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HomeMy WebLinkAbout1993-01-12; City Council; 12032; Audit & Financial Review of Solid Waste SystemCry OF CARLSBAD — AGEOA BILL MTG 01/12/93 DEPT U & M TITLE: COUNTY OF SAN DIEGO MANAGEMENT AUDIT AND FINANCIAL REVIEW OF SOLID WASTE SYSTEM RECOMMENDED ACTION: Accept Report. ITEM EXPLANATION: In response to concerns raised by representatives of the 17 cities which are served by the County's Solid Waste Division, the County Board of Supervisors authorized a management audit of the Solid Waste Division and a financial review of the Solid Waste Enterprise Fund (SWEF). A committee comprised of city and county representatives oversaw the audit. The report, completed by the firm of Ernst and Young, evaluates the concerns raised by the cities, among them: • Large increases in operating costs over the past few years, and corresponding increases in tipping fees. • Rumors of major capital improvement funding requirements in the coming years, which would lead to even higher tipping fees. • No clear direction of the overall solid waste program. • Alleged use of some SWEF revenues for non-solid waste purposes, and for activities that benefit only the County's solid waste needs rather than the system as a whole. • A general lack of information and understanding about the Solid Waste Division's intentions and operations, and a lack of confidence in the overall appropriateness of the above matters and others. • The impact of the debt service and operating costs associated with the recycling facility currently under construction at the San Marcos Landfill on the tipping fee. The report addressed these concerns, and evaluated the County's Solid Waste Management system in depth. Foremost in the findings are: • San Diego County compares favorably with other counties in Solid Waste Management, especially in the area of recycling, however, a system-wide mission statement and strategic plan are urgently necessary. • The recent efforts of forming a Solid Waste Commission for participatory management of the Solid Waste System by system users were lauded. • An estimated 87% increase in tipping fees at County landfills over the O next two years is necessary to meet the obligations of the Solid Waste Enterprise fund. PAGE 2 OF AB# • Establishing the Solid Waste Division as a separate County department is recommended. • Re-evaluation of the County's involvement in the Prison Industry Authority (PIA) Project is strongly recommended. The auditors conducted a survey of five California counties on selected aspects of solid waste management operations. San Diego is considered a leader in the areas of developing an inter-jurisdictional system-wide flow control agreement, and recycling programs. It was determined regulatory compliance processes are nearly non-existent, or very limited in all survey counties, including San Diego. A need for sound capital project planning and financing process in all survey counties was also identified. Auditors identified a need to develop a system-wide mission statement and strategic plan to guide priority setting and decision making. The report commends the recent efforts to involve the system users in the management of the solid waste system. The proposed inter-jurisdictional Solid Waste Commission, to be comprised of representatives of jurisdictions which sign agreements to dispose of waste at County landfills (Participation Agreements), would have decision making powers. Discussions and negotiations on both the Commission and Participation Agreements are currently underway. A need to increase the tipping fee from its current $28 per ton to $52.50 per ton to meet the obligations of the Solid Waste Enterprise fund was identified. Much of this increase ($15/ton) can be directly linked to the recycling center currently under construction at the San Marcos Landfill. The contract with North County Resource Recovery Associates to operate the facility will represent approximately 25% of the total Solid Waste Division budget for FY 1994-95. The facility, designed to process mixed waste, has been a major concern of many city representatives. Because this facility is designed to process mixed rather than source separated waste, curbside recycling programs may be rendered obsolete. Most curbside programs were implemented within the last three years with substantial start-up costs. Many cities feel recyclables may be more cost effectively handled by each city individually. The report also recommends establishing the Solid Waste Division as a separate County department. Solid Waste Management is currently a function of the Public Works Department. This is in recognition of the expanding responsibility placed on the County by solid waste issues in recent years, and the need for high level inter-jurisdictional cooperation. This will require the addition of new positions, and reorganizing the structure of the division. The report strongly urges re-evaluation of the County's involvement in the Prison Industry Authority (PIA) Project prior to conducting any additional negotiations. The proposed PIA project is a material recovery and anaerobic digester facility at Donovan State Prison. It appears that no cost analysis has been performed on the project. PAGE 3 OF The report calls for substantial reductions or elimination of funding of the County Office Recycling Programs (CORPS) and the Tonnage Grant Program. Auditors felt the costs of these progams outweigh the benefits. The financial review revealed a need for revising the work authorization payment processing procedures, and questioned the loan from the Solid Waste Enterprise fund to the Criminal Justice Fund for the Ridgehaven office building occupied by the two agencies. The review also analyzed the estimated System costs and the impact on the tipping fee for the next ten years. Reductions in disposal tonnage will also result in tipping fee increases. As a result of this report, County staff is negotiating with Ernst and Young to develop a strategic plan, a multi-year capital improvement plan, and a financial program. FISCAL IMPACT: There is no fiscal impact associated with the recommended action. EXHIBITS: 1 . Management Audit of the Solid Waste Division and Financial Review of the Solid Waste Enterprise Fund, Executive Summary FINAL REPORT ., --- •_-'" fti^J'^ij-j^.-i ^ .'.S'lS'iJ^1'4''^ County of San Diego Management Audit of the Solid Waste Division and Financial Review of the Solid Waste Enterprise Fund EXECUTIVE SUMMARY FINAL DRAFT December 18,1992 ER,\ST&YOUNG Exhibit 1 i!t ERNST &YOUNG 555 Capitol Mall • Phone: 916 44 i 6756 Suite 650 Fax: 916 44} 0774 Sacramento. California 95814 December 18, 1992 Solid Waste Management Committee of San Diego County and Cities c/o Ms. Lari Sheehan Deputy Chief Administrative Officer County of San Diego 1600 Pacific High way San Diego, California 92101 Dear Committee Members: We are pleased to submit this final draft Executive Summary of the final report on our Management Audit of the Solid Waste Division and Financial Review of the Solid Waste Enterprise Fund. This document has been prepared for review by top-level elected and management representatives of San Diego County and the seventeen cities that are participants in the county-wide solid waste management system. Summary comments submitted herein are supported by a separately-bound draft detailed Technical Report. If there are questions we need to address prior to finalizing the Executive Summary and accompanying Technical Report, please call Ben Frank, Jim Gibson or Joe Hill in Sacramento at (916) 443-6756. Very truly yours, 'i' "tKHAWJL, EXECUTIVE SUMMARY Ernst & Young was employed to conduct a management audit of the San Diego County Solid Waste Division (SWD), and a financial review of the Solid Waste Enterprise Fund (SWEF). The study was authorized because of concerns raised by some representatives of the 17 cities that use the County's solid waste management services. Paramount among these concerns, as expressed by city representatives, were the following: Q Large increases in operating costs over the past few years, with consequent increases in tipping fees Q Rumors of major capital improvement funding requirements in the coming years, which would lead to even higher tipping fees Q No clear direction of the overall solid waste program Q Alleged use of some SWEF revenues for non-solid waste purposes, and for activities that benefit only the County's solid waste needs and not the system as a whole Q A general lack of information and understanding about the Solid Waste Division's intentions and operations, and a lack of confidence in the overall appropriateness of the above matters and others. In a departure from standard contracting practices, the Board of Supervisors, upon recommendation of County management, authorized payment for the study from the SWEF but allowed the consultant team to be selected by, and report to, a committee of city and county representatives (i.e., the 20-member Solid Waste Management Committee of San Diego County and Cities). If not the start of an encouraging trend toward closer inter-jurisdictional cooperation on solid waste issues, this decision was at least one of the more important steps in this regard. Based upon our discussions with city representatives, we believe this special study reporting relationship was viewed as a positive gesture. Key findings and recommendations resulting from the study are summarized here. Supporting information is contained in a separate detailed Technical Report. A listing of all recommendations is provided at the end of this Executive Summary in Exhibit 3. Overview of San Diego County's Solid Waste Management System In the current 1992/93 fiscal year, the County's Solid Waste Division is expected to have annual operating expenditures of about $41 million for 199.5 positions^, a variety of sizable M Includes five full-time DPW direct charge positions, and four full-time-equivalent temporary help agency positions. Excludes four authorized student worker positions. S ERNST A YOUNG Printed on Recycled Paper Page i Executive Summary private contracts, and other associated costs. Additional significant capital costs also are planned. The majority of the staffing is in the Operations Section (130 positions) which operates three large landfills, two smaller ones, and ten rural bin transfer stations. The other four SWD sections and their respective staffing allocations are: Siting and Permitting (18), Engineering (13), Resource Recovery (14.5), and Administrative Services (23). The Solid Waste Division provides disposal services for the unincorporated area and all cities in the County except San Diego. In FY 1989/90, total waste received by the County was about 2.5 million tons. Due to various factors — primarily recycling and diversion programs, and the economic recession — this figure decreased to about 1.75 million tons in FY 1991/92. It is expected to decline further this current fiscal year, to about 1.65 million tons. This will amount to a decrease of approximately 34 percent in only three years. There are numerous plans underway, being developed or being considered for capital projects, i.e., existing landfill expansions, new landfills, new transfer stations, cleanup of inactive and closed sites, etc. Of particular note here, however, is the largest and most politically sensitive project ~ the North County Recycling and Waste Reduction Center (North County Center), which will be operated under contract with North County Resource Recovery Associates (NCRRA). This facility, located at the San Marcos Landfill, is being constructed largely with private activity tax-exempt revenue bond financing of $134 million. It is expected to receive at least 550,000 tons of mixed waste per year, recover 21 percent (or 116,000 tons) and grind for landfilling most of the remaining 79 percent (434,000 tons). When the Center starts operating in 1994, annual costs, net of expected revenue from the sale of secondary materials, will be $24.5 million, of which $11 to $13 million is an annual capital charge (which extends over 25 years). Costs associated with this facility have been major concerns of some city representatives. Survey of Other Counties We conducted a survey of selected aspects of solid waste management operations in the following five counties: Alameda, Orange, San Mateo, Santa Clara, and Riverside. The survey was intended to identify "best practices" in the following four areas: G Institutional structures, inter-jurisdictional arrangements, flow controls, and associated host or mitigation fees Q Recycling program development and implementation Q Regulatory compliance G Capital improvement project planning. B ERNST &YOUNG Page u Executive Summary We found that none of the survey counties are as far along as San Diego in developing an inter-jurisdictional, system-wide flow control agreement. Cities in the three surveyed Northern California counties operate their own waste management systems, typically with contractors providing landfill and hauling services. The county staff is quite small and usually performs only planning and coordination tasks. In Southern California, the trend is for more centralized county services, including landfill ownership. Some joint development/operations are being considered, but they involve the county with only a subset of the cities, not all cities in the county. Compared to San Diego County, the recycling programs of other surveyed counties, and the level of county involvement, are generally limited. Because San Diego County has extensive experience, it is generally considered across the state as a leader in this area. In some recycling areas, San Diego County's practices probably should be considered as the best practices. For example, representatives of the California Integrated Waste Management Board stated that the integrated nature of the AB. 939 Source Reduction and Recycling Elements prepared for San Diego County and cities resulted in higher quality plans than those prepared by most other jurisdictions. Regulatory compliance processes at the counties we surveyed generally are nearly non- existent, or quite limited, in terms of focus (e.g., just active landfills). In most cases, the counties are only beginning to realize the full magnitude of active and inactive landfill, transfer station, burn site, and other compliance requirements. San Diego County appears to have exercised as much responsibility and initiative as the other surveyed counties in the area of regulatory compliance. More importantly, the County is attempting to concurrently address a broad spectrum of regulatory compliance requirements, versus the more limited efforts of these other counties. No survey counties - including San Diego -- has dealt effectively with the need for a sound capital project planning and financing process. The economics of landfill tipping fees has changed too quickly, and none of these counties have kept up with it (i.e., the inter-related effects of tonnage, fixed system costs, recycling, environmental regulatory requirements, and debt financing). In the absence of confirmed best practices for the subjects we surveyed, San Diego County seems to be doing as well or better in some areas, and much better in others. The County's recent push to formalize effective institutional arrangements with cities is clearly ahead of the other counties. Its recycling programs are not only ahead of the other survey counties, they actually constitute a position as one of the leaders within the state. Organization and Management System-Wide Concepts This report refers to the solid waste "system" in San Diego County but, until recently, the inter-jurisdictional approaches employed by the Solid Waste Division have not incorporated true BERNST&YOUNG Page iii Executive Summary system concepts as we would define them. In our view, a valid solid waste system involving 18 partners (the County and 17 cities) would be structured to work cooperatively to obtain the best arrangements for the group as a whole. Historically, however, solid waste operations have been structured more like a collection of 18 independent programs with some cooperative aspects, but mostly parochial decision-making criteria and independence on the part of the involved parties. Within the SWD, there has been inadequate communication and coordination with the elected and administrative representatives of cities. Asked specifically about the complaints of cities which resulted in this study, various SWD interviewees responded without apparent concern or with a definite lack of concern. On the other hand, some cities have not been very supportive or cooperative in the sense of system-wide partnering. We do not know whether that situation would have been different if the operational and policy environment had been more participative in style and content. In addition to partnering and participation issues associated with a true system approach, there is the issue of funding equity. City representatives have made it clear that they resent the use of SWEF revenues to pay for programs that benefit only the County. Particular irritations in this regard are the County Office Recycling Programs (CORPS), and the lack of a tipping fee (or other charge) for operating the bin transfer stations in the unincorporated area. On the other hand, the Tonnage Grant Program pays cities $7.75 per ton for collection of curbside recyclables. This money can be used for any purpose by the cities, but there is no comparable payment to the County's General Fund. To the extent practicable, county wide solid waste management activities should be managed and operated as a total system, consistent with the trend established by recent inter- jurisdictional discussions and negotiations. In the past few months, considerable effort has been expended by County administration and SWD personnel in establishing improved lines of communication with all city representatives. A draft agreement is being reviewed which would establish an inter-jurisdictional Solid Waste Commission with representatives from the County and all cities willing to sign guarantees for future solid waste flows. The Commission, as presently envisioned, would have a decision-making voice in certain aspects of the Solid Waste Division's planning and operation. The foregoing development is commended; the initiative taken by the County and the cities is long overdue. Now, two additional changes are embodied in our recommendation: Q All system participants need to accept and support the concept of a participative system-wide approach Q All participants should evaluate expenditure decisions in terms of (1) overall fairness to all parties involved, and (2) the cost-effectiveness of each proposal. If a proposal will unnecessarily increase the net costs of the system just to treat each participant equitably, then the concept of all parties being serviced exactly the same should be subordinate to the overall cost-effectiveness of the system. On the other hand, if a service can be provided on a relatively cost-effective basis to all participants, then H ERNST* VOUNC Page iv Executive Summary the system should not fund it for only a select number, absent any other reasons to do so. Organizational Mission and Focus There is no overall system or divisional statement of purpose, and there is no strategic plan to guide priority-setting and decision-making. The work ethic is high but much of the time has been spent fighting "brush fires" or pursuing issues and projects which, if carefully considered within the context of a coordinated plan, might not be allocated current resources. The SWD needs to develop a system-wide mission statement and strategic plan, and these activities should substantially involve various personnel inside the organization and representatives from outside as well (e.g., cities). Organizational Culture The Solid Waste Division has emerged rather quickly from a small, low profile, low budget unit to an organization involved in highly visible, complex, and expensive undertakings. Plans, systems, and management controls have not kept pace with this change. Sometimes the "big picture" is neither defined nor considered as activities focus on internally or individually- developed priorities. Of particular concern are the following characteristics of the current/recent organizational culture: Q There has been no consideration given to defining clearly the "customer" whom the Division is intended to serve. Furthermore, discussions of this subject with management representatives indicate significant differences of opinion as to whom the real customer should be. G There does not appear to be significant emphasis on cost control within the Division. Projects and services are undertaken (and maintained) without sufficient front-end (and continuing) analysis of cost-effectiveness. This is not the typical environment we find in public sector organizations, especially in recent years. Solid Waste Division management should clearly define its customers) and give appropriate consideration to customer needs and concerns in its planning, service delivery, and budgetary decisions. Management also should implement measures to increase the importance of cost control in all of its planning and operations. Organizational Structure A series of recommendations were developed to address some fairly important weaknesses in the current organization structure and functional relationships. These recommendations are summarized below. B ERNST &YOUNG Pagev Executive Summary Q Establish the Solid Waste Division as a separate County department. This recommendation recognizes that solid waste issues have become major County concerns, and that the Division will continue to deal with significant inter-jurisdictional issues that require high-level attention. Q Reorganize the internal structure of the Solid Waste Division to streamline reporting relationships, improve inter-section coordination, eliminate unnecessarily low rates of supervisors to subordinates, and free up positions that are needed for other high priority purposes, such as: • Increased top-management support to the Division (or Department) head; i.e., two high-level assistants • Increased attention to, and organizational priority of: Interagency liaison and A.B. 939 coordination Management of the NCRRA contract, which will represent about 25 percent of the total SWD operating budget in FY 1994/95 Inactive site monitoring and maintenance Capital project planning and financing. The Technical Report contains several alternative organization structures which support the above recommendations. Capital Project Planning There is no effective capital project planning and financing function within the Solid Waste Division. Major capital financing decisions ~ potentially $250 million or more in the next ten years - are proceeding without benefit of a well-conceived capital improvement plan (CIP) or sufficient analyses of project and financing alternatives. A capital improvement plan should be developed that adequately considers alternative projects and cumulative/coordinated impacts on the solid waste stream. Alternative ways to handle the same set of demands should be evaluated in terms of reasonable cost-effectiveness measures. Cumulative effects of projects on the waste stream need to be considered carefully, i.e., effects of recycling projects, effects of waste stream reductions on revenue, etc. Finally, alternatives to traditional bond financing should be considered where appropriate. BERNST&YOUNG Page vi Executive Summary Operations and Staffing About 20 or more of our organization and operation recommendations have some effect on staffing. However, the net effect is no change except for one additional position to implement a new organization structure that we have suggested. Thus, our overall assessment is that authorized staffing within the Division is ample; some positions just need to be reclassified to fit the duties of newly recommended job assignments. Among the more significant operations-oriented recommendations we have provided are the following: Q Tipping fees should be imposed at the bin transfer stations to recover some or all of the recurring annual operating costs. This option now appears justified on a cost basis because site attendants have been placed at all ten facilities, and tipping fees must increase considerably to cover other cost items (e.g., the NCRRA contract). Q In order to marginally reduce the costs of operating the bin transfer stations, consideration should be given to closing the smallest sites and consolidating operations where the sites are relatively close to each other Q The engineering classifications used by the Division should be evaluated to determine if they are appropriate for the assigned work. There have been problems encountered in filling vacant positions, typically classified at the lower skill and experience levels. However, the work assigned typically to these lower classifications is often contracted. Administration of these contracts typically warrants higher level County engineering classifications. Q If the Solid Waste Division is established as a separate County department, additional positions will be needed to perform work now completed by the Department of Public Works. This includes several positions for human resources functions, and two positions for EDP services. These additional personnel would cost the SWD about $250,000 a year, plus some associated expenses and out-of-pocket costs. Offsetting this, however, would be a reduction of over $1.2 million in costs that DPW allocates to the SWEF for these services and general overhead. In addition, five DPW positions which provide public information, legal, engineering management, and fiscal/accounting services to the Division would need to be transferred into the Division. Currently, these positions are assigned to the Division on a full-time basis, and charge their time directly to the SWEF. 3 ERNST&YOUNG Pagevii Executive Summary Regulatory Compliance Our review of regulatory compliance issues included active, inactive, and closed landfills; bin transfer stations; and burn sites which are or have been owned or operated by the County. Sources of information for this review included interviews with SWD staff and representatives of the following local and state regulatory agencies: Q California Integrated Waste Management Board G County of San Diego Environmental Health Services, Hazardous Materials Management Division (Local Enforcement Agency) Q County of San Diego Air Pollution Control District Q Regional Water Quality Control Board. Additionally, we conducted extensive reviews of available reports and site files which document regulatory compliance issues, problems, and plans involving facility permitting, operating and maintenance procedures, landfill gas emissions, ground water contamination, monitoring programs, hazardous materials exclusion programs, and closure and post-closure maintenance requirements. The results of this review indicate that the SWD currently faces a broad range of compliance issues and will be required to invest significant effort and funding to respond to regulatory requirements for the operation of active facilities and closure and monitoring of inactive facilities. These requirements have become increasingly stringent over the last decade and many other local governments in the state and throughout the Country face similar challenges. However, based upon interviews with SWD staff and representatives of regulatory agencies, it is clear that the SWD has been slow to respond to this changing regulatory environment. Some of the Division's compliance problems have resulted from a lack of staff and funding available to respond to regulatory requirements. Several Division staff stated that the contracting of landfill operations in 1981, and the resulting reduction in the Division's staffing, was partly responsible for these problems. However, other SWD staff and representatives of regulatory agencies stated that, although this may have been a factor, the SWD did not properly monitor regulatory requirements, and only began to respond to them when crisis conditions developed. As part of recent changes in the Division's organization and staffing, several staff have been given new responsibilities for regulatory compliance issues. Many of these staff are still in the process of adjusting to their new positions, and are just beginning to implement new procedures for improving compliance. In addition, issues relating to the expansion of the San Marcos II Landfill have placed a heavy burden on the Division's compliance resources during the past year. Despite these factors, Division staff have .been conducting an intensive effort to bring their facilities into compliance. BIERNST&YOUNG Page viii Executive Summary Representatives of regulatory agencies, including the APCD, LEA, and CIWMB have expressed concerns about a lack of responsiveness from the Division over the last several years. In some cases, this lack of responsiveness has resulted in enforcement action. The Division's responsiveness appears to be improving steadily, and the Division is attempting to improve its relationship and communication with local and state regulatory agencies. However, additional improvements in staffing, operational practices, and internal and external communication are required. Specific detailed recommendations to respond to these requirements have been included in the Technical Report North County Recycling and Waste Reduction Center The focus of our review of this mixed waste processing facility, which will augment existing source separation programs, was on anticipated material recovery rates, operations and maintenance (O&M) costs, pass-through costs, recovered material revenues, and several associated issues. Also, we surveyed other facilities of partially comparable design primarily to assess the overall reasonableness of projected material recovery rates and O&M costs. The project's planned material recovery rates for several key products (i.e., ferrous metals, aluminum, newspaper, and cardboard), as separately determined by County and California Pollution Control Financing Authority feasibility consultants, were found reasonable. However, insufficient information was available regarding recovery rates for glass, plastic, and other materials at other facilities (or the materials were not recovered) to provide a basis for evaluating the reasonableness of projected recovery rates for these materials, and hence the reasonableness of total material recovery rates. The Restated Service Agreement (RSA) between the County and the NCRRA provides that expected material recovery performance be determined through a periodic (every six months) 8-hour acceptance test procedure. While many provisions governing the project's costs and operations are essentially fixed under terms of the RSA, this is one area where the County potentially has some control and flexibility. To the extent that SWD staff fully understand both the actual composition of incoming waste at the San Marcos Landfill, as well as actual project operating performance, they will be in a better position to negotiate expected material recovery performance which provides the greatest benefit to the County. The Division's sampling crew should intensify their San Marcos Landfill waste stream characterization efforts. These periodic studies will continue to be needed, as well as concurrent studies of actual facility performance in terms of material recovery. Additionally, the SWD should plan to allocate the equivalent of about two full-time positions for on site-monitoring of facility operations on a two-shift, five-day per week basis. Currently, about two full-time positions are involved in monitoring construction of the facility. The results of our review of O&M and pass-through costs indicate that, assuming delivery of the guaranteed tonnage to the project (550,368 tons per year), first-year O&M costs to the County are anticipated to be about $13.5 million (including $1.75 million for fees and contingency), plus $1.75 million for pass-through costs. When compared on a normalized basis with other partially comparable facilities by (1) excluding fees and contingency, which either were not provided or are not applicable to the surveyed facilities, (2) escalating costs to 3EKNST&YOUNC Page ix Executive Summary December 1993 dollars, (3) adjusting for differences in tonnage, and (4) adjusting for differences in percent recovery, the project's anticipated O & M and pass-through costs are at least about 15 percent higher. This difference in costs may be the result of other factors for which we were unable to adjust. The RSA specifies a fixed O & M charge of $11,723,000 for December 1990, which escalates annually based on a specified price index. It appears that the O & M charge agreed to by the County is adequate to support project operations, including expected additional costs for start-up and shakedown which could continue over an extended period. To control these costs, on a per ton processed basis, and to minimize the potential for liquidated damages due to lost recovered material revenues, the County should assure that the annual guaranteed tonnage is delivered to the project. We also reviewed various recovered material market issues, and associated planned revenues of about $3.4 million which could offset some of the project's costs. Established markets exist for some, but not all, materials which the County plans to recover. Materials recovered by the project, but marketed at a loss or not successfully marketed, could potentially result in lower project revenues and higher pass-through costs to the County. Increased County emphasis is needed on development of markets for glass, newspaper, and plastic materials in order to minimize pass-through costs and maximize recovered materials revenues. Total anticipated CY 1994 O & M and pass-through costs to the County, net of anticipated recovered materials revenues of $3.4 million, are nearly $12 million. In addition, the County has agreed to pay NCRRA a capital charge equal to NCRRA's project-related debt service costs, plus a return on equity which has yet to be agreed upon. It is currently anticipated by SWD management and the County's financial advisors that this cost will be not more than about $ 13 million per year, and likely will be about $11 million per year. Therefore, assuming a total capital charge of $11 million, and a contingency of $1.5 million (for unanticipated capital improvement costs, higher than expected pass-through costs, lower than expected recovered material revenues, and/or higher than expected capital charges), total anticipated first-year costs of the project are approximately $24.5 million. This is equivalent to: Q $45 per ton of material processed, assuming 550,368 tons processed per year G $210 per ton of material recovered, which may be reduced to the equivalent of about $130 per ton of material recovered including an adjustment for increased compaction of shredded non-recovered material (assuming a 21.2 percent recovery rate and 17 percent increased in-place compaction of unrecovered waste, as separately determined by feasibility consultants to the SWD and the California Pollution Control Financing Authority, and also assuming that no additional operating costs are incurred for handling and compacting shredded waste at the landfill). Several approaches were used to assess the impact of the project's costs on per ton system costs. Regardless of the approach used, the project's impact on system costs was equivalent to 0 ERNST* VOUNG Pagex Executive Summary $15 per ton for CY 1994, assuming 1.65 million tons per year of waste delivered to the system. This compares to current system mixed waste tipping fees of $28 per ton. It should be noted that the project employs Novergie technology that is currently used in some European facilities. However, the scale of the project is larger, and the project's overall equipment configuration is partially different. The contracted operator for the project (National Ecology Corporation) has extensive experience and capabilities with other partially comparable facilities which may help to mitigate the impacts of facility start-up and shakedown-related problems. In addition, the County has no financial obligation to the project until the project passes acceptance testing. Finally, the project may make it unnecessary for the County to develop one or more North County transfer stations. Up to three North County transfer stations may be needed once the San Marcos Landfill reaches capacity. Recycling Programs Overall Assessment There is little doubt that San Diego County is a recycling program leader in California. The SWEF supports a large number of specific recycling programs as well as generalized programs intended to reach large audiences county wide (e.g., public education and referral services). Programs that are well-established in San Diego County often are more limited and/or less mature in other counties, or non-existent Full-time staffing of 14.5 positions in the specialized Resource Recovery Section is well above levels for comparable units in other counties. The adoption and funding of an aggressive recycling policy by the Board of Supervisors in late 1987, followed by adoption of the Mandatory Recycling Ordinance (MRO) in 1991, provide additional evidence of the County being in front on many recycling issues. It is difficult to determine with reasonable accuracy the full impact of the County's recycling investments. Other factors potentially affecting declines in landfill tonnage include at least the following: G The recession, and especially its impact on construction and demolition activity and related waste Q Implementation of the Charge-by-Weight system at all SWD landfills in FY 1990/91, which may have encouraged haulers of particularly heavy loads to seek out alternative delivery points (e.g., construction/demolition waste) Q Operation of the state's beverage container recycling program. Despite these external factors, our analyses of various data has concluded that recycling and diversion efforts in San Diego County have been a significant factor in the decrease of solid B ERNST&YOUNG Page xi Executive Summary waste received at County landfills. Annual net recycling costs supported by the SWEF — excluding the North County Center -- are estimated to be in the range of $3.2 to $3.5 million in FY 1992/93. These net costs will increase when the North County Center starts operating. Other Findings and Recommendations Other recycling program findings and recommendations of significance are summarized below. Q Program Objectives and Cost Effectiveness It must be emphasized that the costs of recycling programs seldom (if ever) are offset fully by the combination of (1) cost reductions in other waste management operations, and (2) revenue received from the sale of secondary materials. The use of the term "cost-effective" in this report refers to the relative costs and outcomes -- tangible and intangible — of varying programs and alternative uses of funds, and not the stand-alone net cost impact of each program. Also, in authorizing a number of new recycling efforts in 1987, the County Board of Supervisors certainly recognized that net increases in system costs would be involved, although no specific costs or recycling percentages were estimated at the time (beyond a general goal of reducing landfill waste by 30 percent). Given these explanatory comments, we have noted that none of the current SWD recycling programs were established with specific performance objectives, nor have they been subjected to initial or ongoing cost- effectiveness reviews. Thus, programs cannot be evaluated in terms of achieving objectives. Also, they tend to be implemented, maintained, and even expanded without reasonable cost justification. We have recommended improvements in the above conditions, particularly in the application of cost-justification measures where appropriate. G Market Development To date, relatively little proportionate effort or funds have been expended on developing local markets for secondary materials. The substantial majority of all recycling-oriented resources have been applied to development, implementation, and expansion of new programs to increase the number and type of materials recycled or diverted. This resource allocation has been appropriate given the lack of such programs a few years ago. However, the focus of the Resource Recovery Section should now be re-directed to the development of markets for the increasing volumes of available secondary materials. The Resource Recovery Section recognizes this need, but we think the need is greater and more immediate than may be considered. There are BERNST&YOUNG Pagexii Executive Summary insufficient markets in San Diego County for all available secondary .materials, and the problem will be exacerbated when the North County Center comes on line in 1994 (i.e., an additional 116,000 tons per year of secondary materials). If all materials from the North County Center are not sold, there will be a loss of revenue and a concurrent increase in landfill costs. The Resource Recovery Section should re-direct a significant part of its resources to the development of local markets for secondary materials, especially those expected to be collected at the North County Center. Prison Industry Authority (PIA) Project As presently defined in a draft agreement, the PIA would build and operate a material recovery and anaerobic digester facility at Donovan State Prison. The SWD would guarantee an annual waste stream of 360,000 tons, 90 percent of which is to be recovered or diverted by the PIA facility. The SWD also would have to build a transfer station at the Otay Landfill ($20 million), haul the compacted waste to the prison, pay the state a service fee per ton delivered (that is yet to be negotiated), and accept liability for certain other potential costs. We have major concerns about the cost implications of the County's involvement in this project, assuming negotiations do not result in major changes to the current draft agreement. To our knowledge, there has been no cost analysis by the SWD; in fact, it appears that costs have been given little consideration thus far. We strongly recommend that the County's involvement in the proposed PIA project be thoroughly re-evaluated before additional negotiations are conducted. County Office Recycling Programs (CORPS) CORPS collects recyclables from 456 County office locations, using ten full-time SWD personnel and Workfare recipients. Total costs in FY 1991/92 were about $432,000, and revenues on the 1,294 tons of materials collected were about $30,000. This easily marks CORPS as the least cost effective recycling program operated by the SWD, i.e., a net cost of about $310 per ton of recyclables collected. Furthermore, costs are expected to increase due to plans to extend the collection service to old corrugated cardboard. Escalating costs have not been evaluated effectively before authorization, and the program seems to have substantially exceeded the point of maximum marginal benefit. Funding for CORPS should be substantially reduced (e.g., 50 to 75 percent), and the Resource Recovery Section should evaluate various alternatives for establishing a reasonable program within this cost range. B ERNST &YOUNC Pagexiii Executive Summary Tonnage Grants The payment of $7.75 per ton of curbside recyclables to cities and to haulers in the unincorporated area was originally intended to serve as an incentive to expand these and other types of recycling programs. Some cities use the funds for these purposes, but some do not Also, passage of A.B. 939, and full implementation of the County's MRO, have replaced the need for an "incentive" to recycle. At a cost approaching $500,000 a year, we do not believe this program is getting sufficient benefits out of the investment. We recommend that the system participants (the County and 17 cities) re-evaluate this program with a view toward discontinuing it or substantially modifying it. Modification suggestions include: • Lowering the amount paid • Changing the payment mechanism (e.g., flat rate per capita) • Placing restrictions on the use of the funds, i.e., only for recycling/diversion purposes. Enterprise Fund Financial Review The focus of our review of the Enterprise Fund consisted of isolating and identifying actual Fund costs for FY 1991/92, and then developing independent estimates of annual cash flows for the ten-year period FY 1992/93 through FY 2001/02. The goal of our financial review was two-fold. First, our intent was to determine financial solvency of the Fund under existing conditions and, second, we wanted to determine expected Fund tipping fees under a range of alternative future outcomes. Information of this type will provide needed decision-making input to pending negotiations concerning solid waste Participation Agreements between the County and cities. Key findings resulting from the financial review are summarized here. Use Of Enterprise Fund Monies As part of our review and analysis of FY 1991/92 costs, we identified whether there were any significant uses of SWEF monies for purposes other than operating and capital costs of the County's solid waste system. The more significant results of this review are highlighted below. Q DPW Work Authorizations Work Authorizations are routinely established by the Solid Waste Division for performance of recurring services by DPW divisions in specialized areas where the SWD does not have proper equipment or sufficient numbers of (or appropriately qualified) staff. However, these work authorization expenditures are not routinely reviewed by SWD staff responsible for approving the services as 0 ERNST &YOUNG Page xiv Executive Summary is the case when private contractors bill for services. Although we are not aware of any inappropriate service billings to the SWEF as a result of this practice, the opportunity for payment of inappropriate charges exists. Therefore, work authorization payment processing procedures should be revised to assure that SWD staff who authorize and monitor work performed by other DPW Divisions, also review associated payment requests to ensure they are appropriate. Q Ridgehaven Facility Loan and Rent Prepayment In 1991 the Solid Waste Enterprise Fund made a loan of $6.8 million to the Criminal Justice Fund for acquisition of the Ridgehaven office building. Of this amount, $6.1 million represented an interest-free loan with no payment-on- demand provisions, which has been past due since June 30, 1992. The remaining $0.7 million represented pre-payment of rent for three years. It is especially important to various stakeholders in the County's solid waste system that Solid Waste Enterprise Fund monies, in which they have a vested interest, not be used by the County for purposes other than the operating, maintenance and capital costs of the system. Further, it is important to these stakeholders that fair market rates of interest be earned on any surplus fund balances, and be credited to the SWEF. Accordingly, as soon as possible the County should (1) repay SWEF monies loaned to the Criminal Justice Fund, and (2) consider authorizing payment of interest, at fair market rates, for the period of the loan. Key Factors Impacting Enterprise Fund During the course of our financial review, we identified several key factors affecting costs and tipping fees for the County's solid waste system. These factors include (1) declining system tonnage, (2) increasing recurring annual operating costs, (3) pending North County Recycling and Waste Reduction Center start-up, and (4) large projected capital costs over the next ten years. Each of these key factors is briefly described below. System tonnage has steadily declined over the past few years. Presently, system tonnage is estimated at 1.65 million tons (for FY 1992/93), or a 34 percent decline in tonnage in just three years. During FY 1991/92, recurring annual operating costs were estimated at $37 million. For next fiscal year (FY 1993/94), comparable recurring annual operating costs are estimated at $52 million. This is a 40 percent increase in costs in just two years. This large cost increase is due primarily to the following conditions: Q Expanding services and programs, particularly those associated with environmental regulations S ERNST &YOUNG Pagexv Executive Summary Q Increasing fees, taxes/surcharges, and reserve requirements (i.e., tonnage grants, host and mitigation fees, state surcharges, and closure cost reserves). In addition, anticipated start-up of the North County Recycling and Waste Reduction Center in 1994 will bring corresponding additional costs of $25 to $30 million a year. Finally, capital project costs have been estimated at over $250 million during the next ten years. This includes the following components: Capital Project Millions of Dollars Existing site capacity expansions $ 112 New facility development 47 "High priority" inactive site closures 37 "Lower priority" inactive site closures 52 Total $255 If system tonnage increases, then these costs could be significantly higher. Fund Solvency and Tipping Fees Exhibit 1, on the following page, compares the results of each of our seven alternative cash flow and tipping fee analyses. As shown by this exhibit, regardless of what strategy is adopted by the County, the need exists to increase mixed waste tipping fees from the current level of $28 per ton by at least 87 percent within the next two years (assumes a minimum $52.50 tipping fee for FY 1994/95 under the "maximum leverage bond financing" alternative). Without at least this order of magnitude tipping fee increase, the SWEF will risk financial insolvency, or at least not be able to meet the following responsibilities: Q Financial obligations associated the NCRRA contract Q Environmental regulatory requirements Q Landfill system capacity maintenance. Exhibit 1 shows that even with this large near-term increase in tipping fees, the SWEF may be embarking on a road to (1) large accumulated debt (with significant associated interest cost burdens), (2) depleted system capacity reserves (with sizable deferred capital outlay requirements), and (3) ultimately, even greater long-term tipping fee requirements. If the County decides to choose a strategy to avoid some of the above adverse long-term tradeoffs, tipping fees would have to increase in the short-term even more than estimated above. In this case, tipping fees would have to increase from the current level of $28 per ton by at least 137 percent within the next two years (assumes a level $66.50 tipping fee for FY 1994/95 under the "base scenario"). Obviously, an increase in tipping fees to $52.50 per ton or higher would impact both residential and commercial refuse collection rates throughout the County. These impacts may vary by jurisdiction depending on how these costs are passed through to various sectors (e.g., If ERNST & YOUNG Page xvi EXHIBIT 1 CMo oo CM o> COo>0> I (0 0)<0 o<D D) C 'a.Q. CO E D 0) "o * m S. c > 4) of 5 ^^ M S>>s «t c 0 « < a «5 <3o cL> m O) c ><o ~ <u 0 < _, T3< O <D S o r: -2 «<° 7 &o « * <D 0)tO (A(0 COm u g E S, ~ re £ <S cp 53 JT o =•_C OT H "O ^ fl> o ^ c !? <" •a o g § i •a S 3 C = <" E « 32* ^ IS 95 * ~ •o 8 -g -g m Jj Q — _C c w E So * 2 ?^^ O fl) ^i•^ jo to ^. CC _o m k. m tt ™ 0 ^rea> —co il ooofOcotocMcnoOplOpCT)OOO)h-O1 vt ooc^SScooc^r^ cdcoo'o'triuSoicJrjCO ^" LO CO CD CO CO ^- ^* *&• ooooooooo co' coco co co co co co co Lou^L/>iomioioiomCvJCVJCAJCNJC\JOJC\jOs|CNJ ^JOfOjOCOCOtOCOCD sssssssas r~f^ts-h-f^.^N.r^r^ <£i oj in t^ o co tn •t*'" G) ^CDCOCOtO<0<DCO<D OOOOOOOOOt/) V) LO U^ LO tO v) u) LO OJ Cvi C\j OJ Cxj CVJ CNJ Cvi CSJU}(OCOCOCO(O(O(OCO oooooooootnininirjtninininin to to to to to to to to to £££$££$$£ S S S S S 8 8 S S O) O) O) O) 0) O) O) O) OC £ .C C C .C ^C JC C"a. 'a. "a. "a. "a. "o. o. a. 'a.Q. a. a. Q. a. a. CL a. a. 22®22-£»-^-*- n)(Q(Q(TSR]flS<Q(Qn]555555555 = * = * = |-||| CO ^ U) CO f** 00 O> O »~ O) O) CA O) O) O) O* C? OO) O) O> O> O O> Ok O O c c o oc c c c c cS 5o oc cV 'a*c c CO O co •*' CO CO CO CAJ cri in in CM? s 3 si S 8 tr> •<«• 3 encv* en co en en "ofc_o f 1> = CO 0!CC S o> £ 1 S!? 0>iS oc •; ^ ^J C U. 5 20 0 c 1 c c5ocV*c co Ti- ed 00f\tW i«• % i CO CVJw> ^CO c_o o c (Q aO £09 C I Ol_c u Page xvii Executive Summary residential versus commercial, single versus multi-family residential, etc.). The County and the cities should determine what these impacts will be. Under any of our alternative scenarios, a large component of the near-term tipping fee increase is due to the estimated start-up of the NCRRA facility in January 1994. At least $15 per ton of this near-term tipping fee increase is due just to this facility. As shown on Exhibit 1, the R. W. Beck estimates (developed for the NCRRA private activity tax-exempt bond financing), projected a $43 a ton tipping fee for FY 1994/95 (this is $15 a ton more than the current $28 a ton tipping fee). Reasons why the Beck estimates are approximately $10 a ton less than our minimum required near-term tipping fee (i.e., $43 a ton versus $52.50 a ton) are because the Beck estimates assumed (1) extensive use of bond financing, (2) no accumulation of facility replacement or additional working capital reserves, (3) higher system tonnage, and (4) significant variability of operations and maintenance costs as tonnage changed. Q System Tonnage With regard to our system tonnage alternatives, it should be noted that San Diego County tipping fees are highly sensitive to tonnage projections. The "reduced North County tonnage" alternative and the "increased system tonnage" alternative result in the highest and lowest estimated tipping fees, respectively, for the FY 2001/02 year. In fact, our analysis shows that one of the biggest influences on tipping fees is system tonnage. If system tonnage is maintained or increases, large fixed system costs are spread over a wider rate base. To the extent that the overall county-wide economy has had a material effect on system tonnage, the current depressed level of system tonnage could increase as the local economy improves, notwithstanding any tonnage reductions due to A.B. 939 diversion requirements. If this tonnage increase happens, the need for tipping fee increases could be lessened. One of the ironies of meeting A.B. 939 recycling goals is that the more successful the recycling rate in a community, the more financial stress it places on the community's Solid Waste Enterprise Fund, with increased risks of financial insolvency without attendant tipping fee increases; As the recycling rate goes up, less money is paid to the County and, because the County does not want to operate the system at a loss, tipping fees are raised. Higher tipping fees lead to higher refuse collection bills and more recycling. Decreasing system tonnage as a result of recycling or other factors, compounded with increasingly costly environmental regulatory landfill requirements, results in constant upward pressure on per ton landfill tipping fees. Q Competitive Tipping Fees Our "base scenario" estimates a level system-wide tipping fee of $66.50 a ton for the next ten years. This is very high relative to the existing current tipping fee of $28 a ton, and even more disparate when compared to the $10 a ton tipping fee S ERNST &YOUNG Pagexviii Executive Summary range experienced in just the past ten years. However, on the East Coast some landfills presently charge gate fees of $100 a ton. It is clear that San Diego, like much of California, is in the middle of a revolution in the history of the economics of landfill tipping fees. In October of 1991, the North San Diego County cities commissioned a consultant report of proposed waste disposal alternatives. This study reviewed five "competitive" private sector proposed landfill projects and found their tipping fees to range up to approximately $60 a ton (without any allocation for odier system costs which cities could still have to pay). Based on all estimates we have seen to-date, we believe that the County's landfill projects, even ranging up to $66 per ton in tipping fees, may still be competitive to county and city rate payers, assuming continuation of countywide disposal pricing. In fact, this range of tipping fees may be the norm in California over the ten-year planning period as other systems begin to pay for the true costs of their landfill systems. In addition to the NCRRA project, increases in County of San Diego tipping fees are necessary to meet existing site capacity expansions, inactive site closures, and new facility development. Finally, the baseline scenario tipping fees are high because total system costs are more fully absorbed into County-wide tipping fees versus spread to other city or private operators. In other words, the County has centralized its system costs into the Solid Waste Enterprise Fund versus decentralizing some of these costs to private or city operators. Debt Levels and Facility System Reserves Exhibit 2, on the next page, summarizes the seven alternative scenarios in terms of tipping fees and two other equally important criteria, i.e., the proper level of debt and the optimal level of facility reserves. Level Tipping Fees All but two of the seven alternatives have a level tipping fee for the ten-year period. The two bond financing alternatives have an incremental tipping fee schedule that increases over time. This is because financing allows the system to meet capital needs when the projects are required, regardless of whether total project funds are available to pay for them. Under the non- financing alternatives, level tipping fees are needed in order to accumulate funds in advance of project needs. In our view, the Solid Waste Division has placed too much emphasis on the "maximum leverage" alternative and has placed undue reliance on the bond financing revenue alternative as a means to quickly solve the Fund's problems. Given the unusually large capital outlays facing the Division, we believe it needs to look more closely at some form of level tipping fee, in conjunction with short-term bridge loans (if required), so as not to place undue reliance on the maximum leverage financing alternative. BEKNST&YOUNG Page xix EXHIBIT 2 CO O c O oo>Q LJL LU H—O (0 E3 O) •5I Page xx Executive Summary Multiple Decision Criteria Both of the bond financing alternatives result in $90 to $150 million of outstanding debt at the end of the ten-year period. Also, both of these alternatives result in virtually no new facility replacement reserves at the end of the planning period. The Solid Waste Division needs to give equal emphasis to (1) the proper level of system debt and (2) the optimal level of facility replacement reserves, in addition to just focusing on tipping fee levels. Too often, the bond financing alternative results in artificially low near-term tipping fees but with significant tipping fee liabilities beyond the end of the projection period. Also, because of the long time-line to site and construct an environmentally acceptable landfill, ~ perhaps up to ten years — management needs to be concerned with replacing existing capacity by the end of the planning period. Financial Planning The Solid Waste Enterprise Fund faces $250 to $300 million in capital outlays over just the next ten years or so. This type of capital outlay requires a much more disciplined and systematic approach to system planning and budgeting than currently exists within the Division. - Q Short-Term Financial Contingency Plan The Division needs to make explicit decisions concerning trade-offs among tipping fees, debt levels, and facility system reserves, and then immediately develop and implement a Short-Term Financial Contingency Plan to insure integrity of the Fund. The Division has fiduciary responsibility for this Fund, whether or not it is successful in implementing Participation Agreements in the near-term. This Contingency Plan should provide the basis for recommended Board of Supervisor action concerning tipping fee increases. We would expect these increases to occur by July 1, 1993. The Contingency Plan should address the economic impact of the recommended tipping fee increase on constituent households and compare the recommended tipping fee with present competitive alternatives. Q Long-Range Planning Infrastructure At the same time the Division is developing its Short-Term Financial Contingency Plan, it needs to develop the proper planning infrastructure to manage an Enterprise Fund that is expected to more than double in size over the next ten years. This includes the need for present and projected automated income statements and balance sheets (showing accumulated outstanding debt), in addition to detailed cash flow statements (showing interest costs). These divisional financial statements should form the basis for a further needed detailed Long-Range Funding Plan for capital outlays. B ERNST &YOUNG Pagexxi Executive Summary Corresponding with the above financial infrastructure requirements, the Division needs to enhance its Capital Improvement Plan. This includes formalized models of expected system tonnage and linkages to needed capital projects. Reliable cost estimates need to be made of these capital outlays and their specific implementation timing. This project planning information must be linked to available system capacities and expected depletion rates. Part of this planning process also should include monitoring of A.B. 939 diversion goals. In the end, the above Short-Term Funding and Capital Improvement Plans need to be integrated to ultimately form the foundation for the Division's needed Long-Range System Plan. aERNST&YoUNG Pagexxii EXHIBITS PAGE 1 OF 3 Summary of Recommendations NO. RECOMMENDATION Organization and Management 111-1 To the extent practicable, countywide solid waste management activities should be managed and operated as a total system, consistent with the trend established by recent inter-jurisdictional discussions and negotiations. III-2 Develop a systemwide mission statement and strategic plan. III-3 Involve a wider range of internal and external participants in the development of a system- wide mission statement and strategic plan. III-4 The Solid Waste Division should define its customers) and give appropriate consideration to customer needs and concerns in its planning, service delivery, and budgetary decisions. III-5 The Solid Waste Division should implement measures to increase the importance of cost control in all of its planning and operations. III-6 Establish the Solid Waste Division as a separate County department. III-7 Consolidate the Facility Siting and Permitting Section with the Engineering Section. III-8 Separate the Inactive/Closed Site Monitoring and Maintenance functions from the Operations Section and organize them as a separate section. III-9 Reorganize two existing positions within the Solid Waste Division to increase the level of attention to, and organizational priority of, interagency liaison and A.B. 939 coordination. II1-10 Two full-time SWD positions need to be allocated, and appropriately organized, for capital project programming and financing, and NCRRA contract management. 111-11 A structured assessment of SWD budgeting, accounting, and related management information needs should be completed; then, transaction codes which are consistent with the County's ARMS system structure should be identified and used. 111-12 A Capital Improvement Plan should be developed that adequately considers alternative projects and cumulative/coordinated impacts on the solid waste system. Operations and Staffing IV-1 The combined total number of authorized positions for the Operations Section (except Inactive/Closed Site Monitoring and Maintenance) should be maintained at current levels or, where appropriate, reduced as a result of consolidating or streamlining operations, contracting out functions currently performed by SWD staff, or reducing service levels. IV-2 The Solid Waste Division should continue its efforts to fill vacant environmental health technician positions; if appropriate, these position classifications should be revised to enhance recruitment and retention. EXHIBITS PAGE 2 OF 3 Summary of Recommendations (Continued) NO, RECOMMENDATION Operations and Staffing (Continued) IV-3 All Interior Zone operations and countywide hauling operations should be consolidated into a single unit within the Operations Section. Surplus Operations Section management positions resulting from the consolidation should be re-allocated to address other needs of the Division. IV-4 In order to recover some, or all, recurring annual bin transfer station operating costs, the County should impose mixed waste tipping fees at these sites equal to the systemwide tipping fees charged at other facilities. IV-5 In order to marginally reduce the costs of operating the bin transfer stations, the County should consider closing some of the smallest sites and/or consolidating operations in areas where they are in relatively close geographic proximity to one another. IV-6 Surplus transfer truck driver positions resulting from contracting bin transfer station mixed waste hauling services effective January 1993, should be re-allocated to address other needs of the Division. IV-7 The two positions currently authorized for enforcement of the Mandatory Recycling Ordinance (MRO) functions should be re-allocated to address other needs of the Division, and responsibility for MRO enforcement functions should be reassigned to appropriate staff at each active landfill and bin transfer station. IV-8 Five additional positions should be allocated now to the Inactive/Closed Site Monitoring and Maintenance unit; three more additional positions will be needed by FY 1994/95. IV-9 SWD management should evaluate the potential need to upgrade vacant engineering series position classifications to enhance recruitment and retention of qualified staff. IV-10 Two current DPW engineering positions, which are assigned full-time to SWD engineering management functions, should be transferred from Public Works to the Division. IV-11 Four additional fiscal/accounting staff support positions should be established within the Administrative Services Section. IV-12 Three current DPW positions, which are assigned full-time to the SWD to provide (1) fiscal/accounting support services, (2) public information services, and (3) legal services, should be transferred from Public Works to the Solid Waste Division. IV-13 Three additional secretarial/clerical positions should be established within the Administrative Services Section to provide general administrative support for technical, professional, and management positions throughout the Division. IV-14 Four full-time equivalent temporary help agency positions should be eliminated concurrent with implementation of Recommendation Nos. IV-11 and IV-13. IV-15 The County should establish three positions within the SWD for performance of human resources-related functions, and two positions for performance of EDP-related functions. IV-16 Allocations of DPW overhead costs should be eliminated concurrent with implementation of Recommendation Nos. IV-14, and III-6. EXHIBIT 3 PAGE 3 OF 3 Summary of Recommendations (Continued) NO. RECOMMENDATION Recycling Programs VII-1 Establish specific objectives and cost-effectiveness measures for recycling programs; periodically monitor cost-effectiveness and achievement of objectives for operating programs. VII-2 The Resource Recovery Section should re-direct a portion of its currently available resources to the development of markets for secondary materials, especially those expected to be recovered at the North County Recycling and Waste Reduction Center for which current markets are especially limited or non-existent (e.g., glass, newspaper, plastic film, etc.) VII-3 The County's involvement in the proposed Prison Industry Authority project should be thoroughly re-evaluated before additional negotiations are conducted. VII-4 Funding for the County Office Recycling Programs (CORPS) should be substantially reduced. VII-5 The Tonnage Grant Program should be discontinued or substantially modified. VII-6 Consider re-structuring the Technical Assistance Program to provide more long-term benefits for the investment made. VII-7 A portion of current waste characterization study staffing resources should immediately focus their sampling and analysis efforts on the San Marcos Landfill waste stream in order to position the County to negotiate NCRRA performance which provides the greatest benefits to the County. Once North County Recycling and Waste Reduction Center operations commence, these periodic studies will continue to need to be performed, as well as concurrent studies of actual facility performance in terms of material recovery. Solid Waste Enterprise Fund VIII-1 Tipping fees should (must) be increased significantly by FY 1993/94 if the Solid Waste Enterprise Fund is to maintain solvency. VIII-2 The Solid Waste Division should seriously consider capital financing alternatives other than highly-leveraged debt, including approaches that rely on a level tipping fee over a prolonged period. VIII-3 A Short-Term Financial Contingency Plan needs to be developed now to ensure the integrity of the Solid Waste Enterprise Fund. VIII-4 Develop improved financial reports to support ongoing effective management of the Solid Waste Enterprise Fund. VIII-5 A Long-Term Funding Plan for capital outlays should be developed.