Title
Public Works Solid Waste Financial Plan Update
Description
This report provides the Transportation, Infrastructure, and Planning Subcommittee with an update on the Public Works Department Solid Waste Utility financial plan for Fiscal Years 2024-29.
THIS ITEM IS FOR INFORMATION AND DISCUSSION.
Report
Summary
The Public Works Department Solid Waste Utility provides an essential service by protecting public health and the environment. The utility provides safe and responsible refuse and recycling collection to 420,000 residential customers each month, and processes over one million tons of materials each year while meeting regulatory requirements.
The Public Works and Finance departments have prepared a five-year financial plan for the Solid Waste Utility, which reflects the capital infrastructure requirements, operating expenditures, and financial requirements for solid waste services.
This plan:
• Provides for repair, replacement, and development of infrastructure necessary to ensure landfill, transfer station, and materials recovery facilities meet regulatory and service requirements;
• Provides all resources needed by Public Works to continue to provide reliable solid waste refuse and recycling services to Phoenix residents; and
• Ensures a reliable fleet of equipment to provide effective collection services.
The following sections outline the financial requirements for the Solid Waste Utility to meet its current debt obligations, as well as its forecasted Operating and Capital Improvement Program (CIP) expenditures during this time frame.
Operating Expenses
For Fiscal Year (FY) 2023-24, Operating and Maintenance (O&M) expenditures for the Solid Waste Utility are estimated at $173.8 million. Approximately 98 percent of the O&M costs are for the day-to-day operation of the utility, and two percent is for vehicle purchase.
The Public Works Department Solid Waste Utility continues to experience significant growth in its overall operating expenses. Major factors impacting these increases include:
• Salaries and Benefits - The City of Phoenix implemented salary increases related to the recent classification and compensation study. The proposed financial plan includes costs associated with further labor increases over the next two years. Additionally, the cost of health insurance benefits continues to rise.
• Vehicles and Equipment Maintenance - The costs of refuse and recycling vehicles and transfer station and landfill equipment have increased significantly. Equipment management costs to maintain and repair vehicles have also increased, driven by inflation in parts and labor.
• Waste Transport Services and Recycling - Waste transport and recycling expenditures have increased. At the same time, the city has also experienced an increase in refuse tonnage, which compounds that increase.
Solid Waste continued its annual $220,000 contribution to the Project Assist Utility Assistance Program in FY 2023-24. The Project Assist Utility Assistance Program is designed to assist City of Phoenix residents in crises by providing utility financial assistance services.
Capital Improvement Program
The Solid Waste CIP includes infrastructure improvements at the landfills and transfer stations, environmental regulatory landfill gas and groundwater monitoring, equipment replacement at the 27th Avenue and North Gateway Material Recovery Facility (MRF), vehicle replacements, technology infrastructure, and percent for art projects. The capital needs for Solid Waste are supported by PAYGO (cash funded), bonds, capital reserves, grants, and remediation funds. The FY 2023-24 final estimate and 2024-29 proposed CIPs for Solid Waste are $18 million and $202.1 million, respectively. Capital investments are needed to support population growth, new account trends, and increased trash and recycling volumes. Currently, the financial plan includes projected short- and long-term financing for future CIP investment.
Revenues
Revenues for the Solid Waste Program are generated by monthly fees for residential household service, disposal fees charged at the transfer stations and landfill, sale of recycled materials, and other earnings. The final estimate for revenues for FY 2023-24 includes $207.4 million from these sources.
Solid Waste Financial Plan - Actions Taken
The Solid Waste Utility has significantly reduced and deferred acquisition of replacement refuse vehicles, identified cost savings, applied for grant funding, and implemented operational efficiencies to address rising expenses to ensure expenditures do not exceed the budget. CIP projects that do not directly support regulatory compliance, core operations, and/or city mandates have been postponed. Additionally, as a result of City Council approval in May 2023, the commercial gate rate at the city’s transfer stations was increased from $44 to $55 per ton, which resulted in a projected $2.3 million in additional revenue for FY 2023-24. The Solid Waste fund currently seeks to maintain a minimum operating reserve of at least $25 million, which is critical to protect the city's bond ratings and provide for financial resiliency. Actions taken to lower expenditures ensure current FY revenues are sufficient to support the FY 2023-24 operating budget, capital infrastructure, vehicle replacement, and debt service requirements of the Solid Waste Utility, while maintaining the required minimum $25 million operating reserve.
Future Considerations
While the Solid Waste utility has taken many steps to balance the fund, further actions will be required to address a forecasted structural imbalance. The Public Works Department is working with the Finance Department, the Solid Waste Rate Advisory Committee, and our consultant to update the financial plan and will return to the Subcommittee with recommendations next fiscal year.
Department
Responsible Department
This item is submitted by Deputy City Manager Mario Paniagua and the Public Works Department.