HomeMy WebLinkAbout2006-07-05 STAFF REPORTS 5A ,O VALMS,,
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CITY COUNCIL STAFF REPORT
DATE: July 5, 2006 New Business
SUBJECT: RATE ADJUSTMENT FOR SOLID WASTE COLLECTION SERVICES
FROM: David H. Ready, City Manager
BY: Assistant City Manager - Administration
SUMMARY
The: City's franchised waste company, Palm Springs Disposal Services, has requested
a 5.12% increase in the rates charged for residential and commercial solid waste
collection services. This increase is based on the change in the Consumer Price Index
(CPI) for the period February 2005 to February 2006. The City's Franchise Agreement
with Palm Springs Disposal Services provides that any increase of more than 2.5%
must be approved by the City Council. If approved, this rate increase would go into
effect immediately.
RECOMMENDATION:
1. Adopt Resolution No. , "A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF PALM SPRINGS, CALIFORNIA, APPROVING A REQUEST
FROM PALM SPRINGS DISPOSAL SERVICES FOR A 5.12% INCREASE IN
THE RESIDENTIAL AND COMMERICAL FEE FOR SOLID WASTE
COLLECTION SERVICES EFFECTIVE JULY 1, 2006."
STAFF ANALYSIS:
The City has entered into a franchise agreement with Palm Springs Disposal Services
to provide solid waste collection and recycling services. This agreement establishes the
maximum rates that can be charged and provides a mechanism for adjusting these
rates based upon the percentage change in the Consumer Price Index for All Urban
Consumers (CPI) for the Los Angeles-Riverside-Orange County area for the period
February to February.
The solid waste collection rates for residential and commercial customers have been
frozen since 2003. This is the first year that Palm Springs Disposal Services can
actually adjust their rates based on the percentage change in the CPI.
ITEM NO.
City Council Staff Report
July 5, 2006 -- Page 2
Rate Adjustment for Solid Waste Collection Services
Under the franchise agreement, Palm Springs Disposal Services can automatically
adjust their rates for residential and commercial customers by the actual change in the
CPI up to a maximum of 2.5% by providing written notice to the City Manager on or
before March 315t. CPI adjustments for residential and commercial services in amounts
greater than 2.5% must be approved by the City Council. The actual CPI for the period
February 2005 to February 2006 as published by the Bureau of Labor Statistics was
5.12%.
The City has received correspondence from Palm Springs Disposal Services requesting
the City Council approve a 5.12% increase in the rates charged for residential and
cornmercial customers. A copy of this correspondence is attached. According to Palm
Springs Disposal Services, this increase, which represents the full percentage change
in the CPI for the period of February 2005 to February 2006, is needed to offset some
extraordinary expenses they incurred during the first two years of the franchise
agreement. These expenses, which include significant increases in workers
compensation insurance, fuel cost, and truck insurance, total over $1,051,000 over the
past two years. Based on the increased expenses incurred in the first two years of the
current franchise agreement, Palm Springs Disposal Services has estimated that their
combined general and administrative (G&A) and Net Income before Income Taxes
(NIBIT) shortfall will be approximately $1,482,000.
The; franchise agreement provides that the City Council may approve the request for the
full percentage change in CPI or undertake a review and make an appropriate
determination of rates. In conducting this review, the City Council may consider all prior
rate; increases, the effect of all disposal fee increases, recycling surcharges and any
other increased charges, and the cumulative effect of all such increases in setting the
rate adjustment. The City Council may also consider whether the cost is unusual,
whether the amount requested is warranted, whether the company is making a fair
return on its investment, and whether the company is not otherwise adequately
compensated by other rates and charges provided in the franchise agreement. The City
Council's decision on whether to approve the request or not is final and binding.
If approved, the proposed rate increase will go into effect immediately for commercial
customers. Because Palm Springs Disposal Services bills quarterly, the new rate for
residential customers will not appear on customers' bills until October 1, 2006. Based
on the full change in CPI, the estimated increase for residential economy service (twice
weekly curbside service) is $0.76 for a total proposed monthly rate of $15.75. In
comparison, the rates in Rancho Mirage, Palm Desert and Desert Hot Springs range
between $12.00 and $14.00 per month for weekly curbside service.
Pursuant to the franchise agreement, Palm Springs Disposal Services has notified their
customers of the proposed rate increase and published notice in the Desert Sun
City Council Staff Report
July 5, 2006 -- Page 3
Rate Adjustment for Solid Waste Collection Services
notifying the public of the proposed rate increase and the date and time of the City
Council's review of this request.
FISCAL IMPACT: IFinance Director Review:
There is no fiscal impact to the City. If the City Council approves the proposed
increase, the City will receive a nominal amount of additional franchise fee revenue from
Palm Springs Disposal Services.
r L. Butzl ff, sistant City Manager David H. Ready, City MoagviJ
Attachments:
1. Resolution
2. Correspondence from Palm Springs Disposal Services dated March 31, 2006
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
PALM SPRINGS, CALIFORNIA, APPROVING A REQUEST
FROM PALM SPRINGS DISPOSAL SERVICES FOR A 5.12%
INCREASE IN THE RESIDENTIAL AND COMMERCIAL FEE
FOR SOLID WASTE COLLECTION SERVICES EFFECTIVE
JULY 1, 2006
WHEREAS, the City has entered into a franchise agreement with Palm Springs
Disposal Services for Solid Waste Management Services; and
WHEREAS, the franchise agreement establishes the maximum rates that can be
charged by Palm Springs Disposal Services; and
WHEREAS, the maximum rate for services may be adjusted annually based upon
the percentage change in the Consumer Price Index (CPI) for All Urban Consumers
for the Los Angeles-Riverside-Orange County area for the period February to
February; and
WHEREAS, Section 10.04 d(1) of the franchise agreement provides that the City
Council must approve all CPI adjustments greater than 2.5%; and
WHEREAS, according to the Bureau of Labor Statistics the percentage change in the
CPI for the period February 2005 to February 2006 was 5.12%; and
WHEREAS, Palm Springs Disposal Services has requested that the City Council
review and approve the full percentage change in the CPI; and
WHEREAS, the City Council may approve the request for the full percentage change
in the CPI or undertake a review and make an appropriate determination of rates;
and
WHEREAS, the City Council has reviewed the proposed rate increase and finds that
an adjustment in solid waste collection fees for residential and commercial customers
is necessary to respond to the increased cost of providing such services; and
WHEREAS, such adjusted in the fee charged for solid waste services provide for
quality waste management services to citizens and businesses at a fair market cost;
and
WHEREAS, pursuant to the franchise agreement, Palm Springs Disposal Services is
required to provide thirty (30) days notice to their customers of the proposed rate
increase; and
WHEREAS, Palm Springs Disposal Services has notified their customers of the
proposed rate increase and has published notice in the Desert Sun of the proposed
rate increase and the date and time of the City Council review.
NOW, THEREFORE BE IT RESOLVED, that the City Council of the City of Palm
Springs does hereby approve Palm Springs Disposal Services' request for a 5.12%
increase in the residential and commercial fee for solid waste collection services as
set forth in Exhibit "A", attached hereto and made a part hereof..
BE IT FURTHER RESOLVED, that this resolution shall go into effect and be in
full force and operation on July 1, 2006.
ADOPTED this day of 2006.
AYES:
NOES:
A13SENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By:
City Clerk City Manager
RE-VIEWED AND ADOPTED AS TO FORM:
EXHIBIT "A"
Residential Services:
5.12% CPI increase on service components
4,00% County increase on disposal tipping fee component
Service Category Old Monthly Rate New Monthly Rate
Economy service $14.79 $15.75
Family Value service $17.29 $18.37
Standard service $19.49 $20.80
Estate service $49.50 $52.74
Effective date: October 1, 2006
Date of last adjustment: July 1, 2003 (a rate decrease)
Commercial Services:
5.12% CPI increase on service components
4.00% County increase on disposal tipping fee component
Service Category Old Monthly Rate New Monthly Rate
3 CY bin, once weekly $115.59 $120.99
Effective date: July 1, 2006
Date of last rate adjustment: July 1, 2003 (a rate decrease)
Paint Springs Disposal ServiCes 4690 East Mesquite Avenue
P O Box 2711
Palm Springs,CA 92263-2711
Telephone: (760)327-1351
Fax: (760)323-5132
March 31, 2006
Mr. Troy Butzlaff Hand Delivered
Assistant City Manager for Administration
City of Palm Springs
3200 East Tahquitz Canyon Way
Palm Springs, CA 92263
RE: RATE ADJUSTMENTS FOR SOLID WASTE COLLECTION SERVICES
Dear Troy:
In accordance with the terms of our Franchise Agreement, we are requesting the
following action:
1. Approval by the City Council for a 5.12% increase in Residential Service
rates effective July 1, 2006 (but collected during the 9-month period
October 1, 2006 through June 30, 2007);
2. Approval by the City Council for a 5.12% increase in Commercial Service
rates effective July 1, 2006;
3. Concur with a 5.12%increase in Industrial Service rates effective July 1,
2006;
4. Concur with a 4.00%increase in Disposal Tipping Fees effective July 1,
2006 (as approved by the Riverside County Board of Supervisors):
a. Increase the Residential Disposal Tipping Fee rate component
4.00% (but collected during the 9-month period October 1, 2006
through June 30, 2007; and,
b. Increase the Commercial and Industrial Disposal Tipping Fee rate
components by 4.00% effective July 1, 2006; and,
5. Action by the City Council authorizing City Staff to prepare amendments
to Franchise Agreement No. 4727 to:
a. Change the method of billing for Residential Service to the tax bill
effective in 2007,
b. Limit the criterion for improved properties to request and receive
exemptions from the requirement to subscribe to and pay for solid
waste services to uninhabitable properties, and
Mr. Troy Butzlaff March 31, 2006
Re: RATE ADJUSTMENTS FOR SOLID WASTE COLLECTION SERVICES
Page 2
c. Extend the term of the Franchise Agreement by one year to expire
on June 30, 2015.
BACKGROUND
Residential and Connnercial Service customers have not seen an increase in rates
for three years. With the effective date of the current Franchise Agreement, rates to
Residential customers were reduced and no increases were made in 2004 or 2005.
Annual adjustments to our compensation are based upon changes in the Consumer
Price Index for all Urban Consumers (CPI-U) for the Los Angeles-Riverside-Orange
County Area as published by the Bureau of Labor Statistics for the period February to
February.
The Franchise agreement provides for recovery of the full CPI adjustment for
Industrial Services. CPI adjustments for Residential and Commercial Services in
amounts greater than 2.5% require the approval of the City Council.
Increases in the Tipping Fee charged at the transfer/disposal site are an exception
to the CPI-U formula adjustment and are adjusted concurrent with the effective date of a
change in those fees.
CHANGE IN CPI
Annual adjustments to our compensation based upon changes in the Consumer
Price Index for all Urban Consumers (CPI-U)for the Los Angeles-Riverside-Orange
County Area as published by the Bureau of Labor Statistics for the period February to
February. Accordingly, the CPI change is +5.12%, calculated as follows:
INDEX
CPI-U, February, 2006 20T5
CPI-U, February, 2005 197.4
Index Change 10.1
% Change (+10.1/197.4)_+ 5.12%
(Refer to http://www.bls.govlro9lcu7rentPC.PDF)
The Franchise agreement provides for recovery of the full CPI adjustment for
Industrial Services. CPI adjustments for Residential and Commercial Services in
amounts greater than 2.5% require the approval of the City Council. We are requesting
full CPI adjustment as a means of recovering extraordinary expenses incurred during the
first two years of the current Agreement.
Mr. Troy Butzlaff March 31, 2006
Re: RATE ADJUSTMENTS FOR SOLID WASTE COLLECITON SERVICES
Page 3
EXTRAORDINARY EXPENSES
Our Agreement also provides a mechanism for the recover of extraordinary
expenses. During the first two Contract Years, PSDS incurred extraordinary expenses for
workers compensation insurance, fuel and truck insurance.
The Company's total extraordinary expenses(after allowing for CP1-based
inflation) for workers compensation insurance expense, fuel expense and truck insurance
expense totals $1,052,000 for the first two years of the current contract.
Table 1
Summary of Workers Extraordinary Expenses for Workers Compensation Insurance, Fuel
& Truck Insurance for Operations in Palm Springs
(after allowing for CPI-based inflation)
12 Mos.Ended 12 Mos.Ended Cumulative
9130/04 9130105 Total
Contract Year#1 Contract Year#2
Workers compensation insurance 544,886 212,701 757,587
Fuel 38,248 81,860 120,108
Truck insurance 79 333 94541 173$74
Total 662,467 389,102 1,051,569
We have also reviewed our financial performance in comparison to the three
largest publicly traded solid waste firms (Table 2).
Table.2
Comparative Analysis of PSDS Financial Performance with the Mean Average of Publicly
Traded Companies (Combined G&A and Net Income before Income Taxes)
Company 2001 2004 2005
Mean average of public companies 21% 1901. 20%
PSDS 27% 14% 11%
Over(Under) 6% 15n/°�
The combined G&A and NIBIT shortfall is largely the result of the
aforementioned extraordinary expenses. We calculate the shortfall to be $1,482,000
('Table 3).
Mr. Troy Butzlaff March 31, 2006
Re: RATE ADJUSTMENTS FOR SOLID WASTE COLLECITON SERVICES
Page 4
Table 3
Calculation of Revenue Shortfall based upon Comparative Financial Results
Contract Year#1 Contract Year#2 Cumulative Total
%Over(Under), (5%) (9%)
(Table 5)
PSDS total revenue $9,937,000 $10,665,000
(Schedule B-2)
Revenue shortfall 484 000 998 000 1 482 000
Inasmuch as this shortfall was incurred over a period of two years, we considered
recovering the shortfall over the course of the next two years as a surcharge. Table 4
demonstrates the impact of such a recovery method on annual revenue and representative
categories of service.
Table 4
Annual Revenue&Monthly Surcharge Amount for Representative Services
Residential Industrial
Commercial Total Annual
Standard Walk-in 3CY Bin,1xWk 20CY Debris Box, Revenue
Service per pull
Annual revenue $308,000 $300,000 $134,000 $742,000
Moodily surcharge $1.96 $8.09 $18.41 -
ALTERNATIVES CONSIDERED
The extraordinary costs described above were incurred over a two-year period;
recovery over a similar two-year period would necessitate a 12% surcharge (about $2.00
,per month for Residential customers in addition to the normal ongoing CPI-U
adjustments and changes in Disposal Tipping Fees.
It is our desire to avoid such a steep increase so we investigated some other
approaches.
Full CPI-U. In past years when the change in the CPI-U has exceeded the threshold limit,
we have refrained from seeking approval for the additional increase. Requesting a rate
increase equal to the full amount of change in the CPI-U on a year-by-year basis is a way
for us to recover extraordinary costs over time. This change would have minimal impact
upon rate payers.
Tax Roll Billing. We bill Residential customers quarterly for solid waste services. If this
billing practice were changed to that of placing solid waste charges as an assessment on
the tax bill (a practice that the City itself uses for sewer service charges), the Company's
Mr. Troy Butzlaff March 31, 2006
Re: RATE ADJUSTMENTS FOR SOLID WASTE COLLECITON SERVICES
Page 5
costs could be reduced by about $50,000 per year. This change would have no cost
impact upon rate payers.
Exemption Criteria. Currently, owners of improved properties may seek an exemption
from subscribing to and paying for solid waste services if the property is uninhabited for
a period of twelve months or more. While only 52 exemptions are currently in effect,
many times that number request an exemption requiring a significant effort on the part of
City and hauler staff to investigate the request and render a decision. A revised
exemption criterion that restricts exemptions to properties that are uninhabitable would
greatly conserve staff resources for both the City and hauler. This change would have no
cost impact upon rate payers.
Franchise Term Extension. The term of the present Franchise Agreement was tied to the
loan amortization period for the significant investment in new clean fuel vehicles
required of the company. Due to the limited manufacturing capacity for clean fuel
engines that did and continues to exist, delivery delays forced the company to amortize
equipment financing over a shorter period. Extending the term of the Franchise
Agreement by one year to expire June 30, 2006 would enable the company to extend the
financing and benefit cash flow. This change would have no cost impact upon rate
payers.
When taken in combination, we feet that over time the above measures will
adequately compensate the company for the extraordinary costs incurred without any
significant impact upon our customers.
SUMMARY
We are pleased to report that we have been able to honor our commitment that
customers have not seen an increase in rates for three years. And while we regret that
extraordinary increases in some costs now make it necessary for us to request special
consideration, we believe that we have designed a method of recovery that will have
minimal impact upon our customers.
We are requesting the following as a means of recovering extraordinary expenses:
1. An adjustment to Residential and Commercial Service rates to recover the full
5.12% change in the CPI-U;
2. Change over Residential billing from Contractor, quarterly billing to an
assessment on the tax bill effective with the 2007-08 fiscal year;
3. Tighten the criteria by which improved properties may apply for and be
exempted from paying for solid waste service; and,
4. Extend the term of the Franchise Agreement by one year to June 30, 2015.
Mr. Troy Butzlaff March 31, 2006
Re: RATE ADJUSTMENTS FOR SOLID WASTE COLLECITON SERVICES
Page 6
DISPOSAL TIP FEE INCREASE
Please note that we expect that the County of Riverside will increase the Edom
Hill Transfer Station Tip Fee effective July 1, 2006 from $34.98 to $36.38 per ton, a
4.00% increase. We are monitoring this matter and will advise you of any developments.
We understand that it is the City's intention to pass any Tip Fee increase through to the
ratepayers.
TRAING OF REQUEST
Based upon our experience in past years, we anticipate that the County's approval
of new Disposal Tipping Fees will occur too late for us to provide Residential customers
with the requisite 30-day prior notice and then be incorporated into our July 1, 2006
billing. We are also hesitant to include a service rate increase in the July 1 billing and
follow it up with yet another rate increase for changes in Disposal Tipping Fees in the
following October I billing. We therefore propose to consolidate these fee changes into
the October 1 billing, adjusting the increases to recover the change in a 9-month period
(October 1, 2006 through June 30, 2007)instead of a 12-month period (July 1, 2006
through June 30, 2007). This will result in the 5.12% CPI-U increase being adjusted to
6.83% and the 4.00%Disposal Tipping Fee increase being adjusted to 5.33% for the 9-
month period October 1, 2006 through June 30, 2007 for Residential services.
We look forward to the opportunity to meet with you in the very near future.
Sincerel ,
Rick Wade
General Manager