Despite Concerns from URAC, Staff Continues to Recommend Council Authorize Waste Agreement

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In a rare early release of the staff report for next week’s city council meeting, staff recommends that the council approve a resolution that would authorize City Manager Mike Web to execute the Franchise Assignment Agreement, assigning the Solid Waste Franchise to Recology Davis.

Council is also asked to direct staff to work with the Utility Rate Advisory Commission (URAC), Natural Resources Commission, and Finance and Budget Commission over the next 2 years “to study the feasibility of relocation of the Material Recovery Facility (MRF) from 2727 2nd Street, Davis to another site and provide recommendations on the long-term strategy for Solid Waste handling.”

The staff report comes two days after a closed session meeting on the Solid Waste Franchise generated no reportable action.

Prior to that meeting, the URAC issued a recommendation that they adopted on Monday evening: “The URAC recommends that the City Council defer action on the DWR transfer and undertake a thorough comparative analysis by an independent third party and public discussion of the benefits and costs of a city acquisition of the DWR property versus the current plan to transfer the property and business to Recology, including the three sources of ratepayer value identified by the URAC task group.”

Back in February, the council voted unanimously to move forward with a waiver of the right to first refusal to purchase any or all of DWR’s business facilities, thus paving the way for the Recology transfer.

Council felt like at this time they were not equipped to set up their own MRF, however, this agreement would give them the option to do so in about a decade.

In February 2015, the city and DWR “entered into an agreement granting DWR exclusive rights to haul waste (solid waste franchise) in Davis until the year 2027.”  The agreement gives DWR the right to sell and reassign the franchise with the approval of the city, but the city has the right of first refusal, “to purchase all, or any portion of DWR’s business operations, facilities and/or equipment.”

On September 8, 2017, the city received a request from DWR that the city waive its right of first refusal to allow DWR to sell the franchise to Recology.

The move has generated controversy, in particular from the Utility Rate Advisory Commission which believes that they have not been given an ample opportunity to evaluate the offer.

As Richard McCann told council in February, “We had a subcommittee appointed to help the staff assess this, they did not inform the subcommittee that this was occurring. They gave no opportunity for input.

“This is going to have a big impact on rates,” he said. “Now we’re left with two days in which to make a decision, with no input from our commission. It might be a good deal, I don’t know, we haven’t been able to see it.”

Elaine Roberts Musser told the council, “This has more been one of process. This has been more a blind process where citizens really haven’t been given any chance to give input and you have several commissions eager to give input and we can’t because we really don’t know what’s going on.”

Council pushed back against the five URAC members (out of eight on the commission) who spoke that evening.

Mayor Pro Tem Brett Lee said, “I understand some of the concerns that have been raised at public comment, I think that it’s important that we operate from a similar set of facts – and that doesn’t seem to be the case here.

“We’ve been discussing this item for months,” he said.

Councilmember Rochelle Swanson pointed out, “Owning a facility is a very big responsibility.”  She said, “This is being able to take two years and really look into the entire process, what it would mean, and having an informed decision.  Is it a core function of the city to do that?”

Councilmember Lucas Frerichs noted, “I do think we’re sort of hamstrung by the process particularly with regards to the confidentiality issues.  There have been some items that simply cannot be discussed – some of it has to do with state law.”

Councilmember Will Arnold added, “This is the most frustrating item that I have had to deal with in my short time on the council and that is a lot to say because we’ve had a lot of items where we’ve had a ton of opposition or we’ve been called all sorts of nasty things, but there’s something about this process that has really frustrated me.”

The city staff also believes “it is in the public’s interest to continue with the recently adopted (2015) solid waste agreement, retain program stability, and consistency by assigning the transfer to Recology Davis while beginning an in-depth public process to assess long-term strategies for solid waste.”

They note that the council does not believe that “managing additional facilities or utility operations at this time is in the best interest of the city.”

Staff argues that “the transfer and assignment of the franchise continues the existing operational relationship between the city and the solid waste franchisee. Approving the transfer from one operator to another is not a ‘gift of public funds’ as the City has already provided for a transfer under the terms of the franchise and Recology has the capacity to perform.”

Staff adds that “the price paid by Recology to acquire the assets of DWR may not be included in the rate calculations and therefore, will not be paid by Davis ratepayers.”

In response to the URAC motion from April 2, staff says it concurs that “an in-depth review of the City’s solid waste management is necessary,” however, they believe “this review can be conducted after the assignment of the agreement is completed.”

Staff has been directed “to begin the public process of assessing the City’s long-term solid waste management, including potential partnerships, ownership, and control of city solid waste commodities. In the next few years, staff will focus efforts to study MRF relocation, ownership of solid waste assets or waste commodities, gather ratepayer input, and assess potential partnerships with neighboring jurisdictions.”

Staff writes, “If further analysis indicates that local control of either solid waste assets or solid waste commodities, or partnerships with other agencies can provide benefits to the community, and Council provides policy direction consistent with one or all of those options, staff would begin the process of establishing all permitting and development prior to the end of the existing franchise agreement in 10 years.”

The city retains its right to acquire the franchise including any or all of the assets of the franchise “through the City’s power of condemnation should the City Council determine at a later date that it is in the public interest to acquire the franchise or and/or property of the franchisee.”

—David M. Greenwald reporting


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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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16 thoughts on “Despite Concerns from URAC, Staff Continues to Recommend Council Authorize Waste Agreement”

  1. Matt Williams

    Staff would be wise to use the same approach that they used in the February 16, 2016 Staff Report to Council regarding the fiscal impact of the 2016 Nishi project.  In that Staff Report they said:

    That the Nishi project is a net fiscal positive for the City of Davis. The Commissioners did not agree on the amount of benefit the City would receive. The final motion to conclude $1,400,000 of annual benefit passed on a 5-1-1 vote; dissenters agreed that the benefits would be positive, but suggested numbers in the $500,000 range.  

    The “dissenters” in that case included the City’s economic consultant and members of Staff.

    In this current Solid Waste Franchise Assignment to Recology situation, instead of saying “There is no fiscal impact at this time for the Franchise assignment and agreement” Staff could have said”

    Staff and the Utility Rate Advisory Commission (URAC) do not agree on the amount of fiscal benefit the City will receive from the Franchise Assignment to Recology.  The URAC recommendation to Council delivered in writing on April 3rd, stated,  “The URAC has identified three potential sources of ratepayer benefits that would be realized if the City purchases the 2nd St. property, which could amount to $16 million or more over 10 years (based on reasonable assumptions but limited data).Staff disagrees with URAC’s assessment and believes there is no fiscal impact at this time for the Franchise assignment and agreement.

    That would be a complete, accurate and transparent disclosure of the fiscal impact of the decision Council is being asked to make.

    Acknowledgement of the $16 million difference between URAC’s assessment of fiscal impact and Staff’s assessment of fiscal impact would make it very clear why the URAC made the formal recommendation they did.

    The URAC recommends that the City Council defer action on the DWR transfer and undertake a thorough comparative analysis by an independent third party and public discussion of the benefits and costs of a city acquisition of the DWR property versus the current plan to transfer the property and business to Recology, including the three sources of ratepayer value identified by the URAC task group.

    URAC is ready to (1) assist City Council and staff in formulating scope of work for the independent analysis, and (2) work collaboratively to determine the best course of action for utility ratepayers and the City as a whole.

    1. Howard P

      URAC had better be damn well to prepared to recommend where the up-front money will come from (given the City’s current obligations, and ‘un-met needs’), and how it will be repaid.  If the City owns/operates/contracts the management (unclear at this point) and operations, what is the financial risk?  I see the financial risk of backing off the “first right of refusal” de minimus.   I see the financial risk of the City being owner, and/or operater to be huge…

      I know we disagree on this, which is fine…

      And now, there is apparently an attempt to further complicate City resources/finances… the proposal for a City fronted, City owned, City managed (?) Broadband system that duplicates/triplicates UG utilities already existing, potentially further compromising the roads, and requiring on-going costs…

      With those two proposals, I’m thinking of shifting from a “yes” on the parcel taxes, to a “hell no!”

      Just saying..

      1. Matt Williams

        URAC has very clearly described in its prior recommendations to Council and staff (1) where the up-front money will be coming from, (2) that the General Fund (with its current obligations) will be 100% untouched by the transaction, and (3) that the annual lease payments from Recology to the City for use of the facility will 100% cover any annual debt service (interest and capital repayment) costs.

        In public sector accounting terms it is an “Asset-Liability Match” of which the City probably has at least a half dozen already in place (the County’s solar farm at Grasslands Park is another local example).  In private sector terms it is a “Leveraged Buyout.”  AKT’s purchase of Conaway Ranch is an excellent local example of a leveraged buyout, where the annual water rights revenues generated by Conaway Ranch exceed AKT’s annual borrowing costs.

        1. Howard P

          Whether GF or ‘enterprise fund’, source of $ is same.  You have not addressed risk, nor additional City costs for mangement, including salaries, benefits, etc… some were/are already present in the DWR arrangement… I see additional ones where the City owns the facilities…

          We disagree on this, but we do disagree.

          I find the risks of sale from DWR to another entity to be less risky than City ownership.  Time will tell…

        2. Matt Williams

          Whether GF or ‘enterprise fund’, source of $ is same. — No the source is not the same.  Since the purpose of the investment is ownership of the Solid Waste Transfer Station, the City gains an asset, and this would be reflected on the Enterprise Fund balance sheet.  The City would show the Solid Waste Transfer Station as a capital asset at its cost, and the corresponding balance sheet entry would be the reduction in cash from the expenditure of the $10,000,000, so no net change to the balance sheet, until subsequent years when cash balances would increase (more than they otherwise would) due to the continuing receipt of rental payments from Recology with no continuing interest costs because the loan is fully paid off.

          One consideration would be a loss of liquidity in the Wastewater Treatment Enterprise Fund Reserve for a third of the current fund balance, and the liquidity would increase over the 15 years with amortization back to where it is now.  The only possible concern I can think of about the reduction in liquidity would have to do with whether there was a risk that the full $10,000,000 invested would be needed in less than 10 years (or on a faster schedule than the 15 year amortization would allow).

          You have not addressed risk, — since Recology will be responsible for operations of the service, the vast majority of any risk will fall on their shoulders, just as it currently falls on the shoulders of DWR under the existing contract (which will apply to Recology when assigned to them).  What “new” risks do you see the City shouldering due to ownership of the 7 acre parcel at 2727 Second Street?  One risk could be that Recology will “misuse” the facility and run it into the ground during the term of the contract … and walk away at the end.  That is reason for the contracted third-party, independent, expert inspections services suggested by the September/October URAC report to Council.

          nor additional City costs for management — as I noted to Jeff M in a prior comment, operations management will be the responsibility of Recology.  The City will have no management responsibility.  

          including salaries, — as I noted to Jeff M in a prior comment, all DWR employees will become Recology employees.  Therefore $0 in annual salaries

          benefits, etc — as I noted to Jeff M in a prior comment, all DWR employees will become Recology employees.  Therefore $0 in annual benefits, etc.

          … some were/are already present in the DWR arrangement… –correct.  Since the services will be identical, there will be no incremental additional City employees beyond those currently overseeing the DWR services/contract

          I see additional ones where the City owns the facilities… — the September/October URAC report to Council described how facility inspection services could be performed by third party contractors with subject matter expertise that the City does not currently have.  The annual cost of such contracted third-party experts would be covered by the annual lease payments paid by Recology to the City for the use of the facility.

        3. Howard P

          Whether GF or ‘enterprise fund’, source of $ is same. — No the source is not the same.  

          Taxpayer/ratepayers… a distinction without a difference, to any individual property owner/resident.  Same source.  The owner and/or resident.

        4. Matt Williams

          Howard, I did not understand your question.  You are absolutely right that the bottom-line is the ratepayers, which is exactly why the URAC has strongly stated that throwing away “$16 million or more over 10 years (based on reasonable assumptions but limited data)” of ratepayer money needs to be better understood. URAC’s recommendation language is as follows:

          The URAC recommends that the City Council defer action on the DWR transfer and undertake a thorough comparative analysis by an independent third party and public discussion of the benefits and costs of a city acquisition of the DWR property versus the current plan to transfer the property and business to Recology, including the three sources of ratepayer value identified by the URAC task group.

          URAC is ready to (1) assist City Council and staff in formulating scope of work for the independent analysis, and (2) work collaboratively to determine the best course of action for utility ratepayers and the City as a whole.

          .
          With that said, the ratepayers currently have just short of $30 million of cash earning approximately 0.7% annual interest.  One of the benefits of the alternative solution is an increase of that interest rate by as much as 5%.  That is a $4.5 million increase in Enterprise fund income that means ratepayers will not need to provide that $4.5 million in future rates.  $4.5 million of interest income is a terrible thing to waste.

           

      2. Jim Frame

        the proposal for a City fronted, City owned, City managed (?) Broadband system that duplicates/triplicates UG utilities already existing

        The proposed fiber-to-the-premises (FTTP) network doesn’t duplicate (let along triplicate) existing infrastructure.  Comcast delivers most (all?) of its Davis service over coax, and AT&T delivers over copper wire except (possibly) in very limited circumstances.  Neither provides the kind of transport speeds available over a true FTTP connection.  Fiber is the future, but neither of the incumbents are likely to invest in the infrastructure necessary to provide a ubiquitous FTTP network in Davis — they’re too focused on their quarterly earnings and duopoly advantage.  A municipal network — business model to be determined — will bring the kind of speed and competition required by a modern and economically-competitive city.

        1. Howard P

          Yah… been there, done that… was it Davis Community Cable (early ’80’s)?  City bailed them out…

          Who pays? Who finances? Who manages? The beneficiaries?

          Yeah, I see where some high-end users will want this… but everyone pays?  For something they don’t need? I’m feeling fine… see no need (at this point) for an upgrade where I’ll need to pay for others’ benefits.  I’d rather spend the same money to support the homeless, those needing MH care, or other services… this is a wanna not a need… if there was a real market for those who “need” it, why do they not solely pay for it?

          Just don’t buy into your justification(s)… nor the implications for City/taxpayers risk and expense…

        2. Jim Frame

          Who pays? Who finances? Who manages? The beneficiaries?

          All TBD.  What the CC did on Tuesday was direct the BATF to explore the options.

          I’m feeling fine… see no need (at this point) for an upgrade where I’ll need to pay for others’ benefits.

          The same argument is made (often) about the cost of supporting a public school system, or a public water utility.  There’s nothing wrong with your not wanting to pay for it, I’m simply pointing out that your description of a municipal FTTP network as duplicating existing services doesn’t jive with the needs (yes, needs) of a modern economy.

  2. Jeff M

    The City should not make any move that includes additional staffing requirements.  In fact we should be looking for continued opportunities to outsource City services to provide entities that will provide the services fast, better and cheaper.

    1. Howard P

      You forgot to mention that the services might be cheaper, faster, but that “better” might be less competent, less knowlegeable, and not responsive to the public… OK, let’s try that…

      Some areas of City operations CAN be outsourced… those that can’t require much independent thought… purely ministerial… other functions/operations could be eliminated (I could name a few, but then the minority interests would cry “foul”)… most functions/operations should not be ‘out-sourced’… those that require informed judgment, cognizant of the City’s best interests… private companies don’t have a great record in that regard…

      1. Matt Williams

        Howard, the services are clearly described in the current DWR contract.  In both the staff-recommended scenario and the URAC alternative solution, Recology would be delivering those exact same services in the exact same manner under the terms of the contract.  Operations would be 100% managed and delivered by Recology.  The City’s “role” would be landowner, leasing the Second Street facility to Recology’s operations.

      2. Howard P

        Ok, by taking my response to an arguably off-topic issue (out sourcing) and then ‘refuting’ it in a specific area… apples and bananas?

        Do you not see the additional staffing due to managing a City property?

        If not, may you get your way, and explain away the additional costs when they occur… when the City decided to fund and acquire open space (operated and maintained by ‘contractors’), were any additional positions created?  Yes… Management level… high 5-figure/low six-figure salary… pension, benefits, PERB obligations…

        Reminded of an old song, in part, “when will they ever learn, when will they ever learn…” (where have all our dollars gone? Long time passing…)

        1. Matt Williams

          Howard, in this case I definitely do not see the additional staff due to managing this specific City property.  I say that for a number of reasons … (1) the day-in, day-out management of the property will be an integral part of the service provision process by Recology.  All the due diligence performed by staff about Recology says that such operational maintenance is part of their organizational fabric. (2) adding one more leased property to the already existing list of properties such as Pence Gallery, Varsity Theater, etc is n’t going to add an FTE, especially if (3) the specialized inspection of the property is contracted to an industry-expert, solid waste processing site inspection firm, with the cost of those annual or semi-annual inspections paid for by a portion of the lease payment proceeds received from Recology.  Further, (4) the Open Space Program that Measure O created established new land procurement and land conservation easement programs, as well as a new City Commission. The Solid Waste Enterprise Fund is already staffed by Richard Tsai.  His day-in, day out management of the programs of that Eneterprise Fund will be unchanged.  Some of the people he is dealing with at Recology will be different than they were at DWR, but that was going to be the case regardless … and 60+ employees of DWR are going to become employees of Recoogy, so many of Richard’s contacts are going to be identical before and after.

          In simple terms, there will be no new six-figure property manager and there will be no new six-figure program manager.

    2. Matt Williams

      Jeff, the alternative solution that URAC has recommended that the City evaluate adds exactly zero staff to the existing complement.  All the existing DWR employees become Recology employees.  Operations of the franchise for the remaining 10-year term of the contract (15-years with the one performance-based extension provided for in the contract) is 100% the responsibility of Recology.  The City’s “role” in the publi-private partnership of the alternative solution, is solely limited to that of a landowner, leasing the facility to Recology for an annual rent that makes the net cash flows for both Recology and the City exactly the same as in the “whole purchase” alternative that staff is recommending.

      In the alternative solution Recology’s annual Return on Investment rises from 4.3% (in the staff recommendation) to 7.1%, and Recology’s payback period for their investment drops from 23 years (in the staff recommendation) to 14 years.

      If you want to understand the calculations I will be glad to stop by and review them with you.  Bottom-line, $16 million of ratepayer money is a terrible thing to waste … especially when that waste is unnecessary.

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