Pennsylvania county analyzes operations at its ten sites that grind, screen and compost more than 100,000 cubic yards of leaves, grass and brush with $2 million worth of equipment.
THE SOLID WASTE OFFICE of Lehigh County, Pennsylvania provides composting and mulching services to most of the municipalities within the County. Beginning with a single site in the early 1990s, the system now includes ten locations, where six County personnel grind, compost and screen 100,000 plus cubic yards of leaves, grass and brush. Most of the $2 million worth of equipment has been purchased with grants from the state recycling fund. The bulk of the operating costs for the system are covered through administrative fees collected for solid waste hauling and disposal. Current legal challenges threaten to eliminate that income stream. In order to set a defensible fee for the services it provides, the County applied for a technical assistance grant from the Pennsylvania Department of Environmental Protection (PADEP). Through the grant, R. W. Beck analyzed the full cost of the yard trimmings recycling services provided by the County.
The analysis took the total budgeted costs of the composting services, $453,000, and calculated that the "true cost" would be $659,000, if no further grants were available to subsidize equipment and fuel costs currently borne by cooperating municipalities were internalized. Those costs - which included material handling, equipment operation and repair, equipment transport, labor, capital and indirect expenses -were then allocated by activity (grinding, composting and screening) and by location (Main Site and Municipal Sites). Depending on whether grants are included, processing costs ranged from $125/hr for screening at Municipal Sites to $632/hr for Main Site grinding. Individual site costs were calculated on both an annual and on a per household basis. Annual cost per household ranged from $0.68 to $21.19.
In addition to providing a defensible basis for cost-driven user fees, the analysis also pointed out several areas where opportunities exist for increasing efficiencies, improving equity and expanding fee-based services.
Where, What And Why
Lehigh County is located in eastern Pennsylvania, about 60 miles north of Philadelphia and 90 miles west of New York City. Home to Allentown, the third largest city in the state, the county is typical of many regions of the country where new suburbs are consuming former farmland and previously rural municipalities find themselves growing rapidly as the relatively low cost of housing and living attracts immigrants from more densely populated nearby cities.
Pennsylvania passed its key recycling legislation in 1988, known as Act 101, which mandated municipalities meeting certain population and density thresholds to provide recycling services and counties to provide solid waste planning. The Manager of the Lehigh County Office of Solid Waste, charged with the development of that plan, recognized the inherent inefficiencies of 20 or more individual municipalities each developing their own compost center to provide for the recycling of leaves and other yard debris. The decision was made to promote a Countybased system that would centrally process the majority of yard trimmings. After evaluating several possible sites, the Lehigh County Leaf and Yard Waste facility was established in 1989 on County-owned property about 10 miles north of the main population center (Allentown) in Schnecksville, Pennsylvania.
Incoming feedstocks increased dramatically over the first few years, and have continued to trend upwards ever since (Figure 1). The Main Site now receives between 60,000 and 85,000 cubic yards of incoming material each year, depending primarily on the weather. When combined with the other County-managed sites, well over 100,000 yards of material are processed annually. The original processing pad was about three acres, located above a flood plain at the bottom of a slope of an abandoned apple orchard that had been used as state game lands. Over the first six years, the main facility expanded five times - growing rapidly to accommodate the increase in compostables. Currently, there are nearly 17 acres of processing space on a site about twice that size. As the site grew, and aided considerably by a generous grant program from the PADEP, larger and more efficient equipment was purchased. The source of the state money in the Recycling Grant Fund was a $2/ton fee charged on every ton of waste disposed of at state landfills and incinerators. The grants required only a 10 percent match, so the site now boasts nearly $2 million worth of equipment.
Expanding The System
In addition to expanding its Main Site, the County has implemented a system that combines centralized and decentralized processing. In order to minimize hauling costs, woody waste has been ground at or near the municipality where it was collected. While a few of the municipalities operate their own composting sites, space constraints at the Main Site resulted in a need to open more cooperative sites, which are registered with the Commonwealth as part of the County system. Processing equipment (grinders, windrow turner and screens) is brought to those sites, where municipal workers assist and support the County employees to do the composting. At this time, there are 10 sites to which the equipment travels, four of which produce compost; the remainder are solely grinding locations (Table 1).
As the system has grown, so has the budget of the Office of Solid Waste. While the office has other responsibilities, such as HHW collection and recycling education and planning, the bulk of the office's expenses are for the composting program. In addition to grants, income conies from the sale of compost and from tip fees paid by private companies (no tip fees are charged to municipalities or their designated haulers). Income to fund the program derives primarily from administrative fees paid to the office by waste haulers and disposal facilities. These fees are charged on every ton of municipal solid waste (MSW) generated in Lehigh County, so ultimately the cost of the program is borne by all residents and businesses in the county. Initially set at $0.75, the administrative fee has slowly increased to accommodate the increased cost of the operation and decreasing availability of grants. Over the years, any gaps between the cost of operation and income have been covered by the County general fund. However, reaction to the significant increases in the tax rate in 2002 forced the Solid Waste Office to become self-sufficient and not rely on County real estate tax dollars. In 2003, the administrative fees were raised to $2.75/ton (from $1.25) to cover the costs of providing the programs of the Solid Waste Office.
Legal Challenges And Cost Study
In response to the fee increase, the County was sued jointly by the Pennsylvania Waste Industries Association (PWIA) and Pennsylvania Independent Waste Haulers Association (PIWHA), challenging the legality of those fees. While those challenges are winding their way through the court system, the County is also faced with the realization that the $2/ton disposal fee surcharge on all waste disposed in Pennsylvania, which helps fund recycling programs throughout the Commonwealth, is to end in 2009, per Act 175. The County therefore is aware that a change in its revenue structure could be imminent if it continues to provide recycling-related services. To gain a better understanding of program costs and provide a solid basis on which to plan future fees, the County applied for a technical assistance grant from DEP. Those grants provide $6,000 (now increased to $7,500) of consulting through a SWANA subcontract.
The objectives of the cost study conducted by R. W. Beck included the following: Calculate the full costs of the County's overall composting system both with and without the impact of DEP grants; and Develop a defensible basis for establishing user fees that could be charged by the County to the municipalities it serves to recoup the full costs of the system.
Although the County's composting system encompasses multiple types of equipment, it essentially provides three services to its municipalities: Grinding; screening; and windrowing. In order to arrive at an equitable user fee, we needed to estimate the cost to perform each task; and the hours spent on each task at each site.
By analyzing full costs and developing rates and user fees that assume that no grant dollars will be available in the future, the County will have successfully established rates to sustain the composting program.
Hourly Usage
County staff estimated the number of operating hours for each process at each site; these hours became the basis for all of the cost allocation analysis. Main Site processing also included the costs of material movement via front-end loaders, etc. Municipal Site costs included the costs associated with transporting the processing equipment to the Municipal Sites. Table 2 shows the number of expected hours of use for processing equipment at the Main Site and at the Municipal Sites in 2004.
As Table 2 shows, grinders are used more than three times as much at Municipal Sites than at the Main Site. One site, the city of Allentown, accounts for nearly 40 percent of the Municipal Site hours for grinding. Screening hours are slightly higher for Municipal Sites, relative to Main Site usage, and the windrow turner is used at the Main Site 25 percent more than it is used at all Municipal Sites. Only three of the Municipal Sites are used for compost production.
Based primarily on these operating hours, but also including the transport costs and Main Site costs (front-end loader and skidsteer operation, for example), we have further allocated the County's total composting costs attributable to each process at the Main and Municipal Sites. Additional details of these line item allocation methodologies are described below.
Cost Breakdown
We started with the operating budget for 2004, summarized in Table 3. We then extrapolated to the required budget if no recycling grants from DEP were available to pay for equipment. As shown, we estimated that the total cost of the composting system is $452,533. However, these figures omit the annualized capital costs of the composting equipment.
R.W. Beck calculated the annualized cost of capital equipment to more truly reflect the cost of the system. Since much of the processing equipment was purchased with the help of DEP grant funds, R.W. Beck calculated costs both including and excluding DEP grants. Specifically, we have considered the annualized cost of capital as follows: Solely including the portion of equipment capital costs borne by the County (i.e., approximately 10 percent of the full cost); and At full cost (i.e., assuming the County would have to pay for the entire cost of the equipment).
The second method is intended to reflect the true cost of the system. The annualized equipment costs were calculated by dividing the total purchase price of the equipment (in currentyear dollars) by the equipment's useful life. This was done for both the subsidized and nonsubsidized equipment costs. The impact these calculations would have on the annual budget is presented in Table 4.
Budgeted fuel costs were also adjusted for the purposes of this report. Currently Municipal Sites provide their own fuel for the equipment operated. It is assumed that if they paid the County an annual rate for processing, they would prefer that fuel costs be included in the rate. Countyprovided information regarding gallons-per-hour consumed by the processing equipment was therefore utilized to estimate fuel costs for the Municipal Sites. These costs were then included in the rate structure. Utilizing the same methodology for estimated Main Site annual fuel costs resulted in a higher estimated annual cost than budgeted by the County, therefore these costs were increased by $5,000/year, from $12,000 to $17,000.
As the data in Table 4 show, the County's full costs should be increased by a minimum of 7 percent to reflect the annualized equipment costs borne by the County. If the County had not received DEP grants to aid in the purchase of equipment, the full costs would need to be increased by 40 percent. In other words, in the absence of DEP grants, the annual full cost of the County's composting system is $659,277. The addition of the Municipal Sites' fuel costs, along with the adjustment to the Main Site fuel costs, increase the annual budget by another 5 percent.
Table 5 describes how these full costs are allocated to the different composting processes provided by the County at the Main Site and at the Municipal Sites.
The County does not track repair costs by piece of equipment, which means there was no way to directly allocate the $114,000 of equipment O&M and repair related costs. R.W. Beck relied on industry knowledge and experience, and considered the age and level of use of each piece of equipment, to estimate the portion of repair costs that could be attributed to each. These costs were allocated to processing at the Main Site and at the Municipal Sites based on equipment usage.
The County provided fuel consumption per hour (or mile) of operation for each piece of equipment. R.W. Beck therefore estimated fuel consumption based on estimated hours to be used in 2004, and allocated the fuel costs accordingly.
Direct compost operation labor costs and fringe benefits were allocated based on processing equipment usage hours. Use and operation of transportation equipment was attributed to Municipal Sites, while labor hours used to move materials within the Main Site were allocated to the Main Site. Remaining direct labor costs were allocated to the Main Site and Municipal Site based upon processing hours to be utilized in 2004.
Indirect expenses, line item 4 in Table 3, were allocated in proportion to the sum of the direct costs. Indirect labor, line 2 in Table 3, is an estimated percentage of other Solid Waste Office staff that relates to the composting program but is not in the direct budget of the compost operation.
The capital cost of equipment, as well as the subsidized portion, is summarized in Table 6. This table also shows the subsidized and unsubsidized annual cost of capital, based on dividing the capital cost by the useful life of the equipment.
The Morbark 1400 grinder was the most costly piece of equipment ($420,000), followed by the Scarab windrow turner ($267,000) and the Morbark 1100 grinder ($206,000). When PADEP grants are considered, the total cost to the County drops significantly, by an average of 90 percent. The sum total of all capital costs were allocated based on the capital costs of the grinding, screening, and windrowing equipment.
The cost of operating the Municipal Sites also includes the costs associated with transporting equipment to and from these sites. These include labor, fuel, operations and maintenance costs.
In 2004, 241 truck tractor autocar hours were calculated to be used transporting equipment and/or materials to/from Municipal Sites, in addition to 187 escort hours. Table 7 provides details regarding the identifiable direct costs associated with transportation of equipment and materials to and from the Municipal Sites. Approximately six percent of the total annual budget is spent on direct costs associated with transport of equipment and/or materials. In calculating the total cost and the unit processing costs for the Main Site and the Municipal Sites, we have allocated the entire $28,673 to the Municipal Sites (Table 7).
The costs of moving incoming and processed materials at the Main Site are apportioned to Main Site processing. Presumably, Municipal Sites bear these costs independently of the County, and are therefore not included in this analysis. These identifiable direct costs at the Maine Site are described in Table 8.
Costs By Processing Activity
R.W. Beck calculated annual costs by processing activity (grinding, screening, composting), allocating various costs as described above. Table 9 shows total projected processing costs at the Main Site, at the Municipal Sites (combined), and system wide for 2004. Table 10 shows hourly processing costs by activity at the Main Site, at the Municipal Sites (combined) and system wide for 2004.
As shown, screening is the least costly service performed by the County, followed by grinding, then windrow turning. The hourly cost is driven to a large extent by the amount of downtime for each piece of equipment, and also by the direct operating costs. Given that the windrow turner is quite expensive and is also the least frequently used, it is not surprising that the costs per operating hour are the highest.
Overall, Main Site processing costs can be estimated by the cubic yard, as cubic yard totals are available for the Main Site. Assuming the Main Site processes approximately 85,000 cubic yards per year, the cost per cubic yard would be approximately $3.65 including DEP equipment grant contributions, and $4.61 excluding the grant contributions. This includes all costs incurred, such as allocated annual equipment costs, fuel, labor, equipment maintenance costs, and labor and benefits. Costs cannot be calculated for the Municipal Sites on a per-cubic yard basis, as the number of cubic yards processed at each site is not sufficiently tracked.
R.W. Beck estimated annual costs for each site based upon the projected processing hours at each site. It then calculated costs for each of the municipalities that deliver their yard trimmings to the Main Site for processing, as quantities are available for these communities. By combining the Main Site costs allocated to each municipality with the costs at the Municipal Sites, we can estimate the amount the County spends on each municipality (Table 11). In order to better understand the costs, these total costs were examined on a per household basis. The range of per household costs ran from $0.68 to $16.71 ($0.86 to $21.16 without grants) and averaged $4.77 ($6.17) across the population served.
Cost Study Results
The results of the analysis prompted us to ask why the hourly equipment operating costs are so much higher at the Main Site versus the Municipal Sites (Table 10). For example, the County's hourly costs for rinding (including grants) are $175.77 at Municipal Sites and $491.06 at the Main Site. Without grants, the hourly costs rise to $241.61 at the Municipal Sites, and $632.21 at the Main Site. By comparison, a private composter contacted by R.W. Beck will perform grinding operations off site for $3,500/day for the first day, and $3,000/day for the second day. Assuming an eighthour day, this is $437.50/hour for the first day, and $375/hour for the second day. The County's costs are higher than this at the Main Site, and less costly at the Municipal Sites. However, the municipalities are incurring additional costs (administering the program and moving materials and product) that are not captured by this analysis. These costs may still exist if a private operator were to do the processing instead of the County, making the County even more costcompetitive from the municipality's point of view.
Overall, the Main Site's hourly costs are 2.2 times that of the Municipal Sites. Since the actual cost to operate cannot be that different, the answer lies in how these costs were calculated. Much of the labor at the Main Site is simply material moving-combining rows, adding to rows, moving screened material to storage piles, etc. However, all this labor, and the costs to operate the front-end loaders to accomplish it, were bundled into the costs for the three primary operations - grinding, composting and screening. While these costs exist at the Municipal Sites as well, they are borne by the cooperating municipalities. Consequently, these costs were outside the scope of this analysis.
The costs at the Main Site also include production of higher grades of compost and mulch, achieved by additional grinding and screening of basic grades to achieve finer or more homogeneous particle sizes. If a municipality wishes to have a higher grade of mulch produced at their Municipal Site (e.g., double or triple ground), they pay an hourly fee to the County for this service. However, if the County wants to produce this higher grade in order to sell different products, those costs are bundled into the Main Site costs. This is another reason that the Main Site costs are apparently higher than the municipal costs.
The extreme variability in per household cost is interesting. It can be assumed that the processing cost per cubic yard at the same location is the same regardless of where the material came from. The sources of the variability include the percent of households that actually contribute yard trimmings to the program, the amount collected from each household, and the amount of effort spent by each municipality and/or site to deliver and/or process yard debris.
Clear differences can be seen among the types of communities listed in Table 11. At the high end are the suburban townships, with their big yards, and small villages, with mature trees on smaller lots. At the other end of the spectrum, the municipalities with lower than average costs per household are either very rural (e.g., Lynn Township) where few of the households actually contribute to the yard trimmings stream, or very dense (e.g. Whitehall, Allentown) where the lot size (like row homes), and therefore yard trimmings production per household, is low.
There are differences within community types though. Compare South Whitehall Township to Lower Macungie Township. Both are very suburban with approximately 7,000 households. South Whitehall receives roughly twice the benefit of County services, $116,000 vs. $55,000, so their cost per household is more than double. However, since South Whitehall is very close to the County's Main Site, it brings all of its collected yard trimmings directly to the site. Lower Macungie, on the other hand, has its own compost site that is not managed by the County. If the township's costs to operate its composting site were added to the costs spent by the County, the total costs and cost per household would be much closer.
None of these calculations include income or expenses attributable to private landscapers and other nonmunicipal sources. These sources already pay a tip fee of $5/yard, which covers the cost of processing, and represents less than 10 percent of incoming materials to the Main Site, so this exclusion is not significant.
Policy Implications
There are several options for changing funding mechanisms from the current administrative fee structure, which is based on MSW production. First would be a "pure" user fee, where a fee is charged based on what is actually brought to the County processing site. Without a truck scale, this would have to be done by estimating volume based on truck size and percent of capacity. This system is laden with pitfalls. Besides the potential arguments over how much is collected for processing, what types of material are being delivered, and the difficulty and expense in monitoring and measuring every load, there is the unpredictability of the annual cost to a municipality. Depending on the weather and season, total amounts of leaves, grass and woody wastes generated by a municipality can vary considerably and unpredictably from year to year. How would a municipality be able to budget for this? This would not be a preferable methodology from the budgeting standpoint.
A second option would be to implement a modified user fee based on the size and type of municipality. The municipality would agree to pay a certain amount to the County for a standard set of services. The fee would be based on services provided, location, municipal contribution and expected quantities of feedstocks delivered. This would provide predictability to both the municipality and the County. Municipalities that opted not to enter into an agreement would have to purchase the services on an a la carte basis. Presumably these would be provided at a higher cost and with lower priority than those under an agreement.
In order to set the user fees, the County would have to make several policy decisions. What percent of the total costs should the fees cover? Currently, the MSW-based fees cover about 70 percent of the costs of the Solid Waste Office; the rest comes from grants and sale of materials and services. Given that grant availability likely will be decreasing, should the user fees represent a higher portion of the mix? And should they be based on the "full cost" of the system, disregarding the past grant contributions? The potential certainly exists for the County to bring in more income from the sale of products and services. However, increasing these sales will take resources that must be diverted from other activities. Operating in a more business-like manner is a challenge for a large government bureaucracy that is traditionally a notfor-profit service provider. Some of these issues could be addressed by establishing an independent authority that would provide these services. A separate study is underway to examine these issues.
In most cases, the cost of yard trimmings processing is expected to be a relatively small component of each municipality's solid waste system, and it is possible that this cost could be reasonably recouped via a user fee or tip fee to be negotiated by the County and each municipality. Besides user fees, other alternatives exist. These include staying with some form of MSW-based fee collected at the point of disposal, privatizing the system completely, combining several of these alternatives, or simply ceasing the County operation. In the last case the mandated municipalities would need to fulfill their Act 101 (Pennsylvania recycling law) obligations on their own or through a separate cooperative.
Increased revenue activities at all sites, through sale of product (wholesale, retail, bulk, bagged), diversification of services (soil remediation, erosion control products, turf application), and higher volume of "tipped" material from private contractors, greatly aids in sustaining our current level of operation, and subsequently lowers costs to our municipal partners.
Of course, all these decisions have political as well as financial and environmental implications. Since the Commonwealth requires each county to have a solid waste management plan, and Lehigh County's plan is due to be renewed by the end of 2006, these decisions will have to be made in the very near future.
[Author Affiliation]
Cary Oshins and Kurt Fenstermacher are with the Lehigh County Office of Solid Waste located in Allvntown, PA. Susan Bush is with R.W. Beck in Orlando, FL. This article is based on a paper presented at the U.S. Composting Council Conference in San Antonio, TX.
