Rancho Palos Verdes City Council
   

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: DIRECTOR OF PUBLIC WORKS

DATE: MAY 20, 2003

SUBJECT: RESIDENTIAL SOLID WASTE AND RECYCLING RATE ADJUSTMENTS FOR

WASTE MANAGEMENT OF LOS ANGELES FOR FY 03-04

Staff Coordinator: Lauren Ramezani, Sr. Administrative Analyst

RECOMMENDATION

  1. Approve a rate increase of 1.2% for Waste Management of Los Angeles single-family customers for FY 03-04.
  2. Approve a rate increase of 1.3% for Waste Management of Los Angeles multi-family customers for FY 03-04.
  3. Close the City trust account, turnover proceeds to Waste Management of Los Angeles, who in turn will credit customers for the amount of FY 02-03 overpayments.
  4. Increase the amount of Collector Fee paid by Waste Management of Los Angeles to the City by $3,600 to reflect the rate increases.
  5. Approve a change in the distribution of the amount of City's Collector Fee among several City Funds.

BACKGROUND

Waste Management of Los Angeles (WM) and Ivy Rubbish Disposal are currently in the third year of their seven-year exclusive residential agreements that have been in effect since July 2000. Per the terms of the agreements, rates are fixed for a period of two-years (July 1, 2000 to June 30, 2002) with possible annual adjustments, each July 1, thereafter.

In FY 02-03, according to the agreement's rate adjustment formula, Waste Management's monthly rates decreased. Because the percentage of the decrease was nominal (0.67% for single-family and 0.44% for multi-family accounts), and to minimize any confusion with customers regarding a rate reduction, the City approved maintaining the rates at their FY 00-01/01-02 level. Waste Management has been collecting the overpayments, turning them over to the City, where they were deposited in a City trust account, with the plan to apply the funds towards future rate increases. For the period of July 1, 2002 through March 31, 2003, the City has held single-family (SF) overpayments of approximately $12,657, plus $40 in accrued interest, and multi-family (MF) overpayments of approximately $1,203 plus $5 in accrued interest.

A Notice of this Public Hearing was published in the Palos Verdes Peninsula News on May 10, and May 15, 2003.

DISCUSSION

Per their agreement with the City, WM is eligible for a rate increase of 1.2% for single-family and 1.3% for multi-family accounts. The amount of the increase is spelled out in the agreement and is a function of the percentage change in the disposal tipping fee per ton, the percentage change in the Producer Price Index (PPI) and WM's actual service revenue and disposal expense. Staff finds the calculations accurate and per the agreement's formula. This requested rate adjustment is the first rate increase since July 2000.

There are approximately 10,800 single-family and 40 multi-family accounts serviced by WM. This rate increase is approximately $0.10 a month, or an annual increase of $1.20 for the majority of single-family customers (twice a week curbside). For the multi-family accounts, the amount varies depending on the service level. For example, for a twice a week 3 cubic yard bin customer, the monthly increase is $.80 a month, or an annual increase of $9.60. The exact rate increase for all service levels is listed on the attached spreadsheets.

Rate calculations for some services are as follows:

Service Level
S/F= Single-family
M/F= Multi-Family

Current Max. Monthly Rates

Proposed Max. Monthly Rate for FY 03-04

S/F Curbside 2x/wk

$19.10

$19.20

S/F Pup Route 2x/wk

$22.89

$23.01

S/F Backyard 2x/wk

$24.10

$24.23

S/F Low Income 1x/wk

$15.00

$15.08

M/F 2x/wk, 3 cubic yard Bin

$95.08

$95.89

RETURN OF OVERPAYMENT: To credit customers for their overpayment/credit due, staff recommends the following for the first quarter FY 03-04 billing in July:

  1. Invoice customers for the quarter based on the proposed FY 03-04 rates.
  2. Show a one-time credit line item that equals the annual FY 02-03 overpayment owed the customer. For example, a twice a week curbside customer will be billed $57.60 ($19.20 x 3) for the quarter and see a line item showing the total credit of $1.56 ($.13 x 12). The total due for the quarter would be $56.04.
  3. Close the City trust account and turnover proceeds to Waste Management, once they have credited customers.

Staff has discussed this recommendation with WM representatives. WM concurs with staff's recommendation and is able to implement it.

COLLECTOR FEE: WM currently pays the City a total Collector Fee of $297,000 a year (paid on quarterly basis). Currently approximately 56% of the collector fee is deposited in the General Fund ($166,600), 18% deposited in the Solid Waste Fund ($53,400) and 26% in the Recycling Fund ($77,000). This Collector Fee distribution was recommended in FY 00-01 by staff and approved by Council. The agreement also allows the Collector Fee to increase by the same percentage as rate increases. If staff's recommendations are approved, the City's Collector Fee will increase by $3,600 in FY 03-04. The proposed total Collector Fee for FY 03-04 will be $300,600.

WM's agreement only states the total amount of the Collector Fee due to the City. It does not identify the distribution of the Collector Fee among City funds. The distribution of the fee is at the discretion of the City Council. The City's funding needs have recently changed due to the State budget cuts and the reduction in the City's General Fund revenue.

Therefore, staff recommends changing the future distribution of the Collector Fee to the following:

City Fund

Current Distribution Amount
FY 02-03

Current Distribution
%
FY 02-03

Proposed Distribution Amount
FY 03-04

Proposed Distribution %
FY 03-04

General Fund- Various programs

$166,600

56%

$168,600

56%

General Fund- Stormwater Quality Program

-0-

0%

$ 97,000

32%

Waste Reduction (Solid Waste) Fund

$ 53,400

18%

-0-

0%

Beautification (Recycling) Fund

$ 77,000

26%

$ 35,000

12%

Collector Fee Total

$297,000

100%

$300,600

100%

This recommended distribution:

  • Keeps the percentage allocation for General Fund- Various Programs unchanged (56%).
  • Saves General Fund-Stormwater Quality Program expenditures. It funds the City's increased stormwater/NPDES program implementation costs in the amount of $97,000 (32%).
  • Eliminates the Waste Reduction (Solid Waste) Portion of the collector fee (0%). The Waste Reduction Fund's projected FY 02-03 year-end balance is approximately $692,000.
  • Decreases the Beautification Fund allocation (12%). The Beautification Fund's projected FY 02-03 year-end balance is approximately $483,000. The Beautification program will be funded by approximately $130,000 in California Redemption Value (CRV) revenue received annually from haulers for the beverage containers collected from the City's residential curbside recycling program and $35,000 from the Collector Fee. If needed, for the next several

years, the Beautification Fund balance can offset any additional Beautification program expenditures.

ALTERNATIVES

  1. Approve the rate increases, but do not pass this charge along to customers. Instead, the City will pay for the increase from the Waste Reduction (Solid Waste) Funds. The amount of the total increase is $14,254 for single-family and $3,051 for multi-family accounts.
  2. Keep the Collector Fee unchanged.
  3. Change the current Collector Fee distribution. A new distribution among funds to be determined by City Council (a distribution different than the staff recommendation).

CONCLUSION

Approving the staff recommendations will increase Waste Management of Los Angeles' single-family customers monthly rates by 1.2% and multi-family customers monthly rates by 1.3%. This will be the first rate increase for Waste Management customers since July 2000. The increase is effective July 1, 2003. FY 02-03 overpayment will be credited back to customers in the 1st quarter billing and will be used to offset a portion of the rate increase.

FISCAL IMPACT

Approving the staff recommendation will:

  • Increase Waste Management's single-family customers monthly rates by 1.2%
  • Increase Waste Management's multi-family customers monthly by 1.3%.
  • Close City trust account, once overpayment credit has been issued to customers.
  • Increase the City's Collector Fee by $3,600.
  • Change the distribution of the Collector Fee.

Respectfully Submitted:
Dean E. Allison, Director of Public Works

Reviewed by:
Les Evans, City Manager

Attachments: Rate Adjustment formula Explanation

WM's proposed FY 03-04 Rates

RATE ADJUSTMENT FORMULA EXPLANATION

The adjustment is based on a formula involving these factors:

  • Actual service revenue and disposal expense
    • The total disposal expense and total rate revenue of the hauler is for the twelve-month period ending on the most recent December 31st. i.e. January 1, 2002 through December 31, 2002.
  • Producer Price Index (PPI) for Finished Goods
    • The percentage change in the PPI is for the twelve-month period ending on the most recent December 31. i.e. December 2002 vs. December 2001
    • The PPI was selected as the indicator in the contract, instead of the Consumer Price Index (CPI), because the PPI more closely tracks changes and places greater emphasis on items like cost of labor and durable manufacturing equipment rather than consumer goods like food or housing. Additionally, in recent history the PPI changes have increased at a lower rate than the CPI.
    • In calculating percentage change in PPI, preliminary numbers are consistently used.
  • Disposal tipping fee per ton
    • The percentage change in the solid waste disposal tipping fee is based on the change between the most recent tipping fee on which rates were based in FY 01-02 and the new tipping fee in FY 02-03.
    • If, however, the haulers are the owner/operator of the disposal site/s, then the maximum annual increase in the tipping fee is equal to the annual percentage change in the PPI. This affects Waste Management and limits the rate increase.
    • Waste Management took 55% of the total single-family and 41% of the total multi-family disposed waste to company owned landfills such as Bradley and El Sobrante. The remaining 45% and 59% of the waste, respectively, was disposed at a non-company owned facility, SERRF (a waste to energy transformation facility in Long Beach owned and operated by the City of Long Beach). Therefore, a weighted average of these disposal facilities was used in the calculations. Since SERRF raised rates in FY 02-03, SERRF related tonnage showed a tipping fee increase, while Waste Management owned facility tonnage was restricted by the percentage PPI increase.