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A step toward outsourcing trash service in Killeen

For the first time since the issue was presented, the Killeen City Council has taken the next step forward in the process of privatizing solid waste services.

The council reached a consensus to draft a request for proposal at Tuesday’s workshop. That proposal request will allow companies to bid on a contract either to outsource waste removal services or to enter into a franchising agreement with Killeen. The council also elected to seek an outside consultant to draft the request to ensure transparency and fairness, according to council members. The request for proposal process will cost the city more than $40,000.

The city and council have debated the benefits of outsourcing since learning June 30 that the city’s finances were spiraling downward and had been for at least three years. The 2017 budget began with more than a $7 million shortfall.

In August, the council heard a presentation from Texas Disposal Systems, an Austin-based waste removal contractor, but have been split since then on the necessity of outsourcing and the best way to find a company.

While some council members believe outsourcing will streamline solid waste removal and slim the city’s budget, city staff members have argued there is no guarantee the decision would be cost-effective in the long term.

On Aug. 16, then-City Auditor Amanda Wallace outlined the city’s concerns surrounding the potential decision to outsource.

Wallace told the council that, despite the potential cash influx from selling all of the city’s solid waste assets to a private company, a number of hidden costs could strain the general fund over time.

WHAT WOULD IT COST?

The city of Killeen’s solid waste fund, which contains the operating fund and debt service fund for the solid waste program, is budgeted for $17.91 million in expenses and $17.89 million in revenue in 2017.

However, an ordinance dissolving the curbside recycling program that took effect Oct. 1 saved the fund more than $279,000 annually, leaving it with a $255,348 profit year over year that goes back into the enterprise fund’s reserves. The city’s enterprise funds, which make money for services provided, are separate from the general fund, which goes for police, fire, city salaries and other expenses.

If the city were to choose to outsource the entire solid waste program, Wallace said, it would not only needlessly cut a profitable program but slice more than $3.8 million from the general fund annually.

The solid waste fund transfers an annual “franchise fee” equal to 9 percent of the fund’s total revenues to the general fund, which was predicted to equal $2.97 million for fiscal year 2017.

In the event of the program’s dissolution, that franchise fee would no longer transfer over into the general fund.

The city’s mowing program, which comes from the solid waste fund and costs $912,549 annually, suddenly would not have a home.

The council would have to choose between putting the program under the general fund or outsourcing it as well.

Wallace also noted that the cost of ending the program could cost as much as $18 million due to terminating staff and benefits, paying off long-term debt on solid waste repairs and updates and canceling contracts — particularly with Waste Management, which handles the city’s solid waste disposal.

COVERING LOSSES

But many of those costs could be covered by outsourcing, Finance Director Jonathan Locke said at the council workshop Tuesday.

The city currently has nearly $17 million in hard assets and interest, which a contracting company could buy in the event of an agreement.

Texas Disposal Systems, the company that previously offered its services to the council in August, said it would be willing not only to buy out all the city’s assets, but potentially to hire all 88 of the staff and enter into a lease agreement to operate the city’s solid waste transfer station, which the city owns.

The city pays $557,055 in solid waste employee salaries, $88,566 in medical insurance and $51,687 in retirement benefits annually, and all of those recurring costs would no longer be on the books.

The only cost that does not appear deferrable is the almost $3 million franchise fee that goes into the general fund each year, a significant sum considering the city’s recent scramble to identify funds to cover the more than $7 million shortfall in the fiscal year 2017 budget.

But the city could choose to pursue a contract that secured a franchising arrangement, meaning an outside contractor would still pay that fee toward the general fund.

A franchising agreement would allow the city to impose certain standards of service on the contractor, including capping certain monthly rates, trash container options and recycling services so those options would not be at the whim of the company’s bottom line.

According to the city, the council could include almost any of these options in the request for proposals — including recycling services, franchise fees, mandatory rates and any other requirement the city could desire.

Because of the flexibility of the request, almost every cost of dismantling the solid waste program theoretically could be covered.

WHO TO COMPARE TO?

Killeen would not be the first city in the region that has debated the benefits of privatizing solid waste.

Georgetown has outsourced its solid waste removal with Texas Disposal Systems since 1996, when the company took over a contract from Longhorn Disposal, which, at the time, was a subsidiary of Waste Management.

The city has not evaluated cost differences between in-house versus contracted services, but Georgetown spokesman Keith Hutchinson did say that Texas Disposal Systems owning and operating its own landfill has kept customer rates lower than other competitors in the area.

The rate for Georgetown residents within the city limits is $16.50 a month, and that includes weekly solid waste removal, bi-weekly recycling pickup and monthly brush pickup.

Georgetown residents generally are satisfied with the service. In a recent survey of 500 residents, over 91 percent rated the trash and recycling services either “good” or “excellent.”

It was not clear Friday whether the city fully outsourced the service or was in a franchise agreement with Texas Disposal Systems.

The city of Temple, which was cited by Killeen city staff Tuesday as an example of a city that used to contract with an outside company and stopped, controls all of its residential, commercial and industrial waste removal.

Temple never outsourced its solid waste services, but used solid waste company Browning-Ferris Industries as a franchise hauler.

As a franchisee, the company paid an annual percentage fee based off total receipts to the city. In return, the city required the city to provide certain services and maintain certain rates for customers.

However, the city ultimately decided that the franchise arrangement was no longer profitable and took over all waste removal services around 2006, making it one of the only regional municipalities that flirted with privatization and ultimately said “No, thanks.”

STEPS FORWARD

While the Killeen City Council has moved forward in pursuing privatization, the manner by which to court companies has sparked heated debate among council members — particularly because some members are not yet completely sold on shutting down the solid waste program.

Councilman Juan Rivera said he hasn’t finished doing all his homework on the matter. He has mixed emotions about the whole thing, but if the move were to cost the city and its residents more money down the road, he wants nothing to do with it.

During Tuesday’s session, Mayor Pro Tem Brockley Moore questioned whether the city could exit the contract if privatization didn’t work and what doing so would cost.

Locke said the capital needed to reinvest in waste removal services would exceed $20 million, and the city also would need to restaff the entire department. Because of the massive capital investment, privatization would be a difficult task to undo in case the contract wasn’t financially feasible.

That exact reason is why a request for proposals would need to be constructed carefully.

Council members debated the cost of the proposal request and whether the council should go into direct negotiations with a waste removal business like Texas Disposal Systems. City purchasing policy requires any contract in excess of $50,000 to go through the request for proposal process, but contracts that concern public health — like waste services — do not.

Councilmen Jonathan Okray said he’s been in talks with representatives from Texas Disposal Systems since the company first gave a presentation in August. He sees no need to draft a proposal request because the city already knows who can present the best contract. A request for proposals would waste the residents’ money and eventually tell the people what they already know, Okray said.

“We’ve already known about this for two months,” Okray said at Tuesday’s workshop. “We’re slow waltzing.”

Councilman Jim Kilpatrick wants to go through the request for proposal process to ensure the city’s residents that every step is taken to provide the best service. Killeen residents lately have had a mistrust in the city, he said, and he wants to take proper steps to gain back residents’ trust.

“I think that’s what they expect out of us,” he said.

The City Council reached a consensus at the workshop and will seek an external consultant to help them draft the request for proposals. Once the request is drafted, it will be posted for at least 30 days, during which time any company that wishes to bid may do so, according to city staff.

Article source: http://kdhnews.com/news/local/a-step-toward-outsourcing-trash-service-in-killeen/article_838c2506-a3c5-11e6-ae4e-1b265e02e6e4.html

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