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HomeMy WebLinkAboutStaff Report 4.A 11/19/2012 Ay-ewtda'Ite'v #4.7. 'SP.LV \n 1868. DATE: November 19, 2012 TO: Honorable Mayor and-Members of the City Council . FROM: John C. Brown, City Manager SUBJECT: Introduction (First Reading) of an Ordinance Approving New 15-Year 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 and Street Sweeping Services. RECOMMENDATION It is recommended that the City Council: 1. Introduce (First Reading) the attached ordinance Approving a New 15-Year 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 and Street Sweeping Services; and 2. Authorize the City Manager to Execute the Franchise Agreement, and any related documents. . BACKGROUND The subject ordinance, a draft Franchise Agreement, and an associated performance audit were discussed at the City Council's October 15, 2012 meeting. A copy of that staff report is provided as Attachment;2.,The Council received the report which outlined the results of the performance audit and.suminarized the main deal points of the proposed agreement and discussed the associated benefits; provided input to staff regarding the draft agreement, and received public . comment Council input included suggested changes to the franchise agreement to incorporate provisions requiring compliance with'the-City's Living Wage Ordinance, provide for more extensive notice[for Spanish-speaking customers, and to enhance opportunities to recycle batteries and florescent tubes and light bulbs. Written comments were submitted on behalf of the Petaluma River Council and No Wetlands Landfill Expansion, which:raised.issues.related:to the California Environmental Quality Act (CEQA) and Petaluma Refuse and Recycling's(PR & R) ability to satisfy the "No litigation" Agenda Review: City Attorney- Finance Director City Manager • clause, Section 2.4of the draft Agreement' (Attachment 3). This item was continued to provide staff time to evaluate comments and to negotiate changes to the draft agreement. • DISCUSSION Since October 15, 2012, staff and associated consultants have evaluated whether the draft agreement is a "project" subject to CEQA. Because of a conflict associated with City/County landfill closure/post-closure issues previously declared by the City's legal Counsel, Meyers/Nave, the City has retained the firm of:Genserand Watkins for certain solid waste matters. Genser and Watkins has prepared an opinion regarding the applicability of CEQA to the Franchise Agreement (Attachment 4). Additionally, legal counsel representing PR&R, Beyers/Costin, prepared a comprehensive response to the issues raised in the Petaluma River Council and No Wetlands Landfill Expansion comments. That document(Attachment 5), dated October 30, 2012 was provided under separatecover to City Council members. These two documents, when considered in-conjunction with the modifications that have been made to the franchise agreement, provide the.City.Council with additional basis for approving the attached ordinance if that is the Council's desire. Modifications have been made to the draft ordinance since the October meeting to address the Council's concerns regarding consistency with the living wage ordinance, improved outreach to Spanish speaking customers, and creating opportunities for battery and florescent tube/bulb recycling. The proposed modifications also clarify and strengthen sections of the previous draft regarding the City's authority over direction of redirection of waste, and recyclable and compostable material; insure that any changes to the scope of service, such as initiation of a commercial food waste composting program will receive all applicable and appropriate environmental review before such changes are formally requested (and that PR & R will be responsible for reimbursing the cost of any such review); specify additional protections for the City and PR & R if the Agreement approved by the City Council is subsequently challenged; and correct an oversight which would have prohibited PR & R from including increases in that portion of the franchise fee intended to mitigate impacts to the street system in the.base level of service subject to Refuse Rate Index (RRI) adjustments. These modifications are further detailed in the remainder of this report. Council Comments The City has further negotiated provisions to the franchise agreement to address the concerns raised by the City Council, including: 1. The Living Wage Ordinance. The version of the proposed new Franchise Agreement under consideration on October 15, 2012, obligated the franchisee to comply with all The full document consists of the October 15, 2012 correspondence,and an attachment. Due to the length of the full document, only the correspondence is included here, as Attachment 3. A copy of the entire document was received by each City Council member on October 15, 2012 and can be accessed on-line by clicking on the"items submitted after agenda distribution", for the October 15, 2012 Agenda,found in the archived staff reports and meeting minutes section of the City Clerk's web page, http://cityofpetaluma.net/cclerk/archives.html. laws, which would have included Petaluma's Living Wage Ordinance. Nevertheless, the revised versioir now includes a new section (§15.26) which explicitly requires compliance with the Living Wage Ordinance, and.a new form (Exhibit 12) which must be filled out by the franchisee to document compliance with the Living Wage Ordinance. 2. Spanish Language Access. Section 9.1 of the revised Franchise Agreement adds a new paragraph which states: "All public education materials required in this`Section and Exhibit 6 shall be printed in English and Spanish, with reference to where Spanish language materials can be obtained included as part of Contractor's web site, made available-at Contractor's Petaluma business office, and made available for mailingto a Customer a upon request by a Customer. Further, Section 9.1.1.10, has been added, which requires that the franchisee send a newsletter biannually to all accounts: "A Spanish language version of this newsletter shall be made available electronically on the Contractor's website, and shall alsor be made available for pickup from Contractor's business office in theCity. The Spanish language version of the newsletter shall be mailed free-of-charge to those Customers who have requested it, and Contractor shall maintain a mailing list of those Customers requesting this service." 3. Recycling of Batteries and Energy-Efficient Lights. Batteries and many types of energy- efficient lights contain mercury, and fall within the category of Household Hazardous Waste ("HHW"). The franchisee is not:currently licensed to collect HHW. This service could be added later, as a change in scope of services, when the franchisee has become licensed appropriately and the costs of providing the service can be ascertained. In the meanwhile,PR and R will increase its public education activities, to better advise customers of collection events and drop-off points. CEQA, It is the consensus opinion of attorneys for Beyers/Costin, Genser-and Watkins, and to the degree that Meyers/Nave was'able to engage in consideration of CEQA issues, Meyers/Nave;that approval of the proposed new Franchise Agreement-does not require CEQA review. Staff has reached a similar conclusion, based,on the revisions that have been made to the Franchise Agreement since October 15, 2012. The California Environmental Quality Act("CEQA") requires that, whenever a public entity embarks on what is called a "Project", the potential environmental impacts of the Project be studied and any significant such impacts be mitigated or found to be justified. An act of a public entity is a Project;_however, only if it is likely that the act will result in a physical change to the environment. • The proposed new Franchise Agreement is nota Project under CEQA because it has no likely implications for causing a.physical change to the environment. The new Franchise Agreement extends-the term of the existing franchise agreement and has numerous financial and legal implications for the City, but no physical changes are contemplated or likely. The same trucks will pick up the various categories of solid waste and transport them to the same places on the same schedule. The letter from the Petaluma River Council and No Wetlands Landfill Expansion states that the new Franchise Agreement is-likely to result ingreen waste being redirected from the County Landfill to Redwood Landfill, which inturn would have an impact on the physical environment, requiring CEQA analysis. The new franchise agreement does not suggest, recommend, or require redirection of green waste to Redwood Landfill instead of to Sonoma Compost where it goes presently. On the contrary, based on City Council feedback staff understands that continuing to direct green waste to Sonoma Compost is the preferred option and the new franchise agreement has been negotiated to continue that existing service. The written comments from Petaluma River Council and No Wetlands Landfill Expansion also claim that the redirection of green waste from the County Landfill to the Redwood Landfill would,result in green waste being used as Alternative Daily, Cover(ADC) which the commenter states would also result in a change to the physical environment and trigger CEQA analysis. As stated above, the existing green waste service would continue to be directed to the County Landfill for composting, there would be no redirectionito Redwood Landfill, and no green waste would be used as ADC. No-physical.change is anticipated. The only modification to existing-service that is considered in the new Franchise Agreement is the potential to initiate a commercial food waste program. The Franchise Agreement does not create this program or require this program to meet required diversion levels outlined in the agreement. At the direction of the City such a program could be reviewed and incorporated into the scope of the agreement. Commercial food waste is currently part of the refuse stream that goes to the Redwood Landfill. Commercial food waste is not part of the existing green waste stream and the County Landfill is not an approved facility for such a commercial food waste program. Redwood Landfill is an approved facility for commercial food composting. The new franchise agreement does not change-existing service or change existing facilities, does not result in an impact to the physical environment, and therefore is not considered-a project under CEQA. Regardless of this conclusion, revisions were made-to the proposed new Franchise Agreement to reduce even further any risk that it could be anticipated to be the likely cause of physical changes. The definition of"Diversion Requirement" at Section 1.40 was changed so it could not be interpreted more broadly than the-same requirement under the existing franchise agreement. The existing franchise-agreement requires the franchisee to meet a diversion goal of 50%. It also requires the franchisee to comply with all laws, which would include any new law that would increase the diversion requirement. The version of the,new Franchise Agreement provided to Council on October 15 required, in addition to'both of those, that the franchisee comply with the Sonoma Countywide Integrated Waste Management Plan. That Plan does not now require a diversion rate any higher than:is required by State law. There was concern, however, that a future amendmentmtightincrease the diversion requirement, causing a physical change that would not occur under the existing franchise agreement. The elimination of the requirement to comply with the Integrated Waste Management Plan from the proposed new Franchise Agreement does not mean.the franchisee cannot be required to meet a higher diversion goal as set forth in an amended Countywide Integrated-Waste Management Plan; it only means that it would-not be automatic. The City would havetodecide to-require-the franchisee to meet a higher diversion requirement and;that the City Might, upon imposing that requirement, have to conduct some environmental review of whatever new program or other action was required to comply. The proposed new Franchise Agreement contemplates the possibility of changes in scope of the services to be provided.by the franchisee, suchuas the addition of a new program of collecting and composting commercial food waste. Several changes were made to explicitly require that, if such a.change in scope were determined to be a Project under CEQA, appropriate CEQA review would be conducted and that such review would not be paid for by the City. Those changes are: • The October 15, version of the Franchise Agreement included lists of Approved Disposal Sites, Approved Organic Materials Processing Sites and Approved Recyclable Materials Processing Sites (Exhibit 5). The revised version eliminates those lists, leaving only the current sites as "Approved.°' This makes it clear that the proposed Franchise Agreement does not contemplate a changeiirsite, an event-which could, conceivably, trigger CEQA review. That is not to•say that a change in facilities would necessarily trigger environmental review. Rather, if there-were to be a change in what facilities are used, the City would have to evaluate at that time whether any sort of CEQA review was necessary. • Section 4.5.6 specifically discusses:a possible new commercial food waste program. It provides that, if there is to be such a.program in the future, the City Manager may designate to where the collected food waste will be taken for processing. Giving this authority to the City Manager emphasizes that, if such a new program were to.require some sort of environmental assessment; the City would have an opportunity to do so before enacting the program, and the City night have the opportunity to avoid doing so by choosing a facility that has already had its environmental impacts studied. These provisions do>not add anything not already in the more general provisions regarding any change in scope of the services to be provided by the franchisee, but they address the specific concerns of some in the community. • The revised.draft includes a new provision (section 8.2.3.5) which expressly prohibits the use of Organic Materials as AlternativeDaily Cover. It was the intention of the parties that Organic materials be converted to compost, not used as landfill cover. This new section clarifies thatintention. The revised Franchise Agreement now has provisions governing what happens if there were a need for CEQA review or if there were-a CEQA lawsuit: • New section-4.5.8 obligates""the franchisee to pay for any required environmental review triggered by.anyrchange in site or new program or any other change in solid waste service that requires CEQA review. 'The franchisee is permitted to recover those costs the next time it requests a rate adjustment. • If there were to be a lawsuit challenging the new Franchise Agreement, a new provision (section 3.3) requires the franchisee to defend the lawsuit at its cost, but those costs would be recoverable by the:franchiseethe next time there were to be a rate adjustment. If that lawsuit were to be successful, such that it were to void the new Franchise Agreement, then the old Franchise Agreement would be restored. In that event, the City would be required to refund any payments it had received from the franchisee in excess of the payment that would have been made under'the:old-Franchise Agreement. If a CEQA lawsuit were to be successful, as indicated, a possible outcome would be to void the new Franchise Agreement Arguably, if the new Franchise Agreement were void, the provisions in it that govern what would happen in the case of a successful legal challenge would also be void. Thus, Genser and Watkins-has prepared an additional agreement between the City and the franchisee that covers only what happens-in the case of a successful legal challenge: that the old Franchise Agreement is resurrected and the City must refund to the franchisee any payments made in excess of what would have been paid under the old Franchise Agreement. This document is still in draft but is provided`as Attachment 6. The recommended action, authorizing the City Manager to execute a franchise agreement, and all related documents would apply to this'supplemental_agreement. Staff Review As previously indicated, PR & R's and the City's counsels conclude the franchise agreement is not a "project" subject to CEQA. No new services are added, and no material is being directed to any location other than those that:are currently utilized. City planning staff shares that opinion, based on its understanding of the intentions of the parties, and as a consequence of the clarifications made to the agreement. In its initial review planning'staff concluded the primary area of concern regarding the need for environmental review would be the initiation of a commercial food waste program, particularly if that program werelto,.direct material to a landfill other than Redwood, where the food waste is currently going. A:secondary area of concern would be whether the redirection of material to sites other than those:currently utilized would represent a physical change sufficient to trigger environmental review. Staff believes that directing commercial food waste to Redwood as a compotable.material.(as opposed to a waste material),'thereby removing it from the landfill where,it is currently deposited and instead composting On that site, represents a positive change, but would-probably require some level of environmental review. Staff also concluded that redirecting material to sites other than those locations where it is currently directed could result in potential environmental impacts(greenhouse gas and air quality impacts), depending on the results of environmental reviews already performed for such sites. Evaluation of those reviews would need to occur before a determination of the need for additional environmental review could be made, and would affect decisions about whi'cli alternate sites to use, if any. The 1^ changes that have been made;resulting in the revised franchise agreement, alleviate those concerns noted by staff: While staff believes that initiating commercial food program sooner than later is desirable from a waste diversion standpoint; issues have recently been raised around composting operations at the.County=Landfill. Depending on how those issues are ultimately resolved; it is possible that all green waste and food waste could be directed to the Sonoma Compost location. As such,it's Worth waiting to see how those issues:are resolved before making any decisions regarding the initiation of a commercial food waste program or where that material would be directed. Pursuant to the revised.Franchise Agreement, if there is a desire to change the scope of the services currently received, amanalysis will be conducted-to determine environmental impacts, if any, before any decision is made. One additional change was made to the October 15, 20-12 version of the Agreement, at Section 10.2.2. The section addresses the initial rate adjustment to be granted with the new franchise, and has been changed tol incorporate-an additional one-time adjustment of 2.15 percent. This adjustment adds into the.base; for future RRI adjustments, the cost of increasing the Road Impact Franchise fee by $250;000 per year over the existing franchise.agreement. PR & R agreed to increase that portion of the franchise fee, but negotiated,that the increase would be incorporated into its rates. This change corrects for an oversight in.the October 15, 2012 version, which did not provide for that incorporation. Based on the foregoing; staff respectfully recommendsthat the City Council adopt the attached ordinance approving a new 15-Year-Franchise Agreement with Petaluma Refuse and Recycling. Staff, a representative oIR3„and attorneys representing the City and PR& R will be available at your Novemberrv19;2012,meeting to discuss these matters further and to answer any questions you may-have. FINANCIAL IMPACTS The proposed agreement is projected to generate approximately$142,000,000 in revenues based on recent receipts analyzed during the due diligence effort„not including any rate adjustments due to changes in the RRI. With the proposed changes inthe,agreement, the City's share of-the revenues over the 1-5-year term for-franchise fees, VIF, and contract compliance:is-expected to be $22,200,000;,$15,300;000; and, $620,000respectively, for-a total of$38,120,000. This represents'a projected increase in City revenues of$12,400,000 for the I5-year life of the agreement. The new franchise,fee provision will provide a "front loaded” payment of$500,000 to the City-durmgthe-first 3 months-cif-the new term. The delay in rate increases results in customer rates that are approximately $410,000 per year lower than they would be if this agreement is not approved. `Over the life of the proposed agreement, those savings amount to approximately $6,150,000. The cost of performing due diligence; including preparation of the attached Contract Compliance Review and Profitability Analysis, negotiating'and drafting the agreement, associated legal services, and related.staff time is estimated at approximately $106,000, which will be is paid by PR'R pursuant to a cost recovery agreement and as dictated by the proposed franchise agreement. ATTACHMENTS 1. Ordinance • 2. Franchise Agreement 3. Letter from Lozeau Drury dated October 15, 2012 4. Letter from Genzer & Watkins dated November 15, 2012 5. Letter from-Beyers/Costin dated October 30, 2012 6. Letter from City to Petaluma Refuse &Recycling dated November 19, 2012