Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: APPROVAL OF GARBAGE FRANCHISE AGREEMENT
AMENDMENT AND TERM EXTENSION WITH RECOLOGY
Date: May 26, 2026
Written by: Damien O'Bid, City Manager
Recommendation
It is recommended that the City Council adopt a resolution approving an amended agreement and term extension with Recology for the solid waste franchise.
Background
As is common among cities in California, the City of Cotati (City) franchises the function of solid waste collection to a contractor that performs this service on behalf of the City. In Sonoma County, the cities of Cloverdale, Healdsburg, Santa Rosa, Rohnert Park, Cotati and Petaluma, as well as the County of Sonoma, contract with Recology Sonoma-Marin (Recology). The cities of Windsor and Sebastopol currently contract with Sonoma County Resource Recovery (SCRR).
The City of Sonoma contracts with Sonoma Garbage Collectors (SGC).
On March 27, 2013, the City Council entered into a franchise agreement with Redwood Empire Disposal, Inc. (RED), for the exclusive right to provide refuse collection, including construction and demolition debris, in the City of Cotati (City). RED was owned by the Ratto Group. On December 23, 2017, Recology Sonoma Marin (Recology) officially purchased Ratto’s assets and took over the remainder of the Franchise Agreement with the City. The City’s Franchise Agreement (Agreement) with Recology was set to expire on June 30, 2023.
On December 14, 2021, the City introduced an ordinance amending Chapter 8.08 (Solid Waste Management) to conform with the requirements of SB 1383 (Organics). This was followed by an amendment to the Agreement with Recology on June 28, 2022, in coordination with Zero Waste Sonoma, to meet the various new requirements of SB 1383. Included in this amendment was an extension of the Agreement for 5 years to June 30, 2028.
In accordance with the terms of the Agreement, in June 2025 Recology applied for a Detailed Rate Review (DRR), requesting a rate increase of 23.8%, which was to be effective on January 1, 2026. In accordance with the terms of the Agreement, City retained R3 to review the DRR, including an analysis of Recology’s financial statements, records, and rate adjustment calculations, which identified some potential reductions to Recology’s rate adjustment request.
In initial conversations, Recology offered a reduced DRR of 20.8%. The DRR was requested due to the increased cost of operations, including the needed debt service on equipment and the new material recovery facility.
To efficiently review potential revisions to the Agreement and rate structure, the City Council appointed Vice Mayor Harvey and Councilmember Savage to an Ad Hoc committee on March 10, 2026. The initial task of the Ad Hoc was to review a proposed amendment to the Agreement, which is attached.
Analysis/Discussion
Under the current Agreement, Recology is entitled to an annual rate increase of 70% of the Bay Area consumer price index. Additionally, Recology can petition for a DRR under certain conditions, including:
• Changes in the cost due to new services or City fees. • Changes in the cost of transporting solid waste when the City requires a specified disposal facility.
• Changes in state or local fees.
• Changes in the scope of the Agreement.
• If the cost of operation exceeds gross revenue.
Given the magnitude of Recology’s requested rate adjustment (even after potential adjustments identified by R3) and given that the Agreement is set to expire in two years, on June 30, 2028, R3 advised the City to consider engaging in negotiations with Recology to reduce the amount of the rate adjustment proposed in the DRR through an extended Agreement term and potentially secure other enhancements. In addition to mitigating rate shocks, City staff were also interested in providing long-term rate stability for customers. This meant moving away from the 70% of CPI and DRR arrangement, which in practice creates large rate changes for customers every 3-5 years.
Franchise Agreement Amendment
As is outlined in the proposed amendment, the primary terms are:
• 10 year extension, from 2028 to 2038, to go into effect on June 1, 2026. • Setting the first 5 years of rates at 9%, 8%, 7%, 6% and 6%. • Future years are based on 100% of CPI + 1%, but with a rate cap of 5%. • Extraordinary adjustments (aka DRR) are limited to a maximum of 2 over the term of the agreement and can only be requested for a change in law or other major unexpected change that materially increases on-going operational expenses. This explicitly excludes changes due to collective bargaining agreements, equipment purchases, or other reasonably anticipated items.
The proposed amendment also includes a whereas clause to indicate the mutual interest of both parties to continue discussions regarding mutually agreed upon modifications to the Agreement over the next year. Modifications are anticipated to be consolidating the amendments into a single agreement, cleaning up old language that is no longer applicable and potentially reviewing different rate design options. Therefore, if the City Council approves the attached amendment, the Ad Hoc would need to continue to meet over at least the next several months to discuss these additional edits or a restatement of the Agreement, as well as potential rate design options.
Financial Considerations
Recology customers in Cotati would see the noted rate changes, but at a much more smoothed rate over a longer period of time than if the requested DRR was implemented. R3 modeled the different potential scenarios, including the current agreement if it was simply extended with the offered 20.8% DRR in 2026. This scenario used the current year CPI and a conservative assumption of another DRR in 2032. The proposed agreement was also modeled, assuming the maximum CPI increase of 5% in future years, but no DRR. Under these assumptions, customers would see rate savings each year, as well as substantial rate savings over the term of the agreement and both the City and Recology would benefit from stable, predicable costs.
City staff and R3 also discussed the option of proceeding with the DRR in 2026 and putting the Agreement out to an RFP. Recology has performed well under the current Agreement, based on the relatively minimal number of complaints received by the City. Financially, based on the recent outcomes in other Sonoma County jurisdictions, it was staffs‘ determination that this approach is not likely to lower rates for customers and may result in higher rates for customers.
It would also take a significant amount of staff time for what is most likely minimal or no resident benefit, as well as being disruptive to customers if the franchise were to change over to a new contractor.
The City also requested costs on an electric collection truck. However, this increased costs by about $2M over the term of the agreement when compared to the proposed agreement, so was not recommended for City Council consideration at this time.
Environmental Issues
Where it can be determined with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA review.
This general rule can be applied to activities which could be subject to the CEQA process, but which logic dictates should not be subject to CEQA review. Therefore, based on the information provided above, the proposed resolution is exempt from CEQA pursuant to Section 14.03.021 of the CEQA Guidelines in that there is no possibility that the activity may have a significant impact on the environment.