Palo Alto residents could soon be asked to pay for recycling and see their garbage rates soar by nearly 80 percent in the coming years as part of the city's effort to bring fairness and stability to its trash-collection service.
The city's Refuse Fund has been bleeding money in recent years thanks to a combination of long-term landfill contracts and aggressive conservation efforts that have taken a hit out of the city's bottom line. Palo Alto's aggressive "zero waste" program, which seeks to reduce the amount of local garbage heading to landfills, has been wildly successful on the environmental front but completely unsustainable when it comes to finances.
The city offers residential recycling services for free. As residents continue to switch to smaller (and cheaper) trash cans and recycle more of their waste, the city's revenues plummet.
As a result, the Refuse Fund faced a $6.7 million deficit last year, prompting the City Council to raise residential rates by 6 percent and commercial rates by 9 percent in October. The council narrowed the gap further by reducing its Zero Waste budget and delivering more trash to the local landfill with the goal of closing it sooner.
Now, city officials are looking for grander changes. Next Tuesday night, the City Council Finance Committee will get a look at the early results of a "cost of service" study for the Refuse Fund -- a study that could have a profound effect on the future of the local garbage service. Its early findings show that the city's cost of providing residential service exceed its revenues from these services by 79 percent. The city is projected to spend about $17.7 million on residential service but collect only $9.9 million in revenues.
Meanwhile, commercial customers have been paying more than their fair share of the costs. Palo Alto is projected to collect about 42 percent more in revenues from commercial customers than it expects to spend on these customers. Its expenses for commercial customers in the current fiscal year are estimated at $12.1 million, while revenues are projected at $20.7 million.
Phil Bobel, the city's interim assistant director for Public Works, wrote in a report that it will take several years to address this discrepancy. Staff is proposing that the city achieve "full parity" among ratepayer categories within the next five to 10 years.
"This comparison demonstrates that an estimated 79 percent increase in residential rates would be needed to immediately achieve full parity among these categories of rate payers," Bobel wrote. "Staff concludes that such change cannot be made in the near term and that a long-term strategy will be needed to correct the causes of all the problems identified above."
For ratepayers, this means several years of rising rates. Staff is proposing that the city maintain last October's rate increase and supplement it with a "modest increase" above that.
While the need for financial stability is the primary driver for these changes, state law is providing its own incentives. Proposition 218 requires that a city's water, wastewater and refuse rates reflect the costs of providing the services.
"Right now, our refuse rate is artificially low," Interim Public Works Director Mike Sartor told the Weekly.
"What we're hearing from our attorneys is we need to be in compliance, but we have some ability to do it over time," Sartor said.
The city currently charges residents $15.90 for a 20-gallon can and $32.86 for a 32-gallon one. These rates are already among the highest in the immediate region. Mountain View and Menlo Park residential customers pay $18.95 and $21.67 for 32-gallon cans, respectively, while Los Altos residents pay $28.11 (although Los Altos also charges a relatively steep $26.11 for the 20-gallon can).
On the upper end are Atherton and Los Altos Hills, which charge residents $34.65 and $38.46 for 32-gallon cans.
Public Works staff also plans to add $48,000 to its consultant's contract to refine the city's forecasting model, an effort that's expected to be completed in November. Staff hopes to use the new model to revamp the refuse-rate structure in July 2012.