Title
Public Hearing to Consider Adoption of Resolution Establishing Integrated Waste Collection Ceiling Rates and Service Fees for Alameda County Industries, Inc. (ACI) for Rate Period 14 (July 2015 to June 2016). (Public Works 274)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, City Manager
Hold a Public Hearing to Consider Adoption of Resolution Establishing Integrated Waste Collection Ceiling Rates and Service Fees for Alameda County Industries, Inc. for Rate Period 14 (July 2015 to June 2016).
BACKGROUND
The Alameda Municipal Code requires that the City Council establish integrated waste management rates on a yearly basis. These rates are established to ensure sufficient revenues are generated to pay all required costs and fees for the collecting, processing, and transporting of integrated waste in accordance with the City's franchise agreement with Alameda County Industries (ACI). This franchise expires in 2022.
ACI has submitted an application to request a yearly adjustment to these rates. Depending upon the year and as prescribed by the franchise agreement, a change in rate is either calculated on a cost or index basis. In a cost year, the City and its consultant conduct a detailed review of ACI's forecasted costs, profit, and pass-through fees.
The upcoming year, Rate Period 14 (July 2015 to June 2016), is an index-based review. However, ACI has requested a special adjustment related to a significant change in their labor costs at their Material Recovery Facility in San Leandro. ACI's sorters and other workers voted to join the International Longshore and Warehouse Union (ILWU), Local 6. ACI and ILWU are currently negotiating a collective bargaining agreement. Prior to unionization, ACI had contracted with a third-party staffing agency that hired and employed the sorters.
ACI employs approximately 60+ sorters in two shifts, processing curbside recyclable material from Alameda, Livermore, San Leandro, and Santa Clara. Sorters work alongside a winding piece of equipment to ensure that the commingled paper, plastic, and glass that comes into the facility is sorted into piles of paper, plastic, aluminum, metals, and glass that are prepared to be sold. Based on a 2009 agreement approved by the City Council, ACI shares a portion of the revenue on the sale of these commodities with the City's ratepayers.
While ACI and the ILWU continue to negotiate a collective bargaining agreement, they have tentatively agreed on the sorters gaining full benefits (i.e., health and welfare, vacation, sick, etc.) and an hourly rate schedule for future years. By this schedule, the sorters would gain parity with their counterparts at the Fremont Recycling and Transfer Station, California Waste Solutions' Oakland facility, and Waste Management's Davis Street facility. As a result of ACI's request for a special adjustment, and after extensive discussion and analysis, staff is proposing three (3) options for Council consideration:
Option #1: Index-based Adjustment of 2.80%. As prescribed by the franchise, an indexed-based rate adjustment is calculated by applying cost-of-living indices, a labor index from the Teamsters Local 70 collective bargaining agreement, and adjusting pass-through costs (e.g., disposal fees). By the index's formula, this year's rate adjustment is an across-the-board 2.80% increase. The vast majority of Alamedans subscribe to a 20- or 32-gallon container. For these ratepayers, this amounts to an increase of between $0.80 and $1.01 per month, or $9.60 and $12.12 per year.
Option #2: Special Rate Adjustment of 10.58%. ACI has requested that Alamedan ratepayers pay their portion of the incremental increase of the sorters' wage and benefit increases. ACI's original special rate request was 7.78%, plus the 2.80% indexed increase, for a total increase of 10.58%. For most ratepayers, this amounts to an increase of between $3.01 and $3.80 per month, or $36.12 and $45.60 per year.
Option #3: Negotiated special rate adjustment of 7.70%. To help smooth Alameda's rate impact, ACI, ILWU, and City staff negotiated a third option. This option reduces the rate adjustment to 7.70%, comprised of the indexed increase (2.8%) and ACI's increased labor costs (4.9%) attributable to the sorters' better pay and benefits.
The Option #3 adjustment is achieved in three ways. First, ACI agreed to forgo its profit (10%) on the incremental labor costs attributable to the sorters gaining better pay and benefits. Second, staff agreed to forgo the City's 10% franchise fee on the incremental labor costs attributable to the sorters gaining better pay and benefits. Third, to help reduce Alameda's rate impact, ILWU agreed to defer and/or alter sorters' benefits, primarily the pension, vacation and holidays, and shift differentials for workers.
The hourly rate and benefit schedules that flow from ACI and ILWU's agreement are shown below in Table 1 and at Exhibit 1, ILWU and ACI's Letter of Understanding dated April 2, 2015. ACI also has agreed to pilot a multifamily annual bulky pickup by July 1, 2015. ACI and staff will work out the details on how this is implemented.
Table 1: Hourly Rate and Benefit Schedule for Sorters (updated and corrected)
|
Staffing |
|
Rate Per. 14 |
Rate Per. 15 |
Rate Per. 16 |
Rate Per. 17 |
Rate Per. 18 |
|
Agency |
Current |
2015/2016 |
2016/2017 |
2017/2018 |
2018/2019 |
2019/2020 |
Hourly Rate |
$9.00 |
$14.57 |
$15.68 |
$16.86 |
$18.12 |
$19.48 |
$20.94 |
Benefits, Taxes, Insurance |
$4.91 |
$3.26 |
$9.92 |
$11.02 |
$12.59 |
$14.09 |
$15.78 |
Burdened Rate |
$13.91 |
$17.83 |
$25.60 |
$27.88 |
$30.71 |
$33.57 |
$36.72 |
Table 1 shows two significant increases. First, the sorters' fully-burdened labor cost increased from the staffing agency ($13.91) to current ($17.83). This increase is required under an agreement between ACI and the City of San Leandro in accordance with that city's living wage ordinance, and reflects ACI's increased costs as the sorters gained a living wage. San Leandro's ratepayers are covering this incremental increase through June 30, 2015.
Second, based on ACI and ILWU's agreement, the sorters' fully burdened rate will increase from $17.83 currently to $25.60 on July 1, 2015. Alameda's portion of the total increase in labor cost is $849,012. This increase is mostly attributable to ACI's now unionized employees going from zero benefits to receiving affordable family health insurance, as well as sick time, vacation, and paid holidays.
DISCUSSION
Staff presented an informational report on this item at the City Council meeting on April 7, 2015. The April 7, 2015 staff report indicated that new information might be shared during staff's presentation. Indeed, staff's presentation included the newly developed Option #3 that derived in part from ACI and ILWU's April 2, 2015 tentative agreement on wages and benefits. In response to questions asked at that meeting, staff drafted this report and revised the PowerPoint presentation, and ACI revised its memo at Exhibit 2.
On April 27 and May 4, respectively, the City Councils of Livermore and San Leandro are set to address whether their rates should account for their portions of ACI's increased labor costs in 2015/2016.
The City's consultants, HF&H Consultants LLC (HFH), provided a comprehensive, independent analysis of the City's options for this year's rate adjustment. Their report on the indexed rate adjustment of 2.80% is attached as Exhibit 4. HFH also confirmed ACI's calculations on Options #2 and #3 were mathematically accurate.
Table 2 compares how the three options would affect current rates for monthly single-family dwellings.
Table 2: Monthly Single-Family Rates (updated)
Cart Size (Count) |
Existing Rate |
Option 1 2.80% increase |
$ change from existing |
Option 2 10.58% increase |
$ change from existing |
Option 3 7.70% increase |
$ change from existing |
20 gal |
$28.46 |
$29.26 |
$0.80 |
$31.47 |
$3.01 |
$30.65 |
$2.19 |
(5,794) |
|
|
|
|
|
|
|
32 gal |
$35.92 |
$36.93 |
$1.01 |
$39.72 |
$3.80 |
$38.68 |
$2.76 |
(8,600) |
|
|
|
|
|
|
|
64 gal |
$59.02 |
$60.67 |
$1.65 |
$65.27 |
$6.25 |
$63.56 |
$4.54 |
(713) |
|
|
|
|
|
|
|
96 gal |
$82.42 |
$84.73 |
$2.31 |
$91.14 |
$8.72 |
$88.77 |
$6.35 |
(39) |
|
|
|
|
|
|
|
Staff recommends the City Council adopt Option #3. This 7.70% increase balances Alameda's interest in keeping rates reasonable with ensuring ACI's sorters receive fair pay and benefits. For most ratepayers, this option results in an additional $2.19 per month (20-gallon) or $2.79 per month (32-gallon) over their existing rate. Over a year, ratepayers will pay $26.28 (20-gallon) or $33.12 (32-gallon) more than their existing rate.
By this increase, Alameda's ratepayers would pay only their share of ACI's increased labor costs. The total 2015/2016 labor cost at their San Leandro facility will be $4,792,581. This includes the sorters' increased wages and benefits. However, ACI will save $2,064,505 in costs that formerly went to the third-party staffing agency. Subtracting these third-party staffing agency costs results in an incremental increase in labor costs of $2,728,076. Based on the tons processed at the San Leandro facility between Alameda (10,683), San Leandro (7,285), and Livermore (16,359), Alameda's fair share of these incremental costs is 31.1%. As a result, Alameda's portion of the incremental increase is $849,012, or 31.1% of $2,728,076.
Alameda's proposed rates for 20- and 32-gallon containers are in the upper range of rates compared with other cities. As shown in Exhibit 5, Alameda's rates are higher than in San Leandro, Emeryville, and Livermore, and equivalent to or below Albany, Oakland, Piedmont, and Union City. This is about where Alameda has been in this rate comparison for the last several years.
Apples-to-apples comparisons of integrated waste rates are difficult, as each city's rates depend on a mix of factors, including disposal fees, mix of commercial and residential customers, City fees, rate structure, etc. For example, Emeryville, Livermore, and San Leandro have lower residential rates than Alameda, but they also have considerably larger commercial bases that help to keep residential rates low.
As shown above in Table 1, ILWU and ACI's negotiated schedule requires rate increases for 2016-2020. The projected rate impacts of each of the options is listed below in Table 3.
Table 3: Projected Future Rate Impacts
Approx. monthly dollar impact (32-gallon) |
Rate Period 15 |
Rate Period 16 |
Rate Period 17 |
Rate Period 18 |
|
2016/2017 |
2017/ 2018 |
2018/2019 |
2019/2020 |
Option 1 (2.80%) |
$0.00 |
$0.00 |
$0.00 |
$0.00 |
Option 2 (10.58%) |
|
$0.13 |
$0.11 |
$0.17 |
$0.15 |
Option 3 (7.70%) |
$0.27 |
$0.30 |
$0.39 |
$0.32 |
|
|
|
|
|
|
While Option 3's future projected increases are higher than Option 1 or 2, these increases are still modest. ACI may later propose to offset future rate impacts by retooling their facility, as updated equipment would handle more material with fewer sorters. However, this retooling is not likely until 2016-2017 at the soonest, faces significant logistical challenges, and, if this occurs, will be a negotiation point between ACI and ILWU.
FINANCIAL IMPACT
The City Council's adoption of rates impacts the City's ratepayers. In addition, the City receives a 10% franchise fee and other flat fees from ACI based on their gross receipts. These fees contribute to the City's General Fund (Fund 001), Solid Waste Fund (Fund 270), and Waste Reduction Fund (Fund 274). The recommended rate increase will provide approximately $64,605 in additional City fee revenue.
Rates are set to sufficiently compensate ACI for its cost to provide the required services. Where ACI receives more or less revenue than the rate increase projects, the franchise agreement includes a revenue reconciliation provision in which any shortfall or surplus is carried into the next year in a balancing account. While the balancing account currently stands at -$1,066,192, the negative balancing account is reduced by $371,471 from last year. The negative balancing account resulted primarily from deferred rate increases, the economic downturn, and ratepayers' downsizing garbage subscriptions due to increased recycling and composting. The improvement of the negative balancing account is attributable to a stronger economy; a targeted, overall 10% rate increase approved by City Council in July 2013; and the sharing of recycling commodity revenues. If current trends continue, this balancing account may be eliminated or even turned positive by 2020. However, if the economy stumbles, commodity revenues decline, or the gap between rates and revenues returns, the negative balancing account may persist.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
AMC Section 21-20.4(a) requires the City Council to hold a public hearing before establishing new ceiling rates and fees for the collection, processing, and disposal of the City's integrated waste. This franchise is an important factor in the City accomplishing its goals under the Local Action Plan for Climate Protection, adopted in 2008, and the Zero Waste Implementation Plan, adopted in 2010.
ENVIRONMENTAL REVIEW
This project is statutorily exempt under California Environmental Quality Act Guidelines Section 15273(a)(1) Rates, Tolls, Fares, and Charges - meeting of operating expenses.
RECOMMENDATION
Hold a public hearing to consider adoption of resolution establishing integrated waste collection ceiling rates and service fees for ACI for rate period 14 (July 2015 - June 2016).
Respectfully submitted,
Liam Garland, Acting Public Works Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. ILWU and ACI's Letter of Understanding dated April 2, 2015
2. Memo from Alameda County Industries (revised)
3. Letter from ILWU, Local 6
4. HF&H Consultants, LLC's Report
5. HFH's Alameda County Rate Survey
6. Proposed Ceiling Rates and Services Fees
7. ACI Materials Recovery Facility PowerPoint Presentation