SR-503-001-01 (2)
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JCilYOf
Santa Moniea'"
City Council Report
City Council Meeting: April 25, 2006
Agenda Item: ...e..&
To:
Mayor and City Council
From:
Craig Perkins, Director, Environmental and Public Works Management
Steve Stark, Chief Financial Officer
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.
1
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
Backqround
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://santa-
monica .orq/citvclerk/cou ncil/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.
2
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
welJ 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.
3
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
4
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 reseNe 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 reseNes 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
5
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.
6
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.
7
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
Approved:
Forwarded to Council:
\~~ ~~~S2..,k",s.
ig Perkins
Director, Environmental & Public Works
Management
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C'
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Steve Stark
Chief Financial Officer
8,
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SOLID WASTE RATE INCREASE SCENARIOS
Attachment B
Base
FY2005/06 FY2006/07 FY2007/08 FY2008/09 FY2009/10 FY2010/11
Revis
Ending Balance
Reserve Balance*
313,823
o
(111,831) (1,472,475) (2,840,549) (4,600,352)
o 000
263,380
250,000
Ending Balance
Reserve Balance*
313,823
o
404,180
350,000
FY2007/08 FY2008/09 FY2009/10 FY2010/11
173,712 (1,038,283) (2,253,692) (3,856,557)
150,000 0 0 0
Ending Balance
Reserve Balance*
313,823
o
544,980
500,000
459,254
400,000
(604,090) (1,666,836) (3,112,761)
000
Ending Balance
Reserve Balance*
313,823
o
685,780
650,000
744,796
700,000
(157,278) (1,067,360) (2,356,347)
000
Ending Balance
Reserve Balance*
313,823
o
,826,580
800,000
1,030,339
1,000,000
292,713
250,000
(464,705) (1,596,753)
o 0
Ending Balance
Reserve Balance*
313,823
o
967,380
950,000
1,315,881
1,300,000
742,704
700,000
157,853
150,000
(817,257)
o
*GBB recommends a reserve balance equal to 3 months operating budget, $4.5 million.