How solid waste utilities determine what it costs to serve each customer class — and how those costs become the rates on your bill.
A cost of service (COS) study is the foundation of fair and defensible solid waste rates. It answers a deceptively simple question: How much does it cost to provide each type of service? The answer determines what residential, commercial, and other customers should pay.
Every solid waste COS study follows the same fundamental framework:
Establish the baseline period for projecting costs and revenues — typically a recent fiscal year adjusted for known changes.
Determine the total cost of providing solid waste services — what must be recovered through rates.
Assign costs to each service category (residential collection, commercial collection, disposal, recycling) based on cost causation.
Identify the number of customers, containers, tons, or other units that will be used to calculate per-unit rates.
Divide allocated costs by billing units to determine the rate for each service category and customer class.
Key Distinction: Solid waste cost allocations are driven by service categories — collection type, disposal method, and recycling program — because costs vary dramatically depending on the specific service being delivered (e.g., residential curbside vs. commercial front-load vs. roll-off hauling). Each service has its own equipment, labor, and routing requirements that drive costs independently.
A comprehensive COS study goes beyond current operations. Full Cost Accounting captures past, present, and future obligations:
Old landfill closure: Final capping, drainage, vegetation of closed facility. Costs scale with acreage and site complexity.
Environmental remediation: Cleanup of contaminated groundwater, soil from historical disposal practices.
Legacy debt: Bonds issued in prior years to fund infrastructure, still being repaid.
Collection: Labor, vehicles, fuel, maintenance — typically the largest cost category.
Disposal: Landfill tipping fees, transfer station operations.
Administration: Staff, utilities, equipment, overhead.
Post-closure care: 30-year obligation for groundwater monitoring, leachate management, gas monitoring.
Equipment replacement: Fleet trucks depreciate over 10–15 years; reserve funding must match the replacement cycle.
Capacity expansion: New landfill or expanded transfer facility projected in 10–20 years.
Hidden Subsidies & Who Really Pays: Many solid waste utilities are funded partially by general fund or property tax subsidy. Full Cost Accounting makes this visible: if total full-cost obligations exceed rate revenue, the gap is being subsidized. FCA helps councils make informed decisions about whether that subsidy is sustainable long-term.
Next: With the framework established, let’s build the financial baseline — the test year and revenue requirement.
The test year is the financial baseline for the entire study, and the revenue requirement is the total cost the system needs to recover through rates. Together they answer: How much does the solid waste system cost to operate, and what revenue must rates produce?
The utility's adopted annual budget provides the starting point. This includes all departments, divisions, and cost centers associated with solid waste operations.
Normalize for one-time costs (storm cleanup, equipment failures), annualize partial-year changes (new hires, contract renewals), and update for known cost increases (fuel, tipping fees, labor contracts).
The adjusted budget becomes the "test year" — a representative annual cost level that rates must recover. It serves as the financial foundation for every subsequent step in the study.
Common Adjustments: Fuel cost escalation, new route additions for growth areas, updated disposal/tipping fee contracts, changes in recycling commodity revenues, fleet replacement schedules, and labor/benefit increases from collective bargaining agreements.
A solid waste revenue requirement captures every cost the system needs to recover through rates:
Drivers, helpers, route supervisors — typically the single largest cost component at 30–40% of total costs.
Truck acquisition/lease, fuel, maintenance, insurance. Fleet lifecycle funding ensures replacement without rate spikes.
Landfill tipping fees, transfer station costs, and any waste-to-energy processing fees. Highly variable by region.
Customer service, billing, management, regulatory compliance, and shared municipal overhead allocations.
Residential carts, commercial dumpsters, roll-off containers — purchase, repair, and replacement costs.
Recycling processing fees (or revenue offsets), yard waste programs, HHW events, and environmental programs.
Illustrative breakdown of cost components
Solid waste growth is fundamentally an operational challenge — when new neighborhoods come online, the system needs more routes, trucks, and drivers:
Key Insight: Solid waste growth is fundamentally operational rather than capital-driven. When new neighborhoods are built, the utility adds truck routes, hires drivers, and purchases containers. This makes the growth forecast a staffing and fleet exercise — typically funded through the operating budget rather than a long-term capital improvement plan.
Fleet Transition — CNG and Electric: Many solid waste fleets are transitioning from diesel to compressed natural gas (CNG) or battery-electric vehicles. Electric refuse trucks can cost roughly 2–3x more than conventional diesel trucks upfront, but offer lower fuel and maintenance costs over their lifespan. CNG trucks require fueling infrastructure investment. These transitions materially affect the fleet component of the revenue requirement: higher capital costs but lower operating costs, changing the balance between fixed and variable cost recovery. Financial planning models should project fleet transition timelines and their multi-year cost impact.
Next: Looking beyond a single year — how to forecast costs and phase in rate changes.
A COS study produces rates for a single test year. But utilities need to plan beyond that year. What will costs look like in 2, 3, or 5 years? How should rates be phased in to avoid sharp increases that alarm customers? What reserves should be built to buffer against commodity volatility? Multi-year financial planning extends COS analysis into a full financial roadmap.
What increases: Labor (union contracts or market salary growth), fuel (volatile but trending up), tipping fees (regional demand), recycling processing fees (market-driven).
Typical rates: Labor 2.5–3.5% annually, fuel 3–5%, tipping fees 3–7%.
Gradual increase: 3–5% annual increases spread revenue adequacy across multiple years. One-time jump: Single large increase (10–25%) followed by modest inflation. Which works better?
Depends on political climate, reserve depletion, and customer perception.
Operating reserve: 30–90 days of operating expenses. Equipment replacement reserve: Dedicated fund for truck/equipment replacement scaled to fleet size and replacement cycle.
Reserves prevent service disruption and reduce borrowing costs.
| Cost Category | Current Trend | Typical Escalation | Driving Factors |
|---|---|---|---|
| Labor (drivers, mechanics) | Tight market | 2.5–4.0%/yr | Union contracts, market competition |
| Fuel (diesel) | Volatile | 3–8%/yr (variable) | Crude oil, geopolitics, demand |
| Landfill Tipping Fees | Rising | 3–7%/yr | Capacity constraints, regulations |
| Recycling Processing | Commodity-tied | 2–10%/yr (volatile) | Commodity markets, contamination |
| Maintenance & Parts | Steady | 2.5–3.5%/yr | Inflation, equipment age |
| Administration | Steady | 2–3%/yr | CPI, benefits inflation |
Automatic formula ties rates to Consumer Price Index (CPI). E.g., rates adjust annually by (CPI + 1.5%), capped at 6% maximum. Reduces political friction but may lag actual costs if CPI underestimates sector-specific inflation.
Advantage: Predictable, reduces need for contentious studies. Drawback: May misalign with actual costs.
Comprehensive COS study conducted every few years to reset rates to actual costs. Fills gap between annual adjustments and ensures rates reflect current operations, not accumulated drift.
Advantage: Accurate, transparent. Drawback: Consulting cost plus political visibility of the process.
The Garbage & Trash CPI Subcategory: The Bureau of Labor Statistics publishes a specialized CPI index for “Garbage and Trash Collection” (Series APUS49SAL74010) that tracks actual waste service cost inflation nationwide. Some jurisdictions now use this index directly in rate formulas: rates adjust annually by the Garbage CPI ± a floor/cap mechanism. This is more accurate than general CPI because it accounts for sector-specific cost pressures (fuel, labor in waste specifically). However, national CPI may not reflect local market conditions (landfill capacity in your region, union labor agreements unique to your city).
Revenue Stabilization Funds & Commodity Volatility Buffer: Recycling and organics processing fees are commodity-linked: when scrap metal, plastic, or compost market prices collapse, processing costs spike. Tipping fees also fluctuate with regional demand. To buffer customers from sudden rate jumps, many utilities establish a stabilization reserve: in good years (stable or falling commodity costs), excess revenue feeds the reserve; in bad years (commodity spikes), the reserve covers the shortfall. A well-sized stabilization reserve can smooth a significant commodity shock across one year rather than forcing a sudden rate increase. This requires discipline to avoid depleting the reserve for other purposes.
Next: With multi-year costs projected, we allocate them to the specific services that drive them.
Once the revenue requirement is established, costs must be allocated to the specific services that drive them. This is the heart of the COS study — matching every dollar of cost to the service responsible for incurring it.
The Service-Category Approach: Solid waste costs are allocated by tracing each expense to the specific service category that incurs it — residential collection, commercial collection, recycling, disposal, or shared services. This approach reflects the reality that each service has its own distinct equipment, labor, routing, and disposal patterns.
A typical municipal solid waste utility might define the following service categories for cost allocation:
Refuse Curbside Collection
Large Item Collection
Recycling Curbside Collection
Side-Load Refuse & Recycling
Front-Load Refuse & Recycling
Rear-Load Refuse & Recycling
Roll-Off Refuse/Recycling
Landfill Disposal
Recycling Processing
Administration
Environmental Programs
Customer Service
Fleet & Container Maintenance
Solid waste costs fall into two categories based on how they're assigned to service categories:
Costs directly incurred by the operations of a specific service. If a truck, driver, or route is dedicated to residential curbside collection, those costs go directly to residential collection.
Example: Residential collection trucks, commercial front-load drivers, recycling processing contracts
Shared costs that benefit multiple services and must be distributed. Typically allocated based on each service's percentage of the total direct revenue requirement.
Example: Administration, customer service, dead animal pickup, street cleaning
Disposal costs (landfill tipping fees, transfer station operations) are allocated based on each service's portion of the total tonnage collected. If residential collection accounts for 60% of total tonnage delivered to the landfill, residential absorbs 60% of disposal costs. This tonnage-based allocation ensures that the services generating the most waste bear the proportionate disposal cost.
The Recycling Market Disruption: China’s National Sword policy (2018) and subsequent import restrictions fundamentally restructured recycling economics worldwide. Before 2018, many U.S. municipalities received commodity revenue from recycling processors. Today, most pay significant processing fees that vary widely by market conditions. For COS studies, this shifts recycling from a revenue offset to a cost center, significantly increasing the revenue requirement. Contamination rates in single-stream recycling compound the problem, as contaminated loads incur even higher processing fees or are diverted to landfill.
Organics Diversion — A New Service Category: California’s SB 1383 (effective 2022), along with similar mandates in Vermont, New Jersey, and other states, requires diversion of organic waste from landfills. This creates a new service category in the COS framework — organics collection and processing — with its own collection routes, processing contracts, and contamination challenges. As organics programs expand nationally, COS studies must allocate these costs appropriately, typically as a separate service line or embedded within residential/commercial collection based on program design.
Next: Before we can calculate rates, we need to count the billing units — the denominators in the rate equation.
Before costs can be translated into rates, we need to know how many units of service are being provided. Billing units are the denominators in the rate equation — total cost divided by total billing units equals the unit rate.
Why Billing Units Matter: Billing units are the denominators in the rate equation. If the total allocated cost for a service is $600,000 and there are 6,000 billing units, the rate per unit is $100. Errors in billing unit counts flow directly into incorrect rates — overcount units and rates are too low (revenue shortfall); undercount and rates are too high (overcharging customers).
Each customer segment uses a different billing unit that reflects how service is actually delivered:
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Monthly Customer Counts
Number of households served per month. Each account equals one billing unit regardless of waste volume.
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Per-Week Collection Matrix
Container size (cubic yards) × collections per week. A 6-yard dumpster collected 3x/week is a different billing unit than a 4-yard collected 2x/week.
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Annual Pulls
Number of container pickups per year. Each pull incurs hauling and disposal costs regardless of container size.
Commercial billing units are organized in a matrix of container size vs. collection frequency. Each cell represents a distinct service level with its own billing unit count:
The matrix typically shows container sizes on one axis (2, 3, 4, 6, 8 cubic yards) and collections per week on the other (1, 2, 3, 5 times). The number of customers at each size/frequency combination determines the billing units. Collections per week are then annualized and multiplied by the number of customers to calculate total annual collections — a critical input for determining per-collection costs.
| Cubic Yds | 1x/wk | 2x/wk | 3x/wk | 5x/wk | Collections/wk | Collections/yr |
|---|---|---|---|---|---|---|
| 3 | 126 | 50 | 7 | 4 | 267 | 13,884 |
| 4 | 9 | 2 | 1 | — | 17 | 884 |
| 6 | 8 | 16 | 8 | — | 64 | 3,328 |
| 8 | 0 | 2 | 5 | — | 29 | 1,508 |
| 11 | 0 | 0 | 1 | — | 3 | 156 |
Illustrative data based on a typical municipal solid waste system
Customer counts by service type (illustrative)
Pay-As-You-Throw (PAYT): Also called variable-rate or volume-based pricing, PAYT charges residential customers based on the amount of waste they generate — typically by offering different cart sizes at different monthly rates (e.g., 35-gallon, 65-gallon, 95-gallon). PAYT provides a direct conservation incentive: customers who reduce waste or divert more to recycling pay less. EPA data shows PAYT communities achieve 25–45% waste reduction. For the COS study, PAYT requires careful billing unit definition — the unit becomes “per cart size per month” rather than a uniform per-household charge — and the rate for each cart size must reflect both fixed service costs and variable disposal costs proportional to estimated waste generation.
An increasingly common rate mechanism where haulers or municipalities charge customers — typically commercial accounts — for contaminated recycling loads. When a recycling container exceeds contamination thresholds, a surcharge applies. For COS studies, contamination fees may be treated as a separate revenue line that offsets recycling processing costs, or as a surcharge embedded in the commercial recycling rate structure.
Next: With costs allocated and billing units counted, we can calculate the per-unit rates.
With allocations complete and billing units determined, we can now calculate the cost per unit of service. This is the step where all the analysis comes together into actual rate-ready numbers.
The total cost of service for residential collection is built in layers:
Trash collection (carts & dumpsters), brush & bulky pickup, recycling collection
Administration, shared programs, overhead allocation
Landfill disposal allocated by residential tonnage share
Total annual cost to provide residential solid waste service
Dividing total COS by billing units yields the per-customer cost components:
| Component | Annual COS | Billing Units | Cost/Customer/Month |
|---|---|---|---|
| Direct Costs | $600,000 | 6,000 customers | $8.33 |
| Indirect Costs | $150,000 | 6,000 customers | $2.08 |
| Disposal Costs | $75,000 | 6,000 customers | $1.04 |
| Total COS per Customer | $825,000 | 6,000 | $11.46/mo |
Illustrative example using round numbers for methodology demonstration. Actual residential solid waste rates vary widely by system size, service level, disposal costs, and region.
What makes up the monthly bill (illustrative)
Next: The COS calculation produces unit costs, but translating those into an actual rate schedule involves design choices.
A COS study identifies the total cost that needs to be recovered. Rate design is the art and policy of translating that cost number into an actual rate schedule that customers pay. Design choices —— flat vs. tiered, embedded vs. unbundled, per-unit vs. per-building — reflect city values, equity concerns, and operational realities.
All customers in a class pay the same monthly fee regardless of service level or waste volume generated.
Incentive: No incentive to reduce waste. Equity: Regressive — low-income families pay same as wealthy families.
Customers pay by cart size or collection frequency. Smaller carts pay less; larger carts pay proportionally more. Pay-As-You-Throw incentivizes waste reduction.
Incentive: Strong waste reduction signal. Equity: More progressive if lower tiers are affordable.
Commercial customers billed by container size & pickup frequency. Larger containers and more frequent pickups mean proportionally higher monthly rates.
Incentive: Reflects actual service. Complexity: Requires tracking container inventory & pickups.
Single line item covers collection, recycling, yard waste, disposal — everything. Customers see one charge, not broken down.
Advantage: Simplicity. Drawback: Obscures what costs what.
A key design decision: show customers one all-in fee, or break costs into transparent line items?
Example bill line item:
Solid Waste Service: [single charge]
One charge covers collection, disposal, recycling, yard waste, administration. Customers don’t see cost breakdown.
Pro: Simple, clean bill. Con: Hides cost drivers; recycling costs are invisible to customers.
Example bill line items:
Refuse Collection: [largest share]
Recycling: [second largest]
Yard Waste: [if applicable]
Disposal Fee: [per-ton based]
Separate line items show cost of each service. Transparent, allows targeting of subsidies.
Pro: Transparent, allows selective subsidies. Con: Longer bill, more complex marketing.
| Cart Size | Capacity | Relative Price | Typical Customer |
|---|---|---|---|
| 20 gallon | ~25 lbs/week | Lowest tier | Senior, low-income, small household |
| 32 gallon | ~40 lbs/week | ~1.4x lowest | Single person, apartment |
| 64 gallon | ~85 lbs/week | ~2.2x lowest | Average household (2–3 people) |
| 96 gallon | ~130 lbs/week | ~2.8x lowest | Larger family (4+ people) |
| Additional pickup | Per week | Supplemental fee | High-volume generator |
Many cities offer 20–50% discounts to seniors (age 65+) and low-income households. Cost of discount must be recovered from other ratepayers. Example: If 10% of customer base receives 30% discount, that 3% revenue loss must be made up through higher rates on other customers.
Multi-family rate design is complex: do you bill per unit or per building? Shared dumpster or individual carts? If per-building, how is the cost split among tenants? Some cities offer per-unit billing with centralized dumpster service; others require landlords to arrange individual service.
Senior/Low-Income Discount Programs & Revenue Shortfalls: While equity-focused discount programs serve vulnerable populations, they reduce revenue below COS. A 30% senior discount on 8% of customer base reduces revenue by 2.4%. This shortfall must be recovered — either through higher rates on other customers (creates cross-subsidy) or through city general fund subsidy. If funded by cross-subsidy, the COS study must document this so rates appear defensible. If funded by general fund, the city is effectively using tax dollars to subsidize seniors’ waste service, which may or may not be consistent with city policy.
Multi-Family Rate Design Challenges: Apartment buildings and condos present unique rate design issues. A 50-unit building with one shared dumpster has very different economics than 50 single-family homes. If billed per unit, collection costs are allocated 50 ways, but the truck still makes one stop. If billed per building, the landlord absorbs the cost and may not pass it fairly to tenants. Some cities have adopted “per-unit equivalent” billing, where multi-family buildings pay a percentage of single-family rates multiplied by number of units. Others offer incentives for source separation and compaction in multi-family settings.
Next: Let’s bring it all together — the complete COS workflow from start to finish.
The COS study produces defensible, cost-based rates for every service category. Here's how each element of the study connects to create the final rate structure.
A COS study ensures each customer class pays for the costs they cause. Residential customers aren't subsidizing commercial service, and vice versa.
Every rate can be traced back through the allocation methodology to a specific cost. This transparency is essential when presenting rates to a governing board or responding to customer challenges.
The service-category approach, collection matrix billing units, and tonnage-based disposal allocations are distinct to solid waste — making specialized expertise critical for an accurate study.
As costs change — fuel, tipping fees, labor, recycling markets — rates must be updated. Most utilities benefit from updating their COS every 3–5 years or when major cost shifts occur.
Toggle between cost views to explore how expenses are distributed
A growing number of states — including Colorado, Oregon, California, Maine, and Minnesota — have enacted laws requiring manufacturers to fund end-of-life management of packaging. EPR shifts recycling costs from ratepayers to producers, potentially reducing the recycling component of the revenue requirement. COS studies in EPR states must account for how producer funding offsets or replaces ratepayer-funded recycling programs.
Regional landfill capacity constraints are driving tipping fees sharply higher in some markets — from $30–50/ton in landfill-abundant regions to $80–120+/ton where capacity is tight. Since disposal allocation is tonnage-based, tipping fee volatility flows directly into rates. Multi-year COS projections should incorporate tipping fee escalation rates and evaluate long-term disposal alternatives (waste-to-energy, regional transfer agreements) as part of financial planning.
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