HomeMy WebLinkAbout1998-01-26 City Council (14)TO:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
7
FROM:CITY MANAGER DEPARTMENT: PUBLIC WORKS
DATE:JANUARY 26, 1998 CMR: 111:98
SUBJECT:APPROVAL OF AMENDMENT NO. 10 TO CONTRACT NO.
4688 WITH PALO ALTO SANITATION COMPANY FOR
REFUSE COLLECTION AND RECYCLING SERVICES AND
BUDGET AMENDMENT ORDINANCE
REPORT IN BRIEF
The current contract with Palo Alto Sanitation Company (PASCO) went into effect in 1987.
On an annual basis, the City or PASCO, on written notice to the other, may request a review
and renegotiation of the percentage of revenue payment. Any percentage of revenue
payment adjustments or any other renegotiated items are included as an amendment to the
contract (Attachment A). In addition, the renegotiated items are included in a Letter of
Understanding (Attachment B).
The compensation adjustments for FY 1997-98 were delayed several months in attempts to
reach an agreement with PASCO for a new contract. Terms and conditions for a new
contract could not be reached prior to the beginning of FY 1997-98. PASCO and staff
negotiated Amendment No. 10 to the current contract retroactive to July 1, 1997.
Included in Amendment No. 10 is the percentage of revenue payment to PASCO of the total
Refuse Fund customer sales which increases from 30.04 percent for F¥ 1996-97 to 30.43
percent for FY 1997-98 and a Budget Amendment Ordinance (BAO) which requests a
transfer of $460,000 from the Refuse Fund Rate Stabilization Reserve to the Refuse Fund
operating budget. Of this amount, $256,400 represents the difference between PASCO’s
estimated compensation adopted in the F¥ 1996-98 budget process and the actual negotiated
compensation. The remainder is to be paid to PASCO as a reimbursement for an insurance
dividend payment. The payment was previously made by its insurance carrier for an
excellent safety record, but State law now prohibits insurance carriers from paying
customers this dividend, and the City has agreed to "make PASCO whole" for this revenue
loss.
CMR:lll:98 Page 1 of 4
RECOMMENDATION
Staff recommends that Council:
Approve and authorize the Mayor to execute Amendment No. 10 to Contract No.
4688, to provide for revised compensation to PASCO, for refuse collection and
recycling services, retroactive to July 1, 1997. This amendment will set the
compensation to be received by PASCO for FY 1997-98.
Approve a BAO to transfer $460,000 from the Refuse Fund Rate Stabilization
Reserve to the Refuse Fund operating budget.
BACKGROUND
The present contract with PASCO, which went into effect in 1987, provides for refuse
collection services, residential and commercial recycling, public receptacle emptying and
operation of the Recycling Center. The contract provides for PASCO to receive a
percentage .of the Refuse Fund revenue for its services.
The master contract between the City and PASCO establishes the basis by which PASCO’s
compensation will be determined. The annual amendments provide for the review of the
upcoming year’s PASCO budget and calculation of specific compensation based on PASCO’s
approved budget requirements..
This year’s review was conducted consistent with contractual provisions, historical
precedents, and recommendations in the 1995 audit conducted by the City Auditor’s Office.
Staff from both the Public Works and Administrative Services Departments reviewed
PASCO’s proposed budget; and through a series of meetings with PASCO, staff has set FY
1997-98 compensation based on such review and conclusions of negotiations.
DISCUSSION
In the 1997-98 negotiations for PASCO’s compensation, three key items were discussed and
agreed upon: profit, percent of revenue from billed services, and replacement for an
insurance dividend payment.
Profit
PASCO’s profit is determined by using a method called return-on-assets (ROA). The ROA
method determines the profit level based on the size of investment in company assets.
PASCO’s pretax profits are based on a percentage ofundepreciated fixed assets, specifically
5 percent of undepreciated fixed assets. Any profit exceeding 8 percent will be divided
equally with the City. This method has been used with PASCO since 1978. In 1997-98, the
pre-tax profit return on undepreciated fixed assets continues to be targeted at 5 percent and
any pre-tax profit exceeding 8 percent will be shared equally with the City. However, staff
negotiated a cap of 11.5 percent to prevent PASCO from receiving excessive profits during
years when revenue is high (profit that exceeds 11.5 percent willbelong to the City). The
CMR: 111:98 Page 2 of 4
City’s share of any pre-tax profit will be credited against the succeeding year’s revenue
requirement for PASCO. If PASCO were to receive more profit than the agreed rate of
return in any particular fiscal year, the disallowed excess would be applied as an offset to the
following year’s revenue requirement and the percentage of refuse service billings paid to
PASCO would be reduced.
Percent of Revenue from Billed Services
As established in the 1987 contract with PASCO, compensation to PASCO is based upon a
percentage of the revenue derived from refuse service that customers pay to the City. The
percentage to be paid to PASCO in FY 1997-98 will increase from 30.04 percent for FY
1996-97 to 30.43 percent of the total Refuse Fund customer sales revenues.
Replacement for Insurance Dividend Payment
Staffnegotiated a payment to PASCO to replace the insurance dividend it no longer receives
from its insurance carrier for excellent safety practices. Last fiscal year, staff agreed to
compensate PASCO on an annual basis for this loss (Contract Amendment No. 9). This
amount equals $150,000 in FY 1997-98 and will be paid in one lump sum directly to
PASCO. This payment is meant to encourage PASCO to continue maintaining its excellent
safety programs; however, should it not maintain an industry average safety record, an
incrementally increasing penalty schedule up to $150,000 is provided in the letter of
understanding (LOU).
This compensation agreement is for one year (FY 1997-98) and is meant to facilitate the
drafting of a new, revised contract in which PASCO desires the opportunity to negotiate
compensation comparable to competitive industry levels for this area.
RESOURCE, IMPACT
Budget Amendment Ordinance
A BAO is needed to transfer $460,000 from the Refuse Fund Rate Stabilization Reserve to
the Refuse Fund operating budget. This includes:
$256,400for the difference between PASCO’s estimated compensation adopted in the
FY 1996-98 budget process and the actual negotiated compensation. The amount
includes an increase for inflation, adjustments for higher fuel and insurance costs, and
new services requested by staff. The amount of compensation was not adjusted
during the 1997-98 Interim Budget process due to ongoing negotiations during
production of the budget document.
$150,000 to be paid to PASCO for the FY 1997-98 insurance dividend mentioned
previously.
CMR: 111:98 Page 3 of 4
$53,109 to cover an adjusted FY 1996-97 insurance dividend amount that PASCO
should have received. TheCity agreed in the PASCO Contract Amendment No. 9
(CMR:313 :96) to compensate PASCO annually for the loss of the insurance dividend
mentioned previously. The reimbursement in FY 1996-97 was calculated by taking
the difference between PASCO’s adjusted insurance premium and the rate that it
would have paid if it had merely maintained an industry average safety record. In FY
1996-97, the amount the City agreed to pay PASCO was $91,000; however, the final
audited financial statements for FY 1996-97 revealed that the City owed PASCO
$144,109 rather than the estimated $91,000 (a difference of $53,109), due to an
underestimation during the budget process.
POLICY IMPLICATIONS
This report does not represent any change to existing City policies.
ENVIRONMENTAL ASSESSMENT
~The amendment to Contract No. z1688 for compensation purpose is not a project under the
California Environmental Quality Act.
ATTACHMENT
Attachment A:
Attachment B:
Attachment C:
Amendment No. 10
Letter of Understanding
Budget Amendment Ordinance
PREPARED BY: Karen Gissibl, Executive Assistant, Operations Division
GLENN S. ROBE~RTS
(-’~irector of Pu]~lJc ,Works
¯/ ~NE FLAMING " ~
~,ici~ Manager /
CMR: 111:98 Page 4 of 4
ATT~
AMENDMENT NO. I0 TO CONTRACT NO. 4688
BETWEEN THE CITY OF PALO ALTO AND
PALO ALTO SANITATION COMPANY FOR COLLECTION
AND TRANSPORTATION OF REFUSE PRODUCED
AND ACCUMULATED IN THE CITY
FISCAL YEAR 1997-1998
This Amendment No. I0 to Contract No. 4688 is entered
into , 1998, by and between the CITY OF PALO ALTO, a
chartered city and a municipal corporation of the State of
California ("CITY"), and PAL0 ALTO SANITATION COMPANY, a corporation
duly organized and existing under the laws of the State of
California ("CONTRACTOR").
RECITALS:
WHEREAS, Contract NO. 4688 was previously entered into
between CITY and CONTRACTOR, under which CONTRACTOR provides
certain specified services for the collection and transportation of
refuse produced or accumulated in CITY; and
WHEREAS, the parties desire .to modify said contract as
set forth below;
NOW, THEREFORE, in consideration of their mutual
covenants, the parties hereto agree that Contract No. 4688 shall be
amended as follows:
SECTION i. Section 9 is amended to read as follows:
"9. COMPENSATION.
As full and complete compensation for the services
to be provided by CONTRACTOR hereunder, CITY shall pay
CONTRACTOR as follows:
Effective the first billing cycle of July, 1997,
with respect to the revenue derived each calendar month
from CITY refuse service rates described in Section 8
above, CITY shall compute and pay to CONTRACTOR, on or
before the tenth of the following month, an amount equal
to thirty and forty-three hundredths percent (30.43%) of
revenue billed under refuse rate schedules, less any
liquidated damages assessed under Section 5(c) (3) of the
refuse collection specifications. With respect to the
revenue derived each -calendar month .from the CITY
collection bin rental described in Section 8 above, CITY
shall compute and pay CONTRACTOR on-or before the tenth
of the following month an amount equal to ninety-five
percent (95%) of revenue billed under refuse rate
schedules for such collection bins. CONTRACTOR shall
credit CITY with six percent (6%) of gross revenues of
CONTRACTOR, derived from activities associated with or
arising from this contract, but’which are not performed
within the scope of this contract (such as but not
980106 syn 0071343
1
limited to portions of the cleaning operation). CITY is
authorized to deduct such credit from the payments due
CONTRACTOR in the next succeeding year. Accounts and
records from the activities shall be made available to
CITY concurrently with the Annual Financial Statements
supplied pursuant to Section 7 above. From the above
payment amounts, CITY may deduct liquidated damages
assessed CONTRACTOR under Section 34 of this contract.
Annually, on or before December 31, CITY or
CONTRACTOR on written notice to the other may request a
~review and renegotiation of the percentage of revenue
payment. Any renegotiated payment amounts, any
percentage of revenue payment adjustments or any other
renegotiated items shall be included in a letter of
understanding which shall include the formula of
calculations used to determine percentage of payments,
and will not become effective until July 1 the following
year."
SECTION 2. Except as herein modified, all other
provisions of, includihg the exhibits and amendments to, Contract
No] 4688 shall remain in full force and effect.
SECTION 3. The Council of the City of Palo Alt6 finds
that this.amendment to Contract No. 4688 does not constitute a
project under the California Environmental Quality Act and,
therefore, no environmental assessment is necessary.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment the date first above written.
ATTEST:CITY OF PALO ALTO
City Clerk
APPROVED AS TO FORM:
Senior Asst. City Attorney
APPROVED:
Mayor
Assistant City Manager
Director of Public Works
Acting Director of
Administrative Services
Risk Manager.
91/0106 syn 0071343
CERTIFICATE OF ACKNOWLEDGMENT
(Civil Code § 1189)
)))
On -~A~ ~f [~ ~, before me, ~i]e unue~mINned, a
notary public in and for said County,personally appeared
~o~ ~. ~o~ ~.i i " ,,p~a!!y l.-k-nOW~__ ~ me (or lllproved to ~e on the basis Of
satisfactory evidence) to be the person~<whose name(s~J/is/aresubscribed to the within instrument, and acknowledged to me that
he/she/~ executed the same in his/M~r/th~-~i-r authorized
~/~ ~4capacity(i~e~ , and that by h~s/.he_,~h~ signature~s~ on the
instrume~ the person~), or the entity upon behalf of which the
theperson(~ acted, executed instrument.
WITNESS my hand and official seal.
James d. TortolanoL
i Comm. #1095502NOTARy PUBLIC CALIFORNIA~J,I
SANTA CLARA COUNTYComm Ex~, Aug. 28 2000
980106 syn 0071343
December 10, ~997
ATTACHMENT
City Palo Alto
Public Works DcT~a~ncqzt
Paul Madsen Jr.
President
Palo Alto Sanitation Company
2000 Geng Road
Palo Alto, CA 94303
Dear Paul:
DMsions
Administration
415, 329, 23~
415.329.2299 Fax
Engineering
415.329.2151
415.329.2299Fax
Environmental
Compliance
415.329.9,598
415.494.3531 Fax
Equipment
Management
415.496.6922
415.496.6958Fax
Management .
415. 496. 6900
415, 496.6958 Fax
Operations
415.496.6974
415.852. 9289 Fax
Regional Water
Quality Control
415.329.2598
415,494.3531 Fax
The following are items agreed to in the contract negotiation for the refuse collection, recycling
and receptacle contracts for fiscal year 1997-98 (retroactive to July 1, 1997). These items
supersede all prior Letters of Understanding:
Basic Service
Due to changes in Section 5.20.080 of the Municipal Code, basi~ (automatic) service for
single and multi-family homes is one standard can (32 gallons). Minimum service for
single and multi-family homes is one mini-can (20 gallons) and for commercial businesses
is one standard can if requested. These changes may cause revenues to the City to
decrease which would in turn decrease revenue to PASCO.
PASCO Pre-Tax Profit Rate and Cap
The PASCO profit rate for 1997-98 will be targeted at 5% and the cap will be at 8%. Any.
amount exceeding 8% up to 11.5% will be split equally with the City and any amount above
11.5% will belong to theCity. The City share is credited against the succeeding year’s
revenue requirement for PASCO. If PASCO were to receive more profit than the
agreed rate of return in any particular fiscal year, the disallowed excess will be applied
as an offset to next year’s revenue requirement, and the percentage of refuse service
billing paid to PASCO is reduced. Pre-tax profit will be based on undepreciated fixed
assets. This compensation agreement is for one year (FY 97/98) and is meant to facilitate
the drafting of a new, revised contract in which PASCO desires the opportunity to negotiate
compensation comparable to competitive industry levels for this area.
PASCO Revenue Percentage
The percent PASCO will receive for billed revenue for fiscal year 1997-98 will be
30.43% and for billed bin rental 95%.
Insurance Dividend Credit and Agreement for Exceeding the Modifier
Up until 1996 PASCO received a dividend from its insurance cartier due to their worker’s
compensation expenses being lower than the industry rate. This dividend amount has
averaged around $150,000 in the past five years and has been a substantial part of
PASCO’s income. Due to a change in state law, PASCO no longer receives the dividend
from their carrier so in order to replace that loss and encourage continued good safety
practices in providing service to residents, PASCO will receive $150,000 from the’City.
The $150,000 will be paid in one lump sum at the beginning of the fiscal year and not be
included in the profit calculation.
In the past, the dividend was determined by taking the difference between PASCO’s
adjusted insurance premium and the rate that they would have paid if they had merely
maintained an industry average safety record. The amount is shown on their insurance
P.O. Box 109,50
Palo Alto, CA 94303
bill as a discount called an "experience modifier." In the event that the insurance modifier exceeds
100%, the City shall deduct the following amounts in six equal parts from the first six monthly
payments to PASCO in the fiscal year the modifier was exceeded:
Percent Exceeded ~
100-109%$10,003
110-114%$25,000
115-119%$50,000
120-124%$75,000
> 125%$150,000
Procedure Manual
in December 1996, a procedure manual was created to address how the contract with PASCO is
to be administered; itis a worldng document that intends to detail contract practices and provides
clear definition of responsibilities between the City and PASCO. The reference to the manual in
this Letter of Understanding is to distinguish it as an eventual authority for.administrative practices
and to emphasize that City staff and PASCO will work cooperatively in fulfilling the contract.
In its present form, PASCO does not agree to some of the procedures that change the nature of
the contract. City Staff recognizes this and will include procedures not identified in the current
contract with contract negotiations ,for future years.
Liaison Position
In FY 1996-97, the City approved the hire of an additional staff person to act as a liaison with the
City’s contract manager. However, PASCO opted to use existing staff to perform the liaison
functions and has removed funding for this position ($56,650) from their FY97-98 budget.
Bus Shelters
In fiscal year 1996/97 the Santa Clara County Transportation Authority ceased collection of refuse
from 22 bus shelters in Palo Alto and turned the responsibility over to the City. The City asked
PASCO to begin collection from these sites on a weekly basis and to bill the City monthly for the
service. This year PASCO has included the collection costs in their budget, so monthly billing
is not necessary.
Mixed Paper Drop-off Program
On September 1, 1997, a mixed paper drop-off program began at the direction of City Council.
.This is an interim program which frill be reviewed by Council after three to six months time. The
City will pay PASCO a total of $16,934 for the term of the program (September 1997 through
June 1998) and $52.50 for additional pickups at each location. In cases where PASCO determines
the bins are contaminated, the City has directed them to empty the bins as refuse. PASCO will
charge a fee of $110.35/bin for each contaminated bin.
Municipal Code Ordinance
On September 22, 1997, Council approved revisions to the City Municipal Code, Section .5.20,
pertaining to the collection, removal, and disposal of solid waste and recyclable materials. On
October 6, 1997 a second reading by Council occurred and final approval for the revisions was
given. The code went into effect on November 6, 1997. Enforcement of violations of any of the
provisions of Chapter 5.20 shall be by Public Works staff.
PASCO and the City understand that the code revisions may result in a change in the revenue
to the City. This in turn may require adjustments to the PASCO budget next fiscal year.
Computer Equipment
In the last two years, PASCO has requested upgrades or replacement of computer equipment.
This year PASCO has requested to replace/upgrade entire system, including hardware and
software. The City will work with PASCO to ensure that new system purchased shall have a
useful life of a minimum of five years with the stipulation that no additiortal funding for computer
systems will be allowed during the subsequent five year period. Not withstanding, some
components or other parts of the system may need replacing or upgrading and have costs that
would be considered an allowable expense. The intent of this Letter of Understanding is to not
have the City incur additional costs for replacing PASCO’s computer system.
Review Of Depreciation Schedule
The City requested an opportunity to review PASCO depreciation practices.
Non-Allowable Expense List
Non-allowable expenses include City employee promotions, contributions to charities,
churches, foundations, or political acts, measures, non-operational bad debt and accelerated
depreciation of fixed assets. PASCO to use sla’aight line depreciation over the useful life of assets.
Interest Income
Non-operational investments and the interest/dividend income from those investments will not
be included in determining PASCO’s revenue percentage.
Reopeners in Contract
The City will list reopeners in the new contract for:
¯Service level and policy changes;
¯program additions that require equipment, personnel changes or other impacts on
PASCO
Sincerely,
Michael Jackson
Acting Deputy Director
Approved:
Mana~r
Date aul Madsen Jr.
President, Palo Alto Sanitation Company
cc:June Fleming
Emily Harrison
Melissa Cavallo
Glenn Roberts
Virginia Harrington
Lalo Perez
Karen Gissibl
Rich Buehner, PASCO
ORDINANCE NO.
ATTACHMEN
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AMENDING THE BUDGET FOR THE FISCAL YEAR 1997-98 TO
PROVIDE AN ADDITIONAL APPROPRIATION FOR COMPENSATION OF
THE PALO ALTO SANITATION COMPANY (PASCO)
WHEREAS, pursuant to the provisions of Section 12 of Article
III of the Charter of the City of Palo Alto, the Council on June
23, 1997 did adopt a budget for fiscal year 1997-98; and
WHEREAS, the 1997-98 adopted budget included an estimated
compensation payment amount to PASCO for refuse collection and
.recycling services; and
WHEREAS, the contract between the City of Palo is amended
annually to revise the compensation to PASCO depending on revenue
and service needs; and
WHEREAS, Amendment No. i0 to the contract reflects adjustments
for 1996-97 transactions and 1997-98 compensation, totaling
$460,000; and
WHEREAS, City Council authorization is needed to amend the
1997-98 budget as hereinafter set forth.
NOW, THEREFORE, the Council of the City of Palo Alto does
ORDAIN as follows:
~.E<TION I. The sum of Four Hu.ndred Sixty Thousand Dollars
($460,000) is hereby appropriated to non-salary expenses in the
Collection, Hauling & Disposal Functional Area of the Refuse Fund,
and the Refuse Fund Rate Stabilization is correspondingly reduced.
SECTION 2. This transaction will reduce the Refuse Rate
Stabilization Reserve from $5,885,000 to $5,425,000.
SE¢..TIQN...$; As specified in Section 2.28.080(a) of the Palo
Alto Municipal Code, a two-thirds vote of the City Council is
required to adopt this ordinance.
SECTION 4. The Council of the City of Palo Alto hereby finds
that the enactment of this ordinance is not a project under the
California Environmental Quality_ Act and, therefore, no
environmental impact assessment is necessary.
SECTION 5. As provided in Section 2.04.350 of the Palo Alto
Municipal Code, this ordinance shall become effective upon adoption~’
INTRODUCED AND PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:City Manager
Senior Asst. City Attorney Deputy City
Administrative
Department
Manager,
Services
Director of Public Works