COUNCIL AGENDA: 6/9/15 ITEM: CITY OF SAN JOSE CAPITAL OF SILICON VALLEY Memorandum TO: HONORABLE MAYOR AND CITY COUNCIL FROM: Kerrie Romanow SUBJECT: SEE BELOW DATE: Approved Date s'mis SUBJECT: ADOPTION OF RESOLUTION TO INCREASE RECYCLE PLUS RATES EFFECTIVE JULY 1, 2015 FOR SINGLE-FAMILY AND MULTI- FAMILY SERVICES RECOMMENDATION Adopt a resolution to amend the current Recycle Plus rate resolution effective July 1, 2015, as follows: a) Increase rates for single-family households by three percent; b) Increase rates for multi-family households by five percent; c) Increase the rates for large item collection services by 1.33 percent; d) Increase the rates for subscription yard trimmings cart services by 1.49 percent. OUTCOME Rate increases of three percent for Single-Family Dwelling (SFD) and five percent for Multi- Family Dwelling (MFD) households would maintain the Recycle Plus Program at cost-recovery; meet contractual obligations; and sustain a prudent fund balance in the Integrated Waste Management (IWM) Fund. Approval of the recommendation would increase the ratepayer cost of SFD solid waste services by $0.92 per month for a 32-gallon garbage cart, the most common level of service. BACKGROUND Recycle Plus rates are set to cover the expenses of providing residential solid waste services. Staff regularly reviews IWM Fund revenues and expenditures and forecasts the rates necessary to implement and maintain Council-approved services, programs, and activities. The
Page 2 recommendations of this memorandum are based on the results of this analysis. As required by Proposition 218, in March 2014, notices were mailed to all property owners that are subject to these rates. The notice specified maximum five percent rate increases for 2014 2015, 2015-2016, and 2016-2017. The Office of the City Clerk received a total of 993 valid written protests. The total of all written protests during the public protest period, together with the ten speakers that protested the rate change during the Public Hearing on May 13, 2014, represented less than one percent of all property owners impacted by the change in rates, which is less than the 50 percent needed to reject the proposed rate increases per State of California regulation., ANALYSIS Increasing Contractual Costs and Decreasing Non-Contractual Costs Contractual costs for the Recycle Plus collection and disposal agreements comprise approximately 88 percent of total program expenditures and are expected to increase by approximately $1,500,000, or approximately 1.5 percent, in 2015-2016. These agreements provide the following services: garbage, recycling and yard trimming weekly collection (or more frequent for MFDs); SFD motor oil and oil filter on-demand collection; neighborhood cleanup waste collection and recycling; and the household hazardous waste drop-off program. Due to enhanced waste diversion efforts, the landfill costs associated with the disposal contract are expected to decrease by approximately $992,000 in 2015-2016. Non-contractual costs comprise approximately 12 percent of total Recycle Plus expenditures and include overhead, program and contract administration, customer service, billing and remittance processing, and customer outreach. Non-contractual costs are expected to decrease slightly in 2015-2016, helping to mitigate the rate increases needed to cover rising contractual costs. Part of the non-contractual cost control comes from the implementation of the property tax billing system in July 2015, which will result in cost avoidance to ratepayers of roughly $3,200,000 annually for SFD ratepayers. The City's agreements with the residential garbage haulers provide for annual inflationary adjustments in compensation to cover increases or decreases in contractual costs. In 2015-2016, the average adjustment to the Recycle Plus contracts per this methodology will be 0.53 percent. These proposed appropriations reflect previously negotiated benefits to the City and include onetime credits of approximately $769,000, primarily related to the yard trimmings agreement for 2015-2016 services. Service Level Increases Growth and service level increases also contribute to increased contractual expenditures, particularly for the MFD sector due to higher occupancy rates and greater solid waste volumes. The recommended rate increases also include a proposal to phase-in additional residences from
Page 3 Hauler District A (downtown, north, and east San Jose) into the backend processing program, which sorts and processes waste materials to further the City's recycling goals. The additional funding for 2015-2016 represents the second phase of this effort. With the addition of this second phase, roughly 40 percent of the City's total single-family residences will have their garbage processed for recycling. This is projected to result in a diversion increase from approximately 30 percent to 60 percent for the District A service area receiving backend processing. During the first six months of 2014-2015, the first phase of SFD backend processing, the District B (west San Jose) diversion rate increased from 38 percent to 62 percent and is expected to ramp up as the transition period moves to stabilization. The cost of this service accounts for approximately 2.4 percent of the total ongoing contractual costs. The program target remains to phase-in SFD garbage routes over the next five years to include all SFDs. Rate increases are recommended for 2015-2016 to cover contractual increases shown in Table 1. TABLE 1 - Recycle Plus Contractual Appropriations (IWM Fund) 14-15 15-16 Contractual Budget Adopted Proposed 5 Change % Change Single-Family Service 50,871,000 51,077,000 206,000 0.40% Single-Family Processing 2,500,000 4,881,000 2,381,000 95.24% Multi-Family Service & Processing 18,579,000 18,953,000 374,000 2.01% Yard Trimmings Service 22,906,000 22,455,000-451,000-1.97% Landfill Disposal 7,997,000 7,005,000-992,000-12.40% Total 102,853,000 104,371,000 1,518,000 1.48% Rate Strategy and Recommended Increases The Administration maintains an IWM fund balance equal to approximately one month's operating expenditures for the Recycle Plus and disposal contracts. This balance enables the fund to absorb unforeseen costs from year to year and provides a contingency reserve in the event of service disruptions or emergencies. An SFD increase of three percent to the 32-gallon garbage cart (used by 87 percent of SFD customers) would result in a monthly increase of $0.92, from $30.84 to $31.76 per month. Although 2015-2016 service rates for other jurisdictions are expected to increase, complete information is not yet available for comparison. For jurisdictions with July 2015 rate adjustments, this information will be available in late June 2015. The current and proposed SFD rates are slightly higher than the current Countywide average of $31.40; however, San Jose's services are more robust, including unlimited recycling and yard trimmings collection, neighborhood cleanups, and used oil collection.
Page 4 The proposed MFD rate of $222.19 for a 3-cubic yard bin serviced once per week remains far lower than the current Countywide average rate of $281.37. Other Technical Adjustments Large Item Collection is an optional service available to residential households. Under the City's solid waste service agreements with the recycling contractors, customer rates for Large Item Collection services are required to be adjusted annually by the inflationary methodology in the hauler agreements to offset cost increases. Adjusting these rates in 2015-2016 ensures the hauler can charge the amount allowed in compliance with the terms of the agreements. The SFD Large Item collection rate continues to be one of the lowest cost options for this service in the Bay Area. Approximately 37,000 SFD households and 40 MFD complexes and mobile home parks subscribe to yard trimmings cart service for convenience. Increasing the SFD rate for this service from $4.69 to $4.76 per month is needed to achieve cost recovery. On September 17, 2013, City Council approved transitioning Recycle Plus SFD customers to the Santa Clara County Secured Property Tax bill effective July 2015, resulting in numerous cost efficiencies for the City. As part of this strategy, however, approximately $2.1 million in annual Recycle Plus late fee revenue for single-family households, which have been collected through the current billing system, will be lost. Late fees have served as an unrestricted source of funding for several programs that cannot be paid from the Recycle Plus utility customer rate, due to Constitutional limitations under Proposition 218 on using rate-payer funds for purposes other than those for which the rate was imposed. Two programs, Low Income Rate Assistance and Medical Exemption Reduced Rate Assistance, are currently funded from late fees. Because these rate assistance programs cannot be directly funded through Recycle Plus rates, they have been planned for elimination effective July 1, 2015, which was included in the 2015-2016 Proposed Operating Budget. A clarification is recommended to the fee "Service Type Change between SFD and MFD", stating that customers can apply for changes between service types by May 1 of each year, and that this fee is applied with ESD approval. Processing requests between May and June would allow for coordination between the hauler and City billing systems, equipment transition, and a consistent billing effective date of July 1 annually, which is needed for the SFD property tax billing operation. The recommended Rate Resolution includes complete listings of proposed SFD and MFD rates. Information on other jurisdictions' current rates is presented in the Attachment, Other Jurisdiction Rate Comparison. Most jurisdictions in Santa Clara County have increased garbage rates recently. In 2014-2015, 10 out of 15 cities in Santa Clara County increased residential garbage rates, and accordingly the rates listed for other jurisdictions in the Attachment are anticipated to increase in 2015-2016.
Page 5 EVALUATION AND FOLLOW-UP Once approved, the Recycle Plus rates will be billed to rate payers for services effective July 1, 2015 for SFD and MFD customers. PUBLIC OUTREACH As required by Proposition 218, notices for proposed maximum rate increase for 2015-2016 were mailed to property owners in March 2014. This memo will be posted on the City's website for the Council Agenda of June 9, 2015. COORDINATION This memorandum was coordinated with the City Manager's Budget Office and the City Attorney's Office. COST SUMMARY/IMPLICATIONS The three percent single-family and five percent multi-family increases along with increases in the customer base are estimated to generate approximately $3,754,000 in additional revenue in the Integrated Waste Management Fund (Fund 423) in 2015-2016. There is no cost impact to the City associated with the SFD Large Item Collection rate increase, because the City sets the customer rate for this program and the haulers collect the revenue. Based on current subscription counts, the Subscription Yard Trimmings Cart rate increase will generate approximately $50,000 in revenue for 2015-2016 in the Integrated Waste Management Fund, which is needed to achieve cost recovery in providing the service. Staffs recommendation aligns with Council Policy that programs be self-supporting whenever possible. CEOA Not a Project, File No. PP10-067(a), Increase or Adjustment to Fees, Rates & Fares. /s/ KERRIE ROMANOW Director, Environmental Services For questions, please contact Jo Zientek, Deputy Director, Environmental Service Department, at (408) 535-8557. Attachment: Other Jurisdiction Rate Comparison
ATTACHMENT OTHER JURISDICTION RATE COMPARISON Single-family dwelling (SFD) and multi-family dwelling (MFD) garbage and recycling customer rates of Santa Clara County cities are shown in the tables below. Services included with these rates vary from city to city, and San Jose's services are more robust, including unlimited recycling and yard trimmings collection, neighborhood cleanups, and used oil collection. SFD Garbage and Recycling Program 32-GaIlon Rate Comparisons 15/16 Projected Santa Clara County Cities Monthly Rate Palo Alto $42.98 Los Altos Hills $37.96* Sunnyvale $36.94 County District West $32.69 San Jose $31.76 Countywide Weighted Average $31.40 Milpitas $31.30* Los Altos $30.62* Santa Clara $29.68 County District East $29.61 Monte Sereno $28.77 Gilroy $28.66* County District South $28.50 Morgan Hill $28.30 Saratoga $26.63 Mountain View $26.60 Campbell $24.79 Los Gatos $24.41 Cupertino. $23.40* Oakland $36.82 San Francisco $34.83* *14/15 rate; 15/16 projected rate information not available as of date of this memorandum. MFD Garbage and Recycling Program 3-Cubic Yard Bin Rate Comparison Santa Clara County Current Monthly Rate Countywide Average $281.37 San Jose (Proposed) $222.19 San Jose (Current) $211.61 San Jose's current rate for a 3-cubic yard bin serviced once per week (a common multi-family service level) is $211.61, which is lower than the current countywide average of $281.37 per month (average based on 13 cities in Santa Clara County that offer multi-family bin service). San Jose's multi-family rates also include recycling and yard trimmings collection. These services are not always provided in other jurisdictions, particularly when multi-family service is provided by a commercial collection company.