In 1989, the City executed a contract with Taormina Industries (Taormina) (d.b.a. Brea Disposal) to grant an exclusive franchise for the collection, transportation, recycling, composting, and disposal of solid waste, recyclable, and compostable materials. In 1996, the City consented to Taormina’s acquisition by Republic Services, Inc. (Republic). The current contract is a September 3, 2002 restated and amended agreement. Although the contract is with Taormina, discussions regarding the contract commonly refer to Republic due to its status as the parent company. Last December, City Council authorized the City Manager to issue a non-extension notice to Republic. Absent earlier termination by either party, the contract will expire on December 31, 2039.
California Assembly Bill AB 1826 (signed into law on September 28, 2014) requires local governments to establish and implement additional recycling programs. The purpose of this law is to achieve separation of commercial organic waste from the waste stream and diversion from landfills. AB 1826 recycling requirements are phased in over several years and are intended to help the State meet its goal to recycle 75% of its waste by 2020.
Since early 2016, the City has been working diligently to adopt and implement a Commercial Organics Recycling Program (CORP). The following is a summary of prior City Council meetings that included discussion on this topic:
- February 2, 2016 – City Council adopts program, but did not include fees
- January 17, 2017 – City Council Study Session
- May 21, 2017 – City Council Study Session
- January 16, 2018 – City Council Study Session
- May 1, 2018 – City Council Meeting
- July 17, 2018 – City Council Meeting
- February 5, 2019 – City Council Meeting
At those meetings, staff provided information regarding two implementation fee options, Single User “Generator” or “Sector Wide” pricing. After discussion at the February 5, 2019 meeting, City Council selected the Sector Wide implementation option. To conform to Proposition 218 requirements regarding public noticing and protest vote thresholds, that option included: setting a Public Hearing for April 16, 2019; direction to staff to mail out formal Public Hearing notices to all businesses; and direction to staff to prepare a contract amendment and fee resolution for consideration at the April 16, 2019 meeting.
Proposition 218 requires a mailed notice to each property owner and property tenant directly responsible for paying the proposed fee increase (collectively, “rate payers”), followed by a Public Hearing not less than 45 days after the mailing. A notice to rate payers was sent out on February 26, 2019. A copy is provided as Attachment 1.
A Public Hearing is being held for City Council to review the results of the Proposition 218 process, and to consider adopting the solid waste services rates increase for commercial customers for the CORP. Unless protests are received from a majority of rate payers (50% + 1) prior to the conclusion of the Public Hearing, the City Council can adopt Resolution No. 2019-024 to impose this rate increase. In accordance with state law (Government Code § 36936), at least three Council Members must vote in favor of the Resolution for it to be adopted.
20 protests were received by staff at the time this report was prepared. In order for there to be a majority protest on this item, there needs to be 265 protest votes. All protest votes received to date were submitted by Tomlinson Management on behalf of multi-family dwellings they manage.
Program Pricing
At the February 5, 2019 meeting, City Council asked Republic to consider a limited term for the CORP. In subsequent discussions with staff, Republic stated that it will not agree to a limited term because it already has an exclusive franchise to collect all trash, which includes organics. Republic emphasized that the proposed solid waste services rate increase simply pays for the separating and recycling of commercial organics material.
In an effort of good faith, Republic has agreed to reduce the proposed rate increase from 3.55% (which was identified in the Public Hearing notice) to 3.06%. This was accomplished by lowering the City’s tonnage threshold from 1,825 to 1,551. This results in a savings to businesses of approximately $33,100 per year. In addition, Republic has agreed to phase in the proposed 3.06% rate increase over two equal increments: 1.53% on May 1, 2019 and the additional 1.53% on January 1, 2020. This results in an additional savings of approximately $68,450 in the first 14 months of the CORP. The total combined savings to businesses in the first 14 months is approximately $101,500 and $33,100 every year thereafter. The revised proposed rate schedule is included as Exhibit B1 of Amendment No.1.
If approved tonight, the CORP is scheduled to begin May 1, 2019. The most common commercial service level is one 3-yard trash bin serviced three times per week. At this service rate, the sector wide increase would be approximately $10.55 per month at the full 3.06% increase. Participating in the CORP will also give businesses the opportunity to reduce the number of weekly trash pickups, and container size, resulting in an overall offset of costs. The proposed commercial rates are shown in Exhibit B1 of the attached Amendment No.1.
Staff had previously shared a couple of examples of how businesses would be impacted by the proposed fees. The two examples included the Downtown and Embassy Suites. Staff has updated these examples with the proposed full rate of 3.06% and also added a new example to show how a small business that generates very little organics may be impacted. Please see Attachment 2a-2c for the examples. As you can see, businesses that add organic containers and reduce their regular trash service by a proportional amount will see an offset towards the cost of CORP.
Contract Amendment
A contract amendment is required to update service needs for the CORP into the contract with Republic. The contract amendment will require Republic to make commercial organics recycling services available to all businesses, including multi-family customers. Republic will also tailor the program to fit the waste generation and space constraints of each commercial customer.
The following are highlights of important points included in the proposed amendment:
- Outreach and Business Coordination:
Republic will be responsible for initially contacting all businesses and for contacting out-of-compliance businesses on a semi-annual basis. Republic will also be responsible for ongoing outreach once a business signs up for organic recycling.
- Reporting Requirements:
Republic will collect all recycling data and address any and all inquiries from CalRecycle. Republic will also provide all information required by CalRecycle for the City’s annual report.
- Rate Schedule (Rate Phasing):
Republic will phase-in the proposed 3.06% rate increase over the first 14 months in two equal (1.53%) phases. If approved on April 16th, the first phase will be applied on May 1, 2019 and the second phase will be applied on January 1, 2020.
- Rate Adjustment Methodology:
Republic will be eligible for an annual rate adjustment per methodology in the existing contract, which uses the Consumer Price Index (CPI). In addition, Republic will be eligible for an additional Disposal Cost increase in the event of excessive cost increases from its third-party disposal site operator. If the proposed disposal cost exceeds the CPI increase, then Republic and the City will negotiate a fair increase in good faith. See Exhibit 2 of Amendment No.1.
If Republic makes changes to the processing or disposal methods that results in savings to Republic, then Republic shall provide the City with a 90-day advance notice and shall meet in good faith to negotiate a fair rate adjustment credit to commercial customers.
- Rebalancing Adjustment:
Republic will have until end of 2022 to meet or exceed the tonnage threshold of 1,551 tons of organic material per year. If the tonnage threshold is not met, effective July 1, 2023, the rates on Republic’s non-fixed costs will be reduced according to the Rate Adjustment Methodology shown in Exhibit 3 of Amendment No.1.
- Program Termination:
City Council has expressed concern with the future of organics recycling and with limiting the City’s ability to adjust to future technology and potential changes in legislation. The contract amendment allows either Republic or the City to terminate the CORP after 60 days advanced notice. Termination will restore organics recycling to how it is handled today without a CORP. As long as Republic retains its exclusive franchise, the City will not be able to seek another hauler or entity to implement a CORP.
If City Council approves the solid waste services rate increase for commercial customers for the CORP, then staff recommends that City Council approve Amendment No.1 to include the program requirements in the solid waste contract with Republic. |