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HomeMy WebLinkAboutStaff Report 14464 City of Palo Alto (ID # 14464) City Council Staff Report Meeting Date: 6/6/2022 Report Type: Consent Calendar City of Palo Alto Page 1 Title: Approve a Fiscal Year 2023 Program for Domestic Recycling of Mixed Paper and Mixed Rigid Plastics; Authorize Staff to Negotiate a Corresponding Contract Amendment with GreenWaste of Palo Alto for Program Costs in an Amount Not to Exceed $1.2M From: City Manager Lead Department: Public Works Recommendation Staff recommends that Council: 1. Authorize staff to continue pursuing a Fiscal Year 2023 program for domestic recycling of mixed paper and mixed rigid plastics; and 2. Authorize staff to negotiate a contract amendment with GreenWaste of Palo Alto to include this program and associated annual costs of up to $1.2 million to provide domestic processing of recyclables. Executive Summary This item was deferred from the City Council’s May 16 agenda. It has been placed on the June 6 consent agenda to enable advancement while recognizing other priority issues for Council discussion. Currently, approximately 60 percent of Palo Alto’s recyclables are sent to international markets where their fate and any negative impacts are not known. Last year, Council directed staff to work on finding alternative solutions to this situation. Since then, staff and the City’s contracted refuse hauler, GreenWaste of Palo Alto (GWPA), found domestic markets for mixed paper (MP) and mixed rigid plastics (MRP) and are conducting a three-month pilot program in Fiscal Year 2022 to utilize these U.S. markets. Such markets are extremely hard to find, and time is of the essence to secure them. Staff recommends that Council authorize staff to work toward securing these markets for Fiscal Year 2023. Background GreenWaste of Palo Alto (GWPA) is the City’s refuse hauler for collecting recyclable, compostable, and landfill materials, and processing recyclable and compostable materials. On January 22, 2019, Council approved the Second Amended and Restated Agreement with GWPA (Staff Report #9752). This amendment facilitated the implementation of multiple initiatives City of Palo Alto Page 2 identified in the 2018 Zero Waste Plan, replaced old waste collection vehicles, and extended the agreement five years to end in June 2026. The amendment also designated a new cost methodology for the processing of recyclable materials to be based on tonnage collected and processed and for a new profit-sharing procedure on the recyclable materials to begin in Fiscal Year 2022. Palo Alto’s recyclable materials are processed at the GreenWaste Materials Recovery Facility in San Jose, where they are combined with recyclables from other communities, separated by type, baled, and marketed. The City requires GWPA to report on the disposition of recyclable materials as well as to gather information on the environmental and social implications associated with the further offsite processing of Palo Alto’s recyclable materials. For Fiscal Year 2021, GWPA reported (Staff Report #13535) that approximately 14,000 tons of recyclable materials were collected from Palo Alto, with about 40 percent staying in the United States and 60 percent being exported to India, Indonesia, Korea, Malaysia, Mexico, Taiwan, Thailand, Vietnam, and other countries. For the last three years, GWPA has provided the City with traceability reports; however, the reports do not explain exactly which shipments go to which cities or facilities within those countries. GWPA has tried to ascertain from its recyclable materials brokers which international facility is receiving and processing Palo Alto’s recyclables, but the market information is considered confidential. Therefore, it has not been possible to determine with certainty how much of the materials are being recycled, if the materials are being managed in an environmentally sound way, or whether the conditions at the international locations are causing any human health or social problems. On May 24, 2021 (Staff Report #11632), during discussions on these concerns as part of the new solid waste processing contract, Council directed staff to: 1) Pursue, with other cities, to have GreenWaste provide greater accounting of secondary markets that they utilize; 2) Return to Council with an amendment to the GWPA Contract to authorize a quick response to opportunities to utilize domestic mixed paper recycling; 3) Provide GreenWaste reports to the public and City Council on a regular basis; 4) Work with other cities on legislation to spur domestic or in-state recycling; and 5) If GreenWaste is unable to provide additional secondary market accounting, return to Council for consideration of further actions. Staff provided an update to Council on each of these directives on January 24, 2022 (Staff Report #13535). On May 2, 2022, Staff Report #14169 outlined a Fiscal Year 2022 3-month pilot program being conducted where MP and MRP are to be processed in Northern Louisiana and Southern California respectively, instead of being sent to international markets. MP includes a mixture of paper collected curbside from residents and businesses such as magazines, colored paper, and cereal boxes. MRP are primarily plastics #3 through #7 including milk crates, buckets, and toys. Cardboard was not selected as a material to be kept domestically since it is high quality, contains low contaminants, it is desired by processing facilities, and it has consistent market demand to be recycled. GWPA reports that this pilot is working smoothly, City of Palo Alto Page 3 and the domestic processors are satisfied with the quality of the material and are interested in a longer 12-month commitment. As directed by Council in #1) above, staff has worked with other cities to obtain definitive information about the disposition and impacts of recyclables overseas. Few cities have spent the time and energy that Palo Alto and GWPA have on this issue, and it is now apparent that GWPA is unable to obtain this information due to recyclables brokers and processors considering it to be trade secrets and confidential. Therefore, staff is now returning to Council with proposed further action, as directed in #5) above. Discussion GWPA has identified domestic processing facilities to take Palo Alto’s recyclable materials where they will become new products, rather than sending them to international markets where their disposition and impacts are uncertain. It has been very difficult for GWPA to find domestic markets for several recyclables, including cardboard, mixed paper, and plastic. Capacity at U.S. processing facilities for these recyclables is very limited and competitive, and this opportunity will be short lived. In addition, as staff continues its engagement with other cities, jurisdictions, and legislators to increase the awareness of the environmental and social concerns with shipping and processing of recyclable materials at international markets, domestic processing of recyclable materials will become progressively more competitive. Staff and GWPA have developed a Fiscal Year 2023 program to take MP and MRP to processing facilities within the United States. MP would go to a pulp and paper mill in northern Louisiana where it would be combined with other wood products and made into paperboard, printing paper, and other paper products within the U.S. MRP would be cleaned, processed, and become part of a feedstock for making bits of plastic often called “nurdles” which are then made into various plastic products in southern California including paint buckets, vehicle parts, and woven plastic items such as upholstery, bags, and rope. These are the same domestic market and materials accepted in the Fiscal Year 2022 3-month pilot program, which excluded cardboard. Cardboard is also not being included for the Fiscal Year 2023 Program because it has a consistent high demand from both domestic and international markets, and its recycling is cost effective. In Fiscal Year 2023, approximately 3,800 tons of MP and 230 tons of MRP would be sent to these domestic processors instead of international markets. The Fiscal Year 2023 Program for MP and MRP will lead to about 59 percent of the recyclable materials staying in the United States to be processed, reducing the amount being exported to 41 percent with only cardboard being processed internationally. Under the GWPA contract provisions without consideration of the domestic processing pilot program, it is estimated that in Fiscal Year 2022 approximately 16,630 tons of recyclable materials will be collected and processed by GWPA at a cost of $27.26 per ton and $98.15 per ton for contaminated recyclables requiring extra processing, as well as a forecast of approximately $55,000 credit for the City’s portion of the profit-sharing methodology. This equates to an estimated Fiscal Year 2022 standard processing cost of approximately $555,000. City of Palo Alto Page 4 This cost will fluctuate annually based on the tonnage collected and the markets of recyclable materials that affect the profit sharing. In addition, as shown in Table 1, in Fiscal Year 2022, the 3-month pilot for domestic processing cost for MP and MRP was an additional $280,000, which was an expenditure provided through the operating budget. For the Fiscal Year 2023 Program, GWPA’s processing costs for only MP and MRP would change and not follow the methodology in the current contract. The remaining processing costs for all other materials would continue to follow the methodology in the current contract with a cost per ton and a profit-sharing based on contract terms. In Fiscal Year 2023, the City would incur a new additional cost per ton for MP domestic processing and an additional set cost for the MRP processing. The cost per MP ton for processing would be based on both a fixed and variable rate that is based on the pulp and paper index which changes regularly; however, staff is capping the cost for the MP processing in order to better control costs. Table 1 summarizes the estimated annual costs for processing the City’s recyclable materials and the estimated annual cost differences. Table 1: Estimated Annual Cost for Processing Recyclable Materials Fiscal Year 2022 Estimated Cost with Pilot Program Fiscal Year 2023 Estimated Cost with Staff Recommendation All Recyclable Materials Processing Cost $555,000 $627,000 Mixed Rigid Plastic Domestic Processing Added Cost $2,400* $9,600 Mixed Paper Domestic Processing Added Cost $277,600* $1,190,400 Subtotal $280,000* $1,200,000 Total $835,000 $1,827,000 *Additional cost applied to three months (April-June of 2022) only, not 12 months. Resource Impact The cost estimate for domestic processing could total as much as $1,200,000. The final cost for the domestic processing is being negotiated at this time with GWPA and the domestic processing facilities. Table 1 includes the Fiscal Year 2023 estimated standard cost for processing recyclables ($627,000), which are already included in the operating budget, plus the new cost estimate for the domestic processing of MP and MRP ($1,200,000) for a total estimated cost of $1,827,000 to process all recyclable materials in FY2023. Table 2 indicates the approximate average cost per customer should this temporary program be negotiated into a permanent service. However, a rate adjustment to cover this cost is not recommended at this time for FY 2023 costs specifically. Table 2: Estimated Average Additional Cost per Residential and Commercial Customer City of Palo Alto Page 5 Estimated Additional Cost Residential Commercial Subtotal based on tonnage $600,000 $600,000 Average cost per customer per year $33.46 $323.10 Average cost per customer per month $2.79 $26.93 A budget proposal to appropriate $700,000 from the Refuse Fund balance to support potential domestic recyclables processing opportunities is included in the Fiscal Year 2023 proposed budget as a placeholder. Should Council approve staff’s recommendations, staff will bring a proposed GWPA contract amendment and associated Budget Amendment in the Refuse Fund to Council to align the contract with this new program and address Council Directive #2 above. Table 3 below shows the projected Refuse Fund rate stabilization reserve (RSR) balance for Fiscal Years 2021 through 2025. This projection includes the additional cost for the recommended domestic processing of recycled materials and models a preliminary projection of 3 percent rate increases in Fiscal Years 2024 and 2025 to align with Consumer Price Index cost increases and future expenses for planned programs. While the RSR balance is decreasing, it is still projected to be greater than the recommended 20 percent of sales metric through the FY 2025 horizon. For example, the reserve upper guideline for FY 2023 is approximately $6.4 million, while the estimated ending reserve balance is $15.0 million. Table 3: Refuse Fund Summary and Forecast with Budget Amendment Recommended Budget Category in Millions FY 2021 (Actuals) FY 2022 (Estimate) FY 2023 (Estimate) FY 2024 (Estimate) FY 2025 (Estimate) Rate Stabilization Reserves (beginning) $16.4 $20.0 $18.5 $15.0 $13.8 Revenues $30.6 $31.9 $32.0 $32.9 $33.9 Expenses $28.7 $33.4 $35.4 $34.2 $34.9 Operating Income $2.0 ($1.5) ($3.5) ($1.3) ($1.0) Rate Stabilization Reserve (ending) $20.0 $18.5 $15.0 $13.8 $12.8 Stakeholder Engagement The current stakeholder engagement includes conducting several virtual forums with other cities and jurisdictions focusing on increasing the knowledge of the environmental and social issues that international shipping of recyclables may be causing, sharing information as well as exploring solutions. These forums were initiated by Palo Alto staff and are being co-sponsored by the City of San Jose. Future forums will include haulers and processors of recyclable materials, members of the public, and the business community. Environmental Review City of Palo Alto Page 6 Consistent with Section 15061(b)(3), Council action on this item is exempt from CEQA review because that redirecting recyclables from international to domestic facilities will not have a significant effect on the environment, i.e. a substantial or potentially substantial adverse impact on the environment. The program is also consistent with the City’s Environmentally Preferred Purchasing Policy, which states that the City shall incorporate environmental, economic and social stewardship criteria into its purchases of products and services, and more specifically minimizing the City’s contributions to global warming, solid waste, local and global pollution, and toxic chemical exposures to people and the environment. In addition, the program aligns with the Sustainability and Climate Action Plan (S/CAP) Update, which proposes a Zero Waste Key Action (ZW7) to prioritize domestic processing of recyclable materials. This Zero Waste Key Action, along with a complete set of S/CAP Sustainability Area Goals and Key Actions, will be reviewed by the S/CAP Ad Hoc Committee in May and brought forth to Council for approval in the Fall.