City finds the majority of downtown businesses undercharged for trash collection

photo by: Mike Yoder

The 800 block of Massachusetts Street is pictured on Nov. 17, 2015.

The city has discovered it has been undercharging the majority of downtown businesses for trash collection, likely leaving thousands of dollars per month uncollected.

Nearly all downtown businesses fall under a special rate structure, and an audit conducted by city staff found that 150 of those businesses, or about 79 percent, are being charged incorrect rates. The audit found that that “almost all” the incorrect rates are lower than what should be charged and that the errors have likely accumulated over many years, according to a city staff memo.

The errors were reported to the City Commission earlier this month, along with a plan to study and revise the method used to determine trash collection rates downtown. City Manager Tom Markus said that formula, which was created 40 years ago, is complex and not easily applied. He said he thinks some mistakes were made years ago and carried forward.

“Quite frankly, they didn’t spend the time necessary to research what it should be and do the appropriate calculations, even in the field, that were necessary to make sure that they were doing it the right way,” Markus said. “And this goes back. In some respects, I imagine it was carried forward year after year.”

This is the latest billing problem discovered by city staff and reported to the public. Previously, the city reported that it failed to send invoices for nearly $700,000 worth of leases — everything from land leases to a variety of other agreements. The invoices had failed to be sent for years. As was the case with the trash billing, the billing problems began before Markus began his job at Lawrence City Hall in March 2016.

The city has made changes to prevent future errors, and is preparing to hire a consultant to help revise how downtown trash rates are determined. City officials say that those revisions, in addition to making the rate structure simpler, aim to make sure the fees being charged to downtown businesses cover the city’s trash collection costs.

Changes in use

Markus said the city’s previous internal audits didn’t catch the errors, and that city staff began looking into the rates in the context of the pilot downtown commercial recycling program, the rates of which are set to cover the city’s costs. He said some downtown business owners questioned why the recycling rates — about $130 per month — were more than their trash collection rates. It was subsequently found that some businesses were mistakenly being charged as little as $23 per month for trash collection.

Solid Waste Division Manager Kathy Richardson said the city charges the base rate of $23 while a shop is vacant, and that the audit found that some downtown businesses were not bumped out of that $23 base rate once they became occupied again. She said other businesses were never bumped up to a more expensive price when they converted to restaurant or bar use, as is required by the rate model.

Richardson said the audit looked at the current account status, and the city does not currently have an estimation of precisely how many years the errors go back and what the cumulative financial impact has been.

For commercial trash collection, the city typically uses the size of the container and the frequency of collection to calculate rates, but limited space in downtown alleys means that businesses share dumpsters. For the 9 1/2 downtown blocks where that is the case, the city uses a rate structure that separates businesses into five tiers. What tier a business falls into is based on square footage, but a restaurant or bar will fall into a higher tier than a business with the same physical footprint that does not serve food or drink.

Though the model has not changed since 1978, the rates for each tier have increased over the years.

For this year, the rates for the five tiers range from about $23 to $348 per month, according to rate charts provided to the Journal-World. The smallest difference between the five tiers, $34, would amount to about $5,000 per month in undercharging if applied to all 150 businesses. Another way to look at it is that many stores in downtown are about 2,500 square feet. Under the correct rate structure, they should be charged about $131 a month for their trash. The incorrect minimum rate charges them about $23 per month.

Richardson said it was the public works department’s responsibility to make sure the downtown rates were set up correctly, and that changes have been made to make sure the correct rates are established going forward.

Below are the 2018 downtown trash rates by tier. The square footage numbers alone are used to determine rates for businesses that don’t serve food or drink. A restaurant or bar would be in the tier directly above that of a business with the same physical footprint that does not serve food or drink.

Tier 1 2 3 4 5

Square footage 1,001-2,000 2,001-5,000 5,001-12,000 >12,000

Monthly rate $23.49 $57.54 $131.10 $241.43 $348.29


Fixes

Richardson said when a commercial account is set up, that information is now being sent to the solid waste department on a weekly basis so that they can review it and make sure businesses are set at the correct tier.

Markus said the city has made changes to its process to put more checks and balances in place, and that the city is creating the expectation that mistakes are reported to the public.

“We are trying to be transparent,” Markus said. “We are asking and encouraging staff to bring this stuff forward; We need to correct it. And I want to make sure the public knows that I deal with this stuff from a personnel level very seriously.”

Regarding the checks and balances, Markus said departments are getting more contact with the city’s management staff and sitting down to develop consistency regarding how the departments are operating.

Markus also said that the city can’t make a formula so complex that it can’t easily be monitored, and that the formula also needs to be directly tied to the amount of garbage and the city’s costs to collect it. The report states the city will study and recommend a new rate structure within 90 days, and Markus said that the city will use the new model to adjust the downtown business rates that are set incorrectly.

A new rate structure

Richardson said the city doesn’t know if the current rate structure actually covers the city’s costs, and that, apart from creating a less complex model, the study will gather the true cost of trash collection and determine a fair rate structure for businesses that share a dumpster.

“We don’t know if it is (covering costs) or not, and that’s not a good position to be in,” Richardson said. “So it’s not just about making it simpler, but on having a well-thought-out process to figuring out what it costs to collect trash and figuring out a rate structure around that information.”

Richardson said consultant proposals for the study are due April 24, and that once a selection is made, the study will take two months. She said downtown businesses will be involved in the process.

“We recognize how confusing this rate structure that was created back in 1978 is, and we’re ready to move on with something that makes a little bit more sense and is easier to comprehend both for the businesses and our city staff as well,” Richardson said.