What is FCA?
1. Is there a standard definition of FCA?
Yes. FCA is a method of accounting for all monetary costs of resources used or committed for MSW services. FCA goes beyond the limits of cash flow accounting, which is often used by local governments, by considering direct and indirect (overhead) operating costs of MSW services as well as upfront (past) and back-end (future) expenses.
2. How does FCA differ from what local governments already do?
Many cities currently use budget-based, or cash-flow, accounting — they report their current costs and figure their expenditures in terms of their current budget. The biggest difference between budget-based accounting and FCA is that FCA recognizes costs over the life of a program or service. It also includes up-front, overhead, and future costs, which is rarely considered under budget-based accounting.
Scope of FCA
3. What are the specific types of costs that FCA addresses?
FCA addresses up-front costs, such as public education and outreach, land acquisition, permitting, and facility construction and modification. It also addresses operating costs such as operation and maintenance, capital costs, interest payments, and “hidden” costs. Finally, it includes back-end costs, such as site closure, building and equipment decommissioning, postclosure care, and retirement and health benefits for current employees. The five basic principles of FCA explain the types of costs accounted for by FCA. To view this list, go to the Five FCA Principles.
4. Does FCA take into account all aspects of integrated solid waste management?
Yes. FCA identifies all the activities communities undertake in their solid waste programs including recycling and composting. FCA helps managers understand the costs of different strategies for managing MSW. It also helps managers determine how they can deliver an integrated set of components in the most efficient manner possible.
5. Does FCA take into account the environmental and social costs of MSW management?
No. FCA does not account for these types of costs. Noise, for example, is a type of social cost associated with solid waste management. While a community might suffer increased traffic noise from trucks hauling waste or recyclables, this social cost is not easily measurable. FCA also does not include the costs of environmental impacts, such as air emissions associated with methane gas that might be coming from a landfill. While these costs are not quantifiable through FCA, they are still important considerations that communities might examine when making their decisions.
6. Will the use of FCA discourage communities from considering the environment when they consider solid waste management options?
No. While FCA focuses on tangible, monetary costs of solid waste management, communities can and should weigh environmental and social costs in their decision-making. Siting a new landfill, for example, might be the least expensive option for managing solid waste, but a community might decide not to do it for environmental reasons and might start a recycling program instead.
FCA encourages communities to see each solid waste management option in the context of the solid waste system as a whole. FCA can reveal how changes in one program (e.g., recycling) affect costs in other programs, such as collection, processing, and disposal.
Getting Started With FCA
7. Why do communities begin using FCA?
There are many reasons why communities begin using FCA. For example:
* To explain more clearly MSW costs to citizens.
* It is mandated by law in some states.
* To help local governments run solid waste program operations more like independent businesses.
* To determine the cost of alternative waste management options.
* To determine potential areas of cost savings.
In Sacramento County, California, the government took over the refuse collection operation from the private sector. At the same time, the county established a landfill and two transfer stations to serve the regional area. Smaller cities in the county were concerned that they would be charged a disproportionate share of the cost of operating the landfill. The county used FCA to demonstrate how the rates would be fair to everyone.
In Plano, Texas, the Solid Waste Department wanted to know if offering other service levels and restructuring the collection system — such as picking up yard trimmings for composting rather than for disposal — would be less expensive. The department used FCA to determine what each service level would cost and to benchmark its program against other cities’ programs.
8. Is there only one way to conduct FCA?
No. It is important for each community to consider the FCA process in the context of its specific waste management goals and objectives. Often, there are several ways to arrive at the correct number.
Implementing FCA
9. Is it possible to implement FCA in the absence of a general ledger accounting system?
Yes. FCA can be implemented for any solid waste management system and any accounting system. While detailed accounting data, such as that provided by a general ledger system, can be useful, it is not essential. Where accounting data are limited or difficult to obtain, however, more effort might be involved in implementing FCA.
10. How long does it take to implement FCA?
Generally, it may take about 2 to 3 years to fully implement FCA and get all employees comfortable with it. In Greensboro, North Carolina, it took 3 years to sort out FCA to a level of detail where staff could effectively use it, and Greensboro continually adds elements to its system.
11. What is the greatest difficulty in implementing FCA?
One major FCA challenge communities often face is getting other municipal divisions, such as fleet maintenance or the legal or personnel departments, to identify the costs they incur due to solid waste management. Another difficulty can be getting the board or city council to understand the long-range planning value of FCA.
Another problem is that FCA gives different figures from traditional general accounting or budget-based accounting; MSW managers must be prepared to reconcile the two different sets of figures to sell the program.
12. What is the ideal minimum or maximum community size for FCA?
FCA is not size dependent; it is a common-sense approach to managing money and knowing where the money is being used.
Benefits and Uses of FCA
13. What types of benefits have communities realized due to FCA?
Communities have realized the following benefits from using FCA:
Rates or tipping fees are set correctly and fairly.
Budget requests are defended with clear data.
Privatization questions are answered based on complete cost data.
More services are delivered for less cost.
Los Angeles, California, has been able to set benchmarks, make comparisons, and identify ways to make the MSW program more efficient, thanks to FCA.
The city of Phoenix, Arizona, implemented the principles of FCA when it began competing with the private sector for solid waste services in different parts of the city. In the initial bid rounds, the private sector won. The city used FCA information to identify areas where efficiency could be improved and won back some of the bids.
Sacramento County, California, also realized new efficiencies in the area of collection. The county was considering changing from a manual, two-person collection system to an automated, one-person system. The public supported the two-person system, but the cost was prohibitive. The county educated the public about the one-person system and explained the potential cost savings. With the new service, the county was able to keep rates down and stabilize them over the last 3 years.
Sacramento County also used FCA to change the level of service provided for pickup of recyclables and compostables. After determining the full costs of weekly collection services, the county launched a pilot program examining every-other-week collection instead. The county projects savings of $1.3 million with this change.
In Columbia, Missouri, FCA allows the public works department to do meaningful cost comparisons with other cities and to track performance from year to year. Columbia has used FCA to effectively evaluate the impact new programs have on rates and to set rates to ensure financial stability.
14. Will using FCA save money?
It depends. Ultimately, the more a department knows about what it takes to deliver a unit of service (e.g., recycling cost per ton), the more effectively it can manage that unit cost. FCA points out where departments can look for cost reductions, and where they might need to change service delivery.
In Columbia, Missouri, the Public Works Department has been able to compare its unit costs with other communities. Columbia has increased its efficiency due to comparisons like this, which, in turn, has resulted in cost savings. Communities must be sure to make comparisons with communities that have similar services and similar populations, however.
FCA also gives communities the ability to more evenly match the rate they are charging for different services (e.g., residential versus commercial) to the actual costs of those services. Through FCA, Columbia found that the rate charged for one element of its refuse service “subsidized” the cost for some of the others. During rate adjustments, Columbia evened out the rates for all services. FCA does not automatically save money and it cannot guarantee that cost savings are returned to the customer.
15. Will the use of FCA promote or enhance the regionalization of solid waste facilities?
No. The use of an FCA approach will not, in and of itself, determine whether any particular regionalization proposal is cost-effective. That will depend on the proposal as well as the characteristics of the region. Use of FCA will help ensure that regionalization proposals are analyzed properly.
FCA and Rate Setting
16. Can FCA help in setting up unit-based fees (”pay-as-you-throw”)?
Yes. FCA can be a useful tool in developing fair and equitable service fees. It enables communities implementing a pay-as-you-throw program to evaluate the system costs and appropriate fees.
Seekonk, Massachusetts, for example, used FCA to understand the base costs for its solid waste system. With that information, the town was able to set its flat and variable fees for its pay-as-you-throw program. While FCA doesn’t provide an answer in terms of what a community should charge on a variable-rate basis, it can provide the baseline information to determine what the base costs are.
FCA and Recycling
17. Can FCA help make recycling programs profitable?
There are many factors that affect the costs and revenues of recycling programs. FCA can identify cost drivers which may lead to less costly recycling programs. One of the challenges faced by solid waste managers is to find least-cost management options and, if the community has a recycling component, to examine how to make the system most efficient.
18. Does FCA help to support recycling? How?
No. FCA does not champion recycling or any other waste management option. It does, however, provide an important tool for analyzing and improving system performance and cost-effectiveness. A community can use FCA to determine the least cost way to provide recycling services.
Privatization
19. Has FCA been effective in addressing privatization questions?
Yes. When Greensboro, North Carolina, implemented its recycling program, it was required to compete with the private sector. To do that, the city had to evaluate the program and decide whether the private sector could meet Greensboro’s standards and costs. Now the city is running the service because it out-performed the private sector.
20. Can FCA guarantee that a certain service won’t be privatized?
No. FCA, in and of itself, cannot keep a service from being privatized. FCA can show, however, whether or not it is more cost-effective to privatize.
21. What is the relevance of FCA for communities that contract out all of their solid waste management services?
Unless a community is entirely out of the business of solid waste management, local government will continue to have costs associated with the contract. The city might have monitoring costs, various overhead costs, and education costs, depending on the role the government actually plays. FCA can help communities understand and track all of these costs.
Cost of FCA
22. How is the cost of FCA best justified to the public?
FCA is an approach, not a fixed product. It is possible to tailor a cost-effective FCA system to meet the needs of most, if not all, solid waste management systems. Assuming FCA has been implemented in an appropriate manner, the cost can best be justified to the public by publicizing the uses and benefits that solid waste managers make of FCA, focusing on uses of particular interest to the public. Stress how FCA allows solid waste managers to operate their programs as an efficient streamlined business, carefully accounting for all costs; FCA is the best way to get a handle on solid waste related issues, such as privatization, and getting these issues “right” can save the public money; and FCA might have up-front costs (e.g., data development, software installation, and consulting assistance), but these costs purchase a management information capability that can save money over the long run.
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