HomeMy WebLinkAboutStaff Report 325-06City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: PUBLIC WORKS
DATE:AUGUST 7, 2006 CMR:325:06
SUBJECT:DENIAL OF THE PALO ALTO SANITATION COMPANY’S MID-YEAR
ADJUSTMENT REQUESTS TO COMPENSATION
This is an informational report and no Council action is required.
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 on September 1, 1999 for a term of up to ten years. The agreement has been 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. 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, rule, 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.
DISCUSSION
The Public Works Director received a letter from PASCO, dated March 29, 2006, requesting
adjustments to its compensation (Attachment A). PASCO’s requests included a mid-year
adjustment of $447,024 for expenses in the following allowable expenses: 1) trucks - fuel and
environment - $26;2,463, 2) labor/benefits- $146,024, and 3) general liability insurance -
$38,537. PASCO also requested $215,786 in other one-time adjustments and $313,982 in
adjustments to its FY 2006-07 proposed budget.
Mid Year Adjustment Request
Staff reviewed PASCO’s requests and its 8-month financial statement of actual expenses
projected to year-end. Only fuel cost increases exceeded the mid-year requirements on increased
CMR:325:06 Page 1 of 2
expenses on line items of at least 15 percent and more than the $30,000. PASCO,s fuel costs
were budgeted at $247,101 for fiscal year 2005-06, but are projected to be at a year-end expense
of $487,724, a variance of $240,623 or 49.3 percent. However, the City Attorney’s office
researched the issue and advised that the PASCO higher-than-anticipated fuel costs did not
qualify under the force majeure clause or any other mid-year adjustment provisions specified in
the contract. Consequently, all of PASCO’s mid-year adjustment requests were denied. PASCO
applied for one other mid-year adjustment in previous years and it was denied by City staff
PASCO has since expressed disagreement with the decision and frustration at not recovering its
increased expenses and have stated that the intent of the contract Section 4.4.1. was to
compensate the collector for unforeseen and uncontrollable events such as high fuel costs. City
staff is concerned that this disagreement could influence the existing business partnership with
PASCO and the good faith cooperation that PASCO has provided during service and budget
negotiations, and consequently is providing this information to Council.
One Time Adjustment Requests
The one-time adjustment requests did. not
consideration of an adjustment for FY 2005-06.
meet any of the contract requirements for
FY 2006-07 Budget Adjustment 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 its issues raised for FY 2006-07.
POLICY IMPLICATIONS
This report 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 Mid-Year and Budget Adjustments to Compensation
ka.~~j)~l’o~, t~ ~ ....
EX "ve Assi nt
GLENN S. ROBERTS
Director of Public
CITY MANAGER APPROVAL :~:::::~ d(7~ ~ _,( ;~
Assistant City Manager
CMR:325:06 Page 2 of 2
March 29, 2006
ATTACHMENT A PA CO
PALO ALTO SANITATION CO.
A WASTE MANAGEMENTCO.
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 Glenn:
Thank you for taking the time to meet and give us the opportunity to share some of the issues
facing the Palo Alto Sanitation-Co. (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 currently 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 9Z18%. 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 centributing 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 Liability.
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 Sunnyvale 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 department. As
discussed in our meeting, the fact that the Labor line represents all of PASCO’s labor, it
"PASCO SAM," A NEAT GARBAGE MAN
2000 GENG ROAD -" PALO ALTO, CALIFORNIA 94303
\,
o (650) 493-4894 o 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 indirect labor benefits is a direct result of increased Heath &
Welfare costs and vacation seniority. The chart below shows all direct labor expenses.
Direct Labor
,Item ¯
Direct Labor Wages
Direct,Labor Supplement
Direct Labor Benefits
Direct Labor Payroll Taxes
" Budget’05 ,-06
$2,o82,806
$568,449
$236,511
8-Month Actual
$1.451,888
$409,446
$557.685
$173,452
Forecast "05-O6
$614,170
$836.527
$260.178
$95,026
$45,721
$146,024
$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 closing the
current year outside of the OR range. Please refer to the chart below detailing an overall
analysis of the expenses.
Labor - Benefits
Insurance - General Liability
Total Expenses
Total Compensation
Overall Operating Ratio
Total Adjustment Requested
Mid-Year Adjustment Items
$225,261
$690,504
$21,849
$8,210,308
$9,307.531
88%
8~M0nth~
$325,149
$557,685
$443,258
$5,911,521
$6,~33,~45
96.39%
F0tecast’05:06
$487,724
$836,527
$60,387
$8,867,282
$9,124,936
97.18%
$262,463
$146,024
$38,537
$447,024
One-Time Items
PASCO is requesting an adjustment of $215,786 for one-time, unbudgeted costs associated
with changes in services requested by City staff. These one-time costs include cart deliveries
and roll-off boxes redirected to the SMART Station.
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 Fisca! 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 we known 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 per load as opposed to
going directly to the Palo Alto Landfill (30 minutes/load x $Z85/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 included 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 clearly
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
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directly to the Palo Alto Landfill (30 minutes/load x $2.85/minute x 20 boxes x 5 days x
4.33 weeks x 6 months) Please note, the cost of the program is calculated for 6 months
based on the current year’s requirements.
Cost of Program: $222,129
o Scat Services
During the roll-out of the single-stream program, PASCO brought to the kattention 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. Primarily 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 (25) 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.
After 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 in the challenging position
of continuing to provide a service at the City’s direction without the needed equipmenL
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
Alto. This requires the Scat truck 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 based on one route per
week.
PASCO
Page 5
Should the City deny this adjustment, PASCO will follow the Contract guidelines
requiring residents to place their containers within 25 feet starting 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 intention 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 maintain the Contract
requirement of meeting the OR, and for us to plan appropriately for the years ahead.
Thank you again for taking 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