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HomeMy WebLinkAboutMinutes 2013-01-08No changes. None. CITY HALL LARGE CONFERENCE ROOM 400 GRAND AVENUE SOUTH SAN FRANCISCO, CA, 94080 TUESDAY, JANUARY 8, 2013 6.30 P.M. Call to Order. TIME: 6:35 PM 2. Roll Call. PRESENT: Councilmembers Addiego, Garbarino and Gupta, Mayor Pro Tem Matsumoto and Mayor Gonzalez ABSENT: None 1 Agenda Review. 4, Public Comments — comments are limited to items on the Special Meeting Agenda. 5. Study Session to consider a request ftom the South San Francisco Scavenger Company for a Franchise Agreement extension. Finance Director Steele presented the staff report and overview of why staff agrees with the 20 contract extension. Representatives from South San Francisco Scavenger Company ("SSFSC") would provide greater detail with their presentation. The contract options available were: (1) A 20 year extension with a rolling one-year renewal. (2) A 20 year extension. Staff recommends this option as it would provide preferable financing and lend to greater capital. investments /improvements and the ability to address the changing environmental regulations like those seen by the Water Quality Control Plant ("WQCP"). Staff felt the extension made sense as the SSFSC provides residents with an excellent service at rates that are an average of 5% lower than the surrounding 32 cities included in the tri-annual survey. Periodical contract extensions, for example, every three to five years, would be prudent. The review process would allow the SSFSC to update Council on their long term financial needs and allow Council to consider an extension greater than 20 years. (3) Consider the current contract, expiring in 2017 with a one-time 10 year extension. (4) Lending to SSFSC with rates lower than the bank might offer but higher than rate of return on investments. (5) Although staff does not recommend, Council has the option of allowing the agreement to expire and request bid proposals from a new provider. Councilman Addiego sought to clarify if the one year rolling extension would be done on the front end, Director Steele confirmed it would, but also noted the provision in the contract that allowed for cancellation at any time with cause. Mayor Gonzalez asked if option one was ideal. Director Steele responded yes, adding that it gave SSFSC the best footing for financing. Mayor Pro Tern Matsumoto wanted more information regarding option four, lending from the City to SSFSC. . Director Steele stated the City could lend the money at a lower rate than the bank. Currently, the City earned less that I% on their investments, so there may be a number in between that would be agreeable to both parties. SSFSC President Doug Button, Controller Paul Formosa, staff members Ed Bertolli, Ron Fernazi, and Attorney Andrew Rose were present. Mr. Button went through power point presentation outlining the history, achievements and future goals of the SSFSC. Mr. Button highlighted the innovative programs implemented by the company, allowing them to not only meet current regulations, but also to stay steps ahead with achievements towards greater sustainability. While historically loans were secured based on good faith and history with the community, the 2008 financial crisis has changed the process greatly. Now, banks require greater capitol and solid contracts in order to provide assurance and lend at the best rates available. Uncertainty in extension possibilities could equal costly loans or prohibit lending entirely. Due to the long term contract, SSFSC has been able to invest into their facility and increase the recycling rates for this community, going from a 36% diversion rate in 1997 to 57% in 2011. Future projects include an Anaerobic Digestion Facility, which would compost food and yard waste and produce enough gas to -fuel six (6) trucks. Other plans not far down the line included: a biogenic fueling station within the year, upgraded trucks and equipment within 3 to 5 years, and an upgrade of the material recovery facility, allowing the City to meet a 75% diversion rate. The current contract with the 10 year extension would only cover trucks being purchased within the next few years. While SSFSC was not opposed to staff's recommendation, they wished for Council to consider adding five years to the current term and then a 20 year extension could be given with the rolling one-year extension. Mr. Button stated his belief that some projects would SPECIAL CITY COUNCIL MEETING JANUARY 8, 2013 MrNUTES PAGE not be financeable with a lesser commitment. He added that longer terms encourage divergent methods, cost competitiveness, allow for SSFSC to invest in progress towards meeting Zero Waste Goals, allow for SSFSC to invest in progress and meet GHG Emissions Goals, and maintain the ability to keep SSFSC accountable for their services. Other benefits were that the City maintained the right to terminate the contract with cause, services would be improved, and the 5% reduction in rates that residents currently see would remain. Attorney Andrew Rose spoke in support of the contract extension featuring the one-year renewal. He spoke about the uniqueness of the Company and how there was only one other Anaerobic Digestion Facility in the state, located in San Jose. He added that after 2008, banks became very conservative and uncertain, and that bank volatility was still increasing. Thus, an annually renewable contract was the best way to secure financing. The length of franchise leaves time for adjustments when a company has an off year due to various circumstances. The problem with a 20 year term is that you are only encouraged to finance long life items at the beginning because otherwise you have a diminishing term. SSFSC was simply asking for the best type of contract. Councilmember Addiego asked if they got involved with a I year in fi-ont end, could it be stopped at any time, Mr. Rose responded that either party can do that with cause. If it is done today, then contract is 20 years from today. I year from today it would be extended another 20 years, Councilmember Addiego asked further, if several projects that are in line for the next 3 to 7 years are completed, and then there is nothing else in line, could the city terminate then. Mr. Rose answered in the affirmative and added that this encourages innovation, The best way to do this is with the annual renewal contract. Therefore, there is a big upside and not much of a downside. Councilmember Garbarino stated that over his 40 years of residence, he has seen how innovative the SSFSC has been; not only because of government demand but because of the company's own philosophy. He understood that technology was ever changing, and that a key factor to securing optimum financing was to increase the length of the agreement. Mr, Button added that not only does this contract encourage thinking outside of the box. He also stated there were generations of South San Francisco families invested in the company and the community, it was their desire to stay here and continue in this partnership, Mr. Rose opined that since California is highly regulated, by the time some terms are implemented, the contract may only have 18 years left. Mayor Pro Tern Matsumoto expressed her appreciation for SSFSC and their partnership. She asked for more information regarding the $2.5 million grant that she had heard of. Mr. Button responded they had applied for and been awarded a California Energy Commission grant in the amount of $2.6million to be distributed on February 9. This money would be used to SPECIAL CITY COUNCIL MEETING JANUARY 8, 2013 MINUTES PAGE 3 help build the anaerobic facility. Mayor Pro Tem Matsumoto noted the grant awarded speaks to the SSFSC's credibility. In regards to the 75% diversion figure, she asked whether it is required by SSFSC or by the city. Mr. Button responded the 2020 deadline for the 75% diversion rate was quickly approaching. He clarified that once it was mandated, the City would bare the burden. Director White clarified that the mandate was really on the City but SSFSC can be the tool used to get there. Mayor Pro Tern Matsumoto asked whether the Anaerobic Digester would only be used to refuel the trucks, Mr. Button stated the Anaerobic Digester was capable of processing 40 tons of organic waste. The amount of methane produced would depend on the quality of the organic blend. The expectation was to produce 65,000 gallons of diesel compressed natural gas ("CNG") per year, enough to service 6 or 7 trucks per day. Councilmember Addiego pointed out that cities are asking their residents to use their disposals to send waste to their WQCP's digesters. Mr. White added the WQCP process was more of a wet process whereas the SSFSC was a solid process, Mayor Pro Tern Matsumoto asked for a clarification on the Source Reduction and Recycling Element ("SRPIE") franchise fees mentioned on page 2 of the staff report. Finance Director Steele clarified that currently there was nothing in the franchise agreements mentioned the $15,000 fee currently paid by SSFSC for recycling purposes. Though the origin of the fee was unknown, it has been used to fund the annual citywide garage sale, monitoring of the Oyster Point landfill and other sustainability items beneficial to the city. He clarified that it had been segregated in the accounting system and SSFSC agreed to memorialize this fee in this next agreement so that it is formally paid and understood. Councilmember Gupta welcomed the team from SSFSC and spoke about his dealings with them as a member of the Planning Commission, Given his background in financing and investment planning for the utilities industry, he understood the importance of having a long term contract in order to gain optimum financing terms and reducing the perception of risk to the bank. While he was in favor of the preferred option, he wondered if the proposal could be strengthened by including the customers as beneficiaries. Mr. Rose stated that Councilmember Gupta was correct on the financing terms but added that it is important to understand that banks do not trust cities. He opined that with a 20 year annual renewable contract the banks would at best treat it as a 14 year contract. The benefits to the citizens are all the new facilities, the ability to comply with regulations and the fact that SSFSC SPECIAL CITY COUNCIL MEETING JANUARY 8, 2013 MINUTES PAGE 4 is investing without raising the rates. To Councilmember Gupta's point, Councilmember Addiego wanted to explore potential benefits to the residents but did not know how this could affect the SSFSC's profit margin. It was his opinion that the fornialization of the SRRE, the ongoing franchise fee of $40,000 to 50,000, per month and the fact that the company was family owned were all positives. He recognized what they were up against and wanted their survival. In addition, the opportunity to scrutinize the operations and the ability to add as an item to any future agenda gave the City incredible power. Mr. Button reiterated the 20 year term would make them more financeable and that anything lower than 20 years would serve as a detriment. The give was that residents would get extra service without an increase in rates; that is, from bi-weekly to weekly service, new and updated facilities, new trucks, new drivers and new containers. Mayor Gonzalez stated that when he began his time on Council approximately 12 years ago, he was astonished at the length of the contract. Since then, he has seen the innovation that has been used to comply with the demands of the state. In 2008, the crash of the economy caused him to question the contract again. Though he has seen positive additions to the services provided, some services have also been lost such as the neighborhood bins. He would like to see some of these things come back as a part of service. The 5% reduction in the rate to the residents is fine, but he hoped to see it increased to at least 1. 0%. City Manager Barry Nagel clarified that formal action will be brought at a later regular Council meeting and asked if there was consensus on an option. After a brief discussion, Council reached consensus for option 1. City Manager Nagel stated that this will be brought back as early as possible, 6. Discussion related to the Public Safety Impact Fee. Assistant City Manager presented the staff report responded to the questions raised during the last discussion. He detailed the projects currently listed that were in the pipeline and subject to fees (noted on page 1), those without pen-nits issued yet but still subject to fec (page 2) and those projects that were pending approval, working through developmental review process and subject to fees. He noted that if all the approved projects were added together it would be approximately $26,000 in fees, minus the City projects. If Council wished to give those a pass, it would really be "no harm, no foul." Councilmember Addiego appreciated the work by staff and stated there was inherent fairness in Assistant Manager Vail Duyn's last statement. He was supportive of the new method, which he characterized as leveling the playing field and thought the City could afford to walk away from a handful of dollars. SPECIAL ary COUNCIL MEETING JANUARY 8, 2013 MINUTES PAGE 5 Councilmember Gupta felt the greater focus was on trying to get more development and in turn gain revenue with the increased growth. He opined that he would rather be more competitive than add a few drops into the ocean and was agreeable to forgoing some of the portions. Council reached a consensus and agreed not to implement the public safety impact fee for the following projects: Gimball's Candy expansion, 160 Produce Avenue-, 1.309 Mission Road, Centennial Towers — North Tower, St. Vincent de Paul, 418 Linden, and Westborough Square Shopping Center. 7. Adjournment. Being no further business, Mayor Gonzalez adjourned the meeting at 8:21 p.m. Submitted: Alma M. Brown Deputy City Clerk City of South San Francisco SPECIAL CITY COUNCIL MEETING MINUTES Approved*J Pedro Gonzalez Mayor City of South San Francisco JANUARY 8, 2013 PAGE 6