Agenda Item
City Council
Item #: 9.1. 1/9/2024 File #: 23-0797
TO: Honorable Mayor and Members of the City Council
THRU: Tom Kisela, City Manager
FROM: Christopher Cash, Public Works Director
1. SUBJECT
Public Hearing to consider a Resolution approving an amended and restated Solid Waste Franchise Agreement between the City of Orange and CR&R, Inc. to establish solid waste rates; and finding of CEQA exemption.
2. SUMMARY
The City of Orange continues to navigate the most rigorous solid waste landscape in California history. The proposed amended and restated Franchise Agreement enhances and expands services to meet unfunded State requirements placed on the City of Orange. The amended and restated contract also provides services that are consistent with common municipal solid waste franchises.
The proposed rate adjustment aligns within the median of similar rates with other north Orange County cities. Proposition 218 notices for this public hearing were mailed in November 2023 to residents and businesses pursuant to Section 53755 of the Government Code.
3. RECOMMENDED ACTION
1. Conduct and close Public Hearing.
2. Adopt Resolution No. 11518. A Resolution of the City Council of the City of Orange approving an amended and restated integrated solid waste management and street sweeping services agreement with CR&R Incorporated.
3. Approve a Franchise Agreement with CR&R. Inc. for solid waste collection services for 10 years beginning February 1, 2024, with one optional five-year extension; and authorize the Mayor and City Clerk to execute on behalf of the City.
4. Allow the City Manager to make minor changes to the Franchise Agreement with CR&R, Inc. prior to execution that are clerical in nature or minor adjustments necessary to effectuate the intent of the Franchise Agreement.
5. Find that the proposed Franchise Agreement is categorically exempt from the provisions of the California Environmental Quality Act (CEQA) per State CEQA Guidelines 15061(b)(3) (Common Sense Exemption) and 15308 (Class 8 Exemption).
4. FISCAL IMPACT
The projected revenue in the first year of the contract is approximately $8.1 Million for road mitigation payment and various administrative costs. The projected revenue for road mitigation payment and administrative costs for the second through tenth year is approximately $2.1 Million, per year, City of Orange Printed on 1/4/2024Page 1 of 6
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Item #: 9.1. 1/9/2024 File #: 23-0797
adjusted annually by the consumer price index.
5. STRATEGIC PLAN GOALS
Goal 2: Be a fiscally healthy community
b: Analyze future fiscal needs and potential revenue opportunities.
Goal 4: Provide outstanding public service
b: Provide facilities and services to meet customer expectations.
6. DISCUSSION AND BACKGROUND
Introduction
CR&R Inc. (CR&R) has served the solid waste needs of the City since 2009. Pursuant to Public Resources Code Section 40059, the City may provide for the collection and disposal of solid waste either by providing the service itself or by contracting out all or part of the service or by a permit system. The City’s current exclusive Franchise Agreement for solid waste collection with CR&R began on January 1, 2020, and is set to terminate on June 30, 2025. The current contract provides basic solid waste services under a rate schedule that is increasingly difficult for the franchise hauler to sustain economically. High labor costs, expensive equipment and capital requirements, and increasingly stringent and difficult regulatory demands all severely impact the solid waste marketplace in California. While the City of Orange continues to negotiate some of the lowest solid waste rates in the County, we also recognize that our rates have been historically low and that the contract does not provide many of the terms and services that are commonplace in other municipal solid waste contracts. Additionally, rates have not been sufficient to ensure the financial certainty needed for stabilizing rates in the long term and ensuring that the contractor can make long term commitments for labor and equipment needed to provide quality service. These commitments are important to improve and maintain reliable and consistent service. Newer solid waste contracts that have been negotiated in neighboring cities such as Santa Ana, Anaheim, and Tustin have confirmed the difficult economics of our current rate structure and highlighted various services that have not been provided in earlier contracts.
The proposed amended and restated agreement would take effect on February 1, 2024, and would run for ten years from February 1, 2024, to January 31, 2034, with one optional five-year mutually agreed upon extension. Long-term contracts are common for municipal solid waste services due to the high capital cost and the logistics of solid waste service. The proposed initial rate adjustment would be effective February 1st with the next scheduled rate adjustment not taking place until July 1, 2025. The amended and restated agreement includes the following notable terms:
· Indemnification clauses, restated, protecting the City on these State solid waste mandates: AB 341, AB 1826, AB 1594, and SB 1383. This ensures CR&R provides protection for the City avoiding the potential fines of $10,000 per day for noncompliance with SB 1383. · CR&R ensures that the City shall meet the procurement requirements in SB 1383 in the form of compost, mulch, and recycled natural gas for vehicles. · Provides three full-time compliance coordinators tasked with assisting businesses with solid waste compliance of SB 1383 until compliance is reached. · Provides a one-time payment of $6,000,000 for retroactive road mitigation repairs. · Provides annual street pavement mitigation funding of approximately $2,000,000 adjusted by City of Orange Printed on 1/4/2024Page 2 of 6
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Item #: 9.1. 1/9/2024 File #: 23-0797
Consumer Price Index (CPI) annually.
· Addition of four solid waste collection events and an additional second compost giveaway annually.
· Expanded edible food recovery services to maintain compliance with SB 1383. · Provides additional bulky item collection opportunities for all residential customers at no extra charge. In addition, commercial customers shall receive an initial amount of bulky item collection at no extra charge. Previously, commercial customers were charged for all bulky item collection services.
· Provides customers with an online platform to accept service requests. · Additional quality assurance measures on CR&R’sequipment and the ability for customers to request a refund for missed service.
· Youth programs focusing on recycling will be offered at public locations such as the City’s libraries.
At the time the current contract was adopted, revisions in California’ssolid waste legislation, SB 1383, were still being finalized. This Franchise Agreement ensures that the City remains compliant with this unfunded State mandate. There are currently four mandates that are not funded by the State, so costs must continue to be funded through solid waste rates charged to residential and business customers. They are as follows:
· AB 341: Mandatory Commercial Recycling (AB 341)
· AB 1826: Mandatory Commercial Organics Recycling (AB 1826) · AB 1594: Green Material Used as Alternative Daily Cover (AB 1594) · SB 1383: Short-Lived Climate Pollutants: Organics Waste Methane Emissions Reductions (SB 1383)
The current contract also does not provide for many of the additional services that are commonplace in most solid waste contracts in our neighboring cities. Under the amended and restated contract, expanded services include more frequent access to large item disposal for residential, multi-family, and commercial customers to reduce dumping to keep up with demand and improve cleanliness of our public spaces.
The proposed amended and restated contract also includes support for infrastructure damage caused by solid waste trucks. Utilizing methodology (see attached memo) to determine the level of pavement deterioration caused by solid waste trucks, an impact cost was established to reimburse the City for costs related to pavement damage. Under the proposed amended and restated contract, CR&R would provide a one-time payment of $6.0 million towards retroactive pavement damage and would also provide an on-going annual payment of approximately $2.0 million towards mitigating on- going damage. The annual payment would then be adjusted by the CPI annually.
Solid Waste Rates
The amended and restated Franchise Agreement includes proposed rates that will remain at the median or below, comparable northern Orange County solid waste rates and are guaranteed City of Orange Printed on 1/4/2024Page 3 of 6
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Item #: 9.1. 1/9/2024 File #: 23-0797
median or below, comparable northern Orange County solid waste rates and are guaranteed effective from the term of the Franchise Agreement. These cities include Anaheim, Brea, Fullerton, Garden Grove, Irvine, Placentia, Santa Ana, Tustin, Villa Park, and Yorba Linda. This guarantee remains effective for the life of the Franchise Agreement. The following are lists of those cities’rates for residential (3-cart system) and commercial (3-yd bin serviced once per week):
City Residential Rate City Commercial Rate
Irvine $17.87 Orange (Current) $93.63
Tustin $19.06 Irvine $140.47
Orange (Current) $20.56 Tustin $150.74
Orange (Proposed) $24.93 Brea $176.81
Santa Ana $24.94 Orange (Proposed) $183.69
Brea $25.28 Villa Park $183.70
Fullerton $26.29 Yorba Linda $189.55
Garden Grove $27.29 Santa Ana $203.49
Anaheim $27.78 Anaheim $206.17
Yorba Linda $31.35 Garden Grove $206.98
Villa Park $37.47 Placentia $210.19
Placentia $37.85 Fullerton $212.12
The amended and restated Franchise Agreement ensures city residents and businesses are compliant with State Law by expanding and enhancing required services. As the State will not assist in funding these services, the waste rates must be adjusted to facilitate the funding of those services.
In the amended and restated Franchise Agreement, single-family and multi-family dwellings with cart service will continue to be charged a base rate, which includes a refuse cart, a recycling cart, and an organics waste cart. Customers may continue to choose to take additional carts for an additional surcharge or select a reduced cart size with a reduced rate. Commercial customers and multi-family dwellings with bin service are charged a monthly rate based on the number and size of bins, and the number of weekly pickups.
The amended and restated Franchise Agreement includes a clearly defined formula for adjusting the rates for inflation in labor, fuel, vehicle, insurance, and other operating costs, as well as adopted increases in the wholesale cost of disposal. Each rate adjustment includes an annual CPI adjustment represented over a twelve-month period. If approved, the initial rates will go into effect on February 1, 2024. The residential and commercial rates will be automatically adjusted each year on July 1, starting on July 1, 2025, over a period not to exceed five years based on the defined formula pursuant to Section 53756 of the Government Code.
Commercial Rates-Phased in Option
As an alternative option to the proposed commercial rates, a phased-in approach may be taken.
Rather than a single year adjustment, the commercial rates would be adjusted over two years. The first adjustment on February 1, 2024, would be 50% of the proposed single year adjustment with the remaining 50% being implemented on the second adjustment on July 1, 2025. In this alternate adjustment methodology, the commercial rates would remain the lowest of the northern nearby cities in the first adjustment but then on the second adjustment, commercial rates would be near the City of Orange Printed on 1/4/2024Page 4 of 6
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Item #: 9.1. 1/9/2024 File #: 23-0797
in the first adjustment but then on the second adjustment, commercial rates would be near the median. The table below highlights the proposed adjustments. Note that the rate for the second adjustment does not include the future CPI adjustment.
City Commercial Rate
Orange (Current) $93.63
Orange (Proposed-Year 1) $138.66
Irvine $140.47
Tustin $150.74
Brea $176.81
Orange (Proposed-Year 2) $183.69
Villa Park $183.70
Yorba Linda $189.55
Santa Ana $203.49
Anaheim $206.17
Garden Grove $206.98
Placentia $210.19
Fullerton $212.12
Should the two-year phase in for commercial rates be implemented, there will also be a two-year phase in of the retroactive road mitigation payment of $3.0M per year. The annual road mitigation payment will also drop to $1.0M in the first year, and then increase to the projected $2.0M per year for the remaining term of the contract.
Enhanced Quality Control
As part of the amended and restated Franchise Agreement, the City wanted to ensure that there would be enhanced quality control measures in place to improve solid waste services in Orange. The contract provides for the assessment of liquidated damages if service is not provided in accordance with the contract. Liquidated damages can be a mechanism used by the City to penalize CR&R. In prior contracts, multiple occurrences were required before liquidated damages could be assessed.
The amended and restated contract reduced the liquidated damages frequency to a single occurrence. Additionally, we have provided more specificity as to how services are to be delivered with the understanding that liquidated damages can be assessed for single instances such as missing a pick-up, failing to start sweeping during no parking periods, driving too fast, or other service delivery failures. There are also provisions in the contract to allow customers to request refunds should there be a lack of service from CR&R as the residents and businesses are paying directly for these services.
Recently, new sweeping equipment has been used within the City and with such an upgrade, cleaning and route efficiency have improved. The new economics of this contract will allow for further replacement of solid waste equipment and improved vehicle maintenance for the length of the Franchise Agreement. With new services required by the State, alternatively configured solid waste vehicles are needed for new routes. There are also additional quality control provisions that accompany the contract. For example, there will be vehicle inspections by a third-party to assist with ensuring vehicle safety and reducing the risk of potential leaks. All vehicles, both sweeping and solid City of Orange Printed on 1/4/2024Page 5 of 6
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Item #: 9.1. 1/9/2024 File #: 23-0797
ensuring vehicle safety and reducing the risk of potential leaks. All vehicles, both sweeping and solid waste, shall be equipped with fluid monitoring systems. This monitoring system would alert the driver immediately should a hydraulic or oil leak occur. A concurrent alert will also be sent to the operations manager to reduce the response time on cleanup efforts and to the Fleet Manager so a repair crew can be dispatched. This should minimize the impact of unforeseen leaks, should one occur, and mitigate route delays.
Conclusion
Upon approval of the amended and restated Franchise Agreement, CR&R will proceed with the enhanced civic programs and expanded support of city programs and services on February 1, 2024.
There is planned outreach and education to accompany the finalization of the Franchise Agreement.
This amended and restated Franchise Agreement will ensure stability and quality assurance for both residences and businesses for the next decade while also maintaining the City’scompliance with the State’s unfunded mandates.
7. ENVIRONMENTAL REVIEW
The California Environmental Quality Act, contained at Section 21000, et. seq. of the California Public Resources Code (“CEQA”)requires analysis of agency approvals of discretionary “projects.”A “project,”under CEQA, is defined as “the whole of an action, which has a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment.” Approval of the amended and restated Integrated Solid Waste Management and Street Sweeping Agreement (“Agreement”)is exempt from CEQA for the following reasons: (i) Section 15061(b)(3) of the State CEQA Guidelines (Common Sense Exemption) because it can be seen with certainty that there is no possibility that the continuation of the services provided for in the Agreement would have a significant effect on the environment; and (ii) Section 15308 of the State CEQA Guidelines (Class 8 Exemption) because continuation of the services provided for in the Agreement contains several regulatory mandates for complying with state law regarding the disposal of solid waste in a manner that ensures the protection of the environment. For these reasons, no further CEQA documentation is required.
8. ATTACHMENTS
· Resolution No. 11518
· Solid Waste Franchise Agreement between the City of Orange and CR&R Environmental Services, Inc.
· Solid Waste Rates Schedule 2024
· Memo CR&R Road Mitigation Impact Payment
City of Orange Printed on 1/4/2024Page 6 of 6
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