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Santa Ana City Council members, following a decades-old pattern of not seeking competitive bids for its home and business trash collection contract, have delayed competition to the point where Waste Management, Inc.’s contract from 1993 – which was originally set to expire in 1998 – will continue until the year 2020.

In addition, the city is charging residents millions of dollars in fees on trash bills and transferring it to the city general fund, which pays for police and other services, according to Councilwoman Michele Martinez, who said it’s a violation of state law.

“It’s a Ponzi scheme,” Martinez said in an interview, referring to an illegal business enterprise. “We’ve been charging into an enterprise fund, then transferring [that] money to use for general fund services without going to the voters. That’s illegal. It’s criminal, it’s wrong.”

City staff declined to make someone available Monday to answer questions about the contract, including why it’s been extended over 20 years beyond its original expiration date and what the basis is for transferring $6 million per year from trash service revenues to the city’s general fund.

Mayor Miguel Pulido, who is the only council member to have served since the trash contract was awarded a quarter century ago, declined to comment for this article when reached by phone.

The no-bid extension and money transfer issues are among several, including council resistance to a ban on speaking with potential vendors during the upcoming bidding process, that the council faced as it voted Dec. 5 to extend the Waste Management contract another two years, to mid-2020.

The last time it was put out to competitive bid was 1993, and the contract was scheduled to expire five years later, in 1998, when it could be opened up again to proposals from other interested companies.

But instead of opening it up to bidding, council members went on to extend it to the point where the original five-year contract is now a 27-year contract. Waste Management and its subsidiaries have been Santa Ana’s trash hauler since the early 1960s, and the contract only went out to bid once, in 1993.

A new competitive bidding process is scheduled to be finalized next month that would pick a potential replacement provider that would start service in July 2020, with the contract worth an estimated $1 billion. That process has already been delayed several times.

Martinez said she grew suspicious several years ago when the contract’s then-expiration date was coming up but city officials weren’t putting the contract out to bid.

Then, Martinez said, she learned the city was charging residents millions of dollars in surcharges on trash bills and transferring that money to the city general fund – which pays for police and other services – in potential violation of state law.

In Santa Ana’s case, the fees and “surcharges” started out relatively modestly, around 5 percent on top of trash bills in the mid-1990s, according to city records. But over the years the city has grown it to the point where it’s now a 26 percent charge.

The city then transfers over $6 million in trash revenues to the city’s general fund each year, according to city staff. This creates an incentive to delay bidding out the contract because it would require to the city to “fix” the overcharging by re-doing its fee analysis, Martinez said.

“They were covering [for] the additional fees that didn’t go to the voters,” Martinez said of the delays in opening the contract to competition.

California’s Proposition 218, adopted by voters in 1996, is intended to prevent cities from using fee increases as a loophole to essentially raise taxes on residents without going to voters. The law requires voter approval to raise fees charged on top of trash, water and sewer service, and bans cities from using its revenues from those services to pay for “general government services” like police and firefighting.

City staff have previously said there are legitimate reasons to transfer trash revenues to the general fund, like reimbursing for city buildings and administrative staff needed to administer the contract. But they also have acknowledged problems with what the city is doing.

When Martinez publicly said in June that the city was illegally using trash fees for general fund services, City Attorney Sonia Carvalho said she’d prefer to talk about it in private, later adding that Santa Ana “has some Prop 218 issues.”

Santa Ana has been charging residents significantly more than other cities, Martinez said, citing a study commissioned by the city that was performed within the last two years.

The study found Santa Ana charged its residents $15.79 per week for trash collection, while neighboring Irvine charged $11.32, Martinez said.

On an annual basis, that would amount to Santa Ana residents paying $233 more each year for trash pickup than Irvine residents, who are served by the same company. There are about 40,000 residential customers served by the Waste Management contract.

Voice of OC asked city staff Friday for a copy of their latest survey for Santa Ana’s trash rates compared to other cities. Staff said City Hall was closed Friday and the document hadn’t been provided as of Monday evening.

In Santa Ana, the City Council sets the fees that are charged to residents and the city collects payment for the trash service, which is split between Waste Management and the city.

Despite the concerns about competition, pricing, and possible overcharging of residents, city officials – including Martinez – say there have been few if any complaints about Waste Management’s performance.

Council members now are scheduled to vote Jan. 16 on finalizing the city’s solicitation for bids from companies that want the new contract that starts in July 2020.

The contract is a lucrative one, in a highly competitive business. City officials estimate the new contract to be worth $1 billion, making it one of the city’s most valuable, if not the most. The vast majority of the revenues go to whichever company is chosen to provide the service.

As council members have prepared to put the contract out to bid, the process has faced delays that pushed back the timeline.

In December 2015, the City Council hired consultants to prepare the bidding process for the contract. It’s taken two years for the draft bid proposal to appear before the City Council, which gave public feedback on the document earlier this month.

As of this October, the bidding process was supposed to end in July 2018, when the council would approve a new contract with the winning vendor, who would take over the trash service in May 2019.

Then, in early December, a new timeline pushed back the process by more than a year, with the new contract to be approved in May 2019 and the vendor taking over service in July 2020, a full 14 months later than what the city had published a few weeks earlier.

Meanwhile, Waste Management has contributed at least $10,000 to a nonprofit group run by Santa Ana Councilman David Benavides, who has voted to extend the company’s contract.

The trash hauler gave between $10,000 and $25,000 in contributions to the nonprofit group KidWorks, whose executive director is Benavides, during the 2016 fiscal year, according to an annual report by the nonprofit group.

Benavides did not report the donation on disclosures required by state law when an elected official solicits money for a nonprofit group, known as “behested payment” disclosures. It’s not among the three behested payment disclosures on file with the city.

Benavides didn’t return a phone call and text message seeking comment on why he didn’t submit the disclosure.

As part of the proposed bidding documents, city staff and the city’s consultants recommended a ban on council members communicating on their own with potential bidders – known as an ex parte ban – saying the ban was standard practice for trash hauling contracts.

That brought pushback from the council, with Councilman Vicente Sarmiento saying it shouldn’t be “seen as a bad thing” for council members to try to get information from vendors to “make a more informed decision.”

“I just don’t know why that…is part of the [bidding documents],” said Sarmiento. “Was there a problem with somehow not having the council better informed?”

City staff stood by their recommendation, saying it was meant to protect against unfair advantages for bidders.

Public Works Director Fred Mousavipour said the city’s usual practice is to provide all bidders the same access to information through city staff, “and not provide an unfair advantage to one of the bidders that are trying to bid on the project [through obtaining] additional information that some other bidders are not privy to.”

Sarmiento argued again for council members’ ability to speak individually with bidders, which the city’s consultant pushed back against.

“We highly recommend that you adopt this ex parte communication restriction,” replied Joe Sloan, the trash haul contracting consultant, who is with the firm Sloan and Vazquez.

Such restrictions are in most trash contract bidding processes he’s seen over the past decade, Sloan said, adding, “It’s a billion dollar contract, probably.”

Sarmiento pushed back again, asking why council members shouldn’t be able to ask questions of vendors.

Staff explained their reasoning a third time. City Attorney Sonia Carvalho said the communications ban is a “best practice” in the industry for these kind of contracts. It’s easy to search the internet for trash contracts and see “controversy” in the media, she said.

The communications ban recommendation is intended “to protect the council” from those kinds of allegations, Carvalho said. In the past, she added, staff have recommended that if a council member has a meeting with a potential vendor, they bring along the city manager or a high level staffer.

Councilman Sal Tinajero agreed with Sarmiento, saying council members “want to be able to do our due diligence, aside from the staff…so that when you come before us” with the recommended vendor, “we are able to ask good questions. And that’s all we’re asking.”

Tinajero said he supports bringing a staff member along to any meetings with vendors, and Martinez said she also supports lifting the communications ban and having the council be more involved in the process. With three council members supporting lifting the communications ban, and none voicing opposition, it is likely to be lifted in the final bidding documents the council is scheduled to approve next month.

With hundreds of millions of dollars on the line, the competition for trash hauling contracts can get intense. Elected city officials in Southern California and elsewhere have faced criminal charges for bribery in connection with trash hauling contracts.

At the most recent council discussion on the topic, Martinez warned her colleagues that these contracts are a “serious business.”

“You can either end up in jail or end up dead,” she said.

Nick Gerda covers county government and Santa Ana for Voice of OC. You can contact him at ngerda@voiceofoc.org.

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