By Mark Gutglueck
(July 17) Nineteen years after the city of Colton entered into a questionable contract with its currently franchised trash hauler, a 4-to-3 majority of the Colton City Council this month voted to renew the municipal trash hauling pact without putting it out to bid.
In doing so, the council majority bypassed a competitive process that would have allowed other trash haulers to offer terms of service, including rates charged to customers, quality and scope of refuse, green waste and hazardous waste disposal, the handling of recyclables, street sweeping and tree maintenance that would be equal to or better than that offered by the current handler. As a consequence, the now-extended trash hauling contract will have remained in place for thirty years without having been put out to competitive bid before it expires.
The current contract is an extension of one entered into in 1996, which a city-hired investigator in 1997 said involved a rigged bidding process tainted by illicit inducements tantamount to bribery
On July 7 Mayor Richard DeLaRosa, councilman David Toro and councilwomen Deirdre Bennett and Summer Jorrin voted to extend the trash hauling franchise agreement with Republic Industries for ten years, into 2026.
Until 1996, the city of Colton had its own sanitation department. In 1994, George Fulp defeated longtime mayor Frank Gonzales. Early in his tenure, Fulp sought to dismantle vestiges of Gonzales’ legacy, which included the city’s full panoply of municipal service divisions. One of the first items Fulp settled upon was dissolving the municipal sanitation division by privatizing trash service. After building a consensus to do so, the Fulp-led city council hired the R.W. Beck Company, an Arizona-based firm, to conduct a request for proposals from Southern California-based trash haulers and evaluate the fitness of the applicants for taking on Colton’s trash hauling assignment. R.W. Beck did so, and returned its recommendation that Fontana-based Burrtec Industries was the most suitable of the seven applicants for the franchise.
Shortly after R.W. Beck delivered that recommendation, however, the city council insisted upon a closed door meeting with R.W. Beck principal Richard Tagore-Erwin. During that closed door meeting, outside the view of the public, Fulp, along with then-councilmen Don Sanders and Abe Beltran, pressured Tagore-Erwin to alter R.W. Beck’s recommendation. After a two-week interim, R.W. Beck delivered a second evaluation of the competition for the franchise contract, elevating its estimation of the proposal made by Industry-based Taormina Industries to a rough equivalency with the earlier-delivered rating of Burrtec’s qualifications. Based upon this second recommendation, the city council on May 16, 1996 conferred the franchise contract upon Taormina.
A firestorm of controversy erupted, but shortly thereafter the dismantling of the city’s sanitation division was finalized and Taormina assumed the status of the city’s franchised domestic trash hauler. Before the year was out, a successful recall effort against Fulp materialized and he was removed from office and replaced by Karl Gaytan. Meanwhile, the city’s then-police chief, Bernie Lunsford, and then-city attorney, Julie Biggs, referencing irregularities that had occurred in the trash franchise contract bidding competition, persuaded the council to hire former Riverside County Deputy District Attorney Mark McDonald to carry out an investigation into the matter. Ultimately, McDonald delivered his findings, which popularly became known as the McDonald Report, that scathingly identified a rigged bidding process marred by the delivery of inducements to Fulp, Beltran and Sanders, as well as conduct on the part Fulp’s hand-picked city manager Malik Freeman and then-assistant city manager Daryl Parrish, which resulted in the contract being steered to Taormina despite R.W. Beck’s first straightforward determination that its proposal was inferior to that put forth by Burrtec and others.
The first direct casualty of the McDonald Report was Freeman, who was terminated by the council in an effort to stem the public outrage based upon the report’s narrative describing him as taking an active role in carrying out Fulp, Beltran and Sanders’ bidding in vectoring the contract to Taormina. Parrish, whose transgressions in the matter were acts of omission rather than commission, was suspended but not terminated. The report, which was provided to the FBI, resulted in investigations into the political situation in Colton and reports of graft, bribery and payoffs at City Hall. Beltran, who had been prosecuted by the district attorney’s office in 1996 and voted out of office at the time that Fulp was recalled, was implicated in criminal activity and acts of political corruption tracked by the FBI, as was Sanders and eventually, Fulp’s successor as mayor, Karl Gaytan. Fulp, who departed from California shortly after his political career in Colton ended, was not prosecuted, although there were hints, never confirmed, that he had begun cooperating with The FBI. The FBI assembled criminal cases against Beltran, Sanders, Gaytan and another former Colton councilman, James Grimsby. All were convicted and forced to leave office.
While the focus of the McDonald Report and portions of FBI investigation included the illicit inducements to Fulp, Sanders and Beltran that led to Taormina’s success in achieving the trash hauling franchise in Colton, no prosecutorial authority charged Taormina or its officials with a crime. A Colton community activist, the Reverend Steve Anderson, lobbed charges that the company had used “mob tactics,” including bribery and intimidation, in obtaining the franchise contract. Taormina filed legal action against Anderson, which ultimately served to reduce the public outcry over the circumstances that had led to the awarding of the franchise contract to Taormina.
Because of the constant need for trash refuse handling and the consideration that Taormina had a lock on the franchise, early talk about rescinding the council’s vote that conferred the franchise on Taormina ended and no serious effort was ever made by the council to rebid the contract. Eventually, owners William and Vincent Taormina agreed to merge Taormina Industries Inc. with Republic Industries, Inc. in exchange for 6.5 million shares of Republic stock, which was then valued at $250 million. Republic Industries is the second largest non-hazardous solid waste management company in the United States after Waste Management, Inc.
For close to a generation, Republic Industry has held the Colton trash-hauling franchise contract, serving essentially as the city of Colton’s sanitation division. With the franchise due to elapse in 2016, the concept of putting the franchise out to bid surfaced in the 2014 election. Frank Gonzales, who had been replaced as mayor by Fulp in 1994 had made a comeback as a city official in 2010, when he was elected to the city council. Four years late, in 2014, he again sought election as mayor, running against Richard DeLaRosa. During his campaign, Gonzales called for putting out a request for proposals to as many regional trash hauling companies as the city could, to effectuate a competitive bid process for the refuse hauling contract. Gonzales lost the 2014 election and late last year, the council began a progression toward addressing the 2016 expiration of the trash hauling franchise contract. In August 2014 the city council accepted $40,000 at the behest of then acting city manager and current public works director Amer Jakher to open negotiations with Republic on a new contract with most council members stating that the city could still go out to bid. Mr. Jakher was placed in charge of negotiations on the city’s behalf.
In rejecting the opportunity to compare bids upfront, Colton put Jakher into a weak bargaining position. Other companies, the Sentinel has learned, were prepared to offer Colton terms that substantially bettered anything Republic put on the table. Representatives of other companies told the Sentinel they were anxious to bid on the Colton contract and that they were aware of the terms under discussion in Colton and were prepared to provide better service at lower cost than Republic has committed to. They also say they made this clear to Colton officials.
Among those companies was Athens Services, which now has the contract with the county of San Bernardino to operate county landfills. Athens is particularly interested in establishing service areas in San Bernardino County and was prepared to underbid and outservice Republic to the point that it would have been willing to operate at close to cost to achieve the Colton contract. Colton never entertained any overtures from companies other than Republic.
Previously, refuse from Colton had been deposited into a landfill within Colton and the city received a host “tipping fee” from San Bernardino County, which owned the landfill, for accepting trash into the landfill within its borders. But the county shuttered the Colton landfill, ending that revenue stream to the city. In 2012, as Republic was looking ahead to ensure that it kept its Colton contract, the company offered to provide Colton $140,000 per year to replace the lost tipping fees from the Colton landfill closure. In addition, it offered to forego annual consumer price index increases for the last three years of the contract. This offer was predicated on Colton allowing Republic to haul the trash to its own landfill in Brea, which provided Republic with substantial savings. At that time, the council rejected Republic’s offer and decided to continue Colton’s waste disposal agreement with San Bernardino County, resulting in the trash being taken to the county’s Mid-Valley Landfill.
Since the Colton council voted against Republic’s 2012 offer, Colton ratepayers have experienced three separate Consumer Price Index increases, including a recent 4.25% increase. In its 2015 negotiations with Jakher, Republic kept the Consumer Price Index rate hikes totaling almost 8% while convincing the city to allow Republic to take the trash to their preferred landfill in Brea.
In its negotiations with Republic, Colton also lost $140,000 in yearly waste disposal fees, which Colton had been receiving from the county. This money was provided as a consequence of the county’s waste disposal agreement with 14 of the cities in the county that use county landfills. For using the county’s landfills, those cities are given a discounted rate less than the gate fee haulers bringing trash in from outside the county are required to pay. The difference between the regular gate fee and the negotiated waste disposal agreement rate is referred to as the waste disposal agreement rebate. While some cities in the county receive the entire waste disposal agreement rebate, Colton received only $4.24 of the current $8.19 per ton rebate, and Republic kept the rest. Moreover, the contract extension will allow Republic to divert Colton’s trash to a landfill operated by Republic, depriving Colton of the $140,000 rebate altogether.
In the end, Republic offered, and Jakher and the city council accepted, an offer which provided Colton with $210,000 for “street sweeping” and $80,000 for “tree trimming” $30,000 per year in “host city” fees, along with a small increase in the administrative fee, estimated at between $15,000 and $20,000 yearly that Colton receives for handling residential billing for Republic. Republic further agreed to returning five percent of its revenue – quantified at roughly $360,000 – to the city for street repairs to make up for the damage caused by its trash trucks. Under the deal, Colton residents are to pay, beginning this month, $23.79 monthly for weekly trash pick-up.
Comparisons with deals closed elsewhere showed the degree to which Jakher and the city had been outnegotiated.
In Fullerton, for example, its customers are paying $18.60 per month for trash service. In Cypress, where the city invited proposals from trash companies, five companies bid on the project and the end result was that homeowners there pay $12.97 monthly for collections.
In reality, the $540,000 ($680,000 in additional revenue less the $140,000 in revenue lost to Colton) Republic offered to return to Colton in the form of street sweeping, tree trimming service, road repair and host fees was dwarfed by what other cities obtained in exchange for their trash franchises. Athens paid West Covina $2 million plus $100,000 in additional yearly community contributions for an additional 25-year extension. In Covina, Athens paid $2 million plus a $200,000 annual contribution for a 20-year deal. In Chino Hills, where residents pay a $17.38 per month rate for trash service, the residential rates are guaranteed to escalate to not more than $21.59 by the end of the contract in 2021. In 2010 Republic paid the city of Chino Hills $500,000 to lock in that contract for an additional five years, even though that extension wasn’t scheduled to begin until 2016.
A most telling comparison is right next door to Colton, in the city of San Bernardino, where a fierce competition involving at least five prospective haulers is ongoing. In setting up that competition, the city of San Bernardino set minimum parameters which had to be met for a trash hauler to be considered. One of those conditions is a service cost to residents well below what Colton trash customers are paying. Another is a minimum $5 million franchise fee to the city. With regard to all elements of that contract, each term is more favorable to San Bernardino than the corresponding terms in the Colton Republic franchise contract. Of note is that Republic is one of the competitors in San Bernardino, demonstrating that had Colton resolved to hold a competitive bid, it could have induced Republic to offer the city a far better deal than it did.
Steve Cade and Gary Grossich, two local business owners active in the community, met and communicated with several of Colton’s council members in the last two months in an effort to convince them to put the trash franchise contract out to bid. The decision by the council to ratify the contract extension has given Cade and Grossich grave pause.
“I think the council as a whole did not do their due diligence,” Cade told the Sentinel. “I think the council accepted a deal that gave them a minimal amount of what they could have gotten. They gave up a lot compared to what they should have gotten. I think the city council did a huge disservice to the residents and business owners in Colton, especially when you consider that the city is $2.5 million in the hole. Colton is facing economic hardship and we passed up an opportunity to make things much better.”
Cade continued, “San Bernardino is asking every company bidding on its franchise for $5 million as a basic fee. San Bernardino has a population of 210,000 and Colton has a population of 52,000. So, we are one quarter the size of San Bernardino. Based on the $5 million minimum San Bernardino will get as a franchise fee, we should be getting $1.25 million.”
Cade said one indication of how bad the deal is for Colton is that city officials made misrepresentations about it, for example claiming that the city would get back from Republic some $900,000 per year in street repair money. The true amount, he said, will be closer to $360,000 annually. “The numbers people were provided were inaccurate,” he said. He faulted both staff for providing the council with “bad numbers” and the council, for not critically reviewing the faulty information it had received.
He was critical of Jakher, who had failed to build a support network around himself to undergird his and the city’s position during negotiations. He said Jakher had relied on two women as advisors who “had no knowledge about waste hauling. They were lazy in their negotiating,” he said. “They were not effective negotiators from the beginning.”
Grossich said he was “really disappointed” in the votes cast by the Council. “I’ve supported certain council members over the years because I felt they were against the way Colton has been run in the past and have shown they were willing to go down the road less travelled,” Grossich said. “In this case I feel we have gone back to business as usual.”
“It is true the city obtained some things in this contract that were not in the earlier deal with Republic,” Grossich said. “But that is not the point. It’s clear that they did not get as good of a deal as they could have gotten. We left at least a million dollars on the table in an upfront franchise fee, and probably $250,000 per year more in revenues going forward. Plain and simple, we did not get the deal we should have.“
“Twenty years ago when Colton entered into the original contract it was a different day,” he said. “At that time trash companies only picked up trash and dumped it. Since that time the trash haulers are mining the trash for recyclables that they make money on. That is great for them, and it is also great for cities and the ratepayers because they can get better deals. There is a lot more competition for the trash contracts than ever before. Trash has become a commodity. When you have competition for a commodity, you have lower rates. When you bypass the competitive process and do not allow competitive bids to take place, you are not going to get the best deal because you have not let the free market system function.”
Grossich added, “I hope my criticism of the process and current deal doesn’t change my personal relationship with anyone, but the council needs to understand that this was a serious and critically important business matter and we need to conduct our city business in a professional and business-like manner. Unfortunately, in this case we didn’t. I spent many hours researching various contracts and working to help council members make an educated and informed vote. This was not a sound decision that looked out for the ratepayers. The entire trash deal was flawed and mishandled from the start and the cCouncil should have realized that, pulled the plug and gone out to bid.”
In speaking with the Sentinel this week, Mayor Richard DeLaRosa sought to defend the council’s vote ratifying the contract extensions.
Asked if he considered going three decades without a bid process wise, DeLaRosa said, “The prior council had acted to start the negotiations with the current hauler and that put us in the position where we had to negotiate with the current hauler first. When we asked for additional fees, better service, road impact fees or tree trimming or street sweeping, they agreed to that. They gave us far more than what the current and past contracts provided when we asked for it.
The prior and current council gave points on where we wanted them [Republic] to be. We had expectations. When we gave them those expectations they met them all along. What we asked for is what we got, including host fees and money coming in for other purposes. We are seeing $600,000 in extra fees coming in to the city. At least four of us on the council felt there was not a need to go out for a request for proposals because they met what our expectations were. I don’t regret the decision.”
DeLaRosa emphasized that his was a “different administration” from the one that began the negotiations.
“Mayor [Sarah] Zamora [DeLaRosa’s immediate predecessor] ran a different administration,” he said.”She was mayor and there were some different members of the council when these negotiations started. We went through three [public] workshops [relating to the trash hauling franchise contract] and several meetings. From the dais, we on the council did our best. We did our due diligence. Over the more than a year it took to negotiate this contract including right up to the very last meeting where we approved it, we told them [Republic] we wanted more. We asked for changes several times, for them to put different things on the table. I don’t know how much more you can negotiate or who else you can put in place to negotiate beside the city manager and the public works director. Those two people were in place. The council kind of negotiated somewhat from the dais and we asked them to take off the consumer price index increase and contribute more to the road impact fund. They gave us more until the final day. It could have gone on and on and on. At the point of approval we felt the rate was right. We obtained $600,000 or $700,000 more than the prior contract. It is hard to say whether by being more hardnosed we would have gotten more. Everything the council asked for they gave us. There was no standoff, no posturing. Republic never postured. They went back to their corporate superiors and came back and agreed to what we asked for. If we had asked for the moon, I don’t know what would have happened. We kept the rates low and increased the road impact fees. We increased the fees for a recyclable worker. We got everything we asked for delivered with the least rate impact to the customers.”
In responding to the assertion that San Bernardino has set a much more effective stage for negotiations and appears to be on the verge of achieving superior terms from the companies, including Republic, it is dealing with than Colton obtained from Republic, DeLaRosa said, “I don’t know what terms San Bernardino has on the table. I don’t know what the needs of San Bernardino are. I do know the needs of Colton. Street sweeping, road impact, tree trimming, waste recycling, all of those have been met by this company [Republic]. It is very difficult to compare to different cities with different priorities. I know the priorities of Colton. The contract will address the needs of Colton with very little impact to the ratepayers. I did not want to take the chance that whatever up front monies we would ask for would be rolled into the rates in the contract that would increase ratepayers’ future bills”.
DeLaRosa said Colton had not responded to overtures from other trash hauling companies offering rates and terms that were more favorable than those provided by Republic in large measure because “The tone of these negotiations was set last year prior to me being on the council. The agreement was we would not enter into negotiations with other companies while we were considering contract proposals from Republic. We could not hold formal discussions with other companies because we had an agreement to look at the current hauler first. We could not formally look at any other numbers. The previous council accepted that in 2013 and 2014.”
As to what he would you say to the critics of the council’s vote, DeLaRosa said, “There are several areas of criticism, the rates, the term and why we didn’t go out to bid. As far as the rates go, there’s no number that we can look at to verify what the critics are saying about the rates. There is no concrete or tangible number we can look at to compare what we could have gotten, We could have gotten a better rate. We could have gotten a worst rate. It goes both ways. I believe we kept the rates low. There will be very little rate increases to the customers and a very good revenue increase to the general fund. In my opinion, the extra money the city is getting from Republic for the contract outweighs the very minor rate increase.”
With regard to whether he fully trusts Jakher and his judgment, DeLaRosa said, “As of December 7 when I came on as mayor, the city manager is the administrator for the city and the department directors for the city including Mr. Jakher answer to the city manager. The city manager answers to the council. I have faith in our city manager and all of our directors to include Mr. Jakher. If any directors were not doing what is expected of them by Mr. Bill Smith [Colton’s city manager], they would not be working for Colton. Any director working to date has the faith and support and the confidence of the city manager and therefore of the council. They would not be working today if they did not. Amer Jakher would not be working here if he did not.”