San Francisco city attorney Dennis Herrera announced that Recology San Francisco, the contractor for the city’s waste and recycling collection, will lower rates and reimburse ratepayers for overcharges that were unearthed as part of a wide-ranging investigation into public corruption tied to former public works director Mohammed Nuru and others. The investigation is part of an overarching public integrity review with city controller Ben Rosenfield.
The total savings to ratepayers from the agreement is more than $100 million and covers a 4 year rate period from July 1, 2017 to June 30, 2021.
Recology will reimburse ratepayers $94.5 million in overcharges and interest as part of a negotiated settlement with the city attorney’s office. Under the settlement, Recology will also lower residential and commercial refuse rates starting on April 1, 2021, which will save ratepayers $6.1 million from April 2021 through June 2021. Together, this is more than $100 million in direct benefits to San Francisco refuse ratepayers. In addition, Recology will make a $7 million settlement payment to the city under the California Unfair Competition Law and the San Francisco Campaign and Governmental Conduct Code.
A four year injunction to be entered in San Francisco Superior Court as part of the settlement will prohibit Recology from making any gift to any city employee or any contribution to a nonprofit at the behest of a city employee. These restrictions also apply to department heads, commissioners and elected officials. The injunction will also require Recology to: (1) disclose any contribution of $1,000 or more to any local nonprofit; (2) comply with city law governing lobbyists; (3) report all contacts with city officials involved in rate-making; and (4) disclose material mistakes or errors in any rate-making or rate-reporting document submitted to the city.
Recology was among the 24 companies, nonprofits and individuals that Herrera subpoenaed last year as part of a sweeping investigation into corruption linked to Nuru, former San Francisco public utilities commission general manager Harlan Kelly, former department of building inspection director Tom Hui, and others. The city attorney’s office is teaming with the controller’s office on the investigation. The investigation was touched off by the FBI arresting Nuru in January 2020.
Part of the civil investigation has shown that, despite a city law prohibiting gifts from restricted sources, Nuru regularly solicited funds from Recology for the benefit of himself and city employees. From 2016 to 2020, Recology and its affiliated companies, Sunset Scavenger Company and Golden Gate Disposal & Recycling Company, regularly provided gifts of money, meals and accommodations to city employees, allegedly to influence city decisions affecting Recology.
Some of the gifts were disguised as charitable contributions to nonprofits, but they would be doled out at Nuru’s discretion for activities such as employee holiday parties hosted by the former director of public works and the former city administrator. Over the four years before Nuru’s arrest, Recology funneled at least $60,000 through a nonprofit for the public works and general services agency holiday party.
Nuru, as the director of public works, was responsible for ensuring that the ratemaking process for refuse collection was fair and accurate. He would also make recommendations on whether to approve rate increases.
The lawsuit filed in San Francisco Superior Court stems from rate increases for Recology that Nuru, as the head of Public Works, recommended in 2017. As laid out in the court filing, Recology failed to accurately account for revenues they were slated to receive from ratepayers in their 2017 application for rate increases. The omitted revenues were not caught during the 2017 rate-making process. The under-reporting of these revenues resulted in a recommended rate increase of more than 14 percent when the actual revenues only supported an increase of about 7 percent.
Although Recology disclosed a revenue error in 2018 to the public works department, then overseen by Nuru, no action was taken by Recology or public works to publicly disclose or correct the error. Instead, Recology continued to collect the excessive rates from ratepayers for another two years. After Herrera subpoenaed Recology in February 2020, the company began cooperating with the office’s probe. Counsel for Recology ultimately reported the rate error to the city attorney’s office in December 2020.
“With this legal action, we are making San Francisco ratepayers whole and sending a clear message that cozying up to regulators won’t be tolerated,” Herrera said.
“Mohammed Nuru may have had his challenges keeping the streets clean, but he clearly excelled at cronyism, slush funds and indifferent oversight. While ratepayers were taking a hit to their wallets, Nuru was soliciting money for lavish parties from the company he was supposed to be regulating. It’s outrageous. They say a fish rots from the head. Well, the head of public works was Nuru. He has disgraced all of the dedicated public servants at public works who go above and beyond every day for the people of San Francisco.”
The comprehensive settlement agreement with Recology is subject to approval by the board of supervisors.
As part of the settlement, Recology and its affiliate companies will refund San Francisco ratepayers for the over-charges plus 5 percent interest. The agreement covers residential and commercial ratepayers – with the exception of a few limited commercial contracts not based on the approved rates – with active accounts at any point between July 1, 2017 and March 30, 2021.
Refunds are required to be paid to customers with current accounts by September 1, 2021. Recology will be required to do robust public outreach through December 31, 2021 to inform former customers they are eligible for a reimbursement. Recology must submit monthly reporting of all paid and unpaid balances to the city and provide a report by January 31, 2022 detailing the efforts they have made to disburse the restitution payment to active and inactive account holders. By July 1, 2022, any portion of the restitution balance that has not been paid directly to active or inactive refuse collection customers will be placed in an interest-bearing account to be used to offset any future refuse rate increases.
Published in the April 2021 Edition