09 - A - Solid Waste Annual Charge Costa Mesa Sanitary District …an Independent Special District Protecting our community’s health and the environment by providing solid waste and sewer collection services. www.cmsdca.gov Memorandum To: Operations Committee From : Scott Carroll, General Manager Date: April 16 , 2013 Subject: Solid Waste Annual Charge Summary Before determini ng the annual solid waste charge per resident ial parcel in CMSD, staff needs to determine the t otal cost it takes to operate the solid waste program. To do that staff looks at five (5) key expenses, which are described in more details below. Staff Recommendation That the Committee recommends the Board of Directors directs staff to negotiate with C R&R on lowering the hauler and/or recycling/disposal rates. Analysis The following are the five (5) key expenses of the District’s Solid Waste Program and how the annual charge is calculated. 1. Hauler Rate The hauler rate of $9.1554 was established when the contract was executed with CR&R in 2006. The hauler rate of $9.1554 has remained unchanged since 2006. This rate will continue to remain unchanged in FY 2013 -14 . To determine the annual cost for the hauler, the rate is multiplied by the total CMSD household served. In FY 2013 -14, staff is estimating 21,571 households will be served. The annual hauler cost is calculated below. Household Rate Monthly Cost Annual Cost 21,571 X 9.1554 $197,491 X 12 = $2,369,892
Operations Committee April 16 , 2013 Page 2 of 7 2. Recycling/Disposal Rate The recycling/disposal rate consist s of a transfer station fee for recycling, which is set at $41.22 per ton, and half of the landfill tipping fee due to CMSD’s 50% diversion requirement. In 2006, the landfill tipping fee was $22.00 a ton so CR&R’s dispos al fee is $11.00. The District’s Recycling/Disposal Rate is $52.22 after adding together the transfer station fee ($41.22) and CR&R’s disposal fee ($11.00). This rate has remained unchanged since 2006. This rate will continue to remain unchanged in FY 201 3 -14. Note: The curr ent tipping fee is $31.37 a ton; however, OC Waste & Recycling is going to increase the tipping fee in FY 2013 -14 by 2.16%. The new tipping fee in FY 2013 -14 will be $32.05 a ton. Half of this fee is $16.02 , which means the actual rec yclin g/disposal rate should be $57.24, but CR&R has agreed not to raise this rate . To determine the annual recycling/disposal cost, the rate is multiplied by the es timated total tonnage. Staff is estimating the total tonnage in FY 2013 -14 will be 39,851 tons. The annual recycling/disposal cost is calculated below. Tonnage Rate Annual Cost 39,850 X 52.22 = $2,080,967 3. Salaries and Benefits The FY 2013 -14 Budget for salaries and benefits is $447,668 4. Operations and Maintenance (O&M) O&M consist s of professional services, legal services, election costs, tools and equipment, building maintenance, post age, etc. The FY 2013 -14 Budget for O&M is $245,955 . 5. Programs This expense consists of CMSD special programs such as sharps, HHW, scavenging, education, pharmaceutical and telephone book recycling. The FY 2013 -14 Budget for Programs is $130,900 . The total for these five (5) expenses is $5,275,382 , as shown below. Hauler $2,369,892 Recycling/Disposal 2,080,967 Salaries & Benefits 447 ,668
Operations Committee April 16 , 2013 Page 3 of 7 O&M 245,955 Programs 130,900 TOTAL: $5,275,382 REVENUES Before calculating the annual charge, staff looks at other revenue sources to help offset the expenses identified above. Other revenue sources include additional contai ner charge, property taxes, investment earnings and CR&R contributions such as education programs and scavenging. The estimated revenue from these sources is identified below. Additional Container Charge 100,000 Property Taxes 200,000 Investment Ea rnings 50,000 CR&R Contributions 25,000 Other 75,000 TOTAL: $450 ,000 When these revenues are used to offset the total exp enses the net cost is $4,825,382 as shown below. 5,275,382 – 450,000 = 4,825,382 ANNUAL CHARGE CMSD needs to calculate a charge that will generate enough revenue to cover the net expense of $4,825,382 . To determine the annual charge staff divides the net rate with the total household as shown below. 4,825,382 21,571 = 2 23.70 12 = $1 8.64 The proposed annual charge per residential parcel in FY 2013 -14 is $223.70 or $18.64 a month. FY 2014 -15 Using the same calculations above, staff has calculated the annual charge for FY 2014 -15, which is described in more details below.
Operations Committee April 16 , 2013 Page 4 of 7 1. Hauler Rate Household Rate Monthly Cost Annual Cost 21,845 X 9.1554 $200,000 X 12 = $2,400,000 2. Recycling/Disposal Rate Tonnage Rate Annual Cost 40,214 X 52.22 = $2,099,975 3. Salaries and Benefits The FY 2014 -15 Budget for salaries and ben efits is $480,800 4. Operations and Maintenance O&M consist of professional services, legal services, election costs, tools and equipment, building maintenance, postage, etc. The FY 2014 -15 Budget for O&M is $274,660. 5. Programs This expense consists of CMSD special programs such as sharps, HHW, scavenging, education, pharmaceutical and telephone book recycling. The FY 2014 -15 Budget for Programs is $140,500 . The total for these five (5) expenses is $5,395,935 , as shown below. Hauler $2,400,000 Recycli ng/Disposal 2,099,975 Salaries & Benefits 4 80,800 O&M 2 74,660 Programs 140,500 TOTAL: $5,395,935 REVENUES Staff is estimating other revenue sources will be flat in FY 2014 -15. When these revenues are used to offs et the total expenses the net cost is $4,945,935 as shown below.
Operations Committee April 16 , 2013 Page 5 of 7 5,395,935 – 450,000 = 4,945,935 ANNUAL CHARGE CMSD needs to calculate a charge that will generate enough revenue to cover the net expense of $4,945,935. To determine the annual charge st aff divides the net rate with the total household as shown below. 4,945,935 21,845 = 226.41 12 = $18.87 The proposed annual charge per residential parcel in FY 2014 -15 is $226.41 or $18.87 a month. RECOMMENDATION Last yea r, the Board approved reducing the solid waste annual charge from $239.40 ($19.95 a month) to $228.00 ($19.00 a month). Based on the calculations above, the annual charge would decrease again to $223.70 ($18.64 a month) in FY 2013 -14, but the charge will increase slightly in FY 2014 -15 to $226.41 ($18.87 a month) and would require the District to comply with Prop 218 procedures. S taff performed a long term rate stabilization analysis at an annual charge of $216 .0 0 or $18.00 a month in FY 2013 -14 and in FY 20 14 -15. The analysis includes allocating the District’s Solid Waste Fund Balance to offset projected net deficit balance s in the Solid Waste Fund . Attachment B demonstrates the District could maintain an annual charge of $216 .00 for the next eight year s when allocating the fund balance and the fund balance can stabilize the charge for at least eight years. Attachment C is a solid waste survey that shows CMSD’s proposed full rate will rank 17 th out of 35 Orange County communities. The District is curre ntly conducting a performance audit of CR&R. Section 37 of the Agreement between CR&R and CMSD states that CR&R must submit to CMSD, upon request, a master manifest. The manifest must show disposal volumes, nature of the waste, transporter and disposal s ites. This information is important because it determine s if the recycling and waste disposal reports are accurate to achieving CMSD’s 57% divers ion. CR&R has not yet provide d the manifest data to the District’s auditing consultant. If the information o n the manifest cannot be confirmed than how do we know if the District has a most favorable rate? If this information is not provided and cannot be confirmed then staff recommends renegotiating the hauler and/or recycling/disposal rates
Operations Committee April 16 , 2013 Page 6 of 7 mentioned above. More information about the audit will be presented to the Committee on May 21, 2013. Strategic Plan Element & Goal This item adheres to the objective and strategy of Strategic Element 7 .0, Finance , which states: “Objective: To ensure the short and long -t erm fiscal health of the District Strategy: The District will forecast and plan revenue and expenditures and maintain appropriate reserves and investments to provide financial resources to fund current and planned operations and projects.” Legal Review Not applicable Financial Review Currently, there is approximately $5,6 58,970 in the Solid Waste Fund Balance. If revenues remain flat and assuming expenses increased 2.25% a year, the Solid Waste Fund Balance will be exhausted by 202 3 -2 4 . Staff recomme nds maintaining a minimum Fund Balance of $2,000,000 to pay for on -going ex penses before the assessment revenues are dispersed from the County to the District. Given that the District has a dry period from June through October, staff recommends maintainin g at least five month worth of reserves, which is approximately $2 million. An annual charge of $216 ($18.00 a month) will generate an estimated $4,659,336 (FY 2013 -14) and $4,718,520 (FY 2014 -15). As a result, the District will be projected to have a n e gative net balance of ($166,046 ) in FY 2013 -14 and a n egative net balance of ($22 3,415 ) in FY 2014 -15. Funds from the Solid Waste Fund Balance will be allocated to balance the proposed two year budget. The annual charge would have to increase by 2021 -22 in order to keep a minimum of $2 million in reserves. However, the charge increase would be the first in fifteen years. As you know, the District has decided not to be in the commodity business where the District receives revenues from the curbside recyc lables . Due to the volatility of this market, the District allows CR&R to keep the revenues as stated in the agreement between CMSD and CR&R. For the past three years, CR&R has received an annual average of $1,418,156 in commodity revenues.
Operations Committee April 16 , 2013 Page 7 of 7 Public Not ice Process Copies of this report are on file and will be included with the entire agenda packet for the April 16 , 2013 Operations Committee regular meeting at District Headquarters and on District’s website. Alternative Actions 1. Direct staff to prepare a resolution confirming and adopting the solid waste annual charges for FY 2013 -14 & 2014 -15 at $216.00 or $18.00 a month Reviewed by: Marc Davis District Treasurer/Interim Accounting Manager Attach ments A . Letter from CR&R B. Long Term Solid Waste Rate Study C. Solid Waste Rate Survey