TO: HONORABLE MAYOR
AND CITY COUNCIL
FROM: Jeff Provenzano
SUBJECT: Republic Services Solid
Waste Rates
DATE: April 21, 2025
Approved
Date:
4/29/25
COUNCIL DISTRICT: Citywide
RECOMMENDATION
(a) Conduct a Public Hearing to confirm that the proposed Maximum Commercial Solid Waste Services Rates for Fiscal Year 2025-2026 are consistent with the terms of the Commercial Solid Waste and Recyclable Materials Collection Franchises Agreement between the City of San José and Allied Waste Services of North America, LLC, dba Republic Services.
(b) Adopt a resolution increasing the Maximum Commercial Solid Waste Services Rates in the City of San José for Fiscal Year 2025-2026 by 3.27 percent pursuant to the Commercial Solid Waste and Recyclable Materials Collection Franchises Agreement between the City of San José and Allied Waste Services of North America, LLC, dba Republic Services, including the total costs for organics processing services.
SUMMARY AND OUTCOME
Approval of the recommendation will increase the maximum commercial solid waste service rates for Fiscal Year 2025-2026 by 3.27 percent.
BACKGROUND
Allied Waste Services of North America, LLC dba Republic Services (Republic Services) has an exclusive franchise agreement with the City of San José (City) to provide solid waste collection and processing services to the commercial sector COUNCIL AGENDA: 5/13/25
FILE: 25-491
ITEM: 6.3
HONORABLE MAYOR AND CITY COUNCIL
April 21, 2025
Subject: Republic Services Solid Waste Rates
(Franchises Agreement)1. The Franchises Agreement was amended and restated and has a term end date of June 30, 2032. The City also has an agreement with Zero Waste Energy Development Company (ZWED) to provide organics processing services for the organics collected under this system.
Republic Services’ Commercial Solid Waste collection program, which serves approximately 8,000 business accounts citywide, was designed and is required to ensure collected waste is processed and recycled to its highest and best use. Waste is separated into three categories: 1) Wet or organic material such as food waste or plant trimmings; 2) Dry material such as mixed non-organic garbage and recyclables; and 3) Customized source separated recycling material such as cardboard, paper, or glass.
Customers choose the bin type(s) that work best for their business and are provided consistent rates across the City, access to a service representative who provides ongoing technical assistance, and online access to billing and service data. The system also provides the City and businesses the opportunity to comply with statewide recycling and organics diversion requirements.
Under San José Municipal Code Section 9.10.1695 and the Franchises Agreement, Republic Services may apply for an adjustment to the maximum commercial solid waste services rates once per year. Under the San José Municipal Code, any request to adjust the existing maximum service rates must be in accordance with the application process, methodology, and other factors specified in the Franchises Agreement. The City Council may also conduct a public hearing to confirm that the proposed maximum service rates are consistent with the terms of the Franchises Agreement. The franchisee must provide all customers with advance written notice of changes to the maximum customer service rates at least 30 calendar days prior to the effective date of change.
Customer service rates vary based on the material type collected, container type and size, and frequency of collection. The rates are set and adjusted each year to satisfy Republic Services’ annual revenue requirement under the Franchises Agreement, which is the dollar amount needed to fund the cost of operations, including collection equipment and labor, recyclables processing equipment and labor, compensation to ZWED for organics processing service, and payment of Government Fees (Franchise Fees and Source Reduction and Recycling Fees) to the City. Per the Franchises Agreement, the revenue requirement also allows Republic Services to calculate its profit for the coming rate year by dividing the anticipated total annual cost of operations for the coming rate year by a set operating ratio and subtracting the same total annual cost of operations from the result. City staff reviews the commercial solid waste service rates application for accuracy and verifies the numbers against the monthly reports submitted by Republic Services.
1 Republic has a franchise to conduct commercial solid waste services in both geographic collection districts, North and South, effectively giving them a citywide franchise.
HONORABLE MAYOR AND CITY COUNCIL
April 21, 2025
Subject: Republic Services Solid Waste Rates
Section 10.4 of the Franchises Agreement allows for two rate adjustment methods:
index-based or cost-based. Section 10.4.2 of the Franchises Agreement allows the City to request a cost-based rate adjustment at any of the following times: 1) in any year where the index-based adjustment results in an increase greater than six percent net of Organics Processing Fee, Government Fee, changes in law, or City-directed scope of work changes; 2) upon request during rate year 16; or 3) at any time when the City desires to use its one-time option. The City opted to use this one-time option for rate year 13, 2024-2025. The index-based adjustment involves various cost adjustment factors such as the percentage change in the Consumer Price Index – for urban wage earners and percentage change in the Organics Processing Fee paid to the organics processing contractor to calculate the new revenue requirement and new maximum service rates. During the index-based adjustment process, changes are made to calculated costs of the then-current year. Adjustments are not made to reflect actual costs, actual changes in wages and benefits, actual changes in customer account data and service levels, or other actual changes. The total increase to maximum service rates in any given year may not exceed six percent; provided, however, this six percent cap shall not apply to the extent the maximum service rates are increased due to increases in the Organics Processing Fee, Government Fees (Franchise Fees and Source Reduction and Recycling Fees), changes in law, or City-directed changes in Franchisee’s scope of work.
The adjustment methodologies are designed to protect both the customers and the Franchisee by limiting the annual increase allowed and ensuring Republic Services is compensated appropriately as operating expenses fluctuate from year to year. Both the Franchises Agreement and the City’s agreement with ZWED include annual inflationary adjustments.
ANALYSIS
Pursuant to Section 10.4.1 of the Franchises Agreement, the index-based adjustment method must be used for this rate year 14 (July 1, 2025-June 30, 2026). The United States Bureau of Labor Statistics Consumer Price Index data from October 31, 2023 through November 1, 2024 is being used to calculate Rate Year 14 rates. Republic Services proposed a 3.24 percent increase for Rate Year 14 commercial service rates to satisfy its proposed annual revenue requirement of $87,620,592. Staff performed a review of the documentation provided by Republic Services and found that Republic had a slight discrepancy in the annual tons delivered to ZWED (facility where organic material is delivered by Republic Services) based on reports provided to the City, which resulted in an increase of the total tons delivered by 3,895. Staff also reviewed the allocation calculation of non-San José ZWED tons and had to recalculate the allocation to exclude tons incorrectly attributed to San José. Due to these adjustments, staff revised the total rate adjustment to 3.27 percent.
HONORABLE MAYOR AND CITY COUNCIL
April 21, 2025
Subject: Republic Services Solid Waste Rates
The proposed maximum rates, effective July 1, 2025, are detailed in the resolution accompanying this memorandum. In addition to collection services, the 3.27 percent rate increase impacts all associated commercial rates, including bin cleaning, bin locks, pushing and pulling containers into a serviceable position by the truck drivers, and delivery of containers. In accordance with ZWED’s agreement and the Franchises Agreement, the resolution also includes a cost-of-living adjustment of 2.85 percent to the rates paid to ZWED by Republic Services for organics processing, as allowed in ZWED’s agreement.
For rate year 14, the annual revenue requirement amount is proposed at $87,644,032.00. Of this amount, $35,981,594.00 is for Republic Services’ operations and applicable cost of living adjustments, which comprises 1.57 percent of the total rate adjustment for rate year 14. The Newby Island Resource Recovery Park Processing Cost is proposed at $11,076,690.00, an increase of $357,365.00 from the previous year and is 0.42 percent of the total rate adjustment for 2025-2026. The ZWED portion of the revenue requirement is $19,783,634.00, an increase of $548,022.00 from the previous year, representing 0.65 percent of the increased rate, which covers the cost of anaerobically digesting the organic material. Additionally, Direct Disposal Costs are proposed at $1,373,851.00, an increase of $105,325.00 from the previous year and is
0.12 percent of the total rate adjustment.
Government fees equaling $19,428,263.00 include a Franchise Fee of $15,028,263.00 to the General Fund and a Source Reduction and Recycling Fee of $4,400,000.00 to the Integrated Waste Management Fund. The Franchise Fee is charged to Republic Services for use of City property in providing solid waste services in both San José’s North and South Service Districts; it funds services in the General Fund and may be adjusted each year based on the Consumer Price Index. The Source Reduction and Recycling Fee funds several City functions related to the implementation of the City’s Integrated Waste Management Plan including oversight, administration, and enforcement of the City’s commercial solid waste system; a portion of ZWED residue disposal; and targeted commercial sector waste diversion programs, including technical assistance for recycling and outreach. The Source Reduction and Recycling Fee may be adjusted each year based on the operating needs of the City and is set at $4,400,000 for 2025-2026, as shown in the 2025-2026 Proposed Fees and Charges Report. Overall, the Government Fees portion of the rate increase will be adjusted by $430,631, which comprises 0.51 percent of the total rate adjustment for 2025-2026.
The table below summarizes the components of the overall increase of 3.27 percent for 2025-2026.
HONORABLE MAYOR AND CITY COUNCIL
April 21, 2025
Subject: Republic Services Solid Waste Rates
Adjustment 2024-2025 Annual Change 2025-2026 Rate Impact Republic Costs of
Operations $34,649,026.00 $1,332,568.00 $35,981,594.00 1.57% Newby Island
Resource
Recovery Park
Processing Costs $10,719,325.00 $357,365.00 $11,076,690.00 0.42% Organics
Processing Fee $19,235,612.00 $548,022.00 $19,783,634.00 0.65% Government Fees $18,997,632.00 $430,631.00 $19,428,263.00 0.51% Direct Disposal
Costs $1,268,526.00 $105,325.00 $1,373,851.00 0.12% Total Revenue
Requirement $84,870,121.00 $2,773,911.00 $87,644,032.00 3.27%
Following the recommended rate increase, the City’s commercial solid waste rates will remain lower than average compared to rates charged elsewhere in the San Francisco Bay Area. The Attachment – Rate Comparison of Nearby Cities - compares San José’s proposed maximum rates for two common service levels with the 2024-2025 rates from nearby jurisdictions. Most neighboring cities will be proposing an increase of their commercial rates (available in May 2025).
EVALUATION AND FOLLOW-UP
The Commercial Solid Waste Franchise Fee and Source Reduction and Recycling Fee are included in the 2025-2026 Proposed Operating Budget, which is scheduled to be released on May 1, 2025, and the 2025-2026 Proposed Fees and Charges Report, which is scheduled to be released on May 2, 2025.
COST SUMMARY/IMPLICATIONS
It is estimated that the Commercial Solid Waste rate increase will generate approximately $19,428,263 in revenue for the City, which includes approximately $4,400,000 from Source Reduction and Recycling Fees in the Integrated Waste Management Fund and $15,028,263 from the Franchise Fees in the General Fund. The additional revenue has been assumed in the 2025-2026 Proposed Operating Budget in the Integrated Waste Management Fund and the General Fund. Proposed increased revenue will fund increased costs related to management and administration of the Franchises Agreement and associated service agreements for the Commercial Solid Waste program that have increased due to inflation and cost of living increases.
HONORABLE MAYOR AND CITY COUNCIL
April 21, 2025
Subject: Republic Services Solid Waste Rates
COORDINATION
This memorandum has been coordinated with the City Attorney’s Office and City Manager’s Budget Office.
PUBLIC OUTREACH
Republic Services is required to notify all customers in writing of the rate change at least 30 days before the effective date.
This memorandum will be posted on the City’s Council Agenda website for the May 13, 2025 City Council meeting.
COMMISSION RECOMMENDATION AND INPUT
No commission recommendation or input is associated with this action.
CEQA
Statutorily Exempt pursuant to CEQA Guidelines Section 15273, File No. PP17-005, Adjustments to Fees, Rates and Fares without expansion of services.
PUBLIC SUBSIDY REPORTING
This item does not include a public subsidy as defined in Section 53083 or 53083.1 of the California Government Code or the City’s Open Government Resolution.
/s/
Jeff Provenzano
Director, Environmental Services
The principal author of this memorandum is Valerie Osmond, Deputy Director, Environmental Services Department. For questions, please contact [email protected] or (408) 535-8557.
ATTACHMENT: Rate Comparison of Nearby Cities
ATTACHMENT - Rate Comparison of Nearby Cities
Two common commercial container sizes and prices from several Santa Clara County and nearby cities are shown in the table below. Services included with these rates vary from city to city. Not all cities’ rate increases were available as of the date of this memorandum.
Rates are from July 1, 2024 to June 30, 2025 (unless otherwise stated).
City 3 Cubic Yard
Container
Collected Once
Per Week (monthly
rate)
City 40 Cubic
Yard
Container
(per
collection)
San José Current $272.71 Monte Sereno*** $646.05
San José
Proposed
(Effective July 1,
2025)
$281.63 Los Gatos*** $647.65
Fremont* $283.62 Campbell*** $654.06
Milpitas** $342.37 Saratoga*** $669.57
Mountain View $412.70 Santa Clara $1,054.40
Gilroy $425.87 Fremont* $1,103.89
Palo Alto $437.20 San Jose Current $1,105.35
Santa Clara $444.92 Morgan Hill $1,117.91
Campbell $464.32 Los Altos‡ $1,120.37
Morgan Hill $485.58 San José Proposed
(Effective July 1,
2025)
$1,141.49
Sunnyvale $518.45 Gilroy $1,197.46
Los Gatos $568.76 Palo Alto $1,227.59
Los Altos‡ $603.25 Sunnyvale $1,525.75
Monte Sereno $671.90 Cupertino† $1,535.50
Saratoga $681.37 Milpitas** $1,583.21
Cupertino†^ $786.29 Mountain view $1,661.00
* From January 1, 2025 to December 31, 2025
** From March 1, 2025 to December 31, 2025
*** Cities under the West Valley Solid Waste Management Authority adopted a new rate structure for the 40 Cubic Yard Container in Fiscal Year 2024-2025 which includes a base rate plus a $57.31 per ton disposal/processing charge.
The cost listed in this table is only for the base rate and does not include the additional per ton charge.
† From February 1, 2025 to January 31, 2026
^ Garbage, Recycling, and Organics services are bundled ‡ Includes appropriate level of recycling and organics for no additional charge