description of foresight consulting Simple Storage Service

Draft Executive Summary

Refuse Enterprise Fund Rate Study Prepared for:

City of Santa Cruz Prepared by:

September 30, 2005

TABLE OF CONTENTS EXECUTIVE SUMMARY ..................................................................................1 OVERVIEW OF THE RATE STUDY METHODOLOGY..........................................1 1. PROJECTED REVENUE REQUIREMENTS ......................................................2 2. COST-OF-SERVICE ANALYSIS ........................................................................3 RESIDENTIAL COST OF SERVICE ..............................................................................4 COMMERCIAL COST OF SERVICE..............................................................................7 MISCELLANEOUS OTHER RATES - COST OF SERVICE...............................................10 3. THE FINANCIAL PLAN ....................................................................................11 RESIDENTIAL RATES UNDER FINANCIAL PLAN #1 ....................................................12 RESIDENTIAL RATES UNDER FINANCIAL PLAN #2 ....................................................14 COMMERCIAL RATES UNDER FINANCIAL PLAN #1....................................................15 COMMERCIAL RATES UNDER FINANCIAL PLAN #2....................................................17 4. RATE STRUCTURE ANALYSIS ......................................................................18 BACKGROUND ......................................................................................................18 RATE STRUCTURE ALTERNATIVES..........................................................................19 RECOMMENDATIONS .............................................................................................20

APPENDIX DOCUMENTATION OF SELECTED RATE MODEL TABLES

i

September 30, 2005

Foresight Consulting

Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

EXECUTIVE SUMMARY (DRAFT) In July 2005, the City hired a team of Foresight Consulting and CH2M HILL to conduct a Refuse Enterprise Fund Rate Study to evaluate the full cost-of-service of residential and commercial refuse collection and disposal services. The primary purpose of this study was to review and evaluate (1) projected revenue requirements, (2) the full cost-of-service by customer class, and (3) various alternative rate structures. This executive summary provides an initial overview of our study methodology, analysis, findings and recommendations. After careful consideration of the results of the cost-of-service and the financial plan analyses, Foresight is recommending the City: 1. Retain the current residential rate structure with across-the-board increases 2. Adopt the commercial cost-of-service rates calculated in this analysis (rather than

continue with the current commercial rate structure) 3. Increase both residential and commercial rates by the annual percentages shown

in Financial Plan Alternative #1, which is intended to quickly eliminate the current annual Refuse Enterprise deficit 4. Adjust landfill fees by almost 50% based on cost-of-service for disposal services

As a result of these recommendations: •

Residential rates will retain their current rate structure, with total rate increases of approximately 30% over the next 5 years.

•

Commercial rates will have a slightly smaller percentage of the total revenue requirements than they currently do, and rates for fewer weekly pickups will have smaller increases than customers with more pickups.

•

Landfill fees will increase most significantly, essentially because they have been below their cost-of-service in the past.

The following sections summarize the analyses and results.

Overview of Rate Study Methodology This study evaluates the projected expenditures, revenues, and operations over the next five years with the objective of assessing the factors that need to be reflected in the City’s refuse rates. Considerable emphasis has also been placed on the City’s rate policies and objectives and how they should be reflected in the rate structure and rates by customer class. Figure 1 outlines the primary components of the methodology used in this study.

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Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Figure ES-1: Refuse Fund Rate Study Methodology

1. Develop Revenue Requirements Budget Projections less Non-Rate Revenue Net Revenue Requirements

3. Financial Plan Net Revenue Requirements less Rate Revenue Annual Surplus (Deficit)

2. Cost-of-Service Analysis Allocations to Customer Classes Identify Number of Customers Full COS Refuse Rates (Residential, Commercial, Disposal)

4. Rate Structure Analysis Annual Rate Revenue + COS Analysis Rates + Alternative Rate Structures Recommended Rate Schedules

As seen in this figure, the four basic components to the analysis begin with the revenue requirements and end with the recommended rate structure. Some of the distinctive characteristics of these components are: •

Cost-of-service analyses calculate the total revenue that should be collected from each customer class, and then convert those revenue requirements into monthly service charges to each customer

•

Financial plans address the overall annual percent increases in the revenue collected from rates and how those increases affect the annual fund surplus/deficits; they are not concerned with how costs are collected from or allocated to individual customer classes

•

Rate structure analyses evaluate and compare alternative means of collecting revenue from the customer classes and customer types within classes.

The following sections discuss each of these four components and summarize the results for each one.

1. Projected Revenue Requirements Based on the City’s current budget of operating expenditures, projected capital improvement projects, vehicle replacements, and annual debt service payments, Table ES-1 summarizes the projected net revenue requirements through FY’09-10. These expenditures have been allocated to functional categories, and revenues by function have been deducted. Therefore, the net revenues at the bottom of this table represent the total amount that must be collected from ratepayers to avoid deficit spending. However, the financial plan includes a plan for annual increases and calculates annual surpluses/deficits through FY’09-10.

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Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Table ES-1

Expenditures & Net Revenue Requirements City of Santa Cruz Operational/Functional Categories General & Admin. 7301 7306 7307

Customer Accounting Waste Reduction Street Cleaning

FY 05-06

FY 06-07

Projected Budgets FY 07-08

(a)

FY 08-09

FY 09-10

Total G&A

$378,587 228,654 345,245 952,486

$371,469 338,000 338,710 1,048,179

$391,800 348,300 363,778 1,103,878

$403,600 309,000 431,978 1,144,578

$415,700 320,100 444,578 1,180,378

Refuse Collection - O&M and Debt Refuse Projects - CIP & Other less Misc. Revenues Total Refuse Collection

4,082,113 149,450 (120,000) 4,111,563

4,373,692 32,900 (123,500) 4,283,092

4,500,451 61,200 (127,000) 4,434,651

5,055,654 34,600 (130,500) 4,959,754

5,229,365 35,400 (134,000) 5,130,765

5,630,354 985,018 (120,000) 6,495,372

5,503,730 595,000 (123,500) 5,975,230

5,610,849 555,000 (127,000) 6,038,849

6,391,562 210,000 (130,500) 6,471,062

6,558,462 205,000 (134,000) 6,629,462

1,237,058 1,928,705 50,375 (1,000,000) 2,216,138 $13,775,560

1,330,841 1,798,260 75,500 (1,030,000) 2,174,601 $13,481,102

1,328,141 1,822,890 500 (1,061,000) 2,090,531 $13,667,909

1,377,241 1,917,290 500 (1,093,000) 2,202,031 $14,777,425

1,458,141 2,003,990 500 (1,126,000) 2,336,631 $15,277,236

Refuse Collection 7302 7359

Refuse Disposal Refuse Disposal - O&M and Debt Refuse Disposal CIP less Misc. Revenues Total Refuse Disposal

7303 7352

Recycling Program Recycling Program - Processing Recycling Program - Collection Recycling CIP less Recycling Revenues Total Recycling Total Expenditures (Net Revenue Reqt's)

7304 7305 7353

Annual Increase 3% -2% 1% 8% a. Projections based on functional category in rate model Table BP-3, average historical budgets, annual adjustments for inflation, and operational considerations. Debt Service included is from City debt service schedule.

3%

2. Cost-of-service Analysis The cost-of-service analysis requires a number of steps that begin with allocating costs to the residential and commercial classes as well as the resource recovery facility (RRF or landfill). Table ES-2 summarizes a more detailed cost allocation that was prepared. This study indicated that approximately 40% of the costs were allocated to residential customers, 46% to commercial, and 14% to the landfill. Table ES-2

Allocations of Net Revenue Requirements for FY'05-06 City of Santa Cruz Expenditure Category

General & Admin. Refuse Collection Refuse Disposal Total Allocated Costs

Projected Budget $952,486 $5,440,572 $7,382,501 $13,775,560

a

Allocated Costs Residential Commercial RRF $414,364 $500,263 $37,859 $3,190,545 $2,250,027 $0 $1,951,923 $3,605,112 $1,825,467 $5,556,832 $6,355,402 $1,863,325

Basis of Allocation

Disposal tonnages & no. of Collection routes Recycling tonnages & no. of Collection routes Recycling & Disposal tonnages

Overall Allocation Percentages 40.3% 46.1% 13.5% a. These allocations are the composite of more detailed cost allocations shown in Appendix Table CA-1.

Appendix Table CA-1 shows the detailed allocation that is summarized in Table ES-2. A number of factors were considered in each part of the allocation process, including the number of residential and commercial collection routes and the total waste and recycling tonnages collected for each class. This initial allocation provides the basis for a more detailed cost allocation within the residential, commercial, and landfill functions. The following sections describe these allocations and cost-of-service analyses. Page 3 of 22

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Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Residential Cost-of-service As shown in Table ES-2, the residential class was allocated $5.5 million, or about 41% of the total costs. Table ES-3 summarizes how these costs were further allocated within the collection and disposal functions performed for residential customers. Table ES-3 Residential Cost Allocation (FY'05-06) - Full COS Rates Allocation of Collection & Disposal Costs COS Allocation Collection Costs Bin Lift Time Route Travel Time Landfill Travel Time

(a)

Collection $3,190,545

Disposal $1,951,923

$1,148,596 $1,738,847 -

$303,102

Alloc. % -36.0% 54.5% 9.5%

(b)

Total Resid. G&A Costs Costs (c) $414,364 $5,556,832 $92,550 $140,111 $24,423

$1,241,147 $1,878,959 $327,525

Disposal Costs Landfill and Recycling $1,951,923 $157,280 $2,109,204 100% Total Allocated Costs $2,887,444 $2,255,024 -$414,364 $5,556,834 a. From Table CA-1, Allocations of Refuse Expenditure Totals - FY'05-06 b. Based on collection operations staff's estimates of percent of time spent on the collection route. c. Allocated based on the combined allocation percentages of Collection and Disposal costs.

One of the primary factors used to determine the allocation percentages for collection and disposal costs shown in Table ES-3 is an estimate from operations staff of the amount of time spent on each activity. Additional more detailed analyses were also prepared to evaluate the amount of time and effort spent on four activities: •

Bin Lift Time – How much time is required once a collection vehicle is stopped to empty the residential cart

•

Route Travel Time – The time spent traveling on-route between pickups

•

Landfill Travel time – The time spent driving to and from the landfill, including the time needed to empty the load

•

Disposal Costs – The residential share of disposal costs based on total tons

Table ES-4 summarizes the calculation of unit costs for each of these four activities and shows how the cost per cart size was determined. These unit costs are then used in combination with the number of units each cart size required to determine the full cost-of-service rates.

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Table ES-4 Residential Rate Calculation Components Calculation of Cart Lift Time ($/month) Total Carts Equiv. Cart Factor Equiv. Carts Total Equiv. Carts Total Allocated Costs ($/yr) Alloc. Cost/Cart Size Cost/Cart/Mo.

20 gal. 2,384 1.00 2,384

$178,325 $6.23

32 gal. 68 gal. 7,891 4,918 1.05 1.15 8,286 5,656 16,593 $1,241,147 $619,764 $423,050 $6.55 $7.17

95 gal. 214 1.25 268

$20,009 $7.79

Comments Current number of customers and cart sizes.

Reflects slightly less time to pickup smaller carts. Total 20-gal. equivalents based on pickup times. Sum of 20-gal. equivalent carts. Annual collection costs related to cart lift time. Total cart-lift time costs for each cart size. Cart lift-time costs per month (by cart size).

Calculation of Route Travel Time ($/month) Total Carts Equiv. Cart Factor Equiv. Carts Total Equiv. Carts Total Allocated Costs ($/yr) Alloc. Cost/Cart Size Cost/Cart/Mo.

20 gal. 2,384 1.00 2,384

$290,740 $10.16

32 gal. 68 gal. 7,891 4,918 1.00 1.00 7,891 4,918 15,407 $1,878,959 $962,346 $599,774 $10.16 $10.16

95 gal. 214 1.00 214

$26,098 $10.16

Comments Current number of customers and cart sizes. Reflects same travel time between stops for all carts. Reflects no difference in travel times by cart size. Sum of 20-gal. equivalent carts. Annual costs related to route travel time between carts. Total route travel time costs for each cart size. Route travel-time costs per month (by cart size).

Calculation of Landfill Travel Time ($/month) No. of Carts Total Gallons/yr. Total Allocated Costs ($/yr) Alloc. Cost/Cart Size Cost/Cart/Mo.

20 gal. 2,384 2,479,360 $23,844 $0.83

32 gal. 68 gal. 95 gal. Comments 7,891 4,918 214 Current number of customers and cart sizes. 13,130,624 17,390,048 1,057,160 Total annual volume in gallons for each cart size. $327,525 Annual costs related to landfill travel time. $126,276 $167,239 $10,167 Total landfill travel time costs for each cart size. $1.33 $2.83 $3.96 Monthly landfill travel time costs by cart size.

Calculation of Disposal Cost ($/month) No. of Carts Total Gallons/yr. Total Allocated Costs ($/yr) Alloc. Cost/Cart Size Cost/Cart/Mo.

20 gal. 2,384 2,479,360 $153,550 $5.37

Comments 32 gal. 68 gal. 95 gal. 7,891 4,918 214 Current number of customers and cart sizes. 13,130,624 17,390,048 1,057,160 Total annual volume in gallons for each cart size. $2,109,204 Annual costs related to landfill disposal. $813,196 $1,076,987 $65,471 Total annual landfill disposal costs for each cart size. $8.59 $18.25 $25.50 Monthly disposal costs per cart.

Table ES-5 summarizes the result of the further rate analyses that combine the unit costs shown in Table ES-4 and the number of units of service for each cart size. The rates shown in this table, if implemented, would produce the $5.55 million shown previously in Tables ES-2 and ES-3, which is the residential customers’ share of the total FY’05-06 revenue requirements of $13.8 million. However, the financial plan will most likely re-define the annual percent rate increases, which will change this $5.55 million share and consequently the rates shown in Table ES-5.

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Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Table ES-5 Full Cost-of-Service Residential Rates ($/month) 20 gal.

FY'05-06 Full COS Rates 32 gal. 68 gal.

95 gal.

Collection-Based Costs Cart Lift Time per cart Route Travel Time per customer Subtotal Collection Costs

$6.23 $10.16 $16.40

$6.55 $10.16 $16.71

$7.17 $10.16 $17.33

$7.79 $10.16 $17.95

Quantity-Based Costs Landfill Travel Time per cart Disposal Costs per cart Subtotal Quantity Based Costs

$0.83 $5.37 $6.20

$1.33 $8.59 $9.92

$2.83 $18.25 $21.08

$3.96 $25.50 $29.45

$22.60

$26.63

$38.41

$47.41

$22.60

$16.64

$11.30

$9.98

Total Cost of Service Cost per Equivalent 20-gal Container

Table ES-6 provides a comparison of the full cost-of-service rates to current rates as well as to “across-the-board” rates, or the rates that result from increasing current rates enough to meet the FY’05-06 revenue requirement of $5.55 million. Although the COS rates are significantly higher than current rates, note that almost 20% of the increases would occur just from the across-the-board increases. The difference between the COS and the across the board rates is due to the unit costs (such as route-travel time costs) that result in a higher percentage of costs being allocated to smaller carts than under current rates. For example, the largest single activity cost (route travel time) is the same for 20-gallon and 95-gallon carts. Table ES-6 Comparison of Current & COS Residential Rates Container Size 20 gallon 32 gallon 68 gallon 95 gallon

Current Rates ($/mo.) $12.94 $19.36 $38.72 $58.08

Across-the-Board Rates % Change a ($/mo.) 19.8% $15.50 19.8% $23.20 19.8% $46.40 19.8% $69.59

($/mo.) $22.60 $26.63 $38.41 $47.41

C.O.S. Rates % Change vs. Current vs. ATB 74.7% 45.8% 37.5% 14.8% -0.8% -17.2% -18.4% -31.9%

a. % Change is a comparison to current rates.

Figure ES-2 illustrates the differences between current, across-the-board, and COS rates and shows that smaller cart sizes have relatively higher rates than current or ATB rates under the COS analysis. In contrast, larger carts have relatively lower rates.

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Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Mo. Rates ($/mo.)

Figure ES-2

$110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0

Comparison of Current and Alternative Residential Refuse Rates (Full COS for FY'05-06)

Current A.T.B. C.O.S.

20-gallon

32-gallon

68-gallon

95-gallon

Residential Container Size

Commercial Cost-of-service The same type of cost-of-service analysis was also performed for the commercial customer class, although there are obvious operational differences between the two classes (i.e., types of collection vehicles and containers). Table ES-7 summarizes the cost allocation to collection and disposal activities within the commercial class of customers. Note in this table that “credits” were deducted from the total commercial class revenue requirements for schools, municipal-wharf, and special charge (extra haul) customers. This is because these are separate commercial classes that need to be addressed individually. The new net revenue requirements that result are the $4.99 million shown at the bottom of this table. Table ES-7 Commercial Cost Allocation (FY'05-06) Alloca. of Collection & Disposal Costs COS Allocation (a) less Credit - Schools (d) less Credit - Wharf (e) less Credit - Special Chrgs. (f) Net COS Allocation (e) Collection Costs Bin Lift Time Route Travel Time Landfill Travel Time Disposal Costs Total Allocated Costs

Collection $2,250,027 ($50,512) ($29,938) ($400,574) $1,769,004

Disposal $3,605,112 ($80,905) ($47,951) ($641,597) $2,834,660

Alloca.% (b)

45.1/47.5/7.5 45.1/47.5/7.5 45.1/47.5/7.5 --

G&A Costs (c) $500,263 ($11,272) ($6,681) ($89,394) $392,916

Total Costs $ % 100% $6,355,402 ($142,690) 2% ($84,570) 1% ($1,131,564) 18% $4,996,579 79%

(g)

$495,321 $884,502

-

$1,379,823

$389,181 $2,834,660 $3,223,840

28% 50% 22% 100% --

$42,275 $75,491 $33,216 $241,934 $392,916

$537,596 $959,993 $422,397 $3,076,594 $4,996,579

11% 19% 8% 62% 100%

a. From Table CA-1, Allocations of Refuse Expenditure Totals - FY'05-06 Collection, Disposal and G&A are based on the COS Allocation before credits are deducted. b. Allocations are in proportion to initial commercial cost allocations to collection, disposal and G&A. c. Allocated based on the combined allocation percentages of Collection and Disposal costs. d. School District charges are set by separate City resolution and are assumed to not change. e. Wharf charges are also calculated separately from normal commercial charges. f. Special Charges/Extra Haul charges are not included in normal collection rate calculations, but will be adjusted in the same proportions as general commercial rates. g. Allocation of collection costs, including overhead, equipment, and labor based on the % of time spent during the collection route per collection staff estimates. spent during the collection route per collection operations staff estimates.

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The costs allocated to each collection/disposal activity were then further allocated to each size of container to develop the unit costs used in calculating individual rates for each type of service. Table ES-8 summarizes these unit cost calculations. Table ES-9 provides a summary of the actual cost-of-service unit costs. By combining the unit costs with the level of service, or the number of units of each container size and number of pickups per week, the individual rates for each type and level of service can be calculated. Table ES-8 Commercial Rate Calculation Components Calculation of Bin Lift Time ($/Bin-Lift) Total Bin-Lifts Per Year Equiv. Bin Factor Equiv. Bins Total Equiv. Bins Total Allocated Bin-Lift Costs Alloc. Annual Bin-Lift Cost Cost/Bin-Lift

1 CY 17,056 1.00 17,056

2 CY 40,612 1.00 40,612

4 CY 17,836 1.50 26,754

$86,308 $5.06

$205,509 $5.06

$135,383 $7.59

6 CY 7,488 2.00 14,976 106,238 $537,596 $75,783 $10.12

15 CY 48 30.00 1,440

20 CY 168 30.00 5,040

30 CY 12 30.00 360

$7,287 $151.81

$25,504 $151.81

$1,822 $151.81

Revenue Reqt's Check:

Comments Reflects current number of customers and bin sizes. Reflects smaller increase in time to pickup larger bins. Total cubic yard equivalents based on pickup times. Sum of equivalent bins. Annual collection costs related to bin lift time. Total bin-lift time costs for each bin size. Cost per bin lift (by bin size).

$537,596

Calculation of Route Travel Time ($/Customer Stop) 1 CY Total Customer Stops/Year 17,056 Equiv. Bin Factor 1.00 Equiv. Customer-Stops 17,056 Total Customer Stops Total Alloc. Route-Travel Cost Alloc. Ann. Route-Travel Cost $196,751 Route Travel Cost/Stop $11.54

2 CY 40,612 1.00 40,612

4 CY 17,836 1.00 17,836

$468,484 $11.54

$205,749 $11.54

6 CY 7,488 1.00 7,488 83,220 $959,993 $86,379 $11.54

15 CY 48 1.00 48

20 CY 168 1.00 168

30 CY 12 1.00 12

$554 $11.54

$1,938 $11.54

$138 $11.54

Revenue Reqt's Check:

Comments Reflects current number of customers and bin sizes. Reflects same travel time between stops for all bins. Reflects no difference in travel times by bin size. Sum of equivalent bins. Annual costs related to route travel time between bins. Total route travel time costs for each bin size. Route travel-time costs per stop (by bin size).

$959,993

Calculation of Landfill Travel Time ($/month) Total Bin-Lifts Per Year Total Cubic Yards/Year/Size Total Cubic Yards/Year Total Allocated Costs Alloc. Cost/Bin Size Landfill Travel Cost/Bin-Lift

1 CY 17,056 17,056

2 CY 40,612 81,224

4 CY 17,836 71,344

$32,898 $1.93

$156,667 $3.86

$137,610 $7.72

6 CY 7,488 44,928 218,992 $422,397 $86,658 $11.57

15 CY 48 720

20 CY 168 3,360

30 CY 12 360

$37.56

$8,564 $37.56

$37.56

Revenue Reqt's Check:

Comments Reflects current number of customers and bin sizes. Total annual volume in yards for each bin size. Annual volume of waste handled by bin size. Annual costs related to landfill travel time. Total landfill travel time costs for each bin size. Landfill travel time costs per bin-lift by bin size.

$422,397

Calculation of Disposal Cost ($/month) Total Bin-Lifts Per Year Total Cubic Yards/Year Total Cubic Yards/Year Total Allocated Disposal Costs Average Disposal Cost/CY Alloc. Cost/Bin Size Disposal Cost/Bin-Lift

1 CY 17,056 17,056

$239,618 $14.05

2 CY 40,612 81,224

4 CY 17,836 71,344

$1,141,107 $1,002,304 $28.10 $56.20

6 CY 7,488 44,928 218,992 $3,076,594 $14.05 $631,188 $84.29

15 CY 48 720

20 CY 168 3,360

30 CY 12 360

$10,115 $210.73

$47,204 $280.98

$5,058 $421.47

Comments Reflects current number of customers and bin sizes. Total annual volume in yards for each bin size. Annual volume of waste handled by bin size. Annual costs related to landfill disposal. Average disposal costs per cubic yard. Total annual landfill disposal costs for each bin size. Disposal costs per bin-lift.

Table ES-9 Summary of Cost Components for Commercial C.O.S. Cost/Bin-Lift Route Travel Cost/Stop Landfill Travel Cost/Bin-Lift Disposal Cost/Bin-Lift

1 CY $5.06 $11.54 $1.93 $14.05

2 CY $5.06 $11.54 $3.86 $28.10

4 CY $7.59 $11.54 $7.72 $56.20

6 CY $10.12 $11.54 $11.57 $84.29

15 CY $151.81 $11.54 $37.56 $210.73

20 CY $151.81 $11.54 $37.56 $280.98

30 CY $151.81 $11.54 $37.56 $421.47

The full rate schedule for commercial customers includes a rate for each container size and number of pickups per week. Container sizes start at 1-cubic yard (CY) and include the sizes noted in Tables ES-7 and ES-8. Most containers and customers are in the 1- and 2-CY container sizes. Table ES-10 provides the full cost-of-service rates for the 1- and 2-CY customers.

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Table ES-10

SUMMARY Full COS Commercial Rates ($/mo.) - FY'05-06 No. Bins 1/week 1 CUBIC YARD Bin 1 $141.15 2 CUBIC YARD Bin 1 $210.39 4 CUBIC YARD Bin 1 $359.83 6 CUBIC YARD Bin 1 $509.26 15 CUBIC YARD Bin 1 $411.64 20 CUBIC YARD Bin 1 $481.88 30 CUBIC YARD Bin 1 $622.37

2/week

3/week

4/week

5/week

6/week

$282.30

$423.46

$564.61

$705.76

$846.91

$420.78

$631.17

$841.56

$1,051.95

$1,262.33

$719.65

$1,079.48

$1,439.31

$1,799.13

$2,158.96

$1,018.53

$1,527.79

$2,037.06

$2,546.32

$3,055.58

--

--

--

--

--

--

--

--

--

--

--

--

--

--

--

Similar to the residential rates, we have also provided a comparison of the full cost-ofservice rates along with the current rates and the across-the-board rates that would also meet the full revenue requirements. This comparison is shown in Table ES-11. Table ES-11 Full COS Commercial Rates (Partial for 1-, 2- and 4-CY Only) Container Size 1 CY/1/week 1 CY/2/week 1 CY/3/week 2 CY/1/week 2 CY/2/week 2 CY/3/week 4 CY/1/week 4 CY/2/week 4 CY/3/week Total Revenue

Current Rates $147.14 $258.28 $369.42 $207.68 $363.26 $518.85 $342.23 $607.46 $872.70 $4,460,665

Across-theBoard Rates $164.81 $289.31 $413.81 $232.63 $406.91 $581.18 $383.35 $680.45 $977.54 $4,996,579

New C.O.S. Rates $141.15 $282.30 $423.46 $210.39 $420.78 $631.17 $359.83 $719.65 $1,079.48 $4,996,579

a. Based on the number of current commercial customers in all categories.

The differences in these rates are illustrated in Figures ES-3 and ES-4. Although the rate differences by container sizes are not as dramatic as with residential customers, they indicate that the full cost-of-service rates are actually lower than current rates for the once-per-week services of both 1- and 2-CY containers, but are higher for the three-times-per-week services for both. This is because of the higher cost of routetravel time for more pickups per week. This also should suggest to commercial customers, particularly those with three or more pickups per week, that their monthly charges would be lower if they could switch to a larger container size with fewer pickups per week. Page 9 of 22

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Figure ES-3

Monthly Rate

Comparison of Commercial Rates: 1-CY Containers $450 $400 $350 $300 $250 $200 $150 $100 $50 $0

Current A.T.B. C.O.S.

1x/week

2x/week Service Level

3x/week

Figure ES-4 Comparison of Commercial Rates: 2-CY Containers $700 Monthly Rate

$600 $500 $400

Current

$300

A.T.B. C.O.S.

$200 $100 $0 1x/week

2x/week Service Level

3x/week

Miscellaneous Other Rates – Cost of Service Miscellaneous other rates include landfill fees, school district rates, municipal wharf customers, and special charges/extra haul customers. The cost-of-service analysis has addressed these charges by assuming that they will be patterned after the recommended adjustments to residential and commercial classes. The exception would be school district charges, which we had assumed will not be adjusted based on direction from City staff. For example, Municipal Wharf rates are essentially commercial service except the rates were negotiated rates that are less than normal commercial rates. We have assumed they will be adjusted by the percentage increases applied to commercial rates. Landfill charges will be increased based on the cost-of-service analysis determination of its share of overall costs, as adjusted for the financial plan annual percentage rate increases.

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3. The Financial Plan Up to this point, the rate analysis has focused on how costs are allocated among customer classes and service levels, and what rates would be needed to fully meet the current (FY’05-06) revenue requirements of $13.77 million. The Financial Plan now takes a broader perspective on the size of the annual rate increases (i.e., how much revenue is generated each year) and the impact this has on the annual surpluses and deficits. Table ES-12 summarizes the two alternative plans for meeting the Refuse Enterprise’s revenue requirements over a 5-year period: •

Plan #1 is intended to alleviate the City’s current deficit spending within a twoyear period, primarily to improve the financial health of the fund prior to issuing new debt of approximately $5 million in FY’07-08 for landfill cell construction.

•

Plan #2 is intended to provide consistent rate increases each year until the fund’s deficit is eliminated.

Table ES-12 5-Year Financial Plan - Alternative Rate Increases City of Santa Cruz 5-Year Refuse Financial Plan - Projected Rev. Req'ts. and Rate Revenue FY '05-06

Net Revenue Requirements (a)

$

Increase

FY'06-07

13,775,560

$

3.4%

13,481,102

FY'07-08

$

-2.1%

Revenue from Current Rates (b) $ Surplus/(Deficit) with No Rate Inc $

11,529,333 $ (2,246,227) $

Financial Plan Alternative #1 Percentage Increase $ Revenue with Alternative 1 Surplus/(Deficit) with Alternati $ Financial Plan Alternative #2 Percentage Increase $ Revenue with Alternative 2 Surplus/(Deficit) with Alternati $

13,667,909

FY'08-09

$

1.4%

14,777,425

FY'09-10

$

8.1%

15,277,236 3.4%

11,529,333 $ (1,951,769) $

11,529,333 $ (2,138,576) $

11,529,333 $ (3,248,092) $

11,529,333 (3,747,903)

12.0% 12,221,093 $ (1,554,467) $

12.0% 13,687,624 $ 206,522 $

4.0% 14,235,129 $ 567,220 $

4.0% 14,804,534 $ 27,109 $

4.0% 15,396,716 119,479

6.50% 11,904,036 $ (1,871,524) $

6.50% 12,677,799 $ (803,304) $

6.50% 13,501,856 $ (166,054) $

6.50% 14,379,476 $ (397,949) $

6.50% 15,314,142 36,906

(c)

a. From Table ES-1, Expenditures & Net Revenue Requirements b. From current rates and number of customers. c. Rate increases in FY'05-06 are planned to be adopted January 1, 2006 and, therefore, would generate only 6 months of additional revenue.

Both these plans would generate less than the full FY’05-06 revenue requirements of $13.77 million. As shown in this table, Plan #1 would generate $12.2 million and Plan #2 would generate $11.9 million. The expected implementation date of January 1, 2006 factors into this revenue estimate, so only 6 months of additional revenue would be collected. After FY’05-06, the percentage rate increase would generate the full amount of additional revenue. Table ES-13 provides a comparison of the total annual revenue generated from each customer class under current rates and the revenue from each class for Financial Plans #1 and #2. The revenue requirements for residential and commercial classes shown in this table are less than the full cost-of-service rates discussed in the previous residential and commercial cost-of-service sections. Because these revenue Page 11 of 22

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requirements are different than the COS rates, the rates must be re-adjusted for each financial plan. Table ES-13 Comparison of Rate Revenue by Customer Class and by Rate Alternative (FY'05-06) City of Santa Cruz Customer Class Residential Revenue Commercial Commercial Routes Special/Extra Haul Municipal Wharf Revenue Subtotal School District Revenue Landfill (RRF) Total Rate Revenue

Current Rates $4,736,871

Full C.O.S Allocations $ $5,556,832

% Change from Current

Financial Plan Alt. #1 $ $4,923,223

17.3%

% Change from Current

3.9%

Financial Plan Alt. #2 $ $4,793,989

$4,996,579 $1,131,564 $84,570 $6,212,713 $142,690 $1,863,325 $13,775,560

12.0% -0.8% $4,426,852 $4,310,648 12.0% -0.8% $1,002,539 $976,222 12.0% -0.8% $74,927 $72,960 12.0% -0.8% $5,504,318 $5,359,830 0% (a) 0% (a) $142,690 $142,690 68.9% 49.6% $1,650,863 $1,607,528 19.5% 12.0% $12,221,093 $11,904,037 a. School District rates are separately set by resolution; City staff has directed that they not be adjusted in this rate study.

$4,460,665 $1,010,197 $75,499 $5,546,361 $142,690 $1,103,412 $11,529,333

% Change from Current

1.2% -3.4% -3.4% -3.4% -3.4% 0% (a) 45.7% 6.5%

The following sections summarize the rates that result from the new revenue requirements defined by the two financial plans.

Residential Rates Under Financial Plan #1 The new revenue requirement and resulting rates for Financial Plan #1 are summarized in Table ES-14, along with the projections through FY’09-10. The acrossthe-board rates are provided for comparison. Table ES-14 Comparison of Projected Residential Rates and Rate Structure Alternatives for Financial Plan Alt. #1 Current Rates Cart Size Across-the-Board Rates a 20-gallon $12.94 32-gallon $19.36 68-gallon $38.72 95-gallon $58.08 b $4,736,871 Total Revenue Plan Increase in Rev. Reqt's c

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

$13.44 $20.12 $40.24 $60.36 $4,923,223

$15.06 $22.54 $45.07 $67.61 $5,514,010

$15.66 $23.44 $46.88 $70.31 $5,734,570

$16.29 $24.38 $48.75 $73.13 $5,963,953

$16.94 $25.35 $50.70 $76.05 $6,202,511

12.0%

12.0%

4.0%

4.0%

4.0%

$22.42 $26.42 $38.12 $47.04 $5,514,010

$23.32 $27.48 $39.64 $48.93 $5,734,570

$24.25 $28.58 $41.23 $50.88 $5,963,953

$25.22 $29.72 $42.88 $52.92 $6,202,511

d

Financial Plan #1 C.O.S. Rates $12.94 $20.02 20-gallon 32-gallon $19.36 $23.59 68-gallon $38.72 $34.03 95-gallon $58.08 $42.00 $4,923,223 Total Revenueb $4,736,871

12.0% 12.0% 4.0% 4.0% 4.0% Plan Increase in Rev. Reqt's c a. FY'05-06 calculated as the % increase in total revenue. After FY'05-06, based on the Plan Increase in Rev. Reqt's. b. After FY'05-06, total is calculated using the annual % increase (i.e., Plan Increase in Rev. Reqt's.). c. From Table FP-2, Comparison of Rate Revenue by Customer Class and by Rate Alternative (FY'05-06). d. FY'05-06 calculated as the % change from the full C.O.S. Revenue to the total revenue in Financial Plan Alt. #1. After FY'05-06, rates are based on the % in the "Plan Increase in Rev. Reqt's."

The rates in Table ES-14 are illustrated below in Figures ES-5 (for 20- and 32-gallon carts) and ES-6 (for 68- and 95-gallon carts). As mentioned earlier, the cost-of-service Page 12 of 22

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analysis resulted in a higher percentage of total costs allocated to collection route travel time, which increases rates for smaller cart sizes more than for larger carts. This is seen in the comparison of smaller and larger cart rates in these two figures. Figure ES-5 Comparison of Projected ATB and COS Residential Rates for 20- & 32-gal. Carts (Fin. Plan Alt. #1) $30

Monthly Rates

$25 $20 $15

ATB 20-gal. COS 20-gal.

$10

ATB 32-gal. $5

COS 32-gal.

$0 Current Rates

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

Figure ES-6 Comparison of Projected ATB and COS Residential Rates for 68- & 95-gal. Carts (Fin. Plan Alt. #1) $80

Monthly Rates

$70 $60 $50 $40 ATB 68-gal.

$30

COS 68-gal.

$20

ATB 95-gal.

$10

COS 95-gal.

$0 Current Rates

FY 05-06

FY 06-07

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Residential Rates Under Financial Plan #2 The new revenue requirement and resulting rates for Financial Plan #2 are summarized in Table ES-15 along with the across-the-board rates and projections through FY’09-10. The lower initial annual rate increases are reflected in this table and in the comparisons shown in Figures ES-7 and ES-8. Table ES-15 Comparison of Projected Residential Rates and Rate Structure Alternatives for Financial Plan Alt. #2 Current Rates Cart Size a Across-the-Board Rates 20-gallon $12.94 32-gallon $19.36 68-gallon $38.72 95-gallon $58.08 Total Revenueb $4,736,871 Plan Increase in Rev. Reqt's c

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

$13.09 $19.59 $39.19 $58.78 $4,793,989

$13.94 $20.87 $41.73 $62.60 $5,105,599

$14.85 $22.22 $44.45 $66.67 $5,437,462

$15.81 $23.67 $47.34 $71.00 $5,790,898

$16.84 $25.21 $50.41 $75.62 $6,167,306

6.5%

6.5%

6.5%

6.5%

6.5%

$21.83 $25.73 $37.12 $45.81 $5,105,599

$22.71 $26.76 $38.60 $47.64 $5,437,462

$23.62 $27.83 $40.15 $49.55 $5,790,898

$24.56 $28.94 $41.75 $51.53 $6,167,306

d

Financial Plan #2 C.O.S. Rates 20-gallon $12.94 $19.49 32-gallon $19.36 $22.97 68-gallon $38.72 $33.14 95-gallon $58.08 $40.90 b $4,736,871 $4,793,989 Total Revenue

6.5% 6.5% 6.5% 6.5% 6.5% Plan Increase in Rev. Reqt's c a. FY'05-06 calculated as the % increase in total revenue. After FY'05-06, based on the Plan Increase in Rev. Reqt's. b. After FY'05-06, total is calculated using the annual % increase (i.e., Plan Increase in Rev. Reqt's.). c. From Table FP-2, Comparison of Rate Revenue by Customer Class and by Rate Alternative (FY'05-06). d. FY'05-06 calculated as the % change from the full C.O.S. Revenue to the total revenue in Financial Plan Alt. #2. After FY'05-06, rates are based on the % in the "Plan Increase in Rev. Reqt's."

Figure ES-7 Comparison of Projected ATB and COS Residential Rates for 20- & 32-gal. Carts (Fin. Plan Alt. #2) $30

Monthly Rates

$25 $20 $15 ATB 20-gal.

$10

COS 20-gal. ATB 32-gal.

$5

COS 32-gal.

$0 Current Rates

FY 05-06

FY 06-07

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Figure ES-8 Comparison of Projected ATB and COS Residential Rates for 68- & 95-gal. Carts (Fin. Plan Alt. #2) $80

Monthly Rates

$70 $60 $50 $40 $30

ATB 68-gal.

$20

COS 68-gal. ATB 95-gal.

$10

COS 95-gal.

$0 Current Rates

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

Commercial Rates Under Financial Plan #1 The new commercial revenue requirements and rates for Financial Plan #1 are summarized in Table ES-16 along with the across-the-board rates and projections. Table ES-16 Comparison of Projected Commercial Rates and Rate Structure Alternatives for Financial Plan Alt. #1 Cont./Pickups Current Rates Across-the-Board Rates a $147.14 1 CY/1/week $258.28 1 CY/2/week $369.42 1 CY/3/week $207.68 2 CY/1/week $363.26 2 CY/2/week $518.85 2 CY/3/week Total Revenueb $4,460,665 Plan Increase in Rev. Reqt's c

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

$146.02 $256.32 $366.62 $206.11 $360.51 $514.91 $4,426,852

$163.54 $287.08 $410.62 $230.84 $403.77 $576.70 $4,958,074

$170.08 $298.56 $427.04 $240.07 $419.92 $599.77 $5,156,397

$176.89 $310.51 $444.12 $249.67 $436.72 $623.76 $5,362,653

$183.96 $322.93 $461.89 $259.66 $454.19 $648.71 $5,577,159

12.0%

12.0%

4.0%

4.0%

4.0%

$156.89 $313.78 $470.68 $233.85 $467.70 $701.55 $4,958,074

$163.17 $326.34 $489.50 $243.20 $486.41 $729.61 $5,156,397

$169.69 $339.39 $509.08 $252.93 $505.86 $758.80 $5,362,653

$176.48 $352.96 $529.45 $263.05 $526.10 $789.15 $5,577,159

Financial Plan #1 C.O.S. Rates c $147.14 $140.08 1 CY/1/week $258.28 $280.16 1 CY/2/week $369.42 $420.25 1 CY/3/week $207.68 $208.79 2 CY/1/week $363.26 $417.59 2 CY/2/week $518.85 $626.38 2 CY/3/week $4,426,852 Total Revenueb $4,460,665

12.0% 12.0% 4.0% 4.0% 4.0% Plan Increase in Rev. Reqt's c a. FY'05-06 calculated as the % increase in total revenue. After FY'05-06, based on the Plan Increase in Rev. Reqt's. b. After FY'05-06, total is calculated using the annual % increase (i.e., Plan Increase in Rev. Reqt's.). c. From Table FP-2, Comparison of Rate Revenue by Customer Class and by Rate Alternative (FY'05-06). d. FY'05-06 calculated as the % change in the full C.O.S. Revenue and the Financial Plan Alt. #1 total revenue. After FY'05-06, based on the Plan Increase in Rev. Reqt's.

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These rates are graphically presented in Figures ES-9 and ES-10 and, again, indicate that service levels with fewer pickups per week have rates that are relatively lower than service levels with a higher number of pickups per week.

Monthly Rates

Figure ES-9

$550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0

Comparison of Projected ATB and COS Comm. Rates for 1-CY Containers (Fin. Plan Alt. #1)

ATB 1 CY/1x COS 1 CY/1x ATB 1 CY/2x COS 1 CY/2x ATB 1 CY/3x COS 1 CY/3x

Current Rates

FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10

Figure ES-10

$800

Comparison of Projected ATB and COS Comm. Rates for 2-CY Containers (Fin. Plan Alt. #1)

Monthly Rates

$700 $600 $500 $400

ATB 2 CY/1x

$300

COS 2 CY/1x ATB 2 CY/2x

$200

COS 2 CY/2x

$100

ATB 2 CY/3x COS 2 CY/3x

$0 Current Rates

FY 05-06 FY 06-07 FY 07-08 FY 08-09 FY 09-10

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Commercial Rates Under Financial Plan #2 The same revenue requirements and rates for Financial Plan #2 are presented in Table ES-17 and Figures ES-11 and ES-12. Table ES-17 Comparison of Projected Commercial Rates and Rate Structure Alternatives for Financial Plan Alt. #2 Cont./Pickups Current Rates Across-the-Board Rates a $147.14 1 CY/1/week $258.28 1 CY/2/week $369.42 1 CY/3/week $207.68 2 CY/1/week $363.26 2 CY/2/week $518.85 2 CY/3/week Total Revenueb $4,460,665 Plan Increase in Rev. Reqt's c

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

$142.19 $249.59 $357.00 $200.70 $351.05 $501.40 $4,310,648

$159.25 $279.54 $399.84 $224.78 $393.17 $561.57 $4,590,840

$165.62 $290.73 $415.83 $233.77 $408.90 $584.03 $4,889,245

$172.24 $302.36 $432.47 $243.12 $425.26 $607.39 $5,207,045

$179.13 $314.45 $449.77 $252.85 $442.27 $631.69 $5,545,503

6.5%

6.5%

6.5%

6.5%

6.5%

$152.77 $305.55 $458.32 $227.71 $455.42 $683.13 $4,590,840

$158.88 $317.77 $476.65 $236.82 $473.64 $710.46 $4,889,245

$165.24 $330.48 $495.72 $246.29 $492.58 $738.88 $5,207,045

$171.85 $343.70 $515.55 $256.14 $512.29 $768.43 $5,545,503

Financial Plan #2 C.O.S. Rates c $147.14 $136.41 1 CY/1/week $258.28 $272.81 1 CY/2/week $369.42 $409.22 1 CY/3/week $207.68 $203.31 2 CY/1/week $363.26 $406.63 2 CY/2/week $518.85 $609.94 2 CY/3/week $4,310,648 Total Revenueb $4,460,665

6.5% 6.5% 6.5% 6.5% 6.5% Plan Increase in Rev. Reqt's c a. FY'05-06 calculated as the % increase in total revenue. After FY'05-06, based on the Plan Increase in Rev. Reqt's. b. After FY'05-06, total is calculated using the annual % increase (i.e., Plan Increase in Rev. Reqt's.). c. From Table FP-2, Comparison of Rate Revenue by Customer Class and by Rate Alternative (FY'05-06). d. FY'05-06 calculated as the % change in the full C.O.S. Revenue and the Financial Plan Alt. #2 total revenue. After FY'05-06, based on the Plan Increase in Rev. Reqt's.

Monthly Rates

Figure ES-11

$550 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0

Comparison of Projected ATB and COS Comm. Rates for 1-CY Containers (Fin. Plan Alt. #2)

ATB 1 CY/1x COS 1 CY/1x ATB 1 CY/2x COS 1 CY/2x ATB 1 CY/3x COS 1 CY/3x

Current Rates

FY 05-06

FY 06-07

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Figure ES-12

$800

Comparison of Projected ATB and COS Comm. Rates for 2-CY Containers (Fin. Plan Alt. #2)

Monthly Rates

$700 $600 $500 ATB 2 CY/1x

$400

COS 2 CY/1x

$300

ATB 2 CY/2x

$200

COS 2 CY/2x

$100

ATB 2 CY/3x

$0

COS 2 CY/3x

Current Rates

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

4. Rate Structure Analysis Background – In the introduction to this Executive Summary, the rate structure analysis was presented as an evaluation and comparison of alternative means of collecting the revenue requirements from the customer classes and customer types within classes. In the preceding sections, the revenue requirements were developed and then used to calculate the full cost-of-service rates. The two Financial Plans were then used to determine the annual percentage rate increases, the corresponding revenue requirements, and the adjusted rates needed to meet those revenue requirements. In this section, the rate structure analysis now combines the cost-of-service and financial plan analyses in order to evaluate alternative rate structures. The relationship between “cost-of-service” and “rate structure” is neither a concrete nor a narrowly defined relationship. One of the most often referenced publications on cost-of-service analyses happens to discuss water rate cost-of-service principles, but those principles can also be applied to refuse rates1: A water rate structure is a fee or schedule of fees designed, among other things, to recover the utility’s costs. The design, however, is a function of many diverse and sometimes competing objectives. A properly selected rate structure should support and optimize a blend of various utility objectives and should work as a public information tool in communicating these objectives to customers. No one rate structure meets all utility objectives equally, and not all objectives are valued the same by the utility or its customers. Rate objectives common to many utilities and their customers include: 1

Chapter 9, Manual of Water Supply Practices (M1), Principles of Water Rates, Fees, and Charges, published by the American Water Works Association (AWWA).

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– – – – –

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Yielding necessary revenue in a stable and predictable manner Minimizing unexpected changes to customer bills Discouraging wasteful use and promoting justified uses Promoting fairness and equity Maintaining simplicity, certainty, convenience, feasibility, and freedom from controversy

Within the context of these principles, the City is free to consider and implement a rate structure that is not a “strict” cost-of-service rate structure.

Rate Structure Alternatives – So far, the rate analysis has presented three rate structures: •

Current Rate Schedule

•

Across-the-Board Rates – which are flat percent increases in the current rates that is sufficient to meet the selected revenue requirements

•

Cost-of-Service Rates – which have included the full COS rates that meet the FY’05-06 revenue requirements of $13.77 million, and COS rates that meet the annual revenue requirements as defined in the two financial plan alternatives

Tables and figures showing these rates have been presented in Section 2 and 3. Foresight has reviewed these rate structure alternatives along with the rates for each of these alternatives. The question now is “what other rate structures might better meet the City rate objectives?” A summary of the City’s rate objectives, as we understand them, includes: •

Giving a clear financial incentive to customers to reduce the amount of waste going to the landfill2

•

Increasing collection rates and disposal fees to maintain the solvency of the Refuse Fund3 and the long-term financial health of the Refuse Enterprise

•

Equitably allocating costs among residential and commercial customers

•

Having a rate structure that is easy to understand and apply to customers

Foresight has considered other rate structures that might better meet these objectives. Here’s what we have concluded:

2

3

•

The residential COS rates developed in this rate study are equitable and indicate smaller containers should have relatively higher rates compared to larger containers.

•

The residential COS rates run counter to the City’s objective of providing incentives to customers to reduce the amount of waste going to the landfill and, in fact, would have the opposite effect if implemented.

Public Works Commission Agenda Report, March 21, 2005, page 2. Public Works Commission Agenda Report, March 21, 2005, page 3.

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•

We evaluated alternative residential rate structures that maintained the current incentive to residential customers to use smaller cart sizes, but one that also attempted to implement more COS-oriented rates.

•

The result was that the new alternative residential rates looked very similar to the “Across-the-Board” rates that increase the current rates to a level necessary to meet the revenue requirements.

•

The commercial COS rates indicate that customers with fewer pickups per week should have relatively smaller rate increases compared to service levels with more pickups per week.

•

COS commercial rates were actually lower than current rates; they slightly shifted costs more towards service levels with more pickups. Otherwise, the COS rates were not hugely different from current rates.

Recommendations – After evaluating the results of the various cost-of-service and financial plan analyses and alternatives, Foresight recommends that the City: 1. Adopt Financial Plan Alternative #1, which alleviates the current deficit in 2 years 2. Implement an Across-the-Board rate increase for residential customers, this rate

structure provides appropriate incentives for residential customers to minimize the waste going to the landfill 3. Adopt the commercial cost-of-service rates identified in this study; these rates

more equitably distribute costs among commercial service levels 4. Landfill (RRF) fees should be increased by almost 50% as indicated in Financial

Plan Alternative #1 (Table ES-13 above). However, some individual landfill fees should be adjusted differently for operational or waste-reduction reasons (which is a discussion beyond the scope of this summary). 5. Municipal Wharf rates and special charges/extra haul rates should be increased

so as to be consistent with the commercial rate increases. Table ES-18 provides a summary of the projected annual revenue requirements, total rate revenue, and the resulting net surplus or deficits each year through FY’09-10. This table also indicates the expected rate revenue for each customer class, including landfill disposal customers.

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Table ES-18 Projected Revenue Requirements and Customer Class Rate Revenue - Financial Plan Alternative #1 City of Santa Cruz 5-Year Refuse Financial Plan - Projected Rev. Req'ts. and Rate Revenue

Customer Class Annual % Increase

FY '05-06

FY'06-07

FY'07-08

FY'08-09

FY'09-10

12.0%

12.0%

4.0%

4.0%

4.0%

$4,923,223 $5,522,571 $5,746,328 $5,979,035 $6,221,050 Residential Revenue Commercial $4,426,852 $4,966,636 $5,168,155 $5,377,735 $5,595,698 Commercial Routes $1,002,539 $1,122,844 $1,167,757 $1,214,468 $1,263,046 Special/Extra Haul $83,918 $87,275 $90,766 $94,396 $74,927 Municipal Wharf Revenue $5,504,318 $6,173,397 $6,423,187 $6,682,968 $6,953,141 Subtotal $142,690 $142,690 $142,690 $142,690 $142,690 School District Revenue $1,650,863 $1,848,966 $1,922,925 $1,999,842 $2,079,835 Landfill (RRF) Total Rate Revenue $12,221,093 $13,687,624 $14,235,129 $14,804,534 $15,396,716 Projected Revenue Requirements $ 13,775,560 $ 13,481,102 $ 13,667,909 $ 14,777,425 $ 15,277,236 Fund Surplus/(Deficit) ($1,554,467) $206,522 $567,220 $27,109 $119,479

The recommended full rate schedules for residential and commercial customers from FY’05-06 through FY’09-10 are provided below. The rate schedule for landfill fees is provided in the Appendix. SUMMARY OF RECOMMENDED RESIDENTIAL RATES (Across-the-Board Rates for Financial Plan Alternative #1) Current Rates Cart Size a Across-the-Board Rates $12.94 20-gallon $19.36 32-gallon $38.72 68-gallon $58.08 95-gallon b $4,736,871 Total Revenue

FY 05-06

FY 06-07

FY 07-08

FY 08-09

FY 09-10

$13.44 $20.12 $40.24 $60.36 $4,923,223

$15.06 $22.54 $45.07 $67.61 $5,514,010

$15.66 $23.44 $46.88 $70.31 $5,734,570

$16.29 $24.38 $48.75 $73.13 $5,963,953

$16.94 $25.35 $50.70 $76.05 $6,202,511

12.0%

4.0%

4.0%

4.0%

12.0% 12.0% 12.0% 12.0%

4.0% 4.0% 4.0% 4.0%

4.0% 4.0% 4.0% 4.0%

4.0% 4.0% 4.0% 4.0%

12.0% Plan Increase in Rev. Reqt's c Percent Changes in Across-the-Board Rates 3.9% 20-gallon 3.9% 32-gallon 3.9% 68-gallon 3.9% 95-gallon a. Source: Table ES-13.

Special charges and Municipal Wharf customer rates are intended to be increased so as to be consistent with commercial rates, although there are a number of separate adjustments recommended for individual rates that will require more detailed discussion (not in this Executive Summary).

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September 30, 2005

Foresight Consulting

Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

SUMMARY OF RECOMMENDED COMMERCIAL RATES COS Commercial Rates for Financial Plan Alt. #1 ($/mo.) FY 05-06 (a) Service Level Current 1 CUBIC YARD Bin 1/week $147.14 $125.06 2/week $258.28 $250.12 3/week $369.42 $375.17 4/week $480.57 $500.23 5/week $591.71 $625.29 6/week $702.86 $750.35 2 CUBIC YARD Bin 1/week $207.68 $186.40 2/week $363.26 $372.80 3/week $518.85 $559.20 4/week $674.43 $745.60 5/week $830.02 $932.00 6/week $985.60 $1,118.40 4 CUBIC YARD Bin 1/week $342.23 $318.80 2/week $607.46 $637.60 3/week $872.70 $956.39 4/week $1,137.93 $1,275.19 5/week $1,403.16 $1,593.99 6/week $1,668.39 $1,912.79 6 CUBIC YARD Bin 1/week $454.08 $451.20 2/week $807.31 $902.39 3/week $1,160.54 $1,353.59 4/week $1,513.78 $1,804.78 5/week $1,867.01 $2,255.98 6/week $2,220.24 $2,707.18 15 CUBIC YARD Bin 1/mo. $581.68 $364.70 20 CUBIC YARD Bin 1/mo. $638.88 $426.94 30 CUBIC YARD Bin 1/mo. $747.12 $551.41

FY 06-07

FY 07-08

FY 08-09

FY 09-10

$140.06 $280.13 $420.19 $560.26 $700.32 $840.39

$145.67 $291.33 $437.00 $582.67 $728.34 $874.00

$151.49 $302.99 $454.48 $605.98 $757.47 $908.96

$157.55 $315.11 $472.66 $630.21 $787.77 $945.32

$208.77 $417.54 $626.30 $835.07 $1,043.84 $1,252.61

$217.12 $434.24 $651.36 $868.47 $1,085.59 $1,302.71

$225.80 $451.61 $677.41 $903.21 $1,129.02 $1,354.82

$234.84 $469.67 $704.51 $939.34 $1,174.18 $1,409.01

$357.05 $714.11 $1,071.16 $1,428.21 $1,785.27 $2,142.32

$371.34 $742.67 $1,114.01 $1,485.34 $1,856.68 $2,228.01

$386.19 $772.38 $1,158.57 $1,544.76 $1,930.95 $2,317.14

$401.64 $803.27 $1,204.91 $1,606.55 $2,008.18 $2,409.82

$505.34 $1,010.68 $1,516.02 $2,021.36 $2,526.70 $3,032.04

$525.55 $1,051.11 $1,576.66 $2,102.21 $2,627.77 $3,153.32

$546.58 $1,093.15 $1,639.73 $2,186.30 $2,732.88 $3,279.45

$568.44 $1,136.88 $1,705.31 $2,273.75 $2,842.19 $3,410.63

$408.47

$424.81

$441.80

$459.47

$478.17

$497.30

$517.19

$537.88

$617.58

$642.28

$667.97

12.0% 12.0% 4.0% 4.0% Plan Increase in Rev. Reqt's b a. Full COS rates for FY'05-06 but adjusted for smaller Revenue Reqt's. under Financial Plan Alt. #1: FY'05-06 Full COS Revenue Reqt's = $4,996,579 FY'05-06 Fin. Plan Alt #1 Revenue Reqt's = $4,426,852 Adjustment Percentage (Alt. #1/Full COS) = 88.6% b. Financial Plan Alternative #1 from Table ES-12.

Page 22 of 22

$694.69 4.0%

September 30, 2005

Foresight Consulting

Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

APPENDIX This Appendix presents backup tables that are intended for the reader who wishes to follow the rate methodology and calculations in more detail than is provided in the Executive Summary. Table BP-3

Detailed Expenditures City of Santa Cruz Operational/Functional Categories 7301 52000 58000 7306 51000 52000 53000 54000 57000 7302 51000 52000 53000 54000 56000 57000 58000 58000 7303 51000 52000 53000 54000 56000 57000 58000 7304 51000 52000 53000 54000 56000 57000 58000 7305 51000 52000 53000 54000 56000 57000 58000 7307 51000 52000 53000 54000 56000 57000 58000

52000

Customer Accounting Services Debt Service Waste Reduction Personnel Services Services Supplies Other Materials and Services Capital Outlay Refuse Collection Personnel Services Services Supplies** Other Materials and Services Other Charges (Fr. Tax & St. Maint.) Capital Outlay Debt Service (Equip. Leases) Debt Service (Compactors) Refuse Disposal Personnel Services Services Supplies** Other Materials and Services Other Charges (Gov't. Fees) Capital Outlay Closure/Post-Closure Funding Debt Service Recycling Program - Processing Personnel Services Services Supplies** Other Materials and Services Other Charges (New Proc. Line O&M) Capital Outlay Debt Service Recycling Program - Collection Personnel Services Services Supplies** Other Materials and Services Other Charges Capital Outlay (Vehicles & Misc.) Debt Service (Equip. Leases) Street Cleaning Personnel Services Services Supplies Other (fuel)** Other Charges Capital Outlay Debt Service Other Capital Improvements CIP - Refuse Collection CIP - Refuse Disposal CIP - Recycling Other Refuse Services Services

Total Revenue Requirement

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

FY 05-06 378,587 347,356 31,231 228,654 106,169 93,339 11,700 15,384 2,062 4,082,113 2,021,786 1,335,552 80,429 500 500 139,750 503,596 5,630,354 1,614,287 1,114,139 189,600 2,000 124,000 150,415 235,000 2,200,913 1,237,058 665,229 427,334 78,925 1,000 20,000 40,000 4,570 1,928,705 1,121,526 304,104 17,270 500 71,750 413,555 345,245 200,337 89,123 3,465 8,500 2,000 41,820 1,161,843 126,450 985,018 50,375 23,000 23,000

$ 15,015,560

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

Projected Budgets FY 06-07 FY 07-08 FY 08-09 371,469 $ 391,800 $ 403,600 357,800 $ 391,800 $ 403,600 13,669 $ $ 338,000 $ 348,300 $ 309,000 163,000 $ 169,500 $ 176,300 146,100 $ 149,000 $ 102,000 12,100 $ 12,500 $ 12,900 15,800 $ 16,300 $ 16,800 1,000 $ 1,000 $ 1,000 4,373,692 $ 4,500,451 $ 5,055,654 2,128,900 $ 2,214,100 $ 2,302,700 1,375,600 $ 1,416,900 $ 1,459,400 85,300 $ 90,400 $ 95,800 500 $ 500 $ 500 $ $ 144,500 $ 131,000 $ 165,000 638,892 $ 647,551 $ 1,032,254 $ $ 5,503,730 $ 5,610,849 $ 6,391,562 1,678,900 $ 1,746,100 $ 1,815,900 1,147,600 $ 1,182,000 $ 1,217,500 201,000 $ 213,100 $ 225,900 2,100 $ 2,200 $ 2,300 127,700 $ 131,500 $ 135,400 10,000 $ 35,000 $ 10,000 235,000 $ 235,000 $ 235,000 2,101,430 $ 2,065,949 $ 2,749,562 1,330,841 $ 1,328,141 $ 1,377,241 691,800 $ 719,500 $ 748,300 440,200 $ 453,400 $ 467,000 83,700 $ 88,700 $ 94,000 1,000 $ 1,000 $ 1,000 45,000 $ 46,400 $ 47,800 60,000 $ 10,000 $ 10,000 9,141 $ 9,141 $ 9,141 1,798,260 $ 1,822,890 $ 1,917,290 1,166,400 $ 1,213,100 $ 1,261,600 313,200 $ 322,600 $ 332,300 18,300 $ 19,400 $ 20,600 500 $ 500 $ 500 $ $ 40,000 $ 40,000 $ 75,000 259,860 $ 227,290 $ 227,290 338,710 $ 363,778 $ 431,978 208,400 $ 216,700 $ 225,400 91,800 $ 94,600 $ 97,400 3,600 $ 3,700 $ 3,800 9,000 $ 9,500 $ 10,100 $ $ 5,000 $ 5,000 $ 5,000 20,910 $ 34,278 $ 90,278 679,700 $ 592,300 $ 220,000 9,200 $ 36,800 $ 9,500 595,000 $ 555,000 $ 210,000 75,500 $ 500 $ 500 23,700 $ 24,400 $ 25,100 23,700 $ 24,400 $ 25,100

$ 14,758,102

Page A-1

$ 14,982,909

$ 16,131,425

Escalation

$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $

FY 09-10 415,700 415,700 320,100 183,400 105,100 13,300 17,300 1,000 5,229,365 2,394,800 1,503,200 101,500 500 103,000 1,104,365 22,000 6,558,462 1,888,500 1,254,000 239,500 2,400 139,500 50,000 235,000 2,749,562 1,458,141 778,200 481,000 99,600 1,000 49,200 40,000 9,141 2,003,990 1,312,100 342,300 21,800 500 100,000 227,290 444,578 234,400 100,300 3,900 10,700 5,000 90,278 215,000 9,500 205,000 500 25,900 25,900

Factor 3.0% 3.0% 4.0% 3.0% 3.0% 3.0% (estimated) 4.0% 3.0% (see note **) 3.0% 3.0% (planned) (planned) (planned) 4.0% 3.0% (see note **) 3.0% 3.0% (planned) 0.0% (planned) 4.0% 3.0% (see note **) 3.0% 3.0% (planned) (planned) 4.0% 3.0% (see note **) 3.0% 3.0% (planned) (planned) 4.0% 3.0% 3.0% (see note **) 3.0% (planned) (planned)

$ 16,671,236

September 30, 2005

(planned) (planned) (planned) 3.0%

Foresight Consulting

Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Table BP-3 (continued) Table BP-3

Detailed Expenditures City of Santa Cruz Operational/Functional Categories

FY 05-06

Less: Non-Rate Revenues Recycling Revenues Misc. Revenue Total Other Revenues

$ $

Net Revenue Requirement*

1,000,000 240,000 1,240,000

FY 06-07 $ $

Escalation

Projected Budgets FY 07-08

1,030,000 247,000 1,277,000

$

1,061,000 254,000 1,315,000

$

FY 08-09 $

1,093,000 261,000 1,354,000

$

Factor

FY 09-10 $ $

1,126,000 268,000 1,394,000

$13,775,560

$13,481,102

$13,667,909

$14,777,425

$15,277,236

3.4%

-2.1%

1.4%

8.1%

3.4%

Annual % increases:

Note: Includes adjustments as needed from page 7 of the Public Works Commission Agenda Report, March 21, 2005, by Mary Arman. *Net Revenue Requirement accounts for revenue required from both refuse collection rates as well as landfill rates. Source: City of Santa Cruz Expenditure Status Report **Annual inflation for fuel price adjustments (95% diesel fuel, reflects fuel as a % of overall costs): 10% 6% 6% 6%

6%

Table CA-1

Allocations of Refuse Expenditure Totals - FY'05-06 City of Santa Cruz Projected Budget

Allocation %'s Resid. Comm. RRF

Residential

Allocated Costs Commercial

RRF

Basis of Allocation

General & Admin. 7301 7306 7307

Customer Accounting Waste Reduction Street Cleaning Total G&A

$378,587 $228,654 $345,245 $952,486

27.4% 54.1% 54.1%

62.6% 45.9% 45.9%

10.0% 0.0% 0.0%

$103,885 $123,702 $186,778 $414,364

$236,843 $104,952 $158,467 $500,263

$4,082,113 $1,928,705 $149,450 ($599,696) ($120,000) $5,440,572

54.1% 72.7% 54.1% 72.7% 54.1%

45.9% 27.3% 45.9% 27.3% 45.9%

0.0% 0.0% 0.0% 0.0% 0.0%

$2,208,423 $1,402,169 $80,852 ($435,979) ($64,920) $3,190,545

$1,873,690 $526,536 $68,598 ($163,717) ($55,080) $2,250,027

$5,630,354 $1,237,058 $985,018 $50,375 ($400,304) ($120,000) $7,382,501 $13,775,560

23.2% 50.0% 23.2% 50.0% 50.0% 23.2%

52.9% 18.8% 52.9% 18.8% 18.8% 52.9%

23.8% 31.2% 23.8% 31.2% 31.2% 23.8%

$1,307,348 $618,747 $228,718 $25,196 ($200,222) ($27,864) $1,951,923 $5,556,832

$2,980,569 $232,349 $521,444 $9,462 ($75,187) ($63,525) $3,605,112 $6,355,402

$37,859 Modified Disposal Tonnages $0 No. of Collection Routes $0 No. of Collection Routes $37,859

(a)

Refuse Collection 7302 7305 7359

Refuse Collection Recycling Program - Collection Refuse Projects - Other less Recycling Revenues (b) less Misc. Revenues Total Refuse Collection

$0 $0 $0 $0 $0 $0

No. of Collection Routes Resid./Comm. Recycling Tons

No. of Collection Routes Resid./Comm. Recycling Tons

No. of Collection Routes

Refuse Disposal 7303 7304 7352 7353

Refuse Disposal Recycling Program - Processing Refuse Disposal Facilities (c) Recycling Facilities less Recycling Revenues (b) less Misc. Revenues Total Refuse Disposal Total Allocated Costs

$1,342,437 $385,962 $234,856 $15,717 ($124,895) ($28,611) $1,825,467 $1,863,325

Disposal Tonnages Recycling Tonnages Disposal Tonnages Recycling Tonnages Recycling Tonnages Disposal Tonnages $13,775,560

a. Percentages for Refuse Disposal have been modified because less than half the landfill revenue is billed through customer accounting. b. Allocated to Collection and Disposal as follows: Recycling Program (FY'05-06) Processing & Facil. Collection $1,287,433 Recycling Program Costs $1,928,705 40.0% % of Revenues 60.0% $1,000,000 Recycling Revenues -Allocated to Collection Services $599,696 $400,304 Allocated to Disposal Services -c. Includes Closure/Post-Closure funding.

Page A-2

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Foresight Consulting

Draft: Executive Summary of Refuse Fund Rate Study City of Santa Cruz

Landfill Rate Options FY 05-06 City of Santa Cruz Current Rates

Full COS Rates

Fin. Plan Alt.#1 Rates

Fin. Plan Alt.#2 Rates

Loose Refuse Minimum Charge

$6.54

$11.04

$9.78

$9.53

Yardage Charge

$6.54 per yard

$11.04 per yard

$9.78 per yard

$9.53 per yard

Tonnage Charge

$39.50 per ton

$66.7 per ton

$59.1 per ton

$57.55 per ton

Greenwaste Minimum Charge

$2.34

$3.95

$3.50

$3.41

Yardage Charge

$2.34 per yard

$3.95 per yard

$3.5 per yard

$3.41 per yard

Tonnage Charge

$20.00 per ton

$33.77 per ton

$29.92 per ton

$29.14 per ton

$6.54 each

$11.04 each

$9.78 each

$9.53 each

Major appliances containing regulated hazardous materials (e.g., washers, dryers, water heaters, microwaves, televisions, computer monitors)

$6.54 per unit

$11.04 per unit

$9.78 per unit

$9.53 per unit

Refrigeration units/products (e.g., air conditioners, refrigerators)

$20.00 per unit

$33.77 per unit

$29.92 per unit

$29.14 per unit

Mattress/Box Springs

Tires: Diameter of 36" or less

$4.67 each

$7.89 each

$6.99 each

$6.8 each

37" to 48"

$24.00 each

$40.53 each

$35.91 each

$34.96 each

49" to 60"

$64.00 each

$108.08 each

$95.75 each

$93.24 each

over 60"

$120.00 each

$202.64 each

$179.54 each

$174.82 each

"Bulk" Tires (over 20 tires)

$320 per ton

$540.38 per ton

$478.77 per ton

$466.2 per ton

Tree stumps: Diameter of 18" - 24"

(see greenwaste)

25" - 36"

$50.00 each

$84.43 each

$74.81 each

$72.84 each

37" or greater

$80.00 each

$135.1 each

$119.69 each

$116.55 each

None

None

None

None

Recyclable material (except greenwaste and appliances with motors) Contaminated recycled goods will be charged as refuse Bulky Household Items

$9.35 per unit

$15.79 per unit

$13.99 per unit

$13.62 per unit

Special Handling Disposal

$60.00 per ton

$101.32 per ton

$89.77 per ton

$87.41 per ton

$32.00 per ton

$54.04 per ton

$47.88 per ton

$46.62 per ton

Clean fill

$15.00 per ton

$25.33 per ton

$22.44 per ton

$21.85 per ton

Wood/Lumber

$20.00 per ton

$33.77 per ton

$29.92 per ton

$29.14 per ton

Broken brick and asphalt

$15.00 per ton

$25.33 per ton

$22.44 per ton

$21.85 per ton

North Coast Residents

(rates + 10%)

(rates + 10%)

(rates + 10%)

(rates + 10%)

Mixed Construction & Demolition loads (painted wood, roofing material including composite shingles, metal, cardboard)

Landfill Rate Increases FY 05-06 City of Santa Cruz Rate Structure

% Increase from Current Rates

COS

68.9%

Financial Plan Alt. #1

49.6%

Financial Plan Alt. #2

45.7%

Page A-3

September 30, 2005