Trio of Council Members Brush Aside City Staff Concerns, Push to Award Contract to Recycle Ann Arbor

by Patricia Lesko

Chip Smith (D-Ward 5), Zach Ackerman (D-Ward 3) and Jason Frenzel (D-Ward 1) have put forward a Council resolution that would require city staff to negotiate a contract with Recycle Ann Arbor (RAA)—a subsidiary of the Ann Arbor Ecology Center— no later than March 31 for the operation of the city’s Materials Recovery Facility (MRF). All three Council members are running for re-election in the August 2017 primary election. Recycle Ann Arbor would become the interim operator of the MRF, that company’s first and only such foray into MRF management. The current MRF operator is Waste Management, headquartered in Houston, Texas. That company’s network includes 367 collection operations, 346 transfer stations, 293 active landfill disposal sites, 16 waste-to-energy plants, 146 recycling plants, 111 beneficial-use landfill gas projects and six independent power production plants.

On Feb. 10, City Administrator Howard Lazarus penned a 6-page memo to City Council in which he evaluated the three MRF operation proposals that were submitted. In that memo, he outlined reasons why Recycle Ann Arbor’s bid had been found wanting.

A member of the Ecology Center’s Board of Directors, Doug Selby, sent out what he says was a “private” email to friends in which he alleged “staff are also playing games to make it look like WM’s proposal is the most cost-effective to the City Council when it is not.” The email has been circulating around Ann Arbor with recipients who don’t know Selby or that he serves on the Board of the Ecology Center having received it.

Selby elaborated on his email allegation: “By making WM’s bid seem less by saying there’s only one way to do it that counts (WM’s method), it IS playing games to make WM’s proposal seem more cost-effective. But it’s not. The better method will cost taxpayers less.”

According to IRS 990 filings, Recycle Ann Arbor’s total gross revenue between 2011 and 2014 was between $4.2 and $4.5 million annually. This city contract, then, would raise RAA’s gross revenue by almost 25 percent. In comparison, according to SEC filings, for the full year 2015 Waste Management reported revenues of $13 billion, compared with $14 billion for 2014. As non-profits, Ecology Center/RAA pay no state or federal income taxes. In 2014, Waste Management paid $190 million in state and federal taxes.

Lazarus’s memo states, “The staff committee’s review of the proposal and interview by Recycle Ann Arbor determined this proposer to not be as strong with the professional qualifications of the staff and firm to undertake the requested work (composite score: 12.6), and less so in past experience with similar projects/work (composite score: 18).” Lazarus goes on to point out that because Recycle Ann Arbor’s proposal includes trucking loose recycles to a processing plant out-of-state, “trucking needed to transport the loose loaded material compared to the trucking for the baled method would result in 2.45 times more greenhouse gas (GHG) emissions being generated with the loose loading method.”

In short, Lazarus points out to Council members that Recycle Ann Arbor, unlike Waste Management, has little to no experience doing the work necessary to operate our city’s MRF (when the MRF is again operational), and that RAA’s proposal includes trucking Ann Arbor’s recycling to an operational MRF in Ohio until such time as Ann Arbor’s MRF is up and running.

In its proposal, Recycle Ann Arbor officials claimed that “with a relatively small investment of time and money by the City… the facility can be operational in 30-60 days, saving the city tens of thousands of dollars per month in recycling transfer costs in the process….Repair work would take no longer than 60-days and cost no more than $200,000 to bring the Ann Arbor MRF back into safe and efficient operation. Based on that conclusion, we strongly recommend that Recycle Ann Arbor provide a price proposal for operating the Ann Arbor MRF in order to recover the City’s recyclables.”

Howard Lazarus revealed in his memo that “when asked by the staff committee during the interview if the team would include this time duration and cost figure as fixed, guaranteed contract items, Recycle Ann Arbor declined to include that provision to the contract.” Furthermore, Lazarus’s memo points out that Recycle Ann Arbor’s partner in the MRF contract, Rumpke Recycle, “indicated that they would want to inspect the equipment before they would suggest any estimate or provision for repair of the equipment. This inconsistency among the proposing team members as well as with the submitted proposal raised concerns among the staff committee members.”

It’s unclear, then, how Recycle Ann Arbor officials who prepared the bid determined Ann Arbor’s MRF could be operational in 1-2 months at a cost of $200,000.

This is not the first investment taxpayers have been asked to make in the city’s aging MRF. When Council was asked to approve $3.4 million in spending to upgrade the city-owned MRF to single stream in November 2009, they were told it would result in a $450,000 annual increase in the city’s share of revenue from sale of recyclables. The $3.4 million to upgrade the MRF was on top of $4.7 million to upgrade the MRF approved by Council in September 2004. Council approved an additional half a million in spending in July and November of 2010 bringing the total to $8.6 million. The total cost included over $600,000 in payments to Resource Recycling Systems, which were not competitively bid. RRS is owned by David Stead, who also sits on the Board of Recycle Ann Arbor, and who at the time the contract was awarded, was a member of the city’s Environmental Commission The remainder of the $8.6 million was paid to the MRF operator, FCR, without competitive bidding.

City Administrator Howard Lazarus told the media, “We have to validate the assumptions they [RAA] used that state they can do loose loading.” Lazarus added that “he doesn’t want to see the city stuck with that potential additional cost.” If for some reason RAA is unable to do loose loading of the recycles and instead bales the materials, the cost to taxpayers would rise from $1.02 million to $2.15 million. This compares to Waste Management’s $1.45 million bid to bale and handle the materials.

This contract would represent a significant portion of Recycle Ann Arbor’s gross revenue.

Lazarus’s concern that RAA’s financial projections may be flawed is a realistic one. In Fall 2009, City Council approved a 10-year, no-bid contract with Recycle Ann Arbor worth $23 million. In 2010, Ecology Center Executive Director Michael Garfield went back to Council and asked for an additional $1.07 million to correct a “miscalculation made in the 2010 contract.” City Council obliged. When that 10-year contract was approved, Council and taxpayers were told it would result in a total savings of $4.5 million. The savings would come, the public was told, from a single-stream recycling program that would double the amount of recyclables collected in Ann Arbor, and that those materials would be sold at a profit. None of the projections were accurate, and then the bottom fell out of the recycled glass market.

While Ann Arbor residents were never officially told by either City Council, city staff, Recycle Ann Arbor or the Ecology Center, for the “past few years,” according to Council member Chip Smith, all of Ann Arbor’s glass recycling hauled by Recycle Ann Arbor has been processed and then landfilled in a process termed “layering.” As a result, taxpayers have paid more money per ton for hauling the glass and for single-stream recycling, and continued to lose money on the contract with Recycle Ann Arbor.

Jeff Hayner, a Ward 1 resident who has run for City Council said, “It should be noted that the University no longer accepts glass for recycling because there is no market for it. University students and employees have been advised to trash it.”

Vivienne Armentrout is a former Washtenaw County Commission. She ran for City Council, and writes a widely-read local blog in which she discusses issues of city government. Armentrout says: “The take-home is that single stream increases tonnage collected, may be cheaper to conduct, but results in contaminated recyclables of poorer quality and therefore less value to purchasers of these commodities. This is called “downcycling,” as where good paper gets contaminated and therefore unusable as recycled paper. Also, people tend to put much more unrecyclable material into the single-stream system. This is called “residuals”. This piece from the Huffington Post says rates of residuals is 2-3 percent for dual-stream systems, 15-27 percent for single-stream systems. (Residuals go to the landfill.)”

The recent decision by Ann Arbor’s new City Administrator to advise Council to choose the most qualified and lowest bidder (Waste Management) to handle the city’s MRF operations was a distinct change from what has been well over a decade of sweetheart deals and no bid contracts awarded to Recycle Ann Arbor by politicians who then received glowing political endorsements from Michael Garfield, who would identify himself in the endorsements as an “environmental activist,” and not the Executive Director of Ecology Center.

When newly-appointed Council member Jason Frenzel ran unsuccessfully for City Council in 2016, Garfield endorsed his candidacy.

Frenzel explained his resolution in favor of Recycle Ann Arbor: “The Environmental Commission recommendation was with Recycle Ann Arbor because Recycle Ann Arbor is a local shop and the citizens believe in them,” he said. “There’s a lot of local history there, and that’s sort of the ethic of the environmental movement and the Environmental Commission.”

Nonetheless, the efforts of Council members Smith, Frenzel and Ackerman to direct the City Administrator to negotiate a contract with Recycle Ann Arbor, despite the Administrator’s concerns about RAA’s competence and financial projections, concerns some Ann Arbor residents.

Jeff Hayner is among them: “Note that staff claims RAA has no experience in doing what it is bidding on, and has not used actual data to determine the value of commodity products. The move to award RAA is not based on actual numbers, it is based on feel-good metrics and other intangibles, and carries ‘additional cost risk’ to the city – that’s all of us. While some may be willing to spend whatever it takes to be a recycling leader in Michigan, recognize that even if our program declined in efficiency (which it in fact has under RAA’s single stream program) it would still be one of the best in the state.”

City Council will vote tonight on the resolution co-sponsored by Smith, Frenzel and Ackerman. If the resolution is approved and city staff reach an agreement with Recycle by Mar. 31, an interim contract to for approval by City Council for would be brought forward by Apr. 30. Otherwise, the city administrator and staff will bring an agreement with Waste Management to Council members for their approval in April.