Friday, May 4, 2012

Minneapolis vs. Saint Paul: Residential Solid Waste and Recycling Finance

In the great debate over which of Minnesota’s Twin Cities is truly superior, there may be some evidence in how Minneapolis and Saint Paul manage their Solid Waste and Recycling services.  Minneapolis and Saint Paul utilize very different approaches, and this report shows that both of the two cities are really trendsetters for the rest of the State of Minnesota, and other cities nationally.  While both cities have found a way to provide highly regarded service to all of their residents, a closer look at how these cities finance their programs should shed some light on the subject.

The City of Minneapolis uses a mix of municipal and organized collection.  Half of the city is serviced by municipal collection crews, while the other half is serviced through contracts with private haulers. Services are financed through the Solid Waste and Recycling Fund, which has remained relatively stable throughout its history.  However, the 2012 budget shows some signs of concern. For 2011, revenues for the fund are projected at $32.9 million, while expenditures are projected at $33.1 million, leaving a deficit of $463,000. In 2012, for the first time in several years, total revenue is scheduled to decrease to $30.8 million, a 6.2% percent decrease from 2011.   Most of the funding is generated from solid waste collection fees.  The fees are administered by Minneapolis Utility Billing, and are listed separately on residents’ monthly utility bills, making the fees easy to administer but highly visible to residents.  Also, with the city having a monopoly on solid waste services, consumers have little choice but to pay the minimum amount of $27 per month.

While revenues declined in 2012, expenditures are budgeted to increase by 2.3%, from $33.4 million to $34.1 million.  The increase is largely due to the increasing cost of providing solid waste services, which rose 3.5%, from $30.4 million in 2011 to $31.5 million.  These costs have increased despite reductions in salaries, contractual services, and operating materials.  Also concerning, the budget includes a transfer of $571,000—up 141.9% from 2011—to the Debt Service Fund for pension obligations.  The result of these trends in Minneapolis is a planned $3.2 million decrease in net assets for 2012.  Total cash balance for the Solid Waste Fund is expected to decline from $21.4 million to $18.2 million.  Even more concerning, the cash balance is forecast to fall to $11.4 million in 2015, nearly cutting the fund’s balance in half.  

Saint Paul
Saint Paul spending on Solid Waste and Recycling services is substantially less than Minneapolis.  While Minneapolis’ spending for 2012 is $34.1 million, the budget for Saint Paul shows spending for solid waste and recycling services at only $6.2 million.  The main reason for the disparity is that Saint Paul operates almost entirely under open collection.  Rather than paying for garbage collection contracts, the city of Saint Paul generates revenue from private garbage haulers through licensing fees.  Licensed haulers then contract directly with residents on a free market, competitive basis through a subscription service.  Another benefit of the open collection structure is that Saint Paul does not need to spend much on employment costs or materials and supplies.  Combined, these expenses only total $90,500 for the Solid Waste Division.

Almost all of the Saint Paul’s spending goes to Eureka Recycling, a non-profit that holds the only contract for recycling services.  The amount budgeted for Eureka’s services have been stable over several years, ranging between $3.2 million to $3.7 million.  However, for 2012, this payment for contracted services was budgeted at $5.8 million.  That is about a $2 million dollar increase from 2011’s spending.  Only about 7% of this increase is the result of increased costs of existing recycling services which were negotiated in 2011.  The rest is included as funding for Eureka to begin implementation of residential program to collect and process compostable organic waste.  This program was budgeted at $1.8 million. 

To manage the increased expenditures, Saint Paul plans on increasing its solid waste fee to bring in estimated additional revenue of $2.2 million.  Total revenues from service fees for 2012 are budgeted at $5.6 million. In Saint Paul, these fees are generated through residents’ property tax bills, and are heavily subsidized by the city, so they are much less visible than those in Minneapolis.

The Results
While there are many criteria in the debate over which of the Twin Cities is superior, points go to Saint Paul for Solid Waste and Recycling finance.  In Saint Paul, the burden of the rising costs of service provision and employee benefits (healthcare, pensions, etc.) is the responsibility of the private sector, while these costs are taking an increasing share of Minneapolis’s budget, despite substantial cuts.  Saint Paul’s open collection structure connects consumers directly with private garbage haulers in a competitive market, is less costly to administer, and the freedom to choose from several garbage haulers is popular among residents.  When Saint Paul raises revenues to implement a new program or to meet expenditure needs, the revenue increases are much less visible to residents than an equivalent increase in Minneapolis.  Minneapolis is also in a tougher position if it wanted to shift toward an open collection system.  Abandoning its municipal collections would require the city to shut down facilities and equipment and fire dozens of workers, which would be highly unpopular with the labor unions to which they belong.  Sorry, Minneapolis, but this one goes to Saint Paul.

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