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SR-503-001-02-01 (3) EPWM:CP/Transfer030826 City Council Meeting: August 26, 2003 Santa Monica, California TO: Mayor and City Council FROM: City Staff SUBJECT: Conceptual Approval for Construction of a New City Recycling and Transfer Facility. INTRODUCTION This report recommends that the City Council approve the conceptual plan for a new recycling and transfer facility to be built at the City?s Corporate Yard on Michigan Avenue and authorize staff to proceed with design development required for commencement of environmental review of the proposed project. Based on the attached financial analysis performed by Hilton Farnkopf and Hobson (HF&H) and the operational review by RNL Design and HDR Engineering, staff has concluded that entering into a contract with Southern California Disposal (SCD) for transfer station services as outlined in the most recent proposal received from SCD on February 19, 2003 would not be beneficial to the City in the long-term as continuing to operate and own its own recycling and transfer facility. There are significant advantages that accrue to the City by continuing to own and operate its own transfer station facility. By doing so, the City would: ? Retain community control of valuable recycling and transfer operations, an asset that will only increase in value as regional landfills close; ? Design a facility large enough to handle the refuse and recyclable materials accepted at the existing City facility and allow sufficient additional capacity to potentially handle all commercial waste collected in the City with some cushion for future growth; ? Build a facility designed to maximize recycling opportunities so as to avoid increasing landfill disposal costs and be prepared to comply with increasingly stringent state and local diversion mandates; and, ? Be able to direct recycling and transfer station operations in a manner that is consistent with city policies regarding environmental protection, regulatory compliance and employer responsibilities; and, ? Continue to benefit from revenues generated by non-City collected refuse deposited at the facility. BACKGROUND In 1996, the City engaged RNL/Interplan, Inc. (RNL) to prepare a Plan that would address the physical reorganization, renovation, and rehabilitation needs of the City Corporation Yard. RNL developed two conceptual plans for the City. One plan included the relocation and construction of a new transfer station facility in the City Corporate Yard since the City?s current transfer station is operationally deficient and not in compliance with current codes and regulations. The other plan included, in concept, the construction of a diversion area and recycling facility on City property for processing recyclable materials and a joint use of the existing adjacent Southern California Disposal (SCD) transfer station and surrounding property for processing of solid waste. On October 24, 2000, the City Council approved, in concept, the two proposed 2 Corporation Yard Plan Alternatives and authorized the City Manager to negotiate an agreement with SCD for lease of property and facilities. The preferred plan was expected to emerge from the two alternatives through a process of negotiations with SCD and an evaluation of revenues, costs, and benefits associated with the various operating scenarios developed by staff. The preferred alternative was defined as the option that would provide the highest level of benefit to the City over the long-term. SCD Negotiations After more than a year of negotiations with SCD and evaluating various operating scenarios, the staff analysis demonstrated that it was more advantageous for the City to build and operate a new recycling and transfer facility than to lease the SCD facility or enter into an agreement with SCD for the use of their transfer station. It was then that SCD proposed an additional scenario, one in which the City would enter into a long- term agreement to pay SCD a specified price per-ton to transfer and process all of the City?s waste and recyclable materials that are currently being handled at the City?s existing transfer station. SCD believed this scenario would be more cost effective because the City would not have to incur the costs of building or operating any new facilities and would free up land at the City Yard for other purposes. SCD expressed confidence that it could provide all required recycling and transfer services using the existing SCD transfer station and its adjacent property even though SCD has never engaged in a similar scale of activity at their facility. This SCD proposal raised significant new issues not previously considered 3 by staff including: ? Relinquishing the control of valuable and critically important recycling and transfer operations to a privately held company; ? Privatizing a major public service function that the City has provided for more than 75 years; ? Closing the City?s transfer station, which currently provides operational and policy implementation flexibility and generates revenue that is used to offset solid waste disposal costs for Santa Monica ratepayers. Staff was also doubtful that SCD?s transfer station, which is smaller than the City?s existing transfer station, could process all of the waste collected by SCD and the City and have enough remaining space to source separate and recycle all of the materials currently being recycled at the City transfer station (yard waste, wood, appliances, construction and demolition debris, street sweeping debris, cardboard, electronics waste, beach debris, and metals). Rather than debate the merits of such an arrangement or the capabilities of the SCD facility, staff explained that SCD would need to first develop and submit a very specific cost proposal to the City for consideration of this new scenario. In their letter dated April 30, 2002, SCD proposed a very general scope of services to handle all waste from the City of Santa Monica for $39.90 per ton including transfer and disposal. On August 24, 2002, staff met with SCD and discussed other ancillary cost and policy concerns not addressed in their letter, such as the use of alternative fuel vehicles, employee pay rates and benefits, and various long-term operating issues. 4 Staff followed up this meeting with a letter to SCD requesting that they submit a revised proposal with more specific information if they wished their proposal to be considered. A revised proposal was not submitted by SCD in response to the City?s request. At the November 26, 2002, City Council meeting, staff recommended to conclude negotiations with SCD and grant conceptual approval for construction of a new City solid waste recycling and transfer facility. After discussion, City Council directed staff to: ? Resolve apparent discrepancies between costs and revenues associated with the SCD proposal and building a new City facility; ? Obtain more detailed analytical information on proposed City construction costs and other key issues; ? Explain the basis for the assumption that the proposed new City facility would attract additional tonnage from private waste haulers and the public; ? Discuss alternative land use implications for the City Yard; and ? Explain how future franchising of commercial solid waste services in Santa Monica would affect these options. The following information and attached reports respond to the discussion and questions raised by the City Council at the November 26, 2002, City Council meeting. 5 DISCUSSION SCD Proposal Subsequent to the Council discussion and while staff was conducting its follow-up research and evaluation, SCD submitted a revised proposal dated February 19, 2003 (Attachment A), recommending the City enter into a long-term contract (?twenty year renewable terms in five year increments?) to provide solid waste transfer and disposal services, recycling and material recovery, special wastes handling, and load checking for hazardous wastes (a facility permit requirement). The key points of the February 2003 SCD proposal are summarized below. ? SCD would charge the City $15 per ton to transfer waste and recycling material to the disposal site or processor of the City?s choosing within a 40 mile radius (the City would be responsible for any associated tipping fees). ? For City employees whose jobs would be eliminated due to closure of the City?s transfer station, SCD would offer to either employ them with comparable salary and benefits, make a one-time contribution to the City of $30,000 for each employee the City retains, or compensate each employee that chooses to retire or resign from their City position a cash payment of $20,000. ? SCD would set aside $1,000,000 for research and program development to assist the City to meet its sustainability objectives and become a zero waste city (not currently one of the Sustainable City Plan goals). ? SCD would provide a $100,000 annual grant to the Santa Monica Malibu Unified School District to promote environmental education and help the community achieve its resource conservation goals. 6 ? SCD noted that because it operates less than 15 heavy duty Vehicles, it is exempt from having to comply with the South Coast Air Quality Management District Rule 1193 which mandates the use of alternative fueled solid waste collection and transfer vehicles. The most recent proposal contains more details than the initial letter submitted by SCD in April of 2002, but is still vague in terms of many important terms and conditions. Consultant Studies and Reports Staff enlisted the services of specialized consultants to both help address questions raised by City Council and evaluate the proposal from SCD. The firm of Hilton Farnkopf and Hobson (HF&H) was engaged to prepare financial analysis of the various operating scenarios proposed by staff and SCD (Attachment B). The HF&H scope of services is summarized in the following table. ? Review the SCD proposal and its financial impacts. ? Review previous analysis prepared by staff. ? Recast the scenarios in the following manner based on a consistent set of assumptions using updated information. Scenario 1A: City leases and operates the SCD transfer station, and City constructs and operates a ?diversion area? at the City Yard for processing and transfer of green waste and other recyclables. Scenario 2A: City contracts with SCD for disposal of refuse, green waste and other recyclables; no City diversion area is constructed (this differs significantly from the original Scenario 2, which included a City-owned and operated diversion area). Scenario 3A: City constructs and operates a new transfer station and accepts increased quantities of waste from new customers. Scenario 3B: City constructs and operates a new transfer station with existing waste tonnage. ? Review the market conditions for recycling and transfer station services in the region and identify market issues that a new City facility would face. 7 Staff contracted with RNL Design and its sub-consultant, HDR Engineering, to develop a detailed cost estimate for the construction of a new City recycling and transfer facility, and to evaluate the current SCD facility from an operational capability perspective. The reports from RNL Design and HDR Engineering are attached as one document (Attachment C). HF&H Observations Concerning the SCD Proposal HF&H provided the following observations concerning the proposal submitted by SCD (from pages 5 & 6 of the HF&H report). ? The proposal did not clearly identify the contract length or terms of renewal. ? The proposal did not describe performance or capacity guarantees or specific waste handling procedures with respect to the City?s loads. ? The proposal does not provide operational details as to how the space- constrained SCD facility will accommodate the diversion of green waste and salvaging of materials from refuse loads, particularly construction and demolition materials. ? The proposal does not identify a rate adjustment formula. ? The proposal indicates that the rate could be adjusted in the future for unknown factors such as conversion to alternative fuel vehicles, changes to the State?s disposal reporting system, capital improvements or other changes that may be required by permitting authorities, and other factors. These vaguely described future adjustments could materially change the economic terms of the proposal and any projected benefit to the City. ? The proposal does not make reference to indemnifications the City should require with respect to CERCLA (environmental liability). Note: HDR Engineers, subcontractor for RNL Design (?RNL?), evaluated the existing SCD site for the City and concluded? reliance on the existing SCD transfer station to handle projected volumes of tonnage and traffic will be problematic at best.? 8 HF&H Financial Analysis of Various Operating Scenarios After reviewing previous staff analysis, HF&H recast the previous scenarios to reflect current costs and the most recent SCD proposal (for a more detailed description of the recast scenarios see the summary of the HF&H scope of services at the beginning of this section). The following table from the HF&H report compares the most recent cost projections for transfer and disposal after accounting for all expenses net of revenues from other customers and outside sources that the City would incur for the various scenarios. Annual Costs to be Recovered Scenario from City Collected Tonnage 3A. New City T.S. with Additional Tonnage$1,865,000 2A. Contract with SCD for City collected wastes$3,212,000 3B. New City T.S. with Existing Tonnage$3,686,000 1A. Lease SCD T.S.$4,882,000 Summary of the HF&H Findings The following is a summary of the findings from page 1 of the HFH report. 1. Leasing the SCD transfer station is not economically feasible at the proposed lease cost of $3,780,000 annually. 2. Constructing a new City transfer station is economically feasible (i.e., does not require any rate increases above CPI adjustments), either with or without additional tonnage from new customers, based on an internal tip fee of $60/ton for City refuse and $44/ton for City green waste. 3. Constructing a new City transfer station would result in significantly lower net costs to the City than contracting with SCD for disposal services if the City realizes the projected additional tonnage from new customers. However, if existing tonnage does not increase, then contracting with SCD would be less costly initially by approximately $474,000 per year depending on the accuracy of the assumptions used in the analysis. 4. Since the City?s proposed rates for most of the projected non-City tonnage at the new station are the same as those rates currently charged at the existing station, 9 significant additional tonnage might not be received under current market conditions. However, anticipated future closures of area landfills, increased waste generation from improved economic conditions, or franchising of commercial waste collections could increase demand for transfer services and result in significantly increased tonnage from outside customers. HF&H provided the following conclusions on page 6 of their report. If no additional tonnage is received at a new City transfer station, it may still be worth constructing the facility in order to retain control of the City?s future waste processing and disposal options, maintain maximum flexibility to pursue future waste diversion opportunities, and ensure long-term availability of waste transfer services for the City?s existing and future needs. In the fiscal year 2002/03 budget, the City projects total Solid Waste Management Fund revenues of $14.4 million from all revenue sources. This includes garbage/refuse fees of $12.4 million from City waste collection customers, plus an additional $300,000 from other City departments. Combined, revenues from charges for City collected waste from these two sources total 12.7 million. The $474,000 difference in cost between contracting with SCD for disposal services (Scenario 2A) versus constructing a new City transfer station with no additional waste (Scenario 3B) is 3.7% of total Solid Waste Management Fund revenues from City collected waste. HDR Basis of Design According to the HDR Basis of Design Report, the following key elements were taken into consideration when developing the location and design of a new recycling and transfer facility for the City (page 6 of the HDR Basis of Design Report). ? Existing traffic flow patterns create problems that must be eliminated or minimized in the new design; ? Additional space needs to be allocated to allow for safe, efficient traffic flow and planned recycling, waste handling and transfer activities; ? The recycling and transfer facility should be enclosed in metal building construction to control potential environmental impacts; ? The transfer operation planning should incorporate the most cost effective transfer technology for the City. Open top technology shall be employed with provisions for installing preload compactors in the future if conditions warrant; 10 ? The yard renovation must be planned to allow the existing transfer facility and critical recycling activities to remain operational during construction. Thus, the new transfer facility cannot be constructed on space used by the existing facility; ? Waste handling operations in the transfer building should be buffered or shielded from neighboring businesses and uses; ? Access and egress for all facility traffic can be provided from Michigan or Delaware Avenues; ? The recovery of waste tipped at the transfer facility should be accommodated in the facility planning. As such, the transfer facility should consider two transfer load-out openings, one of which could be used for wood/green waste or C&D load-out and transfer, and; ? Open floor space adjacent to the transfer tipping and waste storage area shall be provided for recycling activities. Adjacent to this space shall be bi-level ?Z? wall spaces for roll-off containers of recovered materials. The attached report from RNL and HDR discusses the basis of design in greater detail, provides schematic drawings, and provides a detailed cost estimate for design and construction totaling $7,548,000. HF&H used this estimate in the recast financial analysis of the scenarios that included building a new recycling and transfer facility. Evaluation of the SCD Facility The SCD proposal did not include an operations plan or propose any capital improvements to the SCD facility. It is unclear, how the SCD transfer station, which is smaller than the City?s existing transfer station, could handle all of SCD?s and the City?s waste (and additional waste from other sources up to the SCD permitted capacity) and still have enough space to source separate all of the materials currently being recycled by the City at its existing transfer station, as well as allow for future expansion of recycling services. The services of HDR Engineering were utilized to evaluate the existing SCD transfer station?s physical capacity. Based on the conclusions of the HDR 11 Report, the SCD facility would need potentially significant capital improvements to adequately serve the needs of the City. The following is a summary of the conclusions presented on page 7 of the HDR report. Based on existing tonnage and traffic information provided by the City at their existing recycling and transfer station, plus projections for SCD and other commercial tonnage and traffic, reliance on the existing SCDTS to handle projected volumes of tonnage and traffic will be problematic at best. The SCD transfer building and exterior maneuvering area is very tight against Frank Street. Coupled with the fact that the only scale is located in this area, significant traffic back up onto Frank Street and possibly Delaware Avenue is probable. Traffic congestion will be very heavy in front of the tipping floor, which is anticipated to slow down unloading operations and result in long lines of traffic onto public streets. The transfer building itself is undersized to accommodate projected volumes of traffic and associated tonnage during heavy usage times of the day. This will lead to additional traffic back-ups onto public roads, and likely will result in waste materials piling up and blowing out of the building. The existing SCD facility lacks the amount of space the City has targeted to conduct recycling operations off the tipping floor. The City currently recovers certain recyclables from the wastes delivered to their facility to meet its recycling goals and minimize landfilled waste. Approximately 8,000 s.f. of floor space has been programmed in the City?s proposed new facility with bi-level construction for roll-off container storage. The existing SCDTS has far less space available While the SCDTS is currently permitted to accept 1,056 tons per day over a 12-hour operating schedule, due to constraints in the size of the building and site, it is unlikely the station has the capacity to actually handle this volume on a regular basis. Follow up Meeting with SCD On April 7, 2003, staff met with SCD to review the reports prepared by the City?s consultants and address any questions or concerns. The major concern raised by SCD was that the analysis did not deal with the benefits the City could gain by freeing up land at the City Yard for a recycling and transfer facility. Staff explained that there have not been any uses identified that would generate more income than the Solid Waste Fund currently pays in land rent to the General Fund. Staff agreed to give SCD two additional 12 weeks to provide the City with any additional questions or to submit additional information on their proposal. SCD did follow up this meeting with some written questions that staff responded to in a letter from the Environmental and Public Works Management Director to SCD (Attachment D). Land Use Implications Closing the existing transfer station and entering into an agreement with SCD for transfer services would free up space at the City Yard that is currently being utilized by the Solid Waste Division. Currently, the Solid Waste Division is allocated 228,357 square feet of space, of which approximately 66% (150,000 square feet) could be potentially freed up for other uses if the Council decided to contract out for waste transfer and recycling services. If the City does not build a new recycling and transfer facility, the current City Yard Plan would need to be revised. Some of the potential alternative uses identified by staff for the space that is currently allocated in the Plan for a recycling and transfer facility are as follows: ? The space could be allocated for surface parking which might reduce the need to build a more costly parking structure for employee and City vehicles, as outlined in the current City Yard Plan. ? The land might be usable for park-type uses, including playfields, once the City Yard Plan is completed and remaining City operations have been relocated on the site. This alternative would be contingent on the identification of new General 13 Fund or grant fund financing sources for the project. ? Other General Fund departments/divisions that currently lease private property could be moved onto the site and reduce General Fund lease obligations if funds were available for construction of new offices and parking facilities and to compensate for the lost rental revenue from the Refuse Fund. In FY 03-04, the Solid Waste Enterprise Fund will pay $891,200 in operating land rent to the General Fund, which equates to an approximate monthly rate of $0.33 per-square- foot. This rate is significantly higher than the current rate charged by the City to private parties that lease undeveloped City property. The portion of this amount that is attributable to the 150,000 square feet that would be freed up if the City chooses not to build a new transfer and recycling facility is $588,192 per year. None of the alternative uses of this space discussed above would generate the same amount of revenue or savings for the General Fund. It is also unlikely that the City could lease this space out to a private party, if feasible, and generate the same amount of revenue for the General Fund. Finally, it should be noted that the adjacency of the freed-up space to on-going City operations and their associated noise and disruption and a daily basis could prove very problematic to an alternate and less compatible use. Current and future trends for Recycling and Transfer Services As pointed out in the HF&H study, the most favorable economic assessment of building a new recycling and transfer facility for the City (Scenario 3A) is based on increasing the amount of tonnage received at the City?s transfer station. Scenario 3A is the best-case 14 scenario that projects the new recycling and transfer facility would generate $2,122,000 in annual revenue net of disposal and processing fees if the facility operates at its fully designed capacity of 600 tons- per-day which is 248 tons-per-day more material than the existing City transfer station processes. Current Demand According to the HF&H study, some additional waste is likely to be accepted simply because the new transfer station will have a higher permitted daily capacity. The existing City transfer station is permitted for 400 tons per day and handles an average of 352 tons per day. The existing transfer station reached its maximum permitted capacity on eight (8) days in 2002. The current transfer station closes to the public promptly at 2 PM but continues to accept waste from City collection vehicles until about 5 PM. Due to the small tipping floor of the existing facility, waste from the public and private commercial haulers must be limited in order to preserve space for City collected wastes. Practically everyday, at present, customers arrive at the City?s transfer station after 2 PM and must be turned away. In addition, the transfer station must close early (prior to 2 p.m.) on the average of 4-6 days each month to allow sufficient time to clear away any remaining material on the tipping floor in order to comply with the facility?s operating permit. A new facility with adequate storage space, proper circulation, and a higher daily capacity would be able to remain open on a regular basis and extend the hours it is open to the public, thereby increasing the amount of waste accepted. 15 Future Demand HF&H points out that it is difficult to forecast the demand for transfer services from third parties at a new City recycling and transfer facility because future demand will be influenced by events outside of the City?s direct control, including: ? Potential solid waste facility closures in Los Angeles County; and, ? Changes in general economic conditions that increase or decrease waste generation quantities. Landfill closures in the region are inevitable and the planned closures for the various landfills in the region are summarized in Attachment D. In addition, staff is not aware of any plans (public or private) to build new transfer facilities on the Westside. The City of Los Angeles and the Los Angeles County Sanitation District (LACSD) have entered into a Joint Powers Agreement for the purpose of developing plans and seeking approval to purchase the Central Los Angeles transfer station near downtown Los Angeles, which is currently owned by BLT Enterprises. Culver City is currently seeking to modify the daily permitted capacity for its transfer station in hopes of generating additional revenue, which will allow them to expand their facility in the future as regional landfills close and long haul and/or rail haul becomes inevitable. The City of Beverly Hills plans to close their transfer station and enter into long-term contracts for disposal with regional facilities. If the City Of Santa Monica decides to build a new recycling and transfer facility, it would take approximately three to four years to complete the design, environmental review, construction and permitting process. By the time the new facility would open in 2007, it 16 is projected that the Bradley Landfill will be closed, Sunshine Canyon Landfill?s current permits will have expired or be close to expiration, LACSD will be operating a remote landfill, and the Puente Hills Landfill will have less than six (6) more years to operate. Given the expected landfill closures in the region and the near-term realization of LACSD plans to implement long haul transfer and/or rail haul to remote landfills outside the region, it is prudent to design a new recycling and transfer station with an additional 250 tons per day of capacity to handle an increased local demand for transfer services. It is unlikely that the new facility would be operating at its full design capacity as soon as it is opened. A more realistic perspective is that the new facility?s daily tonnage would increase over time as area landfills close, resulting in waste being transported greater distances to landfills in remote areas. Also, by the time a new facility would open the future demand for recycling and transfer services could be affected by other changes, such as establishing commercial collection franchises in the City and changes in State and local diversion requirements. Operational and Economic Impacts The decision of whether or not the City continues to own and operate a recycling and transfer facility not only effects the operations and economics of the City, but of SCD and the public currently being served by the City?s existing transfer station. The following sections discuss the impacts associated with the various scenarios. Impacts Associated with Entering into a Service Agreement with SCD The SCD proposal was silent on the prices that public customers who currently use the 17 City?s existing transfer station and/or the SCD transfer station would be charged to use the SCD facility if the City were to close its transfer station. The City?s transfer station, which has been operating since 1961, began accepting waste on a per-ton fee basis from the public in 1993. SCD?s transfer station, which began operating 1992, was allowed to begin accepting waste from the public in 1998 after a modification to its operating permit was approved by the State. Currently, SCD and the City?s Transfer stations compete for customers. Initially, SCD only accepted waste from a few selected customers, such as the City of Los Angeles. However, in the last two years, SCD has started to aggressively compete with the City for wastes from the general public. If the City were to enter into a sole source agreement for transfer services with SCD and no longer operate its own recycling and transfer facility, SCD would own and operate the only transfer station open to the public on the Westside and would no longer compete with the City for this business. Being able to eliminate the only competition for public transfer station services on the Westside is a strong motivation for SCD to succeed in obtaining a long-term contract with the City for waste transfer and disposal services. Being the only provider of transfer station services on the Westside, SCD could easily charge the public the maximum per-ton disposal fee the market would bear. SCD?s ability to offer a reasonable price to the City for the transfer of its waste and recyclable materials could result in higher costs to the general public customers due to the lack of competition. 18 In addition, the City would be completely dependant on SCD for refuse transfer services. Although contract requirements could be set for reserving times and daily tonnage requirements for City collected wastes, it may be difficult to enforce these terms when private customers are willing to pay premium prices to SCD for the use of their facility. The City with its lower contract rate may not receive the priority use of the facility. Also, the City would not be able to close the SCD facility early to reserve time and capacity for city collected wastes as it currently does with its own facility. Impacts Associated with Building a New City Facility on SCD?s Current Business A potential concern has been raised that construction and operation of a new City recycling and transfer facility may take business away from SCD. The following table demonstrates the considerable amount of waste generated in Santa Monica?s neighboring communities. This includes waste collected by both public and private entities. Community Annual Tons Disposed Average Tons Per Day (to the nearest 1,000) Santa Monica 129,994 423 West Los Angeles (includes Venice) 645,600 2,103 Malibu 73,487 239 Beverly Hills 55,024 179 Marina del Rey Not Available Not Available Based on 2001 data from the California Integrated Waste Management Board?s Disposal reporting system and the City of Los Angeles Given the large amount of waste generated on the Westside, the fact that only SCD and the City operate transfer stations which are open to the public, and that the existing City transfer station must limit the amount of waste accepted from the public by closing early and turning customers away, staff is highly confident that additional tonnage will be 19 available for a new City recycling and transfer facility and that building a new facility will not negatively impact the SCD facility and its business prospects. In reality, SCD has been attracting some customers away from the City since it began accepting waste from the general public a few years ago. Even though the City?s existing transfer station has lost some business as a result of SCD?s activities, it has made up for this lost business by continuing to pursue its recycling niche. For example, the amount of C&D debris recycled at the transfer station has more than doubled since the City implemented its C&D recycling ordinance. With a new recycling and transfer facility, the City will be able to more effectively pursue the types of waste streams and recyclables that will provide the greatest benefit to the City?s refuse customers without limiting the ability of SCD to continue pursuing those types of refuse that it is most competent to handle. The Impact of Building a New City Facility on the City?s Current Business Initially, the additional tonnage processed at a new City facility may be lower than the anticipated daily capacity, but as landfills in our region begin to close and/or lower the amount of waste accepted, the demand for transfer station services will increase. Using the economic model developed by HF&H, a new City recycling and transfer facility would only need to obtain about 75 more tons of refuse than is currently processed each day to be at least as cost-effective as entering into a long-term agreement with SCD for transfer services. 20 In the fiscal year 2002/03 budget, the City projects total Solid Waste Management Fund revenues of $14.4 million from all revenue sources, including the transfer station. The combined revenues from refuse collection fees, street sweeping fees, and disposal charges to other City departments/divisions totals $12.7 million. The $474,000 difference in cost between contracting with SCD for disposal services (Scenario 2A) versus constructing a new City transfer station with no additional waste (Scenario 3B) is only 3.7% of total Solid Waste Management Fund revenues from City collected waste and its transfer and disposal. However, if the City obtains additional tonnage, the new facility is projected to generate significant additional net revenues to the benefit of City waste diversion programs and City customers. In addition, as the owner and operator of its own facility, the City can make operational and policy changes that would allow the facility to operate more cost effectively and generate additional revenue. There are several steps the City could take to improve revenue and or decrease expenses for the new facility. The following are some of the steps that could be taken to improve the bottom line for a new facility. ? The City could eliminate the current open permit system for private commercial haulers in the City and implement exclusive franchise agreements that require haulers operating in the City to bring the waste to the City?s recycling and transfer facility. This is discussed in greater detail in the next section. ? The City could enter into long-term disposal agreements and receive reduced disposal costs in exchange for committing a certain amount of annual tonnage to a waste processing facility. 21 ? The City could enter into ?transfer capacity contracts? with private waste haulers or other cities for secured capacity at the City?s new transfer station at reduced tipping fees (similar to what SCD is proposing to the City). ? The City could enter into a mutually beneficial agreement or JPA with the Los Angeles County Sanitation Districts for use of the facility. ? The City could revisit policy and operational choices that result in increased operating costs such as using green waste as landfill cover instead of paying the higher price associated with processing it into compost as is currently done. ? The Impact of Franchising on the Various Scenarios From time to time the viability of moving from an open, but regulated, permit system for private commercial haulers that operate in the City to a franchised trash hauling arrangement has been discussed. Franchise agreements are an effective way in which to exercise greater control over private commercial haulers operating in the City. They are also a proven method for local jurisdictions to control how and where locally generated wastes are processed and disposed. Exclusive and non-exclusive franchise agreements, which can contain contract provisions regarding where wastes collected in the City must be taken, could be incorporated into any scenario. By continuing to own and operate its own recycling and transfer facility, the City could require a franchised private commercial hauler(s) to use the City?s facility. Such an approach could significantly increase the net revenue generated by a new facility. As pointed out in the HF&H study, an extra 248 tons per 22 day could generate over $2 million dollars in net additional revenue annually. Based on 2002 data from the State?s disposal reporting system, staff estimates the commercial waste collected by private haulers in the City exceeds 60,000 tons per year, which would equal almost 200 tons per day. Requiring franchised private haulers to use a new recycling and transfer facility could easily result in the facility nearly reaching its maximum design capacity. In addition, there are environmental benefits that could be realized by requiring franchised haulers to use a new recycling and transfer facility. ? More of the commercial waste could be directed to facilities that would process and recycle the waste, instead of sending it to landfills. ? Air emissions in the region could be reduced by: Preventing private diesel collection vehicles from driving greater distances o than necessary in order to direct haul to distant landfills or transfer facilities owned by their own companies (a practice referred to as vertical integration); and The City using alternative fueled vehicles for the transfer of waste and o recycling to processors or remote landfills. Summary Based on the current policy goals of the City, long-term operational viability, control of future risks and overall cost-effectiveness, constructing a new City recycling and transfer facility remains the most prudent and responsible approach to meet the future solid waste and recycling needs of the City. The $15 per ton fee for transfer within a 40- 23 mile radius proposed by SCD is a very competitive offer, but does not overcome the following reasons for the staff recommendation not to enter into a long-term agreement with SCD for waste transfer services. 1. It is impossible to develop an agreement that foresees the range of future service needs by the City and it is likely that a long-term agreement with SCD would necessitate the negotiation of numerous contract modifications that could easily result in higher costs to the City. Most service contracts for refuse related services become obsolete in five (5) years and either expire or must be re- negotiated. 2. The City would close its existing transfer station, relinquish its operating permit, and enter into a long-term service contract with a privately held and operated company. Such a situation would severely restrict the ability of the City Council to freely direct how Santa Monica waste is disposed, processed, and recycled. 3. Any serious breach of contract by SCD would be very difficult for the City to respond to as the construction and permitting of a City transfer facility at some future date would entail a complicated and uncertain multi-year process. 4. Although using the SCD facility would free up some land at the City Yard for other purposes, it is unlikely the use of this space would generate net revenue to the General Fund equivalent to the lease payments that will be paid by the Solid Waste Fund. 5. When federal, state, and/or local regulatory requirements inevitably change, the City will not possess sufficient flexibility and control within the service contract to implement modifications that remain consistent with City policy goals, City 24 customer needs, and long-term cost effectiveness. By proceeding with the design, construction, and permitting process for a new recycling and transfer facility, the City will accrue a number of benefits: 1. Continue to provide and control valuable recycling and transfer operations, an asset that will only increase in value as regional landfills close. 2. Continue to control and operate a net revenue generating facility that benefits City refuse customers and has the potential to generate up to an additional $2 million annually). 3. By continuing to provide a competitive alternative to SCD for transfer station customers, the City will ensure more stable and more equitable pricing. 4. Allow the City to incorporate innovative features into the design to ensure maximum opportunities for recycling and waste diversion as well as design flexibility for anticipated future changes such as the potential need to transport waste by rail that will in turn better position the City to avoid the inevitable rising cost of disposal in our region. 5. Continue to ensure strong environmental protections, maintain high standards for employee health and safety, and minimize negative impacts on the quality of life within the community. Upon Council approval of the staff recommendation, work will commence on finalizing the preliminary design for the City Yard Plan so that environmental review can proceed. It is important to note that approval of the Solid Waste portion of the City Yard Plan will not commit the City to completion of all other phases of the Plan. Staff will return to Council at a future date for review and approval of a financing and phasing proposal for 25 the non-Solid Waste portions of the Plan. BUDGET/FINANCIAL IMPACT This staff report requests conceptual approval from City Council for the development of a new City recycling and transfer facility; therefore, there is no immediate budget or financial impact. Should the City Council approve the concept, staff also recommends City Council approval of a design contract that will be followed by development and approval of an EIR. Following EIR approval, anticipated in FY 04-05, staff will request Council approval of the construction of the new facility, anticipated in FY 05-06. As the project progresses, detailed budget and financial impacts will be developed. At this time, it is estimated that the City recycling and transfer facility will cost approximately $7.5 to $8.0 million to construct. In addition, funds already budgeted in the Water, Wastewater and Solid Waste funds will be expended during the currently fiscal year for City Yard Plan design and EIR costs. The recycling and transfer facility is Phase I of a proposed $50 million Corporate Yard Plan. However, approval of the staff recommendations in this report only commits the City to design work related to the Solid Waste phase of the Plan. The $8.0 million for construction of the recycling and transfer facility project has been proposed for funding in the FY 04-05 Capital Improvement Program. This funding is anticipated to be generated from revenue bonds issued by the Solid Waste Fund and paid back from revenues from trash collection services received over a twenty (20) year 26 period of time. RECOMMENDATION It is recommended that the City Council approve the conceptual plan for a new recycling and transfer facility to be built at the City?s Corporate Yard and authorize staff to proceed with design development required for commencement of environmental review of the proposed project. Prepared by: Craig Perkins, Director, Environmental and Public Works Management Celeste Peele, Solid Waste Operations Manager Gus Guzzetti, Material Recovery Superintendent Attachment A: SCD proposal dated February 19, 2003 Attachment B: Report from Hilton Farnkopf and Hobson Attachment C: Report from RNL Design and HDR Engineering Attachment D: Summary of Planned Local Landfill Closures 27