HomeMy WebLinkAbout041712-F-2706-Refuse-Cost-of-Service-Study
City of Palo Alto (ID # 2706)
Finance Committee Staff Report
Report Type: Informational Items Meeting Date: 4/17/2012
April 17, 2012 Page 1 of 3
(ID # 2706)
Summary Title: FY 2013 Refuse Rate Increase
Title: Recommended Refuse Residential Rate Increase Effective Fiscal Year 2013
From: City Manager
Lead Department: Public Works
Recommendation
Staff recommends that, the Finance Committee recommend to Council that effective FY
2013, 1) residential refuse rates be increased to the following monthly amounts:
$23.69 for minican, $41.54 for 32-gallon, $77.74 for 64-gallon, $111.66 for 96-gallon,
and $140.30 for 128-gallon and 2) that commercial refuse rates not be increased.
Executive Summary
This report provides the Finance Committee with staff’s recommendations for the
increases for residential refuse rates effective FY 2013. The recommendations are
based on Finance Committee’s direction to staff at the March 6, 2012 Finance
Committee meeting. The recommended rate increases are based on the results of the
recent refuse cost of service study, and implement fixed rates for Street Sweeping
service, Household Hazardous Waste service, and the Annual Clean-up Day service that
were developed by the study.
Background
At the March 6, 2012 Finance Committee (see Attachment B for meeting minutes), staff
presented the most current results of the Refuse Cost of Service Study. The cost of
service study identified a projected imbalance between the residential and commercial
sectors of ratepayers, in which residential revenues are less than expenses while
commercial revenues are greater than expenses. Staff recommended that this sector
imbalance be corrected using a three-year, phased approach in which residential rates
would be increased each year until residential revenues were equal to residential
expenses. Staff also recommended that the increase for each of the three years consist
of a combination of a fixed and variable increase, where the fixed and variable increase
would each generate approximately one-half of the revenue needed. The approximate
rate increases for each garbage can size resulting from this approach for FY 2013 were
provided in an attachment to Staff Report No. 2409 (Attachment A), where they were
labeled “Option 8”.
April 17, 2012 Page 2 of 3
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The Finance Committee directed staff to increase residential rates for FY 2013 by
adding the fixed costs developed by the cost of service model for Household Hazardous
Waste service and the Annual Clean-up Day service, and increasing the existing
residential fixed monthly charge to equal the fixed cost developed by the cost of service
model for Street Sweeping service. The Finance Committee additionally directed that
the increase under this approach for any garbage can size should not exceed the FY
2013 rate shown in the “Option 8” attachment. Staff’s interpretation of the Finance
Committee’s direction is that each garbage can size should have a fixed increase
consisting of the fixed costs described above, but that the minican and 32-gallon
variable rates should be reduced so that the total increase for those sizes does not
exceed the increase that was shown under “Option 8”.
Discussion
In FY 2012, City Council approved a fixed refuse rate of $4.62 per month for all
residential customers. This approach of using a fixed rate increase instead of a
percentage increase to the existing rates was intended to ensure that the projected
revenue increase would be realized and to raise rates for smaller garbage can sizes by a
higher effective percentage than those for larger sizes to begin moving smaller cans
into fuller cost recovery. The $4.62 per month rate was not related to a specific
service, but was calculated based on revenue needs for FY 2012.
The recommended increase to residential refuse rates for FY 2013 is the first in a three-
year program of increases that will eliminate the projected imbalance between the
residential and commercial sectors. The recommended increase for FY 2013 uses the
results of the cost of service study to replace the existing $4.62 per month fixed rate
with a fixed rate for Street Sweeping service of $6.66 per month, while adding fixed
rates for Household Hazardous Waste service and the Annual Clean-up Day service of
$1.07 and $2.17 per month, respectively. For the minican and 32-gallon rates, the
variable portion of the rate is decreased by $2.11 and $1.22, respectively, so that the
total rate does not exceed the rate that was shown in the “Option 8” attachment.
Rates for the 64-gallon, 96-gallon, and 128-gallon sizes are less than what was shown
in Option 8.
Street Sweeping, Household Hazardous Waste, and Annual Clean-up Day services are
already funded through the existing refuse rates. Charging fixed rates for these
services increases transparency regarding costs for the services that are funded by
refuse rates, while reducing the level of conservation pricing in the rate structure, as
effective rates for smaller can sizes will increase by a higher percentage. The fixed
charges for Street Sweeping, Household Hazardous Waste, and the Annual Clean-up
Day will be individually itemized on the monthly bill..
The recommended residential rate increases for FY 2013 are presented in Table 1. The
fixed and variable rates in Table 1 have been summed to show the total rate for each
April 17, 2012 Page 3 of 3
(ID # 2706)
garbage can size.
Table 1: Recommended FY 2013 residential rate increases
FY 2012 FY 2013 Increase ($) Increase (%)
Minican $20.52 $23.69 $3.17 15%
32-gallon $37.48 $41.54 $4.06 11%
64-gallon $72.46 $77.74 $5.28 7%
96-gallon $106.38 $111.66 $5.28 5%
128-gallon $140.30 $145.58 $5.28 4%
No changes to commercial rates are recommended for FY 2013. Refuse Fund revenues
in excess of expenses will be directed to a Commercial Reserve dedicated to commercial
programs and commercial rate stabilization.
Timeline
Proposition 218 notices will be sent to refuse customers in May 2012. Following City
Council adoption in June, the new rates will become effective on July 1, 2012.
Resource Impact
The proposed residential rate increases are projected to generate incremental revenues
of $0.85 million in FY 2013
Policy Implications
The proposed refuse rate increase is consistent with current City policies.
Environmental Review
The proposed actions do not constitute a project pursuant to CEQA.
Attachments:
Attachment A Staff Report ID #2409 (PDF)
Attachment B Finance Committee Action Minutes from March 6, 2012 (DOC)
Prepared By: Brad Eggleston, Manager Solid Waste
Department Head: J. Michael Sartor, Director
City Manager Approval: ____________________________________
James Keene, City Manager
City of Palo Alto (ID # 2409)
Finance Committee Staff Report
Report Type:Meeting Date: 3/6/2012
March 06, 2012 Page 1 of 13
(ID # 2409)
Summary Title: Refuse Cost of Service Study Results
Title: Results of Refuse Cost of Service Study and Plan for Restructure of Refuse
Rates
From:City Manager
Lead Department: Public Works
Recommendation
Staff recommends that the Finance Committee recommend to the Council that:
1)Residential refuse rates be increased over a short term, but phased approach, to
stabilize the Refuse Fund and avoid a projected sector imbalance between the
residential and commercial ratepayers;
2)New residential rates for FY 2013 be structured using both a fixed and a variable
component with the fixed component representing the cost for street sweeping
developed by the cost of service model; and
3)A special rate stabilization and commercial outreach reserve dedicated to the
commercial sector be established and the Refuse Fund’s expected revenues over
expenses for FY 2013 be directed into this commercial reserve, with no change in
commercial refuse rates in FY 2013.
Executive Summary
This report provides the results of the Refuse Cost of Service Study and makes
recommendations for residential refuse rate changes. The Cost of Service Study
(COSS) concludes that the existing rate structure results in a commercial and residential
imbalance where the residential rates are not at a full cost recovery level while the
commercial rates are in excess of expenses. Accordingly, the COSS recommends new
residential rates that would bring the residential sector to a position of full cost
recovery. Much of this imbalance has been caused by the past “conservation pricing”
program, the incentive pricing system which lowers the cost for small garbage can
sizes to encourage waste reduction.
Staff recommends that new residential refuse rates which would eliminate
the residential sector subsidy be phased in over a short term period not to
exceed three years.Staff does not recommend that conservation pricing be fully
eliminated over this three-year period. However, staff does recommend introduction of
a flat rate component which would, in effect, reduce the level of conservation pricing.
March 06, 2012 Page 2 of 13
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Background
In August 2010, the Refuse Cost of Service Study (COSS) was initiated in response to
falling revenues in the Refuse Fund and the need to reevaluate the refuse rate
structure. A particular concern was that refuse rates were based entirely on garbage
can size, but expected to fund a broad range of programs including garbage collection
and disposal, yard trimmings collection and processing, recycling collection and
processing, commercial organics collection and processing, street sweeping, household
hazardous waste, the Palo Alto landfill, and the annual clean-up day. As residents
switched to smaller garbage can sizes through the success of the Zero Waste programs
and as the economic downturn impacted services provided to businesses, revenues
declined sharply.
In addition to developing a rate structure that would result in more stable revenues, the
COSS was also expected to address California’s Proposition 218. Proposition 218
requires that property-related fees, including refuse rates, be no greater than the cost
to provide the service. At the time the last COSS was conducted Proposition 218 did
not apply to Refuse rates.
In 2011, in an effort to address some of the early findings of the COSS and to avoid
exacerbating the sector imbalance, the Council implemented a flat rate residential rate
increase of $4.62 that became effective in October 2011. In addition, Council
authorized a $1.25 Million short term General Fund loan to ensure the overall health of
the fund during the preparation of the COSS.
Discussion
This report provides information on the current financial outlook for the Refuse Fund,
the residential rate structure proposed by the COSS, and options for modifying the
residential rates. This information is based on the draft FY 2013 budget for the Refuse
Fund, and the financial outlook and proposed rates will be updated when the FY 2013
budget is finalized.
Refuse Fund Financial Outlook
The cost of service model that has been developed during the study includes a 10-year
financial forecast that analyzes expected revenues and expenses for each year. Table 1
provides the model forecast for Fiscal Years 2013 through 2016, as well as the
projected revenues and expenses for FY 2012. These figures represent the base
financial outlook in that they do not assume any changes to the current refuse rates.
These figures also assume that the authorized General Fund loan of $1.25 million to the
Refuse Fund for FY 2012 is not utilized, and therefore does not need to be repaid in FY
2013. The authorized loan amount was reduced to $625,000 at mid-year to maintain a
safeguard because the current FY 2012 projections are not certain. While these
numbers are projections in the out years and will be refined from year to year, the
model is an important tool in achieving rate stabilization in the Refuse Fund.
March 06, 2012 Page 3 of 13
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Table 1: Refuse Fund Base Financial Outlook (thousands of dollars)
Fiscal Year (FY)2011
(actuals)
2012
(projected)
2013
(model)
2014
(model)
2015
(model)
2016
(model)
Revenues 31,488 31,083 28,958 28,958 28,958 28,958
Expenses 31,435 31,116 27,711 27,439 28,059 28,705
Change in Net Assets 53 0 1,247 1,519 899 253
Operating Reserve 53 53 1,300 2,819 3,718 3,971
The current Refuse Fund financial outlook represents a significant
improvement over the figures presented to the Finance Committee from the
preliminary cost of service model in April 2011.Reasons for the improvement to
the Refuse Fund outlook include the following:
·The residential fixed monthly charge of $4.62 approved by City Council increases
FY 2013 revenue by approximately $980,000.
·The permanent closure of the Recycling Center is expected to reduce FY 2013
expenses by approximately $400,000.
·Closure of the Palo Alto landfill in July 2011 results in significant reductions to
expenses.
·Staff has continued to identify opportunities to reduce budget amounts wherever
possible.
·A comprehensive review and update of Refuse Fund staffing allocations is
projected to reduce FY 2013 expenses by approximately $600,000.
·Increased revenues resulting from service audits comparing services provided in
the field with services indicated and billed by SAP
Cost of Service Study (COSS) Results for Sectors
The cost of service model utilizes the full dataset of SAP customer information to
generate projected revenues. Revenues and expenses are allocated to the three
customer sectors (residential, commercial, and rolloff), and then to services such as
garbage, recycling, household hazardous waste, and street sweeping. The allocated
expense information is used to develop rates for the various services. Assumptions
about growth in customer numbers and inflation, as well as any planned rate changes,
are used to develop a ten-year forecast of revenues and expenses.
Table 2 provides the FY 2013 expenses for the three customer sectors and the
individual services within each sector. Figure 1 uses residential garbage service as an
example of how various expenses are allocated to each service.
Table 2: FY 2013 expenses for the three customer sectors
Residential Commercial Roll-off
Garbage $4,076 $4,963 $4,108
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Recycling $1,778 $794 $0
Organics $2,230 $2,481 $0
Cleanup Day $475 $321 $0
Palo Alto Landfill $1,180 $1,932 $1,145
HHW $599 $0 $0
Street Sweeping $1,415 $216 $0
Total $11,752 $10,705 $5,253
Figure 1: Breakdown of expenses allocated to residential garbage service, thousands of
dollars (* includes Palo Alto staff costs; total staff costs are approximately
$225)
$197, 5%
$789,19%
$465,11%
$119,3%
$276, 7%$96, 2%
$153,4%
$1,981, 49%
Allocated Charges*,4%
Administration*, 2%
GreenWaste, 49%
SMaRT Debt, 5%
SMaRT Operation, 19%
Kirby Disposal, 11%
Kirby Put or Pay, 3%
Zero Waste*, 7%
A key goal of the cost of service study is to develop rates that assure that the revenues
from each customer sector cover the expenses for that sector, so that no customer
sector is subsidizing the rates of another. Table 3 provides the FY 2013 revenues and
expenses by sector that demonstrate a current imbalance between the residential and
commercial sectors.
Table 3: FY 2013 revenues and expenses by sector
Line of Business Estimated
Revenue
Estimated
Expense
Revenue
Change
Required for
Parity
Preliminary
Value From
April 2011
Residential $8,903 $11,752 +32% +79%
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Commercial $14,642 $10,705 -27%-42%
Roll-Off $5,413 $5,253 -3%+28%
For FY 2013, residential expenses are projected to exceed revenues by approximately
$2.8 million, while commercial revenues are projected to exceed expenses by
approximately $3.9 million. Therefore, a residential revenue increase of approximately
32%, and a commercial revenue decrease of approximately 27%, would be required to
reconcile the estimated difference between residential and commercial revenues and
expenses in FY 2013. Table 3 also provides the preliminary percent revenue change
figures that were provided to Finance Committee on April 5, 2011. At that time, the
estimated residential revenue increase needed was 79%. The change in estimated
residential revenue increase needed from 79% to 32% is due to the fixed residential
monthly charge of $4.62 that was adopted for FY 2012 and to numerous improvements
and corrections to allocation methods used by the cost of service model.
Cost of Service Study (COSS) Results for Residential Rates
The cost of service model uses the customer census information and the allocated
expenses for the residential sector (shown in Table 2) to derive residential rates that
balance revenues and expenses for the residential sector, and that eliminate
conservation pricing from the refuse rate structure. The rates derived for FY 2013 by
the model are provided in Table 4.
Table 4: FY 2013 residential refuse rates derived by cost of service model
Minican 32-gal 64-gal 96-gal 128-gal
Garbage 14.16 17.40 26.03 34.66 47.67
Palo Alto Landfill 2.97 4.75 9.50 14.25 19.00
Recycling (64-gal)7.66 7.66 7.66 7.66 7.66
Yard Trimmings (96-gal)10.99 10.99 10.99 10.99 10.99
Cleanup Day 2.08 2.08 2.08 2.08 2.08
Street Sweeping 6.71 6.71 6.71 6.71 6.71
HHW 0.88 0.88 0.88 0.88 0.88
Total: $45.46 $50.48 $63.86 $77.24 $95.00
The rates provided in Table 4 vary only with the size of the customer’s garbage can
because recycling containers and yard trimmings are assumed to be 64 gallon and 96
gallon sizes, respectively. The model also provides rates for recycling and yard
trimmings that vary based on the size and number of containers. There are problems
with attempting to immediately implement varying rates for recycling and yard
March 06, 2012 Page 6 of 13
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trimmings that are discussed later in this report.
Table 5 compares the current residential refuse rates with the FY 2013 rates derived by
the cost of service model.
Table 5: Comparison of FY 2013 model and current residential rates
Current Rate
Including Fixed
Model Rate for FY
2013
Percent Increase
Minican $20.52 $45.46 121%
32-gallon $37.48 $50.48 34%
64-gallon $72.46 $63.86 -12%
96-gallon $106.38 $77.24 -27%
128-gallon $140.30 $95.00 -32%
Table 6: Current breakdown of residential service levels.
Service Level Number of Customers Percent of Customers
Minican 5,191 29.2%
32-gallon 9,894 55.7%
64-gallon 2,373 13.4%
96-gallon 258 1.5%
128-gallon 41 0.2%
Total:17,757 100%
Given the magnitude of the rate increases that are needed for minican and 32-gallon
service to reach the cost of service model rates, staff recommends that rate increases
be phased in over some number of years. Phasing in the rate increases is most
important to reduce the impact on ratepayers, but there are additional reasons to take
this approach. First, staff intends to use the cost of service model that was developed
for the study on an ongoing basis. The model will be updated each year with revised
customer census, tonnage, budget, and other information that will be used by the
model to modify expense allocations and update the rates. Staff expects that the rates
calculated for FY 2013 will change as adjustments to the model are made. In
particular, any further expense reductions will result in reductions to the rates
calculated by the model.
Second, changes to the City’s SAP software are needed before some changes
associated with the rates can be implemented. For example, SAP does not currently
track the size and number of recycling and yard trimmings containers used by each
customer. SAP must be modified to track this information, and to include this
information in the billing process, before variable rates for recycling and yard trimmings
can be implemented. In addition, the interface between GreenWaste’s database and
March 06, 2012 Page 7 of 13
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the SAP system must be upgraded to allow GreenWaste to update this customer
information in SAP.
Finally, outstanding issues relating to multi-family residential customers should be
addressed before the rate structure is finalized. Under the current rate and billing
system, multi-family residents who have individual service are considered residential
customers, but multi-family residents who share service (e.g. 40 unit apartment
complex with a 8-yard garbage bin) are classified as commercial customers. This
system of classifying multi-family residents based on their service type raises concerns
about the fairness of charges for the annual clean-up day service, street sweeping, and
household hazardous waste.
Staff evaluated several options for phasing in changes to residential refuse rates.
These options included the following to eliminate sector imbalance and conservation
pricing:
·Option 1: 2 year phase-in
·Option 2: 3 year phase-in
·Option 3: 5 year phase-in
·Option 4: 7 year phase-in
·Option 5: 7 year phase-in (eliminate sector imbalance in 3 years, eliminate
conservation pricing in 7 years)
Options to eliminate sector imbalance but not immediately eliminate conservation
pricing are:
·Option 6: 3 year phase-in (fixed percentage increase each year to all rates)
·Option 7: 3 year phase-in (flat increase each year to all rates)
·Option 8: 3 year phase-in (flat increase combined with fixed percentage
increase)
Figures 2, 3, 4, and 5 display the residential rates that result from Options 1, 2, 3, and
8, respectively. Figures for all eight options, including the annual percent changes to
each rate that result, are provided in Attachment A.
Figure 2: 2 year phase-in of rates that eliminate sector imbalance and conservation
pricing (Option 1)
March 06, 2012 Page 8 of 13
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$0
$20
$40
$60
$80
$100
$120
$140
$160
FY 2012 FY 2013 FY 2014
Year
Ra
t
e
Minican
32-gallon
64-gallon
96-gallon
128-gallon
Figure 3: 3 year phase-in of rates that eliminate sector imbalance and conservation
pricing (Option 2)
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY 2012 FY 2013 FY 2014 FY 2015
Year
Ra
t
e
Minican
32-gallon
64-gallon
96-gallon
128-gallon
March 06, 2012 Page 9 of 13
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Figure 4: 5 year phase-in of rates that eliminate sector imbalance and conservation
pricing (Option 3)
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Year
Rat
e
Minican
32-gallon
64-gallon
96-gallon
128-gallon
Figure 5: 3 year phase-in of rates that eliminate sector imbalance but do not eliminate
conservation pricing using a combination of flat and percentage increases (Option 8)
March 06, 2012 Page 10 of 13
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$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
FY 2012 FY 2013 FY 2014 FY 2015
Year
Rat
e
Minican
32-gallon
64-gallon
96-gallon
128-gallon
Figure 6 uses the two levels of service with the lowest and highest rates, the minican
and 128 gallon service, to compare the four options that use a three year rate phase-in
(Options 2, 6, 7, and 8)
March 06, 2012 Page 11 of 13
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$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
FY 2012 FY 2013 FY 2014 FY 2015
Year
Rat
e
Option 2: Minican,eliminate conservationpricing
Option 6: Minican,
eliminate sector
imbalance with fixed
percent
Option 7: Minican,
eliminate sector
imbalance with flat
increases
Option 8: Minican,
eliminate sector
imbalance withcombined approach
Option 2: 128-gallon,eliminate conservationpricing
Option 6: 128-gallon,
eliminate sector
imbalance with fixed
percent
Option 7: 128-gallon,
eliminate sector
imbalance with flat
increases
Option 8: 128-gallon,
eliminate sector
imbalance with
combined approach
128 gallon
Minican
Staff recommends that new rates that eliminate the sector imbalance, but that do not
immediately eliminate conservation pricing, be phased in over a period not to exceed
three years. Further, it is recommended that the increase in FY 2013 be a combination
of a flat increase of $2.09 and a fixed percentage increase of 5.3%. The residential
rate increase in FY 2012 consisted of a flat monthly charge of $4.62. This charge
currently appears on customer bills as “Fixed Resid. Monthly Charge”. The current flat
monthly charge can be changed to a fixed charge of $6.71 for Street Sweeping (as
derived by the cost of service model), an increase of $2.09. A further increase to
residential rates of 5.3% would also be applicable in FY 2013. This approach, which is
shown in Figure 5, would eliminate the sector imbalance over a three-year period while
beginning to address conservation pricing. An additional benefit is that the fixed charge
on customer bills would represent the actual cost of street sweeping services, while the
current fixed charge does not align with any specific service. Staff is not recommending
using the General Fund loan at this time. No increase is recommended for the
commercial structure.
March 06, 2012 Page 12 of 13
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Commercial Reserve
As described earlier and depicted in Figure 1, the Refuse Fund base financial outlook for
FY 2013 includes revenues over expenses of $1.25 million. The recommended
residential rate increase for FY 2013 is expected to generate $0.88 million. If staff’s
recommendation for FY 2013 is adopted, revenues over expenses for FY 2013 would be
expected to total $2.1 million. The commercial sector is projected to generate revenues
in FY 2013 that are greater than expenses by approximately $3.9 million. In lieu of
lowering commercial rates in FY 2013, staff recommends that the surplus of $2.1 million
be designated as a special commercial reserve. This reserve would be dedicated to
commercial purposes such as commercial rate stabilization and enhanced commercial
programs. The reserve could also be used to fully fund the commercial share of the
Palo Alto landfill post-closure costs.
Table 7 provides the Refuse Fund Financial Outlook through FY 2013 assuming
adoption of staff’s recommendations for residential rate increases and establishment of
a commercial reserve. It should be noted that the remaining Residential/Commercial
imbalance of $480,000 at the end of the three year phase-in (FY 2015) is due to the
assumption of a three year phase-in of residential rates calculated for FY 2013. These
rates will need to be adjusted each year to account for year to year inflation of
expenses as well as any expense reductions that are implemented.
Table 7: Refuse Fund Financial Outlook With Recommended Residential Rate Increases
FY 2011
(actuals)
FY 2012
(projected)
FY 2013
(model)
FY 2014
(model)
FY 2015
(model)
Revenues 31,488 31,083 29,834 30,709 31,585
Expenses 31,435 31,116 27,711 27,439 28,059
Change in Net
Assets 53 0 2,123 3,270 3,526
Commercial
Reserve NA NA 2,123 5,393 8,919
Remaining
Res/Comm
Imbalance
NA NA 1,814 958 480
Timeline
Following direction by Finance Committee, staff will finalize the refuse rates for FY
2013. The Refuse Fund projections and rates presented in this report will be updated
as the FY 2013 budget is refined. Staff will return to Finance Committee with the final
proposed rates in April 2012. Staff will then begin the Proposition 218 notification
March 06, 2012 Page 13 of 13
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process in coordination with the Utilities Department. Following City Council adoption,
the new rates will become effective on July 1, 2012.
Resource Impact
The recommended residential rate increase is estimated to result in revenues over
expenses of approximately $2.1 million in FY 2013. This surplus would be designated in
a special commercial reserve dedicated to the commercial sector.
Policy Implications
The proposed Refuse Rate increase is consistent with current City Policies.
Environmental Review
The proposed actions do not constitute a project pursuant to CEQA.
Attachments:
·Residential Rate Options (PDF)
Prepared By:Brad Eggleston, Manager Solid Waste
Department Head:J. Michael Sartor, Director
City Manager Approval: ____________________________________
James Keene, City Manager
Option 1: 2 Year Phase-in (eliminates sector imbalance and conservation pricing)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014
Minican $ 20.52 $ 33.21 $ 45.89
32-gallon $ 37.48 $ 44.22 $ 50.96
64-gallon $ 72.46 $ 68.47 $ 64.47
96-gallon $ 106.38 $ 92.19 $ 77.99
128-gallon $ 140.30 $ 118.43 $ 96.56
Rate Increase Percentages
FY 2012 FY 2013 FY 2014
Minican NA 62% 38%
32-gallon NA 18% 15%
64-gallon NA -6% -6%
96-gallon NA -13% -15%
128-gallon NA -16% -18%
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY 2012 FY 2013 FY 2014
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 2: 3 Year Phase-in (eliminates sector imbalance and conservation pricing)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015
Minican $ 20.52 $ 28.98 $ 37.43 $ 45.89
32-gallon $ 37.48 $ 41.97 $ 46.47 $ 50.96
64-gallon $ 72.46 $ 69.80 $ 67.13 $ 64.47
96-gallon $ 106.38 $ 96.92 $ 87.45 $ 77.99
128-gallon $ 140.30 $ 125.72 $ 111.14 $ 96.56
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015
Minican NA 41% 29% 23%
32-gallon NA 12% 11% 10%
64-gallon NA -4% -4% -4%
96-gallon NA -9% -10% -11%
128-gallon NA -10% -12% -13%
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY 2012 FY 2013 FY 2014 FY 2015
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 3: 5 Year Phase-in (eliminates sector imbalance and conservation pricing)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Minican $ 20.52 $ 25.59 $ 30.67 $ 35.74 $ 40.82 $ 45.89
32-gallon $ 37.48 $ 40.18 $ 42.87 $ 45.57 $ 48.26 $ 50.96
64-gallon $ 72.46 $ 70.86 $ 69.26 $ 67.67 $ 66.07 $ 64.47
96-gallon $ 106.38 $ 100.70 $ 95.02 $ 89.35 $ 83.67 $ 77.99
128-gallon $ 140.30 $ 131.55 $ 122.80 $ 114.06 $ 105.31 $ 96.56
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Minican NA 25% 20% 17% 14% 12%
32-gallon NA 7% 7% 6% 6% 6%
64-gallon NA -2% -2% -2% -2% -2%
96-gallon NA -5% -6% -6% -6% -7%
128-gallon NA -6% -7% -7% -8% -8%
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 4: 7 Year Phase-in (eliminates sector imbalance and conservation pricing)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Minican $ 20.52 $ 24.14 $ 27.77 $ 31.39 $ 35.02 $ 38.64 $ 42.27 $ 45.89
32-gallon $ 37.48 $ 39.41 $ 41.33 $ 43.26 $ 45.18 $ 47.11 $ 49.03 $ 50.96
64-gallon $ 72.46 $ 71.32 $ 70.18 $ 69.04 $ 67.89 $ 66.75 $ 65.61 $ 64.47
96-gallon $ 106.38 $ 102.32 $ 98.27 $ 94.21 $ 90.16 $ 86.10 $ 82.05 $ 77.99
128-gallon $ 140.30 $ 134.05 $ 127.80 $ 121.55 $ 115.31 $ 109.06 $ 102.81 $ 96.56
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Minican NA 18% 15% 13% 12% 10% 9% 9%
32-gallon NA 5% 5% 5% 4% 4% 4% 4%
64-gallon NA -2% -2% -2% -2% -2% -2% -2%
96-gallon NA -4% -4% -4% -4% -4% -5% -5%
128-gallon NA -4% -5% -5% -5% -5% -6% -6%
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 5: 7 Year Phase-in (eliminates sector imbalance in 3 years, and conservation
pricing in 7 years)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Minican $20.52 $25.94 $31.56 $37.34 $39.84 $42.07 $44.08 $45.89
32-gallon $37.48 $41.90 $46.32 $50.74 $50.81 $50.86 $50.91 $50.96
64-gallon $72.46 $75.32 $77.81 $80.00 $75.46 $71.40 $67.76 $64.47
96-gallon $106.38 $107.80 $108.49 $108.60 $99.64 $91.65 $84.47 $77.99
128-gallon $140.30 $141.12 $140.92 $139.87 $127.21 $115.89 $105.74 $96.56
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019
Minican NA 26% 22% 18% 7% 6% 5% 4%
32-gallon NA 12% 11% 10% 0% 0% 0% 0%
64-gallon NA 4% 3% 3% -6% -5% -5% -5%
96-gallon NA 1% 1% 0% -8% -8% -8% -8%
128-gallon NA 1% 0% -1% -9% -9% -9% -9%
$0
$20
$40
$60
$80
$100
$120
$140
$160
FY
2012
FY
2013
FY
2014
FY
2015
FY
2016
FY
2017
FY
2018
FY
2019
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 6: 3 Year Phase-in (eliminates sector imbalance with fixed percentage increases)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015
Minican $ 20.52 $ 22.71 $ 24.91 $ 27.10
32-gallon $ 37.48 $ 41.49 $ 45.49 $ 49.50
64-gallon $ 72.46 $ 80.21 $ 87.95 $ 95.70
96-gallon $ 106.38 $ 117.75 $ 129.13 $ 140.50
128-gallon $ 140.30 $ 155.30 $ 170.30 $ 185.30
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015
Minican NA 11% 10% 9%
32-gallon NA 11% 10% 9%
64-gallon NA 11% 10% 9%
96-gallon NA 11% 10% 9%
128-gallon NA 11% 10% 9%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
FY 2012 FY 2013 FY 2014 FY 2015
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 7: 3 Year Phase-in (eliminates sector imbalance with flat increases to rates)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015
Minican $ 20.52 $ 24.63 $ 28.74 $ 32.85
32-gallon $ 37.48 $ 41.59 $ 45.70 $ 49.81
64-gallon $ 72.46 $ 76.57 $ 80.68 $ 84.79
96-gallon $ 106.38 $ 110.49 $ 114.60 $ 118.71
128-gallon $ 140.30 $ 144.41 $ 148.52 $ 152.63
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015
Minican NA 20% 17% 14%
32-gallon NA 11% 10% 9%
64-gallon NA 6% 5% 5%
96-gallon NA 4% 4% 4%
128-gallon NA 3% 3% 3%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
FY 2012 FY 2013 FY 2014 FY 2015
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
Option 8: 3 Year Phase-in (eliminates sector imbalance with combination of fixed
percentage and flat increases to rates)
Rate Increase Schedule
FY 2012 FY 2013 FY 2014 FY 2015
Minican $ 20.52 $ 23.69 $ 26.86 $ 30.08
32-gallon $ 37.48 $ 41.54 $ 45.60 $ 49.66
64-gallon $ 72.46 $ 78.36 $ 84.24 $ 90.05
96-gallon $ 106.38 $ 114.06 $ 121.71 $ 129.22
128-gallon $ 140.30 $ 149.76 $ 159.19 $ 168.38
Rate Increase Percentages
FY 2012 FY 2013 FY 2014 FY 2015
Minican NA 15% 13% 12%
32-gallon NA 11% 10% 9%
64-gallon NA 8% 8% 7%
96-gallon NA 7% 7% 6%
128-gallon NA 7% 6% 6%
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
FY 2012 FY 2013 FY 2014 FY 2015
Year
Rate
Minican
32‐gallon
64‐gallon
96‐gallon
128‐gallon
FILENAME 1
Action Minutes from March 6, 2012 Finance Committee Meeting
4. Results of Refuse Cost of Service Study and Plan for Restructure of Refuse Rates
Phil Bobel, Watershed Protection Manager, stated Staff was not proposing exact rates,
rather an exact methodology. He indicated Staff would provide exact numbers and
recommendations based on methodology at a later time. He explained the fund had
major losses several years ago when expenses exceeded revenues. He reported this
had been stabilized by rate increases and cost-saving measures such as closing the
landfill, the recycling center and the compost operation. He noted the cost benefits of
these closures would be visible in FY 2013. He indicated the reserves were significantly
impacted by those losses several years ago, and Staff was ready to rebuild those
reserves. He reported a third issue was compliance with Proposition 218, a component
of which was achieving parity between commercial and residential sectors. He stated
Mr. Eggleston would focus on the results of the cost of service study and options. He
indicated the strategy items were the same general strategy presented previously. He
explained the column labeled FY12 Projected indicated revenues should almost equal
expenses, which had not been the case in recent years. He reported revenues equaling
expenses would make the change in that asset zero. He noted operating reserves
were too small, but in future years without any revenue and rate changes, things begin
to improve. He stated the primary purpose was to deal with Proposition 218
compliance. He indicated Staff had two goals: Proposition 218 compliance and
building the reserves. He noted the landfill, recycling center and compost facility
closures helped improve the financial outlook. He reminded the Finance Committee
(FC) they had received an informational Staff Report at the last Council meeting
regarding the compost facility closure. With regard to the status of rate development
structure, he reported Staff would be focusing on residential rates, as it had more work
to do through the cost of service study on commercial and this roll-off category (the
bins).
Brad Eggleston, Manager Solid Waste, reported the cost of service model was taking
customer information, allocating revenues and expenses from the Budget to the
different sectors (residential, commercial and roll-off), and then utilizing expense
information to develop rates. He indicated the model was better but not perfect, and
Staff continued to work on certain items. He noted audits had revealed that billed
services did not always match provided services, which impacted revenues and
prevented the calculation of accurate rates. He thought it also needed improvement in
the area of multi-family residents in that apartment-dwellers with shared service were
categorized as commercial. He felt this raised implications concerning costs for
services, such as street sweeping and Household Hazardous Waste (HHW). He
indicated the next slide presented the expenses allocated to the different services
provided by the Refuse Fund and the bottom lines for each of the sectors. He reported
FILENAME 2
the residential garbage number of approximately $4 million was comprised mainly of
the GreenWaste contract, smart station components, and landfill costs. He reported
each of the numbers in the table of expenses had various items feeding into it. He
stated a key idea was parity between sectors. He explained the model allowed Staff to
determine revenues and expenses for the different sectors. He indicated residential
sector expenses were approximately 32 percent higher than revenue, commercial
sector revenues were approximately 27 percent higher than expenses, while the roll-off
sector was essentially in balance.
Council Member Burt asked for an explanation of roll-off.
Mr. Eggleston explained roll-off was debris box-type services, where a truck had to pick
up the entire bin and haul it away rather than tipping it into a truck.
Chair Shepherd asked for an explanation of preliminary value.
Mr. Eggleston reported the preliminary values were the results of the model presented
to the FC in April 2011. He stated the preliminary numbers were shown as a
comparison to the current numbers.
Council Member Burt suggested a better label for the figures would be April 2011
Estimated Increase.
Mr. Sartor thought the work on the model created a better scenario than originally
thought.
Mr. Bobel added that this was a continuum and Staff was getting better at estimating
these things; however, the figures were not necessarily accurate.
Council Member Burt suggested Revenue Change for Parity as of (date) Estimated.
Council Member Price asked whether Staff could clearly explain the large variance
between April and now, other than improvements to the model.
Mr. Eggleston explained a large component of that was the residential rate increase for
the current fiscal year, and the remainder for the most part was corrections and
improvements to the model. He stated there were outright errors and some items
were better allocated. He reported the model developed rates for the different
services, some of which were fixed monthly rates and some were variable. He
indicated adding those provided numbers for the different garbage can sizes so that
Staff could compare to current rates. He reiterated Staff was not recommending
adoption of these rates. He presented a slide comparing current rates, including fixed
FILENAME 3
rates that were added during the current fiscal year, to the model rates. He stated
implementing the model rates would eliminate the residential-commercial imbalance
and eliminate any conservation pricing aspect from the rate structure.
Mr. Bobel explained this was not the chart Staff recommended, rather it resulted from
the consultant's study. He said Staff would now present options and Staff's
recommendations.
Council Member Burt felt this was an important issue. He thought the City hadn't done
a strong enough job of explaining that the cost of service study was primarily driven by
Proposition 218, which was State Constitution and mandated by the people of
California. He stated the City was mandated to create systems to justify as being in
general compliance with that requirement of Proposition 218. He said there was a
misunderstanding that the City was trying to replenish the Refuse Fund by increasing
residential rates. He explained that utilizing recommendations from the cost of service
study would result in increases to the small-residential rates and reductions to large-
residential and commercial rates. He felt these themes had to be emphasized to
prevent misunderstandings. He referenced a newspaper article stating the reserve was
driving up these prospective increases. He stated 1) rate increases were not proposed,
and 2) rate increases were not being considered to increase the reserve.
Mr. Bobel reiterated the cost of service study wasn't perfect, and that was why Staff
did not recommend religiously following it. He explained the study had a number of
shortcomings, and the industry did not know how to deal with conservation pricing. He
stated Staff did not recommend slavishly adhering to the study, because these kinds of
studies were not typically performed and the industry did not know how to deal with
them.
Council Member Burt noted the Staff Report explained both that and the reality of
Staff's recommendations, but it was at the end of the Report. He thought the Report
should begin with this information, not bury it at the end.
Chair Shepherd asked if residents received all three of the bins.
Mr. Bobel stated residents received them without cost. He meant that residents did not
pay for the blue and green bins and were not forced to put them out.
Chair Shepherd expressed concern that the Report made it look as though they were
optional.
Mr. Bobel indicated that some residents thought this meant they were paying for those
services. He didn't know what to do about that. He explained the cost of service study
FILENAME 4
tried to determine the cost of each element even if the City did not charge for each
element. He agreed the chart was confusing.
Mr. Eggleston explained Staff was reviewing rates and large increases, which led to the
concept of phasing in modifications. He stated the primary reason for phasing was to
alleviate the impact on rate payers of horribly large rate increases. He indicated this
was not going to be a one-time thing where Staff didn't review the model for five or ten
years. He stated Staff would continue to update the model and make improvements
yearly so that the model would calculate rates that may be somewhat different than
those calculated this year. He said there were multi-family issues which Staff wanted
to address. He reported if Staff wanted to do certain things allowed by the study rates,
then Staff would have to make improvements to SAP first to be able to capture
information currently not part of the SAP and billing system. He noted there were a
number of reasons why Staff recommended phasing in rate changes. He reported the
phase-in options of 2, 3 and 5 were phase-in options to the rates Staff was reviewing
to eliminate conservation pricing. He explained the three years to address sector
imbalance only were ways to phase in elimination of the residential-commercial
imbalance and impact conservation pricing without drastically changing it. He indicated
the next slides showed the City taking two, three and five years to reach the Fiscal
Year 2014 rates provided by the cost of service study to eliminate conservation pricing.
He noted the next slide presented the first option of utilizing percentage increases to
all rates to eliminate the sector imbalance. He explained the second option was to
utilize fixed increases, which was the approach taken for the Fiscal Year 2012 rate
increase.
Mr. Sartor indicated that amount was $4.62.
Mr. Eggleston indicated the third option, which was Staff's recommendation, was a
combination of percentage increases and fixed increases. He reported this showed the
actual dollar amounts and percentage increases resulting from the combination
approach. He noted the rate increases for the mini can were 15 percent for the coming
year and approximately 13 percent and 12 percent in the following two years. He felt
the key idea was smaller rate increases for each larger can size.
Mr. Sartor noted the percentages included a fixed rate of $2.09 across the board for
street sweeping, and approximately 5 percent in addition.
Mr. Eggleston explained the fixed residential monthly charge appeared on residents'
bills as a flat charge, and the amount was tied to the amount of revenue needed rather
than to a service. He indicated one benefit of this approach was that the concept of
raising half of revenue needed for next year through a fixed increase correlated where
Staff could review the street sweeping cost per resident from the cost of service study,
FILENAME 5
which was a $2.09 increase. He stated Staff could change the fixed residential rate on
bills, call it street sweeping and show a dollar amount from the cost of service study.
Mr. Bobel stated this was called Option 8 in the CMR.
Council Member Burt indicated it was page 818 in the Packet.
Mr. Bobel explained it was called Option 8 because it was the last of the series of
options that Mr. Eggleston just reviewed. He noted it was a combination of fixed and
percentage increases. He indicated this chart showed the effect of the rate increase
each year over three years. He reminded the FC that Staff proposed yearly
presentations as it continued to refine the model in order to provide the best number at
that point in time. He reported Staff was not suggesting the FC fix all three of those
now. He stated this was the first step in a plan to reach the end point in three years.
He indicated the number in the FY2014 column would probably be different next year
as Staff refined the plan.
Mr. Eggleston reported Staff proposed no changes to the commercial rates, instead
Staff recommended the overage, revenues over expenses, be placed into a commercial
reserve dedicated to the commercial sector for things such as rate stabilization or
outreach. He noted the next slide was analogous to the earlier slide regarding the
Refuse Fund outlook over the next several fiscal years. He explained this slide showed
the numbers for the next three fiscal years as the imbalance was closed, utilizing
Staff's recommendations of hybrid residential rate increases and creating a commercial
reserve. He indicated this would lead to a commercial reserve of approximately $9
million. He stated Staff's recommendations were to implement rates to close this
imbalance in approximately three years without eliminating conservation pricing, not to
make changes to commercial rates in the coming fiscal year, and to move the extra
revenue from commercial into a reserve. He reported the Fiscal Year 2013 Budget was
in draft form and Staff continue to work on it. He indicated Staff would be finalizing
these numbers as they completed the Budget, and there would be small changes to the
numbers presented tonight. He said Staff wanted to do some public outreach to
explain the Fund was in a good fiscal position, didn't need rate changes over the next
several years, and changes were to address Proposition 218 and the results of the cost
of service study. He noted Staff had performed audits to ensure services were correct,
and was working on communications between the cities and GreenWaste's database to
ensure problems didn't recur.
Mr. Bobel reminded the FC that the City had negative reserves. He stated Staff's
objectives were: 1) expenses equaling revenues; 2) compliance with Proposition 218;
and 3) building reserves.
FILENAME 6
Emily Renzel commented that Staff had synthesized the study well and balanced the
many considerations of setting rates. She questioned what happened to the surplus
landfill rents and the current rates. She explained that the current rate includes 4.288
million and, starting this fiscal year, the rate being paid to the General Fund was 2.094
million, which is 2.194 million less than what was in the current rates. She thought
that should be accruing and ideally would be refunded to rate payers. She felt it was
important to understand what had happened to that surplus. She questioned why the
dollar amounts in Table 4 were larger with each of the can sizes, and why the percent
of the dollar amount of the total amount was greater, increasing from 6.53 percent to
20 percent. She felt Mr. Bobel had somewhat addressed replenishing the Refuse Fund
reserves. She believed there were three different reserves: a closure fund which she
thought was still intact; the rate stabilization reserve that went into a minus; and the
post-closure reserve which was converted into a pledge of revenue. She stated that if
the City had to create anything under that reserve, it would have to incorporate it into
rates. She thought the City needed to understand how that would happen. She stated
the commercial reserve could help with those other reserves for the commercial sector,
and asked what would happen for the residential sector. She indicated the commercial
reserve wasn't using that landfill differential, that it was actually the difference between
expenses stated in the cost of services study and current payments. She asked how
long that difference would continue, how large would the reserve grow, and what it
would be used for. She inquired whether costs to implement any studies or projects
under Measure E was included in the current cost of service model. With regard to dirt
for the golf course, she stated the landfill had contacts with all people who were
digging dirt.
Ute Engelke stated she would like to see Proposition 218 utilized within the residential
area, such that residents didn't have to pay for services they didn't utilize. She
suggested having garbage collection every other week, to reduce costs and greenhouse
gas emissions. She also suggested implementation of an organics collection every
week with garbage collection once a month. She thought garbage collection once a
month was sufficient for a single-person household.
Herb Borock stated the Staff Report indicated recyclables and yard waste were a
matter of updating the SAP programming. He indicated he had attempted to obtain a
copy of the consultant's report of the cost of services study, and was told Staff did not
have a draft report. He suggested it was the City's Manager's responsibility under the
Charter to propose a Budget, including the Refuse Fund budget. He asked the FC to
review the detailed items produced for the cost of service study prior to approval of
this Agenda Item and certainly prior to proposing rates for the Budget. He cited an
example in slide 11 of one element of ten line items, three of which contained Staff
costs. He thought the public should review the detail numbers for the projected year
2013 and two previous years, one of which had a landfill operation and the other did
FILENAME 7
not. He stated the Request for Proposal (RFP) for the cost of services study had an
attachment containing the results of a previous RFP with highly detailed items. He
believed that the current cost of services study also had those kinds of details. He
repeated his belief that the Council, public and press needed to review those details.
He stated there was accrued rent due for a number of years with regard to the General
Fund and the Refuse Fund. He noted one of the uses of the commercial reserve was
post-closure expenses, and thought those would be a separate item. He indicated the
FC needed balance sheets as well.
Vice Mayor Scharff asked if Staff was proposing these rates comply with Proposition
218.
Mr. Bobel (INAUDIBLE).
Vice Mayor Scharff indicated the use of commercial rates to subsidize residential rates
was not allowed under Proposition 218; therefore, Staff had recommended three years
to remedy that. He understood that cities could pick and choose within class-sector
types (the mini, 64-gallon and 128-gallon cans). If that were true, he preferred the
commercial rates subsidize the residential rates. He asked why Staff recommended
the FC not follow Proposition 218; why not have the commercial subsidize the
residential.
Mr. Bobel stated there were two fundamental reasons. He explained Staff did not
recommend eliminating conservation pricing, because the cost of services study was
imperfect and didn't capture externalities, in the economic sense, that were real costs
of trash. He indicated the study undervalued the amount of trash taken away and
overvalued the trip. He reported Palo Alto was the first agency to use a cost of service
study to tease out the conservation price phenomenon, which the consultant admitted
was not typical of the industry. He stated Staff could not analyze true costs because of
the way they were buried in the GreenWaste contract. He noted environmental costs
were not included because Staff had not determined how to internalize the
externalities. He thought if Staff could analyze the study better, it would be able to
justify the real costs under Proposition 218. He stated Vice Mayor Scharff's argument
was valid if the cost of service study was perfect. He explained the second
phenomenon was, in terms of a policy, the risk of litigation with respect to the
commercial sector and the residential sector imbalance. He indicated Staff had been
advised that it should take care of that, because there was a real world risk that the
City would be subject to action from that imbalance. He stated Staff didn't see a
credible risk from litigation with respect to can size, because large-can users would
have to ban together and sue the City with respect to the small-can users.
Vice Mayor Scharff reiterated his point that Staff didn't believe the results of the study.
FILENAME 8
Mr. Bobel added with respect to conservation pricing.
Vice Mayor Scharff thought Proposition 218 didn't allow conservation pricing. He stated
Proposition 218 allowed the City to say there were costs associated with each thing.
He indicated Staff was saying it didn't understand the costs. He asked if Staff
disagreed with the statement that Proposition 218 didn't allow conservation pricing.
Council Member Burt stated that was a nomenclature issue. He understood Mr. Bobel
to say that conservation pricing was actually a set of costs that had not been well
identified and quantified. He explained in the end they were approximately the same
thing, and Vice Mayor Scharff was correct in terms of nomenclature but not in terms of
the concept.
Molly Stump, City Attorney, explained it was not conservation pricing per se that was
objectionable under the Constitution, it was charging any parcel in excess of the cost of
providing service to that parcel. She understood, partially due to the sector imbalance,
that Staff suspected large-can users might not be paying more than the cost of
providing service to them if Staff accepted the basis of the cost of service study. She
stated the issue could be charging any aspect of those pricing tiers more than the cost
of providing service to that tier. She said if that whole sector was not bearing its full
cost at this point, that may not exist even at the higher levels of the tiers.
Vice Mayor Scharff noted Table 4 on page 5 of 13 indicated the 128-gallon can should
cost residents $95 according to the cost of service model; and the chart on Option 8
indicated the cost in 2015 would be $168. He thought this was heading in the opposite
direction of having other sectors subsidize that, which seemed like a clear violation of
Proposition 218. He felt this percentage of difference was more than just model issues.
He did not believe it was a revenue issue or had much to do with conservation at that
point, because the 128-gallon can users were only 2% of total users. He stated the
whole reason the City was doing this was to comply with Proposition 218. He thought
it would be fairly easy to take the study and determine that 96-, 128- and 64-gallon
users were subsidizing everyone else, just as the commercial was subsidizing the
residential. He indicated the City was not moving in a direction to solve that issue. He
was not saying the City had to change now or in three years. He stated Proposition
218 seemed to require the City to make a good faith effort to move in the direction of
doing that.
Mr. Bobel explained that the fixed increase implemented last year moved the City in
that direction and addressed conservation pricing. He stated Staff was suggesting a
component of the proposed increase be a fixed base, which was also moving in that
direction. He noted Staff did not recommend utilizing the cost of service study because
FILENAME 9
it did not a) internalize these externalities; or b) even count them all correctly because
they were buried in this GreenWaste contract . He said the City was not getting the
true cost of taking garbage to the landfill and disposing of it. He repeated Staff did not
feel the study was good enough to utilize it to eliminate conservation pricing. He
reported Palo Alto would be the first Community to move away from conservation
pricing for garbage. He stated the FC should ask is that what Palo Alto is about.
Vice Mayor Scharff asked if anyone else performed these studies.
Mr. Bobel replied yes. He reported the industry had not determined how to handle
Proposition 218, let alone the conservation pricing issue; and no communities were
asking their consultants to solve that part of the problem.
Vice Mayor Scharff inquired whether other communities' studies were also flawed, and
how the communities handled that.
Mr. Eggleston understood other communities were not at the can-size level in analyzing
these costs. He stated they were stopping at the sector level. He reported there were
various interpretations as to whether Proposition 218 applied at that level. He
indicated the City's consultant, who specialized in cost of service studies, had said this
was the first cost of service study to be analyzed at this level.
Council Member Price asked if the City had paid in full for the complete report.
Mr. Eggleston reported the City had utilized most of the contract funds, but had not
paid on the task for the report.
Council Member Price questioned utilizing the study's data and preliminary findings to
perform analyses, given Staff's misgivings about the report's accuracy. She asked if
Staff was performing assessments based on a weak foundation.
Mr. Bobel thought the study data was good enough for analyses at the larger levels of
sectors and residential versus commercial. He stated Staff did not think it was good
enough to use for analysis at the next level of can-size differentiation within residential
sector.
Council Member Price asked if there would be a time in the short term when that would
be feasible. She asked if the data could be refined sufficiently to make the document
credible.
FILENAME 10
Mr. Bobel reiterated that other communities weren't analyzing data at this level, so the
industry was not moving in this direction. He said this made it difficult to get these
consultants to perform this work.
Council Member Price understood Council Members were waiting for the cost of service
study in order to make informed decisions in many areas. She mentioned the earlier
discussions concerning modeling, SAP and discrepancies between the GreenWaste
database, and asked under whose budget did all the work with SAP fall. She thought
this suggested there were many refinements that needed to take place with a system
that had some real challenges.
Lalo Perez, Administrative Services Director, stated it was not that the system had
flaws, rather the system was configured for the scope of work from two to three years
ago. He stated there had been a need for refinements since then. He explained if a
refinement was a general benefit to all users, then it was not allocated. He further
explained if a project tied to a fund needed a specific refinement, then that fund would
pay for that piece. He stated refinements needed only for Refuse would be paid from
the Refuse Fund.
Mr. Bobel stated the other utilities were actually quite simple; you get electricity, you
get water, you get one thing. He indicated Refuse provided garbage, recyclables,
green waste, different sizes of cans, and varied pick-up frequencies. He explained SAP
wasn't designed to deal with these permutations and combinations of service. He
noted the SAP designations for multi-family housing was based on who paid the bill.
He reported SAP could not be changed to meet Refuse's needs, because it was built for
the other utilities, and there were good reasons for structuring it that way. He stated
there would be problems in setting up any system to work for Refuse and for the
standard commodity utilities. He felt the challenge was more than just funds, it was
how to configure the system.
Council Member Price asked if the hybrid recommendation was Staff's best
recommendation given the challenges of methodology and model.
Mr. Bobel answered it was. He thought it was important for Council to know how
imperfect the study was.
Council Member Price stated the challenge was in Staff and the Council defending it.
Mr. Bobel reported this was the reason for Staff's recommendations of compromise and
phase-in, and continued efforts to gradually improve.
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Council Member Burt thought the cost of service study was not useful at this point in
time to inform the rates for comparative sizes of residential use, but Staff would
attempt to make it a better tool so it could be more useful in subsequent years. He
stated this message was too complicated for the Community and that the message
should be clear and simple. He suggested one foundation was explaining the ABCs of
Proposition 218. He indicated the real cost of low-value recyclables was unknown, and
some recyclables resulted in a net cost to the City. He explained most residents
thought the City received revenue from recycling. He mentioned the prior discussion
that residents were not billed for recycling, when the recycling cost was included in the
garbage rate. He felt the City had to help people understand these issues; otherwise,
they would always resent this.
Chair Shepherd thought this study had provided usable information. She suggested
the issue was a defensible methodology. She noted the Community wanted to utilize
zero waste, which created a need for conservation pricing. She stated the City was
locked into GreenWaste costs because of the contract which expired in 2017. She
indicated other issues were private streets and alley pickups.
Mr. Bobel reported Staff had started discussions with GreenWaste, and the City could
change the contract prior to its expiration.
Chair Shepherd assumed the contract was bid so that garbage was collected weekly for
all residents rather than every other week.
Mr. Bobel indicated Staff had begun discussions with them about changes.
Chair Shepherd asked if low-value recyclables were things that could be composted
quickly and easily.
Mr. Eggleston replied no.
Chair Shepherd stated it was high value to get rid of garbage.
Mr. Bobel stated aluminum was a high-value recyclable and glass was a low-value
recyclable.
Mr. Eggleston indicated other items might cost more to process.
Chair Shepherd noted the blue bin and compost was the first step in diversion, and the
second step was separating recyclables from garbage. She suggested using the term
diversion rather than recycle, because recycle had the connotation that the City could
sell it. She thought the FC should talk about that. She agreed with street sweeping,
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because it prevented storm drains from becoming blocked. She thought conservation
pricing represented her proportion of yard and recycle bins. She asked if Staff needed
a motion.
Mr. Eggleston answered yes. He stated Staff was asking the FC to recommend this
approach to the Council. He indicated Staff was planning to return to the FC when the
Budget was more finalized, possibly April.
Vice Mayor Scharff understood the issues with the data, but he thought some of the
data was correct. He noted the street-sweeping, Household Hazardous Waste and
clean-up data were correct; therefore, he thought fixed charges for those three items
would be appropriate. He felt this was defensible. He explained that Staff should
utilize the parts known to be correct. He understood Staff's statement that it did not
understand the intricacies of the garbage number and recycling. He suggested
removing garbage, recycling and yard trimmings made Staff's argument sensible and
defensible. Otherwise, he felt Staff was ignoring part of the study because it was too
complicated while utilizing other parts. He expressed concerns about raising residential
rates and lowering commercial rates. He realized this was necessary because of
Proposition 218. He asked why Staff had more confidence in the numbers for recycling
with residential and commercial.
Mr. Bobel agreed that there was a distinction between garbage recycling and organics
and those that are fixed costs (Clean-up Day, HHW, street sweeping).
Vice Mayor Scharff thought they agreed about the difference between the mini-can and
the 32-gallon can, yard trimmings, Clean-up Day and street sweeping. He understood
the issues regarding garbage, recycling and yard trimmings. He asked why Staff was
comfortable with the number when it was separated into commercial and residential.
Mr. Eggleston explained Table 2, cost by sector, reflected costs taken from the
GreenWaste contract. He indicated that level reflected total costs at the sectors, rather
than fixed and variable costs.
Vice Mayor Scharff asked if those numbers came from the GreenWaste contract.
Mr. Eggleston stated they were primarily from the GreenWaste contract, but included
some slivers of other items.
Council Member Scharff inquired whether there was a GreenWaste contract between
the mini-can and the 32-gallon can.
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Mr. Eggleston reported it was not structured in the sense of a charge per resident, but
you could calculate a dollar amount.
Mr. Bobel explained garbage, recycling and yard trimmings were not broken out from
the perspective of the two sectors. He stated Staff was comfortable with the
proportion of those three in the residential sector and the proportion of those three in
the commercial sector. He reported the study was not good enough to suggest
charging a specific amount for recyclables, for example. He indicated Staff was
comfortable with lumping recyclables, yard trimmings and garbage together and then
calculating an amount for residential and an amount for commercial.
Council Member Burt noted it was unknown whether these other factors were in
proportion. He suspected there was some correlation between household size/home
size and the volume generated. He suggested street sweeping should be billed
according to the street frontage, if Staff had good information and the capability. He
thought a large home with two or three residents would generate more compost than
trash. He stated the data did not provide this information, and it wasn't reasonable to
assume these factors averaged out regardless of house size, street frontage and
household size. He understood charging those as flat fees, but disagreed with their
being completely flat. He felt this was arbitrary because the data was not available.
Mr. Bobel stated that was a good point. He indicated he agreed with Council Member
Scharff that Household Hazardous Waste Day was more like a flat fee; however, he
thought it was probably dependent on the number of people living in that house and
income level.
Chair Shepherd mentioned the concept of residents paying only for services used,
when the benefit was for the common good. She was not sure how to measure this.
She inquired whether apartment dwellers paid for street sweeping.
Mr. Bobel indicated apartment dwellers were considered commercial.
Chair Shepherd indicated it was commercial under the current contract, and that would
be reconciled.
MOTION: Council Member Burt moved, seconded by Chair Shepherd that the Finance
Committee recommend to the Council:
1. Residential refuse rates be increased over a short term, but phased approach, to
stabilize the Refuse Fund and avoid a projected sector imbalance between the
residential and commercial ratepayers.
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2. New residential rates for FY 2013 be structured using both a fixed and a variable
component with the fixed component representing the cost for street sweeping
development by the cost of service model, and
3. A special rate stabilization and commercial outreach reserve dedicated to the
commercial sector be established and the refuse fund’s expected revenues over
expenses for FY 2013 be directed into this commercial reserve, with no change in
commercial refuse rates FY 2013.
INCORPORATED INTO THE MOTION WITH THE CONSENT OF THE MAKER AND
SECONDER to include the Household Hazardous Waste and Clean-up Day included in
the fixed cost service model.
Mr. Eggleston asked if the amendment was referring to Fiscal Year 2013 rates.
Chair Shepherd answered yes.
MOTION PASSED AS AMENDED: 4-0
Mr. Eggleston noted the rate increase for some can sizes was more than shown for
Fiscal Year 2013.
Vice Mayor Scharff stated Staff didn't need to increase it more.
Mr. Bobel suggested Staff come back with that issue.
Mr. Eggleston stated that would make the across-the-board percentage (INAUDIBLE) to
accommodate (INAUDIBLE).
Chair Shepherd indicated the FC had provided the methodology.
Mr. Perez noted the next meeting was March 20 and included the auditor's preliminary
report of the (INAUDIBLE) advisory commission's recommendation on the Electric
Utility's long-range plan. He indicated the April 3 meeting had not been rescheduled.
Chair Shepherd indicated she would not be present; therefore, it would have to be
rescheduled in order to have a quorum. She stated Vice Mayor Scharff would not be
present on April 10.
Vice Mayor Scharff asked what was being moved to April 10.
Mr. Perez reported it would be the gas financial forecast, electric financial forecast,
fiber rates and TDBG.
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Vice Mayor Scharff inquired if those topics could be moved to the week after.
Chair Shepherd noted there was a Standing Meeting on April 17 and that meeting could
not be moved to April 24.
Mr. Perez asked if the FC wanted Staff to scheduled the meeting on April 10.
Vice Mayor Scharff suggested Thursday, April 19.
Mr. Perez stated he would have to check.
Chair Shepherd requested Staff poll the Committee on this.
Council Member Price asked whether the dates were March 20 and possibly April 10.
Mr. Perez answered correct.
Chair Shepherd explained the April 3 meeting had to be canceled due to lack of a
quorum.
Council Member Price asked if April 10 was indefinite.
Chair Shepherd said yes. She indicated the Committee should be polled for the dates
of April 10, 18 and 19.
Vice Mayor Scharff stated he was available on April 18.
Mr. Perez noted there was a 4:00 meeting regarding regional health and mandate on
April 19.
Vice Mayor Scharff felt the Committee could still meet on that date.
Council Member Price reiterated the possible dates of April 10, 18 and 19.
Vice Mayor Scharff suggested a meeting time of 6:00.
Chair Price stated it was 6:00 unless there was a meeting that had already been
planned.