Dive Brief:

• Santa Monica, California faces an ambiguous recycling future after city council members voted last week to reject a new seven-year MRF operations contract with Allan Company, as reported by Santa Monica Daily Press. The contract, extended to a full 10-year term, was valued at $16.3 million.
• Under the proposed contract, Santa Monica's recycling costs would increase from $25 per ton to $67 (or approximately $1 million annually) — a "reasonable reflection" of current commodity values, according to Santa Monica Public Works. Council members, however, balked at the prospect of committing to a new long-term contract amid ongoing market volatility — especially one that would entail substantial construction and equipment investments at the city's MRF and buyback center.
• "We know that there's an expense to having a temporary solution … the cost will ultimately be passed onto residents and businesses," said Mayor Pro Tempore Terry O'Day, according to the Daily Press. "We're willing to pay for it now because there's a value for the flexibility to deal with risk and changes, but we don't want to do that for long."

Dive Insight:

What should have been a fairly standard negotiation with Allan Company — the city's recycling contractor since 1993 —has been complicated by market forces affecting municipalities across the nation.

The city agreed to a contract modification with Allan Company last year, but the prospect of a long-term lock-in appeared to complicate this latest discussion. In the wake of China's new scrap import policies, Santa Monica has gone from receiving $27.50 per ton (over $300,000 annually) in revenue to paying $25 per ton (approximately $275,000 annually) in expenditures. 

Under the proposed agreement, the city would pay Allan Company the difference between a "not-to-exceed contract price ceiling" and the weighted sales value of recyclable materials. If commodity values increase beyond the price ceiling, the city would be exempt from paying for processing and would receive revenue-sharing from the company on a 50/50 basis. A 20% residue threshold was also requested (the city's current rate is closer to 30%).

Santa Monica Public Works recommended that the council approve this contract, citing Allan Company's "extensive knowledge and expertise in the recycling industry" as well as its ability to meet the city's goal of "zero waste" by 2030. The $67 per ton cost structure, according to the staff report, is "consistent with recent paradigm shifts reported by other cities and recycling industry observers." Santa Monica received one other bid from American Reclamation, which was not recommended.

"Although [$67 per ton] is substantially higher than the cost of the current agreement, it reflects the harsh reality faced by municipalities around the nation," the report concluded. "The City of Bakersfield has gone from earning $25 per ton to paying $70 per ton; the City of San Diego is anticipating a $2.4 million decline in recycling revenue; and the City of Philadelphia’s recycling budget could increase by $2 million due to higher processing costs."

Council members, however, ultimately rejected the staff's recommendation. Potential risks from a related construction project were cited as a factor: under the new agreement, the municipally-owned MRF and buyback center would have been relocated to a new area of the City Yards industrial site.

The current buyback center will close — and Santa Monica's agreement with Allan Company expire — on June 30. The council has opted for a temporary processing contract (which will likely cost about $500,000 annually) to either handle material on-site or ship it elsewhere.