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11 - 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: Board of Directors From: Scott Carroll, General Manager Date: April 18, 2013 Subject: Solid Waste Annual Charge Summary Before determining the annual solid waste charge per residential parcel in CMSD, staff needs to determine the total 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 Board of Directors approves continuing the public hearing to June 27, 2013 and direct staff to negotiate with CR&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. ITEM NO. 11 Board of Directors April 18 , 2013 Page 2 of 7 Household Rate Monthly Cost Annual Cost 21,571 X 9.1554 $197,491 X 12 = $2,369 ,892 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 disposal 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 2013 -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 recyclin 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 Main tenance (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 sharp s, 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. Board of Directors April 1 8 , 2013 Page 3 of 7 Hauler $2,369,892 Recycling/Disposal 2,080,967 Sa laries & Benefits 447,668 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 sou rces include additional container 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 T axes 200,000 Investment Earnings 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. Board of Directors April 18 , 2013 Page 4 of 7 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. 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 benefits 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 T his 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. Hau ler $2,400,000 Recycling/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. Board of Directors April 1 8 , 2013 Page 5 of 7 When the se revenues are used to offset the total expenses the net cost is $4,945,935 as shown below. 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 de termine the annual charge staff 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 year, 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 2 013 -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 m onth 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 A demonstrates the District could maintain an annual charge of $21 6 .00 for the next eight years when allocating the fund balance and the fund balance can stabilize the charge for at least eight years. Attachment B is a solid waste survey that shows CMSD’s proposed full rate will rank 17 th out of 35 Orange County communi ties. The District is currently 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 sites. This information is important because it determine s if the recycling and waste disposal reports are accurate to achieving CMSD’s 57% div ersion. CR&R has not yet provide d the manifest to the District’s auditing consultant . If Board of Directors April 18 , 2013 Page 6 of 7 the information on 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 r ates 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 ensu re the short and long -term 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 pro jects.” 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 2023 -24. Staff recommends maintaining a minimum Fund Balance of $2,000,000 to pay for on -going expenses before the assessment revenues are dispersed from the County to the District. Given that the District has a dry period from June through October, staf f recommends maintaining 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 negative net balance of ($166,046) in FY 2013 -14 and a negative net balance of ($223 ,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 recyclables. 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. Board of Directors April 1 8 , 2013 Page 7 of 7 Committee Recommendation On April 16, 2013 the Operations Committee discussed this item; however, this report was prepared before the meeting occurred. Staff will share with the Board the Committee’s recommendation at tonight’s meeting. Public Notice 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 prepa re 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 Wa ste Rate Study C. Solid Waste Rate Survey Attachment B CR&R Contract Expires 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2021-22 2022-23 2023-24 Expenses 5,275,382 5,395,935 5,517,344 5,641,484 5,768,417 5,898,207 6,030,916 6,166,612 6,305,361 6,447,231 Annual Charge 4,659,336 4,718,520 4,718,520 4,718,520 4,718,520 4,718,520 4,718,520 4,718,520 4,718,520 4,718,520 Additional Container Charge 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 Property Tax 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 Investment 50,000 54,000 53,000 50,000 46,000 40,000 33,000 25,000 15,000 3,500 Contributions 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 Other 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 75,000 Total Revenue:5,109,336 5,172,520 5,171,520 5,168,520 5,164,520 5,158,520 5,151,520 5,143,520 5,133,520 5,122,020 Net:(166,046) (223,415) (345,824) (472,964) (603,897) (739,687) (879,396) (1,023,092) (1,171,841) (1,325,211) Fund Balance 5,658,970 5,547,853 5,377,683 5,082,178 4,655,306 4,091,923 3,385,759 2,531,426 1,523,418 355,093 Net Balance 5,492,924 5,324,438 5,031,859 4,609,214 4,051,409 3,352,236 2,506,363 1,508,334 351,577 (970,118) Occupancy 21,571 21,845 Rate:18.00 18.00 Assumptions:2013-14 - 2022-13 expenses - 2.25% CPI per year Net Balance 1% interest per year All revenues flat No change in occupancy Evergreen Attachment C Residential Full Rate Franchise Fee Residential Net Rate 1 Placentia 22.22 15% 1 Anaheim 19.53 2 Stanton 21.09 10% 2 Stanton 18.98 3 Garden Grove 20.46 7% 3 Hunti ngton Bch 18.82 4 Cypress 19.97 8% 4 Santa Ana 18.73 5 Villa Park 19.96 7% 5 Garden Grove 18.54 6 Yorba Linda 19.56 0% 6 Yorba Linda 18.48 7 Anaheim 19.53 5% 7 Placentia 18.46 8 Huntington Bch 18.82 0% 8 Cypress 18.37 9 Brea 18.78 10% 9 Villa Pa rk 18.18 10 Santa Ana 18.73 0% 10 Fountain Valley 18.16 11 Fullerton 18.60 7% 11 Laguna Niguel 17.91 12 Laguna Niguel 18.56 5% 12 San Juan Cap 17.23 13 La Habra 18.40 8% 13 Laguna Beach 17.21 14 Fountain Valley 18 .16 0% 14 Fullerton 17.21 15 San Juan Cap 18.14 5% 15 CMSD 17.19 16 San Clemente 18.02 5% 16 San Clemente 17.12 17 CMSD 18.00 0% 17 La Habra 17.02 18 Newport Beach 17.84 0% 18 Brea 16.39 19 Seal Beach 17.30 7% 19 Seal Beach 16.09 20 Laguna Beach 17.21 0% 20 La Palma 15.76 2 1 La Palma 16.55 5% 21 Newport Bch 15.56 22 Buena Park 15.62 5% 22 Dana Point 15.35 23 Aliso Viejo 15.46 5% 23 Laguna Hills 15.33 24 Dana Point 15.35 0% 24 Tustin 15.09 25 Laguna Hills 15.33 0% 25 Buena Park 14.80 26 Tustin 15.09 0% 26 Midway Ci ty 14.75 27 Midway City 14.75 0% 27 Aliso Viejo 15.10 28 Lake Forest 13.76 5% 28 Lake Forest 13.07 29 Rancho SM 13.47 5% 29 Ranch SM 12.90 30 Newport Coast 12.74 0% 30 Newport Coast 12.74 31 Los Alamitos 12.28 0% 31 Los Alamitos 12.28 32 Mission Viejo 12.11 5% 32 Orange 12.20 33 Orange 12.20 0% 33 Mission Viejo 11.51 34 Irvine 11.81 5% 34 Irvine 11.22 35 Laguna Woods 10.00 0.05 35 Laguna Woods 9.50 Average 16.77 Average 15.91 Median 17.84 Median 16.39