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Managing Tomorrow's Resources Today <br />Ms. Jennifer Auletta <br />April 29, 2015 <br />Page 12 of 14 <br />Recommendations <br />Based on the work we performed and the limitations stated in Section II of this report, we recommend <br />the following: <br />• The City and ACI should develop an understanding of how the MRF costs are going impact the <br />City in the future and document the understanding in an amendment to the franchise <br />agreement. We suggest the following items be addressed: <br />o MRF Costs <br />■ Should the special labor adjustment be converted to a processing cost per ton <br />so that it fluctuates based on tonnage processed versus a flat amount? <br />■ Should a threshold be established on costs that can be presented to the City in a <br />special rate adjustment request? <br />■ Develop the methodology of how the labor adjustment for FY15-16 will be <br />adjusted in future years. <br />• The City should review the final terms and request ACI to provide the financial impact of the <br />ILWU collective bargaining agreement on the projections provided by ACI for FY2015-2016 and <br />determine the financial impact, if any, to the City. <br />• On an annual basis, the City should request ACI to provide a schedule showing the cost of <br />operating the MRF, net of intercompany transactions and hauling operations for other entities <br />based on the audited financial statements. In order to determine the operational efficiency of <br />the MRF the following metrics are examples of areas that should be reviewed for <br />reasonableness based on prior year activities and industry standards: <br />o The processing cost per ton <br />o Net processing cost per ton (after including commodity revenue) <br />o Tons processed per hour <br />o Tons processed per employee <br />o General and administrative costs per processed ton <br />• The City should monitor ACI's financial ratios, especially for FY2015-2016 to see if the rate <br />adjustments from the various agencies caused improvements as expected. HF&H will provide <br />the City a template. <br />• The City should be aware of the decisions of other cities currently bringing tonnage to ACI and <br />the extent to which they may or may not agree to provide or contribute financial support to <br />offset ACI's increased costs. <br />• The commodity revenues obtained by ACI should be reviewed annually to verify they continue <br />to offset the processing costs for Mission Trails or any other new sources of tonnages processed <br />by ACI. <br />• The current provisions for the sharing of commodity revenues should be addressed with the <br />company to eliminate the debt covenant element. The City does not have control over the <br />