Audit slams Santa Rosa garbage company management
An auditor hired by Santa Rosa to analyze the performance of the region’s largest garbage hauler has issued a scathing critique of the company’s management, recycling efforts, customer service and safety record.
The 42-page audit concluded that North Bay Corp. is in violation of numerous terms of its franchise agreement, the lucrative contract that gives it the exclusive right to collect garbage, recycling and yard waste from nearly 50,000 homes and businesses in the city.
The alleged violations, which could lead to substantial financial penalties for the Santa Rosa-based firm owned by James Ratto, include operating a fleet of aging garbage trucks, not recycling to minimum levels, operating an unpermitted, rat-infested recycling facility and failing to answer customers’ calls promptly.
The shortcomings are so significant that city staff will be recommending the City Council not extend the company’s lucrative contract for another five years after 2017, and instead reopen it to competitive bidding.
“I would not recommend (extension) to council because they are so far out of compliance,” said Gloria Hurtado, deputy city manager.
Company officials said they were surprised by the conclusions in the audit and question its accuracy, saying they were not given enough time to respond before the audit was released to the public.
The company said it plans to issue a detailed response by June 21, before the City Council takes up the issue July 12.
“I believe there is some legitimacy to the audit that we need to address, but there is also some pettiness that gives it a little more bluster than it should,” said Rick Downey, the company’s new general manager.
A respected former official with Republic Services, the company that took over landfill operations from the county, Downey stressed that he is committed to turning the company around, including hiring new management staff, addressing compliance problems, and upgrading the company’s recycling facility and fleet of 30 trucks. Even so, the audit marks a watershed moment for a home-grown garbage hauler that used low rates and political connections to run off national competition and establish a virtual monopoly on the hauling of garbage, recycling and green waste in Sonoma County.
Since winning Windsor’s franchise in 1997, North Bay has captured every government garbage contract in the county with the exception of the city of Sonoma. The company generates annual revenues of about $130 million, though most goes to tipping and franchise fees, Downey said.
But the implosion of the bulk recycling market, upon which the company relied for a portion of its revenue, has been a game-changer for North Bay, upending its business model and forcing it to take a hard look at its internal operations and service contracts, Downey said.
Revenues from selling bulk glass, paper and metals mostly to overseas markets have plunged 60 percent in recent years. Low oil prices have made new plastic cheaper and recycling industries in Asian countries have matured, sending demand for imported bulk recycled material plunging, Downey said.
Even if the city offered a contract extension, the company wouldn’t accept it because current rates are too low to sustain operations, let alone enhance them, he said.
“I could not operate another five years under the current contract because it is just not a good contract financially,” Downey said, adding that doing so would be “a potential disaster.”
The Santa Rosa contract generated just over $27 million for the company last year, according to figures from the city. The company pays 15.5 percent of its revenue to the city in exchange for the exclusive contract, in addition to other fees. Revenue likely will be higher this year because of recent pass-through rates for issues unrelated to hauling, he said.
The company plans to compete for the city’s business in the upcoming bidding process but predicts rates can only go one direction.
“To meet the current conditions in the refuse industry going forward, the rates will inevitably increase, no matter who the operator is,” Downey said.
The current residential rate for a 32-gallon garbage can - the most common size - is $16.83 per month in Santa Rosa, which Downey estimates is 30 to 50 percent below the Bay Area average. The audit confirmed that most of the company’s rates are below market.
The audit comes at a challenging time for the company, which has been beset with financial and regulatory challenges.
In addition to the recycling market woes, since last summer the company has been dealing with the Sonoma County health department’s requirement that it get a solid waste facility permit for its recycling facilities on Standish Avenue.