1D, Eureka Contract Payment Terms Discussion

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and marketing ofrecyclables." Based on 2,560 households, the total cost was $86,518 for the first full year of service. Section 6.1 of the contract also includes a provision to adjust the per household service fee each year in accordance with the consumer price index for the Upper Midwest as determined by the Federal Reserve Bank of Minneapolis. The monthly fee is adjusted on the anniversary of the contract. Starting on March 1, 2009, the monthly per household cost increased by 3.8 percent to $3.06. This monthly cost per household and the annual increase was anticipated in the 2009 recycling budget. Section 6.2 describes the revenue share portion of the contract (page 7 of Attachment A). Under section 6.2.1, All Paper Grades, the contract states, "The Contractor shall pay the City 50% of this [Official Board Markets] index for all grades of paper collected after a processing fee of$75 per ton." Similarly, under section 6.2.2 regarding aluminum, the contract states," The Contractor shall pay the City 50% of this [American Metal Market] aluminum index after a processing fee of$150 per ton." The OBM and AMM are common sources for obtaining market prices for recycling materials. Staff s and the City Attorney's reading of section 6.2.1 of the contract is that when there is revenue to share, Eureka retains a $75 per ton processing fee for paper and a $150 per ton processing fee for aluminum. The remaining revenue is split in half between Eureka and the City. If there is not sufficient revenue to cover the processing fee, the City would not receive any revenue share. In other words, paper must be more than $75 per ton and aluminum more than $150 per ton before there is revenue to share. For example, if the market price for paper was $100 per ton, a $75 per ton processing fee would be charged and the remaining $25 per ton would be split between the City and Eureka. However, ifprices were $50 per ton for paper, the City would not receive any revenue share because the $75 per ton paper processing fee would not be covered. The City was aware that revenue sharing was not a guarantee and some months. may not have any revenue share if prices fell below the processing fee. It was staff s understan.ding and it was presented to the Council in December 2007 that some months may not have any revenue share but the monthly price would not increase. In the proposal submitted by Eureka in 2007, they anticipated a revenue share of 70 cents per household per month based on collection rates and market prices in 2007. However, in October 2008, the market price for recyclables dropped precipitously. The City collected approximately $16,800 in revenue share between March and October. Based on Eureka's calculations, the City has not received any revenue share since November. According to Eureka, a recovery in the recycling market is not anticipated this year. Prior to receiving the invoice for January recycling services, Eureka informed the City of an error on the December invoice. By December 2008, the price for paper had dropped to $30/ton. Consequently, the City did not receive any revenue share for paper materials. The City would have received a rebate of $510 for aluminum; however, that was retained to cover their processing costs for paper. The error, according to Eureka, is that the City should have been charged for the remaining "processing fee gap" for paper materials. Since prices had fallen to City of Arden Hills City Council Meetingfor March 30,2009 \\Ahdocsl\ah\AHdata\Planning\Recycling & Garbage\2009\033009 - CC Report': Eureka Contract Discussion.doc Page 2 of 4