City of Sacramento Solid Waste and Recyclables Contracts

Conclusions 11

• CL1
  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.
• CL2
  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.
• CL3
  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.
• CL4
  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.
• CL5
  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.
• CL6
  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. There was inadequate provision for public review and comment throughout the twenty-nine
• CL7
  month period that the Amended Service Agreements for Municipal Solid Waste and Recyclables were negotiated.
• CL8
  Lobbying by immediate past city managers was problematic for some City staff.
• CL9
  It appears that BLT was in compliance with the City's Living Wage Ordinance.
• CL10
  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. Recommendations:
• CL11
  "I do not make recommendations," was the response to numerous questions posed by the Grand Jury to the financial analyst regarding analysis done or recommendations made to other City staff and City Council, leaving the Grand Jury to conclude that little or no use was made of the analysis or with the financial data. In answer to even remedial questions regarding the financial analysis, the Grand Jury was told that such information was deemed a "legal work product" and would not be provided. 2010 Amended Recyclables Agreement An Amended Recyclables Agreement was also voted on by City Council on November 16, 2010. It extended the date the recyclables contract would expire from 2012 to 2032. 2010 Recyclables Contract Concern1: Competitive Bidding on Recyclables Contract The Amended Recyclables Agreement will be worth approximately $100 million over its lifetime, one thousand times the city's $100,000 standard requiring competitive bidding. No vote was taken by the City Council to waive competitive bidding for the recycling contract and no recommendation to do so was given in the staff report accompanying the bid item. With rapid changes occurring in the technology for recycling of solid waste, short term contracts could be considered in the City's best interest. Testimony indicated that the extension of the expiration of BLT's contract from 2012 to 2032was justified as the cost of redirecting the solid waste to the Sacramento region. 2011, Assignment of BLT Contracts (Sale from BLT to Waste Management) The Amended Service Contracts approved in November 2010 provided that the City must approve any sale or transfer of these contracts. In May 2011, six months after the 2010 Amended Service Agreements were signed, BLT informed the City it had negotiated a sale of the City contracts for both Recyclables and Solid Waste to Waste Management. That transfer of the contracts was approved by City Council on November 29, 2011. 2011 Contract Concern 1: Sale Price of City Contracts to USA Waste, Inc. Under the terms of the November 29, 2011 Assignment Agreement BLT was permitted to sell its two services agreements with 21 years remaining to USA Waste of California, a subsidiary of Waste Management. Testimony received indicated a sale price in the range of $55 to $70 million. The Grand Jury, after repeated attempts, was unable to obtain the actual sale price from BLT. The City had a contractual duty to approve this sale, resulting in lucrative profits to BLT and little value to City ratepayers. This demonstrates questionable negotiation efforts by the City. Issue No 2: Was there fraud or any other illegal activity committed by City or BLT staff in the course of negotiating or implementing the contracts? 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. Issue No 3: Have there been violations of the City of Sacramento's Living Wage Ordinance committed by BLT? The Grand Jury investigated the complaint that up to 80% of BLT's workers at the Sacramento facility were not being compensated in accordance with the City's Living Wage Ordinance (LWO). The Grand Jury found no evidence of violations of the LWO by BLT. The charge would appear to stem from an incorrect assumption that work performed as part of the city's recycling contract is covered by the LWO. There is no requirement in the recycling contracts between the City and its solid waste contractor to meet the minimum wage requirements given by the City's LWO, nor is there a legal need to do so. Sacramento City's Living Wage Ordinance applies to contracts, "...under which a covered employer provides nonprofessional services in return for compensation of one hundred thousand dollars ($100,000.00) or more. "The employer in the case of the recycling contract receives no compensation from the city. Rather, the city receives compensation from the employer. Currently the city receives approximately $40/ton from Waste Management (formerly from BLT) for the recycling material delivered to them. _{\mathrm{Page}}42 The majority of the more than 170 workers employed at the South Recycling and Transfer Station employed by Waste Management (formerly by BLT) are involved with sorting the recycled material, and are therefore not subject to the wages given in the City's Living Wage Ordinance. Findings: F.1 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. F.2 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. F.3 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. F.4 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. F.5 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. F.6 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. There was inadequate provision for public review and comment throughout the twenty-nine F.7 month period that the Amended Service Agreements for Municipal Solid Waste and Recyclables were negotiated. F.8 Lobbying by immediate past city managers was problematic for some City staff. F.9 It appears that BLT was in compliance with the City's Living Wage Ordinance. F.10 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. Recommendations: R.1 The City should provide a comprehensive report to the public by December 31, 2012 _{\mathrm{Page}}43 documenting the financial, operational and environmental justifications for the 2010 Amended Services Contracts, including both the solid waste and the recycling contracts. Furthermore, an annual report on the Amended Service Agreements should be provided to the City ratepayers outlining costs based on the contracts. R.2 The 2012-2013 Grand Jury should consider a follow up review of the City of Sacramento's contracted solid waste and recycling services. R.3 The City must comply with the requirements and the intent of the Competitive Bidding Code. Additionally, the City needs to develop specific compelling criteria for exceptions to competitive bidding code section 3.60.170 D to define what is, "...in the best interests of the City". R.4 The City should provide more extensive public notification on any matter where competitive bidding is exempted per City Code 3.60.170D. R.5 Staff and City Council need to provide transparency in review of the financial options in large contracts and utilize independent financial analysis, particularly regarding buy out clauses. R.6 The City Council should consider a prohibition precluding former City employees from lobbying, consulting or advising on City contracts for a period of 1-5 years after separation from city employment. ^{Page}44 Reports issued by the Civil Grand Jury do not identify individuals interviewed. Penal Code Section 929 requires that reports of the Grand Jury not contain the name of any person or facts leading to the identity of any person who provides information to the Civil Grand Jury. Response Requirements Penal Code sections 933 and 933.05 required that specific responses to indicated findings and recommendations contained in this report be submitted to the Presiding Judge of the Sacramento County Superior Court by September 28, 2012 from: Sacramento City Manager: Findings F1 – F10, Recommendations R1, R3-R6 John F. Shirey 915 I Street, 5th Floor Sacramento, CA 95614 The governing bodies indicated above should be aware that the comment or response of the governing body must be conducted subject to the notice, agenda and open meeting requirements of the Brown Act. Mail or hand-deliver a hard copy of the response to: Hon. Laurie Earl, Presiding Judge Sacramento County Superior Court 720 9th Street, Department 47 Sacramento, CA 96814 In addition, email the response to Rebecca Castaneda, Grand Jury Coordinator, at castanb@saccourt.com _{\rm Page}45