REPORT TO COUNCIL
SUBJECT
Title
Public Hearing: Adoption of a Resolution Setting Rates for Overall Solid Waste Services and Annual Clean-up Campaign in the Exclusive Franchise Area
Report
COUNCIL PILLAR
Deliver and Enhance High Quality Efficient Services and Infrastructure; Sustainability
EXECUTIVE SUMMARY
The City has entered into new agreements for the collection and processing of garbage and recyclables. The Contractors’ scope of services and compensation rates were negotiated and approved by Council on December 10, 2019. On March 10, 2021, staff presented a Solid Waste Rate Study to Council which included proposed Fiscal Year (FY) 2021/22 solid waste rates. The purpose of the Solid Waste Rate Study was to assure that the program was cost recovery and costs were being spread equitably amongst all garbage container types. In general, the proposed rate increases are below previously forecasted rate increases with the exception of the 20-gallon cart, which was expected. Staff anticipated that the Solid Waste Rate Study would show the cost for the 20-gallon cart was not equitable and would need to be increased more than the other garbage cart types. Council approved moving forward with implementing the increased rates specified in Table A of the Resolution (Attachment 1) to enable the Solid Waste Enterprise Fund to maintain cost recovery for the coming FY 2021/22. Council also moved forward with increasing the low-income rate assistance program for Solid Waste by $7 per month so those qualifying would receive a greater reduction in their bill.
Notices (Attachment 2) were sent to all 34,875 solid waste rate payers on April 7, 2021 informing them of the proposed rate increases and date of the Public Hearing to approve the rates, as required by Article XIII D of the California Constitution. Following the close of the Public Hearing, staff recommends that Council adopt the subject Resolution, which establishes the solid waste rates effective for the utility bills issued for services rendered on and after July 1, 2021.
BACKGROUND
In November 1996, California voters approved Proposition 218, which amended the state Constitution and imposed new substantive and procedural requirements for imposing or increasing property-related fees and charges. Under these requirements, water, sewer, and solid waste service fees or charges may only be increased if a majority of rate payers does not protest the increase. The City must mail a written notice of the proposed increases and hold a public hearing on the proposed increase not less than 45 days after mailing the notice. At the public hearing, all protests against the proposed fees or charges are tabulated and if the number of protests by a majority of rate payers totals 50 percent plus one, the fees or charges cannot be imposed. The public hearing for the City’s FY 2021/22 solid waste rates is scheduled for May 25, 2021. If there is not a majority protest, the Council can adopt the rate increase contained in Table A of the Resolution (Attachment 1).
The City sets rates and collects bundled charges from customers to fund the solid waste program. The bundled solid waste rate is comprised of one or more of the following components. Customers are only charged for the specific components for which they receive service.
• Garbage
• Yard trimmings
• Residential recycling
• Annual Clean-up Campaign (CUC)
In 2019, City Council approved moving forward with new 15-year solid waste agreements with Recology South Bay (Recology), Mission Trail Waste Systems (MTWS), and GreenWaste Recovery, Inc. (GWR). An existing agreement with Republic Services (Republic) for landfill disposal and composting of yard trimmings is in place and expires on December 31, 2024. The services provided under these agreements enable the City to comply with the new organic waste diversion requirements for the purpose of reducing greenhouse gas emissions from landfills mandated by Senate Bill 1383 (SB 1383), which will be enforceable starting in 2022.
Staff appreciates that solid waste rates have been a focal point for both the community and Council. Staff also notes that several factors outside the City’s control contribute to the need to increase rates, such as:
• Additional costs to comply with organics collection and processing under SB 1383
• Large decline in the international recyclables commodities markets due to China’s National Sword Policy
• Increased regional labor costs
• Replacement fleets for both MTWS and Recology due to age
The new agreements incorporated the changes in market conditions and predicted rate increases. It was communicated to both the public and Council that rates would be increasing approximately 57 percent over the three-year period starting July 2020. These increases are necessary to ensure that the Solid Waste Program continues to be cost recovery.
Following the execution of the new solid waste agreements, R3 Consulting, Inc. (R3) performed a Solid Waste Rate Study (Rate Study, Attachment 3) to ensure that the rates being proposed for FY 2021/22 are based on the true costs of service and are equitable. Each rate for garbage, yard trimmings, residential recycling and CUC service was developed to equitably incorporate the following cost elements:
• Compensation paid to service providers to collect and transport solid waste
• Compensation paid to process, compost, and/or dispose of solid waste
• City program costs (billing and internal costs, street sweeping, household hazardous waste, leaf vacuum, and holiday tree collection services, franchise fees, and landfill post closure costs)
Staff presented the Rate Study including the proposed solid waste rates to the City Council on March 10, 2021. In general, the proposed rate increases are below previously forecasted rate increases with the exception of the 20-gallon cart, which was expected. Staff anticipated that the Rate Study would show the cost for the 20-gallon cart was not equitable and would need to be increased more than the other garbage cart types. Following the presentation, Council approved moving forward with increasing garbage rates to meet cost recovery for FY 2021/22 with no replenishment of rate stabilization reserves, and approved transferring funds from the General Fund Budget Stabilization Reserve to permanently increase the low income solid waste rate assistance program discount from $3 to $10 per month.
DISCUSSION
Cost Adjustments Required by the Franchise Agreements with Recology, Mission Trail Waste Systems (MTWS), GreenWaste Recovery (GWR), and Republic Services (Republic)
The primary reason for rate increases is to raise additional revenue to cover the contractually obligated compensation adjustments paid to service providers for the collection, processing, recycling, composting, and disposal of solid waste in compliance with new state laws and current market conditions. The current agreements with Recology and MTWS contain negotiated compensation increases spread over the first three years to gradually incorporate the increased costs (labor, National Sword Policy, new fleet of collection vehicles) that were not captured by the annual compensation methodology in the previous agreements. Below are summaries of the compensation adjustments for Recology and MTWS over the first three years of the successor agreements.
Recology
July 1, 2020: $2,837,000 annual compensation
July 1, 2021: $3,194,000 annual compensation
July 1, 2022: $3,635,000 annual compensation
MTWS
July 1, 2020: +6.0% increase to schedule of tariffs
July 1, 2021: +9.0% increase to schedule of tariffs
July 1, 2022: +9.0% increase to schedule of tariffs
Beginning July 1, 2023, the annual compensation adjustment for both Recology and MTWS shifts to the year over year change in the Water, Sewer Trash Index that is compiled and published by BLS, with a cap of 5 percent and floor of 2 percent.
GWR
In 2019 Council made a policy decision to move forward with mixed waste processing to comply with SB 1383 and approved entering into an agreement with GWR. As of January 2, 2021, the contents of garbage carts and bins started being delivered to GWR for mixed waste processing (processing) and organics composting so the current rates in place are only based on six months of processing and composting. FY 2021/22 will be the first full year of processing and composting through GWR so the rates will be increasing from the current year to account for this. The annual compensation adjustment in the GWR agreement is based on the year over year change in the CPI-U. The GWR compensation adjustment will be +2.01 percent for FY 2021/22.
Republic
The agreement with Republic contains an annual compensation adjustment based on the weighted year over year change in the CPI-U (80 percent), Gross National Product Implicit Price Deflator (10 percent) compiled and published by the United States Bureau of Economic Analysis (BEA), and Employment Cost Index - Compensation by Occupation and Industrial Group, Non-Manufacturing (10 percent) compiled and published by BLS. The Republic compensation adjustment will be approximately +2.0 percent for FY 2021/22.
Bundled Solid Waste Rates
The individual garbage, yard trimmings, recycling and CUC components are bundled together to create the overall solid waste rates that are charged to residential cart customers. R3 calculated FY 2021/22 rates for each service based on the cost to provide collection, disposal, processing and/or composting, and City program costs. The table below summarizes the individual rate component increases for residential cart customers.
|
Service Type |
FY 2020/21 Rate |
FY 2021/22 Rate |
Change in Rate |
|
20-gallon garbage cart |
$12.50 |
$17.37 |
$4.87 |
|
32-gallon garbage cart |
$20.80 |
$24.15 |
$3.35 |
|
64-gallon garbage cart |
$38.60 |
$44.91 |
$6.31 |
|
96-gallon garbage cart |
$56.50 |
$65.59 |
$9.09 |
|
Yard trimmings |
$11.80 |
$13.04 |
$1.24 |
|
Recycling |
$5.30 |
$5.58 |
$0.28 |
|
CUC |
$5.90 |
$6.28 |
$0.38 |
Each customer pays a different rate that is dependent on cart size subscription and whether they pay for yard trimmings or CUC services. Below is a summary of FY 2021/22 bundled monthly rates for single-family residential and townhouse cart customers to achieve cost recovery for the Solid Waste Fund.
|
Garbage Cart Size |
Garbage Rate |
Yard Trimmings Rate |
Recycling Rate |
CUC Rate |
FY 21/22 Bundled |
|
20-gallon single-family |
$17.37 |
$13.04 |
$5.58 |
$6.28 |
$42.27 |
|
20-gallon townhouse |
$17.37 |
$0.00 |
$5.58 |
$6.28 |
$29.23 |
|
32-gallon single-family |
$24.15 |
$13.04 |
$5.58 |
$6.28 |
$49.05 |
|
32-gallon townhouse |
$24.15 |
$0.00 |
$5.58 |
$6.28 |
$36.01 |
|
64-gallon single-family |
$44.91 |
$13.04 |
$5.58 |
$6.28 |
$69.81 |
|
64-gallon townhouse |
$44.91 |
$0.00 |
$5.58 |
$6.28 |
$56.77 |
|
96-gallon single-family |
$65.59 |
$13.04 |
$5.58 |
$6.28 |
$90.49 |
|
96-gallon townhouse |
$65.59 |
$0.00 |
$5.58 |
$6.28 |
$77.45 |
Townhouse residential cart customers rates are the FY 2021/22 bundled rate for garbage cart size less the $13.04 yard trimmings rate since they do not receive this service. Monthly rates for cart customers that do not participate in the CUC are $6.28 less than the bundled rates shown in the table above. The current $0.30 per month HHW charge will be removed from customer bills in FY 2021/22. HHW costs have been programmed into the garbage service charges through the FY 2021/22 Rate Study.
As discussed with Council and the public during the agreement negotiation process for solid waste contracts, rates will need to be increased by an estimated 57 percent over the course of the next three fiscal years in order to remain at cost recovery. During those discussions it was projected that rates for FY 2021/22 would be increased by 19.7 percent. The FY 2021/22 bundled rates generated by this Rate Study are on average approximately 12.6 percent higher than the current bundled rates for cart customers, which is well below the estimated increase of 19.7 percent that was previously presented to Council and the public. The only anomaly is the 20-gallon cart which has an increase of 18.1 percent for single family and 21.8 percent for townhomes, which was anticipated because those size carts were not cost recovery and were being subsidized by the larger carts.
It should be noted that the City is the only jurisdiction in Santa Clara County that offers a townhouse service in which customers that do not utilize the yard trimmings service do not have to pay for it.
The table below shows the increase in each residential cart bundled rate.
|
Garbage Cart Size |
FY 20/21 Bundled Rate |
FY 21/22 Bundled Rate |
Change in Rate |
Percentage Change |
|
20-gallon single-family |
$35.80 |
$42.27 |
$6.47 |
18.1% |
|
20-gallon townhouse |
$24.00 |
$29.23 |
$5.23 |
21.8% |
|
32-gallon single-family |
$44.10 |
$49.05 |
$4.95 |
11.2% |
|
32-gallon townhouse |
$32.30 |
$36.01 |
$3.71 |
11.5% |
|
64-gallon single-family |
$61.90 |
$69.81 |
$7.91 |
12.8% |
|
64-gallon townhouse |
$50.10 |
$56.77 |
$6.67 |
13.3% |
|
96-gallon single-family |
$79.80 |
$90.49 |
$10.69 |
13.4% |
|
96-gallon townhouse |
$68.00 |
$77.45 |
$9.45 |
13.9% |
Garbage Bin and Commercial Garbage Cart Rates
Garbage bin and commercial garbage cart rates for FY 2021/22 were developed by adding the compensation paid to MTWS for collection, GWR mixed waste processing and Republic disposal costs, and City program costs. The FY 2021/22 commercial garbage cart rates are shown in Section II.A of Attachment 1. The garbage bin rates are shown in Section II.D of Attachment 1.
Services Billed by MTWS
The City sets the rates and bills for residential and commercial cart and bin garbage service. Under the current exclusive franchise agreement, MTWS bills customers directly for commercial business recycling and voluntary commercial organics collection, and roll-off and compacted front loader bin garbage collection services that it provides. The methodology for determining the rates that MTWS charges customers for the services that it provides billing for is prescribed in the exclusive franchise agreement. The City needs to notice the rate increases in accordance with Proposition 218 requirements and approve the rates at the Public Hearing for the rate increases to take effect. If the proposed rate increases for services that are billed by MTWS are not approved by the City Council, the City is contractually obligated to pay MTWS the increased compensation and has to absorb the shortfall between cost of service and revenue collected.
Commercial Recycling
MTWS is required to provide up to 96-gallons of free commercial recycling services to businesses at no charge under the agreement. The rates for additional service above 96-gallons per week are based on container size and frequency of service, plus 10 percent markup for billing and franchise fees. Commercial recycling service rates charged to garbage cart and garbage bin customers will increase by 9 percent in FY 2021/22 (Sections IIB and IIE of Attachment 1).
MTWS remits 5 percent of the markup to the City as franchise fees that get deposited in the General Fund for all services that it provides billing for, which includes the services described below.
Voluntary Food Scraps and Organic Waste Service
MTWS provides voluntary source separated food scraps and organic waste service to commercial business customers under the agreement. The rates for collection and processing are based on container size and frequency of service, plus 10 percent markup for billing and franchise fees. Collection and processing rates charged to customers will be increasing by 9 percent in FY 2021/22 (Section IIC of Attachment 1).
Loose and Compacted Roll-Off Debris Bin Service
MTWS provides scheduling, collection, and billing for loose and compacted roll-off debris bin service in the exclusive franchise area. The collection rate component is based on container size and frequency of service, plus 10 percent markup for billing and franchise fees. MTWS will be receiving a 9 percent increase to its tariffs in FY 2021/22. Customers are also billed the actual charges incurred for the disposal, processing, and/or recycling of collected contents plus 10 percent markup for billing and franchise fees. Section IIG of Attachment 1 contains rates these services.
Countywide Rate Comparison
The Santa Clara County Residential Cart Rate Comparison (Attachment 4) provides a comparison of solid waste rates for residential collection services in Santa Clara County (County). Most jurisdictions have indicated they will also be seeking rate increases in FY 2021/22 but were unable to share that information at this time. As a result, the comparison is based on comparing Santa Clara’s proposed FY 2021/22 rates to the current FY 2020/21 rates in other jurisdictions. The survey is for bundled solid waste services that include garbage, yard trimmings, and recycling services. Santa Clara is the only city in the county that offers a townhouse service rate in which customers do not subscribe to yard trimmings service. The townhouse rates are lower than countywide averages for the same size container across the board. It should also be noted that the City’s rates that are presented for comparison do not include the proposed $6.28 per month charge for the CUC because no other jurisdiction in the County has a comparable program.
|
|
20-gallon |
32-gallon |
64-gallon |
96-gallon |
|
FY 2020/21 countywide average |
$30.17 |
$37.46 |
$64.89 |
$96.03 |
|
FY 2021/22 Santa Clara single-family rate* |
$35.99 |
$42.77 |
$63.53 |
$84.21 |
|
FY2021/22 Santa Clara townhouse rate* ** |
$22.95 |
$29.73 |
$50.49 |
$71.17 |
*Excludes CSC Clean-up Campaign Cost
**No other city offers reduced townhouse rates
The Santa Clara County Commercial Bin Rate Comparison (Attachment 5) provides a comparison of solid waste rates for commercial bin collection services in the County. Santa Clara’s weekly FY 2021/22 garbage bin rates will remain slightly lower than the FY 2020/21 countywide average. Most jurisdictions in the County have indicated that rate increases will be occurring in FY 2021/22. Santa Clara multi-family and commercial business customers that subscribe to frontload bin garbage service will not be required to subscribe to an additional organics container to meet SB 1383 requirements because the contents of the garbage bins will be taken to the GWR mixed waste processing facility to recover the organics for composting. This is not the case for some other jurisdictions. The cost savings of not subscribing to an additional container for organics is not captured in the countywide comparison, which only shows the cost to subscribe to a specific garbage service level.
Rate Assistance Program
Under the current agreement, MTWS provides the City with a $3 per month decrease in tariff for residential accounts that qualify through the Silicon Valley Power (SVP) low income Rate Assistance Program. On March 10, 2021 the City Council approved to increase the rate discount to $10 per month. MTWS will continue to fund $3 per month and a transfer from the General Fund in the amount of $33,600 will be necessary to fund the additional $7 per month for 400 qualifying customers in order to comply with Proposition 218 in FY 2021/22.
CUC Alternatives
The City Council expressed interest in identifying alternatives to the current CUC format. Some of the alternatives to the current format include:
• Annual on-call bulky item collection program provided by MTWS through exclusive franchise agreement (cost would be incorporated into garbage cart rates)
• On-call bulky item collection program for a fee (only customers that use the program get charged)
• Annual on-street collection of unlimited yard waste (follow same format as current CUC, but only compostable yard waste is accepted)
• Neighborhood clean-up days in which residents can dispose of unwanted waste in debris bins staged at strategic locations
• Provide residents with free disposal coupons for the MTWS Transfer Station or other disposal facility (self-haul)
• Combination of multiple programs
Staff will need to bring on a consultant to help develop a slate of alternatives that includes cost data, service level options in terms of frequency and what types of material is accepted, and analysis of advantages and disadvantages of each alternative along with public outreach and presentations. After the alternatives are developed, the consultant will work with staff to develop a survey to collect feedback from customers. Surveys will be made available online and sent to a specified number of customers, as recommended by the consultant. The consultant will prepare a report summarizing the alternatives and customer survey results, which will be presented to Council upon completion. It is anticipated that the budget required for consultant services to perform this effort could cost approximately $75,000 to complete, with a target Council presentation by late Spring 2022. Funds to develop alternatives to the CUC and conduct a customer survey have not been included in the current proposed FY 2021/22 Solid Waste Fund operating budget. In order to move forward, Council would need to direct staff to incorporate funds from the Solid Waste Fund balance into the FY 2021/22 operating budget to procure a consultant to develop alternatives, conduct a survey of customers, and draft a final report.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of California Environmental Act (“CEQA”) pursuant to CEQA Guidelines section 15378(a) as it has not potential for resulting in either a direct change in the environment, or as a reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
In total, the solid waste customer charges will generate approximately $33,148,000 of revenue in FY 2021/22. These revenues have been incorporated into the proposed Biennial FY 2021/22 and FY 2022/23 Operating Budget. A transfer from the General Fund to the Solid Waste Fund in the amount of $33,600 has also been programmed to fund the additional $7 per month for 400 qualifying customers in the Rate Assistance Program for FY 2021/22.
If Council chooses to approve the recommendation to develop alternatives to the CUC and conduct a customer survey, an additional $75,000 will need to be allocated from the Solid Waste Fund unrestricted ending fund balance in the FY 2021/22 Operating Budget for Materials, Services, and Supplies for contractual services to procure a consultant.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov>.
ALTERNATIVES
1. Adopt a Resolution setting the overall rates to be charged to rate payers for the collection and disposal of garbage, refuse, yard trimmings, recycling, annual Clean-up Campaign, and Household Hazardous Waste in the exclusive franchise area, effective for the utility bills issued for services rendered on and after July 1, 2021; or
2. Do not adopt a Resolution to increase the proposed rates to be charged to rate payers for collection and disposal of garbage, refuse, yard trimmings, recycling, annual Clean-up Campaign, and Household Hazardous Waste in the exclusive franchise area and subsidize FY 2021/22 expenditures with funds from the General Fund;
3. Authorize the City Manager to incorporate the transfer of $33,600 from the General Fund to the Solid Waste Fund into the Biennial FY 2021/22 and FY 2022/23 Operating Budget and each subsequent operating budget.
4. Direct the City Manager to bring forward an amendment to the Proposed Biennial FY 2021/22 and 2022/23 Operating Budget that allocates $75,000 from the Solid Waste Fund unrestricted ending fund balance in FY 2021/22 to hire a consultant to develop alternatives to the current annual Clean-up Campaign format and conduct a customer survey.
RECOMMENDATION
Recommendation
1. Adopt a Resolution setting the overall rates to be charged to rate payers for the collection and disposal of garbage, refuse, yard trimmings, recycling, annual Clean-up Campaign, and Household Hazardous Waste in the exclusive franchise area, effective for the utility bills issued for services rendered on and after July 1, 2021;
3. Authorize the City Manager to incorporate the transfer of $33,600 from the General Fund to the Solid Waste Fund into Biennial FY 2021/22 and FY 2022/23 Operating Budget and each subsequent operating budget; and
4. Direct the City Manager to bring forward an amendment to the Proposed Biennial FY 2021/22 and 2022/23 Operating Budget that allocates $75,000 from the Solid Waste Fund unrestricted ending fund balance in FY 2021/22 to hire a consultant to develop alternatives to the current annual Clean-up Campaign format and conduct a customer survey.
Staff
Reviewed by: Craig Mobeck, Director of Public Works
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Resolution
2. Notice
3. Rate Study Report Prepared by R3 Consulting, Inc.
4. Santa Clara County Residential Cart Rate Comparison
5. Santa Clara County Commercial Bin Rate Comparison