SMA rejects landfill deal, will ‘keep it in the family’

When it comes to the Sallisaw municipal landfill facility that the city has owned and operated for the past 29 years, there appears to be plenty of support for the well-worn adage, if it ain’t broke, don’t fix it.

So that’s what the Sallisaw Municipal Authority will do.

Nothing. At least for now. Unless things change. “So basically we’re going to do nothing,” SMA chair Ernie Martens said, seeking assurance he was clearly understanding the board’s intentions at Monday’s special meeting.

“Keep it running. Keep it in the family,” affirmed board trustee Josh Bailey, the most outspoken opponent of the unsolicited $21.5 million purchase offer from CARDS Holdings LLC.

And with the board’s decision to reject a letter of intent that would authorize negotiations with CARDS for either purchasing the landfill or partnering with Sallisaw to run it, the city is firmly in the landfill and sanitation collection business without any assistance from any possible suitors.

But Sallisaw City Manager Keith Skelton says the landfill operation, while it may not technically be broken, it’s not on the firmest of financial footings, and if things don’t change pretty quickly, things will be broke and will need to be fixed.

“Contrary to what a lot of people are thinking about us making tons of money on the landfill, we don’t make tons of money on the landfill,” Skelton told the SMA. “Every piece of equipment out there is half a million dollars [to replace].”

Skelton said the capital needs of the landfill during the next seven years are great, “and the environmental liability that we would maintain is also great, and that’s going to increase to millions of dollars that will greatly affect the budgets in years to come.”

“There’s a way we can finance stuff. We can go in debt, we can issue debt. But right now, the landfill doesn’t provide enough net revenue to cover debt service, the amount of money that we need. For example, around $6 million over 10 years, that’s a little over almost $700,000 in debt service a month, so our landfill netted less than $600,000 last year in revenues,” Skelton explained.

So with a mounting debt anticipated and a significant impact on the city budget foreseen, Skelton told the SMA there’s only one thing to do — increase rates. “So one of the things I would do in July,” he warned, “I would bring an increase in tipping fees to you to consider approval. It may very well be increasing sanitation rates as well. We have no other choice. Whatever path we go down, Robin and I have got to treat this as [the city] is going to operate the landfill from this point going forward. So we’re going to have to make those decisions no matter what path we go down. That means increasing tipping fees. And that means increasing our tonnage, if I can find that tonnage to bring down here and secure via contracts. So that’s where we stand right now.”

In addition to the projected rate hikes, Skelton also prepared the board for the inevitable — filling the landfill to capacity. The landfill currently consists of eight cells that now holds more than four million cubic yards of trash from the first 29 years. And while it has been widely assumed that the landfill has a lifespan of 80 years, more than a third of those years into it, the city must plan on expansion.

“We’re in a position right now to where the original permitted footprint is almost used up,” Skelton told the board, which is why the city is looking to open an additional cell “for a stopgap to get us three or four years down the road before we have to start putting trash in the expansion part, which is eight brand new cells.

“The landfill has served us well, but it’s at the point right now with the age of the equipment, the unknown tonnage and the tip fees to bring in the revenue to provide revenue to construct the cells and to purchase the needed equipment. It’s at a point right now that it’s fixing to cost us several million dollars. And that’s several million dollars the city doesn’t have right now,” Skelton said.

“We’re going through a growth phase right now. Over the last couple of months, we’ve spent in excess of half a million dollars just for materials due to growth — housing complexes, infrastructure, things like that. That’s going to continue being a need going forward. So budgets going forward are going to be rough until we can get some things settled out.”

Negotiations nixed

One of the primary reasons for Monday’s special meeting was to consider a letter of intent (LOI) that attorneys from both the city and from CARDS have worked on since the SMA, city commissioners and the mayor — which are one in the same — decided on May 16 to draft the document as a framework for negotiations. Skelton was directed to pursue the letter with haste and seek the board’s approval before the regularly scheduled meeting on June 12.

“This item is still in an evaluation phase,” Skelton emphasized when explaining that no decision had been made, only discussed. “Contrary to a lot of rumors and social media posts, I want to stress that no decision has been made regarding the potential sale of the landfill. A lot of things posted out there on social media are simply not accurate. We are still far away from making any type of decision regarding the landfill facility. This board has been given many financial numbers regarding the potential sale and the continued operations of the facility. All this has been presented in public meetings open to the public.

“There are many things to consider regarding this decision,” Skelton continued. “Just a few of these items include the capital needs of the facility over the next seven years, which is estimated at over $11 million; our capability to increase tonnage intake at the landfill to fund these future capital needs; and increased environmental closure and post-closure monitoring costs. The future cost of this will be in the millions, and will impact city budgets for years to come.

“And, of course, the value of the landfill. That’s the most important part that we’ve got to figure out as this continues on, if it continues on.

“The letter of intent agenda item is the first step to begin any sort of negotiations and construct the framework for any type of agreement that may be put before the board for approval. The letter of intent is not binding, and either party may cease discussion at any time with notice. The board may elect to approve the letter of intent, or they may elect to provide other guidance to staff,” Skelton explained, repeating himself on key points to ensure clarity.

“This is what you directed me to do at the budget meetings a couple of weeks ago. You directed me draft a letter of intent with our attorneys and the attorneys for CARDS, and to bring this letter of intent back to you as soon as we could once it was constructed.”

The LOI included an exclusive negotiations clause, which did not sit well with some members of the board. The clause stipulated that during the negotiation process, SMA “agrees that neither the SMA nor any board member, official, employee, consultant, affiliate, advisor, agent or representative of the SMA will solicit, initiate or encourage any inquiries, bids, proposals or offers from any person, entity or group relating to a sale, lease or operating agreement covering the Sallisaw landfill facility or the hauling and collection services it currently performs.”

Then Skelton punctuated his explanation of the LOI by reminding the board that “we’re the owners, we have the option to do whatever we want to do.”

But Julian Mendiola and Kristin Peerson voiced their opposition to moving forward with the LOI and the negotiations it authorized.

“I think we’ve voiced our concerns,” Mendiola said. “The ideas of selling it and the partnership with it, everything we’ve put out there. But the longer the time I take to think about it and look over it and pray over it, it’s not the direction that I feel I wanna go. For me, I don’t have any thought of selling it, partnership with it or anything. I’d just as soon the city … I know it’s gonna be rough, I know it’s gonna put Keith [Skelton] and Robin [Haggard] in a tight spot and make some hard decisions come up, but I feel like that’s the direction that I would go.”

Peerson agreed. “I feel the same. I’ve gotten so much feedback, and there’s been several red flags that have been raised, I just think we should pursue another avenue.”

At that point Bailey made the motion to reject the LOI, and Peerson seconded it. Ronnie Lowe was the only board member to vote against rejecting the LOI.

Dan Christensen, president of CARDS, then addressed the board.

“I just want to thank everybody for letting us be part of this, and I’m sorry for the negative publicity this has brought. I hope that you will consider us as a partnership if it ever comes back up. We look forward to working with you. Thank you for considering our proposal,” he said.

A tense process

It’s been less than six weeks since CARDS made its unsolicited offer to purchase the landfill and the city’s sanitation collection services. A special meeting on May 1 revealed the offer, and a May 8 public hearing drew sharp criticism from citizens. Budget meetings on May 15-16 further addressed the offer and opened the possibility of a partnership instead of a sale. So for the entire month of May and the first half of June, the SMA has been tasked with representing the city’s best interests.

But it’s been a difficult six weeks.

“I’m going to echo a little bit what Mr. Skelton said,” Martens said prior to the vote to reject the LOI. “I’m really tired, I’m really tired of people accusing me of doing things I’m not doing or thinking I’m thinking what I’m thinking or making accusations to me that it’s already a done deal, that we’re going to sell the landfill. I really am tired of it. I’m tired of the social media. I’m tired of people who are putting stuff out there, and they have not called me to ask my opinion one time. Very few people have done that (asked my opinion), and I’m sick and tired of people getting on social media and making posts that they make about me and this council and what we’re gonna do, and they don’t have a clue what we’re gonna do. I really am. I’m on a tirade here just a little bit, and I’m voicing my opinion.

“So I’m going to go on record, I’m going to say this. This is what I told Mr. Skelton several weeks ago. Number 1, I will never sell the landfill. I will never vote to sell the landfill. Put this on record. Number 2, I really do think, though, that we’re going to have to figure out a way to increase our tonnage, or we’re going to have to come up with some sort of partnership with another company so we can increase the revenue with our landfill. And number 3, I think we ought to put it out there on a RFP (Request for Proposal) for competitive bids on anything we do. Those are the three things I have said to each and every one of you (the board), and I’m really, really tired of getting attacked on social media, with no basis for your attacks. So if you’re doing it, I wish you would stop, please. Or come talk to me individually,” Martens said. “I’m on record of saying these three things, and that’s what I’ve always said. It’s really frustrating. Here we are volunteers doing this job, and we’re going through all these personal attacks that we’re taking from the community. Now, I’ve said my peace, I’m done.”

Robust discussion

While Martens may have been done with what he termed his tirade, he acknowledged that things must change for the landfill to continue to be sustainable.

“I think the concern, too — the feedback I’m getting also — somebody came up with the magic number years ago that we have 80 years of life on our landfill. And one of the big concerns I’ve heard from people is that if we increase our tonnage, how much are we going to shorten the life of the landfill? If we can justify the added income, there are some shredders, there are some things we can buy and some things we can do to impact and compact that garbage in a lot better way so that it doesn’t take up as much space in the landfill, which really doesn’t have a long-term affect on the life of the landfill.

“There are other things we can look at on those issues, too, but those things all cost money,” Martens warned. “So that’s kind of where we are on this thing. Our citizens have been spoilt to $12 a month, we all have been. If push comes to shove, I talked to a guy today that he’s paying $58 a month for his rural service. I don’t think we need to go to $58 a month, but there’s a real possibility that our residential rates here in town are going to have to increase. When’s the last time we had an increase in our residential rates? It’s been a long time. We’ve got some hard facts that we have to look at.”

As the SMA considered the city’s options for the landfill, Skelton reminded the board that it had been suggested over the years that a moratorium on building would help ensure the landfill did not exceed its capacity.

But Skelton warned that a moratorium would kill any momentum the city has generated, and would negatively impact those businesses that are considering coming to Sallisaw.

“There’s a way we can finance stuff. We can go in debt, we can issue debt,” Skelton said. “But right now, the landfill doesn’t provide enough net revenue to cover debt service, the amount of money that we need. For example, around $6 million over 10 years, that’s a little over almost $700,000 in debt service a month, so our landfill netted less than $600,000 last year in revenues.

“There are some things we’ve got to do, there are some things we have to do, but you guys have to be willing to do that,” Skelton told the board. “We’ve got to increase the tip fees, and I’ve got to go after additional tonnage and try to bring that in.”

“I’d like to have those meetings, right there, to figure out how we can keep it,” Bailey said prior to the vote. “Those are the meetings I want to have. You guys are smart. We can get together and figure that out.”

But Martens reiterated his call for a RFP “to see what kind of partnership we might be able to come up with or the increased tonnage. We owe it to ourselves to see what the options are out there. We might be shocked. We don’t ever have to say yes to anything, we can just look and see what’s out there.”

Bailey was not deterred. “I think that’s a slippery slope. I think people see dollars, zeros, and get stars,” he responded.

Bailey said he talked to a landfill superintendent in Arkansas who told him the tonnage is going to be available because the Tonitown, Ark., landfill is needing to expand, but there’s been opposition and possible legal hurdles.

But Skelton warned that timing is everything, and there are plenty of unknowns. So if Sallisaw were to receive increased tonnage from Tonitown, Skelton is wary about how long it will last.

Skelton also reminded the board of tonnage figures discussed at the May 15-16 budget meetings. He said for current landfill contracts, there are two customers that provide more than 40% of tonnage, and eight customers that provide more than 70% of tonnage. The largest customer provides 30%. Skelton revealed that the city was on the verge of losing that largest customer this year, and some rate concessions had to be made to keep them. He admitted he may not be able to offer those concessions when it’s time for renewal.

Sustainability, the city manager said, is the key, and a big question. He claimed that even in the most optimistic scenario, he sees the landfill being a break-even proposition at best.

That’s when Lowe, a former city employee, made his position crystal clear.

“I’m for selling, because I know what’s going to happen in the future. We’re going to be struggling as far as budget goes, and that’s something the city doesn’t need right now, because we’re in a progressive stage where we need that money for other issues. And it’s not going to be there,” he said.

Again, Martens proposed exploring a partnership. “We’d be remiss if we don’t. It’s not going to hurt anything, we’re not going to lose any money if we explore a partnership with somebody. We can always say, ’No, we don’t want to do it.’ We’ll never know unless we pursue it and see what’s out there.”

Then Skelton countered Bailey’s objections.

“What happens if we continue to run the landfill, and a year from now something starts showing up in our monitor wells and the EPA gets involved and we have to mitigate that and it costs us millions and millions of dollars? What’s the city do then?” Skelton asked.

“What happens if they build the next cell and strike gold?” an obstinate Bailey shot back. “I think the people have spoken.”

“Well they have about the sale,” Martens admitted, “but I don’t know that people have discussed the partnership.”

Then the board’s direction was set.

“I think I’m more with Josh on this one,” Mendiola said. “I think we just go back and we just maintain it. We run it. If we have to look at tonnage, we look at tonnage. It’s going to be hard. It’s going to be rough for everybody sitting here, for Robin and all the staff, but that’s the direction I think we need to go.”

Peerson sided with Bailey and Mendiola. “I agree … with those guys,” she said.

What’s next?

For the landfill to be sustainable, the tonnage must increase, Skelton said, lining out the city’s direction.

“The other avenue that you can do is direct me to seek other tonnage. I’ve already reached out to a few places about seeking additional tonnage. I will say it’s rough, and that’s one of the concerns I had that I presented to you during our budget meeting,” he said.

“Right now, I can’t [guarantee] increased tonnage over the years to justify additional capital coming in [or] additional revenue’s coming in to take care of the capital costs associated with the landfill. That’s something we’re going to have to address. The capital needs of the landfill over the next seven years are great, and the environmental liability that we would maintain is also great, and that’s going to increase to millions of dollars that will greatly affect the budgets in years to come,” Skelton said.

Skelton said he and his staff will undertake “some serious planning,” and he will pursue increased tonnage. But rates will also have to increase.

“I do plan on bringing increases to you in July for sanitation [collection services] and the tip fee at the landfill. This tip fee will hit all our customers except for the ones we have a contract with. I can tell you it’s going to be a pretty significant increase from the $34 [per ton] tip fee that we have right now. I don’t have a choice. I can’t sit back on my good conscience and not bring it to you on an increase. I know what it needs to be. But even the tip fee increase is not going to get us to where we need.”

It is expected that the increases to be presented in July will also be for residential rates.

Skelton asked the board to articulate at its Monday night meeting following the city commissioners’ meeting its specific direction for the staff.

Other business

Prior to the discussion about whether to sell the landfill or create a partnership, the board considered engaging the Tulsa law firm Hall, Estill, Hardwick, Gable, Golden and Nelson, PC for legal services related to the Sallilsaw landfill facility, and authorizing Skelton to sign the agreement.

“We pay architect fees, we pay engineering fees, we pay all those fees to keep us out of trouble on construction and new projects and that kind of thing,” Martens said in justification of engaging the law firm, “and I thought, ‘These people are specialists in these kind of negotiations.’ Whether we do anything or not, we need to have some good legal representation to make sure we don’t get out in the weeds on this stuff. So I’m the one that suggested this to Mr. Skelton that we contact these people to give us some sound legal advice, because they’re specialists in any of these things that are happening.”

Skelton reminded the board that Hall, Estill is the same firm SMA used during the process of constructing the electric line to the landfill facility, as well as the annexation of the landfill property.

Outside legal representation is needed to ensure SMA is properly represented during the negotiating phase of this process, Martens explained, as well as legal review of any agreement resulting from the letter of intent process. The firm specializes in contracts, as well as environmental representation.

“The EPA, there’s some talk that they’re gonna add additional regulations to us on the landfill, so [Hall, Estill] can help us walk through that minefield. They’re basically experts in this sort of stuff,” Martens told the board.

Skelton said Hall, Estill will charge the city an hourly fee only, “so we just pay for the services rendered.”

The board unanimously approved an engagement letter, although Bailey hesitated for several seconds before giving his approval.