SBCSentinel
News of note from around the largest county in the lower 48 states.
5 Years After Rate "Lock In" To Secure Its Franchise In Upland, Burrtec Wants Special Dispensation For Increases
Posted on December 12, 2019 by Venturi
Five years after persuading City of Upland officials to extend its franchise for trash hauling in the City of Gracious Living for at least a dozen of years by asserting that doing so would "lock-in" the rates it was committing to charge over that period of time, Burrtec Industries is now asking to be excused from the terms of the franchise contract so it can up those rates.
In 2000, as Upland's franchise arrangement with Waste Management, Inc. was drawing toward its expiration, city officials elected to conduct a competitive bid process for its trash-hauling franchise going forward. It hired the R.W. Beck Company, which employed Richard Tagore-Erwin to evaluate which company the city should select. Tagore-Erwin recommended Burrtec.
The city followed Tagore-Erwin's recommendation. Effective in 2001, Burrtec became Upland's franchised trash hauler. That contract originally ran for three years, subject to renewal. In 2007, under then-Mayor John Pomierski and City Manager Robb Quincey, who were both later convicted on political corruption charges, the City of Upland retrofitted the franchise contract it had with Burrtec to adopt a seven-year "evergreen" clause, which extends the contract every year by one more year in addition to its seven-year life if notice to begin the seven-year wind-down of the contract is not given by June 30.
By 2014, the seven-year life of the contract as adopted in 2007 had run, and in those ensuing years the city had not served notice to begin the wind-down, such that at that point the city was yet obligated to keep Burrtec as its trash hauler at least until 2021. There was considerable talk in the community about the desirability of conducting a new bidding process on the franchise, and the consequent need to provide Burrtec with immediate notice to begin the seven-year wind-down of the franchise contract.
At that time, however, Upland's assistant public works director was Acquanetta Warren, who between 2002 and 2010 had been a member of the Fontana City Council. Since 2010, Warren has been Fontana's mayor. Burrtec, its owners and various employees had proven over the years to be among Warren's major supporters in her electioneering efforts, providing her with tens of thousands of dollars in donations to her political war chest. Warren used her influence at Upland City Hall to blunt the impetus to put the city's trash franchise contract out to bid. To evaluate its options with regard to its trash franchise, Upland at Warren's suggestion in 2014 hired Tagore-Erwin through the company, R3, he had founded upon his departure from R.W. Beck in 2002. In looking at whether Upland should at that point conduct a bidding process that would potentially bring in a new trash-handler by June 2021, R3 recommended against doing so. Instead, the City of Upland found itself on track to drawing up a contract with language that conferred the franchise on Burrtec for at least another 12 years, until July, 1, 2026. The contract as drafted and under consideration by the city stated, "The term shall be for twelve years commencing on the execution of the third amendment. On July 1, 2019, and annually thereafter, the initial term will be automatically extended for one year so the remaining term shall always be seven years, unless either party notifies the other in writing (the 'wind-down notice')."
That city officials were about to sidestep the ongoing calls for conducting a competitive bid process generated considerable controversy, with elements of the community pointing out that this meant the city was committing to conducting no bidding on its trash hauling franchise for more than a quarter of a century. When pressed, members of the council in favor of the franchise extension, along with Burrtec Vice President Mike Arreguin, stated that this was justified by the consideration that the rates that Burrtec was proposing were ones calibrated to the mid-range of what was current in Southern California's trash hauling industry and they would be "locked in" for the life of the contract. It was specifically noted refuse handling is an unpredictable province of human endeavor, chock full of vicissitudes in the marketplace as well as changing and tricky recycling mandates and regulations handed down and implemented by the government. Burrtec, city officials and the company's corporate officers promised, would maintain its "locked-in" rates for a dozen years. They emphasized that the franchise contract committed Burrtec to maintaining those rates, throughout the life of the dozen-year contract, subject only to yearly modest consumer price index adjustments. Burrtec was taking a considerable risk in making that commitment while operating in a highly unpredictable industry, city officials and the company's advocates said, and that justified the 12-year extension of the contract and foregoing the open bidding process. Burrtec was given the franchise contract extension.
This week, as 2019 is heading fast into 2020, Burrtec has asked the City of Upland to allow it to renege on the commitment it made in signing the contract in 2014 for the extension of the franchise. It is requesting the city and its current city council, which now has just one of the members on it who was in office in 2014, to dispense with the "locked-in" terms specified in the contract because the "unpredictability of the trash-hauling industry factor" the company agreed to brave to win the contract extension in 2014 has now manifested.
Since 2014, the State of California has legislated mandates with regard to the handling of food waste, also referred to as organic waste, provisions of which complicate the function of trash haulers. One such law now going into effect is Senate Bill 1383, which sets the goal of a 75 percent reduction in organics disposal by 2025 from 2014 levels. That will drive down the profitability of trash hauling and increase recycling costs, the trash industry maintains. Further, according to the trash industry, China, which previously accepted and paid for recycled materials, has lost interest in accepting them from the United States, creating a crisis for trash haulers, who no longer have a market for a significant portion of the material they haul away and now must dispose of at greater cost.
In the face of Burrtec's request, the city again turned to Tagore-Erwin and R3 for advice on how to respond. At this week's council meeting, Rose Radford of R3 addressed the city council. Without making any reference to Burrtec's 2014 commitment to "lock-in" the rates it was charging in return for having the franchise extended another dozen years, Radford delivered a presentation, the upshot of which was that the City of Upland should grant Burrtec rate hikes above and beyond those specified in the 2014 contract granting the franchise extension until 2026, ones which exceed amounts incorporating adjustments commensurate with the Consumer Price Index.
Radford presented to the council her report, dated November 22, 2019, which states, "Burrtech requested a special rate review due to 'uncontrollable circumstances' including changes in law and tipping fee increases. Based on discussions with Burrtec's vice president and chief financial officer, R3 concluded that those circumstances include:
* The effect of China's "National Sword" policy significantly increasing costs and reducing commodity revenues at Burrtec's West Valley Materials Recovery Facility, which is the facility used for tipping and processing city solid waste collected by Burrtec; and
* The effect of increased quantities of collected food scraps driven by state mandates requiring subscription to organics collection service at businesses in the city, which is in turn increasing the tipping fee costs for organic materials.
Based on the review of financial information provided by Burrtec during an on-site review, R3 is able to confirm that these factors are, in fact, increasing Burrtec's operating costs."
In the findings section of her report, Radford wrote, "With respect to Burrtec's request for special rate review, R3 finds that Burrtec has sufficiently demonstrated that a special adjustment pursuant to Section10.06.b(1) of the agreement is warranted."
Also present at Monday night's council meeting was Burrtec Vice President Mike Arreguin. Following Radford's presentation and the conclusion of the council's consideration of the matter, which is to be taken up for a final determination at a special hearing before the city council on January 27, 2020, Radford and Arreguin left the council chambers, and headed out to the parking lot together.
The Sentinel engaged with Radford at that point. She was unable to offer an explanation of why her presentation and report made no reference to city officials' and Arreguin's 2014 assurance that in exchange for the franchise extension Burrtec's rates would remain "locked in" through June 2026, even in the face of external market and industry forces that increased Burrtec's costs.
R3 represents that it works exclusively for its public sector clients and does not work for or represent trash haulers in the private sector so that it can "deliver expert industry analysis and unbiased recommendations to our municipal clients."
In addition to the recommendations favoring Burrtec which R3 or Tagore-Erwin has provided to Upland on three occasions, Tagore-Erwin or the companies he has been affiliated with have likewise made recommendations in Burrtec's favor to the cities of San Bernardino, Colton and Rancho Cucamonga.
Radford said she was unable to give an example of Tagore-Erwin or any of the companies with which he is affiliated having made a recommendation against Burrtec, but said she thought it was possible that at some point he did.
-Mark Gutglueck
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