HomeMy WebLinkAboutStaff Report 281-10TO: HONORABLE CITY COUNCIL
FINANCE COMMITTEE
FROM: CITY MANAGER DEPARTMENT: PUBLIC WORKS
DATE: JUNE 14, 2010 CMR:281:10
REPORT TYPE: INFORMATION
SUBJECT: UPDATE ON REFUSE RATE INCREASE
BACKGROUND
At the May 27, 2010 Finance Committee Meeting, staff provided an update of information
originally presented on April 6, 2010 (CMR: 195:10) on the status of the Refuse Fund and the
need for a rate increase. Staff proposed a rate increase to ensure that the Refuse Fund has
adequate funding for the closure of Palo Alto landfill, as required by the State. Currently the
funding exists, but given the severe decline in revenues, a rate increase and/or adjustment in
expenses is necessary to ensure the City has $6.1 million available for the landfill closure at the
end ofFY 2011.
The Finance Committee directed staff to provide further information on the status of the Refuse
Fund and the need for a rate increase. Staff was asked to provide an update on the comparison of
Palo Alto's refuse rates with those of other jurisdictions; further analysis on the effect of Zero
. Waste programs and the downturn of the economy on Palo Alto tonnages and revenue;
information on changes in tonnages disposed and revenue collected by neighboring jurisdictions
including the partner cities that use the SMaRT Station; a breakdown between residential and
non-residential rates; and proposed reductions in expenses in the Refuse Fund.
DISCUSSION
To summarize information presented to the Finance Committee previously, the Refuse Fund has
experienced an unprecedented shortfall of revenue for the FY 2009-2010. Revenues are
projected to be $8.1 million less than budgeted for the year. The following table provides a list of
the revenue shortfalls by category, and the complete May 27, 2010 presentation outlining the
status of the Refuse Fund is included in Attachment A.
CMR:281:10 Page 1 of6
'-<"'-''~,'"-':~, :>:,','c-: -' rO.lec e .~evenne .0 8-
Revenue Category Reduction in $ % Reduction
Residential ($222,288) 3.04%
Commercial ($4,714,995) 23.91%
Industrial ($1,560,971) 47.64%
City Facilities ($169,296) 19.59%
Debris Boxes ($600,000) 42.86%
PA Landfill ($524,956) 35%
Other Revenue ($402,488) 31%
Total Reduction ($8,194,994) 22.1%
As part of regular program oversight, Public Works staff collects, verifies, and monitors solid
waste, recycling, yard trimmings, and compostables tonnage data:. Staff also monitors monthly
revenue collection and expenses. To gain a broader perspective on trends observed in the Palo
Alto program, staff has collected and compiled information from the Cities of Sunnyvale,
Mountain View, Santa Clara, and San Jose. This information includes changes in the amount of
solid waste tonnage that has been collected over the last three fiscal years, and is summarized in
the table below.
Palo Alto
Santa Clara
Mountain View
Sunnyvale
San Jose
Change in Total Garbage Tonnages, by City
Change Change"Chang~ 07-Q.8 .
FY07-08 FY08-09 FY09-10 07-08 to 08-09 08-09 to 09-10 ,'<to 09.;10
63,325 56,427 35,425 (10.9%) (37.2%) ,l,.' (44~1%)<:
65,147 59,546 57,000 (8.6%) J4.3%} :'. ,. (12.5%)::
75,974 53,043 51,137 (30.2%) J3.6%} "","':(327%)' .••.• ,., ':", : .. , ", 0 I,
95,586 85,288 94,529 (10.8%) 10.8% ;,'>;;(1.1%)
452,836 391,935 393,000 (13.4%) 0.3% :-,(13~2%) .'
Across the board, jurisdictions in the bay area, and California at large, have seen decreases in'
total garbage tonnages being sent to landfills. The cities interviewed by staff attributed the
decline in tonnages largely to the economy, since no new major recycling program changes have
been initiated in these jurisdictions. And they have observed commercial customers downsizing
their services and a significant drop in construction and demolition debris box customers. As an
example, Mountain View commercial tonnages are down 10% and Sunnyvale's tonnages are
down 5%. Their debris box tonnages are down significantly as well. Mountain View's tonnage
has decreased by 56% and Sunnyvale's is down 16%. To counter the decrease in revenue due to
the decline in tonnages, Santa Clara, Mountain View, and Sunnyvale have all approved rate
increases for FY 2010-2011 (5%,8%, and 7.5% respectively).
For the City of Palo Alto, while the economy has certainly played an important role contributing
to the reduction of garbage tonnages and revenues for FY 2009-2010, two other influences are
also of importance. The first is the ban on commercial material at the Palo Alto Landfill. From
FY 2008-2009 to FY 2009-2010, tonnages have decreased 57% at the landfill, from 11,616 tons
per year, to 5,027 (projected) for this fiscal year. When the commercial customer ban at the
landfill went into place, staff initially estimated a reduction in revenue of $1 million dollars;
CMR:281:10 Page 2 of6
however the operation is realizing an additional $524,000 loss in revenue this fiscal year for a
total decline of $ 1,524,000.
The second influence, while contributing to a reduction in revenue, is a positive result of the
Zero Waste programs the City has embraced. The beginning of FY 2009-2010 brought the
implementation of new Zero Waste services provided by GreenWaste of Palo Alto, in particular
compostables (food scraps) collection from commercial customers. Of the garbage tonnage
collected by GreenWaste and delivered to the SMaRT Station, there has been a 32% decrease
(14,413 tons) in material this fiscal year (see table below). However, the City projects to capture
just over 10,000 tons of compost abies material by the end of the fiscal year. This is material
directly diverted from the garbage material stream to be composted into soil amendment.
Roughly 70% of the decrease in tonnages to the SMaRT Station can be attributed to the
commercial compostables collection program. The remaining 30% decrease is attributed to the
economic slowdown. While the decrease in tonnages associated with the economic downturn is
expected to rebound over the next several years (and are reflected in revenue forecasts), any
'garbage' tonnages now captured through compostables or recycling collection are treated as
permanently removed from the waste stream for future tonnage and revenue projections.
ao 0 ar age PIAItG b T onnage
Facility FY 2008-2009 Tons FY 2009-2010 Tons % Decrease
SMaRT Station 44,811 30,398 32%
PA Landfill 11,616 5,027 57%
Total 56,427 35,425 37%
Staff conducts an annual review of current and proposed rates of jurisdictions in the south bay
area and presents this information as part of any rate increase proposal. As mentioned earlier,
several neighboring cities have approved rate increases for FY 2010-2011. The April 6, 2010
(CMR: 195:10) staff report included a list of selected cities and their rates for 20 gallon and 32
gallon service. The following two tables update that information.
20 Gallon Single Family Rates, by City
Jurisdiction FY 2009-2010 Rate FY 2010-2011 Rate (if
different)
San Jose $25.90 -
Los Altos Hills $24.20 -
Palo Alto $15.00 TBD
Campbell $15.00 -
Santa Clara $12.65 $13.28
Mountain View $11.95 $12.90
CMR:281:10 Page 3 of6
32 Gallon Single FaniilyRatesfby,(!}ity~5;'''->~;>~''''':~'":
Jurisdiction FY 2009-2010 Rate FY 2010-2011 Rate (if
different)
Los Altos Hills $33.77 -
Palo Alto $31.00 TBD
San Jose $27.50 -
Sunnyvale $26.70 $28.70
Campbell $19.58 -
Santa Clara $18.00 $18.90
Mountain View $17.55 $18.95
While staff surveys surrounding jurisdictions every year to compare Palo Alto's single family
rates with other communities, direct comparisons are difficult to make. The expenses covered by
refuse rates vary widely from city to city, due to a variety of factors including what enterprise
funds pay for services such as street sweeping, how administrative costs are applied, whether
payments are made to the General Fund, and whether the city operates any of its own facilities.
This year, staff asked for more detailed information from a selection of surveyed cities to begin
to delineate the similarities and differences of what programs and services are included in refuse
rates. The methodology for how each city tracks expenses creates a challenge to compare every
line item directly, however, the table below makes a rough comparison of Palo Alto to Mountain
View, Sunnyvale, Santa Clara, and San Jose.
Program Expenses, by City
Mountain Santa San
Expense P I AI ao to V" S lew unnyva e CI J ara ose
Solid waste/recycling collection services
(ie, hauler) 38.8% 49.5% 45.2% 95.0% 72.1%
Landfill operations/maintenance 9.8% 10.0% 6.4%
Capital projects 4.6% 2.0% 1.3% 4.1%
Street sweeping 5.7% 2.0% 4.0% 0.8%
City operations 4.0% 5.9% 3.8%
SMaRT expense (includes disposal) 14.5% 28.5% 30.6% n/a n/a
Admin/overhead 8.4% 3.5% 6.9% 6.3%
Equipment Replacement Fund 0.5%
Debt Service/Loan payments 8.0%
Land Rent 11.9% 2.0%
HHW 1.9% 0.04%
Other 3.0% 0.05% 5.3%
Permitting/enforcement 1.5%
Staff also compiles historical financial data and annually forecasts revenue and expenses for a 10
year period as part of the budget process. Rate scenarios presented to the Finance Committee are
based on the most up to date actual financial data available. As part of the additional analysis
being conducted by Public Works to return to Finance Committee on July 6, 2010, staff is
updating how expenses are allocated to both residential and non-residential customers and the
impact of potential rate increases on each of these categories of customers. This additional
CMR:281:10 Page 4 of6
analysis will contain a focused proposal for bridging the short term revenue deficit rather than an
across the board rate increase. For -example, staff may recommend different increases for
residential and commercial customers based on the allocation of expenses. The analysis will .
contain a proposal for retaining an adequately funded landfill closure reserve as prescribed by the
State. The proposal will also include proposed reductions in landfill and street sweeping services
to decrease expenses for the Refuse Fund. In addition, staff is continuing to move forward on a
comprehensive cost of service study which should begin in August 2010. The RFP for the study
was released on June 1, 2010. The results of the cost of service study will likely result in a
revised, or new, rate structure to be considered by the Finance Committee during FY 2010-2011.
Timeline for Proposition 218 Noticing
If the Finance Committee approves the recommended rate increase on July 6, 2010, customers
will be sent a letter, per Proposition 218 noticing requirements, outlining the proposed rate
increase and including a copy of the proposed rate schedule, information on how to communicate
with the City about the rates, and the date of the City Council Hearing regarding the rates. The
hearing may be held no earlier than 45 days after the letter is sent to the customers.
Staff anticipates sending the Proposition 218 letter to customers the week of July 12,2010 and to
schedule the City Council Hearing in early September 2010. If the rate increase is approved, it
would take effect October 1,2010. This start date for new rates will be incorporated into the rate
analysis and recommendation.
RESOURCE IMPACT
Resource impacts will be addressed with the proposed rate increase at the July 6, 2010 meeting.
POLICY IMPLICATIONS
Proposition 218
The recommended refuse rate increase is subject to the notice and protest hearing procedures of
Proposition 218. In the event that a refuse rate increase is approved, the City will conduct the
refuse rate increase procedures in accordance with those requirements. Pursuant to Proposition
218, the City must provide written notice of any new or increased refuse utility fee to those
subject to the proposed fee. A public hearing on the new or increased fee must be held not less
than 45 days after mailing the written notice. If written protests against the proposed fee are
presented by a majority of those subject to the fee, the City may not impose the fee.
ENVIRONMENTAL REVIEW
An increase in rates to meet financial reserve needs and operating expenses is not subject to
California Environmental Quality Act (CEQA), pursuant to California Public Resources Code
section 21080(b)(8) and Title 14 of the California Code of Regulations section 15273(a)(1) and
(3).
ATTACHMENTS
Attachment A: Summary of Refuse Fund Budget
CMR:281:10 Page 5 of6
PREPARED BY:
DEPARTMENT HEAD:
CITY MANAGER APPROVAL:
CMR:281:10
Director of Public Works
c.. :-P~LD .t1±tp \~JAMES KEENE
City Manager
Page 6 of6
ATTACHMENT A
Proposed Budget FY 2011
Public Works Department -Refuse Fund
Statement of Net Assets as of June 30, 2009 -(OOOs)
Assets
. Cash
Capital Assets
Other Assets
Total Assets
Liabilities
Landfill CiosurejPostciosure
Other Liabilities
Total Liabilities
$9,499
3,975
3,122
$10,991
803
Invested in Capital Assets $3,975
Rate Stabilization Reserve· ($2,844)
Committed CIP Reapprop. 3,671
Unrestricted 827
Total Net Assets
$16,596
$11,794
$4,802
Proposed Budget FY 2011
Public Works Department -Refuse Fund
Refuse Fund-Change in Net Assets (Revenues less Expenses)
FY
2004!
2005,
2006
2007
2008
2009
2010
Budget
(3,193,175.00)
(3,762,753.00)
(155,066.00):
(295,250.00)
(1,214,280.00)
(1,348,648.00)
588,286.00
Actual
(3,005,051.00)
(1,220,766.00),
(2,669,003.00)
565,595.00 ,
(171,093.00)
(5,410,646.00)
(4,239,564.00)
Note: FY 2010 actual amounts are projected
-------.. --.---~
Variance
188,124.00
2,541,987.00
(2,513,937.00)
860,845.00
1,043,187.00
(4,061,998.00)
(4,827,850.00)
1
2
Proposed Budget FY 2011
Public Works Department -Refuse Fund
Refuse Fund-Rate Stabilization Reserve and Cash Year-end Balances
FY RSR
2004 6,135,000.00
2005 3,842,000.00
2006 3,099,000.00
2007 4,414,000.00
2008 3,832,000.00
2009 (2,844,000.00)
2010 (7,084,000.00)
Cash
13,103,000.00
11,609,000.00
9,189,000.00
10,625,000.00
11,825,000.00
9,499,000.00
6,600,000.00 Cash balance of $7.0 million at 5/27/2010
Note: FY 2010 actual amounts are projected
---.. _ .... _ .. -----._ .. _.-
Proposed Budget FY 2011
Department Changes -Operating
Public Works Department -Refuse Fund
FY 2011 Changes
3
• Revenue decrease -($7.2 million)
• Rate changes pending rate analysis Fall 2010
• Increase Operating Transfer from Wastewater Collection Fund $0.4 million
• Expense decrease -Changed from Proposed '$0.5 million)
• Decrease Waste Hauling Contract-GreenWaste ($1.0 million)
• Increase Capital Improvement Program $1.7 million
• Increase Operating Transfer to Technology Fund $0.1 million
• Decrease Operating Transfer to General Fund ($0.1 million)
• Decrease various non-salary expenses ($0.6 million)
• Citywide Changes 303000
• Personnel Benefits Costs decrease
• Allocated Charges decrease
Total FY 2011 Proposed expenses exceed revenues by $6.2 million
----....... _----_ .. .
4
Proposed Budget FY 2011
Department Highlights -Capital
Public Works Department -Refuse Fund
Capital Improvement Program
• FY ~Oll Expenditures -$1.65 million
• RF-ll00l Landfill Closure $600,000
• RF-l0003 Drying Beds, Material Storage,
and Transfer Area
• RF-l0002 Flare Relocation Project
$750,000
$300,000
-----.. _----_._----
5
Proposed Budget FY 2011
Department Changes -Operating
Public Works Department -Refuse Fund
Projected Cash as of June 30, 2010 $6.6 Million
FY 2011 Proposed Budget (6.2 Million)
(Excess of expenses over revenues)
Projected Cash as of June 30, 2011
Landfill Closure Liability -
$ 400,000*
$6.1 Million
*The State Government Code requires that the City
provide financial assurance for the landfill closure/post
closure costs
6
2011 PROPOSED REFUSE FUND REVENUE
REVENUES PROPOSED % BUDGET
Customer Sales (Greenwaste) 26,138,936 87.43%
Utility Fees (includes landfill revenues) 1,856,000 6.21%
Reimbursements/Transfers In 1,007,788 3.37%
Landfill charges to City Depts 390,000 1.30%
Investment Income 300,600 1.01%
Service FeeslPermitslLicenses 144,500 0.48%
Royalty Payments 60,000 0.20%
TOTAL 29,897,824
---.. -.. -~.--.-.. --.-------.--
7
2011 PROPOSED REFUSE FUND EXPENSES
EXPENSES PROPOSED % BUDGET
GreenWaste Agreement 14,000,000 38.79%
SMaRT Station & Kirby Canyon Agreements 5,223,909 14.47%
Landfill Rent 4,288,747 11.88%
Landfill Operations 3,529,135 9.78%
Admin! Allocated Charges 3,033,431 8.40%
Street Sweeping 2,057,399 5.70%
Capital Projects 1,650,000 4.57%
Zero Waste 1,092,744 3.03%
HHW 671,606 1.86%
PermittinglEnforcement 547,751 1.52%
TOTAL 36,094,722
._. -
8
FY 2010 PROJECTED REFUSE FUND REVENUE
SHORTFALL
Revenue Category Reduction in $ % Reduction
Residential ($222,288) 3.04%
Commercial ($4,714,995) 23.91%
Industrial ($1,560,971) 47.64%
City Facilities ($169,296) 19.59%
Debris Boxes ($600,000) 42.86%
P A Landfill (at gate) ($524,956) 35.00%
Other Revenue ($402,488) 31.00%
Total Reduction in Projected Revenue ($8,194,994) 22.10%
-----,-------.--~----.---~---------_ .. -_.-. -_.-----------------
REASONS FOR SHORTFALL
o Economic downturn -commercial and
industrial businesses closing or reducing . servIce
o Economic downturn -less residential and'
commercial construction
o Commercial garbage ban at landfill
o Implementation of commercial organic
collection services >
9
10
GARBAGE TONNAGE REDUCTIONS
2010 % Reduction
Calendar Year: 2008 2009 (est.) 2008 to 2010
Landfill 16,478 6,403 4,083 75.22%
SMaRT Station
Residential 9,063 9,543 9,059 0.04%
Commercial/Industri
al 25,509 18,681 14,097 44.74%
Debris Box 12 1 275 8 1 443 6 1 542 46.70%
Total Tons 63 1325 43 1070 33 1 781 46.65%
-----~--~-~----------------------------------
11
RATE INCREASE SCENARIO 1
Rate Increase 8% 17% 5% 0%
FY2010
Projected FY2011 FY2012 FY 2013 FY 2014
Revenue $28,888,129 $31,959,739 $36,547,404 $37,617,229 $37,367,229
Expenses $33,127,693 $36,094,722 $34,666,640 $31,985,247 $31,185,375
Change in Net
Assets ($4,239,564) ($4,134,983 ) $1,880,763 $5,631,983 $6,181,855
Rate Stabilization
Reserve ($7,083,967) ($6,069,453 ) ($4,063,690) $1,736,948 $8,087,457
Landfill Closure/
Post-closure $11,124,497 $6,100,000 $6,100,000 $6,100,000 $0
--
12
RATE INCREASE SCENARIO 2 .
Rate Increase 10% 15% 5% 0%
FY 2010
Projected FY2011 FY 2012 FY 2013 FY 2014
Revenue $28,888,129 $32,475,218 $36,559,067 $37,629,476 $37,379,476
Expenses $33,127,693 $36,094,722 $34,666,640 $31,985,247 $31,185,375
Change in Net
Assets ($4,239,564) ($3,619,504) $1,892,427 $5,644,229 $6,194,101
RateStabilization
Reserve ($7,083,967) ($5,553,974) ($3,536,547) $2,276,337 $8,639,093
LandfillClosure/
Post-closure $11,124,497 $6-,100,000. .. $6,100,000 ..... $§,] 00,000 $0 _._ ....
13
RATE INCREASE SCENARIO 3
Rate Increase 25% 0% 0% 0%
FY2010
Projected FY2011 FY 2012 FY2013 FY2014
Revenue $28,888,129 $36,341,308 $35,989,308 $35,359,308 $35,109,308
Expenses $33,127,693 $36,094,722 $34,666,640 $31,985,247 $31,185,375
Change in Net
Assets ($4,239,564) $246,586 $1,322,668 $3,374,061 $3,923,933
Rate stabilization
Reserve ($7,083,967) ($1,687,884) ($240,216) $3,302,500 $7,395,088
Landfill Closure/
Post-closure $11,124,497 $6,100,000 $6,100,000 $6,100,000 $0
14
Proposed Budget FY 2011
o Questions
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