An effort by the county’s public works director to initiate reform of the evergreen franchise arrangements by which highly lucrative and virtually perpetual service contracts have been conferred on a closed set of providers ran into a roadblock when a coalition of elected officials who count on those franchise holders kicking generous political campaign donations back to them refused to go along with the changes.
The action, or lack thereof, by three members of the county board of supervisors threw an immediate spotlight on the county’s entrenched pay-to-play ethos, which for some members of the public hints at deeper issues of graft in the county’s governmental structure.
Evergreen franchise contracts are an often hidden element of local government. So-called evergreening is touted by its proponents as a logical outgrowth of reasonable and legitimate precautions to ensure that a provider of needed public services is not bankrupted through agreeing to do just that.
In being granted a franchise for services such as the provision of ambulances, taxicabs, towing, street-sweeping or trash hauling, a company must commit to doing an adequate job on a continuous and sometimes around-the-clock basis, which entails purchasing equipment, materials, supplies, vehicles and the like as well as employing personnel, involving significant investment outlays. Those entering into such arrangements reasonably seek some assurance that the work the franchise entails and thus its revenue stream will last for a sufficient period of time to pay for the purchases of such equipment, materials and vehicles, and pay its additional personnel costs. Thus, the tradition and practice of granting franchises for a set period of time over which the cost of making such equipment, vehicle and equipment acquisitions can be amortized was long ago established. Because of the need or desirability of making ongoing supply, equipment and vehicle replacements, the concept of a rolling renewal, or evergreening, of the franchise contract duration evolved. Thus, for example, a company newly provided a towing franchise is given assurance that its franchise will be in place for five years, allowing it to purchase an adequate number of tow trucks to meet the demand of providing tow service in that particular jurisdiction, the payments for which can be structured over five years. As time progresses and the company’s tow truck fleet ages and becomes obsolete, inoperative or economically disadvantageous because of constant repair costs, poor gas mileage, etc., those vehicles can be retired and replaced. With each succeeding year, usually upon the anniversary of the franchise having been granted and sometimes at the start of the governmental fiscal year, the five-year franchise will refresh, i.e., evergreen, unless notice is provided by the agency or government granting the franchise that the franchise is to be terminated. From the point of the notice of termination, in this example, the company will retain the contract for five years, at which point the franchise elapses, unless the governmental entity determines that the franchise should be renewed.
The State of California recognizes the need for sustaining franchises for a duration long enough for those holding the franchise to recoup the investments made to take on the franchise. Under state law, most companies are granted five-year entitlement to the franchises they are awarded through a bid process. There is no such corrsponding guarantee of evergreening in state law, however. The placement of an evergreen clause into a franchise contract is done at the sole discretion of the governing board of the agency or governmental agency granting the franchise.
Potential advantages to the public can accrue from evergeening franchises. Perhaps the most significant of these is that they tend to improve the quality of and keep up to date the equipment with which the franchised service is provided. At the same time, evergreen franchises can be disadvantageous to the public, as the benefits of evergreening to companies holding franchises far outweigh the public benefits, and some of those benefits to a company can accrue to the detriment of the public. Indeed, the potential drawbacks of evergreening franchises to the public can be immense. One of those is that evergreen arrangements can suspend for an indefinite period the open competitive bidding process for those franchises. In this way the incentive for an entity holding a franchise to improve its service or reduce the rates it charges for its services is virtually nonexistent. Moreover, a single company or single set of companies holding exclusivity over the delivery of a service prevents the imposition of new or evolving regulations, innovations or technologies onto that company or companies. The existence of a long-sustained evergreen arrangement reduces even further the likelihood that a potential competitor to the franchise holder will emerge, as a locked-in franchise over an extended period confers upon the franchise holder an economic advantage that compounds annually.
Exacerbating the situation is that there is a tendency to lengthen the duration of the franchise contracts subject to evergreening. Five year franchises are becoming increasingly rare. Seven-year, eight-year, ten-year, 12-year franchises containing evergreen clauses are becoming commonplace. Fifteen-year and twenty-year franchises with evergreen clauses are not unheard of. There are multiple evergreen arrangements in San Bernardino County approaching or exceeding ten years, making it impossible for some governmental entities to disentangle themselves from certain companies for a decade or more. In Upland for example, that city has had an 18-year-running franchise relationship with Burrtec Industries for trash hauling, which now entails a 12-year evergreen clause, meaning at present the city cannot bring in another trash hauler to serve its residents through an open bidding process and have those residents reap the benefits of competition until the year 2031. If the city council does not give termination notice to Burrtec within the next several weeks, that date will be pushed to 2032. The City of Highland has similarly committed to Burrtec for a period of 20 years.
Because franchises are, or can potentially be, so lucrative, representing in some cases millions upon millions of dollars of gross revenue yearly, they have become plums which elected officials around San Bernardino County dole out to favored entities which are almost entirely their major political backers, that is, those providing those same elected officials with money that they use in their campaigns for office. The provision to politicians of such money to be used for campaign purposes is legal on both the giving and receiving ends. There is widespread suspicion, nonetheless, that the money some politicians are receiving from some franchise holders is not limited to campaign donations. The exchanging of such money is illegal.
In San Bernardino County, five trash-hauling companies hold a total of 20 trash franchises in unincorporated county areas. Those franchises all have eight-year evergreen clauses which have annual elapsing/renewal dates of June 30/July 1, the end and start of the governmental fiscal year. Notice of termination must be provided to the companies two months prior to that, such that unless notice of termination has been received as of May 1, the evergreen provision is triggered, extending each franchise in question one more year.
On April 2, Kevin Blakeslee, San Bernardino County’s director of public works, somewhat intrepidly came before the board of supervisors, asking them to provide him clearance to give the five companies with trash hauling franchises termination notices so the county could begin the seven-year countdown toward initiating new competitive bidding processes for the 20 franchises and an eight-year countdown toward awarding new franchises.
Blakeslee had sent letters out to the franchise haulers the previous week, informing them the county was potentially going to provide them with franchise termination notices this year and that they were all welcome to begin preparations toward making applications for the new franchises that would initiate in 2027.
Blakeslee explained his rationale for seeking the franchise terminations. “The solid waste franchise handling agreements have a rolling term of eight years that is automatically extended every year for one additional year, so Item 18 is really requesting permission from the board for the department to issue a notice to waste haulers that we are ending the automatic one-year extension term in the agreement. Our overall goal in requesting this is to ensure that we can get the best rates possible for our residents and to more easily add new services and also to ensure compliance with new state mandates.”
Blakeslee explained that “there are several areas in the current agreements that are out of date and we have new state mandates such as Senate Bill 1383 that’s going to require food recycling. Our agreements really need to be reworked. Our main goal is to get the best rates and services for our constituents.”
In a signal that he had already ruffled feathers by making the proposal, Blakeslee in apparent deference to complaints that were wafting in from franchise holders, said, “We could have done a much better job of notifying our waste haulers. We notified them by a letter last week and our intent was to actually reach out and speak to them directly. Looking in hindsight, we really should have had a meeting with the haulers.”
For supervisors Josie Gonzales and Robert Lovingood, who historically count those franchise holders among the most generous of their campaign donors, and Supervisor Dawn Rowe, who was appointed to the board in December and is anticipating that most if not all companies with county franchises will endow her with sufficient cash to hold off an electoral challenge by East Valley Water District Board Member Chris Carrillo in the 2020 Third District supervisor’s race, Blakeslee’s action was simply unacceptable. Gonzales called him on the carpet for what he had done and Rowe and Lovingood each took a shot at him.
Gonzales, the senior member of the board with the distinction of having received more money from franchise holders among all of her colleagues, seized upon Blakeslee’s statement that a better job could have been done in notifying the franchise holders. She said she had “concern about how this issue has been handled.”
Before proceeding, Gonzales applied a bit of window dressing first, saying “I am not opposed to the issuance of an RFP [request for proposals]. It’s time we have due diligence and responsibilities to issue a new RFP.”
She then went on, “My problem is that [during] the first briefing which you have stated took place with my office I either did not grasp or hear the clear intent to move forward. I will take fault here with myself; perhaps I did not incorporate the timeline in which you were working. I understand there is a timeline of May 1st by which the next cycle, if you will, will initiate that evergreen clause.”
Gonzales than provided a somewhat equivocal indication that the county board of supervisors had discussed terminating the franchises last year, but then inquired, “On May 1st of 2018, were we here or aware that this contract was in this place and that it had been in place for a number of years and had gone out for an RFP?”
Curiously, she then asserted that she knew Senate Bill 1383 requiring separate containers for food waste would be complicating things. “A year ago, I already knew about the protein mandate of food and the separation and mandate for recycling and how they were being discussed and progressing at the state level and looking at how all of these mandates were going to impact us. At that time I was looking at restaurants. I realized very quickly those mandates will impact us at hotels and our hospitals and our, you know, schools, prisons and everywhere. Wanting to look at all of that would have made sense to me that we or your department would have been looking at and discussing those issues in this case with Burrtec Industries. The we will have to share with our different businesses and developers. I’m concerned that sending a letter as you have stated without the privilege of first sitting down [with the franchised trash haulers], at least with a longer period of time, anticipated time, is truly put at least myself at a bit of a disadvantage because this solid waste handling franchise is countywide. We’re looking at 20 different contracts if I’m not mistaken. This is a huge endeavor and to come up with the very short timeline response that then initiates a 7-year preparation for a shutdown, without us – at least again my office, I can’t speak for the other supervisors – without my office being aware how this will impact my district seems a bit difficult for me to accept. I don’t know to what degree you brought this information before the CEO [County Chief Executive Officer Gary McBride]. I will tell you as far as I’m concerned, this is not how I am comfortable doing business not only with our providers but within our county administrative staff.”
Gonzales then asked the now-chastened Blakeslee what he intended to do.
“What is it at this time that you might propose we do relative to the short amount of time we’re giving this?” Gonzales asked.
When Blakeslee sought to propose redoubling the effort to meet with the franchise holders and thoroughly brief them on what the county was doing and what its intentions were, that brought a degree of support from supervisors Curt Hagman and Janice Rutherford, both of whom came across as favorably disposed to closing out the current franchises and holding a competition to get new ones into place by 2027.
Rutherford, whose district extends to all of the county’s communities in the San Gabriel Mountains and the communities on the western side of the San Bernardino Mountains, has approaching or exceeding a thousand constituents who own vacation homes who do not generate refuse on a regular basis, in some cases on fewer than five or six weeks a year. They, however, are required to pay for trash hauling services to cover 52 weeks annually. They want the trash hauling franchise contract altered so that those with franchises are not entitled to bill those who do not use those franchises’ services.
“I need to start seeing some actual ideas on the issue of non-resident mountain pick up,” Rutherford said. “I understand that it’s a small issue compared to these huge legislative issues we are dealing with, but for my constituents, it’s a huge quality of life issue that is not getting addressed We don’t have a solution for this yet. I am going to be uncomfortable doing anything until someone brings me some ideas.”
Lovingood and Rowe, however, have future political ambition that places their loyalty to deep-pocketed political donors, county franchise holders among them, above the interests of the county’s residents.
It is anticipated Lovingood will seek office in California’s lower legislative house when Jay Obernolte leaves as 33rd District assemblyman, perhaps as early as next year if Paul Cook decides against seeking reelection to Congress, opening a pathway for Obernolte to run in California’s 8th Congressional District.
Rowe, who was formerly Congressman Cook’s chief of staff, is assembling a formidable political machine, having hired as two of her supervisorial office staffers, political operatives Matt Knox and Dillon Lesovsky, who have garnered a considerable reputation for engaging in both legitimate and illegitimate, high-minded and below-the-belt electioneering tactics involving candidates for local, state and national office. The money that she anticipates will be pouring into her campaign coffers from the county’s franchise holders will stand her in strong stead to gain election to the Third District supervisor’s post next year, eradicating suggestions that her appointment to the post was a backroom political maneuver, while putting her into contention for future runs for state or federal office.
Rowe in particular was critical of Blakeslee’s effort to terminate the franchises of those she called “our partners.” She suggested Blakeslee’s proposal was not “business friendly,” ignoring that there are a multitude of other businesses looking to compete with the county’ privileged franchise holders. Lovingood used the same term – “our partners” – with regard to those having franchises.
Though Hagman and Rutherford were in favor of allowing Blakeslee to meet with franchise holders and to then schedule the board’s ratification of giving official franchise termination notice at either the April 15 board meeting or the April 30 board meeting, Gonzales, Rowe and Lovingood put the kibosh on that, voting 3-to-2 to extend the franchises for another year, such that the earliest that they can be terminated is 2018.
-Mark Gutglueck