8I Consent 2015 0518 - Laserfiche WebLink

Home

Alameda County Industries Long Term Adjustments to Existing Franchise Agreements with the Cities of San Leandro and Alameda Related to "Living Wage" Special Rate Request Executive Summary As has been discussed with staff of the Cities of San Leandro and Alameda (the "Cities"), the passage of a "Living Wage" ordinance (the "San Leandro Ordinance") and similar actions or intentions expressed by other municipal leaders in Alameda County, have resulted in an increase in the number of union employees which, not surprisingly, have also had a material adverse effect on the financial health of Alameda County Industries ("ACI" or, the "Company"). While an interim solution to the problem was reached with the City of San Leandro thru June 30, 2015, a permanent solution will be required.. As you are aware, pursuant to an agreement with the City of San Leandro, ACI significantly increased wages as of December 1, 2014 for employees at its Material Recovery Facility ("MRF") in accordance with the San Leandro Ordinance. Per agreement with the city, San Leandro provided a cash loan to be paid back from future rate adjustments, and implemented a small rate adjustment already provided for in its franchise agreement, the combination of which will allow the Company to have sufficient resources to operate through mid -year without material consequences related to meeting its bank financial covenants given its greatly increased costs (although waivers by the bank of certain covenants will still be required). But those adjustments and the bank waivers were only temporary in nature. The purpose of this memo and the accompanying material, therefore, is to propose the basis for a permanent solution which will allow the increased unionization of the Company's workforce while at the same time, ultimately encouraging maximum efficiency and thereby keep the costs to the solid waste ratepayers as low as possible. This memo and the accompanying material will provide details of the financial impact of the new wage and benefit scales, discuss estimated rate increases which would be required to allow the Company to continue to operate the MRF in accordance with living and prevailing wage requirements, and what the Company believes is the long term plan best suited to keeping rates as low as possible while increasing efficiencies and resulting diversion of recyclable material. This discussion will necessarily be based on certain financial ratios and covenants which the Company's bank imposes on the Company to ensure its ability to repay debt. (Such covenants are standard for any banking relationship in this industry and others.) The Financial impact of "Living" or "Prevailing" Wage Requirements Current operations at the Materials Recovery Facility serving Alameda and San Leandro require ACI to maintain two full shifts of employees as well as a limited third shift for ongoing maintenance. While ACI was paying a temp agency a burdened rate of $13.91 an hour with the adoption of the living wage and transferring the workers to full time employees of ACI the fully burdened rate has increased to $17.83 a 28 percent increase in costs. With the recent unionization of the workers and the requirement to provide benefits the union and the company have signed a Letter of Understanding which provides for a phase in of hourly rates, establishes health benefits as well as phased in pension benefits. The purpose of the LOU is to provide for lower initial costs to the rate paper while still meeting labors goal of a countywide prevailing wage by 2019. This will result in additional incremental costs increases for the next five years to support labor. These costs are estimated to have less than a one percent impact in future years. Following in Figure 1 is a projection of the major components of a cash flow/income statement for ACI as well as a calculation of the most important of the two major financial covenants used by banks that