REPORT TO COUNCIL
SUBJECT
Title
Authorize an Amendment to the Memorandum of Understanding Between City of Sunnyvale and City of Mountain View Relating to the Operation of SMaRT Station®
Report
BACKGROUND
The Sunnyvale Materials Recovery and Transfer (SMaRT) Station is a City-owned facility located at 301 Carl Road, Sunnyvale. The facility receives municipal solid waste (MSW), source-separated recyclables, and organic materials from the Cities of Sunnyvale and Mountain View. Operations at the SMaRT Station include sorting all the material to recover recyclable and compostable materials, with the remaining residue transferred to the Kirby Canyon Landfill. Additional processing activities prepare recyclables for shipment to recycling markets, food scraps to wastewater treatment plants in East Bay and the Peninsula and other organic material to composting facilities nearby.
The cities of Sunnyvale and Mountain View currently have a fifteen-year Memorandum of Understanding (MOU) approved by Council on June 29, 2021 (RTC 21-0082). The MOU outlines the partnership structure for sharing SMaRT Station operating, capital, debt, and other costs and revenues. The current MOU term extends through December 31, 2036. The City of Cupertino recently executed a separate merchant agreement with the City of Sunnyvale to bring their MSW to the SMaRT Station once the SMaRT Station capital improvements are complete, likely around the beginning of 2027.
Cost Allocation
Under the MOU, the allocation of costs for SMaRT Station operations is determined by each partner city’s respective share of materials delivered to the facility. Similarly, costs related to debt service for the replacement or refurbishment of capital items are distributed according to each partner city’s incoming tonnage at the time of debt issuance.
Revenues from source-separated recycling materials are distributed based on the types and quantities of materials each partner city delivers. Revenues from the recycling materials recovered from mixed incoming waste streams are allocated according to each partner City’s incoming tonnage. Net revenues from merchant users like the City of Cupertino will be similarly allocated according to the partner cities’ incoming tonnage.
Financial Administration
All MOU-related revenues and expenditures associated with the SMaRT Station are managed through dedicated SMaRT Station operating and capital enterprise funds administered by the City of Sunnyvale.
EXISTING POLICY
Council Goal 3.2F states the objective: “Maintain sound financial strategies and practices that will enable the City to provide comprehensive solid waste management services to the community while keeping refuse rates at or below countywide averages for cities using cost of service pricing.”
Council Policy 7.1C.1.3 - Capital Improvement Policies: High priority should be given to replacing capital improvements prior to the time that they have deteriorated to the point where they are hazardous, incur high maintenance costs, negatively affect property values, or no longer serve their intended purposes.
Council Policy: 7.1l, l.1: Enterprise Fund Policies:
7.1l.1b.1: Capital improvements associated with the existing infrastructure of a utility should be primarily funded from two sources: rate revenue and debt financing.
7.1l.1b.5: Bonded debt financing should be used for capital improvements as appropriate to:
• Make cost recovery of an asset more consistent with its useful life
• Equitably assign cost over multiple generations of customers who use the assets
• Smooth near-term rate impacts of the project
Council Fiscal Policy 7.1.8 - Debt Management:
7.1.8.2(a): Long-Term Debt proceeds may be used: a. To finance the construction, acquisition, and rehabilitation of capital improvements and facilities, equipment and land to be owned and operated by the City (a Project) to provide basic services and/or benefit constituents over multiple years.
7.1.8.5(c): Revenue Bonds: all City utility-related improvements shall be funded only from revenues of the respective utilities.
ENVIRONMENTAL REVIEW
The amendments to the MOU are not a project that requires environmental review under the California Environmental Quality Act (CEQA) because it is an administrative activity that will not result in physical changes to the environment (CEQA Guidelines 15378(b)).
DISCUSSION
The SMaRT Station is currently undergoing significant upgrades as part of the NextGen Project (Project No. 828260). The scope of work includes the removal of existing equipment and structural elements as necessary, and the complete design, fabrication, permitting, supply, and installation of new processing equipment to modernize facility operations and improve facility diversion. The total estimated cost of the project is $51.54 million. The City obtained a grant from CalRecycle for $6.58 million which will fund a portion of the equipment costs. The City plans to finance the rest of the project cost through the issuance of revenue bonds.
The proposed 20-year bond term does not align with the current MOU term among the partner cities. The proposed amendments to the MOU would confirm Mountain View’s commitment to pay for its entire share of debt service, which is expected to begin with the bond issuance on or about November 30, 2025, and conclude 20 years later. The amendment provides Mountain View with three options once the current MOU term expires on December 31, 2036:
1. Continue as a Partner and extend the MOU for an additional term that concludes on the same date as the final NextGen bond payment (November 1, 2045);
2. Elect to continue as a Merchant until the final NexGen bond payment (November 1, 2045), or
3. Satisfy Mountain View’s portion of the outstanding principal balance of the NextGen bonds, and any underwriter and legal fees necessary to redeem Mountain View’s portion of the NextGen bonds prior to final maturity.
In a partnership agreement, all costs and benefits are shared in proportion to the use of the facility, while in a merchant user agreement, the user would pay a per-ton price.
Additionally, Mountain View wishes to make a one-time cash contribution of $4 million towards the project costs. The proposed amendment memorializes this contribution. The $4 million contribution will reduce the total amount of debt financing needed from $44.96 million to $40.96million and reduce Mountain View's portion of the debt financing from $12.03 million to $8.03 million.
Staff are seeking City Council authorization for the City Manager to make administrative updates to the exhibits of the existing Memorandum of Understanding (MOU) with the City of Mountain View. The proposed revisions are intended to clarify and reflect current project conditions and include the following:
1. Exhibit B: Update the material stream composition to reflect the inclusion of the City of Cupertino.
2. Exhibit D: Revise cost estimates and the overall project schedule.
3. New Exhibit: Add a debt service payment schedule.
FISCAL IMPACT
Through these amendments, the MOU reinforces the partner cities’ sustained obligation toward operational and capital cost contributions over the bond term, thereby supporting consistent governance and financial stability.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
RECOMMENDATION
Recommendation
Take the following actions:
- Approve amendment of Memorandum of Understanding between City of Sunnyvale and City of Mountain View relating to the Operation of SMaRT Station®; and
- Authorize the City Manager to make administrative updates to Exhibits B and D of the Memorandum of Understanding, and to approve a new exhibit to add a debt service payment schedule.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
_X_ Contract between public agencies
___ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Shikha Gupta, Solid Waste Programs Division Manager
Reviewed by: Ramana Chinnakotla, Director, Environmental Services Department
Reviewed by: Matthew Paulin, Finance Director
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Amendment 1 to the New Memorandum of Understanding ("MOU") is between the CITY OF MOUNTAIN VIEW ("Mountain View") and the CITY OF SUNNYVALE
2. Memorandum of Understanding between the City of Mountain View and the City of Sunnyvale dated July 2021