Ratto Group selling North Bay garbage empire

James Ratto, owner of Sonoma County’s dominant but embattled garbage hauler, is selling his waste and recycling empire to a San Francisco-based rival in a multimillion dollar deal that promises to reshape the region’s garbage business.

Ratto on Friday agreed to sell his companies, which handle garbage and recycling services in eight of Sonoma County’s nine cities as well as parts of north Marin County, to Recology, one of the largest solid waste firms on the West Coast.

“He’s getting out of the garbage and recycling business,” Ratto spokesman Eric Koenigshofer said Saturday. “It’s a major event in the history of Sonoma County.”

The deal sets in motion several months of review and calls for Recology to take over Ratto’s entire North Bay garbage operation, including its Santa Rosa recycling facilities, dozens of trucks and a workforce of 440 employees.

Terms of the deal were not disclosed. It would bring to a close the remarkable career of an Italian immigrant who began collecting garbage cans on the streets of San Francisco at the age of 16 and through tenacity and competitive drive became rich building and selling solid waste businesses in the North Bay.

He once said that he was able to beat out larger competitors by being “the Wal-Mart of the garbage business.” That approach won him supporters who valued his ability to keep customer rates low but also earned him detractors who say he cut corners and thumbed his nose at regulators.

The Ratto Group, the umbrella business, and North Bay Corp., one of its controlling entities, face nearly $14 million in fines from Santa Rosa from alleged violations of its contract with the city. The Sonoma County Department of Health Services also has levied steep fines for permit violations at Ratto’s Standish Avenue recycling facilities. The company’s aging fleet of trucks and equipment also need millions of dollars in upgrades.

The company’s largest contract, covering curbside hauling for 55,000 Santa Rosa homes and businesses - worth about $27 million annually - is up at the end of this year and Monday marks a key deadline to decide who gets that work. A scathing audit of Ratto’s operations spurred the city to open bidding for the contract.

Ratto, 77, is in poor health and neither of his sons, Lou and Steve, who help manage the business, want to be in the garbage industry long-term, Koenigshofer said. Ratto declined to be interviewed Saturday.

The regulatory and financial issues facing the company also played roles, Koenigshofer said. “Of course, the last year, year and a half have had an influence on the family’s decision making,” he said.

Ratto is both proud of the company he built but resigned to its fate given the challenges facing it, Koenigshofer said.

The sale to Recology represents for Ratto his career in the garbage industry “coming full circle,” Koenigshofer said, because the company is the successor of Sunset Scavengers, the San Francisco garbage outfit Ratto went to work for when he emigrated from Italy in 1956.

That company would later become Norcal Waste Systems, which changed its name to Recology in 2009. The company today serves 127 communities in California, Oregon, Washington and Nevada, according to its website.

Ratto and Recology already maintain some business ties. Some waste picked up by Ratto’s trucks has gone in the past to Recology’s Vacaville-area landfill, and some recyclable material is going to Recology’s Central Valley processing facility while Ratto’s facility is under renovation.

Jim Ratto also appreciates that Recology is employee owned, and he feels his employees, many of whom are immigrants like him, will be well treated by the new company, Koenigshofer said.

Though numerous issues still need to be resolved, Koenigshofer said he was confident the sale will go through, noting that Recology is familiar with the financial and regulatory issues facing Ratto’s companies.

“The question is what’s the price, not if there’s a deal,” Koenigshofer said.

It was unclear Saturday what immediate effect the sale would have, if any, on customer rates. A completed deal would mark the second time Ratto built up a company and sold it for a profit.

In the late 1960s, Ratto co-founded Redwood Empire Disposal and it quickly became a dominant North Bay garbage hauler. He sold his stake to his partners in 1976 and two years later founded the company he heads today.

His former company was later sold to the national powerhouse Waste Management, which dominated the Sonoma County garbage business until 1997, when a Ratto subsidiary won the Windsor franchise.

Over the ensuing years, he aggressively bid or bought out contracts in other cities, often partnering with politically connected allies, and by 2006 he had edged out Waste Management and had secured all municipal contracts in the county except the city of Sonoma.

In addition to its core curbside pickup business, the company also has street sweeping contracts and runs five waste transfer stations throughout the county, including the site at the county’s central landfill.

News of the sale didn’t surprise those familiar with the company’s challenges. Rick Downey, who was hired in 2015 as Ratto’s general manager to turn the company around but resigned last year, said a sale is “probably in the best interests of everybody.”

He said Jim Ratto would be remembered as a “maverick” in the industry.

“He provided jurisdictions in Sonoma County rates that were lower than most, but I believe the regulatory environment just caught up with him,” Downey said.

The additional pressure and financial penalties brought by regulators last year and the fact that he had to pay out-of-county facilities to process recyclable material - instead of generating revenue from it - meant the company was “bleeding money,” said Downey, now a general manager with Ukiah-based C&S Waste.

Shirlee Zane, chairwoman of the Sonoma County Board of Supervisors, said having a well-funded, forward-looking company like Recology take over may be just what the county needs to move its recycling and composting operations back toward a more local, sustainable model.

“I think Recology is a great company that can come in and actually make the needed capital improvements,” Zane said. Composting operations have been outsourced since late 2015, when an environmental lawsuit by neighbors shut down the longstanding site atop the county landfill.

One of Ratto’s two Standish Avenue recycling centers, which have been operating under a cease-and-desist order from regulators for more than a year for not having the proper permits, has been shut down for renovations since November.

Work was halted earlier this month over concerns about the structural integrity of the main building. Some of that work has been allowed to proceed, but the structure will need additional repairs that had not been anticipated, Koenigshofer said.

The total cost of the work, which includes new asphalt and concrete, a drainage system and sorting equipment, exceeds $5 million, he said.

The purchase agreement has been in the works for about a month and was inked on the eve of the Monday deadline for bids for Santa Rosa’s lucrative garbage contract. Ratto reached out to Recology because he concluded he probably wasn’t going to win the Santa Rosa contract on his own, according to one person close to the deal who requested anonymity to discuss the transaction.

“I think he (Ratto) is well liked politically, but you start getting this kind of stuff happening and your political friends can’t keep supporting you,” the source said.

Koenigshofer has long vowed the company would submit a bid to continue serving Santa Rosa, but the sale now means it will not, he said. Recology’s bid will note the pending sale and explain the company plans to use the Standish Avenue facilities to process recycling, Koenigshofer said.

The sale is not contingent on Recology winning the Santa Rosa contract, he said.

The city is set to decide on the contract by June.