Questions and Answers About Full Cost Accounting | US EPA ... · audience included solid waste managers, elected officials, finance officers, recycling coordinators, and others interested

1EPA Questions andAnswers AboutFull CostAccounting

United States EnvironmentalProtection Agency

EPA530-F-98-003February 1998www.epa.gov/fullcost

Solid Waste and Emergency Response

Q A&2 Printed on paper that contains at least 20 percent postconsumer fiber.

4x9forPDF.qxd 3/11/98 2:24 PM Page 1

In September 1996, the U.S.

Environmental Protection Agency

(EPA), in partnership with several

state and national solid waste and

governmental organizations, held its

second satellite forum on full cost

accounting (FCA). This interactive

videoconference, “Planning, Pricing,

Performance: The Business of Solid

Waste Management,” reached an

audience of approximately 4,550 viewers

at 280 downlink sites nationwide. The

audience included solid waste managers,

elected officials, finance officers, recycling

coordinators, and others interested in

solid waste issues. The forum featured a

panel of four local government solid

waste managers and one policy analyst,

who spoke about their experiences with

FCA. This booklet features some of the

questions and answers discussed during

the 2-hour forum.


ContentsWHAT IS FULL COST ACCOUNTING? . .1

1. Is there a standard definition of FCA? . . .12. How does FCA differ from what cities

already do? . . . . . . . . . . . . . . . . . . . . . .13. Does FCA take into account all aspects of

integrated solid waste management? . . . .24. Does FCA take into account the environ-

mental, health, and social costs of MSWmanagement? . . . . . . . . . . . . . . . . . . . . .2

5. Will the use of FCA discourage communi-ties from considering the environmentwhen they consider solid waste manage-ment options? . . . . . . . . . . . . . . . . . . . .3

6. Is it possible to implement FCA in theabsence of a general ledger accounting system? . . . . . . . . . . . . . . . . . . . . . . . . .3

GETTING STARTED WITH FCA . . . . .47. Why do communities begin using FCA? .48. Is there only one way to conduct FCA? . .5

FCA FORUM PANELISTS:• John Abernethy—Operations Manager for the Waste

Management and Recycling Division of SacramentoCounty, California (population 1.2 million).

• Nancy Nevil—Solid Waste Manager for the city ofPlano, Texas (population 196,500).

• Lowell Patterson—Director of Public Works for the cityof Columbia, Missouri (population 75,000).

• Lynn Scarlett—Vice President of Research at theReason Foundation in Los Angeles, California.

• Elizabeth Treadway—Director of EnvironmentalServices for the city of Greensboro, North Carolina(population 200,000).


IMPLEMENTING FCA . . . . . . . . . . . . . .59. How long does it take to implement FCA? . . .5

10. What is the greatest difficulty in imple-menting FCA? . . . . . . . . . . . . . . . . . . .6

11. What is the ideal minimum or maximumpopulation required to use FCA? . . . . . .6

BENEFITS OF FCA . . . . . . . . . . . . . . . . . 712. What types of changes or benefits have

communities realized due to FCA? . . . . .713. Will using FCA save money? . . . . . . . . .914. Can FCA help compare opening a new

landfill versus building a waste-to-energyincinerator? . . . . . . . . . . . . . . . . . . . . .10

15. Will the use of FCA promote or enhance theregionalization of solid waste facilities? . . .10

FCA AND RATE SETTING . . . . . . . . . .1016. Can FCA help in setting up unit-based

fees (“pay-as-you-throw”)? . . . . . . . . . .10

FCA AND RECYCLING . . . . . . . . . . . .1117. Can FCA help make recycling programs

profitable? . . . . . . . . . . . . . . . . . . . . . .1118. Does FCA help to support recycling? How? 12

PRIVATIZATION . . . . . . . . . . . . . . . . . .1219. Has FCA been effective in addressing pri-

vatization questions? . . . . . . . . . . . . . . .1220. Can FCA guarantee that a certain service

won’t be privatized? . . . . . . . . . . . . . . .1221. What is the relevance of FCA for commu-

nities that contract out all of their solidwaste management services? . . . . . . . . .13

COST OF FCA . . . . . . . . . . . . . . . . . . . .1322. How is the cost of FCA best justified to

the public? . . . . . . . . . . . . . . . . . . . . . .13

FCA RESOURCES . . . . . . . . . . . . . . . . .15


What Is Full CostAccounting?

1. IS THERE A STANDARDDEFINITION OF FCA?

Yes. FCA is a method of accounting for allmonetary costs of resources used or committedfor municipal solid waste (MSW) services. FCAprovides decision-makers with the “whole pic-ture” of MSW costs in their communities onan ongoing basis. FCA goes beyond the limitsof cash flow accounting, which is often used bylocal governments, by considering direct andindirect (overhead) operating costs of MSWservices as well as upfront (past) and backend(future) expenses. Knowing the complete costsof MSW management enables local govern-ment officials to make more informed decisionsabout their programs, identify opportunities forstreamlining services, facilitate cost-savingefforts, and better plan for the future.

2. HOW DOES FCA DIFFER FROMWHAT CITIES ALREADY DO?

Many cities currently use budget-based, orcash-flow, accounting—they report their cur-rent costs and figure their expenditures interms of their current budget. The biggest dif-ference between budget-based accounting andFCA is the allocation of costs. FCA is based onthe functional allocation of resources. FCAspreads costs over the life of a program or ser-vice. It also includes overhead and future costs,which might not be considered under budget-based accounting. Many communities, forexample, face the problem of post-closure carefor their landfills. FCA can help them think

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about and plan for the costs associated withclosing their landfills.

3. DOES FCA TAKE INTO ACCOUNTALL ASPECTS OF INTEGRATEDSOLID WASTE MANAGEMENT?

Yes. FCA is about identifying all the activitiesthat communities undertake in their solid wasteprograms including recycling and composting.FCA helps managers create the best balance ofprogram components. It also helps managersdetermine how they can deliver an integratedset of components in the most efficient mannerpossible. Many solid waste programs are createdby prior management or political decisions. Inthese cases, FCA can help managers work moreefficiently within the established frameworks.

4. DOES FCA TAKE INTO ACCOUNTTHE ENVIRONMENTAL, HEALTH,AND SOCIAL COSTS OF MSWMANAGEMENT?

No. FCA does not account for these types ofcosts. Noise, for example, is a type of socialcost associated with solid waste management.A community might have trucks going upand down the street due to a particular wastemanagement program. It is a real cost, but itis not easily measurable. FCA also does notinclude the costs of environmental impacts,such as air emissions associated with methanegas that might be coming from a landfill.While these costs are not quantifiablethrough FCA, they are still important consid-erations that communities might examinewhen making their decisions.

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5. WILL THE USE OF FCADISCOURAGE COMMUNITIESFROM CONSIDERING THEENVIRONMENT WHEN THEYCONSIDER SOLID WASTEMANAGEMENT OPTIONS?

No. While FCA only takes into account thetangible, monetary costs associated with solidwaste management, communities can andshould weigh environmental, social, andhealth costs in their decision-making. Siting anew landfill, for example, might be the leastexpensive option for managing solid waste,but a community might decide not to do itfor environmental reasons and might start arecycling program instead.

FCA encourages communities to see each solidwaste management option in the context of thesolid waste system as a whole. FCA makes itclear that changes in one program (e.g., recy-cling) can have effects on other programs, suchas garbage collection, processing, and disposal,as well as impacts on overhead costs.

6. IS IT POSSIBLE TO IMPLEMENTFCA IN THE ABSENCE OF AGENERAL LEDGER ACCOUNTINGSYSTEM?

Yes. FCA can be implemented for any solidwaste management system and any accountingsystem. While detailed accounting data, such asthat provided by a general ledger system, can beuseful, it is not essential. Where accountingdata are limited or difficult to obtain, however,more effort might be involved in setting up anFCA system.

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Getting StartedWith FCA

7. WHY DO COMMUNITIES BEGINUSING FCA?

There are many reasons why communitiesbegin using FCA. For example:

• To explain more clearly MSW costs tocitizens.

• It is mandated by law in some states.• To help local governments run solid waste

program operations more like independentbusinesses.

• To determine the cost of alternative wastemanagement options.

• To determine potential areas of cost savings.

In Sacramento County, California, the govern-ment took over the refuse collection operationfrom the private sector. At the same time, thecounty established a landfill and two transferstations to serve the regional area. Smallercities in the county were concerned that theywould be charged a disproportionate share ofthe cost of operating the landfill. The countyused FCA to demonstrate that the rates wouldbe fair to everyone.

In Greensboro, North Carolina, FCA grew outof two initiatives. In the late 1980s, the statemoved FCA to a “highly recommended” statuswithin its solid waste laws, which provided animpetus for local governments to begin prac-ticing FCA. Greensboro’s solid waste divisionwas determined to run its operation like abusiness. The solid waste division runs bothcollection and disposal, and it was criticallyimportant that the division understood where

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the costs were, how to capture efficiencies, andhow to implement new programs. By imple-menting FCA, the division now offers five dif-ferent collection services and three differentservices at the landfill and knows the cost ofeach of those operations.

In Plano, Texas, the Solid Waste Departmentwanted to know if offering other service levelsand restructuring their whole collection sys-tem—such as picking up yard trimmings forcomposting rather than for disposal—would beless expensive. The department used FCA todetermine what each service level would cost.Also, the department was attracted to the ideaof using FCA to benchmark its program againstother cities’ programs.

8. IS THERE ONLY ONE WAY TOCONDUCT FCA?

No. It is important for each community toput the FCA process in perspective with itswaste management goals. Each communitywill look at waste management costs different-ly. Each will come up with a unique way toestablish a recordkeeping mechanism, keeptrack of costs, and identify expenditures suchas equipment maintenance.

Implementing FCA9. HOW LONG DOES IT TAKE TO

IMPLEMENT FCA?

It takes about 2 to 3 years to fully implementFCA and get all employees comfortable with it.Even then, the process will still evolve. InGreensboro, North Carolina, it took 3 years to

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sort out FCA to a level of detail where staffcould effectively use it, and Greensboro contin-ually adds elements to its system.

10. WHAT IS THE GREATESTDIFFICULTY IN IMPLEMENTINGFCA?

One major FCA challenge communities oftenface is getting other divisions, such as fleetmaintenance or the legal or personnel depart-ment, to identify the costs they are charging tothe solid waste department.

Another difficulty can be getting the board orcity council to understand FCA. A communitymight start setting up reserves for closure costsof the landfill, for example. Then, if there is abudget crisis, the board might want to tap intothose funds. They might not understand whythe funds have been set aside.

Another problem that solid waste managersface is that FCA will give them different figuresfrom traditional general accounting or budget-based accounting. They might face the problemof politicians saying, “The budget says this;how come you’re telling me it costs that?”

11. WHAT IS THE IDEAL MINIMUMOR MAXIMUM POPULATIONREQUIRED TO USE FCA?

FCA is not size-dependent. It is simply acommon-sense approach to managing moneyand knowing where the money is being used.Small communities should start by identifyingall the activities they are engaged in. For eachactivity, they should identify the associatedcosts, develop a mechanism to sum them up perunit, and then report them. This formula is rel-evant to a city, a county, or a single household.

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Finding the time, resources, and skills necessaryto set up an FCA system can be the principalbarrier facing a small city. Here, state grant pro-grams can be of help. While these programsoften support capital additions, they can andare being used to help localities develop FCAcapabilities.

FCA principles are the same in a large city likeNew York. It is a matter of putting time andenergy into the process, which is an order ofmagnitude more for New York. The data exist;putting the resources in place to assemble it,analyze it, allocate it, and set up appropriateaccounts might be more difficult.

Benefits of FCA12. WHAT TYPES OF CHANGES OR

BENEFITS HAVE COMMUNITIESREALIZED DUE TO FCA?

Communities have realized the following bene-fits from using FCA:

• Rates or tipping fees are set correctly andfairly.

• Budget requests are defended with clear data.• Privatization questions are answered based on

complete cost data.• More services are offered for less money.

In Los Angeles, California, the mayor was con-cerned about the cost of solid waste manage-ment, so the city began moving towards FCA.Through that system, it has been able to setbenchmarks, make comparisons, and identifyefficiencies. FCA allows the city to figure outhow it can do better with its current programs.

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The city of Phoenix, Arizona, is another exam-ple. Some years ago, the city began using FCAand competing with the private sector for solidwaste services in different parts of the city. Inthe initial bid rounds, the private sector won.The public sector took its new accountinginformation and decided that it had to do bet-ter. The city then identified some areas whereefficiency could be improved and won backsome of the bids.

Sacramento County, California, also realizednew efficiencies in the area of collection. Thecounty was considering changing from a manu-al, two-person collection system to an automat-ed, one-person collection system. The publicsupported the two-person system, but the costwas prohibitive. The county educated the pub-lic about the one-person system and explainedthat if it worked, they might receive a ratereduction for that service. With the new ser-vice, the county was able to keep rates downand stabilize them over the last 3 years.

Sacramento County also used FCA to changethe level of service provided for pickup of recy-clables and compostables. The county decidedthat weekly collection services were very expen-sive for the services rendered. The county is cur-rently involved in a pilot program that is exam-ining every-other-week collection instead. Thecounty estimates that it can save $1.3 million inthis particular program with this change.

In Columbia, Missouri, FCA allows the publicworks department to do meaningful cost com-parisons in performance measurements withother cities and track performance from year toyear. Columbia has used FCA to effectivelyevaluate the impact new programs have on ratesand to set rates to assure financial stability.

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13. WILL USING FCA SAVE MONEY?

It depends. Ultimately, the more departmentsknow about what it takes to deliver a unit ofservice, the more effectively they can managethat unit cost. FCA points out where depart-ments are inefficient, where they can look forcost reductions, and where they might need tochange service delivery.

In Columbia, Missouri, the Public WorksDepartment has been able to take the break-down of its unit cost and compare it to othercommunities. If a similar community is provid-ing the same recycling service as Columbia, butat a lower rate, that illustrates an opportunity forColumbia to change and become more efficient.Columbia has increased its efficiency due tocomparisons like this, which, in turn, has result-ed in cost savings. Communities must be sure tomake comparisons with communities that havesimilar services and similar populations, however.

FCA also gives communities the ability to moreevenly match the rate they are charging for dif-ferent services (e.g., residential versus commer-cial) to the actual costs of those services.Through FCA, Columbia found that the ratecharged for one element of its refuse servicecarried the cost for some of the others. Duringrate adjustments, Columbia was able to evenout the rates for all services.

FCA can help communities save or reservemoney, but that can lead to differing opinionsabout what to do with the money. A communitymight save reserves that it wants to allocate forfuture uses, but others might want to give thatmoney back to residents in the form of a feereduction instead. FCA does not automaticallysave money, however, and it cannot guaranteethat savings are returned to the customer.

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14. CAN FCA HELP COMPAREOPENING A NEW LANDFILLVERSUS BUILDING A WASTE-TO-ENERGY INCINERATOR?

Yes. The principles of FCA are exactly thesame no matter how you apply them. FCA isabout identifying, reporting, and summingup measurable costs. It can help communi-ties compare one alternative to another andunderstand the costs. The question really is,“How can you make that comparison with-out FCA?”

15. WILL THE USE OF FCAPROMOTE OR ENHANCE THEREGIONALIZATION OF SOLIDWASTE FACILITIES?

No. The use of an FCA approach will not, inand of itself, determine whether any particu-lar regionalization proposal is cost-effective.That will depend on the proposal as well asthe characteristics of the region. Use of FCAwill help ensure that regionalization proposalsare analyzed properly.

FCA and RateSetting

16. CAN FCA HELP IN SETTING UPUNIT-BASED FEES (“PAY-AS-YOU-THROW”)?

Yes. FCA can be a useful tool in developing fairand equitable service fees. It also allows com-munities interested in pay-as-you-throw pro-grams to evaluate the effect, in terms of systemcosts and revenues, of implementing such a

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program. When a pay-as-you-throw program isimplemented, for example, residents mightchoose to recycle or compost at higher levels.This behavioral change has a direct effect onsystem costs and revenues. FCA can be used toevaluate and anticipate these shifts in costs.

One of the problems some communities facewith pay-as-you-throw programs is balancingsystems costs and revenues. Seekonk,Massachusetts, used FCA to understand thebase costs for its solid waste system. Withthat information, the town was able to set itsflat and variable fees for its pay-as-you-throwprogram. While FCA doesn’t provide ananswer in terms of what a community shouldcharge on a variable-rate basis, it can providethe baseline information to determine whatthe base costs are.

In some circumstances, however, rate settingstill comes down to a political decision. Acommunity might determine an appropriaterate using FCA but realize that it would notbe a great enough financial incentive toencourage people to recycle, which might be acommunity goal.

FCA and Recycling17. CAN FCA HELP MAKE

RECYCLING PROGRAMSPROFITABLE?

No. Waste will continue to be generated by theresidential and commercial sectors, communitieswill continue to have some level of responsibili-ty for managing it, and those services are goingto cost money. One of the challenges faced bysolid waste managers is to find the least-cost

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management options and, if the community hasa recycling component, to examine how it canmake that the most efficient system possible.

18. DOES FCA HELP TO SUPPORTRECYCLING? HOW?

No. FCA does not champion recycling or anyother waste management option. It provides animportant tool for analyzing and improvingsystem performance and cost-effectiveness. Acommunity can use FCA to determine the bestway to provide recycling services, however.

Privatization19. HAS FCA BEEN EFFECTIVE IN

ADDRESSING PRIVATIZATIONQUESTIONS?

Yes. Greensboro, North Carolina, faced thisissue, and FCA was instrumental in dealingwith it. When the city implemented its recy-cling program, it was required to competeagainst the private sector. To do that, the cityhad to know what it was willing to spend toimplement the program. It was critical to beable to value the program for the communityand decide whether the private sector couldmeet Greensboro’s standards and costs. Nowthe city is running the service because it out-performed the private sector.

20. CAN FCA GUARANTEE THAT ACERTAIN SERVICE WON’T BEPRIVATIZED?

No. FCA, in and of itself, cannot keep a servicefrom being privatized. However, FCA can showwhether it is better to privatize or not.

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21. WHAT IS THE RELEVANCE OF FCAFOR COMMUNITIES THATCONTRACT OUT ALL OF THEIRSOLID WASTE MANAGEMENTSERVICES?

Unless a community is entirely out of thebusiness of solid waste management—that is,individual citizens simply subscribe directlywith a private hauler for service—local gov-ernment is still going to have costs associat-ed with the contract. The city will havemonitoring costs, various overhead costs,and education costs, depending on the rolethe government actually plays. Communitiesneed to know what they are paying out ofpocket for the contract as well as the otheroverhead, monitoring, and contract-manage-ment costs. FCA can help communitiesunderstand and track these costs. This infor-mation becomes critical when contracts areup for renewal or new vendors offer services.In fact, any competitive-contracting decisionwould require knowledge of these costsahead of time.

Cost of FCA22. HOW IS THE COST OF FCA BEST

JUSTIFIED TO THE PUBLIC?

FCA is an approach, not a fixed product. It ispossible to tailor a cost-effective FCA system tomeet the needs of most, if not all, solid wastemanagement systems. Assuming that FCA hasbeen implemented in an appropriate manner,the cost can best be justified to the public bypublicizing the uses and benefits that solidwaste managers make of FCA, focusing on usesthat particularly interest the public. Stress that:

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(1) FCA allows solid waste managers to operatetheir programs as an efficient streamlined busi-ness, carefully accounting for all costs; (2) FCAis the best way to get a handle on solid wasterelated issues, such as privatization, and gettingthese issues “right” can save the public money;and (3) FCA might have up-front costs (e.g.,data development, software installation, andconsulting assistance), but these costs purchasea management information capability that cansave money over the long run.

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This conference was sponsored by EPAin partnership with:

• American Public Works Association(APWA)

• International City/County ManagementAssociation (ICMA)

• Maryland Department of Environment

• National Association of Counties (NACo)

• National Recycling Coalition (NRC)

• National Solid Waste ManagementAssociation (NSWMA)

• Solid Waste Association of North America(SWANA)

• U.S. Conference of Mayors


FCA ResourcesEPA has published several documents that areuseful for any community interested in learn-ing about or implementing FCA.

• Making Solid (Waste) Decisions With FullCost Accounting (EPA530-K-96-001) is ashort primer that explains the basic conceptsof FCA and provides short case studiesabout communities that have used FCA suc-cessfully. It also presents some of the chal-lenges of FCA and the relationships betweenFCA and enterprise funds and pay-as-you-throw programs.

• Full Cost Accounting for Municipal SolidWaste: A Handbook (EPA530-R-95-041)describes the key concepts and benefits ofFCA. It explains many of the financial termsused in FCA and the specific costs that areconsidered. While the handbook is not astep-by-step “how-to” document, it doesdescribe the steps involved with implement-ing FCA for solid waste management. It is acomprehensive overview and a valuableresource for local governments.

These documents can be ordered throughEPA’s RCRA Hotline. Call 800 424-9346 orfor the hearing impaired call TDD 800 553-7672. In the Washington, DC, area, call 703412-9810 or TDD 703 412-3323. Web site:www.epa.gov/fullcost.

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Questions and Answers About Full Cost Accounting | US EPA ... · audience included solid waste managers, elected officials, finance officers, recycling coordinators, and others interested