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Home My WebLink AboutReso 18-1993RESOLUTION NO. 18-93 CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA A RESOLUTION AUTHORIZING THE EXECUTION OF A MEMORANDUM OF UNDERSTANDING WITH THE SOUTH SAN FRANCISCO SCAVENGER COMPANY ESTABLISHING A RATE REVIEW METHODOLOGY FOR RELATED PARTY LEASES, LOANS AND LABOR COST ALLOCATION BE 2T RESOLVED by the City Council of the City of South San Francisco that the City Manager is hereby authorized to execute on behalf of the City the Memorandum of Understanding, attached hereto, relating to establishing a methodology for calculating allowable costs related party leases, loans and labor cost allocations. I hereby certify that the foregoing Resolution was regularly introduced and adopted by the City Council of the City of South San Francisco at a regular meeting held on the 27th day of January , 1993 by the following vote: AYES: Councilmembers Jack Drago, Joseph A. Fernekes, John R. Penna, Robert Yee, and Mayor Roberta Cerri Teglia NOES: None ABSTAIN: None ABSENT: None city OFFICE OF' THE CITY MANAGER (415) 877-8500 January 28, 1993 Mr. Doug Button President South San Francisco Scavenger, Inc. 69 South Linden Avenue P.O. Box 348 So. San Francisco, CA 94080 Memorandum of Understanding Related Party Financing and Lease Payments and Labor Cost Allocation Dear Mr. Button: This letter documents the agreement between the City of South San Francisco (City) and South San Francisco Scavenger Company (Company) in regard to the determination of reasonable expenses for related ~arty financing, related party lease payments, and labor cost allocation during the remaining term of the franchise agreemenn currently in effect. As used in this memorandum, the terms "related party" shall be as defined in section 2.5 of the franchise agreement. This methodology shall apply in reviewing rate reqflests for the Company's 1993 fiscal year and thereafter. It is agreed that no adjustments will be made as a result of this memorandum to prior fiscal years. I. Related Party Financing Ail current loans from related parties to the Company will be repaid in full prior to October 31, 1994. Interest expense attributable to these loans, based on currently existing terns, will be deemed reasonable until repaid. Additionally, the Company agrees to obtain City approval prior to any future related party borrowing. II. Related Party Leases This section establishes the methodology to be used in calculating allowable costs of related party leases in future 400 GRAND AVENUE-- P.O. 80X 711 -- 94(~3 Mr. Doug Button January 28, 1993 Page 2 rate requests by the Company. It is agreed that no lease payment adjustment will be made to operating results prior to the current fiscal year. The Company has agreed that all new assets will be purchased by the Company. 1993 Lease Costs The maximum lease costs allocable to South San Francisco that shall be allowable for rate purposes during the Company's 1993 fiscal year shall be the following: Containers 1983 Volvo Recycling Trucks Recycling Bins/Equipment Building Computer 4 Trucks (Blue Line Transfer Lease) $148,000 0 52,000 66,000 93,000 13,000 43,000 Total Allowed Costs $415,000 1994 and Subsequent Years Lease costs allowable for rate review purposes in years subsequent to fiscal year 1993 will be determined based on varying factors. Below we describe the methodology for calculation of allowable costs for each leased asset. Please note that the City allocation basis used for each asset is consistent with the historical practice. Connainers The allowable lease costs for containers for rate review purposes will be calculated as if purchased and leased at full acquisition cost for their useful life, with depreciation and interest charges based on the following factors: Assumed acquisition date Assumed acquisition cost Assumed useful life City Allocation Basis Floating Interest Rate~ November 1, 1989 $981,809 5 years Relative Tonnage 8% ~The floating interest rate will be based on a weighted average of the Company's actual borrowing rate for loans collateralized by real or personal property, not to exceed the Pri:ne Rate plus 2% as published in the San Francisco Chronicle during the first week of November for each fiscal year. Mr. Doug Button January 28, 1993 Page 3 An assumed allocation basis of 72% results in depreciation expense of $141,380 and interest expense of $6,967, for a total of $148,347 in 1994. Subsequent to 1994, no payment will be allowed for rate purposes because the useful life will have expired. Recycling Trucks The allowable lease costs for recycling trucks for rate review purposes will be calculated as if purchased and leased at full acqaisition cost for their useful life, with depreciation and interest charges based on the following factors: Assumed acquisition date Assumed acquisition cost Assumed useful life City Allocation Basis Floating Interest Rate~ November 1, 1988 $257,810 7 years Relative Usage 8% An assumed allocation basis of 67% results in the following: Year Depreciation Interest Total 1994 $24,676 $3,591 $28,267 1995 $24,676 $1,306 $25,982 Subsequent to 1995, no payment will be allowed for rate purposes because the useful life will have expired. Building The building lease will be fixed at $10,500 per month, or $126,000 per year, to be allocated based on the number of customers in each franchise area. Assuming an allocation basis of 67.4% results in building lease expense of $84,924 per year. COmputer and Software The allowable lease costs for the computer and software for rate review purposes will be calculated as if purchased and leased at full acquisition cost for their useful life with depreciation and interest charges based on the following factors: Mr. Dou~ Button January 28, 1993 Page 4 Assumed acquisition date November 1, 1991 Assumed acquisition cost $63,035 Assumed useful life 5 years City Allocation Basis Relative Number of Customers Floating Interest Rate~ 8% An assumed allocation basis of 67.4% results in the following: Year Depreciation Interest Total 1994 $8,497 $1,829 $10,326 1995 $8,497 $1,152 $ 9,649 1996 $8,497 419 8,916 Subsequent to 1996, no payment will be allowed for rate purposes because the useful life will have expired. 1983 Volvo, Trucks leased from Blue Line Transfer, Recycling Bins & Equipment For purposes of this agreement, no payment will be allowed for this equipment in years subsequent to fiscal year 1993. Sum aary Basad on the assumptions above, the total estimated lease payments will be as follows for the remaining term of the franchise agreement: 1993 $415,000 1994 271,864 1995 120,555 1996 93,840 1997 84,924 1998 84,924 1999 84,924 2000 84,924 2001 84,924 If nhe prime rate changes in future years, slight changes in the allowed lease payment may occur during 1994-1996. Future lease payments may also be affected by changes in the allocation statistics among the cities that are served by the Company. In replacing equipment currently leased, Company agrees to provide advance written notice of its intent to replace the equipment. Mr. Doug Button January 28, 1993 Page 5 III. Labor Cost Allocation The Company agrees to perform its twice annual tonnage study in such a manner as to establish tonnage information on a per route basis and to use this data as the basis for allocating labor costs among Agencies, as provided in the Franchise Agreement. Please signify acceptance of these terms by South San Francisco Scavenger, Inc. by signing below. Sincerely, \ JesUs Armas City Manager Accepted: Presid~