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Date: May 22, 2025
To: Dan Hardgrove - City of Glendale
From: David Davis - MSW Consultants
Subject: 2025 Mid-year review of 2023 Solid Waste Cost of Service Study Background
In 2022, the City divested a significant portion of its commercial collection operations as part of franchising the business sector of the City’s solid waste operat ions. Also in 2022, CalRecycle adopted regulations that implemented SB1383, which created significant upward pressure on the cost of solid waste collection. Prior to 2022, the City had not adjusted refuse rates since 2010. As a result of these circumstances, the City’s Refuse Disposal Fund was incurring significant annual shortfalls, and rapidly depleting its cash reserve.
In 2023, the City conducted a cost of service study of the Refuse Disposal Fund. As a result of the cost of service study, the City approved a five -year plan to adjust refuse collection rates. That five year rate adjustment plan entailed the rate adjustments shown below in Table 1 These rate adjustments were intended to over time reverse the annual shortfalls and stem the depletion of cash in the Refuse Disposal Fund.
Table 1 – Proposed Rate Adjustment from 2023 Cost of Service Study Description Current Rate
Proposed
Rate Effective
July 1, 2023
Proposed
Rate Effective
July 1, 2024
Proposed
Rate Effective
July 1, 2025
Proposed
Rate Effective
July 1, 2026
Proposed
Rate Effective
July 1, 2027
Automated Cart Service - Single Family
Monthly Rate Standard 64 gallon cart $11.72 $11.72 $28.78 $41.73 $52.16 $57.38 $63.12 Adjustment Amount $17.06 $12.95 $10.43 $5.22 $5.74
Adjustment Percent 146% 45% 25% 10% 10%
Monthly Rate - Standard 96 gallon cart $18.34 $18.34 $32.34 $46.90 $58.63 $64.49 $70.94 Adjustment Amount $14.00 $14.56 $11.73 $5.86 $6.45
Adjustment Percent 76% 45% 25% 10% 10%
Exhibit 1
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Chart 1 below shows the projected operating results and cash balance in the Refuse Disposal Fund through fiscal 2028 resulting from the proposed rate adjustments.
Chart 1 – Projected Operating Results from 2023 Cost of Service Study
Objectives
The objectives of this mid-year review are to:
• Review the operating results (i.e., revenues and expenditures) for fiscal 2023 and 2024 in the Refuse Disposal Fund that were projected in the 2023 cost of service study, and compare them to the revenues and expenditures that were actually incurred for those two fiscal years.
• Based on the actual operating results for fiscal 2023 and fiscal 2024, update the projections of revenues and expenditures for fiscal years 2025 through fiscal 2028.
• Based on the updated projection of operating results, evaluate whether, and to what extent, the 25% rate adjustment planned for July 1, 2025 should be implemented.
Findings
Based on our review, we found:
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Finding #1 – For the two fiscal years ended June 30, 2024, actual operating results were significantly more favorable than the operating results that were projected in the cost of service study. Instead of a projected shortfall of approximately $18.4 million, the Refuse Disposal fund incurred an actual shortfall of approximately $9.3 million; a favorable difference of approximately $9.2 million.
Table 2 below shows the projected and actual operating results for the combined two years ended June 30, 2024 (fiscal years 2023 and 2024) . Table 2 shows that for the two years ended June 30, 2024, the Refuse Disposal Fund was projected to incur a shortfall of approximately $18.4 million. However, the Refuse Disposal Fund actually incurred a shortfall of $9.3 million, which was a more favorable result by an amount of $9.2 million.
Table 2 – Operating Results – Projected vs. Actual
The more favorable actual operating results were due to a combination of greater actual revenues and fewer actual expenditures than projected. Table 2 shows that for the two fiscal years ended June 30, 2024, actual total revenue in the Refuse Disposal Fund exceeded the amount of total revenue projected in the cost of service study by approximately $3.6 million, or approximately 12.4%.
Projected Actual Variance Percent
Revenue
Rate Revenue $19,287,376 $19,940,274 $652,898 3.4%
Other Revenue 9,731,631 12,669,293 2,937,662 30.2% Total Revenue $29,019,007 $32,609,567 $3,590,560 12.4%
Expenses
Labor $17,444,043 $16,554,539 ($889,504) -5.1%
Vehicles 7,865,312 7,625,087 (240,225) -3.1% Disposal/Processing 14,336,800 8,982,857 (5,353,943) -37.3% Overhead 7,806,809 8,700,739 893,929 11.5% Total Expenses $47,452,964 $41,863,222 ($5,589,742) -11.8% Surplus/(Shortfall) ($18,433,957) ($9,253,655) $9,180,302 -49.8% Two Years Ended June 30, 2024
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This was primarily due to greater actual AB 939 franchise fee revenues than projected.
AB 939 fee revenue is received from the private franchised haulers, and is calculated based on a percent of the gross receipts they collect from their commercial custom ers.
The other revenue shown above in Table 2 is comprised mainly of AB 939 fee revenue.
Table 2 shows that f or the two fiscal years ended June 30, 2024, actual total operating expenditures in the Refuse Disposal Fund were less than the amount of total operating expenditures projected in the cost of service study by approximately $5.6 million, or approximately 11.8%. This favorable variance was primarily due to fewer actual expenses incurred for disposal and processing than was projected.
Finding # 2 – As of June 30, 2024, the cash balance in the Refuse Disposal Fund was greater than the cash balance projected in the cost of service study . The cash balance was projected to be approximately $5.5 million as of June 30, 2024. Instead, the actual cash balance as of June 30, 2024 was approximately 10.2 million; a favorable variance of approximately $4.7 million.
Table 3 – Changes in Cash Balance – Projected vs. Actual
The favorable variance in the cash balance was primarily due to the approximate $9.2 million in favorable operating results and approximately $2.8 million in other favorable changes to cash not related to the fund’s operating results. Other changes to cash not Projected Actual Variance Percent
Beginning Cash Balance - June 30, 2022 $26,199,052 $24,474,000 ($1,725,052) -6.6% Surplus/(Shortfall) - 2 yrs ended June 30, 2024 (18,433,957) (9,253,655) $9,180,302 -49.8% Capital Expenditures - 2 yrs ended June 30, 2024 (5,535,000) (7,829,000) ($2,294,000) 41.4% County Host Fee Reimbursement $3,292,609 $0 ($3,292,609) -100.0% Other Changes to Cash - 2 years ended June 30, 2024 $0 $2,837,655 $2,837,655 Ending Cash - June 30, 2024 $5,522,704 $10,229,000 $4,706,296 85.2% Description
As of June 30, 2024
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related to operating results include such things as fluctuations in accounts receivable, accounts payable, and other changes in the balance sheet of the Refuse Disposal Fund.
The favorable variances to the change in the cash balance were offset by approximately $2.3 million in actual capital expenditures that exceeded those projected in the cost of service study, and by a host fee reimbursement of approximately $3.3 million expected from Los Angeles County that was not received. As a result of the combination of these variances, the actual ending cash balance in the Refuse Disposal Fund as of June 30, 2024 was approximately $4.7 million greater than the cash amount that was projected.
Finding #3 - Although the actual cash balance was more favorable than projected, due to the circumstances described above, the cash balance in the Refuse Disposal Fund has decreased significantly since June 2022. This has corresponded with a significant decrease over the same period of time with the unrestricted net position in the Refuse Disposal Fund.
Table 4 on the following page compares the actual balance sheets of the Refuse Disposal Fund from June 30, 2022 through June 30, 2024. Table 4 shows that as of June 30, 2022, the cash in the Refuse Disposal Fund was approximately $24.5 million, and that as of June 30, 2024, the cash balance was approximately $10.2 million (which corresponds to the actual cash balance above in Table 3.
Table 4 also shows that the net position in the Refuse Disposal Fund has decreased significantly from June 30, 2022 to June 30, 2024. Table 4 shows that, as of June 30, 2022, the net position in the Refuse Disposal Fund was approximately $30.3 million. As of June 30, 2024, the net position had decreased to approximately $15.7 million.
The net position in the Refuse Disposal Fund represents the difference between assets and deferred outflows of resources, and liabilities and deferred inflows of resources. The net position is comprised of two components: 1) net investment in capital assets, and 2) unrestricted net position. Net investment in capital assets, essentially consists of capital assets, net of accumulated depreciation and amortization, reduced by non -debt capital
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related liabilities, added or reduced by any deferred outflows/inflows of resources that is capital debt related.
Table 4 – Comparison of Balance Sheet, Cash and Net Position
FY 2021 FY 2022 FY 2023 FY 2024
ASSETS
Current assets:
Pooled cash and investments $31,258 $24,474 $16,968 $10,229 Accounts receivable, net 4,145 6,721 2,665 3,564
PPP receivable -- -- -- 70
Interest receivable 117 120 123 74
Total current assets $35,520 $31,315 $19,756 $13,937
Noncurrent assets:
PPP receivable -- -- 124 53
Capital assets, net 9,426 10,724 13,314 14,404
Capital assets, not being depreciated 1,639 1,639 1,639 1,638 Total noncurrent assets 11,065 12,363 15,077 16,095
Total assets $46,585 $43,678 $34,833 $30,032
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows of resources related to OPEB -- -- 15 12 Deferred outflows of resources related to pensions 1,842 1,812 4,540 4,102 Total assets and deferred outflows of resources $48,427 $45,490 $39,388 $34,146
LIABILITIES
Current liabilities:
Accounts payable 1,364 1,972 1,512 807
Deposits 155 107 94 124
Subscriptions payable -- -- -- --
OPEB liability -- -- -- 12
Wages and benefits payable 562 268 307 357
Total current liabilities $2,081 $2,347 $1,913 $1,300
Noncurrent liabilities:
OPEB liability -- -- 397 273
Net pension liability 16,030 10,003 16,070 16,350
Total noncurrent liabilities 16,030 10,003 16,467 16,623 Total liabilities $18,111 $12,350 $18,380 $17,923
DEFERRED INFLOWS OF RESOURCES
Deferred inflows of resources related to OPEB -- -- 62 155 Deferred inflows of resources related to pensions 10 4,077 573 284 Deferred inflows of resources related to PPP -- -- 122 123 Total liabilities and deferred inflows of resources $18,121 $16,427 $19,137 $18,485
NET POSITION
Net investment in capital assets 11,065 10,817 14,549 16,042 Unrestricted 19,241 18,246 5,702 (381)
Total net position $30,306 $29,063 $20,251 $15,661
Comparison of Changes in Cash and Unrestricted
Net Position
Change from
FY 21 to FY 22
Change from
FY 22 to FY 23
Change from
FY 23 to FY 24 Cummulative
Change in Cash ($6,784) ($7,506) ($6,739) ($21,029)
Change in Unrestricted Net Position ($995) ($12,544) ($6,083) ($19,622) Balance as of June 30th:
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The unrestricted portion of net position is the difference between all the Refuse Disposal Fund’s assets, liabilities and deferred inflows and outflows of resources, and excluding net capital assets. Over time, increases or decreases in unrestricted net position serve as an indicator of whether the financial condition of the Refuse Disposal Fund is improving or deteriorating.
The table at the bottom of Table 4 shows how the unrestricted net position in the Refuse Enterprise Fund has decreased over time to a negative balance , and how this decrease largely corresponds to the decrease in cash over the same period of time. As a result of this comparison, we found that here is a high degree of correlation between the decrease in cash in the Refuse Disposal Fund and the decrease in unrestricted net position.
Finding #4 – If the City continues to implement the planned rate adjustments from the cost of service study , the Refuse Disposal Fund is projected to continue to incur a shortfall in fiscal 2025, followed by modest surpluses in fiscal years 2026, 2027 and 2028.
Table 5 on the following page shows the updated projected operating results if the City were to continue to fully implement the rate adjustment plan set forth in the cost of service study.
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Table 5 – Updated Projection of Operating Results
Finding #5 – If the City continues to implement the planned rate adjustments from the cost of service study, the cash balance in the Refuse Disposal Fund is projected to continue to decrease in fiscal 2025, followed by modest surpluses in fiscal years 2026, 2027 and 2028.
Table 6 on the following page shows the updated projected changes in the cash balance in the Refuse Disposal Fund.
2024 2025 2026 2027 2028
Revenue
Rate Revenue $13,067,387 $18,947,711 $23,684,639 $26,053,103 $28,658,413 Other Revenue $6,749,585 6,225,809 6,202,608 5,964,954 6,294,611 Total Revenue $19,816,972 $25,173,520 $29,887,247 $32,018,057 $34,953,024 Expenses
Labor $8,428,310 $10,245,271 $10,552,629 $10,869,207 $11,195,284 Vehicles $4,027,187 $4,602,228 $4,740,294 $4,882,503 $5,028,978 Disposal/Processing $5,023,474 $5,371,790 $5,532,943 $5,698,932 $5,869,900 Overhead $4,694,125 $6,341,530 $6,531,776 $6,727,729 $6,929,561 Total Expenses $22,173,095 $26,560,818 $27,357,642 $28,178,371 $29,023,723 Surplus/(Shortfall) ($2,356,122) ($1,387,298) $2,529,605 $3,839,685 $5,929,301 Fiscal Year
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Table 6 – Updated Projection of Cash Balances
Chart 2 below compares the projected cash balances from the cost of service study with the updated projected cash balances if the City were to continue to fully implement the rate adjustment plan from the cost of service study.
Chart 2 – Projected and Updated Projected Cash Balance
2024 2025 2026 2027 2028
Beginning Cash Balance $16,968,000 $10,229,000 $5,676,702 $7,739,950 $7,192,910 Surplus/(Shortfall) ($2,356,122) ($1,387,298) $2,529,605 $3,839,685 $5,929,301 Capital Expenditures ($3,324,000) ($3,165,000) ($466,357) ($4,386,726) ($3,320,241) County Host Fee Reimbursement
Other Changes to Cash ($1,058,878) $0 $0 $0 $0
Ending Cash - June 30, 2024 $10,229,000 $5,676,702 $7,739,950 $7,192,910 $9,801,970 As of June 30th:
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Recommendation
We recommend that the City continue to implement the planned rate adjustments originally set forth in the cost of service study.
Although the cash balance in the Refuse Enterprise Fund is projected to be greater than originally projected in the cost of service study, the decrease in cash over time has led to a negative balance in the unrestricted net position in the Refuse Disposal Fund. This is an indicator that the financial condition of the Refuse Disposal Fund is deteriorating over time. If the City were to implement rate adjustment percentages that were less than the rate plan in the cost of service study, it would risk further decreases, and further negative balances, in the unrestricted net position. As a result, we recommend that the City fully implement the rate adjustment percentages as set forth in the cost of service study.