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Item 8A AGENDA ITEM # 8A JANUARY 22, 2007 CITY OF ATLANTIC BEACH CITY COMMISSION MEETING STAFF REPORT AGENDA ITEM: Options for Service Levels and Rates related to proposals for Sanitation Service SUBMITTED BY: Jim Hanson~v DATE: January 10, 2007 BACKGROUND: The current contract for sanitation services with Waste Services of Florida (WSI) will expire at the end of May, 2007. With the expiration of the existing contract comes an opportunity to look at different methods of collection and frequency. An RFP was developed to get pricing on various types of collection methods and frequencies. City staff opened the resulting proposals for future waste contracts and was authorized to enter negotiations with Waste Services of Florida, Inc. (WSI) which submitted the lowest prices for future sanitation service for each of the alternatives. Mayor Issues There are basically three major issues for the Mayor and Commission to consider in connection with this new contract; 1. What type and level of residential service (manual or automated) and what frequency is best for the city as a whole? 2. The lowest priced options will require an overall increase of approximately 25%. How should the retail rates be distributed between the 5,400 residential and 148 commercial customers? 3. Should the City consider permanently reducing the transfer to the General Fund in future years to reduce sanitation rates? ~„ In finding answers to these three questions, there are several issues that should be considered. The first is in understanding that the level of service issue only affects residential garbage collection. Will the City opt ,~. for automated collection or continuing the present system of picking up garbage using customer provided cans? Will collection of residential garbage be done once per week or twice per week? The only questions relating to residential yard trash collection and recycling is in what day of the week they will be collected. It is expected that commercial collections will primarily remain as they are now. Most commercial accounts utilize dumpsters with the business owner deciding the size of the dumpster and the frequency of collection. A few new options for size and collection frequency may be proposed to specific commercial customers. Pros and Cons of Residential Alternatives If residential service is collected once per week, then it is possible to have all three types of ~. residential waste (garbage, recycling and yard trash) collected on the same day by breaking the city into five routes. Maintaining residential garbage ~w AGENDA [TEM # 8A JANUARY 22, 2007 collection on two days per week requires that yard trash be collected on a day other than the two garbage collection days. Therefore there would be ~„ three days per week when waste is left out for collection in any area; two days for garbage and another for yard trash. An advantage of keeping collection at two days per week is that there will be fewer complaints about odors. However, integral lids on the new toters used for automated collection will limit odors. Additionally, encouraging or requiring residents to bag household garbage before placing into toters will virtually ,,, eliminate odor as a complaint. Cans for residential garbage appear less orderly and leave more refuse on the street because of bags being broken by animals. Last, any change in collection methods or frequency will ~,,, create complaints until residents aze used to the new service. Commercial Rate Redesign Redesign of the commercial rate structure is ~,. needed. While most of the current retail rates for commercial gazbage collection are above the City's cost, there are a few customers with special services paying less than cost. The rates should be restructured to ~. - reflect the current costs and then adjusted along with others for the new contract. Another factor in the restructuring is that the city's rates are currently based upon the size of the dumpster and the number of ~• collections per month. Most other cities currently standardize their commercial rates into an amount per cubic yazd which is then multiplied by the size of the dumpster and the number of pickups per week to ~* calculate the monthly bill. The city's cost from the hauler is based on a single cubic yazd rate. Construction Debris The City currently requires that all commercial waste be collected by the City's hauler and fees paid to the City except for lot clearing and construction debris which has been collected by various haulers and billed directly to the contractors. It is recommended that either each hauler be required to obtain a City license and pay a franchise fee of 15% or the City's hauler be given exclusive rights to haul construction debris and pay the franchise fee to the City. Contactors would be exempt if they haul their own debris. ~"' Commercial Recycling State law now restricts the City's ability to require that the City's hauler handle all commercial recycling. It is recommended that the ordinance be amended to allow for other haulers and handle them the same as commercial debris; that they obtain a license and pay a franchise fee. ~" Cost Allocation The city's cost for sanitation services includes not only what we pay the contractor, but also various internal costs that are allocated between funds. These include the cost to send out utility bills, ~"' cashiers and accounting staff, and other similar internal allocations. The city has also transferred a yearly amount from the Sanitation Fund to the General Fund. This is above what we would normally consider the "cost" ''" of providing the service. While the amount of money transferred out of the Sanitation Fund can be allocated in various ways between commercial AGENDA ITEM # SA aw JANUARY 22, 2007 ~`" and residential customers, it is strongly recommended that each group of customers be charged a retail rate that is at least equal to or above the city's actual cost. Cost of Options Each of the sanitation contractors provided proposals for various levels of residential garbage collection service. The current charge for residential service to our customers is $13.60/ month. Using WSI's prices, which are the lowest for all options, and allocating other city costs, the minimum cost-based rate for residential service for each level of ~. service is as follows: Automated collection; lx/week $16.37 per month w Cans 2x/week $16.66 per month Automated Collection 2x/week $18.08 per month The city's present commercial rate structure for standard garbage collection with dumpsters ranges from $3.82 per yard per week to $6.46 „~, per yard per week. Setting a new commercial rate at $5.21 per yard per week would be sufficient to cover the city's costs plus the transfer to the General Fund of $240,000 per year. Setting this rate for all commercial ~. customers would mean that some would have a decrease in costs while others would see an increase. This may seem inappropriate in a time when sanitation rates for others are going up. One option is to set a new rate per cubic yard for most commercial customers. Those whose current rates are at or below the new rate would be charged the new rate. Those that presently pay more than the new rate would be "frozen" at their current rates until annual across the board CPI increases catch up in future years. Rates in Other Cities Rates from other cities can vary dramatically based ~,. upon the level of service that the residential customers receive as well as their distance to the nearest landfill. However, a quick comparison of the rates charged by other area cities is as follows: C~ ~• Jacksonville Beach Neptune Beach (proposed) St. Augustine ~» Fernandina Beach Green Cove Springs Orange Park Residential Commercial $16.31 $6.00 per cubic yard $18.75 $5.10 per cubic yard $15.97 ? $10.55 $4.65 per cubic yard $18.00 N/A $25.71 $8.01 per cubic yard General Fund Transfer The city has transferred an amount each year from the Sanitation Fund to the General Fund. It has been increased by approximately 3% per year and would have equaled approximately $240,000. In FY07, the transfer was reduced to $120,600 to be able to delay the sanitation rate increase until proposals were taken. The proposed commercial rate of $5.21 per yard assumes a transfer of AGENDA ITEM # 8A ?~ JANUARY 22, 2007 $240,000 per year to the General Fund. Lowering the transfer would lower the commercial rate, but not the residential rate which is calculated at cost ~„ (without the transfer). Five or Seven Year Contract One final point is that the proposals from waste haulers provide options for contract lengths of five or seven years. The rates for the seven year contracts are lower than those for five years because the waste haulers can extend the life of their trucks, dumpsters and other equipment two years longer. However, the differences are not that great. For example, the difference in price between the option for continuing the current.level of service of residential collection of cans twice per week is only .29 cents per month per customer. The residential monthly rates shown earlier in this staff report are calculated using the seven year contract numbers. Most Likely Options While the above mentioned factors may combine in a number of ways to produce quite a number of different options, the three that would appear to be most likely considerations are as follows: 1. Automated residential garbage collection on a once per week basis with a residential rate of $16.37 per month, commercial rate of $5.21 per yard to $6.46 per yard and a General Fund transfer of $240,000 per year based upon a seven year contract. 2. Keeping the current level of service at twice a week collection of residential cans with a cost of $16.66 per month for residential ~. collection, $5.21 to $6.46 per yard for commercial collection, $240,000 per year annual transfer and a seven year contract. ~"' 3. Automated service with twice per week residential garbage collection that would equate to a retail rate of $18.08 per month for residential customers, $5.21 to $6.46 per yard commercial, $240,000 annual ~" transfer and a seven year contraci. BUDGET: Depending on the level of service and other options chosen by the City Commission, a budget modification will be needed before the end of the current fiscal year. All of these rates are calculated to keep the Sanitation Fund balanced at the 25% reserve. The Commission will need to increase the sanitation rates yearly to keep up with the cost of living increases that are built in to the waste hauler's contract. RECOMMENDATION: It will take an ordinance to revision the City's sanitation rates. The Commission must also provide authorization for execution of the contract with a waste hauler for a specific level of service. The Commission should provide guidance on which of the options you would like to consider and call for the public hearing that will be required in connection with that ordinance. The Commission should also be prepared to authorize the waste hauling contract execution at that meeting.