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Council Agenda - City of BurbankTuesday, February 4, 2003Agenda Item - 9 |
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PURPOSE
Staff is requesting City Council approval of a second amendment to the agreement with BLT Recycling, Inc. (BLT) for operation of the Burbank Recycle Center. The amendment would allow the City to be compensated for additional mixed commercial recyclables delivered to BLT at the Recycle Center under specified circumstances. BACKGROUND In May 1999, the City entered into a five-year agreement with BLT for operation of the Burbank Recycle Center. BLT agreed to pay the City a flat monthly operation fee of $14,200, generating $170,400 in revenue for the Refuse Enterprise Fund. Scheduled to terminate in June 2003, the agreement also provided the City an option for two five-year renewals of the contract with BLT. In September 2000, City staff determined that the Burbank Recycle Center, built in 1992, no longer met the State Fire Code. Under a first amendment to the original agreement, BLT agreed to pay the entire cost to upgrade the Recycle Center, and in return, the City agreed to exercise the first five-year renewal option, extending BLT�s contract to operate the Recycle Center until June 2009. Extending the contract for an additional five years allows enough time for BLT to recoup its investment costs to upgrade the Recycle Center. BLT also agreed to increase the flat monthly operation fee of $14,200 to $16,200 during the five-year renewal period (June 2004 to June 2009). The Recycle Center can now process up to 6,400 tons of recyclables per month. Currently, the facility processes approximately 4,600 tons per month, 1,100 tons of which is delivered to the Recycle Center by City forces, and 3,500 tons of which is delivered by individual residents. ANALYSIS City staff initiated discussions with BLT to identify ways to increase recycling revenue to the City beyond the flat monthly operation fee of $14,200 that BLT currently pays to the City. Of the 4,600 tons processed at the Recycle Center per month, only 150 tons are mixed commercial recyclables generated by the 328 businesses that use the City�s recycling services. Staff plans to increase the mixed commercial recyclable tonnage by contacting businesses with the greatest potential for material diversion and incrementally adding recycling accounts along existing routes, maximizing the deployment of equipment and staff resources. Staff estimates that the City can increase the amount of mixed commercial recyclables collected to 300 tons over the next three years without increasing operational costs. To generate additional recycling revenue for the City, BLT has agreed to pay the City for every additional ton of mixed commercial recyclables collected over and above the first 150 tons. The per ton payment will be the per ton market rate for mixed commercial recyclables minus BLT�s cost to sort, bale, and ship the recyclables to market. BLT�s cost is $40 per ton and represents BLT�s actual cost to process and separate the mixed commercial recyclables (BLT�s profit comes from reselling the material once it is separated, as separated material is more valuable than mixed material). The City is also protected from any loss if the per ton market rate for mixed commercial recyclables falls below $40. While the City would not receive any additional revenue if the per ton market rate falls below $40 (the per ton payment from BLT to the City would be $0), the City would also not be responsible for the negative difference between the $40 cost to prepare the recyclables for market and the lower per ton market rate. BLT would bear the loss if the per market rate falls below its $40 cost to prepare the recyclables for market. BLT will also increase the number of tons it pays for as the City meets certain tonnage levels. If the City collects between 150 and 299 tons per month, BLT will pay for every additional ton over 150 tons. If the City collects over 300 tons, BLT will pay for every additional ton over the first 100 tons. If the City collects over 400 tons, BLT will pay for every additional ton over the first 50. Finally, if the City collects over 500 tons of mixed commercial recyclables per month, BLT will pay the City for every ton collected. The City benefits from this amendment because it receives additional revenue for the additional mixed commercial recyclables it brings to BLT at the Recycle Center. BLT benefits from this amendment, as well. BLT can resell the additional tonnage at a higher rate than it paid the City once the material is processed and separated because separated material is more valuable on the open market than mixed material. FISCAL IMPACT The amount of additional recycling revenue generated will fluctuate depending on the supply and demand in the market for mixed commercial recyclables and the amount of additional mixed commercial recyclable tons brought into the Recycle Center through City staff efforts. The per ton market rate for mixed commercial recyclables is very unpredictable, making any revenue projections unreliable. To illustrate the potential that this amendment has for generating revenue for the City, the table below shows the amount of revenue the City would have brought in under this amendment from September 2002 through January 2003 at different tonnage levels. The per ton market rate for mixed commercial recyclables was $55 from September through November 2002, and was $50 for December 2002 and January 2003.
1 Under the agreement, the amount of tonnage for which the City receives payment increases as the total mixed commercial recyclable tonnage increases. 2 The City would have received this per ton market rate minus BLT�s $40 cost to process the material. With a $55 per ton market rate, the per ton payment to the City would have been $15; at $50, the payment would have been $10. 3 Estimated annual total based on five month market rate average from September 2002 through January 2003. RECOMMENDATION Staff recommends that the City Council adopt the proposed resolution approving the second amendment to the agreement with BLT. |