Solid Waste and Recycling Fund
2022-2027 Financial Plan
Background
The Solid Waste and Recycling Fund provides services related to collection, disposal, and recycling of household waste, yard waste, and problem materials. Graffiti removal and the organics program are additional activities. The Solid Waste Division provides weekly and bi-weekly services for trash, yard-waste, organics, and recycling material pickups. It also operates a solid waste transfer station providing service to over 107,000 households. City crews provide approximately one-half of the solid waste collection service in the City with the other half provided through a contract with a consortium of companies specializing in waste collection.
Funding for Solid Waste and Recycling activities is primarily generated from solid waste collection fees through monthly utility bills. The Fund also receives yearly grants from Hennepin County. Additional revenue is generated through recyclable sales, miscellaneous services, graffiti abatement, and organic programs. The division of Solid Waste & Recycling is responsible for the management of the operations within this fund.
Historical financial performance
The overall financial condition of the Solid Waste and Recycling Fund has remained stable over the last five years, despite implementing one-sort and organic programs at an additional cost of $8.9 million. The Fund has continuously maintained its cash balance above $16 million, keeping the three-month cash reserve of at least $10.1 million, and leaving at least $5.4 million as unrestricted. This changed in 2020 and 2021 as some of the cash balance above the reserve requirement was used to fund part of the new facility. Total revenues for 2020 were at $47.1 million compared to $54.2 million in total expenses. An increase in the year’s expenditures was expected due to additional investments of $6.8 million in the new facility at 2600 University Avenue NE. Even with this ongoing facility construction, the fund has been able to:
- fund new programs - mattress and electronics hauling and recycling;
- start new initiatives - zero waste studies, litter prevention, step-up interns, and graffiti abatement programs;
- meet its obligations for shared costs and services with other City departments;
- finance the Solid Waste Information System (SWIS) replacement project, and upgrade its software support system;
- replace vehicle, trucks, carts, and other business line equipment on a yearly basis;
- maintain staffing levels; and
- control utility rate increases.
The outlook for the Fund for the next five years looks stable although in 2021 the fund expects to issue $6.3 million of additional debt to finance a portion of the new facility expenses in order to maintain a healthy cash balance in the next five years. A new $45 million facility was completed in May of 2020 and paid out of fund balance and debt proceeds.
Current year projections
Revenue
For the current year, revenue is projected to reach $54.3 million compared to $47.1 million earned in 2020 reflecting an increase of $7.2 million mainly due to $6.3 million in bond sales expected in 2021. Solid waste recycling revenue is projected to increase by $0.9 million compared to 2020 due to a dramatic increase in the market prices of recycled material. Utility revenues and county recycling grants are projected to be realized as budgeted in the current year.
Expense
Operating expenses for 2021 are projected to equal $48.3 million compared to $54.2 million spent in 2020, due to $6.6 million more spent on the new facility in 2020 compared to what is expected in 2021. Additional expenses due to volume increases from people working from home due to COVID-19 are going to be similar for both 2020 and 2021, with Disposal and Organics having the biggest increases.
Net position and cash balance
Since incurring $6.8 million of capital expenditures in 2020 without issuing any bonds, the cash balance has decreased. To remedy the decrease in cash balance and maintain the 3-month Target Cash Balance, the fund will issue $6.3 million in bonds in the second half of 2021. For 2021 year-end, net position and cash balance are expected to total $40.9 million and $22.5 million respectively.
2022 Budget
Over the last four years, a total of $28.7 million has been earmarked for a facility improvement to be funded through bonds. The facility was completed in May of 2020 and the Solid Waste personnel moved into the new facilities at that time. For the 2022 budget, there are no more construction costs budgeted for this project.
Revenues
The total revenue budget for 2022 stands at $48.0 million compared to $54.3 million in revenue projected for 2021. The decrease of $6.3 million over the 2021 projection is a result of; (i) increase in service revenue, budgeted at $41.2 million, which is $1.7 million higher than the projection for 2021, due to an increase in rates; (ii) $6.3 million of bonds projected to be issued in 2021 and there are no plans for issuance of bonds in 2022; (iii) decrease in recycling sales budgeted at $0.2 million for 2022 and estimated at $1.0 million in 2021.
Expenses
The total expenditure budget for 2022 amounts to $51.0 million compared to $48.3 million projected for 2021, an increase of $2.7 million, or 5.6%. The operating budget totals $45.7 million and the remaining $5.3 million is for facility related debt service. The 2022 operating budget, compared to 2021 projections, reflects the following changes: (i) an increase in recycling, yard waste, problem material, and admin of $2.2 million due to new vendor contracts; (ii) a decrease in equipment and clean city by $0.4 million due to less equipment purchases and lower volumes; (iii) an increase in debt services by $0.5 million due to new bonds planned to be issued in 2021.
Transfers
The Solid Waste and Recycling Fund will continue to receive a $146,000 transfer from the Parking Fund for litter container pick-ups in the downtown area. The Fund has also been receiving an annual transfer from the General Fund for graffiti removal since 2014. For 2022, General Fund transfers total $325,000. These transfers are expected to continue with variations in programs and amounts.
Debt service
In 2021, the fund plans to issue additional debt and therefore we expect an increase of $0.5 million in principal and interest payments to $5.3 million.
Net position and cash balance
The Solid Waste Fund started the year with a cash balance of $16.1 million and a net position total of $34.9 million. Based on the 2021 estimates, the cash balance and net position will increase to $22.5 million and $40.9 million, respectively. The five-year plan forecasts a level net position of $33.4 – 37.8 million and a level cash balance of $15.0 - $19.5 million, through 2026.
The City’s financial policy requires a fund to maintain a cash balance equal to or greater than three months’ operating expense. Therefore, the target cash balance for 2022 is $11.4 million, making $8.1 million available for future fund needs.
Solid waste utility rates
The Department proposes an increase of the base rate for collection and hauling to $26.46 per dwelling unit, an increase over the 2021 utility rate of $1.38 or 5.5%, due to the 10% increase in volume that the fund carries the expense for. The number of dwelling units at the end of June 2021 is 107,692, an increase of 169 units compared to end of 2020. The fixed rate for small and large carts remains the same at $2.00 and $5.00 for the foreseeable future.
Solid Waste Financial Plan
