Refuse company hike?

2/09 unedited Tahoe Mt. News

By Kathryn Reed

Increasing garbage rates twice in a matter of months is becoming common for South Tahoe Refuse. El Dorado and Douglas counties have signed off on the multiple hikes. South Lake Tahoe’s City Council will discuss the matter Feb. 10, though a decision may not come until March.
Because the mailer with the rate proposal had an error on it, STR asked the city to push the discussion from Feb. 10 to next month. But because the public has been notified about the meeting, state law mandates public comment be taken even if the council continues the matter.
The public hearing will focus on raising rates in the city by 7.02 percent or $1.53 a month for residential customers. Single family residences now pay $22.66 a month for mandatory weekly pickup for an unlimited number of cans/bags. That price would go to $24.19/month if the council OKs the request.
Commercial service is proposed to go from $25.14 a month per cubic yard to $26.90. STR wants the proposed increases to be retroactive to Jan. 1.
The council approved a 4.33 percent increase last fall.
An audit by R3 Consulting Group said the garbage company was due a 5.33 percent rate hike in 2008. However, the Waste Management Joint Powers Authority in June 2008 did not take action on that request and instead told STR to ask for a hike from the individual jurisdictions – South Lake Tahoe, El Dorado County and Douglas County.
South Lake’s JPA representative had been Councilwoman Kathay Lovell, but changed this month to Councilman Bill Crawford. Supervisor Norma Santiago represents EDC and Commissioner Nancy McDermid is Douglas’ appointee.
Each of those entities has a franchise agreement with STR that outlines how much the company pays to each jurisdiction for the exclusive right to provide garbage service, when rate increases should take affect and how that number is determined.
South Lake Tahoe receives $360,000 a year from STR in franchise fees. The amount is based on 5 percent of the company’s gross after surcharges and project funds.
A substantial portion of all rate hikes in recent years is being spent on the resource recovery facility being built between Eloise and Ruth avenues in South Lake Tahoe. The building, which is adjacent to its current operation, should open in late spring. It is designed to better handle recyclables and yard waste.

STR’s stance

Jeff Tillman, president of the refuse company, says rates hikes are not arbitrary, that they are based on a half dozen indexes like the fuel index and consumer price index.
The smaller of the rate increases approved last year by each jurisdiction was to cover the increased cost at the Nevada landfill and partly for the spike in fuel costs.
STR works a year behind its actual financial needs. The 7.01 cost of living adjustment is based on July 1, 2007, to June 30, 2008, data. So, even though fuel prices have been cut in half since their high in June 2008, STR has not fully been compensated for that time period.
If expenses were to drop dramatically, STR could ask for a rate reduction in the future.
“We are highly regulated,” Tillman said. His company is subject to regular audits, must comply with franchise agreements and is held accountable by the JPA.
He calls the current rate proposal a “cost of living for operations.”
Part of the money is needed to offset the decrease in revenue from commercial pickup. Businesses may choose not to have trash pick up or schedule it inconsistently.
“When commercial business is down, we feel it as well. There is less for us to pick up, which is less revenue for us,” Tillman said.
In South Lake and El Dorado residential service is mandatory, so the income is steady. In Douglas, it’s optional and therefore revenue fluctuates.
Tillman points to losing income from houses destroyed in the Angora Fire as well as commercial service from businesses bulldozed by the non-existent convention center.
Plus, the company expects a $700,000 deficit from not being able to sell recyclables. Revenue for selling recyclables is factored into rates. It is not “extra” income for the company.
Projections are that the recycling market will not turn around until 2010 or later.
The new building is costing more than initial estimates because it took three years longer than expected to get permits. Low interest bonds were secured to finance the project.
Besides using the rate increase for the normal cost of doing business, Tillman wants to give his employees a raise. What amount he wouldn’t say. Nor would he disclose the salary range for his workers.
He did say his employees are well compensated and have a good benefits package and that “we don’t have people leaving here.”
“Our employees aren’t overpaid by any means, but we are fair,” Tillman said. “They are spending their money in this community. Last year we gave them a raise, but cut the pension way down.”
As a private company he does not have to reveal salaries. As a private company STR also has the right to make a profit.
Tillman said cost-saving moves by STR include a hiring freeze, cutting routes and not funding the pension plan like previous years. Employee hours have been cut because there is less trash to haul away.

City concerns

At the Jan. 27 City Council meeting the proposed hike was barely discussed. It was on the agenda to get approval to schedule the Feb. 10 public hearing.
The staff report by City Manager Dave Jinkens said, “If approved as proposed, the increase would not only pay for the cost of fuel increase but continue beyond repayment of the spike. Council should solicit comment from STR about whether a continuing rate increase is needed to cover this spike or whether a surcharge of an appropriate duration is imposed that would then expire.”
Councilman Crawford echoed those sentiments, saying the rates should be raised for a limited time.
“In these difficult financial times, the company needs to justify convincingly that the rate increase is reasonable and proper,” Jinkens said after the meeting. “The question is whether the rate increase is justified, warranted and does not represent an adjustment made because of poor management decisions that increased the cost of operation. I am not saying that there have been bad management decisions. I am just saying that city government's role is to protect the public interest while abiding by terms in our contract.”
Councilwoman Lovell praised STR for its service, but prior to hearing a detailed reason for the increase, was reluctant to favor the proposal, especially with having voted for the increase last fall.
She said she could justify a hike for operating costs, but has a hard time knowing ratepayer dollars could go to employee salaries when so many in the area are losing their jobs and have financial hardships.
A weird twist is that if the fees go up, then city coffers would likely benefit from the increased revenues based on the franchise agreement.
“… let me mention that whether or not the city benefits financially in a rate increase should have nothing to do with whether it should be granted,” Jinkens said.

County information

Douglas County commissioners on Dec. 18 approved a 7.02 percent rate increase that was implemented Jan. 1. This came on the heels of a 4.33 percent hike that was OK’d on June 19. The latter was based on it costing more to dump debris at Lockwood Landfill in Sparks and the spike in fuel.
“The franchise agreement calls for a general rate increase every 4 years [the first being January 1, 2008] and also entitles STR to a cost of living adjustment [COLA] in the intervening years. The franchise agreement specifies both the general rate increase and the formula for the COLA,” Lisa Granahan, assistant to the county manager, wrote the Tahoe Mountain News. Supervisors in El Dorado County approved a 2.23 percent hike for STR in August. STR had wanted a 4.33 percent hike, but the supes said no. The board did OK an 8 percent hike in December. The latter took affect Jan. 1.
Supervisor Santiago said she voted for this increase because the request “was consistent with the parameters set forth in the county’s franchise agreement with STR.”
The county’s Dec. 16 staff report says, “The breakdown of expenses related to the requested rate increase is: Cost of recycling sales 6 percent, labor 32 percent, equipment and facility costs 6 percent, variable operating expenses 33 percent, and administrative expenses 23 percent.”
Both counties have approved numerous hikes in the past several years. Jinkens said the council in three years has allowed STR to raise rates 27 percent.
Even though El Dorado and STR’s agreement expires in 2014, negotiations are under way now because supervisors are trying to standardize rate structures throughout the county.
On March 16 at 11am in Placerville EDC supervisors will have a special meeting to discuss the county’s solid waste management policy, including rates, diversion goals and integrating new technology.
“I never thought garbage could be so interesting; however … solid waste is being studied as an alternative energy source. The county is striving to be proactive in this regard,” Santiago said.