REPORT TO COUNCIL
SUBJECT
Title
Authorize the City Manager to execute the Sunnyvale Materials Recovery and Transfer (SMaRT) Station® Merchant User Agreement between City of Sunnyvale and City of Cupertino
Report
BACKGROUND
The SMaRT Station®, a City-owned property, is a large volume materials recovery facility and transfer station serving the cities of Mountain View and Sunnyvale (partner cities). It is designed to process 1,500 tons of material per day and is currently accepting about 700 tons per day. Consistent with Council direction to pursue uses for its excess capacity (as referenced in Existing Policy section), staff pursued providing SMaRT Station solid waste and recycling services to the City of Cupertino (Cupertino).
The City of Sunnyvale (City) and City of Mountain View currently have a fifteen-year Memorandum of Understanding (MOU) to share the operating and capital costs of processing mixed waste, yard trimmings and recyclables at the SMaRT Station. Costs are shared in proportion to the amount of waste brought in by each city respectively.
The SMaRT Station receives and accepts (1) all garbage, source-separated recyclable materials, and source-separated organic materials delivered to the SMaRT Station by or on behalf of the partner cities; (2) publicly hauled waste generated within the jurisdictions of the partner cities; and (3) construction and demolition waste. The City has an Operation Agreement with Bay Counties Smart, Inc. (BCS) for operating the SMaRT Station until June 30, 2029. The Operating Agreement includes provisions for BCS to receive and process materials from the two partner cities and, if needed, areas defined in the 1992 Environmental Impact Report as the Extended Service Area. Cupertino is within this Extended Service Area.
Adding materials from Cupertino to those already handled at the SMaRT Station would result in economies of scale. With appropriate pricing and terms, it would reduce costs for the existing partner cities. Cupertino would benefit by leveraging the SMaRT Station’s advanced processing capabilities to reduce the amount of mixed waste sent to the landfill, thereby increasing its diversion rate.
Pursuant to Cupertino’s current franchise agreement, Recology delivers its garbage to the Newby Landfill for disposal. However, their franchise agreement also allows Cupertino to direct the hauler to deliver garbage to any other location if there is an agreement between Cupertino and another entity that permits the use of the facility.
Considering the sorting and diversion capabilities of the SMaRT Station and the future improvements being contemplated, Cupertino has been interested in bringing its garbage to SMaRT. Cupertino staff presented several options to Cupertino’s City Council on May 2, 2023, and Cupertino’s Council approved issuing a Request for Proposal (RFP) for garbage processing. Sunnyvale City staff also received Sunnyvale City Council approval on June 27, 2023, to submit a proposal in response to this RFP.
Since the SMaRT Station was the only garbage processing facility within a reasonable geographic distance of Cupertino that had additional permitted capacity to accept garbage, Cupertino decided to engage in direct negotiations with Sunnyvale to bring its garbage to SMaRT.
EXISTING POLICY
The Sunnyvale City Council adopted the Zero Waste Plan in April 2013. In doing so, the Council directed staff to, “market SMaRT Station capacity beyond the current tri-city consortium (Sunnyvale, Mountain View, and Palo Alto)” and to “create renewed partnerships that are centered on the SMaRT Station and take advantage of economies of scale, which are significant in waste processing facilities.” Council specifically recommended that staff “continue to explore with other jurisdictions their interest in committing to a SMaRT Station-based Zero Waste goal as well as transfer and disposal services.”
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.”
More specifically, Policy 3.2F.3 states: “Identify additional revenue sources and, where possible, increase revenues from solid waste programs, services, and facilities without jeopardizing program goals and customer service quality.”
ENVIRONMENTAL REVIEW
The City Council certified an Environmental Impact Report (EIR) for the SMaRT Station in 1990 (Attachment 1). The EIR evaluated a “primary service area” comprised of the cities of Sunnyvale, Mountain View, and Palo Alto, as well as an “extended service area” that included Stanford, Cupertino, Los Altos, Los Altos Hills, and Santa Clara. Because Cupertino is a part of the extended service area analyzed in the EIR, no additional environmental review is required.
California Environmental Quality Act (CEQA) Guidelines Section 15162(a) requires that any changes or additions to the description of a project that occur after certification of an EIR may require additional analysis if those changes are substantial and involve new significant environmental effects or a substantial increase in the severity of previously identified effects.
Based on the attached Consistency Analysis (Attachment 2), no new significant impacts would occur as a result of providing service to the City of Cupertino for up to 15,000 tons of mixed waste per year. Nor would there be any substantial increase in the severity of any previously identified significant environmental impact. Lastly, there is no new information of substantial importance that shows the mitigation measures or alternatives that were previously found not to be feasible or that are considerably different from those analyzed in the 1990 Final EIR would substantially reduce one or more significant effects on the environment. Therefore, none of the conditions described in Section 15162 of the CEQA Guidelines has occurred and the conclusions reached in the certified EIR adopted in September 1990 remain valid.
DISCUSSION
The City of Cupertino’s Zero Waste Plan aims to reach and maintain 80 percent waste diversion by 2025. Currently, Cupertino’s garbage goes directly to the landfill without any processing (zero diversion). If this material is brought to the SMaRT Station for processing, it will help Cupertino achieve its goal. The SMaRT Station can provide garbage processing for the recovery of organics and other recyclables. SMaRT’s current diversion rate for garbage is 36% and is expected to increase to around 50% after the NextGen improvements are completed.
Processing Cupertino’s garbage at the SMaRT Station will lower its overall operating costs to the existing partners. A significant portion of the processing cost is fixed (i.e., the City’s operating costs, SMaRT operator costs, and SMaRT Station NextGen project costs that the partner cities are already paying for and will continue to pay). Variable costs (e.g., disposal costs, land rent, host fees, etc.) are factored into the processing costs. An agreement with Cupertino will allow Sunnyvale and Mountain View to share the fixed costs among more facility users, reducing the partners’ cost share.
Cupertino explored both a partner proposal and a merchant user proposal. While a partner agreement would be similar to the MOU with Mountain View, where all costs and benefits are shared in proportion to the use of the facility, a merchant user agreement would provide per-ton pricing, without long-term obligations on the user. The partnership agreement with Mountain View allows Sunnyvale to add partners or make the facility available to merchant users under agreements approved by the partners. Some financial elements that are included in calculating the pricing are:
• Annual (Fixed) Operating Costs (annual payment to BCS, City administration, etc.)
• Variable Operating Costs (utilities, spare parts, hazardous waste disposal, fuel, etc.)
• Landfill disposal Charges, Taxes, Fees
• Host Fee (to General Fund) charged by ton
• SMaRT Station Land Rent (to the General Fund) charged by ton
• Capital Costs and Debt Service
• Revenues from Curbside Recycling
While the costs for a partner proposal for each partner are based on actual costs, the merchant user proposal pricing includes a sufficient factor of safety and ensures that the partner cities continue to receive reasonable net benefit by taking on Cupertino’s material processing. The merchant user rate proposal may be adjusted during the term of the agreement based on factors such as the Consumer Price Index (CPI).
Cupertino opted for the Merchant User Agreement option, as they believed it provided them with more flexibility. On June 17, 2025, the Cupertino City Council approved a 20-year merchant user agreement to bring its garbage to SMaRT. The agreement now needs to be approved by Sunnyvale’s City Council. Since the NextGen project is now beginning construction, Cupertino will begin bringing its garbage to the SMaRT Station soon after the construction is completed in December 2026.
FISCAL IMPACT
Based on the anticipated amount of waste Cupertino will send to SMaRT, the recommended agreement will generate approximately $2 million in new revenue annually. This revenue will improve the SMaRT Station’s net financial position as its fixed costs are spread over more processing tons and offset by the additional revenue.
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.
ALTERNATIVES
1. Authorize City Manager to execute SMaRT Station Merchant User Agreement between City of Sunnyvale and City of Cupertino in substantially the same form as in Attachment 3 to the report and determine that the action is consistent with the certified Environmental Impact Report for the SMaRT Station.
2. Authorize the City Manager to execute the agreement with changes.
3. Do not authorize the City Manager to execute the agreement.
4. Other Council direction.
STAFF RECOMMENDATION
Recommendation
Alternative 1: Authorize the City Manager to execute the SMaRT Station Merchant User Agreement between City of Sunnyvale and City of Cupertino in substantially the same form as in Attachment 3 to the report and determine that the action is consistent with the certified Environmental Impact Report for the SMaRT Station.
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.
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. Environmental Impact Report (EIR) for the SMaRT Station
2. Consistency Analysis re Environmental Impact Report for the SMaRT Station
3. Draft SMaRT Station Merchant User Agreement