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HomeMy WebLinkAbout2025-11-04 Finance Committee Summary MinutesFINANCE COMMITTEE SUMMARY MINUTES Page 1 of 10 Regular Meeting November 4, 2025 The Finance Committee of the City of Palo Alto met on this date in the Community Meeting Room and by virtual teleconference at 5:30 PM. Present In-Person: Burt (Chair), Lythcott-Haims, Reckdahl Absent: None Call to Order Chair Burt called the meeting to order. The clerk called the roll. Public Comment None Agenda Items 2. Recommendation to City Council for Approval of Amendment No. 2 to Contract C09124501A with GreenWaste of Palo Alto to Extend the Term for an Additional Four Years Through June 30, 2030, for an Estimated Average Annual Compensation of $24,840,211, including an Estimated $1,400,589 in Additional Expenses; Approval of Replacement of Aging Collection Vehicles for an Estimated $5,900,000 in Additional Expenses; Approval of a Budget Amendment in the Refuse Fund; and Approval of Amendment No. 1 to the Revocable Non-Exclusive License For Use of a Portion of the Former Los Altos Treatment Plant Located at 1237 San Antonio Road by GreenWaste of Palo Alto Through June 30, 2030; CEQA Status - Not a Project Agenda Items Reordered, Late Packet Report Added Brad Eggleston, Director of Public Works, introduced several City employees who were in attendance at this meeting and stated that several representatives from GreenWaste were present also. Paula Borges, Solid Waste Manager, presented slides describing the background of GreenWaste of Palo Alto (GWPA) and the 4 recommendations being proposed. The contract with GreenWaste began in July 2009, with the last contract term extension approved in 2019 that extended the contract to June 2026. The contract was most recently amended in December 2022 to implement domestic recycling of mixed paper and mixed rigid plastics. Since 2016, GWPA had a license to use a portion of the Los Altos Treatment Plan (LATP), which would SUMMARY MINUTES Page 2 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 expire on June 30, 2026. The first recommendation was to extend the GWPA contract for 4 years to end in June 2030 and included additional compensation for vehicle repair and maintenance as well as bin replacements. A slide was shown listing benefits to Palo Alto for this, including continuity of services, control of expenses, price stability, and continued use of local processing facilities. A timeline was presented showing major projects happening to move toward zero waste. Additional compensation for the 4-year term extension would be a total of approximately $1.4 million. The second recommendation involved replacement of 9 collection vehicles and a strategy to reduce the frequency of vehicle replacement and align the life of vehicles with a 10-year replacement schedule. Manager Borges noted that at the end of the GWPA contract, the City would have the option to either acquire the vehicles from GreenWaste or instruct GreenWaste to sell the vehicles and return that amount to the City. Two options for vehicle replacement expenses were presented, one using the Refuse Fund reserves and the second requiring a loan. It was being recommended to use the Refuse Fund reserves, which could absorb the higher up-front expense. Manager Borges presented a slide showing GWPA's compensation until 2030, which included the base compensation for current services as well as vehicle maintenance/replacement and bin replacements. For Fiscal Year 2026, an additional expense was estimated of approximately $2.6 million to be done through a budget amendment. Manager Borges stated this budget amendment would enable the City to benefit from GWPA's open order for vehicles and would save the City money. The Refuse Fund beginning FY 2026 rate stabilization reserve balance was about $15.5 million and exceeded the recommended guideline range of 10 to 20 percent of sales. A table was shown showing FY 2025 refuse/solid waste residential rates for Palo Alto compared to neighboring cities. Approximately 88 percent of Palo Alto residential ratepayers were under the Supersaver (20-24 gallon) and Small (32-35 gallon) categories. The final recommendation being proposed was to approve the LATP license extension, which would allow GreenWaste to continue using the site for charging electric vehicles, having a small office trailer, and storing containers. Public Comment: None Councilmember Lythcott-Haims noted that the contract value annually was about 5 percent of the General Fund and was curious how many other single vendors had contracts with such a large percentage of the City's General Fund. Director Eggleston responded that this was an Enterprise Fund and, therefore, not part of the General Fund, and it was not believed there were any of these large single-vendor contracts in the General Fund. Councilmember Lythcott- Haims wanted to know why the City of Palo Alto, as the client, was paying for the vehicles and the repairs and questioned if that was standard in this industry. Councilmember Lythcott-Haims also asked what other municipalities GWPA supported and what portion of those costs they were responsible for. Manager Borges explained that it was normal for hauling contracts to have jurisdictions pay for the collection of services and maintenance of vehicles. GWPA belonged to a bigger umbrella company referred to as GreenWaste, which provided a mixture of services in the Bay Area. Although Palo Alto was not the only municipality that GWPA provided collection services for, Palo Alto was the only one they provided such a large group of SUMMARY MINUTES Page 3 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 services to. Director Eggleston further clarified that the vehicles Palo Alto purchased for GWPA were not being used to service other communities and were dedicated to Palo Alto operations. Councilmember Lythcott-Haims questioned if the LATP located on San Antonio Road was in the City of Palo Alto. Chair Burt explained that Los Altos owned the land but it was always in the municipality of Palo Alto. Councilmember Lythcott-Haims wondered if there was any additional room at the LATP to accommodate RV storage for RV dwellers moving into the Homekey shelter site. Director Eggleston reminded that the operation at LATP was previously located at Geng Road for decades and had since been turned into the Safe Parking Program. Councilmember Lythcott-Haims noted that the Geng Road Safe Parking site currently had 22 spots but that more spots were needed. Manager Borges said that GreenWaste was currently in a temporary location at the LATP, which had an old tank in the middle of it and was previously being considered for a recycled water project. Therefore, once the Homekey Project was complete, GWPA would move the storage of their containers to the site adjacent to Homekey. Chair Burt also expressed interest in this site for RV storage. Kiely Nosé, Assistant City Manager, added that Parcels A, B, and C in that area had been rearranged with Homekey and GreenWaste. The City was the owner, but the Refuse Fund actually owned a piece of the land at that site and therefore, there would be a cost to store RVs there, not free like Geng Road. Chair Burt queried which parcel was owned by the Refuse Fund. Assistant City Manager Nosé believed approximately 50 percent of Parcels A and B combined were owned by the Refuse Fund and that Parcel C was possibly being looked at for a purified water facility. Chair Burt felt that a follow-up discussion should be had with respect to storing RVs on Parcel C. Councilmember Lythcott-Haims stated interest in learning more about the possibilities for Parcels A, B, and C. Councilmember Reckdahl asked how many days a week the trash collection trucks were currently used. It was stated the collection trucks were used Monday through Saturday. Councilmember Reckdahl queried if it would make financial sense to have GreenWaste use those trucks for other cities, and Manager Borges reiterated that those trucks were dedicated to and customized for Palo Alto. Spare vehicles were available for vehicle breakdowns, with the exception of the rear loader collection vehicle which had no spare vehicle. GreenWaste had to borrow a rear loader collection vehicle from a sister company when it broke down. GreenWaste also rented a rear loader and asked the City of Palo Alto to pay for rental costs, to which the City said no because it was not an allowed cost in the contract. Manager Borges stated that this was why a rear loader collection vehicle was a part of the list of 9 vehicles to be replaced. Councilmember Reckdahl was surprised that the rental issue was not in the contract. Manager Borges stated the issue of rental was not contemplated in 2009 or when the contract was last extended. Councilmember Reckdahl noticed that vehicle replacement was bumped from every 8 years to every 10 years and asked what would prevent the City from bumping it up to every 12 years in the future. Manager Borges explained that it was a risk for repair and maintenance and a risk to affect operations and stated that the standard in the solid waste industry was 10 years for vehicle replacement. SUMMARY MINUTES Page 4 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 Councilmember Reckdahl asked for an explanation of the slide pertaining to Recommendation #3, Budget Amendment, again. Manager Borges reiterated that there were 4 collection vehicles at 10 years old in calendar year 2026. Because GreenWaste had an open order for vehicles, the City had the ability to obtain 4 collection vehicles in the spring of 2026, which would require a budget amendment to pay for these vehicles. That cost would be approximately $2.6 million and would come out of the Refuse Fund reserves. Councilmember Reckdahl queried if this cost was anticipated, and Manager Borges confirmed that it was not. Councilmember Reckdahl wanted to know if there were ramifications when the Refuse Fund reserves got above the recommended guidelines. Assistant City Manager Nosé answered that there were no ramifications and that this was a typical fluctuation that was seen. Chair Burt was happy to read in the report that the reserve was very strong and would be able to pay for this budget amendment. Chair Burt was curious to know if an increase in reserves meant that there was room to have additional operating costs without a rate increase. Director Eggleston stated yes, but added that there had not been a commercial rate increase in this fund since FY 2017 and a residential rate increase since FY 2018. With operating expenses increasing each year, that eventually would turn around. Chair Burt wondered when that point would be, and Director Eggleston said they were doing some of those projections as part of the Cost of Service Study Analysis. Director Eggleston believed that having GreenWaste for another 4 years was still a good deal but that costs were likely going to increase at that point when the City did a new solicitation and so they wanted to plan for that. Councilmember Reckdahl wanted to discuss Slide #9, which described the options for how to pay for vehicle replacement expenses. These 2 options were summarized by saying the City could pay for these expenses up front because there was money in the Refuse Fund reserves instead of paying for interest on a loan. Director Eggleston stated a big difference was that the loan option would be at a 7 percent interest rate and that the option of using the reserve fund would save approximately $500,000. It was explained that after looking at the numbers, it did not make sense to make a recommendation to budget for the new vehicles. Chair Burt assumed the reserve fund was for an anticipated but not calculated need such as this. Councilmember Reckdahl noted that on the slide showing solid waste rates for Palo Alto and surrounding cities, Palo Alto was given big incentive to cut down on waste whereas a few cities charge more for smaller gallon pickups. Director Eggleston believed the reason for this was partly philosophical and partly because of the results of a cost of service study. Palo Alto was one of the local communities that had a higher diversion rate of 88 percent. Manager Borges reminded that the rate being paid for the garbage service was a bundled service which included several costs. Palo Alto was the only city in Santa Clara County and San Mateo County that had its own household hazardous waste station. Chair Burt said it was important to be able to explain to the community that the residents were getting a good deal for garbage services and felt that the higher diversion rate should be emphasized to the public. Chair Burt asked for an update on domestic recycling and also if GreenWaste had any new improvements in their recycling technologies. Manager Borges stated an informational report was provided to Full Council that updated what had been done through 2024 and that SUMMARY MINUTES Page 5 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 approximately 60 percent of materials were being kept domestically with mixed paper, mixed plastics, and a portion of cardboard. Chair Burt stated this was an important achievement and should be shared with the community. GreenWaste had started incorporating artificial intelligence into their processing line and offered tours to view this process. Councilmember Lythcott-Haims queried how the Public Works Department gets these positive stories out to the public. Manager Borges answered that they work very closely with the communication team at the City Manager's office, a weekly newsletter was being sent to subscribers, posts on social media were made, and utility bill inserts were created. Another goal was to build more community partnerships. Chair Burt opined that overall the City had been very pleased with GreenWaste and the fact that Palo Alto was very cost competitive for garbage services. MOTION: Councilmember Reckdahl moved, seconded by Councilmember Lythcott-Haims, to recommend the City Council: 1. Approve Amendment No. 2 to Contract No. C09124501A with GreenWaste of Palo Alto to extend the term for an additional four years to end June 30, 2030, for an estimated average annual compensation of $24,840,211, including an estimated additional cost of $1,400,589 for additional expenses in vehicle repairs and maintenance, and container replacements; 2. Approve and authorize the replacement of aging collection vehicles for an estimated total of $5,900,000; 3. Amend the Fiscal Year 2026 Budget Appropriation for the Refuse Fund (requires a 2/3 majority vote) by: a. Decreasing the Refuse Fund balance by $2,610,000; and b. Increasing the Collection, Hauling, Disposal appropriation for Refuse Collection by $2,610,000; and 4. Approve Amendment No. 1 to the revocable non-exclusive license for GreenWaste of Palo Alto to continue using a portion of the Former Los Altos Treatment Plant, located at 1237 San Antonio Road, for an additional four years to end June 30, 2030. MOTION PASSED: 3-0 1. Update on the Regional Water Quality Control Plant Wastewater Treatment Fund, Capital Improvement Program, and Long Range Facility Plan; CEQA Status – Not a Project Agenda Items Reordered Brad Eggleston, Director of Public Works, introduced Aaron Gilbert, who had become Manager of the Palo Alto Regional Water Quality Control Plant just over a year ago, and Tina Pham, who SUMMARY MINUTES Page 6 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 had become Senior Engineer at the plant in March. Director Eggleston was particularly interested in feedback from the Finance Committee on the cost allocation recommendations in the report. Tina Pham, Senior Engineer, presented a slide that showed an aerial view of where the Palo Alto Regional Water Quality Control Plant (RWQCP) was and emphasized that it was a regional facility that provided wastewater treatment service to 6 agencies: Palo Alto, Mountain View, Los Altos, Los Altos Hills, East Palo Alto, and Stanford University. Another slide was shown which was an aerial view of the plant depicting existing and near-future projects. A summary of the capital work in progress planned work for the next 5 years was given. The largest capital project was the Secondary Treatment Upgrades Project, which addressed nitrogen removal and aging infrastructure and had an expense of $193 million. The Advanced Water Purification System Project kicked off earlier this year and would reduce salinity in recycled water, with an expense of $59.9 million. The Horizontal Levee Pilot Project, with an expense of $2.8 million, would be a nature-based approach for flood control. The Outfall Pipeline Project would include a new 63-inch diameter pipeline and rehabbing the existing 54-inch line to address capacity issues, leaks, and sea-level rise adaptation, with an expense of $17.8 million. The New Laboratory and Environmental Services Building Project would include tenant improvements to the leased building at 2470 Embarcadero Way for lab and engineering staff, with an expense of $18.7 million. The Headworks Facility Project included a new deep structure housing bar screens, grit removal, new raw sewage pump stations, and raw sewage force main rehab, at an expense of $162 million. The 2 pumps at the existing plants were built in 1956 and 1972 and desperately needed work. The final item for capital work was Projects in Progress, which would be up to $10 million and consisted of a multitude of smaller projects. The challenge was to keep everything operating while rebuilding the facility and meeting the regulatory permitting requirements. Senior Engineer Pham reiterated that the space was very tight at the plant. The RWQCP was the 6th largest wastewater treatment plant in the Bay Area and served 236,000 people, all done within 25 acres. The original Long Range Facilities Plan was completed in 2012 and meant to provide a plan for future capital improvement projects. The current full update was being led by the consultant, Carollo Engineers, and was started in 2024, hoping to finish in 2027. Senior Engineer Pham discussed Capital Cost Allocation versus O&M Allocation. Capital Costs were based on fixed capacity rights ensuring stable and predictable shares between partners. They covered large capital projects and debt service. O&M costs were based on actual usage, and the cost allocation was recalculated every single year. It was very common in other utilities to have fixed costs versus variable costs. The goal was to increase fairness for the allocations. For Capital Cost Allocations, the recommendation was to maintain the existing capacity rights. For O&M Cost Allocations, the recommendation was to simplify the formula to streamline the calculation, to return to historical practice of dry weather sampling, and to use a 3-year rolling average to calculate each agency's share of O&M costs to reduce volatility in cost allocation. SUMMARY MINUTES Page 7 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 A chart was presented showing Historical Wastewater Flows for the last 15 years. Senior Engineer Pham pointed out that this data showed that water conservation was definitely in effect. A blip in the data during COVID explained where people lived and worked during that time, and post-pandemic flow had now since normalized. Councilmember Reckdahl asked what the reason was for the long-term trend in less water usage, and Senior Engineer Pham answered that it was believed to be due to water conservation. Karin North, Assistant Director of Public Works, added that it was also because industrial sources had left the area. A slide was shown listing each of the 6 partner's capacity rights versus current and future flows, and the data confirmed that no partner was near their allocated capacity rights, which was why no major shifts were being recommended. The Headworks Project was sized to treat up to 80 MGD (million gallons per day) because of storms and wet weather. Councilmember Reckdahl was curious to know more about the Headworks Project. It was stated this large $162 million project would physically treat the flow going to the plant and would help protect the equipment downstream. The objectives of a Workspace Planning Approach were to provide efficient workspace for RWQCP operations, lab, and administrative staff; provide site space for construction and future treatment processes; and support a flexible, long-term campus strategy rather than a single new building. In August 2023, Council had authorized staff to explore the purchase of adjacent properties, and several adjacent properties were being considered. Senior Engineer Pham presented a slide showing fund changes for the next 10 fiscal years, including the Operations Budget, Recurring Minor Capital Projects Budget, Existing Debt, and Future Planned Debt Forecast. In FY 2030, Future Debt would change significantly due to the Secondary Treatment Upgrade Project. A line of credit (LOC) would be utilized to support the Capital Program. Council approved this LOC of $31 million in June 2024. It was confirmed with the State that the existing SRF loan agreements allowed for the use of a line of credit. An LOC was needed because of gaps in SRF reimbursements and would allow flexibility to move forward with time-sensitive projects. The LOC would be anticipated to be executed in early 2026 and would not be used to fund operational costs, only to manage timing mismatches in capital project funding and to maintain project momentum. The consultant was asked to do a Reserve Policy Study to help benchmark against other regional utilities and to help Palo Alto set clear targets for operating capital and rate stabilization reserves. Preliminary recommendations from this study were expected in the summer with implementation in FY 2028. A slide was shown comparing Palo Alto RWQCP CIP Program to other regional treatment plants. Palo Alto was also quite competitive for monthly residential sewer utility bill rates. Public Comment: None Councilmember Lythcott-Haims welcomed Senior Engineer Pham and Manager Aaron Gilbert and thought the plans to maintain the existing capacity and to reallocate O&M costs made sense. Councilmember Lythcott-Haims questioned why Palo Alto's commercial wastewater SUMMARY MINUTES Page 8 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 rates were higher in comparison to neighboring communities. Assistant Director North stated that the utilities team was going to the UAC for rate discussion and then coming back to the Finance Committee. Director North did not set the rate model for commercial and restaurant rates. Councilmember Reckdahl wanted to discuss the bar chart on Packet Page 26 and asked if having a lot of capacity is a good thing or a bad thing. Assistant Director North answered that the plants were built when there was a lot of industry and more water was available. It was reiterated that they were just trying to maintain existing infrastructure, not add capacity. The Headworks Project addressed the peak flow factor, especially during storm events. Councilmember Reckdahl questioned what happened if the plant gets too much water. Assistant Director North said diverting flows was allowed in the permit and that maintenance and construction were not done in the wet weather. Councilmember Reckdahl asked about the term "cured-in-place pipe" (CIPP) in the staff report. It was explained that this was the process of putting a big sleeve inside a 72-inch pipeline and curing it, which would hopefully last another 50+ years and was quite an extensive process. Assistant Director North added that every capital project had to be approved by all of the partners' councils. Councilmember Lythcott-Haims asked if there was concern about population growth in the long term. Senior Engineer Pham said population growth was taken into account when doing the Long Range Facility Plan. Chair Burt discussed how the State Department of Transportation and Department of Finance projected significantly less growth in population than previously thought. Assistant Director North clarified that her department went to each city's planning department for projection of population numbers. Councilmember Reckdahl was curious to know what the general feeling was from each partner about their share of cost allocation. Assistant Director North said none of these partners had expressed interest in changing their share. Director Eggleston reiterated that each partner was around the 50 percent mark in capacity. Senior Engineer Pham stated that other facilities were surveyed and that they typically handle capital cost in the same way. Councilmember Reckdahl questioned if this was a leaky pipe issue or a sensing issue. Assistant Director North stated it was most likely a leaky pipe issue. Chair Burt was interested to know how much was being invested in the program to deal with the leaky pipes versus what was being invested in capital in response to a peak flow, and Director Eggleston did not have an answer to that question at this point. Chair Burt discussed Mountain View's benefit of using recycled water and pointed out that in the projected 2040 flow, their use would be higher than Palo Alto. Chair Burt suggested that cost allocations between the 6 partners may need to be reevaluated sooner than 2040 because of the projected flows. Concerning Packet Page 11, Table 3, Councilmember Reckdahl wanted to know why the Total Suspended Solids were eliminated from the Proposed Formula in FY 2028. Assistant Director North stated that Total Suspended Solids oftentimes got clogged when trunk line sampling was done, making the data imperfect. Also, shifting some cost to the ammonia cost component SUMMARY MINUTES Page 9 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 would reflect what was being done with nutrient removal. Councilmember Reckdahl asked if the other partners' percentages were about the same as Palo Alto. Senior Engineer Pham said each partner's mix could differ depending on residential versus commercial businesses. Regarding Table 2 on Packet Page 9, Councilmember Reckdahl asked why Alternative #1, Maintain Capacity-Based Allocation, was being recommended versus the other alternatives. Senior Engineer Pham answered that this option was supported by recent, historical, and projected flows. Alternatives #2 and #3 really had no regional precedence or data to give support. Alternative #4, Project-by-Project Allocation, was already being done to some extent, such as in the Joint Interceptor Project. Alternative #5, Population-Based Allocation, was felt to lack alignment with plant cost drivers. Based on the research done by the consultant and with regional partners, it was clear all partner agencies were well under their capacity rights, and so there was no real driver for change at this moment. Councilmember Reckdahl inquired what water would be in the Horizontal Levee. Assistant Director North explained that it would be fully treated effluent and would be the third discharge location. This horizontal levee was a small permanent pilot program and was the first one in the Bay Area. This type of levee would provide a refuge for endangered species during king tides and would also decrease the impact of storm surge. Permitting had taken 8 years. Councilmember Reckdahl wanted to know if the term "unutilized fee" (Table 4, Packet Page 14) meant that this fee had to be paid on the total potential principal for a line of credit and wondered if this was standard. Assistant Director North confirmed that this was standard for an LOC. Councilmember Reckdahl asked what the typical spread was that would have to be paid on top of SOFR (Secured Overnight Financing Rate). Christine Paras, Assistant Director of Administrative Services, believed it was about a 50-point spread. Councilmember Reckdahl asked what this LOC was being secured with. Assistant Director Christine Paras believed the LOC would not be collateralized with buildings, etc., but this would be double checked with the financial advisor. The plan was to have the LOC to draw on as construction was done, and then it would be rolled into a bond at the end. Councilmember Reckdahl questioned if an LOC like this had been done in the past for other projects. Assistant Director North stated this would be the first time the RWQCP had used an LOC for this reason. Chair Burt asked if the Measure E site would be used for construction going forward. Senior Engineer Pham responded that her team was currently in the process of updating the Biosolids Facility Plan, but the recommendations were not ready yet. It was confirmed that emerging contaminants included PFAS. Chair Burt offered the idea of the RWQCP collaborating with environmental volunteers to give tours at the plant. Councilmember Lythcott-Haims questioned if public health data reporting was mandatory or voluntary. Assistant Director North stated it was not required but they were still actively working with Santa Clara County to get an indication for outbreaks and that this had not changed. NO ACTION SUMMARY MINUTES Page 10 of 10 Finance Committee Meeting Summary Minutes: 11/04/2025 Future Meetings and Agendas Lauren Lai, Chief Financial Officer/Director of Administrative Services Department, stated that at the meeting in 2 weeks the Finance Committee would be looking at major revenues in the retiree benefit policy update, several utility items, the gas cost-of-services analysis, and the preliminary financial forecast and rates. There would also be an update on the Finance Committee referrals. In December, the meeting would include the long-range financial forecast, the audit, and Q1. Adjournment: The meeting was adjourned at 7:30 PM.