The analysis is in – proposed garbage franchise will NOT be good for rate payers or taxpayers!

1 Nov

Here are some excerpts from an analysis by city-paid consultants R3 Consulting Group, available in next week’s city council agenda:

http://chico-ca.granicus.com/MetaViewer.php?meta_id=36629&view=&showpdf=1

The only clear advantage of the City’s existing system over the alternatives is the
potential for lower rates and lower administrative burden. If the potential for lower rates
and lower administrative burden are of primary importance to the City, it should maintain
and enforce its current regulated open-market permit system. If increasing
diversion/environmental services and generating fees to cover expenses incurred by the
City related to the impacts of solid waste collection are of primary importance, the City
should implement an enhanced permit or closed-market system.

Potential Impact on Ratepayers

Rate comparisons between exclusive and non-exclusive systems are complex. Customer rates
are affected by many factors, including the competitiveness of the marketplace, the services
required, the lines of business included in the franchise or open-market system (e.g., residential
versus commercial or roll-off/debris box), and many other factors. Perhaps the most important
of these factors is the competitiveness of the marketplace. If there are several haulers
competing for business in the same marketplace, rates will tend to be driven lower. However,
the competitive nature of the marketplace also puts pressure on some companies to save
money by reducing truck and bin maintenance, reducing recycling services and/or
underreporting required franchise fees.
Alternatively, exclusive agreements are often initiated through a competitive bidding process,
whereby the City releases a request for proposals (RFP) and a selection is made based on a
range of criteria. One of those criteria is customer rates, which the City can weigh heavily as
part of the evaluation process to ensure the City’s residents and businesses receive competitive
rates. In addition, the City has the option of freezing rates for an initial period and establishing a
specific rate setting process (e.g., rates escalated by the Consumer Price Index or Refuse Rate
Index). Finally, it is important to note that rates can be driven lower in an exclusive system with
one or multiple haulers due to a guaranteed revenue base and a guaranteed market share,
respectively.

Administrative Burden
With respect to the structure of the solid waste collection system, one consideration is the level
of City staff time required to administer the system. In the case of a regulated open-market
permit system with limited permit requirements, regulatory requirements are minimal. Enhanced
open-market system and closed-market system options, on the other hand, can have greater
administrative requirements that commensurate with the requirements of the enhanced permit
or franchise agreement (e.g., confirming reported diversion, managing franchise fee payments
etc.). However, language can be included in a franchise agreement to require the franchisee to
compensate the City for cost incurred for performing certain contract obligations, such as rate
reviews and hauler audits.
Time and Costs Associated with Implementation
As discussed earlier, current unrestricted permits will not expire until June 30, 2016. While this
allows for ample time to plan for enhanced permit requirements or a closed-market system, it
restricts the City from actually implementing a new system prior to the expiration of the permits.
However, the City could consider exploring opportunities to implement an exclusive franchise
system prior to current permit expiration by evaluating whether the current haulers are in
compliance with all permit requirements (i.e., reporting requirements). If the haulers are found to
be in non-compliance with any of the permit requirements, the City could pursue an exclusive
franchise system immediately.

2 Responses to “The analysis is in – proposed garbage franchise will NOT be good for rate payers or taxpayers!”

  1. Quené November 3, 2013 at 10:07 pm #

    One of my favorite parts was the statement “One of those criteria is customer rates, which the City can weigh heavily as part of the evaluation process to ensure the City’s residents and businesses receive competitive rates. ” …….. As if I currently trust “them” to take any consideration of what it would cost the customers when comparing RFPs to pick the franchisee.

    • Juanita Sumner November 4, 2013 at 5:40 am #

      Thanks for saying! When they ask me to have “good faith”, I feel like saying, “I already used up all my good faith, I don’t have another ounce of good faith.”

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