To: Honorable Mayor and Members of City Council
From: Joy Eldredge, Utilities Director
Prepared By: Kevin Miller, Materials Diversion Administrator
TITLE:
Title
Adjustment to 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, 2025.
Body
DISCUSSION:
The City of Napa 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 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 charged to customers that deliver materials to the MDF for recycling. The City collects and uses the fees to cover facility related costs as well as costs of processing the materials, including costs paid to NRWS under City Agreement No. 8687. The rates charged (or credits if applicable) to third party and contractual users of the MDF are referred to as a “Gate Fees.” The Gate Fees need to be competitive with other facilities in order to promote usage of the MDF, while covering the costs to process the materials, fixed City costs incurred to purchase and maintain the MDF, as well as major capital and system improvements to the MDF. The Gate Fees must also take into consideration increased (or decreased) revenue from the sales of recyclables materials also known as “materials sales revenue.”
For mixed recyclable materials, commonly known as “single-stream” recyclables, the City established a Gate Fee in 2020 because the global markets for materials had declined substantially while the processing costs continued to increased. In strong market times, the City has paid out a competitive price for recyclable materials to attract and secure the flow of these type of recyclable materials and receive the benefit of additional non-collection rate revenue for the Solid Waste and Recycling Enterprise Fund (“SWR Fund”) from the sale of materials.
The market prices for recyclable materials in calendar year (“CY”) 2024 increased substantially as compared to CY2023. This year, the City committed to Napa County to utilize the average from the most recent three CYs (in this case, CY2022, CY2023 & CY2024) to establish the Recyclable Materials Gate Fees. This approach matches the 3-year average of annual composition studies performed on Napa County Recycling & Waste Services (“NCRWS”) materials that are collected from south unincorporated Napa County as well as NRWS (servicing the City of Napa). This shift from comparing single-year market prices to most recent three CY average is designed to flatten extreme year-to-year market price changes, which have occurred, both positive and negative for material sales market value. Thus, the recommended adjustments to decrease the Recyclable Materials Gate Fees and/or convert current Recyclable Materials Gate Fees to credits (aka payment) for Recyclable Materials Gate Fees is based in part on positive market pricing news for recyclable materials balanced against the fact that the contractual processing costs paid to NRWS for operation of the City’s MDF continue to increase.
This means the City needs to restore “payout” credits or decrease the current Recyclable Materials Gate Fees, which in turn will allow the City to recover operating costs for the services being provided by the City’s MDF to process recyclable materials. Using a fair and market-based analysis to establish Recyclable Materials Gate Fees serves to be fair to current and future users of the City’s MDF and helps provide a third-party revenue source for City rate payers to offset ongoing costs and improvements to the City’s MDF.
In CY2019, the basis of how the 2020 gate fees were set for recyclable materials, the average market value for residential single-stream (mixed) recyclables was $121 per ton while the over-baseline (“OB”) processing costs paid to NRWS were approximately $85 per ton. By CY2021, the average value for residential single-stream recyclables had increased significantly to $139 per ton and the OB processing costs paid to NRWS had increased to $89 per ton. For CY2022, the average value for residential single-stream recyclable rose dramatically to a ten-year high of $268 per ton while the OB processing costs paid to NRWS also increased to $99 per ton. CY2023 saw a marked decline in the average value of residential single-stream (mixed) recyclable from $268 per ton in CY2022 to $180 per ton in CY2023. CY2023 commercial single-stream decreased from $211 per ton in CY2022 to $109 per ton. This represented a 33 percent decrease in market value for residential single-stream (mixed) recyclable materials and an even more pronounced 48 percent decrease for commercial materials. That single year decline from CY2022 to CY2023 was the highest the City had seen in the previous nine years. Fortunately, the CY2024 market value reflects significant and across-the-board increases in the value of paper fiber (such cardboard, newspaper and mixed paper), as well as metal, glass and plastics.
As a result of the 2022 Contract Amendment and SB 1383 Contract Amendment to City Agreement No. 8687 with NRWS, processing costs have consistently increased. Processing costs are adjusted by contractual inflation indices which increased 7.8% from CY2021 to CY2022, 2.5% from CY2022 to CY2023, and 2.7% from CY2023 to CY2024 for the over-baseline (OB) processing payment. Revenues obtained from the sale of single-stream material are contractually shared between the City (70% share) and NRWS (30% share). This structure is imbedded in the City Agreement No. 8687 such that both the City and NRWS share the risks and rewards of ever-changing global markets for recyclables.
Even with the increased processing the costs, the increased value of materials sales revenue for recyclables in general has prompted staff to recommend that the City either decrease charged gate fees or adjust current gate fees charges to become “credits” (payments) for single-stream recyclables brought to the MDF by contractual and third-party users of the facility. As shown in the 2025 MDF Recyclable Materials Gate Fee Analysis (attachment 2 to this staff report), the average price for residential single-stream for 2025 (using average of CY2022-2024 materials sales data) is projected at $273 per ton and $177 per ton for commercial single-stream recyclables (which have a higher percentage of lower value paper fiber such as cardboard vs. higher value bottles and cans). The analysis also takes into account $4 million in capital improvements to the sorting facility in 2018/2019 and other non-labor processing costs at just under $23 per ton for single-stream other non-City recyclable materials. The recommended gate fees include a 26% market volatility “buffer” (based on most recent 10-year market volatility history) to protect City rate payers and ensure that any third-party or contractual users of the MDF will cover actual costs and generate revenue for the SWR Fund.
As shown in Attachment 1 to this report, staff is recommending the following recyclable materials gate fees effective July 1, 2025:
|
Material |
Current Gate Fees |
Proposed Adjusted Gate Fees Effective 7-1-2025 (Effective 7-1-2025 for Napa County) |
|
Residential Recyclable Materials from Napa County (per City Agreement No. 8782) |
$25 per ton charge |
$10 per ton credit |
|
Commercial Recyclable Materials from Napa County (per City Agreement No. 8782) |
$70 per ton charge |
$45 per ton charge |
|
Source-Separated Commercial Green Glass from Napa County (per City Agreement No. 8782) |
$20 per ton credit |
$80 per ton credit |
|
Source-Separated Commercial Clear Glass from Napa County (per City Agreement No. 8782) |
$20 per ton credit |
$80 per ton credit |
|
Residential Single-Stream (“Mixed”) Recyclable Materials |
$30 per ton charge |
$5 per ton credit |
|
Commercial Single-Stream (“Mixed”) Recyclable Materials * |
$75 per ton charge |
$50 per ton charge |
|
Minimum Charge per load * |
$26 per vehicle (load) |
$26 per vehicle (load) |
* Minimum Charge per load is applicable only to materials listed in the above chart with an “*”
Note that the memorandum of understanding (MOU) agreement between the City and Napa County (City Agreement No. 8782/County Agreement No. 6430) specifies contractual pricing for Napa County as distinguished from any other user of the City’s MDF. The gate fees recommended for Napa County reflect composition studies conducted specifically on Napa County single-stream materials. These Napa County-specific studies show a strong market value ($268 for residential single-stream and $169 for commercial single-stream) and a lower market variability buffer (20%) since the City has more accurate and specific composition data for the County’s stream as detailed in the City’s MOU with Napa County. The City’s MOU with Napa County provides for a 60-day notice before less favorable contractual pricing can be levied by the City to Napa County. This year, since the proposed contractual gate fee adjustments will be more favorable for Napa County, there is no 60-day notice requirement and/or delay in implementing the proposed gate fee adjustments if approved by the Council. The City of Napa has always strived to offer fair and market-driven pricing over many years and Napa County has always shown a preference to continue to have its materials processed within Napa County.
The City must ensure that the SWR Fund is adequately funded 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 MDF. The revenue generated by the gate fees and materials sales will cover the associated operating costs of the MDF.
FINANCIAL IMPACTS:
The projected revenue benefits and impacts of the proposed gate fee adjustments on the Solid Waste and Recycling (SWR) Enterprise Fund in the current FY are as follows:
Recyclable Materials Gate Fee to Napa County: In CY2024, unincorporated south Napa County delivered approximately 14,000 tons of commercial single-stream and/or other recyclable materials (including 3,700 tons of glass) and 2,500 tons of residential single-stream materials. At the proposed contractual gate rate of $45 per ton for commercial Recyclable Materials, MDF Gate Fee revenue will be decreased by approximately $156,000 (7,800 tons X $20/ton) for FY2025/26. At the proposed contractual gate rate of $10 per ton credit for residential single-stream recyclables, the projected MDF gate fee revenue will be decreased by approximately $62,500 (2,500 tons X $25/ton) and expenditure will be increased by $25,000 for FY 2025/26. If the 3,700 tons of glass continue for 2025/26, expenditures will increase by $222,000 (3,700 tons X $60/ton additional credit).
Recyclable Materials Gate Fee for other 3rd party MDF users: In CY2024, all other 3rd party users (not including Napa County) delivered approximately 17,000 tons of single-stream recyclable materials to the MDF. The vast majority of the single-stream recyclables are residential single-stream materials, so at the proposed $5 per ton credit, the projected gate fee revenue for FY 2025/26 would be decreased by $510,000 for FY2024/25 (17,000 tons X $30/ton) and expenditures would be increased by $85,000 (17,000 tons X $5/ton).
Overall Benefits and Impacts: The proposed Recyclable Materials Gate Fees represent an estimated decrease of $728,500 in Recyclable Materials Gate Fees for FY2025/26 ($510,000 for non-County users of MDF, $156,000 for Napa County commercial and $62,500 for Napa County residential materials). The proposed Recyclable Materials Gate Fees would increase expenditures (in the form of credits/payments) for non-County users of the MDF by $85,000 for FY2025/26 (17,000 tons X $5/ton) and $25,000 in higher expenditures compared to current residential County single-stream (mixed) payments in FY2025/26 (2,500 tons X $10/ton credits) and $222,000 in additional payment for County commercial glass (3,700 tons X $60/ton additional credits/payments).
As stated, the above impacts are offset by expected materials sales revenue due to higher market prices while addressing higher contractual processing costs paid to NRWS as the operator of the MDF. The proposed Recyclable Materials Gate Fees would also be used to pay for necessary capital and operating expenditures associated with the processing of specified recyclable materials delivered to the MDF. A more detailed “2025 MDF Recyclable Materials Gate Fee Analysis” spreadsheet is the second attachment to this staff report.
The above estimates assume no reduction in contractual or third party MDF tonnage volumes as a result of the new Recyclable Materials Gate Fees. These adjustments reflect the increased market value of recyclables of which MDF users are aware, and increased facility processing costs, both universal impacts for the industry.
The impact of the proposed Recyclable Materials Gate Fees has already been incorporated into the proposed FY2025/26 budget. No additional adjustments to the proposed SWR Fund FY2025/26 are needed.
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) as the Action is to set gate fees to meet operating expenses to cover facility related costs as well as costs of processing the materials provided by the user as further detailed in this report.
DOCUMENTS ATTACHED:
ATCH 1 - Resolution
EX A - MDF Recyclable Materials Gate Fees Effective 7/1/2025
EX B - Executive Summary of Analysis and Basis for Proposed Recyclable Materials Gate Fees
ATCH 2 - 2025 MDF Recyclable Materials Gate Fee Analysis
NOTIFICATION:
A legal notice of the public hearing was published in the Napa Valley Register on Thursday, May 22, 2025. If new gate fees for recyclable materials are approved by City Council, a 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 (via email) to:
Greg Kelley, General Manager/Managing Partner, Napa Recycling & Waste Services
Mike Murray, Chief Financial Officer, Napa Recycling & Waste Services
Steve Lederer, Public Works Director, County of Napa
Dave Briggs, Resource Conservation Specialist, County of Napa