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4. Solid Waste Proposals City of Kalispell Public Works Department Post Office Box 1997, Kalispell, Montana 59903-1997 - Telephone (406)758-7720, Fax (406)758-7831 MEMORANDUM May 16, 2002 To: Chris A. Kukulski, City Manager From: James C. Hansz, PE, Director of Public Works/City Subject: Solid Waste Proposal - Evergreen Disposal Attached is a combination complaint and proposal from Evergreen Disposal for the City's solid waste operation. The Evergreen complaint rests on the City's rate structure and the proposed increases. Their contention is that even with the rate increases the City is unfairly competing with Evergreen and other waste companies by offering lower rates for service. The Evergreen proposal is in two parts. The first is for them to buy the assets of the Solid Waste Division commercial operation and employ its personnel to perform the service in lieu of the City. What is somewhat unclear is their fee to be charged. It is assumed that they would apply their current commercial rate structure. The second part of their proposal is to acquire the remaining assets and personnel for the residential operation and then perform the service. The proposal says they wish "to acquire the City's residential collection for $7.00 per month per customer." Again, it is somewhat unclear whether this is the fee they charge to customer, a fee they charge the City for performing the service, or something else altogether, such as a fee they pay the City, which the wording would seem to imply. While the data in this proposal is scant, to say the least, and would need substantial amplification and clarification before any decisions could be taken; it does shed enough light to see, barely, several interesting things. First, Evergreen believes the City's low rates are placing them at a disadvantage, and their solution is for the City to get out of the business. Second, it would appear that the City has been seriously undervaluing its garbage collection service and unwittingly placing companies at a disadvantage with low fees for service. Third, the proposed rate hikes do not remedy this, but, from a City perspective, do take a step in the right direction. memo0272002 Fourth, much of our recent history of mechanical failures, high maintenance costs, over -worked mechanics and operators, and replacements purchased with borrowed money, all could have been avoided had we been adequately funding the solid waste operation with a proper rate structure. Fifth, some action is indicated regardless of how future discussions on divesting the solid waste service may conclude. What are these actions? First, we should assume the need to revisit the proposed rate hike. If we further assume the $7.00/month reference in the Evergreen letter is their proposed fee for in -city residential service, then the currently proposed rate of $85/year would appear correct. However, the proposed commercial rate increase would appear insufficient and consideration should be given to adjusting it up to a level near that of Evergreen. There would appear to be no down side from this for either the city or the businesses. Rates are going up regardless, and if the service is privatized the rates will be whatever Evergreen charges. Therefore, it makes sense to raise the commercial rates immediately to match Evergreen and thereby remove it as a potential issue used against the City. Secondarily, the City Council should be cautioned that this proposal should be viewed and considered with extreme care. They should understand that Evergreen's assurances "to provide the same level of service the City's residents have become accustomed to" might not reflect a full appreciation of exactly what all those services are. Much of our problem in operating this service stems from the extravagant level of service we offer. Virtually anything placed in the can, alley or curbside is carted away by the City. We offer spring and fall yard clean up as well as Christmas tree disposal. If something suddenly appears in an alley behind a house or is dropped from a passing construction truck, the City carts it away. Solid waste personnel haul away dead animals from the roads and they also do their own snow plowing during winter. Service questions or disputes are immediately resolved by the foreman with a personal visit that same day. The homeowner is not charged anything extra for these services. All these services have evolved over many years and now comprise the public expectation of their garbage service. Points to ponder as we consider a response to the Evergreen Disposal proposal. EVERGREEN DISPOSAL 55 West Valley Drive Kalispell, Montana 59901 406 257-1739 • Fax 406 257-1741 To: Chris Kukulski, City Manager From: Steve Johnson, General Manager ' i l Date: May 15, 2002 Re: City collection As you may appreciate the staff of Evergreen Disposal watches with high interest the actions of Kalispell as they relate to refuse collection and management. I have been watching from a distance the activity on the new rate proposal and have the following comments followed by a proposals. "The commercial increases will bring City rates in line with private haulers." Please assess the validity of this statement by comparing proposed City rates with rates for service from Evergreen Disposal City proposed rates Evergreen rates Difference 1 weekly 300 gal. $267.00 $415.80 $148.80 400 gal. $340.00 $495.72 $155.72 2 weekly 300 gal. $534.00 $588.60 $54.60 400 gal. $680.00 $738.48 $58.48 As you can see the adjustment in City rates still does not bring City rates in line with rates from private haulers. In fact it continues to stifle competition. I can only assume that commercial collection is subsidized by residential collection. If North Valley rates were analyzed there would be a larger difference. Please remember the City does not pay taxes of any sort. Evergreen pays taxes on everything from fuel thm property, all benefiting the City, County and State. Needless to say for Kalispell to continue providing collection services for commercial customers the City by design is reducing revenue to the City, County and State. 2. Evergreen Disposal Inc. is interested in entering into negotiations with the City of Kalispell to purchase / employ the assets (trucks and containers) and personnel associated with the City's commercial collection. 2. Evergreen Disposal Inc. (EDI) is also interested in entering into negotiations with the City to acquire the City's residential collection for $7.00 per month per customer. EDI's intent is to purchase at appraised market value assets, employ the associated personnel and provide the same level of service the City's residents have become accustom to. EDI will entertain either of the proposals above together or individually. Please give this information serious consideration remembering the issues of fair competition and foregone revenue.