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HomeMy WebLinkAboutItem 5.1 - 3190 AVI Extension Update (2) Page 1 of 4 STAFF REPORT CITY COUNCIL DATE: April 21, 2020 TO: Honorable Mayor and City Councilmembers FROM: Linda Smith, City Manager SUBJECT: Review of Proposed Terms to Extend the Solid Waste Collection Services Agreement Prepared by: Jay Baksa, Assistant Administrative Services Director EXECUTIVE SUMMARY: The City Council will receive an update on the City's negotiations with Amador Valley Industries, LLC on an extension to the Collection Services Agreement. The finalized agreement will be brought back to the City Council for approval in June. STAFF RECOMMENDATION: Receive the report and provide direction, if necessary. FINANCIAL IMPACT: This report is meant as a primer for the extension to the agreement between the City and Amador Valley Industries, LLC, which will be brought to the City Council in June 2020. Incorporation of the tentative deal terms into the contract extension results in an estimated rate increase of 18% in the first year. The residential garbage and recycling services fees are collected on the property tax bill as an annual assessment; all other customers are billed directly. DESCRIPTION: Background On December 6, 2004, the City Council approved a Collection Services Agreement with Amador Valley Industries, LLC (AVI) for the collection and disposal of solid waste in the City of Dublin. The original contract term was seven years, expiring June 30, 2012. Since then, five amendments to the agreement have been executed to include, among other things, collection of recyclable materials produced by commercial units, provision of large item collection services, adjustments to the compensation model and franchise payments, and collection of an annual community benefit payment for small business assistance. On June 1, 2010, the City Council extended the term of the agreement for Page 2 of 4 an additional eight years, terminating on June 30, 2020. At the meeting of August 21, 2018, the City Council discussed a request by AVI to begin negotiations with the City to extend the agreement again in order to make necessary investments in new equipment over the next several years. The City Council directed Staff to bring back a review of the existing contract arrangement, along with a brief discussion of potential focus areas of contract negotiations. That item was brought back to the City Council on November 8, 2018, highlighting the main components that would be included in a contract extension, including capital equipment replacement, operational cost increases, and incorporation of future local and state requirements. The City Council then directed Staff to proceed with negotiations on a contract extension. Goal and Approach The City’s objective for the contract extension was to continue to keep customer rates low while engaging in a long-term agreement that considers current and future challenges facing the refuse and recycling industry, and that adds or enhances programs to help the City increase diversion rates. Additionally, it has become clear that the original approach to the contract, w hich allowed for the establishment of a blended baseline cost with annual adjustments based on various factors, is no longer a realistic approach in the current waste management market. While this approach did work for a time, it becomes problematic in th at it assumes long-term predictability in how a hauler operates and disposes of material. In fact, the recycling markets have become increasingly volatile and unpredictable, and the costs to dispose of certain materials have increased. In 2017, local disposal sites stopped paying for recycling as the commodities market dwindled, leading AVI to absorb large disposal costs with no offsetting revenue. This subsequently led to their request for an extraordinary rate adjustment, which was approved by the City Co uncil in June 2019. In addition to market volatility, there have been state and local legislative changes in recent years related to the handing of certain recyclable material and compostable waste, and programs that support diversion efforts. In short, locking AVI into a 15-year contract that incorporates assumptions about uncontrollable and volatile factors would result in a rate increase more than double the amount that Staff and AVI are now projecting with a new model. The New Model The new model is hybrid of annual rate adjustments, component cost separation, and regular financial reviews. The important distinction with the hybrid model is that the cost elements in the service agreement are more separated rather than blended, and while the baseline amounts would continue to be adjusted annually, a third-party administrator would review costs and revenues every three years to confirm reasonableness and to ensure that an industry standard level of operating margin is being maintained by AVI. This type of contact is now the predominate form used in the industry, due to the previously discussed issues. The method of the financial review would be formalized once a third-party consultant is chosen and brought under contract. Page 3 of 4 The following is a brief summary of the new, changed, or expanded cost elements and programs included in the proposed contract extension. New Cost Components 1. Recycling Disposal and Organics Disposal Elements – These new elements will be cost neutral, simply shifting costs that would have otherwise been factored into various other elements. The proposed methodology will protect the Dublin rate payers should the recycling markets rebound and AVI is able to sell their goods once again. If this does occur, Dublin customers will receive a credit toward their rates. In the second year of the agreement City staff and AVI will reconcile the estimated cost for recycling and organics disposal versus the actual cost and make an adjustment to be applied during the next rate adjustment. 2. Fleet/Asset Replacement Element – The largest single cost associated with the contract extension is the replacement of two-thirds of AVI’s fleet in the first year. These costs will be tracked as a separate element and will not be adjusted annually. AVI will continue to utilize natural gas vehicles with their upcoming replacements, but the contract will include language relating to the future consideration of alternative fuel vehicles. New Programs The mandates being implemented by the county and the state include the requirement to improve the local diversion rate, or the amount of waste that is diverted from garbage landfills. The proposed agreement extension with AVI will increase the minimum diversion requirement from the current 50% to 75% within five years. T o help with this effort, City staff has requested that the following new/expanded programs be included: 1. Expanded Large Item Pick-Up – This will focus on outreach and assistance to Multi-Family Dwellings that may be underutilizing the service. 2. Quarterly Residential Textile Collection – Under this program, AVI will work with charities and local companies to recycle and re-use textiles. 3. Enclosure Clean-Up – This will focus on the cleaning of overflowing bins and working with customers to proactively address the issue. 4. Collection of Illegally Dumped Material in the City Right-A-Way – This will focus on the prompt identification and removal of material illegally dumped on City property. Mandatory Recycling Ordinance (MRO) On June 19, 2019, the City Council approved opting into Alameda County Waste Management Authority’s MRO Phase II, which places requirements on businesses and multi-family property owners regarding the handling of certain recyclable material and compostable waste. Participation in the MRO gives City staff, Dublin businesses, and AVI time to expand waste diversion programs before additional state mandates are enacted. As the program continues to expand, additional AVI resources have become Page 4 of 4 necessary, including another hauler and increased staff time. These costs are now being incorporated into the agreement extension. The costs associated with the MRO will be tracked separately and adjusted as necessary every three years. STRATEGIC PLAN INITIATIVE: None. NOTICING REQUIREMENTS/PUBLIC OUTREACH: None. ATTACHMENTS: None.