Recology, the company to which city voters in 1932 awarded a monopoly on hauling waste in San Francisco, has agreed to a settlement reimbursing city customers some $94.5 million. This comes after a City Attorney investigation revealed the company in 2017 applied for, and received, a rate that gouged San Francisco customers.
In a lawsuit filed today by City Attorney Dennis Herrera, he alleges that Recology failed to include anticipated revenues in materials submitted to the city’s garbage rate board in 2017 — thereby inflating its ask when applying for a rate hike with a city body dominated by ousted ex-Public Works boss Mohammed Nuru.
These rates increased 14.4 percent in 2017 and 5 percent last year, and a 1 percent rise was slated for 2021. The City Attorney said today, however, that had Recology not omitted its revenue, it would only have been justified in applying for a rate hike of about 7 percent in that first year.
Herrera today said these rate hikes affected some 160,000 San Francisco customers.
While the company disclosed this error in 2018 to the Public Works department, neither Nuru nor the department took corrective action. Rather, Recology continued to collect the inflated rate from city ratepayers for two years. (Recology today claimed it notified not only Public Works but also the Department of the Environment. The company claims “present senior leadership” only learned of this matter in November 2020, and promptly informed the City Attorney).
Nuru’s inactivity is no surprise: Former Recology exec Paul Giusti was federally charged in November in an alleged conspiracy scheme with Nuru to hike those rates.
Over the course of several years, Giusti, with the approval of his higher-ups, allegedly bribed Nuru with more than $1 million via payments to various nonprofits, through which Nuru would underwrite lavish holiday parties for Public Works employees and other city dignitaries. In exchange, Nuru allegedly used his position to influence rate increases for garbage services for San Francisco residents.
These gifts were cloaked as donations to a charitable nonprofit. In October 2020, Mission Local reported that Recology was the overt and covert source of the vast majority of the money within nonprofit funds controlled by Nuru — and that garbage rates skyrocketed during the period of these donations to his slush funds.
The dollars siphoned into Nuru-controlled nonprofits went toward pay for “deejay services, hats, t-shirts and other merchandise, Bay to Breakers entry fees for DPW employees, funeral-related expenses, and thousands of dollars to cover the costs of food and other vendors for DPW events, including photo booths, a chocolate dessert fountain, holiday quartets, and specialty lighting for the annual DPW holiday parties” — and, when needed, to buy additional booze for the lavish holiday party.
In the November charging documents, the feds also outlined a scheme to employ a son of Nuru’s, allegedly in return for Nuru’s help in pushing through the increased garbage rates. That son was working at Recology itself until it was deemed unseemly for the company to employ the child of its regulator.
Recology found Nuru’s son a job quickly because of time sensitivities regarding the pending rate hike, according to the November charging documents. Nuru’s son also kept this job despite reports of sleeping on the job, and verbally and physically harming young children.
“With this legal action, we are making San Francisco ratepayers whole and sending a clear message that cozying up to regulators won’t be tolerated,” Herrera said. “Mohammed Nuru may have had his challenges keeping the streets clean, but he clearly excelled at cronyism, slush funds, and indifferent oversight. While ratepayers were taking a hit to their wallets, Mr. Nuru was soliciting money for lavish parties from the company he was supposed to be regulating. It’s outrageous.”
But San Francisco’s odd, monopolistic system is also convoluted by the city itself benefiting from the rate hikes it approved — and which Recology today has agreed to pay back.
That’s because when Recology pocketed more money from San Francisco’s ratepayers, Recology paid more money to San Francisco’s government.
When those rates were hiked in 2017, Recology directed $11.5 million to the Department of the Environment and $8.5 million to Public Works itself — the department that, as noted above, has a great deal of influence on tabulating and approving Recology’s rates. What will become of this money is not presently known.
“Public Works is both Recology’s regulator — and an interested party,” Supervisor Aaron Peskin told Mission Local in December. “That behavior must be reformed. The regulator has to become independent.”
Per today’s agreement, Recology will refund San Franciscans some $94.5 million by Sept. 1, 2021 — a figure representing its overcharges, plus 5 percent interest. On April 1, 2021, it will lower its rates to what have been deemed the proper amount, saving city customers an additional $6.5 million between April and June. It has also agreed to a $7 million settlement payment to the city.
Finally, today’s settlement includes a four-year injunction on Recology making any gift to a city employee or contribution to a nonprofit at a city employee’s behest.
Herrera said today that attempts to bar Recology from doing business with the city would be complicated by its status as the voter-approved holder of an 89-year-old monopoly. The next steps, he said, will have to be decided by city politicians and voters.
Peskin says any move would require “blowing up the 1932 ordinance.”
When Quentin Kopp put a measure on the ballot in 2012 that would’ve broken this monopoly and subjected Recology to its first rounds of competitive bidding since the Hoover Administration, it was denounced by both the city’s Democratic and Republican parties, and spurned by 77 percent of the voters.
Should the ’32 ordinance be junked, San Francisco could go in multiple directions. It could put waste contracts out to bid — with the possibility being that the winner could be a company that provides worse customer service than Recology and does not treat its workers as well. Or it could potentially municipalize waste collection.
This is already done locally in Berkeley and, on a far grander scale, in New York City. Minus the profit motive, Berkeley customers pay less than their Bay Area neighbors.
Peskin said on Tuesday he will introduce an ordinance to form a task force “that includes experts in the field and labor leaders” to “ascertain whether we should be working to acquire Recology’s assets, including its transfer station and its fleet of specialized hauling vehicles, with an eye toward municipalizing trash collection in San Francisco.”