Office of the City of Sacramento City Hall City Manager*

0 The City Council failed to seek competitive bids for the transfer and disposal of residential solid waste for a period of 34 years (1998-2032). This failure ignored the intent of City Code Section 3.60.110, which will likely contribute to the City paying higher than fair market value for its services. City Response: The City disagrees in part with the finding that the City Council failed to seek competitive bids for the transfer and disposal of residential solid waste for a period of 34 years (1998-2032). The original agreement between the City and BLT Enterprises (City Agreement No. 98-131), executed in 1998, was the result of a competitive proposal process administered by City staff and consultants. Proposals were submitted by ten waste companies, and BLT was selected based on a combination of price and company qualifications. The City Council elected to suspend competitive bidding in the execution of the Amended Services Agreement in 2010, as allowed in City Code Section 3.56.230(C). The November 16, 2010 staff report provides the following reasons in support of suspension of competitive bidding: 1) the original BLT agreement (City Agreement No. 98-131) did not grant the City the right to direct waste to a disposal facility other than Lockwood Landfill in Nevada; 2) the term of the original BLT Agreement extended through May, 2019; and 3) the only option available to the City under the original BLT Agreement to direct waste to an in- region landfill such as Kiefer Landfill was to terminate the BLT Agreement at an estimated cost of $14 million. The best alternative in 2010 to direct waste to Kiefer Landfill in an effort to reduce fuel consumption and greenhouse gas emissions was therefore to amend the original BLT Agreement. In accordance with City Code Section3.56.230(C), the City Council, upon two-thirds vote, determined that it was in the best interests of the City to suspend competitive bidding and approved Resolution No. 2010-660 accordingly.

0 The City Council failed to seek competitive bids for the sorting and selling of residential recyclables for a period of 25 years (2007-2032). The intent of City Code Section 3.60.110 was ignored. Justification for the exemption from competitive bidding required by City Code Section 3.60.170 was lacking. The City will likely receive less than fair market value for its residential recyclables. City Response: The City disagrees in part with this finding. The Amended Recyclables Agreement is for the sale of recyclable materials and not governed by City Code Section 3.60.110. The City agrees with the finding that a period of 25 years will have passed without a competitive proposal process for the sorting and selling of residential recyclables when the term of the Amended Recyclables Agreement expires in 2032. The Amended Recyclables Agreement does provide a new structure to calculate the revenue received by the City that more accurately measures the composition of curbside recyclable materials through an annual characterization process and through additional materials added to the list of acceptable materials in the curbside recycling program.

0 The City Council voted on multi-million dollar solid waste and recyclables contracts without sufficient financial analysis. These contracts would seem to require additional scrutiny given the exemption from the competitive bidding process. <u>City Response:</u> The City disagrees in part with the finding that there was insufficient financial analysis regarding the Amended Services Agreement and the Amended Recyclables Agreement. City staff performed significant financial analyses during the two-year negotiation process for the amended agreements. The City agrees there was insufficient operational analysis regarding the available City waste tonnage to support the tiered rate structure for disposal fees in the Amended Services Agreement. The City will remain in the highest price tier (Tier 1, <150,000 tons per year) for the duration of the agreement based on the current waste disposal tonnages and the current non-exclusive commercial waste franchise system in the city. There would likely be sufficient tonnage to qualify for Tier 2 (150,001 to 250,000 tons per year), which provides a 5.5% decrease in disposal fees compared to Tier 1, if the City were to execute exclusive commercial franchises and direct all commercial and multifamily waste to the Sacramento Recycling and Transfer Station.

0 City staff failed to perform adequate due diligence in providing financial analysis on the solid waste disposal and recycling contracts. There was too much reliance on a single source of financial analysis. There was no independent review or oversight. These three factors appear to have contributed to inadequate understanding of financial risks by City Council. City Response: The City disagrees in part with the finding that there was too much reliance on a single source of financial analysis. The City negotiating team included several staff from the City Attorney's Office and the Department of Utilities, all of whom participated in reviewing the financial analysis of the amended agreements. The City agrees that contracts with significant monetary value, such as the Amended Services Agreement and Amended Recyclables Agreement, may benefit from the services of an independent financial consultant. This option will be considered for future contracts and transactions.

0 When BLT came to the City in 2008 to amend the Service Agreement to incorporate increased fuel costs, the City missed an opportunity to address the redirection of waste to a local landfill. City Response: The City disagrees with this finding. In 2008, the City Council directed City staff to engage in good faith negotiations with BLT to allow in-region disposal. The City Council direction to staff to return within 24 months reflected the complexity of the negotiation process for in-region disposal. Accordingly, the Amended Service Agreement was executed by the City Council on November 16, 2010, which provides for disposal of City waste at Kiefer Landfill.

0 Costs to the City delineated in the buyout clauses of BLT's 1998 and 2010 contracts were higher than fair market value. In conjunction with the length of the contracts, they hampered the City's ability to make reasonable changes to the contracts. City Response: The City disagrees with this finding. The Grand Jury provided no basis for the finding that the buyout clauses were higher than fair market value. There is no industry standard to establish fair market value for a buy-out clause of a solid waste transfer and disposal agreement. The basis of the buyout provision was a negotiated item based on a proportion of the guaranteed revenue stream for the remaining term of the agreement.

0 There was inadequate provision for public review and comment throughout the twenty-nine month period that the Amended Service Agreements for Municipal Solid Waste and Recyclables were negotiated. City Response: The City disagrees with this finding. A City Council ad-hoc committee was appointed to review and comment on the negotiations and development of the Amended Services Agreement and Amended Recyclables Agreement. Also, the City Council meetings were properly noticed in compliance with the Brown Act. Finally, the Council date was extended one week, from November 9 to November 16, 2010, which provided additional time for public review of the staff report and proposed agreements.

0 Lobbying by immediate past city managers was problematic for some City staff. City Response: The City is not in a position to agree or disagree. It should be noted that there was no violation of the law as City Code Section 2.16.090 allows former City employees to appear personally before the City Council or any department, board or commission or committee of the city as an agent for anyone in connection with a contract after one year of separation from City service. Former City Manager Bill Edgar left City employment in 1999 and began consulting for BLT in 2005. Former City Manager Bob Thomas left City employment in 2005 and began consulting for BLT in 2009.

0 It appears that BLT was in compliance with the City's Living Wage Ordinance. <u>City Response:</u> The City agrees with this finding.

Given the evidence the Grand Jury was able to obtain, no fraud or illegal activity by either the City or BLT was identified relative to the contracts in question. <u>City Response:</u> The City agrees with this finding.