Title
Report regarding a resolution confirming the change in solid waste collection rates to be collected by the South San Francisco Scavenger Company effective July 1, 2025. (Karen Chang, Finance Director)
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RECOMMENDATION
Recommendation
Staff recommends that the City Council adopt a resolution affirming that the proposed Consumer Price Index-based rate adjustments to Solid Waste and Biosolids Transportation Rates are consistent with the terms of the Franchise agreement with South San Francisco Scavenger Company, with rate changes effective July 1, 2025
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BACKGROUND/DISCUSSION
On July 9, 1997, the City Council approved a franchise agreement (Franchise Agreement) for collection and disposal of solid waste with the South San Francisco Scavenger Company (SSFSC). In 2013, the City entered into a fourth amendment to the agreement with SSFSC that provides for a rolling 20-year franchise term. The longer term was implemented to allow SSFSC to have a longer period to obtain financing for their investment in capital improvements. As a condition of that amendment, SSFSC is required to provide an annual update on the status of their capital improvement program. Representatives of SSFSC will be at the Council meeting on June 11th to present this information.
Under the terms of the Franchise Agreement, SSFSC adjusts their solid waste rates every three years based on a rate survey of cities throughout the San Francisco Bay Area. For the two years following the survey year, rates are adjusted based on 80% of the change in Consumer Price Index (CPI) for San Francisco-Oakland-Hayward published by the United States Bureau of Labor Statistics. FY 2025-26 is the first year in which the 80% of CPI adjustment will be applied. The next rate study is due by March 31, 2028. SSFSC is required to provide a Notice of Intent to the City of their intention to adjust the collection rates by March 31 preceding the fiscal year in which the new rates become effective. This Notice and the new rate schedule are shown in Attachment 1.
Based on data from the United States Bureau of Labor Statistics, staff has confirmed that 80% of the CPI change from February 2024 to February 2025 is 2.17% as presented in the documents submitted by SSFSC. The adjustment is much lower than the prior year range of 5.87% to 9.40%.
The Second Amendment to the Franchise Agreement, which governs the transport of biosolids (organic sewage sludge), stipulates that the tonnage rate is subject to annual adjustment based on 80% of the change in the CPI. However, due to a change in state law, a tiered rate structure was implemented starting April 2023 to ensure full compliance with SB 1383 by December 30, 2024.
Due to the state mandates regarding the use of biosolids as set forth in SB 1383, the City and Company reached a new agreement in March 2023. Part of the agreement was to set the tonnage rate each year in January instead of July. Here is an excerpt:
Beginning on January 1st 2025, annual rate increases will be calculated using the change in the Consumer Price Index for All Urban Consumers (CPI-U), San Francisco-Oakland-Hayward (1982-84=100), as published by the U.S. Department of Labor, Bureau of Labor Statistics for the prior twelve (12) months. Any annual price increase shall be limited to a minimum of 2.5% and a maximum of 6%
Based on data from the U.S. Bureau of Labor Statistics, City staff have verified that the CPI change for this index from 2024 to 2025 results in a 2.76% increase, as documented and submitted by SSFSC.
However, a discrepancy exists between this updated rate structure and the language in Section 5.9(a)(2) of the Second Amendment, which specifies that the tonnage rate for sewage sludge is to be adjusted annually on July 1 in accordance with Sections 6.2 and 6.3 of the Agreement, beginning July 1, 2002.
As the Franchise Agreement is currently under review by the City Manager’s Office, SSFSC and staff agreed that this inconsistency should be formally addressed and incorporated into the revised agreement to avoid confusion or future disputes.
In the interim, SSFSC has agreed to implement the new rate, reflecting the 2.76% increase, effective July 1, 2025.
The Fourth Amendment to the Franchise Agreement states that the monthly Source Reduction and Recycling Element Franchise fee (“SRRE fee”) that SSFSC pays to the city is also subject to the 80% of CPI adjustment and would therefore increase from $19,501.43 per month to $19,924.61 per month. Based on data from the United States Bureau of Labor Statistics, staff has confirmed that 80% of the CPI change from February 2024 to February 2025 is 2.17% as presented in the documents submitted by SSFSC. The CPI adjustment is lower than the prior year’s increase of 5.87%).
FISCAL IMPACT
The City will receive an additional $5,078.16 SRRE fee over the course of the next fiscal year from SSFSC, to support landfill monitoring, landfill remediation, and to help reduce the City’s stream of solid waste within the city boundaries. The City also receives a franchise fee from SSFSC each month which equals 10% of the prior month’s gross revenues collected by SSFSC from customers within the City limits.
The increase in biosolids transportation rates in response to the SB 1383 mandates will impact the Sewer Enterprise Fund. Staff has accounted for this change in the annual operations and maintenance budget shared with the City of San Bruno.
RELATIONSHIP TO STRATEGIC PLAN
Acceptance that the proposed fees were calculated correctly and in line with the Franchise Agreement aligns with the City’s strategic plan under Priority Area 3, ensuring fiscal stability.
CONCLUSION
Adopting the associated resolution will confirm that the Scavenger’s solid waste proposal satisfies the terms of the Franchise Agreement with the City.
Attachments:
1. Rate Application Letter and Calculation from South San Francisco Scavenger Company including Rate Schedule
2. Franchise Agreement and all Amendments between City and South San Francisco Scavenger
Company
3. Lystek Proposal/agreement March 2023
4 . SSFSC Presentation