KIM KEVIN CLYMIRE

COUNTY OF LAKE Director

Public Services Department CAROLINE C. CHAVEZ
333 Second Street Deputy Director
Lakeport, CA 95453
Telephone (707) 262-1618
FAX (707) 262-0973

MEMORANDUM

To: Honorable Board of Supervisors

From: Kim K. Clymire, Director

Caroline C. Chavez, Deputy Director

Subject: Solid Waste Options for Revenues

Date: May 23, 2011

Background: On May 10, 2011, an agenda item was presented your Board that addressed an
annual $500K deficit in solid waste revenues that has continued for the last three years and is
expected to continue for at least the next fiscal year. The reason for the continuing deficit is due
to the dramatically declining tonnage (25% less than 2006) that has been caused by our
successful recycling efforts and the ongoing recession. What few cost-cutting measures are
available have already been implemented including closure of the Lakeport Transfer Station, but
continuing and increasing compliance requirements are adding to our required expenses
including the estimated $3 million cost of a newly-required full landfill gas (LFG) system that is
now required within the next couple of years for all active landfills under AB 32. The Integrated
Waste Management Division has used its available unrestricted reserves to balance the budget,
and those reserves have been depleted.

Your Board was presented options for increasing revenues through a rate increase of at least 39%
and/or approval of an import contract with Solid Waste Systems (SWS), an affiliate of Lake
County Waste Solutions, who operates the Ukiah Transfer Station for the City of Ukiah. The
expected import of approximately 22,500 tons annually could be accepted at our landfill if your
Board were to approve a contract for import that is allowed by County ordinance. The proposal
presented to your Board included a 5-year contract with an option for a 5-year extension which
would provide a gross estimated annual income of $850K. This income would cover the
division’s ongoing deficit, replenish reserves for compliance and expansion, and would for a
smaller gradual local increase of landfill gate fees over a 4-year period to bring our local revenue
up to cover the $500K deficit within five years. This would make the County self-sustaining by
the end of the first five year contract period and would better position the County to determine
whether or not extension of the contract, after 5-years, was desirable and advisable.

Staff presented scenarios for a 39% gate fee increase that would be needed to offset the $500K
deficit, but would not address the compliance, reserve and expansion costs on the horizon. Your
Board discussed at length the impact of the rate increase at the landfill on curbside residential
and commercial service which would be passed through by the franchise haulers to their
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customers, raising the curbside rates in the unincorporated area by 4-7% depending on their
location and level of service. There was also discussion of the impact on the lifespan of the
landfill, which is currently expected to reach capacity in the next 15-20 years depending on our
rate of fill without import. However, the money for the expansion has been largely withdrawn
from reserves to cover our operating deficit. Your Board carried this agenda item over to May
24th for further discussion and asked for additional information on other cost-cutting options as
well as other rate increase scenarios to cover our budgetary needs.

Additional Cost-Cutting Options Reviewed

In order to reduce operational costs, staff has determine that the Public Service Analyst position
that was recently vacated will not be refilled. Other staff will pick up the work of this position.
The cost savings in salaries and benefits is estimated at $75K annually.

Staff has also reviewed the impact of closing the landfill one or more days per week. Our
analysis shows the closing the landfill one day per week, i.e. Sunday, would save no money
because there would no reduction in staffing requirements and no other cost savings. Closing
two days per week would allow a savings of $125K annually by eliminating two staff positions
(one heavy equipment operator and a weighmaster), but the impact of that reduction would
probably generate some significant negative consequences. The days that were evaluated for
closure were Sundays and Mondays. However, the consequences of such a measure would
include public inconvenience and increased potential for illegal dumping and personal
accumulation, which would in turn reduce our revenue further.

Since the last Board review of this subject, we have been informed that we need to add $75K to
our expenses for Special Districts to cover their estimated additional charge for leachate we
pump to their Southeast Regional Treatment Plant annually.

Additional Revenue Scenarios

Regardless of the rate increase selected, staff is cognizant of the impact on the local residents and
the economy. Large increases in rates could further reduce tonnage and would increase personal
accumulation and illegal dumping. Haulers could expect to see a decline in customers and an
increase in contamination in the curbside recycling carts as well as an increase in delinquent
accounts.

Staff has summarized the initial two scenarios presented and offers a range of additional
scenarios for your Board’s consideration. Each of the curbside rate impacts are for the
unincorporated areas served by the County’s two franchise haulers. The passthrough increase
varies by the franchise zone so the increase is shown as a range in percentages and monthly
monetary increase. The spread of the impact is even (50/50) between commercial and
residential customers, but your Board may recommend that the haulers spread the impact 75% to
residential and 25% to commercial to lessen the impact on business customers. Each of the two
cities and their respective franchise haulers will need to evaluate independently how they would
how the rate increase would affect their curbside rates and how those rates would be spread
between residential and commercial customers.

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Review of Scenarios and New Scenarios

Option 1: No Import - Rate Increase of 39%

Based on current tonnage, this option raises $500K annually to cover the operational deficit but does not
address or fund costs associated with expansion, compliance requirements such as a LFG system, or
replenishing reserves

Gate fee impact 39% Current rate: $37.00 + $14.40 = $51.43/ton

Curbside rate impact (unincorp area) - figured at 50/50 split

Residential (32-gal wkly) 4-7% Current rate varies + 53-81¢/month
Commercial (2cy/wkly) 4-7% Current rate varies + $7.18-10.56/month

Option 2: Import plus a graduated local increase over the same 5-year period

This option raises enough annually to cover the $500K deficit as well as raise approximately $2 million
dollars in additional new revenue during the 5-year period for compliance and capital improvement costs
and to replenish reserve funds.

Gate fee impact

Year 1 16% Current rate: $37.00 + $5.93 = $42.93/ton
Year 2 6% (appx) + $2.57 = $45.50
Year 3 6% + $2.72 = $48.22
Year 4 6% + $4.69 = $51.12

Curbside rate impact (unincorp area) - figured at 50/50 split

Residential (32-gal wkly) 2-3% (1st yr) Current rate varies + 22-33¢/month
Commercial (2cy/wkly) 2-3% (1st yr) Current rate varies + $2.94-$4.37/month

Option 3: No import - Rate increase to match revenue provided by import

This option would provide the same level of revenue that Option 2 would produce, but the cost would be
obtained by increasing local gate fees.

Gate fee impact 95% Current rate: $37.00 + $35.15 = $72.15/ton

Curbside rate impact (unincorp area)

Residential (32-gal wkly)
Commercial (2cy/wkly)

Options 4: No import - Rate increase to generate $850K annually

This option would cover the annual $500K deficit and allow approximately $350K in additional revenue
that would offset part of local compliance costs, but probably not any for expansion.

Gate fee impact

Year 1 39% Current rate: $37.00 + $14.43 = $51.43/ton
Year 2 6.5% + $ 3.34 = $54.77
Year 3 5.5% + $ 3.02 = $57.79
Year 4 5.1% + $ 2.94 = $60.73

Curbside rate impact (unincorp area)

Year 1 4-7%
Year 2 2-3%

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Year 3 2-3%
Year 4 2-3%

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More options and more details on each option are attached in a spreadsheet for your review.

Summary: The Integrated Waste Management Division has explored a variety of options for
cost reduction and for rate increases to provide the revenue needed to continue to operate within
the requirements of our landfill permit and to continue to serve the public. While some kind of
rate increase is necessary to fund our financial requirements, there has been no gate fee increase
since 1995, and we are hopeful that the scenarios provide your Board with the information to
determine which option would best serve the citizens of Lake County and to be able to continue
and fund the landfill operation at this time of high unemployment, a struggling economy and
expensive and increasing regulatory requirements.

COUNTY OPTIONS:

No Import: The County could continue to ban the import of any refuse and place the
responsibility of covering the deficit on the County residents through increased landfill and
curbside fees. Your board may choose from three options (1, 3, and 4) with rate increases that
range from 39% to 95% in the first year to cover the current deficit and address the additional
costs of capital improvements and compliance requirements. Staff recommends that increase
become effective as soon as possible after July 1, 2011, to allow the new revenue to start and to
allow the franchise haulers to pass through the rate at curbside at the normal time of their annual
increase. With any of the three options, your Board may recommend that the curbside rate split
between residential and commercial customers be 50/50 or 75% residential/25% commercial to
reduce the impact on the higher dollar costs on businesses.

Options 1: 39% gate fee increase to $51.43/ton (public rate) to cover only the $500K deficit.

Option 3: 39% increase in the first year with subsequent increases (up to a cumulative
increase of 64% to a final gate rate of $60.63/ton) for the next three years to cover the $500K
deficit and allow approximately $350K in additional annual revenue to partially fund reserves,
compliance and capital improvements that are anticipated in the next five years.

Option 4: 95% increase to $72.15/ton effective this year to substantially match in revenue
that would be produced by import under Option 2, and based on current tonnage levels should
fund our operations, compliance and upcoming capital improvement projects.

Option 2 (With Import): This option includes importation of Ukiah-area refuse beginning
January 2012 after the LCWS contract with Potrero Hills expires. Under this option, staff has
calculated that a 16% local increase would begin in July 2011, followed up by three years of
approximately 6% increase annually. The curbside passthrough is estimated to be about 3-4% in
the first year, depending on which cost-split option between residential and commercial
customers your Board recommends. Your Board may recommend that the curbside rate split
between residential and commercial customers be 50/50 or 75% residential/25% commercial to
reduce the impact on the higher dollar costs on businesses.. The import option funds major
capital improvements/ equipment costs without further projected gate fee increases. Import may
also allow the consideration of the construction of a RRF (Resource Recovery Facility) at the
existing transfer station operated by Lake County Waste Solutions in Lakeport if the term of the
contract extends beyond the initial 5-year period and the amount of refuse will financially
support the construction and operation of such a diversion facility.

STAFF RECOMMENDATION: Staff recommends Option 2.

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 To implement Option 2, the following actions are necessary:

1) Approval of the attached contract with LCWS to import waste beginning January 1,
2012, with an option for a five-year extension
2) Approval of a gate fee increase schedule over a period of four years beginning effective
30 days after the second reading of the ordinance which includes new minimums for a variety of
materials and a tonnage and volume rate increase of 16% the first year and 6% on July 1st of each
of the following three years.
3) Recommendation of the preferred curbside rate split for curbside rates between
commercial and residential customers..

To implement Options 1, 3 or 4 which allows no import, the following actions are necessary:

1) Approval of the attached gate fee increase schedule which includes new minimums for a
variety of materials and a tonnage and volume rate increase at the preferred rate increase
effective 30 days after the second reading of the ordinance.
2) Recommendation of the preferred curbside rate split for curbside rates between
commercial and residential customers.

Attachments: Import contract

Gate Fee Ordinance with four different rate scenario options (Exhibit A)

S:\Solid Waste\FINANCE\Rate Increases\BOS - addl revenue options.wpd