1 Discussion and Request For Direction Regarding Options for Calculating the 2005 Statewide Diversion Rate Agenda Item 12 August 15, 2006

2 Three Primary Components of Measurement System Base-Year Generation Tons –from jurisdiction generation studies Adjustment Method Formula –to estimate measurement-year generation tons Measurement-Year Disposal Tons –from Disposal Reporting System

3 Adjustment Method Premise X PRC &

4 Adjustment Method Calculations Reporting Year Disposal Reporting Year Diversion

5  Population -(CA Department of Finance)  Employment -(CA Employment Development Department)  Taxable Sales -(CA State Board of Equalization)  Inflation Index -(provided on next slide) Adjustment Factors (and Sources)

6 Taxable Sales Inflation Adjustment Factors (and sources) Inflation adjustment factor adjusts measurement-year taxable sales for inflation –Consumer Price Index (CPI) -(CA Department of Industrial Relations) –Taxable Sales Deflator Index (TSDI) -(CA State Board of Equalization & CIWMB) Note: September 2005 Board Item authorized future use as alternative factor

7 What is TSD (Taxable Sales Deflator)? Like CPI, TSD is a measure of inflation BOE has an inflation deflator (TSD) which they say is more accurate than CPI to correct CA sales & use tax for inflation TSD is a measure of % price change only for goods and services subject to CA Sales & Use Tax

8 How is TSDI different from CPI? 1.TSDI measures price change in taxable goods and services purchased by CA businesses, governments, and consumers CPI measures prices paid only by CA urban consumers, not CA rural consumers, nor CA businesses and governments Businesses and governments account for ~30% of all U.S. retail transactions

9 How is TSDI different from CPI? 2.CPI includes many items that are exempt from CA Sales and Use Tax: Most services, such as: Medical care Communications Education Housing, including related utility & insurance expenses Some goods, such as: Food consumed at home Prescription drugs

10 TSDI CPI CPI Underestimates Generation Tons & Diversion Rates Housing, Education Medical Costs

Statewide Diversion Rate Continue using CPI –2005 Diversion Rate = 50% Begin using TSDI –2005 Diversion Rate = 52%

12 Options for the Board 1.Direct staff to calculate the statewide diversion rate using TSDI beginning with Direct staff to continue calculating the statewide diversion rate using CPI 3.Direct staff to take other action

13 Staff Recommendation 1.Direct staff to calculate the statewide diversion rate using TSDI beginning with 2005