The Mill Valley City Council approved a request from waste management firm Mill Valley Refuse Monday night.
But after the second straight double-digit rate hike from the company, the parties agreed to renegotiate a longstanding contract that some councilmembers said has customers taking too much of the brunt of a changing business model.
Mill Valley Refuse Service Principal Jim Iavarone has blamed a number of factors for the rate hike request, including higher fuel costs, rising workers compensation costs and larger fees from the Redwood Landfill where its trash goes. The company estimated that it will spend $240,000 more in annual diesel fuel costs and $403,000 because of a rate hike from Redwood Landfill, along with a 12 percent rise in the cost of workers compensation insurance.
Iavarone also said his company is dealing with an unfortunate irony. When Mill Valley Refuse sought an 11 percent rate increase in 2010, it said customers could make up for the higher rate by diverting some of their garbage to its then-new compost service and thus downgrading their service to smaller, cheaper garbage can.
But Iavarone said the company is losing money because customers are downgrading their garbage service as they recycle and compost more of their waste. He said between March 25 and when the company launched its compost service last August, Mill Valley Refuse has collected 552 fewer tons of trash and 1.377 more tons of compost, including both food and yard waste.
The company estimated that it has lost $120,000 due to that migration of customers away from revenue-generating trash service.
The rate hike will result in an increase of around $4.50 per Mill Valley household, with the cost of a typical customer’s package of a 32-gallon garbage can, along with recycling and compost service, rising to $36.61, the city said.
Mill Valley Refuse is seeking to rates for all its customers, and has already received approval from the sanitary district boards in Alto and Homestead Valley, as well as the Strawberry Recreation District board. Tam Valley Community Services District handles its own waste collection. The Almonte Sanitary District board takes up the issue at its meeting next week.
Although it has the ability to seek a rate hike every year, Mill Valley Refuse operates under rolling 10-year contracts with most of its municipalities, meaning that is a city wants to terminate the deal and look elsewhere for garbage service, it has nine years to go on that deal.
“That seems antiquated,” Councilwoman Shawn Marshall said. “There isn’t enough of a shared pain in terms of how we deal with this. It’s all being passed through to the consumer and it’s not fair. We should look at restructuring the agreement because a 10-year evergreen is almost like a monopoly situation.”
Iavarone agreed to sit down with city to renegotiate the contract. One issue could be the length of the deal, while another will likely be what is dubbed a “fair rate of return” for Mill Valley Refuse to expect from the deal each year. The rate is currently at 10 percent, and although Iavarone said that money often goes to make up for other losses in its business, councilmembers wondered if the rate was fair.
“We seem to have come to an unwritten agreement of 10 percent profit,” Mayor Ken Wachtel said. “A reasonable rate of return isn’t necessarily 10 percent.”
But because that rate of return is built into the contract, the council was admittedly “in a straightjacket” with its short-term decision Monday night.
Iavarone promised analysis of his company’s rate structure this summer and to come back to the city for a discussion of possible changes.