HomeMy WebLinkAboutDiamond Bar Franchise Compliance Review 2025 Report_FINAL
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Report on Solid Waste Hauler
Franchise Compliance
June 30, 2025
Prepared for the City of Diamond Bar by
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TABLE OF CONTENTS
Executive Summary...................................................................... 3
Section 1 – Financial Records Review......................................... 4
Section 2 – Hauler Service Records Review ............................... 7
Section 3 – Hauler Reporting Compliance................................... 8
Section 4 – Provisions Extending Beyond Expiration
of Agreements......................................................... 9
Section 5 – Summary of Findings and Recommendations...........10
Executive Summary
As part of its process to re-assign the solid waste collection duties of its current franchise waste haulers, Valley Vista Services and Waste Management, the City of Diamond Bar retained
our firm, CityGreen Consulting, LLC, to perform a review of hauler compliance with significant franchise obligations of the existing agreement and recommend actions and procedures going
forward to ensure compliance with the City’s new pending franchise agreements.
To enable the review, CityGreen interacted and worked extensively with City, Waste Management, and Valley Vista Services staff to obtain and evaluate the adequacy of various financial
and service-related records and reports submitted by the waste haulers. CityGreen enabled City and waste hauler representatives to upload needed records directly to its SharePoint portal,
which the City and haulers were given shared access to. The most significant of these are franchise fee payments, AB939 compliance support payments, road maintenance and street sweeping
payments, annual environmental education payments, and quarterly and annual reports. These are the items we believe are most relevant in evaluating hauler performance and compliance
with franchise obligations. This assessment covers the past three years of hauler service (2023-2025).
Based on this examination, CityGreen has determined that all franchise-related payments and reports were submitted to the City by both haulers. There were some late payments made and
omissions of required details, apparently overlooked, in some of the submitted reports. Our work also called out several franchise provisions that are to continue beyond the conclusion
of the agreements. To address these, we requested and are awaiting acknowledgement letters that both haulers have agreed to provide to reaffirm their awareness of and intention to comply
with these surviving provisions.
The following report discusses the methods and findings of the review and provides recommendations as appropriate to assist City staff in the administration of the subsequent franchise
agreements. We greatly appreciate the cooperation and help from staff members of both Waste Management and Valley Vista Services along with City staff in facilitating this review.
I am available to address any questions you may have.
Sincerely,
Michael Balliet
President
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Section 1 – Financial Records Review
Franchise Fee & AB939 Payments
Both Waste Management (WM) and Valley Vista Services (VVS) have obligations stated in their franchise agreements to pay the City quarterly franchise fees, along with AB939 program support
fees that help fund outreach and administration of its various Solid Waste programs. Additional quarterly fee payments exclusively required from WM for road maintenance and street sweeping
were reviewed, as well as separate annual fee payments to the City for Environmental Education collected from both haulers. Our examination indicated that both haulers met their franchise
obligation by submitting the payments due for each quarterly period reviewed.
As its franchise fee, WM is required to pay 5% of its gross receipts earned from the franchise-related services it provides in Diamond Bar during each quarterly period. For its AB939
fee, WM is required to pay 4.7% of its gross receipts earned from franchise-related services. These payments are typically combined into one single quarterly check to the City, with
payments due within 30 days of the end of each calendar quarter. Our review tested the calculations of each fee payment and confirmed that these payments over the 11 quarters reviewed
were all paid accurately and on time by WM, with a couple of noted exceptions: 1) for the 2nd quarter of fiscal year 2022-23 when it overpaid by $363.44, and 2) for the 3rd Quarter
of that same fiscal year 2022-23 when it initially underpaid due to an accounting error. WM resolved this error promptly by making a second additional payment in the amount of $22,844.53
to cover the outstanding balance due plus late fees. In addition, we requested from WM a final “true-up” document to verify further the accuracy of franchise fee payments and to account
for any refunds or additional qualified earnings that may have occurred after the close of any quarterly period and which, therefore, may not have been reflected in the quarterly fee
payments made previously. We are awaiting this document from WM. The following table shows WM’s franchise fee and AB939 fee payments during the review period:
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The same level and method of review was performed on VVS franchise fees and AB939 support payments. Like WM, VVS also pays 5% of its gross receipts as a quarterly franchise fee but pays
13% of its Diamond Bar gross receipts for its AB939 fee, also due within 30 days of the end of each calendar quarter. CityGreen’s review confirmed that all these quarterly payments
were made accurately on a timely basis, as shown in the following table.
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Note that in response to our same request for a “true-up” review, VVS Controller Jesse Quintana assured us that VVS takes ongoing measures to ensure fee payment accuracy, stating that
“billing and cash receipts software is period-specific, meaning that all customer activities identified in a specific accounting period are locked into the period booked. Each month
is closed off, making sure that new activity is not booked back into a period that has been closed. (For example) if there is a cash receipt shown in January 2024, it is reported in
that period. If there is a partial refund issued 6 months later, it will show up in period-6 details. (VVS) will continue to submit franchise fees for Diamond Bar commercial (services)
until there is no more payment activity, however long it may take.” Accepting this explanation and assurance, the quarterly payments made by VVS during our review period, as shown in
the preceding table, are deemed to be accurate.
Environmental Education Fees
Additionally, both haulers are obligated under their franchise agreements to make separate quarterly payments that help the City pay for general environmental education and outreach
to the Diamond Bar residential and business communities. These Environmental Education Fees are adjusted annually by the twelve-month change in CPI through December prior to the start
of each calendar year, with payments due on or before July 1 each year. We found in our review that both haulers paid their Environmental Education Fees to the City; however, neither
hauler always paid their fee on time each year by the due date required by the City. WM was late paying its fees twice in our review period, nearly a month late in 2022 and almost two
months late in 2023; this would result in late fees totaling nearly $2,000 if the City chooses to enforce them. More significantly, VVS initially failed to pay any of its individual
annual Environmental Education Fees for each of the years 2020 through 2023. When this non-payment was realized, VVS made a single large payment of $37,824.72 to cover each of the missing
payments for 2020-2023 plus its new amount due for 2024. Late-payment penalties called for in the franchise agreement were not included in this multi-year payment. Agreement section
3.2.6 – Late Payment of Fees states that if required fees are not paid on or before the due date, “… Contractor shall pay to City a penalty in an amount
equal to ten percent (10%) of the amount owing for that month, plus interest at a rate of one and one-half (1.5%) per month for each month the payment is late thereafter.” Based on these
specified penalty and accrued interest amounts (as shown in the calculation table in Attachment 1), the City could require VVS to pay late-fees which would, at a minimum, exceed $20,000.
However, our advice is tempered given that we are not certain of the circumstances surrounding this matter and the possibility that the City may have already waived any related penalties
that would otherwise be appropriate. Should the City decide to collect late-fee penalties, it is advised that the City Finance Director review the matter to verify or determine the
exact amounts owed. As a reasonable alternative, the City could request that VVS instead pay for all costs of this review as a means to compensate for the late payments.
The following tables track the payments made by WM and VVS for annual fees owed for Environmental Education during the review period:
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Quarterly fees to reimburse for City street sweeping costs and impacts from waste collection vehicles on residential area roadways are paid quarterly by WM. These fees are also subject
to adjustment by the twelve-month change in CPI through the month of December prior to the start of each new year. The “Street Sweeping Funding” and “Road Residential Collection Vehicle
Road Maintenance Cost Reimbursement” payments, as they are called in the franchise agreement, are typically combined into a single quarterly payment to the City by WM due within 30
days of the end of each calendar quarter.
Our review tracked these payments as well and found that they were paid on time in accordance with the provisions of the franchise agreement. There was one instance when the City misstated
the annual adjustment amount and mistakenly instructed WM to pay the wrong quarterly fee amount for fiscal year 2022-23, resulting in WM having to make a supplemental payment of $11,796.05
without penalty during the 4th quarter of that year, as shown in the following table:
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Faithful Performance Bonds
Both haulers are required under the franchise agreements to provide bonds in the amount of $125,000 to the City to secure the faithful performance of the agreements. In addition, the
haulers are also required to furnish an irrevocable letter of credit (LOC) in the amount of $125,000. Initially, we were provided only the bonds for the future franchise periods set
to begin in September. At our prompting, assisted by City staff, we have now obtained copies of the prior years’ bonds, but are still awaiting copies of the LOC’s requested. Therefore,
our review has been able to confirm that both haulers met requirements for posting bonds through continuation certificates; however, at this writing we could not confirm the same regarding
the LOC’s as we are awaiting City staff verification of these.
Section 2 – Hauler Service Records Review
Hauler submittals of select service-related records were evaluated as part of our review. These include specifically hauler customer lists, including specifics on services provided to
those customers, call logs, and business licenses. In our review, we verified that adequate customer lists were provided to the City by both haulers over the three-year period reviewed.
Call logs were also provided, although required detail on telephone customer service hold times and numbers of complaints were not specifically provided and reported quarterly by either
hauler, as required in their franchise agreements. Under the franchise agreements, each contractor is to track complaints and call ringing and hold requirements and include results
in quarterly reporting to the City. Section 5.2.3 of both franchise agreements states, “In any 12-month period, accumulation by the Contractor of four or more separate customer service
violations shall be deemed a material breach of this Agreement and shall subject Contractor to all remedies which are available to the City under this Agreement or otherwise. A violation
is one month in which the number of complaints exceeds the maximum permitted under Section 5.2.3(A) or one calendar quarter in which fewer than 90% of calls placed by the City and its
Customers to Contractor are answered by a live customer service representative before the fourth ring…”
City management will need to confer with the City Attorney to determine if these omissions need to be addressed with both haulers and if any related actions or penalties on the haulers
would be appropriate. In our opinion, these omissions are unlikely to be actionable at this time, as it does not appear that they were ever brought to the attention of the haulers to
be remedied.
Licenses
To conduct waste hauling collection operations in Diamond Bar and provide the services required in the franchise agreements, both haulers are required to hold business licenses with
the City on an ongoing basis. Our review found deficiencies by both haulers. VVS’ last business license on record with the City expired in 2018. City staff has informed us that they
are in process of working with VVS on their business license. There were also some gaps in WM’s business license history, but the City has informed us they are current with a valid
business license at this time.
Section 3 – Hauler Reporting Compliance
Monthly and Quarterly Reports
Both haulers have reporting obligations assigned to them under their franchise agreements. Each hauler is required to provide summary reports containing information on tons of solid
waste collected (sorted by type of solid waste collected and diverted, i.e., refuse, recyclables, and organic waste, and contamination and diversion rates for each waste stream and
by type of collection container, i.e., cart, bin, roll-off box), the facilities where the tons were processed or disposed, and Bulky Item tons collected and diverted. Additionally,
the haulers are required to report the number of recycling contamination warnings issued, provide a narrative summary of problems encountered and actions taken with recommendations
for the City, and descriptions of the haulers’ outreach activities along with copies of promotional and public education materials sent during each reporting period. WM is required
to submit monthly reports containing this information, while VVS is required to report the disposal and diversion tonnage information on both a monthly and quarterly basis, and all
the other required information stated above on a quarterly basis.
During the course of our review, we obtained copies of all such quarterly and monthly reports submitted to the City from 2023 to present. Both haulers have submitted the solid waste,
recycling, and organics collection information as required and to a substantial degree the other required information on the required schedules; however, both haulers omitted from their
reporting specifics on numbers of recycling contamination warnings issued, summaries of problems encountered and actions taken along with specific recommendations for the City, and
copies of promotional and public education materials sent during the reporting period. If the City deems it essential, it may wish to request this omitted information from both haulers
as part of the close-out of their current agreements.
Annual Reports
Section 8.3.3 of both VVS and WM’s franchise agreements require the hauler to submit an Annual Report to the City containing specified elements. The Annual Report is to include year-end
reporting summaries of the items required in monthly and/or quarterly reports including disposal and diversion tonnage information, along with collection container information, gross
receipts by
sector (i.e., cart, bin, roll-off box), a detailed vehicle inventory, information on accounts receiving scout-service, detailed route information, and general information about the hauler.
City staff directed that we focus our attention on the 2024 Annual Report for both haulers. WM and VVS submitted their Annual Reports in a timely manner; however, there were some omissions
of required information.
In its report, VVS did not provide required details on number, size, and types of containers in service as of December 31, 2024. It refers to an attachment that purportedly includes
this required information, but no such attachment is apparent in the support material they have provided related to the 2024 Annual Report. Additionally, VVS did provide a summary of
gross receipts but did not provide a detailed breakdown of these receipts by service container-type as required; VVS provided a vehicles inventory summary, but it did not specify each
vehicle's use or whether or not it is used as a spare, as required by the franchise agreement; VVS also provided general route information but did not include the number of routes and
route hours per day by type of service as required by the franchise agreement, nor did it provide a specific required listing of accounts in the City receiving scout service.
WM provided an Annual Report that contained a summary of 2024 gross receipts but also did not provide a detailed breakdown of these receipts by service container-type as required; WM
provided a vehicle inventory summary that includes all required information but does not address or identify which vehicles were used as spares; WM did not address or provide the required
scout-service account information nor the proof of encroachment permits related to scout-service. For the general information about itself that is required, WM refers to a corporate
annual report "included for review" but was not attached or apparent in any files or folders provided.
The pending Annual Reports for the partial 2025 year will be due from the haulers by October 15, 2025.
Section 4 – Provisions Extending Beyond Expiration of Agreements
There are several provisions in Sections 8 and 9 of both haulers’ franchise agreements that are to remain in effect and survive beyond the conclusion of their agreements. These relate
to retention of relevant financial and solid waste collection and diversion records, performance bonds and letters of credit, and CERCLA Defense records relating to hazardous material
handling issues, along with certain indemnification provisions that protect the City from legal liabilities in event of claims against hauler operations, facilities, or claims of hauler
negligence including in the mishandling and/or clean-up and remediation of hazardous substances. Both haulers must also comply with additional close-out provisions under Section 12.8
of the franchise agreements, requiring that they provide to the new service provider and the City detailed route sheets containing service/billing names and addresses of customers and
corresponding monthly rate and service levels (i.e., number and size of containers and pickup days). This information is to be provided at least 90 days prior to the franchise transition
date, updated two weeks before the transition, and a final list of changes provided the day before the transition.
We requested and are awaiting signed letters to the City from both WM and VVS acknowledging and reaffirming their intention and due diligence to comply with these continuing provisions
and transition protocols of their franchise agreements.
Section 5 – Summary of Findings and Recommendations
In the course of our assessment, we have attempted to determine the level of compliance by WM and VVS with key obligations of their franchise agreements with the City of Diamond Bar.
We have concluded that, while WM and VVS have substantially complied with these obligations by making required fee payments to the City, retaining and providing essential waste collection
and diversion records, and submitting required operational reports for each reporting period, we did identify some noteworthy deficiencies as follows:
A significant four-year delay by VVS in paying 2020 through 2023 Environmental Education Fees that should have been paid annually, by July 1 each year according to the franchise agreement.
The City may wish to collect penalties or alternative late-payment compensation, such as paying the cost of this review.
WM also had two Environmental Education late payments identified, with potential unpaid late fees estimated at nearly $2,000. The City may wish to collect these late-fee penalty payments
as well.
The need for VVS to obtain and retain a valid business license. City staff has reached out to VVS to make them aware they must promptly obtain a new current business license.
Omission of some aspects in reporting that are required within the text of both haulers’ franchise agreements, including specifically:
Select scout-service, collection route, container, vehicle inventory details, and processing facility details by material type;
call log and telephone hold-time details and the tracking of and reporting to the City the number of complaints as a percentage of all calls received;
specifics on numbers of recycling contamination warnings issued;
summaries of problems encountered, and actions taken along with specific recommendations for the City; and
copies of all promotional and public education materials distributed to their customers during each reporting period.
The City will have discretion on whether to request this missing information from the haulers prior to the transition to the new pending franchise agreements.
To prevent omissions such as these in the future, it is recommended that the City create an inventory checklist of all required fee payments and reporting items that will be routinely
required for submission by the haulers, including the details associated with each of those required items. This will help ensure that such details are specifically addressed and no
longer inadvertently left out in future reports as has been the case previously. It may be advisable for the City to require the haulers to include filled-in versions of this checklist
as a cover sheet for its monthly, quarterly, and annual reports.
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