"$5 million saved in 5 years"

That has been the claim that City Council and Staff have been heralding to justify the change in solid waste collection.

Is it right?

No.

Where does it come from?

Half of the $5 million, namely $2.5 million, comes from savings due to the reduced level of service. 

There were three bidders on this contract.  All were asked to bid on two scenarios, garage-side and curb-side pickup.  All three came in with bids that showed a $500,000 per year savings by switching from garage-side to curb-side service, and that number was fairly consistent with the City Finance Director's estimate of $470,000 per year.

There are 12,000 driveways in the city.  The total savings per driveway, therefore, for having curb-side versus garage-side service is $42 per driveway per year.

What about the other $2.5 million in "savings?"

We were fortunate.  A UA resident, an accountant with 40 years experience who worked as a CPA with Price Waterhouse, kindly volunteered to look into the validity of this number.  Since February 25, 2008, he has been working through the bid analysis that was conducted by the City. 

In a nutshell, what he has found is that this 5-year savings figure is NOT $2.5 million, but rather a mere $211,000. 

With 12,000 driveways in the city, therefore, the per year savings is actually $3.52 per driveway per year.

Council made its decision based on incorrect numbers.

Why the discrepancy?

Two reasons.  First, because in carrying out its "Bid Analysis," the City Finance Department made some big mistakes.  Second, costs have since been incurred that were not included in the initial comparison.

What were the mistakes?

First, the Finance Department credited the "Low Bidder's" scenario for the sale of paper goods at $225,000 per year, or $1.125 million over the 5-year period.  This was not credited to the "City Service" scenario.

Second, the Finance Department used different "Tipping Fees" for the "Low Bidder" and "City Service" scenario, when in reality they should have been the same.  This resulted in an overstatement of $154,000 of the savings over the 5-year period.

Third, the Finance Department expensed new Equipment costs rather than capitalizing and depreciating them.  Expensing equipment costs is not consistent with GAAP (Generally Accepted Accounting Principles).  This overstated the "City Service" scenario by $381,000.

Fourth, the Finance Department included something called "Avoidable Costs," which were included without any backup detail.  The accountant contacted the Finance Director, but she could not provide any backup documents or figures to support that number.  Over the 5-year period, these costs add up to $523,000.  In the final calculation, he gave the City the benefit of the doubt and included half of those undocumented, untraceable costs, namely $261,000.

What additional costs have been incurred?

The severance package for members of the Solid Waste Division that was negotiated in mid-March, 2008.  This amounted to $350,000.

In addition, the "Low Bidder" scenario does not include city staff time which will be needed to oversee the contractor, nor the personnel requirements for handling calls and complaints.  Finally, the "Low Bidder" scenario does not include the overhead expense of the Roberts Road facility, which will continue to be owned by the city.

So ... add them all together ... and you get an "actual" savings of just $211,000 for the 5-year period, or $3.52 per driveway per year.

If you want to see the detail on this, click the image below to bring up the final spreadsheet researched and generated by the accountant.



The actual savings, therefore, is NOT compelling. 

Moreover, there are substantial risks involved. 

If the "Low Bidder" has underestimated the scope of work, one of two things will happen.  Either they will quit because they're losing money, or they will ask the city to renegotiate the contract, asking for more money to cover additional equipment and personnel.  Either way, residents will end up "paying the price."

City Council and Staff have unnecessarily placed into jeopardy the delivery of a "vital service"  to the residents. 

If there ever was a potential emergency, I do believe this is it.

The City Finance Department presented incorrect numbers.  City Council did not perform due diligence in evaluating them.  Based on the correct numbers shown above, there was no clear reason for them to have put the City -- and us -- in this position.

4/27/08 Update.  The Assistant City Manager is now quoted in a WOSU broadcast of 4/23/08 as saying that the savings are now $200,000 per year.  The next day, he is quoted in a Dispatch article as saying that the savings are $600,000 per year.  A NBCi Channel 4 broadcast of the evening of 4/24/08 reports that the city says the new service will "save millions."  Which one is right? 

Also, do these figures include the fact that unanticipated city employee time has been spent executing some of the duties that were to have been taken over by the contractor as well as the increased amount of city resources being allocated to resolving complaints?  In addition, there are 92 more medical exemptions than the contract allowed.  This amounts to an additional city expenditure of $13,800 per year. The outsourcing scenario clearly did not include those costs.

9/8/08 Update.  The City is now quoted in a 9/4/08 WOSU article as the new service saving $200,000 per year. 

Here's a chart showing these quoted figures over time.  The dotted blue line shows their published figures in February, April, and September, and the pink line shows the trend over time. (Click on it for a larger image.)



Looks like come mid-October, we'll reach the point where pink line crosses below "zero" ... in other words, the city will be estimating that we'll be LOSING money.