Operational expenses such as replacing collection vehicles, considering and implementing recycling programs, and the impact of stricter environmental regulatory programs can all affect collection fees and the quality of service. Strategic business planning solves the ongoing process whereby an organization determines where it is going… plus how it will get there, and what tools and resources it will use.
The City of Killeen recently worked with SCS Engineers to create a 20-year master plan with modeling capabilities to determine the optimum scenarios that benefit the surrounding communities and one that helps manage environmental safety and the outlay of capital before the expense of planning, designing, and building begins. Population projections, demographics, cost and historical data, among other resources, make up the information that is then organized and analyzed to prepare projections based on changing scenarios over a period of years. This type of economic study enables the planning team on any proposed project to provide a “what if” analysis for the decision-makers with the potential impact a proposal may have on customer rates and fees.
The collaborative effort between the City and SCS has culminated in a long-term financial roadmap and planning tool, which evaluates the impact of operational expenses and provides a basis for planning capital expenditures. The plan is already in use by the City’s decision-makers to determine the efficiency of investing in equipment and a Material Recovery Facility (MRF) as part of a waste management plan. Key outputs of this study included the justification for the City’s acquiring new collection equipment and further assessment of the feasibility of implementing single-stream recycling.
This type of business analysis requires technical expertise in the many aspects of waste management. You’ve got to dig deep into the conditions that present a financial, environmental, or quality challenge to managing wastes in order to deliver a system that is serviceable for decision-makers to use for many years.
An SCS pro forma model for waste management gives you the much-needed ability to analyze how different elements of a business plan will impact your cash flows and value. Subsequently, using individual forecasts and operations data, you can analyze when in the future you might need financing allowing you the time to plan to acquire sufficient resources, permits, and equipment. Read the Merced County case study here to learn more.
SCS Engineers assisted the Merced County, California, Regional Waste Management Authority (RWA) in developing a Pro Forma Model that encompasses projected operational costs and revenues to help decision-makers develop timely cash flow forecasts. The RWA now has a useful tool for annual budgeting and developing long-term capital policies.
After several years of revenue declines for numerous reasons, including the recession, a change in management in 2012 ordered a re-assessment of RWA’s operational and administrative functions. Throughout the year-long process, a new Regional Waste Director was selected to implement a progressive strategy that would realize operational efficiencies, cost savings, an expanded customer base, and lower long-term debt through bond refinancing. These measures provided considerable benefit, particularly in regards to the long-term financial health of the agency; however, it was not clear if cash could be generated quickly enough to meet the existing need. As a result, the agency hired a rate consultant in April 2015 to assess the anticipated shortfall and prepare a report to the RWA’s governing board.
The RWA owns and operates two disposal and recycling facilities, each located near the population centers of Merced County. Both landfills need expansions to increase disposal capacity in the coming years. SCS Engineers developed a Pro Forma Model to help the RWA prepare a long-term cash flow analysis and assess whether or not funds were available from operations to forestall a bond issue for the capital improvements as well as to fund adequate emergency reserves. At the beginning of SCS’s engagement, RWA staff provided background data and information concerning residential collection revenues and operating expenses.
The Pro Forma Model estimated annual net revenues during the 12-year planning horizon; determined that the current debt service is a major drain until the bonds mature in FY 2026/27; calculated that funds for projected capital improvements, fleet replacement, and a new “Rainy Day Fund” can be realized even if the RWA receives low waste deliveries to the landfill; and projected cash reserves. The model recommended that the RWA consider funding a landfill gas to energy project out of cash reserves rather than bond proceeds and projected annual revenues from methane sales.
The RWA adopted the findings of the proposed pro forma model in October 2015. Conducting the pro forma modeling effort enabled the RWA’s decision-makers to project costs of the various capital, fleet, and waste flow options. Key among the lessons learned was the implementation of a “Rainy Day Fund” to provide a long-term financial backstop for unforeseen events in landfill operations that cannot be predicted today. Such events could include groundwater and landfill gas remediation, issues with landfill liners, and weather events. The fund is capped at 25 percent of the RWA’s annual operating costs, which can also provide three to four months of operating expenses. While typical of many large County or municipal General Funds, it is less typical of individual enterprise funds in the past. Such Rainy Day Funds are becoming more and more prominent across solid waste agencies in the United States.
Lastly, the RWA now has a financial tool that can be updated annually and will continue to project future revenues and capital expenditures and ultimately forecast rate needs more accurately.
Marc Rogoff, Ph.D., is a Project Director for SCS Engineers’ and our National Expert on Solid Waste Rate Studies. Marc has over 30 years of experience in solid waste management as a public agency manager and consultant and has managed more than 200 consulting assignments across the United States on all facets of solid waste management. He has written and co-authored many articles, including the following: