TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: DIRECTOR OF PUBLIC WORKS

DATE: APRIL 20, 2004

SUBJECT: RESIDENTIAL SOLID WASTE AND RECYCLING RATE ADJUSTMENTS FOR

WASTE MANAGEMENT OF LOS ANGELES FOR FY 04-05

Staff Coordinator: Lauren Ramezani, Sr. Administrative Analyst

RECOMMENDATION

1. Approve the maximum rate that Waste Management of Los Angeles can charge single-family customers in FY 04-05.
2. Approve the maximum rate that Waste Management of Los Angeles can charge multi-family customers in FY 04-05.
3. Increase the amount of Collector Fee paid by Waste Management of Los Angeles

to the City by $8,880 to reflect the rate increases.

4. Issue a one-time credit to customers totaling approximately $41,965 (or about

$3.42 per household) from the City's Waste Reduction fund. This is to offset 50%

of the rate increase as a "thank you" to customers for the City meeting the State's 50% diversion mandate.

BACKGROUND

Waste Management of Los Angeles (WM) is in the fourth year of its seven-year exclusive residential agreement that has been in effect since July 2000. Per the terms of the agreement, the City must be notified of annual adjustments by April 1^st for possible rate changes to be effective each July 1^st. A Notice of this Public Hearing was published in the Palos Verdes Peninsula News on April 8, and April 15, 2004.

DISCUSSION

Per their agreement with the City, WM is eligible for a maximum FY 04-05 rate increase of 2.95% for single-family and 2.97% for multi-family accounts. The maximum 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. There are approximately 10,800 single-family and 40 multi-family accounts serviced by WM.

This maximum rate increase is approximately $0.57 a month, or an annual increase of $6.85 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 maximum monthly increase is $2.85 a month, or an annual increase of $34.20. The exact maximum rate increase for all service levels is listed on the attached spreadsheets.

Rate calculations for WM’s most popular services are as follows:

COLLECTOR FEE: WM currently pays the City an annual Collector Fee of $300,600. 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 from $300,600 to $309,480 (or by $8,880) in FY 04-05 and will be distributed among three funds. Approximately 56% of the Collector Fee will be deposited in the General Fund- Various Programs ($173,309), 32% of the collector fee is deposited in the General Fund- Stormwater Quality Program ($99,034), and 12% in the Beautification Fund ($37,137). This City Council approved this Collector Fee distribution in May 2003.

CREDIT TO CUSTOMERS: In February 2004, the City submitted its 2002 annual

AB 939 report with a reported diversion rate of 51%. This is the first year the City met and exceeded the State's 50% diversion mandate. The City's projected FY 03-04 Waste Reduction ending balance is $591,500. The Waste Reduction fund (or AB 939 fund) is an accumulation of AB 939 fees paid to the City by residential and commercial customers. This fund is restricted and its use is limited to activities and expenses related to implementing various waste reduction, recycling and reuse programs, and public education. Staff recommends the issuance of a one-time credit as the City's "thank you" to residents for recycling and helping the City reach this milestone. The one-time credit will total approximately $41,965 (or about $3.42 per household) from

the City's Waste Reduction fund and will offset 50% of the rate increase. This recycling credit is an eligible AB 939 expense.

The maximum monthly rates will not be affected by this credit. i.e. WM customers will receive an invoice with the adopted maximum FY 04-05 monthly rates. The invoice will then have an additional line item showing a "One-time Recycling Credit". That credit will reduce the total due and customers will save money. The City will then issue a check and reimburse Waste Management for the credit given customers.

ALTERNATIVES

1. Approve the maximum rate that can be charged by WM, and pass 100% of the rate increase to customers. There will be no credit to customers from the Waste Reduction Fund.
2. Approve the maximum rate that can be charged by WM, but do not pass this charge along to customers. Instead, the City will pay 100% for the annual increase from the Waste Reduction Fund. The amount of the total increase is $73,744 for single-family and $10,183 for multi-family accounts. The total credit will be $83,927.

CONCLUSION

Approving the staff recommendations will increase the maximum residential rate for Waste Management of Los Angeles customers. The maximum monthly single-family rates will increase by 2.95% and the maximum monthly multi-family rates will increase by 2.97%. This will be the second rate increase for Waste Management customers since July 2000. The increase is effective July 1, 2004. The City Collector Fee will increase by $8,880 and will be distributed among several City funds. Customers will receive a one-time credit equaling 50% of their rate increase as a "Thank you" for their recycling efforts and helping the City meet and exceed its 50% diversion mandate. The City's Waste Reduction fund will fund the credit totaling approximately $41,965.

FISCAL IMPACT

Approving the staff recommendations will:

• Increase Waste Management's single-family customers’ maximum monthly rates for FY 04-05 by 2.95%.
• Increase Waste Management's multi-family customers’ maximum monthly rates for FY 04-05 by 2.97%.
• Increase the City's Collector Fee by $8,880, which will be distributed by the previously approved ratio among General Fund- Various Programs, General Fund- Stormwater Quality Program and Beautification Fund.
• Decrease Waste Reduction Fund by $41,965. Issue a one-time credit to customers. Reimburse Waste Management for customer credits. The projected Waste Reduction Fund's FY 03-04 ending balance is $591,500.

Respectfully Submitted:

Dean E. Allison, Director of Public Works

Reviewed by:

Les Evans, City Manager

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 31^st. i.e. January 1, 2003 through December 31, 2003.

• 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 2003 vs. December 2002
• 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 December 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 02-03 and the new tipping fee in FY 03-04.
• 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 54% 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 46% 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 03-04, SERRF related tonnage showed a tipping fee increase, while Waste Management owned facility tonnage was restricted by the percentage in PPI increase.