By Mark Gutglueck
SAN BERNARDINO-The San Bernardino City Council this week walked into a buzz saw of controversy with a 6-1 vote to outsource the county seat’s municipal sanitation division to Burrtec Waste Systems.
The decision to provide the franchise to the Fontana-based company came more than three years after the city’s 2012 bankruptcy filing raised the concept of dismantling existing city departments and creating franchises to directly reduce the city’s operational costs and boost its revenues through the collection of franchise fees.
That issue became even more critical in recent months as the city’s bankruptcy exit plan calls for utilizing the trash franchise fees to balance San Bernardino’s ledger. Nevertheless, in selecting Burrtec, the council majority spurned what appeared to be an even more lucrative competing offer from rival trash hauler Athens Services.
Indeed, with regard to practically every aspect of the trash hauling contract, the Athens proposal met or beat the terms offered by Burrtec. The superiority of the Athens contract in these regards was reflected in an analysis completed by a team of consultants and city staff members who examined the proposals. Curiously, however, the recommendation in writing which reached the city council omitted several pieces of information favorable to Athens, while highlighting Burrtec’s offer. In what would prove to be one of his last gestures as city manager, Allen Parker recommended that the city hold off on the decision until elements of the competing proposal could be more thoroughly compared. As it would turn out, the city council in closed session voted to buy out Parker’s contract.
Additionally, numerous statements made by city employees within the city’s sanitation division revealed that Burrtec had violated a key provision of the bidding process for the franchise contract.
An internal city document obtained by the Sentinel shows that Athens matched Burrtec in the provision of identical $10,000 proposal evaluation fees and $150,000 contract fees.
While the document, as finally presented to the city council, made the representation that Burrtec made a $6.5 million offer to purchase the city yard where sanitation division-related activities take place and promoted that as a selling point to encourage the council to embrace the deal with Burrtec, it made no mention of Athens’ identical $6.5 million city yard purchase offer.
The same document shows that Athens, over the first ten years of the franchise would guarantee the city $29,278,968 as opposed to $24,876,468 paid to the city over that same ten year period by Burrtec and that Athens would guarantee the city $54,348,968 over 20 years as opposed to $35,126,468 guaranteed to the city over the same two decades by Burrtec. A major portion of that revenue consisted of ongoing franchise payments the respective companies were willing to dole out to San Bernardino. In the case of Athens, it offered to provide $21,600,000 in franchise payments for ten years and $45,600,000 for twenty years; Burrtec, by comparison, was willing to pay the city $4.5 million over ten years and $9 million over twenty years.
An indication of what some said was an effort to shoehorn the council into a decision in favor of Burrtec or shield the council from charges of graft was that while the proposal to outsource the refuse division was first made more than three years ago, the analysis of the competing proposals from Burrtec and Athens did not reach the council until November 12, a mere four days before the vote was made, with key provisions allowing for a precise comparison of the competing offers missing.
At the root of the justification for outsourcing is relieving the city of the burden of the cost of maintaining and providing trash service – consisting of salaries and benefits for 100 city sanitation workers – 72 of them full-time employees and 28 of them part-time employees – and $20 million in pressing overdue equipment replacements. Additionally, the city stood to gain revenue by means of the franchise fee to be paid by the winner of the competition. And while there was no relative advantage in choosing either Burrtec or Athens in terms of relieving the city of the employee and equipment replacement costs, Athens head and shoulders bested Burrtec when it came to revenue into the city from franchise fees. This was stated on the record by councilman Fred Shorett, who said, “If you just had to do it [make a decision between the two companies based] on revenues, Athens would be the one.”
A major factor that was seemingly used to swing the council majority behind the Burrtec proposal, was an emotionally charged push by more than a score of current city sanitation workers, nearly all of whom were clad in their orange-colored work clothes and some of whom were accompanied by family members, who vociferously lobbied on Burrtec’s behalf.
During the council meeting Monday night, from both the context and direct content of several of the sanitation division workers’ statements, it was evident they had direct contact with Burrtec. In the words of one, the city employees were “shown the love” by Burrtec. Others claimed to have met the owner and to have been told Burrtec would take care of them. Another stated that Athens was “nowhere to be found.” This either made a genuine impression upon at least some members of the city council or it was seized upon by them as a factor that tipped their votes in favor of Burrtec.
The sanitation workers’ statements, however, are problematic. The request for proposals that went out to the various companies that competed for the franchise specifically forbade contact with city employees. Page 3 of the official request for offers states, “During the request for proposals process, proposers and their agents are strictly prohibited from any contact with city staff, city consultants and/or elected officials.” Based upon the sanitation workers’ statements, Burrtec clearly violated that provision.
The city’s consultant on the matter, Management Partners, led by principal Andrew Belknap, tendered a recommendation, which, prior to the meeting was embraced by city manager Allen Parker, that Burrtec be given the nod. But as Monday night’s hearing progressed and representatives from Athens offered penetrating references to how the request for proposals was faulty and crucial documentation relating to how Athens’ proposal would be more lucrative to the city had been omitted from the staff/consultant report and recommendation, both Belknap and Parker shifted their position, indicating the emerging information merited further study.
Ultimately, the council voted 6-1, with Shorett dissenting, to give Burrtec the franchise.
Subsequent to the vote, there were a number of developments that threw the vote into sharp relief, begetting questions about not only the integrity of the staff/consultant recommendation/report and the decision-making process but the integrity of the city council as well.
There was immediate fall-out after the meeting. It was revealed that Parker’s exodus from the city, effective December 31, had been arranged for during a closed session of the council that day. Numerous issues had led to a somewhat strained set of relationships between Parker, who has been city manager since February 2013, and the council, some more pointed than others. Upon his hiring, Parker was given no job security assurances beyond a 60-day noticing clause, which would have entitled him to a de-facto severance of $36,999.33 plus any accrued leave time. With things growing testy, in June Parker sought to make an exodus from the city on the condition that he be given a six month severance, equal to 110,988. The council overwhelmingly rejected that overture at the time, 4-2. But this week, the full council acceded to his leave taking conditional upon his receiving a full year’s salary, $221,976 plus 12 months of benefits and medical coverage for him and his wife. The timing of his departure, in conjunction with his lukewarm endorsement of and then reluctance over the Burrtec contract, set tongues wagging.
Within two days, the city’s website, which normally provides access to videos of city council meetings, took down the video of the November 16 meeting.
The council’s vote placed city attorney Gary Saenz into what was described as “an impossible situation.” In San Bernardino, the city charter bestows upon the city attorney extraordinary authority, consisting of considerable reach in providing input on policy and checking council legislative or administrative action deemed inconsistent with state law or local statutes. Moreover, the city attorney has the autonomy to initiate, at his own discretion, investigation of council action.
Saenz, who was present during the council meeting and witnessed the statements by the city’s refuse workers acknowledging that Burrtec corporate officers had contact with them, is acutely conscious that Burrtec had disobeyed the instructions contained in the request for proposal and violated the city’s bidding protocol. He is also alive to the implication of the council having approved a franchise contract with Burrtec that is scheduled to return to the city less revenue than would have been realized had the franchise with Athens been approved. Saenz, who with outside counsel, is coordinating the city’s bankruptcy court litigation, recognizes the city council’s vote in accepting a less lucrative franchise arrangement may complicate the city’s position in bankruptcy court as the bankruptcy court is requiring that the city make every effort to maximize revenue and reduce costs. In this way, Saenz, has been thrown into a state of virtual paralysis, sources tell the Sentinel. Saenz is said to want to initiate an investigation into the integrity of the decision-making process with regard to the trash franchise contract including any conceivable misfeasance or venality on the part of staff and the council in its vote. Yet, he is highly reluctant to do so, since any publicity relating to the city’s failure to achieve the most lucrative trash franchise arrangement could strengthen the hand of the city’s creditors in the bankruptcy arena.
Most shocking to many San Bernardino City Council observers were the votes by Henry Nickel and John Valdivia, both recognized for their usually exacting financial analysis of issues before the council, in supporting the Burrtec proposal over the Athens offer. Athens, which last year was selected by the County of San Bernardino to replace Burrtec as the firm managing San Bernardino County’s landfill system, held a strategic advantage over Burrtec in being able to work into its proposal to the city savings with regard to the processing of trash within the landfill system. Burrtec, which had managed the landfill system for over a decade, lost that advantage last year. Thus, Burrtec would need to pay full freight on its tipping and trash processing fees at the landfills it would use, both inside and outside San Bernardino County, and is not in a position to pass any such economies along to San Bernardino. Neither Nickel nor Valdivia dwelled on the consideration that Athens could provide the city with both operational savings and increased revenue over Burrtec’s proposal.
Repeated phone calls to Nickel went unanswered.
Valdivia told the Sentinel that his vote in favor of Burrtec was based upon the staff/consultant recommendation.
“The source of the council’s decision were the numbers in the staff report,” Valdivia said. “There were other considerations and intangibles in the Burrtec proposal in terms of preservation of manpower and savings on equipment apart from the host fees and additional revenues in what they offered. That is why I felt comfortable in my vote.”
Valdivia then said that an added benefit to bringing Burrtec into the city’s fold was that it “kept our employees satisfied.” When queried about whether that factor was properly considered, given the prohibition in the request for proposals against an applicant having contact with city employees during the bidding and evaluation procedure, Valdivia asserted that he and the council were “not in the position to be policing that type of action. It is not in my purview to be monitoring what type of contacts they made with city employees. I don’t think that is germane to the discussion.”
Valdivia inquired at that point as to the basis for the assertion that Athens’ numbers compared favorably to Burrtec’s. When Attachment 4 to the evaluation committee report showing the $29,278,968 to $24,876,468 and $21,600,000 to $4.5 million advantages that Athens presented over Burrtec’s proposal, Valdivia said, “If I had my binder in front of me I could point out a number of reasons why it made more sense to go with Burrtec. I relied on the staff report. I don’t feel comfortable in telling you how it was I made the decision I did without referencing the specific items I had highlighted in the comparisons between the two proposals. I know if I had the numbers available, I can show you a comparison of them and how the having Burrtec is of benefit to the city.”
A thorough analysis of the staff report shows that the author of the report engaged in some liberal construction bordering on sleight-of-hand to deliver a recommendation favoring Burrtec. The evaluation committee took $24 million of guaranteed revenue and added $10 million in non-guaranteed revenue to inflate Burrtec’s value to $34 million, which was higher than the $29 million Athens guaranteed. This mixing of the numbers was not clarified in the committee’s report to the council, being disclosed in a somewhat vague manner. In the presentation to the council the $10 million in non-guaranteed revenue was noted by the committee, on Attachment 4 as, “difficult to quantity” and “ contingent on construction of a new biofueling station.”
In an effort to quiet criticism of the council’s Monday vote, on November 19, Monica Lagos, the city’s manager of communications, put out the following release: “On Monday, Nov. 16, the mayor and common council gave city staff the green light to move forward with negotiating a 10-year service contract with
Burrtec Waste Industries, Inc. The move to a contractor-based service will ensure that the city’s 46,800+ resident and business accounts receive adequate solid waste and recycling, street sweeping, and right-of-way clean-up services in the long-term.
Burrtec’s current proposal will maintain customer rates at current levels for the first year, absorb existing full-time employees, provide the city a $5 million one-time payment and guarantees revenues in the amount of $24.9 million over the term of the contract. ‘The financials fall in-line with those indicated in the recovery plan submitted to the federal bankruptcy court in May 2015,’ city manager Allen Parker said after Monday’s meeting. ‘This is a vital component to getting the city back on a sound financial path, and alleviating us of an estimated $20 million investment needed by year-end to replace equipment for the three divisions. Our current internal service structure does not bring in enough revenue to cover those costs.’”
The press release continues, “The six month process included a review of each proposer’s financial value, qualifications and experience, financial ability, litigation and regulatory history, local employment, purchasing, and preference. Proposals were received from Athens Services, Burrtec Waste Industries, Inc.,
CR&R Waste and Recycling Services, and Republic Services. Following the initial review and interviews, Athens and Burrtec advanced to a final review resulting in a side-by-side comparison of their offering. The evaluation committee, consisting of deputy city manager Bill Manis and external consultants, concluded Burrtec was the best overall proposer. “We sought a service provider that would maintain rates initially, absorb current employees, bring added value to the table and ultimately provide improved customer service,” said Bill Manis, a member of the evaluation team who oversees multiple customer-service divisions including public works. “Other key factors that set Burrtec apart were proposed operational enhancements that could yield an estimated $10 million in cost savings and added revenue, the possible takeover of the city’s existing landfill at no added cost to the city, and the building of a BioCMG facility to recover and convert biogas into vehicle fuel for the Burrtec and city fleets and public vehicles.”
The press release continues, “’We see a great opportunity to contribute to San Bernardino’s revitalization and look forward to finalizing an agreement with the city,” said, Mike Arreguin, vice president, Burrtec. “Our strong proposal demonstrates our long-term commitment to bring quality service the community.’
A contract consistent with Burrtec’s proposal and the terms of the request for proposal is expected to be presented to the Council, for final approval, no later than January 2016.
The press release concludes, “For over 50 years, Burrtec Waste Industries, Inc. has consistently prided itself on providing excellence in service and satisfaction with a strong loyalty to the future of the communities in which it serves. Burrtec and its sister company, EDCO Disposal Corporation, comprise one of the largest privately held solid waste companies in California. Originally started in 1955, the company is still owned and operated by the Burr family. Burrtec prides itself on valuing the markets which it serves and the unique needs of its customers, whether those customers are industrial, commercial, municipal jurisdictions or residential subscribers. Burrtec understands that these communities place their trust in Burrtec, and seeks to follow a corporate policy of always putting its customers first.”
By Mark Gutglueck