CITY OF POMONA
COUNCIL REPORT
December 5, 2022
To: Honorable Mayor and Members of the City Council
From: James Makshanoff, City Manager
Submitted by: Rene Guerrero, Public Works Director
Subject: SECOND READING and adoption OF ORDINANCE no. 4323 AWARDING an exclusive franchise agreement to arakelian enterprises, inc. dba athens services for RESIDENTIAL AND COMMERCIAL SOLID WASTE, RECYCLABLE MATERIALS, AND ORGANIC WASTE COLLECTION SERVICES Recommendation:
It is recommended that the City Council adopt the following ordinance:
ORDINANCE no. 4323 - AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF POMONA, california, AWARDING an exclusive franchise agreement to arakelian enterprises, inc. dba athens services for RESIDENTIAL AND COMMERCIAL SOLID WASTE, RECYCLABLE MATERIALS, AND ORGANIC WASTE COLLECTION SERVICES DISCUSSION:
Ordinance No. 4323 was first introduced at the November 21, 2022 City Council meeting (Attachment No. 1). Adoption of Ordinance No. 4323 (Attachment No. 2) will award an exclusive franchise agreement (Attachment No. 3) to Athens Services for residential and commercial solid waste, recyclable materials, and organic waste collection services for an initial 10-year term beginning July 1, 2023, with two optional 5-year renewals.
The ordinance will take effect 30 days after its adoption on December 5, 2022.
FISCAL IMPACT:
The Refuse Fund currently shows appropriations of $13M and revenues of $11.5M. With the award of an exclusive franchise agreement to Athens Services, a majority of the Refuse Fund revenues and expenditures will be eliminated, excluding certain costs that will remain and be absorbed by other City Operating funds. These other City Operating funds include the General Fund ($1.1M) and Non-General Funds, such as the Water Fund, Sewer Fund, and several City Special Revenue Transportation Funds (totaling $1.1M). However, the City will realize additional justified revenues that will offset the remaining costs and net additional revenues. Residential rates proposed by Athens Services are at $35.50 in 2023, compared to the projected 2023 City rate of $35.78 (8% CPI) in January 2023. Details of the fiscal impact are further described below:
Table 1 – Outsource Residential and Commercial Services:
As detailed in Table 1 above, the General Fund is projected to receive $5.4M in revenue. Continuing refuse-related expenses are projected to be $1.1M. When you add the projected offset in street sweeping services, we project that the General Fund would net an estimated $4.4M surplus. Compared to the current Fiscal Year (FY) 2022-23, the General Fund is projected to receive $3.6M in Franchise Fee revenue from refuse haulers, so the new projections actually show that the General Fund would net an annual increase of $770k. Furthermore, the City will receive one-time revenues of $1.25M from the sale of City refuse equipment (trucks and containers), reimbursement of $800k for street sweeping signage, and $250k for procurement reimbursement.
Table 2 – In-House Residential Services
If residential refuse services remain in-house, as reflected in Table 2 above, the costs to operate the fund would need to rely on available Refuse Fund reserves, which currently are estimated at $7.6M. This available reserve is not able to sustain the Refuse Fund in the long term, requiring assistance from the General Fund to continue to operate. The General Fund has been able to maintain a healthy reserve above the Policy requirement of 17% for the last several years. Per the 10-year forecast (provided by Urban Futures, Inc.), that was discussed with the City Council in April 2021, a fiscal cliff could occur with the sunset of the Measure PG Sales Tax Measure in 2029. As such, the General Fund should not be relied on to mitigate the Refuse fund. To avoid this, the residential rates charged to residents would need to be substantially increased between 45%-50% in 2023 ($48-$50 per month) to fill vacant and new positions, provide funding for new trucks, carts, and containers, as well as, to address SB1383 mandates.
It is important to compare the proposed residential rates between the outsourcing of residential and commercial services versus in-house residential services. Table 3 below shows a monthly rate comparison between the two options over the next 10 years. The City monthly rate begins at $48 per month (the minimum necessary rate increase for in-house services) with a forecasted average increase of 2.9% each year. At Year 10, the forecasted monthly rate will be $63.88. The 2.9% is the average Trash CPI over the last 10 years, but it should be noted that the anticipated Trash CPI for 2023 is 8%.
For the outsourcing of residential and commercial services, Athens is proposing a rate of $35.50 per month for 2023. The negotiated Franchise Agreement provides for predictable and stable rate adjustments by using the Trash CPI with a 3% floor and 5% cap. If using an average 4% CPI, the expected monthly rate at Year 10 will be $52.55. Annual CPI rate adjustments will begin in July 1, 2024.
Table 3 – Rate Comparison
Prepared by:
_______________________
Rene Guerrero
Public Works Director
ATTACHMENTS:
Attachment No. 1 – Staff Report No. 22-1855 dated November 21, 2022 Attachment No. 2 – Proposed Ordinance No. 4323
Attachment No. 3 – Franchise Agreement
Ordinance Awarding an Exclusive Franchise Agreement for Residential and Commercial Solid Waste, Recyclable Materials, and Organic Waste Collection Services