City Council Meeting: April 25,
2006
Agenda Item: 8 B
To: Mayor and City Council
From:
Subject: Update on Solid Waste Efficiencies; Adoption
of Fiscal Year 2006-2007 Rates; and Authorization to Proceed with Phase II of
Professional Services Agreement 8524 (CCS) with Gershman,
Brickner & Bratton, Inc.
Recommended
Action
It is recommended that the City Council:
1)
Establish a Solid
Waste rate for inclusion in the Fiscal Year 2006-2007 budget; and
2)
Authorize proceeding
with Phase II of Professional Services Agreement 8524 (CCS) with Gershman,
Brickner & Bratton, Inc.
Executive
Summary
On March 14, 2006,
City Council held a Study Session on a Strategic Review of the Solid Waste
Management System with Gershman, Brickner & Bratton, Inc. (GBB). At that
Study Session, GBB presented Council their draft findings of operational
efficiencies with several service delivery options and their financial analysis
of the fund and rate. As a follow up to that Study Session, staff is presenting
additional information on:
1)
Detail of commercial services.
2)
Review of potential operational efficiencies.
3)
Rate proposal for Fiscal Year 2006-2007.
4)
Request for authorization to proceed with Phase
II of the GBB Contract, which includes development of alternative service
delivery methods.
Discussion
Background
At its October 25, 2005 meeting, City Council authorized a
two-phased professional services agreement with GBB. Phase I included conducting an operations and
financial analysis to assist the City in determining base line revenue and
expenditure data. Phase II of the engagement will provide for the development
of Request for Proposals to test the market for alternative service delivery
methods.
On March 14, 2006, City Council held a Study Session reviewing the
draft report from GBB on the strategic review of the solid waste management
system. GBB presented a current system description, benchmarking survey, a
detailed financial review, operational alternatives, and rate options. At the Study
Session, GBB also presented several recommendations to improve efficiencies
within the solid waste operations. The presentation report can be found online
at:
http://www.smgov.net/cityclerk/council/agendas/2006/20060314/s2006031403-A.pdf.
As a follow up to the Study Session, staff is returning to Council
with information on:
1)
Detail of commercial services.
2)
Review of potential operational efficiencies.
3)
Rate proposal for FY 06-07.
Detail of Commercial Services.
Commercial operations represent the one area where the City
competes with private companies and as a result, sets rates that are competitive
with the private sector. However, in addition to basic collection services, the
City provides commercial customers with several additional services that help
to maintain the business districts as well as support the environmental goals
of the City. These services include: street sweeping, litter management, food
waste collection, promenade maintenance, and recycling. The breakdown of the
cost of these services is included in Attachment A.
Review
of Potential Operational Efficiencies
Over
the past 30 days, the Solid Waste Management Division staff has worked with GBB
to evaluate a number of operational efficiency enhancements that were
identified in the consultant report. The status of this effort is as follows:
Driver Management and Accountability –
Measures have been implemented to increase and strengthen pre and post trip
vehicle inspections and greater truck driver accountability for overall vehicle
cleanliness and physical condition. A tracking system that will be capable of
measuring the cost savings in employee overtime and vehicle repair costs
associated with these improvements will be in place by the beginning of FY06-07.
Collection Route Optimization – Due
to the complexity of the City’s refuse and recycling collection routes, staff
is proceeding with the hiring of additional outside expert support to develop
specific route and vehicle assignment recommendations that have the potential
to reduce the overall number of collection routes thereby generating cost
savings. It is anticipated that this additional analysis will be completed
within the next six months so that any changes can be implemented by mid FY06-07.
Restructure Transfer Operations, Optimize
Disposal Locations and Resolve Driver Shortages –
Staff has commenced to load and prepare the transfer trailers on the prior work
day, whenever possible, to ensure the earliest possible departure time to the
Puente Hills Landfill. The early departure will help the City to maximize the
most cost-effective disposal option that is currently available for the waste
that does not receive landfill diversion credit. Staff is also collaborating
with the Human Resources Department to more expeditiously fill truck driver
vacancies so that overtime costs and operational disruptions can be minimized.
Replace Current Rear-Loaded Compaction
Transfer Trailers with Top-Loading Trailers – After a more complete
analysis of this recommended option, staff believes that this change would
require approximately $1,000,000 in additional one-time and on-going expenditures
both for new trailers as well as physical improvements to the City’s transfer
facility. The necessary facility modifications may also require that the City’s
Facility Permit from the State be revised through a lengthy permit review
process. Due to the infeasibility of this option being implemented in the short
term, it is recommended that a final decision be deferred until completion of
the Phase II scope of work by the consultant and subsequent discussion by City
Council.
Rate Proposal for
Fiscal Year 2006-2007
Since the March 14th Study
Session, staff has analyzed the effects of several rate scenarios. These rate
options were discussed at the Solid Waste Committee meeting on April 3.
Following input received at that meeting, staff recommends that the City
Council approve a 3% rate increase, above the 5% CPI amount for all rate
classes. This rate option would allow for stabilization of the Solid Waste Fund
and creation of an operating reserve in FY06-07 ($650,000) and FY07-08 ($700,000).
This option is expected to support the Solid Waste Fund and start to build the
industry recommended three month reserves while Phase II of GBB’s engagement,
discussed below, is completed.
Rate Alternatives
In addition to staff recommendation, Council
could consider other rate options for FY06-07, such as:
5%
(CPI only) – With a CPI
only increase, the Solid Waste Fund is projected to maintain a positive balance
through FY06-07, after which the balance would become negative. This option will allow for a $250,000 reserve
to be set aside for future year use.
However, if no additional increase is applied beyond CPI, those funds
will be exhausted in FY07-08. Also, any
increase in operational costs (maintenance, disposal fees) or decline in
revenues in the first year could provide a negative balance.
1%
above CPI (6%) - This will
allow the fund to remain positive through FY07-08. It will also provide a reserve of $350,000
for FY06-07, decreasing to $150,000 in FY07-08. The reserve would be exhausted
by FY08-09. This reserve is still
minimal in operating standards and does not provide for any flexibility.
2%
above CPI (7%) - This will
also allow the fund to remain positive through FY07-08. However the reserve is
slightly higher at $500,000 for FY06-07, decreasing to $400,000 in FY07-08 and
being fully exhausted by FY08-09. This
reserve is still minimal but allows for a little flexibility.
4%
above CPI (9%) - This will
allow the fund to remain positive through FY08-09. The reserves are higher at
$800,000 for FY06-07, increasing to $1,000,000 in FY07-08 decreasing to $250,000
in FY08-09 and being fully exhausted by FY09-10.
5% above CPI (10%) - This will allow the fund to remain positive through FY09-10. The reserves are higher at $950,000 for FY06-07, increasing to $1,300,000 in FY07-08 decreasing to $700,000 in FY08-09, $150,000 in FY09-10 and fully exhausted at the end of FY10-11.
A Summary of the effects of each rate option is included as Attachment B.
GBB Recommendation – Upon review of staff’s recommendations, GBB suggested that Council consider implementing a short-term rate for FY06-07 that would not increase commercial rates beyond the CPI due to the fact that it may make the City less competitive in the commercial area. The net effect of this is a loss of approximately $14,080 for each 1% increase over CPI. Staff recommends that an equal increase in all classes be approved for FY06-07 at this time. This would allow GBB and the Solid Waste Committee to complete Phase II of the engagement before this decision is made.
Authorization for Phase II
Staff recommends
that City Council authorize staff to proceed with Phase II of the GBB
agreement. Phase II concentrates on the development of various alternative
service delivery alternatives and develops Request for Proposals to test the
market for the identified alternatives. The first task of Phase II would be for
GBB to participate in a Study Session with the City Council in early summer
2006 to discuss the options that should be examined during Phase II.
Budget/Financial Impact
A 3% rate increase above CPI is projected to create an operating reserve of $650,000 in FY06-07 and $700,000 in FY07-08 respectively. Establishing an alternative rate would
increase or decrease the reserve.
Authorization of Phase II of
professional services with GBB is estimated to be $127,000. This amount was
approved by the Council on October, 25, 2005 and is encumbered in
account 01202.555060.
Prepared by:
Donald
Patterson, Acting Assistant to the City Manager, Management Services
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Approved: |
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Forwarded to Council: |
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Craig Perkins Director,
Environmental & Public Works Management |
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P. City Manager |
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Steve Stark Chief Financial Officer |
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