The city announced a $25 million settlement with trash giant Recology today, claiming the company took home excess profits beyond those allowable in its rate agreement with San Francisco.
Recology netted profits of $23.4 million above its target profit margins between 2018 and 2021, according to a “Public Integrity Review” released in May by the Controller’s Office.
The 2020 sale of Recology’s 7th Street property to Amazon, while not included in the May assessment, also played a role: The property, acquired in part using funds from Recology customers, sold for $200 million, but the company’s profit on the sale was not returned to its customers.
That December, 2020, property sale preceded a $94.5 million settlement with the city by barely three months.
Today’s settlement, includes accountability mechanisms to ensure that, when properties are sold, Recology customers are reimbursed for rent paid on them. The $25 million in funds, to be paid by Recology, will go into a new balancing account where future profit excesses will be kept.
And, for the next few months, funds from the account will be used to deter cost-of-living rate increases for customers, said City Attorney spokesperson Jen Kwart. “Indirectly, ratepayers will be saving money, it’s just not going to come in the form of a refund check,” she told Mission Local.
In the future, the account may support Recology if its profits fall below target.
The settlement is the latest in a series of aftershocks from a 2020 corruption scandal stemming from the arrest and subsequent conviction of erstwhile Public Works boss Mohammed Nuru. A 2021 City Attorney investigation found Recology was charging inflated rates for service to San Francisco customers. That was the basis of the nearly $100 million the company was, last year, ordered to reimburse to some 160,000 San Francisco residents.
“I think we’ve scraped the bottom of the barrel. I think we’re done,” said Supervisor Aaron Peskin, who worked with the Controller and City Attorney as their offices negotiated today’s settlement with Recology. Peskin also drafted June’s Prop. F. After its overwhelming passage, it will ensure oversight of the waste management rate-setting process, and allow the city to make changes to its contract process, over which Recology presently has a monopoly.
The $23.4 million in excess profits was up for debate during the past six months of negotiations, Peskin said; Recology argued that the figure was closer to $17 million or $18 million. There were also differing theories about the amount of money owed to San Francisco ratepayers from the Amazon site sale, Peskin told Mission Local, because the property had a “very complicated ownership history.”
In the end, the settlement amount of $25 million was reached.
The previous $94.5 million settlement Recology paid in 2021 was intended to be a catch-all for all known and unknown issues with the company’s problematic 2017 rate agreement, said Peskin. “And then, we came to know more.”
When Recology’s excess profits came to light earlier this year, the company, per the previous agreement, was “under no obligation to settle,” Peskin said.
But Prop. F opened the door for the city to change the 1932 ordinance that gives Recology its monopoly over San Francisco waste collection. Its June passage likely pushed Recology to “play ball,” Peskin said. “If it were not for Prop. F, they probably would not have entered into the second settlement.”
Now, the Controller’s Office “intends to immediately initiate a new process that will result in new rates by October, 2023,” according to a statement from that office. The rate agreement has not been updated since 2017.
“I hope that [Recology’s] excessive corporate salaries will not be paid by San Francisco ratepayers when the new rate goes into effect next year,” Peskin added.