The Long Beach Business Journal published an article in February about the role of engineers in infrastructure design and investment. With discussion of an immense $1 trillion outlay at the federal level in the news, the LBBJ took a look at the roles engineers play in every aspect of infrastructure development.
President and CEO, Jim Walsh discusses the purpose SCS Engineers plays as an environmental consultant and contractor on infrastructure projects ensuring they meet environmental needs, as well as economic ones.
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.
Infrastructure Week (May 16–23) is a national week of events, media coverage, education, and advocacy efforts to bring the state of the nation’s infrastructure to the attention of all Americans. Forester Media, the publisher of MSW Management magazine, is an Infrastructure Week affiliate. John Trotti, MSW Managing Editor recently surveyed Jim Walsh, P.E., BCEE, President and CEO of SCS Engineers and long-time friend of the magazine on the topic. Jim is first out of the blocks to answer the four questions John asked of respondents from MSW and Forester’s other publications, Business Energy, Erosion Control, Grading & Excavation Contractor, Stormwater, and Water Efficiency.
MSW Management (MSW): Which infrastructure projects should be given priority? Roads and bridges? Dams and levees? Water supply? Electrical grid? Waste management?
James Walsh (JW): Typically public safety, cost, and benefit determine the priority for infrastructure projects, and different political jurisdictions have different priorities. Where highways and bridges are new but waste management facilities are old, the priority might be waste management facilities, and vice-versa. Some types of infrastructure are more amenable to private sector solutions, which can allow the government to focus on other types of infrastructure. The trend in waste management, for example, has been to rely on the private sector in the last decade
Each segment faces difficult challenges; the most significant is funding. Waste management does not necessarily have priority over other projects, but has progressed by regionally identifying the infrastructure necessary. Thus, each region avoids the pitfalls of competing for funding with other regions and other projects.
SCS Engineers focuses on waste management, but there are opportunities to interact with other segments in sustainable ways. For instance, we have energy clients who supply coal ash to specialty cement companies who use it to make “green” cements that last longer in applications such as road construction. We design and construct facilities that take the byproduct gases from the decomposition in landfills to generate electricity reducing their dependence on fossil fuels, or directly use the gas for energy to power wastewater plants simultaneously cleaning and conserving water. We find ways to safely redevelop contaminated property supported by existing infrastructure, thus reducing the need to build new infrastructure.
In short, we work toward helping clients find sustainable solutions to infrastructure projects.
MSW: Is there a solution to long-term infrastructure funding?
JW: With respect to the waste management infrastructure, waste systems require significant capital investment in land, equipment, facilities, and infrastructure. While many governments have decided to rely on private industry instead of financing new governmental facilities, others have become much more sophisticated in adopting private sector approaches to financing. Pro-Forma Economic Life-Cycle Models can assist governmental entities to identify the critical variables that can impact the success of an infrastructure project. Moreover, economic models evaluate how various components of a waste system and variable assumptions integrate together into a sensible approach. Pro Forma Economic Models allow for a careful analysis of the life-cycle costs and potential revenue sources and identify factors that will influence the waste system costs and demonstrate how to adequately and equitably fund the system. These Models provide different scenarios and eliminate options that are not financially feasible or do not fit a region’s short- and long-term needs or priorities. Sensitivity analysis can be conducted to understand better the impact these variables have on capital costs, operating expense, and the overall system economics. By assessing the economic and regional benefits first, we can focus on designing and building infrastructure solutions that are safer, longer lasting, and affordable. Other benefits include adjusting the Model if there is a major change in the commodity market, such as plastics’ recycling is experiencing now and when considering the use of new technologies.
Every industry segment and every region have a different blend of socio-political conditions, geography, and monetary resources—we assess and design to their particular needs. Adopting new waste management technologies, such as anaerobic digestion or waste diversion, as part of an overall waste management program can be integrated into the Model to study how, and if, they sensibly integrate within the existing program. New technologies are typically more expensive than mature technologies such as recycling facilities and landfills, but that condition alone is not why they are considered valuable to a region. The framework considers elements key to integrating anaerobic digestion for example into a long-term program. Capital investment, a significant centralized source of high-quality organic waste, power costs and economic utility incentives, limited land suitable for composting, lack of conventional waste-to-energy facilities, or a ban on organics disposal in landfills are some of the considerations.
Many states are developing organics diversion initiatives, discouraging or banning organics from landfills; they will want to develop separate capacity for diversion within their overall program to build a sustainable plan for the long-term. In some states there is plenty of environmentally sound landfill capacity, recycling facilities have adequate capacity, and the socio-political climate has different ideals. What works in Iowa might not be suitable for California.
MSW: What kind of harm is the current state of our infrastructure doing to the economy and the community?
JW: Every four years, the American Society of Civil Engineers releases a “Report Card for America’s Infrastructure” depicting our nation’s infrastructure condition and performance. In a traditional school report card format, individual infrastructure segments are assigned letter grades—solid waste has the highest grade of B- in the most recent report published in 2013. The waste management infrastructure in the United States is robust, diverse, and significantly supports our economy and communities by providing safe and cost-effective management of the materials that we discard on a daily basis.
MSW: What can various government entities—from local to Federal—do to attract private sector support and investment?
JW: In the United States, private solid waste facilities manage 75% of the municipal wastestream. The waste management industry has many examples of public/private partnerships and significant investment by the private sector. Just look at firms like Waste Management Inc., Republic Services Inc., Waste Industries, Waste Connections, WCA Waste Corporation, Covanta, and Wheelabrator, which own and operate numerous landfills, compost facilities, waste-to-energy facilities, transfer stations, processing facilities, alternative technologies, and hauling companies. These facilities require significant private investment. Allowing private industry to participate in the management of waste management infrastructure brings needed fiscal discipline and accountability to the overall waste system infrastructure.
The private sector is attracted to markets that are predictable and that provide an appropriate return on investment. Jurisdictions with a reputation for making sudden unpredicted changes in regulations that adversely affect the return on investment will find it difficult or impossible to attract private sector support.
The waste management sector and SCS Engineers have seen our share of magic technologies that are literally too-good-to-be-true, yet somehow attract governmental support both financial and otherwise. It is fine for government agencies to provide grant support for research related to promising new technologies, but adopting an unproven technology as the sole means of waste management is inviting a public health crisis. Private sector investment is not attracted to jurisdictions that have unrealistic expectations.
About James Walsh, PE, BCEE, President and CEO of SCS Engineers
Jim has worked at the forefront of sustainable waste management for more than 40 years. He has authored numerous publications, technical support documents, presentations for the USEPA, US DOE, the Gas Research Institute while serving the Solid Waste Association of North America (SWANA), National Waste and Recycling Association (NWRA), and the Environmental Research and Education Foundation (EREF), among others.
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:
Additional planning can help protect your facility from severe weather. This article discusses how owner/operators can help prevent damage to their critical solid waste facilities that need to function during and after a major storm.
Published in WasteAdvantage Magazine, October 2015. Click here to read the full article.
Written by Bruce Clark and Marc Rogoff, SCS Engineers in the Southeast Region.