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HomeMy WebLinkAboutAgenda - 02-26-2003-ws2ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: February 26, 2003 Action Agenda Item No. 2 SUBJECT: Solid Waste Advisory Board Report on Solid Waste Alternative Financing DEPARTMENT: Solid Waste Management PUBLIC HEARING: (Y/N) No ATTACHMENT(S): Executive Summary 2/26/03 SWAB Report (to be provided under separate cover) INFORMATION CONTACT: Jan Sassaman, Chair or Gayle Wilson, Solid Waste Director 968-2885 TELEPHONE NUMBERS: Hillsborough 732-8181 Chapel Hill 968501 Durham 688-7331 Mebane 336-227-2031 PURPOSE: To review a report from the Solid Waste Advisory Board (SWAB) to the Board of Commissioners regarding the SWAB's examination of options for providing supplemental financing for the solid waste enterprise fund programs and services, for both the long-term and upcoming fiscal year. BACKGROUND: The Solid Waste Advisory Board (SWAB) was created as a result of the 1999 interlocal agreement between the County and the Towns of Carrboro, Chapel Hill, and Hillsborough that now governs management of solid waste throughout Orange County. The SWAB consists of eight members, two appointed by each of the County and municipal governing boards. Since the SWAB began meeting in September 2000, the University (although not a formal signatory to the interlocal agreement) has also participated thoroughly in SWAB discussions and activities through their designated staff representative. As noted in the accompanying executive summary to the SWAB's report, the SWAB has had as its primary focus for the past twelve months the issue of solid waste alternative financing. Staff presented an orientation to the BOCC at their January 27, 2003 work session regarding the need for and possible alternatives for alternative financing. As was noted then, environmental stewardship has been a high priority goal for the Board of Commissioners for many years. Among other notable examples has been the goal of reducing per capita disposal of solid waste by 61 percent by the year 2006. Orange County recently became the first of North Carolina's 100 counties to achieve the State's goal of 40 percent per capita solid waste disposal by 2006. The County has developed and implemented a wide range of effective recycling programs that led to this achievement. The FY 2002-03 budget for recycling is about $2.5 million, almost all of which is funded by tipping fees generated from disposal of mixed solid waste and construction and demolition waste. Reduced solid waste disposal has led inevitably to the need to identify and implement other sources of revenue to underwrite the County's solid waste enterprise fund, particularly for recycling programs. 2 Substantive discussions of the need for solid waste alternative financing have taken place intermittently since 1998. The Landfill Owners Group (LOG) formed an Alternative Finance Committee in February 1998. This Committee performed extensive evaluations of financing options, but disbanded in early 1999 prior to reaching a conclusion or drafting a final report, as LOG members turned their collective attention to the priority task of resolving the future governance of solid waste management throughout Orange County. In 2002, the BOCC assigned to the Solid Waste Advisory Board the task of evaluating options for providing alternative financing to the enterprise fund. Their report, to be presented by Chair Jan Sassaman, is the focus of this portion of the work session. SWAB members, Solid Waste Management staff, and Jeff Hughes of the Institute of Government's Center for Environmental Finance will be available to respond to Commissioner questions. The BOCC is not expected to make any decisions regarding alternative financing mechanisms at this February 26 work session. FINANCIAL IMPACT: There is no financial impact associated with receiving this report. However, the financial impacts of identifying and implementing alternative financing are substantial, particularly as they will influence the County's ability not only to maintain current programs and services, but to implement it's Solid Waste Management Plan, properly close the current landfill, and develop a transfer station over the next several years. RECOMMENDATION(S): The Manager recommends that the Board receive the SWAB report and provide appropriate direction to the SWAB and staff regarding subsequent BOCC consideration of alternative financing mechanisms. Executive Summary: This report by the Solid Waste Advisory Board to the Board of Orange County Commissioners investigates the financial situation of the solid waste management department and recommends to the BOCC methods for providing stable, predictable, long-term funding of solid waste management. The SWAB recommendation for the long-term funding is a comprehensive prepaid solid waste services fee to be levied on all improved properties in the County. A similar type of fee is used in Prince William County Virginia and Charleston County South Carolina The SWAB with the assistance of the Solid Waste Department Staff has determined that it takes approximately two fiscal years to fully implement the service fee system. Ashort- term funding system will be needed for the neat two fiscal years. The SWAB was not able to come to a definitive single recommendation for this interim funding and recommends that the BOCC work with the Manager to determine how best to provide sufficient funds to continue operations at their current level while planning for future needs. Several short-term financing options based on fees or taxes are discussed in this report. The SWAB has worked primarily on this solid waste financing issue for the past year. In developing its recommendations, it investigated a variety of approaches including property taxes, fees, special district taxes, and a comprehensive prepaid solid waste fee or some combination of those. The SWAB has determined that some type of financing mechanism is required to supplement the current revenues sources of tipping fees, interest income and sales of mulch and recycling materials revenue. These revenues are needed to maintain current programs and operations, implement the waste reduction programs to achieve the goals, provide longterm, secure disposal options and to maintain necessary reserves. SWAB has endorsed the County's Solid Waste Management Plan waste reduction goal of 61% per capita and the framework for achieving that goal as outlined in the State Solid Waste Plan. SWAB reviewed a staff analysis of the Department's projected budgets utilizing a status quo scenario without significant expansions in waste reduction efforts. This analysis revealed that even the status quo would require substantial additional funding to fully support all current operations. The SWAB is also aware that the largest current source of revenue -- landfill tipping fees -- is limited by the long-term capacity of the landfill and is incapable of fully funding county programs and services until closure. This net revenue source will diminish significantly in 2009 when the lined landfill is scheduled to close and be replaced by a transfer station with out of county disposal of waste. Income from the transfer station will be largely balanced by the cost of operating the station, hauling, and tipping fees at the remote private destination landfill leaving little surplus. There is further income from the construction and demolition waste landfill, but that will fund primarily C&D landfill operations and the extensive and successful C&D recycling programs now in place. At the same time, the overall fund will incur the large expense associated with formal closure and capping of the MS W landfill that could be as much as $2 million. As soon as 2003-04, supplemental funds will be needed to support waste reduction and recycling activities, restabilize the equipment reserves, and begin development of a landfill closure fund. Current landfill income has declined due to success in recycling and waste reduction coupled with a competitive waste management market in which waste flows to the least expensive disposal options. Orange County now has among the highest tipping fees in North Carolina, hence the landfill has lost tonnage, enabling the landfill to last longer but also diminishing the landfill's operating funds. Consequently, the SWAB, at the request of the BOCC, has made alternative financing its top priority through most of the past twelve months. After thorough study and investigation of a variety of options available to provide long-term, predictable, stable funding for Solid Waste Management, the SWAB recommends a system used elsewhere that it terms a'comprehensive services prepaid fee'. For Orange County, this proposed fee would cover the following: • Mixed solid waste lined landfill operations including replacement of the current tipping fee based system with a funning system based on the projected prorated weight from each type of waste generator e.g. residential, multifamily, commercial (varies by type of business/operation). Under this plan, landfill tipping fees would be eliminated for mixed solid waste and out of county waste would still be banned. There would still be a gate fee for construction waste, demolition waste and vegetative waste. • Recycling services including a fee based on the level of service for the type of customer, weekly curbside, biweekly curbside, multifamily with carts, commercial recyclers of different sizes and types • Administrative services including county-wide solid waste education and universal programs that serve all residents such as hazardous household waste, electronics collection, and dropoff sites • Establishment of restricted equipment and landfill closure reserves and maintenance of recommended fund balance • Implementation of Orange County's Integrated Ten Year Solid Waste Management Plan including necessary programs, services and facilities to reach the waste reduction goal • Other solid waste services provided by the Orange County Solid Waste Management Department, not including hauling of solid waste which is outside the purview of this Department. The SWAB envisions this comprehensive fee being charged to all solid waste generators including non-profits such as churches and service organizations. According to one of the S WAB's adopted principles of financing, the fee should be commensurate with the level of solid waste generation and recycling services provided; in other words equitably assessed across all classes of users. The SWAB also realizes that such a system of financing is a radical departure from the current approach where 90% of revenue is from tipping fees and the other 10% from a combination of recycling sales, mulch sales, state grants for tires and white goods and interest on the reserve fund. Establishing a new system with all Orange County property owners pre-paying solid waste fees would likely take two years to implement as it did in Prince William County Virginia. In addition to the considerable public debate required for such a fee, there are technical complexities of determining the level of fee to be paid by each class of users, especially the variable commercial sector. Thorough integration of operations and data of the Tax Assessor, Revenue Collections, Information Services and Land Records/G.LS. Departments will be necessary for success. There are also significant public education and outreach efforts involved in consideration of such a fee structure. The SWAB supports the prepaid comprehensive service fee as it most closely matches the overall set of guiding principles endorsed over the past year including: • Endorsement of the Solid Waste Reduction Plan goals and framework, • Capturing revenues from non-profit properties, as they too generate solid waste, • Using the existing tax collection system to collect solid waste revenues, • Leveling fees or taxes to prevent yearly fluctuations, • Creating equity among classes of system users such that revenues collected reflect services received, • Requiring property owners, rather than occupants to pay the fee or tax, • Creation of dedicated and restricted reserve funds for equipment and landfill closure are prudent policy, • Maintaining a healthy fund balance of a minimum of 12% of the annual budget, • Viewing the fund and the operation as an integrated whole, rather than disparate parts to be completely separated functionally and fiscally. The SWAB recognizes thatthere are significant legal issues to be resolved before such a fee could be considered. Even if it is deemed legal for Orange County to enact the fee, there would be significant technical and political work involved in implementing such a fee that would likely take the same two years it took elsewhere. Consequently, the SWAB recommends that the Board and Manager develop a bridge financing mechanism to get the Solid Waste Management Department through the next two years while the permanent financial plan is being developed. The SWAB discussed in detail the use of availability fees to fund parts of the budget that provide specific services to specific sectors such as weekly curbside recycling in the incorporated areas or biweekly curbside in unincorporated areas. District taxes were considered, as was a general property tax increase earmarked for solid waste. A combination of those fees and taxes was also reviewed. The SWAB ruled out sending a bill to each local government for services rendered and allowing them to find a payment method of their choosing or direct payment by each government for services received. Also deliberated and eliminated were voluntary user fees for non-landfill services such as recycling or hazardous waste collections. It is economically impractical to continue to raise landfill tipping fees and assume the revenue will follow as eventually all privately controlled waste will find it advantageous to leave. The bridge financing mechanism should not be so small as to leave the Department in a fiscal hole from which it will have to dig itself out using the subsequently selected permanent financing mechanism. There will be still be landfill income that will partly support operations in combination with this proposed bridge financing mechanism, but that will not be enough. In addition, the SWAB believes the bridge financing mechanism should, to the extent practicable, meet the guiding principles. There appear to be three basic financing options from which a hybrid involving any combination of the three could be used to supplement current sources of Departmental income between FY 2003-04 and when the permanent financing mechanism is adopted. Those include: 1. A property tax increase where the Board of Orange County Commissioners earmarked a certain portion of the general tax revenues for solid waste management for a year. 2. Creation of special solid waste tax districts where the tax levied in each district reflected, to a certain degree, the level of service provided within it. 3. Development of availability fees in which each member of each class of system user is charged according to the services they have available. In the short run case of bridge financing, the availability fee could be levied on two to four residential classes of system users. The SWAB was not able to provide a single recommendation from among these bridge financing mechanisms, but it does urge the Board and Manager to use at least one or some combination of funding options to provide adequate solid waste program funding until a permanent, stable funding source can be put in place. In its deliberations over solid waste financing, the SWAB received considerable technical assistance in development of financial models from UNC's Environmental Finance Center, especially Jeff Hughes and Joe Cook. A presentation by Prince William County's Solid Waste Director Tom Smith informed the SWAB about this innovative model. The Orange County Solid Waste staff provided additional information about the solid waste budget and the waste reduction plan that also helped the SWAB in its deliberations. Finally, the SWAB was also able to draw on the work done by the Alternate Finance Committee during the tenure of the Landfill Owners Group through 1999. --end executive summary --