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C. Capital Costs (Forrn 4) Providing municipal solid waste services requires that equipment, facilities and land_be purchased and used. Some of the "smaller' asset purchases are often financed with "cash capital outlays." In these instances, the assets are paid for with cash, rather than through the issuance of debt. Larger capital purchases such as land, the construction of facilities, and the purchase of some types of equipment are usually funded with debt. Cash capital outlays are used as a"financing vehicle" by most solid waste utilities and are often relatively constant from one year to the next. As such, the historical cash capital outlays of a municipal solid waste program service can often be used to predict future cash capital outlays. Financing larger expenditures with debt allows the ratable collection of funds over the life of the asset. Since most municipalities operate on a cash basis, this workbook uses what is called a'mod'rfied cash basis" to ensure the establishment of cost of service based solid waste rates. Using annual principal and cash capital outlays in lieu of depreciation expense is an important difference between the modified cash basis and the accrual basis. The modified cash basis is preferred in the development of cost of service and rate design studies,-since the purpose of these studies is to capture the full "cash" cost of providing the solid waste service on an annual basis. As mentioned earlier in the workbook, there are situations where the use of depreciation expense in the establishment of solid waste rates would generate insufficient cash revenues on an annual basis to recover the debt service associated with an asset. As mentioned in the Vehicle Expense Section (Forms 2 and 3), many municipalities use an internal services fund to purchase and maintain equipment. These funds purchase the required equipment and then "lease" it to the other city departments using a depreciation factor. This is an acceptable methodology, with the lease payment used in lieu of debt service, especially since these assets are often purchased with cash instead of debt. For purposes of this wor{dbook, the internal services fund "lease cost" appears on the workbooks Vehicle Expense Form (Form 2), in anticipation of the same internal services fund also providing maintenance and repair activities as well. If a solid waste program plans to purchase a major piece of equipment without using debt, or an internal services fund, its impact on "cash capital outlays" will be significant at the time of purchase and not acceptable from a rate design viewpoint. In this special case an amortization factor should be used in order to recoup the cash outlay ratably over the life of the asset. This situation is referred to as an "extraordinary cash outlay" on Form 4. In this case, the annual cost of the asset is determined by dividing the purchase price by the forecasted service I'rfe. Salvage values, when realized, will be recorded in the "Other Revenue" section of Form A, Program Cost Summary. Form 4, Capital Costs, is a form that can help a city determine the annual capital costs needed for each solid waste program by considering the annual cash outlays and debt service associated with each program. The city will need to complete a Capital Costs Form for each of the cit/s solid waste programs. This will allow the city to clearly identify the capital costs associated with each solid waste program. Form 4 has the following entries: Service Provider: Name of city, government agency, or private operator completing the worldbook. • Date Prepared: Date the form is completed. 15 . 000215