City audit finds San Diego losing out on millions in trash hauler contracts

SAN DIEGO (FOX 5/KUSI) — San Diego is losing out on millions of dollars and undercutting its climate change mitigation goals due to a number of issues flagged in a newly released city audit on its agreements with private trash haulers.

The audit specifically found San Diego has not done enough to keep the fees it charges to these companies at pace with inflation and city costs, as well as ensure the haulers are doing their part to help bring the city closer to its recycling goals.

These issues, the 59-page report says, have resulted in the city forgoing anywhere from $4 million to upwards of $15 million annually and contributed to the stagnation of the city's recycling rate at 67% over the last decade.

On waste diversion in particular, auditors note this could mean the city may be forced to close Miramar Landfill — the only city-operated waste disposal site — ahead of its planned discontinuation in 2031 and make the city's lofty climate goals all the more unattainable.

The audit provides eight recommendations for the city to address the concerns laid out in the report, chief among those a hike to the franchise fee imposed on the city's 15 private waste haulers to a rate it would have been had it kept up with inflation.

The auditor's office also suggests increasing the amount of recyclables that haulers are required to divert from landfills and boosting accountability by hinging contract renewals on whether they met these targets. The recycling goal would similarly apply to city crews.

According to the auditor's office, officials with the Environmental Services Department agreed to implement all of the recommendations detailed in the report.

However, the department noted in its response that they will need the money to conduct a cost-of-service study and bring on five new staff members to effectively carry it out, and may not be able to complete all of the changes until mid-2028, given these considerations.

Private companies are the lynchpin of San Diego's waste collection system, the report explains, hauling about 70% of the city's trash. City crews, on the other hand, only account for about 30% of the waste collected.

These city contracts that these companies operate under are franchise agreements, allowing customers anywhere in the city to choose whichever hauler they would prefer to use. The haulers then pay the city fees based on the amount of waste they collect.

In the last fiscal year, the 21 companies that have franchise agreements paid the city about $14 million. Per the report, had the fees kept up with changes in inflation, the city would have collected about $18 million.

Since 2010, the auditor estimates the city has missed out on more than $25 million in revenue, given this shortfall. During that same period, the franchise fee has only been raised twice: once in 2020 and a second time in 2023.

The current fee sits at about $17 per ton for high-volume haulers and $18 per ton for low-volume haulers — one of the lowest rates in the state. In comparison, other cities with non-exclusive franchise fee structures, like Sacramento and Long Beach, charge more than $30 a ton.

Moreover, the auditor says this fee structure does not take into account the strains private haulers cause on public infrastructure, like city streets. According to the report, their vehicles are responsible for about $28 million in annual street repair costs, some of which could be absorbed by a franchise fee rate increase.

While the city would need to conduct a study on what a rate increase might look like, the auditor's office said consumers would likely not feel much of an impact, given the competitive model they are operating under.

Even if the cost ends up passed on to households, the auditor estimates the average increase for the consumer would only be by about $1.74 to $2.98 per month.

Adjusting the fee structure could also incentivize waste diversion for private haulers. According to the auditor's office, more than 75% of waste currently being brought to landfills by these companies could either be recycled or composted.

The city does have a required diversion rate for the haulers it contracts with, although the auditor notes it has remained unchanged since 2020. This, paired with a lack of accountability according to the report, has contributed to a plateauing of their collective diversion rate.

In 2023, private haulers' diversion rate was about 41% — about 9% below the 50% minimum diversion requirement. City crews' diversion rate was even worse, at about 32%.

If this trend continues, the audit says the city will come in about 14 percentage points behind its next target towards 100% waste diversion by 2040: 82% in 2030.