CITY OF SAN MATEO
CITY OF SAN MATEO
Agenda Report
City Hall
330 W. 20th Avenue
San Mateo CA 94403
www.cityofsanmateo.org
Agenda Number: 17 Section Name: {{section.name}} Account Number: 21-4678 File ID: {{item.tracking_number}} TO: City Council
FROM: Alex Khojikian, City Manager
PREPARED BY: Public Works Department
MEETING DATE: January 16, 2024
SUBJECT:
Solid Waste – 2024 Rate Setting and Proposition 218 Notification RECOMMENDATION:
Provide direction on whether to increase solid waste rates by $5, $6, or $7 per month for residential solid waste customers; increase commercial solid waste and organics collection rates; and authorize staff to mail a notice to all property taxpayers proposing a not-to-exceed increase in solid waste, recycling, and compost collection rates for 2024; and provide direction on the future approach to using the Solid Waste Fund reserves.
BACKGROUND:
The City’s Solid Waste Program (Program) includes waste diversion, compost/recycling education and outreach, special collection events, construction and demolition recycling plan processing, litter reduction programs, illegal dumping abatement, hazardous materials management, and ensures compliance with all county, regional, state, and federal regulations. Solid waste, recycling, and organics collection, processing, and disposal services are available to all residents and commercial businesses in the City of San Mateo. The City is one of eleven local jurisdictions who are part of the joint powers authority, South Bayside Waste Management Authority (SBWMA), which oversees various aspects of solid waste services and programming for all members.
Each year, Council approves the solid waste rates to cover the costs of the collection services provided by Recology San Mateo County (Recology); the processing and disposal services provided by South Bayside Industries, Inc. (SBI); the City’s portion of the costs of membership in our joint powers authority, SBWMA; and the City fees, which include the City’s solid waste program, street sweeping, litter reduction, and illegal dumping programs, trash capture device maintenance, and franchise fees. The City retains HF&H Consultants (HF&H) to assist in developing a rate structure to fund the cost of solid waste services.
In 2021, the City adopted a long-term plan for incremental adjustment to the residential solid waste rates to bring them into alignment over time with their true cost of service. A phased-in cost-of-service implementation plan was presented to City Council in May 2023 and staff received direction to continue to implement the plan. However, at that time, cost increases for collection services and processing and disposal were unknown, and not factored into the presentation. For 2024, the cost increases for collection, processing, and disposal services are significantly higher than the City has experienced in recent years.
For instance, collection costs in 2024 will increase 9% compared to 2023. Recology’s annual compensation is set by the exclusive franchise agreement between the City and Recology. The agreement was renewed in 2019 and will expire in 2035.
The agreement includes a methodology for allowable increases. These increases are due to high inflationary costs for labor, fuel, and other operating expenses, as well as increases in the number of drivers, additional routes, and route costs due to the increases in organics collection service mandated by Senate Bill 1383 (SB 1383), which requires all customers to have
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separate organic material collection services to keep organic materials out of the landfill. Recology’s annual compensation is reviewed and approved by the Board of Directors of the SBWMA.
Additionally, the processing and disposal fees in 2024 will increase 25% compared to 2023.A competitive bid process conducted by the SBWMA, which included review and approval by City representatives, chose a new operator for the Shoreway Environmental Center where all materials collected by Recology in the City of San Mateo are taken for processing before recycling or disposal. The new operator is SBI, who began as of January 1, 2024. The City has a representative on the Board of Directors of the SBWMA and the former City Finance Director was a member of the SBWMA Finance Committee who reviewed the franchise agreement renewal, and the SBI contract.
Due to uncertain times during the COVID pandemic, the City suspended rate increases for two years. While this was prudent action taken by the Council at the time, this has resulted in the need for higher rate increases for customers to make up the shortfall that has been created.
Maintaining rates at the 2023 level to meet the 2024 projected expenses would lead to an anticipated deficit of $3,880,569.
However, staff worked to lower the deficit to $1,769,277 to lessen the impact on customer rate increases. The proposed reduction is a result of the following actions:
$660,669 from a one-year deferral of Recology collection cost increases which will require City Council approval, at a future meeting, of the “Cap Carry Forward” option identified below.
$517,296 from a one-year reduction in processing and disposal fees from the use of SBWMA rate stabilization funds approved by the SBWMA in September 2023. This cost will need to be covered by San Mateo rate payers in the future- rates yet to be established.
$933,427 by suspending the City’s landfill closure fee and reducing the trash capture device fee to cover only maintenance of existing devices. The landfill closure fee is collected to provide funds to maintain the 3rd Street landfill as required by state mandate. The current balance in the fund is sufficient for current and proposed projects. The trash capture device fee has been collected to pay for the construction of trash capture devices required by a state mandate to reduce trash entering the San Francisco Bay to zero. Funding for current identified trash capture devices has been collected and a reduction in this fee is proposed to cover annual maintenance of the devices.
The collection, processing, and disposal fee reductions are temporary. Suspending collection of the landfill closure fee and trash capture device fee will need to be reviewed annually to fund future projects, if needed.
To establish 2024 customer rate increases, staff recommends the following terms of addressing the revenue shortfall:
1. Adopt the “Cap Carry Forward” option allowed under the City’s franchise agreement which will limit Recology’s compensation to a 5% increase from the previous year’s compensation. This will defer $660,669 of Recology’s compensation until 2025 without incurring interest in the City’s balancing account with Recology. If approved, staff will notify the SBWMA and Recology as required under the franchise agreement. The alternative would require an additional $660,669 to be raised through rates in 2024.
2. Raise the 20-gallon commercial cart rate by $2.85, as shown in Table A. No additional commercial rate increases are recommended because current commercial rates cover their costs. After this increase, all commercial cart rates will meet their true cost of service.
3. Remove the 25% discount on organics collection service subscription offered to all commercial accounts, which has been in place for many years. Under SB 1383, organics subscription is mandated so this incentive is not needed. Further, the current discounted rate does not cover the cost of the collection and processing. This change
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would increase all commercial organics rate, as shown in Table B.
4. Raise residential rates by $5.00, $6.00, or $7.00 per month based on the options presented in Tables C-E and in the chart below. The higher the 2024 rate City Council chooses will lead to lower annual increases in the following years if costs remain consistent with projections within the rate model. Depending on which option the Council authorizes, the Solid Waste Fund has sufficient reserves to reduce the impact on rate payers in 2024. However, the use of reserves acts only as a one-time rate relief as the revenue requirement remains the same going forward into future years.
Tables A and B below summarize the current and proposed 2024 commercial solid waste and organic collection rates, respectively. The subsequent Tables C-E summarize the current and proposed 2024 residential rate options. These rates include collection, processing, and disposal of garbage, recycling, and organics.
Table A – PROPOSED 2024 Commercial Solid Waste Rate Changes Size of Collection
Cart/Bin
2023 Current
Monthly Rate
Proposed 2024
Monthly Rate
Monthly
Difference
Commercial Cart Rates
20 Gallon Cart $25.49 $28.34 $2.85
32 Gallon Cart $37.18 $37.18 $0.00
64 Gallon Cart $64.26 $64.26 $0.00
96 Gallon Cart $94.47 $94.47 $0.00
Commercial Cart Rates
1 Yard $170.18 $170.18 $0.00
2 Yard $340.45 $340.45 $0.00
3 Yard $510.65 $510.65 $0.00
4 Yard $680.90 $680.90 $0.00
6 Yard $1,021.31 $1,021.31 $0.00
Table B – PROPOSED 2024 Commercial Organic Rate Changes Size of Collection
Cart/Bin
2023 Current
Monthly Rate
Proposed 2024
Monthly Rate
Monthly
Difference
Commercial Cart Rates
20 Gallon Cart $19.12 $28.34 $9.22
32 Gallon Cart $27.89 $37.18 $9.29
64 Gallon Cart $48.20 $64.26 $16.06
96 Gallon Cart $70.85 $94.47 $23.62
Commercial Cart Rates
1 Yard $127.63 $170.18 $42.54
2 Yard $255.33 $340.45 $85.11
3 Yard $382.99 $510.65 $127.66
4 Yard $510.68 $680.90 $170.23
6 Yard $765.98 $1,021.31 $255.33
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Table C – PROPOSED 2024 Residential Solid Waste Rate Changes ($5/mo. Increase) Size of Collection
Cart/Bin
2023 Current
Monthly Rate
Proposed 2024
Monthly Rate
Monthly
Difference
Residential Cart Rates
20 Gallon Cart $23.59 $28.59 $5.00
32 Gallon Cart $32.93 $37.93 $5.00
64 Gallon Cart $58.93 $63.93 $5.00
96 Gallon Cart $89.08 $94.08 $5.00
Table D – PROPOSED 2024 Residential Solid Waste Rate Changes ($6/mo. Increase) Size of Collection
Cart/Bin
2023 Current
Monthly Rate
Proposed 2024
Monthly Rate
Monthly
Difference
Residential Cart Rates
20 Gallon Cart $23.59 $29.59 $6.00
32 Gallon Cart $32.93 $38.93 $6.00
64 Gallon Cart $58.93 $64.93 $6.00
96 Gallon Cart $89.08 $95.08 $6.00
Table E – PROPOSED 2024 Residential Solid Waste Rate Changes ($7/mo. Increase) Size of Collection
Cart/Bin
2023 Current
Monthly Rate
Proposed 2024
Monthly Rate
Monthly
Difference
Residential Cart Rates
20 Gallon Cart $23.59 $30.59 $7.00
32 Gallon Cart $32.93 $39.93 $7.00
64 Gallon Cart $58.93 $65.93 $7.00
96 Gallon Cart $89.08 $96.08 $7.00
Balancing Account:
In accordance with the City’s franchise agreement, Recology maintains a balancing account which tracks the annual surplus or deficit between what Recology is owed and what the City collects from solid waste rates. Deficits increase the balancing account shortfall and are charged interest. City Council direction has been to keep the balancing account as low as possible to avoid excessive interest charges.
Because the City chose to forego solid waste rate increases in 2020 and 2021 in both residential and commercial sectors due to the pandemic, the City’s balancing account deficit with Recology is over $1 million in arrears. In March, staff will bring forward to the City Council, a resolution requesting authorization to remit payment from the Solid Waste Fund reserves in the approximate amount of $1 million to Recology to reduce the balancing account deficit. This will avoid accruing additional interest on the deficit, and the City will not need to pass interest charges onto rate payers.
Based on discussions with the Finance Department, the Solid Waste Fund has $6.3 million available for rate stabilization and to reduce the balancing account deficit. Beyond use of the recommendation for the $1 million above, staff is requesting Council direction on how to use these reserves in future years. Staff recommends that the Council consider strategically utilizing $4 million in Solid Waste Fund reserves, to be determined each year during the rate setting process, to help offset added costs for service and/or partially offset future rate increases over the next several years. Reserves are proposed to be used in this current year to pay the balancing account deficit as stated above.
Rate Setting Procedures:
While the courts have not ruled that Proposition 218 applies to solid waste collection rates from a franchise hauler, in an
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abundance of caution, the City has historically followed the “majority protest” proceedings set forth in Proposition 218.
Accordingly, with City Council’s direction, a public notification of the proposed maximum increase in solid waste rates will be mailed to property owners no later than February 1, 2024. The notification will instruct property owners wishing to submit a written protest that they must state the purpose of the letter; include the owner or customer’s name, service address, assessor’s parcel number, and the owner’s or customer’s signature for the property served; and mail the statement to the Office of the City Clerk. Statements of protest that include the above criteria will be accepted through the time of the public hearing currently scheduled for the March 18, 2024, City Council meeting.
At the end of the public hearing, the City Clerk will tally and report the qualifying written protests and the City Council will certify whether the written protests in opposition to the increase meet or do not meet the majority protest threshold. In accordance with Article XIIID, Section 6, of the California Constitution, a "majority protest" exists if written protests against the proposed fee or charge are presented by a majority of owners of the identified parcels. If a majority protest is not received, the City Council may then approve adoption of the increased rates. If a majority protest is received, the City cannot increase the rates and the rates will remain unchanged. New rates will be effective April 1, 2024.
BUDGET IMPACT:
The recommendation to authorize staff to mail a notice to all property taxpayers proposing a not-to-exceed increase in solid waste, recycling, and compost collection rates does not have a financial impact. If the proposed rate adjustments are approved, the Solid Waste Fund's revenues will increase toward the goal of aligning all rate classes with the costs of service.
ENVIRONMENTAL DETERMINATION:
This action by the City in setting the maximum rates to be charged by Recology San Mateo County relates to funding an on- going solid waste collection service and is not a project subject to CEQA, because it is a government fiscal activity which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. (CEQA Guidelines Section 15378(b)(4).)
NOTICE PROVIDED
All meeting noticing requirements were met.
ATTACHMENTS
Att 1 – Proposed Public Hearing Notification – 5 dollar Att 2 – Proposed Public Hearing Notification – 6 dollar Att 3 1 Proposed Public Hearing Notification – 7 dollar
STAFF CONTACT
Jack Johnson, Waste Management Supervisor
[email protected]
650-522-7346