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HomeMy WebLinkAboutStaff Report 3.C 01/22/2018DATE: January 22, 2018 Agenda Item #3.0 TO: Honorable Mayor and Members of the City Council through City Manager FROM: Da Q, F.ASCE — Director, Public Works and Utilities Department SUBJECT: Adoption (Second Reading) of an Ordinance Approving Assignment of the Franchise Agreement Between the City of Petaluma and Petaluma Refuse and Recycling, Incorporated, an Affiliate of The Ratto Group of Companies, Inc., for Solid Waste, Recyclable Materials and Yard Trimmings Services to Recology Sonoma Marin a subsidiary of Recology Incorporated, and Authorizing the City Manager to Execute an Assignment, Assumption, and Amendment Agreement upon Satisfaction of the Conditions Precedent Contained in the Agreement RECOMMENDATION It is recommended that the City Council Adopt an Ordinance Approving Assignment of the Franchise Agreement between the City of Petaluma and Petaluma Refuse and Recycling, Incorporated, an Affiliate of the Ratto Group of Companies, Inc., for Solid Waste, Recyclable Materials and Yard Trimmings Services to Recology Sonoma Marin a Subsidiary of Recology Incorporated, and Authorizing the City Manager to Execute an Assignment, Assumption and Amendment Agreement upon Satisfaction of the Conditions Precedent Contained in the Agreement. BACKGROUND On December 18, 2017, the City Council unanimously approved the first reading of an ordinance approving assignment of the franchise agreement between the City of Petaluma and Petaluma Refuse and Recycling, Incorporated, an Affiliate of the Ratto Group of Companies, Inc., for solid waste, recyclable materials and yard trimmings services to Recoloy Sonoma Marin, a Subsidiary of Recology Incorporated, and authorized the City Manager to execute an assignment, assumption and amendment agreement upon satisfaction of the conditions precedent contained in the agreement. The recommended action provides for a second reading and adoption of the ordinance. FINANCIAL IMPACTS All existing provisions of the Solid Waste Franchise regarding revenues to the City remain unchanged with the proposed transfer. These include annual franchise fees of 10 percent of gross receipts, a $500,000 annual payment, the cost of which may not be passed through to rate- payers, an annual pavement condition fee equal to 10.27 percent of gross receipts, pass through costs associated with the City's participation in AB939 and Household Hazardous Waste programs, revenue sharing payments associated with recycled materials recovery, and for the City's annual costs of administering the franchise. No fee increases to City rate - payers are proposed at the present time, although the proposed action could increase rates for customers by less than 1 percent to fund the State mandated MS4 trash capture program as a cost of providing solid waste handling services in the City. Such increase would follow noticing and rate setting action by the City Council. The new trash capture revenue would be budgeted as revenue to the stolmwater enterprise fund beginning in FY 18/19. The proposed ordinance and agreement are not anticipated to impact the City budget. All City costs for the review and evaluation of the proposed transfer will be reimbursed by PR &R from a $500,000 deposit currently held by the City as a condition of considering the transfer in accordance with the franchise agreement. ATTACHMENTS Ordinance 2 ORDINANCE NO. N.C.S. EFFECTIVE DATE OF ORDINANCE Attachment 1 Introduced by Seconded by AN ORDINANCE APPROVING ASSIGNMENT OF THE FRANCHISE AGREEMENT BETWEEN THE CITY OF PETALUMA AND PETALUMA REFUSE & RECYCLING, INC., AN AFFILIATE OF THE RATTO GROUP OF COMPANIES, INC., FOR SOLID WASTE, RECYCLABLE MATERIALS AND YARD TRIMMINGS SERVICES TO RECOLOGY SONOMA MARIN, A WHOLLY OWNED SUBSIDIARY OF RECOLOGY INC., AND AUTHORIZING THE CITY MANAGER TO EXECUTE AN ASSIGNMENT, ASSUMPTION AND AMENDMENT AGREEMENT UPON SATISFACTION OF THE CONDITIONS PRECEDENT SPECIFIED IN THE FRANCHISE AGREEMENT AND THE ASSIGNMENT, ASSUMPTION AND AMENDMENT AGREEMENT WHEREAS, on September 13, 2005, the City entered into an exclusive Franchise Agreement ( "Franchise Agreement ") with GreenWaste Recovery, Inc., ( "GreenWaste ") commencing on January 1, 2006, for collection of solid waste, recyclable materials and yard trimmings, pursuant to authority granted in Resolution No. 2005 -141 N.C.S.; and WHEREAS, on January 4, 2010, the City Council of the City of Petaluma adopted Ordinance No. 2010 -2361 N.C.S. authorizing the assignment of the Franchise Agreement from GreenWaste to Petaluma Refuse & Recycling, Inc. a California corporation ( "PR &R" ); and WHEREAS, on January 7, 2013 the City Council of the City of Petaluma adopted Ordinance No. 2013 -2448 N.C.S. authorizing the City and PR &R to enter into a restated Agreement for the provision of the exclusive right to collect, transport, and process mixed materials, recyclable materials, and organic material generated within the City; and WHEREAS, by letter dated August 18, 2017, PR &R requested assignment of the Franchise Agreement, in accordance with Section 14.8 of the Agreement, to Recology Sonoma Marin ( "Recology" or "Assignee ") as included as Exhibit B to this Ordinance; and WHEREAS, The Ratto Group of Companies Inc. and its owners and affiliated entities, including PR &R (collectively, "TRG "), entered into an Asset Purchase Agreement dated August 11, 2017 (the "APA ") which Recology and TRG represent provides for the purchase by Recology or its designated subsidiaries of substantially all of TRG's assets, including all of PR &R's assets; and WHEREAS, in connection with the closing of the transactions contemplated by the APA (the "Closing "), PR &R wishes to assign the Franchise Agreement to Recology, and Recology wishes to accept such assignment; and, WHEREAS, Section 14.8 of the Franchise Agreement requires the City's consent to any assignment of the Franchise Agreement as defined therein, including the sale of PR &R's assets dedicated to service under the Franchise Agreement, to a third party; and WHEREAS, the City has considered the potential risks associated with such an assignment, including, but not limited to, those discussed in the related report entitled, "Final Report: Review of Assignment of TRG Agreements to Recology Sonoma Marin," and seeks certain assurances regarding the performance of Recology, as provided for herein, in consideration of the City's consent to the assignment; and WHEREAS, Recology seeks to assure the City that, following the sale, Recology will continue operations under the Franchise Agreement in accordance with high professional standards, and provide services to the City in full compliance with the terms of the Franchise Agreement and the City's operational expectations (not limited to, but specifically including, the maintenance of separate operations and financial records, and separate records of all other transactions - except for the allocation of health, liability and workers compensation insurance), and keeping separate fiom any other franchise agreement or other activity of Recology reporting of activities under the Franchise Agreement, as well as keeping separate identification and use of all assets, including vehicles and containers under the Franchise Agreement, unless otherwise specifically approved in writing in advance by the City; and WHEREAS, Recology seeks to assure the City that the sale of the Franchise Agreement assets to Recology will not result in increased costs or a reduction in services or the quality of those services provided to the City, its residents, or businesses or a reduction of any obligations of Contractor under the Agreement; and WHEREAS, the City has determined that the implementation costs for the Trash Capture Program as required by the State Phase II MS4 permit for municipal separate storm sewer systems is a property - related cost of providing refuse services for the community and that therefore such costs are eligible for recovery through the fee structure and the annual refuse rate adjustment process of the Franchise Agreement; and WHEREAS, although the materials attached to and made a part of this ordinance for approving assignment and amendment of the Franchise Agreement provide a mechanism for providing Trash Capture services and recovering Trash Capture service costs pursuant to the Franchise Agreement, approval of assignment and amendment of the Franchise Agreement pursuant to this ordinance does not commence the provision of Trash Capture services in the City or recovery of Trash Capture service costs; and M WHEREAS, commencement of such Trash Capture services and cost recovery are anticipated to occur after assignment of the Franchise Agreement has taken effect and following a subsequent budget approval and rate setting action of the City in accordance with all procedural and substantive requirements for such a rate setting action and the terms of the Franchise Agreement; and WHEREAS, assignment of the Franchise Agreement and the rights and obligations thereunder continues the same solid waste disposal, recycling and related services currently provided under the Franchise Agreement, requires the same diversion percentage of waste from landfills, directs garbage and rubbish hauled from City sources to the same landfill, continues the composting of green waste and directs the hauling of green waste to the same composting site, and uses the same trucks, equipment and facilities as used by the existing solid waste, recycling and disposal services provided under the Franchise Agreement, thereby making no changes to the Franchise Agreement services which would have physical environment impacts as defined by the California Environmental Quality Act ( "CEQA "); and WHEREAS, because assignment of the Franchise Agreement would result in no changes that would have physical environmental impacts under CEQA, such assignment pursuant to adoption of this ordinance is not a "project" subject to CEQA and /or is categorically exempt pursuant to Section 15301 of the CEQA guidelines as the operation, maintenance, repair, permitting, leasing or licensing of existing public or private structures, facilities or mechanical equipment with negligible or no expansion of use; NOW THEREFORE BE IT ORDAINED by the Council of the City of Petaluma as follows: Section 1. Recitals Incorporated as Findings. The above recitals are hereby declared to be true and correct and are incorporated into this ordinance as findings of the City Council. Section 2. Conditions Precedent. Before assignment of the Franchise Agreement to Assignee contemplated pursuant to this ordinance may take effect, each and every condition precedent in Sections 2 and 14 of the Franchise Agreement, as modified by the Assignment, Assumption and Amendment Agreement ( "Assignment Agreement "), which is attached to and made a part of this Ordinance as Exhibit A, and each and every condition precedent in Section I of the Assignment Agreement, must first be satisfied. The Franchise Agreement is hereby made a part of this ordinance by this reference. Section 3. Approval of Assignment. Subject to satisfaction of the conditions precedent specified in Section 2, above, the City Council approves the Assignment Agreement. Each and every provision in the Assignment Agreement shall be binding upon the City, Recology, PR &R and their successors and assigns conditioned upon this ordinance taking effect, satisfaction of the conditions specified in Section 2 of this ordinance and execution of the Assignment Agreement by the City Manager in accordance with this ordinance. Provided the foregoing have occurred, the amendments to the Franchise Agreement contained in the Assignment Agreement shall become effective and part of the Franchise Agreement and binding on Recology and the City and their successors and assigns, subject to and effective as of the Closing. 5 Section 4. Execution. The City Council authorizes and directs the City Manager to execute the Assignment Agreement on behalf of the City, including any related and necessary implementing documents, at the time that this ordinance has become effective in accordance with the City Charter and all of the conditions specified in Section 2, above, are satisfied. Section 5. Severability. If any section, subsection, sentence, clause, phrase or word of this ordinance is for any reason held to be unconstitutional, unlawful or otherwise invalid by a court of competent jurisdiction or preempted by state legislation, such decision or legislation shall not affect the validity of the remaining portions of this ordinance. The City Council of the City of Petaluma hereby declares that it would have passed and adopted this ordinance and each and all provisions thereof irrespective of the fact that any one or more of said provisions be declared unconstitutional, unlawful or otherwise invalid. Section 6. Publication. This ordinance or a synopsis of it shall be posted and /or published for the period and in the manner required by City charter. Section 7. Effective Date. This ordinance shall become effective thirty (30) days after the date of its adoption by the Petaluma City Council.