Applying Full-Cost Accounting to Municipal Solid Waste Management Activities

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Best Practice

Local governments often are responsible for the efficient and effective management of their communities’ solid waste. Governments that bear this responsibility often are required to make important decisions in connection with their waste-management activities, including the selection among various alternative treatment options (e.g., burial vs. recycling) and the determination of the feasibility and desirability of outsourcing all or a portion of such activities. Governments need reliable information on the full cost of solid waste management activities if they are to make informed decisions on these and similar matters.


GFOA makes the following recommendations concerning the application of full cost accounting (FCA) to municipal solid waste management activities:

  1. FCA necessarily implies the use of full accrual accounting. Accordingly, governments should gather the accrual information needed for FCA even if all or a portion of their solid waste management activities are included in a fund that uses some other basis of accounting for purposes of general-purpose external financial reporting.
  2. Proprietary funds are particularly amenable to FCA because they use full accrual accounting. Consequently, a government may find value in using one or more proprietary funds to account for all or a portion of its solid waste management activities.
  3. The use of a proprietary fund is specifically recommended for governments directly involved in solid waste disposal activities (e.g., landfills).
  4. A government should compile the information needed to report on FCA both by "activity" (e.g., collection, transfer station, transport, solid waste facility, sales) and by "path" (e.g., recycling, composting, wasteto- energy, land disposal).
  5. In comparing the costs of various solid-waste management options (e.g., recycling vs. disposal), it is important that governments distinguish between "fixed" or "sunken" costs (i.e., costs that cannot immediately be avoided by selecting an alternative method of solid waste management) and "variable" costs. At the same time, governments need to take into account in their solid waste management decisions that fixed costs ultimately behave like variable costs. For example, capital assets typically function as fixed costs, but behave more and more like variable costs as the approach the moment when they will need to be replaced).
  6. FCA typically requires that certain costs be allocated among activities or paths. The usefulness and reliability of FCA data depend upon the reasonableness of this allocation. Therefore, it is essential that allocation methodologies be documented and justifiable (i.e., they need to be both systematic and rational).
  7. While the recovery of cost is a crucial consideration in the establishment of fees and charges for solid waste activities, it cannot be the only consideration. The establishment of rates and charges must also consider the solid-waste operation’s cash flow needs (e.g., debt service may occur over a shorter period than the useful life of the asset acquired with the debt; in that case, rates may need to be established based upon debt service requirements rather than upon depreciation).
Accounting, Auditing, and Financial Reporting
Approved by GFOA's Executive Board: 
June 1998