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Pricing Systems

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Communities implementing pay-as-you-throw will need to select the type of pricing system they will use. Each system has its own advantages and disadvantages. Some systems might offer greater revenue stability, for example, while others create a stronger waste reduction incentive for residents.

There are three types of pricing systems used in a rate structure for a pay-as-you-throw (PAYT) program: proportional, variable rate, and multi-tiered.

Proportional pricing

The proportional system creates the most direct relationship between trash amounts and price. Communities using this system charge residents a per-unit amount for each trash container they fill. For example, residents may pay $1.25 for each 32-gallon bag they set out. These are usually bag- or tag-based systems, with the bags sold at local retail stores or municipal offices.

Proportional system advantages include:

The principal disadvantage of a proportional system is:

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Variable-rate pricing

Photo of 5-dollar Bill and QuarterIn a variable-rate system, the per-unit price varies. Residents are usually billed based on their choice of subscription container size. For garbage they discard above their subscription level, residents must pay an additional fee. The price of any subsequent containers may increase or decrease, depending on the community's PAYT program goals. For example, a household that pays $1.50 per week for a 32-gallon can subscription level might be charged $2.00 for each additional 32-gallon can it sets out in weekly collections. Alternatively, the price of the additional container might be set at $1.00.

In addition, container sizes under variable-rate systems can vary. Some communities offer only one container size for additional set-outs. Others ask residents to use containers that are larger or smaller than their subscription level container size for additional set-outs. Resident may pay the fee for extra garbage by purchasing bags or tags, or communities may count the additional set-outs at the time of collection and bill residents accordingly.

The principal advantage of a variable-rate system is:

The principal disadvantage of a variable-rate system is:

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Multi-tiered pricing

Two-tiered or multi-tiered systems are sometimes used to help communities achieve revenue stability. Similar to the billing systems used by telephone and water utilities, residents subscribe to a base level of service, for which they pay a flat fee. These "first-tier" fees can be assessed through local taxes or through a regular monthly or quarterly charge, often included in a utility or other municipal bill. The fees can be used to cover the fixed portion of the cost of the community's solid waste program.

Residents then pay "second-tier" fees based on the amount of waste they throw away. Second tier fees may be priced in the same way as proportional or variable-rate systems. These fees are often used to cover the costs of collecting and disposing of additional amounts of waste. If the multi-tier fees are variable, they may increase or decrease for additional containers of waste.

The principal advantage of a multi-tiered system is:

The principal disadvantage of a multi-tiered system is:

No one system is appropriate for every community. All three pricing systems (and combinations of these systems) have been successfully implemented in communities across the country. In addition, each system is compatible with the three approaches to rate structure design (looking at neighboring community's prices, preparing estimates, and using advanced rate-setting techniques). To decide which is best for their city or town, solid waste planners usually go back to the goals they set for their program, such as increasing recycling or keeping administrative costs to a minimum.

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Additional resources

For answers to questions about pricing types for PAYT programs, visit pricing systems in the Frequent Questions section of this Web site.

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