Monthly garbage bills in Modesto are likely to climb about $3 soon, even if the city manages to end garbage companies’ virtual monopolies.
The companies’ contracts with City Hall are extremely difficult to cancel, putting customers – essentially everyone living or doing business in Modesto – at a competitive disadvantage, the city reasons.
A proposal to fix the inequity should keep the coming price increase to about 5% rather than 20% under an existing formula, says the city, whose negotiation with one of the garbage companies is ongoing.
Without the proposed change, monthly fees for standard residential containers could climb from $55 to $66 by May 1, a city consultant told the council’s Finance Committee on Wednesday. In negotiations, the city proposed new terms that should result in $58 monthly bills, if approved in coming weeks by the full council.
Gilton Solid Waste Management objects, saying long-term contracts are a unique necessity in the waste disposal industry. Banks won’t lend money needed for expensive equipment, like automated garbage trucks, to satisfy numerous stringent regulations in California, Gilton representatives told the committee.
Gilton handles garbage disposal on the city’s north and east sides, covering about two thirds of Modesto. Downtown, west Modesto and south Modesto are serviced by Bertolotti Modesto Disposal, whose representatives have agreed to new contract terms.
Evergreen clause hurts consumers, Modesto says
At the heart of the dispute is a so-called evergreen clause guaranteeing automatic contract renewal unless the city issues a letter of termination taking effect 10 years in the future.
The clause hurts the city’s ability to seek competitive bids that might keep customers’ rates down, City Councilman Nick Bavaro said at the committee meeting.
Gilton’s contract initially was approved in 1997, and its terms have not been renegotiated since 2006. Bertolotti’s originated in 2001 and was last renegotiated in 2007.
“They have the city of Modesto in a headlock,” Bavaro told The Modesto Focus in July. “We cannot go out to bid. Of all the vendors in the city, garbage haulers are the only ones with an evergreen clause. Everyone else has a contract with a start and end date.”
Automated side-loading garbage trucks became widespread in the 1980s, requiring expensive additions to garbage haulers’ fleets. Lenders insisted that the companies secure long-term contracts with cities and counties to protect their investments, and evergreen clauses became common.
Stanislaus County’s contracts, for instance, also contain automatic 10-year renewals. Gilton, Bertolotti and Turlock Scavenger hold those contracts.
But most California municipalities over the years have shed evergreen clauses, HF&H Consultants told the committee. Sometimes disputes with haulers end up in headlines, as happened in Huntington Beach, Orange County and West Covina.
Small garbage companies need security to survive
“Long-term contracts allow them to amortize costs over a long period, keeping costs lower for customers,” Veronica Pardo, Resource Recovery Coalition of California executive director, told The Modesto Focus. Her organization represents family-owned and -operated small haulers like Gilton and Bertolotti, as opposed to large waste disposal conglomerates.
But public officials serve the public, not vendors, Bavaro said Wednesday. He walked the committee through what’s known as the 5 C’s of lending that banks use to gauge someone’s ability to repay: character, capacity, collateral, capital and conditions – not evergreen clauses.
“My job is to represent the best interests of the ratepayers,” Bavaro said. “With evergreen clauses, we’re not able to do that.”
He and others on the Finance Committee – Councilmembers Rosa Escutia-Braaton and David Wright – agreed to recommend that the council send Gilton a 10-year termination notice. They said they hope Gilton will come around before the full council vote, expected sometime in January.
But the committee raised other questions. What if Gilton doesn’t sign on? Will Bertolotti customers be penalized because their hauler went along with the city’s demands? Could that lead to some people paying one price, and others another?
Escutia-Braaton and Bavaro directed staff to bring the full council proposals that are equitable to all customers. Wright – displeased with unanswered questions – dissented.
Both garbage haulers obtained federal COVID-19 relief money in 2020 in loans that were forgiven a year later. Gilton received $2.43 million, and Bertolotti, $1.4 million, according to ProPublica.
Garth Stapley is the accountability reporter for The Modesto Focus, a project of the nonprofit Central Valley Journalism Collaborative. Contact him at garth@cvlocaljournalism.org.