SUBJECT: APPROVAL OF RECYCLE PLUS RATE RECOMMENDATIONS

AND IWM EFFICIENCY REVIEW

COUNCIL DISTRICT: City-Wide

RECOMMENDATION

1. Acceptance of the Integrated Waste Management Efficiency Review

2. Approval of the customer rate structure for the Recycle Plus Multi-Family Dwelling Bin² Program beginning July 1, 2002

3. Approval of the following Recycle Plus rates for services beginning July 1, 2002:

A. Set the rate for the new 20-gallon mini garbage cart at $12.95 per month

B. Set the optional yard trimmings cart subscription rate at $2.00 per month

BACKGROUND

On December 12, 2000, Council accepted a recommendation, issued in a memorandum from the Mayor, Vice Mayor and Councilmembers Powers and Dando, that all issues related to rates, subscription costs for individual services, and service enhancements be deferred until the negotiated contracts and a thorough efficiency review of all City functions related to their implementation and oversight were brought back to Council for review.

The analysis presented below is in response to these requests made by the City Council, and is in accordance with the recommendations made by the City Auditor in his report to Council dated December 8, 2000. These recommendations were that ESD:

Recommendation #1 Submit to the City Council a revised cost and revenue estimate for Recycle Plus 2002 together with a Source and Use of Funds statement for the IWM Fund through the year 2006-07.

Recommendation #2 Analyze and report to the City Council on the revenue, cost, and programmatic implications of potential City Council pricing decisions regarding multi-family dwelling rates, yard trimmings cart subscription fees, and 20-gallon garbage container rates.

The Auditor also recommended that the City Council:

Recommendation #3 Wait until ESD reports on its revenue and cost analyses on any City Council pricing decisions before adding services or revising rates for Recycle Plus 2002.

In the Environmental Services Department’s March 27, 2001 update to Council on the Recycle Plus rate review process, staff reported that a detailed analysis of the Integrated Waste Management Fund (IWM Fund) would be conducted and presented to Council for review in September 2001.

ANALYSIS

The design of the new Recycle Plus Program adds a variety of new service options for San Jose residents. As directed by Council, staff has conducted a detailed analysis of the potential rates for these services and the associated impacts these rates will have on program participation, contractor operations, service delivery, and the IWM Fund. Activities completed by staff include:

· an efficiency review of the City operations associated with the management of the Integrated Waste Management programs (Attachment A);

· a complete restructuring of the multi-family dwelling customer rate configuration to align the rates with the changes in services and changes in the hauler compensation structure of the new contract; and

· market research to determine the appropriate level to set the yard trimmings cart subscription rate and 20-gallon mini-garbage cart rate.

A. MULTI-FAMILY DWELLING RATE RESTRUCTURING

It is recommended that the multi-family dwelling (MFD) customer pricing structure be revised to reflect the new Bin² Program and its bundled package of services, beginning July 1, 2002.

New Contracts

In the current MFD contract, the contractor payment is based solely on garbage service, not on recycling service. The contractor, GreenTeam of San Jose, is compensated based on the volume of garbage bins and their frequency of collection. Currently, MFD properties recycle using a combination of 96-gallon carts for mixed paper and mixed recyclables. In an effort to increase recycling at MFD’s, the MFD program was designed to allow the placement of varying sized containers (carts or bins) for commingled recycling at MFD properties. With the new MFD contracts beginning in July 2002, properties may subscribe to different sized recycling containers. A new hauler compensation structure was devised to properly compensate GreenTeam for different levels of recycling service, as well as levels of garbage service. The compensation structure also allows both the City and GreenTeam to obtain a more accurate estimate of the costs of recycling.

This change in hauler compensation presented staff with some challenges in developing the customer rate structure. In the present contract, property managers do not see a charge for recycling on their Recycle Plus bills. Properties can place any number of recycling containers without additional monies being owed to the City, and with no additional compensation due to the hauler. Under the new contract, more recycling capacity translates into additional compensation due to GreenTeam. If this additional charge were passed on to the property manager separately, he or she might opt not to have recycling at their complex, or to place a container that was too small. Staff was therefore faced with the dilemma of establishing a customer rate structure that would not discourage recycling, while at the same time would provide sufficient revenue to compensate GreenTeam for recycling.

Bin² Program and Customer Rate Structure

Under the new customer rate structure developed by staff to address these challenges, customers are charged a single price for a solid waste package of bundled services. The new Bin² Program includes a garbage bin from 1-8 cubic yards in volume, collected at a frequency of 1-5 times per week, as well as a recycling bin of the same size (or recycling carts if necessary due to space constraints), with a standard frequency of one collection every week. Yard trimmings and used oil collection will also be available to all complexes with the new program. The new Bin² system allows customers to continue to receive recycling services with no extra charge on their bill. It also provides revenue to the City that reflects the size of the recycling container, and is proportional to the payment made to the hauler. The Bin² customer rate structure includes no increases to current MFD rates and is detailed in Attachment B.

MFD Site Assessments

City staff and GreenTeam both agreed that due to space constraints, some complexes would not be able to accommodate a recycling bin of equal size to their current garbage bin. Those

complexes unable to place equal size recycling bins would use smaller bins or the carts currently at complexes. In order to provide an accurate estimate of bin placements and recycling capacity, staff conducted an MFD site survey. During the month of June 2001, City staff and contracted San Jose State students conducted over 350 site assessments of existing storage spaces for garbage and recycling. Results indicated that most properties (approximately 85%) with 1 to 3 cubic yard garbage bins could accommodate an equal size recycling bin. For 4 yard bins, about half could place an equal size recycling bin. These results allowed staff to more accurately estimate the recycling capacities listed in Table 1, below.

Recycling Capacity

Meetings were held with GreenTeam regarding the potential effects of the proposed Bin² system on recycling and whether the program would provide enough recycling capacity to meet new contractual diversion requirements. In the first calendar year of the MFD contract, diversion from landfills must reach 25%. GreenTeam originally felt that in order to achieve the required diversion requirements, recycling capacity should mirror garbage capacity, both in volume and in frequency. However, analysis by staff indicates that a fully “mirrored” system would provide enough capacity to reach 51% diversion, more than twice the capacity needed to achieve the diversion requirement of 25% (see “Mirrored Recycling,” Table 1 below). Although staff did agree with GreenTeam that extra capacity was needed in order to allow for growth in the program and to accommodate for differences in individual complexes, analysis indicates that a 42% capacity range will be adequate. Concern for consumer protection warrants that the City not pay for more capacity than is necessary. The limited collection frequency of the Bin² Program would provide enough capacity to achieve 42% diversion, an appropriate level to allow for growth in the program and to ensure that diversion is achievable (see “Bin² Program,” Table 1 below).

Table 1 Recycling Capacity
Scenario	Solid Waste Capacity	Recycling Capacity	Total Cubic Yard Capacity
Bin^2 Program	58%	42%	2,354,872
Mirrored Recycling	49%	51%	2,791,620

B. NEW SFD SERVICE RATES

20-Gallon Cart Pricing Recommendation: $12.95 Per Month

A 20-gallon garbage cart will be available to residents beginning July 2002. This cart will allow households that do not generate large amounts of garbage (single member households, many elderly households) or those which recycle a large amount of solid waste, to use a smaller cart than the smallest currently available. In keeping with the current “Pay-As-You-Throw” pricing structure in which rates correspond to the volume of the garbage cart, a lower rate is recommended for the 20-gallon cart. A lower rate encourages residents to reduce garbage volumes so that they may subscribe to a smaller cart. However, even with increased recycling and reuse, most households generate more garbage than 20-gallons per week. If the rate were set too low, many of these residents might switch to a cart that was too small for them. The excess garbage could result in overflowing garbage or recycling carts contaminated with garbage.

To help determine an appropriate rate for the 20-gallon cart, staff directed GLS Research to conduct a random survey of San Jose residents. The survey asked residents how much garbage they routinely generated, as well as their interest in the cart at various rates. 82% of residents reported that their 32-gallon carts were ¾ full or more every week, and would therefore not be able to use the 20 gallon-cart. Residents were then asked if they would be likely to switch to the 20-gallon cart at a number of different rates. At $12.95 per month, 17% said they would probably switch. At this rate, staff could be assured that only those who could use the cart properly would subscribe to it, thus avoiding overflowing carts and associated problems. Staff is recommending that the rate for the 20-gallon cart be set at $12.95 per month. This rate will result in an estimated reduction in revenue of $720,000 in FY 02-03, as residents downsize from their existing 32-gallon carts.

Yard Trimmings Cart Subscription Pricing Recommendation: $2.00 Per Month

The annual Recycle Plus survey has indicated that most residents prefer the current loose-in-the-street system; however, some residents have expressed interest in a yard trimmings cart. With the new program, residents will be offered the option of subscribing to a wheeled cart to contain their yard trimmings. On average, the contractors will be compensated an additional $2.07 for providing this service. This additional expenditure to the IWM Fund may be offset by the establishment of a nominal subscription rate of $2.00 per month. The GLS survey cited above, indicates that 18% of residents would be interested in subscribing to the yard trimmings at this rate. Staff is recommending a yard trimmings cart subscription rate of $2.00 per month. This rate will provide an additional $720,000 in revenue per year to Fund 423 which will offset the additional compensation paid to the hauler to provide this additional service.

C. SOURCE AND USE PROJECTIONS

IWM Fund revenue sources include residential Recycle Plus charges; AB939 fees from residents, commercial businesses, and landfills; lien-related charges; and other related sources. These revenues are allocated to pay for the services provided by the IWM Program.

The chart shown below provides a forecast of IWM Fund revenues, expenditures, and the resulting unrestricted fund balance through FY 06-07. The proposed rates for the new 20-gallon garbage and yard trimmings subscription carts are included beginning in FY 02-03:

	1999-00 Actual	2000-01 Actual	2001-02 Estimated	2002-03 Forecast	2003-04 Forecast	2004-05 Forecast	2005-06 Forecast	2006-07 Forecast
Total Revenue	62,548,533	63,446,149	63,279,622	62,764,734	62,886,012	62,954,277	63,356,900	63,826,948
Total Operating Expenditures	60,963,668	65,335,660	72,897,271	65,263,945	67,134,667	69,232,504	71,779,148	74,368,324
Unrestricted Fund Balance	13,081,718	12,283,893	3,077,937	1,179,927	(2,651,035)	(8,487,569)	(16,468,124)	(26,567,807)

Staff will continue to monitor the IWM Fund and will report back to Council as part of the annual budget process.

PUBLIC OUTREACH

Not applicable.

COORDINATION

This memorandum has been coordinated with the City Attorney’s Office, the City Manager’s Budget Office, and the City Auditor’s Office.

COST IMPLICATIONS

The rates for the new yard trimmings and 20-gallon garbage carts will result in a net zero revenue impact in FY 02-03. The yard trimmings cart subscription charge will increase revenues by $720,000, and the 20-gallon cart downsize will result in a revenue loss of $720,000.

CARL W. MOSHER

Director, Environmental Services Department