HomeMy WebLinkAboutStaff Report 5566City of Palo Alto (ID # 5566)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 4/7/2015
City of Palo Alto Page 1
Summary Title: Council Adoption of a Resolution Amending the R-1
Residential Refuse Rates for Fiscal Year 2016
Title: Council Adoption of a Resolution Amending the R-1 Residential Refuse
Rates for Fiscal Year 2016 to Cover a New Food Scrap Collection Program and
Other Program Costs, and to Incorporate Structural Changes
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends the Finance Committee:
Recommend the Council’s adoption of the attached resolution (Attachment
A) amending Utility Rate Schedule R-1 (Residential Refuse Rate)
(Attachment B) to implement a rate increase and remove the listing of
Individual Program Charges on the Refuse bill.
Executive Summary
Residential refuse rates have not increased since July 1, 2012,and were
decreased in November 2014 due to cost savings related to the street sweeping
program. Staff is recommending a rate increase for residential refuse rate
customers in FY 2016 to begin implementation of a three-year plan to balance
residential sector revenues with expenses.The rate increase will also cover a new
residential food scrap collection program and inflation related increases in
existing programs. Preliminarily, staff is recommending a residential rate increase
of approximately 9% in FY 2016,9% in FY 2017,and 8% in FY 2018 for customers
with minican (20 gallon) and 32 gallon service levels,which together comprise
85% of all residential customers. Staff is also recommending a structural change
to the residential refuse portion of the bill eliminating the listing of individual
program charges (which currently include street sweeping, household hazardous
waste, and annual clean-up day)on monthly bills.This change is needed because
too many similar individual program costs have now been identified to make
City of Palo Alto Page 2
showing them all on the monthly bill workable,and because this new billing
approach will be consistent with the other City utilities.Commercial rates have
not increased since October 2010 and would remain unchanged for FY 2016.
Recommended Residential Rate Increase for FY 2016
Cart
Size
Current
Rates
Recommended
FY 2016 Rates
20 gal $22.29 $24.30
32 gal $40.14 $43.75
64 gal $76.34 $87.51
96 gal $110.26 $131.26
Background
Residential Refuse service includes:
·Garbage service –weekly curbside collection of the black garbage cart by
GreenWaste of Palo Alto (GreenWaste), the City’s contract hauler;
processing the garbage at the Sunnyvale Material and Recovery Transfer
(SMaRT) Station; and landfilling the residual material at the Kirby Canyon
Landfill.
·Recycling service –weekly curbside collection of the blue recycling cart by
GreenWaste; sorting the recyclables into saleable commodities at the
GreenWaste Recovery Charles Street Material Recovery Facility (MRF); and
electronic waste collection.
·Compost/Yard Trimming service –in FY 2016 Staff is recommending a new
program that would allow residents to place food scraps and food soiled
paper into the green, yard trimmings cart as part of the weekly collection.
Residents will also receive a small kitchen bucket for food scraps; and the
green cart materials collected by GreenWaste will be digested and
composted at the Zero Waste Energy Development (ZWED)facility in north
San Jose.
·Household Hazardous Waste (HHW) service –every Saturday from 9 am to
11 am and the first Friday of the month residents can take up to 15 gallons
or 125 pounds of HHW to the HHW Station at 2501 Embarcadero Way. The
HHW is safely recycled or disposed. A reuse cabinet is also available to
residents at the HHW Station during operating hours where residents can
pick up usable household products like paints, cleaners, and unused motor
oil.
City of Palo Alto Page 3
·Street Sweeping service –street sweepers remove trash, leaves, and other
debris from streets to ensure that the storm drains stay clear keeping trash
from the Bay and ensuring that city streets do not flood.
·Annual Clean-up Day –each refuse customer can contact GreenWaste to
pick up large items that cannot fit in the black, garbage cart, once a year.
·Zero Waste Palo Alto support –residents can contact Zero Waste Palo Alto
City staff to gain valuable information on home composting, reducing food
waste, and zero waste events.
Staff has recently contracted with a consultant to prepare a Solid Waste Rate
Structure and Analysis Report (Attachment C).The report noted that the revenue
collected from residential refuse customers was less than the cost to service the
residential customers. The following residential rates have been in effect since
July 1, 2012:
Table 1: Current Residential Monthly Refuse Rates
Variable Individual Programs 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
*Street Sweeping was reduced from $6.66 per month on November 1, 2014, when the price
was lowered to reflect the current cost of street sweeping service.
In 2014, staff (with consultant support)re-examined the allocations among the
three solid waste sectors, residential, commercial, and roll-off. Staff identified a
number of programs where a greater percentage of costs should be allocated to
the commercial and roll-off sectors. The most significant program cost shift was
relative to the landfill closure and ongoing maintenance, which are costs that
should have been,in large part, allocated to the commercial and roll-off sectors –
the sectors that contributed the most material to the landfill.
Discussion
It is currently estimated that single-family residential customers will provide $8.7
million in revenue in FY 2016. Based on the Solid Waste Rate Structure and
Analysis Report, the cost associated with servicing these customers is
City of Palo Alto Page 4
$10,689,241. The Refuse Fund receives some revenue ($322,183) from non-rate
sources; therefore, the residential revenue requirement that is, (the amount of
money the City needs to cover residential expenses) is $10,367,058 for FY 2016.
Staff is presenting a three-year plan that will provide for sufficient revenues in the
residential sector to cover all residential expenses. The proposed three-year rate
plans include inflation as calculated by the current San Francisco-Oakland-San
Jose MSA consumer price index all urban consumers (CPI-U) increases at 2.5% for
FY 2017 and FY 2018. The projected FY 2018 revenue requirement is $10,908,201,
net of revenues from non-rate sources. To simplify the Refuse portion of the
utility bill, and present the billing consistent with all other City utilities, staff also
recommends not showing the separate program charges of street sweeping,
household hazardous waste, and annual clean-up day that are currently shown on
the residential utility bills.These programs, along with recycling collection and
processing, compost collection and processing, ongoing maintenance for the
closed Palo Alto landfill, and zero waste programs, would all be included in the
one charge for the garbage cart.
Staff suggests adjusting the residential monthly rates in the table below to cover
all residential expenses, while encouraging zero waste behavior changes. Staff
proposes that this rate adjustment be spread over a three year period to soften
the cost increases for residents and in consideration of the accumulative impacts
of all City utility rate adjustments. These residential rate increases also include the
cost of a vital new program:a residential curbside food scrap collection program.
Table 3: 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 gal $22.29 $24.30 9%-
$2.01 $26.48 9%-
$2.18 $28.60 8%-
$2.12 $6.31 28%
32 gal $40.14 $43.75 9%-
$3.61 $47.69 9%-
$3.94 $51.51 8%
$3.82 $11.37 28%
64 gal $76.34 $87.51 14.6%-
$11.17 $95.38 9%-
$7.88 $103.01 8%-
$7.63 $26.67 35%
96 gal $110.26 $131.26 19%-
$14.54 $143.07 9%-
$11.81 $154.52 8%-
$11.45 $44.26 40%
Notes
City of Palo Alto Page 5
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 bring
forward rate adjustments one year at a time for review and approval by City Council.
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.
FY 2018 Revenue Requirement (net of revenues from non-rate sources): $10,908,201
FY 2018 Projected Revenue:$10,908,581
Projected Surplus/<Deficit>(surplus to rate stabilization reserves)$380
Staff also proposes eliminating rates for residential services larger than 96 gallons.
This change will ensure that the customer’s service levels better match the actual
number of carts a customer uses. The largest cart available to a customer is 96
gallons. Customers may still elect to have more garbage capacity. For example, a
customer with 160 gallon garbage service would now need to subscribe to a
quantity 5 of 32 gallon service. Staff is also proposing to eliminate multiple week
pick-ups for residential customers. Currently, only five customers have their
garbage picked up twice a week. These changes will simplify the R-1 Refuse Rate
Schedule. The rate for backyard service would increase from $3.35 per month to
$3.66 per month to fully cover costs.
Currently, 34% of the nearly 18,000 single-family residential customers subscribe
to minican service while 52% subscribe to 32-gallon cart service. Due to the
relatively large number of customers with smaller carts, staff estimates that five
percent of customers will downsize their garbage cart (e.g., change service from a
32-gallon cart to a minican).If a greater percentage of customers switch to
smaller carts, staff will need to reexamine the projected revenue and may
recommend an additional increase to the minican rate.
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 individual
program charges for street sweeping, household hazardous waste, and the annual
clean-up day currently shown on the bill. When there are year-to-year changes in
these costs (contract pricing, CPI adjustments, etc.),staff will not be required to
raise the refuse rates in each of these years if staff can make offsetting reductions
in other programs.In addition, staff has identified many other costs such as
City of Palo Alto Page 6
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.
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 to determine
a combined fixed cost per residence.
Table 4: FY 2018 Fixed Costs
Recycling Compostables Household
Hazardous
Waste
Street
Sweeping
Annual
Clean-Up
Day
Monthly
cost
per
household
$3,024,949 $2,231,286 $462,405 $307,305 $464,267 $30.38
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.
Table 5: FY 2018 Variable Costs
Solid Waste Landfill Monthly cost
per household
$4,769,176 $435,262 $21.40
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 respectively double and triple the 32-gallon
rate. 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
City of Palo Alto Page 7
the 32-gallon rate less minor cost adjustments to the mini-can rate thus
incentivizing recycling and composting.
Table 6: Cart Size Costs
Cart
Size
Solid
Waste
Recycling Compostable Annual
Clean-Up Day
HHW Street
Sweeping
Total Rate
FY 2018
20 $28.79
32 $21.40 $14.16 $10.45 $2.17 $2.16 $1.44 $51.78
64 $103.56
96 $155.34
The FY 2018 rate is designed to ensure that residential revenues fully cover the
anticipated costs. The rates for FY 2016,FY 2017, and FY 2018 are calculated by
taking the difference between the FY 2018 rates and current rates, and adjusting
the 32-gallon rate by whole percentage increases to yield a rate sufficient to cover
projected costs. The rate for FY 2016 is increased at 9%, FY 2017 at 9%, and FY
2018 at 8%. The overall recommended rate increase for the minican and 32-gallon
customers is 28% over the three years.
At this point, staff is only recommending that Council adopt the first year
increases as noted in the R-1 Refuse Rate Schedule and Table 7 below.
Subsequent year rate increases may need to be modified based on changes in the
budget, inflation, and other costs that cannot be anticipated at this time and will
be brought to Council each year.
Table 7: Proposed FY 2016 Residential Rates (R-1 Refuse Rate Schedule)
Cart
Size
Proposed
FY 2016
20 gal $24.30
32 gal $43.75
64 gal $87.51
96 gal $131.26
The proposed FY 2016 rates compare favorably with other communities. The
following table compares the minican rate with the least expensive rate available
to the residents of these cities. It should also be noted that Palo Alto offers
different and often more extensive services than many of these other cities. For
City of Palo Alto Page 8
example, Mountain View only provides customers with every other week
recycling and yard trimmings collection. Mountain View and Sunnyvale, both
partners with Palo Alto in the operation of the SMaRT Station, do not provide for
residential curbside compost collection.
Table 8: Rate Comparison
City Least Expensive Rate
Palo Alto $24.36
Menlo Park $13.99
Mountain View $15.95
Santa Clara $31.91*
Sunnyvale $34.88*
Hayward $20.40
Redwood City $11.38
Roseville $23.40*
Alameda $28.46
* Does not offer a minican.
Commercial Rates
In order to bring the Refuse Fund Reserve to the required percentage, Staff
recommends that commercial garbage rates should be maintained at the current
rates until FY 2017.
City of Palo Alto Page 9
Table 9: Refuse Rate Increase in the Context of Other Utility Rate Increases
FY 2016 FY 2017 FY 2018 FY 2019 FY 2020
Electric (preliminary
projection)0%6%6%1%1%
Gas1 (preliminary
projection)0%7%4%4%4%
Wastewater (FY16 proposed,
FY17-20 projected)9%9%9%9%6%
Water (FY16 proposed,
FY17-20 projected)12%8%8%8%3%
Refuse2 (FY16 proposed,
FY17-20 projected)9%9%8%2% to 3%2% to 3%
Storm Drain3 (FY16 proposed,
FY17-20 projected)2.7%2% to 3%2% to 3%2% to 3%2% to 3%
Total Bill
Change4
(%)6%8%7%5%3%
($/mo)$14.73 $18.91 $18.53 $14.39 $9.55
(1) Gas rate changes are shown with commodity rates held constant. Actual gas commodity rates will
vary monthly with wholesale market fluctuations
(2) No forecast available past FY 2018, inflationary increases assumed.
(3) Storm Drain Rates increase annually by CPI; existing rates sunset in June 2017 unless
reauthorized by a majority vote of property owners.
(4) Change in estimated median residential bill, $230.76 as of June 30, 2014
City of Palo Alto Page 10
Alternatives
On March 3, 2015, staff presented an outline of the three-year rate plan to the
Finance Committee as part of an overall update on Zero Waste Programs (see
Staff Report #5546). The Finance Committee requested that staff explore
reducing the percentage increase for the residential rate increase by spreading
the rate increases over four or five years, instead of three. Staff continues to
recommend three years. However, the annual rate increases can be lowered if
Council elects to balance the residential costs and revenues in four or five years,
as shown on the following charts:
Table 10: Three Year Adjustment (staff recommendation)
Cart
Size
Current
Monthly
Rate
Projected
FY 2016
Projected
FY 2017
Projected
FY 2018
32 gal $40.14 $43.75 $47.69 $51.51
% Inc average
$3.79/yr 9%9%8%
Table 11: Four Year Adjustment
Cart
Size
Current
Monthly
Rate
Projected
FY 2016
Projected
FY 2017
Projected
FY 2018
Projected
FY 2019
32 gal $40.14 $43.37 $46.61 $49.84 $53.07
% Inc $3.23/yr 8.1%7.5%6.9%6.5%
Table 12: Five Year Adjustment
Cart
Size
Current
Monthly
Rate
Projected
FY 2016
Projected
FY 2017
Projected
FY 2018
Projected
FY 2019
Projected
FY 2020
32 gal $40.14 $42.99 $45.84 $48.70 $51.55 $54.40
% Inc $2.75/yr 7.1%6.6%6.2%5.9%5.5%
City of Palo Alto Page 11
Staff strongly recommends the three-year rate adjustment plan. The four-and
five-year rate adjustment schedules present the following challenges. They will:
·Take longer to generate sufficient revenue to fully cover the residential
expenses;
·Result in additional pressure on the commercial sector to stabilize the
Refuse Fund;and
·May require significant increases in the commercial rates to keep the
overall Refuse Fund in balance.
For these reasons, staff does not recommend the four-and five-year adjustment
options.
Timeline
Residential Rate Implementation Schedule
Task Schedule
Finance Committee approval –concepts March 3, 2014
Finance Committee final rate approval as part
of the budget process
April 7, 2015
Proposition 218 notices mailed May 1, 2015
Council approval June 15, 2015
New Residential Rates take effect July 1, 2015
Resource Impact
The proposed Residential Rate increase for FY 2016 has three main impacts. First,
it allows Palo Alto to continue to rebuild its Rate Stabilization Reserve. Second, it
moves Palo Alto closer to having the Residential revenues fully cover the
Residetial program expenses. Third, it provides funding for new programs and
inflationary increases. The three are covered separately below:
1)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 the California Public Resources Code and the California Code
of Regulations. As revenues are realized and maintenance activities are
City of Palo Alto Page 12
completed, the liabilities will be reduced and the Rate Stabilization Reserve
negative balance will become positive.
2)The staff is recommending a residential rate increase in FY 2016 which is
consistent with a three-year plan for having residential refuse revenues
cover residential refuse expenses. More than two-thirds of the 3-year
increase is for the purpose of achieving this goal. At the request of the
Finance Committee,Staff has also shown (in the Discussion Section) the
rate increases needed for a four year and a five year plan.
3)The third impact of the residential rate increase is to allow a major new
program to be initiated, and to provide for inflationary increases. The
largest new program cost is associated with the collection of residential
food scaps and food soiled paper. This material will be placed in the green
cart along with yard trimmings, and taken to the Zero Waste Energy
Development facility in north San Jose. Here energy will be produced from
digestion of the material, and compost made from residuals.Less than
one-third of the residential rate increase is to cover this major new
program and to cover inflationary increases through the Greenwaste
Contract (Palo Alto’s residuals hauler).
Policy Implications
There are no policy changes contained in the adoption of the proposed new
Refuse Rates. New steps are being taken to more fully implement the Zero Waste
policies already adopted by Council in the Zero Waste Plan and Zero Waste
Operations Plan.
Attachments:
·A -Resolution -Refuse rates effective 70115(DOCX)
·B -R-1 Rate Schedule to be effective 7-1-2015 (DOC)
·C -Solid Waste Rate Structure and Analysis Report (PDF)
·D -Public e-mail (PDF)
Attachment A
Resolution No. XXXX Resolution of the Council of the City of Palo Alto Amending the Utility Rate Schedule R-l for
a Refuse Rate Increase
RECITIALS
A. Pursuant to Chapter 12.20.010 of the Palo Alto Municipal Code, the City Council
may by resolution adopt rules and regulations governing utility services and the fees and charges therefore; and
B. The Council has considered the need for an adjustment in refuse collection rates to avoid a
decrease in the Refuse Fund Rate Stabilization Reserve levels; and
C. Pursuant to Article XIIID Sec. 6 of the California Constitution, on June 15,2015 the Council of the
City of Palo Alto held a public hearing to consider all protests against the proposed refuse rate fee increases; and
D. The total number of written protests presented by the close of the public hearing was less than fifty
percent (50%) of the total number of customers subject to the proposed refuse rate fee increases.
The Council of the City of Palo Alto RESOLVES as follows:
SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule R-l
(Domestic Refuse Collection) is hereby amended to read in accordance with Sheets R-l-l and R-1-2, attached
hereto and incorporated herein. The foregoing Utility Rate Schedules, as amended, shall become effective on July
1, 2015.
SECTION 2. The rates contained in the attached Rate Schedules shall be in effect until Council
adopts a new rate structure.
SECTION 3. The Council finds that the revenue derived from the authorized adjustments of the refuse
collection rates shall be used only for the purposes set forth in Article VII, Section 2, of the Charter of the City of
Palo Alto.
II
II
II
II
1
Attachment A
SECTION 4.The Council finds that the adoption of this resolution does not constitute a project under the
California Environmental Quality Act, California Public Resources Code section 21080, subdivision (b)(8).
INTRODUCED AND PASSED:
DOMESTIC REFUSE COLLECTION
UTILITY RATE SCHEDULE R-1
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-01-15
Supersedes Rate Schedule R-1 dated
11-01-14 Sheet No. R-1-1
A.APPLICABILITY:
This schedule applies to each occupied domestic dwelling as required by City ordinance, including
separate single-family domestic dwelling and multi-unit dwellings (4 units or less). An occupied
dwelling unit is defined as any home, apartment unit, cottage, flat or duplex unit, having kitchen,
bath, and sleeping facilities, and to which gas or electric service is being rendered.
B.TERRITORY:
Within the incorporated limits of the City of Palo Alto and on land owned or leased by the City.
C. RATES:
The refuse rates below provide weekly collection, processing and disposal of materials properly
deposited in the number of garbage containers indicated below,as well as weekly collection and
processing of recyclables from blue carts (standard service includes one 64-gallon blue cart),weekly
collection and processing of compostables (yard trimmings, food scraps, and food soiled paper) from
green carts (standard service includes one 96-gallon green cart), ongoing maintenance of the closed
Palo Alto Landfill, zero waste programs, street sweeping service, the household hazardous waste
program, and the annual Clean Up Day.
Monthly Refuse Services Cost
Garbage Cart Sizes
Mini-can/20-gallon cart *24.36
1 32-gallon cart**43.86
1 64-gallon cart 85.09
1 96-gallon cart 124.80
*Mini-can service cannot be combined with any other cart service
**Standard cart service is one 32-gallon cart.
Attachment B
CITY OF PALO ALTO UTILITIES
Issued by the City Council
Effective 7-01-15
Supersedes Rate Schedule R-1 dated
11-01-14 Sheet No. R-1-2
D.SPECIAL ITEM CHARGES:
1. Stove/washer/dryer/water heater pick up *......................................................................25.00
2. Freezer/refrigerator/air conditioner/garbage compactor pick up *..................................35.00
3. Upholstered furniture pick up (per unit) *.......................................................................15.00
4. Mattress pick up *............................................................................................................15.00
5. Tire pick up (per tire, limit of 4 tires) *...........................................................................20.00
6. Pallet pick up *................................................................................................................5.00
* “Surcharge special” fee (see E5.below) applies when special item is not collected under the annual
Clean Up Day Program guidelines.
E.SPECIAL LABOR CHARGES:
1.Return trip (next day service)……………………………………………………..........24.00
2.Return trip (same day service)……………………………………………………........36.00
3.Urgent special (for service outside standard weekly collection; charged per cubic yard)55.00
4.Miscellaneous 2 person service rate (waiting time)..................................................3.20/min
5.Miscellaneous 1 person service rate (pull out service).............................................2.20/min
6.Surcharge special (one time pick up of large or non-standard items; or delivery of containers
for special events)………….....................................................................................77.00
7. Repair rate................................................................................................2.20/min + material
8.Extra can…………………………………………………................................................10.60
9.Back/side yard collection of garbage (monthly charge per residence –available to current
back/side yard service customer only) ………………....................................................3.66
F.SPECIAL CART CHARGES:
1.32-gallon cart rental***…………………………….........................................................3.00
2. 64-gallon cart rental***…………………………….........................................................3.00
3. 96-gallon cart rental***…………………………….........................................................3.00
4. 20-gallon cart purchase ......................................................................................................60.00
5. 32-gallon cart purchase……………………………………………………………........51.00
6. 64-gallon cart purchase……………………………………………………………. ......57.00
7. 96-gallon cart purchase……………………………………………………………........62.00
8. Cart wash …………………………………………………………………………........25.00
9.Cart clean out (by hand)……………………………………………………………......15.00
10.Recycling cart contamination (entire cart dumped)……………………………….........30.00
11. Damaged cart exchange (one allowed per customer each calendar year at no cost).......20.00
12. Monthly key service (customer provided lock) ………………………………………..15.00
13. Lock (Collector provided)…………………………………………………………......25.00
14. Cart lock installation………………………………………………………………........40.00
***Monthly charge for each additional cart of service above three carts for the compostable
materials or recycling cart.
Attachment C
201 N. Civic Drive, Suite 230
Walnut Creek, California 94596
Telephone: 925/977-6950
Fax: 925/977-6955
www.hfh-consultonts.com
March 19, 2015
Mr. Ron Arp
Zero Waste Manager
City of Palo Alto
P.O. Box 10250
Palo Alto, CA 94303
:
Subject: Solid Waste Rate Structure and Analysis Report
Reference Number: 53850
Dear Mr. Arp:
Managing Tomorrow's Resources Today
Robert D. Hilton, CMC
John W. Farnkopf, PE
Laith B. Ezzet, CMC
Richard J. Simonson, CMC
Marva M. Sheehan, CPA
Robert C. Hilton, CMC
HF&H Consultants, LLC is pleased to present this report documenting our findings and recommendations
to the City of Palo Alto (City) from our solid waste rate structure and analysis project.
This letter report is organized into the following sections:
1. Executive Summary
2. Solid Waste Rates
1. EXECUTIVE SUMMARY
The City of Palo Alto (City) contracts for solid waste services to residents and businesses primarily
located inside the city limits. In order to increase rates for these services, the City must comply with
Article XlllD, Section 6 of the California Constitution, which was enacted by Proposition 218 in 1996.
This Constitutional Section requires: (1) Revenues derived from fees or charges for property related
service shall not exceed the cost to provide service; (2) Revenues derived from fees or charges shall not
be used for any purpose other than that for which it was imposed; and, (3) The amount of a fee or
charge upon a parcel shall not exceed the proportional cost of the service attributable to the parcel. The
last rate studies to analyze these types of property related fees and services were completed in 2012.
City staff directed us to focus primarily on the Residential customer class. Therefore, the rate structures
presented are for Residential rate payers only.
1 l St• "'y QurposP and Objertives
The purpose of this study is to conduct a comprehensive analysis of the City's solid waste rates,
including documentation of the analysis, underlying assumptions, and the rationale for the
recommended rates. The study is required to demonstrate that the recommended rates result in fees
Mr. Ron Arp
March 19, 2015
Page 2of11
Managing Tomorrow's Resources Today
and charges that are proportionate to the cost of service for each customer class (Residential,
Commercial or Roll-off).
This study has several key objectives:
• Determine revenue that is necessary to meet the City's requirements, including O&M, capital
improvement, and reserve funds.
• Determine the cost of service for the Residential customer class.
• Evaluate alternative rate structures that will ensure that the Residential customer class is paying its
proportionate share of the revenue requirements.
• Ensure that the proposed rate structure is compatible with conservation pricing and Proposition 218
mandates for proportionality.
These objectives are met by applying industry standards and by complying with all applicable laws.
1.2 Methodology
This rate study included three analytic stages:
1. Revenue Requirement Projections. The expenses and revenues are projected based on the City's
fund projections for the solid waste enterprises, incorporating expected cost escalation factors and
growth rates. The difference between expenses and revenues must be offset by annual revenue
in creases.
2. Cost of Service Analysis. The revenue requirement for the coming rate year is allocated to each
customer class based on the cost of service.
3. Rate Design. Rates are designed for each customer class to recover its share of the cost of service.
The analyses were performed in a spreadsheet model. The tables presented in this report are derived
from information within the model.
1.3 Qate-structure Objectives
The following are several rate-structure objectives that the recommended rates are designed to achieve:
• Revenue Sufficiency. Rates need to be sufficient to fund operating and capital costs and maintain
adequate reserves.
• Revenue Stability. Rates are designed to recover revenue from the City's fixed and variable charges
that will cover its fixed and variable costs.
• Diversion Signal. Rates are designed to reward customers for efficiency and to encourage diversion.
• Administrative Ease. Rates are designed to enable easy implementation and ongoing
administration, including monitoring and updating.
: lo : :
Managing Tomorrow's Resources Today
Mr. Ron Arp
March 19, 2015
Page 3of11
• Affordability. Rates need to be as affordable as possible while maintaining the City's sound financial
position and credit rating.
• Customer Acceptance. Rates are designed to be as simple as possible to facilitate customer
understanding and acceptance.
• Fairness. Rates are designed so that each customer cl ass pays its proportionate share of the
required revenue in compliance with legally prescribed rate-structure requirements.
1.4 Findings and Recommendations
Revenue Requirement Projections
Our review of the City's current financial projections identified Residential expenditures exceeded
revenues. In order to balance the revenues with expenditures a significant rate increase (approximately
18%) would be required. Therefore, we recommend a three year plan to achieve the revenue and
expenditure balance. In order to calculate the required increases for the three year period, we
projected the revenue requirement for the third year (FY 2017-2018), the expected year for revenues to
cover expenditures. Figure 1 summarizes the annual Residential revenue requirement projected for FY
2017-18 that rates must be set to fund.
Figure 1. Residential FY 2017-18 Revenue Requirement Projections
~-------~-~ Projected FY 2017-18 Residential Expense
Solid Waste Recycling Composting HHW Street Sweeping Total
Refuse Fund -Fund Level $ 120,980 $
Allocated G&A
Solid Waste Administration
Landfill Operations
Zero Waste/Recycling
Hazardous Waste
Composting
Collect/Hauling/Disposol Admin
Collections & Hauling Contract
Off site Mtrl Recovery/Disposal
REF Street Sweeping
Administration
REF Street Sweep Maintenance
606,875
159,518
435,262
237,632
19,158
2,212,116
1,412,897
25,973
2,998,977
$
12
19,158
2,212,116
$ $
462,405
11,317
295,949
$ 120,980
606,875
159,518
435,262
237,632
462,405
12
64,289
7,423,210
1,412,897
11,317
295,949
Str Sweep Parking Districti-------------------------3_9 ____ 3_9~
$ 5,204,438 $ 3,024,949 $ 2,231,286 $ 462,405 $ 307,305 $11,230,384
Cost of Service Analysis
The cost of service analysis for Solid Waste indicated that the Residential customer rates are not
generating sufficient revenue to cover the cost of providing service to Residential customers. Therefore
rates for the majority of customers needs to be increased by approximately 8 to 9% per year for each of
Managing Tomorrow's Resources Today
Mr. Ron Arp
March 19, 2015
Page 4of11
the next 3 years (2016, 2017, and 2018) in o rder to balance the revenues and costs within this customer
class.
Figure 2. Residential Proposed Rates
Current Rates % % %
Cart Size (gal.)* FY 2014-15 . FY 2015-16 Iner FY 2016-17 Iner FY 2017-18 Iner
20 $ 22.29 $ 24.30 9.0% $ 26.48 9.0% $ 28.60 8.0%
32 40.14 43.75 9.0% 47.69 9.0% 51.51 8.0%
64 76.34 87.51 14.6% 95.38 9.0% 103.01 8.0%
96 110.26 131.26 19.0% 143.07 9.00/o 154.52 8.00/o
Implementation
We recommend that City staff confirm the need for each year's rate increase prior to adopting the
change. The City has the option to implement a lower rate increase than was adopted but cannot adopt
an increase that is higher than the adopted amount without conducting a Proposition 218 notification
procedure.
1.5 Limitations
The City staff provided all of the financial and operation data used to perform the rate study, including
budgeted revenue and expenditure data, projections of future expenditures and allocation percentages.
Projections of future conditions and actual results may be different, and this difference may be material.
2. SOLID WASTE RATES
2,1 Background
The City provides its 17,800 residential customers with weekly solid waste, recycling, and yard trimmings
collection. The City currently charges its residents $22.29 per month for once a week servicing of a 20
gallon solid waste container; $40.14 for a 32-gallon solid waste container; $76.34 for a 64-gallon
container; or, $110.26 for a 96-gallon solid waste container. All residential customers receive weekly
recycling service (commonly a 64-gallon cart) and yard trimmings service (commonly a 96-gallon cart).
The City also provides solid waste, mixed recycling, and cardboard collection service to Commercial and
multi-family customers at varying frequencies in a range of container sizes to meet each customer's
needs. These Commercial and multi-family customers are cha rged a monthly rate based on their
subscription level (e .g., 1 cubic yard bin, serviced 1 time per week; 3 cubic yard bin, serviced 3 times per
week).
2.2 Residential Revenue Requirement Projections
To determine whether additional rate revenue is required, projected operating and capital expenses are
compared with projected revenue from cu rrent rates. Rates are then increased so that the revenues
will satisfy the projected and maintain operating and capital reserves.
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March 19, 2015
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Managing Tomorrow's Resources Today
The following table summarizes the projected FY2017-2018 allocated revenue and expense by customer
class. The projection assumptions are listed below. Figure 3 shows a residential sector revenue shortfall
of $2M in FY18 ifthe residential rates are not increased.
Figure 3. Allocated FY2017-18 Projected Revenue and Expenses by Customer Class
Projected FY 2017-18
CustomerType Revenue 1 Expense 2 To/(From) %
Residential $
Commercial
9,074,811 $
and Roll-off 21,028,491
Total $ 30,103,303 $
11,230,384 $
19,694,403
30,924, 787 $
(2,155,573)
1,334,088
(821,484)
24%
-6%
3%
1 Revenue is based on FY 2013-14 actual levels and budgeted amounts for non-rate revenue (e.g.
Investment income).
2Expenses are generally based on a 2.5% escalation over the FY 2014-2015 budgeted expenditures, except
as noted below.
Key Projection Assumptions
The City's solid waste fund projections served as the basis for determining the revenue requirement
projections for the four-year planning period from FY 2014-15 through FY 2017-18. The projection of
annual revenues and expenditures during this period was conducted by the City's staff and provided to
HF&H. Figure 3, above, summarizes the projected expenditure trends based upon a 2.5% escalation over
the budgeted FY 2014-15 expenditures, with the following exceptions:
• Facilities Rent expenditure (Landfill rent) was held constant for the projection period;
• Collection Hauling Contract -a net $326k was added to the Green Waste contract ($150k for
Commercial billing, $189k incentive payment, $62k for ZWED, offset by a reduction of $75k for
special events and hard to service expenses). Staff has recommended these contract scope and fee
modifications to the Finance Committee on March 3, 2015;
• Material Recovery/Disposal -$532k for the new food scraps program was added in FY 2015-16 and,
• Street Sweeping -$522k cost savings to the Refuse Fund (a reduction to expense) was assumed in FY
2015-16 for recent modifications to the sweeping program.
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March 19, 2015
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Managing Tomorrow's Resources Today
Figure 4. Solid Waste Fund Annual Projected Expenses
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$-
FY2014-15 FY2015-16 FY2016-17 FY2017-18
Projected Expense
Cl Street Sweeping
HHW
nJLandfill
D Solid Waste
Figure 5. Projected Expenses for FY2014-15 through FY2017-18
Projected Expense
FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18
Solid Waste $ 25,354,018 $ 26,862,182 $ 27,460,577 $ 28,073,931
Landfill 898,674 858,478 879,940 901,938
HHW 691,976 684,637 701,753 719,297
Street Sweeping 1,790,289 1,169,990 1,199,240 1,229,221
Total $ 28, 734,958 $ 29,575,287 $ 30,241,509 $ 30,924,387
To generate the necessary revenue to cover the expenses shown in Figure 3 above, a percentage
increase cou ld be applied across-the-board to all current Residential, Commercial, and Roll-off service
rates. However, the City's current rate structure requires some minimal restructuring so that each
customer class is paying its proportionate share of the total revenue requirement as calculated above.
Section 2.2 of this report discusses the rate structuring analysis conducted to apportion the revenue
requirement to each customer class (e.g., Residential and Commercial) and the resulting rate increases.
Methodology for the Allocation of Costs to Customer Class
The following table summarizes the methodology used to allocate Solid Waste Program cost categories
to each customer class and to each service level within the customer class.
•••1$t:llJltiSdU&•""&_..---n---
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Mr. Ron Arp
March 19, 2015
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Figure 6. Summary of Allocation Methodology
Cost Category Allocation Methodology to Customer Class
50050001 -Refuse Fund -Fund Level
50050002 -Allocated General &
Administrative
50050101 -Solid Waste Administration
50050301-Collect/Hauling/Disposal Admin
50050102 -Solid Waste Permit/Enforcement
50050103 -Landfill Operations
Cost categories that can be identified as benefiting
a specific division will be allocated directly
between the divisions. For example, Facility Rent
paid to the City's General Fund was allocated 100%
to Landfill Operations.
The remainder of expenditures should be allocated
based upon its evaluation of office labor activity
(comments, tickets, billing adjustments, efforts to
address challenges in Commercial billing).
Expenditures in these cost categories would be
incurred regardless of volume collected, number
of customers or lines of business. The following
percentages based on work hours to resolve
customer issues were used in the model:
• Residential -29.0%
• Commercial -62.0%
• Roll-off-9.0%
Direct to specific division receiving benefit.
Allocated 100% to Landfill Operations in the
model.
Landfill revenue and expenses are allocated to
Residential, Commercial, and Roll-off based on
tonnage of material actually accepted (and buried}
at the Palo Alto Landfill from 1995 to 2011 (the
date range that electronic tollbooth records are
available). Historical landfill tonnage and revenue
reports yielded the following percentages used in
the model:
• Residential -10.9%
• Commercial -69.9%
• Roll-off-19.2%
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March 19, 2015
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:
Managing Tomorrow's Resources Today
Cost Category Allocation Methodology to Customer Class
50050104 -Zero Waste/ Recycling
50050105 -Hazardous Waste
50050201 -CIP _REF System Improvement
50050302 -Collect & Hauling Contract
50050304 -Offsite Mtrl Recovery/Disposal
50050401 -REF Street Sweeping
Administration
50050410 -REF Street Sweep Maintenance
50050411-Str Sweep Parking District
Allocated based on Solid Waste Division's focus
towards Zero Waste recycling goals. City staff
reported that more effort is spent on the
Commercial activities to impact zero waste goals
than the residential sector. The City estimated 70%
of effort to Commercial activities with the
remaining 30% to Residential activities. The City
represented no measurable effort to Roll-off
activities.
Revenue and expenses are allocated based on the
number of dwellings (Single-family and Multi-
family). The Multi-family units are categorized
within the Commercial sector. There are
approximately 28,000 dwellings; 18,000 Single-
family (64.3% Residential) and 10,000 Multi-family
(35.7% Commercial).
Direct to specific division receiving benefit.
Allocated 100% to Landfill Operations in the
model.
Used GreenWaste's Consolidated "Confidential"
Statement percentages by Residential,
Commercial, and Roll-off lines of business for FY
2012-13 as shown below:
• Residential -44.8%
• Commercial -38.1%
• Roll-off-17.1%.
Allocation based on SMaRT FY 2013-14 tons by
customer class:
• Residential -29%
• Commercial -43%
• Roll-off-28%.
Allocation of revenue and expense based on City-
provided percentages, which addresses the major
sources of litter, are as follows:
• Residential-25%
• Commercial-75%
The preceding modeling assumptions lead to the projected Residential Net Revenue -surplus/(shortfall)
shown in Figure 7. The need for the series of revenue increases in Figure 4 is demonstrated by the
Managing Tomorrow's Resources Today
Mr. Ron Arp
March 19, 2015
Page 9of11
resulting Resident ial Net Revenue -surplus/(shortfall). Without the revenue increases, the Net Revenue
-(shortfall) would be at an unacceptable level.
Figure 7. Projected -Residential Solid Waste Net Revenue Without Rate Increases
$500,000
$· 1 Breakeven
~ Target
0 $(500,000) .r: .!!).
"' :I $(1,000,000) ~ :I "' Q, $(1,500,000)
:I c
QI > $(2,000,000) QI a:: ...
QI z $(2,500,000)
$(3,000,000)
FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18
Without Increases $(1,619,856) $(1,916,272) $(2,151,274) $(2,392,151)
2.3 Rate Design and Projected Rate Increases
Optional Rate Design and Projected Rate Increases Presented to City
After presenting to City staff multiple rate designs and rate adjustments based upon various approaches
to fixed and variable costs and an overview of the model, City staff developed an additional option as
described below. All of the program costs can be considered variable and charged by the size of the
garbage cart. The garbage cart, City staff found, was indicative of the use of other services included in
the Refuse bill. HF&H reviewed the model with the City's revisions for mathematical accuracy and logical
consistency. Any exceptions were resolved after discussions with City staff. The model uses concepts
consistent with those used throughout the industry.
Rate Design and Projected Rate Increases Selected by City
The final rate model establishes a base rate for a 32 gallon container (the most common service level at
53% of residents) and an incremental charge for additional ga llons of service. The 20 gallon rate is
approxi mately 55% of the 32 gallon rate and the 64 and 96 gallon rates are approximately 2 and 3 times
the 32 gallon rate. The conservation pricing of the minican acknowledges the reduced expenses related
to the need for less zero waste outreach efforts and operational efficiencies. Since there are a significant
number of customers currently su bscribed to minicans; lowest level of service, therefore the potential
for further numbers migrating to lower subscription levels is minimal. A 5% customer migration to lower
cart size has been built into the model to capture this potential reduction to revenue.
Mr. Ron Arp
March 19, 2015
Page 10 of 11
Managing Tomorrow's Resources Today
The annual percentage increases to the Residential customer class and basic rate category are listed in
Figure 8. The initial rate restructuring results in a larger than desired one-time increases and the City is
proposing to phase the required increase over three years to smooth the annual adjustments, thereby
avoiding "rate shock" with potential effects to customers and migration to smaller containers.
Figure 8. Schedule of Residential Adjustments to Monthly Rates
Current Rates % % %
' Cart Size (gal.)* FY 2014-15 FY 2015-16 Iner FY 2016-17 Iner FY 2017-18 Iner
20 $ 22.29 $ 24.30 9.0% $ 26.48 9.0% $ 28.60 8.0%
32 40.14 43.75 9.00/o 47.69 9.00/o 51.51 8.0%
64 76.34 87.51 14.6% 95.38 9.00/o 103.01 8.0%
96 110.26 131.26 19.0% 143.07 9.00/o 154.52 8.00/o *
With these increases, rates should cover more of ongoing contractual and operating cost increases and
provide some contribution to reserves by FY 2017-18. Each year, prior to implementing the rate
increases, City staff should confirm the need for the rate increase. The City can implement a lower rate
increase, if conditions warrant, without going through the Proposition 218 notification process. If higher
rate increases are needed that exceed the adopted rates, the City will need to initiate a new Proposition
218 proceeding.
Figure 9 indicates that the Residential Net Revenue is below breakeven with costs in FY 2014-15. The
shortfall grows dramatically starting in FY 2015-16 if revenues are not increased. With the projected
revenue increases, the Residential Net Revenue will be at its lowest point in FY 2014-15 and will
continue to grow and approach the target balance in FY 2017-18. This balances rate increases over time
without the need for significant rate fluctuations and customer impacts which would potentially create
"rate-shock", (when sudden changes in rates have distorting effects in customers and economic activity,
decreasing demand and generating diseconomies of scale).
Mr. Ron Arp
March 19, 2015
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Managing Tomorrow's Resources Today
Figure 9. Projected -Residential Solid Waste Net Revenue With and Without Rate Increases
$500,000
~ $-
t 0 $(500,000) ~ ~
"' ::i $(1,000,000) Q. :;
VI .. $(1,500,000)
::i c: llJ $(2,000,000) > QI a: .... llJ $(2,500,000) z
$(3,000,000)
- -With Rate Increases
-.-Without Increases
I Breakeven
Target
FY 2014-15
$(1,619,856)
$(1,619,856)
* *
FY 2015-16
$(1,174,650)
$(1,916,272)
* *
FY 2016-17
$(570,782)
$(2,151,274)
FY2017-18
$381
${2,392,151)
We would like to express our appreciation to you and City staff for assistance and guidance during the
course of the review. Should you have any questions, please call me directly at 925-977-6961 or email
me at msheehan@hfh-consultants.com.
Very truly yours,
HF&H CONSULTANTS, LLC
~cul/i'J ~~
Marva M. Sheehan, CPA
Vice President
Cc:
Attachment D
Carnahan, David
From:
Sent:
To:
Subject:
C'l1TY CJF PALO ALTQ. GA CJIY kl rrnws QFF 'PF
Larry and Zongqi Alton < lalton@pacbell.net> 15 HAR 25 AM 11: 5,
Wednesday, March 25, 2015 11:46 AM
Council, City
garbage recycling