Ann Arbor City Council weighs option of outsourcing compost operations to New York firm
A proposal to outsource city of Ann Arbor compost operations to a New York-based company continued to draw questions Monday night during a City Council work session.
Matt Kulhanek, the city's fleet and facilities manager, gave a detailed presentation to council members in which he said the city could save more than $376,000 annually starting next year under a five-year contract with WeCare Organics.
Aside from cutting costs, he said, the operation wouldn't change much.
"Obviously, we have a good operation going right now and we're very proud of the product we provide," Kulhanek said. "We want to make sure we're having a good-run site, as well as providing an excellent product to our customers."
Through a public-private partnership, WeCare would operate the city's 26-acre composting site located at the Wheeler Service Center at 4150 Platt Road, including use and maintenance of the compost equipment storage building. The city would continue to operate a scalehouse, which handles compost, solid waste and recycled materials.
Council members will be asked to make a decision next Monday. If approved, the city would move quickly to formalize a contract and reopen the compost site Jan. 3 under WeCare.
The city's compost operations have struggled, bringing in $247,000 in revenue in fiscal year 2009-10, while expenses totaled $930,000 — about a $683,000 overall loss. The year before, the city saw an overall loss of $568,000 from its compost operations.
The losses are projected to grow to more than $772,000 in four years if the city doesn't take steps to cut costs, city officials said. The bulk of the costs are employee wages and benefits and equipment maintenance costs.
If the city contracted with WeCare, the annual net cost to the city would drop to about $128,700 a year through the 2014-15 fiscal year, according to Kulhanek. He said the city also stands to gain about $1.2 million in one-time revenue, largely from the sale of equipment.
City staff selected WeCare from a field of three proposals received in August. The other two were from Maine-based New England Organics and Michigan-based Spurt Industries.
Council Member Stephen Rapundalo, D-2nd Ward, asked why city staff wasn't considering the Michigan-based company's proposal, which offered to reduce the city's annual net cost to about $124,400 — a greater savings than WeCare would provide.
Kulhanek said the decision "wasn't as much on the financial side of things," but rather the city felt more comfortable going with the larger, more established company. He said WeCare was the highest rated in non-financial areas and offered the lowest tipping fee.
Tom McMurtrie, the city's solid waste coordinator, said the city made phone calls to three facilities operated by WeCare and heard all positive comments.
Founded in 1999, WeCare operates nine compost facilities in states like New York, New Jersey and Massachusetts. Kulhanek said eight of those are through government contracts.
Council members wanted assurances that the quality of the compost product — at the price currently provided — wouldn't drastically change.
Kulhanek said the best indication that WeCare is committed to continuing participation in the U.S. Composting Council's Seal of Testing Assurance Program, which certifies quality.
As it has done in other locations, the company would market its finished product under the WeCare brand name, Kulhanek said.
Council members also had questions about the financial arrangement between WeCare and the city. Kulhanek said the city would start out paying tipping fees of $19 a ton for all compost, leaves, yard waste and brush coming from the city.
The rate reduces over the five years of the contract to $17.50 a ton.
On the flip side, the city would collect $1 a ton for any non-city compost brought in. The city also would receive 50 cents a ton on any compost sales by WeCare.
Council Member Sabra Briere, D-1st Ward, said the arrangement seems to give the city a financial incentive to promote more composting by other municipalities that dump their materials in Ann Arbor and to encourage Ann Arbor residents to do their own composting at home.
"So the global concept is that composting will not be done by the city for the people of Ann Arbor as much," she said. "What we are doing is creating a financial incentive for the city to discourage people from putting compost in their compost bins that we just encouraged them to purchase."
The estimated savings prepared by city staff assume the city will continue at its current pace of tipping about 9,000 tons of leaves and yard waste a year. In the first full year of the contract with WeCare, at $19 a ton, that would cost the city $171,000.
The city's compost center currently includes a staff of four full-time city employees. The city proposes giving all four employees jobs in other departments to avoid layoffs.
Ryan J. Stanton | AnnArbor.com
That includes moving two operators to vacant positions in field operations, while a mechanic would move to fleet operations to offset another mechanic's retirement in February. A supervisor, meanwhile, would be reassigned to a vacant position in field operations.
AFSCME President Nicholas Nightwine, who attended Monday's meeting, said his union still isn't happy with how the city has handled the issue.
"They're moving way too fast on this," he said. "There's too many unanswered questions out there. The fact that they've never visited one of WeCare's sites, I don't understand that. We don't know who this company is, and it doesn't sound like we've researched them good enough."
Nightwine said his union is looking into all of its options, including taking legal action.
"If we have a reason and a right to sue, yes, we will, because we want to keep this work. We don't want to see city work given away," he said.
Mayor John Hieftje said he was interested in looking into having someone from the city visit a facility operated by WeCare before the council makes its decision.
Kulhanek said WeCare has a history of success working with cities, and Ann Arbor has a history of success with public-private partnerships. He mentioned contracts the city has with FCR LLC, Recycle Ann Arbor and Waste Management for recycling and commercial waste operations.
The proposal to privatize compost operations comes as the city looks for further ways to maintain a balanced solid waste fund budget. For the current year, expenses total $13.1 million while revenue totals $13.6 million — $11.2 million of which comes from the solid waste millage.
City officials say the solid waste fund's challenges include loss of revenue generated by the millage, a drop in the value of recyclable materials, more expensive automated collection equipment and rising health care and pension costs.
Sue McCormick, the city's public services area administrator, said the direction the city is headed with its compost operations has been in the planning stages for five years.
Nightwine, of AFSCME, took exception to that statement.
"It's the first I've heard of this in five years and I've been with the city longer than that," he said. "To this day, right now, the city has not sat with the union and discussed this at all."
In a previous attempt to outsource compost operations, the city issued a request for proposals last year that netted four responses. The city selected St. Louis Compost, but the company withdrew its bid in May 2010, citing changes in market conditions.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at email@example.com or 734-623-2529.