Cost-Sharing Formulas: Various ways to decide who pays, how much

(from Maine Townsman, August 1995)
By Jo Josephson, Staff Writer

When the Southern Aroostook Solid Waste Disposal District was in the process of forming, for the purpose of building a landfill, its members developed an initial cost-sharing formula based on two factors: valuation and population. Fifty percent of a member's assessment was to be based on its share of the total population of the district; fifty percent was to be based on its share of the total valuation of the district.

But as the costs started mounting, at least one town, New Limerick, a town with a small population (527) and a large industry, Louisiana Pacificand hence a high valuation, balked at the formula, saying that "population, not valuation generated garbage" and pulled out of the district. Along with other members of the district, New Limerick joined the Northern Katahdin Valley Waste Disposal District, where the cost-sharing formula is based solely on population size, which suits New Limerick just fine.

But as Ralph Cleale, the former chair of the now defunct Southern Aroostook Solid Waste Disposal District, told the TOWNSMAN, while people do produce waste, municipalities with larger populations tend to produce more waste per capita than municipalities with small populations because, unlike the smaller towns, they tend to have industrial and business properties.

If Cleale had any advice to give those developing cost-sharing formulas, it would be to directly relate the formula to the activity for which the costs were being shared. And to do it at the outset, even if you don't have accurate measurements, even if you have to use guesstimates, even if you have to backpedal later on.

Cleale says it was the district's ultimate intent that once the landfill was up and running, it would then rely on user fees to the maximum extent possible. In other words, get it off the property tax. As it happened, the district never got the chance.

Welcome to the world of cost-sharing formulas, where municipalities intent on working with their neighbors grapple with the most politically acceptable and equitable and efficient ways of divvying up the costs of doing so. As indicated above it's not an easy task.

As such, in an attempt to give some shape to the task, the TOWNSMAN decided to look at the numerous and various cost-sharing formulas now in use around the state and to share what the users had to say about them.

SOME SUMMARY OBSERVATIONS

If the TOWNSMAN has learned anything from its inquiries, it is that there are no magic cost-sharing formulas. There are formulas based on population, formulas based on usage, formulas based on valuation, or some combination thereof. Each has its advocates; each has its critics. As Josephine LaPlante, of the University of Maine's Muskie Institute, told the TOWNSMAN: "The 'right' formula is the one that is politically acceptable to all parties concerned." LaPlante has worked on the state's school funding formula. That said, what follows are some general observations about cost-sharing formulas drawn from the examples cited below.

Population-based Formulas

Cost-sharing formulas based solely on population are extremely popular. Advocates argue that population drives the need for services and therefore is the only valid factor in determining cost-sharing. Cost-sharing formulas based on population are the simplest to calculate. They also provide a reliable, steady source of income. They are something people can readily relate to, say those who use them.

They are often used to determine start-up costs; they are also used on an on-going basis where populations are similar and the amount of money to be raised is small. And they are often used to supplement the income of enterprises that attempt to derive the majority of their income from user fees.

Critics charge that population-based formulas are not fair, as they do not accurately reflect use, especially in, communities with widely fluctuating populations, especially in communities where a great disparity in population exists.

Usage-Based Formulas

For obvious reasons, cost-sharing formulas based on usage require some way of measuring usage. As such, they are often not used in the start-up of operations that require the purchase of equipment. But once the facilities are on line and tools for measuring use become available, many towns switch to such formulas.

In the absence of actual measurements, as in the case of transfer stations without scales, some towns use computer generated data available from the state to determine per capita usage; they then plug it into a formula based on population counts.

Valuation-Based Formulas

Valuation is not a widely used factor in cost-sharing formulas. State valuation is seen as being old by the time it is calculated while local valuations are often not comparable. When used in cost-sharing formulas, valuation is usually used in conjunction with another factor such as population. It is often said that valuation "levels the playing field" and that towns with revenue generating capabilities should support those who do not have them.

Equal Share Formulas

Formulas based on equal sharing of costs are also not used widely. However, they are used where populations and the amount of services delivered are viewed as equal and/or where the parties want to avoid the hassle of keeping track of the daily usage and where high levels of trust and history already exist.

That said, a look at some examples of formulas currently in use around the state follows:

POPULATION-BASED FORMULAS

Like many joint transfer stations that are just starting up, and or do not have a way of determining how much municipal solid waste each member town generates, the seven-month old solid waste transfer station of the Northern Aroostook Solid Waste Association is assessing its eight members on a per capita basis to transport municipal solid waste to the landfill at Tri-Community Sanitary Landfill.

Eagle Lake, which has the highest percent of the population, has been assessed for 37 percent of the current $150,000 budget, reports Town Manager James Nadeau. With a $64 tipping fee at Tri-Community, the budget assumes that each resident of the district produces .65 tons of solid waste a year.

Whether the cost-sharing formula will change in the future is anyone's guess. But it appears unlikely it will include valuation, says Nadeau, noting that valuation-based formulas are not particularly popular. "Three towns in the association with lake frontage and therefore high valuations already feel over assessed by the school district, which bases the local share purely on valuation," explains Nadeau, "so it is unlikely they would want to include valuation in the transfer station formula."

Like Northern Aroostook, cost-sharing for each of the 19 member municipalities of the Oxford County Regional Solid Waste Corp. is currently based on a per capita basis; that is on their town's percentage of the total population served, which is currently totals 22,000.

However, the towns are not billed for their share of the total budget of the recycling center, but only for their share after the income from all recyclables sold is subtracted. As such, given a current budget of $146,000 and $65,000 in income from the sale of recyclables, the 19 towns are billed for their share of the difference or about $80,000. As such, the town of South Paris with a population of 4,423 is currently responsible for about 20 percent of $80,000 or about $16,000.

But all that may change if some of the towns--the towns that are doing the majority of the recycling--have their way. "The per capita basis made sense when all you got was $5 a ton (for recycled goods). But currently tonnage is worth a lot more--we're getting an average of $55 a ton--and that's why some people are looking to change our method of assessment," says the center's manager Ron Phinney.

Art Hill, a selectman in South Paris and the corporation's treasurer, says one alternative to the current assessment being considered is to assess towns for their total share of the budget based on population, then subtract the amount of money the town had contributed to the income through its recyclables during the previous year.

Under this scenario, towns which recycle a great deal would no longer be subsidizing towns which do not. As a result, towns which recycle a lot might not pay any cash at all, having paid their fair share through recyclables.

As Hill sees it, the change in the formula would motivate those towns which are marginal recyclers to recycle more. Hill says one of the unanswered questions is what to do with those towns whose recycling revenues exceed their assessment. Should they get a rebate or should the money go into a reserve fund for the future purchase of equipment?

Like Oxford County Regional Solid Waste Corp., the Tri-County Solid Waste Management Association, which runs a transfer station for the six towns of Appleton, Union, Washington, Somerville, Palermo, and Liberty, in Knox, Lincoln, and Waldo counties, assesses members based on their share of the population. But only after other revenues have been taken into account. Between 40 percent and 45 percent of the annual budget is paid for by the individual households that pay $1 per 32-gallon bag, while the remaining is paid for on a per capita basis.

As the amount generated from the pay per bag system fluctuates so does the cost per capita, notes Jim Guerra, the manager of the transfer station. Currently the assessment is $20 per capita; last year it was $18. As Guerra describes the member towns, with the exception of Union they all look similar; they are all rural; none have huge summer populations. They have the same demography, says Guerra.

Examples of population-based formulas would not be complete without mention of contracted services that base their fees on the population served. One such service-- fire protection-- provided by the City of Presque Isle to a section of the neighboring Town of Chapman is based on the population served.

As Presque Isle currently figures it, with a fire department budget of $887,000 and a population of 10,550, it costs $84.04 per capita to support its fire department. So why not charge that rate to those who contract for their service?

In the past, Presque Isle had charged Chapman an "arbitrary" base fee of $2,000 a year, plus $250 a call, explains Presque Isle City Manager Tom Stevens. In searching for a more accurate base, the two municipalities arrived at the per capita approach. As such, with the area served having a population of 159, the basic fee slightly modified is $10,000 a year, to be phased in over a period of three years.

Stevens said the parties settled on the per capita approach, after trying the valuation approach, for a number of reasons including the fact that people were familiar with it in other joint endeavors, such as ambulance services. "It has history," says Stevens.

POPULATION/USAGE- BASED FORMULAS: LANDFILL

Caribou (pop. 9,557), Limestone (pop. 2,000) and Fort Fairfield (pop. 4,031), the three owners of Tri-Community Recycling and Sanitary Landfill, not only take their population into account in their cost sharing formula, they also factor in a hypothetical, estimated tonnage factor. Not actual tonnage derived from a set of scales, but a figure generated by the state that guesstimates how much waste a person in their size community would generate in a year.

The state figure assumes that the larger the community the more likely industry will be located there and hence the greater the tonnage generated per capita. As such Caribou is assessed at .75 tons per capita; Fort Fairfield is assessed at .55 tons per capita and Limestone at .49 tons per capita.

Since its inception in 1977, the facility has begun contracting with surrounding towns, so that now there are 31 contracted communities, according the site manager Ken Hensler. Until this year, Tri-Community did not have a tool to measure just how much actual waste was being disposed of at its facility by those communities.

With the current emphasis on recycling, on downsizing the amount of trash disposed of, contracting communities asked us to devise a measuring tool that reflected their efforts at recycling, explains Hensler. As such, scales to weigh the trucks before and after they dispose of their waste at the landfill, were purchased for $50,000 with the money coming from a reserve account.

Currently the three owners are still assessing themselves based on the old population-estimated tonnage formula. To change that formula would require approval of the three governing boards. It should be noted that as owners of the facility, they are charging themselves a reduced rate of 75 percent of the cost per ton or $48 a ton.

USAGE-BASED FORMULAS: HIGHWAY MAINTENANCE

Castle Hill (pop. 461), Mapleton (pop. 1,902) and Chapman ( pop. 428) share in the maintenance of their roads, all 56 miles of them. Their cost-sharing formula is straight-forward: each town pays its percent-age of road mileage maintained in all three communities within a given year. To determine that figure, the total number of road miles maintained during the summer months is added to the number of road miles maintained during the winter months and divided by two.

Each town's proportionate share is derived from that average. Currently, Mapleton pays 52.4 percent; Castle Hill pays 23.8 percent and Chapman pays 23.8 percent of the personnel and equipment and materials involved in the plowing and brush cutting, ditching, sanding, summer patch and repair of the roads. When it comes to constructing the roads (hot topping, gravel, culverts), the towns act independently.

For a complete description of the joint highway department, see the April 1992 issue of the TOWNSMAN.

The North Western Aroostook County Septage Disposal Board has been successfully running a five acre septage disposal site under an interlocal agreement for five years, according to Sharon Rafford, the town manager of Portage Lake. The $20,000 start-up costs (attorney's fees, site preparation, and purchase of two winter storage tanks) were shared among the members based on their share of the total population. The board decided to go with population because a careful look at the records indicated that the percentage of septage each town had pumped in the past was similar to its share of the population.

Septage spreading permits purchased through each town, paid for by individual households, currently pay for the operation of the site (harrowing, mowing, and liming the land) and the audit. Currently the permit fee is $25 for 750 gallons or less and 4 cents a gallon for each additional gallon. Individuals also pay haulers to dispose of their septage.

With a grant from the Maine Waste Management Agency, covering 75 percent of the cost of a $20,000 wood chipper, Brewer, Orono, Orrington and Veazie have jointly purchased a wood chipper. With the municipal share coming only to $4,000, the communities agreed that the most equitable cost-sharing formula would be one based on population, says Glenn Aho, Brewer's administrative assistant. As such, Orono, with the largest population, paid $1,749 and Veazie, with the smallest population paid only $334.

With start up costs taken care of, the four communities now plan to cover the cost of maintenance on each municipality's share of the usage. According to Aho, a logbook is being used to keep track of the usage. The machine has been in use just about one year.

As with a description of population-based cost-sharing formula, a description of usage-based formulas would not be complete without a look at a service contract that bases its fee on usage.

For the past nine years, the Town of Winthrop has been providing dispatching services to the towns of Monmouth, Greene, Wales, Wayne, Mt. Vernon, Readfield, and Vienna. The fees paid by the towns are based on their percentage of use, which is tracked by computer.

The towns are only charged for the salaries and training of the dispatchers; they are not charged for overhead (rent, heat, and light), explains Chief Joseph Young. "Because if we weren't contracting out our services we'd still have to pay the rent and utilities."

As such, this year the towns will be divvying up a personnel budget of $92,399 and paying $16.80 per call handled. Young notes there is a minimum number of calls--25--plugged into the formula and that Winthrop and Monmouth paid the lion's share of the budget, with the smaller towns paying a minimum of $420 each for the 25 calls. (Four of the fire departments did not make their minimum).

The Boothbay Region Refuse Disposal District, comprised of the towns of Boothbay, Boothbay Harbor, Edgecomb and Southport, online since the mid 80's uses a unique cost-sharing formula that factors actual tonnage of waste generated by three segments of the population: year round residents, summer residents and a third category that includes waste generated by"transients" (restaurants and motels).

It rejected user fees because they were too costly to implement and administer. They also rejected cost-sharing formulas that were derived by averaging valuation and population percentages because they did not properly account for the high percentage of hotel/restaurant derived trash during the summer months, especially in Boothbay Harbor, explains site manager Alex Dmitrieff.

What they adopted and have continued to use successfully over the years is a formula that is based on the total actual amount of waste transported to PERC annually. In determining how much of that waste belongs to each town, the formula takes into account a number of additional actors, including:

• the number and size of the restaurants and motels and marinas in each town,

• the size of the summer population in each town, and

• the size and valuation of the year-round population and properties in each town.

As such Boothbay, which has a larger year round population than Boothbay Harbor, is only assessed 33.9 percent of the budget, while Boothbay Harbor, which has more summer businesses and residents, is assessed at 39.7 percent. Edgecomb and Southport, which have little summer population and businesses, are assessed 10.4 percent and 16 percent, respectively.

Though complex in its derivation, the formula appears to satisfy the needs of coastal towns with diverse summer populations by drawing on numerous indirect measuring devices to come up with a subjective, but politically acceptable, measurement of tonnage generated by each of the three populations in each of the four towns.

VALUATION -BASED FORMULAS

The nine towns (Readfield, Wayne, Mt. Vernon, Winthrop, Manchester, Monmouth, Litchfield. Gardiner and Richmond) that are members of the Cobbossee Watershed Protection District are assessed according to their share of the waterfront (valuation) in the district. Specifically, they are assessed their share of the valuation of the area of the land and building in the municipality located within 600 feet of the shore of the major lakes and ponds and water-ways in the watershed.

By using valuation over pure shorefront length, the assessment would appear to be more equitable, says Executive Director Bill Monagle. The higher the valuation, the more developed the shore frontage, the greater the need for monitoring the waters. Which is what the district is in the business of doing for its membership, monitoring the quality of the water in the 28 lakes in the district on a monthly basis.

While valuation is fairer than straight shoreline frontage, it is more cumbersome and costly to determine, a task the Legislature, which established the district in 1971, set to be carried out at least every ten years. According to Monagle, the trustees are currently considering conducting the task in-house, using the district's four members to do the paperwork, rather than to hire it out. Back in the 80's it was hired out, costing the district 30 percent of its budget.

POPULATION/VALUATION-BASED FORMULAS

Castle Hill (pop. 449), Mapleton (pop. 1,853) and Chapman (pop. 422) have been sharing the administrative service of one town office and one town manager since the 1950's. Until recently, the three towns paid on the basis of their share of the total population, with the lion's share going to Mapleton.

But in 1991, the cost-sharing formula was changed to include valuation as well as population: 30 percent valuation, 70 percent population. It was a political move by Castle Hill, who saw the valuation of the other two towns increasing and its own in a period of stagnation, recalls former Town Manager Duncan Beaton.

Beaton, a critic of using valuation in cost-sharing formulas, argues that valuation indicates ability to pay, not need; that only populations reflect need and as such only population should be considered in sharing costs.

The cost-sharing formula of the Mid Coast Solid Waste Corporation also takes into consideration the valuation and population of the cooperating towns (Camden, Lincolnville, Hope and Rockport) but on a 50-50 basis; 50 percent valuation and 50 percent population.

As such, each town's share is the average of its share of the population and its share of the valuation. As such, Camden pays approximately 47 percent, Rockport 30 percent, Lincolnville 15 percent and Hope 8 percent. Were it to be based solely on population, as some would argue, Camden would be paying 41 percent, Rockport 26 percent, Lincolnville 18 percent, and Hope 9 percent.

Explaining why the formula is not related to the activity, former transfer station manager Beury Simon says that when the facility started up there was no mechanism for weighing the trash that came to it. Today, the cost of a set of scales would be about $50,000 and as the facility is currently designed it would need two sets of scales. Simon says there has been some talk by the smaller towns which have no industry to look into changing the formula to reflect actual usage.

Any mention of the use of valuation in cost-sharing would be remiss, if there was no mention of the formulas determining the local share of those municipalities in school administrative districts. For the most part, their assessment is based on their share of the district's valuation.

However, at last count 15 SADs and 13 Community School District have cost sharing formulas that include student population as a factor in the formula, along with valuation.

Of the SAD's with student population included in the formula are SAD 22 (80/20); SAD 30 (50/50); SAD 32 (70/30); SAD 40 (50/50); SAD 43 (75/25); SAD 50 (50-50); SAD 57 (50/50); SAD 60 (50/50); SAD 67 (60/40); SAD 68 (70/30); SAD 71 (70/30); SAD 72; SAD 74 (45/55); SAD 75 (50/50); SAD 77 (50/50). The preceding ratios are valuation/ population.

The latest SAD to make the switch to include student population was SAD 40. It's not that many others have not tried. But it's difficult, to say the least. It is usually the high payers those with the highest valuation that initiate the switch, saying they are being unfairly assessed because they have so many fewer students and that because their costs per pupil are so much higher, there should be some inclusion of the number of students they send factored into the cost-sharing formula.

In SAD 40, it was Friendship that argued to change the formula to factor in students, after seeing its valuation increase by almost 300 percent and its share rise by 88 percent. They proposed a 50-50 split; 50 percent valuation and 50 percent population. They argued that while they were "property rich", their unemployment rate was high and their per capita income was low compared to the districts other member towns.

EQUAL SHARE FORMULAS

Sister cities separated by the Androscoggin River, Lewiston (pop. 38,652) and Auburn (pop. 23,854), are currently in the process of consolidating three public safety dispatching operations into one "communications center," with an eye toward saving more than $250,000 a year in personnel costs.

The two cities have shared limited dispatch services for more than 15 years, splitting costs on a 50-50 basis. They will continue to split the costs in this new and expanded project, says the center's manager Ronald Riml. The construction and equipment purchases of $1.3 million will be split equally, fifty-fifty, between the two cities, as will the first year's operational costs of $675,000.

Riml notes that nationwide, the trend with dispatch centers is to base cost-sharing, formulas on the number of calls made by each town; however, that kind of formula requires an accurate data base, which the two cities have not had to date but will now have.

Auburn City Manager Patricia Finnigan says the 50-50 split is in keeping with traditional joint enterprises of the two cities. They split the costs down the middle on the airport and the transit system subsidies. While the cities are not identical in size nor in valuation, the equal-share formula is hassle free and works. Finnigan says that should the two towns decide to contract out the services of its center to towns in the surrounding area, it is conceivable that they could look at cost-sharing formulas based on usage.

For the past three years, the neighboring towns of Casco and New Gloucester have shared a full-time assessor, though technically the assessor works for Casco. The assessor spends two weeks working for Casco as its single assessor and two weeks for New Gloucester as its assessors' agent, alternating back and forth throughout the year.

Because they are similar in population, with Casco at 3,200 and New Gloucester at 4,000, and number of parcels, at last count Casco had 2,300 parcels and New Gloucester had 2,450, it made sense for the towns to split the costs fifty-fifty, says New Gloucester Town Manager Bill Cooper.

Every two weeks New Gloucester is billed for half the assessor's salary and benefits. The two towns also split the costs of conferences and meetings but they do not split the costs of travel, as the two towns have a different rate they pay for mileage.

While the original agreement adopted by the two towns called for a detailed accounting of the number of days spent in each town an agreement inherited from a former arrangement between New Gloucester and Gray that is not the current practice. As New Gloucester's Cooper explains it, there is a level of trust between the two towns that allows them to make adjustments and keep track of the time the assessor spends in each town without wasting time 'nickel and diming' the process.