Question

Here is the situtation--- Choosing best public policy proposal to take --- READ ALL and show calculations. Assignment is below

As you know, Soundville currently has no municipal trash collection and so residents must either burn their trash individually or take it to one of several transfer stations located around the town. Recent legislation has put restrictions on the outside burning of trash in populated areas, and residents of the town have been complaining about the inconvenience of carrying their own trash to the transfer stations. And the town is growing; recent mid-decade census estimates show that we are now the largest town in North Carolina that has no municipal trash collection system.

The town council has assigned me the task of asking you to analyze three different proposals for trash collection. I will need your report by February 10.

The first proposal entails the town organizing a sanitation department. Projections show that the town would need one garbage truck, costing $100,000 with annual maintenance costs of $18,000. Two new town employees whose salaries and benefits would cost $22,000 per year per employee would need to be hired. A supervisor would be necessary at salary and benefits project­ed to run about $45,000 per year. The truck would reach the end of its useful life in fifteen years and thus would need to be replaced with a new truck costing about the same amount of money (pre-discounted). This proposal would include once a week back door (meaning that trash cans would not have to be put on the curb) trash collection.

The second proposal would involve buying a automated side load (ASL) garbage truck. The manufacturer of this truck says that it is so advanced that a sanitation supervisor would be unnecessary and I could take on the few additional duties of supervising sanitation. However, since I would be performing these duties in addition to my normal duties, a new part-time administrative assistant would need to be hired at a salary of $11,000 per year (no benefits for part-time employees). There would only need to be one new sanitation employee hired at the same rate as above. Rather than $100,000, the new truck would cost $185,000 and would have slightly higher annual maintenance costs of $20,000. This truck’s useful life is promised to be ten years so it would need to be replaced after each ten-year cycle. This proposal would include once a week curbside trash collection. Residents would be supplied with special garbage containers at no cost; the city paying a one-time fee of $12,000 for the cans.

The third proposal entails contracting with a private company for trash collection. Waste Disposal Inc. (WDI) has indicated to the town that it would provide trash collection services on a contract basis for a fee of $175,000 per year. Their bid assumes twice a week curbside trash collec­tion. Residents would be supplied with special garbage containers as part of the WDI contract (at no cost to residents).

You should assume a 30 year time frame for your compari­sons and a 3% discount rate.

Looking only at the total cost to the town government, which of these three alternatives would you recommend to the council? If you added a second criterion of effectiveness of garbage removal (defined as how often garbage is picked up), what would your recommendation be? If you added a third criterion of residents’ convenience (defined as how little work residents must do to dispose of garbage) what would your recommendation be?

The council is also interested in whether this is an exhaustive list of options for trash disposal in Soundville. If you can develop any other ideas please list them and, if the council finds them interesting, they may ask you to analyze those against the three given options

Answer 1

Proposal 1:

Garbage Truck Costs (now and at end of 15th year)	100000
Annual Maintenance costs, per year	18000
Town Employee salary, per year	22000
Supervisor salary and benefits, per year	45000

Total annual costs = 18000 + 22000 +45000 = 85000

We will use below formula to calculate present value of these annual costs:

Here, C=85000, i=3%, n =30

So, replacing these values in the formula above, present value (PV) of annual costs = 1666038

Now, Present value of the cost of garbage truck (one bought initially and one after 15 years) = 100000 + 100000/((1+3%)^15) = 164186

Total costs of Proposal 1 = 1666038 + 164186 = 1830224

Proposal 2:

ASL Garbage Truck Costs (now, and at 10th, and 20th year)	185000
Part-time employee salary	11000
New Sanitation employee salary and benefit	22000
One Time fee for the cans at the beginning of project	12000

Total annual costs = 11000+22000 = 33000

PV of annual costs (using C=33000, i=3%, n =30, in the formula above) = 646814

PV of ASL Garbage Truck (bought initially, and then after every 10 years) = 185000 + 185000/((1+3%)^10) + 185000/((1+3%)^20) = 425087

Total Cost for Proposal 2 = 12000 + 646814 + 425087 = 1083902

Proposal 3:

Annual contract fee = 175000

PV of the annual contract fee (using C=175000, i=3%, n =30, in the formula above) = 3430077

Total Cost for Proposal 3 = 3430077

Clearly, Proposal 2 is the cheapest, so looking at costs only I would recommend Proposal 2 to the council.

If also considering the effectiveness of garbage removal, Proposal 1 looks better considering backdoor garbage collection, which is important as the garbage will be collected only periodically and not daily. However, the cost difference is significant, hence I would still go with Proposal 2, as the main complaint of the residents about having to carry their trash to the transfer stations, would still be resolved by Proposal 2.

Similarly even if adding the factor of resident's convenience, Proposal 2 remains lucrative in terms of cost and overall efficacy.