POLICY REPORT
FINANCE
Date: August 25, 1995
Dept. File No.: 4600
TO: Vancouver City Council
FROM: General Manager of Engineering Services and
General Manager of Corporate Services
SUBJECT: Solid Waste Utility (SWU)
RECOMMENDATION
A. THAT Council approve the creation of a Solid Waste Utility
with all solid waste operations and accounts, except for
street cleaning, litter collection and abandoned garbage
collection, organized under the Utility Fund as of January 1,
1996.
B. THAT user fees for both Residential Refuse and Recycling
services be billed annually to each customer unit effective
January 1, 1996.
C. THAT the customer unit for the Residential Recycling service
be defined as each residential property registered on the
property tax roll, and co-op dwelling units receiving City
refuse can service.
D. THAT the basic customer unit for the Residential Refuse
service be defined as each residential property
registered on the property tax roll, and co-op dwelling units
in buildings receiving refuse-can service but that the
maximum mandatory number of customer units per non-rowhouse
building be two.
E. THAT rental apartment properties with a City can account or
residential properties receiving lift-on-board container
service be excluded from the Solid Waste Utility.
F. THAT additional Refuse and Recycling customer units for a
building be permitted to be included in the Solid Waste
Utility upon application and payment of the User Fees by the
property owner.
G. THAT the can limit be set at three cans per each customer
unit.
H. THAT the maximum number of customer units receiving refuse
can collection and blue box service be five per building with
the restriction to be relaxed at the discretion of the
General Manager of Engineering Services where appropriate.
I. THAT $40,000 for the initial decaling costs be funded in 1995
from the Solid Waste Capital Reserve, and that $30,000 be
provided in the 1996 SWU Budget for processing additional
customer unit applications.
J. THAT the tax-funded container service provided to strata-
titled, co-op and 99 year leased buildings be discontinued on
December 31, 1995, and these buildings be then allowed to
contract for City container service with the fees set on an
at-cost disposal rate basis until Council receives the report
on the review of the container operation.
K. THAT the Director of Legal Services be instructed to request
the provincial government to amend the Vancouver Charter to
provide for the collection of Solid Waste Utility charges
separately on the property tax bill, and to prepare the
necessary Refuse By-law changes.
L. THAT $20,000 be provided in the 1996 Landfill Operating
Budget to hire a consultant to study the magnitude of the
Vancouver Landfill closure and post-closure costs, and that
staff investigate the possibility of providing for these
future costs through the Refuse User Fee.
M. THAT the removal of refuse collection costs from the general
tax levy be made from the residential property class only.
N. THAT the Solid Waste Capital Reserve be used to stabilize the
annual Refuse and Recycling User Fees.
O. THAT the disposal cost component of the Refuse User Fee be
based on the at-cost disposal rate.
P. THAT the annual commercial tipping fee surplus be transferred
to the Solid Waste Capital Reserve until the closure and
post-closure funding needs of the Vancouver Landfill have
been reviewed.
GENERAL MANAGERS' COMMENTS
The General Managers of Corporate Services and Engineering
Services RECOMMEND approval of recommendations A through P.
Establishing a Solid Waste Utility will allow the City to provide
a long-term viable financing structure for the refuse collection
and recycling operations. A Solid Waste Utility will also allow a
more effective incentive system to be created for achieving refuse
reduction targets through the "user-pay" principle.
Although staff have tried to anticipate and deal with any
potential problems due to the implementation of the Solid Waste
Utility, some unforeseen problems may arise. Any unforseen
problems will be dealt with as quickly as possible.
Corporate Services and Engineering Services believe that the Solid
Waste Utility will be a significant improvement, and that the
benefits to be realized from the new system will outweigh any
transitional problems.
COUNCIL POLICY
There is no specific Council policy regarding the Solid Waste Utility.
However, during the review of the merits of accepting a fully
integrated regional refuse plan versus independent solid waste
operations, Council established the following in May 1991:
1. Retaining the ownership of the Burns Bog landfill;
2. Continuing the operations of the Landfill for the City of
Vancouver and the designated "western" municipalities; and
3. Retaining the net revenue from Vancouver's commercial refuse for
future improvements at the Landfill and to support recycling
efforts.
In January 1993, Council approved retaining a minimum balance of $10
million in the Solid Waste Capital Reserve for future necessary
landfill expenditures.
On several occasions Council has deferred some of its solid waste
management decisions pending a report on the creation of such a
Utility.
SUMMARY
This report proposes the creation of the Solid Waste Utility (SWU).
The major impact which will flow from the creation of the utility is
that the solid waste services to the residential sector, including both
basic residential collection plus recycling, will be funded through
user charges to homeowners, rather than from the property taxes and
other sources. This action will provide a secure funding structure for
the recycling operations and address the present perceived inequity in
the system, where some taxpayers receive free refuse collection service
while others have to pay for the same service. It will also introduce
a system where incentives may be built-in for waste reduction.
The user charges would consist of a Refuse Collection Fee and a
Recycling Fee for each customer unit. Most residential properties
registered on the property tax roll, plus co-op dwelling units, which
currently receive refuse can and blue box service would be treated as a
customer unit. Upon application and payment of the user charges by the
owner, additional customer units may be added for a property. The
refuse can limit would remain at three for each customer unit. A
decaling system would be implemented to allow the collection crews to
identify the number of customer units per building.
The refuse user fee would include a collection cost and a cost for
disposal based on the "at cost" disposal rate.
Based on the 1995 budgeted costs, the estimated per customer refuse and
recycling user fees would be $96 and $34 respectively.
As part of the creation of the SWU, the tax-funded container service
provided to strata-titled and co-op buildings would be eliminated.
Owners of these properties would have the option of contracting for
their container service with the City or a private firm.
Staff recommends that the refuse collection costs currently funded from
the general purposes property tax be removed from the residential
property class only.
Staff is also recommending that a consultant be hired to estimate the
Landfill closure and post-closure costs. When the study is completed,
a decision will have to be made to determine how to fund these costs.
In the interim, staff is recommending that the annual commercial waste
tipping fee surplus be transferred to the Solid Waste Capital Reserve.
PURPOSE
This report proposes the creation of the Solid Waste Utility and
outlines the supporting reasons and policy issues associated with
establishing the Utility.
BACKGROUND
On May 15, 1991, while considering a report from the City Manager on
the Regional Solid Waste Agreement and the future of the Vancouver
Landfill, Council passed the following recommendations:
A. That Council instruct the General Manager of Engineering Services
and the General Manager of Corporate Services to investigate the
creation of a Solid Waste Utility.
B. That Council instruct the General Manager of Engineering Services
and the General Manager of Corporate Services to investigate the
financial and operational implications for a range of options
regarding the role and status of the Vancouver Landfill and
Vancouver South Transfer Station within any Regional Solid Waste
Management Plan.
On December 8, 1992, Council examined numerous solid waste and
recycling policy questions. During the discussion, Council adopted the
following resolution:
- That staff report back, as part of the Solid Waste Utility report,
on cost recovery options to fund the operating costs of the
proposed solid waste management programs.
During a Council workshop on March 9, 1993, staff from Engineering
Services and Corporate Services introduced and discussed various issues
related to the Solid Waste Utility. Following the meeting, Council
instructed the staff to proceed with this work and to report back on
the first stage of the Utility creation.
On October 21, 1993, a report was submitted to Council recommending the
creation of the Solid Waste Utility. It proposed financial
reorganization of the solid waste activities as a first step toward a
self-financing entity and outlined the subsequent policy and
operational issues that would have to be addressed in the future.
After a lengthy discussion, Council approved the following
recommendation:
- That the policy report dated September 14, 1993, on the Solid
Waste Utility, be deferred pending receipt of a report back
containing detailed information on:
- the tax effect of creating a utility; and
- alternate costing arrangements.
Recently, there have been two other developments supporting the
creation of a Solid Waste Utility in the City of Vancouver. First, the
Greater Vancouver Regional District has approved the Stage 3 Report of
the regional Solid Waste Management Plan, and submitted it to the
Minister of Environment for approval. In the Plan, which was supported
by City Council, user-pay charges are considered to be a main element
in the implementation of the overall waste reduction strategy. At the
present time, in the region, Vancouver, Burnaby, White Rock, District
of North Vancouver, and New Westminster do not bill separately for
solid waste management services.
Further support for the creation of the SWU came from the Task Force on
Property Taxation that presented its report to Council on April 22,
1994. While discussing various ways to adjust the tax burden among
different property classes, the Task Force identified the
implementation of user fees for sanitation and sewerage services as a
main alternative to funding these activities through property taxes.
DISCUSSION
The following discussion deals with the reasons behind the creation of
the Solid Waste Utility and basic principles that might apply to the
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Utility's operations. It also presents various issues related to
pricing and service levels that need to be addressed under the new
Utility.
Solid Waste activities in the City are currently the responsibility of
the General Manager of Engineering Services (operations, pricing) and
the General Manager of Corporate Services (pricing, billing).
Operations are recorded within the City's Operating Budget and the
costs are funded from a variety of sources.
- Residential refuse removal and disposal is funded from property
taxes
- Container and small-can service for businesses and rental
apartments is funded by user fees
- Recycling programs are funded from the commercial refuse surplus
revenues at the City's disposal sites.
Most operational aspects of solid waste management are not expected to
change significantly, however, the Utility has major implications for
the operation's financial structure and funding sources.
Rationale for a Solid Waste Utility
Creating a Solid Waste Utility may be advantageous to the City for a
number of reasons.
1. The current financial structure for operations will become
increasingly difficult to maintain. The expansion of recycling
programs, in particular apartment recycling, and the costs
associated with them could soon exceed available funds.
Furthermore, the annual commercial surplus revenues may decline in
the near future due to disposal costs increasing faster than the
tipping fee, and due to lower commercial tonnages. Creation of a
Solid Waste Utility would provide a long-term viable financing
structure for the refuse and recycling operations.
2. The Utility would remove collection and disposal costs from the
general purposes property tax and establish a separate user
charge. The cost to taxpayers for refuse service would be
directly linked to usage instead of to assessed property values.
This would help to mitigate the impact on property taxes of
changes in assessments. Also, linking costs directly to usage
would allow a more effective incentive system to be created for
achieving refuse reduction targets through the "user-pay"
principle.
3. The costs of solid waste and recycling operations are expected to
increase at a greater rate than inflation. By separating out
these costs from the general purposes property tax, taxpayers will
have a better understanding of why the cost of City services is
increasing. Also, the rising refuse costs will not skew the
inflation rate increase to the general purposes property tax.
4. The current costs associated with refuse disposal include only
direct operating costs and exclude provisions for the City's
investment in the Landfill and the costs of closing and replacing
the facility once its life has expired. Creation of the Utility
provides an opportunity to establish a cost structure which would
reflect the "true" operating costs of the waste disposal system,
including the landfill, the transfer station, and any future
expenditures that might be required to address various
environmental issues.
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5. Removal of solid waste expenditures from the general purposes
property tax would also address the issue of a perceived bias
against commercial properties. Presently, commercial properties
are seen as contributing to the solid waste management operations
(through their share of general taxes) even though they must pay
separately for all the costs of their refuse collection and
disposal. With residential properties paying direct user charges,
the commercial sector would no longer be able to claim that it
incurs double payments.
While there are issues that need to be resolved, the preceding reasons
clearly support the concept of a Solid Waste Utility.
Principles for the Solid Waste Utility's Operations
In order to proceed with implementation planning, underlying principles
of operation must be established that are fair to all users and that
ensure the City's ability to provide services in the future. It is
staff's view that all solid waste operations with the exception of
abandoned waste removal, litter pickup and street cleaning should be
accounted for within the Solid Waste Utility and that the following
principles should apply to the operation of the Utility:
1. The Utility would be self-financing, generating sufficient
revenues from operations to pay all operating and debt service
costs.
2. The basis for pricing individual services would be "user-pay/cost-
recovery" such that each service would be self supporting, with
users paying the full costs as is the case in most other
municipalities. It is not anticipated that there would be any
subsidies among the various solid waste operations or from outside
the Utility, although these might be considered as an interim
measure to ease perceived transitional problems.
3. Operations within the Utility would be accounted for separately
from the Operating Budget, although annual operating budgets for
the Utility would be established in the same manner. Fees would
be subject to Council approval, as is the current case with
Waterworks, which currently works on a utility basis.
4. Management of the Utility would be a joint responsibility shared
between the General Manager of Engineering Services and General
Manager of Corporate Services on much the same basis as the
current operation.
5. It is anticipated that the SWU will incur annual deficits or
surpluses due to variances between actual and estimated costs. It
would be appropriate to use the Solid Waste Capital Reserve to
stabilize the annual user fees. Annual deficits would be funded
from the Reserve and surpluses would be credited to the Reserve.
Setting of the City's Water Rates is based on this same
stabilization principle.
Flowing from these principles are a series of pricing and service
issues that must be settled. Some of these issues now exist within the
current structure, while others arise because of the creation of the
Utility. A move to a Utility provides an opportunity and an
appropriate context to resolve these issues in a methodical and
rational way.
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Vancouver Charter Amendment
To facilitate the collection of Utility fees, the Vancouver Charter has
to be amended. It is not clear whether the Provincial Government will
make this amendment in time for the January 1, 1996 start date. If the
Charter is amended before January 1, 1996, the Utility fees will be
included on the property tax statement. However, if the Charter is not
amended before January 1, 1996, the Utility fees will be billed on a
notice separate from the tax statement. In this latter case,
delinquent fees can not be
collected through the tax-roll, but will have to be collected through
small claims court. If the property is occupied by a tenant, it is
possible that the delinquent fee would have to be collected from the
tenant.
Customer Unit for Residential Refuse Service
Determining the customer unit is critical because it must be workable
from both the refuse collection and billing perspectives. Staff
recommends that the mandatory customer unit for residential refuse
collection be each residential property registered on the property tax
roll, and each co-op dwelling unit currently receiving refuse can
service. Additional customer units would be permitted to be added for
a property upon application and payment of the annual refuse user fee
to the City by the owner. Residents would still have the option of
purchasing refuse tags for garbage removal in excess of the can limit
for their property.
An exception to the customer unit policy would be non-rowhouse
buildings which contain more than two strata or co-op dwelling units.
(For the purposes of the SWU a rowhouse building is one which contains
a row of attached side-by-side dwelling units). Many of the dwelling
units in non-rowhouse buildings are currently entitled to a one can
limit, whereas the can limit for most rowhouse dwelling units is three.
It would be appropriate to keep the can limit for units in non-rowhouse
buildings as close as possible to the current can limit. Therefore,
staff recommends that non-rowhouse buildings containing more than two
strata or co-op dwelling units be billed for only two customer units
unless they apply for additional customer units.
Rental apartments which have a City can account or properties which
have lift-on-board container service would be excluded from the Solid
Waste Utility.
Engineering staff encourages the use of lift-on-board containers at
buildings with a large number of dwelling units. Accordingly, staff
recommends that the maximum number of customer units per property be
set at five, and at the discretion of the General Manager of
Engineering Services, the restriction be relaxed for buildings where
container service would not be feasible, due to space restrictions for
example.
Decaling
The customer unit option in its current and recommended form presents
an operational problem. Collection crews have difficulty identifying
the properties which have more than one customer unit (ie. a can limit
greater than three). Because most properties do
not have addresses posted in the lanes, crews currently identify the
properties with more than one customer unit mainly by memory. However,
this is not an effective method. To assist the crews in identifying
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the properties with more than one customer unit, a permanent
identification decal will be affixed at each of the properties which
would have more than one customer unit.
Initial funding of $40,000 for the decaling will be needed in 1995 if
Council approves the Utility start-up for January 1, 1996. It is
recommended the $40,000 be funded from the Solid Waste Capital Reserve.
Also, funding will be needed once the SWU is implemented to process
additional customer unit applications. Funding of $30,000 will be
needed for 1996 and approved in advance of the 1996 Operating Budget.
Staff is considering using the decaling system as a replacement for the
current can account system.
Can Limit
The current basic can limit is three per single-family house and five
per duplex. To minimize the transition "pains" for residents to the
SWU, the General Manager of Engineering Services recommends temporarily
keeping the basic can limit at three for each customer unit. The can
limit can be reduced in future years if Council wishes to do so.
Residential Refuse Disposal Cost
The Refuse User Fee will consist of two basic costs: collection and
disposal. Based on the 1995 budgeted costs, the cost of collection is
$64 per customer. Engineering Services is currently reviewing
operational changes to the refuse collection operation. It is
anticipated that the changes will result in appreciable savings, thus,
lowering the cost per customer.
The second component of the Refuse User Fee will be the disposal cost.
There are two options to choose from with respect to setting the cost
of disposal for residential refuse: (a) Regional Tipping Fee or (b) at-
cost disposal rate. Staff recommends that the at-cost disposal rate be
used.
The current at-cost rate consists of the per tonne cost of operating
the Vancouver Landfill (VLF) plus the per tonne cost of transferring
the residential refuse from the Vancouver South Transfer Station (VSTS)
to the VLF. The current at-cost rate of $32 per customer is what the
current costing of the refuse operation is based on.
The at-cost option will allow residents to benefit from the fact the
City operates its own relatively low cost landfill. Residents should
only pay for the costs they are incurring to dispose of their refuse.
Also, support for the Utility may be eroded if the higher regional
tipping fee is charged. If the Regional Tipping Fee were used, the
annual Refuse User Fee would be about $30 more per customer than if the
at-cost disposal rate is used.
This current at-cost disposal rate does not include any provision for
Landfill closure and post-closure costs. There are no estimates
available at this time to indicate how large these costs will be. The
General Manager of Engineering Services recommends that $20,000 be
provided in the 1996 Landfill Operating Budget to hire a consultant to
determine the magnitude of these costs. When the study is completed,
it would be appropriate at that time to consider including a closure
cost component in the Refuse User Fee, and setting up a closure fund.
Multi-Residential Container Service
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The City currently provides lift-on-board container collection service
to about 20,000 dwelling units in multi-strata, co-op and 99 year
leased premises. This service is funded from the general purposes
property tax. Staff recommends that the owners of these units be
treated the same as single-family type dwelling owners under the SWU.
Namely, the general purposes property tax would no longer fund the cost
of their refuse collection, and the owners would have to pay separately
for refuse collection. Owners of these units would be able to buy
their container service from the City or from a private firm.
The tax-funded container service makes up about 50% of the City's total
container operations. Once the City begins charging a separate fee for
this service, the City will have to compete with the private firms for
this business. A consultant will be hired to determine how the
container operation's viability will be affected by this change. The
results of the study will allow appropriate steps to be taken, if
necessary, to allow the container operation to respond to this change.
Staff will report back to Council with the results of the study in
1996. In the interim, staff recommend that the container service fees
for strata, co-op and leased premises be set on an at-cost disposal
rate basis.
Recycling User Fee
The City currently provides a number of recycling services to its
residents. Most of these programs are funded from surplus commercial
waste tipping fees. Staff is recommending charging a Recycling User
Fee to owners of each residential property
registered on the property tax roll, and each co-op unit for these
services. Rental apartments with a City can account or those
properties which receive lift-on-board container service would be
excluded from the Recycling User Fee. Owners who apply to have
additional customer units added to the SWU would have to pay the
Recycling User Fee as well as the Refuse User Fee.
The Recycling User Fee would include the costs of operating the
following existing programs: blue box collection, residential Christmas
tree collection, autumn leaf bag collection, City Farmer, the GVRD
recycling surcharge, and the recycling depot at the VSTS. (The depot
cost is currently funded from the VSTS disposal rate). The net annual
operating costs of the yard waste composting program would also be
included in the Recycling User Fee. Based on 1995 budgeted costs, the
annual Recycling User Fee would be about $34 per customer. The annual
fee will be subject to fluctuations in the market price which the City
receives for blue box recyclables.
Council should be aware that not every user of the recycling services
would be captured by the user fee. Many residents of dwelling units
which are not registered on the property tax roll and do not apply for
inclusion in the SWU (and, therefore, will not be billed the user fee)
are users of the blue box service. Nevertheless, the City's policy is
to encourage recycling efforts of all residents. Further, there will
be some residents who pay the recycling fee but do not use any or all
of the recycling services available. However, the recycling user fee
will provide an incentive for residents who are not recycling to do so.
Also, it would be very expensive administratively to construct a user
fee system where a perfect match between user and payer existed.
As part of the apartment recycling pilot project, staff will determine
the number of dwelling units per building at which point large cart
recycling should be used instead of blue box service. Until the City
implements an apartment recycling program, staff recommends that
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buildings with no greater than five dwelling units be eligible for blue
box service but that the restriction be relaxed at the discretion of
the City Engineer where appropriate.
In addition to the apartment recycling pilot project, the City is
currently providing an apartment recycling mini-depot program. Both
these programs are also funded from the commercial waste fee revenue
surplus. Once the pilot project is completed, Council will have to
make a decision on how to fund a City-wide apartment recycling program.
Council has considered the creation of a Solid Waste Utility to be
instrumental in the funding of a City-wide apartment recycling program.
Commercial Tipping Fee Surplus
If Council approves the recycling user fee, a decision has to be made
on how to reallocate the annual commercial tipping fee surplus. For
1994, the surplus was $5.5 million and was allocated as follows:
Recycling programs - $3.5 million; GVRD Recycling
surcharge - $0.7 million; Retained in general revenue - $0.6 million;
and, transfer to the Solid Waste Capital Reserve - $0.7 million. Staff
recommends that the annual surplus be transferred into the Solid Waste
Capital Reserve until the funding needs for the closure and post-
closure of the Landfill have been estimated.
Removal of Residential Refuse Costs From Property Tax Levy
Currently, the cost of residential garbage service (about $9.6
million), including the container service to multi-stratas, is funded
from the property tax levy. The non-residential sector pays about
58.5% of this cost and the residential sector about 41.5% of the cost.
Staff believes that the removal of this cost should be made without any
shift in the tax burden between the non-residential and residential
property classes. Because the residential sector will be paying 100%
of the refuse collection costs through user fees, staff recommends that
the cost of residential refuse collection be removed from the
residential sector only.
Potential Customer Concerns with a Solid Waste Utility
Although there are strong reasons for creating a Solid Waste Utility,
there are some potential customer concerns with a SWU which may
generate complaints. Some of these potential concerns are as follows:
1. Property owners who are billed the SWU user fees but who do not
use the City's recycling services or, in the rare case, who do not
set out any garbage, will not be able to opt out of the SWU. The
administrative cost would be too great to allow owners to opt out
of the SWU. However, the inability to opt out exists under the
current system also.
2. Although it may be "tax neutral" to the average residential
taxpayer, some taxpayers may perceive the user fees as an
additional tax, rather than a "replacement" tax.
3. Property owners will have their sensitivity heightened and may
demand a higher level of service for both refuse and recycling
services. For example, some owners may become less willing to
overlook a missed-garbage pick-up. As a result, Sanitation staff
will receive more missed-garbage complaints.
4. The SWU refuse user fee will make visible an inequity which
basically exists with the current system. Residents who usually
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set out less cans of garbage than the three can limit may complain
that their per can cost is higher than that of the residents who
usually set out two or three cans. The cost per can per customer,
based on 1995 costs would be:
cost per can
three cans $0.64
two cans $0.96
one can $1.92
This difference in costs can only be eliminated under a pay-per-
can system, which is a recommendation of the regional Solid Waste
Management Plan.
5. The decal system will be complex to administer. The decals will
be difficult to post at some properties, particularly those with
front yard pick-up, and some owners may object to their presence.
In designing the decal, we will force the conflicting interests of
making the decal as visible as possible to minimize missed pick-
ups and making it less visually obtrusive in the neighbourhood
streetscape.
6. There may be a small increase in illegal dumping, particularly by
residents of non-strata duplexes. Currently, non-strata duplexes
have a five can limit. Under the SWU, these duplexes would have a
three can limit unless the owner pays a user fee for the second
dwelling unit. Some of these duplex owners may choose to
illegally dump their refuse rather than pay the user fees.
SOCIAL IMPLICATIONS
This report proposes billing solid waste costs based on user fees
rather than through property taxation based on assessed values. User
fees are considered by some as a regressive form of taxation, and,
therefore, may be viewed as having some adverse social implications.
However, the benefits of a refuse and recycling user fee system are
considered to be greater than any adverse effects. Refuse User Fees
are considered by some to be an appropriate incentive for residents to
achieve the socially acceptable 3R goals.
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