Palo Alto residents who try to limit their waste by switching to smaller trash cans could find their garbage rates spiking dramatically and possibly doubling over the next several years as part of the city's effort to bring financial stability to its troubled refuse operation.

The city has recently completed a "cost of service" study that proposes a radically different rate structure for residential customers. The goal is to stabilize the refuse fund, which has been losing money in recent years, and to get away from the existing system under which commercial customers subsidize through their rates the cost of providing service to residents.

While the sharp rate increases would be phased out over several years, a new proposal from the Public Works Department calls for a 5.3 percent rate increase for all residential customers starting in July along with a $2.09 flat fee that would be tacked on to every residential bill to cover the cost of street sweeping.

The study, which the city initiated in August 2010 and which the City Council's Finance Committee is scheduled to discuss Tuesday night, March 6, offers a rate structure that would affect all residential customers but would have the most dramatic impact on those who conserve the most. Under this model, residents who use mini-cans (about 29 percent of all customers) would see their monthly refuse rates jump from $20.52 to $45.46, a 121 percent increase. The 55.7 percent of residential customers who use the standard 32-gallon cans would see their rates go up from $37.58 to $50.48, a 37 percent increase.

Meanwhile, those who use 64-gallon cans would see their rates decline by 12 percent, from $72.46 to $63.86.

Because of the severity of the spike for customers who use the two smallest containers, staff is recommending phasing out the rate changes over two or three years, according to Brad Eggleston, the city's solid waste manager. The Public Works Department proposes keeping "conservation pricing" in place to encourage smaller cans but to reduce the level of conservation pricing by introducing a flat fee for all customers.

The plummeting revenues in the Refuse Fund can, in many ways, be attributed to the city's success in encouraging conservation through its Zero Waste program. By switching to smaller cans, residents bring down their trash bills and, in doing so, reduce the city's revenues. In addition, more people recycle and compost -- services for which the city has not been charging its residents.

That, however, can soon change. In his report on the cost-of-service study, Eggleston notes that the city's refuse rates have been traditionally based on garbage-can size but are "expected to fund a broad range of programs including garbage collection and disposal, yard trimming collection and processing, recycling collection and processing, commercial organics collection and processing, street sweeping, household hazardous waste, the Palo Alto landfill, and the annual clean-up day."

"As residents switched to smaller garbage can sizes through the success of the Zero Waste programs and as the economic downturn impacts services provided to businesses, revenues declined sharply," Eggleston wrote.

The council began dealing with this problem last year when it approved a flat rate hike of $4.62 percent for all customers, regardless of can size. The new rate structure, however, would bring much more significant changes. Under the cost-of-service model, the city would start charging all residential customers $7.66 for recycling, and $10.99 for picking up their yard trimmings and $6.71 for street sweeping.

While the city is unlikely to introduce all these fees in the short term, the street-sweeping fee would kick in as early as July under the staff proposal. Because the council already added the $4.62 fee last year, it would need to tack on another $2.09 fee to achieve the $6.71 rate required to meet the cost of providing street-sweeping services.

The model, in short, proposes a major shift from a system that provides pricing incentives for customers who switch to smaller cans (thanks in large part to subsidies from commercial customers) to one in which rates reflect the actual cost of services. Under the model in the study, the difference between the rates for those who use minicans and those who use standard cans is only $5.02. Under the current structure, this difference is $16.96.

Eggleston wrote that "given the magnitude of the rate increases that are needed for minican and 32-gallon service to reach the cost of service model rates, staff recommends that rate increases be phased in over some number of years." On Tuesday, the Finance Committee is scheduled to review the staff recommendation and consider an array of other options, including some of which extend the rate increases over a longer period of time and others that would eliminate conservation pricing.