Mark Davis: Local rate-setting process off limits to the public

In early 2017, Recology Western Oregon’s monthly rate for a typical weekly household garbage pickup in McMinnville ran $35.45. With city council approval last month of yet another hike, the rate for such basic service will rise to $45.35, a jump of 27.9% in less than three years.

In fiscal 2017, the city collected $154,778 in franchise fees, paid by us as part of our garbage bill. In the current fiscal year, it is budgeted to collect $355,000, an increase of 129%.

Recology operates through a franchise agreement granting it a monopoly. That means no one else can offer competing service in the market.

The city agrees to increase rates so Recology can earn a profit of at least 10% on its operations in the city. It also adds on a 5% franchise fee, up from 3% in 2017. Obviously, doing so increases city revenue every time city councilors approve a rate increase for Recology, which is based in California.

When the franchise was held by a local company, the financial justification for garbage rate increases was considered public information, open to citizen inspection and public council discussion. But during its tenure as the city’s franchise-holder, Recology has moved to a system of summary information and narrative explanations to justify its rate increases.

Guest Writer

A dual major, Mark Davis graduated from Linfield College with bachelor of science degrees in accounting and computer science. During a five-year stint with a public accounting firm in Portland, he earned his CPA license. Returning to Yamhill County, he spent 19 years with the Housing Authority, the first seven overseeing finances and the remainder guided affordable housing development. He retired in 2012, but has continued to maintain an active involvement in local civic affairs.

As a retired accountant, I repeatedly have asked members of the city council to request the financial justification they got previously for rate increase requests.

They have declined to do so.

They did, finally, agree request an outside auditor to review the company justification for the latest rate increase.

However, at Recology’s request, which passed legal muster with the city attorney, the justifying documentation was deemed “proprietary information.” On that basis, it was kept secret from the public.

The council discussed the matter in executive session, which is closed to the public. Then it adjourned into open session and approved the increase without any public discussion.

The auditor did make a brief public presentation, but offered no substantive comments. The auditor declined even to say whether the rate increase seemed justified.

Recology, headquartered in San Francisco, makes extensive use of affiliated corporate entities to perform general and administrative tasks. A portion of those operational overhead expenses are charged to us in our garbage bills.

The city’s franchise agreement with Recology states, “Charges for these services shall be equal to or less than eighty percent (80%) of the cost of procuring such services from third-party service providers.” But without the benefit of corporate financial information, the public has no way of knowing whether this requirement is being met.

A simple statement to that effect by the auditor would help address the requirement, and in no way compromise proprietary Recology information. But we have yet to obtain any such assurance.

At the state level, the Oregon Public Utility Commission holds robust public hearings, based on detailed financial data required of utilities subject to its regulation.

It discusses revenue requirements, expenses and expense allocations in open public session, without causing any apparent harm to Portland General Electric, Northwest Natural Gas, Frontier Communications or other utilities operating with territorial monopolies like the one accorded Recology by the city of McMinnville.

There is nothing preventing the city from using some of this year’s $355,000 in projected franchise fee revenue to establish a clear rate increase process for its local garbage monopoly — one that supplies public justification for rates without compromising any Recology business secrets.

While it looks bad that Recology and the city seem to agree the formerly public information on garbage rates must now be kept secret from the paying public, I don’t believe either party is acting fraudulently.

Recology provides excellent service, and has increased recycling options in the city over the past several years. And the city is using the franchise fee revenue to bolster its declining reserves.

The problem is that eliminating public access to the information makes it less likely any future fraud will be detected.

It’s comforting to assume everyone is always honest. But as a former auditor, I have seen plenty of evidence this is not true.

A corporation asking the government for monopoly status and guaranteed profit owes the public a clear rationale for any rate increase. Our city leaders owe it to us to see that is provided.