AGENDA #5a
BUDGET WORKING PAPER
TO: W. Calvin Horton, Town Manager
FROM: Bruce Heflin, Public Works Director
SUBJECT: Commercial Refuse Service
DATE: April 30, 2003
The Council asked several questions during the April 2, 2003, budget work session. This report responds to those questions.
DISCUSSION
1. Address “flow control” issue and recovery of disposal fees; address County agreement.
Flow Control
“Flow control” is the term applied to efforts by a government entity to direct waste to a specified disposal destination, usually for the purpose of ensuring revenue to cover the costs associated with construction and operation of a solid waste facility and/or program. In Orange County, the landfill’s tip fee covers all costs associated with operating the landfill, purchasing equipment for the landfill, miscellaneous small land purchases, and costs associated with eventual closure of the landfill and post-closure expenses. In addition, the recycling programs are financed through the tip fee.
The U.S. Supreme Court and various lower courts have ruled that flow control is unconstitutional, in that it violates the commerce clause of the constitution. Private companies have successfully argued that they should be allowed to deliver the waste they collect to whatever disposal site they wish. There have been some limited examples of modified flow control, but by and large, the courts have struck down local requirements that are interpreted to constitute flow control.
If the Town were to leave the commercial refuse collection business, the waste would be collected by private haulers. They would be free to haul to sites of their choosing. In practice, all of the larger haulers in the area have their own regional disposal facilities or transfer stations, and use them for the waste they collect, unless their collection agreement specifies otherwise (as in the case with the University’s refuse collection contract).
If the private haulers chose to utilize their own disposal sites, the effect on the Orange County landfill would be to lose the revenue associated with the redirected waste. We estimate the disposal fees for next fiscal year to be $585,000.
Interlocal Agreement
The County may interpret the loss of that revenue as violating the interlocal agreement of August, 1999, that transferred the responsibility for managing solid waste programs to the County. The agreement states that the County and Towns “agree to deliver, or cause to be delivered . . . for disposal or processing . . . all solid waste . . . under their respective control.” It further states that: “The Parties agree that the long-term success of the arrangement for solid waste management provided for in this Agreement requires that the Parties remain committed partners. The Parties agree that their goal of reducing solid waste must be achieved in a manner that guards the economic viability of the System’s current and future operations.”
We believe this principle was earlier accepted by the Council when it endorsed a statement of “Principles for Assuming Responsibility for Solid Waste Management” promulgated by the County Commissioners. Two of the “Principles” were as follows (the first was one of 9 expressed as “If” statements, followed by 8 expressed as “Then” statements, including the second below quoted):
5. The Towns of Carrboro, Chapel Hill and Hillsborough bear an appropriately proportional share of costs and remain committed partners to make an enterprise operation economically viable, to include current and future operations;
7. The County will pursue a conceptual revenue structure that:
· finances core operations (MRF, MSW, and C&D landfills) through tipping fees
· finances collection/transportation activities through property taxes and collection charges
· finances reduction/recycling through tipping fees to the extent practical, with the balance from availability fees
Franchises
It has been suggested that the Town could end its commercial collection program and still designate disposal sites through a franchise system. In this system, the Town would require haulers to acquire a franchise from the Town to operate within the Town. Requiring franchises is authorized by State law, according to the Town Attorney.
It is not clear, though, whether or not the Town could, through a franchise, require private haulers to dispose of waste at the County landfill. We have asked the Town Attorney for his opinion on this matter and he advises that the subject is not clearly resolved in relevant case law. There is at least an element of doubt in this matter in large part due to the flow control issue, discussed above.
Should the Town opt for a franchise system, and should the private companies acquire franchises and should they then decide to refuse to comply with a provision to dispose of waste at the County landfill, the Town could find itself in the situation of having to sue to enforce the franchise and still be in a position whereby the County believes we have abrogated our agreement with them.
We believe this is a possible scenario, based on the actions of private companies elsewhere. In Hillsborough, where the town left the commercial collection business and utilizes a franchise that specifies that waste will be taken to the County landfill, the haulers have not challenged the disposal site requirement. In New Hanover County, though, according to information received in a letter from the County Attorney, the private haulers challenged a requirement to haul waste to the county landfill and succeeded in having the relevant ordinance declared unconstitutional. We believe the key point would be our size and the number of collection points versus Hillsborough’s. The private companies may find it worth their while to contest a franchise requirement for disposal in Chapel Hill.
2. Report on cost of providing commercial refuse collection to multi-family housing units and savings if other commercial service is discontinued.
The estimated annual cost to provide commercial collection service only to multi-family housing units would be $382,000 as follows:
Labor 135,000
Operations 22,500
Lease Payments 42,500
Tipping Fees 182,000
Total $382,000
Note: the above total includes services to public housing units, all compactors presently serviced by the Town and those dumpsters at Town facilities used for Town refuse. The total portion of the annual tipping fees for such services is $50,000.
The projected annual saving for discontinuing commercial service to businesses other than multi-family units is $184,000. While annual disposal costs totaling $394,000 for refuse generated by businesses would be eliminated, the total saving would be offset by an estimated loss of $210,000 (at present rates) in fee revenues paid by such businesses, for a net saving of $184,000. The commercial fees presently are waived for multi-family businesses pursuant to policy adopted by the Council.
The Town currently collects garbage from 190 front-end containers and 80 side-loading containers at multi-family and public housing sites. This represents 44% of the 608 containers served by our commercial collection program. This 44% of total container sites represents about 25% ($132,000) of total disposal costs.
One issue that could arise if the Town were to discontinue service to the non-residential commercial sector is the loss of revenue to the County landfill, assuming that the refuse would be taken elsewhere by private haulers. The loss of $394,000 would be a significant reduction in revenue for the County. The County may consider the loss an abrogation of the agreement between the Town and County, as discussed in the response to question #1, above. The issues concerning the Town’s ability to direct the waste to the landfill, or to ensure the County’s receipt of revenue are also the same as previously discussed.
3. Could commercial garbage collection fees be increased more than 10%? How much revenue would be realized with a 15% increase and what would be the effect on the number of customers?
We previously had estimated marginal revenues if we increased our current fees by 10% across-the-board. Assuming no loss of customers from increasing fees, this estimated increase would be $21,000 to a base of $210,000. If we were to increase the fees by 15% across-the-board, then the new total would be an additional $10,500 above that estimated at the 10% level, or a total increase of $31,500 to the base of $210,000. The new total estimated revenue for next year would be $241,500 with a 15% increase.
By way of examples, under the present fee structure, a business using an 8 cubic yard container and one weekly collection pays an annual fee of $500; this fee would increase to $575 with a 15% increase. For those businesses using two weekly collections, the annual fee would increase from $700 to $805. The Town of Carrboro presently charges annual fees of $1,140 per container serviced once weekly and $2,280 per container serviced twice weekly. We estimate that typical annual costs charged by the private sector are between $700 and $1,000 for once weekly collections per container.
As can be seen from the discussion of comparative examples, our fee structure with an increase of 15% next year would be relatively low vis-à-vis both the Town of Carrboro and the private sector. Accordingly, we believe that an increase of 15% across-the-board likely would not reduce our customer base, assuming no major changes in the pricing policies of the private sector collectors.
4. Provide information regarding Carrboro’s commercial garbage collection program.
Starting July 1, 2002, the Town of Carrboro started a commercial service fee program in which businesses, apartments and selected condominiums/town-homes are billed for commercial collection services. Based on information in their public budget document, a total of 112 dumpsters were affected by this fee system, with anticipated budget revenue of $133,500. While their current year projections have not been published yet, we understand from discussions with their staff that a significant number of customers have opted for private collection and consequently, revenue has not been realized as originally estimated. Initial information from their staff indicated that they have collected about $44,000 (33%) of their budgeted revenue through the first three quarters of the current fiscal year. If the Council wishes, we could provide additional information about the program as it is made available to us.
5. Determine whether there is a method by which the Town could ensure the County revenue for disposal fees even if it did not collect the garbage ourselves.
We believe that the only way the Town could ensure a stream of revenue to the County landfill without delivering the waste and paying the associated fees would be for the Town to enter into a franchise structure as discussed in our answer to question #1, above, and the franchised haulers abide by the terms of the franchise. In discussions with the Town Attorney, it appears that the General Statutes provide the County with the authority to impose an availability fee in order to pay for its facilities, but the Town could not, unless it, too, provided the facility or facilities. We are not aware of other means by which revenue could be guaranteed to the landfill.
Conclusion
We believe that the issues surrounding the Town’s possibly discontinuing service to the commercial sector are complex, especially given the commitments made by the Council to the County as part of the transfer of solid waste disposal responsibilities. The issues are further complicated by the apparent limitations upon the Town’s possibly franchising private haulers to provide collection services.
We recommend that the Town continue to provide commercial refuse collection services and that the County should undertake its own initiatives to provide for financial security for its solid waste management programs.