Title
Public Hearing to Consider Adoption of Resolution Establishing Integrated Waste Collection Ceiling Rates and Service Fees for Alameda County Industries, Inc. for Rate Period 19 (July 2020 to June 2021). (Public Works 0274)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
In 2002, the City of Alameda (City) entered into a Franchise Agreement (Agreement) with Alameda County Industries (ACI). Under the Agreement, ACI is responsible for managing and paying all costs and fees associated with the collection, processing, and disposal of integrated waste, and directly billing all residential and commercial customers for these services. The Alameda Municipal Code (AMC) specifies that the ceiling rates are to be set by the City Council at a public hearing.
Ceiling rates for the collection and processing of integrated waste are established to generate sufficient revenue to recover ACI's costs in its entirety, including fees paid to Waste Management at its transfer station. Consistent with the Agreement, ACI has submitted the required rate application, which has been reviewed, adjusted, and finalized to recommend the rates for Rate Period 19 (July 2020 to June 2021). The application resulted in an across-the-board 8.60% increase. Staff is recommending a 5.00% increase in rates, with the remaining 3.60% covered by one-time contributions from the City’s rate stabilization fund balance and the balancing account.
BACKGROUND
On July 2, 2002, the City entered into an Agreement with ACI for the curbside collection of solid waste, the collection and processing of recyclable materials, and the collection of organic materials, collectively referred to as integrated waste. In April 2009, the term of the Agreement was extended to 2022. ACI is responsible for managing and paying all costs and fees associated with the collection, processing, and disposal of integrated waste, and directly billing all residential and commercial customers for these services. We note that staff is providing an update on the sole-source procurement negotiations with ACI on another agenda item this evening.
Through a separate agreement, the City contracts with Waste Management for the transferring and landfilling of the solid waste portion of the integrated waste stream.
The AMC specifies that the ceiling rates for the collection and processing of integrated waste are set by the City Council at a public hearing. Ceiling rates are established to generate sufficient revenue to recover ACI's costs in its entirety, including fees paid to Waste Management at its transfer station.
The Agreement with ACI specifies two types of annual rate reviews: an index-based adjustment and a cost-based adjustment. An index-based adjustment requires that the ceiling rates be adjusted by three specific Consumer Price Index (CPI) categories. Every third year a cost-based adjustment is performed, which includes a detailed review of ACI's forecasted costs, profit, and pass-through fees.
The City contracted with Hilton Farnkopf & Hobson Consultants, LLC (HF&H) to provide a comprehensive analysis of the application prepared by ACI in accordance with the methodology prescribed in the Agreement. Rate Period 19 (July 2020 to June 2021) is an index-based adjustment year. As prescribed by the Agreement, 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 8.6% increase. The vast majority of Alameda subscribe to a 20- or 32-gallon container. For these ratepayers, this results in an increase of $1.66 and $2.10 per month. Next year will be an index-based adjustment (Rate Period 20 - from July 1, 2021 through June 30, 2022).
DISCUSSION
Historically, rate increases have been as follows: no increase in Rate Period 15 (July 1, 2016 through June 30, 2017); a 2.38% increase in Rate Period 16 (July 1, 2017 - June 30, 2018); a 1.68% increase in Rate Period 17 (July 1, 2018 - June 30, 2019); and a 4.21% rate increase in Rate Period 18 (July 1, 2019 - June 30, 2020). For Rate Period 19 (July 2020 to June 2021), staff recommends a 5.00% increase with the remaining 3.60% covered by one-time contributions from the City’s rate stabilization fund balance and the balancing account (Exhibit 2).
City staff, HF&H, and ACI collectively met and discussed reducing the required increase of 8.60% to be more in line with the previous rate periods and the February All Urban CPI of 2.91%. Given one time contributions to reduce rates in Rate Period 18, the rate impacts in this period are higher than the CPI given those one time contributions. Similar to last rate period, it is proposed that the remaining 3.60% be covered by one-time contributions as follows: $348,000 from the City’s rate stabilization fund balance and $348,000 from the City’s balancing account.
The staff recommendation recognizes that these one-time contributions temporarily lower the rates and may result in steeper increases in future years due to the franchise’s revenue requirements. However, the City’s rate stabilization fund and balancing account exist to help offset these types of increases. Impacts from these one-time contributions, as well as the reconciliation of the balancing account, will need to be addressed in the remaining two years of the franchise.
With the proposed 5.00% increase, the monthly residential rates in Alameda will be:
|
Cart Size (gal) |
Existing Rate |
Proposed Rate |
Differential |
|
20 |
$33.25 |
$34.91 |
$1.66 |
|
32 |
$41.97 |
$44.07 |
$2.10 |
|
64 |
$68.95 |
$72.40 |
$3.45 |
|
96 |
$96.30 |
$101.12 |
$4.82 |
The vast majority of Alameda subscribe to a 20- or 32-gallon container. For these ratepayers, this results in an increase of $1.66 and $2.10, respectively, per month. Next year will be an index-based adjustment (Rate Period 20 - from July 1, 2021 through June 30, 2022). As prescribed by the Agreement, 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).
Ceiling rates are set to sufficiently compensate ACI for its cost to provide the required services. When ACI receives more or less revenue than projected in the rate increase, the Agreement includes a revenue reconciliation provision. This provision carries over any shortfall or surplus into the next year through the balancing account.
For many years, Alameda’s balancing account has been negative and grew to as much as -$1,437,663 in 2014. The negative balancing account resulted from an array of factors such as deferred rate increases, past economic challenges, and ratepayers’ downsizing garbage subscriptions due to increased recycling and composting. However, this is the fourth year when the balancing account has been positive (+$1,831,813). This largely reflects benefits of a previously growing economy, and payment of the City’s share of commodity (recyclables) revenues through the end of Rate Period 16 (ending June 30, 2018). The +$1,831,813 also reflects activity in the current rate period (Rate Period 18), including the City Council’s approval to use $189,050 to reduce the rate increase for Rate Period 18. As discussed in Rate Period 16, staff may consider seeking Council approval to utilize the balancing account to defray increased costs such as continued implementation of the Zero Waste Implementation Plan Update. The rate stabilization fund was established in Rate Period 12 and rate stabilization funds of $110,000 were collected annually through Rate Period 17. Given the balance of rate stabilization funds, the rate stabilization amount was not included in Rate Period 18, instead $189,050 of rate stabilization fund balance was used as a one-time contribution to reduce rate impacts.
ALTERNATIVES
Under the requirements of the Agreement, the City Council must set rates to compensate ACI for its costs as determined by the rate application. The City Council may elect to:
• Approve the staff recommendation of an across the board 5.0% integrated waste rate increase with the remaining 3.60% covered by one-time contributions from the City’s rate stabilization fund balance and the balancing account
• Raise integrated waste rates 8.6% across the board consistent with the rate application
• Set a different integrated waste rate using one-time contributions to sufficiently cover ACI’s costs
FINANCIAL IMPACT
The City Council's adoption of ceiling rates impacts the City's ratepayers. Included in the adopted ceiling rates are City fees, including a 10% franchise fee (based on ACI’s gross receipts). These fees are expected to raise an additional $180,000, which will be contributed to the City's General Fund (Fund 001), Solid Waste Surcharge Fund (Fund 270), and Waste Reduction Surcharge Fund (Fund 274). These increased fees have been incorporated into the Fiscal Years 2019-21 Budget proposal.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
AMC Section 21-20.4(a) requires the City Council to hold a public hearing before establishing ceiling rates and fees for the collection, processing, and disposal of the City's integrated waste. This Agreement with ACI 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 Update, adopted in 2018.
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.
CLIMATE IMPACTS
Municipal Integrated Waste collection services provided under the Agreement with ACI are 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 Update, adopted in 2018. Namely, through recycling and composting services and the management of waste materials, materials are diverted from the landfill, and as of 2013 ACI has 100% transitioned to alternative fuel collection vehicles. Through management of the materials under this Agreement, Alameda continues to modify its integrated waste management to be compliant with regulatory changes (e.g. Senate Bill 1383/Short-Lived Climate Pollutants: Organic Waste Methane Emissions Reductions).
RECOMMENDATION
Adopt a resolution establishing integrated waste collection ceiling rates and service fees for Alameda County Industries for rate period 19 (July 2020 to June 2021).
CITY MANAGER RECOMMENDATION
The City Manager recommends that the City Council adopt the resolution establishing the rates for Alameda County Industries.
Respectfully submitted,
Liam Garland, Public Works Director
By,
Liz Acord, Public Works Coordinator
Financial Impact section reviewed,
Nancy Bronstein, Interim Finance Director
Exhibits:
1. Consultant Report
2. Ceiling Rate and Services Tables
cc: Eric Levitt, City Manager