At best, Rockford may be overpaying hundreds of thousands of dollars for the disposal of refuse, more likely millions, for the years 2002-2004, if the current ordinance/contract is not renegoiated.
The question revolves around the difference between using a simple interest formula or a compound interest formula, whether 6 percent interest is fair, and if Winnebago Reclamation, Inc., is willing to renegotiate the present ordinance/contract, which runs from 1995-2004.
In addition, the citys failure to address contingencies in the refuse disposal ordinance/contract, appears to put the City of Rockford at a disadvantage.
Another factor is that more favorable disposal rates could be negotiated with the Janesville, Wis. landfill.
Twice last month Alderman Frank Beach (R-10) stood on the floor of the Rockford City Council and publicly expressed his concerns about the citys 1995-2004 refuse disposal ordinance/contract. He is concerned that the citizens of Rockford are not getting the best deal.
On March 21, 1995, Rockford Mayor Charles Box; Rockford Legal Director Ron Schultz; and Winnebago Reclamation Vice President Gary L. Marzorati, signed Ordinance 1995-30-0, which serves as the ordinance/contract for the citys refuse disposal. The contract runs from 1995 through 2004. Among the items the ordinance/contract describes are the rates at which the city will pay Winnebago Reclamation.
Under Rate, the ordinance specifies what the city must pay for each ton of refuse put into the local landfill. The local landfill is known as Pagel Pit, located on Linden Road. The dump is owned by William Charles, Ltd.,
which owns many local companies, including Winnebago Reclamation. The ordinance/contract does not mention or reference the amount of interest, or how the rates in dollars per ton were computed.
The 2000 city budget reads, Rates increase 6% annually from 1995s $34.80 to 2004s $58.79, per ton on page PW-40. On the following page it reads, The disposal rate increases 6 percent, from $43.93 to $46.57 per ton.
These words imply that the ordinance/contract rates are computed using a compound interest formula, rather than a simple interest formula. The difference between using these two financing methods result in the city paying, at best, hundreds of thousands more, over the length of the contract.
Simple interest is calculated using straight forward multiplication, e.g., 2×3=6.
Whereas, compound interest involves using an exponent. An exponent serves as an order of multipliers, e.g., 23=8 or 2x2x2=8.
The only difference between the two methods, in this case, involves the age of the ordinance in number of years. In other words, when you use a number, as an exponent in the formula, such as 23, the rate increases substantially more than if simple multiplication had been used. The difference between the two methods really increases at the end of the contract, the period we are entering now.
To explain further, in simple interest, the age is a multiple. In compound interest, the age is an exponent. The ramifications of using the compound formula rather than the simple formula get larger the longer the contract.
In the ordinance/contract, the 1995 rate of $34.80 per ton is compounded one time per year at an annual interest rate of 6 percent, each year, for the length of the ordinance/contract.
However, the city could have negotiated the rates to increase using the simple interest formula and a lower percent interest.
Again, the consequence of not negotiating using the simple interest formula and a lower interest will cost the city hundreds of thousands, more likely millions for 2002-2004, if the current contract is not renegotiated.
The US Department of Labors web site reads, The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for many consumer goods and services… Escalation agreements often use the CPIthe most widely used measure of priceto adjust payments for changes in prices.
The citys ordinance/contract would be an example of an escalation agreement.
The non-seasonally adjusted CPI, for all urban workers, for all items, in the Midwest urban region, for 1985-1994, has an average of 3.37 percent. This time period is important because the ordinance/contract was signed in early 1995. The same index for 1992-2001 was 2.71 percent.
If the ordinance was negotiated using 3.37 percent and a simple interest formula, Rockford would be paying $43.01 per ton this year, rather than $52.33 per ton.
Estimates for the tons of refuse put into Pagel Pit for 2002-2004 are 55,800 tons, 56,000 tons, and a conservative projection of 56,292 tons, respectively. This means that, for those years, the city is paying about $1,908,860 more than if they had negotiated using 3.37% simple interest, rather than the 6% compound interest in the ordinance/contract. Please see the chart on this page.
This figure does include the fees that could be charged for cover at the landfill. Cover is basically biodegradable material used to spread over refuse so the refuse may not be carried by the wind or accessed by animals. Cover also absorbs excess liquid which could seep into the groundwater. To understand why the cover is a factor in the wording of the ordinance/contract, it is necessary to understand the dumping process.
According to the 2000 city budget, yard waste, recyclable materials, and residential refuse are collected and transported by Rock River Disposal Services.
The final resting place for the residential refuse is Pagel Pit. The final resting place for an unknown percentage of the yard waste is also Pagel Pit, according to the city budget.
However, the city budget reads: State law…prohibits dumping yard wastes into landfills.
The law also requires that refuse be covered each day. To this end, yard waste is transformed to be allowed in Pagel Pit. Piecing together the budget and the ordinance/contract, here is how that transformation occurs: The budget reads that the destination for the yard waste is the city-owned Baxter Landfill. Once there, the yard waste is processed. At this point, it apparently is no longer considered yard waste. The processed yard waste is then transported from the Baxter site to Pagel Pit by a company called Woodcycle, according to a source. At Pagel, the processed yard waste is spread on top of the days refuse as cover.
This process is important because Winnebago Reclamation is paid for each ton of municipal waste that goes into the landfill. Defined in the ordinance/contract, municipal wastes shall include street sweeping, leaves, trees, bushes, demolition material, garbage, refuse, rubbish, and all domestic and commercial wastes, normally collected by a municipal residential solid waste collection system and allowed by law to be disposed in a sanitary landfill…shall also include those street sweepings, refuse collected from streets or lots, and other refuse generated or commissioned by the city of Rockford in cleanup operations.
By not stating in the ordinance/contract that processed yard waste cannot be classified as municipal waste, Winnebago Reclamation could, but apparently does not, directly charge the city for each ton of processed yard waste that goes into Pagel Pit.
The same source has said that once the processed yard waste leaves the Baxter site, and is transported by Woodcycle to Pagel, the city is not responsible for the yard waste. Therefore, the city is not being directly charged for the processed yard waste that is used as daily cover at the landfill.
It is not known what percent of the yard waste is processed and then sent to Pagel as a cover. Reportedly, the city does not charge, nor is it known to be paid, by Woodcycle to collect the yard waste from the city-owned Baxter landfill.
It is not known if Woodcycle charges Winnebago Reclamation for the processed yard waste to use as cover, or if Winnebago Reclamation charges Woodcycle to dump the processed yard waste in Pagel. Sources feel that Woodcycle charges Winnebago Reclamation for their processed yard waste, which is needed to fulfill the requirements of the law for daily cover. Reportedly, this expense is then passed on to the city in the form of higher rates.
If Winnebago Reclamation cashed in on this apparent loophole in the ordinance/contract by charging the city for each ton of processed yard waste, that practice could cost the city about $2,665,440 from 2002-2004, if all the yard waste was processed and used as cover at Pagel.
The figure does not consider the money that could be made if the city charged Woodcycle for the yard waste, instead of giving it away. These practices appear possible because these contingencies are not stated in the ordinance/contract.
Unaddressed contingencies & issues
What is stated in the ordinance/contract is obviously important.
However, the failure to address other contingencies and issues in the current ordinance/contract also appears to be significant:
l The interest rate is not stated in the ordinance/contract.
l The type of interest formula used to set the rates is not stated, i.e., simple or compound interest. However, the city budget states: Rates increase 6% annually from 1995s $34.80 to 2004s $58.79.showing compound interest.
l The city fails to state if its yard waste that is used as cover, is sold or given away to Woodcycle.
l The language does not specify that the city cannot be charged, by the ton, for the yard waste that is used as cover at Pagel Pit.
l Since the auditing of books at Winnebago Reclamation is not included in the language of the ordinance/contract, no audit may be conducted.
City of Rockford Legal Director Ron Schultz confirmed that audits of any type or audits of the number of tons dumped cannot be performed under the agreement with Winnebago Reclamation.
Such audits would be needed to verify what types of refuse are included in the weight records at Pagel Pit. Those weight records serve as the basis for paying Winnebago Reclamation. With an audit, the city could ensure that it is not being charged for yard waste that is used as cover. Without the audit, there appears to be no verification method.
An audit would also be needed to verify that the city is receiving the Favored Rate, which is described in the ordinance. In other words, no one dumps, and is charged, at a rate that is less than what the city receivesthe city gets the lowest rate.
Without these verification processes, it is difficult to determine if, in fact, the city is receiving the lowest dumping rate, and if its being charged for the cover.
l Again, Schultz confirmed that renegotiations are not possible under the current ordinance/contract.
This means that unless Winnebago Reclamation agrees to renegotiate a new contract, they are not legally required to do so. This could cost Rockford millions, especially considering the alternatives to Pagel Pit, such as the Janesville, Wis. landfill.
The Janesville landfill covers about 100 acres, and is approximately 80 feet deep. The site is owned by the City of Janesville.
John Whitcomb is the operations manager for the landfill. He says, at the time the 1995 Rockford ordinance was signed, they would not have accepted Rockfords waste. But that situation has changed.
He states that Waste Management has bought many of the independent trash haulers over the last 10 years. The largest one, Allstate, was bought by Waste Management in 1999.
As a result, Waste Management began diverting refuse from the Janesville landfill to other siteschiefly to the Deertrack site in Watertown, Wisconsin. Deertrack is reportedly owned by Waste Management. Therefore, the Janesville landfill is now in competition with Waste Management for disposal of refuse.
As Whitcomb states, It takes a lot of money to keep a landfill open. In order for a municipally-owned landfill to stay open, they must have an influx of refuse. Otherwise, municipalities may feel the need to sell the landfill to a private company, a company such as Waste Management.
As a result of this garbage diversion from the Janesville site, volume of refuse has dropped, and Janesville is actively seeking trash for their landfill. As Whitcomb puts it, Were looking for garbage. The current rate to dispose of refuse in Janesville is $19.70 per ton.
This year, Alderman Beach estimates that, at most, it would cost the city about $30 per ton to collect, transfer and dump Rockfords trash into Janesvilles landfill. Compare that rate with the $52.33 per ton Rockford will be paying this year to Winnebago Reclamation, and the result yields an annual savings of $1,246,014.
For the years 2002-2004, it is estimated that the city will pay about $4,122,711 more than they would if the Janesville site was utilized, rather than Pagel Pit. This would take a big chunk out of the citys current $6 million deficit.
This estimate uses a simple interest formula at 3.37 percent for Janesville with a beginning rate of $30 per ton and compares it to the current method used in the existing ordinance/contract. The method used in the existing ordinance/contract uses a compound interest formula at 6 percent.
On October 7, The Rock River Times conducted an interview with Schultz concerning the garbage ordinance/contract.
To ensure common reference, the number of the ordinance/contract (1995-30-0) was specifically stated and a copy was placed on Schultzs desk, for his reference. He did not examine it.
At the beginning of the interview, when asked who was on the negotiating committee for the city, Schultz said, I dont know.
Schultz then went on to explain that he did know who was part of the negotiations for Winnebago Reclamation. Schultz said Vice President Gary Marzorati, and their attorney, John Holmstrom, were the negotiators for Winnebago Reclamation.
According to Schultz, the city has a good relationship with Winnebago Reclamation. He indicated that they may be willing to renegotiate, even though it is not possible the way the ordinance/contract is written.
Several times during the discussion, the question was asked regarding who, from the city, negotiated the ordinance/contract. In response, Schultz retrieved a file which he identified, as being the one concerning ordinance/contract 1995-30-0.
After riffling through papers in the file for several minutes, Schultz stated that there did not appear to be any notes that would identify who did the negotiating.
Schultz was then asked if he thought it was odd that there would be no such notes, considering this had to do with multi-millions of dollars. Schultz replied, No. Probably not.
When asked if this is a common practice for the city to not note who is doing the negotiating when dealing with millions of dollars, Schultz said, I dont know…
Near the end of the discussion, Schultz did identify himself as being the negotiator for the ordinance/contract, even though 30 minutes prior, he stated he didnt know. Schultz added that he thought the initial inquiry was referring to the 1990 disposal ordinance.
After a number of inquiries regarding the rationale for the formulas and interest used to write the 1995 ordinance, Schultz referred to the old 1991-1995 disposal ordinance (#1990-122-0) because he said it would provide context to understand the current ordnance/contract. When asked, he also provided a copy.
An analysis of the 1990 ordinance reveals that the rates increase from $26 per ton in 1990; $26 per ton in 1991; $30 per ton in 1993; $35 per ton in 1994; and $40 per ton in 1995. For those years, the percent increase was, 0 percent; 15.4 percent; 16.6 percent; and 14.3 percent, respectively.
The old ordinance/contract was renegotiated before it expired in 1995.
The data show that the method used to compute the old contract appears to be a piecewise function. In other words, as one expert source confirmed, there does not appear to be a logical formula followed to determine the rates for the 1990 ordinance.
When the idea of the Janesville site was brought up, Schultz said there may be a legal problem with changing dumping sites because of the liability the city may acquire by putting Rockfords waste in with other, unknown wastes.
The following day
On October 8, Schultz was contacted again, and again verified that he was part of the 1995-2004 ordinance negotiations. When pressed for who was responsible for negotiating the current ordinance/contract for the city, before it was signed, Schultz said it was a group decision. When pressed further, Schultz identified staff. When asked who on the staff, Schultz said, department heads, the mayor, and himself. The mayor when the ordinance/contract was negotiated was Charles Box.
When asked if a similar scenario applied to the 1990 disposal ordinance, Schultz replied, I suppose.
When asked if the city could negotiate with the Janesville site about liability for old waste in the landfill, Schultz acknowledged that it was a possibility, contradicting his assertion the day before.
If Winnebago Reclamation refuses to renegotiate until the 2004 deadline, taxpayers will just have to paymillions will be spent.