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Minutes - Board - 2021-06-08COSTA MESA SANITARY DISTRICT MINUTES OF BOARD OF DIRECTORS STUDY SESSION JUNE 8, 2021 NOTE: THIS MEETING WAS CONDUCTED UTILIZING TELECONFERENCING PURSUANT TO GOVERNMENT CODE SECTION 54952.2 AND THE GOVERNOR'S EXECUTIVE ORDERS IN EFFECT WAIVING SOME OF THE REQUIREMENTS OF THAT SECTION. Members present Arlene Schafer, Art Perry, Bob Ooten, Brett Eckles, Mike Scheafer Members absent None Staff present Scott Carroll (General Manager), Noelani Middenway (District Clerk and Public Information Officer), Kaitlin Tran (Finance Manager), Dyana Bojarski (Administrative Services Manager), Mark Esquer (District Engineer), Gina Terraneo (Management Analyst II), Nabila Guzman (Management Analyst I), Lieu Tran (Accountant), Tanisha Tingling (Administrative Assistant) Others present Cindy Brenneman, Citizens Advisory Committee Member and District resident Dean Ruffridge, CR&R Representative Mike Carey, CR&R Representative Mike Silva, CR&R Representative Judith Gielow, Citizens Advisory Committee Member and District resident Jim Mosher, District resident Sue Lester, Citizens Advisory Committee Member and District resident Meeting called to order at 9:32 A.M. A. OPENING ITEMS COSTA MESA SANITARY DISTRICT PAGE 2 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD DUNE 8, 2021 Procedural: 1. Roll Call - (If absences occur, consider whether to deem those absences excused based on facts presented for the absence - such determination shall be the permission required by law.) President Ooten called the meeting to order at 9:32 A.M. District Clerk and Public Information Officer, Noelani Middenway, noted that President Ooten, Vice President Scheafer, Secretary Schafer, Director Perry, and Director Eckles were present at this time. B. PUBLIC COMMENTS Procedural: 1. Public Comments President Ooten opened public comments. Secretary Schafer acknowledged Item C2 of the agenda. She recommended discussing the biennial budget (Item C2) before discussing CR&R Environmental Services' request for a rate adjustment (Item Cl). Citizens Advisory Committee (CAC) Member, Cindy Brenneman, shared that she has read the staff report for Item C1, and that she supports District staff s recommendation to deny CR&R's request for a rate adjustment. CAC Vice Chair, Sue Lester, stated that CR&R's request for a rate adjustment is not included in the District's proposed biennial budget. She expressed support for District staffs recommendation to deny CR&R's request for a rate adjustment. Director Eckles inquired if the Board will be taking action on Item C1 and Item C2. President Ooten stated that, aside from emergency items, the Board does not take action on Study Session items. General Manager, Scott Carroll, noted that, historically, the Board does not typically take action during Study Sessions, but they are legally allowed to do so. He stated that District staff is seeking action on Item C1. He added that, based on the discussion for Item C2, District staff will be presenting the COSTA MESA SANITARY DISTRICT PAGE 3 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 89 2021 proposed biennial budget to the Board for adoption at the June Board meeting. Director Eckles recommended following the established order of the agenda, since Item C1 will affect Item C2. The Board directed staff to follow the established order of the agenda. CAC Member Brenneman expressed recognition for Mr. Carroll's comments. Hearing no additional public comments, President Ooten closed public comments. C. ITEMS OF STUDY Action, Receive and File: 1. CR&R Environmental Services Request for an Annual Rate Adjustment for FY 2021-2023 Recommendation: That the Board of Directors consider denying CR&R's request for an annual rate adjustment for FY 2021-2023. Mr. Carroll provided an overview of CR&R's requested fee adjustment for Fiscal Years 2021-22 and 2022-23. He stated that CR&R's Consumer Price Index (CPI) request of 5.8% would result in a $647,700 increase in expenditures for Fiscal Years 2021-22 and 2022-23. He added that District staff recommends denying the request due to CR&R's performance issues. He reported that CR&R and the District met and discussed CR&R's performance issues, including communication of delays due to staffing shortages. He noted that there were several missed trash pickups from June 1, 2021 to June 5, 2021. He stated that District staff also recommends denying their request due to affordability issues. He added that residential trash rates are currently increasing as part of the District's five-year rate increase that was approved as a result of the 2019 Solid Waste Rate Study. He discussed the impact of rates on the District's fund balance. He noted that the Board can approve a lower fee adjustment for CR&R, but this would still lower the District's fund balance. He stated that, if CR&R's request is approved, then the District will have to conduct another public hearing for the rate increase and budget for mailing residential notices for the hearing. He discussed budget cuts that were necessary to balance the budget without using fund balances. He commented that the public will likely react unfavorably if this COSTA MESA SANITARY DISTRICT PAGE 4 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 8, 2021 item is approved. He shared CR&R's letter opposing District staffs recommendation and stated that CR&R is present to address the Board. He added that District Treasurer, Marc Davis, is available to discuss his findings regarding CR&R's finances. CR&R Representative, Dean Ruffridge, stated that it is difficult to prepare a five-year budget, especially during a pandemic and a period of unusual inflation. He noted that there is no way to budget for the unknown. He added that the COVID-19 pandemic has severely impacted CR&R in matters regarding labor, maintenance, and fuel. He stated that CR&R is requesting a normal CPI increase that is relative to other municipal contracts in California. CR&R Representative, Mike Silva, stated that CR&R services 50 cities and has been experiencing challenges due to staffing shortages, COVID-19 pay, and paternity leave. He commented that CR&R's service has not been perfect, but there have been no major issues, such as trash being left in the streets. He reported that the City of Los Angeles' Anaerobic Digestion Facility's rate is $128.50, while the District's rate is about $79.50. He stated that CR&R has agreed to purchase four new trucks to reduce the average age of the District's truck fleet. He noted that CR&R is looking at rerouting their trash routes to address load weight concerns. He added that District signage concerns have been remediated. He commented that CR&R mishandled the 2020-2021 Christmas tree collections. He also commented that CR&R is losing money in Costa Mesa and that their CPI request is within the District's expected budget. He stated that District customers have been getting a discount because the District has been using its reserves to partially subsidize costs. He compared the District's trash rates with those of nearby cities. CR&R Representative, Mike Carey, reported that CR&R has been working with District staff to update trash truck banners. He stated that the District worked with its communications consultant, Tripepi Smith, to develop a design. He presented CR&R's prototype and shared that he is currently working with District staff on the quarterly promotional banners for special programs. COSTA MESA SANITARY DISTRICT PAGE S MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 89 2021 Mr. Silva added that the CPI request is indexed and is considered reimbursement for fuel and labor costs. He clarified that the request does not include any other items. Mr. Carroll thanked CR&R for addressing trash truck signage. He stated that the banner design looks great, but the sizing is incorrect. He noted that there should be two signs on the trash truck. He clarified that below the main banner should be another quarterly banner to promote special programs. President Ooten suggested for District staff to continue discussing signage issues with CR&R. Mr. Carey stated that the prototype is intended to highlight the District's new banner design. He added that no direction was given regarding new signage for quarterly programs. Vice President Scheafer stated that the trash truck signs are a minor part of the overall discussion. He asked District Treasurer, Marc Davis, about CR&R's financial records for fuel costs. He noted that fuel costs dropped considerably for most people. He inquired if CR&R's fuel costs decreased. Mr. Davis shared that he participated in a Zoom call with CR&R to review their financial information. He noted that the information presented during their meeting pertained to CR&R's profit loss with the District's contract over a nine -month period. He stated that there was no information available that showed year -over -year changes. He added that CR&R's financial information is confidential. He confirmed that the District is only charged for the fuel used by the trash trucks servicing the District's routes. Vice President Scheafer asked if CR&R received any federal or state COVID- 19 funding. Mr. Davis stated that he did not receive any information related to COVID-19 funding. He added that CR&R shared a profit and loss (P&L) spreadsheet with numbers linked to their financial system. He clarified that his meeting was not a financial audit. He stated that he did not review any underlying or support documentation. He noted that CR&R's P&L spreadsheet includes corporate and regional allocations. He commented that CR&R's methodology for allocating their corporate and regional costs is reasonable. He stated that COSTA MESA SANITARY DISTRICT PAGE 6 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD DUNE 8, 2021 CR&R reported a loss for the District's contract during the nine -month period due to the recycling market. He noted that CR&R has yet to comment on receiving any federal or state COVID-19 funding. Vice President Scheafer stated that CR&R commented that District customers are receiving a discount. He asked Mr. Davis for his thoughts on that matter. Mr. Davis commented that he does not view it as a discount. He stated that, over the years, the District has generated excess revenue over expenses within its solid waste fund which turned into reserves. He shared that the Board decided to use those reserve funds for rate stabilization. Director Perry commented that the Board is aware that the District will have to raise their solid waste rates eventually. He stated that he does not think that the District planned properly. Director Eckles asked Mr. Davis if CR&R's P&L information only applied to the District or the entire corporation. Mr. Davis stated that the P&L information only pertained to the District. Director Eckles stated that some of CR&R's performance issues could have been rectified through better communication. He asked how CR&R plans on improving their communication efforts. Mr. Silva clarified that the District was subsidizing rates rather than discounting rates. He stated that he does not think that CR&R has received any COVID-19 funding. He discussed fuel costs and noted that CR&R produces its own renewable natural gas (RNG). He added that CR&R supplements their RNG supply by purchasing from Clean Energy Fuels Corp. He discussed CR&R's communication processes and noted that Mr. Carey has direct access to CR&R's operations staff. He added that if the District needs additional support, then to contact him. He shared that Mr. Ruffridge is semi- retired and has been transitioning his CR&R accounts to new staff members. Discussion followed regarding CR&R's two-year CPI request. Secretary Schafer emphasized the importance of CR&R improving their communication with the District. COSTA MESA SANITARY DISTRICT PAGE 7 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 8, 2021 Mr. Carroll informed the Board that members of the public may submit a public comment after the Board's discussion on each agenda item. Mr. Ruffridge shared that, prior to the COVID-19 pandemic, CR&R used to meet with District staff monthly. He noted that these monthly meetings have transitioned from in -person to online or via telephone. He recommended to transition back to in -person meetings to strengthen personal communications. He commented that it is very unusual for a city or district to review the P&L statements of a private company. He noted that CR&R agreed to share that information because Mr. Carroll insisted on reviewing it. He suggested analyzing CR&R's waste hauling rate compared to other companies. He stated that there have been several nearby cities that have gone out to bid for waste hauling services and noted that the District's solid waste rate is about 10-20% less than that of other agencies. He reported that the City of Newport Beach's new solid waste rate is over $24.00 per month, while the District's rate is about $21.00 per month. President Ooten expressed concern that CR&R's CPI rate increase is calculated differently than the CPI utilized by the District. He discussed Senate Bill (SB) 1383 and inquired about the District's outreach efforts regarding its Organics Recycling Program. He commented that, even though the District's solid waste rates are lower than other cities, the District has been depleting its reserves to subsidize rates. He noted that the District is not willing to take on debt. He stated that, if the staff reports are accurate, then it is untenable to ask the ratepayers for a rate increase. Mr. Ruffridge stated that economic inflation has been impacting CR&R. He noted that communication with the public is very important. He added that agencies must explain to the public that solid waste rates are increasing due to State legislation. He stated that CR&R will be discussing with District staff the process of transitioning from a two -cart to a three -cart system. President Ooten commented that SB 1383 is a climate change initiative. CAC Vice Chair Lester noted that she is not speaking on behalf of the CAC but rather as a District resident. She expressed appreciation for all the information presented. She commented that CR&R is lobbying for a raise for their company. She stressed that their financial interest is with their COSTA MESA SANITARY DISTRICT PAGE 8 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 89 2021 company, while Mr. Carroll is advocating for the District. She commented that the District has an extremely competent staff and General Manager. She noted that the District's General Manager has repeatedly declined a salary increase. She stated that the Board is being asked to subsidize the challenges that CR&R is facing. She added that, if approved, the District will have to use funds that are already dedicated. She noted that CR&R has the right to request a CPI rate increase. She requested for the Board to support District staff and its ratepayers by denying CR&R's request. She added that the District's ratepayers should not be subsidizing CR&R's financial shortcomings. Director Eckles thanked District staff and CR&R for their reports. He discussed his own business and long-term contracts. He stated that the District has entered into a long-term agreement with CR&R, which brings benefits and risks. He commented that, overall, profitability is important. He added that the District's budget is not exactly balanced, as the District is utilizing reserves to balance it. He inquired about how the District will justify CR&R's CPI rate increase. He stated that the District cannot afford to approve their request. He added that the public is suffering economically due to the COVID-19 pandemic. Director Perry stated that he disagrees with Director Eckles on some aspects. He recommended that the District approves CR&R's rate increase request. He stated that the District is justified in doing so due to their solid waste rate being lower than other cities. Motion: To approve CR&R's request for an annual rate adjustment for Fiscal Years 2021-2022 and 2022-2023 Motion by Art Perry. Motion died due to lack of a second. Motion: To deny CR&R's request for an annual rate adjustment for Fiscal Years 2021-2022 and 2022-2023. Director Eckles noted that he would be open to bringing back this item for discussion in 6, 9, or 12 months. Motion by Brett Eckles, second by Mike Scheafer. COSTA MESA SANITARY DISTRICT PAGE 9 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 89 2021 Vice President Scheafer suggested amending Director Eckles' motion to revisit CR&R's request in six months. Secretary Schafer suggested revisiting CR&R's efforts to rectify their communication issues. She stated that the District needs to consider its financial security. President Ooten stated that the District's post- pandemic tonnage rate will be a significant factor in deciding CR&R's CPI rate increase. Amended Motion: To deny CR&R's request for an annual rate adjustment for Fiscal Years 2021-2022 and 2022-2023, but to revisit this discussion in six months. Motion by Brett Eckles, second by Mike Scheafer. Final Resolution: Motion Carries 4-1 Aye: Arlene Schafer, Bob Ooten, Brett Eckles, Mike Scheafer No: Art Perry There was no further discussion, and the report was received. Action: 2. Preliminary Biennial Budget Review for Fiscal Year 2021-22 and Fiscal Year 2022-23 Recommendation: That the Board of Directors provide feedback to staff regarding the proposed preliminary Biennial Budget for the Fiscal Years 2021-22 and 2022-23 and direct staff to report back on June 28, 2021 to adopt the final Biennial Budget. Finance Manager, Kaitlin Tran, presented report details. She explained Attachments A (FY21-22 preliminary budget), B (FY22-23 preliminary budget), and C (Solid Waste Fund Balance Projections). She noted adjustments made due to budget cuts, as well as changes to salaries and benefits and other funds. She discussed the proposed and projected fund balances for Fiscal Year 2021-22 through Fiscal Year 2024-25. Director Perry inquired about the District's ability to afford CR&R's CPI rate increase. Ms. Tran stated that tonnage rates will determine the District's ability to afford the rate increase. She noted that her current projections are based on tonnage amounts. COSTA MESA SANITARY DISTRICT PAGE 10 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 81 2021 Director Perry stated that the District will have to issue a budget adjustment by Fiscal Year 2024-25 according to Ms. Tran's projections. Discussion followed regarding CR&R's CPI rate increase and its potential effect on the District's budgeting process. Ms. Tran explained Attachment F (Wastewater Fund Balance Projections). She stated that the revenue from the District's wastewater service charge is not sufficient to balance the upcoming budget cycle for Fiscal Years 2021-22 and 2022-23. Vice President Scheafer stated that CPI increases are normally reviewed on an annual basis. He asked why CR&R issues their CPI requests every two years. Mr. Carroll stated that CR&R issues their request in accordance with the District's two-year budget cycle. Director Eckles discussed the District's budget for salaries and benefits and asked how the District was able to reduce the budget for overtime pay. Ms. Tran stated that the District currently has two vacant positions: Engineering Technician and Construction Inspector. She noted that the District will be contracting out the Construction Inspector position. She added that the Engineering Technician position does not require much overtime work. President Ooten thanked Ms. Tran for her hard work on preparing the District's budget. Mr. Carroll stated that District staff will be presenting the final budget for adoption at the June Board meeting. There was no further discussion. Action, Discussion: 3. Receive and File Quarterly Legislative Report - Quarter 2 Recommendation: That the Board of Directors receives and files the Quarterly Legislative Report. COSTA MESA SANITARY DISTRICT PAGE 11 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 8, 2021 Management Analyst II, Gina Terraneo, provided a brief overview of bills that the District has taken a position on and a few other bills that represent current trends and topics of interest. She reviewed two congressional bills regarding the Special Districts Provide Essential Services Act: House of Representatives (HR) 535 and Senate (S) 91. She stated that the District is watching a few other congressional bills that focus on water, wastewater, waste management infrastructure, and grant funding for water recycling and reuse projects. She discussed Assembly Bill (AB) 361, which would allow local agencies to conduct teleconferenced meetings under special circumstances as a local or state emergency or in cases where health officials have imposed social distancing requirements. She shared that the District is supporting AB 818, which would require manufacturers of wipes to include a label on the packaging that says, "Do Not Flush." She stated that the District is concerned about AB 59, which would create or alter several rules surrounding sewer connection and capacity fees. She discussed a few other notable bills including AB 703, AB 881, Senate Bill (SB) 234, AB 1041, SB 219, and SB 594. Vice President Scheafer inquired about AB 881 regarding recycling credits. Ms. Terraneo confirmed that no recycling credits will be granted for recyclables sent to Southeast Asia if the bill is passed. Secretary Schafer and President Ooten advised Ms. Terraneo to review the legislative reports from the Independent Special Districts of Orange County (ISDOC) and the Orange County Sanitation District (OCSD). There was no further discussion. Procedural: 1. Oral Communications and Director Comments Director Eckles and Secretary Schafer thanked District staff for their work on the budget process. President Ooten asked about the monthly rate of tonnage received by the Orange Coast College Recycling Center. COSTA MESA SANITARY DISTRICT PAGE 12 MINUTES OF THE BOARD OF DIRECTORS STUDY SESSION HELD JUNE 812021 Mr. Carey reported that the OCC Recycling Center receives about 125 tons per month. There were no additional comments by the Board. Procedural: 2. Adjournment President Ooten adjourned the meeting at 11:07 A.M. . r VON Arlene Schafer j Secretary 0 1, T A') -a, Bob Clote-c President