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Mr. Brozosky pointed .out that there are seven categories where the City is asking for a reduction to the rates. He asked if Pleasanton Garbage Services agreed with any of these categories? Mr. Fialho said that Pleasanton Garbage Services agrees with some of the categories. Mayor Pico asked what would happen to future rates and the operation of the Pleasanton Garbage Services agreement if the City's projections are way off and the costs are higher than projected? Mr. Hutchinson said that if Council approves the proposed residential and commercial rates, staff would meet with Pleasanton Garbage Services annually to review the costs. In his opinion, neither of the projections are so far apart that in one year there would be a significant problem, but it could occur over three or four years. He was hopeful that the final audited costs would be available for 2004, which will show how far off the City's projected estimates were in that set of numbers. Mayor Pico asked staff if there is a current deficit and how it is addressed? His understanding of how the rate system works is that the City guarantees that it will provide enough revenue to cover the costs of operations so that the actual costs of the operations effectively break even. If the ,City's projections are off and the costs are higher, ultimately, when the accounts are reconciled and there is a difference, it becomes part of the deficit year reduction. Mr. Fialho said that Mayor Pico's characterization of how the rate system works is accurate. The City would have two options if it was faced with a deficit: one option is for Council to approve an immediate rate increase mid-cycle, or as Pleasanton Garbage Services has done in the past, it absorbs the deficit and at the time of the next rate increase request, that deficit is. dealt with by way of a rate adjustment spread over multiple years. The City and Pleasanton Garbage Services have never done a cost center analysis. He believed that meeting with Pleasanton Garbage Services provides the City an opportunity to figure out what are the real costs and to make midyear or mid-rate cycle adjustments that could minimize the impact of future deficits. Mayor Pico understood that new equipment for recycling was installed at the transfer station within the last year. He asked if the increased efficiencies of this new equipment and the costs have been factored into the rate increase, or is the cost of the new equipment and the amortization of that cost to the City offset the reductions and efficiency? Mr. Hutchinson said that the first year of operation of the new equipment occurred in part of this rate application. Staff was able to see that that there was a significant increase in revenues and it moved forward with those projections. There was also cost increases and the costs were projected to relate directly to the new equipment, Pleasanton City Council 16 07/20/04 Minutes