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Recycle Ann Arbor Has Lost 700K & Michael Garfield Thinks RAA Is Entitled To A Taxpayer Bailout

To listen to Michael Garfield, head of the Ecology Center tell the story, Recycle Ann Arbor, which is controlled by Garfield and the Ecology Center, has been the victim of “miscalculation made in the 2010 contract” between the City of Ann Arbor and Recycle Ann Arbor. That’s why RAA needs $1.07 million more from Ann Arbor taxpayers.

Garfield recently sent out this plea for political support for the bailout via the Ecology Center’s latest e-newsletter:

ANN ARBOR MAY REVISE CONTRACT WITH RECYCLE ANN ARBOR

Bottom line? Recycling is up, costs are down

The Ann Arbor city council is considering a revision to the city’s contract with Recycle Ann Arbor for curbside recycling service. Earlier this month, the city’s administration recommended increasing the amount paid by the city by approximately $105,000 to compensate for miscalculations made in negotiating the contract last year.

A vote is scheduled for Aug. 4.

Recycle Ann Arbor is a nonprofit subsidiary of the Ecology Center, but the groups’ finances are separate.

“The bottom line is that even with this contract change, the city would be paying far less for recycling collection than it did in 2010, although the volume of material being recycled has gone up 20 percent since single-stream recycling was introduced last year,” according to Michael Garfield, director of the Ecology Center and board member of Recycle Ann Arbor.

“The city should now correct the miscalculation made in the 2010 contract,” Garfield said.

There’s just one problem. Recycle Ann Arbor’s financial problems are not the result of the 2010 contract with the city, according to a forensic accountant whom A2Politico asked to examine Recycle Ann Arbor’s audits and tax returns. Furthermore, Recycle Ann Arbor’s financial problems stretch back years. Finally, contrary to what Garfield claims, recycling costs are not down, they’re up substantially, according to an independent audit of financial documents related to the city’s recycling collection and processing programs.

Not only should City Council refuse to pay Recycle Ann Arbor more money, there should be a thorough investigation into why the no bid contract awarded to Recycle Ann Arbor by City Council was extended in 2010. The long and short of the matter is that under the direction of Recycle Ann Arbor CEO, Melinda Uerling, the company has lost more than $700,000 over the past three years. In response, the Recycle Ann Arbor Board of Directors, which Garfield sits on, has responded by raising Uerling’s pay in each of the years in which Recycle Ann Arbor lost money. Ann Arbor’s elected officials entered into a long-term, no bid contract with a company that was losing money hand over fist. Now, Recycle Ann Arbor wants Ann Arbor taxpayers to bail out the company, despite the fact that its financial loses stem from a mishandled effort to expand into the roll-off container business.

When the City Hall PR machine was rolled out in October 2009 by John Hieftje, Fourth Ward Council member Margie Teall and Fifth Ward Council member Carsten Hohnke, the three-co-sponsors of the resolution to move the city to single-stream recycling, Ann Arbor residents were promised multiple benefits from single stream recycling including reduced program costs, less waste going to the landfill and even a “multi-million dollar economic stimulus for Ann Arbor” from the RecycleBank Rewards program. The promised savings would come from two sources:

  1. Recyclables would be collected using curb carts, which was supposed to allow the recyclables to be collected in less time.
  2. The expanded material recovery facility (MRF) would allow the private operator to process recyclables from other communities, which would increase the city’s share of revenue from sale of recyclables.

When Council was asked to approve $3.4 million in spending to upgrade the city-owned materials recovery facility 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 includes 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 is a member of the city’s Environmental Commission (to see exactly how tangled the web is of the Green Industrial Complex is in Ann Arbor, check out the relationship map below). The remainder of the $8.6 million was paid to the MRF operator, FCR, without competitive bidding. The money to pay for the upgrades came from city taxes.

So is Ann Arbor saving money? In November 2009 Council was told there would be $450,000 in savings from the Recycle Ann Arbor Contract. Did the savings materialize?  No. According to information presented to Council in July, RAA contract savings were $262,000, but staff asked Council to increase the contract by $107,000. That would reduce the savings to $155,000.  If the city realizes the $262,000 in savings over the course of the contract, that is barely enough to repay the $2.6 million of city tax dollars invested in new trucks and carts for RAA. If Council votes to increase the RAA contract, the reduction in contract costs is not enough to pay for the carts and trucks before they need to be replaced, which means city taxpayers will lose money on the Recycle Ann Arbor contract that was supposed to result in a total savings of $4.5 million dollars.

When Council voted in December 2003 to change the RAA contract to a performance based contract, the stated cost was $766,071. By FY10 that cost had grown to over $1.6 million. By FY 2010, though the amount paid to RAA had more than doubled, the amount of materials being collected by RAA had stagnated. The city was paying more and more to collect virtually the same amount of recyclables. What if the city simply brought the collections of recycling in-house? The city residential collection crews pick up about 28,000 garbage carts. RAA picks up about 30,000 recycling carts. However, it costs taxpayers significantly more to outsource recycling collections. The payment to RAA to pick up the recycling carts is double the cost of wages and benefits paid to city employees to pick up the trash carts. From FY06 through FY10 it cost about $4 million more to pick up the recyclables, or about $800,000 per year.

Recycle Ann Arbor provides the labor, and of course, charges for its own administrative costs. Taxpayers foot the bill for the Recycle Ann Arbor trucks, fuel, and maintenance under the auspices of the one-sided sweetheart deal of a contract negotiated by city staffers and approved by City Council.

In July, when city staffers Tom McMurtrie, Ann Arbor recycling program manager, and Sue McCormick, the city’s operations manager, went before Council and asked them to approve an increase in the amount of $107,000 per year for Recycle Ann Arbor, one justification was that RAA was losing money on the contract which was “affecting RAA’s ability to operate on a month-to-month basis.”

This is the most egregious deception of all.

According to the most recent audit of RAA financials, if RAA is having trouble paying its bills, it’s not because of the contract to collect recycling for the City of Ann Arbor. Recycle Ann Arbor’s financial woes stem from the company’s ill-advised purchase of the assets of Calvert’s Roll-Off Containers. It has been a dog of an investment, beginning when Recycle Ann Arbor made the purchase of the assets for what can only be described as an overly generous amount. According to RAA’s 2008 audited financial statement obtained from the Michigan Attorney General, RAA wrote off several hundred thousand dollars of those assets in 2008, but still owes about $800,000 on the purchase, with a balloon payment due in February 2012.

Financial losses stemming from the Calvert’s purchase and losses relating to Recycle Ann Arbor’s management of the Calvert’s operation, are the main reasons that Recycle Ann Arbor is having “trouble operating on a month-to-month basis.” It is not a reason, however, for the taxpayers of Ann Arbor to bailout the company simply to help out a friend of the Mayor’s (Garfield endorsed Hieftje when he ran for re-election in 2010).

The July resolution to pay RAA another $107,000 per year failed because it didn’t get 6 votes. Anglin, Briere, Hohnke and Kunselman voted no. Smith and Teall were absent. At that same Council meeting, Fifth Ward Council member Carsten Hohnke (whom Michael Garfield endorsed when Hohnke ran for re-election in 2010) moved to reconsider the motion at the August 4th Council meeting.

The only miscalculation in the contract was the one made by David Stead’s company, RRS, and approved by Tom McMurtrie and Sue McCormick. That was the wild claim that single-stream recycling would double the amount of recyclables collected in Ann Arbor, and that the taxpayers of Ann Arbor would save $450,000 per year and enjoy a pie-in-the-sky “multi-million dollar economic stimulus.” Neither of those projections made by Stead’s company, Tom McMurtrie, Sue McCormick, John Hieftje, Carsten Hohnke and Margie Teall, were accurate. In fact, taxpayers are poised to pay more money for single-stream recycling, and lose money on the contract with Recycle Ann Arbor. Giving Recycle Ann Arbor the taxpayer bailout Michael Garfield claims the company is entitled to in his Ecology Center message, is not only a misuse of taxpayer funds, it accomplishes little more than to keep Recycle Ann Arbor in business so that the company can continue to over-charge taxpayers to collect our recycling, and pay executives generously even when the company is losing money hand over fist.

It’s political cronyism disguised as environmentalism.

Have something to say about the taxpayer bailout of Recycle Ann Arbor? Email Mayor and Council by clicking this link

Recycle Ann Arbor Quietly Throws CEO Melinda Uerling Under the Wheels of the Compost Truck
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The Wheels Come Off The Recycling Cart: Projected Collections Down 40 Percent & Recycle Ann Arbor On the Ropes Financially
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Proposed Solid Waste Plan Includes New Building, Paid Garbage Collection, Reveals Single-Stream A Disappointment
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Short URL: http://www.a2politico.com/?p=9464

10 Comments for “Recycle Ann Arbor Has Lost 700K & Michael Garfield Thinks RAA Is Entitled To A Taxpayer Bailout”

  1. [...] When Recycle Ann Arbor came hand in hand for a taxpayer bailout in 2011, John Hieftje rallied behind Recycle Ann Arbor as a “local” company that needed the city’s support. There was, of course, no mention of the political favors that had been given to politicos who ran for re-election in 2010. Michael Garfield, head of the Ecology Center, the company that controls Recycle Ann Arbor, gave glowing political endorsements to Fifth Ward Council member Carsten Hohnke, as well as John Hieftje, both of whom voted to repay Garfield’s characterization of them as forward-thinking environmentalists with a multi-million dollar taxpayer bailout. [...]

  2. [...] Ann Arbor. The most recent contract resulted in the loss of millions of dollars. These same environmental leaders who benefitted from the no-bid contracts, perhaps, are the nameless ones she claims “endorse [...]

  3. @Brian, the accountant was, indeed, Karen. She spent over 40 hours combing through Recycle Ann Arbor financial documents, as well as financial reports from the City of Ann Arbor.

  4. Your arguements would be more persuasive if you did not tend to use anonymous sources like “a forensic accountant”. If it is Karen Sidney, just name her or identify the source of your accounting information.

  5. money&buildings

    Thank you. This kind of investigation takes hours. Ann Arbor
    is more than fortunate to have this quality of reporting.

  6. They are ripping us off, playing games, feathering their nests, lying to us and spitting in the eye of the public trust while lap dog AnnArbor.com turns a blind eye. A pox on all their houses including Democratic primary challengers Ault and Elyakin and their backers, the mayor and his cabal, the DDA, the pension fund, the AATA, the whole rotten stinking bunch along with their green industrial complex and the conference center backers too. When will Ann Arbor wake up and call this wretched crew on the carpet and send them packing with all their lies?

  7. Glenn Thompson

    This program was obviously flawed from the beginning.

    The city was going to double its collected tonnage right after a major producer of recycle materials, the Ann Arbor News, stopped production?

    The increased tonnage was to come from an increase in the types of plastics recycled? But most plastic materials like yogurt containers are very light. Furthermore most plastics have low recycle value

    Collected tonnage was to be the measure of success when one of the heaviest component of the waste stream, glass has no commercial recycle value. The recycled glass is just sent to the Westland land fill after expensive processing.

    Much of the savings was to come from reduced land fill tipping fees. Yet the Michigan tipping fees are so low that large quantities of solid waste is shipped here from Canada because that is the least expensive way for Canadian cities to dispose of it.

    How could the consultant and our city staff be so stupid to miss all of these obvious flaws? Personally, I do not believe they are that stupid although perhaps we should give a few the benefit of the doubt. I think it it is simply the case where they thought the expanded single stream recycling was in their personal best interest and they chose to pursue what they believed was best for them rather than best for the citizens.

    How could they think this was best for them? A bigger empire, control of greater contract $ usually results in a higher salary. If you want to move to another city you can claim “I implemented this great program in Ann Arbor”. This seems to be a marketing strategy of the consultant, RRSI.

    Another way a city employee might think it was in his best interest would be if he was simply told one of his superiors wanted it to happen to please one or more elected officials.

    The question now is whether our City Council will vote in the best interest of the citizens. Clearly a resolution should be made to terminate the contract with RecycleBank in the least costly manner to the city. This alone will be of significant economic benefit to Recycle Ann Arbor by reducing collection costs. Any increase in their contract should not be considered.

  8. @Alan, it took a forensic accountant two days to go through the city’s finances, RAA tax returns and audits.

    AnnArbor.com is not doing that kind of work, regardless of what the “people” want. To put together the financial work on this piece was complicated and very time-consuming. The city makes their financials overly complicated deliberately. The accountant uncovered several instances of sloppy accounting, and accounting where money was moved from fund-to-fund as needed (by city staff).

    As for Recycle Ann Arbor, Michael Garfield either knows nothing about the company’s financial problems, or he is being deliberately misleading. Either way, his message above is plain in blaming the contract for RAA’s financial problems, and that is simply not the truth.

    To uncover that, however, took days of work by an expert in finance. A2Politico is extremely fortunate to be able to draw on those kinds of resources.

  9. Lucy sez “jiggleitalittle” whenever something doesn’t work. So I keep bumping my head, trying to get it to work. But it still won’t add up all the costs associated with privatizing our recycling pick-up and processing and come up with the right answer. Isn’t the answer supposed to be “we saved ourselves a ton of money?” Why privatize (in AA we employ the euphemism “outsource”) if it doesn’t add up to a windfall for the city’s taxpayers? Is this an ideologically driven practice or a neo-liberal upgrade for cronyism?

    Why hire a company just to pick up recycling and then pay for the trucks, carts, fuel and maintenance? When I used to outsource my lawn mowing, Loy’s brought their own mowers and whackers. But we provide the equipment for RAA. When I outsource my alterations, I do not pay for Heather’s sewing machines. But we have paid over $8 million to upgrade our recycling facility for FCR , the company chosen to process the recycling plus yearly maintenance and repair costs. I sure hope Heather doesn’t start sending me her sewing machine repair bills.

    I’ve been told the market is supposed to be THE solution to every problem from hangnails to potholes, so I must not be adding this all up correctly. The market cannot err because to err is human.

    I wonder if Ann Arbor’s future might read something like this: Mayor of small midwestern college town claims to have found an endless supply of cash for his projects…and has managed to cut all “entitlements” to the taxpayers who are paying the bills. No more free garbage pick-up you deadbeats. No more free police and fire protection. And you’re washing too many clothes and boiling too many rutabagas so we’re going to sell off the water system and let the non-elected private, supranational company raise your rates. You can use the three remaining parks–Stonyfield, Viagra and Waste Management–by paying installments on your park permit with your monthly garbage bill. Thank you for your interest in our city.

  10. Alan Goldsmith

    Pat,

    Time to forward this information to the Freep and Detroit News,
    and our tabloid tv buddies at channels 2, 4 and 7, since other
    than yourself, no one is doing any local investigative reporting
    on this topic, least of all AnnArbor.com. You know, after all
    their focus groups told them ‘the people’ wanted…journalism.
    Lol. Let the games begin with some outside press!

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