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HomeMy WebLinkAboutStaff Report 5546 City of Palo Alto (ID # 5546) Finance Committee Staff Report Report Type: Action Items Meeting Date: 3/3/2015 City of Palo Alto Page 1 Summary Title: Discussion of New Zero Waste Program Plans and Rate Structure Modifications Title: Discussion of a New Residential Curbside Collection and Composting Program, Commencing FY 2016 and Acceptance of Ongoing Staff Efforts to Later Present to Council for its Approval or Adoption: (1) Amendment No. Two to Greenwaste of Palo Alto Agreement, Extending the Term Until June 30, 2021, (2) Ordinance Requiring Commercial Customers to Take Commercial Organics Service and Undertake Efforts to Reduce Garbage Contamination, and (3) New Refuse Rate Structure, Including an Increase in Residential Customers Rates Over a Three-year Period From: City Manager Lead Department: Public Works Recommendation Staff recommends that the Finance Committee: 1. Discussion of a new residential curbside collection and composting program of food scraps commingled with yard trimmings in the green carts, effective July 1, 2015; 2. Accept Staff’s preliminary recommendations to extend GreenWaste of Palo Alto’s Agreement for Solid Waste, Recyclable Materials, Organic Materials and Yard Trimmings Collection and Processing Services (GreenWaste’s Contract) through June 30, 2021 and develop amendments that would help increase diversion and efficiencies; 3. Accept Staff’s preliminary plans to adopt and implement a new City ordinance that would require businesses to subscribe to commercial City of Palo Alto Page 2 compostable service and sort their wastes so that there will be less than 10% contamination in any container; 4. Accept Staff’s preliminary plan to develop and implement a new refuse rate structure along with a three year schedule to increase refuse rates charged to the Residential Sector; Executive Summary The implementation of the GreenWaste Contract in 2009 added several zero waste programs that boosted the City’s diversion rate (from landfills) from 62% in 2008 to approximately 78% in 2013. Since then, the City’s waste diversion rate has not increased as desired, especially given our Zero Waste Goal by 2021. The next big step in the City’s efforts to attain its zero waste goals is getting compostables out of the landfill, as they make up 40% of today’s garbage. In this report, Staff proposes a series of activities to keep the compostable materials out of the landfill, which include: modifying the GreenWaste Contract, providing residential food scrap collection, and adopting an ordinance requiring commercial customers to recycle and compost in an optimal manner. Staff is also proposing to modify the City’s Refuse Rates to encourage recycling and composting while balancing residential and commercial rates. Staff recommends pursuing the following three new diversion related actions: 1) Collect residential food scraps curbside commingled with yard trimmings, beginning July 1, 2015; 2) Amend the Contract, extending the term until 2021, and focusing on the collection and diversion of residential food scraps comingled with the yard trimmings and commercial food scraps; and 3) Implement an ordinance that would require commercial customers to subscribe to a rigorous composting and recycling service. These three actions can be accomplished in an efficient and cost-effective manner and are forecasted to divert and recover 7,000-8,000 tons of compostable material currently being landfilled every year for less than a three percent overall budget cost increase of $790,000. The result of this diversion should increase the Palo Alto diversion rate from 78% to approximately 82%, higher than most other City of Palo Alto Page 3 cities in the United States and reduce greenhouse gas emissions by over 3,800 metric tons of CO2 equivalent each year. Refuse rates have not increased since July 1, 2012 and in fact were decreased in November 2014 due to the change in service delivery model for the street sweeping program. Staff is also recommending a three-year plan to adjust Residential Refuse Rates to an amount that will cover these new diversion related expenses as well as balance Residential and Commercial rates. While the amount of the rate increase required is still being determined, preliminary analysis suggests that the residential rates would need to be increased by approximately 9% in FY 2016 and 8% in both FY 2017 and FY 2018 for mini-can and 32 gallon containers. Changes to the rates for FY 2016 will be incorporated into the FY 2016 budget process. Staff is also recommending a structural change to the Refuse Rates that would eliminate listing fixed charges on monthly bills, in addition to improving the refuse billing system accuracy by contracting with GreenWaste to perform this function in the commercial sector. Background In 2005, the disposal of recyclable and compostable materials in landfills represented 10% of the greenhouse gas emissions for the entire Palo Alto community. That year, Council adopted a policy to achieve Zero Waste by 2021. In 2007, a Zero Waste Operational Plan (ZWOP) was developed that identified specific actions necessary to achieve zero waste. The City has made tremendous progress implementing zero waste programs over the past seven years. The diversion rate, which was approximately 60% in 2005, had increased to approximately 80% in 2010 then leveled-off (or slipped a little due to the increase in economic activity in the City) since then because the diversion programs such as the commercial compostable collection program have been fully implemented as designed. This increased diversion from landfills has resulted in significant reductions in greenhouse gas emissions. One of the major programs that has helped the City drive towards zero waste is the collection of commercial compostables (e.g., food scraps, food soiled paper, and compostable plastics). Over 11,000 tons of commercial waste annually has been diverted from landfills and composted. Yet, commercial customers still send over 7,000 tons of compostable material to the garbage. The commercial customers’ collective garbage also is filled with over 6,500 tons of recyclable materials. While some of the recyclable material in the garbage is recovered at the Sunnyvale Material City of Palo Alto Page 4 Recovery and Transfer (SMaRT) Station, the compostable materials placed in the black garbage carts are nearly all lost to the landfill. Compostable Material GreenWaste took over curbside refuse collection in July 2009 (CMR 416:08), implementing a number of new zero waste programs including a commercial compostable collection program and worked aggressively to add customers to the compostables collection program. A mandatory recycling and composting ordinance was considered in 2009, but was never implemented. Staff began discussions to implement the ordinance in 2010, however, later that year when the Refuse Fund incurred large deficits following the recession Staff shifted priorities to focus on cost savings measures. In 2013 and 2014 GreenWaste focused on reducing the level of contamination in the composting containers. While some new customers have added compostable service, the amount of compostable material collected has remained relatively flat. FY 10 FY 11 FY 12 FY 13 FY 14 Commercial Compostables Recovered (tons per year) 10,247 11,932 11,723 11,688 11,487 Recovering compostable materials placed in garbage carts is not limited to commercial customers. Based on a 2012 Waste Characterization Report, over one-half of the material placed in residential garbage – 5,000 tons - is compostable and approximately one quarter is recyclable. Unlike commercial customers, residents in single-family households currently do not have a food scraps collection option. A Curbside residential food scrap collection program was identified as a priority project in the 2008 Zero Waste Operational Plan; however, due to the added rate increase that would have been needed to pay for the program, it was not implemented with the inception of the GreenWaste contract in 2009 resulting in only yard trimmings collected curbside in the green cart. Currently, most single-family residents dispose of food scraps in the garbage or through a kitchen sink grinder – options that negatively impact the environment. Some residents, about 10%, compost at home, which is the best environmental option. Curbside collection of food scraps and food soiled paper is a widespread and successful practice throughout the Bay Area. Staff has worked to identify the best City of Palo Alto Page 5 curbside collection method for these compostable materials. In April 2013, the City implemented a year-long Two Cart Collection Pilot Program in the Greenmeadow neighborhood that eliminated the black (garbage) carts. Residents were asked to change two behaviors: first, place food scraps into compostable bags and then into the green carts combined with yard trimmings; secondly, residents were to bag any remaining garbage and place it in the blue recycling carts. Both of the carts (blue and green) were collected weekly and sorted at a materials recovery facility (MRF). The Two Cart Collection Pilot Program confirmed that the two-cart collection system is a good method to increase diversion of food scraps and additional recyclables from landfills. However, the method of separation in the pilot was complicated, as residents were required to: 1) Separate food scraps from yard trimmings using compostable bags; and 2) Separate garbage from recyclable materials using plastic bags. Because of these complexities that led to confusion by residents in the pilot area, Staff is not recommending a citywide roll-out of the two-cart collection system at this time. Staff is recommending a simpler option where residents can place their food scraps bagged or loose in the green carts, as is described later in this report. GreenWaste Contract The current Contract with GreenWaste of Palo Alto, a joint venture (GreenWaste) has an initial term of 8 years with a provision to extend up to 4 additional years (through June 30, 2021). The agreement has provisions for GreenWaste to provide six new zero waste services, five were implemented in 2009. A sixth zero waste service would have added a mandatory recycling and composting participation ordinance but it was never adopted. Staff shifted priorities to focus on cost savings measures when the Refuse Fund incurred large deficits following the 2008 recession. Refuse Rates To obtain better estimates of the existing residential and commercial refuse fund costs, Staff initiated a cost of service study in 2012. The study found that the Refuse Fund’s commercial and residential sectors revenues were not in balance, and began to modify rates in FY 2013 to achieve the proper balance. The residential rates, which have been in effect since July 1, 2012, include a variable charge for the black, garbage cart (mini-can, 32-gallon, 64-gallon, 96-gallon), and City of Palo Alto Page 6 fixed charges for Street Sweeping, Household Hazardous Waste (HHW), and the Annual Clean-Up Day. The City bills waste collection for three different sectors: residential, commercial and roll-off. Staff also determined the rate plan provided residential customers taking large garbage cart service with a smaller percentage rate increase compared to the rate increase imposed on residential customers with mini-can service. This message runs counter to the City’s zero waste goals and could potentially encourage customers to use a larger cart as it is a “better deal”. For these reasons, and because the 2012 rate model was overly complex, Staff have developed a new model and recommended approach which is described in the Discussion section below. Staff has identified a number of programs where a greater percentage of costs should be allocated to the commercial and roll-off sectors. Discussion There are two main challenges that this staff report describes and addresses: Challenge #1 The City’s waste diversion percentage rate attained has leveled off (or dipped slightly) since 2010 and without further changes to induce an increase in diversion, the City will not attain its zero waste goals; and Challenge #2 The City’s refuse rates need to be rebalanced between the Residential and Commercial Sectors, and then the rates must be increased to cover the costs of the new programs described in this report. Addressing Challenge #1: The City’s Waste Diversion Rate has Leveled-off Since 2010 After a dramatic increase in diversion since new zero waste services were implemented in July 2009, the City’s waste diversion percentage has stalled for the last three years (see graph below). If the City is to reach its 2021 zero waste (to landfills) goals, then more aggressive program activities will be needed to “jump-start” the City’s diversion rate. Staff has identified that the largest diversion opportunity in the garbage is compostable organics – food scraps and food soiled paper, which constitutes over 40% of the current garbage stream. City of Palo Alto waste diversion rate over time: City of Palo Alto Page 7 Below are three actions Staff is proposing to divert 7,000 to 8,000 tons per year of waste, primarily food waste, currently being landfilled for an overall Refuse Fund cost increase of less than three percent. These actions to divert and recover waste from landfills will help the City meet its Zero Waste program goals, while keeping Palo Alto a leader in sustainability. The three actions are outlined below: 1. Collect residential food scraps curbside commingled with yard trimmings in a new residential food scraps collection program. 2. Adopt and implement a recycling and composting ordinance that would require commercial customers to sort their waste so that food scraps can be recovered and composted. 3. Modify the Contract and add new zero waste services that focus on the largest source of unrecovered material in the garbage stream (food scraps and food soiled paper). City of Palo Alto Page 8 New Residential Food Scraps Collection Program Staff is recommending the city-wide collection of residential food scraps (bagged or loose) commingled in the green carts with yard trimmings. Commingling the food scraps with yard trimmings is the simplest way to recover this material, divert it from the landfill, and produce valuable compost. Many cities throughout the Bay Area have been collecting and composting commingled residential food scraps with yard trimmings for several years. There are several regional composting facilities that are permitted to compost commingled food scraps and yard trimmings. The food scraps collection program will likely divert and recover over half (or approximately 3,000 tons per year) of the food scraps in the residential garbage. In addition, a curbside food scraps collection program that allows for the loose placement of food scraps in the green yard trimmings cart is consistent with the City’s commercial compostable materials collection program. No longer will school children sort one way at school (part of the commercial program) and then another at home (part of the residential program for single family residents). The improved consistency between the residential and commercial programs will improve outreach opportunities and effectiveness. The proposed program also will be consistent with the other Bay Area communities, including Menlo Park, San Francisco, San Mateo, Redwood City Atherton, Berkeley, and Oakland. If this program is approved, Staff will purchase kitchen pails and distribute them to all single-family residences within the City. Residents can use the pails to temporarily keep food scraps indoors until the material is emptied into the green yard trimmings carts. The program allows for all food scraps to be composted and placed directly into the green cart in a variety of options: loose, in a compostable bag (paper or plastic), in a paper carton (e.g., milk, juice, ice cream), or any other compostable container. The acceptable compostable items include but are not limited to: spoiled food, inedible food scraps (e.g., banana peels, apple cores), meat, bones, egg shells, compostable plastics and food soiled paper (e.g., paper towels, used tissues, paper plates, paper cups, and paper cartons). Larger compostable food scraps like pizza boxes or paper cartons also can be placed directly into the green carts. Diapers, pet waste and feminine hygiene products would not be allowed in the green carts and should continue to be placed in the black garbage carts. Multifamily dwellings with five or more units City of Palo Alto Page 9 that subscribe to commercial refuse service have had the opportunity to have food scrap collection since 2009, however, many of these customers do not subscribe to the compostables service. These customers will be subject to the recommended ordinance. The combined materials in the green carts will be collected by GreenWaste of Palo Alto and transported to the Sunnyvale Material and Recovery Transfer (SMaRT) Station for consolidation. The material will then be transported to a regional composting facility for processing and composting. The regional composting facility will either be: 1) Z-Best Composting Facility near Gilroy (a sister company of GreenWaste of Palo Alto); 2) Zero Waste Energy Development Company (ZWED) (also a sister company of GreenWaste) in San Jose; 3) Newby Island Composting Facility operated by Republic Services in Milpitas; or 4) Harvest-Lathrop Composting Facility (a sister company to Harvest Power) located outside Lathrop. If the City decides to utilize the ZWED facility in North San Jose then the material would be directly hauled to that facility by GreenWaste, bypassing the SMaRT Station due to ZWED’s close proximity to Palo Alto. A Budget Amendment Ordinance for $387,000 will be needed to fund the purchase of the outreach and training materials that will be needed to implement this new program by July 1, 2015. Home Composting The residential curbside collection of food scraps does not reduce the need or importance of home/backyard composting. Home composting is a great option for many residents to recover most food scraps. Home composting helps to reduce collection costs and lower greenhouse gas emissions and also provides a “closed-loop” for the food scraps. It is estimated that less than 10% of Palo Alto household’s compost at home. In 2014 Staff implemented an expanded home composting campaign to increase participation citywide. The expanded campaign has been a focused outreach and incentive-based campaign that has augmented and added emphasis to the City’s traditional, ongoing, multi-partner program for home composting, water conservation, and pollution prevention. The expanded campaign’s goal has been to raise awareness about the benefits of home composting while increasing the number of people composting at home and using compost in the yard/garden. Also, the expanded campaign has aligned with California’s drought as it encourages home composting by highlighting compost’s City of Palo Alto Page 10 water-saving properties, and through incentives such as the City providing free home composting bins to Palo Alto residents. In 2014, 159 residents attended 15 composting workshops where Staff gave away 82 backyard compost bins. Home composting will continue to be an important City waste diversion program complementing residential curbside food scrap collection, but it will not work for everyone and will not be able to accept all of types of compostables, as described below. Surveys conducted in 2014 indicated that two-thirds of residents actively chose not to have backyard compost. Residents cited time constraints and not gardening as the main reasons. Many do not have space available for home composting, or perceive home composting as smelly and an activity that can attract rodents, flies or other bugs to their home. In addition, some types of food scraps and yard trimmings should not be placed into a home compost feedstock including various vegetation seeds, meat, bones, dairy products and fats. With the proposed curbside Residential Food Scraps Collection Program, this type of food waste can be placed in the green cart and commercially composted. Home composting and curbside food scrap collection complement each other by providing a complete solution to maximize the environmental benefit for all household organics. New Recycling and Composting Ordinance The latest Waste Characterization Study, performed in 2012 showed that 25% of the material in the commercial garbage was recyclable and 40% was compostable. A small amount of the recyclables in the garbage is recovered at the Sunnyvale Material Recovery and Transfer (SMaRT) Station where all of Palo Alto’s garbage is processed before being sent to a landfill. However, nearly all of the compostable materials end up in the landfill along with the garbage. Other cities and counties have recently adopted mandatory recycling and composting ordinances (food bans) and have had good success diverting their waste from landfills including San Francisco, Oakland, Vancouver, Portland, New York and most recently Seattle. The majority of the businesses in Palo Alto have recycling service. However, as of October 2014, only 477 of 1,615 commercial accounts take compost service. In addition, of the 197 food service establishments where Staff would expect generation of a high percentage of food waste, only 123 take compostables service. In order to identify why businesses are not electing to subscribe to City of Palo Alto Page 11 compost service, in early 2014 Staff surveyed a number of businesses without compostable service. The most common answer as to why they had not elected to have compost service was that it was not required by the City. For many of these commercial customers, saving a few dollars and the perceived extra for the environment was “just not worth it.” Therefore, Staff recommends a mandatory recycling and composting ordinance for the commercial sector. The proposed ordinance (not yet written) would require commercial customers to subscribe to both recycling and compostables service. In addition, customers could not place recoverable items in the garbage. In other words, customers must subscribe to the services, have a garbage, recycling, and compostable cart or bin and sort properly. Staff proposes that the City takes the following actions with customers who fail to sort properly as identified by either the GreenWaste collection truck driver or by GreenWaste staff through a random audit. With the first instance of a high percentage of contamination (over 10% in any cart), the customer receives a cart tag from GreenWaste giving notice of the contamination problem; with the second instance, GreenWaste would send a letter and staff would follow up with a telephone call to find out if training is needed; and with the third instance, GreenWaste would charge a special solid waste processing (amount to be determined) for each time the customer fails to sort properly. Staff recommends implementing the ordinance in the following phases:  Phase 1: April 1, 2016. Initiate mandatory service with all Food Service Establishments and all commercial customers generating 8 cubic yards or more per week of garbage. This phase would add 147 customers and would include (but are not limited to): restaurants, markets, bakeries, bars, farmers' markets, hotels, and catering facilities. Initiate proper sorting procedures (as appropriate for the service they have) for all commercial customers.  Phase 2: January 1, 2017. Expand program to commercial customers generating at least 2 cubic yards per week of garbage. This phase would add 223 customers.  Phase 3: January 1, 2018. Expand mandatory service to all remaining (612) commercial customers. Staff proposes that the ordinance include a variance procedure where commercial customers can apply to take a lesser quantity of service than is afforded by the three collected materials (garbage, recycling and food scraps) based on their specific waste City of Palo Alto Page 12 generation quantities. Staff would exercise the administrative discretion to approve the requests if warranted. GreenWaste Contract Amendments GreenWaste has provided waste collection and material processing services for the City since 2009. The Contract will terminate on June 30, 2017 unless the City elects to extend the term. The Contract permits an extension of up to 4 additional years until June 30, 2021. GreenWaste has met its performance obligations since its inception and staff has been negotiating with GreenWaste for the last few months to determine a cost effective way to extend the Contract, while at the same time replace some of GreenWaste’s older vehicles and increase diversion activities to meet the City’s zero waste goals. Staff believes that the following concepts will achieve the balance necessary. GreenWaste Contract Amendment Categories Item Recommended Contract Changes Annual Cost Impacts 1 Extend contract term by 4 years until June 30, 2021. Retain the same pricing, terms and conditions unless modified in the items below. $0 2 Compostables Package  New residential food scraps collection  Process residential food/yard trimmings at ZWED*  Implement recycling and composting ordinance in the commercial sector  Increase commercial compostables incentives  Redirect commercial food to ZWED** Subtotal $0 *$1,134,000 $0 $190,000 **$22,000 $1,346,000 3 Billing for commercial accounts $150,000 4 Variable costs reductions, method of payments (savings to the City) <$75,000> 5 New automated collection vehicles (savings to the City) <$55,000> 6 Minor administrative changes $0 Total annual cost increase to the GreenWaste Contract *$1,366,000 City of Palo Alto Page 13 *There will also be a corresponding cost decrease of approximately $576,000 from redirecting residential yard trimmings and food scraps away from SMaRT and the Kirby Canyon Landfill. **Staff prefers that this commercial compostables materials be processed at the nearby ZWED Facility because it is the closest processing facility that would result in less greenhouse gas emissions and would generate electricity through dry anaerobic digestion. The ZWED cost per ton for FY 2016 would be $81 per ton, 2.3% higher than the expected rate of $79.19 per ton at ZBest. 1) Contract extension(No net cost impact)– The Contract commenced on November 24, 2008 and will expire on June 30, 2017, along with a provision to extend the contract for up to four additional one-year terms, until June 30, 2021. Staff recommends an extension of the full four one-year terms because:  GreenWaste has been meeting and exceeding their collection and processing scope of work thus far in the contract term;  Customer feedback is positive; the City has received minimal customer complaints regarding the service provided;  GreenWaste has been collaborating with the City by suggesting cost effective service changes during negotiations;  A longer term would allow the City to take advantage of collection vehicles expected useful; and  The new term would synchronize with the City’s other major solid waste agreements, SMaRT and Kirby Canyon Landfill, which also expire on June 30, 2021. Subjecting the City’s collection, processing, and landfill solid waste contracts to a competitive selection process i.e., a request for proposals (RFP) process at the same time more likely could provide the City with cost-effective and integrated solutions. If the Council were to decide not to extend the term of the Contract over the next four years, then Staff would need to begin developing an RFP process by summer 2015. This should provide enough time for staff to gain consensus on the collection and processing scheme criteria, to select a successful proposer and enough lead time for the purchase and delivery of new collection equipment. City of Palo Alto Page 14 2) Compostables package ($1,346,000 net increase) – Staff recommends adding provisions to the GreenWaste contract that would increase the recovery of food scraps and use these food scraps for energy production.  New residential food scraps collection – As discussed above, GreenWaste would collect the City’s residential food scraps commingled with yard trimmings and deliver the material to a processing facility without additional fees. The material could be taken to the SMaRT Station and be transferred to a processing facility or could be taken to GreenWaste’s sister company Zero Waste Energy Development (ZWED), a dry anaerobic digestion facility designated to produce electricity.  Implement a recycling and composting ordinance in the commercial sector – GreenWaste staff will assist in the implementation of a compliance program promulgated under a proposed recycling and composting ordinance for the City’s commercial sector at no additional cost, utilizing current staff assigned to the City.  Increase commercial compostables incentives – Staff recommends modifying the contract’s current incentive clause that pays GreenWaste for processing commercial food scraps a price per ton based on the net tonnage (that is the overall tonnage collected minus the contamination percentage which can typically be 10%-20%). The incentive payment would change to paying GreenWaste based on gross tonnage collected, which will incentivize GreenWaste to collect and divert more compostables wastes where more effort and costs are needed to sort the material and landfill the garbage contamination residue. Staff’s goal is to get all of the City’s commercial customers established with the compostables collection program and require customers to clean up their compostable wastes through the recycling and composting ordinance compliance requirements.  Redirect commercial compostables to the Zero Waste Energy Development (ZWED) Facility – Staff recommends diverting commercial compostable material to the ZWED facility in order to use the material to produce electricity. The marginal cost increase would be $22,000 per year. Processing this material locally, (located in north San Jose near Zanker Road and Hwy 237) would also yield the benefit of saving greenhouse gas emissions related to transportation of the material. City of Palo Alto Page 15 3) Commercial billing ($150,000 net increase)– Staff recommends that GreenWaste provide billing services to the City’s commercial sector customers in lieu of the City hiring full time staff to monitor and maintain the data. In 2014, the City’s Auditor conducted an audit on the Refuse Fund and found discrepancies between the City’s SAP billing system and the GreenWaste collection database (RAMS), which resulted in billing errors. The errors are primarily due to the fact that the City’s billing system (SAP) is not customized to manage the hundreds of different service levels offered by GreenWaste. GreenWaste maintains a complete detailed customer database that must interface with SAP. Due to changes in refuse service and the complexities in the interface between the two databases, there remain inconsistencies in customer account data between the two systems. While the City and GreenWaste are continuously working together to identify, correct, and enhance the systems to eliminate these discrepancies, shifting the complex commercial billing to GreenWaste provides the best opportunity to minimize billing errors at the lowest cost. Staff’s response to this audit concern was to recommend either shifting the billing to GreenWaste or by adding a position to focus on software improvements and on the fulltime monitoring and maintenance of the data. GreenWaste providing commercial refuse billing services will cost approximately $150,000 per year, increasing the total cost of Refuse related billing services from $250,000 to $400,000. The residential refuse bill will remain on the consolidated City Utilities bill. The Public Works Department will work with the Utilities Department to identify the resulting savings from this proposed change in the service delivery model, and, if approved, it is anticipated that a reduction to the annual transfer will be recommended for City Council approval following the implementation of the change. 4) Variable costs ($70,000 net decrease)– The variable cost related amendments involve rolling the itemized cost items such as the special events and hard to serve areas into the Contract’s base compensation. The City would save about $70,000 per year. 5) New trucks/cart purchases ($55,000 net decrease)– GreenWaste will purchase new automated trucks to replace the oldest six trucks that collect City of Palo Alto Page 16 residential yard trimmings and garbage. These trucks are older than the rest of the GreenWaste fleet because GreenWaste purchased these trucks from the City’s previous contracted hauler, “Palo Alto Sanitation Company”. The new, more fuel-efficient trucks will run on compressed natural gas (CNG). The new trucks will be fully-automated, that is, will have loading “arms” to reach and pick up the waste containers from the curb. These new automated trucks will allow for just one driver to service residential routes instead of a driver plus a helper as is currently the case, resulting in the reduction in cost of 4 fulltime positions. Replacing the older trucks provides a net savings of $55,000 per year to the City due to the reduced operating costs. A change to the current cart placement procedures would need to be implemented – the carts would need to be placed on the street so that the automated arms can reach the carts as opposed to the current practice of placement at the curb (i.e. near the sidewalk). GreenWaste will continue to utilize semi-automated trucks in areas where parking is a problem. Moving forward, GreenWaste will also be responsible for the purchase of all replacement carts. 6) Minor administrative changes – These changes involve less substantial items with no cost impacts but are needed for contract compliance and require an amendment to the contract. Some changes involve modifications to the measurement criteria, the schedule to allow reconditioning of containers, and past letters of intent that have already been agreed between the City and GreenWaste. Addressing Challenge #2 - The City’s refuse rates need to be adjusted between sectors, then increased to cover the costs of the new programs described in this report. As mentioned above, In May 2012, Council approved a single-family residential (residential) rate plan to address an imbalance between the sector revenues and expenses. The residential rates, which have been in effect since July 1, 2012, include a variable charge for the black, garbage can or cart (20- gallon minican, 32-gallon, 64-gallon, 96-gallon), and fixed charges for street sweeping, household hazardous waste (HHW), and the annual Clean Up Day. City of Palo Alto Page 17 Variable Fixed Total Cart Size Current Monthly Street Sweeping* HHW Annual Clean-up Day 20 gallon (minican) $13.79 $5.26 $1.07 $2.17 $22.29 32 gallon (standard) $31.64 $5.26 $1.07 $2.17 $40.14 64 gallon $67.84 $5.26 $1.07 $2.17 $76.34 96 gallon $101.76 $5.26 $1.07 $2.17 $110.26 *The street sweeping charge was originally $6.66 and was reduced to $5.26 in November 1, 2014, with the new street sweeping contract. The residential rate plan presented by staff to the Finance Committee in April 2012 suggested a three year phase-in, which would have resolved the sector imbalance with a combination of fixed percentage and flat increases to rates (also referred to as Option 8, see Staff Report 2706 for details). Staff, however, wished to further study allocation of costs between the sectors and elected to postpone the rate increases in order to do so. Staff subsequently identified a number of programs where a greater percentage of costs should properly be allocated to the commercial and roll-off sectors. The most significant program cost was relative to the landfill closure and ongoing maintenance activities, which are costs that should have been allocated to the commercial sector at a greater percentage, since these sectors contributed the most material to the landfill. A consultant study was commenced in 2014 in order to update and evaluate the cost allocations among the sectors. The report from the City’s consultant is currently being finalized and has shown that the residential service rates need to be raised by approximately 28% (mini-cans and 32 gallon garbage service) to fully cover the cost of the service (See table below). Staff recommends adjusting the rates over a three year period. Staff also recommends changing the bill, including moving away from listing the separate fixed charges currently on the residential utility bills. Staff suggests adjusting the residential monthly rates in the table below to provide for an equitable distribution of costs while encouraging zero waste behaviors. Staff recognizes that increases of this size should be accomplished over a three year period in order to soften the cost increases for the residents. These City of Palo Alto Page 18 residential rate increases also include costs for a vital programmatic change, a new single-family residential curbside food scrap collection program. Recommended Adjustments (Single-Family Residential Rates) Cart Size Current Monthly Rate* Projected FY 2016 Projected FY 2017 Projected FY 2018 Projected Increase over 3 years 20 gallon $22.29 $24.36 9%- $2.07 $26.42 8%- $2.06 $28.49 8%- $2.07 $6.20 28% 32 gallon $40.14 $43.86 9%- $3.72 $47.57 8%- $3.71 $51.29 8% $3.72 $11.15 28% 64 gallon $76.34 $85.09 11%- $8.75 $93.83 10%- $8.74 $102.58 9%- $8.75 $26.24 34% 96 gallon $110.26 $124.80 13%- $14.54 $139.33 12%- $14.53 $153.87 10%- $14.54 $43.61 40% Notes 1. Rates include street sweeping, household hazardous waste, and the annual clean-up day. 2. The table above shows projected rate modification over 3 years. Staff would only bring forward rate adjustments 1 year at a time. 3. Projected fees assume a revenue loss from the migration of 5% of residents moving to smaller carts. However, based on actual customer choices to move to smaller cart sizes, the annual increases may be different. Rate Structure Modification Staff proposes that the monthly Refuse Rate include all of the residential services costs in the one price (listed in the table above), instead of separating fixed charges, currently for street sweeping, household hazardous waste, and the annual clean-up day on the bill. One advantage of this is when there are year to year changes in these fixed costs (contract pricing, CPI adjustments, etc.) Staff will not necessarily need to raise the refuse rates every year in order to ensure that the fixed fees will adequately fund each fixed costs; rather, the refuse rates will be set to ensure cost recovery of the entire service provided to customers. In addition, Staff has identified many other costs such as recycling service, compostable service, some SMaRT Station costs, and landfill maintenance costs that could also be listed separately as a fixed fee but would not be practical or possible with the SAP current billing system. City of Palo Alto Page 19 Staff calculated the single family residential monthly rates (listed in the table above) with the following three-step method: 1) First, add the fixed costs per single family residences for street sweeping, household hazardous waste program, annual Clean Up-Day, recyclables in the blue cart service, yard trimmings in the green cart service and landfill postclosure maintenance to determine a combined fixed cost per residence. 2) Second, calculate a cost per gallon for the garbage cart by dividing the overall costs of residential refuse service by the total number of gallons of service within the City. This would yield a variable cost per gallon that would be used to calculate the variable cost per service for refuse collection. 3) Finally, calculate the final monthly fee by adding the fixed cost per residence to the variable cost of the black garbage cart to generate the monthly fee for the 32-gallon cart. Other service levels (various garbage cart sizes) would be based on the 32-gallon base rate. The 64 and 96-gallon cart customers will pay double and triple the 32-gallon rate respectively. A minican (20-gallons) is roughly two-thirds the size of a standard 32-gallon cart. Therefore, the minican customers will pay roughly 2/3rds of the 32- gallon rate less minor cost adjustments to the mini-can rate thus incentivizing recycling and composting. Commercial Rates In order to bring the Refuse Fund Reserve to the required percentage, Staff recommends that most of the commercial garbage rates should be maintained at the 2012 rates until the costs and revenues received for these services are balanced (expected by FY 2017). Staff recommends a rate reduction to the commercial compostable materials service (green cart/bin) once the recycling and composting ordinance is implemented. Compostable materials service currently is provided at a 10% percent discount by comparison to garbage service of the same size container. Staff has initially calculated that the actual cost of this compostable materials service may warrant a steeper discount for compostable service (30% discount) City of Palo Alto Page 20 compared to garbage service, both of which use the same size container. The discount would offset the additional costs incurred by customers adding compostable service as part of the mandatory recycling and composting ordinance. Some customers may realize cost savings on their refuse bill with proper refuse sizing and sorting. Staff expects revenue losses as a result of the discounted commercial compostable service will be offset by the new revenue from new customers subscribing to compostable service as required by the mandatory recycling and composting ordinance. Should Council choose to create a recycling and composting ordinance coupled with the new reduced compostable rate structure, initial estimates show that commercial customers could divert an additional 4,000-5,000 tons annually of food scraps and other compostables from the landfill. Removing the discount on the service or not implementing the recycling and composting ordinance likely would decrease participation and significantly reduce the environmental benefits of the program. Timelines GreenWaste Contract Amendment Task Schedule Finance Committee approval February 3, 2014 Attorney review/final negotiations February-April 2015 Council approval May/June 2015 New Rate Implementation Schedule Task Schedule Finance Committee approval – concepts February 3, 2014 Finance Committee final rate approval as part of the budget process March 2015 Council approval June 2015 New Rates implemented July 1, 2015 Recycling and Composting Ordinance Task Schedule Finance Committee approval of concepts February 3, 2014 Develop final ordinance February – July 2015 City of Palo Alto Page 21 Council approval August 2015 Phase 1: Food service establishments and large commercial customers April 1 2016 Phase 2: Commercial customers generating 2 cubic yards of garbage per week January 1, 2017 Phase 3: All commercial customers January 1, 2018 Residential Food Scraps Collection Implementation Schedule Task Schedule Finance Committee approval February 2015 Council approval March 2015 Develop outreach and training materials April – June 2015 Hold community training sessions June – July 2015 Run advertising Late June 2015 – June 2016 Distribute kitchen pails Late June 2015 Begin collection July 1, 2015 Resource Impact The cost to the Refuse Fund for all of these program modifcations would be approximatly $790,000 per year, beginning in FY 2016, which is equivalent to approximately a 2.7% overall Refuse Fund expense increase. The major cost implications are:  GreenWaste Contract/Scope Changes $1,366,000 per year increase  SMaRT/Kirby Canyon decrease ($576,000) per year decrease $790,000 per year net increase It should be noted that the rate increase recommended for FY 2016 may be higher than 2.7% pending a full analysis of the increased costs in the Refuse Fund. Further, since 2010, Staff has aggressivly implemented cost savings measures listed below. These cost savings measures have made it unnecesary to implement a Refuse Rate increase since 2012, and will minimize the impacts of the new zero waste measures discussed above. The cost saving measures which have been implemented are:  Expediting the landfill closure through a “fast-fill” program, closing the City of Palo Alto Page 22 landfill early, reducing staff and equipment, saving $2.1million per year in operating expenses (2010 budget compared to FY 2015 budget);  Closing the Recycling Center in FY 2012 saving $225,000 per year; and  Modifying the street sweeping program, modifying the frequency of sweeping during the non-leaf season and contracting out a large portion of the work, saving the City $649,000 per year ($522,000 to the Refuse Fund). The Refuse Fund is in the process of rebuilding its financial reserves. The Rate Stabilization Reserve in the Refuse Fund, as reported in the Adopted Operating Budget, currently has a negative balance. This negative balance is attributable to liabilities associated with maintaining the closed landfill, as mandated by Public Resources Code and the California Code of Regulations. As revenues are realized and maintenance activities are completed, the liabilities will be reduced and the Rate Stabilization Reserve negative balance will become positive. While the Rate Stabilization Reserve reflects a negative balance, it is important to note that there is sufficient cash in the fund to cover operations and the cost of the kitchen pails, outreach and education, and advertising costs recommended to be appropriated in FY 2015 pending eventual City Council approval of a Budget Amendment Ordinance for these items in the amount of $387,000. Residential Food Scraps Collection Program Costs Implemening a new residential food scraps collection program will cost approximately $1,134,000 per year, beginning in FY2016. This is equivalent to an approximate 6% rate increase for residential customers with 32-gallon garbage cart service or an average monthly increase of approximately $2.52 per month for all residential customers. This cost is incorporated into the residential rate tables earlier in the report and projected rate increases will be brought forward for Council consideration as part of the FY 2016 budget process. An initial investment of $387,000 will be needed in FY 2015 to purchase kitchen pails and provide the outreach and training materials needed for this new program’s implementation. Outreach and training materials will include cart tags, program brochures, stickers for collection carts, stickers for the kitchen pails, how-to video, and informational postcards with program information. Community meetings will be held to orient the public at the beginning of the roll- out of this new program. At a later date it is anticipated that Staff will bring forward for City Council approval a Budget Amendment Ordinance for the Refuse City of Palo Alto Page 23 Fund in the amount of $387,000, to be offset by a reduction to the ending fund balance in order that the City may fund this outreach prior to FY 2016. One-Time FY 2015 Costs – Residential Food Scraps Collection Program Item One Time Costs Purchase kitchen pails for each residence (18,000 at $6.00 per bucket) $108,000 Outreach and training materials design, development, printing and distribution costs $239,000 Print and online ads and other advertisement costs $40,000 Total One Time Costs $387,000 Policy Implications The collection of food scraps is consistent with the City’s Zero Waste Operational Plan and Climate Protection Plan both adopted in 2007 to provide for the collection and diversion of all compostable materials. The increased discount for commercial compostable service will help the City achieve its zero waste goals by 2021. Environmental Review GHG Savings Diverting and composting the expected recoverable amount of 10,000 tons of residential and commercial food scraps per year would save over 3,800 metric tons of CO2e emissions per year that contribute to global climate change. CEQA Collecting residential food scraps within the existing green carts and composting this material is consistent with the baseline three cart collection services that was studied in the Initial Study-Mitigated Negative Declaration adopted by Council with the GreenWaste Contract award in 2008 (CMR 416:08). In addition, this new food scraps program is designed to reduce the impacts to the environment by reducing the amount of greenhouse gas generated and by maximizing the recovery of compostable materials generated within the City. City of Palo Alto Page 24 There will be negligible transportation related impacts from modifications to existing compostable collection routes.