HomeMy WebLinkAbout1996-06-17 City Council (41)1- DGET 1996-98
City of Polo Alto
C ty Manager’s Report
5
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: Public Works
AGENDA DATE: June 17, 1996 CMR:313:96
SUBJECT:Approval of Amendment No. 9 to Contract No. 4688 with Palo Alto
Sanitation Company for Refuse Collection and Recycling Services
REQUEST
This report recommends that Council approve and authorize the Mayor to execute
Amendment Number 9 to the compensation section of the existing contract with Palo Alto
Sanitation Company (PASCO) for refuse collection and recycling services. This amendment
will set the compensation to be received by PASCO for fiscal year 1996-97.
RECOMMENDATION
Staff recommends that Council approve and authorize the Mayor to execute Amendment No.
9 to Contract No. 4688, to provide for revised compensation to PASCO under the contract,
for refuse collection and recycling services, effective July-l, 1996.
POLICY IMPLICATIONS
There are no policy implications related to this report.
EXECUTIVE SUMMARY
The present contract with PASCO 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. This amends the master contract approved by Council in 1987, and represents an
extension of the PASCO contract on,its present terms and conditions.
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 the 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
CMR:313:96 Page 1 of 6
PASCO’s proposed budget; and through a series of meetings with PASCO, staff has set next
year’s compensation based on such review and conclusions of negotiations.
Audit Recommendations for PASCO Contract
In the January 1995 Audit of PASCO Contract report from the City Auditor’s office,, several
recommendations were made to improve the administration of the contract:
1) Improve PASCO budget review process; 2) Clearly define allowable expenses; 3) Review
and evaluate PASCO’s actual reported profit in considering profit "cap;" 4) Document
administrative practices; 5) Formally review, evaluate, and authorize major equipment
purchases; 6) Research alternative methods for determining PASCO’s profit; 7) Develop
written procedures for the review and analysis of PASCO’s activities.
During the budget review process items 1, 2, and 5 were accomplished. An initial budget
meeting was held February 5, 1996 to discuss the budget and establish allowable expenses.
Through a series of additional meetings from February to May, PASCO was asked for
documentation on items that were 3 percent or $2,500, above last year’s budget, and for
specifications on proposed equipment purchases. An equipment purchase form was developed
and used for the proposed vehicle purchase for the FY 1996-97. In addition, PASCO revised
its entire asset list by noting whether an item was a "new" addition or "replacement" item
and identified the disposition of all old, donated or discarded items. On May 13, a final
budget of $7.9 million, or 4.5 percent above the current year budget, was agreed upon.
Item 4, documentation of administrative practices, has been addressed through the extensive
documentation of the budget process with PASCO. All meetings and correspondence with
PASCO is documented in memos, agendas, and letters. A letter of understanding
(Attachment B) includes the FY 1996-97 pre-tax profit rate and the exclusion of the Workers
Compensation dividend to PASCO. The letter of understanding was reviewed and approved
by both PASCO and the. City Manager.
Items 3 and 6 are contained in the Cost of Service study which will be presented to Council
this summer. The Cost of Service study includes information which compares PASCO’s
profit level with those in other Bay Area communities and examined PASCO’s historic profit
levels wit~a options for alternative methods of calculating profit.
Item 7 will be addressed in the PASCO Procedure Manual which describes in detail how the
contract is administered. The manual is currently in the process of being written. Staff is
being assisted by several City departments in writing sections that pertain to their interactions
with PASCO.
Some of the significant changes in the proposed PASCO budget for FY 1996-97 are a 10
percent increase in insurance premiums and a projected 15 percent decrease in recycling
CMR:313:96 Page 2 of 6
revenue, due to declining markets for material sales. Also, until this year, PASCO received
a dividend from its Workers Compensation insurance carrier at the end of the year reflecting
savings for having fewer claims than the industry average. Due to changes in state law,
PASCO no longer receives the dividend, but instead the premium is now set at a lower rate
reflecting a percentage of savings based on fewer claims.
Staff was concerned about the change in the state law for two reasons. First, PASCO is
.losing a real source of revenue due to this change. Second, it is in the City’s best interest to
encourage PASCO to maintain excellent safety programs. Because the City payments to
PASCO are based on an approved budget which includes the insurance premium, should
insurance costs rise in succeeding years, PASCO would otherwise no longer have an
economic incentive to maintain its current excellent safety record.
Staff proposes that each year in the Spring, when PASCO receives its Workers Compensation
rate for the upcoming year from its insurance carrier, the City reimburse PASCO for the
difference between its adjusted insurance premium and the rate that PASCO would have paid
if it had merely maintained an industry average safety record. This amount is quantifiable,
and is shown on the insurance bill expressed as a discount, called an "experience modifier."
That is, PASCO’s insurance rate is "modified" based on PASCO’s actual "experience" of
claims.
For example, in the last ten years, PASCO’s experience modifier has ranged from .41 to .68,
meaning PASCO has paid 41 percent to 68 percent of the industry’s average Workers
Compensation insurance premiums for garbage companies its size. The 1996-97 industry
average premium for a company of PASCO’s size is $208,000. PASCO’s experience
modifier was set at .68 for 1996-97, meaning its Workers Compensation premium was
modified to $141,440, or 68 percent of the average of $208,000. (It should be noted that
with additional premium discounts by the insurance carrier, PASCO’s final premium was
actually set at $106,230 for 1996-97).
Under staff’s proposal, when PASCO receives its modifier each Spring, the City would then
compensate PASCO by the fiscal year end. The first payment would potentially be made to
PASCO i,n the Spring/early Summer 1997, and has been budgeted in the Refuse Fund.
PASCO Request for Additional Legal Expense Budget
As part of the PASCO budget review process, staff reviewed PASCO’s request for an
additional $70,000 for legal support that may be required over the next year should City
contract renegotiations occur. Staff believes that those costs are not clearly "allowable costs"
under the current contract and letters of understanding. Therefore, staff did not approve at
this time additional funds for contract negotiation expenses. (PASCO currently has an
ongoing legal and professional expenses budget which was not affected by this discussion).
It was recommended instead that staff meet with PASCO, before any new contract
CMR:313:96 Page 3 of 6
negotiations take place, and define "allowable" City reimburseable consultant service expense
for such related contract negotiations. If that expense is defined in such a way that staff
believes is appropriate for reimbursement, staff will return to Council midyear with an
additional letter of understanding to include the expense. A Budget Amendment Ordinance
to increase the PASCO compensation amount might also be needed at that time.
Amendment to contract
The contract between the City and PASCO has a provision which allows for revision of the
percentage of revenue payment. The City’s practice has been to meet with PASCO and
provide for the revision of a percentage of revenue payment through a contract amendment
approved by the City Council. This process allows for a detailed evaluation of PASCO’s
proposed budget and operating cost effects on the City Refuse Fund budget forecast. Ci.ty
staff has carefully analyzed PASCO’s submitted budget to ensure that requested funds for FY
1996-97 are reasonable, PASCO asset replacements are consistent with the contract
provisions, and line item requests are justified with documentation. Administrative Services
staff worked closely with Public Works staff in reviewing the PASCO budget submittal.
Mixed Paper Program
A mixed paper pilot program was implemented on one recycling route (2,200 single family
households) for three months this winter in order to evaluate frequency of collection, paper
tonnages and container types. Four apartment complexes with 200 residents were also
included in the pilot. Single family residents placed their white and colored paper,
paperboard, and magazines into a grocery bag, small cardboard box, or a labeled garbage can
not weighing more than 60 pounds and placed it curbside for collection. Multi-family
residents placed their material in a wheeled cart provided by the City.
At the completion of the pilot, paper tonnage was calculated. If the program were to expand
city-wide, the approximate mixed paper tonnage collected would be 15 tons per day or 325
tons per month. The potential recovery rate of mixed paper from the waste stream is very
high; 27 percent from the residential waste stream or 7 percent for the total waste stream.
If the program is implemented, it is likely the City will reach the 50 percent State mandated
diversion goal by the year 2000 (current diversion is 44 percent).
During the pilot program staff received over 50 phone calls, six e-mail messages, and seven
letters from residents very interested and enthusiastic about the program continuing. In
addition, once the program ended, surveys were sent to all participants and 43 percent of
them were returned. The most positive result of the pilot was the amount of garbage
residents were able to reduce: 35 percent of residents reduced their garbage by a quarter can,
31 percent by half a can, 16 percent by more than half a can, and 5 percent by a full can.
Residents were asked what type of container they would prefer to use: 45 percent said a
recycling crate the same size as the existing ones and 21 percent said a paper bag. There was
an overwhelming 97 percent positive response from residents who would participate in the
CMR:313:96 Page 4 of 6
program if it was expanded citywide feedback on the pilot program has been overwhelming
and positive.
PASCO’s budget included a separate scenario for the expansion of the mixed paper program.
They estimated an additional $1.9 million to implement the mixed-paper program city-wide.
The initial start-up would require new (or possibly salvaged) trucks, additional staff, new
processing equipment, and expansion of the processing area at the Recycling Center. The
mixed paper program was not recommended for the FY 1996-97 due to other issues that
necessitated the 9 percent refuse rate increase (acquisition of the former Los Alto Treatment
Plant site, the increase in tonnage of refuse delivered to the Sunnyvale Material and Recovery
Transfer Station, and the reduction in customer revenue). Staff is still compiling the final
results of the pilot program and has received information from PASCO proposing options f.or
the implementation of a mixed pilot program, staff will return to Council this fall with a
separate report on the residential mixed paper pilot program.
Compensation to PASCO
For the purpose of rate setting for next fiscal year and PASCO profits, the pre-tax rate of
return on undepreciated fixed assets continues to be targeted at 5 percent. Any pre-tax profit
exceeding 8 percent will be shared equally with the City. The City’s share of any pre-tax
profit will be credited against the succeeding year’s revenue requirement for PASCO. The
percentage of the total Refuse Fund customer sales revenues to be paid to PASCO will be
decreased from 31.30 to 30.04 percent for FY 1996-97.
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 billing paid to PASCO would be reduced.
FISCAL IMPACT
The fiscal impact related to this report has been included in the 1996-97 Refuse Fund
Operating Budget. A detailed analysis of the Refuse Fund obligations was provided in
CMR:275:96.
ENVIRONMENTAL ASSESSMENT
The amendment to Contract No. 4688 for compensation purpose is not a project under the
California Environmental Quality Act.
ATTACHMENT
Attachment A:
Attachment B:
Amendment No. 9.
Letter of Understanding
PREPARED BY:Karen Gissibl, Executive Assistant
CMR:313:96 Page 5 of 6
DEPARTMENT HEAD REVIEW’
CITY MANAGER APPROVAl 0"
/q~LENN S. ROBOTS
F~~..~irect°r of Pu~rks
~ ~iUtyN~FanLa~ eMrING
CMR:313:96 Page 6 of 6
Attachment A
AMENDMENT NO. 9 TO CONTRACT NO. 4688
BETWEEN THE CITY OF PALO ALTO AND
PALO ALTO SANITATION COMPAITY FOR COLLECTION
AND TRANSPORTATION OF REFUSE PRODUCED
AND ACCUMULATED IN THE CITY
FISCAL YEAR 1996-1997
This Amendment No. 9 to Contract No. 4688 is entered into
, 1996, by and between the CITY OF PALO ALTO, a
chartered city and a municipal corporation of the State of
California ("CITY"), and PALO 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, 1996,
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 four hundredths .percent (30.04%) 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 shal! 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
960514 syn 0070969
1
this contract, but which are not performed within the
scope of this contract (such as but not 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, C~TY
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, including the exhibits and amendments to, Contract
No. 4688 shall remain in full force and effect.
SECTION 3. The Council of the City of Palo Alto finds
that this amendment to Contract No. 4688 does not constitute a
project under the California Environmenta! 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
PAL0 ALTO SANITATION
Its:
Assistant City Manager
Director of Public Works
960514 ss~n 0070969
2
Deputy City Manager,
Administrative Services
Risk Manager
960514 syn 0070969
3
STATE OF
COUNTY OF
CERTIFICATE OF ACKNOWLEDGMENT
(Civil Code § 1189)
On /~ 30 , 1996, before me, ~9~ ,~/~b~ / , ~
a Notary ~ubl~c ~n .a@d for ,said County and State~ personally
appeared f~I [~). ~~29 J~. , personally known to me
or proved’to me on the/basis of satisfactory evidence to be the~
person(s) whose name(s) i~/are subscribed to the within instrument
ai~d_ acknowledged to me that~she/they executed~e same in
~/her/their authorized capacity(ies), and that by--her/theirsignature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Comm, #1027314ARY PUeLIC CALIPORNIA~,SANTA CLARA COUNTYCoreR} Ex~r~sOc! 18, 1991
Signature of Notary Public
Attachment B~
Public Works Department
Operations Division
MEMORANDUM
DATE:May 21, 1996
TO:Paul Madsen Jr., Palo Alto Sanitation Company
FROM:
RE:
Mike Miller, Public Works Operations
Letter of Understanding-1996/97 Negotiations
The following are items agreed to in the contract negotiation for the Refuse Collection, Recycling and
Receptacle contracts:
Budgetscenario one
Scenario one from PASCO’s submitted budget is being used, which assumes a mixed paper
program will not be added to the residential recycling routes in FY 96/97. If the City desires to
start a mixed paper program earlier than 1997/98 and PASCO utilizes existing recycling vehicles
scheduled for sale (301,302,303), PASCO shall be reimbursed the salvage value of $30,000 (per
vehicle used) which otherwise would have been sold and reported as miscellaneous income.
Equipment purchase issues
Three replacement recycling trucks; 301,302, and 303 have been approved. Specifications have
been submitted and approved by City staff.
Radio replacement
PASCO will replace all fleet and office radios during the fiscal year. $57,331 in old radios will be
removed from the asset base.
Paint Spray Booth
PASCO will purchase a paint booth and rent a facility to paint bins and other equipment. Capital
cost of paint booth is $123,000, plus annual rental of $20,000.
New position
Approval to hire an additional staff person to act as a liaison with the city’s contract manager.
Insurance increases
PASCO’s health and dental and general insurance is estimated to be increasing by 8 % and 11%
respectively, supported by carrier letter.
Allowable expense list
Disallowed expenses include city employee promotion, and contributions to charities, churches,
political acts, etc. PASCO will track legal expenses resulting from preparation of work necessary
to begin negotiations and related to contract language. The City and PASCO shall continue
discussion of a definition of allowable legal expenses. This discussion and resulting agreement
shall conclude prior to negotiations. Any agreed upon expense shall be paid separately to PASCO.
Basic service
Basic service will remain at 2 cans, once per week, backyard service for residential customers.
Bin rental rates
City staff is proposing to freeze the bin rental and drop box service charges. The rate for
collection of refuse from the bins will be increased by nine percent as proposed for refuse rates.
Bus shelter refuse collection ""
PASCO will collect refuse on a weekly basis from 22 bus shelters in Palo Alto. PASCO will bill
the City in a separate billing for this service through next fiscal year. Service was added by staff
after the PASCO budget submittal, and no cost was included for 1996/97 PASCO budget.
Loss of Workers Compensation dividend refund
PASCO will no longer receive a dividend from their insurance carrier for Workers Compensation.
In order to compensate for the change, PASCO will receive a separate check refiecting insurance.-
dividend savings paid upon receipt of the modifier provided by the carrier for the upcoming year.
The payment shall be paid to PASCO no later than July 30, of the current fiscal year.
PASCO’s pre-tax profit rate
For the purpose of rate setting and PASCO profits for 1996/97, pre-tax profit will be targeted at
5%. Pre-tax profit will be based on undepreciated fixed assets. The pre-tax profit will be capped
at 8%; any amount exceeding 8% will be divided equally with the City. 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 yedr’s revenue requirement, and the percentage of refuse service
billing paid to PASCO is reduced.
Reopeners in contract
The City will list reopeners in new contract for:
-service level and policy changes
-program additions that require equipment, personnel changes or Other
impacts on PASCO
Bin revenue
Bin rental revenue split will remain at 95% to PASCO and 5% to the City.
CC:Glenn Roberts
Emily Harrison
Jim Steele
I~, r, en Gissibl
Steve Ford
Approved as to Content Date
Attachment: Formula for calculations for percent of rate payments.
Approved:
City Manager
Palo Alto Sanitation Company
Date
Date