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Sonoma County, private operator near $547 million deal to run troubled landfill

Heavy equipment spreads and compresses garbage at the Sonoma County Landfill on the highest portion of the property, Friday April 5, 2013.

(Kent Porter / Press Democrat)
Published: Saturday, April 6, 2013 at 3:32 p.m.
Last Modified: Saturday, April 6, 2013 at 3:32 p.m.

For most Sonoma County residents, the garbage goes into the bin and out the door each week almost as an afterthought.

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Heavy equipment spreads and compresses garbage at the Sonoma County Landfill on the highest portion of the property, Friday April 5, 2013.

(Kent Porter / Press Democrat)

Facts

LANDFILL TIMELINE

1971: Landfill opens on 170-acre site off Mecham Road
2003: Contaminants found leaking through a liner designed to prevent ground water pollution
2004: Water quality regulators order changes to $14 million, 14-acre expansion
2005: Without further room for garbage, and facing delays and soaring expansion costs, landfill closes. County begins hauling waste out of the area.
2009: In split vote, Board of Supervisors rejects landfill sale.
2010: County reopens landfill on interim basis through contract with Republic Services.
2012: CalRecycle, state waste agency, approves expansion plans
2013: North Coast water regulators grant permit; County and cities to consider 20-year deal with Republic Services

County solid waste system proposal:
• 20-year private operations contract
• Estimated revenue: $547 million
• Contractor: Arizona-based Republic Services
• Subcontractor: Santa Rosa-based Ratto Group of Companies
• Estimated combined post-tax profit: $74 million
• Landfill expansion and upgrades: $65 million
• Liability relief: More than $90 million

But for nearly a decade that trash — now at about 235,000 tons a year from homes and businesses, excluding recycled material — has created a major financial dilemma for cities and county government.

Together, they face more than $90 million in liabilities for current and former waste sites and the prospect of a continuing pattern of sharp consumer rate hikes to cover those costs, as well as expenses for recycling and other refuse programs.

The latest solution is a 20-year contract worth more than half a billion dollars that would outsource operations of the solid waste system.

It would give control of the county's troubled 42-year-old central landfill west of Cotati to an Arizona company with $8 billion in annual revenue. But it would keep the site, and the county's five waste transfer stations, in public ownership.

The proposal is being called the largest public-private business deal in county history and is headed to the Board of Supervisors for the first time Tuesday.

The agreement would be the latest example of cash-strapped local government outsourcing what was once a core public service. In the case of landfills, that change in operation and ownership began in the Bay Area and elsewhere many years ago.

Sonoma County's latest move, in fact, is an outgrowth of a controversial and ultimately failed attempt to sell the Mecham Road landfill amid what turned out to be a five-year closure, starting in 2005, resulting from water pollution concerns raised by state regulators.

The landfill reopened in late 2010, but only to about half the county's waste stream. The rest goes to a Solano County landfill.

The 20-year contract to permanently reopen and expand the dump — a deal worth an estimated $547 million, according to a county consultant — would go to Arizona-based Republic Services, the country's second-largest solid waste firm, with operations in 38 states. The subcontractor in charge of the five waste transfer stations would be the locally based Ratto Group of Companies, the county's dominant trash hauler.

Supporters say private operation stands to succeed where the county couldn't. It would stabilize and cap annual rate increases, settle solid waste liabilities, expand recycling and ensure the existence of an in-county disposal site for at least the next two decades.

“Everything that has gone into this operations agreement has to do with achieving those goals,” said Sonoma County Supervisor Shirlee Zane.

Critics, mostly from organized labor, contend it amounts to a lucrative and risky giveaway of a public service to a pair of companies that could run roughshod over the county.

“This is a disaster in the making,” said Lathe Gill, area director for Service Employees International Union Local 1021, the county's largest labor group.

The union represents most of the 26 affected county jobs at the landfill. The county has kept positions open in other departments to retain some of those employees while Republic has promised to hire at least 15 of the landfill workers, the majority of them cashiers, on a full-time basis for at least six months. Few if any county layoffs are anticipated.

Still, SEIU representatives have raised serious questions about the labor and environmental record of Republic while other critics have taken aim at the political influence — including more than $20,000 in campaign contributions to county races — that they say factored into the deal.

Related: Critics of Arizona company cite past environmental, labor violations; officials defend performance

Related: Landfill, garbage firms gave to 3 supervisors' campaigns

“Public oversight and public rate setting and public operations are the only safe way to operate a landfill,” said Gill, the SEIU area director.

A formal Board of Supervisors vote could come as soon as April 23, paving way for decisions by cities on whether to commit their garbage to the county system — a vital element to the plan.

All but Petaluma, which sends its trash to Redwood Landfill in Marin County, are said to be considering the deal.

Republic and Ratto already control much of the county waste system, Republic under an interim landfill contract in place since late 2010 and Ratto under a 27-year-old arrangement that has expanded to cover four of the five transfer stations, plus hauling to the landfill and to out-of-county dump sites.

In 2011-2012, the county paid Republic $4.2 million and Ratto $7 million.

Under the long-term deal, the two companies could earn an estimated $119 million combined in 2013 dollars, or about $74 million in post-tax profit, according to the county consultant who evaluated the deal. Figures could vary depending on the volume of waste brought into the county system. Recycling and other trends have dropped the tonnage coming into the central landfill by 50 percent over the past decade.

Republic and Ratto officials expect the decline to continue and have projected lower net profits, at about $50 million and $13 million, respectively.

Garbage industry experts and county officials say the projected profit margins — around 10 percent for Republic and 8 percent for Ratto — are in line with similar deals for waste operations.

“There were a lot of very experienced people that were sitting on the public's side of the table on this,” said Stu Clark, a Republic consultant and veteran solid waste official in the Bay Area. “There was a lot of thought put into protecting the public's interest over the long-term.”

The county and city decisions are timed to hit in a summer construction window and avoid a looming space crunch at the landfill that could force the county back to hauling all of its garbage out of the area.

Supervisor Zane, who led the advisory group of elected county and city leaders that shaped the deal in public meetings over the past three years, dismissed the claim that it represented another loss in public services.

“There are things that the county does well that we need to continue to do,” she said. “Solid waste is a risky business. In this particular service, because we're talking about (garbage) and all of its complexities, I don't think this is something negative.”

Aside from a group of neighbors opposed to the landfill expansion, criticism has come mostly from the representatives and members of SEIU Local 1021.

They have echoed past criticisms leveled by city officials, calling out the county for poor landfill management. But privatizing operations, they say, isn't the solution.

“The private operator is not going to do this out of the goodness of their heart,” said Stephen Campbell, a county cashier at the landfill and an outspoken critic from SEIU Local 1021 on the deal. “They're doing it for profit.”

But supporters tout upgrades and assurances that they said surpass anything the county could have offered. They include:

• A $60 million landfill expansion the the county couldn't afford without support from the cities, many of which withheld support for future county operations.

• Hard targets for increased recycling and plans for a new $5 million material-sorting facility to be built and run by Ratto.

• Launch of a commercial food waste collection service — the equivalent of green bins for restaurants and stores.

• Assumption by Republic of liability for the central site, including $52 million in closure and post-closure assurances. The deal also would provide a revenue stream to settle roughly $40 million in shared county-city liability for seven former dumps across the county. City officials, especially, have been interested in such relief and were unlikely to commit their waste to a county landfill deal without it, sources said.

Ratepayers would see annual increases capped at 90 percent of the rise in annual consumer price index or 3.5 percent, with some exceptions for fuel costs, natural disasters and changes in law.

Final landfill rates are not set, but the initial impact on curbside garbage service is projected to be a 2 to 3 percent increase, or about 30 to 60 cents per month on the average household bill, according to the county.

Basic residential rates in cities currently range from $11.12 in Cotati to $19.23 in Cloverdale. Santa Rosa residents pay $12.51. Curbside service in the unincorporated area can be two to three times higher, but is still comparable or sometimes less than rates in other Bay Area cities and counties.

For self-haulers, landfill rates under the deal would be limited to 5 percent more than what commercial haulers pay. Actual rates likely would be less, according to a Republic manager.

“The question is: Can the county offer that same deal?” said Susan Klassen, who as director of the county's Transportation and Public Works department is the top solid waste official. “The answer is no,” she said.

The deal has attracted far less opposition than the county's attempted sale of the landfill — also to Republic — in 2009. That move was shouted down by environmental, labor, consumer and city government representatives.

They were concerned about losing control of a public asset and freedom to direct local solid-waste policy.

An unpopular provision of the sale would have established a so-called “put-or-pay” requirement that could have penalized municipalities for reducing the amount of garbage they sent to the landfill and undermined regional recycling goals. The new deal has no such provision and instead establishes an annual recycling target of 67,000 tons, enforced by a monetary penalty of $50 a ton if the operators fall short.

Those changes, plus flexibility to add new technology, regular reporting on carbon emissions and other provisions, have led many of the one-time opponents to either support the deal or not object.

“I see some risks. There are some opportunities as well. But to the general public, it's going to be invisible, I suspect,” said Ken Wells, the former executive director of the Sonoma County Waste Management Agency, who has studied the deal for the Sierra Club.

The effect on long-term rate escalation is likely to be a key point of debate.

County officials say the built-in rate cap will hold down costs better than they could. As an example, they point to the nearly 150 percent county rate increase since 1995, three times greater than the rise in CPI over the same period. In only six of those 19 years has CPI been greater than the increase in county rates, records show.

“We're very sensitive about that,” said Windsor Councilwoman Debora Fudge, one of the city leaders who provided input as part of the county-city Solid Waste Advisory Group. “We're looking for some kind of guarantees or protection for rates that have been out of our control.”

At the end of the 20-year period the county and cities would have the opportunity to extend their commitment with Republic under the same terms, or get an offer from another landfill that Republic could match. If Republic chooses not to match, the county could use its four rural transfer stations to haul garbage to the competing landfill. Republic could continue to use the central site and its transfer station, but only for in-county garbage.

Critics, however, are more concerned about the first 20 years of rates. They fear Republic will benefit from the automatic rate increases, plus exceptions that allow it pass on costs for natural disasters and increases in diesel fuel above $5 a gallon, to the extent they exceed their annual CPI escalator and total more than $50,000. The authorizing body in those cases would be the Board of Supervisors.

That check and other county oversight could be insufficient, critics said.

“They're a huge corporation that this county thinks it can control,” said Campbell, the county landfill cashier. “I don't think they can.”

Republic representatives said they would continue to work closely with the county. Their bottom line is at stake as well, they said.

“We're taking on something that has been here for 42 years,” said Rick Downey, Republic's operations manager at the landfill. “We're taking it as is. If something does happen out here, we're the ones responsible for it. We're on the hook ... And we have this thing for perpetuity. People have trouble putting their arms around that, but that's a long time.”

(You can reach Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@pressdemocrat.com.)

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