drives” or assistance at recycling drop-off centers. A community

group might organize a public education campaign. (See discussion

“Uncovering Hidden Costs” in Chapter 4.)

Whatever the decision, FCA reports should be explicit about their scope,

both in terms of which types of costs and whose costs are included. 

In many communities, the private sector

provides some or all MSW services,

whether independently, under contract

with a local government, or through a

franchise arrangement. FCA need not

unduly burden such service providers. You

do not need detailed, proprietary information to determine full costs. Collecting

some basic service and price data should

be sufficient to allow you to prepare FCA

reports.

Private Sector Costs
11

Many communities have discovered that integrated solid waste management (i.e., using a mix of solid waste management approaches) can

minimize costs and environmental effects and maximize recovery and

conservation of energy and materials. No single solid waste management

approach is perfect. Some waste cannot be successfully recycled, composted, or

converted to energy. In addition, some waste will always need to be landfilled,

along with any residues from recycling, composting, and waste-to-energy (WTE).

Communities using integrated solid waste management can use FCA to communicate the costs of different MSW approaches.

This Handbook distinguishes between two ways of disaggregating the entire

MSW system. You can focus on the various activities that are the building blocks of

the system or the paths that MSW follows in the course of integrated solid waste

management (i.e., point of generation through processing and ultimate disposition).

Both the “path” and “activity” ways of looking at MSW costs can be useful. Because

these two perspectives share common terminology, it is important to be explicit in

presenting FCA data so that users understand the costs of different services. MSW

activities include:

• Waste collection

• Operation of transfer stations

• Transport of waste from transfer stations to waste management facilities

• Waste processing and/or disposal at waste management facilities

• Any sale of by-products

MSW paths are cross-cutting components of the solid waste system. Four

primary solid waste management paths are:

• Recycling

• Composting

• Waste-to-Energy

• Land disposal

Understanding the costs of each MSW activity often will be necessary for

compiling the costs of the entire system and helps you evaluate whether to provide a service yourself or contract out for it. Understanding the full costs of each

path is an essential first step in discussing whether to shift the flows of MSW one

way or another.

The Complete Job of

Solid Waste

Management: 

MSW Activities and

Paths

Chapter 2

The Scope of FCA for 

MSW
Exhibit 2-1 presents a generic flow chart illustrating how solid waste management is composed of activities and paths. Activities appear as boxes organized in

five rows on the flow chart. Because source reduction keeps MSW from entering

the management system, it is not included as an activity in Exhibit 2-1. Source reduction also does not appear as a path in Exhibit 2-1 because it reduces the

amount of MSW that flows along the paths shown. The costs of source reduction

activities, however, should be recognized in FCA. Exhibits 2-2 through 2-5 illustrate the four solid waste management paths. Note that recycling, composting, and WTE paths all rely, in part, on land

disposal of their residues, if any. Activity costs for land disposal, therefore,

should be allocated to MSW paths in proportion to each path’s contribution of

waste for disposal. For example, in calculating the costs of the composting, recycling, and WTE paths, each path should be assigned the waste disposal

activity costs entailed by the residues each sends for landfilling. (This means

that the full costs of the landfilling path might be less than the full costs of the

landfilling activity.) Other shared activity costs, such as collection, transfer, and

transport, also should be assigned fairly to waste paths in proportion to the weight or volume of MSW headed in each direction. Typically, local governments focus on the costs of the component activities of

solid waste management, such as collection and disposal. Accounting systems

might even be set up to record expenditures separately for these different MSW

activities. Additionally, deciding whether to privatize or outsource services can

depend on good cost accounting on an activity basis. However, in considering

changes to the level of MSW activities—which affect how much MSW ends up

being recycled, composted, converted to energy, or landfilled—you should focus

on the costs of the different MSW paths, including all their component activities.

The economics of recycling, composting, WTE, and disposal paths are strongly

affected by the costs of collection, transfer, and transport. Exhibit 2-6 shows the relationship between MSW activities and paths. The

checks indicate those activities that are inescapable parts of MSW paths, but all

the other cells are potentially part of a given MSW system as well. Paths include

the cost of managing waste from the point of generation through processing and

ultimate disposition. For example, a land disposal path can include costs from

mixed waste collection, transfer station, transport, landfill and by-product sales

activities. A recycling path might combine activity costs from curbside collection

for recyclables and/or a drop-off recycling center, a materials recovery facility

(MRF), and a landfill for disposal of nonrecyclable residues. Analyzing paths

allows you to evaluate costs and revenues associated with individual waste management options and their respective impacts on total waste management system

costs. The specifics will vary across communities. In disaggregating full costs for the complete job of handling solid waste in a

community, the “bottom line” will remain the same whether disaggregated by

activity or path. If the purpose of presenting disaggregated information is to facili-

tate comparisons within a community about different programmatic options of

handling solid waste, then the full costs are better presented in terms of MSW

paths. In that way, discussions about whether to expand or reduce recycling, composting, or WTE programs in a community will be based on the actual economics of each path. If the purpose of presenting disaggregated information is to

facilitate discussions about whether a service can be performed for a community

12
13

Collection

Activity

Transfer

Station

Activity

Transport

Activity

Solid

Waste

Facility

Activity

Sales

Activity

Transfer

Station

Mixed Waste

Collection

Recyclables

Collection

Yard Waste

Collection

Transfer

Station

Transport Transport

Transfer

Station

Transport

Waste-toEnergy

Landfill MRF Compost

Facility

Sale of

Compost

Sale of

Recyclables

Sale of

Energy

Sale of

Energy

Solid Waste – Generic Flow Chart

Exhibit 2-1
14

Collection

Activity

Transfer

Station

Activity

Transport

Activity

Solid

Waste

Facility

Activity

Sales

Activity

Transfer

Station

Mixed Waste

Collection

Recyclables

Collection

Yard Waste

Collection

Transfer

Station

Transport Transport

Transfer

Station

Transport

Waste-toEnergy

Landfill MRF Compost

Facility

Sale of

Compost

Sale of

Recyclables

Sale of

Energy

Sale of

Energy

Recycling Path – Generic Flow Chart

Exhibit 2-2
15

Collection

Activity

Transfer

Station

Activity

Transport

Activity

Solid

Waste

Facility

Activity

Sales

Activity

Transfer

Station

Mixed Waste

Collection

Recyclables

Collection

Yard Waste

Collection

Transfer

Station

Transport Transport

Transfer

Station

Transport

Waste-toEnergy

Landfill MRF Compost

Facility

Sale of

Compost

Sale of

Recyclables

Sale of

Energy

Sale of

Energy

Composting Path – Generic Flow Chart

Exhibit 2-3
16

Collection

Activity

Transfer

Station

Activity

Transport

Activity

Solid

Waste

Facility

Activity

Sales

Activity

Transfer

Station

Mixed Waste

Collection

Recyclables

Collection

Yard Waste

Collection

Transfer

Station

Transport Transport

Transfer

Station

Transport

Waste-toEnergy

Landfill MRF Compost

Facility

Sale of

Compost

Sale of

Recyclables

Sale of

Energy

Sale of

Energy

Waste-to-Energy Path – Generic Flow Chart

Exhibit 2-4
17

Collection

Activity

Transfer

Station

Activity

Transport

Activity

Solid

Waste

Facility

Activity

Sales

Activity

Transfer

Station

Mixed Waste

Collection

Recyclables

Collection

Yard Waste

Collection

Transfer

Station

Transport Transport

Transfer

Station

Transport

Waste-toEnergy

Landfill MRF Compost

Facility

Sale of

Compost

Sale of

Recyclables

Sale of

Energy

Sale of

Energy

Land Disposal Path – Generic Flow Chart

Exhibit 2-5
at a better price by a different provider, then the full costs might be better presented in terms of MSW activities.

The FCA approach used in this Handbook lets you have the best of both

worlds. In reporting FCA information, you can tailor the format to your community’s needs and interests. Counties, cities, and towns can continue to track costs

by activity, use that data in privatization or outsourcing (e.g., “make or buy”)

decisions, and report full costs to the community. Some audiences might want the

costs reported separately for waste management paths such as recycling, composting, WTE, and land disposal. Reporting costs per ton for MSW paths can facilitate comparisons of different waste management strategies. In responding to such

needs: 

• Remember that some of the activity costs of running landfills properly

belong to paths such as recycling, composting, and WTE. These paths

should be allocated their fair share of landfill activity costs based on how

much material (e.g., residues) they send to landfills.

• You might need to allocate collection, transfer station, and transport activity costs appropriately to each solid waste management path in proportion

to their use of those activities.

• Mixing “apples and oranges” can cause confusion. If your community uses

more than one MSW path, consider reporting costs by either activities or

paths to avoid confusion.

The flow charts do not include other functions important to any solid waste

program, particularly community education and outreach, executive and oversight functions, and support services such as billing, maintenance, and the like.

These functions can be provided directly by the solid waste department or by

other units of local government. Chapters 3 and 4 will describe how to identify

and incorporate the costs of these functions in FCA.

18

Exhibit 2-6

Land

Recycling Composting WTE Disposal

Path Path Path Path

Collection ? ? ? ? 

Transfer Station(s) ? ? ? ? 

Transport ? ? ? ? 

Facility(ies) ✔ ✔ ✔ ✔

Residuals Disposal ✔ ✔ ✔

By-Product Sales ✔ ✔ ✔ ? 

Education/Outreach ? ? ? ?

Potential Cross-Walk Between MSW Activities and Paths

MSW Activities
Because of the many different ways that local governments handle solid

waste, there is no single recipe appropriate for all jurisdictions. You can

adapt the approach described here to fit your own circumstances. As

described in Chapter 1, FCA requires information about up-front, operating,

and back-end costs of your current system. To compile this information systematically, the following information is helpful:

• Descriptive information about your current program, including its history, scope, and future plans.

• Inventory of assets such as vehicles, buildings, equipment, and land as

well as the human resources employed to manage MSW.

• Organizational review identifying supervisory and advisory units to

which the solid waste program reports as well as providers of services to

the solid waste program.

• Available financial records and reports.

As illustrated in Exhibit 3-1, these four sources of information provide all

the raw material needed to conduct FCA.

What your solid waste management system costs depends on what it does. To

avoid overlooking some costs, your community might want to profile its current MSW program. The program description can answer such important questions as:

• How much waste is involved?

• Who moves it?

• How?

• How often?

• How far does it travel?

• How long does each trip take?

You might want to write down all the steps that solid waste takes from its

generation to the point of processing and final disposition. By identifying all of

the activities that make up your system, you can now determine their costs.

Drawing a schematic diagram or flow chart of your current MSW program,

developing a history or chronology of the program, and reviewing your plans

Chapter 3

Compiling FCA Data

19

Program Description
20

for the future can all help paint a more complete picture of your current MSW

management system.

MSW Flow Chart. You can use the flow chart shown in Exhibit 2-1 to map

the waste flows from collection or drop-off, through transfer stations or processing facilities (MRFs), to ultimate disposal. This flow chart can help you account

for all of the major activities involved in moving solid waste. You might want to

tailor and annotate the flow chart to reflect your community.

Program History. The history or chronology of your solid waste program

helps identify up-front costs that already have been incurred as well as current

operating costs. The purpose of the chronology is to shed light on your current

solid waste system. (See Exhibit 3-2.)

Future Plans. Your review of future plans can focus on anticipated dates of

closure of currently operating facilities and other anticipated future capital outlays entailed by current operations. This can help identify back-end costs. Plans

for landfill closure and post-closure care should exist. If they have not already

been developed, cost estimates can be prepared based on those plans.

Exhibit 3-1

FCA

Examine

Community

Accounts and

Records

Profile

MSW

System

Clarify Organizational

Relationship

Inventory Land, Vehicles,

Structures, and

Personnel

Getting Started in Full Cost Accounting
21

Next, you can compile an inventory of publicly owned or used equipment,

vehicles, buildings, and land employed in MSW management. (See Exhibit 

3-3.) For each item on the inventory, you might wish to ask such pertinent

questions as: Is it owned or leased? When was it acquired? At what cost? What

is its useful remaining life? The inventory also can include descriptive information such as the capacity, quantity, and location of physical assets and can serve

as a basis for developing depreciation schedules and identifying operating costs,

as described in the next chapter. The inventory can include the local government employees involved in the program, as well. How many are there? Where

are they? What do they do? How often?

Cross-checking the inventory against the program description can be helpful: Are all the physical assets required for each program activity found on the

inventory list? If not, why? Are some assets acquired through service contracts

with vendors? If so, you might want to check your financial records for payments to vendors. Items on the inventory might reveal gaps in your program

profile, representing potentially overlooked program activities and corresponding costs. The same logic applies to human resources.

Inventory of Physical

Assets and Human

Resources

Exhibit 3-2

Sample Solid Waste Program History/Chronology

1962 Initiated collection activities in the central borough; wastes disposed of at Old Pond

Farm, north field. 

1968 Expanded collection to five towns. Opened municipal transfer station. 

1972-3 Contracted with XYZ Corp. for feasibility study of waste-to-energy facility. Held

three public meetings. Decision deferred. 

1974 Old Pond Farm landfill deeded to the county. 

1976 Set up citizen advisory committee on county solid waste planning; meetings every 6

months. 

1977 Purchased 12 new collection vehicles. 

1981-4 Initiated process to locate new landfill, including land use studies (ABC Corp.),

technical studies (LMN Co.), and public meetings. 

1985-7 Acquired land for new landfill. Initiated permit process with state DEP. 

1988 Discovered problems at Old Pond Farm landfill. 

1990 Received 3-year grant to start recycling program. 

1991 Purchased three vehicles and leased warehouse on Main Street for recycling program

for newspapers, bottles, and cans covering about one-third of community. 

1992 Received permit for new landfill; stopped accepting waste at Old Pond Farm landfill.

1993 State university offered to donate composting system.
22

Exhibit 3-3

Sample Inventory Format

Program Element

Collection

Equipment 

Vehicles

– 6 compactor trucks

– 1 trailer

– 2 vans

– 1 pick-up 

Structures

– 1 garage

– 1 maintenance shed 

Transfer Station 

Equipment

– 1 front loader

– 1 back loader 

Vehicles

– 1 pick-up 

Structures

– 1 scalehouse 

Land 

Transport

Equipment

– 1 transfer trailer 

Vehicles 

Facilities

Equipment

– weighing scales 

Vehicles

– 3 water trucks 

Structures 

Land 

Bought or

Leased? When? Cost?

Remaining

Life?
You might also want to review your MSW program’s position in your local government, including organizations that provide executive oversight, such as a

Department of Public Works, Board of Freeholders or Supervisors, or the

Mayor’s office, as well as forums for public review and input, such as publicly

supported citizens’ advisory boards and planning committees. You can use the

organizational chart or local government phone directory to identify relevant

service providers, such as legal, payroll, motor pool, and health departments.

For example, if the health department provides the inspectors who review operations at MSW facilities, then it is a service provider.

This review can help identify those public sector organizations to which the

solid waste program reports or is otherwise responsible, as well as those organizations that provide services to the solid waste program. Both types of organizations can incur costs that should be recognized in FCA.

To ensure all costs are included, you might develop a checklist of potential

support services to determine how they are provided to your MSW program.

For example, billing services, which might be handled by a separate department

entirely, should not be overlooked, because such services incur costs in supporting your MSW program. Similarly, centralized purchasing, data management,

legal, and human resources services should be recognized in FCA. A list of

potential support services appears later in this chapter in Exhibit 3-4 and in

Chapter 4.

Finally, you might wish to collect and review your local government’s relevant

financial records and reports. Although several good guides to government

accounting exist, the best approach to understanding financial reports is to

communicate directly with the people responsible for keeping the records and

preparing accounting reports. Some questions to consider include: What is

being bought? What payments are made? Do they relate to MSW? Answers to

these questions can help produce a more complete accounting of costs.

Determining how your accounts are organized can help you determine feasible

methods of identifying and allocating costs. (An account is a financial record

that collects specific types of costs, revenues, or outlays.) Many state governments have established classifications (termed a uniform chart of accounts) for

local government use. Solid waste services often are classified under sanitation,

which is further broken down into sanitary administration, street cleaning,

waste collection, waste disposal (with separate accounts for each facility), sewage

collection and disposal, and weed control. Thus, it might take extra effort to

determine costs of yard trimmings collection if the work is performed by street

cleaning crews (or street department crews) accounted separately from other

solid waste services.

23

Organizational Review

Financial Records

Review
24

Typically, local governments classify outlays as current expenditures, capital

outlays, or debt service and further classify these outlays by program and activity. Local governments usually maintain separate accounts for different types of

expenditures and report them as separate line items in financial reports.

Expenditures are grouped according to the types of items or services purchased,

for example:

• Salaries and wages

• Employee benefits

• Purchased professional and technical services

• Purchased property services

– Utility

– Cleaning

– Repair and maintenance

– Rentals

– Construction

• Other purchased services (e.g., insurance, printing, and travel)

• Supplies (e.g., general, energy, books and periodicals, and food)

• Property

– Land

– Buildings

– Other improvements

– Machinery and equipment

– Vehicles

Accounts might or might not be structured to correspond to activities in

your solid waste program. For example, there might be no separate account for

waste collection. Lease payments for solid waste vehicles might be reported

together with lease payments for all vehicles used by your local government’s

agencies. Therefore, you might need to disaggregate or allocate accounts (see

Chapter 4). On the other hand, accounts might be more disaggregated than

needed for FCA. For example, labor costs might be reported separately for different transfer stations; such data can be combined for FCA. You might need to

spend time to learn what your local government’s accounts contain and mean.

In general, you can work with the available financial information, filling in the

gaps and making appropriate adjustments. To ensure that you identify all gaps

and know which data to look for, you might wish to develop a systematic “cost

framework.” This framework can help you avoid becoming lost in the details,

double-counting some costs, or missing costs.

An example of an organizing framework is presented in Exhibit 3-4. The

columns should cover all the relevant categories your local government uses to

report its expenditures. The rows should include several components:

Staying Organized
25

• All MSW activities in the system

• Oversight 

• Support services 

The rows in Exhibit 3-4 represent cost centers. A cost center is any municipal

activity that receives separate accounting attention. Depending on the scope

and complexity of your solid waste management program, you might want to

establish cost centers for any or all of the following:

• Collection

– Mixed waste collection

– Curbside (or backyard) collection of recyclables

– Drop-off centers for recyclables

– Yard trimmings collection

– Other

• Waste transfer stations

• Waste transport

• Waste management facilities

– MRFs

– Compost facilities

– WTE facilities

– Landfills

• Public education and outreach

• Other (e.g., household hazardous waste)

• Oversight 

• Support services 

You can use an organizing framework to determine what financial information is relevant and whether or not it is included in available financial reports.

As long as there is no overlap or gaps between the columns (financial accounts)

or rows (MSW activities), the framework can help you avoid doublecounting

and gaps. 

Because each MSW activity might have up-front, operating, and back-end

costs, Exhibit 3-5 shows another organizing framework. To combine the two

approaches illustrated in Exhibits 3-4 and 3-5, add rows for oversight and support services for each of the solid waste program activities listed in Exhibit 3-5.
26

Exhibit 3-4

Sample Organizing Framework

SOLID WASTE

PROGRAM Vehicles Contract Other 

ACTIVITIES Labor Equipment Rent Services Interest Payments 

1. Collection 

2. Transfer Stations 

3. Transport 

4. Facilities 

5. Sales 

6. Education and 

Outreach 

7. Other 

Support 

Accounting 

Billing 

Building Operations

Clerical 

Communications 

Data Processing 

Insurance 

Legal 

Payroll 

Personnel 

Purchasing 

Records Management 

Other

Oversight

Financial Accounts
27

Exhibit 3-5

Sample Organizing Framework

SOLID WASTE

PROGRAM Vehicles Contract Other 

ACTIVITIES Labor Equipment Rent Services Interest Payments 

1. Collection

– Up-Front

– Operating

– Back-End 

2. Transfer Stations

– Up-Front

– Operating

– Back-End 

3. Transport

– Up-Front

– Operating

– Back-End

4. Facilities

– Up-Front

– Operating

– Back-End 

5. Sales

– Up-Front

– Operating

– Back-End 

6. Education and 

Outreach

– Up-Front

– Operating

– Back-End 

7. Support Services

8. Oversight

9. Other

Financial Accounts
28

Recognizing the difference between costs and outlays is essential to FCA.

This Handbook defines cost to mean the dollar value of resources as they

are used or committed in an MSW program. An outlay is defined as an

expenditure of cash to acquire or use the resource. For example, a cash outlay is

made when a collection truck is acquired, but the cost of the truck would be

incurred over its active life. The cost of the truck, therefore, should be allocated

over the period of its use because every year of use contributes to the deterioration of the truck’s value, until it must be replaced with a new truck, requiring a

new cash outlay.

Similarly, outlays for constructing and permitting a landfill are made before

its active life, while outlays for closure and post-closure care are made after its

active life. All of these outlays are needed to acquire and use the resource of

landfill capacity. Therefore, the costs of using this resource should recognize

those up-front and back-end outlays as the landfill capacity is used during its

operating life.

This distinction is important because while current governmental accounting

practices account for outlays of public funds, they do not serve as a good basis for

estimating the costs of MSW management. For example:

• Many communities acquired and developed landfill sites years ago.

Current cash flow does not reflect those past outlays.

• Some necessary cash outlays will occur after a waste management facility

ceases operations, such as outlays for site closure and post-closure care.

• Many costs due to MSW management might be hidden in “overhead”

outlays or simply not recognized as costs because no outlays occur.

Exhibit 4-1 illustrates cash outlays (dark line) for land disposal over time.

Cash outlays typically peak at the front and back end of a landfill’s life. Yet

these outlays all support the operating life of the facility, shown as the shaded

area. The dotted line represents the full costs of the facility spread evenly over

its operating life. Cash outlays (dark line) during the operating life of the landfill are substantially less than the full cost (shaded area). As a result, relying on

cash outlays can be misleading. As one necessary step to determine the full costs

of MSW management, outlays should be converted to costs. How they are converted depends on whether they are routine cash outlays, capital outlays, or

future outlays.

Chapter 4

Allocating Costs

The Difference

Between Costs and

Outlays
29

Routine cash outlays for solid waste management activities are usually the

same as the operating costs of those activities. Operating costs are regularly

recurring costs of resources that are used over a short period of time (i.e., less

than 1 year) and routinely reacquired in order to support ongoing operations.

Operating costs generally include the following:

• Personnel wages, salaries, benefits

• Building and vehicle maintenance

• Power and fuel

• Rent and leases

• Contract services

• Interest (including mortgage interest)

The cash outlays for these items might be made biweekly or monthly, and

these items actually are “used up” over the same period of time. For the purposes of an annual FCA report for solid waste management activities, cash outlays throughout the year for these routine, recurring expenditures equal their

operating costs.

A capital outlay is an outlay of cash to acquire a resource that will be used

for more than one year. Examples include the purchase price of collection vehicles and other equipment, as well as the up-front siting, land acquisition, and

construction outlays for new landfills and facilities. Cash flow accounting

Routine Cash

Outlays, Capital

Outlays, and 

Future Outlays

Exhibit 4-1

Illustration of Landfill Life Cycle Outlays and Costs

$

0 10 30 60

Years

Pre-Operational 

Period of Studies, 

Landfill Acquisition,

Construction, and Permitting

Operating 

Period

Post-Operating Period

For Closure and

Post-Closure Care

Operating Costs

(Fully Reflects All Life Cycle Outlays)

Up-Front

Outlays

Operating Period

Outlays

Back-End

Outlays
30

would record these capital outlays in the year that the resources are acquired,

overstating the cost of solid waste management services during that year and

understating costs during subsequent years. A capital outlay can be converted

into an annual cost using the established accounting technique of depreciation.

• Depreciation is a method of allocating the costs of capital outlays over

the useful life of the resource. A simple “straight-line” depreciation

method calculates depreciation costs by dividing the capital outlay by

the useful life of the resource acquired. For example, a collection truck

that costs $150,000 with a useful life of 10 years would have an annual

depreciation cost of one-tenth of its total capital cost, or $15,000.

Similarly, if a landfill is expected to last 20 years, then the annual depreciation cost for up-front land acquisition, landfill construction, and permitting would be one-twentieth of that outlay.

a

You might need to review outlay accounts from prior years to determine

which outlays were made to acquire resources that are still in service and to calculate the depreciation associated with those assets. For example, if you have 20

mixed waste collection trucks in service, and your records indicate you have

made outlays of $1,800,000 over the past 10 years to acquire those trucks, then

annual depreciation for the collection trucks would be $180,000 (i.e., one-tenth

of outlays, based on a 10-year useful life). No depreciation should be recorded

for assets that have remained in service after their estimated useful life, if they

already have been 100 percent depreciated. The inventory of equipment, vehicles, facilities, and land discussed in Chapter 3 can be very helpful in identifying those outlays that need to be depreciated:

Depreciate Don’t Depreciate

How do you value assets for which outlay information cannot be found?

The preferred option is to estimate the original outlay for the asset, based on

the known prices of comparable items, when the asset was likely purchased.

Another way is to determine (appraise) the asset’s current market value (e.g.,

through an appraisal) and remaining useful life. Both of these options are

preferable to valuing an asset based on the price of replacing it with a new one.

However, replacement value can be an acceptable measure for some purposes,

(e.g., when using FCA for financing capital replacement funds). For assets that

appear to be “free,” see the section below on uncovering hidden costs.

a An alternative to setting fixed depreciation schedules for up-front landfill costs is to depreciate those costs as landfill capacity is

actually used (e.g., per cubic yard of volume). This is more accurate but more complicated than the straight-line method mentioned above.

Owned equipment,

vehicles, and structures

Up-front developmental

expenses for programs and

facilities 

Landfill property

(i.e., capacity)

Leased equipment,

vehicles, and structures 

Back-end expenses

(amortize these instead) 

All other land 
31

To determine useful lives of equipment, vehicles, structures, and landfills,

rely on local experience (e.g., how long have compactor trucks lasted in the

past), design specifications, and vendors’ representations. Exhibit 4-2 presents

standard operating life values for selected heavy equipment used by Sacramento

County, California.

Buildings, vehicles, and equipment that are owned should be depreciated

over their remaining useful lives. If the purchases were financed, interest payments should be included as operating costs. Buildings, vehicles, and equipment that are leased generally should not be depreciated; you can treat lease

payments as operating costs. In general, you should not depreciate capital outlays for land; land acquired for use as a landfill has a finite useful life and

should be depreciated, however.

What about up-front developmental costs for new MSW programs, such as

recycling? Outlays for community education and program planning can be substantial. These up-front expenses should be “capitalized” (i.e., treated as a capital outlay) and depreciated over the useful life of the program being launched.

The continuing expenses of maintaining MSW programs and public education

are simply operating costs.

Exhibit 4-2

Standard Life for Selected MSW Heavy Equipment

Standard Life Standard Life

Standard Description Years Standard Description Years 

Backhoe, Tamper Wheeled 5 Trailer, Recycling 7 

Backhoe, Tamper Track 8 Trailer, Transfer (aluminum) 8

Trailer, Transfer (top loading steel) 8 

Compactor, Landfill 5 Truck, Automated, 13-15 cy 5 

Compressor, Air 5 Truck, Automated, 18-20 cy 5 

Forklift, Gas 8 Truck, Automated, 25 cy 5 

Grader, Road 8 Truck, Semi-Automated 5 

Loader, Wheeled (w/claw) 5 Truck, Flatbed 7 

Scraper, Earth 5 Truck, Water 10 

Sweeper, Street 7 Truck, Tractor w/Fifth Wheel 8 

Tanker, Water 7 Truck, Other 5 

Tractor, Crawler 5 Truck, Rearloader 5 

Trailer, Fuel 10 Truck, Recycling, 37 cy 7 

Trailer, Equipment 10 Truck, Recycling, 20 cy 7

Source: Sacramento County, 2/93
32

A future outlay is an expenditure of cash in the future that is obligated by

current or prior activities. For example, once you commence landfill operations

you are obligated to conduct landfill closure and post-closure care in the future.

Also, employee retirement benefits, such as pensions and health care, are future

outlays obligated by current employee services. Cash flow

accounting would record these outlays in the years they are

paid, overstating the full cost of solid waste management

services during those years and understating costs during

prior years. A future outlay can be converted into a cost

using the established financial technique of amortization.

• Amortization is a method of determining the annual

costs associated with future outlay obligations. In

general usage, amortization refers to any process of

liquidating (i.e., allocating) a debt over time, as in the

amortization schedule for a mortgage. Thus, the

amortization of future outlays for landfill closure and

post-closure care recognizes that cost during landfill

operation.

Amortization of Future Landfill Closure and PostClosure Care Outlays. A special issue for MSW landfills

involves the recognition of the financial obligations associated with landfill closure and post-closure care activities. Cash outlays for these future liabilities

might not occur for many years. To ensure that government financial statements systematically and appropriately recognize the costs of landfill closure

and post-closure care, GASB Statement No. 18 (August 1993)8 establishes a

consistent method for government entities to use. This method requires the

estimated total current cost of closure and post-closure care (i.e., the amount

that would be paid if all equipment and activities covered in the estimate were

acquired during the current year) to be recognized in proportion to the filled

capacity of the landfill. As prescribed in the following formula, the cost to be

recognized in a given year equals:

Estimated total current cost x cumulative capacity used

Total estimated capacity

The designated amount should be reported as a cost in each year that the

landfill accepts waste. Closure and post-closure costs should include the cost of

supplies, equipment, facilities (e.g., final cover), and services (e.g., monitoring)

that will be incurred near or after the date that the landfill stops accepting

waste, regardless of their capital or operating nature. The current cost estimate

should be adjusted each year for the effects of inflation or deflation, as well as

more stringent regulatory requirements and changes in operating plans, if

applicable.

Although closure and post-closure care regulations apply only to MSW

landfills, future outlays for decommissioning other solid waste management facilities also should be estimated and amortized as a good management practice.

If closure/post-closure obligations are amortized correctly, then any outlays

to trust funds used to demonstrate financial responsibility for those obligations

should not be treated as costs of closure/post-closure care. Only the transaction

Although lease outlays usually are treated

as operating costs and not depreciated, situations could arise where depreciation is

appropriate—for example, where a multiyear lease is purchased for a one-time, upfront payment. Depending on the market

for particular buildings, vehicles, and

equipment, a vendor might be willing to

cut an attractive deal. In such circumstances, the outlay should be depreciated

proportionately over the life of the lease.

Buying and Depreciating a 

3-Year Lease

– Amount previously

amortized
33

costs and service fees paid to trustees, or other fees involved in securing other

instruments, should be recognized as costs. These financial responsibility fees

(outlays) constitute operating costs.

Hidden costs, as used in this Handbook, are the costs of activities or resources

that appear to be free (i.e., no outlays are recorded or anticipated). Examples

include the following:

• The City of Charlotte has an agreement with Mecklenberg County,

North Carolina, that allows Charlotte to dispose of 170,000 tons of

MSW per year at no cost.9 Is MSW disposal free for Charlotte? No. In

fact, Charlotte received the right to dispose of its waste at no charge in

exchange for the transfer of municipal assets to Mecklenberg County.

Thus, depreciating the value of those assets over the life of the agreement would be one way to measure the cost of waste disposal to

Charlotte. Another way would be to consider the current market value

of the disposal rights owned by the city; instead of selling those rights,

Charlotte is using them.

• Sacramento County’s Solid Waste Enterprise Fund initially was financed

by a loan from the county government with no interest and no principal

repayment for the first 10 years.9 Although the capital was free to the

enterprise fund during this initial period, capital is never free—in this

case, the county government lost the interest income. From an FCA

perspective, it might not matter which public entity incurs the cost.

• Many small towns have been deeded their landfills by former owners.

Some towns have received gifts of composting equipment. Regardless of

how they have been acquired, such assets have value. That value is consumed over time with use. Thus, there is a cost even where there has

been no outlay.

The value of using goods and services should be reflected as a cost, even if

there is no outlay. In general, items that are necessary or would otherwise need

to be purchased (as in the examples above) should be valued and costed.

Conversely, you can decide whether items that are neither necessary nor would

be otherwise purchased should be costed and recognized. As described in

Chapter 3, a starting point for FCA should be a detailed description of MSW

activities and an inventory of physical assets and human resources to ensure that

the costs and value of each activity are reflected in the full cost.

Overhead costs are the management and support costs of running a solid

waste program. Management and support labor costs (including benefits)

should be accounted for, together with a proportionate share of the office costs

(e.g., rent, office equipment, and utilities) incurred for management and support. Specifically, overhead for a solid waste program can include:

• Management

• Executive oversight

• Advisory committees and coordinating bodies

Uncovering

Hidden Costs

Overhead Costs
34

• Billing services

• Clerical support

• Data management

• Human resources

• Legal

• Maintenance

• Payroll and accounting

• Personnel

• Purchasing

• Records management

• Training expenses

Depending on the community, some overhead costs

will be exclusive to the MSW program while others will

be shared costs.b A given overhead item might be an

exclusive cost in one town but a shared cost in another.

Exclusive overhead costs apply solely to MSW management; shared costs involve more than MSW management

(see Exhibit 4-3). For example, the costs of running a

solid waste advisory committee should be considered an

exclusive overhead cost, but the costs of running a citizens’ advisory committee for county planning in general

should be treated as a shared overhead cost. If your MSW

program operates its own garage for vehicle storage and

maintenance, those costs are exclusive overhead costs. If

MSW vehicles are stored and serviced together with other

community vehicles, those garage costs are shared overhead costs. Because many overhead costs are not exclusive

to an MSW program, they are easy to overlook. Overhead

costs also can be overlooked because they do not appear

to be directly involved in the movement of MSW from

residences to processing, treatment, or disposal facilities.

Exhibit 4-4 presents a format for identifying and

recording overhead costs. 

Overhead costs can be significant. When projecting the costs of operating a solid waste

enterprise fund, the cost for county administration is often overlooked. For example, services

provided by the county attorney’s office,

finance department (account analysis, consulting services, investing services, and financial

statement preparation), the treasurer’s office

(cash collection, recordation, and deposit), and

the budget office (budget preparation and

analysis) should be included.

In Prince William County, these costs average approximately $300,000-$400,000

annually. As a result, overlooking them can

significantly skew your assessment of how

much MSW management costs in your

community.

10

In Sacramento County, California, solid

waste management is administered by the

Solid Waste Division of the Department of

Public Works. The time spent at the division level directing the performance of

MSW transfer station, transport, recycling,

and disposal activities is an exclusive overhead cost that should be recognized.

Because the Solid Waste Division is a unit

of the Department of Public Works a portion of the departmental management costs

should be included as a shared overhead cost

in FCA.

b

Accountants may refer to exclusive and shared costs using the terms direct and indirect, respectively. See the 1994 Governmental

Accounting, Auditing and Financial Reporting (GAAFR)

11.

Case in Point

Prince William County, Virginia

Case in Point

Sacramento County, California
35

Exhibit 4-3

Types of Overhead Costs

Type of Cost 

Type of Overhead Exclusive Shared 

Oversight 

Support Services 

Exhibit 4-4

Overhead Services Can Be Exclusive or Shared Costs

Item Exclusive Shared Total 

Accounting 

Billing 

Building Operations 

Clerical 

Data Processing 

Executive Oversight 

Insurance

Legal 

Management 

Outreach 

Payroll 

Personnel 

Purchasing 

Records Management 

Solid Waste Advisory Council 

Other 

Total Overhead Costs
36

Because shared costs do not apply exclusively to MSW management but to

other government activities as well, you should allocate only a portion of these

costs to MSW. This allocation can be made on an aggregate basis for all shared

costs or on a line item basis. It might make sense to treat some line items individually and group the remaining costs for aggregate

treatment. The goal is to identify MSW’s fair share of

costs and reflect that amount in the FCA report.

There are two relatively simple methods for allocating

shared costs to MSW: 1) size of budget relative to the

other government activities and 2) number of personnel.

Budget Share Method

To allocate shared costs according to the budget share

method, you first need to determine the annual budgets

of all government programs, excluding the costs of functions being treated as shared. If your annual budget is

$13 million, and $3 million is spent by centralized support and oversight services, then $10 million can be used

as the denominator in the equation below. The numerator is the budget of the MSW program itself. If you

spend $2 million on MSW, then the quotient (.2)

becomes the allocation multiplier, as shown:

MSW annual budget

Total budget minus centralized services

Example

$2 million

$13 million - $3 million = $10 million

MSW’s portion of the shared costs is calculated by

applying the allocation multiplier against the total shared

costs:

Allocation

x

Shared = MSW’s Portion

Multiplier Costs of Shared Cost

Example

.2 x $3 million = $600,000

Allocating Shared

Costs

For its yard trimmings collection and disposal

program, Upper Arlington, Ohio, assigns one

full-time employee, assisted by a part-time

employee during the spring and summer. One

vehicle is used for weekly collection and disposal. To determine the cost of collecting and

disposing of yard trimmings, the town:

1. Analyzed total city expenditures to determine which costs should be considered

overhead.

2. Determined which costs have to be allocated.

3. Determined the method for allocating

costs.

4. Determined the costs of yard trimmings

collection and disposal.

5. Added the allocated overhead costs to

nonoverhead costs to obtain total costs.12

Estimated costs for 1992 were:

Exclusive Costs

Personnel and operating costs $64,866

Vehicle costs

Gas, oil, parts $3,400

Labor 1,815

Depreciation 14,292

Interest expense 3,836

Total exclusive costs $88,209

Allocated Costs

Divisional administration $13,648

Department administration 9,192

Citywide administration 15,439

Total allocations $38,279

Total yard trimmings cost $126,488

Case in Point

Upper Arlington, Ohio

= Allocation 

Multiplier

= .2
37

Thus, annual MSW management costs $2,600,000 in this example. Two

million dollars are exclusive costs, and $600,000 are shared costs.

Personnel Share Method

The personnel share method is similar. The numerator in the equation below

is the number of employees (or full-time equivalents) in solid waste management, including both salaried personnel and wage earners. The denominator is

the total number of personnel involved in government programs minus the personnel in the shared overhead and service units. The quotient is the allocation

multiplier, as shown:

MSW personnel

All personnel minus centralized service staff

MSW’s portion of the shared costs is calculated in the

same way as shown above. Applying the allocation multiplier to the total shared costs produces MSW’s share.

The two methods might yield somewhat different

results, but extreme precision is not necessary. For some

shared costs, there might be no single “correct” allocation multiplier. Where local governments contract out

significant activities, the budget share method might be

preferable, because contract costs should be easier to

determine than the number of contractor personnel.

For specific shared cost line items, the following

allocation multipliers could be used:

• Building maintenance — Share of MSW floorspace in square feet (to

total government

floorspace, excluding

space occupied by

building maintenance) 

— Personnel share

method 

• Vehicle maintenance — Share of vehicles

— Share of miles driven

— Share of fuel use

• Billing and collection — Share of MSW charges (to total amounts

billed for all taxes, fees, and charges)

— Share of MSW accounts (to total number of

accounts billed)

• Human resources — Personnel share method

• Computer/office — Share of computers/printers equipment 

equipment services services

Allocating shared costs equitably is sometimes easier said than done. Most people will

readily take credit for revenues but will be

more hesitant to accept responsibility for

costs, even though the costs and revenues are

related. This can lead to differences of opinion on how to fairly apportion costs, particularly when good data are not available.

Consider the person who answers the phone

at a municipal department of public works,

fielding calls about solid waste as well as

water/sewer service. How do you allocate

this person’s time and cost? Even if the costs

involved are relatively small, the discussion

can heat up if the allocation process and

result do not seem fair. Because affected

managers must perceive the allocation

process to be fair, get their input when developing cost allocations.

Behavioral Aspects of Allocations

= Allocation 

Multiplier
38

• Legal services — Personnel share method

— Budget share method

• Payroll — Personnel share method 

• Purchasing — Share of purchases (number

of transactions or dollar value

of transactions) 

The level of detail and amount of effort invested

should match the size of your MSW program. If shared

costs represent a relatively small percentage of total solid

waste management costs, then a simple allocation formula will not distort significantly the full cost estimate.

Using a simple formula to allocate large shared costs that

might be unrelated to ongoing solid waste management

activities, however, could distort and overstate the full

costs of MSW activities.

For example, if solid waste management employees

account for 10 percent of all nonoverhead local government employees, then solid waste management could be

allocated 10 percent of total local government support

service and oversight costs. This might be a reasonably

accurate way to allocate shared costs for centralized payroll and personnel services. Legal costs, however, might

be largely attributable to an old landfill or other government liabilities unrelated

to current solid waste management. Using the personnel share method of allocation could pose a significant potential for bias only if the legal costs being

allocated are substantial. In addition, if you contract (or use franchises) for

MSW services and do not directly perform many MSW activities, there might

be little overhead involved and few staff, but the budget share might be substantial; the budget share method would be more appropriate than the personnel share method in this scenario. 

Following the guidance in this chapter, you can estimate the full costs of solid

waste management and complete a report like the one shown in Exhibit 4-5.

Exhibit 4-6 shows an annual report of expenses prepared by the Sacramento

County Department of Public Works Refuse Enterprise Fund.

Creating special accounts or inter-department

billing systems can help achieve a more accurate allocation of costs. For example, if there

are substantial legal costs associated with an

old landfill, then an inter-department billing

system can allow the legal department to

charge the old landfill account directly to

avoid confusing these costs with the ongoing

legal costs of the new landfill. In this case, the

old landfill account would record the charges

as a direct cost, the new landfill account

would be charged appropriately, and both

accounts would receive their shared cost allocations for the more routine activities of the

legal department. Small communities may

need to record such inter-department charges

only for unusual, one-time costs, but larger

municipalities may benefit from more routine

inter-department billing to keep track of the

amount of support service costs devoted to

solid waste management.

Pulling It All

Together

Inter-Department Billing
39

Exhibit 4-5

Annual Full Cost of Solid Waste Management

Operating, Up-Front, and Back-End Costs 

Operating Costs

Wages, Salaries, and Benefits $ –—–—–—–—

Maintenance $ –—–—–—–—

Power and Fuel $ –—–—–—–—

Rent/Leases $ –—–—–—–—

Contract Services $ –—–—–—–—

Interest $ –—–—–—–—

Insurance, Licenses, Taxes $ –—–—–—–—

Oversight and Support Services $ –—–—–—–—

Other $ –—–—–—–—

Up-Front Costs

Depreciation (Vehicles/Equipment/Buildings/Landfills) $ –—–—–—–—

Depreciation (Oversight and Support Services, e.g., 

Program Planning, Permitting, and Outreach) $ –—–—–—–—

Other $ –—–—–—–—

Back-End Costs 

Amortized Closure and Post-Closure Care $ –—–—–—–—

Amortized Retirement Benefits $ –—–—–—–—

Amortized Oversight and Support Services $ –—–—–—–—

Other $ –—–—–—–—

Overhead Cost Share 

Executive and Management Oversight $ –—–—–—–—

Centralized Support Services $ –—–—–—–—

Other $ –—–—–—–—

TOTAL $ –—–—–—–—
Exhibit 4-6

Sacramento County Department of Public Works

Refuse Enterprise Fund Expenses

Year-to-Date Through June 30, 1993

Labor Costs

Salaries and Employee Benefits 11,964,368 

Equipment Costs

Equipment Maintenance 4,888,243

Fuels and Lubricants 846,659

Depreciation Expense 4,613,214

Equipment Replacement Factor 1,733,710

Equipment Rental and Leases 293,243

Subtotal Equipment Costs 12,375,069 

Other Operating Costs

Household Hazardous Waste Program Contract 378,839

State Fees 953,348

Franchise Contracts Payments 2,563,931

Franchise Contracts Subsidies 124,442

Maintenance-Land Improvement 2,993,257

Other Operating Expenses 2,344,862

Unanticipated Capital Expenditures 2,425,000 

Subtotal Other Operating Costs 11,783,679 

General and Administrative

Bad Debt Expense 82,459

Franchise Contracts Bad Debt Expense 979

Insurance 280,662

Communication Services 116,219

Accounting Services 17,595

Utility Billing Services 1,190,928

Facility/Leased Property Use Charges 328,975

Division and Department Overhead Allocation 1,029,220

Countywide Cost Allocation 320,710

Interest Expense 21,267

Other General and Administrative 896,286

Subtotal General and Administrative 4,285,300 

TOTAL EXPENSES 40,408,416

40
41

The annual tax bill often might be the primary

mechanism your local government uses to communicate the costs of solid waste management to

citizens. But tax bills frequently do not itemize the

municipal services that taxpayers are funding. Combining

solid waste management costs with the costs of other

municipal services that are funded through property taxes

can obscure what residents and businesses are paying for

MSW management. They might believe that solid waste

management costs virtually nothing and does not depend

on how much MSW they generate. As a result, they have

no incentive to engage in source reduction or recycling.

Reporting the full costs of solid waste management not

only reveals what those costs are, but also can provide a

basis for a system of FCA-based rates (e.g., unit-based

fees). These fees, in turn, have a direct impact on generator behavior and can create incentives for source reduction and reuse.14

In reporting FCA information to the public, you

might wish to:

• Tailor the report to the audience. Overly complicated reporting formats can confuse the audience

and obscure the message.

• Adjust full cost estimates to recognize certain offsetting revenue streams.

• Consider different ways of putting the full cost of

MSW into perspective.

This chapter discusses each of these topics.

Chapter 5

Reporting FCA Data

Munster, Indiana, was one of three local governments in Indiana that volunteered to

demonstrate FCA under the new state law.

13

Munster (population 19,949) provides collection services to about 7,100 residential and

commercial customers. Private vendors also collect waste from multi-family residences and

commercial customers. Munster supplements

weekly curbside MSW pickup with curbside

sorting and pickup of recyclables. The town

also contracts with a private vendor for a dropoff center, which handles about 2,000 tons per

year. In addition, over 4,500 tons of yard waste

are composted. The town owns its landfill,

where 8,000 tons of MSW are brought per

year. Munster reported the full cost of

garbage/recycling services in 1991 as:

Garbage Collection $196,647

Garbage Disposal $765,761 .

Recycling $233,145

Yard Waste Composting $196,647

Full Cost $1,392,200

Subtracting $50,000 of revenues from sales of

recyclables and compost yields a bottom line of

$1,342,200.

Case in Point

Munster, Indiana
42

The public, management, and politicians are all potential “customers” for FCA

reports. Different audiences are likely to have different interests and information needs. In deciding how to present information to these customers, you can

focus on the cost questions they likely care most about:

• What does solid waste management cost the community?

• How much cash must be raised to cover the costs?

• What does recycling cost?

• How much money does recycling save?

• Why does (fill in the blank) cost so much?

Your community is likely to have other specific solid waste management

questions as well. FCA will not provide answers to all of these questions.

Concerns about how to pay for the costs and how to handle MSW, for example, go beyond the scope of FCA. 

Overly complicated reporting formats can confuse the audience and raise

more questions than answers. Keeping detailed back-up data can enable you to

respond to more specific inquiries if they arise. The following criteria are

important in producing good FCA reports:

• Brevity

• Readability

• Logical format

• Lack of jargon

• Use of charts

• Description of scope

A full cost report can be as simple as the following:

This might be an adequate level of detail for your customers. If not, you

might want to disaggregate the bottom line. Disaggregating full costs can have

the following potential benefits:

• Enhances managerial and public understanding

• Highlights the resource mix used (e.g., labor vs. physical assets)

• Allows comparison of costs of component services

• Answers questions likely to be asked

If taken too far, however, disaggregating costs can obscure the big picture

with too many details. Regardless of level of detail, it is important to carefully

define what is included in the cost numbers so that people understand what the

numbers mean. Accompanying text or footnotes can be helpful.

Tailoring the Report

to the Audience

Full Cost Accounting

Solid Waste Management in Fullcostville

Full Costs in 1994 equal $1,072,147 
43

Keeping in mind the difference between costs and outlays, as described in

Chapter 4, you might want to report outlays and costs separately, as follows:

The distinction between (cash) outlays and (noncash) costs might be confusing for the general public, however. In addition, communities that purchase

disposal services from vendors—whether businesses or other communities—and

do not own their disposal facilities are not likely to have major noncash costs.

Such communities might see less value in reporting cash outlays separately from

non-cash costs.

Some information can be difficult to interpret. For example, the format

above might be confusing for a community that has collection programs for

both mixed waste and recyclables.

The above example obscures how much of the collection cost of $1,109,272

is for recyclables collection and how much is for mixed waste collection.

Because paths are mutually exclusive, reporting collection activities as a subtotal

can be confusing whenever collection applies to solid waste intended for more

than one path: recycling, composting, WTE, and landfilling. The same is true

for activities such as transfer stations and transport, which might be used for

solid waste heading toward different destinations, such as MRFs, composting

facilities, WTE facilities, and landfills.

What Is the Necessary Level of Detail? If the purpose of presenting disaggregated information is to facilitate comparisons within your community about

different programmatic options, then the full costs are better presented in terms

of MSW paths. In that way, discussions about whether to expand or reduce

recycling, composting, or WTE programs will be based on the actual economics

of each path. If the purpose of presenting disaggregated information is to facilitate discussions about whether a service can be performed for your community

at a better price by a different provider, then the full costs might be better presented in terms of MSW activities.

Full Cost Accounting

Solid Waste Management in Fullcostville, 1994

Total Recycling Landfilling

Cash Outlays 905,866 201,332 704,534

Non-Cash Cost 166,281 12,006 154,275

$1,072,147 = $213,338 + $858,809

Full Cost Accounting

Solid Waste Management in Cleancounty, 1994

Total Collection Disposal Recycling

$2,936,937 = $1,109,272 + $1,326,885 + $500,780
To be useful, FCA should recognize certain revenues associated with MSW

management. Adjusting for revenues gives a more accurate picture of the net

costs of MSW services. Net costs are the full costs of solid waste management

minus revenue derived from the sale of by-products such as recyclables, compost, energy from waste, and landfill gas.

There are four types of revenues associated with MSW management:

• By-product revenues are generated from the sale of marketable products created as a by-product of solid waste management. Revenues

derived from the sale of recycled materials, compost, and energy generated by a WTE facility and recovered landfill gas are by-product revenues.

• Service revenues are derived from fees charged for the amount of MSW

services used, such as unit pricing for solid waste collection or landfill

tipping fees. Local governments control the fee rate for services provided

(e.g., the fee per trash container collected), but residents are charged

only for the level of service they receive (e.g., the number of containers

collected).

• Assessed revenues are derived from taxes or fees assessed in a manner that

is unrelated to the level of service provided, as when property taxes or flat

fees are used to fund solid waste management activities.

• Transfer revenues are funds provided by the state or federal government, whether as grants or some form of revenue sharing.

By-product revenues are an integral part of the economics of solid waste

management because they are determined by market forces beyond the control

of local governments. Market forces do not determine the other types of revenues; service revenues and assessed revenues result from fee and tax rates controlled by local governments. Similarly, transfer revenues are controlled by state

and federal governments. Once the full costs and by-product revenues are

known, you can calculate the level of service rates, assessed revenues, and transfer revenues needed to fund solid waste management.

By-Product Revenues. Exhibit 5-1 presents a format for recording the byproduct revenues of solid waste management. By-product revenues should be

available from sales records. Detailed information about the amount of each byproduct material sold (e.g., tons per year) and the revenues per unit amount

(e.g., dollars per ton) is not essential for FCA. You need to identify only the

total by-product revenues (the shaded area in Exhibit 5-1) for recycling, composting, WTE, and landfill gas.

44

Adjusting Full

Cost Estimates for

Offsetting Revenue

Streams
45

Exhibit 5-2 illustrates the by-product revenues for a large community

resulting from the sale of recycled materials, leaf compost, and WTE energy

production.

Total 

By-Product 

Item Units Revenue/Unit Revenue 

Aluminum # $/# $ 

Clear Glass # $/# $ 

Colored Glass # $/# $ 

Old News Print # $/# $ 

Old Corrugated Cardboard # $/# $ 

HDPE # $/# $ 

PET # $/# $ 

Steel # $/# $ 

Total Recycling Revenues $ 

Compost Revenues # $/# $ 

Energy Revenues # $/# $ 

Landfill Gas Revenues # $/# $ 

TOTAL BY-PRODUCT REVENUES $

Exhibit 5-1

Full Cost Accounting: By-Product Revenues
46

By-product revenues can be reported as a line item following the full

cost estimate. In its simplest form, the FCA report can be presented as

follows:

If you report both the full cost total and subtotals for solid waste

management paths, then the by-product revenues can be linked appropriately. Using the by-product revenue numbers from Exhibit 5-2 would

produce a report based on MSW paths like the following:

Full Cost Accounting

Solid Waste Management in Combustown, 1994

Full Costs $9,290,073

By-Product Revenues ($7,273,568)

Net Costs $2,016,505

Total 

By-Product 

Item Units Revenue/Unit Revenue 

Sales of Recyclables

Aluminum 104 $801 $83,304 

Glass 546 28 15,288

Steel 182 36 6,552

Newspaper 1,690 0 0

Plastic 78 108 8,424

Total Recycling Revenues $113,568 

Compost Revenues 5000 2 10,000 

Energy Revenues 260,000 27.5 $7,150,000 

Landfill Gas Revenues - - 0

TOTAL BY-PRODUCT REVENUES $7,273,568

Exhibit 5-2

Full Cost Accounting: Sample By-Product Revenues
There are countless ways to report FCA information. You can report the costs

of your entire MSW program or its various paths and their associated revenues,

as described above. You can report the net costs of managing solid waste per

household or per ton of waste. Which method you choose will shape how residents understand the costs of MSW management in your community. Each

method offers a different way of putting the costs of MSW management into

perspective.

Although average costs, such as cost per household or cost per ton of waste,

are a useful means of reporting costs, care should be taken in comparing the

average costs of various activities or paths. Such comparisons must be made

with caution so that they do not lead to erroneous and/or misleading conclusions.

Cost Per Household

Net cost per household is the net cost of MSW management per year divided by total households served. It

can be used to indicate the amount of service fees and

assessed taxes that must be collected on average from

each household to pay for the full costs of solid waste

management, taking into account by-product revenues.

For example, you can estimate the number of mixed

waste containers set out per household on average each

year (i.e., average containers per collection times the average number of collections per year). Then, you can divide

the annual net cost per household by the number of

mixed waste containers per year per household. The result indicates the unit

pricing fee per mixed waste container that would be needed to cover the full

costs of solid waste management, assuming no reduction in the number of containers because of fee-induced increases in source reduction or recycling. 

Adjustments. If you are handling waste generated by other communities, you

must adjust the full cost numbers to estimate the per household cost of managing your own wastes. For example, if 20 percent of the waste disposed of in

your landfill is generated from outside your community, then the cost per

household would be misleading if it includes costs for handling other people’s

waste. The adjustments do not eliminate the cost of managing other people’s

MSW; those are still real costs. These adjustments should not take into account

any revenues received for handling waste from outside your community; from

47

Reporting Costs of

Solid Waste

Management

Based on its FCA report, Franklin, Indiana,

calculated that garbage collection and disposal were costing $112.12 per household

per year; after privatizing, the cost was estimated at $71.28 per household per year.

15

Full Cost Accounting

Solid Waste Management in Combustown, 1994

Recycling Composting WTE Landfill Total

Full Costs $678,940 $49,283 $7,633,850 $928,000 $9,290,073

By-Product Revenues(113,568) (10,000) (7,150,000) 0 (7,273,568)

Net Costs $565,372 $39,283 $483,850 $928,000 $2,016,505

Case in Point

Franklin, Indiana
48

the FCA perspective, it is appropriate to back out these

costs, regardless of how much is reimbursed. The cost of

MSW management and the net cost per household are

not affected by such payments and therefore should be

offset by by-product revenues alone.

To make this adjustment, you can subtract the marginal costs of managing other people’s waste from the full

costs before dividing by the total number of households.

Alternatively, you can subtract the average cost of managing other people’s waste from the full cost before dividing

by the total number of households. Dividing the full cost

of the activity (e.g., landfilling) by the total number of

units handled (e.g., tons) yields the average cost per unit.

This cost can be multiplied by the total number of units

of other people’s waste to determine the average cost of

managing other people’s waste.

Although net cost per household gives a useful perspective on the full

costs of solid waste management, it is not necessarily a meaningful basis

for comparing solid waste management activities or paths. One reason

that such comparisons might be inappropriate is that net cost per household is heavily influenced by the proportion of waste managed along a

particular path. For example, if your recycled waste (say 25,000 tons) is

one-half of your land disposed waste (50,000 tons), and the cost per ton

is the same for both activities (say $100 per ton), then the net cost per

household for recycling will be one-half of the net cost for land disposal

(i.e., half as many tons times the same net cost per ton). Therefore, “net

recycling cost per household” will be one-half of the “net land disposal

cost per household” only because recycling manages half as much waste.

This sheds no light on the inherent economics of either recycling or land

disposal. Thus, while net cost per household can be useful in putting

total costs into perspective, net cost per ton is a better basis for comparing solid waste management activities or options.

Cost Per Ton

Cost per ton is the net cost divided by the tons of waste managed. Cost

per ton can be used in evaluating whether to perform an activity in-house

or contract out. It can help you compare different bids or proposals from

outside contractors to perform a waste management activity. Cost per ton

also is a handy benchmark for similar activities that can be accounted for

separately. For example, a municipality might track and compare costs for

two or three separate transfer stations; a county using several haulers

might want to compare their costs. On the other hand, making comparisons of different activities within the solid waste system on the basis of

cost per ton (or otherwise) is not recommended because the results often

will be incomplete or biased.

• Comparing the cost per ton of a MRF to a landfill activity omits

the significant costs of collection (and transfer and transport costs,

if any) that must be incurred to bring MSW to those facilities.

If your community receives transfer revenues

from state and/or federal sources earmarked

for solid waste services (e.g., grants for planning or implementing recycling), then it

makes sense to recognize these revenues in

determining the funding needs for the program. A similar logic applies to revenue

derived from fines. However, it is appropriate

to recognize these revenues only when estimating funding needs, however. Likewise, certain costs recognized in FCA may not be

relevant for a community’s assessment of its

financing needs.

Funding Needs Per Household
49

• Comparing the costs per ton of recyclables collection to mixed waste

collection omits the costs of transfer, transport, and processing the

materials. Moreover, because recyclables might differ significantly from

mixed waste in volume, weight, and quantity per household, interpreting collection cost comparisons of recyclables to mixed waste should be

done with care.

• Comparing landfills and alternative MSW facilities should recognize

that costs are incurred to dispose of non-recyclable residues from recycling, composting, and WTE facilities.

Therefore, this Handbook recommends that comparisons that cut across the

activity columns in Exhibit 2-1 be made on the basis of complete paths.

Because paths are mutually exclusive, cost per ton is a very useful basis for comparing full costs. Comparing the average cost of one path to another should be

done with care, recognizing that average costs reflect economies of scale.

Whether used for activities or paths, however, cost per ton is a one-dimensional yardstick that might need to be supplemented by other appropriate considerations, particularly when making projections about the cost impacts of

changes to how you manage MSW. Full cost data must be used with care in

making projections of what waste management will cost if your community significantly changes its current waste management strategy. Moreover, while full

cost statistics reveal what waste management costs your community, it does not

reveal what waste management should cost. 

Exhibit 5-3 illustrates how to calculate the net costs per ton of solid waste

management paths. This format allows you to evaluate the total costs and net

costs of each solid waste management path. The total cost of each path can be

calculated by adding overhead costs to activity costs. You can adapt this format

to examine or report the comparative costs of different solid waste management

paths, both with and without overhead costs.

Using Cost Per Ton for Projections. You should exercise caution when drawing management or planning conclusions (e.g., budget projections) from net

cost per ton comparisons. Cost per ton information should not be the sole basis

for making projections of costs or cost savings expected from changes in the way

you deal with solid waste. For example, if the net cost per ton of the recycling

path (including recycling collection and residual disposal costs) is $90, and the

net cost per ton of the land disposal path (including mixed waste collection,

transfer, and transport) is $95, then you should not assume that you can save

$5 per ton in the short run by recycling more tons and sending less waste to a

landfill. At a minimum, you need to estimate variable and fixed costs to make

such projections. Variable costs include primarily operating costs that can be

avoided in the short run. Fixed costs include primarily capital costs that cannot

be avoided in the short run. 
50

Role of Variable vs. Fixed Costs in Near-Term Cost Projections. FCA results

can be used to estimate the cost or savings of changes in the near term in the

mix of waste flows through the solid waste management system only if all costs

are variable. 

• When you pay a per-ton tipping fee for land disposal at a landfill owned

by another entity (e.g., a private waste management firm), then land

disposal can be (depending on contract terms, if any) an entirely variable cost because disposal costs to the local government vary directly

with waste disposal tonnage.

• However, if you own your landfill, then only a portion of land disposal

costs actually will be reduced when waste is diverted (e.g., through recycling), because variable costs account for only a portion of total land

disposal costs. The remainder is fixed costs.

The variable cost portion of land disposal costs includes outlays for operation and maintenance and other outlays that could be reduced quickly in

response to lower waste disposal tonnage, thus reducing costs. The fixed cost

portion includes interest, depreciation, and amortization for landfill capital outlays, up-front, and back-end costs, and other outlays (e.g., security) that could

not be reduced quickly in response to lower waste disposal tonnage. In fact, the

outlays represented by depreciation already have been paid in full, which is why

Recycling Composting WTE Disposal

Costs Path Path Path Path Total

Activity Costs: 

Collection 

Transfer Station(s) 

Transport 

Facility 

Residuals Disposal 

Education/Outreach 

Overhead Costs 

Total Costs 

By-Product

Revenues (subtract) ( ) ( ) ( ) ( ) ( ) 

Net Costs 

Tons Received

(divide)

Net Cost Per Ton 

Exhibit 5-3

Full Cost Accounting: Summary of Costs per Ton for MSW Paths
they are fixed costs. Interest payments on capital assets also are fixed costs,

because they are not reduced or deferred when those assets are used at less

capacity or left idle. In the short run, by definition, there is no way to avoid

fixed costs.

A similar logic applies to the other activities involved in the recycling and

landfilling paths. For example, when you franchise or contract for waste collection, then collection costs might be entirely variable (depending on the terms of

the franchise or contract). When you own the trucks and perform collection yourself, there might be fixed costs that are incurred regardless of the amount of

waste actually collected. Role of Variable vs. Fixed Costs in Long-Term Cost Projections. Although

there generally is no way to avoid fixed costs in the short run, a permanent and

predictable extension in the expected life of a landfill (e.g., through waste diversion) can produce both accounting and economic benefits. Planners are developing methodologies for valuing the economic benefits of extending landfill

capacity, which is a topic beyond the scope of this handbook. A program (e.g., recycling, composting, WTE) that can be expected to significantly extend landfill life in a reasonably predictable way can be recognized in FCA terms. 

Although accountants frown on making frequent adjustments to depreciation

and amortization schedules, they would likely view extending landfill depreciation schedules to reflect waste diversion as legitimate, unless the landfill life

extension were due to reduced waste disposal volumes resulting from cyclical

downturns (e.g., recessions) that are neither permanent nor predictable. GASB

18,16 summarized in Chapter 4, currently requires recognition of future closure

and post-closure costs based on annual use of landfill capacity. Waste diversion

would reduce the amount of closure and post-closure costs appropriately recognized in a given year. Lengthening depreciation schedules has the effect of “reducing” some of the fixed costs by spreading them over a longer period.

Alternatively, if depreciation schedules are not extended to match the lengthened useful life of the landfill, the fixed costs due to interest and capital depreciation will disappear for the final years of the facility’s extended life, once they

have been fully recognized. In long-term cost projections, therefore, all landfill

costs can be treated as variable, because their magnitude can be affected by the

level of operations at the land disposal facility. 

This means that you can use FCA numbers for making rough projections of

the long-run cost implications of different MSW paths without needing to take

into account variable vs. fixed costs. In making projections, keep in mind that

FCA numbers may reflect a mix of both current operating costs and current

costs of the use of assets purchased in the past, which do not reflect inflationadjusted replacement costs. Moreover, there are better bases for making cost projections for significant changes in MSW programs (see pages 53 through 58). Fixed vs. Variable Costs and Overhead. Overhead costs might have a relatively smaller fixed cost component or might be treated as fully variable and

assigned using formulas that reflect variable costs (budgets, personnel, waste

quantities, number of vehicles, etc.). On the other hand, overhead costs might

be treated as largely fixed, because they will not be reduced by changes in how

waste is managed. While overhead might be viewed as fixed in the short run, in

the long run, as overhead functions are made more efficient or perhaps elimi-

nated, overhead costs may be variable.

51
Avoided Cost

The concept of avoided cost can arise when describing the costs of solid waste

management activities and paths or making management decisions about future

changes in the solid waste management system in your community. Avoided

cost often is used in reference to land disposal. The avoided cost of (i.e., due to)

MSW following the recycling, composting, or WTE path is considered to be

equal to the cost reductions, if any, in MSW collection, transfer, transport, and

land disposal (i.e., the land disposal path). Land disposal is the best basis for

defining avoided cost, because only some portions of the waste stream are recyclable, compostable, or combustible, but all solid waste can be buried in a landfill. Therefore, every ton of waste that is recycled, composted, or combusted,

less any residues, is a ton of waste that does not require land disposal. The

avoided cost due to these other waste management paths can be thought of as

the avoided cost of the land disposal path.

Estimates of avoided cost can easily be misused. Much

depends on whether the focus is on (1) specific MSW

activities or paths, (2) the total costs of the entire system

for handling MSW, (3) near-term marginal changes, or

(4) longer-term major changes to the MSW program.

Costs of MSW Activities or Paths. With respect to a

particular waste management activity or path, a common

pitfall is to subtract the avoided cost of landfilling from

the cost of an alternative to landfilling (e.g., recycling,

composting, or WTE). For example, if the net cost of

recycling is $100 per ton and the net cost of land disposal is $90 per ton, then it is incorrect to subtract $90

from $100 and conclude that “the net cost of recycling is

$10 per ton after taking into account the avoided cost of

landfill disposal.” This mistake is a sure prescription for disappointing local

governments and residents who must pay $100 per ton for the net cost of recycling, after taking into account by-product revenues received from the sale of

recycled materials. The full costs per ton of recycling, composting, or WTE are

not affected by any resulting avoided costs of landfilling. Any avoided costs of

land disposal do not themselves reduce the costs of recycling, composting, or

WTE. Therefore, avoided costs of land disposal should not be subtracted from

the net cost of recycling in this example. This is true even when the costs of

land disposal are fully variable, because land disposal is purchased from a vendor on a unit basis.

Total MSW System Costs. While it is misleading to adjust the costs of recycling, composting, and WTE to reflect land disposal costs avoided, the MSW

system as a whole will incur reduced land disposal costs as a result of landfill

diversion programs. These avoided costs are real. Any avoided costs of land disposal will be reflected in new calculations (or projections) of total MSW system

costs following changes to the MSW program. Bear in mind that because

avoided costs are not revenues, they do not necessarily reduce the total costs of

MSW management or the fees and taxes that residents must pay for solid waste

management. However, the total costs for managing solid waste in the community will reflect both costs avoided and costs incurred as a result of incorporating alternatives to land disposal into integrated solid waste management. The

52

If recycling costs $100 per ton and land disposal costs $90 per ton, it would be:

Correct to Say Incorrect to Say

• Recycling costs

an extra $10 per

ton compared to

land disposal

• Recycling costs

only $10 per ton,

given the land disposal costs avoided

Avoided Cost Do’s and Don’ts
difference between the total cost of managing solid waste

with and without an alternative program is known as the

incremental, or differential, cost of the program.

Near-Term Marginal Changes. The avoided cost of

marginal, short-term changes in land disposal can be estimated by analyzing the fixed and variable cost components of MSW collection, transfer, transport, and land

disposal. The “avoided cost” in the short term will be no

greater than the variable cost. In other words, fixed costs

cannot be avoided in the short term. Using the term

avoided cost in this context can lead to confusion, because it implies that costs

have been avoided absolutely, thus reducing total MSW program costs. As

noted above, this is not necessarily true. Rather, in the short term, one set of

costs (e.g., landfilling) has been more or less replaced by another set of costs

(e.g., recycling). Any potential total system cost reduction derives not from the

absolute amount of the variable landfill cost “avoided” but from the difference

in (1) the size of the variable cost component of land disposal and (2) net costs

of landfill alternatives. This is true even if land disposal is fully variable in cost,

as shown in the table below.

The table compares three scenarios. In each, the net cost of recycling [column (a)] is $100/ton, and the net cost of land disposal [column (b)] is

$90/ton. The only difference is in the amount of variable costs [column (c)].

When land disposal costs are fully variable, the net cost saved [column (d)] is 

-$10/ton, the difference between the $90/ton variable cost of land disposal and

the $100/ton cost of recycling. This means that total costs will increase by $10

for each additional ton of waste recycled. When only $60/ton of land disposal

is variable, the net cost saved is -$40 per ton, the difference between the

$60/ton variable cost of landfilling and the $100/ton cost of recycling. When

variable costs constitute $30/ton for landfilling, the net cost saved by recycling

is decreased to -$70/ton. In each case, the variable cost of landfilling is

“avoided” in the short term but replaced by the greater (in this example) net

cost of recycling.

Long-Term Major Changes. If the increase in MSW to be diverted from the

land disposal path is significant (i.e., more than a marginal change), a projection of avoided cost based on the current costs of landfilling might overstate

savings because landfill diversion and other factors can significantly increase

53

For short-term marginal changes, better cost

projections will result from consideration of

fixed and variable costs than from using the

full cost estimate alone. FCA can help you

estimate fixed and variable costs using rough

rules of thumb, which may be sufficient

when considering short-term marginal

changes in levels of activity.

(a) (b) (c) (d)

Net Total Cost

Net Recycling Net Land Disposal Land Disposal Variable Saved/Ton

Cost/Ton Cost/Ton Cost/Ton [(c) minus (a)] 

$100 $90 $90 ($10) 

$100 $90 $60 ($40) 

$100 $90 $30 ($70) 

Short-Term Marginal Changes
54

future unit costs of land disposal. The cost following a major program change

will depend on economies or diseconomies of scale, which can be thought of as

falling on a “cost curve.”

A “cost curve” relates the per ton cost of an activity or path to the scale of

that activity or path. In general, the greater the volume of units processed, the

lower the per unit cost because fixed costs can be “spread” over more units and

more efficient technology can be applied. This effect is referred to as

“economies of scale.” The per ton cost of MSW activities or paths in the long

run will reflect their relative economies of scale. Exhibit 5-4 illustrates a cost

curve for the current costs of land disposal. As shown, economies of scale begin

to level out for land disposal facilities processing between 750 and 1,500 tons

per day; in other words, the cost per ton decline is relatively small in this area.

On the other hand, economies of scale are strong between 100 and 250 tons

per day; the cost per ton is very sensitive to the volume of waste disposed. Point

A on the curve represents the full cost calculation for a given year at a particular

Exhibit 5-4

Economies of Scale at Landfills

140

120

100

80

60

40

20

D

ollars Per T

o

n

100 250 500 1000 1250 1500

$144

$96

A (Full Cost, Year X)

$48

$42

$36

Tons Per Day (tpd)

Source for 100 tpd, "Waste Age," March 1991; for 250-1500 tpd, NSWMA.
55

scale of operations. For planning and management purposes, a single point

might be a poor basis for extrapolating and projecting future costs, particularly

if major changes are contemplated in the volume of waste to be handled.

Projecting the long-term costs of activities or paths that communities might

want to increase or decrease (e.g., long-term avoided costs of land disposal) is

best done on the basis of a cost curve, which takes scale economies and diseconomies into account. Depending on the shape of the cost curve, unit costs per

ton might decrease more or less steeply with increasing volume, due to

economies of scale. Although FCA can identify a point on the curve (e.g, point

“A”) and help estimate variable and fixed costs for projections of the effects of

marginal changes, FCA alone is an insufficient basis on which to draw the cost

curve and project long-term costs and cost savings from major changes to the

MSW system. Unfortunately, data to construct an appropriate cost curve for a

community might not be readily available.

If the focus is on projecting the total cost of the entire system for handling

MSW in the long run, avoided cost can refer to the total reduction in full costs

of landfilling associated with the smaller volume of MSW sent directly to land

disposal. Depending on the shape of the cost curve, the total cost of land disposal might decrease with lower volumes even as the unit cost per ton rises.

Whether your community as a whole experiences reduced total costs depends

on how the total avoided cost compares to the total increase in the costs of the

alternatives to direct land disposal. Again, while the per ton cost might decrease

with greater volumes processed, the total cost of the landfill alternatives likely

will rise as their volumes of MSW handled increase. Exhibit 5-5 illustrates how

a projected shift in the handling of waste can result in avoided costs of land disposal and WTE that together offset increased costs for greater levels of composting and recycling. The net result, in that example, is that total costs remain

the same. Other scenarios are possible, however. Although FCA can provide a

point on the cost curve and facilitate estimates of fixed and variable costs, planners and managers will want to estimate the shape of the cost curve, or other

points on it, if more than marginal changes in waste management practices are

being evaluated.
56

$

Composting Recycling WTE Land Disposal Total

Current Level

Projected Level

Exhibit 5-5

Current Full Costs and Cost Projections
57

Avoided Replacement Cost

The avoided replacement cost is the net cost that you expect to pay for land disposal when a new landfill or landfill contract is necessary. Although avoided cost

can be calculated from FCA reports for current operations, estimating future

avoided replacement cost requires some additional research beyond a review of your own accounting records. Full exploration of the concept of “avoided replacement cost” is beyond the scope of this Handbook. The following discussion is

intended as an overview. Many local governments have relatively low current land disposal costs associated with existing landfills that might close. Avoided replacement cost recognizes that (fixed) costs might increase when older facilities are replaced with

newer ones. For example, depreciation and interest costs for older equipment

and facilities are based on capital outlays made years ago, without any adjustment for inflation. Any inflation since the time of those outlays will mean that

new facilities and equipment will require larger capital outlays, which will result

in higher depreciation and interest charges. Also, older equipment and facilities

might incur no interest costs if they have been paid off in full and might record

no depreciation costs in their last years if their useful life turned out to be

longer than the estimate used to fully depreciate the original outlay. Finally,

facilities such as landfills and WTE facilities might be especially likely to incur

higher replacement costs due to the cost of new environmental requirements. In

this situation, local governments might want to research and estimate the replacement cost for land disposal at a new landfill or another existing landfill,

including any additional costs for transfer and transport if the new landfill

would be further away. This estimated future cost for land disposal can be used

as a rough measure of the avoided replacement cost due to recycling and other

waste management paths, to the extent that such efforts extend the life of the

low-cost landfill and delay the higher replacement cost for land disposal. • For example, if the net cost of recycling is $100 per ton, and the net cost

of land disposal is $90 per ton, then the avoided cost due to recycling can

be no more than $90 per ton, and there is an incremental cost of at least

$10 per ton for every ton of waste that is recycled.

• When the capacity of the local landfill will be exhausted, and the net

cost of land disposal at another landfill will be $120 per ton, then the

avoided replacement cost due to recycling is $120 per ton. Every ton of

waste recycled extends the life of the existing low-cost landfill and delays

the $120 per ton replacement cost for land disposal. Therefore, recycling might impose an incremental cost of at least $10 per ton in the

short run, but it might provide an incremental benefit of up to $20 per

ton in the long run.

You can compare the replacement cost per ton for land disposal to your current net cost per ton for other MSW paths in Exhibit 5-5. If the replacement

cost per ton for land disposal is higher than the net cost per ton for other waste

management paths, then these paths are providing a long run incremental benefit to local residents, even if these paths create an incremental cost in the short run.
58

This Handbook does not explore the many potential applications of

FCA data to management and planning issues, such as design of costbased user rates (e.g., unit-based pricing), identification of potential costsavings from process redesign, privatization/outsourcing decisions, and so

on. The previous sections have addressed some of the issues that can arise

in making comparisons and cost projections based on FCA numbers.

Exhibit 5-6 illustrates, for a set of hypothetical cost information, the

types of comparisons that can be made and lists the key concepts relevant

to each type of conclusion. However, these concepts might be defined

and used differently by other organizations and experts; there is no standardized terminology.

Management and

Planning Applications

for Full Cost

Information

Cost Information Key Concepts Conclusions

Recycling

Net Full Costs $100/ton 

Land Disposal

Net Full Costs $90/ton

Net Variable Costs $50/ton

Net Replacement Costs $110/ton

Full Costs

Variable and Fixed

Costs

Full Costs

Avoided

Replacement Cost

Exhibit 5-6

Comparing MSW Costs: Key Concepts for

Managers and Planners

• Recycling x tons costs $10/ton

more than land disposal of x tons

• In the near term, increased recycling might add $50/ton to total

costs, recognizing fixed costs of

land disposal 

• The net cost of recycling x tons

should be only $10/ton greater

than the net cost of land disposal

of x tons in the long run, when all

costs are variable

• In the next few years, or when it is

necessary to replace exhausted

landfill capacity, recycling x tons

will cost $10/ton less than landfilling 
59

Appendix A

An Illustration Of Using

FCA For MSW

Management Asimplified example might help to illustrate how FCA can be used to report the costs of MSW management. Readers unfamiliar with these

concepts might find more realistic examples too complex and distracting. Some of the many factors omitted from this illustration are addressed

throughout this Handbook.

Assume that Anytown, located in Anystate, USA, generates 200,000 tons of

MSW per year, which is managed using a strategy of (1) collecting 20,000 tons

of source-separated materials for recycling (10 percent recycling rate) and (2)

landfilling the remaining 180,000 tons of collected mixed waste plus 2,000

tons of residues from source-separated materials that were not in fact recyclable.

Anytown sells 18,000 tons of recyclables (i.e., the 20,000 tons collected minus

the 2,000 tons of residue) for $450,000. Applying an FCA approach similar to

that presented in this Handbook, Anytown produces a full cost report as fol-

lows:Full Cost $20,700,000 By-Product Revenues (450,000) Net Cost $20,250,000 

Anytown is considering whether to change its MSW strategy. Because

Anystate requires communities to prepare FCA reports, Anytown is able to

locate two other similar communities using different strategies. The

communities—Othertown and Compostville—have similar populations and

demographics. Othertown also generates 200,000 tons of MSW per year. It collects 60,000

tons of source-separated waste for recycling (30 percent recycling rate) per year,

much more than Anytown, and directly landfills the remaining 140,000 tons of

mixed waste plus 6,000 tons of residues from the source-separated materials. Othertown sells 54,000 tons of recyclables for $1,566,000. The full cost picture

for Othertown looks as follows: Full Cost $21,330,000 By-Product Revenues ($1,566,000) Net Cost $19,764,000 
60

Othertown is managing its solid waste at a total cost somewhat less than

Anytown (i.e., about 2.4 percent less); the savings is $486,000 (i.e.,

$20,250,000 minus $19,764,000).

Compostville has similar demographics to Anytown and Othertown and

likely generates the same amount of waste (200,000 tons per year). It has

implemented a program for encouraging backyard composting as well as curbside collection of yard trimmings for composting by a vendor. Backyard composting is believed to have reduced the total amount of solid waste collected by

5 percent from 200,000 to 190,000 tons per year, including 60,000 tons of

source-separated waste for recycling, 20,000 tons of yard trimmings for composting, and 110,000 tons of mixed waste for direct disposal. Of the 60,000

tons of source-separated waste, 6,000 tons end up as nonrecyclable residue for

disposal in the landfill together with 1,000 tons of residue from the composting

facility, and the 110,000 tons of mixed waste, for a total of 117,000 tons of

waste landfilled. Revenues from the sale of recyclables and compost are nearly

$2 million. The FCA report for Compostville looks as follows:

Full Cost $20,360,000 

By-Product Revenues ($1,966,000)

Net Costs $18,394,000 

Compared to Anytown, Compostville saves $1,856,000 in costs, which is

over 9 percent of Anytown’s cost.

Having completed its FCA report and located similar communities where

MSW management costs less, Anytown is now able to scrutinize its costs more

closely to identify potential cost savings. There is no guarantee that Anytown

will reduce its MSW costs by adopting the strategies used in Othertown or

Compostville, because there are many factors that can affect the cost of solid

waste management. These factors include population density, waste streams

handled, available technology, prevailing labor rates, productivity, service mix

(e.g., frequency and type of collection), proximity of MSW facilities, and

economies of scale. In addition, a community might have other goals to consider besides cost minimization. However, FCA can provide useful information

for solid waste managers and their communities that, with further analysis, can

support sound management and planning.

In addition to comparing the “bottom line” full costs of MSW management

in the three communities, the data presented earlier can be presented on a “net

cost per ton” basis for each community as follows. Recall that the total tons of

waste processed will be greater than the tons received/collected to the extent

that waste received/collected for recycling, composting, or WTE results in

residues that must also be landfilled (i.e., handled twice). This is illustrated in

the following chart:
61

Although the full cost for the entire MSW system is the same, whether

reported by activities or paths, the cost per ton will vary, depending on whether

the total cost for the community is divided by (1) the tons received/collected

for processing or (2) the tons actually processed. This example employs the latter approach. Chapter 5 discusses use of the cost per ton and other ways to

report FCA data.

Because 10 percent (i.e., 2,000 tons) of the source-separated materials taken

for recycling end up being disposed of in the landfill, Anytown handles a total

of 202,000 tons per year. Taking into account the revenues from the sale of the

recyclables, the net cost per ton is $100.25 ($20,250,000 ÷ 202,000).

Othertown handles 206,000 tons of MSW per year because 10 percent of the

60,000 tons of source-separated materials end up being landfilled (6,000 tons

of residue + 60,000 tons of source-separated material + 140,000 tons of mixed

waste = 206,000). Othertown’s net cost per ton is $95.94, which is nearly 4.3

percent less than the net cost per ton in Anytown. Compostville’s net cost per

ton is $93.37 ($18,394,000 ÷ 197,000 tons). These results are summarized

below:

This table shows that, in terms of net total cost differential, Compostville has

a substantial advantage over Othertown, when they are both compared to

Anytown. On a net cost per ton basis, however, Compostville and Othertown

Tons of Waste Handled By Path and Activity

Place Recycling Composting Landfilling Total 

Path Activity Path Activity Path Activity Path Activity

Anytown 20,000 20,000 0 0 180,000 182,000 200,000 202,000

Othertown 60,000 60,000 0 0 140,000 146,000 200,000 206,000

Compostville 60,000 60,000 20,000 20,000 110,000 117,000 190,000 197,000

Anytown Othertown Compostville 

Full Cost $20,700,000 $21,330,000 $20,360,000 

By-Product Revenues (450,000) (1,566,000) (1,966,000) 

Net Cost $20,250,000 $19,764,000 $18,394,000 

Percent Cost Difference (2.4%) (9.1%) 

Tons Handled 202,000 206,000 197,000 

Net Cost per Ton $100.25 $95.94 $93.37 

Percent Cost Difference (4.3%) (7.4%) 
are much closer together. Because there are many factors that can affect costs,

this type of comparison across communities might have limited value. To make

better use of the data, further disaggregation is needed. For example, the FCA

numbers can be disaggregated to correspond with MSW activities or paths;

then unit costs (i.e., costs per ton) can be calculated as follows:

The cost per ton of recycling MSW in Anytown is significantly greater than

its cost per ton of landfilling, even when by-product revenues are taken into

account, as they should be. Note that this FCA information does not indicate

whether Anytown’s costs have been optimized nor whether Anytown should

change its program. The FCA data simply describe the existing situation.

Othertown’s FCA report reveals that its cost per ton for recycling is substantially less than its cost per ton for landfilling. Again, this does not mean that

Othertown has optimized its MSW costs, nor do the FCA numbers indicate

whether or how Othertown should change its program.

62

Othertown

Recycling Landfilling

Path Path Total 

Full Cost $6,630,000 $14,700,000 $21,330,000 

Tons/Year 60,000 140,000 206,000 

Cost/Ton $110.50 $105 $103.54 

By-Product Revenues/Ton $29 0 -

By-Product Revenues ($1,566,000) 0 ($1,566,000) 

Net Cost $5,064,000 $14,700,000 $19,764,000 

Net Cost/Ton $84.40 $105 $95.94 

Anytown

Recycling Landfilling

Path Path Total 

Full Cost $2,700,000 $18,000,000 $20,700,000

Tons/Year 20,000 180,000 202,000

Cost/Ton $135 $100 $102.48

By-Product Revenues/Ton $25 0 -

By-Product Revenues ($450,000) 0 ($450,000)

Net Cost $2,250,000 $18,000,000 $20,250,000

Net Cost/Ton $112.50 $100 $100.25
63

Compostville has reported that its cost per ton for MSW composting is

lower than its cost per ton for recycling and landfilling. If Compostville

received no by-product revenues from the sale of compost, then MSW recycling

would cost a small amount less per ton than composting (i.e., $84.81 for recycling vs. $84.45 for composting). As with the communities above, these FCA

numbers simply document current costs and do not indicate whether or how

costs could be reduced.

As noted in Chapter 5, and discussed at more length in Chapter 2, comparisons can be made either in terms of MSW activities or paths. This illustration

is based on MSW paths; this means that the paths include their fair share of

waste collection, transfer, and transport activity costs as well as disposal activity

costs for recycling and composting residues. As a result, each community’s total

tons of waste processed per year is greater than the tons of waste entering its

component paths, because both recycling and composting generate residues that

are landfilled. Exhibit A-1 illustrates how the costs of MSW activities can be

used to build up the costs of MSW paths. The exhibit illustrates the costs for

the fictitious community of Compostville.

What can be learned from comparing these net cost per ton numbers across

the three communities? Recycling costs $84.40 per ton in Othertown and

$84.81 in Compostville but $112.50 per ton in Anytown. Why? Similarly,

Anytown receives $25 per ton in by-product revenues while Othertown and

Compostville receive $29 per ton. Why? Are there economies of scale at work

in recyclables sales? Or could the communities be collecting different materials?

Could Othertown be closer to purchasers of recyclables, thus reducing transport

costs? How do the communities compare in terms of overhead? Labor costs?

Answering these questions will require further disaggregation of costs and analysis. FCA can identify costs, cost differentials, and, ultimately, cost drivers, giving local officials the ability to formulate good questions and develop answers.

Compostville

Recycling Composting Landfilling

Path Path Path Total 

Full Cost $6,654,360 $1,709,060 $11,996,580 $20,360,000 

Tons/Year 60,000 20,000 110,000 197,000 

Cost/Ton $110.91 $85.45 $109.06 $103.35 

By-Product

Revenues/Ton $29 $20 0 -

By-Product

Revenues ($1,566,000) ($400,000) 0 ($1,966,000) 

Net Cost $5,088,360 $1,309,060 $11,996,580 $18,394,000 

Net Cost/Ton $84.81 $65.43 $109.06 $93.37 
64

Using FCA, a community can determine the full costs of solid waste

management, as well as its component costs, and can identify what drives

the costs. For example, note that the full cost of composting is only

$65.43 per ton in Compostville, including public education and outreach

activities; on the other hand, Compostville’s cost per ton for landfilling

is actually 9 percent higher than in Anytown. In fact, a large portion of

the bottom-line savings realized by Compostville comes from diverting

5 percent (10,000 tons) of the waste stream into backyard composting.

Without FCA to begin to level the playing field, comparisons across

systems are probably misleading at best. With FCA, one can, bearing in

mind differences in technological configuration, desired service levels, and

waste streams handled, get some idea whether someone might have found a

better way. 

Recycling Composting WTE Landfilling

Path Path Path Path Total

Activity Costs 

Collection 2,750 600 0 4,237 7,587 

Transfer Station(s) 200 0 0 400 600 

Transport 384 0 0 725 1,109 

Facility 1,040 489 0 4,030 5,559 

Residuals Disposal 280 47 0 327 

Education/Outreach 600 224 0 25 849 

Overhead Costs 1,400 349 0 2,580 4,329 

Total Costs 6,654 1,709 0 11,997 20,360 

By-Product Revenues (1,566) (400) (0) (0) (1,966)

(subtract)

Net Costs 5,088 1,309 0 11,997 18,394 

Tons Received (divide) 60,000 20,000 0 110,000 197,000 

Net Cost Per Ton $84.81 $65.43 0 $109.06 $93.37

Exhibit A-1

Hypothetical Illustration of FCA for MSW Paths

(in thousands of dollars)
65

Account is a financial record of cash movements, collecting specific types of

outlays or inflows of financial resources.

Accounting basis is an accounting concept that refers to when expenditures,

expenses, and related liabilities are recognized in accounts and reported in

financial statements; it relates exclusively to timing on either the cash or

accrual method.

Accrual basis accounting recognizes (i.e., accrues) costs as services are provided, or as events and circumstances occur that have cash consequences,

regardless of when cash outlays are made.

Amortization is a method of determining the annual costs associated with

obligations for future outlays (e.g., the reduction of debt by regular payments sufficient to retire the debt by maturity).

Assessed revenues are derived from taxes or fees assessed in a manner that is

unrelated to the level of service provided, as when property taxes or flat fees

are used to fund solid waste management activities.

Avoided cost refers to the reduction in the costs of one MSW activity or path

that results from use of a different MSW activity or path; typically, avoided

cost means the reduction in the costs of collecting, transferring, transporting, and landfilling MSW that results from source reduction, recycling,

composting, or waste-to-energy.

Avoided replacement cost is the net cost that a local government expects to

pay for land disposal when a new landfill or landfill contract becomes necessary.

Back-end costs include expenditures to properly wrap-up operations and take

proper care of landfills and other MSW facilities at the end of and after

their useful lives; the costs of post-employment health and retirement benefits for MSW workers fall in this category.

By-product revenues are generated from the sale of marketable products created as a by-product of solid waste management, such as recyclables, compost, energy from waste, and landfill gas.

Capital outlay means an outlay of cash to acquire a resource that will be used

in MSW operations over more than one year. Capital outlays (past, present,

and future) must be converted into annual costs for full cost accounting

purposes.

Full Cost Accounting

Glossary
Cash flow accounting, also known as cash basis accounting or general fund

accounting, is a system where cash outlays are recorded as they are actually

paid out for goods and services.

Contingent costs are defined in this Handbook to mean the costs of remediating unknown or future releases of pollutants, such as leaks from municipal

landfills, as well as the liability costs of compensating for as yet undiscovered or future damage to the property or persons of parties who are affected

adversely by MSW activities.

Cost means the dollar value of resources used for MSW management.

Cost center is any solid waste management activity that receives separate attention through an account or group of accounts.

Depreciation is a method of allocating the costs of capital outlays over the useful life of the resource, which is the period of time during which the

resource is expected to provide services.

Direct costs are costs that are clearly and exclusively associated with solid waste

management.

Enterprise funds are mechanisms used by local governments for activities that

can be financed and operated like a private business.

Environmental costs, as defined in this Handbook, include environmental

degradation that cannot be easily remedied or measured, is difficult to

value, and is not subject to legal liability; these costs are often termed environmental “externalities.” See also “property damage liability” and “natural

resources liability.”

Fixed costs include interest, depreciation, and amortization for past or future

landfill capital outlays and other costs (e.g., security) that cannot be

reduced quickly in response to lower waste disposal tonnage.

Flow of current financial resources, an accounting term, is the measurement

focus of most government funds, including the general fund, debt service

funds, and enterprise funds. This focus records accruals for expenditure

transactions which have occurred by year end that are normally expected to

result in cash disbursement early enough in the following year to require

the use of available expendable financial resources reported at year end.

Flow of economic resources, an accounting term, is the measurement focus

used in the corporate sphere and for certain types of government funds to

measure economic resources, claims to those resources, and the effects of

transactions, events, and circumstances. This focus includes depreciation of

fixed assets and amortization of liabilities.

Full cost accounting is a systematic approach for identifying, summing, and

reporting the actual costs of solid waste management, taking into account

past and future outlays, oversight and support service (overhead) costs, and

operating costs.

Future outlay means an expenditure of cash in the future that is obligated by

current or prior activities.

66
67

GAAFR is the Governmental Accounting, Auditing and Financial Reporting

Handbook, published by the Government Finance Officers Association, that

provides detailed professional guidance to finance officials and auditors on

the application of GAAP; the GAAFR is not itself GAAP.

GAAP means Generally Accepted Accounting Principles, which consist of the

rules, procedures, and conventions that define accepted accounting practices at a given time. GAAP includes broad guidelines as well as detailed

procedures and practices. Much of GAAP is issued in codified form by

GASB.

GASB refers to the Government Accounting Standards Board, an independent

body responsible for setting accounting standards (i.e., GAAP) for activities

and transactions of state and local governments. GASB was established in

1984 to succeed the National Council on Governmental Accounting.

General fund accounting — see cash flow accounting.

Hidden costs, as used in this Handbook, refer to the costs of activities or

resources that appear to be free.

Indirect costs are costs that are not exclusively related to solid waste management but that relate to more than one local government activity. Such indirect costs for solid waste management (and other local 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).

Integrated solid waste management incorporates several different approaches

for handling the entire MSW stream. Using a combination of approaches

allows each type of waste to be managed according to environmental and

economic considerations, with priority going to source reduction, reuse,

and recycling, while reserving landfills as the least desirable waste management method. See also “waste management hierarchy.”

Measurement focus is an accounting convention that determines: (1) whether

a government’s operating statement presents information on the flow of

financial resources or on the flow of economic resources, and (2) which liabilities (and assets) are included on a government’s balance sheet and where

they are reported.

Modified accrual basis of accounting refers to the accrual basis of accounting

adapted to the government fund focus on the flow of current financial

resources; this means that costs will be recognized when the lability is

incurred and will be liquidated with current resources.

Natural resources damage liability refers to the types of damage to property

held in public trust that can be compensated through the legal system.

Net cost of a solid waste management activity or path is its full cost minus its

by-product revenues. The net cost divided by the tons of waste managed

yields the net cost per ton for that activity or path.
68

Net cost per household indicates the amount of service fees and assessed taxes

that must be collected on average from each household to pay for the full

costs of solid waste management, after taking into account any by-product

revenues. The net cost per household equals the net costs per year divided

by total households served.

Net cost per ton is the best common denominator for comparing the current

costs of solid waste management activities or paths within or across local

government jurisdictions.

Operating costs are regularly recurring costs of resources that are used over a

relatively short period of time (i.e., less than 1 year) in order to support

ongoing MSW operations.

Outlay is an expenditure of cash.

Overhead costs are the management and support costs of running the solid

waste program. 

Personal injury liability refers to the types of damage to individuals that can

be compensated through the legal system.

Property damage liability refers to the types of damage to private property

that can be compensated through the legal system.

Routine cash outlays for solid waste management activities are the same as the

operating costs of those activities.

Service revenues are derived from fees charged for the amount of MSW services used, such as unit pricing for solid waste collection and tipping fees

for waste disposal.

Social costs are defined in this Handbook as impacts on human beings, their

property, and welfare that cannot be compensated through the legal system;

also termed “social externalities.”

Societal costs is a term sometimes used to encompass both environmental and

social externalities.

Transfer revenues are funds provided by local, state, or federal governments,

whether as grants or some form of revenue sharing.

Unit pricing charges solid waste generators (e.g., primarily households) based

on how much they throw away. Also called “variable rate pricing” and “payas-you-throw.”

Up-front costs reflect the initial investments and expenses necessary to start an

MSW activity or path.

Variable costs of land disposal include costs of operation and maintenance and

other costs that can be reduced quickly in response to lower waste disposal

tonnage.

Waste management hierarchy emphasizes a preferred order of management

approaches: first, source reduction; second, recycling; third, waste combustion with energy recovery; and finally, landfilling.
69

References

1. “Using Activity-Based Costing for Efficiency and Quality” by Bridget M.

Anderson. Government Finance Review, June 1993.

2. Codification of Governmental Accounting and Financial Reporting

Practices, Governmental Accounting Standards Board, Norwalk, CT, 1993.

3. “How to Calculate Waste Disposal Costs” by Leonard E. Joyce, Jr.

Government Finance Review, August 1990.

4. “Estimating the Costs of Corrective Action at Land Disposal Facilities,” by

Larry Huffman, Joseph Karam, and Paul Bailey, 1 Remediation No.

1/Winter 1990/91.

5. “A Contingent Valuation of Avoiding a Landfill in the Carter Community

of East Knox County, Tennessee” by Peggy Douglas, Roland Roberts and

William Park. UT Agricultural Economics Research Report, May 1989.

6. Using Surveys to Value Public Goods — The Contingent Valuation

Method by Robert Cameron Mitchell and Richard T. Carson. Resources for

the Future, 1989, Washington, D.C.

7. “Willingness to Participate in and Pay for a Curbside Recycling Program —

Case Study of North Chattanooga, Tennessee” by Peggy Douglas, Roland

Roberts, and William Park. Tennessee Farm and Home Science Journal, Fall

1989.

8. Accounting for Municipal Solid Waste Landfill Closure and Post-Closure

Care Costs, Government Accounting Standards Board, Norwalk, CT,

August 1993.

9. Solid Waste Enterprise Funds — A Review of Four Case Study

Communities, SWANA, 1993.

10. “Accounting for the Full Costs: Solid Waste Enterprise Funds in Local

Government,” by Thomas J. Smith, Kenneth W. Shafer, and Susan Catlett,

presented at ASTSWMO 1993 National Solid Waste Forum, July 1993.

11. Governmental Accounting, Auditing and Financial Reporting, Government

Finance Officers Association, Chicago, IL, 1994.

12. “Costing Government Services: Benchmarks for Making the Privatization

Decision” by Pete Rose. Government Finance Review, June 1994.
13. “Development of a Method for Capturing and Reporting the Full Cost of

Municipal Solid Waste and Recycling Management Services,” Final Report,

X818905-01-0. An investigation by the Indiana Institute on Recycling,

Office of Solid Waste, U.S. Environmental Protection Agency, December

1992.

14. Pay-As-You-Throw: Lessons Learned About Unit Pricing (EPA 530-R-94-004,

1994).

15. “Full-cost accounting: What is it? Will it help or hurt recycling?” by Norm

Crampton. Resource Recycling, September 1993.

16. Local Government Finance, Concepts and Practices, edited by John E.

Petersen and Dennis R. Strachota, Government Finance Officers

Association, Chicago, IL, 1991.

70