SunnyvaleRTC

April 6, 2004

SUBJECT: January 2003 GreenTeam/Zanker Proposal to Increase Diversion and SMaRT Station Contractor Revenues – INFORMATION ONLY

REPORT IN BRIEF

During the Citizens To Be Heard portion of the City Council meeting of March 16, 2004, Council asked staff to provide information regarding a proposal received by the City in January 2003. The proposal (Attachment A) was from GreenTeam/Zanker, which operates the Sunnyvale Materials Recovery and Transfer Station (SMaRT Station^Ò) under a contract with the City of Sunnyvale. GreenTeam/Zanker proposed to amend the contract to raise the top incentive level for diversion of recyclables from the refuse material that arrives at the facility, and increase the contractor’s revenue share of proceeds from sales of recyclable materials.

Staff of Sunnyvale and its SMaRT Station partners, the cities of Mountain View and Palo Alto, analyzed the GreenTeam/Zanker proposal to determine its benefits and costs. The analysis showed that the most likely outcome of accepting the proposal was that the cities would pay an additional $385,800 to $458,433 per year to divert between zero and 4,586 additional tons from disposal.

Because all three cities have exceeded the State of California requirement for 50% overall solid waste diversion, the consensus of the cities was that the cost to the cities of additional diversion (if any) that resulted from the extra money that would be paid to GreenTeam/Zanker made it not cost-effective to pursue the proposal. This conclusion was communicated to GreenTeam/Zanker in a letter on February 24, 2003. Copies of this letter, shown as Attachment B, were routed to the Mayor and City Council on March 3, 2003 as part of a collection of correspondence between GreenTeam/Zanker and the City.

Neither the GreenTeam/Zanker proposal nor the City response made any mention of worker compensation. The contract requires GreenTeam/Zanker to pay its workers prevailing wages as determined by the State Department of Industrial Relations (DIR). The City’s request for a prevailing wage determination is being processed by DIR at this time.

BACKGROUND

During the Citizens to be Heard portion of the City Council meeting of March 16, 2004, Council asked staff to provide information regarding a proposal received by the City in January 2003. The proposal was from GreenTeam/Zanker, the contract operator of the Sunnyvale Materials Recovery and Transfer Station (SMaRT Station^Ò).

The question about the proposal arose in the context of an appearance by Mr. Jim Furgas of Teamsters Local 350. Local 350 is currently involved in a collective bargaining process with GreenTeam/Zanker.

The GreenTeam/Zanker January 24, 2003 proposal and the City’s February 24, 2003 letter of response are shown as Attachment A and Attachment B.

GreenTeam/Zanker receives three streams of revenue from its operation of the SMaRT Station:

First, it receives a “tipping fee” for each ton of refuse and trimmings delivered to the facility by Sunnyvale and its partners, the cities of Mountain View and Palo Alto. The Tipping Fee is adjusted each year by the change in the Bay Area Price Index (All Urban Consumers). GreenTeam/Zanker was paid $5,542,000 in tipping fees during FY 2002/03.
Second, the contractor retains a share of the recycling revenue generated from sales of the materials processed at the SMaRT Station. As an incentive, GreenTeam/Zanker's share of this revenue increases in a specified range as the contractor's solid waste diversion increases. During Fiscal Year 2002/03 GT/Z diverted over 21% of the incoming garbage and thus retained $2,390,000 (75%, the maximum allowed) of $3,186,000 in total recycling revenues.
Finally, GT/Z retains a public haul "Gate Fee" for each cubic yard of privately hauled refuse delivered to SMaRT by individual residents and small businesses. This fee is adjusted each year in the same manner as the Tipping Fee described above. The Gate Fee generated FY 2002/03 revenues for GT/Z of $109,000.

Thus, total for FY 2002/03 GT/Z revenue from the three SMaRT Cities was approximately $8,041,000

EXISTING POLICY

Solid Waste Sub-Element

Goal 3.2B: Reduce solid waste disposal to 50% or less of the amount generated in 1990 (as adjusted to reflect population and economic change) in the most cost-effective manner

Policy 3.2D.2: Reduce the amount of refuse being disposed, generate recycling revenues, and minimize truck travel to the disposal site through use of the Sunnyvale Materials Recovery and Transfer (SMaRT^Ò) Station

Goal 3.2F: Maintain sound financial strategies and practices that will enable the City to provide comprehensive solid waste management services to the community while keeping refuse rates at or below countywide averages for cities using cost of service pricing

DISCUSSION

In its January 2003 proposal, GreenTeam/Zanker proposed to amend the contract for operation of the SMaRT Station to raise the top incentive level for diversion of recyclables from the refuse material that arrives at the facility and increase the contractor’s share of revenue from sales of recyclable materials. Instead of topping out at 18% diversion with the contractor keeping 75% of revenues, the incentive scale would top out at 21% diversion, with the operator keeping 93% of revenues.

Staff of Sunnyvale and its SMaRT Station partners, the cities of Mountain View and Palo Alto, analyzed the GreenTeam/Zanker proposal to determine its benefits and costs. At the time the analysis was performed, GreenTeam/Zanker was diverting 21% of the incoming refuse. The analysis showed that the most likely outcome of accepting the proposal was that the cities would pay an additional $385,800 to $458,433 per year to divert between zero and 4,586 additional tons from disposal. (Details of the assumptions and calculations related to the most likely outcomes are shown in Columns 1 and 2 of the cost analysis in Attachment B.)

All three cities have exceeded the State of California requirement for 50% overall community solid waste diversion (not to be confused with the separate calculation of SMaRT Station diversion). Given that success, the consensus of the cities was that the cost to the cities of additional diversion (if any) that resulted from the extra money that would be paid to GreenTeam/Zanker made it not cost-effective to pursue the proposal. In the year following the exchange of proposal and City response, the contractor has continued to achieve diversion rates in excess of 20%. This would indicate that the existing contractual incentives for diversion are effective.

Similarly, the contract does not identify any GreenTeam/Zanker expectations regarding profits to be earned. Nor does the contract require or allow the City to access or review earnings records of GreenTeam/Zanker or its affiliates that earn money providing services to the SMaRT Station. Should the City Council wish to explore the idea of reopening the GreenTeam/Zanker contract in response to a hardship plea from the company, full access to the financial and payroll records of both GreenTeam/Zanker and its affiliates would be required. This would allow the City to confirm the financial condition of the company and verify the wages and benefits the company provides currently and in the future.

FISCAL IMPACT

No action is recommended, therefore there is no fiscal impact.

PUBLIC CONTACT

This report was included in the publication and posting of the Council agenda on the City’s official bulletin board and the City’s web page. This report is also available at the Sunnyvale Public Library and the City Clerk’s Office.

Prepared by:

Mark Bowers
Solid Waste Program Manager

Reviewed by:
Marvin A. Rose
Director, Public Works

Approved by:
Amy Chan
City Manager

Attachments

A. January 24, 2003 GreenTeam/Zanker Proposal (pdf file)

B. February 24, 2003 City Analysis and Response to Proposal (pdf file)