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
- April 16, 2019 – City Council Meeting (Public Hearing)
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. The City Council also directed staff to set a Public Hearing for April 16, 2019, mail out formal Public Hearing notices to all businesses, and prepare a contract amendment and fee resolution for consideration at the April 16, 2019 meeting.
At the April 16, 2019 City Council meeting, the City Council conducted a properly noticed Public Hearing and received public input. Since the protest votes submitted did not meet the majority protest vote threshold, the City Council had full discretion to approve/not approve the item. After discussion, the City Council decided to continue the item to a future meeting.
The following items were identified as main points of concern by the City Council at the April 16, 2019 meeting. Staff discussed City Council’s concerns with Republic after the meeting. Republic’s responses are incorporated in the responses below each item:
- Term of the amendment – City Council was not comfortable with the organic waste amendment having the same term as the overall refuse contract (20 years remaining).
Response: Republic has agreed to set the term for the organic’s program at five (5) years. After the end of the term, the City can choose to discontinue the program and revert back to where we are today. Republic also did not object to keeping the previously proposed termination language that allows either party to terminate the organic’s program at any time with sixty (60) days advanced notice. However, Republic emphasized that terminating the organic’s program does not change their exclusive franchise rights to recycle organic materials.
- Disposal site location – City Council was not comfortable with Republic selecting the organic’s disposal site and wanted more say in where the waste should go, especially if technology changes in the future.
Response: Republic has agreed to allow the City to specify the disposal site and agrees to dispose at selected site if technologically compatible. If the disposal site is not technologically compatible, Republic will evaluate the feasibility and practicality of purchasing new pre-processing equipment to meet disposal requirements. Republic will calculate the cost for pre-processing and transport of the material and will negotiate a revised cost in good faith.
- Cost of program – City Council was concerned that the first year of the program would not result in many businesses signing up and Republic would be collecting the revenue for little or no organic waste recycling.
Response: The previous proposal provided for a phase-in of the proposed 3.06% Sector Wide increase over two (2) equal increments, 1.53% on May 1, 2019 and the additional 1.53% on January 2020. To address this concern, Republic has agreed to change the increment ratio to 40% / 60%, meaning that a rate increase of 1.22% would go in effect on August 1, 2019 and the additional 1.84% would go in effect on January 1, 2020.
The topics of Program Pricing and Contract Amendment were included in the April 16, 2019 staff report. The following is an updated summary of these sections:
Program Pricing
At the February 5, 2019 City Council meeting, Republic had proposed a 3.55% rate increase. This rate was identified in the Public Hearing notice. Before the April 16th Public Hearing, in an effort of good faith, Republic agreed to reduce the proposed rate increase from 3.55% 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 $33,950 per year when comparing 3.55% and 3.06% rates. Based on the revised implementation schedule discussed in the previous section, additional savings of approximately $63,620 are expected in the first 11 months of the CORP. The total combined savings to businesses in the first 11 months is approximately $97,570 and $33,950 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 August 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 $10.99 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.
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 11 months in two phases (1.22% and 1.84%). If approved tonight, the first phase will be applied on August 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.
City may direct Republic to use an alternative, technologically compatible organic waste processing facility specified by City. Republic will meet in good faith to negotiate any revised cost due to labor and travel time to the substitute facility.
- 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 sets the CORP for a term of five (5) years. The contract amendment also 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 with Republic retaining its exclusive franchise, meaning 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. |