SAN RAFAEL CITY COUNCIL AGENDA REPORT. Prepared by: Cory Bytof City Manager Approval: $- Sustainability & Volunteer Program Coordinator

Transcription

1 Agenda Item No: 3. k Meeting Date: August 3, 2015 Department: CITY MANAGER SAN RAFAEL CITY COUNCIL AGENDA REPORT Prepared by: Cory Bytof City Manager Approval: $- Sustainability & Volunteer Program Coordinator TOPIC: SUBJECT: CONTRACT FOR ANNUAL REFUSE RATE REVIEW RESOLUTION AUTHORIZING CITY MANAGER TO ENTER INTO A CONTRACT WITH HF AND H CONSULTANTS, LLC IN AN AMOUNT NOT TO EXCEED $83,495 FOR WORK ON REFUSE RATE REVIEW FOR THE CITIES OF SAN RAFAEL & LARKSPUR, TOWN OF ROSS, LAS GALLINAS VALLEY SANITARY DISTRICT AND ROSS VALLEY-SOUTH RECOMMENDATION: Adopt Resolution. EXECUTIVE SUMMARY: Council is required to set refuse rates annually for residents and businesses within City boundaries. This contract provides for HF &H Consultants, LLC, to conduct the annual rate review for refuse and recycling services by Marin Sanitary Service (MSS) on behalf of the City as well as several other local agencies that also utilize MSS for similar services. This review is an in-depth Detailed Review, which happens once every three years, as opposed to Indexed Reviews, which happen in the two-years in between. The review provides information as to MSS's current and projected expenses and revenues, and allows Council to set rates based on the most accurate information possible. BACKGROUND: A number of local agencies within Marin County have franchise agreements with Marin Sanitary Service (MSS) to provide refuse collection and recycling services to residential and commercial customers. The agencies with similar contracts with MSS are the cities of San Rafael and Larkspur, the Town of Ross, Ross Valley South (Marin County), and the Las Gallinas Valley Sanitary District. Due to common interests and common contracts, these agencies have formed a Franchisors' Group. MSS also has contracts with San Anselmo and Fairfax but these contracts are somewhat different so those towns are not included in the formal FOR CITY CLERK ONLY File No.: Council Meeting: Disposition:

2 Franchisors' For a Franchisors' Group has worked 'VF>""U'"" certain that the ratepayers """~"""J and businesses) are being properly charged various levels of service provided. In to the rate schedules, the 'LIHJUU developed a jointly sponsored to conduct routine reviews of Service's operating efficiencies and contained in the annual rate application. In 2012, conducted a consultant selection..."..".,,"'''' of Mayor Phi11ips and '""v...'w.uu"'... J''''. Mackle, Jim,-,,,,,,.~.,..,. :step!hrume San ANALYSIS: In 1995, Group adopted a to set MSS' refuse collection and disposal rates. methodology was designed to provide a...,-,.,«...,u review of MSS' franchised operations would be three years. In the interim two-year In a detailed review year, all summary or indexed reviews are compared to actual costs and revenues, a new projection is set, and rates are compared to other Bay Area communities. The 2013 was the first detailed review to include additional analyses pursuant to 2012 Agreement analysis on the new ~""'_'" the creation stabilization fund for revenue projections. and recycling rates for DrOIVeltnelnt Plan. This year's and will provide an pn:::>t:rm:lllluiil to governing body a proposal dated July 21, 2015 "''''''''U"",, a scope of services for 6 Franchisors' Group, and a proposal includes a survey Franchisors' Group for input that work for an ajtnount not to rates in other similar jurisdictions, a revisions, and one presentation to member agency. The would authorize the '~'IU,F,''''' to execute an agreement with terms set forth in HF&H's proposal 21,201 in a form to be approved accounts

3 in their year the amount apportioned to was $37, Any additional one to the governing body would be charged to the individual agencies on a time and materials basis. cost for this contract is passed through to and is not an expenditure of San Rafael or the other members of Group. However, the contract are absorbed into MSS operating are the basis for the annual collection rates. All participating agencies have a copy of this agreement and are aware scope of work and project costs. Adopt ATTACHMENTS: Resolution, HF&H Proposal dated

4 RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE CITY MANAGER TO ENTER INTO A CONTRACT WITH HF AND H CONSULTANTS, LLC IN AN AMOUNT NOT TO EXCEED $83,495 FOR WORK ON REFUSE RATE REVIEW FOR THE CITIES OF SAN RAFAEL & LARKSPUR, TOWN OF ROSS, LAS GALLINAS VALLEY SANITARY DISTRICT AND ROSS VALLEY-SOUTH THE CITY COUNCIL OF THE CITY OF SAN RAFAEL RESOLVES AS FOLLOWS: The CITY MANAGER and CITY CLERK are authorized to execute, on behalf of the City of San Rafael, an agreement with HF&H Consultants for Refuse Rate Review of Marin Sanitary Service's Rate Application for the 2016 calendar year, in a form to be approved by the City Attorney. The agreement shall be for an amount not to exceed $83,495, the terms described in the July 21, 2015 HF&H Consultants, LLC Proposal attached hereto as Exhibit A and incorporated herein by reference. I, ESTHER C. BEIRNE, Clerk of the City of San Rafael, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of said City held on Monday the third day of August 2015, by the following vote, to wit: AYES: NOES: ABSENT: COUNCILMEMBERS: COUNCILMEMBERS: COUNCILMEMBERS: ESTHER C. BEIRNE, City Clerk

5 EXHIBIT A Managing Tomorrow's Resources Today 201 N. Civic Drive, Suite 230 Walnut Creek, California Telephone: 925/ Fax: 925/ Robert D. Hilton, CMC John W. PE laith B. Ezzet, CMC Richard J. Simonson, CMC Marva M. Sheehan, CPA July 21, 2015 Sent via Mr. Daniel Schwarz City Manager City of Larkspur 400 Magnolia Avenue Larkspur, CA Mr. Saaid Fakharzadeh Assistant Director of Public Works County of Marin 3501 Civic Center Room 304 San Rafael, CA Mr. Jim Schutz Assistant City Manager City of San Rafael 1400 Fifth Room 203 P.O. Box San Rafael, CA Mr. Joe Chinn Town Manager Town of Ross 31 Sir Francis Drake Boulevard Ross, CA Ms. Susan McGuire Administrative Services Manager Las Gallinas Valley District 300 Smith Ranch Road San Rafael, CA Subject: Proposal to Review Marin Sanitary Service's Application for 2016 Rates Dear Messrs. Schwarz, Fakharzadeh, and Chinn, and Ms. McGuire: HF&H Consultants, LLC (HF&H) is pleased to for rates to be effective BACKGROUND this proposal to 1,2016. a review of Marin Sanitary In 1995, the Cities of San Rafael and Larkspur, the Town of Ross, the Ross Valley and Las Gallinas Valley Sanitary Districts, and the County of Marin (the Franchisors') a new that would be used to set MSS' rates for refuse collection and disposal as well as recyclable and yard waste collection and processing. The methodology is on a detailed review (performed every three years) with summary reviews largely on the detailed review, the use of indices, and the review of a few key matters such as revenues and disposal during the years. In 2002, MSS was awarded the franchise to provide services to the Town of San Anselmo. Also in 2002, MSS was awarded the franchise to services to the north area of the Ross District. In 2004, MSS acquired the Fairfax franchise. These expansions of and the need to allocate MSS' costs among the Franchisors' and these new jurisdictions, make even more important the proper HF&H Consultants, LLC 1 of 12

6 Managing Tomorrow's Resources Today Marin Franchisors' July f12 allocation of MSS' costs among the jurisdictions to ensure that the Franchisors' are not paying a share of the costs to service San Anselmo, and the north area of the Ross Valley Sanitary District. In 2005, customers that were in the Las Gallinas Valley District franchise area were into the customer base of the of San Rafael. In 2012, the Franchisors' engaged HF&H to assist in the negotiations with MSS to revise the Contractor's Revenue Requirement and Rate Adjustment methodology. revisions included documentation of: 1) that had been to by MSS and the Franchisors' over the years but not fees and how they will be in the future; 3) additional reporting to be submitted with the rate adjustment applications; 4) procedures to develop a reserve for diversion programs by sharing in Marin Resource Recovery Association's net revenues (net recyclables revenues). The last detailed review was...,,,,,'1",,,'rn<>11 in 2012 for rates to be effective in 2013, Rates for 2014 and 2015 were set using the indexed method. For a review of rates to be effective in 2016, we have been asked to: Perform a detailed review; and, Perform a survey of similar rates from cities in the Bay receiving comparable services. SCOPE OF SERVICES Our scope of services is comprised of the following tasks: 1a Kick-off Meeting with Franchisors'. HF&H will meet with the Franchisors' to confirm our understanding of the timing and identify issues from the Franchisors' perspective. Ib Kick-Off with MSS. HF&H will meet with MSS to receive MSS' Application and a presentation by MSS of the major matters leading to any rate adjustments. 1c Completeness and Compliance Review. Upon of the Application, HF&H staff will test the current Application for compliance with the current We will seek explanations for any unusual and we will inform MSS of any matters that come to our attention leading us to believe the Application is either not in or is inconsistent. 1d HF&H Mathematical Accuracy and Logical Consistency Review. HF&H staff will test the mathematical accuracy of all of the tables contained in the Application. We will verify that the Application is consistent and that any summary schedules agree to the schedules or worksheets. We will seek explanations for any unusual findings and we will inform MSS in writing of any matters that may come to our attention that lead us to believe that the Application is not mathematically correct or logically consistent. LLC Page 2 of 12

7 Managing Tomorrow's Resources Today Marin Franchisors' July 21,2015 Page 3 of 12 1e Reconciliation to Financial Statements. HF&H staff will reconcile the to MSS' most recent financial statements. We will seek explanations for any unusual findings and we will inform MSS in of any that may come to our attention that may be necessary to to the financial statements. Task 2a 2b 2c Cost of Operations We will test the following expenses for reasonableness based on historical with operating data, and consistency with plans: Wages and Workers Compensation Disposal, and Fuel and Oil Expense; Equipment and Vehicle Maintenance Expense; Expense; JPA Fees, Interest Expense; and, Miscellaneous HF&H will test individual transactions to ensure non-allowable non-allowable related party have been excluded from the 2016 forecasted annual cost of operations. We will seek for any unusual findings and we will inform MSS of any adjustments that we believe are necessary to these estimated and projected expenses. Review of Commercial Mixed Materials Processing Rate and Organic Materials Processing Rate. HF&H will review the rate used by MSS in its application to determine it was calculated in accordance with the rate methodology. Review of Non-Franchisors' Affiliate Transfer and Transport Adjustment. H F&H will review MSS' calculation of the rate based on the results of our review in other areas. 2d Review Allocation HF&H will review the used by MSS to allocate expenses to the individual jurisdictions to ensure with the compensation We will seek explanations for any unusual and will inform MSS of any "h'y."'n ~" that may come to our attention that we may believe are necessary to the estimated and expenses. 2e Review Salaries. HF&H will review the salaries to determine the allocation to the Franchisors' operations is reasonable based on a time study provided by MSS and that overall compensation is reasonable based on similar in the industry. 2f Variance HF&H staff will review MSS' reported actual estimated 2015, and forecasted 2016 annual cost of operations by developing a variance analysis and will investigate variances between periods. Review Profit Calculation. HF&H staff will calculate a reasonable a 90.5% operating to the forecasted annual cost of operations, as those forecasted annual cost of submitted in the Application may be HF&H LLC Page 3 of 12

8 Managing Tomorrow's Resources Today Marin Franchisors' July f 12 3: of The Rate Adjustment Factor is determined using the projected contractor compensation based on the projected costs of operations and profit, projected pass-through costs and projected revenues. 3a Review Revenue HF&H will review and the accuracy of MSS rate revenue at current rates. We will verify the calculation has been done in accordance with the methodology outlined in the agreement. 3b Review Non-Rate Revenue. HF&H staff will review non-rate revenue for and reasonableness. We will seek explanations for any unusual findings and inform MSS of any adjustments that may come to our attention that we may believe are necessary to these estimated and revenues. 3c Review Calculation of Rate Adjustment Factor. HF&H staff will recalculate a Rate Adjustment Factor as the forecasted annual cost of operations and revenues submitted in the Application may be based on our review. HF&H staff will review MSS' cost projections and programs in the coming rate year. rin",1'a./"i rate impact for any new We will compile rates in effect in other in Marin County, as well as jurisdictions in other counties. When possible, we will draw data from our existing project files. If necessary, we will contact cities to obtain or clarify information. We will work with the Franchisors' to identify which communities to include in the survey. We will prepare a table and graphs summarizing the results. Ga HF&H will review MSS' calculation of the increase or decrease to the reserve for future diversion programs in accordance with the procedures developed in Gb We will summarize the of Task 6a. HF&H Consultants, LLC Page 4 of 12

9 Managing Tomorrow's Resources Today Marin Franchisors' July 2015 Page 5 of 12 Task 7a Communication HF&H staff will meet once with MSS management to discuss the preliminary findings from our review receive additional information from the Company that may revise our 7b HF&H staff will draft an initial based on the results from the above it to MSS for review. Thereafter, we will confer with MSS our initial draft report. 7c Based on the above HF&H will make any appropriate revisions to our initial draft and a preliminary draft to the Franchisors', we will confer with the Franchisors' to discuss its comments regarding our preliminary draft 7d 7e HF&H staff will prepare for and attend up to three informational n"it:l,a1'l,noc as requested by members of the Franchisors'. Based on the comments from the Franchisors', we will amend the preliminary draft report and issue the final 7f HF&H will ourfindings at one meeting for each of the members ofthe Franchisors'. SCHEDULE that we are reliant upon the Companyforthe of documents and response to our questions, we to this engagement in accordance with the following schedule: HF&H llc Page 5 of 12

10 Managing Tomorrow's Resources Today Marin Franchisors' July of12 LIMITATIONS approach to an engagement is limited in its scope. The major limitations regarding our proposed scope of work are:.. The scope of work described above is different from an audit of financial statements n",.i"nrm in accordance with Accepted Auditing Standards, which is performed by MSS' auditor... We will perform the tasks above in a manner that will allow us to achieve the of the review in a cost-effective manner. We will on MSS' auditor with to matters related to MSS' internal controls. Our of MSS' Application (using judgmental samples of transactions and analytical procedures) will only be for the purpose of providing evidence that allows us to reach conclusions and recommendations regarding MSS' Application... We will conduct our review in accordance with the Contractor's Compensation and Rate Adjustment Methodology recently adopted by the Franchisors'. This methodology includes the review of MSS management's projection of the future results of operations. We will review these projections for reasonableness and propose as appropriate. We no responsibility to these adjusted projected results after the date of our Additionally, the result from assumptions future events and response to them. future events do not occur as anticipated and the difference can be material. we have neither included in the scope of our work modifications to any of the individual Franchisor's rates nor rate structures. If any of the Franchisors' would like us to perform modifications to their rate structures, we would be pleased to do so based on arrangements made with the requesting Franchisor. we have included in our scope of work one presentation to the Franchisors' governing bodies. If additional meetings are we would be pleased to do so based on arrangements made with the Franchisor. AND PROPOSED QUALIFICATIONS Since its founding over 25 years ago, HF&H Consultants, LLC has been providing independent solid waste rate review services to municipalities throughout California and the West Coast. Of particular relevance to this engagement, HF&H has been the Franchisors' consultant in this area for more than 15 years. During that period, we have helped the Franchisors' to substantially reduce the cost of the review through in methodology, while ensuring that both the customers' rates and MSS' level of profit are reasonable. Marva Sheehan, Vice President, will serve as Engagement Director and will be responsible for directing the and for your satisfaction with the Ms. Sheehan has been the Director or Manager for the MSS reviews since She is a Certified Public Accountant with over 35 years of and auditing 23 of which have been in the solid waste industry. She will HF&H Consultants, LLC Page 6 of 12

11 Managing Tomorrow's Resources Today Marin Franchisors' July 21, 2015 Page 7 of 12 supervise and review the work performed by the staff assigned to the project to ensure that it is performed in accordance with the proposed scope of work, our detailed work plans, and the Franchisor's objectives. She will also make presentations of our findings to the various councils and boards. Scott Holt, an accountant with more than 18 years of industry controller experience, will serve as Engagement Manager. Mr. Holt was the Engagement Manager for the 2015 rate setting process for the Franchisors' and for the Town of Fairfax. Additionally, he has performed rate aqjustment reviews for the Cities of Sunnyvale and Union City, and contract compliance reviews for the Cities of Dana Point, Lawndale, Bellflower and Long Beach. Ms. Sheehan and Mr. Holt will be ass isted by less senior, experienced staff at lower billing rates, who will perform certain tasks under their direct supervision FEES Based on the tasks performed during our last detailed review and consideration to review new programs if required, and the level of effort necessary to address them, I estimate our professional fees and out-ofpocket expenses for the scope of work described above to be $83,495, as shown in Attachment A. As in the past, we will bill you in accordance with our standard rates and practices (as described in Attachment B) up to the $83,495. It is possible that the level of effort to perform the review and address the additional matters may exceed our estimate and, if so, we will contact you before proceeding to obtain your approval or direction. Also, it is possible that our level of effort will be less and if so we will, of course, bill you the lesser amount. * * * * We sincerely appreciate the continued confidence you have expressed in HF&H and we are committed to do our best to fulfill your objectives. Should you have any questions, please call me at (925) Sincerely, HF&H CONSULTANTS, LLC Marva M. Sheehan, CPA Vice President HF&H Consultants, LLC Page 7 of 12

12 Managing Tomorrow's Resources Today Marin Franchisors' July of 12 Attachments: A) Fee Estimate - Franchisors' B) Standard Hourly Rates and Billing cc: Mr. Joe Garbarino, Jr., Marin Sanitary Service Ms. Patty Garbarino, Marin Sanitary Service Mr. Neil Roscoe, Marin Sanitary Service Mr. Cory Bytof, City of San Rafael Ms. Kim Erwin, HF&H HF&H Consultants, LLC Page 8 of 12

13 ATTACHMENT A: Out-of-Pocket Expenses Total Budget HF&H Consultants, LLC Page 9 of 12

14 ATTACHMENT B: HF&H Consultants, LLC Stand rd Hourly R s nd Billing Arrangem nts (Effective January 1, Hourly rates for professional and administrative personnel are as follows: President Senior Vice President & Vice President Senior Project Manager Senior Associate Analyst Assistant Analyst Administrative Staff $240 $219 - $230 $185 $140 - $150 $100 - $130 $100 Standard charges for common direct expenses are as follows: Automobile Travel Document W""~.. n,ni Facsimile Telephone Public Conveyances Postage Overnight Mail and Couriers IRS rate 15 cents per page (black & white) 75 cents per page (color) No No charge Actual Actual Actual Our policy is to bill for our services and direct expenses based on the standard hourly rates of the staff member the time to the client-related tasks, plus the subcontractor services as described above. In implementing this we adhere to the following it-i...,,,rirm Support and Expert Witness Services are not covered by this schedule of fees and expenses. HF&H Consultants, LLC Page 10 of 12

15 ATTACHMENT B (CONT): HF&H Consultants, LLC Standard Hourly Rates and Billing Arrangements It is our standard practice to invoices to our clients, although hard copies of invoices can be sent to clients on request. We round to the nearest one-half hour (e.g., if two hours and SO minutes are spent on a task, it is recorded as three hours, if two hours and 10 minutes are spent on a task, it is recorded as two hours). A minimum charge of one-half hour is charged for any client work performed in a day. We attempt to schedule travel time before and after normal work hours and we do not bill for this time. If travel occurs during normal work hours and we can use public conveyances, we attempt to use the time productively for the benefit of the client or for another client and this time is billed to the appropriate client. If we must travel during business hours and cannot use the time productively or use a public conveyance, we bill the time to the client on whose behalf we are traveling. Because public meetings (e.g., Board of Supervisors, City Council, and Board of Directors meetings) generally occur after business hours and are not conducted in accordance with strict schedules, our standard policy is to bill a minimum two-hour charge. We do not mark up out-of-pocket expenses, however, we may charge administrative or professional time related to the provision of the goods and services associated with these charges. Costs for outside consultants and subcontractors are billed at actual cost plus a 15 percent administrative fee. Mileage fees are based on the round-trip distance from the point of origin. If a client's change to a previously scheduled meeting results in penalties being assessed by a third party (e.g., airline cancellation fee), then the client will bear the cost of these penalties. While no minimum fee for a consulting engagement has been established, it is unlikely (given the nature of our services) that we can gain an understanding of a client's particular requirement, identify alternatives, and recommend a solution in less than twenty-four hours. Insurance We maintain the following policies of insurance with carriers doing business in California: Comprehensive General Liability Insurance ($2,000,000) Workers' Compensation ($1,000,000) Professional Liability Insurance ($2,000,000) Hired and /\Jon-Owned Auto Liability ($2,000,000) HF&H Consultants, LLC Page 11 of 12

16 ATTACHMENT B (CONT): HF&H Consultants, LLC Standard Hourly Rates and Billing Ar ngem nts All costs incurred in complying with special insurance, licensing, or permit requirements, including but not limited to naming client as an additional insured and waiver of subrogation, become the responsibility of the client and are not included in the fees for services or direct charges but are billed in addition to the contract at plus any professional or administrative fees. Our time reporting and billing system has certain standard formats that are to provide our clients with a detailed invoice of the time and associated with their engagement. (We typically discuss these with our clients at our kick-off meeting.) We are also to our clients with a custom invoice format but we will have to bill the client for any additional costs associated with their unique requirements. Billings for professional services and are submitted every month, in order that our clients can more monitor our services. A late fee of one and one-half percent per month is applied to balances unpaid after thirty (30) days. HF&H Consultants, LLC Page 12 of 12