MINUTES FOR THE STUDY SESSION
ASHLAND CITY COUNCIL
Monday, December 5, 2011
Siskiyou Room, 51 Winburn Way
Mayor Stromberg called the meeting to order at 5:30 p.m. in the Siskiyou Room.
Councilor Silbiger, Morris, Chapman, Slattery, and Voisin were present. Councilor Lemhouse was absent.
1. Look Ahead Review
Item not reviewed.
2. Does Council have questions about the proposed solid waste collection rate increase options?
Recology General Manager Steve DiFabion introduced Bruce Gondry Vice President and Group Manager, Ed Farewell Vice President and Assistant Group Manager, and Tom Norris Regional Financial Manager. He noted specific services Recology offered that included the Yellow Bag and Sticker programs, the Prescription Drug Box service and how the Recycle Center was now open 6 days a week. Recology also added free leaf drop off days and the Bear Proof Cart Program. They were in the process of developing a senior and disabled discount for low-income people aged 60 years and older and a 35% discount for people 65 and older who were low-income. The City would use their low-income policy and adhere to Federal low-income guidelines to determine who was eligible for the Recology discount.
Mr. DiFabion explained the operating ratio concept divided allowable expenses by .90, added in pass-through expenses, and would provide a pre-tax profit of 10%. The concept was fair, easy to calculate and to administer, consistent with industry averages, and allowed a reasonable return. Currently, one out of eight residential customers participated in the discount programs that resulted in $134,000 of lost revenue annually for Recology. Garbage units generated revenue, not ancillary services. There was an associated cost for waste diversion and in the future revenue needed to be replaced somewhere.
Council stated it would be difficult for the citizenry to accept a 23% rate increase because they were successful in garbage diversion. Raising the rates for Sticker and Yellow Bag programs were suggested, and retaining the 35% discount to low-income customers. Other comments noted the Sticker and Yellow Bag programs predated Recology and the services had not changed enough to warrant a 23% increase. Past increases were traditionally at the most a Consumer Price Index (CPI) increase and based on actual costs. The 23% increase seemed based on profit margin. Additionally, having rate information a few years prior to 2010 would be helpful. The information Recology provided showed General Administration increasing $200,000 over the past two years. Council wanted to see cost increases based on previously set standards and not an artificial rate of return.
Recology recognized an immediate 23% increase was not tenable but needed to stop operating at a loss. A 10% increase at this time would help Recology break even. Mayor Stromberg clarified using the operating ratio equation the increase was actually 11.1%, was based an accounting action rather than hard costs, and reiterated it would be extremely difficult for the citizenry to accept.
Mr. Norris explained when Recology acquired Ashland Sanitary it had collection revenues of $3,817,924 for the full calendar year. The 9% rate increase in 2008 and 7.7% increase in 2009 should have generated $4,198,572 revenue and instead created $3,737,593 with a shortfall of $460,979. Additionally Recology experienced a $68,981 loss in Recycling revenue between 2008 and 2010. During that time, they also incurred approximately $300,000 of expenses. They attributed the loss to customers creating less waste and diverting more garbage. With less waste disposal fees decreased but the cost of transporting recycled material to Portland increased. The majority of the costs went to labor, fuel, disposal, and fleet maintenance. Ashland Sanitary absorbed the administrative costs for Recology the first year of their ownership but the second year Recology allocated those costs.
Mr. Gondry added what drove the need for a rate increase was revenue that never materialized. The rate increases from 2008 and 2009 originated from the former owners. The revenue did not follow the rate because customers downsized their billing unit, and there was a significant loss of debris box collection for construction sites due to the economic downturn.
Mr. Norris clarified having less disposal cost was only one component. Recycling and green waste service were other components that were growing. The overall garbage rate funded these services because recycling and green waste did not have a direct charge. It was a common industry standard for garbage rates to cover recycling services.
Council suggested charging for recycling instead of increasing the rates while continuing the discounts to seniors, disabled and low-income residents. Other statements thought the commercial subsidy was out of range of what it should be and that residential rates should not subsidize that service.
Mr. DiFabion referred to the commercial discount and explained historically rate increases went across the board without delving into rate structure or fairness. He used Rogue Disposal in Medford in comparison and explained why they had higher rates for commercial but lower rates for residential than Ashland. Recology could adjust commercial rates.
Council comments included separating the commercial discount from residential and alternately concern that raising commercial rates may result in businesses having to increase their total costs to cover disposal services.
Recology worked with businesses to mitigate costs but it was difficult because of space issues, most businesses had to use smaller containers and were unable to use compactors.
Mr. DiFabion explained when the market goes flat for recycling Recology sends it to Portland at a loss.
Other Council comments noted that it often cost less dumping trash in the landfill instead recycling. Recycling needed to pay for itself and every time the rates increased, there was more garbage in the watershed and on the street. Additional concern did not support residents subsidizing commercial rates.
Council wanted information that showed rate increases outlined with impact and they wanted to review data prior to 2010. They also wanted some form of a rate menu that showed what each service would cost instead of charging one rate to cover other services. Additionally, Recology needed to update the commercial rate structure.
Staff would work with Recology to develop a more feasible rate increase.
Meeting adjourned at 7:00 p.m.
Assistant to the City Recorder