Item 19 Staff Report Consider Green Valley Disposal Company Performance AuditTOWN OF LOS GATOS
COUNCIL AGENDA REPORT
COUNCIL AGENDA
DATE: 11-21-94
ITEM NO. /
DATE: November 17, 1994
TO: MAYOR AND TOW COUNCI
FROM: TOWN MANAGER -
SUBJECT: CONSIDER GREEN VALLEY DISPOSAL COMPANY PERFORMANCE AUDIT
RECOMMENDATION:
1. Open and hold the public hearing.
2. Continue the public hearing to December 5, 1994.
BACKGROUND:
The West Valley jurisdictions (Campbell, Monte Sereno, and Saratoga, the Town of Los Gatos, and Santa
Clara County) entered into a 20-year Franchise Agreement (Agreement) for refuse collection and disposal
with Green Valley Disposal Company (GVDC) in 1983. The Agreement requires that a comprehensive
performance audit be conducted every five years by a consulting firm selected by the jurisdictions. The last
audit was performed in 1988. The language in the Agreement is very broad and allows the Town an
opportunity to make a complete analysis of the franchisee's operations, including evaluating its management
and operational efficiency and identifying opportunities for improvements and cost savings.
The West Valley jurisdictions and Santa Clara County jointly participated in the request for proposals and
oral interviews process, since each agency has the same provisions in their Agreements concerning an
Audit. In January 1993, the firm of Hilton Farnkopf and Hobson (HF&H) was selected by the agencies to
perform the Audit. HF&H worked with the public agency staffs and GVDC to accomplish the Audit
objectives at the most reasonable price. A contract was executed with HF&H in June 1993. The firm is very
experienced in this type of auditing process and contracts exclusively with public agencies. (See
Attachment 3.)
Audit completion was delayed for a number of reasons. First, GVDC requested an interim rate increase
effective July 1, 1993. However, the Rate Review Committee determined that a rate adjustment would not
be appropriate without a rate review to justify a rate increase. Second, GVDC was undergoing its financial
audit in the summer of 1993 so that GVDC's staff were unable to begin to provide HF&H with copies of
PREPARED BY: Regina A. Fal
Community S
RAF:dr
CSD15:A:\CNCLRPTS\PERFORM.AUD
irector
Revised: 11/17/94 3:14 pm
ATTACHMENTS: See page * for list of attachments
DISTRIBUTION: See page * for distribution list
Reviewed by: (Attorney Clerk Finance Treasurer
COUNCIL ACTION/ACTION DIRECTED TO:
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MAYOR AND TOWN COUNCIL
SUBJECT: CONSIDER GREEN VALLEY DISPOSAL COMPANY PERFORMANCE AUDIT
DATE November 17, 1994
documents until late August. For these reasons, HF&H was unable to begin work until September 1993.
The draft report was completed in January 1994. HF&H's preliminary findings were based on information
provided to HF&H at the time. After the draft audit was issued, GVDC staff provided information requested
by HF&H. Most of the original findings were subsequently resolved.
DISCUSSION:
Scope of HF&H Contract
Several subject areas were addressed in the Audit, as required by the Agreement, including GVDC's financial
management practices; procedures for the acquisition, maintenance, and replacement of equipment; staffing
practices; and comparison of business practices of businesses deemed similar to GVDC. In addition, staff
from each jurisdiction agreed to retain HF&H to:
1. determine the reasonable and necessary costs of GVDC's operations;
2. determine each jurisdiction's cost of service through a time and motion study to establish
appropriate collection rates; and
3. develop a standard rate application and review process to use for future rate reviews.
When the draft Rate Review Manual is completed, a copy will be provided to GVDC for
discussion purposes.
The third item was included to address Green Valley's concerns regarding profit calculations. After rates
were adopted in 1992, GVDC representatives indicated to the Town Managers that they were not satisfied
with the 1992-93 budgeted profits. The recommendation to disallow any profit on franchise and disposal
fees continues a policy begun in FY 1990-91 when four jurisdictions' Councils approved disallowing any
profit on the increase in disposal fees. In FY 1992-93, the jurisdictions applied the average percent profit
eamed by GVDC from Fiscal years 1986-1992 to operating expenses, excluding franchise and disposal fees,
so that GVDC would not eam windfall profits on large increases in disposal fees. The Committee's decision
to disallow any profit on disposal fees is due, in part, to the increases in state and local surcharges over the
past several years. (Please also see Attachment 1 for additional information).
The findings and recommendations by HF&H are summarized in the Executive Summary of the Final Audit
Report.
Resolution of Issues
From April through November 1994, staff from GVDC, HF&H, and the public agencies met five times to
discuss and resolve several issues prior to determining the recommended rate adjustment due GVDC. The
two remaining unresolved issues are:
First, the method by which to calculate profit. The Agreement specifies that an operating ratio
method be used with a guideline of a five -percent after-tax return on revenue. The Performance
Audit recommends a 91 percent pre-tax operating ratio which is consistent with that guideline in that
it yields a 5.8 percent after-tax profit on revenue, excluding franchise and disposal fees. (Please see
Attachment 1 for further information). As mentioned above, Council initiated this policy in setting
FY 1990-91 rates. This trend continued in setting FY 1992-93 rates; and
Secondly, GVDC's request to be compensated for consulting fees incurred as a result of the rate
review for FY 1993-94. The Committee recommends denial of this request since GVDC is obliged
to provide the information concerning the rate submittal at no cost to the jurisdictions, as specified
in Section 6(D), Franchise Collection Rates of the Franchise Agreement.
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MAYOR AND TOWN COUNCIL
SUBJECT: CONSIDER GREEN VALLEY DISPOSAL COMPANY PERFORMANCE AUDIT
DATE November 17, 1994
The Rate Review Committee met with GVDC staff to resolve these issues on November 7, 10, and 11. To
date, no satisfactory resolution of these issues has been achieved.
ENVIRONMENTAL ASSESSMENTS:
This is not a project as defined under CEQA, and no further action is required.
FISCAL IMPACT:
Accepting the attached Final Audit Report has no fiscal impact on the Town. The request for Council action
to approve new refuse rates is scheduled for a December 5, 1994, Public Hearing.
ATTACHMENTS:
1. Supplementary Information to Support the Findings.
2. Final Audit Report.
3. HF&H Qualifications.
4. GVDC's response.
DISTRIBUTION:
Green Valley Disposal Company, Attention: Dennis Varni, 573 University Avenue, Los Gatos 95030
Vera Dahle-Lacaze, Monte Sereno Offices, 18041 Los Gatos/Saratoga Road, Monte Sereno 95030
John Snelham, 247 Old Adobe Road, Los Gatos 95030
Scott Hobson, HF&H, 39350 Civic Center Drive, Suite 100, Fremont, CA 94538-2331
Margaret Bora, 503 University Avenue, Los Gatos 95030
Virginia Cucco, 515 University Avenue, Los Gatos 95030
Glen and Phyllis Brooks, 101 Bacigalupi Drive, Los Gatos 95032
Mary and Thomas Murphy, 88 Oak Grove, Los Gatos 95032
Joe and Marge Mass, 213 Gregg Drive, Los Gatos 95032
Bill and Anne Bilkeinz, 170 Lester Lane, Los Gatos 95032
Jim Lyon, 239 Johnson Avenue, Los Gatos 95032
Joe Veneralla, 216 Dover Street, Los Gatos 95032
Vicki Wendell, 155 Jackson Street, Los Gatos 95032
Mardie Dailey, 14545 Eastview Drive, Los Gatos 95030
Leon Fife, 15520 El Gato Lane, Los Gatos 95032
Andrew Palmisano, 702 More Avenue, Los Gatos 95032
November 21, 1994
Los Gatos, California
HEARINGS CONTINUED
MAIN STREET E. 33-35/A MATTER OF TASTE/APPEAL (18.09)
Mayor O'Laughlin stated that this was the time and place duly noted for public hearing to
consider appeal of Planning Commission decision to approve request to expand and operate a
restaurant with the sale of beer and wine with meals in the C-2-LHP Zone. Conditional Use
Permit Application U-94-16. Property Located at 33-35 E. main Street. Property Owner:
Stephen Hoo. Applicant: Elizabeth Brost/A Matter of Taste.
The following people from the audience spoke to this issue:
Libby Brost, 35 E. Main Street, appealed the traffic mitigation fees associated with this project.
Steve Hoo, 10130 Lockwood Drive, Cupertino, explained how the seat transfer would work, and
the hours of operation, and how he believed there would be no additional impact.
Joe Hargett, 95 Church Street, spoke in favor of this proposal.
Shirley Henderson, owner of the Antiquarium on Main Street, asked for support of this request.
No one else from the audience addressed this issue.
Motion by Mr. Blanton, seconded by Mrs. Benjamin, to close the public hearing. Carried
unanimously.
Motion by Mrs. Benjamin, seconded by Mr. Blanton, that Council uphold the Planning
Commission's decision and approve the application for the following reasons: Traffic mitigation
fees have been paid by all applicants since 1988; In being "Fair" to all applicants these fees
cannot be waived; These fees are appropriated to the Capital Improvement Fund for the
maintenance of all Town streets; Those applicants causing additional traffic contribute to
improving the community; Two separate Conditional Use Permits remain with the properties
and cannot be merged by transferring the seats from one permit to the other; Current ownership
cannot be tied to a Conditional Use Permit; Expansion of restaurants downtown needs to be
controlled and applicants must pay their fair share; Conditional use #6 should read "Beer and
wine! may be served only with meals". Carried unanimously.
GREEN VALLEY DISPOSAL FRANCHISE/PERFORMANCE AUDIT/HEARING (19.24)
Mayor O'Laughlin stated that this was the time and place duly noted for public hearing to
consider Green Valley Disposal Company Franchise Performance Audit.
The following people from the audience spoke to this issue:
Scott Hobson, of HF&H, 39350 Civic Center Drive, Fremont, presented an analysis of the report
prepared by his firm for the West Valley jurisdictions participating in the Franchise Agreement.
Paul Eisenhardt, of Barakat & Chamberlin, Oakland, representing Green Valley, presented their
view and analysis of the franchise.
Cindy Kline, of Barakat & Chamberlin, addressed the analysis by HF&H as a representative of
Green Valley. She submitted a letter from Green Valley for the record.
Dennis Varni, Green Valley Disposal, suggested the attorneys discuss the regulatory issues before
determining the rates.
No one else from the audience addressed this issue.
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November 21, 1994
Los Gatos, California
HEARINGS CONTINUED
GREEN VALLEY DISPOSAL FRANCHISE CONT.
Council Consensus that this item be continued to December 5, 1994, and suggests the Town
Attorney meet with the principles and discuss the regulatory issues and prepare a memorandum
addressing the options to Council. Mr. Anderson, Town Attorney, explained that Mr. Ribach
was the lead Counsel on this project and they would discuss it.
CLAIM REJECTION/JOAN SCHREINER/DAVID NAGLE (05A.01)
Joan Schreiner, 66 Pennsylvania Ave., told of the issues involved in repair of street and towing
of her car. She expressed her views regarding the need for sufficient notification.
Motion by Mr. O'Laughlin, seconded by Mr. Blanton, that Council reject claim of Joan Schreiner
and David Nagle filed October 3, 1994 with the Town Clerk, and research an appropriate
method of mail notice to the residents when streets will be affected by town maintenance work,
and place a notice in the paper giving a tentative work schedule to heighten public awareness
of the upcoming project. Carried by a vote of 4 ayes. Mrs. Lubeck voted no.
LOS GATOS BOULEVARD WIDENING PROJECT/MADONNA CONSTRUCT/WILLDAN ASSOC.
BRIAN KANGAS FOULK/RESOLUTIONS 1994-160, 1994-161, 1994-162 (14.35)
Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council adopt Resolution 1994-160
entitled, RESOLUTION OF THE TOWN OF LOS GATOS AUTHORIZING THE TOWN
MANAGER TO EXECUTE CHANGE ORDERS FROM MADONNA CONSTRUCTION
COMPANY FOR LOS GATOS BOULEVARD WIDENING PROJECT, from $481,388 to
$545,288 plus a contingency of $10,000. Carried unanimously.
Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council adopt Resolution 1994-161
entitled, RESOLUTION OF THE TOWN OF LOS GATOS AUTHORIZING THE TOWN
MANAGER TO SIGN LETTER OF AGREEMENT FOR PAYMENT TO BRIAN KANGAS
FOULK FOR PREPARATION OF PLANS AND FOR CONSTRUCTION STAKING FOR THE
LOS GATOS BOULEVARD WIDENING PROJECT, for $16,700 with a contingency of $1,700.
Carried unanimously.
Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council adopt Resolution 1994-162
entitled, RESOLUTION OF THE TOWN OF LOS GATOS AUTHORIZING THE TOWN
MANAGER TO MODIFY AN AGREEMENT WITH WILDAN ASSOCIATES TO PROVIDE
PROJECT MANAGEMENT SERVICES FOR THE LOS GATOS BOULEVARD WIDENING
PROJECT, from $55,332 to $101,432 plus a contingency of $1,000. Carried unanimously.
Motion by Mrs. Lubeck, seconded by Mr. Attaway, that Council approve the recommended
action regarding account adjustments as reflected in the staff report. Carried unanimously.
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