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Memo - Recycling Program FinancesCITY OF HOPKINS Memorandum TO: Honorable Mayor and Members of the City Council COPY: Rick Getschow, City Manager FROM: Steve Stadler, Director of Public Works; Penny CleV SW Coordinator DATE: July 1, 2008 SUBJECT: Recycling Program Finances Over the last few years the Recycling budget has been experiencing an annual operating Toss of $20,000 - $30,000. While this is not a large amount for the overall Refuse budget to cover, the goal is to get the Recycling budget back to operating without an annual loss. The Recycling expense budget totaled $156,000 in 2007 - broken down as follows: Employee salary & benefits: $31,000 Contract services cost: $97,500 (contract rates shown below) Administrative fees: $19,500 Postage /publishing (new Recyclopedia): $3,400 Insurance /miscellaneous: $4,600 Total: $156,000 2007 Revenues were as follows: PUBLIC WORKS Charges for services: $95,300 (based on 2,900 households +/- @ $2.75 /household /month) Contract rebates: $8,700 County recycling grant: $22,000 Total $126,000 Monthly charges to our customers have been $2.75/HH /month since 2002. In 2008, rates were increased to $3.25/HH /month - the $.50 increase will generate an additional $17,400 in revenue. We would need a $.87 increase to generate the $30,000 shortfall shown for 2007. We propose to raise rates to $3.75/HH /month in 2010. If we had raised rates 4% each year since 2002 the 2010 rate would be $3.75. Our current contract with Waste Management expires on Dec 31, 2009. Our new 2010 contract rates will substantially determine what our 2010+ monthly fees should be. DISCOUNT LEVEL COMMODITY PRICE/TON DISCOUNT #1 If Alum > $1,200 And News > $80 30% #2 If Alum > $1000 and News > $60 ° 11 /o #3 If Alum > $800 and News > $40 4% #4 If Alum < $800 And News < $40 ° 0 /° YEAR PER HH /MONTHLY RATE 2002 $ 2.28 2003* $ 2.43 2004* $ 2.43 2005 $ 2.61 2006 $ 2.69 2007 $ 2.77 2008 $ 2.85 2009 $ 2.94 Current Recycling Contract Rates: Current Recycle Contract Rebate Schedule: *2003 AND 2004 MONTHLY RATES WERE CONTRACTED TO BE $ 2.53/MO. In 2007 Hopkins received rebates of 4% for 3 months and 11% for 9 months for a total rebate of $8,695 in 2007. MAJOR IMPACTS TO THE RECYCLING BUDGET SINCE 2002 • Reduction in Hennepin County annual recycling grant: WASTE MANAGEMENT AGREED TO PURCHASE OUR 18 GALLON RECYCLE BINS BY REDUCING THE MONTHLY HOUSEHOLD FEE BY $ .10 ($2.53 TO $2.43) FOR THE FIRST TWO FULL YEARS OF THE CONTRACT (1/1/03 THROUGH 12/31/04). THIS WAS A REDUCTION OF $7,176 IN FEES OVER THE TWO YEAR PERIOD AND REIMBURSED THE CITY IN FULL FOR THE COST OF THE BINS. In 2003 the funding for the Municipal Recycling Grant program (SCORE) was decreased significantly. Even though our recycling amounts remained the same or higher than in 2002, the grant money received in 2003 was 19% less than that received in 2002. Each year since then we have seen a decrease of approximately 1% in grant funding. 2002 2003 2004 2005 2006 2007 $ Received $28,898 $23,394 $22,891 $22,667 $22,282 $21,920 Current Recycling Contract Rates: Current Recycle Contract Rebate Schedule: *2003 AND 2004 MONTHLY RATES WERE CONTRACTED TO BE $ 2.53/MO. In 2007 Hopkins received rebates of 4% for 3 months and 11% for 9 months for a total rebate of $8,695 in 2007. MAJOR IMPACTS TO THE RECYCLING BUDGET SINCE 2002 • Reduction in Hennepin County annual recycling grant: WASTE MANAGEMENT AGREED TO PURCHASE OUR 18 GALLON RECYCLE BINS BY REDUCING THE MONTHLY HOUSEHOLD FEE BY $ .10 ($2.53 TO $2.43) FOR THE FIRST TWO FULL YEARS OF THE CONTRACT (1/1/03 THROUGH 12/31/04). THIS WAS A REDUCTION OF $7,176 IN FEES OVER THE TWO YEAR PERIOD AND REIMBURSED THE CITY IN FULL FOR THE COST OF THE BINS. In 2003 the funding for the Municipal Recycling Grant program (SCORE) was decreased significantly. Even though our recycling amounts remained the same or higher than in 2002, the grant money received in 2003 was 19% less than that received in 2002. Each year since then we have seen a decrease of approximately 1% in grant funding. • Increased expenses Code 524: Employee Health Benefits increase 59% ($1,500) 2006 Code 622: Administrative Fee increase: • Contract rebates Code 449: The City has received rebates from Waste Management since 2005 based on favorable market prices for aluminum and newsprint. These rebates have been in the $4,000 - $9,000/year range. BUDGET ADJUSTMENTS Besides the adjustment to revenue based on the proposed rate increases, we feel that the employee salary & benefits expense is higher than it currently should be for the recycling program. This budget expense could be reduced by $10,000 to more accurately reflect the actual staff time spent overseeing this service contract. BUDGET FORECAST With the 2008 rate increase and the employee salary /benefit adjustment we should be very near to matching revenues to expenses in 2009. This budget position will be further improved in 2010 with the proposed 2010 rate increase. As mentioned, the unknown factor in 2010 will be the new contract prices - this could depend largely on how much competition there is to Waste Management in this area. Staff will research this closely prior to making a recommendation to City Council on whether or not to extend the current contract with Waste Management in 2010. 2004 Actual 2005 Actual 2006 Actual 2007 Actual 2008 Budget $ Amount $ 9,884 $ 9,884 $19,333 $19,541 $25,331 • Increased expenses Code 524: Employee Health Benefits increase 59% ($1,500) 2006 Code 622: Administrative Fee increase: • Contract rebates Code 449: The City has received rebates from Waste Management since 2005 based on favorable market prices for aluminum and newsprint. These rebates have been in the $4,000 - $9,000/year range. BUDGET ADJUSTMENTS Besides the adjustment to revenue based on the proposed rate increases, we feel that the employee salary & benefits expense is higher than it currently should be for the recycling program. This budget expense could be reduced by $10,000 to more accurately reflect the actual staff time spent overseeing this service contract. BUDGET FORECAST With the 2008 rate increase and the employee salary /benefit adjustment we should be very near to matching revenues to expenses in 2009. This budget position will be further improved in 2010 with the proposed 2010 rate increase. As mentioned, the unknown factor in 2010 will be the new contract prices - this could depend largely on how much competition there is to Waste Management in this area. Staff will research this closely prior to making a recommendation to City Council on whether or not to extend the current contract with Waste Management in 2010. 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