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Lynwood Weighs Benefits of Trash-Hauling Proposals

Critics question a profit-sharing plan put forth by a former bribery suspect.

August 14, 2003|Richard Marosi | Times Staff Writer

The Lynwood City Council on Friday is scheduled to consider forming a trash-hauling partnership with a controversial businessman as part of a unique -- and some say illegal -- joint venture to handle the city's waste collection.

Despite cautions from city officials that the arrangement may not comply with state laws and could result in higher service rates, the proposal from Waste Resources Inc. is considered one of two leading contenders for the long-term contract.

The city's potential partner is Kosti Shirvanian, owner of Waste Resources. A Newport Beach millionaire, Shirvanian has been investigated by federal authorities in the past for suspected political corruption and bribery. He has never been charged.

Waste Resources, under terms of the proposal, would handle the city's residential and commercial trash service and divide profits on a 60-40 basis. Lynwood's estimated 40% share would be $111,000 annually on top of the annual franchise fee. The city would have an option to sell its equity in the venture for no less than $2 million after two years.

Councilmen Paul Richards and Louis Byrd have shown some support for the venture -- the only one of its kind in California, industry experts say. The councilmen say it could bring much-needed revenue to the city. But critics -- including waste haulers and residents -- say the arrangement violates Proposition 218, which prohibits municipalities from profiting from public services.

Lynwood City Atty. James M. Casso, in a confidential memorandum last week, cautioned the council that the company has not said whether the venture is legal. Even if it is, the deal doesn't make sense, critics said. A report by City Manager Lorry Hempe showed that Waste Resources' proposal would produce less revenue over 10 years -- from $400,000 to $700,000 -- than that of its chief competitor, Consolidated Disposal Service. Under Consolidated's conventional deal, the city would earn $5.8 million in the same period.

Shirvanian's background also troubles some. As past owner of another trash firm, Western Waste Inc., Shirvanian was investigated in the mid-1990s after a Compton councilwoman convicted of extortion confessed that she had received bribes from his company.

Some say the proposal from Waste Resources, which would commit the city for 10 years, offers nothing for Lynwood except a bad reputation.

"Believe me, it's not going to be good for the city,'' said Councilman Arturo Reyes, who opposes the deal along with Councilman Ramon Rodriguez. "It would always be suspect."

Mayor Fernando Pedroza was noncommittal in a recent interview. He said the revenue-producing potential merits the proposal serious consideration. But he said he needed more information before reaching a decision.

"The question which lies ahead: Is this company really able to deliver? The city will not enter an agreement ... unless it is a viable company, and unless we will save money in trash costs," Pedroza said.

Rodriguez, however, said he thought Pedroza would approve the Waste Resources deal because he had scheduled the special meeting to discuss the matter for Friday morning, when residents are unlikely to show up. City Hall is closed Friday.

Pedroza and his council allies "are going to try to sneak it by," Rodriguez said. "It's only obvious they do things Friday morning so they won't have opposition from the public."

The bidding process has followed a long and tortuous route since its start more than a year ago. Four firms were in the running until this summer, when Richards, Byrd and Pedroza allowed Waste Resources to enter the process. Competitors cried foul, saying the company had gained an unfair advantage because it was already aware of the other haulers' pricing details.

City officials and trash industry experts say they are not aware of any other similar arrangement in the state where the city receives a percentage of the profits, though the city of Gardena is also considering a partnership with Shirvanian.

Under terms of the proposal, Shirvanian would hold control of the partnership through three seats on the five-member venture management committee. City appointees would serve in the two other seats. The city would retain control of setting rates, city officials said.

The Waste Resources proposal offers the city an annual $687,000 franchise fee and $111,000 in profits. But analyses by city staff said the company's revenues do not reflect current rates, and that profits could be less. Rate increases are possible if the city wants to reach its profit goals.

The competing proposal by Consolidated, one analysis shows, better reflects current rates and provides more revenue to the city through franchise and administrative fees billed to the hauler.

The California Legislative Counsel, in a recent opinion, said that such an arrangement would violate Proposition 218 because the profits would be considered general taxes and voters would therefore have to weigh in on the deal.

Shirvanian did not return calls seeking comment. Nor did his attorney, Robert Philibosian.

Shirvanian grew a one-truck operation in the 1950s into a multimillion-dollar business that once handled the garbage for about 90 municipalities.

In the mid-1990s, his former company, Western Waste Inc., came under scrutiny by the FBI after former Compton City Councilwoman Patricia Moore confessed to receiving monthly bribes of $500 to $1,000 from a company vice president. Moore voted to grant two rate increases and a contract extension to Western Waste.

Shirvanian sold Western Waste for about $130 million in 1995. He formed Waste Resources in November. The FBI would not comment on whether he remains under investigation.

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