HomeMy WebLinkAboutItem 04 Sanipac Rate Increase and Volunteer Food Waste Program AGENDA ITEM SUMMARY Meeting Date: 1/9/2012
Meeting Type: Work Session
Staff Contact/Dept.: Len Goodwin/
Rhonda Rice-PW
Staff Phone No:726-3685/726-3655
Estimated Time: 30 minutes
S P R I N G F I E L D
C I T Y C O U N C I L
Council Goals: Financially
Responsible and
Stable Government
Services
ITEM TITLE: SANIPAC RATE INCREASE AND VOLUNTEER FOOD WASTE PROGRAM
ACTION
REQUESTED:
Review staff analysis of Sanipac request for rate increase and volunteer Food Waste
Program and provide direction to staff.
ISSUE
STATEMENT:
Sanipac, the City’s franchise hauler for solid waste, has requested an increase of
9.95 percent for residential and 7.95 percent for commercial hauling rates and to
add a voluntary Food Waste diversion program for commercial customers. Finance
Department and Public Works staff have reviewed the request and found it appears
to be reasonable, given the period of time since the last rate increase.
ATTACHMENTS: 1: Council Briefing Memorandum
2: Sanipac Request
3: Yard Waste Program
4: Food Waste Advertisement
DISCUSSION/
FINANCIAL
IMPACT:
Sanipac’s rates have not increased since July 2009, when Sanipac passed through a
fee increase imposed by Lane County to cover disposal of waste at the Short
Mountain Landfill. Prior to that, the last increase in Sanipac rates occurred in May
2008. During that time, consumer prices, as measured by the Consumer Price
Index, all Urban Consumers (Portland –Salem MSA), has increased by 6.79
percent. At the time of the 2008 adjustment, staff concluded that the increase at
that time would provide an appropriate rate of return for minimum of two years.
Under the proposed increase, the rate for a 35 gallon container would increase
$1.43, from $14.45 to $15.88, and for a 65 gallon container $2.09 from $20.95 to
$23.04. For comparison purposes, the equivalent rates in Eugene, allowing for the
$1.50 recycling credit, which is built into Eugene’s rates, would be $21.45 for a 35
gallon container and $38.55 for a 65 gallon container. Rates for other cities are
shown in the Council Briefing Memorandum
Sanipac also proposes to institute a food waste diversion program as a service to its
commercial accounts. This program, (which began in Eugene in November 2011,)
would allow Sanipac to divert food waste away from the land fill and allow
participants to reduce the size of their trash containers. The rate for commercial
food waste containers would be 20% less than a comparable trash container. A 1
yard food waste container would cost $65.52, and a 1 yard trash container would be
$79.40. This program could allow a business to cut costs by reducing the size of
the trash container as a result of adding a food waste container.
RECOMMENDED ACTION:
Staff recommends that Council approve the 7.95 percent increase in commercial
and 9.95 percent in residential for Sanipac’s hauler’s portion of the solid waste
collection rates for all categories of waste collection. Staff also recommends that
the voluntary Food Waste program be made available to commercial clients.
ATTACHMENT 1
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M E M O R A N D U M City of Springfield
Date: 1/9/2012
COUNCIL
BRIEFING
MEMORANDUM
To: Gino Grimaldi
From: Len Goodwin, Asst. Public Works Director
Bob Duey, Finance Director
Subject: Sanipac Rate Increase and Volunteer Food Waste
Program
ISSUE: Sanipac, the City’s franchise hauler for solid waste, has requested an increase of 9.95
percent for residential and 7.95 percent for commercial in hauling rates and to add a Food Waste
program for commercial customers. Finance Department and Public Works staff have reviewed
the request and found it appears to be reasonable, given the period of time since the last rate
increase.
COUNCIL GOALS/
MANDATE:
Financially Responsible and Stable Government Services
BACKGROUND: Sanipac last received rate increases in May 2008. Sanipac’s request for a
rate increase is based upon key operating cost increases, including but not limited to:
Depressed recyclable commodity values
Employee compensation packages increased 13% of 4 years
Employee compensation expected increase of 3.5%-5% in next few
years
Investment in Safety program increased 97% since 2009
Diesel fuel increased 68% since 2009
Road tax and licensing fees increased 45% since 2009
Bad debt expense increased 246% since 2009
DISCUSSION
The City ordinance which grants Sanipac the franchise requires that the City, in its evaluation of
a rate increase, may give due consideration to all relevant factors including, but not limited to,
the following:
Rates charged by collection services in other Oregon cities
The most recent January Consumer Price Index (CPI-U) for Portland, Oregon.
The current schedule of any rates required by Lane County
Proposals made by Sanipac regarding the appropriate rate schedule.
In addition, this analysis will give consideration to Sanipac’s cost to deliver the service.
Sanipac implemented in November 2011 its Food Waste program in Eugene. For the City of
Springfield an implementation of a food waste program can create potential savings for
commercial customers. This savings is realized through a combination of a reduction of the size
of waste container with the addition of a food waste container, which allows the food waste to be
diverted from the regular waste and eventually from the land fill. This diversion includes not
only organics but items like paper plates, napkins, and coffee filters.
Items not included in this voluntary program are yellow and brown grease, liquids, paper coated
with plastic or foil, and offal and by-products from animal processing.
RATE ANALYSIS
Comparable Rates
A comparison with rates charged in comparable jurisdictions indicates that Sanipac proposed
increase is within competitive range of the comparables used. The City of Eugene in October,
2011 passed a rate increase of 3.8% residential, 4.9% commercial, and 7.1% drop box.
The following chart provides the rates in other communities:
Albany Medford Salem* Springfield** Springfield*** Eugene
20 gallon cart $13.90 N/A $18.95 $10.20 $11.21 $11.75
35-gallon cart 16.15 15.63 20.90 14.45 15.89 21.45
65-gallon cart N/A 26.19 27.90 20.95 23.03 38.55
95-gallon cart 25.40 36.76 N/A 26.60 29.25 48.10
2 yd container 124.80 136.38 110.85 149.90 161.82 133.40
* Proposed rates **Current rate ***Proposed rates
Consumer Price Index
The Consumer Price Index (Portland all Urban Consumers) has increased by the following:
Fiscal Year CPI Increase
2007 Annualized 3.7%
2008 Annualized 3.3%
2009 Annualized 0.2%
2010 Annualized 1.3%
January 2011 – 1st Half 2.6%
As of June 30, 2011, the CPI has an overall increase of approximately 7.4% since Sanipac’s last
rate request. With the final six months of 2011 data due soon, this compares favorably to the
requested 8.0%.
Cost to Deliver Services
The cost to deliver services has been analyzed by determining an appropriate rate of return. The
rate of return has been examined because the provider is a private for-profit business entity.
Their cost to deliver service must include a profit at a fair rate of return. In determining a fair
rate of return, industry standards were used as a benchmark.
As compiled by Robert Morris Associates and Dun and Bradstreet (Attachment Four) for the
Standard Industrial Category (SIC) #4212 - in which garbage haulers are included - profit before
taxes divided by total assets has the following ranges:
low range 2.7%
mid range 8.5%
high range 14.5%
Based on financial data provided by Sanipac, the return on assets for the Sanipac corporation
(including Eugene) is:
ATTACHMENT 1
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ATTACHMENT 1
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FYE 6/30/10 4.4%
FYE 6/30/09 2.8%
Audited, FYE 6/30/08 N/A
Audited, FYE 6/30/07 12.4%
The methodology utilized in all years is the same but with the change in ownership the FY08
information was not readily available in the local office as well as the final audited statements
for FY09 and FY10. Sanipac’s return on assets ratio is consistently in the middle of the mid to
high ranges.
Without Rate Increase FY 10 FY 11 FY 12 FY13
Total Revenue $7,553,021 $7,655,987 $7,655,987 $7,655,987
Operating Expenses 6,930,765 7,102,644 7,331,760 7,442,373
Net Operating Income $622,256 $553,343 $334,227 213,614
Percent Income to Revenue 8.2% 7.2% 4.4% 2.8%
With Rate Increase FY 10 FY 11 FY 12 FY13
Total Revenue $7,553,021 $7,655,987 $7,979,564 $8,141,351
Operating Expenses 6,930,765 7,102,644 7,331,760 7,442,373
Net Operating Income $622,256 $553,343 $647,803 $698,977
Percent Income to Revenue 8.2% 7.2% 7.7% 8.0%
RECOMMENDED ACTION:
Staff recommendd allowing the 7.95 percent increase in commercial and 9.95 percent in
residential for Sanipac’s hauler’s portion of the solid waste collection rates for all categories of
waste collection. Staff recommends allowing the voluntary Food Waste program for commercial
clients.
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