Application of Full-Cost Accounting to Municipal Solid Waste Management Activities (1998)
Background. 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.
Recommendation. The Government Finance Officers Association (GFOA) makes the following
recommendations concerning the application of full cost accounting (FCA) to municipal solid waste management
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
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, waste-
to-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).
Approved by the GFOA’s Executive Board, 1998.