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HomeMy WebLinkAbout2019-12-10 - AGENDA REPORTS - COMMERCIAL SOLID WASTE FRANCHISE RATE ADJUSTMENT (2)Agenda Item: 7 DATE: December 10, 2019 SUBJECT: COMMERCIAL SOLID WASTE FRANCHISE RATE ADJUSTMENT DEPARTMENT: Neighborhood Services PRESENTER: Darin Seegmiller RECOMMENDED ACTION City Council adopt a resolution approving the Eighth Amendment to the Amended and Restated Agreement between the City of Santa Clarita and Burrtec Waste Industries, Inc., for commercial solid waste management services, allowing an extraordinary rate adjustment through the incorporation of an additional fee of $2.29 per cubic yard, subject to City Attorney approval. BACKGROUND Burrtec Waste Industries, Inc. (Burrtec), provides commercial solid waste management services to the City of Santa Clarita (City) in accordance with the Amended and Restated Franchise Agreement (Agreement) dated May 2, 2012. Per the Agreement, Burrtec retains the exclusive right to provide solid waste handling services to all commercial premises in the City. The current term of the Agreement is through June 30, 2023, and may be extended for a short term at the City's option, or may be otherwise extended via mutual agreement between the City and Burrtec. In 2017, China, the largest importer of recyclables in the world, began implementing policies, collectively referred to as the National Sword, which restrict foreign imports of recycled materials. These policies also set China on a path toward banning the import of recycled material all together in 2020. China's actions have been the primary cause of an industry -wide increase in the cost of processing recyclables and a decline in the value of recycled commodities such as mixed paper, to historically low levels. These drastic changes in the recycling market have been highly impactful to waste collectors because they rely upon revenues from the sale of recycled materials to offset operational costs and rates. Section 6.6 of the Agreement allows Burrtec to request a rate adjustment in the event of extraordinary changes in the cost of providing services. On October 4, 2019, Burrtec submitted a request for an "Extraordinary Rate Adjustment," citing changes in the recycling market due to China's National Sword Policy as the primary reason for the request. They specifically cite an 82 Page 1 percent decline in the value of mixed paper from 2011 to 2018. Mixed paper has historically been the largest by volume and revenue of recyclable commodities collected and sold. Burrtec's request would incorporate a new $2.29 per cubic -yard component to the City's current rate structure to fund recycling operations, effective January 11, 2020. If approved, the most common service level, a three cubic -yard container serviced once per week, would increase from $90.90 per month to $123.98 per month, an increase of $33.08 per month. Most Common Service Level Current Monthly Rate Requested Monthly Rate 3yd container serviced weekly $90.90 $123.98 In response to this request, the City engaged a solid waste consultant, R3 Consulting Group, Inc., (R3) to analyze the following items: • The terms and conditions of the current Agreement; • Burrtec's company -wide audited financial statements for 2017 and 2018; • Financial information for Burrtec's hub of operations from which services to the City are performed; • Financial information specific to the performance of services under the Agreement; and • The basis for Burrtec's extraordinary rate adjustment request. R3 also reviewed surveys of comparable rates as a means of determining the reasonableness of Burrtec's request within the context of the regional marketplace for commercial solid waste R3 FINDINGS In reviewing Burrtec's internal financial records, R3 found that Burrtec's operations related to its Agreement with the City, are operating at a loss as a result of: • Decreases in recyclables revenues; • Increases in recyclables processing costs; • Increases in disposal of recycling residual; • Increases in landfill and organics tipping fee; • A growing gap between rate revenues and the cost of providing services; and • Increases in other expenses, such as labor, equipment, insurance, and general and administrative services, which are currently outpacing the Consumer Price Index. Specifically, with respect to the services provided to the City via the Agreement, R3 found that Burrtec's 2019 operating expenses are projected to be 15 percent greater than revenues received from ratepayers, not including any operating profit. Burrtec's commercial rate for customers within the City is currently among the lowest, if not the lowest, in the region. A separate independent survey of commercial rates in 63 regional communities indicates that in 2018, Santa Clarita's rates for a three cubic -yard trash container serviced once per week, the most commonly subscribed to service level and comprising 28 Page 2 ,350.©0 1300,00 szso 00 ,200, 00 ,I5o Do ,100.0o $50,00 $0 Sao percent of commercial customers, were the lowest of those surveyed and ranged as high as $300 per month. The proposed monthly rate for 2020, as compared to the 2018 survey results, would still put the City's rates at the fourteenth lowest in the region. Burrtec informed the Santa Clarita Valley Chamber of Commerce (Chamber) of their requested rate increase. The Chamber provided the City with the attached letter in support of staff s recommended action. Commercial fate Comparison LA County Solid Waste Survey - Commercial (dates as of December 1, 2018 (3yd container serviced weekly) Santa Iaarita $90.90 Burrtec Request $123.98 County Average,,,, $158.11 F Burrtec's request is calculated using the cost of providing recycling collection and processing services, which are then spread out over the monthly solid waste rates based on level in cubic - yards of subscription, yielding $2.29 per cubic -yard. R3 found Burrtec's methodology to be reasonable, logical, and based on verifiable information found in Burrtec's financial and operating management systems. R3 found that Burrtec's request would be sufficient to overcome the current deficit between rate revenues and expenses, increases in recycling expenses and decreases in recycling revenues, and deliver profits within the industry standard range. Furthermore, applying the increase in this manner would provide financial incentives for customers to recycle more materials in order to reduce their costs, thus providing the ability for ratepayers to mitigate the impacts of the new charges by "right -sizing" their waste services to meet their actual needs. The City is under no obligation to approve Burrtec's requested rate adjustment. Per Section 6.6 Page 3 Extraordinary Adjustments of the Agreement, approval of the adjustment is subject to the "City's sole judgement and absolute, unfettered discretion" to "make the final determination as to whether an adjustment to the maximum rates will be made, and, if an adjustment is permitted, the appropriate amount of the adjustment." However, R3's analysis suggests that a determination not to approve the requested extraordinary rate adjustment will mean that Burrtec's losses under the Agreement with the City will continue, since prior recyclables revenues are not expected to return to prior levels and recyclables processing costs are likewise expected to continue to increase. The City may approve an extraordinary rate adjustment at an amount less than requested by Burrtec which would increase the likelihood that Burrtec's profits will remain below the industry standard range. ALTERNATIVE ACTION Other action as determined by the Council. FISCAL IMPACT If approved, the City will receive additional Solid Waste Franchise revenues of approximately $175,000 per year. ATTACHMENTS Burrtec Extraordinary Rate Adjustment Request Burrtec Eighth Amendment Resolution SCV Chamber - Recycling Cost Increase Support Letter Page 4 BURRTEC HFASTE t ST" t ', INC. "We'll Take Care 01'It" October 4, 2019 Mr. Curtis Williams City of Santa Clarita 23920 Valencia Blvd Santa Clarita, CA 91355 RE: Commercial Extraordinary Recycling Adjustment Dear Curtis: Pursuant to the City of Santa Clarita's Agreement for Commercial Solid Waste Services, Burrtec respectfully requests an extraordinary commercial rate adjustment to include a cost component for recycling services. As we have discussed, the current commercial trash rate structure does not support the required "no additional charge" recycling collection services. The recyclables commodity markets have been severely impacted by decreases in global recycling commodity market values to the extent that commodity sales revenues no longer offset the costs of processing, transportation, and residue disposal. Given the industry's heavy reliance on foreign markets, particularly China, to accept recyclable materials such as paper, cardboard, and plastics; the cost impacts have proven to be industry changing and unsustainable. The primary cause is China's January 2018 "National Sword" policy establishing strict new contamination thresholds that included importation bans on mixed paper and various other recyclables. This is best illustrated by the Paper Pulp Index (a national recyclables commodity market value index) where the mixed paper per ton market rates were recorded at $181 per ton in 2011 and $32 per ton through October 2018, an unprecedented 82% decrease. The proposed rate adjustment includes a $2.29 per yard recycling cost factor. The customer impact is illustrated on page 2 for the most common trash service level of one 3 yard bin serviced one time per week. Even with the requested extraordinary adjustment, the City's rates will remain among the lowest, if not the lowest, in Los Angeles County and beyond. The attached rate sheet includes the recycling cost impact for all trash bin service levels in order to sustain the mandatory commercial recycling program. 9890 Cherry Avenue a Fontana, Caftfomia 92335 a 90.9-429-4200a FAX -4 9- Packet Pg. 68 3 yard bin, I per week Rate service F 2019 Rate before Recycling Costs 54.58 2019 Rate with Recycling Costs 24.81 2019 Rate Request 54.58 Rate Component Break -Down 10.00% Franchise Total rclinq Disposal Fee Rate - 27.23 9.09 90.90 29.77 27.23 9.09 90.90 29.77 27.23 12.40 123.98 On behalf of Burrtec Waste Industries we would like to thank the City of Santa Clarita for their time and consideration on this issue and look forward to more detailed discussions. 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(Burrtec), entered into that certain "Agreement Between the City of Santa Clarita and Burrtec Waste Industries, Inc., for Commercial Solid Waste Management Services;" and WHEREAS, on May 24, 2011, the City Council directed staff to execute an Amended and Restated Agreement with Burrtec; and WHEREAS, pursuant to Section 6.6 of the Amended and Restated Agreement, Burrtec is entitled to pursue extraordinary adjustment requests in the event of extraordinary changes in the cost of providing service under this agreement; and WHEREAS, recyclable material markets have changed from providing net revenues to offset program costs and rates to a net expense for cost recovery due to processing costs exceeding the value of materials sold; and WHEREAS, recyclable material markets have changed from providing revenue to offset program costs to a model of cost recovery for processing the materials prior to sale; and WHEREAS, the City and Burrtec desire to amend the Amended and Restated Agreement by increasing the maximum rates as outlined in Sections 6.6 of the Agreement Between the City of Santa Clarita and Burrtec Waste Industries, Inc., for Commercial Solid Waste Management Services. NOW, THEREFORE, the City Council of the City of Santa Clarita, California, does hereby resolve as follows: SECTION 1. The "Eighth Amendment of the Amended and Restated Agreement Between the City of Santa Clarita and Burrtec Waste Industries, Inc., for Commercial Solid Waste Management Services" (Eighth Amendment), a copy of which is attached hereto is hereby approved. The City Manager is authorized to execute the Eighth Amendment on behalf of the City. SECTION 2. The City Clerk shall certify to the adoption of this resolution. PASSED, APPROVED, AND ADOPTED this 101h day of December 2019. MAYOR ATTEST: CITY CLERK DATE: STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) ss. CITY OF SANTA CLARITA ) I, Mary Cusick, City Clerk of the City of Santa Clarita, do hereby certify that the foregoing Resolution 19- was duly adopted by the City Council of the City of Santa Clarita at a regular meeting thereof, held on the 10th day of December 2019, by the following vote: AYES: COUNCIL,MEMBERS: NOES: COUNCIL,MEMBERS: ABSENT: COUNCIL,MEMBERS: 2 CITY CLERK EIGHTH AMENDMENT OF THE AMENDED AND RESTATED AGREEMENT BETWEEN THE CITY OF SANTA CLARITA AND BURRTEC WASTE INDUSTRIES, INC., FOR COMMERCIAL SOLID WASTE MANAGEMENT SERVICES This EIGHTH AMENDMENT OF THE AMENDED AND RESTATED AGREEMENT BETWEEN THE CITY OF SANTA CLARITA AND BURRTEC WASTE INDUSTRIES, INC., FOR COMMERCIAL SOLID WASTE MANAGEMENT SERVICES, (Eighth Amendment) is entered into this day of 2019, between the City of Santa Clarita (City), California, a California municipal corporation and Burrtec Waste Industries Inc. (Burrtec), a California corporation, to amend that certain "Amended and Restated Agreement Between the City of Santa Clarita and Burrtec Waste Industries, Inc., for Commercial Solid Waste Management Services." WHEREAS, the City is empowered under Section 7 of Article 11 of the California Constitution to make and enforce, within its limits, all police and sanitary ordinances and regulations not in conflict with general laws; and WHEREAS, in partial implementation of Section 7 of Article 11 of the California Constitution, California Public Resources Code Section 40059 authorizes the City to determine all aspects of handling of solid waste that are of local concern, including the frequency of collection, means of collection and transportation, level of services and nature, location, and extent of waste handling services; and WHEREAS, on November 20, 2003, the City and Burrtec Waste Industries, Inc. entered into that certain "Agreement Between the City of Santa Clarita and Burrtec Waste Industries, Inc., for Commercial Solid Waste Management Services" (Agreement); and WHEREAS, on May 24, 2011, the City Council directed staff to execute an Amended and Restated Agreement with Burrtec; and WHEREAS, pursuant to Section 6.6 of the Amended and Restated Agreement, Burrtec is entitled to pursue extraordinary adjustment requests in the event of extraordinary changes in the cost of providing service under this agreement; and WHEREAS, recyclable material markets have changed from providing net revenues to offset program costs and rates to a net expense for cost recovery due to processing costs exceeding the value of materials sold; and WHEREAS, recyclable material markets have changed from providing revenue to offset program costs to a model of cost recovery for processing the materials prior to sale; and WHEREAS, the City and Burrtec desire to amend the Amended and Restated Agreement by increasing the maximum rates as outlined in Sections 6.6 of the Agreement Between the City of Santa Clarita and Burrtec Waste Industries, Inc., for Commercial Solid Waste Management Services. NOW, THEREFORE, the City and Burrtec in consideration of their mutual promises, amend the Amended and Restated Agreement as follows: SECTION 1. Amend Section 4.1.4 to read as follows. 4.1.4 School Districts This section is removed. SECTION 2. Amend Section 4.2.1 to read as follows. 4.2.1 Recycling Collection Service As set forth in the California State Assembly Bill 341, the company will provide all required businesses with recycling collection services and agrees to provide Recycling Collection service to all Refuse Bin service and Commercial Can Customers requesting it from the Company. Company may purchase Recyclable Materials from its Customers as well The Company agrees to provide Recycling Bins, Recycling Cans and 90- gallon Recycling Carts to Refuse Customers in sufficient quantities to meet the Recycling needs of each Customer. The Company agrees to make programs available for all Recyclable Materials for which it has established markets. The Company shall notify all Customers via a mailed flyer each year of the availability of Recycling Collection programs. SECTION 3. Amend Section 6.5.1 to read as follows. 6.5.1 Annual Rate Cap If the adjustment to the maximum rate as determined by the application of the formula set forth in Section 6.4 combined with any Council approved Extraordinary Rate Adjustments exceeds 5% for any Rate Year the adjustment for said Rate Year shall nevertheless be limited to 5% except during the 2019/2020 Rate Year. - Any increase calculated pursuant to section 6.4 which exceeds the Annual Rate Cap for such year shall be 4 carried forward and added to future approved rate increases, providing the total increase for any future Rate Year is no more than the Annual Rate Cap for such Rate Year. Any unused increase may be carried forward until fully applied, except that any unused increases remaining at the end of the Term hereof will expire unused. SECTION 4. Amend Section 6.2 to read as follows. 6.2 Maximum Rates The rates Company bills to customers shall not exceed the Maximum Rates set forth in Exhibit 2. Maximum Rates shall be retitled as "Maximum Rates" and shall be amended to contain the following maximum rates commencing January 11, 2020: Container Number of W ekly Pickups Size 1 2 3 4 5 6 $52.82 $95.48 $158.53 $211.36 $264.23 $317.08 32-gal Cart $62.10 $112.76 $186.27 $248.38 $310.49 $372.59 90-gal Cart $96.43 $188.86 $281.29 $372.91 $464.51 $556.17 1.5 yd3 $105.18 $206.17 $307.19 $407.42 $507.56 $607.76 2 yd3 $123.98 $243.39 $362.83 $481.39 $599.88 $718.44 3 yd3 $158.31 $310.96 $463.56 $615.02 $766.50 $917.96 4 yd3 $212.24 $417.14 $622.09 $825.52 $1,028.98 $1,232.46 6 yd3 Container Number of Weekly Green Waste Pickups Size 1 2 3 4 5 6 3 yd3 $92.99 $182.54 $272.12 $361.04 1 $449.91 $538.83 SECTION 2. Except as expressly modified in this Eighth Amendment, all other provisions of the Agreement shall remain in effect. 5 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CITY OF SANTA CLARITA A California Municipal Corporation Kenneth W. Striplin City Manager ATTEST: Mary Cusick City Clerk APPROVED AS TO FORM: Joseph Montes City Attorney BURRTEC WASTE INDUSTRIES, INC. Bv: (CEO, President, Chairman of the Board or any Vice President) And By: (The Secretary, any assistant secretary, CFO or any assistant treasurer) 0 State of California County of On before me, , Date Here Insert Name and Title of the Officer Place Notary Seal Above Name(s) of Signer(s) who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal Signature Signature of Notary Public 7 M 0", A ! It ■ i VALLEY Chamberof w November 26, 2019 Mayor Marsha McLean and City Council City of Santa Clarita 23920 Valencia Blvd. Santa Clarita, California 91355 Mayor McLean and Councilmembers: The Santa Clarita Valley Chamber of Commerce Board of Directors writes to express its support with regards to the Burrtec Waste Industries Inc., recycling cost adjustment request. The SCV Chamber Board has reviewed the independent solid waste consultant review and information provided by Burrtec. Having reviewed the information, we understand the evaluation determined and that the request is responsible and consistent with Burrtec's financial records and reported recycling costs which are not unique to Burrtec nor the City of Santa Clarita. The SCV Chamber knows that depressed recycling markets have negatively impacted numerous businesses and industries in the state and although we are not proponents of increased costs or fees we understand that these rate changes are necessary to cover the unanticipated basic cost of doing business. Even with the requested adjustments, Santa Clarita businesses will continue to pay some of the lowest commercial disposal rates, if not the lowest, in Los Angeles County. Burrtec Waste Industries has been a long-time, active member of the SCV Chamber of Commerce and the greater Santa Clarita community. The SCV Chamber supports the City's staff recommendation to adjust the commercial rates to mitigate increased recycling costs. Sincerely, 1-Joko— John Musella Santa Clarita Valley Chamber of Commerce 28494 Westinghouse Place Suite 114 1 Santa Clarita, CA 91355 1 661-702-6977 www.SCVChamber.com