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Thursday, December 11, 2014

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New Rate Reviews


With 2015 right around the corner, solid waste companies are looking toward their year-end bottom line, and so are the jurisdictions in which they operate. Especially in northern California, many cities that have been quiet are examining their budgets and realizing there is room for improvement. One area they have not examined closely in the past few years is solid waste contracts. As a result, some cities are already planning full-on rate reviews for the upcoming year, which means you need to start preparing now.

With state legislative changes on the horizon, many cities and solid waste jurisdictions realize that the legislative reprieve they have received in the past few years, with regards to solid waste, is now over. As usual, with new service requirements and increased restrictions on recycling, costs and rates alike are again poised to increase for solid waste haulers. At the same time, city coffers are poised for a comeback, thanks to a better economy. Mix in the latest news about solid waste company service changes, plus corresponding rate increases, and city staff are looking at ways to insulate themselves against potential fallout. To protect themselves, they will place additional emphasis on the city review of the solid waste service rate.

With increased pressure about the cost of solid waste hauling coming from cities and customers alike, you can expect more focus on the rate process itself. Even for very nominal increases based on the Consumer Price Index (CPI) or a Refuse Rate Index (RRI), cities and their consultants will be examining hauler costs more closely. Additional focus will be placed on haulers’ financial reports---such as the annual audit and tax filings---which will be examined at all levels to ensure costs are in compliance with company contracts. Any costs found not to be in compliance will typically be taken out of the rate process and show as a loss on the company’s and owner’s bottom line.

Before you can go to a city for a rate increase, an analysis of your company’s cost structure should be performed and compared to budgetary needs. These costs should be closely tied to all audit reports, and account for any upcoming changes to service. Failing to do so could adversely affect your financial stability in any given year, causing large increases during the true-up cost analysis years, which are generally politically challenging. Ensuring your company has the ability to operate year-over-year and obtain the financial backing needed to operate is essential. Having the right audit, tax and rate team in place is imperative.

Contact David Button, Solid Waste Business Development Specialist, at David.Button@Amllp.com or 415-568-3292 or Bill Brause, Solid Waste Audit Partner, at Bill.Brause@amllp.com or 925-790-2600 with questions or for more information. Armanino LLP is the largest CPA firm based in California and has offices in San Ramon, San Jose and San Francisco. Visit www.amllp.com to learn more.

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