Waste Management, Inc., the residential and commercial trash hauling company servicing Key West, has asked city officials for multiple substantial rate increases in the middle of its current contract that, if approved, would result in millions of dollars in unexpected and unbudgeted expenses.
Waste Management met with City Manager Greg Veliz and other city officials recently to ask for four rate increases, including one that would immediately raise the residential trash collection rate from $14.62 to $16.32 per month even though the current contract with the city does not expire until Dec. 31, 2021. That price hike totals $264,784 in unanticipated costs to the city’s solid waste enterprise fund.
More significantly, however, Waste Management has asked that the index used to calculate annual price increases to city residential property owners be changed from the “urban” consumer price index (CPI-U), the index published by the U.S. Department of Labor that is generally used to calculate annual service rate adjustments, to the “water, sewer and trash” index (CPI-WST). Over the past five to seven years, the CPI-WST has gone up faster than the CPI-U, according to John Paul Castro, Key West Utilities Director. Using the CPI-WST index, plus the monthly residential rate increase to $16.32, would cost the city $3.335 million over the next eight years of the Waste Management contract.
Waste Management’s seven-year contract was signed in 2014 and expires Dec. 31, 2021. However, the contract includes two four-year extensions.
“They [Waste Management] said the change to using CPI-WST was to make up for the CPI-U not moving as much. They’re saying the CPI-U is not representative of the utility index,” Castro said Thursday. “I do believe them. But they’re the ones who agreed to the contract.”
If approved, the residential rate increase would lower the solid waste enterprise fund below minimum reserve targets because of the additional costs. As a result, Castro estimated that instead of the anticipated 3% to 3.5% annual rate hike to residential property owners, rates would need to be raised to 4% or higher over at least the next four fiscal years to recoup the unanticipated cost increase.
“I haven’t had a contractor come back and request a change in something that was already negotiated,” Castro said, adding about the requested residential rate hike, “That is gigantic.”
Commercial property owners would also feel the rate pain. Waste Management is asking for a 5% service fee that would raise a medium-sized restaurant’s monthly trash hauling cost by approximately $28.41 a month, or an additional $341 a year. Castro estimated the extra monthly cost for a city school at $188, or $2,256 year.
The hauler has also asked to add a new “processing fee” to the contracted commercial recycling fee that would almost double the current disposal rate. The recycling processing fee of 90% of the disposal fee cost would increase recycling costs for a medium restaurant by $305.14 a month, or $3,662 a year, and approximately $662 a month, $7,946 a year, for a school, according to Castro’s calculations.
“The requested commercial recycling fee would disincentivize most commercial recycling accounts as the savings over trash would be so diminished the effort would not be worth the savings,” Castro wrote in his executive summary to Veliz on the impact of the requested rate increases.
SHARING THE LOAD
Encouraging residential and commercial recycling has been a priority of city officials over the past few years, with gains in the percentage of trash put in recycle bins by both home and business owners.
Castro said Waste Management officials told him the recycling processing fee was needed because the company was not making the profit it had anticipated. Multiple calls to Greg Sullivan, Waste Management’s Senior District Manager, were not returned by press time.
Veliz had initially put the rate increase request on the April 13 city commission agenda, his last commission meeting before leaving to take a position at the Florida Keys Aqueduct Authority. However, he removed it from the agenda at the request of Mayor Teri Johnston.
“Prices have changed. Hauling prices have changed. The landscape has changed,” Veliz said about agreeing to put the rate hike requests in front of commissioners, adding that he had no opinion on whether they should be granted. “Contracts are amended every day.”
“It has far-reaching financial implications. I want to get into the [2021-22] budget planning before we address this,” Johnston said. “It has serious implications down the road.”
Commissioner Sam Kaufman said before considering a rate increase, he wanted to know whether Waste Management was in compliance with its existing contract. The trash hauler ran into problems about four years ago when it had promised a 75% waste-to-energy ratio, where the solid waste it hauled out of Key West would be delivered to a plant that converted it into reusable energy, such as electricity. Castro said Waste Management had fallen out of compliance back then because of operating changes imposed by the plant. Since then, however, the company is back in compliance, he said.
Castro, in his April 1 executive summary, which was pulled off the April 13 city commission agenda, recommended against commissioners’ approving the requested rate hikes.
“Increases to service rates currently exist in the contract. There is no mechanism within the contract to adjust rates or rate indexes. Staff cannot recommend approving this request,” he wrote.