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HomeMy WebLinkAboutItem B: Solid Waste Collection/Fee Structure ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Work Session: Solid Waste Collection/Fee Structure Meeting Date: August 13, 2007 Agenda Item Number: B Department: Planning and Development Staff Contact: Nancy Young www.eugene-or.gov Contact Telephone Number: 682-6849 ISSUE STATEMENT The purpose of this work session is to respond to the council poll to review the City of Eugene’s solid waste and recycling collection system and fee structure. No action is required at this time. BACKGROUND The City of Eugene adopted Ordinance 19603 in 1989, making significant changes to the solid waste and recycling system. The ordinance established the following: 1.Rates to be set by Administrative Order, within a minimum-maximum rate range; 2.Additional collection practices to encourage recycling, with the recycling rebate as part of the ordinance; and 3.A limitation on the number of licenses to those haulers licensed in 1989. Since 1989, the City Council has periodically reviewed the structure of the solid waste and recycling system in Eugene; most recently in 2001. Those reviews resulted in consistent direction from the City Council to maintain the existing solid waste and recycling collection system. Other council actions have included the adoption of a bi-weekly curbside collection yard debris program in 2000, direction by council in 2001 to the City Manager to blend residential and commercial expenses for the purposes of rate calculation, and council adoption in 2002 of an ordinance rewriting the City Code to move operational issues for waste and recycling collection to administrative rule (Attachment A). For a summary of the rate-setting history see Attachment B. A variety of solid waste collection systems exist in Oregon. Many communities, such as Springfield and single franchised hauler West Linn, are served by a . In this type of system, only one hauler is contracted to collect solid waste. A competitive procurement process typically takes place at the end of Exclusive franchise territories the contract term. are another common collection system and also use a competitive procurement process. These exist in many areas of the state, including Portland and Salem. The community is divided into distinct districts and haulers are given the authority to collect within open competition those boundaries. A third system type is which allows anyone to collect in an area. Regulations are essentially non-existent and rates are set by haulers. This system exists in the rural areas of Lane County. L:\CMO\2007 Council Agendas\M070813\S070813B.doc closed competition Eugenes system is a hybrid, which can be described as . Licensed haulers have a = five-year rolling license and can operate anywhere inside the city limits. The City Charter prohibits granting an exclusive citywide franchise to haul solid waste [Chapter X, Section 43 (3)] “The council may not grant an exclusive citywide franchise to haul solid waste.” Rates are set by the City based on criteria outlined in the administrative rule, Schedule 2. (Attachment C.) Exclusive territories have been considered in the past, with previous City Councils opting to maintain a system where customers have the ability to choose their haulers. The number of haulers that Eugene residents have had to choose from has varied over time. In 1989, 22 licensed haulers provided residential and commercial collection in Eugene; today, there are seven licensees (eight are allowed by the City Code), all local companies. Sanipac has the largest number of accounts (85 percent of residential customers) and collects throughout the city. Lane Apex, with more than 12 percent of the residential customers in Eugene, has chosen to concentrate its customers in the River Road/Santa Clara area, Ferry Street Bridge/Coburg Road area, and Bethel/Danebo. The other two residential haulers have fewer than 2 percent of residential customers. There are three haulers who provide drop-box service only. This service is normally used by commercial accounts and at construction sites. The City sets collection rates by administrative order to provide stable service that includes residential yard debris collection, recycling, and multiple waste collection options. Residential rates also are progressive, charging the same or higher rates per pound for larger containers, helping Eugene meet State waste reduction guidelines. The City collects financial information from licensed haulers annually to determine license fees, and has a practice to review the data for a full rate analysis approximately every two years. City staff calculates a minimum rate sufficient to allow the “representative” hauler to earn a target profit level through continued services to its existing customers. The representative hauler is defined as the hauler with the greatest number of accounts. The most significant rate-setting policies outlined in the administrative rules, Schedule 2, are: Haulers are required to report revenue and expenses from inside and outside the City’s corporate ? boundaries to allow City staff to review the reasonableness of the licensed haulers’ reported results of operations. Disposal fees are excluded from haulers’ expenses when determining allowed profit. ? Income taxes, interest expense, and political and charitable expenses are non-allowed expenses. The ? allowed profit is set on a pre-tax, pre-interest basis so that taxes and interest are paid from the allowed profit. Residential and commercial expenses are combined for purposes of rate calculation. ? Rates are set to achieve a target pre-tax, pre-interest profit level of 11% of gross revenues. This ? profit level is comparable to the level allowed by other Oregon cities that regulate solid waste collection rates. Residential rates are progressive by assumed weights; commercial rates are progressive by volume. ? The disposal portion of Eugene’s collection rates has just been adjusted, to be effective September 1, 2007, reflecting a $20 per ton increase in disposal fees adopted by the Lane County Board of Commissioners. Although the collection portion was not increased in the most recent adjustment, preliminary results from the most recent financial analysis show an additional adjustment of 4.35 percent would be necessary to meet criteria in the administrative rule (Attachment D). L:\CMO\2007 Council Agendas\M070813\S070813B.doc In comparison with other cities in Oregon (Attachment E), Eugene commercial rates are very close or are lower than average. The residential rates on the smaller containers (20-gallon and 32-gallon) are also within average range. While the 60-gallon and 90-gallon containers in Eugene are higher than many other communities, the strategy used to encourage recycling has worked. Less than 5 percent of customers use the 90-gallon container and the recycling recovery rate is very strong. In the area of recycling and waste reduction, several efforts led by City staff and licensed haulers have produced impressive results. The most recent recovery rate for the Lane Wasteshed, which is highly impacted by City and City-mandated recycling efforts, is 53.7 percent. Programs contributing to this recovery are: Curbside yard debris collection, recovering more than 12,000 tons per year. ? Commingled recycling, implemented by the haulers, has been responsible for additional recycling ? and added efficiencies. Oregon Green Schools Program is training students to become the future stewards of our limited ? resources. In a telephone survey of Eugene collection customers performed in March 2007 (Attachment F), 98.8 percent of respondents were satisfied with garbage service, 97.4 percent were satisfied with recycling service, and 83.8 percent were satisfied with yard debris service. It should be noted that 9.4 percent of respondents had no yard debris service. In a list of seven service characteristics, curbside recycling ranked highest, reliability second, and cost of service third. Future items planned in the area of the solid waste and recycling program, beyond the education, recycling, and waste prevention areas, are a weight study in FY08 and a system review in FY09. Weight studies are performed periodically to verify the weights used to set rates. The weight study provides additional information regarding yard debris and recycling collection, and helps identify areas of contamination to target future education efforts. The overall system has not been reviewed since 2001. RELATED CITY POLICIES Growth Management Policy 16 - Focus efforts to diversify the local economy and provide family- ? wage jobs principally by supporting local and environmentally-sensitive businesses. Direct available financial and regulatory incentives to support these efforts. Growth Management Policy 17 - Protect and improve air and water quality and protect natural areas ? of good habitat value through a variety of means such as better enforcement of existing regulations, new or revised regulations, or other practices. Council Vision and Values, Sustainable Development - A community that meets its present ? environmental, economic, and social needs without compromising the ability of future generations to meet their own needs. COUNCIL OPTIONS 1. Give specific direction to the City Manager on any changes or additional information the council would like to review. 2. Take no action. This will result in the City Manager processing an Administrative Order to update collection fees. L:\CMO\2007 Council Agendas\M070813\S070813B.doc CITY MANAGER’S RECOMMENDATION The City Manager recommends Option 2. SUGGESTED MOTION No motion is suggested. ATTACHMENTS A. Administrative Rule 3.250 and Schedule 1 B. History of Solid Waste and Recycling Collection Rate Setting in Eugene C. Administrative Rule 3.250, Schedule 2 Rate Manual D. Memo to Mayor and City Council, July 3, 2007 E. Other Cities Comparison F. Customer Satisfaction Survey, March 2007 FOR MORE INFORMATION Staff Contact: Nancy Young, Solid Waste Analyst Telephone: 541-682-6849 Staff E-Mail: nancy.a.young@ci.eugene.or.us L:\CMO\2007 Council Agendas\M070813\S070813B.doc ATTACHMENT B History of Solid Waste & Recycling Collection Rate Setting in Eugene 1980 An ordinance was adopted changing the rate setting from resolution to ordinance. 1989 City Council adopted an ordinance that changed rate setting from ordinance to administrative rule, establishing minimum-maximum rates; set rates to encourage recycling and implementing a $1.50 recycling rebate in residential rates to customers who recycled; and limited the number of licenses to those active on January 1, 1989. 1991 Staff conducted a cost of service study. One outcome of the study was a separate rate structure for commercial service and for residential service, both of which were based on cost by service category. Rates based on cost by service category result in a higher rate-per-pound for low volume service than for high volume service. 1992 As recommended by the Solid Waste and Recycling Board, City Council adopted a policy to implement progressive residential collection rates to comply with the 1991 Oregon Recycling Act. 1994 For the commercial sector, results of the 1994 study suggested hauler profits exceeded the range recommended by the Collection Rates Committee. As recommended by the Committee, the City Manager addressed this issue by holding commercial rates constant while increasing the commercial license fee and implementing a commercial recycling requirement. 1996 In response to a request for a rate increase by three residential haulers, staff conducted a rate review. Residential rates were increased. 1998 An independent consultant was engaged to assist with a solid waste and recycling rate study. In addition, a staff advisory committee (Rates Advisory Committee) was formed to provide feedback to staff on methodology and policy assumptions. As a result of the 1998 rate analysis, future analyses set the rates based on the largest hauler, haulers provide data in a reporting mechanism that standardizes the information, the target rate of return was set at 11 percent, and staff examined the possibility of implementing collection districts as a strategy to contain rates. 2000 The driving force of the 2000 residential rate review recommendation was the movement of customers to smaller containers. Implementation of yard debris service was set for September 2000. No change in commercial rates. 2001 Residential and commercial rates were to be combined for purposes of rate calculation. There was an understanding that residential rates would not be raised for at least the next review period. 2002 While recommending maintaining residential rates at their current level, commercial rates were reformatted to provide progressivity based on volume and frequency and increased to provide the 11 percent profit calculated on the entire customer base. This increase went into effect July 1, 2003. 2004 There was no need for a rate increase in 2004. The rate stabilization is a result of Council direction in 2001 to combine residential and commercial expenses for the purposes of rate calculation. 2006 No adjustment was made to the collection rates as a result of the 2006 rate analysis. The decision was made to conduct another rate analysis in 2007 and use a three year projection factor in determining rates. 2007 Due to a $20 per ton disposal fee increase by the Lane County Board of Commissioners that will be effective on September 1, 2007, an increase to City rates will be implemented to cover that cost. The analysis for the collection portion of the rate is ready for implementation under existing rules. ATTACHMENT C City of Eugene Solid Waste, Recycling and e Manual Yard Debris Collection April 23, 2002 Rat Hilton Farnkopf & Hobson, LLC Prepared by Schedule 2 City of Eugene Solid Waste, Recycling and Yard Debris Collection Rate Manual TABLE OF CONTENTS Chapter One Background....................................................................................................1 City Regulatory System...................................................................................................1 Historical Rate Setting.....................................................................................................1 Rates Advisory Committee..............................................................................................1 Policy Development.........................................................................................................1 Chapter 2 Overview............................................................................................................1 Participant Roles and Responsibilities..............................................................................1 Rate Setting Policies........................................................................................................1 Process Overview............................................................................................................1 Schedule..........................................................................................................................1 Chapter 3 Preparation of Licensed Hauler Financial Data...................................................1 Model Overview..............................................................................................................1 Model Limitations...........................................................................................................1 Software Requirements....................................................................................................1 Input Data Requirements..................................................................................................1 Chapter 4 City Review of Licensed Hauler Financial Data..................................................1 Review of Licensed Hauler Data......................................................................................1 Selection of Representative Hauler...................................................................................1 Determination of Revenue Requirement...........................................................................1 Determination of Required Rate Adjustment....................................................................1 1 Chapter One Background City Regulatory System The City of Eugene (City) issues licenses to private hauling companies (haulers) to collect solid waste, recycling and yard debris from City residents and businesses. These licensed haulers compete among themselves for accounts within the City’s corporate limits. The City establishes the rates that licensed haulers may charge for their services. In addition, the City Manager establishes minimum standards for the provision of collection services by the licensed haulers. Historical Rate Setting Rates have been set by the City based on the criteria outlined in the City Administrative Rules. Historically, the City has set the rates to provide a reasonable rate of return above the average cost of service. During most of the 1990s, the City calculated rates on a cost-plus basis to provide a 6.5% after-tax return. However, since 1998, the City has calculated rates on a cost-plus basis to provide an 11% pre-tax return, consistent with most Oregon agencies. In 1989, residential and commercial services were separated to calculate rates. The City has adjusted residential and commercial rates independently to recover the estimated cost of service for each customer base. This was followed by a 1991 cost-of-service study that calculated rates based on the cost of service for each container size. The City established progressive rates in 1992 to encourage additional recycling. As customers have increased their source reduction and recycling activities, they have shifted from larger garbage containers (at higher rates) to smaller garbage containers (at lower rates). As a result, customers with smaller garbage containers are paying a greater share of the fixed costs of garbage collection service. Thus, residential rates have increased at a rate greater than inflation, in spite of the fact that the haulers’ expenses have increased at a rate less than the inflation rate. Rates Advisory Committee In 1994, a Department Advisory Committee, known as the “Solid Waste and Recycling Committee,” was formed to advise the City Manager regarding the City’s rates and rate policies. This Committee was disbanded after the 1994 rate review. A new Department Advisory Committee, known as the “Rates Advisory Committee” or RAC, was formed for the 1998 rate review. The RAC was disbanded after the 1998 review. 2 Chapter One Policy Development In 2000, the City began a detailed review of its regulatory policies and systems. The review involved comparative surveys of other Oregon cities’ regulatory systems and surveys of residents’ and businesses’ attitudes regarding the City’s current system and proposed changes. The City staff researched and evaluated alternative regulatory models from the standpoint of collection efficiency, customer service and City administrative requirements. The City Council opted to continue the current regulatory system and directed staff to amend the City Code and Administrative Rules to address perceived weaknesses or problems with the system. The City Council approved revisions to the City Code on May 13, 2002. The City Manager issued revised Administrative Rules on June xx, 2002. 2 Chapter Two Overview An element of the revised Administrative Rules is this Rate Manual. The purpose of the Rate Manual is to document the policies and procedures followed by the licensed haulers and the City staff in determining solid waste collection rates. Participant Roles and Responsibilities There are several persons that have a role in the determination of the solid waste collection rates. Their roles and responsibilities are summarized below. City Council The City Council adopts the City Code sections that establish the regulatory framework for the City’s solid waste collection system. The City Code establishes the requirement for a license to provide service, the term of the license, the limits of the City Manager’s authority in setting rules regarding the City’s solid waste licenses and rates, and the responsibilities of both the licensed haulers and their customers. City Manager The City Manager sets the rules regarding the City’s solid waste licenses and rates within the limits of the City Code. These rules include, but are not limited to, criteria for obtaining and maintaining a license, the standards for licensed haulers to provide services to their customers, the standards for customers in preparing their discarded materials for collection, the policies and procedures followed in setting service rates, and the nature and amount of penalties for violation of the City rules. City Staff The City staff administers the City Code and Administrative Rules. Solid Waste and Recycling Program staff responds to inquiries and complaints regarding hauler service from residents, businesses, and licensed haulers, reviews licensed haulers’ annual license renewals, calculates approved collection rates based on licensed haulers’ financial data and City rate policies, etc. Licensees Licensed haulers provide solid waste, recycling, and yard debris collection services for their customers. They bill and collect for their services at rates approved by the City. They communicate with their customers regarding their services, collection schedules, and rates as necessary in accordance with City rules. The licensed haulers also report financial and operational data to the City in accordance with City rules. 4 Chapter Two Rate Setting Policies The City Manager has established several policies that guide City staff in the determination of the City’s collection rates. The most significant policies are described below. Reported Revenues and Expenses The City requires licensed haulers to report revenues and expenses for services provided inside the corporate boundaries of the City and revenues and expenses for services provided to all other customers outside the corporate boundaries of the City. This allows City staff to review the reasonableness of the licensed haulers’ reported results of operations. Disposal Tip Fees The City excludes disposal tip fees from the licensed haulers’ expenses when determining the allowed profit. This prevents significant fluctuations in the haulers’ profits due solely to changes in the regulated tip fee. Non-Allowable Expenses The City considers income taxes, interest expense, amortization expense, and political and charitable expenses to be non-allowable expenses. The allowed profit is set on a pre-tax, pre-interest basis so that taxes and interest are paid from the allowed profit. Amortization expense and political and charitable expenses are paid from owner/shareholder profits. Combined Residential and Commercial The City determines allowed rates by combining residential and commercial financial results of operations. Rates may be increased if the combined profits are less than the City’s target profit level or decreased if the combined profits exceed the City’s target profit level. Allowed Profit The City sets rates to achieve a target pre-tax, pre-interest profit level of 11% of gross revenues. This profit level is comparable to the level allowed by other Oregon cities that regulate solid waste collection rates. Process Overview Each year, the licensed haulers prepare a report summarizing their financial and operational results of operations for their most recent fiscal year. The haulers use an Excel spreadsheet model provided by the City to accumulate their data in a format useful to the City. City staff reviews each hauler’s data for completeness and reasonableness. In each even-numbered year, City staff uses the data from the hauler with the greatest number of accounts to calculate the required rate adjustment, if any. City staff calculates the minimum rates that are sufficient to allow the selected hauler to earn the target profit level through continued service to its existing customers. The City does not guarantee that the licensed haulers will earn the target profit, because events and circumstances do not occur as expected. Licensed haulers are also allowed to submit at any time to the City Manager a written request for review of the monthly rate schedule. Overview 5 Schedule The licensed haulers submit their required financial and operational report by April 15 of each year. City staff reviews the haulers’ reports in each even numbered year, and calculate the required rate adjustments in time to have the new rates effective January 1 of the next year. Licensed haulers are required to notify their customers of the new rates within 60 days of the City’s action to adopt the new rates. 3 Chapter Three Preparation of Licensed Hauler Data As noted above, the licensed haulers use an Excel spreadsheet model provided by the City to report their financial and operational data. This section summarizes the spreadsheet model. Model Overview The Excel spreadsheet model (Model) was created by City staff to allow the City’s licensed haulers to report financial and operational data to the City in a standard format. City staff incorporates these data into the City’s solid waste and recycling rate model. The Model contains multiple, linked worksheets for entry of hauler data, including: ?Hauler Expenses ?Customer Subscription Levels ?Routes ?Tons (Disposal and Recyclables Processing) ?Revenues and Rates These data are manipulated and analyzed in two worksheets: ?Data Analysis (provides checks on data consistency and reasonableness) ?Expense Allocations (allocates hauler expenses between in-City and other hauler accounts and among residential refuse, residential recycling, residential yard debris, commercial refuse, commercial recycling and drop box activities) City staff use the allocated expenses and projected revenue to determine hauler profit levels and the need for adjustments to the City’s approved rates. Preparation of Licensed Hauler Data 7 The relationships among the worksheets are shown graphically below. Input Worksheets Calculation Worksheets Hauler Expenses Customer Data Data Analysis Route Data Expense Allocations Tonnage Data Revenues, Rates Model Limitations Static Model vs. Dynamic Business Solid waste collection is a dynamic business. New programs and services are implemented, new equipment is employed, and customers start, stop and change their service regularly. Of necessity, the Model uses financial and operational data from a specific period or point in time. Over time, the Model will need to be updated and revised to reflect the changing nature of the solid waste collection business. This may best be done prior to the licensed haulers’ preparation of their annual data submission. Because of the requirement for annual reporting to the City, normal changes in the licensed haulers’ chart of accounts, routes, rates, customers, etc., will be captured in a reasonably timely fashion. However, major program or cost changes might require a mid-year submittal at the City’s direction. 8 Chapter Three Customization Required The Model must be customized to reflect each licensed hauler’s chart of accounts. However, the Model allocates expenses in a consistent manner that will enhance the comparability and usability of the data by City staff. Underlying Assumptions The Model is built around several underlying assumptions that reflect City rate policies and affect the Model’s calculations and allocations. The user should understand these assumptions to properly interpret the Model’s end product. Disposal and processing expenses are allocated between Eugene customers and All Other customers and among residential, commercial and drop box customers based on the volume of customers’ subscribed service levels. The Model assumes that approximately six and one-third 32-gallon cans equal one cubic yard and that all containers of equal size weigh the same. To the extent that customers in a community consistently dispose of heavier or lighter trash, the allocation of disposal and processing expenses could be skewed. Labor costs are allocated between Eugene customers and All Other customers and among residential, commercial and drop box customers based on the number of drivers that service the communities. Thus, the model assumes that each hauler’s drivers are compensated at the same level, regardless of the community they serve. To the extent that there are significant differences in wages paid to, or benefits earned by, drivers in different communities, the allocation of labor costs could be skewed. Vehicle costs are allocated between Eugene customers and All Other customers and among residential, commercial and drop box customers based on the number of routes in each community. Mixed routes (routes that service more than one community) are split based on the number of accounts on that route in each community. Thus, the Model assumes that the time to service each account on a mixed route is the same, regardless of other operational factors (e.g. traffic, housing density, distance to the disposal site, etc.). To the extent that the hauler has numerous mixed routes in very different service areas, the allocation of vehicle costs could be skewed. General and administrative costs are allocated between Eugene customers and All Other customers and among residential, commercial and drop box customers based on the number of customers. Thus, the Model assumes that each account takes the same level of administrative effort to service and maintain. To the extent that the hauler spends significantly more administrative effort on a particular customer base, the allocation of general and administrative costs could be skewed. Software Requirements To use the Model, users must have Microsoft Excel 97/98 for Windows or Microsoft Office 98 Excel Version 8.0 for Macintosh. Preparation of Licensed Hauler Data 9 Input Data Requirements Financial Data The Model requires the input of specific financial information from the licensed hauler’s accounting systems. For the most efficient preparation of the Model, the user should first review the worksheets and then gather the required data in a form compatible with the Model worksheets. The required financial data include: ?Total company expenses, including service within and outside the City of Eugene, by chart of accounts line item for the hauler’s most recent fiscal year ?Disposal and processing expenses by line of business (refuse, recycling and yard debris) for the hauler’s most recent fiscal year ?Disposal and processing per-ton or per-yard tip fees paid during the hauler’s most recent fiscal year ?Collection rates by size and type of container and frequency of service ?Total company service revenues by line of business, both from within and outside the City of Eugene Operational Data The Model also requires the input of specific operational information from the licensed hauler’s operating systems. The required operational data include: ?Number of accounts for each line of business by size and type of container and frequency of service as of the most recent January 1 ?Number of stops per day and crew size by route for all routes as of the most recent January 1 ?Number of drop box vehicles, excluding spares, and drop box drivers as of the most recent January 1 ?Number of tons or yards disposed and processed by line of business Licensed Haulers’ Instructions City staff has prepared a User’s Manual containing detailed instructions for the licensed haulers in preparing the required financial and operational data. 4 Chapter Four City Review of Licensed Hauler Data This section describes the procedures used by City staff in reviewing the licensed haulers’ financial and operational data and determining approved collection rates. Review of Licensed Hauler Data City staff review the financial and operational data submitted by the licensed haulers for reasonableness. This review may consist of the following activities: ?Reviewing key ratios and related data to ensure that the data is internally consistent (e.g., comparing the sum of the detail customer counts to the reported total customers, or comparing the calculated disposal cost per ton to the per-ton fee reported by the licensed hauler). ?Reviewing the year-to-year variances in reported data for unusual trends or fluctuations. ?Reviewing detailed supporting records for selected data to ensure that the cost was actually and reasonably incurred in connection with the licensed haulers’ service to City accounts. ?Performing other analytical tests as necessary. ?Following up with the licensed haulers with questions and/or requests for additional information to substantiate the reported data. Selection of Representative Hauler As noted above, City staff selects the hauler with the greatest number of accounts to calculate the required rate adjustment, if any. This hauler is selected as having the greatest representation of the City’s customer base. Determination of Revenue Requirement After reviewing the licensed haulers’ data, City staff may adjust the reported data to correct any reporting errors, deduct all non-allowable expenses and adjust for expenses deemed unreasonable. City staff then calculates the revenue required from rates by adding allowed expenses and the target profit and deducting miscellaneous revenues. Determination of Required Rate Adjustment City staff calculates the projected revenue from current rates by multiplying the number of customers reported by the licensed haulers times the authorized rates for the services City Review of Licensed Hauler Data 11 provided. City staff compares the projected revenue to the revenue required and determines the difference. If the projected revenue is greater than the revenue required, City staff may recommend to the City Manager that rates be decreased or that other services be added. If the projected revenue is less than the revenue required, City staff may recommend to the City Manager that rates be increased to generate the required revenue. Criteria In determining whether to adjust rates as described above, City staff may consider the following: ?Rates charged for collection services in other cities in Oregon ?The most recent Consumer Price Index (CPI-W) for Portland, Oregon ?Costs and revenues associated with providing curbside recycling service and the ability of a rate structure to encourage recycling ?A minimum rate sufficient to provide a reasonable rate of return above the cost of the licensed hauler with the greatest number of accounts ?The anticipated change in the cost of providing this service ?The need for equipment replacement and the need for additional equipment to meet service needs and to be in compliance with federal, state and local law ATTACHMENT D Planning & Development Building & Permit Services City of Eugene th 99 West 10 Avenue M Eugene, Oregon 97401 EMORANDUM (541) 682-5086 (541) 682-6806 FAX www.eugene-or.gov Date: July 3, 2007 To: Mayor Piercy and City Council From: Nancy Young, 682-6849 Solid Waste Analyst Subject: Solid Waste Disposal Fee Increase On June 13, 2007 the Lane County Board of Commissioners approved a disposal fee increase of $20 per ton -- from $45 to $65 per ton, for a 44 percent increase -- at Lane County sites. The fee will be effective September 1, 2007 and includes $3.50 per ton for waste diversion programs to increase the overall recovery rate for Lane Wasteshed. This is the first disposal fee increase in 12 years, and will affect waste haulers throughout the area, as well as homeowners and others using the Glenwood drop off and other Lane County transfer stations. Disposal fees comprise roughly one-third of the expenses for solid waste collection in Eugene. While this higher disposal fee will have a significant impact on Eugene haulers and their customers, it could also improve recycling and contribute to the Council's Sustainability Initiative. Lane County's disposal rate has been lower than many other jurisdictions in Oregon; the new rate is comparable to what is charged in many communities throughout the state. Higher disposal rates encourage aggressive recycling and waste diversion -- especially among commercial accounts with larger containers. Background The City of Eugene began regulating solid waste collection in 1960 to standardize service throughout the city. In 1989, council adopted an ordinance establishing rate-setting criteria and restricting the number of licenses available to hauling companies. These provisions were intended to promote stable collection by encouraging continued local ownership, reduce the number of licensed companies from a high of more than 20, and prevent both rate-gouging and cost-cutting. In addition to Eugene Code standards, the Eugene Charter prohibits establishing a franchise with a single company. Local haulers are licensed by the City, and pay a license fee of two and a half percent on residential service and six percent on commercial service, based on a percentage of their gross revenue, less the County disposal fee. Licenses are granted for a rolling five-year term, and cover solid waste and recycling collection for residential customers and solid waste for commercial customers. This five-year term was created to help companies obtain financing for large capital expenses. Currently, there are seven licensed haulers in Eugene. Waste prevention has been highly valued by the citizens of Eugene. Eugene is the only city in Oregon that provides a rebate to customers for recycling. For more than ten years, residential collection rates have been “progressive,” which means they do not discount for higher volumes. Commercial rates went progressive in 2003. Eugene haulers began offering commingled recycling to customers in 2004. This brought efficiencies to recycling collection service, and increased recovery. In addition, by contracting with large material recovery facilities in the Portland area, the haulers have increased the amount of revenue received for recycled material – a factor taken into consideration during rate reviews. Rate Setting in Eugene Collection rates are set through administrative order by the City Manager, and are reviewed regularly. Following an examination of local conditions and best practices in other communities, an advisory committee in 1998 recommended that: ? Rate analyses set the rates based on the financial information on the largest hauler. ? A new financial reporting mechanism be designed so information could be provided in a standardized format. ? A target rate of return for licensees be set at 11 percent. In 2001, council directed the City Manager to change the method of solid waste and recycling rate collection by blending residential and commercial rates. This change has had the desired effect of minimizing rate adjustments for residential customers, whose collection costs are higher. Residential rates have not been increased since 2001, and commercial rates were last increased in 2003. 2007 Rate Review Given Lane County’s action of increasing the disposal fee, staff will be posting an amendment to the administrative order to add that charge to Eugene’s collection rates to be effective on September 1, 2007. The monthly rate increase for a 32-gallon container collected on a weekly basis would be $1.10, or $20.30, up from $19.20. This includes $1.50 for the recycling rebate. For commercial containers, the fee would increase by $10.85 per cubic yard per month. An administrative order will be publicized and provided to interested parties the week of July 9 to reflect the disposal fee increase, with an anticipated adoption date of September 1. The disposal fee is a pass-through expense, and is not included in the calculation for the return to haulers targeted through Eugene’s rates. In addition to the pass through increase, staff is conducting a full rate review of the solid waste and recycling rates. Staff regularly receives financial information from licensees and evaluates it. Our initial analysis indicates that to maintain the model adopted in 1998, an additional increase would be necessary. If you would like additional information on the rate process, please contact Nancy Young, Solid Waste Analyst, Planning & Development Department, 682-6849, or nancy.a.young@ci.eugene.or.us.