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HomeMy WebLinkAboutStaff Report 244-06City of Palo Alto City Manager’s Report TO: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: PUBLIC WORKS JUNE 12, 2006 CMR:244:06 RECOMMENDATION TO APPROVE A MID-YEAR ADJUSTMENT IN THE AMOUNT OF $240,623 TO PALO ALTO SANITATION COMPANY’S COMPENSATION FOR INCREASED FUEL COST 8 RECOMMENDATION Staff recommends that Council approve a mid-year adjustment, as allowed in the current Palo Alto Sanitation Company ~ASCO) contract, in the amount of $240,623 for increased fuel cost. BACKGROUND In August 1999, Council approved a new agreement for Palo Alto Sanitation Company/Waste Management (PASCO) to provide refuse and recycling services within the City of Palo Alto starting September 1, 1999 for a term of up to ten years. The agreement was extended until June 30, 2009. The agreement establishes a process for annual compensation reviews and it includes provisions for adjusting the collector’s compensation during the budget process. The agreement also allows PASCO to request mid-year adjustments to its compensation. City staff has not recommended mid-year adjustment requests in the past. DISCUSSION Contract Section 4.4, Mid-Year Adjustments to Compensation, allows PASCO to request "special compensation review for extraordinary costs". This section states "at any time during a Contract Year, Collector may request an adjustment in compensation to cover increased or decreased expenses associated with performance of the Collector’s services under this Agreement due to any of the following causes; provided that the increase or decrease from any single cause is at least 15% and no less than $30,000 to any single approved Allowable Expense". The causes include a) force majeure; b) changes in law, statute, role, regulation, ordinance, order or requirement of any federal, state, regional or local government, which is directly and solely the cause of the increase or decrease; c) an increase in the volume of solid waste or other materials collected (except recyclable materials); and/or d) changes in or additions to services requested by City. On March 29, 2006, the Public Works Director received a letter from PASCO requesting for mid-year and budget adjustment to its compensation (Attachment A). PASCO’s requests include a mid-year adjustment of $447,024 to its compensation stating high expenses in the following allowable expenses: 1) trucks - fuel and environment - $262,463, 2) labor/benefits - $146,024, and 3) general liability insurance- $38,537. PASCO also requested other one-time adjustments CMR:244:06 Page 1 of 3 in the amount of $215,786 and adjustments to its FY 2006-07 proposed budget in the amount of $313,982. Mid Year Adjustment Request Staff reviewed PASCO’s requests and the PASCO 8-month financial statement of actual expenses projected to year-end, and determined that only one of PASCO’s allowable expenses meets the contract requirements for a mid-year adjustment. The PASCO adjustment request for fuel costs is the only expense that meets the requirement in Section 4.4.1. The line item was budgeted at $247,101 for fiscal year 2005-06, but is projected to be a year-end expense of $487,724, a variance of $240,623. This variance exceeds the contract requirements on line item increased expenses of at least 15 percent and more than the $30,000. The increase in fuel costs qualifies as a mid-year adjustment under Section 4.4.1 (a), force majeure. The significant increase in fuel cost is a result of price increases in coal, natural gas and oil affecting the entire country. The increase in fuel costs is an industry-wide and nationwide issue that is affecting everyone, including PASCO. Staff does not anticipate fuel prices to drop. Staff cannot recommend two of the three mid-year adjustments request because they did not meet the requirements of the contract section 4.4, Mid-Year Adjustments to Compensation. One Time Adiustment Requests The one-time adjustment requests do not meet any of the contract requirements for consideration of an adjustment for FY 2005-06. FY 2006-07 Budget Adiustment Requests PASCO’s FY 2006-07 budget adjustment requests did not qualify for an adjustment per the contract. PASCO needed to go outside its operating ratio in FY 2004-05 before a cooperative, good faith review of the Compensation Report could be considered. PASCO remained within the operating ratio in FY 2004-05, preventing consideration of iN issues raised for FY 2006-07. RESOURCE IMPACT The mid-year adjustment request for $240,623 to the PASCO FY 2005-06 compensation will not require additional funding from the Refuse Fund. The baseline line deficit for PASCO recycling revenues from the single stream program was less than originally anticipated, thus creating a savings to cover the $240,623 in requested additional expenses. The current PASCO compensation for FY 2005-06 is $9,307,531 (Attachment B) POLICY IMPLICATIONS This recommendation does not represent changes to existing City policies. ENVIRONMENTAL IMPACT This report is not a project under the California Environmental Quality Act (CEQA) and an environmental review is not necessary. ATTACHMENTS Attachment A: PASCO’s Request for a Mid-Year and Budget Adjustment to Compensation Attachment B: PASCO FY 2005-2006 Compensation ClVIR:244:06 Page 2 of 3 PREPARED BY: DEPARTMENT HEAD: CITY MANAGER APPROVAL: GLENN S. ROBERTS Director of Publie Wor ~ks EMIL~ON Assistant City Manager CMR:244:06 Page 3 of 3 March 29, 2006 PA, CO PALO ALTO SANITATION CO. A WASTE MANAGEMENT CO. Glenn Roberts Public Works Director City of Palo Alto P.O. Box 10250 Palo Alto, CA 94303 Re: Mid-Year and Budget Adjustments to Compensation Dear Glenr~ Thank you for taking the time to meet and give us the opportunity to share some of the issues facing the Palo Alto SanitationCo. (PASCO) in the current and upcoming fiscal years. Per your request, the following are detailed adjustments that PASCO is seeking, identified as either Mid-Year Adjustments to Compensation, One-Time Costs, or Fiscal Year 2006-07 Budget Adjustments. Mid-Year Adjustment to Compensation As discussed, we project PASCO’s expenses will exceed the budget and not allow PASCO to meet the Contract-required Operating Ratio (OR) Target of 88% for the current Fiscal Year. Based on the financial actuals of the first eight months of this Fiscal Year (July-February), we are curreiafly running at an OR of 96.39%, well out of the Target OR Range of 86%-90% required by the Contract. Forecasting for the entire Fiscal Year, using the current run rate, we anticipate an OR of 97.18%. As such, we are requesting a Mid-Year Adjustment to our compensation of $447,024, per section 4.4, and Special Compensation Review for Extraordinary Costs, per Section 4.4.1. While there are many contributing factors to these expenses, there are three significant ones that meet the requirements of asking for a Mid-Year Adjustment (an increase of at least 15% and no less than $30,000 to any single allowable expense). They are 1) Trucks - Fuel & Environment, 2) Labor - Benefits, and 3) Insurance - General ~ability. 1.) The increase in fuel expense is a result of the significant rise in the overall cost of fuel experienced throughout the country, the redirected roll-off loads to the Sunny-vale SMART Station for six months, and necessary second loads for the residential compost routes due to increase in participation and tonnage collected through the new program. 2.) The increase in Labor - Benefits was calculated by allocating costs by departmenL As discussed in our meeting, the fact that the Labor line represents all of PASCCYs labor, it "PASCO SAM," A NEAT GARBAGE MAN 20..00 GENG ROAD ° PALO ALTO, CALIFORNIA 94303 ° (650) 493-4894 ° FAX (650) 493-2537 PASCO Page 2 is virtually impossible to ever meet the 15% cost increase threshold requirement of the Mid- Year Adjustment. The increase in direct labor benefits is a direct result of increased Heath & Welfare costs and vacation seniority. The chart below shows all direct labor expenses. Direct Labor Direct Labor Wages Direct Labor Supplement Direct Labor Benefits Dire~ Labor Payroll Taxes Budget :05-06 $2,082,806 $568,449 8-Mditth Actuai $1,451,888 $557,685 $173,452 Forecast "05-06 -.V axial_ e - $2,082,806 $95,026 ~614A70 ~5,721 $836~27 $146,024 $260,178 $23,668 3.) Increases .in general liability costs, as I’m sure you are aware,.are impacting everyone across the board and are not unique to PASCO. It should be noted that even with these mid-year adjustments, we anticipate still dosing the current year outside of the OR range. Please refer to the chart below detailing an overall analysis of the expenses. " " Mid-Year Adjustment Items Truck - Fuel & Environment Labor - Benefits Total Compensation Overall Operating Ratio Tetal Adjustment Requested $9,,307.531 $557,685 $40,258 $5,911,521 $6,133,145 96.39%97.18% $262,463 $146,024 $38.537 $447,O24 One-Time Items PASCO is requesting an adjustment of $215,786 for one-time, unbudgeted costs associatL~l with changes in services requested by City staff. These one-time costs include cart deliveries and roll-off boxes redirected to the SMART Statior~ ¯Cart Deliveries Throughout the planning and roll-out of the new single-stream program, our objective was to make the transition as seamless as possible. As part of our partnership with the City, PASCO went above and beyond the required responsibilities several times to guarantee its success. One such area was the redirecting of two employees to correct errors made by the City-retained delivery crew for a period of three months. PASCO did this in addition to the required "shadowing" of the delivery crews. Our calculations are PASCO Page 3 based on labor for the three-month period (2 employees x .$30~00/hour x 40 hours x 4.33 weeks x 3 months.) Cost of Program: $31,176 ¯Roll-Off Boxes to SMART While the City has directed PASCO to redirect roll-off boxes to the Sunnyvale SMART Station in the past, it has historically only been for short periods of time, averaging one to two months. This Fiscal Year, however, PASCO was directed by Staff to do so for a significantly longer period. While PASCO has always fulfilled the City’s request with no additional compensation, the six-month duration this year is resulting in a significant impact to our expenses. Had weknown that the City had planned to have the roll-off boxes diverted to the SMART Station for this length of time, PASCO would have requested, that the service be appropriately budgeted during the previous budgeting process. Our calculations are based on the current rate of 20 boxes per day, resulting in an additional 30 minutes of labor, travel time, and equipment costs p~er load as opposed to going directly to the PaIo Alto Landfill (30 minutes/load x SZ85/minute x 20 boxes x 5 days x 4.33 weeks x 6 months.) Please note, the cost of fuel ($37,819) has been deducted from this calculation since it is induded in the Mid-Year Adjustment request for fuel Cost of Program: $184,610 Fiscal Year 2006-07 Budget Adjustments Through every budgeting process with the City, PASCO has striven to ensure that the budget is a true reflection of the programs. We take this process very seriously to ensure that there are no misconceptions that we are not managing our expenses or budgeting appropriately. Any significant changes to the existing services provided have an impact, and we would like the upcoming budget to reflect these impacts. PASCO would like the following two items to be included in the FY 2006-07 budget. ¯Roll-Off Boxes to SMART PASCO, again, is not questioning the City’s right to redirect loads to the SMART Station; however, we feel it is prudent to budget appropriately. At our meeting City staff dearly stated their intention is to maximize the redirection even more over time As always, PASCO will continue to try operate as efficiently as possible to minimize impacts. Our calculations are based on the current rate of 20 boxes per day, resulting in an additional 30 minutes of labor, travel time, equipment usage per load as opposed to going PASCO Page 4 directly to the Palo Alto Landfill (30 minutes/load x $2_85/minute x 20 boxes x 5 dayh x 4.33 weeks x 6 months) Please no~e, the cost of the program is calculak:~l for 6 months based on the current year’s requirements. Cost of Program: $~,129 ¯Scat Services During the roll-out of the single-stream program, PASCO brought to the attention of Staff that the new residential programs would require all residents to comply with the set out guidelines, due to the new equipment and containers. Ih-imarily this was directed at residents west of Interstate 280 and other identified hard-to-service areas. Per Section 2_3.1 Solid Waste Services Provided of the Contract, in those instances of "backyard collection" of solid waste for residences west of 1-280 that "require Collector’spersonnel to walk in more than twenty-five (~.~) feet, collection shall be curbside unless the Customer agrees to pay an extra charge, at a rate established by City." Most of these residents have driveways that are 100 to several hundred feet long. .. Staff was in agreement with requiring residents to comply with the set out guidelines, and PASCO sent letters in January 2005 to the impacted residents notifying them that they would need to relocate their containers or face an additional fee starting July 1, 2005. ~ further discussion, PASCO agreed to continue to provide the service without any extra Charges, enabling Staff to take the issue before the City Council to determine how they would like to proceed. To perform this special service, PASCO identified the vehicle needed to .provide the service and submitted the required purchasing :paperwork for City approval Because the vehicle was being specially designed for PASCO, some of the additional information required by the City was unknown until the completion of the manufacturing. The City would not officially approve the purchase without this information, yet we would .not have the information until it was purchased, putting PASCO "m the challenging position of continuing to provide a service at the City’s direction without the needed equipment_ In addition, PASCO’s focus has always been to provide our service with the utmost regard for the safety of our employees and our customers. Not having the appropriate collection vehicle for this special service posed a great risk to the safety of our drivers. PASCO has re-analyzed the associated costs for continuing this service since our initial request to have this service budgeted. At the City’s direction, PASCO will utilize a scat collection vehicle for residents west of 1-280 and other hard-to-service areas within Palo Altb. This requires the Scat truc_k for accessing the narrow driveways, with a regular collection vehicle staged on a main roadway to empty the scat truck’s container. The cost is calculated utilizing the $3.68 residential per minute charge bas_~., on one rot~.te per week. PASCO Page 5 Should the City deny this adjustment, PASCO will follo.w [he Contract guidelines requiring residents to place their containers within 25 feet s~_~dng July 1, 2006. Exceptions will of course be made for those with physical restrictions. ($3.68/minute x 60 minutes x 8 hours x 52 weeks). Cost of Program: $91,853 PASCO values its partnership with the City, and we have always striven to take the course of action that best serves and meets its needs and those of our customers. Our ~tention is not; nor has it ever been, to "nickel and dime" the City of Palo Alto. We hope that these requests will be considered for what they are, a diligent effort by us to maint~tin the Contract requirement of meeling the OR, and for us to plan appropriately for the years ahead. Thank you again for t~rking the time to meet with us, and in reviewing these requests. Please do not hesitate to contact me should you require additional information. District Manager CC:Michael Jackson, COPA Russ Reiserer, COPA Paula Borges, COPA Dean Kattler, WM Monica Devincenzi, PASCO Attachment B 2005-06 Proposed Budget using the Operating Ratio (OR) Formula: Expenses subject to OR Less: Recycling Center labor savings Less: CNG fuel savings New Services Total Expenses Operating Margin Pass-through expenses Total 8,108,464 (93,000) (21,840) 52,678 8,046,302 1,097,223 164,006 9,307,531 PASCO Direct Revenues: Less: Recycling Revenues Less: Other Revenues Less: Fees to the City for revenue sharing Total Payments to PASCO Total Compensation based on OR - Full year 1,145,949 1,067,508 (704,167) 1,509,290 7,798,241.00 9,307,531.00 Monthly Payments to PASCO (July 2005 - June 2006)649,853.42 5/16/2006