California city weighs terminating 'evergreen' Republic Services contract
- The City Council of Huntington Beach, California is considering whether it's time to end a decades-long relationship with Rainbow Environmental Services following lack of progress on renegotiating terms. The current contract was approved in 2006, and Rainbow was acquired by Republic Services in 2014, according to the Daily Pilot.
- Mayor Erik Peterson and Mayor Pro Tem Lyn Semeta have recommended that the city manager initiate a notice to cancel the 15-year "evergreen" deal, which automatically renews in perpetuity. The termination process would take three years, meaning no change until at least 18 years from when it was initiated.
- During the council's April 1 meeting, Republic advocated for allowing negotiations to continue. Council members settled on asking city staff to prepare a report on the progress of negotiations, along with a range of other factors, ahead of a potential decision at a May 6 meeting.
Republic holds a franchise contract for residential and commercial service throughout Huntington Beach that long predates its acquisition of Rainbow. While Rainbow underwent various environmental and legal issues (which Republic later worked to settle and remediate), council members said the idea of entering into such a long-term deal with a locally-owned company versus a national agglomerate was still much more palatable.
According to discussions during the council meeting, the city should technically have had the option of revisiting its contract terms at the time of ownership change — but no action was taken. In 2017, Peterson and Semeta worked to establish an ad hoc committee that reviewed this deal, and later directed staff to attempt to renegotiate the evergreen provision.
During the public comment period, General Manager Chris Kentopp made his case for why Republic should be viewed as a good partner. His case included a litany of national accolades, a multi-million facility upgrade, contributions to various other city initiatives and an ongoing commitment to mitigate changes for ratepayers.
According to Kentopp, the company's annual benefit to Huntington Beach is nearly $1.9 million — when factoring in free service and host fees. The city's budget for refuse and recycling is $12.1 million for the current fiscal year.
"Republic Services is an organization that prides itself on its integrity, and while there have been recent setbacks in contract renegotiations I believe they are not insurmountable," said Kentopp. "I respectfully request that you reconsider this action item and allow the city manager's office to continue and conclude the contract renegotiations."
Officials have made clear they don't necessarily want to stop working with Republic — just ensure that the city has room for a competitive process in the future.
"I'm hoping that we will continue to work with Rainbow or Republic on renegotiating those terms, but thus far with the meetings that have taken place we have not been able to come to terms," Semeta said during the meeting.
At the time the deal was negotiated, some viewed the evergreen provision as a sensible move — Rainbow was making multiple upgrades to its fleet and processing infrastructure to keep up with evolving state recycling requirements. Some members wondered whether the city could actually lose out by renegotiating amid the current commodity market downturn, noting that Huntington Beach could be giving up any leverage if it moves forward on termination plans. Peterson, however, noted neither party has much leverage at the moment, and that this is worthwhile for the broader message it will send.
"I believe in healthy competition," he said, "and especially, when you're dealing with public funds, that not one company should have sole right to something forever."
Long-term and exclusive franchise agreements are said to be a key part of Republic's collection business, according to the company's latest annual report. Many of its higher profile deals are in Western states, such as California and Nevada.
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