Tuesday, July 13, 2010 | Residents across Orange County will be paying more in rates for waste collection starting this month, with most cities taking the position that they have no choice but to pass on an increase in the cost of the waste hauling business.
However, as recent deals cut by two cities show, trash fee hikes aren’t inevitable. The deals indicate that trash haulers have enjoyed healthy profits in recent years and could still make money even without rate increases.
The rate increases are in large part driven by a rise in the fee that Orange County charges trash haulers to dump in its landfill. As of this month, the fee went up for the first time in 13 years — from $22 to $29.95 per ton.
But while trash haulers are being charged at the landfill gate, residents and businesses end up paying the price.
Tustin residents saw a 5 percent increase in their trash collection rates. Yorba Linda residents are being wrung for another 8 percent. And Laguna Hills residents got clobbered with an 11 percent increase.
What have not gone down, in most cases, are the profits of the waste haulers and the franchise fees the haulers pay into city coffers. In most cities, the franchise fees — which are the fees cities charge waste haulers for permission to operate with in their borders — remain about the same.
City officials characterize landfill fee increases as pass-through costs that are hard-wired into waste hauling contracts and therefore unavoidable.
Yet two cities — Mission Viejo and Los Alamitos — have managed to strike deals with waste haulers Waste Management Inc. and Consolidated Disposal Services that bring into question the necessity of the collection rate increases.
Council members in other cities say that it is unfair to compare Los Alamitos and Mission Viejo with their own situations because those cities were at the end of their waste management contract terms. They say going out to competitive bid for a new contract gave the two cities more negotiation leverage.
“If we were at the end of our contracts, we would be able to negotiate lower rates,” Laguna Hills Mayor Randal Bressette said.
But not everyone is convinced that city councils did their best to avoid passing on rate increases to residents.
Barbara Kogerman, a Laguna Hills council candidate, said the city should have revisited the contract with the city’s waste hauler, CR&R, and renegotiated the rates. She said a reduction in the city’s $250,000 franchise fee would have been a good starting point.
“The’re not being creative — they’re tying their hands and saying we can’t do anything about it,” Kogerman said.
In fact, Dean Ruffridge, vice president of CR&R Waste and Recycling Services, has said he is willing to negotiate down the rate increases for the cities it contracts with. However, part of the deal, Ruffridge said, would be that the cities would have to lower their franchise fees.
“We’d do that — not a question — whatever they [the city councils] want to do,” Ruffridge said.
Bressette says it’s not so simple. Lowering the franchise fee in exchange for avoiding this year’s pass-through cost is possible, he said, but finding the revenue to replace the franchise fee would be difficult.
“There are a lot of different ways to raise revenue for a city; none of them are necessarily pretty,” Bressette said.
He said covering the revenue lost would come down to things like raising fees arbitrarily on smaller groups of residents. He also said some of the funds from the franchise fee are tied to the cost of administrating the city’s trash contract and various waste collection programs.
“Who do you decide to tax? Do you tax someone who’s using recreation services? Do you put a tax on businesses?” Bressette said. “You’re taxing one group of people to reduce a minimum fee for everyone.”
Kogerman disagrees, and said there are plenty of places to cut costs that wouldn’t affect residents. Kogerman said Laguna Hills should cut City Manager Bruce Channing’s compensation — which, according to a recent report she commissioned, is $460,809 a year. That’s the highest in the county.
“By doing a little bit of realigning of the city’s priorities and cutting back on city manager and assistant city manager compensations, there would be some savings,” Kogerman said.
It’s unclear whether waste haulers could have continued to make a profit if they had chosen to forgo the rate increase. Ruffridge said he “hadn’t analyzed it.”
Joe Sloan, who is a co-partner in the industry consulting firm Sloan Vazquez, said that trash contracts are often complex and one can’t make blanket statements about them. Does a city, for example, want the waste hauler to use a green-friendly fleet, throw in free street sweeping services, or divert more trash away from landfills and towards recycling centers?
Yet the recent competitive bidding in Mission Viejo and Los Alamitos sheds some light on how flexible waste haulers can be when the pressure is on. Under the new contract Mission Viejo has with Waste Management Inc., the company is taking a revenue cut of about $1 million a year, Sloan said.
Sloan, who advised the Mission Viejo City Council during a bidding war between Waste Management, CR&R and two other waste haulers for the Mission Viejo trash contract, said even with what seem to be steep revenue cuts, the company is still turning a small profit.
“It’s about as slim as Waste Management could possibly do it,” Sloan said.
This raises the question: Have Mission Viejo residents been paying too much for their trash pickup all along?
Councilman John Paul Ledesma summed it up thusly: “Do I think we’ve been getting ripped off? No. Do I think we could have done better in retrospect? Probably.”