HomeMy WebLinkAbout04/11/1994, 1 - SOLID WASTE RATE SETING ISSUES MEETING DATE:
�u�i�i�►►�IIIII���Ij����ll city of San LUIS OBISp0 April i 1994
COUNCIL AGENDA REPORT ITEM NUMBER:
FROM: John Moss, Director of Utilitie/4/1�
Prepared by: Sue Baasch, Adrtrinistrative Analyst
Cyndi Butterfield, Solid Waste Coordinato ,..
SUBJECT: SOLID WASTE RATE SETTING ISSUES
CAO RECOMMENDATION
Receive this report, and provide comments and direction to staff regarding,
(1) Solid waste rate objectives;
(2) Proposed modifications to current system of determining revenue adequacy and rate
setting;
(3) Interest in pursuing alternative rate structure and collection system options; and
(4) Public review and input strategy and schedule.
REPORT-IN-BRIEF
The purpose of this report is to receive Council direction on proposed solid waste rate objectives
and modifications to the current system of determining revenue adequacy and rate setting, so that
two documents can be completed. These are a solid waste rate setting manual and a draft
agreement between the City and the City's solid waste franchisee, San Luis Garbage Company.
In addition, staff seeks Council direction on pursuing alternative solid waste rate structures and
collection system options at this time, and on a strategy and schedule for public review and input
on these issues.
Eight solid waste rate objectives and their implications are presented for Council consideration.
Next, based on these rate objectives, the report develops recommendations for modifying the
current method of reviewing revenue adequacy. Determining revenue adequacy by using a test of
operating ratio (the result of dividing allowable costs by allowable revenue) is recommended as a
reliable standard increasingly used for rate-setting in the solid waste industry. Finally, the report
describes some inconsistencies in the current rate structure but recommends considering changes
to the rate structure as a separate issue. Consideration of rate structure as a separate issue from
the decisions necessary to ensure revenue adequacy has been most successful in the past for city-
provided utilities.
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COUNCIL AGENDA REPORT
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DISCUSSION
In February, Council approved a contract with Ernst and Young, a qualified solid waste consultant,
to analyze the City's solid waste rate issues. The study began with the identification of the key
solid waste rate objectives to be considered by Council. These objectives provide a foundation for
the rate evaluation and rate setting manual. The final step is preparation of an agreement based on
the franchise in the Municipal Code, various Council actions, the franchisee's current operations,
and the results of this study.
A review of the City's and franchisee's solid waste financial and policy documents allowed the
consultant to define the explicit and implicit objectives in the City's solid waste program. Based
on current practices and a knowledge of industry practices, the consultant prepared a list of
proposed goals that drive key financial objectives and resulting program change recommendations.
These initial findings were reviewed by a committee of city staff, composed of the Finance and
Utilities Directors, Public Works and Utilities Analysts, and the Solid Waste Coordinator. The
initial findings and draft recommendations have been reviewed by the franchisee's representative,
Tom Martin, who concurs.
Recommendations are presented in three sections, each building on decisions from the previous
sections:
■ Section I. SOLID WASTE RATE OBJECTIVES
■ Section H. DETERMINATION OF REVENUE ADEQUACY AND REASONABLE
COSTS
■ Section III. RATE STRUCTURE ISSUES
Based on Council direction at this study session, the consultant will complete the rate evaluation
manual and draft agreement between the City and franchisee. Both documents will be brought back
to Council for final approval and adoption.
■ Section I. SOLID WASTE RATE ORIECTnTS
An analysis of any rate setting and evaluation method must begin by examining what the rates and
the rate structure are intended to accomplish. The Council has not formally adopted specific rate
objectives for solid waste rate setting. The following proposed rate objectives are based on
previous Council actions regarding solid waste and city-provided utilities:
1.0 Promote source reduction, recycling, and maximum diversion.
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Solid Waste Rate Setting Issues
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2.0 Be environmentally sound.
3.0 Provide equity and fairness between classes of customers.
4.0 Be easy to understand and easy to administer.
5.0 Protect public health and safety.
6.0 Ensure revenue adequacy to fully meet reasonable costs of services.
7.0 Provide for ongoing review and rate stability.
8.0 Require requested rates be justified and supported.
A full discussion of the implications of adopting each of these objectives is contained in Exhibit A
to this report. Some of these objectives have the potential of being in conflict with each other. For
example, rates that promote revenue stability and more accurately reflect cost of service between
customer classes may be at odds with fates that promote maximum diversion; and refinements to
better reflect equity and fairness may be in conflict with keeping rates simple. However, the
suggested objectives represent a synthesis of objectives implicit in the City's presently approved
solid waste programs while providing clear direction for evaluating our solid waste rate activities.
■Section II. DETERMINATION OF REVENUE ADEQUACY AND REASONABLE COSTS
A major task in the consultant's work scope is the development of a rate change method based on
approved solid waste rate objectives. Assuming Council adoption of the proposed objectives, the
following describes the current system and proposed modifications .to our current system of
evaluating revenue adequacy and setting rates. For clarity, the issues are identified and discussed
under the headings of determining revenue adequacy, and setting a review process and required
documentation.
A. Determining revenue adequacy
Current System. Currently the City does not have formally adopted procedures for reviewing solid
waste rate change requests. The current procedure is based on an accountant's (Gerald Peasley)
review of the solid waste operations in the middle 1980's. This procedure bases allowable revenue,
including profit, on three tests.
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The first test was to look at the return on rate base. Return on rate base is the ratio of net
operating income (after taxes) to the "rate base." This method provides a return on a utility's
capital investment which includes land, buildings and equipment (less depreciation) plus working
cash. It is a standard still used for heavily capitalized utilities, such as electric utilities. In past
rate setting, the City has considered a return on rate base of between 11 and 14 percent to be
reasonable in light of market interest rates at the time.
Following this, two other tests were applied: operating ratio and a survey of rates in comparable
cities. Operating ratio analysis divides allowable costs by required revenue. In past rate setting,
the City has considered an operating ratio of between 90 and 95 percent to be reasonable.
The final step was to compare the requested residential rate for a single waste wheeler to the
residential rate for one waste wheeler or three 33-gallon cans in other local and statewide cities.
The consultant notes that the franchisee has been able to comply with all three of the guidelines
noted above in the past. However, the City does not have a process in place to resolve situations
where the requested rate adjustment does not meet all three guidelines. For example, if the
franchisee chose to lease trucks instead of purchasing them, which is the current practice, the return
on rate base would increase substantially, as the franchisee's capital investment would be much
smaller. However, all other things being equal, the franchisee's operating ratio would not change.
In this scenario, the franchisee would be unable to comply with both the return on rate base and.
the operating ratio guidelines. The consultant states that the solid waste industry is generally
moving away from return on rate base as test for rate setting purposes because capital purchases
can cause wide swings in the resulting percentages.
The current review does not distinguish between types of costs which can be allowed profit. Also,
the franchisee is not required to provide audited financial statements or to reconcile projections with
audited financial statements.
Proposed System. The consultant recommends using a single test of operating ratio with carefully
defined allowable, non-allowable and pass-through costs. The consultant believes this a more
reliable measure of revenue adequacy over time. Consistent with the current standard, the
consultant recommends a target ratio of 92%, allowing a two percent swing in either direction
before a rate increase or decrease would be triggered.
Key to this method is careful definition of what can be included as allowable costs. "Allowable
costs" are defined as costs which can be included in the total costs and can have profit. "Non-
allowable costs" are costs which are not allowed to be included in the total costs. Examples are
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contributions, income taxes and entertainment costs. "Pass through costs" are costs that can be
included as expenses but cannot earn profit. Examples of these are franchise fees, tipping fees,
regulatory fees, lease payments to affiliated companies, and litigation settlement expenses. One
cost, officers' salaries, is an allowable cost(i.e., can be included as an expense and can have profit)
only to an aggregate ceiling of$120,000 per year. Any additional amount of officers' salary is not
allowed to be recovered through the rates.
The model would look as follows:
Operating Ratio = Allowable Costs
Allowable Revenue
Therefore:
Allowable Costs = Allowable Revenue
Operating Ratio
and
Allowable = Allowable costs +
Revenue allowable profit on allowable costs +
pass through costs.
B. Setting a review process and required documentation
Current system. Under the current system, the franchisee can request rate increases every two
years. Interim year rate change requests can be considered if the franchisee can demonstrate to the
satisfaction of the city council that it has incurred extraordinary and consequential cost increases.
As shown below, rate increases have been granted almost every year in the past eight years, except
in 1989 (was actually implemented in 1990) and 1992.
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Solid Waste Rate Setting Issues
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EFFECTIVE DATE RATE CHANGE PRUAARY REASON FOR CHANGE
July 1, 1986 10.0% Inflation, liability insurance.
Jan 1, 1987 10.0% Inflation, liability insurance.
July 1, 1988 12.6% Tipping fee (increase to $8.50/ton).
April 1, 1990 6.0% Tipping fee (increase to$12.30/ton).
July 1, 1990 10.0% Tipping fee (increase to $17.10/ton).
Sept 1, 1991 18.0% Tipping fee (increase to $2.1.45/ton),
insurance costs.
Oct 1, 1993 3.18% Tipping Fee (increase to$24.56/ton).
E=sed system. Under the recommended system, rates could be changed annually with a three
year cycle of a base and two interim years. Required documentation would include annual audited
financial statements and reconciliation of financial documentation to the audited financial statements.
■ Base Year Requirements. The base year rate review would require the franchisee to submit
all the required financial and operational documentation identified in the rate manual. Rates
would be set after analyzing five consecutive years of data—two yeas of actual data, one
year of estimated data, and two years of projected data.
■ Interim Years Adjustments. These would be allowed for two factors: historical CPI and
pass through costs (defined above). Refinements to the interim yeas could be made, if pass
through costs varied enough from projections to significantly affect required revenues.
The forms for the required financial and operational reports will be included in the rate evaluation
manual and will be the franchisee's responsibility to prepare. City staff's role will be to review
the request for completeness and compliance with the defined standard. An outline of the manual
is shown as Exhibit B.
The proposed rate evaluation and adoption schedule would be as follows:
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Rate application submitted by June 1
City review/rate implementation process 120 days
Public Hearing and rate resolution by August 31
Implementation date for new rates October 1
The franchisee is willing to use this schedule for the anticipated 1994 rate increase application
review and rate setting.
If the franchisee does not submit the complete rate application package by the set date, the penalty
would be loss of any additional revenue which would have been earned through a timely and
approved rate increase. If the City failed to take action in the agreed upon time frame, at no fault
of the franchisee, the franchisee could include the value of the revenue lost in the pending rate
evaluation.
Adoption of the recommended process sets a standard for both the franchisee and the City. It
allows the pass through of tipping fees adopted by the Board of Supervisors without triggering a
major rate evaluation. This is a cost that must be paid by the franchisee and the longer-that the
franchisee cannot recover it, the larger the resulting rate increase to cover a justifiable cost. This-
is in line with adopted industry standards locally and statewide.
Other provisions proposed for the agreement and/or rate evaluation manual are consideration of
financial return to the franchisee for demonstrated cost savings programs, financial penalties for
non-compliance with the franchise and agreement, and the ability of the city to require performance
audits. Future costs for implementing AB 939 source reduction and recycling element and
Household Hazardous Waste Element program activities could be collected through a regulatory
fee that might be called an AB 939 fee. It would be a pass-through cost collected by the hauler.
■ Section M. RATE STRUCTURE ISSUES
Revenue adequacy, discussed above, and rate structure are two separate issues. Revenue adequacy
tells how much revenue is needed based on a review of allowable and pass through costs. Rate
structure describes how the revenue is collected from different types of customers. Any rate
structure can be designed to ensure revenue adequacy. What should be developed, however, is a
rate structure that reflects the City's solid waste rate objective.
It should be recognized that some of the rate objectives presented in Section I are potentially in
conflict. A solid waste rate structure that provides maximum rate stability would probably not
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encourage conservation efforts. Refinements to better reflect equity and fairness may be in conflict
with keeping rates simple. The adopted rate structure can reflect the balancing of the rate
objectives.
Current system. The current residential rate structure was set to promote volume-based rates. The
commercial and multi-unit rates are matrices roughly based on volume and frequency of collection
increased incrementally over time by the approved percentage increases. The consultant reviewed
the City's current rates and feels that the rates send mixed pricing signals.
Residential Service. There are currently three types of service, orange bag (about 30 gallons per
bag); standard (about 90 gallons per container); and premium service (allows up to six cans, with
about 30 gallons per can). A comparison of the cost per gallon at different volumes of each of
these types of service is shown below:
COMPARISON OF COSTS USING TYPICAL MONTHLY VOLUMES
Mo Cost Estimated Mo Volume Mo/Gal Cost
Orange Bag (I bag/week) $ 6.00 30 X 4 = 120 gal $ .050/gal
Standard (1 w/wheeler/week) $13.40 90 X 4 = 360 gal $ .037/gal
Premium (6 cans/week) $18.25 6 X 30 X 4 = 720 gal $ .025/gal
With increased volumes these relationships change.
COMPARISON OF COSTS USING EQUIVALENT MONTHLY VOLUMES
Mo Cost Equivalent Mo Volume Mo/Gal Cost
Orange Bag (6 bag/week) $26.00 30 X 6 X 4 = 720 gal. $ .036/gal
Standard (1 w/wheeler + 3 bag) $25.40 (90 + (3X30)) X 4= 720 gal. $ .035/gal
Premium ( 6 cans/week) $18.25 6 X 30 X 4 = 7200. $ .025/gal
At typical monthly volumes, the price per gallon decreases as volume increases. Comparing
equivalent monthly volumes, the economy and standard service cost per gallon becomes essentially
equal, and the premium service remains the least expensive. It should be noted, though, that the
basic cost to pick up one orange bag is not significantly less than that to pick up a standard
wastewheeler.
This analysis assumes that customers use the volume available to a particular level of residential
service, which is often not true. Other factors other than volume pricing may attract customers to
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select that service. Standard service offers convenience, while premium service avoids payment
of "rent" for containers.
Commercial Service. The consultant found there were mixed pricing signals on the multi-unit and
commercial service rates, too. For example, if two customers produce the same volume of waste,
the customers could pay different amounts. It is $27.00 a month for one can to be collected three
times weekly. It is $18.00 a month for three cans to be picked up once a week. This may make
sense in terms of cost of service but it sends a mixed message if rates are set according to volume.
On the other hand, two wastewheeler customers could receive an entirely different message. Two
commercial customers producing two wastewheeler containers of waste per week could pay
different rates. The customer who has one wastewheeler picked up twice a week will pay $27.00.
Another customer who has two wastewheelers picked up once.a week will pay $36.00. In this
case, the same volume picked up less frequently costs the customer more.
Recommendations regarding alternatives to current rate structures. The consultant has identified
inconsistencies in our current rate structure and has suggested alternatives. The current residential
rate structure could be modified to strengthen the message that reduced waste generation saves
money. The commercial rate structure could be modified to strengthen the message that reduced
waste generation and improved efficiency in collection (striving to reduce frequency of required
pick ups) saves money.
Residential rate structure alternatives could include eliminating premium service, using variable size
wastewheelers, or using stickers in conjunctions with bags and cans. Commercial rate structure
alternatives could include a system based on a fixed cost per ton, or a variation of this such as fixed
cost per ton with a base trip charge to provide incentive to reduce frequency of collection trips.
Moving forward with rate structure changes at this time raises several issues:
■ Rate structure modifications would likely be associated with changing collection systems.
■ Costs to implement changing collection systems would need to be investigated.
■ The JPA is striving to achieve some level of uniformity of collection among the participating
jurisdictions.
■ As described earlier, approval of the solid waste rate objectives, rate setting principles and
process (referred to as revenue adequacy within this report) is a completely separate issue
from rate structure changes. At times, the distinction becomes confusing, so it has worked
most successfully to consider the two issues separately for the city-operated utilities.
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Regardless of whether Council wishes to proceed with rate structure changes at this time, staff
recommends that the consultant provide rate structure recommendations in the final report.
CONCURRENCES
These recommendations have been developed jointly with the Finance Department and the
franchisee.
FISCAL IMPACT
This study will conclude with formally adopted procedures for reviewing and setting solid waste
rates. Prior to beginning this study, the franchisee indicated its intent to file a significant rate
increase application.
SUMMARY
This report provides recommendations and/or information in three areas:
■ Solid waste rate objectives. -
■ Modification to existing method of reviewing and determining revenue adequacy.
■ Rate structure issues.'
Staff seeks Council consensus on the rate objectives. Following that, staff seeks Council consensus
on modifying the existing method of reviewing and determining revenue adequacy. These will be
incorporated into the rate setting manual and agreement with the franchisee. As in the past, when
the actual rate application is filed and has been reviewed according to the established rate setting
method and process, a public hearing will be held prior to any rate changes. The proposed
schedule is to receive all required documentation by June 1, with a public hearing to be held by
August 31. The new rates would go into effect on October 1.
It is not necessary to make any rate structure changes to proceed with the rate evaluation and setting
process describe above. Based on Council direction regarding rate structures, staff will prepare
a separate process for analyzing and receiving public input on rate structure and collection system
options.
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Solid Waste Rate Setting Issues
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ATTACHMENTS
■ EXHIBIT A - Solid Waste Rate Objectives
■ EXHIBIT B - Outline of Rate Setting Manual
■ EXHIBTr C - Ernst and Young Letter dated March 21, 1994
Review of Existing City Refuse Collection
Rate Structure and Rate Setting Practices
_ I
EXHIBIT A
CITY OF SAN LUIS OBISPO
SOLID WASTE RATE OBJECTIVES
1.0 Promote source reduction, recycling, and maximum diversion.
2.0 Be environmentally sound.
3.0 Provide equity and fairness between classes of customers.
4.0 Be easy to understand and easy to administer.
5.0 Protect public health and safety.
6.0 Ensure revenue adequacy to fully meet reasonable costs of service.
7.0 Provide for ongoing review and rate stability.
8.0 Require requested rates be justified.
t
Solid Waste Rate Objectives
ObjectiveQbLecdye
1.0 Promote source reduction, 2.0 Be environmentally sound.
recycling, and maximum
diversion.
Basis for Objective Basis for Objective
Reducing the volumes of landfilled waste Consideration for maintaining environmental
was established as a City priority in 1990 integrity has been an ongoing priority for
with the adoption of the goal of volume- City programs and systems. The expansion
based residential rates. In response to the of recycling services and the adoption of
California Integrated Waste Management volume-based rates as an incentive for waste
Act of 1989 (AB 939), the City's Source reduction indicate a determination to
Reduction and Recycling Element (SRRE) maintain environmental quality through
establishes policy to promote source waste management programs. The Source
reduction, recycling and maximum Reduction and Recycling Element includes
diversion. In 1991, the City adopted a policy to divert waste while minimizing
policy promoting purchase of products made environmental impacts.
from recycled materials with a 10% price
preference, up to $1,000 per contract.
fmaftg ion of Objective Impkcadon of Objective
Collection systems and rate structures work Environmental concerns associated with
together to provide incentives for recycling collection systems include the added amount
and waste reduction. Rate structures that of waste created by use of orange bags and
encourage maximum diversion increase rates air quality impacts from transportation of
directly according to generation of waste. waste, recyclables and compostables.
In combination with rates based on volume, Working toward environmental soundness
collection systems with the most flexible means phasing out use of disposable
"increment" of service create strong containers. Air quality impacts can be
incentives to reduce and recycle. Total addressed through financial incentives to
system costs are composed of collection and reduce frequency of pickups and
disposal costs, with collection reflecting consideration of using co-collection trucks
about 80% of total costs. Collection costs (ate, recyclables and compostables in one
are typically incurred on a per account truck).
basis, whereas disposal costs are typically
incurred on a volume basis. Because of
this, rate structures that emphasize volume
in allocation costs between customers will
probably not accurately reflect system costs
on a per customer basis.
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Solid Waste Rate Objectives
Objective Objective
3.0 Provide equity and fairness 4.0 Be easy to understand and easy
between classes of customers. to administer.
Basis for Objective Basis for Objective
In 1988, Council aclrnowedged the need to Ease of understanding and ease of
strive for equity and fairness in rate administration has become increasingly
structures when it adopted a water rate important in the city-operated utilities as
philosophy regarding setting gquitable rates increase and programs become
service rates. This goal is equally important increasingly complex in responding to legal
when considering solid waste rate issues. requirements.
Implication of Objective Implication of Objective
Providing equity and fairness between Based on the experience with water rates, it
classes of solid waste customers is a goal will be easier to explain and administer solid
that could be met with two distinctly waste rates that directly relate rates to
different approaches. Equity and fairness volumes of waste generated and units of
could be served by relating rates directly to service provided. It is less easy to explain
cost of services. Or it could be achieved rates that are based on fixed costs of
through rates related to volumes of waste providing service. This is why charging for
generated. recycling may not be easy to explain to
customers and supports paying all costs of
Fairness could mean including a program to collecting and recycling through a single
provide low income assistance to qualified rate.
rate payers.
To further address fairness issues, costs to
provide waste collection and recycling to
other than city customers could be
segregated.
3
Solid Waste Rate Objectives
Objective Objective
5.0 Protect public health and safety. 6.0 Ensure revenue adequacy to
fully meet reasonable costs of
service.
Bans for Objective Basis for Objective
Providing waste collection to all developed Granting a franchise to provide solid waste
city properties is required by the Municipal collection recognizes the private sector's
Code in Section 8.04.070. ability to provide a quality service at a
reasonable cost. Further, the city
acknowledges that maintenance of good
service is related to providing adequate
compensation and financial incentive for
continued good performance.
frac cation of Objective Implication of Objective
Mandatory collection of solid waste The franchisee must receive adequate
promotes a community free of litter and compensation and profit in a timely fashion
debris. Landfill regulatory requirements
protect groundwater and air quality. All for continously providing good service to the
community. Financial incentives can be
rate payers benefit from these requirements. provided through profit and other financial
This policy would encourage a minimum recognition of cost-saving programs.
charge from all rate payers who benefit
from these quality of life enhancements,
although this is in potential conflict with
other objectives of promoting source
reduction, recycling, and maximum
diversion, along with a rate structure that is
simple and easy to understand.
4
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Solid Waste Rate Objectives
O 'active Objective
7.0 Provide for ongoing review and 8.0 Require requested rates be
rate stability. justified.
Basis for Objective Baas, or Objective
In May 1988, Council adopted a goal of Chapter 8.04 of the Municipal Code
ongoing review to facilitate water rate addresses the City's right to set solid waste
stability. It followed a period when rates rates. It further states that the franchisee
had not been adjusted for a number of years shall discreetly maintain and clearly identify
and a large increase in rates was necessary all items of revenue and expense pertaining
to provide adequate revenue. While solid to the City's franchised operations.
waste rates have generally been adjusted
annually, it is important to have a system
that requires annual review and adjustment
to avoid large rate increases.
ImpEnadon of Objeedve Implication of Objective
Ongoing review of solid waste expenses and Rates should be based on formally adopted
revenue requirements will reduce the "rate guidelines for reasonable profit and
shock" anticipated from funding the legal allowable expenses. Expenses should be
requirements imposed on the solid waste directly related to providing service to the
system. Formalizing these procedures in a rate payer. Accounting practices should be
rate setting manual which requires routine reviewed annually by an independent
submittal of operational and financial certified public accountant.
information sets forth the expectation for
both the City staff and the hauler, ultimately
to protect the rate payer.
It is important to recognize that maximum
stability of predicted revenues may be in
conflict with the goal of encouraging
maximum diversion.
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Outline of Rate Setting Manual
Attached is a draft outline of the rate setting manual. The exhibits attached are as follows:
Exhibit 1 Base Year Rate Setting Process
This section will describe who is responsible for the various steps of the¢fig
pprocess,what tasks need to be performed, and when each task must be
Exhibit 2 Interim Year Rate Change Process
This section will describe who is responsible for the various steps of the
interim year process,what tasks need to be performed, and when each task
must be completed
Exhibit 3 Preparation of the Base Year Rate Change Application
This section will contain instructions on how to complete the Base Year Rate
Change Application.
Exhibit 4 Preparation of Interim Year Rate Change Application
This section will contain instructions on how to complete the Interim Year
Rate Change Application.
Exhibit 5 Preparation of interim Year Rate Change Worksbeet
This section will describe how to complete the worksheet for reviewing an
interim year rate change application.
Also enclosed is a one-page summary of the operating ratio for San Luis Garbage, assun-Ang
franchise fees,tipping fees.and income taxes are pass-through costs.
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Base Year Rate Setting Process
1. Preparation and Submission of Bate Change Application Franchise Hauler
a. Prepare Cost Information
b. Prepare Revenue Information
c. Prepare Operating Information
d. Survey Residential and Commercial Solid Waste Rates
and Charges in Similar Service Areas
e. Prepare and Submit Rate Change Application and Supporting Documents
2 Verification of Completeness of Rate Change Application City
a. Verify Financial Data and Format
b. Verify Supporting Documents and Schedules
c. Notify the Franchise Hauler
3. Review of Rate Change Application and Preparation of Responses City
a. Review Actual and Projected Revenue Requirements
b. Review Actual and Projected Revenues
c. Review and Verify Operating Ratio
d. Determine Components of Requested Increase in Rates
e. Review Performance Data
f. Verify Survey of Rates in Similar Service Areas
S. Request Additional Dara and Clarification, if Necessary
h. Document Staff Review and Prepare Written Response
4. Response to Additional Information Requests from City Franchise Hauler
a. Provide Additional information, if Requested
b. Prepare and Submit Response
1- Ig
MAR-29-94 TUE 17:02 X FAX K0. 0000000 P. 03
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Base Year Rate Setting Process
(continuezp
5. Preparation of Draft Report and Recommendations City
a. Prepare Draft Report and Recommendations
6. Review of Draft Report and Recommendations Franchise Hauler
a. Review Draft Report and Recommendations with Cary Staff
b. Resolve Any Remaining Issues .
c. Prepare Response to Draft Report and Recommendations
7. Preparation of Final Report and Recommendations City
a. Incorporate Franchise Hauler's Changes in Final Report
b. Prepare Final Report and Recommendations
8. Presentation of Final Report and Recommendations to City Council City
a. Distribute Report and Summary to Council Members
b. Post Notice of Public Hearing
c. Conduct Public Heating
b. Obtain Council Approval
9. Implementation of New Rates Franchise Hauler
a. Prepare NotiEIcation of Rate Change
b. Implement Rate Change
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Interim Year Rate Ch a nge Pro cess
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1. Preparation and Submission of Rate Change Application Franchise Hauler
a. Prepare an Interim Year Rate Change Application
b. Identify Consumer Price Index
c. Submit Draft to City Staff
2. Preparation of Rate Adjustment indices City
a. Complete Interim Year Rate Change Worksheet and Determine New Rates
b. Request Additional Data, and Clarification, if Necessary
c. Prepare Draft Report and Recommendations
3• Review and Response to City Analysis and Calculations Franchise Hauler
a. Review City Staff Calculations and Analysis
b. Prepare and Submit Response
4. Preparation of Fiscal Report and Recommendations City
a. Incorporate the Franchise Haulees Comments in Final Report
b. Prepare Final Report and Recommendations
5• Presentation of Final Report and Recommendations to City Council City
a. Distribute Report and Summary to Council Mcmbcrs
b. Post Notice of Public Heating
c. Conduct Public Hearing
d. Obtain Council Approval
6. Implementation of New Rates Franchise Hauler
a. Notify Customers
b. Implement Rate Change
-ZD
MAK-29-94 TH 1'/:U3 X ?Ax NU. UUUUUUU
F1i�IT 3
Preparation of the Base Year Rate ChangeApplication
1. Entry of Operating Costs and Prost
a. Enter Prior Years Audited Information
b. Exner Current Year Estimated Information
C. Enter Base Year Projected Information
CL Enter Future Years Projected Information
e. Eater Operating Information
2. Determination.of Revenues
a. Determine Residential Revenue
b. Determine Commercial Revenue
C4 Determine the Allowance for Uncollectible Accounts
d. Determine Revenue from Recycled Material Sales
C. Calculate Total Revenue
3. Calculation of Allowable operating Prost and Revenue Requirement
a. Calculate Allowable Operating Profit
b. Determine Franchise Fee
C. Calculate Revenue Requirement
4. Calculation of Percent increase In Rates
a. Calculate Net Surplus/Shortfall
b. Calculate Percent Increase In Rates
5. Preparation.of Summary Form
a. Calculate New Rates
b. Sign and Submit the Application
I�� I
WAIL-LJ-01 fur, 1 /.uY A 1'AA Av. uuuuuuu 1. UU
EDIT 4
- Preparation of Intedm Year Rate Change Application
1. Report of Changes in Uncontrolled Costs
a. Provide Prior Year Uncontrolled Costs
b. Projecr Interim Year Uncontrolled Costs
C. Calculate Change in Uncontrolled Costs
2. - Explanation of Changes in Uncontrolled Costs
a. Provide Explanation of Changes
b. Provide Supporting Documents
3. Application Certification
a. Sign Application
b. Submit Application to City
�-z�
MAB-29-94 TUE 17:04 X FAX K0, 0000000 P. 07
EXHi ff 5
Preparation of the Interim Year Rate Change Worksheet
1. Determination of Base Year Costs and Weighting
a. Identify Prior Base Year Controlled Costs
b. Identify Prior Base Year Uncontrolled Costs
C. Calculate Weightings
2. Projection of Change in Consumer Price Index
a. Determine Projected Change in Consumer Price Index
b. Determine Consumer Price Index Adjustment Factor
C. Calculate Adjusted Projected Change in Consumer Price Index
3. Calculation of Percent Changes in Uncontrolled Costs
a. Enter Uncontrolled Cost Information from Application
b. Review Mathematical Accuracy
4E. Calculation of Weighted Increase in Rates
a. Calculate Weighted Increase in Controlled Costs.
b. Calculate Weighted Increase in Uncontrolled Costs
C. Calculate Total Change in Cost
d. Calculate Franchise Fee Adjustment
C. Calculate Percent Change in Existing Rates
S. Preparation of the Summary Form
a. Enter Rate Increase
b. Calculate New Rates
FEXHIBIT C
_
�� ERNST&YOUNG ■ 555 Capitol Mall ■ Phone: 916 449 3400
t Suite 650 Fax: 916 443 0774
Sacramento,California 95814
March 21, 1994
Ms. Sue Baasch
Administrative Analyst
Utilities Department
City of San Luis Obispo
955 Morro Street
San Luis Obispo,California 93401
Review of Existing City Refuse Collection
Rate Structure and Rate Setting Practices
Dear Ms. Baasch:
This letter summarizes the existing refuse collection rate structure and rate setting
practices of the City of San Luis Obispo. An analysis of the City's Solid Waste Ordinances
and Resolutions was performed to determine existing rate setting processes,rate structure,
and rates. Other materials reviewed included Council Agenda Reports,schedules and
financial statements provided by San Luis Garbage Company, and the City of San Luis
Obispo Source Reduction Recycling Element(SRRE). This letter also reflects your review
and suggested modifications to the draft March 8, 1994, letter.
The remainder of this letter report is organized as follows:
O Refuse and Recycling Collection Services
O Existing Rate Setting Process
0 Existing Rate Structure and Rates
O Equity of Existing Rate Structure
0 Existing Policy Objectives.
HERNST&YOUNG Page 2
Ms. Baasch March 21, 1994
I. Refuse and Recycling Collection Services
San Luis Garbage Company has provided refuse collection services to the City of San
Luis Obispo for over 40 years. City Ordinance 1177 adopted August 21, 1990, granted
San Luis Garbage an exclusive franchise for residential and commercial solid waste
collection within the City from March 1, 1987 to June 30, 1997. Under terms of
Ordinance 1177, San Luis Garbage agrees to pay the City six percent of its "gross cash
receipts for collection and disposal of solid waste within the City." There is not an
agreement signed between the City and San Luis Garbage binding both parties to terms and
conditions.
San Luis Garbage is organized as two divisions: (1) an operating division responsible
for all operations, and(2) an administrative division responsible for accounting, computer,
and clerical services. Both division managers report to a four-person Board of Directors
(made up of the owners).
San Luis Garbage is affiliated (i.e., has common ownership) with a number of other
separate corporations,including:
❑ Morro Bay Garbage Service
❑ South County Sanitary Service, Inc.
❑ Mission Country Disposal
❑ Coastal Rolloff Service
❑ Cold Canyon Landfill,Inc.
These affiliated corporations share some costs with San Luis Garbage. These costs
include: insurance,truck repair, bookkeeping, a safety manager, and corporation yard
space rental. San Luis Garbage and the affiliated corporations are under the same
ownership,though each company maintains separate financial statements and files separate
tax returns.
San Luis Garbage collects residential and commercial refuse within the City and a
portion of surrounding unincorporated areas within San Luis Obispo County. San Luis
Garbage also operates the residential curbside recycling program and commercial recycling
program within the City and a portion of surrounding unincorporated areas within San Luis
Obispo County. San Luis Garbage is the City's"authorized recycling agent"for collection
from residential customers. San Luis Garbage also is required to collect specified
recyclable materials from commercial customers. San Luis Garbage does not have an
exclusive franchise to provide either residential or commercial recycling collection services.
J ERNST&YOUNG Page 3
Ms.Baasch March 21, 1994
(a) San Luis Garbage Refuse Collection Services
San Luis Garbage collects residential waste once per week,using a route system that
divides the City into four residential and four commercial routes. San Luis Garbage
provides three residential refuse collection services:-economy, standard, and premium.
Each of these service types is described briefly below:
❑ Economy service allows customers to put refuse into 33-gallon orange paper or
plastic bags. The maximum weight per bag is 75 pounds. Bags are purchased
from San Luis Garbage in boxes of 10. Customers can put any number of bags out
once per week.
❑ Standard service allows customers to put refuse into "waste wheeler"
containers. Waste wheelers are plastic trash containers on wheels with hinged lids.
Each waste wheeler holds the equivalent of three standard 33-gallon garbage cans.
The maximum allowable weight per waste wheeler is 100 pounds. Waste wheelers
are rented from San Luis Garbage.
❑ Premium service allows customers to put out up to six standard 33-gallon
garbage cans (or the equivalent volume in cans, boxes, and tied bundles). No
single container can weigh more than 75 pounds. When utilizing this service
customers must provide their own containers.
San Luis Garbage also provides a multiunit residential refuse collection service.
Dumpsters ranging in size from one to eight cubic yards are provided to multiunit
customers. These dumpsters are collected from one to seven times per week,depending
upon customer need.
In addition, San Luis Garbage collects refuse from all commercial customers in the
City. Commercial customers have a choice of can service,waste wheeler service,
dumpster service,or garwood service. Again,collection frequency is one to seven times
per week, depending upon customer need.
San Luis Garbage provides County residential customers the same refuse collection
services as those of the City's standard(waste wheeler) and premium(can) services. No
economy (bag) service is offered in the County. County multiunit residential customers are
provided dumpsters ranging from one to six cubic yards. Dumpsters are collected one or
two times per week. County commercial customers are provided dumpsters of one to six
cubic yards, picked up between one and six times per week.
During 1993 San Luis Garbage serviced an average of approximately 11,694
customers. Of these, 9,843 (84 percent), were residential customers. Table 1, on the
next page, summarizes residential customers by account type. Over half(54 percent)of
residential customers used standard service,while about one-third(29 percent)used
economy (orange bag) service.
HERNST&YOUNG Page 4
Ms. Baasch March 21, 1994
Table 1
Average Number of Residential Accounts Served
by San Luis Garbage (1993)
Type of Account Number of Accounts Percent
Economy Service(orange bag) 2,865 29.1%
Standard Service(waste wheeler) 5,333 54.2
Premium Service(cans) 633 6.4
Multiunit 380 3.9
County 632 6.4
Total 9,843 100.0%
An additional 1,851 (16 percent) of the 11,694 customers were commercial customers.
Table 2 summarizes commercial customers by account type.
Table 2
Average Number of Commercial Accounts Served
by San Luis Garbage (1993)
Type of Account Number of Accounts Percent
Can Service 494 26.7%
Waste Wheeler Service 251 13.6
Dumpster Service 756 40.8
Garwood Service 109 5.9
County Commercial 241 13.0
Total 1,851 100.0%
(a) Garwood is a bin which can be loaded in a rear packer truck.
/ / �^ �
MERNST&YOUNG
Page 5
Ms.Baasch March 21, 1994
Approximately 34,388 tons of solid waste were collected by San Luis Garbage in
1993, as shown below in Table 3. Although commercial customers represented 16
percent of total accounts,they generated 56 percent of the solid waste collected.
Approximately 34 percent of solid waste collected was residential. The remaining 10
percent of solid waste was generated by California State University of San Luis Obispo
(CSU SLO).
Table 3
Tons of Solid Waste Collected
by San Luis Garbage (1993)
Description of Service Tons Percent
Residential 11,745 34.2%
Commercial 19,231 55.9
CSU SLO 3.412 9.9
Total 34,388 100.0%
San Luis Garbage disposes of the garbage it collects at the Cold Canyon Landfill,
which is located in San Luis Obispo County. The operator of the landfill,Cold Canyon
Landfill,Inc., is affiliated with San Luis Garbage. Landfill tipping fees are set by the
County Board of Supervisors and the current tipping fee is$24.56 per ton.
(b) San Luis Garbage Recycling Collection Services
San Luis Garbage provides curbside recycling service to residential customers.
Aluminum, glass,plastics,tin,and steel are collected commingled in a bin provided by San
Luis Garbage. Newspaper and phone books also are collected in a brown bag or bundle,
placed next to the commingled bin. Pickup is on the same day as garbage collection.
San Luis Garbage also provides commercial recycling services. Containers are
supplied by San Luis Garbage. Recyclable materials are collected from one to seven times
per week depending upon customer need. Materials collected include:
❑ Office paper(such as computer paper,white paper,and colored paper)
❑ Newspaper and cardboard
❑ Polystyrene
❑ Aluminum
❑ Glass
❑ Plastic.
J ERNST&YOUNG Page 6
Ms. Baasch March 21, 1994
Combined residential and commercial recycling volume for 1993 is shown in Table 4.
In 1993, 1,272 tons of containers and 3,023 tons of paper were collected.
Table 4
Tons of Secondary Materials
Collected by Curbside and Commercial
Recycling Programs (1993)
Material Type Tons
Containers
Aluminum 26
Glass 964
PET 23
HDPE-Natural 55
Polystyrene 5
Mixed Plastic 33
Steel Cans 166
Total 1,272
Paper
Newsprint 1,543
Office Paper 373
OCC 1,088
Magazines 3
Phonebooks 16
Total 3,023
II. Existing Rate Setting Process
(a) Base Year Rate Setting Process
Provision AA of City Ordinance 1177 outlines the current process which the franchise
hauler must follow to request a rate adjustment. According to this provision,rate adjustment
requests can be submitted once every two years. During those years when a rate change is
considered by the City, a rate adjustment request must be submitted by San Luis Garbage on
or before February 28. Each rate adjustment request includes an adjustment for the current
.year and a second adjustment for the following year. Once approved,the first rate increase
J ERNST&YOUNG
Page 7
Ms. Baasch March 21, 1994
becomes effective on July 1 of the same year the rate change request is submitted. The second
adjustment becomes effective on July 1 of the following year.
The following information presented over five years(actual for three previous calendar
years and estimated for the current and following calendar years) must be included in a request:
❑ A statement of assets and liabilities
❑ A statement of revenue and expense
❑ A statement of changes in worldng capital
❑ A rate of return on capital investments or the"rate base"(including calculations)
❑ The operating ratio(including calculations).
The ordinance does not require audited financial statements from the hauler,nor that the
information provided above be reconciled to financial statements.
The same ordinance further indicates that the City's Administrative Officer(CAO) may
appoint an ad hoc technical advisory committee to evaluate requests and recommend
appropriate action to the City Council. To date,the City Administrative Officer has not
elected to utilize this option.
When a rate change request is submitted,the hauler specifies the increase that is
desired. Utilizing the financial information which must be submitted with the rate change
request, identified above,City staff conduct a review of the reasonableness of the requested
rate increase. The City has not adopted formal procedures or requirements on how to
review a rate change request; however, the following criteria are generally followed:
❑ Return on the Rate Base - The return on the rate base is the ratio of net
operating income (after taxes) to the "rate base." According to City staff, the "rate
base"is the hauler's capital investment, including land,buildings, and equipment.
The return on rate base is one method of evaluating the profit earned by the hauler.
As part of the rate adjustment request, the hauler is required to calculate the
projected return on rate base using the assumption that the requested adjustment is
approved. In evaluating this information,City staff consider a return on rate base
of between 11 and 14 percent to be reasonable.
❑ Return on Operating Ratio -The operating ratio is the ratio of operating
expenses(including income taxes) to operating revenue, and provides a second
method of evaluating the profit earned by the hauler. Again,as part of the rate
adjustment request,the hauler is required to calculate the projected operating ratio
using the assumption that the requested adjustment is approved. In evaluating this
information,City staff consider an operating ratio of between 90 and 95 percent to
be reasonable.
JERNST&YOUNG Page 8
Ms.Baasch March 21, 1994
❑ Comparison With Other Cities - The City compares the requested residential
rate for a single waste wheeler to the residential rate for one waste wheeler or three
33-gallon cans in other cities in California and other San Luis County communities.
City staff evaluate this information to determine if the requested increase results in a
rate for the single waste wheeler service that compares reasonably with the rate for a
comparable service in other communities. A comparison of other residential rates
or commercial rates is not made.
In the past the hauler has.been able to comply with all three of the guidelines noted
above. However,the City does not have a process in place to resolve situations where the
requested rate adjustment does not meet all three guidelines. For example, if the hauler
choose to lease trucks instead of purchasing them, which is the current practice,the return
on rate base would increase substantially,as the hauler's capital investment would be much
smaller. However,all other thing being equal,the hauler's operating ratio would not
change. In this scenario, the hauler would be unable to comply with both the return on rate
base and the operating ratio guidelines.
As shown in Table 5, historical rate increases have ranged from 3.18 percent to 18.00
percent. Rate increases have been allowed in the past to account for increases in liability
insurance costs, tipping fees, and inflation.
Table 5
San Luis Garbage
Rate Increases
(1986-1994)
Effective
Date Rate Change Primary Reason for Increase
July 1, 1986 10.00% Inflation,Liability Insurance
January 1, 1987 10.00% Inflation,Liability Insurance
July 1, 1988 12.60% Tipping Fee(increase to$8.50/ton)
April 1, 1990 6.00% Tipping Fee (increase to$12.30/ton)
July 1, 1990 10.00% Tipping Fee(increase to$17.10/ton)
September 1, 1991 18.00% Tipping Fee(increase to$21.45/ton),
Insurance Costs
October 1, 1993 3.18% Tipping Fee(increase to$24.56/ton)
JERNST&YOUNG
Page 9
Ms. Baasch March 21, 1994
In addition, a$2 per month fixed charge was added to those households using
economy service(orange bags),effective January 1, 1994. This change was made in order
to recover more of the assumed costs of economy service.
(b) Interim Year Rate Setting Process
Provision AA of City Ordinance 1177 allows the City to consider rate change requests
more frequently than once every two years if San Luis Garbage"can demonstrate to the
satisfaction of the city council that it has incurred extraordinary and consequential cost
increases." In the past,interim year cost increases have been granted for extraordinary
increases in landfill,insurance, fuel,and equipment replacement costs.
III. Existing Rate Structure and Rates
(a) Residential Rate Structure and Rates
The existing residential rate structure for customers within City limits is as follows:
❑ Economy service -The charge for this service is $2 per month plus $1 for each
orange bag of waste that is collected..The$1 dollar charge is paid by the customer
when the orange bags are issued; the$2 monthly service fee is billed once every
four months (the total bill is$8 every four months). An individual household's
monthly cost varies depending on the number of bags placed out for collection.
Bag service first became available on September 1, 1990; the$2 monthly charge
became effective on January 1, 1994.
❑ Standard service - The charge for weekly collection of one waste wheeler is
$13.40 per month. The charge for collection of two waste wheelers is $23.25 per
month. Orange bags and garbage cans may be used at any time along with a waste
wheeler. Bags cost$1 each(the$2 per month service fee is not charged). The
charge to collect.each additional 33-gallon garbage can is$1.50 per can. These
rates became effective on October 1, 1993.
❑ Premium service -The charge for this service is $18.25 per month.. Orange
bags and additional 33-gallon cans (i.e.,more than six 33 gallon cans) may be used
with premium service. Bags cost$1 each(the$2 per month service fee is not
charged). The charge to collect each additional 33-gallon garbage can is$1.50 per
can. This rate became effective on October 1, 1993.
MERNST&YOUNG Page 10
Ms. Baasch March 21, 1994
Table 6,below,presents a comparison of 1994 monthly residential bills for an
average quantity generator(approximately 50 lbsJweek) and larger quantity generator
(approximately 150 lbsJweek). Even with the recent$2.00 monthly service charge added
to economy service rates, average monthly economy service bills are significantly lower
than those for standard and premium service. For an average household, the $6.00
monthly bill for economy service is 55 percent lower than the$13.40 standard service and
67 percent less than the$18.25 premium service. A larger quantity generator using the
orange bag economy service pays$10.00 per month,57 percent lower than the $23.25
standard service and 45 percent less than the$18.25 premium monthly bill.
Table 6
San Luis Garbage
Comparison 1994 Monthly
Residential Bill
(by Service Type)
Monthly Bill for an Monthly Bill for a
Average Quantity Larger Quantity
Generator Generator
Description of Service (=50 lbs/week) (=1501bs/week)
Economy(orange bag) $6.00 $10.00
Standard (waste wheeler) $13.40 $23.25
Premium(cans) $18.25 $18.25
A further comparison of residential monthly bills by service type is shown in Figure 1,
on the following page. These monthly bills are plotted as a function of"equivalent cans" (33
gallon cans) collected each week. According to San Luis Garbage,a large majority of
residential accounts generate less than six cans per week. The figure shows that as the
number of equivalent cans collected each week increases,the savings provided by economy
service begin to decreases. At higher volumes,it is less expensive for homeowners to
receive standard or premium service than economy service.
JERNST&YOUNG Page 11
Ms. Baasch March 21, 1994
Figure 1
San Luis Garbage Monthly Bill
(by Service Type)
30
25
Co
oil 20
p
s
15 _ r
10 ttr
5
0
1 2 3 4 5 6
Number of Equivalent 33 Gallon Cans Collected Each Week
t — Economy ° Standard • Premium
Providing customers the choice of using orange refuse collection bags provides a direct
incentive for these customers to reduce the amount of refuse placed out for collection.
Doing so provides a direct price signal to customers that reducing the amount set out will
reduce their monthly bill. It is not yet clear if,in fact,the amount of refuse collected has
been reduced since orange bag service was introduced,nor whether the amount of
recyclable materials set out for collection by orange bag customers has increased.
Approximately one-third(29 percent) of the households in San Luis Obispo have taken
advantage of this service.
However, the two other residential services, standard(waste wheeler) and premium (up
to six cans), send somewhat mixed price signals. For example, a household setting out the
equivalent of one waste wheeler(three cans)each week would have a lower bill if the
standard service were chosen instead of premium service. However, if the household set
out the equivalent of four cans each week,the standard service would result in a higher bill
than the premium service, which allows up to six cans each week.
1-3q
BERNST&YOUNG
Page 12
Ms. Baasch March 21, 1994
The premium service is effectively a fixed charge for refuse collection services,
regardless of the volume of refuse collected. Very few accounts actually generate more
than six equivalent cans each week. Therefore, most households choosing the premium
service would be charged the same amount each month,regardless of the volume of refuse
collected,which provides very little incentive to reduce the amount of waste generated.
However, a premium service customer can switch to either standard or economy service to
reduce the monthly bill if less refuse is generated.
Monthly rates for City multiunit residential customers are provided in Attachment A
to this letter. Rates are based on collection frequency and size of dumpster collected. The
rate for the most common service,a three cubic yard dumpster picked up twice per week, is
$123 per month. Monthly rates for multiunit residential dumpster collection are in all cases
greater than rates for equivalent commercial dumpster collection services.
County residential customers are charged different rates than City customers. The rate for
one waste wheeler collection is$13.75 per month(versus $13.40 within City limits). The
rate for up to six, 33-gallon garbage cans is$12.70 per month (versus $18.25 within City
limits). The charge to collect each additional 33-gallon can is$1.50 per can.
All County multiunit residential customers are charged$15.00 per dumpster per month,
irrespective of dumpster size. For pickup once per week,multiunit customers are charged an
additional $6.00 per unit. For pickup twice per week, the charge is $7.00 per unit. For
example, a four-unit residential customer using a three cubic yard dumpster collected twice per
week is charged$120 per month ($15 plus $24 ($7 x 15 units)).
(b) Commercial Rate Structure and Rates
Monthly rates for City commercial service are provided in Attachment B to this letter.
These rate schedules are based on collection frequency and the size and number of
containers collected. Three commercial rate schedules exist,one each for can,waste
wheeler, and dumpster services.
Table 7, on the following page, shows a comparison of selected San Luis Garbage
monthly commercial bills by service type. These comparisons generally reflect the more
common type of services selected by commercial customers in the City.
- _
1 .76
J ERNST&YOUNG Page 13
Ms. Baasch March 21, 1994
Table 7
Comparison of San Luis Garbage
City Commercial Monthly Rates
(by Service Type)
Commercial Service Type Weekly Volume Monthly Bill
Garbage Cans
1 can, 3 times per week 3 cans $27.00
3 cans, 1 time per week 3 cans $18.00
Waste Wheelers
1 waste wheeler,2 times per week 2 waste wheelers $27.00
2 waste wheelers, 1 time per week 2 waste wheelers $36.00
Dumpsters
1.5 cubic yard, 2 times per week 3 cubic yards $67.00
3 cubic yard, 1 time per week 3 cubic yards $65.00
The pricing for garbage can and waste wheeler service is inconsistent and provides
mixed price signals to commercial customers. For example,commercial customers who
use cans generally will reduce their monthly bill for the same volume of waste if they
reduce the number of times their cans are collected each week. This generally reflects that it
costs less for the hauler to service a customer less frequently but for the same total volume
per week.
In the case of waste wheeler service,the customer is charged significantly less for more
expensive service. It is generally assumed by the hauler that it is more expensive to service a
customer twice per week than once per week, for the same total volume of waste generated.
In the case of waste wheeler services, the same customer could lower his monthly bill by 25
percent if collection is requested twice per week instead of once per week.
Customers using dumpsters generally will have the same monthly bill for the same
volume of refuse,regardless of the number of collections each week. As a result, mixed
price signals are being sent to dumpster customers. Those customers choosing multiple
collections per week pay very little more than for a less expensive,more efficient service
which includes one collection per week (for the same volume of waste per week).
The preceding discussion compares how a monthly bill changes when more frequent
(and more expensive)collections are provided for the same volume of refuse. A separate
review of the charges per cubic yard provides more information on the current rate
structure. The rates now charged per cubic yard or per gallon generally decrease as the
number of cubic yards or gallons collected per week increases. For example, Figure 2,
on the following page, demonstrates that for dumpster collection,the rate per cubic yard of
refuse collected decreases as dumpster size increases.
-� _ I-3ca
J ERNST&YOUNG Page 14
Ms. Baasch March 21, 1994
Although this graph only shows the rate structure for collection of a dumpster once per
week,the trend is similar for collection of dumpsters more than once per week. In
addition, similar declining rates exist for commercial can and waste wheeler services.
Figure 2
San Luis Garbage
Commercial Dumpster Refuse Collection
Rate per Cubic Yard (1994)
$40
$35 One Collection per Week
3 $30
$25
U $20
w
�. $15
d
$10
$5
$0
1 1.5 2 3 4 6 8
Size of Dumpster(cubic yards)
Because the rates per cubic yard generally decrease for larger volumes,the current rate
structure does not provide direct economic incentives for commercial customers to reduce
the amount of waste they generate. Accordingly,the current rate structure appears to be
inconsistent with the City's goals to reduce the amount of solid waste generated.
Monthly rates for County commercial dumpster service are provided in Attachment C
to this letter. Like the City,the schedule is based on collection frequency and the size of
containers collected. In comparison to City commercial dumpster rates,County rates are
lower in some cases and higher in others. For example,the monthly rate for the most
common County commercial dumpster service, a three yard bin picked up once a week, is
$62, slightly lower than the City rate of$65. In contrast, the monthly rate for the same
three yard bin picked up twice per week in the County is$106,approximately 14 percent
higher than the$93 City rate.
J ERNST&YOUNG
Page 15
Ms. Baasch March 21, 1994
(c)Recycling Rate Structure and Rates
Customers are not charged separately for recycling services. The costs of recycling are
presumed recovered through refuse collection rates and revenues from the sale of recyclable
materials.
IV. Equity of Existing Rate Structure
A measure of equity is the proportion of a customer's cost of service which is
recovered by charges paid by the customer. In order to determine the equity of the existing
rate structure,we compared the revenues generated by residential,commercial, and
recycling services with corresponding expenses, all for calendar year 1992. Figure 3
shows the result of this analysis.
Figure 3
Summary of Revenues and Expenses for
San Luis Garbage
(1992)
70
60
`m 50 A ,.
r 40 W°r•.+11 o se^?12
ti
30 56%
a 20q 36% ,..' _
10
I-,
0xc A . 8°k
Residential Commercial Recycling
Service Type
C] Expense E Revenue
This analysis generally reveals that revenues from commercial customers subsidize both
residential refuse collection and residential/commercial recycling services. Commercial
revenues were approximately$2.5 million or 61 percent of total revenues. However, only
approximately$1.5 million or 36 percent of expenses, are attributable to commercial refuse
collection customers. Residential service accounts for approximately$1.4 million or 34
percent,of revenues and$2.4 million, or 56 percent, of expenses. Recycling expenses
were approximately$322,500,or eight percent,of total expenses and generate
approximately$211,000,or five percent of the total revenues.
J ERNST&YOUNG Page 16
Ms. Baasch March 21, 1994
Key assumptions in developing this estimate include:
❑ Revenues received for refuse collection service are not allocated to recycling. Revenues
from the sale of recyclable materials are the only assumed recycling revenues.
❑ Indirect payroll expenses are allocated based upon direct labor expenses
❑ Indirect administrative,truck, and operating expenses are allocated to residential
and commercial services based on customer count
❑ Indirect administrative costs allocated to recycling are determined by multiplying the
ratio of recycling direct operating expenses to total direct operating expenses by
total indirect administrative expenses.
These assumptions are made only for preparing this brief letter report. Alternative
assumptions may cause the findings to vary. However,given the degree of subsidies
which exist, it is expected that the overall finding of cross-subsidies would not change.
Commercial accounts would still subsidize residential and recycling services to a certain
degree. It is not uncommon in other communities to find revenues from commercial
service subsidizing residential and recycling services.
V. Existing Policy Objectives
The City of San Luis Obispo has not adopted comprehensive, formal policies or
objectives for setting solid waste collection and recycling rates. A few objectives are
included or implied in various City ordinances which address solid waste removal and
recycling requirements. Additional policy objectives are mentioned in various City staff
reports, documents, and analysis of prior rate change requests. Based on a review of these
various source documents,the City appears to embrace the following objectives:
Service Requirements
❑ Orderly and periodic collection of solid waste is required to protect public health
and safety
❑ All City residents must receive waste removal services on a regular basis
❑ Continuity of service is required to protect public health and safety. Accordingly,
the City may use the franchise hauler's equipment if the hauler is unable to perform
collection activities
❑ .The franchise hauler is required to conduct.one"residential clean-up week"per year.
J ERNST&YOUNG Page 17
Ms. Baasch March 21, 1994
Service Quality
❑ The quality of waste removal services provided by the franchise haulers is
important, as evidenced by the following requirements:
• The franchise hauler's office must be open during specific hours in order to
respond to customer inquiries
• Rates must be posted and available for review by customers
• The franchise hauler must maintain a log of all complaints received and make
this information available to the City
• Items that are too big or heavy for collection must be tagged so that the
customer will know why collection was not completed
• Collection workers must have clean uniforms when on duty.
❑ The disruption associated with the collection of solid waste should be minimized.
Accordingly,the franchise hauler is not allowed to collect solid waste in residential
areas between 8:30 p.m. and 6:30 am.
Recycling and Waste Reduction
❑ Recycling and waste reduction are high priorities for the City which should be
reflected in solid waste policies and procedures
❑ Convenient recycling opportunities should be provided for all residences and
businesses receiving waste hauling services
❑ The City will pay up to ten percent more for products which are made from recycled
materials,up to$1,000 per contract.
Rate Structure
❑ The rate structure should provide equity and fairness between classes of customers
❑ The rate structure and rate setting process must ensure that adequate revenue is
generated to meet system operating and capital requirements while maintaining rate
stability.
_. - �-4o
J ERNST&YOUNG
' Page 18
Ms.Baasch March 21, 1994
Rate Setting Process
❑ The rate setting process must be easy to administer and understandable to customers
❑ The franchise hauler's rates must be fair and justifiable. Accordingly, the hauler
must provide information which supports all costs to provide service (no further
requirements are made for the information required from the hauler)
❑ The franchise hauler will be allowed a reasonable profit as determined by both the
operating ratio and return on rate base methodologies
❑ The franchise hauler may not earn a profit on tipping fees
❑ The franchise hauler must pay a six percent franchise fee to the City
❑ Rates should be close to comparable cities.
Again,these policy objectives are included in various City ordinances which address
waste removal,and in various studies and reports prepared by City staff. However, in
most cases, they have not been formally stated or adopted by City Council. Also,there is
no formal process or methodology for submitting,reviewing, and implementing a rate
change request.
D ❑ D
This letter report presents a summary of the existing city refuse collection rate structure
and rate setting practices. If you have any questions about the information presented in this
letter,please contact me at(916)449-3523 or Doran Barnes at(916)449-3568.
Sincerely,
ERNST&YOUNG
Edward R. Kaempf
Attachment
cc: Tom Martin,San Luis Garbage
1- 41
ATTACHMENT A
City of San Luis Obispo
Rate Schedule for Solid Waste Collection and Disposal
Multiunit Dumpster Containers(per month)
Size of Container Collections per Week
(cubicyards) 1 2 3 4 1 5 6 7
1 $53.00 $78.00 $94.00 $130.00 $163.00 $183.00 $235.00
1.5 61.00 89.00 112.00 148.00 176.00 192.00 271.00
2 70.00 100.00 130.00 163.00 190.00 203.00 309.00
3 87.00 123.00 169.00 217.00 283.00 305.00 411.00
4 104.00 157.00 22200 302.00 377.00 408.00 509.00
6 142.00 218.00 305.00 452.00 521.00 575.00 679.00
8 183.00 269.00 408.00 603.00 752.00 814.00 919.00
ATTACHMENT B
City of San Luis Obispo
Rate Schedule for Solid Waste Collection and Disposal
Commercial Garbage Cans(per month)
Number of Collections per Week
Cans 1 2 3 4 5 6 7
1 $11.00 $19.00 $27.00 '$31.00 $33.00 $36.00 $41.00
2 13.00 27.00 36.00 40.00 43.00 47.00 55.00
3 18:00 33.00 45.00 48.00 52.00 55.00 65.00
4 21.00 38.00 53.00 57.00 62.00 67.00 79.00
5 25.00 43.00 60.00 66.00 73.00 79.00 94.00
6 28.00 48.00 67.00 75.00 84.00 93.00 108.00
7 32.00 55.00 74.00 86.00 96.00 104.00 123.00
8 35.00 60.00 82.00 94.00 106.00 118.00 137.00
9 39.00 65.00 89.00 102.00 116.00 129.00 153.00
10 42.00 70.00 97.00 113.00 128.00 142.00 167.00
Commercial Waste Wheeler Containers(per month)
Number of Collections per Week
Containers 1 2 3 4 5 6 7
1 $19.00 $27.00 $33.00 $45.00 $56.00 $63.00 $82.00
2 36.00 54.00 65.00 90.00 113.00 127.00 163.00
3 42.00 61.00 78.00 101.00 123.00 134.00 188.00
4 48.00 69.00 90.00 113.00 131.00 141.00 214.00
5 55.00 76.00 103.00 131.00 164.00 176.00 249.00
6 60.00 86.00 118.00 151.00 196.00 212.00 284.00
7 66.00 96.00 135.00 181.00 229.00 248.00 318.00
8 73.00 108.00 154.00 209.00 262.00 283.00 352.00
9 79.00 118.00 168.00 235.00 286.00 311.00 424.00
10 86.00 129.00 183.00 262.00 312.00 339.00 494.00
11 93.00 140.00 197.00 287.00 336.00 369.00 565.00
12 99.001 IS1.001 212.001 313.00 362.00 398.00 637.00
Commercial Dumpster Containers(per month)
Size of Coruainer Collections per Week
(cubie 1 2 3 4 5 6 7
1 $39.00 $59.00 $70.00 $97.00 $123.00 $137.00 $176.00
1.5 46.00 67.00 84.00 109.00 133.00 144.00 203.00
2 53.00 74.00 97.00 122.00 142.00 153.00 231.00
3 65.00 93.00 128.00 163.00 212.00 229.00 306.00
4 79.00 118.00 167.00 226.00 283.00 305.00 383.00
6 107.00 163.00 229.00 338.00 391.00 431.00 509.00
8 137.00 202.00 305.00 452.00 565.00 611.00 689.00
ATTACHMENT C
County of San Luis Obispo
Rate Schedule for Solid Waste Collection and Disposal
County Commercial Dumpster Containers(per month)
Size of Container Collections per Week
(cubic yards) 1 2 3 4 5 6
1 $36.00 $53.00 $74.00 $99.00 $123.00 $160.00
1.5 41.00 65.00 90.00 115.00 139.00 176.00
2 47.00 76.00 106.00 131.00 155.00 192.00
3 62.00 106.00 151.00 175.00 200.00 237.00
4 76.00 136.00 195.00 220.00 244.00 281..00
6 106.00 195.00 284.00 308.00 333.00 370.00
/ I`4Lf
City Council Agenda Monday, April 11, 1994
► 2. TENTATIVE MAP - TRACT 2154 (JONAS/410 - 45 min.)
Public hearing to consider a tentative map for Tract 2154 (TR 10-94) to create an eight unit
residential condominium (planned unit development) on the north side of Foothill Boulevard
(680 Foothill Blvd.) west of Ferrini Road; Richard H. Porter, applicant. (Continued from
4/5/94.)
Please bring your agenda report from the April 5, 1994 meeting.
T
City Council Agenda Monday, April 11, 1994
► 3. ZONING TEXT AMENDMENTS ORDINANCE (JONAS/463 - 45 min.)
Public hearing to consider amendments to the Zoning Regulations to simplify processing,
add and change definitions, clarify wording and format, and make minor changes to the
development standards; City of San Luis Obispo, applicant. (Continued from 3/8/94. and
4/5/94.)
Please bring your agenda report from the April 5, 1994 meeting.
r
MFMJ�AGENDA
` DA._ - ITEM # ,
�i►I�III I�IIIIII�IIIIII����� �IIIIIIIIIII
IIII IICItYOf SAn luis OBISPO
990 Palm Street/Post Office Box 8100 • San Luis OblJUi 9Ml3.8100❑ D DIR
fa 0 CAO tTFIN DIR
9 ACAO ❑ FIRECHIEF
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�/CL OR '01 EiiC, ❑ POLICE CHF.
❑ MGNT TEAT S O REC DIR
n�❑ RrA7�;_ ❑ UTIL G:R
8 April 1994 F/Lt ❑ i^Z;S0
TO: City Council
VIA: John Dunn, City Administrator
FROM: Arnold Jonas, Community Development Director
BY: Judith Lautner A sociate Planner
SUBJECT: TA 108-93 : Zo ng regulations amendments
Report supplement
During the past few weeks, a few questions have- been raised about
the proposed amendments to the zoning
. regulations... . Th_e following... _.
paragraphs.: provide' additional information , and alternative
amendments for a few sections:
1. Home occupation permits
a. Counselling: Since 1985, nine home occupation permits have
been issued to persons for psychological counseling. Of
these, two therapists operate away from their homes, and
maintain a business office at home only. The other seven
conduct counseling sessions, both group and individual, from
their homes. One application was referred to an
administrative hearing, and four of the permits (including
that one) were granted with additional conditions. Typical of
such conditions:
1. Clients shall visit the home on an appointment-only.
basis. Appointments shall be staggered so that no more
than one associated group of clients is visiting the home
at any one time during the day.
2. Caseload shall be limited in number to five per day.
3. Approval shall be subject to review, modification or
revocation if all conditions are not met, or if any
reasonable written complaint is received.
No complaints have been received about any of the nine home
occupation permits.
IOThe City of San Luis Obispo is committed to include the disabled in all of its services, programs and activities.
V� Telecommunications Device for the Deaf(805) 781-7410.
j,
•' 1
TA 108-93
Zoning Regulations amendments report supplement
Page 2
It is because of this benign background that staff felt-
comfortable recommending the codifying of an existing
practice. The home occupation permit regulations allow staff
to add conditions to permits to meet specific situations, and
there is always an opportunity to hold a hearing when there
appears to be a problem.
Members of a neighborhood group, that met with staff recently,
had no problem with one-on-one counseling, but would prefer
that group .counseling be prohibited. If the Council agrees,
staff suggests the following wording for this section:
(under "Prohibited uses")
5. Medical offices, clinics, laboratories,
........................................x x.,., ,::::
unse1.3 �nc is>peaattesi, wheno sore han oxtele yrs
s held at one time and group counselingsirohaite, r x
b. Wordina: On page 10 of the amendments, under "Permit
Required, " some words have been added:
A permit is required when a person does business in his/her
gg:homeusgisferime address as a 'bus3rress aadrss, anc�
A neighborhood representative has pointed out that this
wording may work against its intent. Persons may say that
they do not use their home address as a business address, and
therefore a permit is not required. The following wording may
be preferable:
A permit is required when a person does business in his/her
home, uses his/her home address% as a...... usiries 'addzss < c�rrt
us pass tax oezt3i cafies, or uses �s/ ,or p arse as bu�X?T
...nt:,.n. ..vn,..n...n:..a...:...... .......:n. a.:\... ......... ....... .. ............. vv.vv,.v.: :n xx:.v:x.•M ix
�1,X1;6S18.
2. Hostel definition and parkincr.
A definition and a parking requirement for hostels were added to
the amendments because the use was added to table 9 during the last
review of amendments. A concern has been raised that a motel or
bed-and-breakfast operation might choose to apply for a permit for
a "hostel", because hostels may be permitted in some residential
zones (R-3 and R-4) while other forms of lodging may not. The
concern was that the definition may not be adequate to screen out
such uses. There was also a concern that the parking requirement
may not be adequate.
v
e
J
TA 108-93
Zoning Regulations amendments report supplement
Page 3
Staff has conferred with Hosteling International (formerly American
Youth Hostels) representatives and developed alternative
definitions:
,:.,%...:.,�^;.;N,.w,,..x,,,.y..:�.<.,,:,.,.,:.».yr.......,:f.,;:Mv,;..:..v,,,,;;,,,;,,;,,,»,;, ,:.,.,.,...,.:f.;.,:.,..H.;'.,:H:..,..•..•:,::.,...:;..,.:,;:.v:..;.,...v.v.;„,r,;,.,,,.»;:..,..,.;f:..,:,,.
A. [nxpex�s" vs. supervised. agg tia caxs :pay
but nat exus ;re3 , :'.to°,'travelers who arxive b b�cc7we,
zairt :o okte rin-aicmav " r (i �ss:
,1y.,>�.:<:�.>:.�.,>.,,,;,.,,
B• ♦#fgRAf}R � ��
.v:.:::n:.:R:f/.p.."n Afi nu:::C^;:f: !:::i::::::::.::y::..:.v.::Y.:::::::.y:.: '::iiii.. �..;::::.:):'.; •...:'..!:.:::.:.:...:V.:::'e.::.. :.....:..:M1;'.:..:.:..::.:::.i;':i[:::::: ::.::..::::n
�Irastelfng 3n�ernaCiorlal:, ..that features;..do�itory sty��
�edr�srrms.:with s#�ared'.�xtcheu a»d bath �ac��a�ies:�
•;ff.. ': :::.:1 : :..... .,:. ".:J, ::.:: !+::{' ': :L:i:::%n.:.: :::::....:f:.;,..:>:.if;i:•:•::Y[L[:,}:::.:_::Xn}.11Y•:fyK,y:f.}:inY,,iY.:};},Y;W.M%^±4fY...:Yi:
C. .;no ,fpr pxfat pae off 1�dg�xs�[ xaa tYa a sa managers;
ha .:. ..featut%es....:....d.sans tp` stuu', e..::.,. drvns..... ?a: th. .shatecl
':: %':i:::..i:::.;::!!{:ii':!.i':.i:.: .:i'.:':.::._...:."`:i::ii. ;:.;;:..:i.F,::. ::;'}:.:._iF_::n;,..;f:::.{;�•...;:...;' ii{Y ........:.p.i i:...:..:.:... .::1.,_.m. ..:..:.iiY... .::..p::in:.:...:.n
�i�cixerx„a��:•ba�h �acalf�t�.esr and tha�..laro�x���.�s��:t.��: ;us�
Staff and the neighborhood representatives prefer definition "B".
The hostel association representative told us that different
parking requirements work in different areas, that larger cities
typically need more parking than smaller cities. The
representative is reviewing existing hostels in cities similar to
ours, and will call us w-ith more information. We should have a
revised parking recommendation at the meeting.
3 . Neighborhood groceries.
Representatives of the neighborhood group suggest that the
requirement for a "good neighbor plan" be retained for neighborhood
grocery markets. The Planning Commission specifically deleted this
requirement, saying that the use permit requirement is sufficient;
that we can require such a plan when we feel it is needed, but
otherwise it would be a burden on those who might want to start
such a market. The neighborhood group felt that maintaining this
requirement would serve to alert potential market owners that
neighborhood compatibility is important.
4. Daycare homes.
a. The neighborhood representatives felt that the proposed
parking requirement for daycare homes serving 9 to 14 clients
(one space plus residential parking requirement) is too low.
Staff recommended the number based on experience with such
homes. Staff also feels there is a need, demonstrated by
State mandates, to encourage the establishment of day care
V
J
TA 108-93
Zoning Regulations amendments report supplement
Page 4
homes where appropriate, and not to place unreasonable burdens
on the providers.
The Council may increase the parking requirement for large day
care homes if it feels there is a clear need to do so. (The
Council may not change requirements for the small family day
care homes, however. State law supersedes in these cases. )
b. There is an error on page 15 of the amendments. Section
17. 08. 100.0.3 Parking should read, "For centers with 9 to 14*
clients, . . . " rather than 118 to 14. . . . "
MEETING AGENDA
DATE ITEM #
April 7, 1994
COUNCIL COMMUNICATION
}. �}'. ..✓}.rN fir.Y:,v Y:.:x .:W:J.:J:4.
n�.:?•IJf$�M...M ..4....{:{.. .�rR.AV}.2r ..2 /'4 .a4A,..4 r n.4 :nf
..............n....:........n4R..............i<...4...{5........ Y.44:::.}4:::::::. a.:::::. ::::..:.�,...................................n..n.::.r.ny:::isi::.is:f.ii}:'S.}}}::�S;4y:p:'.}i`}::C.Yi.i'f.i:..
.:r...3:::»x.:4... x:..a.::.:..::::.......»:x.::J...n:........:......:ni;•::::;•::::::.�:::.::... .........:'::5.}i}::::�}:....x.n.:::::n�:::::::::::::::::::::::::::qii'::::-::.:::::::::::: .
TO: Council Colleagues
FROM: Bill Roalman
SUBJECT: RAMONA DRIVE ISSUE
Last year, I requested that council direct staff to bring back the Ramona Drive traffic
calming issue. Council agreed. For some reason, it still hasn't come back. I'd like Council
to direct staff to bring this issue back at the May 3rd meeting.
BR:ss
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VCAO ❑ pIRE CHIEF
QJ/ATORN:y fj'iii":DITI �9
ISI GLEc'r frI ;r; �; POU-2 CHF-1
❑ f"CrT 1 s; . I.7 REC GIF, ��
MEETING AGENDA
DATE=�ITEM#YW&y
April 7, 1994
COUNCIL COMMUNICATION
c }J}::.}}i:.}:e,:xai:.Y:.;..;
. ...
..... .
.J ...................:..::::::::::::::. :...... .............:::t...fi :..}i.::.u...:.v..n..........:.,<,x:.:<:{.:?S:t}{::i:}:¢::x;}: tn:;•.:t:i.•.:.;...
.::�:: ::.:}e:.t�.
W.n.....nrA.}:IX.nC.,n4�Rv:/v:4:4iri:}ii:tiii].n. �.vJ•i.::yl: :.i:•:•.::..: ..::. ,..nen..:::iyi ii
x.:}ri{.:(IXO:M:K.:.UG..v.:L::
TO: Council Colleagues
FROM: Bill Roalman
SUBJECT: FRIENDS OF THE LIBRARY REQUEST
Friends of the SLO Library have asked me if the Council would consider allowing their
members to park for free while they are volunteering at the library. The cost to the city
would be approximately$600/year based on the number of hours volunteered last year. The
library is becoming more dependent on volunteers because of budget cuts. Having to pay
the parking fees deters some volunteers from working more than 90 minutes at a time.
I would like Council to direct staff to consider this request and bring it back at the May 17th
meeting. Thank you.
BR:ss
1- OU4CiL ❑ CDD DIR
„I �O ❑ FIN DIR
V'' ❑ F E CHIEF '
GAO
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�1 .:P Iff
MEETING AGENDA
DATE ITEM#
April 8, 1994
COMMUNICATION ITEM
TO: Council Colleagues
FROM: Bill Roalman �
SUBJECT: MOBILE HOME RENT INITIATIVE
A proposed initiative which would eliminate local mobilhome rent control is being
circulated statewide. It is deceptively entitled, "Rental Assistance Initiative.n Proponents
have until June 27th to collect the necessary 350,000 signatures. If this initiative passes,
the city's mobil home rent control ordinance would be eliminated, subjecting tenants to
unlimited rent increases.
The Golden State Mobilhome Owners League (GSMOL) has provided a draft resolution
for city councils to adopt in opposition to this initiative. I would like Council to direct staff
to bring this resolution to us at the May 3rd meeting.
BR:ss
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OUNCIL ❑ CDD DIR
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�ACAO ❑ FIRE CHIEF
li/A'f i CPNEY ❑ P17 Dial
VCLERKVI} OCI ❑ FOLIGE CHF
❑ PAG'W iS4C7 ❑ RECMP
❑ C READ F"-t: (:J1 UTIL L•:A
5/44k- ❑ cc..
Date: January 27, 1994
- He No: - SA93RFOO42
The Attorney General of California has prepared the following title and summary of
the chief purpose and points of the proposed measure:
MOBILEHom:E RENT ASSISTANCE. MOBmEHOME RENT CONTROL
RESTRICTIONS. . INITIATIVE STATUTE. Requires mobilehome park management
to administer and provide rent subsidy equal to ten percent discount on monthly rent
to tenants meeting residency and income requirements, when ten percent or less of
occupied spaces are covered by rent control or rent subsidy. Establishes priorities for,
and conditions for losing, rent subsidy. Invalidates existing, and prohibits new, state
mobilehome rent-control laws:- Limitsexisting; and prohibits-hew; local mobilehome
rent control laws. Prohibits such laws from requiring reductions in rent and limiting
increases in rent to less than specified cost of living index. Summary of estimate by
Legislative Analyst and Director of Finance of fiscal impact on state and local
governments: No impact on state costs or revenues. In the near term, cities and
counties may experience increased costs which are unknown, but are not likely to total
more than millions of dollars annually. In the long term, local agencies would
experience savings in the range of millions to tens of millions of dollars annually.
0ova ,
AN INITIATIVE MEASURE TO BE SUBMITTED DIRECTLY TO THE VOTERS
The Attorney General of California has prepared the following title and summary of
the chief purpose and points of the proposed measure:
(Here set forth the title and summary prepared by the Attorney General. This title
and summary must also be printed across the top of each page of the petition whereon
signatures are to appear.) --. -
To the Honorable Secretary of State of California:
We, the undersigned, registered, qualified voters of California, residents of
County (or City and County), hereby propose amendments to the California
Civil Code, relating to establishment of a rental assistance subsidy for qualified poor and
needy mobilehome park tenants, limitations on mobilehome park rent control in lieu
thereof, and prohibitions of enactment of mobilehome rent control measures by the State
and by local charter and general law cities and counties, and petition the Secretary of
State to submit the same to the voters of California for their adoption or rejection at the
next succeeding general election. The proposed statutory amendments (full title and text
of the measure) read as follows:
SECTION 1: TITLE
This Measure shall be known and may.be_cited as The Mobilehome.Fairness.and
Rental Assistance Act.
SECTION 2: FINDINGS AND DECLARATIONS OF PURPOSE
(a) The People of the State of California find and declare as follows:
(1) Some tenants of mobilehome spaces in mobilehome parks in California
are poor and needy and are urgently in need of rental assistance, without delays, expense
or red tape which state and local government usually requires for the administration of
rental assistance programs; and
(2) Over 80 local governments are spending millions of dollars annually
administering and enforcing mobilehome park rent controls for the exclusive benefit of
owners of mobilehomes which comprise approximately only 5-percent of California's
housing units with unrestricted controls that are generally not means tested to the poor, so
that mobilehome owners in mobilehomes with an average valuq of $40,000 to $50,000
obtain unfair price controls in rent controlled areas at the expense of small
business-parkowners and all the citizens of California; and
(3) These unrestricted controls jeopardize the existence of affordable
mobilehome park housing for all Californians and jeopardize continued employment and
small business-parkowners' existence in California; and
(4) Requiring the provision of direct rental assistance subsidies by requiring
mobilehome park owners to provide specified reduced rents for the poor, together with the
limitations on most restrictive features of rent limitations which have adversely affected
the availability and supply of such affordable mobile home housing, is necessary to assure
the continued availability of affordable mobile home housing to the poor; and
(5) The limitation of the rental assistance subsidy provided in this Measure
to not more than ten-percent of the spaces in a single mobilehome park will provide a
reasonable amount of assistance to needy mobilehome park tenants, without unduly-,-
burdening the property interests of the mobilehome park owner.
(b) It is therefore the intent of the People of the State of California in enacting this
Measure to do all of the following as a matter of statewide concern:
(1) Require owners of mobilehome parks to grant directly, without
governmental administration, rental assistance subsidies to not more than ten-percent of
their mobilehome space tenants.
(2) Require local governments to minimize their mobilehome park rent control
measures by allowing annual rent increases equal to the cost of living and require local
governments to phase out rent control administration, on a space by space basis, upon the
sale, transfer or sublease of any mobilehome.
(3) Prohibit enactment of any new mobilehome park rent control or rent
stabilization law by any local government or by the State of California.
(c) This Measure is not intended, nor shall it be construed, to deprive any
mobilehome owner, tenant or mobilehome park owner of any constitutional rights.
SECTION 3:' AMENDMENT OF CHAPTER t OF DIVISION 2 OF CALIFORNIA CIVIL CODE::
DEFINITIONS
Chapter 1 of Part 2 of Division 2 of the California Civil Code is hereby amended as follows
by adding new Section 798.13, as follows:
798.13 As used in this part, the following terms have the following meanings:
(a) "Tenant" means a homeowner as defined in Section 798.9 of this Chapter.
(b) "Qualified Tenant' means any tenant who, as of the date of application, and
during any period while receiving a rental assistance subsidy, satisfies all of the following
requirements:
(1) The tenant resides in a mobilehome park in the State of Califomia; and
(2) The tenant is a very low income household, as defined in section 50105
of the California Health and Safety Code; and
(3) The tenant is not delinquent with any rental payments, has established a
legal residency in a mobilehome, and owns and occupies such mobilehome as the tenant's
principal place of residence; and
2
(4) The tenant, including all other residents regularly residing in the
mobilehome, is in compliance with all rules and regulations of the mobilehome park and the
tenant's rental agreement; and
MY The tenant is not receiving any Federal; State or local housing
assistance, including but not limited to assistance under Chapter 8 (commencing.with
section 1404a) of Title 42, United States Code; The Housing and Community Development
Act of 1974 (Public Law 93-383); Chapter 45 (commencing with section 3601) of Title
42, United State Code; or any other governmental housing assistance program .
administered by the Department of Housing and Urban Development or as provided by
other state or federal laws or programs.
(c) "Rental assistance subsidy" as used in Article 4.4 of this part means a ten-
percent discount from the monthly rent charged for the mobilehome space occupied by
one or more qualified tenants, as established by mobilehome park management (the
pre-subsidy monthly rent level).-The pre-subsidy monthly rent level of a qualified tenant
who is receiving or is entitled to receive, a rental assistance subsidy, may be increased and
shall be decreased, as appropriate, from time to time, so that the pre-subsidy monthly rent
level shall not, at any time, exceed the average monthly rent level charged for all spaces in
the mobilehome park then occupied with mobilehomes.
Only one rental assistance subsidy shall apply to any mobilehome space
regardless of how many qualified tenants who reside in a mobilehome space, so that no
mobilehome space shall be entitled to more than one ten-percent discount from the
pre-subsidy monthly rent level.
` (d) `Exempt space"as used''in Article 4.5'of this'part,means-(i) any space in a :_
mobilehome park which is not occupied by a mobilehome as of the effective date of this
Measure, or (ii) any space which is, as of the effective date of this Measure, exempt from
a mobilehome park rent control law as a result of any lease or rental agreement covering
such space including, without limitation, a rental agreement described in section 798.17 of
this Chapter.
(e) "Mobilehome park rent control" as used in Articles 4.4 and 4.5 of this part
means any ordinance, rule, regulation, or initiative measure, adopted by any city, county or
city and county, which establishes a maximum amount that the management of a
mobilehome park may charge any tenant or resident for rent.
(f) "Decontrolling event" as used in Article 4.5 of this part means, with respect to
any space in a mobilehome park covered by a mobilehome park rent control law as of the
effective date of this Measure, the occurrence of any of the following events after the
effective date of this Measure: (i) Any sale, transfer (by foreclosure, operation of law or
otherwise), or other change in ownership of the mobilehome (as defined in Section 798.3
of this Chapter); (ii) Any termination of the tenancy of the persons who are tenants in such
space by eviction, voluntary vacancy or otherwise; or (in) Any sublease by the tenant to a
third party of the mobilehome or space after the effective date of this Measure,, provided
nothing contained herein is intended to authorize any such sublease of the mobilehome or
space. Notwithstanding the provisions of subdivisions (i), (ii), and Gii) herein, no
decontrolling event shall be deemed to have occurred upon any transfer of ownership of a
mobilehome to the conservator, guardian or trustee of a homeowner or to a homeowner's
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trust (provided that the beneficiaries entitled to ownership of the mobilehome are members
of the homeowner's immediate family), or to a surviving spouse upon the death of the
other spouse, or to a spouse or the parent(s) or children of a homeowner.
(g) 'Subsidized rental charge' means the amount of rent chargeable to the qualified
tenant under this Measure, after deducting the rental assistance subsidy from the rent
otherwise lawfully chargeable to the tenant.
SECTION 4: AMENDMENT OF CHAPTER 2.5 OF DIVISION 2 OF THE CALIFORNIA CIVIL
CODE
Chapter 2.5 of Part 2 of Division 2 of the California Civil Code is hereby amended as
follows by adding a new Article 4.4, as follows:
Article 4.4 Tenant Rental Assistance
798.44.1 Any qualified tenant may apply for and if accepted, shall receive, directly from
the management of a mobilehome park in which such tenant resides, a rental assistance
subsidy subject to the terms and conditions provided for in this Article.
798.44.2 The orovision of the rental assistance subsidy shall be the sole responsibility
and obligation of each management of a mobilehome park and neither the State of
California nor any governmental agency shall have any responsibility therefor or exercise
any authority in connection therewith, except as provided in Section 798.44.6 of this
Article: -
798.44.3 (a) Each tenant seeking to obtain a rental assistance subsidy shall provide the
management with an application, together with competent evidence of facts, to prove the
tenant is a qualified tenant. This application and evidence may be submitted at any time
during any calendar year up to December 15 for consideration of the rental assistance
subsidy for the ensuing calendar year commencing January 1. The evidence
accompanying the application shall consist of ownership and residency in the mobilehome
and such income and other information as is customarily required by the governmental
agency administering the housing assistance benefits for Very Low Income persons under
Section 8 of the United States Housing Act of 1937 (42 U.S.C. sec. 1437) and such other
evidence as is reasonably required. However, no mobilehome park management shall
make this application process more burdensome to the tenant than would be the case if
the tenant were applying for housing assistance benefits for Very Low Income persons
under Section 8 of the United States Housing Act of 1937 (42 U.S.C. sec. 1437).
(b) Each mobilehome park management shall, promptly upon.receipt of such
application and evidence specified in paragraph (a), evaluate the same and reply to such
tenant with notice within 10 working days. The reply shall indicate either 0) acceptance,
in which case the amount of the rental assistance subsidy and the pre-subsidy monthly
rent level shall then be stated; or (2) rejection, in which case the basis for such rejection
shall also be stated. Once a qualified tenant has received a rental assistance subsidy
during any part of a calendar year,.the rental assistance subsidy shall continue until
December 31 of that year, subject to early termination as provided in this Article.
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798.44.4 Notwithstanding any other provision of this Article to the contrary:
(a) (1) In any jurisdiction in which mobilehome park rent control is in effect, the
management of a mobilehome park shall be exempt from the rental assistance subsidy
provisions of this Article if, and as long as, more than ten-percent of the spaces occupied
by mobilehomes in such mobilehome park are covered by any form of mobilehome park
rent control.
(2) In any jurisdiction in which mobilehome park rent control is in effect, if at
any time fewer than ten-peicent of the spaces occupied by mobilehomes in a mobilehome
park are covered by any form of mobilehome park rent control, the management of a
mobilehome park shall be subject to the provisions of this Article and shall be required to
provide rental assistance subsidy to a qualified tenant; provided, however, that the .
management of the mobilehome park shall not be required to provide such rental
assistance subsidy if granting the subsidy would result in more than ten-percent of the
spaces in the mobilehome park being covered either by any form of mobilehome park rent
control or by the rental assistance subsidy provided by this Article. The priority for
granting rental assistance subsidy shall be governed by subdivision (c) of this section
798.44.4.
(b) In any jurisdiction in which there is no form of mobilehome park rent control in
effect, the management of a mobilehome park shall be required to provide the rental
assistance subsidy provided by this Article to qualified tenants representing not more than
ten-percent of the spaces then occupied by mobilehomes in such mobilehome park. The
priority for granting rental assistance subsidy shall be governed by subdivision (c) of this
section 798.44.4.
(c) (1) In circumstances in which subdivision (a)(2) or subdivision (b) of this
section apply, the management of a mobilehome park shall be required to grant the rental
assistance subsidy provided for in this Article to those qualified tenants who are first in
time to have been granted a rental assistance subsidy by the management of the
mobilehome park.
(2) In determining the number of qualified tenants to which the management
of a mobilehome park shall be required to provide rental assistance under subdivision
(a)(2), the management of the mobilehome park shall determine the number of qualified
tenants which represent spaces entitled to the rental subsidy, by subtracting the number
of spaces then subject to some form of mobilehome park rent control from the number
representing ten-percent of the total number of spaces then occupied by mobilehomes in
the mobilehome park.
798.44.5 (a) Any qualified tenant receiving a rental assistance subsidy shall lose the right
to such rental assistance subsidy upon the occurrence of any of the following events:
(1) The tenant fails to pay the monthly rent in accordance with the rental
agreement (as reduced by the rental assistance subsidy) within five days of its due date;
or
(2) The tenant no longer meets the criteria for a qualified tenant for any
reason.
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(b) The mobilehome park management may, upon 10 days' written notice to the
tenant, terminate the tenant's rental assistance subsidy for a reason specified in
paragraphs (1) or (2) of subdivision (a).
(c) A tenant whose rental assistance subsidy has been terminated pursuant to
subdivision (b) may not reapply for rental assistance subsidy for a period of 12 months
thereafter. _
(d) For purposes of the ten-percent limitation set forth in section 798.44.4, a rental
assistance subsidy terminated pursuant to subdivision(b) shall be deemed to have been
terminated on the last day of the calendar year. `
798.44.6. Any qualified tenant aggrieved or_damaged by any substantial violation of this-
Article may petition the municipal court of the judicial district in which the mobilehome
park is located for a judicial determination of his or her rights under this Article. An
aggrieved tenant prevailing in such an action shall be entitled to (a) actual damages
consisting of the amount of rental assistance subsidy lost due to the violation and (b)
reasonable attorneys fees and costs. A tenant aggrieved by a violation of this Article shall
also be entitled to seek injunctive relief, and any other equitable remedies available under
section 526 of the Code of Civil Procedure.
A judgment of the municipal court shall be reviewable by the appellate department
of the superior court of the county inwhich the action arose.
798.44.7. (a) A mobilehome park's management shall not terminate the tenancy of any
tenant, or attempt to do so, or retaliate against any tenant, or attempt to do-so; as a
proximate result of a request by that tenant for a rental assistance subsidy or the exercise
of any rights relating thereto as provided in this Article.
(b) Any demand by a mobilehome park's management for rent in excess of the
subsidized rental charge from any qualified tenant whose application for a rental assistance
subsidy is approved for the calendar year or whose application was denied or rejected in
violation of this Article shall constitute a defense to any action brought by the mobilehome
park management for (1) the excess rent over the subsidized rental charge or (2) eviction
of the qualified tenant from the mobilehome park for non-payment of that excess rent.
However, this subdivision does not apply if enforcement of the subsidized rental charge
would violate any constitutional right of the owner of the mobilehome park to a fair rate of
return.
SECTION 5: AMENDMENT OF ARTICLE 4.5 OF PART 2 OF DIVISION 2 OF THE
CALIFORNIA CIVIL CODE
Article 4.5 of Part 2 of Division 2 of the California Civil Code is amended to add the
following new Sections 798.46.1, 798.46.2, and 798.46.3 as follows:
798.46.1 On or after the effective date of this Measure, no city, county, or city and
county, shall, (a) enact any new mobilehome park rent control law.or (b) amend or modify
any existing mobilehome park rent control law to apply its restriction on maximum rents to
any space in a mobilehome park which is not, on the effective date of this Measure, by
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reason of a long term lease or otherwise, subject to rent restrictions under the mobilehome
park rent control law.
798.46.2 Every mobilehome park rent control law in effect as of the effective date of
this Measure shall be subject to the following provisions:
(a)-On or after January 1 of the year following the effective date of this Measure,
no mobilehome park rent control law may, with respect to the rent which a mobilehome
park management may charge fora space within such park, either (i) require-that the rent
for such space ever be reduced from that lawfully charged before the effective date of this
Measure or as of ariy subsequent date, or (ii) limit any annual rent increase to an amount
which is less than the full annual cost of living increase, as measured by the change in
such cost of living from the 12-month period ending in the calendar month preceding the
date in which a notice of rent increase is given by the mobilehome park management at
any time, and from time to time, after the effective date of this Measure. .
For purposes of this paragraph, the cost of living shall be determined using
the California Consumer Price Index ("CCPI"), as published by the Department of Industrial
Relations for all items and all urban consumers, and this index for the 1982-1984 period
shall be computed as 100.
.(b) No jurisdiction administering any mobilehome park rent control law shall require
the management of a mobilehome park to attend any hearing or submit any information to
such jurisdiction so long as management limits the rental increases for any space affected
by such mobilehome park rent control law to the full annual CCPI increase as provided in
subdivision. .of this section_.
(a)
- -
(c) On or after the effective date of this Measure, no mobilehome park rent control
law shall impose any restriction whatsoever on the amount of rent that the management of
a mobilehome park may charge for a mobilehome space within such park upon or after a
decontrolling event, as defined in Section 798.13 (f).
(d) On or after the effective date of this Measure, no mobilehome park rent control
law shall impose any restriction whatsoever on the amount of rent that the management of
a mobilehome park may charge for a space within such park which is an exempt space, as
defined in Section 798.13 (d). All exempt spaces shall be, for all purposes on or after the
effective date of this Measure, exempt from any and all mobilehome park rent control
laws.
798.46.3 The State of California shall enact no statute restricting, or authorizing the
restriction of, the maximum amount of rent that the management of a mobilehome park
may charge for a space in a mobilehome park. Any statute having that effect and enacted
before or after the effective date of this Measure shall be void'and unenforceable.
SECTION 6: AMENDMENT OR REPEAL OF MEASURE
The provisions of this Measure may be amended or repealed by the procedures set -
forth in this section. If any porton of subdivision (a) is declared invalid, then subdivision
(b) shall_be the exclusive. means of amending or repealing this title.
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(a) The provisions of this Measure may be amended to further its purposes by
statute, passed in each house by rollcall vote entered in the journal, two-thirds of the
membership concurring and signed by the Governor.
(b) The provisions of this Measure may be amended or repealed by a statute that
becomes effective only when approved by the electors.
SECTION 7: EFFECTIVE DATE
The effective date of this Measure shall be the day after the election at which it is
approved by the voters.
SECTION 8: CONSTRUCTION OF MEASURE
The Measure shall be liberally construed to achieve the purposes of this Measure
and to preserve its validity.
SECTION 9: SEVERABILITY
If any provision of this Measure, or the application to any person or circumstances
is held invalid or void, such invalidity or voidness shall not affect other provisions or
applications which can be given effect without the invalid or void provision or application,
and to this end, all of the provisions of this Measure are declared to be severable.
SECTION 10: ELECTORS' INTENTION IN THE EVENT OF PASSAGE. OF POSSIBLE
CONFLICTING MEASURES
In the event another Measure to be voted on by the voters at the same election as
this Measure, and which constitutes a comprehensive regulatory scheme, receives more
affirmative votes than this Measure, the electors intend that any provision or provisions of
this Measure not in direct and apparent conflict with any provision or provisions of another
Measure, shall not be deemed to be in conflict therewith, and shall be severed from any
other provision or provisions of this Measure which are in direct and apparent conflict with
the provision(s) of another Measure. In such event, the provisions shall be severed
according to the provisions of Section 9 of this Measure upon application to any court of
competent jurisdiction.
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