To: Honorable Mayor and Members of City Council
From: Phil Brun, Utilities Director
Prepared By: Kevin Miller, Materials Diversion Administrator
TITLE:
Title
Recyclable Materials Gate Fees for Materials Diversion Facility
LABEL
RECOMMENDED ACTION:
Recommendation
Adopt a resolution establishing Recyclable Materials Gate Fees at the City’s Materials Diversion Facility to become effective July 1, 2020.
Body
DISCUSSION:
The Materials Diversion Facility (MDF), which is located south of the City, receives and processes all residential and commercial source separated recyclables and compostable materials generated within the City and collected by the City’s hauler, Napa Recycling & Waste Services (NRWS). The MDF also receives and processes materials delivered by haulers servicing surrounding jurisdictions (such as the County of Napa, Sonoma and American Canyon) and by private (self-haul) customers. Customers are charged a processing fee for use of the facility, which is usually based on the type and quantity of the material delivered.
As owner of the MDF, the City is responsible for determining what materials are accepted at the MDF and for setting the fees that are charged to customers that deliver materials to the MDF for recycling. The fees that are collected belong to the City and are used to cover facility related costs as well as costs of processing the materials. Rates charged to third party and contractual users of the MDF are usually referred to as a “gate fee.” The rates need to be competitive with other facilities in order to promote usage of the MDF, and must be established to cover the costs of processing the materials as well as fixed City costs related to purchase and maintenance of MDF, including recent major capital and system improvements to the MDF.
For mixed recyclable materials, commonly known as “single-stream” recyclables, the City has never previously established a gate fee because the revenue from the sales of recyclable materials has historically more than covered processing and facility costs. In fact, in better market times, the City would pay out a competitive price for recyclable materials in order to attract and secure the flow of these type of recyclable materials and have the benefit of non-collection rate revenue for the Solid Waste and Materials Diversion Enterprise Fund (“Solid Waste Fund”).
Unfortunately, global markets for recyclable materials have declined substantially while processing costs continue to increase. In calendar year (“CY”) 2014, the average market value for residential single-stream (mixed) recyclables was $175 per ton while the over-baseline (“OB”) processing costs paid to NRWS was approximately $69 per ton. In CY2016, the average value for residential single-stream recyclables dropped to $151 per ton and the OB processing costs increased to $72 per ton. By CY2019, the average value for residential single-stream recyclables had plummeted to $121 per ton and the OB processing costs paid to NRWS had increased to $82 per ton. The CY2019 market value reflected a steep decline in the value of paper fiber (such cardboard, newspaper and mixed paper) and plastics. As a result of the 2018 Contract Amendment with NRWS, processing costs have been enhanced via the amendment and inflated by contractual inflation indices. Revenues obtained from the sale of single-stream material is contractually shared between the City (70% share) and NRWS (30% share) and this structure means that both the City and NRWS share in the risks and rewards of ever-changing global markets for recyclables.
The combined impact of the declined market value for recyclables in general and the increased contractual processing costs owed to NRWS has prompted staff to recommend that the City establish and charge a new gate fee for single-stream recyclables brought to the MDF by contractual and third party users of the facility. As shown in the MDF Recyclable Materials Gate Fee Analysis (attachment 2 to this staff report), the average price for residential single-stream for 2020 (using CY2019 materials sales data) is projected at $121 per ton and $88 per ton for commercial single-stream recyclables (which have a higher percentage of lower value paper fiber, particularly cardboard). The analysis also reflects the recent $4 million in capital improvements to the sorting facility at just over $14 per ton for single-stream recyclable materials and has provided a 10% market volatility “buffer” to protect City rate payers and help assure that any third-party or contractual users of the MDF will result in a net positive revenue position to the Solid Waste Fund.
As shown in Attachment 1 to this report, staff is recommending the following recyclable materials gate fees be established effective July 1, 2020:
|
Material |
Current Gate Fees |
Gate Fees Effective 7-1-20 |
|
Residential Recyclable Materials from Napa County (per City Agreement No. 8782) |
$2 per ton credit |
$28 per ton charge |
|
Commercial Recyclable Materials from Napa County (per City Agreement No. 8782) |
$2 per ton credit |
$48 per ton charge |
|
Residential Single-Stream (“Mixed”) Recyclable Materials * |
$0 |
$30 per ton charge |
|
Commercial Single-Stream (“Mixed”) Recyclable Materials * |
$0 |
$50 per ton charge |
|
Minimum Charge per load * |
$0 |
$21 per vehicle (load) |
* Minimum Charge per load is applicable only to materials listed in the above chart with an “*”
Please note that the memorandum of understanding (MOU) agreement between the City and Napa County (City agreement No. 8782/County agreement No. 6430) guarantees preferential contractual pricing for Napa County vs. any other user of the City’s MDF. This is honored and reflected in the above proposed $2 per ton pricing preference in Napa County’s favor for gate fees charges associated residential and commercial recyclable materials delivered to the MDF in a mixed stream.
The Solid Waste Fund cannot be put in a position to lose money for materials delivered and processed at the City’s MDF. Staff has performed the necessary analysis and concluded that the above gate fee structure is competitive with fees currently being charged by other facilities and would promote the highest and best usage of the facility. The revenue that would be generated by the gate fees (in combination with revenue from materials sales) would cover the associated operating costs of the MDF.
FINANCIAL IMPACTS:
The projected revenue impacts of the proposed gate fee adjustments on the Solid Waste and Materials Diversion (Recycling) Enterprise Fund are as follows:
Recyclable Materials Gate Fee to Napa County: In CY2019, unincorporated south Napa County delivered approximately 3,100 tons of commercial single-stream recyclable materials and 2,800 tons of residential single-stream materials. At the proposed contractual gate rate of $48 per ton for commercial and $28 per ton for residential single-stream recyclables, the projected gross revenue for City fiscal year (FY) 2020/21 is $227,000.
Recyclable Materials Gate Fee for other 3rd party MDF users: In CY2019, all other 3rd party users delivered a little more than 15,000 tons of single-stream recyclable materials to the MDF. The vast majority of the single-stream recyclables were residential, so at the proposed $30 per ton gate fee, 15,000 tons is projected to generate $450,000 of additional gate fee revenue (gross) in City FY 2020/21.
The above estimates assume no reduction in contractual or third party MDF tonnage volumes as a result of the new recyclable materials gate fees. Staff feels this is a reasonable assumption since the sharp decline in materials sales value and increased facility processing costs are universal impacts for the industry. Additionally, disposal of recyclable materials at transfer stations or landfills is 2-5 times as expensive throughout Northern California.
Depending on market values for sales of recyclables, the total positive net impact of all of the proposed recyclable materials gate fees for the Fund would be projected to range from approximately $63,000 (net $3 per ton for 21,000 tons) to $315,000 (net $15 per ton for 21,000 tons) per year of additional net revenue (after processing costs and capital cost contributions are accounted for) to the City’s Solid Waste and Materials Diversion Enterprise Fund beginning in FY2020/21. These funds would be used to offset capital and operating expenditures associated with the processing of specified recyclable materials delivered to the MDF. A more detailed “MDF Recyclable Materials Gate Fee Analysis” spreadsheet is available for review by the public online or at the City Clerk’s office.
Staff is not recommending a budget adjustment to the MDF Gate Fee revenue at this time since it will be included the normal mid-cycle budget adjustment process for FY2020/21.
CEQA:
The Utilities Director has determined that the Recommended Action described in this Agenda Report is not subject to the California Environmental Quality Act pursuant to California Public Resources Code Section 21080(b)(8).
DOCUMENTS ATTACHED:
ATCH 1 - Resolution authorizing Recyclable Materials Gate Fees at the City’s MDF to become Effective 7/1/2020 with EX A
EX A - MDF Recyclable Materials Gate Fees Effective 7/1/2020
ATCH 2 - Summary Table MDF Recyclable Materials Gate Fee Analysis
NOTIFICATION:
A legal notice of the public hearing was published in the Napa Valley Register on Friday, April 10, 2020. If new gate fees for recyclable materials are approved by Council, a 60-day notice letter will be sent to Napa County (per MOU agreement) and other third-party users of the MDF will be sent advance electronic notices.
Courtesy Copy to (via email):
Greg Kelley, General Manager/Managing Partner, Napa Recycling & Waste Services
Mike Murray, Chief Financial Officer, Napa Recycling & Waste Services
Peter Ex, Local Enforcement Officer, County of Napa
Dave Briggs, Environmental Resource Specialist, County of Napa