DATE: November 20, 2023
TO: Mayor and Members of the City Council
VIA: Stefan Chatwin, City Manager
FROM: Andrew Brozyna, Public Works Director/City Engineer ‘Andra Lorenz, Principal Management Analyst
DEPARTMENT: Public Works
SUBJECT: CONSIDER APPROVING COLLECTION RATE INCREASES FOR
SOLID WASTE, RECYCLABLES, AND ORGANIC MATERIALS
FOR CALENDAR YEARS 2024 THROUGH 2028 AND FINDING
THAT THE CITY’S FRANCHISE FEES INCLUDED IN THE SOLID
WASTE RATES ARE JUSTIFIED
RECOMMENDATION
It is recommended that the City Council hold a Public Hearing to consider the proposed collection rates for solid waste, recyclables, and organic materials and, if a majority protest is not received, adopt the attached ordinance and resolution that will collectively:
1. Accept and adopt the HF&H Study attached as Exhibit A to the resolution and find and determine that the City’s franchise fees included in the solid waste rates are justified by the City’s costs of service and the value of City right of ways used for solid waste services;
2. Increase the 2023 monthly residential collection rates by no more than $5.40 per account in Rate Year 2024, $4.74 in Rate Year 2025, $4.98 in Rate Year 2026, $4.19 in Rate Year 2027 and $4.35 in Rate Year 2028; and
3. Increase 2024 charges for Unscheduled Services (optional services requested by customers above the base service level) by 5.465% over 2023, and annually thereafter based on actual indexed factors up to a maximum not to exceed 6.0% per year.
EXECUTIVE SUMMARY
During 2023, the City contracted with HF&H Consultants, LLC (“HF&H”) to review and analyze the solid waste rates and to review the City’s franchise fees to determine the amounts the City is entitled to charge for its solid waste related services and the use of its public rights of way for solid waste services. The HF&H Study is attached as Exhibit A to the resolution, providing the basis to find and determine that the City’s franchise fees included in the solid waste rates are justified by the City’s costs of service and the value of City right of ways used for solid waste services.
On October 2, 2023, the City Council considered collection rates for solid waste, recyclables, and organic materials for Rate Years 2024 through 2028. Per Minute Order No. 1942 (Attachment 3), the City Council directed staff to proceed with public notification procedures in accordance with Proposition 218 to increase residential Solid Waste rates for 2024 by no more than $5.40 per account over 2023 rates.
Further, the Proposition 218 notice provided for the approval of maximum increases of $4.74 in Rate Year 2025, $4.98 in Rate Year 2026, $4.19 in Rate Year 2027 and $4.35 in Rate Year 2028. Approving rates for a five-year period will allow for the planned and orderly implementation of rate adjustments over the term to ensure that revenue requirements are met and balances remain at acceptable levels. The Proposition 218 notice is attached to this report (Attachment 4).
Finally, an increase of 5.465% for 2024 over 2023 fees is required for Unscheduled Services, which are optional services provided to customers above the base service level upon customers’ request and paid by the requesting customer. In years 2025 through 2028, adjustments to Unscheduled Services fees will be based on actual indexed factors up to a maximum not to exceed 6.0% per year.
In previous years, the City has been able to approve rates by resolution. This year staff is recommending that the City Council approve 2024 rates by resolution and rates for years 2025 through 2028 by uncodified ordinance due to potential new requirements of the Taxpayer Protection and Government Accountability Act (“TPGAA”), which is an initiative that is on the statewide ballot in 2024 that, if adopted, will require all fees and rates to be adopted by ordinance. The rates for 2024 may be adopted by resolution because the TPGAA will not take effect until 12 months after the TPGAA is adopted, and therefore, will not impact 2024 rates.
BACKGROUND
The City of Foster City entered into a franchise agreement with Recology San Mateo County for collection of solid waste, recyclables, and organic materials effective January 1, 2011, and an Amended and Restated Franchise agreement that went into effect on January 1, 2021. The cost for the collection and disposal of solid waste, recyclables, and organic materials in a manner that complies with State law is paid through the rates by the customers receiving the services. The City Council annually approves rates to be charged for solid waste, recycling, and compost collection sufficient to cover the costs of the program.
ANALYSIS
The total annual revenue requirement for the solid waste and recycling program is calculated based upon the following components:
1. Collection Costs (Recology Compensation)
2. Disposal and Processing Costs (processing, disposal, commodity sales, and organics processing)
3. Shortfall/Surplus Fund Balances
An analysis of the Solid Waste program by the South Bayside Waste Management Authority (SBWMA) demonstrated that projected expenses will exceed projected revenue without a rate adjustment. Commercial rates are adequate to meet their cost of service, while residential rates need to be increased in order to meet the cost of service.
Therefore, the City’s rate consultant and City staff recommend that the City Council approve a five-year rate adjustment plan that judiciously uses the City’s positive balancing account to smooth in cost increases while increasing base residential rates by no more than $5.40 per account in Rate Year 2024. Setting these rates would utilize approximately $23,000 from the City’s positive balancing account in Rate Year 2024 with the remainder collected through rates. Note that the amount required from the balancing account in 2024 is lower than what was projected at the City Council meeting in October 2023, because of the release of one-time rate stabilization funds by the SBWMA.
If a $5.40 increase to residential rates is approved, Foster City’s rate for a 32-gallon container (the most commonly subscribed size) would increase from $27.52 to $32.92 per month, which is the second lowest among SBWMA member agencies compared to approved 2023 rates (Attachment 5).
Adoption of Five-Year Rates
Staff recommends that the City Council approve multi-year rates for a number of reasons.
First and foremost, approval of multi-year rates allows the City Council to make a plan on the use of the positive balancing account to smooth rates over the five-year term while fine tuning the alignment of rates between account types (i.e., residential and commercial). Secondly, approving multi-year rates reduces the costs, including staff time, associated with implementing annual Proposition 218 notice processes. Finally, approving multi-year rates allows for customers to plan their budgets over a longer term.
If the City Council does approve five-year rates, the consultant and staff recommend maximum increases per month per account of $4.74 in Rate Year 2025, $4.98 in Rate Year 2026, $4.19 in Rate Year 2027 and $4.35 in Rate Year 2028. The full list of proposed rates is included in the Proposition Notice shown as Attachment 4. This plan utilizes rate stabilization funds in each year, but leaves a positive balance through the five year term.
Finally, in addition to the base rates, the City annually approves fees for “on demand” services charged by Recology. Since these costs are charged on a usage basis and are paid for directly by the customers who request them, they are not included in Recology’s “base compensation.”
Per the Franchise Agreement, the contractor’s fees for Unscheduled Services are adjusted each year based on the cost to provide the service. For 2024 the calculated increase is 5.465%. In years 2025 through 2028, adjustments to Unscheduled Services fees will be based on actual indexed factors up to a maximum not to exceed 6.0% per year.
In accordance with the requirements of Proposition 218, if a majority of affected parcels (3,647 or more) file written protests, the proposed rate changes will not be approved. As of October 31, 2023, two (2) protests had been received. If fewer than 3,647 are received by the end of the public hearing, the City can proceed with approving the new base rates and rates for unscheduled services.
New Process – Adoption by Ordinance
In previous years, the City has been able to approve rates by resolution. This year staff is recommending that the City Council approve 2024 rates by resolution and rates for years 2025 through 2028 by uncodified ordinance. While the best practice is to approve all rates by resolution, the Taxpayer Protection and Government Accountability Act (“TPGAA”), which is an initiative that is on the statewide ballot in 2024 and, if adopted, will apply retroactively to any fees or rates adopted after January 1, 2022, requires all fees and rates to be adopted by ordinance. As such, the City Attorney has recommended adoption of the rates for years 2025 through 2028 by ordinance, in order to avoid having to readopt the rates in the event the TPGAA passes. The rates for 2024 may be adopted by resolution because the TPGAA’s prohibition on rates adopted by ordinance after January 1, 2022, will not take effect until 12 months after the TPGAA is adopted, and therefore, it will not impact 2024 rates. Moreover, the 2024 rates need to be adopted by resolution so that they can take effect by January 1, 2024. This is important because the ordinance process is lengthier and, if 2024 rates were adopted by ordinance, the rate recommendation would need to be adjusted to account for revenue collection that could not take place at the start of January 2024.
Fee Study Findings
During 2023, the City contracted with HF&H to review and analyze the solid waste rates and to review the City’s franchise fees to determine the amounts the City is entitled to charge for its solid waste related services and the use of its public rights of way for solid waste services. HF&H provided the City with a Memorandum analyzing the Proposed 2024 Solid Waste Rates on September 15, 2023 (“HF&H Study”), attached to the resolution as Exhibit A, which determined that the sum of the costs of service provided by the City in relation to solid waste services and the reasonable fee for the use of the City’s public rights of way for container placement was greater than the total, annual franchise fees included in the solid waste rates for each rate year from 2024 through 2028.
CEQA
The City Council’s action is not a project pursuant to CEQA Guidelines section 15378(b) (4) because the City is authorizing maximum rates to be charged to fund on-going solid waste collection and processing services and as such, the action involves a funding mechanism or fiscal activity within the meaning of the CEQA Guidelines.
FISCAL IMPACT
Solid waste collection service costs in Foster City are covered by the solid waste rates paid by residents and businesses. The costs of these services do not impact the City budget or the General Fund.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Innovation and Sustainability
City Council Operations and Improved Community Engagement
ATTACHMENTS
Attachment 1 – Uncodified Ordinance
Ordinance Exhibit A – 2025-2028 Base Rates
Attachment 2 – Resolution
Resolution Exhibit A – HF&H Study
Resolution Exhibit B – 2024 Base Rates
Attachment 3 – Minute Order No. 1942
Attachment 4 – Notice of Intent to Increase Collection Rates for The Rate Year 2024 For Solid Waste, Recyclables, And Organic Materials Collection in The City of Foster City (Proposition 218 Notice)
Attachment 5 – Comparison of Current Rates of SBWMA Agencies Attachment 6 – Mailing Confirmation