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Growing the Business of Your Municipal Solid Waste Program: Enterprise Fund Management and You
Jim Frey
Bringing the Business mindset to a municipal waste management program can be the key to success in these tough economic times. With an enterprise fund approach to management, municipal programs can build the foundation for sustainable program management, customer oriented service enhancement, stronger environmental performance and more efficient operation, ultimately resulting in a stronger bottom line for your community. These practices may be normal and even required for an efficient private sector waste companyat least for those that strive for high performance. However, the challenges are different for a municipal programoperating at economies of scale sized for their community needs, not for lowest cost operation. Municipal programs striving for high performance need to drill down to the bottom line financials for each service areaaccounting for all costs to provide each waste management service to their residents, much like a private sector business would do for their marketplace goods or services. This total-cost-of-service approach clearly identifies all direct and indirect costs, as well as revenues, for each service areathe basis for strong decision making focused on peak performance. The enterprise fund approach is commonly used within the government sector for public utilities (water Fully understanding all your direct costs, indirect costs and sewer), recreational areas (parks, and revenues provides a strong program decision making model. Images courtesy of Resource Recycling Systems. golf courses) and transportation services. Increasingly, the enterprise
Enterprise funds can help determine performance goals, develop program specific capital and operating plans, provide scenario analysis to determine best returns and provide the parameters to optimize programs.
fund approach is the answer for solid waste and recycling programs as well. The enterprise fund creates a bottom line focusbuilding a foundation for prioritizing services, setting rates and fees, and developing and allocating capital. For a municipality, developing a focus on stewardship of their solid waste enterprise fund protects key assets (trucks, facilities, workforce), provides an incentive for cost-effective performance by capturing end of year budget surpluses and fund investment interest, and establishes reserve funds necessary for capital investments that can be defended in the public sector financial management environment.
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Growing the Business of Your Municipal Solid Waste Program: Enterprise Fund Management and You
Diversifying your enterprise fund with other program revenue sources builds the political support needed to charge the The Advantage in rates Industry need to run specific the Waste you your program. Examples of these additional revenue sources include: the sale of recyclables to markets, the sale of energy (e.g., landfill gas), the sale of citizen products including mulch and compost, public/private partnerships (merchant royalties), grants, franchise fees and monetized renewable energy credits.
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Building a diversified revenue base provides a stable and sustainable program that garners strong political strength.
Detailed cost centers allow for the full accounting of all program costs.
heavily on the general fund or a dedicated millage that provides your program with the benefit of a relatively predictable revenue base. However, it carries a risk from competing uses or artificial caps on services due to constrained revenue. Building a diversified revenue base is essential to program sustainability and garnering overall political strength. The enterprise fund business mindset moves the decision focus away from a tax-based funding limitation and opens the door for higher reliance on justifiable rates and user fees that allow services to be enhanced and your customers needs to be met. The enterprise fund structure builds a foundation for the value-added provided by each service and the price points that can be justified for approval by managers and elected officials. Standard mechanisms used to raise this fee-based revenue include cost of service rates/fees, disposal tip fees with surcharges, tip fees for hard to handle or recycle materials and assessments.
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Specific reserve funds support the mission, operating procedures and budgeting systems of your program.
justification for planned improvements, upgrades and facilities. Issues and trends will emerge, the timing of required capital investments can be planned for and the ability to foresee revenues shortfalls well in advance will be developed. Different assumptions, options and alternative techniques can be used to help generate the budget forecast needed to support your program goals. Enterprise funds can also help determine performance goals, develop program specific capital and operating plans, provide scenario analysis to determine best returns and provide the parameters to optimize programs based on available funds. Your key managers, elected decision makers and public administrators will become your champions once they get this enterprise fund perspective. Over time this enterprise fund will position your program to evaluate emerging trends in solid waste management and allow you to prepare and fully embrace whatever the future may hold for your program. | WA Jim Frey is the Principal and CEO for Resource Recycling Systems (Ann Arbor, MI). He brings more than 30 years of expertise and innovation in recycling and waste management program development to both public services and private enterprises. With a University of Michigan MBA and a focus on business economics, public policy and strategic planning, Jim specializes in strategic program development using enterprise fund management tools to support municipal and corporate decision making. Active in SWANA as well as numerous industry professional associations, he serves on the boards of a number of corporate, university and non-profit organizations dedicated to a sustainable future for our communities and the businesses that serve them. Jim can be reached at (734) 9961361, via e-mail at frey@recycle.com or visit the Web site at www.recycle.com.
2010 Waste Advantage Magazine, All Rights Reserved. Reprinted from Waste Advantage Magazine. Contents cannot be reprinted without permission from the publisher.