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CRRA 2007
Navigating to Zero Waste
Strategies to structure
refuse/recycling fees that arguably are
not subject to Prop 218, after the CA
Supreme Court's ruling in the "Bighorn"
case
Constance Hornig
Law Offices
323 934-4601 Hornig@MSWesq.com
Monday, July 30, 2007 2:45-4:15
PRESENTATION SUMMARY
1. Prop 218 procedural and substantive
requirements
2. Consequent procurement, policy and
program constraints – possible
characterizations of variable rates /
PAYT (sample contract preambles)
3. Distinguish Bighorn water service
fees from refuse/recycling service
fees
Constance Hornig, Esq. 323 934-4601
PRESENTATION SUMMARY
4. Strategy #1: Break the link to property: self-haul
& mandatory service / opt-out rights (sample regulation
and contract preamble)
5. Strategy #2: Authorize hauler to “set” rates, up to
maximum cap/ceiling (sample performance obligation
and contract preambles)
6. Strategy #3: Obligate hauler to provide private
billing service (sample performance specification)
7. Strategy #4: Treat franchise fee as just another cost of
doing service.
Constance Hornig, Esq. 323 934-4601
Prop 218 (CA Constitution XIII D
“ASSESMENT AND PROPERTY-RELATED
FEE REFORM / D. Property Related Fees and
procedural
Charges :
requirements (refuse)
parcel notice and public hearing,
subject to protest by majority of
owners of identified parcels (XIII
D 6a) - not referendum
Hornig@MSWesq.com
Prop 218: substantive
requirements (MSW)
Fees cannot exceed the cost of
service:
cannot be used to supplement a city‟s general
fund (XIII D 6b(1) and (2))
must be proportional to actual use of service (XIII
D 6b(3)),
cannot be standby charges (XIII D 6b(4)),
cannot be used for general governmental
services like police, fire, ambulance or libraries
(XIII D 6b(5)).
Hornig@MSWesq.com
Being subject to Prop 218 places
(1) procurement,
(2) policy and
(3) program
constraints on
(a)regulatory and
(b) contractual
refuse/recycling infrastructure.
Hornig@MSWesq.com
Prop 218 constraints:
(1) Procedural compliance:
TIME: extends procurement
schedule to mail notices / hold
public hearing, and
MONEY: incurs cost to mail notices
Hornig@MSWesq.com
Prop 218 constraints:
(2) Substantive compliance:
Ratepayer subsidy of general program
costs prohibited (no “free” service):
*recycling / safe disposal education and
outreach
*community hazardous waste / e-waste
collection events
*discount for qualifying elderly
*”free” cart roll-out for handicapped/elderly
Hornig@MSWesq.com
Prop 218 constraints:
(3) no VARIABLE RATES?
Marginal cost of service is
relatively small for hauler;
incremental rate for generator is
relatively large to provide
economic incentive to divert.
Hornig@MSWesq.com
VARIABLE RATES /PAYT:
not cost-based
http://www.forester.net/mw_0405_legal
.html “Variable Can Pricing: Generator Diversion/ Hauler
Generation Incentive”
Hornig@MSWesq.com
VARIABLE RATES /
PAYT: not cost-based
But argue that:
(1) Variable Rate Component of the
Rates represents an avoided cost of
disposing of those materials (such as
potential AB 939 fines and penalties)
and is properly reflected in the total
rates paid by waste generators.
Hornig@MSWesq.com
VARIABLE RATES /
PAYT: not cost-based
And argue that:
(2) Variable rates implement a local
government‟s regulatory solid waste
diversion program (by franchise) and
comprises an environmental mitigation
charge, not a charge imposed as an
incident of property ownership.
Hornig@MSWesq.com
Variable / PAYT rates: Sample
preambles to collection contract:
“Variable Rate Component of Rates reflect [local
government’s] recycling costs. [The local government], not
any waste hauler, is liable to the State under the AB 939 for any
fines up to $10,000 each day levied for noncompliance with AB
939. Under this Agreement, residents and businesses that
recycle less and dispose more, pay higher rates for their
incremental refuse disposal service. This pay-as-you throw rate
gives residents and business a monetary incentive to divert, not
dispose.
Diverting recyclables and yard and wood waste from landfills
through recycling and composting saves and reduces landfill
disposal costs. Therefore, the [Variable Rate Component of the
Rates] represents an avoided cost of disposing of those materials
and is properly reflected in the total Rates paid by waste
generators.
Furthermore, the [Variable Rate Component] implements the [local
government’s] regulatory solid waste diversion program (by
franchise) and comprises an environmental mitigation charge,
not a charge imposed as an incident of property ownership.”
Constance Hornig, Esq. 323 934-4601
Bighorn-Desert View Water
Agency v. Verjil
Holding: Local voters can reduce water
rates by initiative (CA Constitution XIII C
Section 3).
Reasoning: Supreme Court looked to XIII
D “ASSESMENT AND PROPERTY-RELATED FEE
REFORM / D. Property Related Fees and Charges”
Section 2(e) to define “fee” or “charge”.
http://www.courtinfo.ca.gov/opinions/
Hornig@MSWesq.com
XIIID “ASSESMENT AND
PROPERTY-RELATED FEE
REFORM / Property Related Fees
and Charges”
“Fee” or “charge” means any levy
imposed by an agency upon a parcel or
upon a person as an incident of
property ownership, including a user
free or charge for a property-related
service (XIII D 2(e)), which includes
tenancies (XIII D 2(g)).
Hornig@MSWesq.com
Bighorn: ongoing water (and
refuse?) service fees are subject
to Prop 218
ARGUMENT (1): In the ballot pamphlet for
the election at which article XIII D was
adopted, the Legislative Analyst stated
that „[f]ees for water, sewer, and refuse
collection service probably meet the
measure‟s definition of property-related
fee.‟ (Ballot Pamp., Gen. Elec. (Nov. 5,
1996), analysis of Prop. 218 by Legis.
Analyst, p. 73.)
Constance Hornig, Esq. 323 934-4601
(i) Water is indispensable to most uses of
real property
(ii) Water is provided via pipes that are
physically connected to property
(iii) Lien can be imposed on property for
delinquent fees (CA Government
Code 61621, 61621.3)
Constance Hornig, Esq. 323 934-4601
Bighorn: ongoing water
(and refuse?) service fees
are subject to Prop 218
ARGUMENT (2): Only electrical and
gas fees are explicitly not deemed
charges or fees imposed as an
incident of property ownership (XIII D
section 3(b)) . . . so conversely,
exclusion of water [and refuse] is
implied.
Constance Hornig, Esq. 323 934-4601
Bighorn: ongoing water
(and refuse) service fees
are subject to Prop 218
ARGUMENT(3): fees for sewer, water
and refuse collection services are
expressly excluded from voter approval
requirements (XII D section 6( c)) so,
by implication, fees for water, sewer
and refuse are subject to other
requirements (procedural and
substantive)
Constance Hornig, Esq. 323 934-4601
Bighorn: water connection
fees are not imposed “as
an incident of property
ownership” because property
owner voluntarily decides to connect
his property to the water system (citing
Richmond v. Shasta Community Services Dist. (2004)
32 Cal.4th 409) . . .but
Constance Hornig, Esq. 323 934-4601
Bighorn: ongoing water fees
[user fees] are imposed “as
an incident of property
ownership” because they
require “nothing other than
normal ownership and use of
property”. This applies to
fees based on consumption.
Constance Hornig, Esq. 323 934-4601
Distinguishing refuse from water under Bighorn:
water service differs from waste collection,
which is not necessarily “property related” &
subject to Prop 218.
(i) Water is indispensable to most uses of real
property; refuse service is not, if owner/occupant
can self-haul (including mandatory service opt-
out)
(ii) Water is provided via pipes that are physically
connected to property; refuse service is provide
via mobile trucks that travel on wheels
(iii) Lien can be imposed on property for delinquent
fees (CA Government Code 61621, 61621.3); but
local governments are not required to impose
liens for delinquent refuse service fees
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to
property: self-haul & mandatory
service / opt-out rights
Warning:
*hauler might raise proposed rates to reflect
risk of possible lost revenues;
*local government might realize lower
franchise or AB 939 fee revenue that
funds programs – especially recycling
education / outreach, special waste
collection
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to
property: Sample preambles to collection
contract (opt-out):
“Customers can opt-out of mandatory service
and payment of Rates. Residents and
businesses in [portions of the Service Area] live
in mandatory service areas, but nevertheless
they may opt-out of service provided under this
Agreement if they document that they are
disposing of their refuse at a legally permitted
facility and recycling. Their obligation to pay
Customer Service Charges under this Agreement
does not arise because they own property, but
because they generate refuse and do not
exercise their right to self-haul.”
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to
property: sample opt-out regulation
“Self-haul permit applicant must demonstrate that
he or she either:
I. (1) collects all refuse generated at his or her
premises,
(2) removes and conveys that refuse without
littering city streets, and
(3) disposes of that refuse at a solid waste disposal
facility permitted in accordance with law, or
II. alternatively, that her or she disposes of refuse at
another premise that subscribes to franchised
service.”
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to
property: sample opt-out regulation:
Self-haul documentation.
“Applicant customer must submit the following
documentation in form and substance satisfactory to
City:
(1) a. Invoice for applicant customer’s serviced
premises. A current dated invoice from the City’s
franchised refused hauler in the customer’s name,
identifying the address of that customer’s serviced
premise and describing service subscription capacity
and frequency.
Or. . . . ”
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to property:
sample opt-out regulation: Self-haul
documentation con’t
“b. Invoice for another’s serviced premise and consent to
discard. If an applicant customer asserts that he or she
discards his or her refuse at another premises (such as his
or her business), she or she must provide the following:
(i) a current dated invoice from the City’s franchised refuse
hauler identifying the address of the other serviced premise
and the name of the customer at that premise, and describing
service subscription capacity and frequency.
(ii) if the other serviced premise is a business, a copy of the
business license that lists the serviced customer as one of the
principals in the business; and
(iii) A letter signed by the owner of the other premises (on
business letterhead, as applicable) under penalty of perjury,
stating that the applicant customer is authorized to discard his
or her refuse into the owner’s solid waste bin or other
receptacle.
And: . . . “
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to property:
sample opt-out regulation: Self-haul
documentation.
”(2) Disposal documentation: Unless the applicant
customer has demonstrated to satisfaction of the City that
he or she disposes of refuse at another premise that
subscribed to franchised services, dated documentation
(such as a receipt or invoice) that the applicant customer
has disposed of refuse generated at applicant customer’s
premise at a permitted solid-waste facility or transfer
station.
Customer must deliver disposal receipts directly to the
Environmental Services Department of the City Public
Works Department no less than once every two months,
either in person or by certified mail, with customer’s name
clearly written on the receipt. If customer discards its
residential refuse at a business, customer must attaché a
copy of the business license that references the
homeowner’s name to the disposal receipts.”
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to property:
sample opt-out regulation
“Failure to qualify for self-haul exemption. If
the City Manager or the Chief of General
Services or his/her designee determines that
the customer has not initially provided
requisite collection subscription invoices,
business licenses and / or statement, or that
the customer does not thereafter submit
requisite disposal documentation, he or she
will advise the customer by regular U.S. mail
that the customer does not qualify for the
self-haul exemption and must immediately
subscribe to refuse collection and disposal
service with a franchised City hauler.”
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to property:
sample opt-out regulation
“No leakage or littering. Persons who
qualify for the self-haul exemption must
prevent leakage or deposit of solid
waste they transport for disposal [insert
cross-reference to Code provisions for
hauler leakage/littering].”
Constance Hornig, Esq. 323 934-4601
Strategy #1: Break the link to property:
sample opt-out regulation
“Self-haul Exemption fee. A fee to
reimburse the City for actual cost of
reviewing self-haul documentation an
implementing the self-haul exemption
program shall be established by
Resolution.”
Constance Hornig, Esq. 323 934-4601
Strategy #2: Authorize
hauler to “set” rates, up to
maximum cap/ceiling
Remember:
“Fee” or “charge” means any levy imposed by an agency upon a
parcel or upon a person as an incident of property ownership,
including a user free or charge for a property-related service (XIII
D 2(e)), which includes tenancies (XIII D 2(g)).
Therefore, don‟t “impose” or set or fix the rates yourself. Place
parameters (caps, ceilings, maximums) on the rates, but
authorize hauler to pick particular rate.
Constance Hornig, Esq. 323 934-4601
Strategy #2: Authorize
hauler to “set” rates, up to
maximum cap/ceiling
Sample: “Customer Service Charges. Contractor
will set and charge Customer Service Charges equal
to the Variable Rate Component plus no more than the
Contractor Service Fee Component in effect at the
time Contractor provides Service. Contractor will
charge each Customer subscribing to any Service
listed on the Rate Schedule the same, uniform Rate.”
Constance Hornig, Esq. 323 934-4601
Strategy #2: Authorize hauler to “set”
rates - Sample preambles to
collection contract:
“Contractor set its compensation (the Contractor Service
Fee Component of Rates) through competitive procurement.
The [local government] issued a Request for Proposals to provide
services under this Agreement, and XX private waste hauling
companies submitted proposals, including their proposed
schedule of rates and charges under this Agreement (defined as
the “Contractor Service Fee Component” of Rates). The [local
government] selected Contractor, based among other reasons, for
Contractor’s price proposal. Under this Agreement, Contractor
cannot charge more than the Contractor Service Fee Component,
which it bills and collects from its Customers. The [local
government] held an open and public meeting prior to awarding
this Agreement to Contractor, including provisions in this
Agreement providing the maximum amount of Contractor Service
Fee Component, as may be automatically adjusted (whether
increase or decrease) in accordance with the formulas provided in
this Agreement. “
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to
provide private billing service.
A “property related service” means a public service
having a direct relationship to property
ownership (Prop 2182(h).
What is a “public service”?
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to
provide private private billing
service.
Jonathon Coupal, of Harvard Jarvis Taxpayer Association,
wrote shortly after adoption of Prop 218:
“The term local government is defined broadly by Proposition 218. [See
Prop 218 RE a “fee” imposed by an agency under Section 2(e),
where Section 2(a) “Agency” refers to Section 1(c) “local
government”.] However, it does not apply to the charges imposed by
private enterprise, even for services which are ostensibly “public”.
This would include private refuse collectors providing services to
local government through a contract such as a franchise agreement.
. . . Proposition 218 would apply where the refuse collection
services are performed (and charged for) directly by local
government.”
This letter does not constitute definitive or judicial
interpretation. . . . but
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to
provide private private billing
service.
WARNING: disadvantages include:
(1) Losing control of purse strings – inability to offset
liquidated damages, city‟s reimbursable costs,
from hauler‟s compensation
http://www.forester.net/mw_0309_legal.html “Try$headed Ca$h: Contractor
Credit Risks That Can Trash Your MSW System”, MSW Magazine
September/October 2003
(2) Increased delinquencies - City ability to put on
property tax bill or to enforce delinquencies (turn
off utilities) saves system costs, and arguably
lowers all customers‟ rates
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – invoice billing dates.
“13.03 Customer Billing
a. Billing and Collection Protocol
1. Invoice billing dates. Contractor will invoice
Customers at the following times:
(1) each Residential Customer bi-monthly in advance,
(2) each Commercial and Multi-family Customer
monthly in advance no sooner than the first day of
the month; and
(3) each Rolloff Customer semi-monthly in arrears.”
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing / rate collection service: sample
performance specification – due and
delinquency dates
“Invoices must be:
(1) due 30 days from the date of the invoice and
(2) delinquent
(i) 90 days from the date of Residential invoice,
(ii) 60 days form the date of the Commercial and
Multi-family invoice, and
(iii) 45 days from the date of a Roll-off invoice, or
earlier upon notice to Roll-off Customer whose
Rates exceed $2,000.”
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – late payment fees.
“Contractor may charge a Customer the lesser of the
following late payment fees:
(1) the greater of $5 dollars or 1.5% per month or
portion of month, or
(2) the maximum amount allowed by Applicable Law,
Contractor may charge a Customer late payment fees
on all or a portion of invoiced but unpaid amounts
from the due date until the date paid, including on
amounts that Customer withheld pending resolution
of a dispute with Contractor, which amounts
Contractor subsequently determined the Customer
owed to Contractor.”
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – payment reminder
“2. 30 day Residential Reminders. If
Contractor does not receive payment from
any Residential Customer within 30 days of
an invoice, Contractor will send the
Customer a statement reminding the
Residential Customer of the amount due.”
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – delinquency notice.
“3. Delinquency Notice. If the Contractor does not
receive payment
(1) from a Residential Customer within 60 days of an
invoice or
(2) from a Commercial, Multi-family or Roll-off
Customer within 45 days of an invoice,
Contractor will send the Customer a notice of
delinquency by certified mail, return receipt,
describing collection efforts that Contractor may
make if Contractor does not receive payment by the
stated delinquency date, including an or all of the
following: . . . “
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – delinquency notice, con‟t.
[FORM OF DELINQUENCY NOTICE, CON’T.]
“(1) referring the delinquency to a third-party collection agency,
(2) reporting the Customer to credit-reporting bureaus,
(3) making personal phone calls,
(4) discontinuing service,
(5) filing mechanics liens on Roll-off Premises as permitted by
Applicable Law;
(6) asking City to take code enforcement action, and
(7) in each notice to a Commercial, Multi-family or Roll-off
Customer, the disclosure that if Customer does not pay
Contractor outstanding amounts on all Customer’s unpaid
invoices within 15 days, Contractor will make the listed collection
efforts on all unpaid amounts.
Contractor will simultaneously notify City of overdue Commercial,
Multi-family and Roll-off Customer accounts.”
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – time and type of hauler‟s
collection actions.
“4. Collection actions. If the Contactor does not receive payment
(1) from any Residential Customer by the delinquency date identified in
subsection a1,
(2) from any Commercial, Multi-family Customer or Roll-off Customer by the
delinquency date identified in subsection a1, then
Contractor may make collection efforts, including those listed in subsection
a3 [prior slide].”
Question: does authorizing liens merely as one type
of collection action make fees subject to Prop 218?
(1)GOVERNMENT CODE 38790.1 / 25831: liens equivalent
to ad valorem property taxes
(2) HEALTH & SAFETY 5473.11(b) and (c). Liens equivalent
to judgment liens
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – discontinuing service.
“5. Discontinuing Service. If the Contactor does
not receive payment from Customer by the
applicable delinquency date identified in subsection
a1, Contractor may discontinue Service to that
Customer and retrieve Containers from that
Customer. After discontinuation, Contractor may
charge a Customer the fee listed on the Rates
Schedule to recommence Collection.”
WARNING: this destroys mandatory
collection system unless there is
commitment to enforce self-haul opt-out /
strong nuisance ordinances
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – invoice format.
“b. Invoice Format. Contractor will distribute
invoices in the form contained in Contractor
Documentation, including:
(1) Contractor Phone Hours and toll-free number; and
(2) when bills are due and delinquent if not paid.
Each month Contractor will send City a sample copy of
the form of Residential, Commercial, Multi-family
and Roll-off invoice that Contractor is mailing
Customers, including inserts or announcements.
Contractor will not separately identify, list or itemize
its Net Rates [/ franchise fee] separately from
Rates.”
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification – dispute resolution.
“c. Disputes. Contractor acknowledges that City is
neither responsible for taking Customers’ calls nor
for responding to Customers’ correspondence with
respect to disputes regarding billing or otherwise,
nor for resolving disputes. Contractor will handle
billing disputes with Customers in accordance with
the written procedure described in Contractor
Documentation.”
CONSIDER:
(1) liquidated damages for city staff time spent on
each complaint / aggregate time per week
(2) Especially during transition to new hauler /
service, tie-line to hauler customer service, hauler
customer service rep on-site at city hall.
Constance Hornig, Esq. 323 934-4601
Strategy #3: Obligate hauler to provide private
billing service: sample performance
specification.
“d. City information on invoices. At City direction,
at least 4 times each Contract Year, Contractor will
print textual information provided by the City on
Customer invoices. Contractor will use Reasonable
Business Efforts to print that textual information at
additional times.
e. City inserts. At City direction, up to twice each Contract
Year on dates agreed to by Contractor, Contractor will
enclose inserts provided by the City with invoices that
Contractor mails to Customers. Inserts must be of size and
shape that Contactor can include in envelopes for mass
mailings. “
Constance Hornig, Esq. 323 934-4601
Strategy #4: Treat franchise fee as just another
cost of doing service.
The franchise fee is an obligation of the franchised
hauler, not the rate payer, in consideration of
franchise (for example, giving franchisee
exclusive/monopoly service rights and revenues).
The franchise fee is a cost of doing business, like
labor, fuel or vehicle acquisition-and-maintenance.
Set the franchise fee for the franchise contract term . .
. although perhaps service fee compensation could
be adjusted for corresponding changes in franchise
fee as a “change in (local) law” under rate
adjustment protocol.
Constance Hornig, Esq. 323 934-4601
PRESENTATION SUMMARY
1. Prop 218 procedural and substantive
requirements
2. Consequent procurement, policy and
program constraints – possible
characterizations of variable rates /
PAYT (sample contract preambles)
3. Distinguish Bighorn water service
fees from refuse/recycling service
fees
Constance Hornig, Esq. 323 934-4601
PRESENTATION SUMMARY
4. Strategy #1: Break the link to property: self-haul
& mandatory service / opt-out rights (sample regulation
and contract preamble)
5. Strategy #2: Authorize hauler to “set” rates, up to
maximum cap/ceiling (sample performance obligation
and contract preambles)
6. Strategy #3: Obligate hauler to provide private
billing service (sample performance specification)
7. Strategy #4: Treat franchise fee as just another cost of
doing service.
Constance Hornig, Esq. 323 934-4601
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