December Republic Rates 2024_25 Staff Report.docx

DATE: DECEMBER 3 , 2024 D EPARTMENT: PUBLIC WORKS FROM: DAVID JACOBS, PUBLIC WORKS DIRECTOR TITLE: REPUBLIC SERVICES GARBAGE & RECYCLING RATES FY 2 4 - 2 5 AND PERFORMANCE REVIEW UPDATE RECOMMENDED MOTION : A motion to approve a Resolution: F inding the proposed annual adjustments to Republic Services of Salinas’ (Republic Services) Schedule of Service Fees and Schedule of Rates for Residential and Commercial Customers effective J anuary 1, 202 5 , to be within the terms of the Collection Services Agreement ; and Authorizing the City Manager to accept Republic’s proposal for resolution of performance issues . While not a part of the recommendation action, this report also addresses the Performance Review of Republic Services. EXECUTIVE SUMMARY: On May 7, 2024 , and again on June 25, 2024 , the Republic Services Garbage and Recycling Rates for Fiscal Year 24/25 were presented to the City Council. On May 7, 2024 , the City Council delayed action on the rates in an effort to receive updated information on the ongoing Performance Review process. On June 25, 2025, citing ongoing concerns with Republic’s performance under the Collection Services Agreement, the City Council approved the pass-through rates , but not the 4% CPI for Republic. Republic never implemented the pass-through rate increase. Staff has been working through the noncomplian ce issues that were brought up during the Performance Review. This report highlight s the most significant of these performance issues and notes that significant progress has been made to address the deficiencies. The progress includes new vehicles and routes to reduce overweight vehicles, older trucks replacements, new drivers and customer complaint tracking. Republic Services ’ proposed rates for Solid Waste, Recycling, and Green Waste Collection Services for Fiscal Year 20 2 4 - 2 5 reflect an increase of 4.18 % (or $ 1. 40 ) for the typical 32-gallon residential trash service from $ 3 3 . 47 to $ 3 4 . 8 7 per month . The increase consists of : 2.3 3 % ($ 0. 7 8 ) (4.0% CPI increase to the collection element of the rate ) for Republic Services CPI, 0. 9 4 % ( or $ 0. 3 1 ) for SVSWA AB 939 f ees, 0. 29 % (or $0. 1 0 ) for r ecycling p rocessing, and 0 .63 % ( or $ 0. 21 ) for City f ranchise f ees . F or commercial services , t he monthly rate for a customer with a 3- cubic yard bin collected once per week will increase 4 . 41 % (or $ 22 . 97 ) from $ 5 21 . 23 to $ 5 44 .2 0 per month . The increase consists of : 2. 61 % ( or $ 1 3 . 61 ) (4.0% CPI increase to the collection element of the rate ) for Republic Services CPI, 1.13 % ( or $ 5 . 91 ) for SVSWA AB 939 f ees , and 0. 66 % ( or $ 3.4 5 ) for City f ranchise f ees. The City and R3 Consulting Group, Inc. ha ve reviewed the rate s with representatives of Republic Services in accordance with the Collection Services Agreement and find them within the terms of the Collection Services Agreement . In resolution of the performance issues, Republic has agreed to waive the rate increase for the first six month s of 2024-2025 and have the increase go into effect on January 1, 2025, with no back charges to the customers. This is being done in lieu of paying the administrative fines specified in the Collection Services Agreement and outlined in the Performance Review. Republic has described the terms in a letter to the City Manager. A copy of the letter is attached to this Report . BACKGROUND: Since July 1, 2001, the City of Salinas has had an exclusive Collection Services A greement with Allied Waste Services, dba Republic Services of Salinas (Republic Services ), for municipal solid waste, recyclables, and green waste collection services . The Collection Services Agreement has had multiple amendments and extension s up to the current Amended and Restated Franchise Agreement (October 2021) with a term expir ing June 30, 20 36 , with an optional extension of five years at the City’s sole discretion (Resolution No. 22208 (N.C.S. ) ) . The rates are made up of the following fees : f ranchise, AB 939, d isposal, r ecycle, o rganics , c onstruction and d emolition and the c ollection element. The only fee that Republic Services can adjust is the collection element . The Franchise Fee is set to 15% by the City and the rest are set by either Salinas Valley Solid Waste Authority (SVSWA) or by Regen Monterey. SVSWA takes the trash and green waste (organics) and has kept the solid waste rate ( $ 64.75 per ton) and the organics rate ($58.25 per ton) the same as last year and increased the AB 939 by 21.65 % ( charged to trash service based on service level) . Republic Services takes the recyclables to Regen Monterey who have increased their processing fee by 8.8 %. The chart below provides a snapshot of the impact of the requested adjustments to the rates of a typical residential and commercial customer . Table 3 Estimated Service Cost Increases for Hauler Base Services by Rate Classification Rate Classification Approved FY 2 3 /2 4 Rates Proposed FY 2 4 /2 5 Rates Percent Change Increase 32-Gallon Garbage, 64 - Gallon Recycle, 96 - Gallon Organics Residential $ 33.47 $ 3 4 . 8 7 4.18 % $ 1 . 40 32-Gallon Garbage, 64 - Gallon Recycle, 96 - Gallon Organics MFD – C urbside $ 3 3 . 47 $ 3 4 . 8 7 4.18 % $1. 40 32-Gallon Garbage, 64 - Gallon Recycle, 96 - Gallon Organics MFD – Consolidated (Carts) $ 5 1 . 97 $ 5 4.1 1 4 . 12 % $ 2 . 14 3 Cubic Yard Garbage Bin, 1 Pickup per Week MFD- Consolidated (Bins) $ 5 21 . 23 $ 5 44.20 4 . 41 % $ 22.97 3 Cubic Yard Garbage Bin, 1 Pickup per Week Commercial $ 5 21 . 23 $ 5 44 .2 0 4.41 % $ 22.97 2 Cubic Yard Recycle Bin, 1 Pickup per Week Commercial $3 36 . 00 $3 49 . 8 0 4 . 11 % $ 1 3 . 8 0 64-Gallon Organics Cart, 1 Pickup per Week Commercial $ 70 . 65 $ 7 3 . 21 3 . 62 % $ 2. 5 6 Note: The CPI increase is only applied to the Republic portion of the adjusted rates and is not applied to the SVSWA’s disposal portion. Thus, the resulting percentage increase varies for each service on the rate schedule. Across all levels of service, the average rate increase of 4.25 % for s ingle f amily re sidential c ustomers, 4.14% for m ulti- f amily r esidential c ustomers, and 4. 12 % for c ommercial c ustomers. Per Section 14- 01. 10 of the Salinas Municipal Code and Article 4 of the Collection Services Agreement, the Council annually reviews and adopts adjustments to Republic Services corresponding approved rates . Article 4.06 of the Collection Service Agreement states “Each adjustment is to be approved by the Salinas City Council with good faith effort by May 1st of each year ...”. Republic Services submitted a request for consideration of adjustments to the Rate Schedules for fiscal year 2024-25 in accordance with the timeframe as required in the Collection Services Agreement . The 2023-2024 rates have remained in use this year (July1, 2024 through December 2024), since the City Council has not approved the 4% CPI for Republic and Republic has not implemented the pass-through rates that were approved on June 25, 2024. This is a savings to the Salinas rate payers. Republic has agreed to forego the first 6 months of rate increase in exchange for the City waiving all administrative charges. K ey D rivers : As part of the negotiation process, existing programs and solid waste expenditures were considered. The a nnual r ate a djustment is directly linked to increased costs in tipping fees (SVSWA Landfill, ReGen MRF) and the Solid Waste Element. All these cost increases are typical of the service provided. Collection Element Beginning with Rate Year 202 3 , the Consumer Price Index (CPI-U) adjustment shall be the sum of the weighted percentage change in the 12-month average of each CPI-U index number between the base period, which shall be the prior preceding year ending December 31 st , and the preceding year ending December 31 st as contained in the most recent release of the CPI-U. Therefore, the CPI-U rate adjustment effective July 1, 202 4 , will be based on the percentage changes between the 12-month average of the CPI-U indices from January 202 3 to December 202 3 . Additionally, if in any Calendar year that the calculation of the CPI-U exceeds four percent (4.00%), the total adjustment for that year will be four percent (4.00%), and no rollover amount will be added the rate adjustment percentage in the following year, or any subsequent year. If the CPI-U is negative, there will be no CPI-U adjustment to the Collection Element for that year. The annual CPI -U was calculated at 5 .4 4 % and the CPI applied to the 202 4 -2 5 r ate schedule is 4 . 00 %. SVSWA Tipping Fee Salinas Valley Solid Waste Authority has kept their tipping fee at $64.75 per ton for the upcoming year. SVSWA AB 939 F ees Every year SVSWA reallocates its AB 939 non-disposal programs fee using the total tonnage landfilled over the prior three fiscal years. For FY 202 4 -2 5 t he SVSWA increase d AB 939 Non-disposal Program Fees from $ 2, 428 , 616 to $2, 954 , 517 . This fee increase is meant to offset the additional funding needed to comply with all CalRecycle requirements focused on waste prevention, diversion, and recovery. Recyclable Material Republic Services hauls the recyclable material to ReGen Monterey in Marina. The cost of the recyclables has increased from $36.75 per ton to $40.00 per ton, an increase of 8.8% F ranchise F ee A typical component of such agreements, franchise fees represent the reasonable market value of the grant of the solid waste franchise. The City is paid a 15 % franchise fee on the gross revenues for all services that Republic Services provides . The above increases for CPI , AB 939 f ees, r ecycling and o rganics c ollection costs will also result in additional franchise fees. Performance Review Update The City retained R3 Consulting to conduct a performance review of the Collection Services Agreement. The performance review focused on contract compliance and included : work order response times, sustainability/compliance representatives, overweight vehicles, t he age of collection vehicles , overall operations, customer service and vehicle maintenance . During the review R3 found 4 area s of non-compliance: 1) Work Order response times ; 2) Staffing ; 3) Overweight Vehicles ; and 4) Replacement Vehicles. Within the Collection Services Agreement, each of the areas identified in R3’s review has an administrative charge/penalty listed for non-compliance . Republic has acted on the items in the R3 report by adding drivers, adding new routes, and transferring newer vehicles to Salinas to be in compliance with the Collection Services Agreement. To address the administrative fines associated with non-compliance Republic proposed to forego the first six months of the 2024-2025 rate increase. The City has received the first 3 quarterly reports for 2024, which show that Republic is currently meeting the requirement of the Collection Services Agreement with respect to overweight vehicles. Republic also transferred collections vehicles to Salinas in August to replace the out of compliance vehicles identified in the performance review. The Collection Service Agreement will be monitored closer going forward. Th is will be achieved by the recently hired Susta inability Analyst who is working closely with Republic to help monitor the Collection Services Agreement. Republic has also recently hired a General Manager for the Salinas operation. Customer complaints will be tracked and submitted to the City monthly. The report will include number of complaints, reason for the complaint, resolution of the complaint, and percentage of complaints resolved. The first report received by the City shows a resolution rate of more than 99%. The progress that Republic has made over the last six months shows their commitment to the City of Salinas and the Collection Services Agreement. Attached to the agenda item is the phase 1 performance review. Once the second phase of the performance review is complete (currently in draft form going through internal review) we will email it to the City Council members and have copies available in Public Works for review. CEQA CONSIDERATION: Not a Project . The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378). In addition, CEQA Guidelines Section 15061 includes the general rule that CEQA applies only to activities which have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA. Because the proposed action and this matter have no potential to cause any effect on the environment, or because it falls within a category of activities excluded as projects pursuant to CEQA Guidelines section 15378, this matter is not a project. Because the matter does not cause a direct or foreseeable indirect physical change on or in the environment, this matter is not a project. Any subsequent discretionary projects resulting from this action will be assessed for CEQA applicability. CALIFORNIA GOVERNMENT CODE §84308 APPLIES : No. STRATEGIC PLAN INITIATIVE : This action supports the Council’s goal of Infrastructure and Environmental Sustainability . DEPARTMENTAL COORDINATION : While the rate review is largely conducted by Public Works, coordination occurs with both the Finance , City Manager’s, and Legal Departments. FISCAL AND SUSTAINABILITY IMPACT : This item requires no additional expenditures or appropriations . Franchise f ees associate with these annual rate adjustments will generate additional General Fund revenue for the C ity and will be included in the upcoming Proposed FY 20 2 4 / 2 5 B udget . ATTACHMENTS: Resolution Proposed New Exhibit 1 - Schedule of Approved Rates of Franchise Agreement – Republic Services & the City of Salinas, effective 1 /1/ 2 5 Republic letter s to City Manager Phase 1 Performance Review Commercial customers continue to have the option to reduce their monthly rates by taking advantage of recycling opportunities and/or by reducing service levels for underutilized capacity.