Public Works Rehired Firm That Missed Garbage Overcharging

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Top city officials were left in the dark even after an outside consulting firm confirmed early last year that ratepayers were being overcharged millions of dollars on their garbage bills, NBC Bay Area’s Investigative Unit has learned. 

According to emails first reported by the investigative unit, Recology official John Porter first alerted Public Works department finance director Julia Dawson about the overcharging in a December 2018 meeting. Recology soon forwarded a financial breakdown in January 2019, reflecting an overcharge of about $25 million a year. Porter told Dawson that Recology had failed to account for revenue from recycling incentives and impound accounts when it applied to the city in 2017 to raise its rates by 14%. Based on the extra revenue the company was making, the city should have only allowed a 7% hike.

Garth Schultz, a consultant with R3 Consulting Group Inc., confirmed his firm was hired in October of 2019 to do what he called a “soup to nuts’’ review of the Recology rate hike application.

City Supervisor Aaron Peskin told us he does not understand why it took so long to just hire a consultant.

“What is even more mindboggling is they hired the same firm that reviewed the original 2017 rate proposal from Recology,” Peskin said. “So this is fox in the henhouse classic.”

Schultz confirmed his firm was involved in both the original 2017 rate review that failed to identify what Recology says was an innocent “mistake.”

Schultz did say his firm was paid about $20,000 to re-review Recology’s accounting and completed a list of recommendations to the city. According to a statement posted on its website in April 2020, R3 said it had done a detailed analysis of a “variance” between revenues and expenses related to Recology’s 2017 rate application.

San Francisco public works officials, speaking on Dawson’s behalf, declined to comment, citing an ongoing internal investigation.

But the city released documents Tuesday showing that on Feb. 28, 2020, Dawson told Recology the city’s consultant, R3, had confirmed what she called an “apparent” error in its rate application. She told Porter that if not for the error, the approved hike would have been “significantly lower.” In the memo Dawson does not indicate to Porter what, if anything, the city was going to do next.

City Attorney Dennis Herrera, who sued and settled to recoup nearly $100 million in overcharges and interest, says no matter what might have been done to review the issues, customers were essentially left in the dark for two years.

“It was something that was known – DPW did nothing about it,” he said. “Recology knew about it at the time and did nothing about it.”

Recology officials countered that they revealed the information as soon as they realized the mistake.

David Lee, a voting rights advocate in the Asian community, is pushing to revise the City Charter to break the nearly 100-year-old monopoly provision that Recology enjoys.

“I think it’s really outrageous that action wasn’t taken immediately – as soon as the city officials found out of the overcharge, action should have been taken,” he said. “This is endemic of the dysfunction that many see in our city government.”

Supervisor Peskin says he still wants to know why top officials--including the successor to ousted Public Works director Mohammed Nuru--were not told about the overcharge until after a top Recology official was implicated in the city’s corruption scandal late last year.

“This is a cascade of failures. This is a system that was supposed to have built-in checks and balances,” he said, adding that he was heartened to hear Herrera’s office had acted after discovering “150,000 refuse ratepayers were being ripped off.”

“Thank you again, to the city attorney of San Francisco, who is getting that $100 million back to the ratepayers, with interest.”

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