City Attorney David Chiu and Controller Ben Rosenfield today announced a $25 million settlement with Recology to rectify issues identified in a series of City reviews, including actual profits above target generated from San Francisco customers. This proposed settlement is above and beyond the $100 million refund to ratepayers negotiated by the two offices in March 2021, and resolves issues identified in the Controller’s April 2021 and May 2022 Public Integrity Reviews.
The settlement memorializes practices recommended in the 2021 and 2022 Public Integrity Reviews, including the deposit of $25 million into a new balancing account. This balance will be used to delay cost of living increases contemplated under the terms of the Rate Order approved by Public Works in 2017. In addition to deferring cost of living increases to rates, additional profits above target during this period will trigger deposits to the balancing account, which will also be used to offset Recology’s profits below target. The settlement further stipulates that if specified real property is sold, then ratepayers will be reimbursed for past rent paid for those properties. Significantly, the settlement also provides that the specific real properties identified in the agreement will be available for the benefit of ratepayers rent-free once their acquisition costs are fully paid.
“We’re pleased to have reached an agreement on behalf of San Franciscans to return profits above target collected by Recology in recent years. I want to extend my thanks to the team in our offices who hammered out this agreement, and to the new team at Recology who worked in good faith to do what was right. Now we can turn to better managing this relationship going forward — doing what the voters directed with the approval of Prop F on the June 2022 ballot,” said Controller Ben Rosenfield. He indicated that, under the terms of that ballot measure, his office intends to immediately initiate a new process that will result in new rates by October 2023.
“In addition to our previous settlement with Recology that put nearly $100 million back in the pockets of San Francisco ratepayers, this agreement will help offset the costs of future rate increases and create an important accountability mechanism when Recology profits are above targeted margins,” said City Attorney David Chiu. “We appreciate Recology’s new leadership coming to the table and increasing their transparency and accountability to ratepayers. I am grateful to the deputy city attorneys in my Office who worked with the Controller to negotiate and secure this agreement.”
“The successful culmination of these marathon negotiations has resulted in a settlement that finally makes San Francisco refuse ratepayers whole and will allow for the voter approved Rate Administrator Office to move forward with a new rate setting process, which includes improved oversight and consumer benefits,” said Supervisor Peskin, author of the landmark Prop F Refuse Reform measure, which voters overwhelmingly passed in June 2022. “We are continuing our work to restore the public’s trust in good governance, which ultimately leads to rooting out bureaucratic waste and maximizing effective delivery of quality public services. In other words: getting the job done.”
Mayor London N. Breed provided the following statement: “This is an important agreement between the City and Recology that benefits our ratepayers and furthers the necessary reforms we need to make to improve the integrity of our waste management system. I want to thank both Controller Ben Rosenfield and City Attorney David Chiu, as well as their teams, for working with the leadership at Recology in finalizing this deal.”
This settlement resolves all disputes between the City and Recology regarding rates and charges from prior years and requires approval from the Board of Supervisors and Recology’s lenders.
TIMELINE OF EVENTS
January 2020
Former Public Works Director Mohammed Nuru is arrested on charges of defrauding the City and County of San Francisco by soliciting and accepting bribes in exchange for favorable treatment in City contracting. The City Attorney’s Office and Controller’s Office jointly begin their Public Integrity investigation of Mr. Nuru, Nick Bovis, and Recology’s donations to Lefty O’Douls Foundation.
March 2020
The City Attorney’s Office subpoenas Recology, and Recology subsequently discloses that errors had been made in calculating rate increases for 2017, which resulted in unnecessarily high garbage rates for San Franciscans.
March 2021
City Attorney announces a $100 million settlement with Recology and money back to San Francisco ratepayers. Eligible residential and commercial customers (for the four-year rate period from July 1, 2017 to June 30, 2021) receive either physical checks or digital payments from Recology.
April 2021
A Public Integrity Review report is published by the Controller’s Office that examines the City’s rate making and regulatory process governing refuse collections, and makes recommendations to improve them.
May 2021 to December 2021
A working group administered by the Controller’s Office, supported by the Department of Public Works, Department of the Environment, City Attorney’s Office, the City Administrator’s Office, and co-chaired by the Mayor’s Office and Supervisor Peskin meets. This working group is made up of residential property owners and tenants, commercial property owners, small business, and labor representatives tasked with providing input on possible changes to rate setting for the City’s refuse services. Their goal is to improve accountability and transparency, quality of service, and fairness of residential rates.
February 2022
The Refuse Working Group provides guidance, based in part on recommendations from the May 2021 Public Integrity Review, that leads to the development of ballot measure Prop F, Refuse Rate Reform.
May 2022
A follow-up Public Integrity Review report is published by the Controller’s Office that reveals how Recology netted profits of $23.4 million over and above the profit target set in the 2017 Rate Application. The report recommended the creation of a balancing account to credit profits above target and offset profits below target to stabilize rates over time.
June 2022
On June 7, 2022, San Francisco voters approve Proposition F, establishing the Controller as the Refuse Rate Administrator, responsible for monitoring and recommending refuse rate changes to a modified three-member refuse rate board. Administration of the refuse rate-making process was previously assigned to the director of the Department of Public Works.
November 2022
The Controller and the City Attorney announce a proposed settlement with Recology securing a $25M credit and the establishment of a balancing account. This “balancing” mechanism will be instituted to reconcile actual profits earned against a target profit level so rates can be adjusted over time if Recology’s San Francisco companies earn profits above, or below, an agreed-upon target.
Early 2023
A new rate-setting system is being developed consistent with the requirements of the Amended Refuse Rate Ordinance and will be published on the Controller’s Refuse Rates Administration website when available.