AGENDA #1g

 

BUDGET WORKING PAPER

 

TO:                  W. Calvin Horton, Town Manager

 

FROM:            Bruce Heflin, Public Works Director

 

SUBJECT:       Commercial Refuse Collection

 

DATE:             April 2, 2003

 

 

This report discusses the impact of eliminating Town collection of commercial solid waste.

 

Option 1 – eliminate Town collection of commercial refuse, reassigning personnel; impact on General Fund in fiscal 2003-04 up to $649,000. Subsequent years would equal $387,000 annually.

 

• based on no reduction of personnel; starting date of October 1, 2003, and sale of equipment; includes loss of estimated revenues totaling $157,500 (for nine months) from existing fees for commercial service

 

Option 2 – same as above, but eliminating positions; impact on General Fund in fiscal 2003-04 up to $708,500 (combination of cost saving and revenues from sale of assets). Subsequent years would equal $521,500 annually.

 

• based on reduction of personnel and equipment costs starting October 1, 2003, and loss of estimated revenues totaling $157,500 (for nine months) from existing fees for commercial service

 

BACKGROUND

 

As part of the budget process for fiscal year 2001-02, the Council adopted a modified fee system for garbage collection that became effective October 1, 2001.  Previously, the Town provided commercial garbage collection (i.e., dumpster collection) to businesses and multi-family complexes with a basic service of one weekly pickup at no fee.  Optional additional collections for fee(s) based on the number of containers and frequency of collection were available. Starting October 1, 2002, the fee schedule was changed to include a service fee for the basic one pickup per week for non-residential commercial customers.  Multi-family complexes pay only for additional service.  Few complexes do so.

 

Commercial fee revenues in fiscal year 2001-02 reached about $100,400 and included the impact of the new fees effective at the beginning of October, 2001.  The current fiscal year, which includes the basic service fee for once weekly collections that started October 1, 2002, will include an estimated $200,000 in revenues, compared to the budget of $179,000.

 

Commercial operations presently consist of the following resources:

 

One Supervisor

One Inspector

Three Solid Waste Equipment Operators III

Four front-loading garbage trucks

Two side-loading garbage trucks

Two pickup trucks

 

In addition, the Town maintains two 30-yard compactors in the 100 block of East Franklin Street and pays the disposal fees for compactors and roll-off containers at several other sites.   

 

The total cost of commercial operations in fiscal 2001-2002 was $1,034,100, independent of program revenues.  Disposal costs represented 56% ($579,600) of total commercial expenditures.  This is the most recent fiscal year for which we have complete audited fiscal data.  The Council has requested that we present total costs associated with commercial service, including administrative overhead.  These data are all inclusive as requested.

 

DISCUSSION

 

The following options are presented for the Council’s consideration:

 

• eliminate commercial collections, reassigning personnel

 

• eliminate commercial collections, eliminating personnel

 

We also considered an additional option involving use of a private vendor, either by contract or through franchise arrangement, for commercial services, but do not recommend it for two reasons.  First, there likely would be few, if any, cost advantages relative to the tax rate.  Instead of using General Fund revenues to pay for Town resources, we likely would have to pay an equal or higher amount to a private company.  Second, with Town crews providing the service, we have direct control over its delivery.  Under a private contract or franchise arrangement, our control would be less direct because private labor and trucks would be used.

 

Case law in federal courts holds that local governments cannot dictate through franchise agreements disposal sites for waste.  As long as a local government is contracting for its collections (so the contractor is performing the function for the government), disposal sites may be designated.  If the contractor is merely franchised, without respect to whatever other franchise limitations may be affected, then the disposal site cannot be designated.  Attempting to designate the disposal site of a franchised collector is considered in violation of the commerce clause of the U. S. Constitution and is called “flow control”.

 

This is particularly relevant to the Town.  In our intergovernmental agreement with Orange County and the Town of Carrboro, we agreed to deliver all waste under our control to the county landfill.  We believe that the only way to not pay for collection (either using our own staff or by contract) and be sure that we do not violate the agreement would be to leave the business as a provider or as a franchiser altogether.

 

Option 1. Eliminate commercial operations, reassigning personnel

 

Estimated saving, fiscal 2003-04: $649,000

 

Under this option, the Town would discontinue its commercial solid waste collection program.  While the routes would be eliminated, we would retain existing positions in the Solid Waste Services Division’s work force but would sell its fleet assets.  Businesses, apartments and condominiums/Town homes presently served by the Town would have to obtain refuse collection services from the private sector, at a higher cost.

 

We would retain the three incumbents.  They would be used as backups for residential service and could help absorb workload increases that will result when Southern Village is included in Town collection services starting July 1, 2003.  This point is critical for our ability to continue our operations at their current level.  We now have 6 residential crews working on Mondays and 7 on Tuesdays and Fridays.  After July 1, we will have 7 working every day.  The one crew that works now on Tuesdays is available on Mondays for backup for the other 6 crews, as well as providing backup for duties that include bulky item collection, container delivery, dead animal collection and miscellaneous tasks. 

 

Projected workloads clearly indicate an imminent need for an additional crew, especially in terms of servicing the growth related to Meadowmont and infill growth in Parkside, the Erwin Road corridor and Southern Village.  Our number of houses served has increased over 11% in the past three years, an increase of nearly 1200 homes.  This increase has been absorbed to this point, but only by increasing workdays to the point that many days we barely complete our routes before the landfill closes. 

 

Losing the three commercial positions, adding Southern Village to our in-house collection requirements and not obtaining an additional crew would, in aggregate, severely compromise our ability to routinely provide many of our basic services and would also force us to frequently hire temporary labor to fill our residential crews.

 

These positions also would be available to assist other programs within the Public Works Department.  They currently are used in such Departmental missions as work during and following severe weather events, especially winter snow and ice storms, and cleanup following special events, including Halloween, downTown festivals and celebrations related to sporting events.  In fact, eliminating these positions would have the effect of taking away one snow plow and one contractor plow from snow and ice removal operations.  Our commercial drivers now operate snow plows and also act as monitors for contracted snow removal equipment (we typically have an employee accompany each motor grader or loader that we hire).

 

As can be seen from the cost data in the Appendix, total savings from operating costs and disposal costs are about $651,500 in fiscal 2003-2004 and $617,000 in fiscal 2004-2005. These totals would be offset by the cost of collection and disposal of the Town’s own commercial waste, estimated at $20,000 annually; resulting savings would be $631,500 in fiscal 2003-04 and $597,000 in fiscal 2004-05.

 

These potential cost savings would be offset by the loss of revenues paid by businesses for commercial service.  While we estimate such revenues to be $210,000 for each of the next two years, we would only lose 75% next year because of the proposed October 1, 2003 starting date for the service change.  The resultant cost savings thus become $474,000 in fiscal 2003-2004 and $387,000 in fiscal 2004-2005.

 

Revenues totaling $175,000 from sale of some of the assets could be added in fiscal 2003-2004, resulting in a total impact of $649,000 on the Town’s General Fund, combining cost savings with projected revenues from the sale of assets.  The impact in fiscal 2004-2005 would remain an estimated $387,000 because there would be no revenues from asset sales in that year.

 

Advantages

 

• Elimination of commercial program would reduce General Fund costs.

 

• Retention of positions would enhance Public Works Department’s ability to perform all its missions, including helping to ensure we can provide all of our basic solid waste services and provide adequate backups for others; and, responding to adverse weather events and cleanup following downtown events and celebrations.  Incumbents in these positions are commercially licensed drivers, making them available to operate all Town heavy equipment, such as snow plows and knuckle boom truck used for removal of storm debris.

 

• Overall costs and demands of conducting maintenance operations at Public Works would decrease (cf., front- and side-loading garbage trucks would be removed from the fleet).

 

• Businesses would have opportunity to contract with private vendor(s) for more tailored service (e.g., frequency of collections).

Disadvantages

 

• Currently, Public Works is the most convenient local hauler available to many businesses.

 

• Businesses likely would incur higher cost for service relative to taxes paid and the present fee charged for collections by the Town.  Multi-family complexes that now receive garbage collection without cost would have to pay for the service.

 

• Tipping fee revenues would decrease; the Orange County Landfill would not be assured tipping fee revenues as are generated under the current practice of charges by the ton delivered for disposal.  Private haulers who become licensed haulers under Orange County rules might take commercial garbage to selected transfer facilities for cheaper disposal costs.  This could result in a reduction of revenues for the Landfill fund.  This assumes that the Landfill continues to be funded through tipping fees, rather than an alternative financing mechanism.

 

• The Town’s ability to influence downtown businesses to sustain level of cleanliness would diminish; loss of the ability to remove and/or dump problem dumpsters would result in greater vector problems.  Also, commercial garbage generated at times of special events could create the need for contracting for special cleanups.

 

• Once equipment is sold, the costs to restart service at some future date, if desired, would be significant (cf., present average cost for a new front-loading garbage truck is $150,000)

 

Option 2.  Eliminate commercial garbage operations, including personnel

 

Estimated saving, fiscal 2003-04: $709,000

 

If the Town discontinues collection of commercial waste and reduces the number of authorized personnel, then the projected savings could approach $709,000 using a starting date of October 1, 2003, next fiscal year and $521,500 in fiscal 2004-05.  Details of the cost projections are shown in the Appendix.  The savings primarily result from a reduction of three positions for nine months next year, deletion of disposal costs and removal of related garbage trucks from the Fleet Replacement fund.  Some of the proceeds from the sale of the garbage trucks would be used to pay off the balance of debt related to such trucks.

 

Relative to option 1, this option would result in an increase in the amount of savings (cf., additional savings of $60,000 in fiscal 2003-04 and $134,500 in fiscal 2004-05); however, it also would eliminate the advantages of no staffing reductions, including achievement of Departmental missions, including ensuring delivery of basic services and providing backup for other services, and providing staff coverage during times of adverse weather and downtown events.

 

OTHER ISSUES

 

If the Town were to eliminate commercial garbage operations, then the following considerations would have to be reviewed.

 

1. Would ALL commercial garbage collections be abandoned?

 

Currently, most condominiums and town homes receive commercial service by Town crews based either on special use permits or Town ordinance (cf., Sec. 8-35 of the Town Code – Bulk containers for multiple residential units).  Examples include Colony Lake, Winchester Court and others. If the Town no longer operates commercial equipment, then we could either contract with a private hauler for such collection; provide once weekly residential service using Town crews; or not participate in provision of such services at all, consistent with the possible withdrawal from commercial refuse collection altogether.

 

In addition, about 20 businesses Town-wide are served by residential crews, because there is not enough room to place commercial containers in these locations.  These include churches and homes converted to business uses.  We could use the same options as noted above for selected condominiums/town homes.

 

Additionally, Town departments would have to budget funds for the disposal costs of servicing dumpsters located within their areas.  These include sites at Public Works, Housing,  Parks and Recreation, Police and Town Hall.  We estimate the total cost for contracted service would be about $20,000 annually.

 

2. How would the Town’s compactors be serviced?

 

Compactors were installed in the downtown area when the James C. Wallace Parking Deck was completed in 1994.  This structure resulted in eliminating access to dumpsters in the alley behind several businesses fronting Franklin Street.  At that time, the Town agreed to arrange for compactor services at the Town’s cost so that businesses formerly using the dumpsters would have an alternative for commercial refuse services.

 

Currently, businesses in the 100 block of Franklin Street are charged a fee to use the Town’s compactors.  The Town pays for disposal and the hauling charges related to the compactors.  The compactors experience high usage and provide a better collection method than front- or side-loading dumpster service.  These compactors could continue with the present service or the Town could bid the complete service to a private company.   Annual Town expenditures for hauling, maintenance and disposal activities associated with the two compactors are about $56,000.  The estimate of savings associated with eliminating service assumes we would continue to provide this service.

 

3. What would happen to side-loading commercial operations?

 

There are currently 91 side-loading containers within Chapel Hill.  This number has declined steadily over the past four years as businesses and apartments have converted to front-loading service.  To our knowledge, there is no private company that provides side-loading services in this area.  There is only one company in the area that provides the unique side-loading containers.  The 91 remaining locations would have to either convert to front-loading or commercial rear-loading service in order to receive private collections. However, there are costs associated with conversion to front-loading systems (e.g., installation of container pads and screens).  Also, there are issues related to rear-loading service depending upon the amount of space needed for containers, what type(s) of containers would be available and pickup availability.  In some locations, multiple hand-loaded containers could present significant sanitary problems, depending upon the habits and number of residents present at a given complex.  

 

Impact of Deleting Commercial Refuse Services on New Public Works Facility

 

Previously, a question arose as to what the possible impact of eliminating commercial refuse collection services might be on the costs for a new public works complex.  Given the small number of trucks involved in this service, we believe eliminating this service would have negligible cost implications on a new public works compound.

Survey of Other North Carolina Jurisdictions

 

We completed a survey in December 2000, which presented data indicating how commercial refuse collection service is provided in other jurisdictions State-wide.  This survey was included in the budget working paper presented to the Council as part of last year’s budget process.  Of the dozen jurisdictions responding to our survey, four provide the service using municipal crews, two contract with private companies, five do not provide the service in any capacity and one uses a combination of municipal crews and private contractor.

 

SUMMARY

 

If the Council wishes to eliminate the Town’s commercial refuse program, then we would need time to work with the business community to help prepare them for the transition. Businesses would need sufficient time to prepare for private collection of refuse.  A transition period to October 1, 2003, could be considered for the elimination of such service.  

 

If commercial service is eliminated, then we would recommend Option 1, in which existing personnel would be retained.  While the cost savings would not be as great, we believe their retention would increase our capacity to efficiently handle present and anticipated workloads throughout Public Works Department programs.

 

While the above discussion of optional elimination of commercial service assumes an effective date of October 1, 2003, we could anticipate a starting date of July 1, 2003, for which we would need to revise the putative savings.

 

APPENDIX

Detailed Cost Projections for Elimination of Commercial Collection

 

Personal Service Costs (RIF based on “last hired, first let go”; assumes no annual salary adjustment; starting date 10/1/2003)

 

            3 SEO III’s                  $  79,460

            FICA                           $    6,079

            Retirement                    $    7,946

            Insurance                      $    7,753

 

            Subtotal                        $101,238

                         

Note: the Supervisor and Inspector positions would not be eliminated; they would be retained, along with two pickup trucks, for overall monitoring of services and enforcement of collection rules and regulations.

 

            Less Severance Pay      $34,415 (varies per years of service)

            Less insurance              $  6,776 (individual coverage – 1 year)

 

            Total, Personnel            $60,000 (1^st year); $134,500 (2^nd year)

 

Lease Payments

 

            Front-load Equip.         $ 29,200

            Side-load Equip.           $ 13,300

             

            Subtotal                        $42,500 (1^st year); -0- (2^nd year)

 

Maintenance & Operations       $22,500 (1^st year); $30,000 (2nd year)

 

Uniforms                                  $  1,500 (1^st year); $2,000 (2^nd year)

 

Total, Operations          $ 66,500 (1^st year); $ 32,000 (2nd year)

 

Disposal (assumes no increase in tipping fee in either 2001-02 or 2002-03)

 

            13,000 tons of

            commercial MSW

            @ $45/ton                    $585,000 (1^st and 2^nd years)

 

Total, Disposal $585,000 (1^st year); $585,000 (2^nd year)

 

Total                                        $711,500 (1^st year); $751,500 (2^nd year)

 

The Town would have to continue service for its own commercial waste, either through in-house collections or through private contract. The estimated annual cost is about $20,000.

 

Less Town Waste

  Collection/Disposal                 $20,000

 

Subtotal                                    $691,500 (1^st year); $731,500 (2^nd year)

 

Revenues

 

            Sale of owned assets    $175,000 (1^st year); -0- (2^nd year)

 

Subtotal                                    $866,500 (1^st year); $731,500 (2^nd year)

 

Note: the proceeds from the sale of commercial equipment that is part of the Fleet Replacement fund would go to that fund for debt retirement; revenues from the sale of equipment paid for prior to the establishment of the Fleet Replacement fund would go to the General Fund. The fair market value of this latter category is $190,000. We are assuming receipt of $175,000 of this amount because we are uncertain that we would receive fair market value through sale of this equipment.

 

The subtotal cost savings noted above would be offset by loss of budgeted revenue under the existing commercial fee system in each of the next two years. This amount is estimated to be $210,000 in each year. Since the first three months of fiscal 2003-2004 would continue under the present fee system with a starting date of October 1, 2003, for the change, one fourth of the $210,000 could be collected next year; three-fourths could be considered as lost revenue. The full $210,000 would be lost in the following year.

 

            Less projected

               revenues                    $158,000 (1^st year); $210,000 (2^nd year)

 

TOTAL (rounded)                    $708,500 (1^st year); $521,500 (2^nd year)