TO:
Honorable Mayor and Members of the City Council
THROUGH:
Talyn Mirzakhanian, Acting City Manager
FROM:
Erick Lee, Public Works Director
Jeff Page, Utilities Manager
Anna Luke-Jones, Solid Waste Administrator
SUBJECT:Title
Consideration of a Resolution Approving Amendment No. 2 to the Franchise Agreement with USA Waste of California, Inc., DBA Waste Management for Integrated Solid Waste Management Services (Public Works Director Lee).
(Estimated Time: 15 Mins.)
ADOPT RESOLUTION NO. 24-0137
Body
_________________________________________________________
RECOMMENDATION:
Staff recommends that the City Council adopt Resolution No. 24-0137, approving Amendment No. 2 to the Franchise Agreement with USA Waste of California, Inc., DBA Waste Management (WM).
FISCAL IMPLICATIONS:
If adopted, the one-time special adjustment of 2.51% for residential accounts and 5.4% for commercial accounts will be added to the regular rate adjustment, effective July 1, 2025 (FY25-26) after Proposition 218 approval.
Sectors where the 2.51% increase will apply:
- Residential single-family customers
- Multi-family cart customers (100% carts - landfill, recycling and organics; no use of commercial cubic yard bins)
Sectors where the 5.4% increase will apply:
- Multi-family customers who utilize commercial cubic yard bin(s)
- Commercial business customers (whether they use carts or cubic yard bins)
- Extra services as outlined in Exhibit 3 of the WM franchise agreement (for example, lock services for bins, commercial business bulky item pick-ups, emergency collection and disposal, etc.)
Sectors where the special adjustment increase does not apply:
- Temporary bin rentals
- Roll-off bins
How Billing Sectors are Determined
It is important to clarify how billing sectors are determined to ensure proper communication of exactly how each sector will be impacted by the special adjustment increase.
Single-family billing
Single-family residential accounts are identified by a dedicated water meter for the residence. While a complex of townhomes may appear to be a multi-family complex, if each townhome has its own dedicated water meter, the townhomes are billed as single-family residential accounts. The residential customer rate is based on the size and quantity of their landfill carts. There is no itemized charge for recycling and organics carts. In 2015, City Council adopted citywide organics and a one-time rate adjustment was added to the landfill rate to compensate for the citywide program. In the current franchise agreement, which became effective July 1, 2020, WM’s proposal built their costs for organics into the landfill rate.
Multi-family billing
Multi-family accounts are identified by a dedicated water meter accommodating more than one residence. In circumstances where two units appear to be single-family units, if the units share one water meter they are identified as multi-family. There is more than one billing structure for multi-family accounts.
The first billing structure a multi-family account may be assigned is a “multi-family cart” customer. Multi-family customers with two through nine units who utilize 100% carts (no cubic yard bins) for all material types (landfill, residential and organics), pay a flat rate based on the number of units.
The second billing structure a multi-family account may be assigned is a “commercial” customer. If a multi-family building has 10 or more units, it is billed as a “commercial” customer because at that size, they will have cubic yard bin(s) for at least one material type for tenants to use. Also, if a multi-family building of any unit count obtains a commercial cubic yard bin for any of their material types, their billing status changes from a “multi-family cart” customer to a “commercial” customer. The reason for this is they are now utilizing commercial services. For example, if a multi-family building with four units has landfill, recycling and organics carts but chooses to replace the landfill carts for a three-cubic-yard commercial bin, that multi-family account changes their billing structure from the “multi-family cart” customer (flat rate based on number of units) to a “commercial” customer. “Commercial” customers are billed based on the size and collection frequency of the containers. Additionally, while residential collection is once per week for all residential accounts, commercial accounts create their own service schedule and can have service more than once per week.
Commercial billing
All business parcels are “commercial” customers. “Commercial” customers are billed based on the size and collection frequency of the landfill and recycling containers. Commercial accounts create their own service schedule and can have service more than once per week. “Commercial” customers can have carts, bins, or a mix of both. The cost of recycling carts and bins is 50% lower than the cost of landfill carts and bins of the same size. There is no itemized charge for commercial organics carts. As mentioned in the single-family billing section, in 2015, City Council adopted citywide organics and a one-time rate adjustment was added to the landfill rate to compensate for the citywide program. In the current franchise agreement, WM’s proposal included their costs for organics in the landfill rate.
BACKGROUND:
The City has franchised its residential and commercial solid waste services with a private hauler since the early 1980s. The last Request for Proposal (RFP) process for solid waste hauler selection resulted in the City awarding a franchise agreement to WM. The franchise agreement term is for seven fiscal years (FY) plus three one-year optional extension years, for a potential of 10 total years (July 1, 2020 through June 30, 2027 + optional FY28 + optional FY29 + optional FY30).
On July 15, 2024, WM sent a request for the City Council to consider an extraordinary rate increase and consider solutions to its ongoing diversion challenges. The justification for WM’s extraordinary rate increase request related to offsetting “significant increases in labor costs” incurred by the company as a result of the COVID-19 pandemic. At that time, WM’s request for an extraordinary rate increase (2.51% for residential rates and 5.4% for commercial rates) had previously been denied by the City Manager because the franchise agreement expressly prohibits extraordinary rate increases based on changes in wage rates or employee benefits.
On August 6, 2024, the City Council requested that this item be placed on the agenda for discussion.
At their August 20, 2024 meeting, the City Council heard a presentation by WM regarding their request for an extraordinary rate adjustment. City Council directed staff to negotiate a limited amendment to the agreement with WM that specifically addressed the request for an extraordinary increase (and other terms and conditions of the agreement important to the City) and to return with an amendment for the City Council’s consideration. Also, City Council directed WM to perform outreach to the business groups about its request for the extraordinary increase to ensure communication and awareness.
As it relates to WM’s ongoing diversion challenges, staff is currently working with WM-in accordance with the agreement-to address their diversion requirements. At the August 20, 2024 meeting, City Council directed staff to keep the meet and confer process related to diversion requirements separate and apart from WM’s request for an extraordinary adjustment. Thus, this report does not discuss the diversion requirements issue any further. Staff anticipates bringing an item related to WM’s ongoing diversion challenges for the City Council to consider in February 2025.
DISCUSSION:
Staff and WM have met extensively over the past few months to negotiate the terms for amendment to allow for the requested extraordinary rate increase. The following discussion summarizes the outcome of those negotiations, as outlined in Amendment No. 2 attached for consideration by the City Council.
Special Adjustment
While WM has requested an extraordinary rate increase, Amendment No. 2 has addressed this request with the new category called “Special Adjustment.” This terminology avoids issues in the current franchise agreement that prohibit extraordinary increases based on WM’s increased labor costs.
Waste Management will receive a one-time, flat 2.51% increase on the residential rate and a one-time, flat 5.4% increase on the commercial rate and extra services outlined in Exhibit 3 of the franchise agreement. The one-time special adjustment increase will be added to the regular rate adjustment and will become effective in FY 2025-2026, which begins on July 1, 2025, subsequent to Proposition 218 approval. The purpose of the increase is to adjust compensation due to hardship from post-COVID industry changes.
In the spring 2025 Proposition 218 process to establish solid waste rates for the next five years, the special adjustment increase will be added to the regular CPI rate adjustment. The customer rate that a customer receives on their bill is made up of the Contractor Rate (WM) + the City Recovery Cost (CRC). Below are examples of how the new rate would appear for residential and commercial customers:
WM Contractor Rate + City Recovery Cost = Final Customer Rate
Residential customer example
(CPI + one-time 2.51% special adjustment increase) + City Recovery Cost = Final Customer Rate
Commercial customer example
(CPI + one-time 5.4% special adjustment increase) + City Recovery Cost = Final Customer Rate
Other Changes to Agreement Terms
In exchange for the special adjustment, the City negotiated the following additional changes to the terms of the franchise agreement, which are also included in the proposed Amendment No. 2 being considered by the City Council.
CPI Cap
The annual regular rate adjustment is based on the Consumer Price Index (CPI). In the current franchise agreement, there is no cap on these CPI adjustments. Beginning FY 2025-2026 and continuing through the end of the agreement term, the CPI adjustment for the regular rate adjustment will be capped at 8% annually. For example, if the CPI is 9%, the CPI annual rate adjustment for the Manhattan Beach agreement can only be increased by 8%.
Public Can Collection Schedule Adjustment
Waste Management services the City’s public refuse cans. Service demands have been impacted since 2020, and a permanent schedule adjustment is being included in the amendment. The amendment will formalize that public cans located in downtown Manhattan Beach shall be serviced three times daily, the Strand cans from 1st Street to 15th Street shall be serviced twice daily, and the major corridors such as Artesia, Rosecrans, Aviation, etc. shall be serviced as needed, with a minimum of once per week. The rest of the public cans will remain on the existing schedule. Exhibit A of Amendment No. 2 outlines the new service schedule.
It's important to note that Big Belly units are already serviced when full, and software notifications are sent to WM when the units are ready for pickup. Additionally, WM has not serviced the public cans on the Pier and in the Metlox Plaza for many years, and the amendment memorializes this exclusion.
Market Rates for Solid Waste Services
Staff surveyed the region and determined that the City’s current rates for residential and commercial solid waste services are significantly lower than our surrounding communities:
|
CITY |
SINGLE-FAMILY |
% VARIANCE |
HAULER |
|
|
RESIDENTIAL 65-G RATE |
FROM MB |
|
|
Hermosa Beach |
$22.70 |
-1.6% |
Athens Services |
|
MANHATTAN BEACH |
$23.06 |
N/A |
WM |
|
Inglewood |
$23.64 |
2.5% |
Republic Services |
|
Gardena |
$26.22 |
13.7% |
Waste Resources |
|
Redondo Beach |
$29.76 |
29.1% |
Athens Services |
|
Lawndale |
$30.63 |
32.8% |
Republic Services |
|
Lomita |
$33.69 |
46.1% |
Athens Services |
|
AVERAGE |
$27.10 |
17.5% |
|
|
CITY |
COMMERCIAL - 3YD BIN |
% VARIANCE |
HAULER |
|
|
SERVICED 1X PER WEEK |
FROM MB |
|
|
Redondo Beach |
$223.49 |
-3.3% |
Athens Services |
|
MANHATTAN BEACH |
$231.04 |
N/A |
WM |
|
Gardena |
$238.17 |
3.1% |
Waste Resources |
|
Lawndale |
$245.88 |
6.4% |
Republic Services |
|
Inglewood |
$253.83 |
9.9% |
Republic Services |
|
Hermosa Beach |
$312.14 |
35.1% |
Athens Services |
|
Lomita |
$388.43 |
68.1% |
Athens Services |
|
AVERAGE |
$270.43 |
17.0% |
|
On average, the surrounding cities’ rates for residential service is 17.5% higher than Manhattan Beach. Their commercial rates are an average of 17.0% higher. If the City Council approves Amendment No. 2, with rate increases of 2.51% for residential accounts and 5.4% for commercial accounts, solid waste service in Manhattan Beach will still be less costly than in the majority of the surrounding cities.
The Manhattan Beach community currently enjoys low rates for solid waste service because the City has keenly controlled costs in this sector of its business and contracts with a good hauler that has intimate knowledge of the City’s solid waste needs. The City also entered into the current franchise agreement with WM in 2019, prior to the advent of the COVID-19 pandemic.
Significant shifts in the solid waste services industry have occurred since the start of this agreement, including costs associated with employing commercial drivers and growing regulatory requirements. If the City competitively bid out its solid waste services now, staff anticipates that those costs would come in considerably higher than the rates proposed for consideration under Amendment No. 2.
PUBLIC OUTREACH:
The community was provided an opportunity to comment on Waste Management’s request at the August 20, 2024 City Council meeting. City Council also directed Waste Management to speak with the business professional organizations during negotiations so that this potential increase was not a surprise. Waste Management reported to staff that they spoke with the Chamber of Commerce, the Downtown Manhattan Beach Business and Professional Association and the North Manhattan Beach Business Improvement District about the requested increase and answered any questions the organizations had.
If City Council adopts the resolution, communication regarding the one-time special adjustment increase will be included in the solid waste Proposition 218 notices, community meeting presentation, and staff reports anticipated for late winter/early spring 2025.
ENVIRONMENTAL REVIEW:
The City has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has approved the agreement as to form.
ATTACHMENTS:
1. Resolution No. 24-0137
2. Amendment No. 2 - USA Waste of California, Inc. DBA Waste Management
3. Agreement and Amendment No. 1 - Waste Management
5. PowerPoint Presentation