Date: March 5, 2021
Source: SF City Attorney's Office
As the San Francisco City Attorney's investigation into corrupt rate changing continues, the city has reached a settlement with Recology to provide restitution for the money taken fraudulently from ratepayers. Recology is to pay $107M, primarily to refund commercial and residential ratepayers.
The City Attorney alleges that in 2017, Mohammed Nuru, the director of the Department of Public Works, was bribed by Recology's Paul Giusti, and possibly others, to agree to raise rates on the contract with Recology. Recology allegedly used inaccurate calculations to receive a 14% rate increase, when they should have received less than a 7% rate increase. The investigation also alleges that Nuru both received and solicited gifts through nonprofits from Recology.
As the City Attorney continues his investigation, many officials are calling for further scrutiny on the contracts between Recology and the city. This has created an opening for both Waste Management and Republic Services to begin outreach efforts in hopes to enter the San Francisco market. As city officials scramble to revive public opinion after the corruption was brought to light, the two large firms hope that the public desire for transparency will allow them to bid on city contracts held tightly by Recology and its predecessor companies since 1932.
While much of the fallout of this scandal is yet to be seen, it seems that both the city and Recology were quick to isolate Mohammed Nuru and Paul Giusti as the primary bad actors. It is unclear whether any other names will be implicated.
Herrera's public integrity investigation saves SF ratepayers $100M in excessive garbage fees
Recology agrees to immediately lower rates and to reimburse customers for past refuse collection overcharges
SAN FRANCISCO (March 4, 2021) — City Attorney Dennis Herrera announced today 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 today's agreement is more than $100 million and covers a four-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 today 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% when the actual revenues only supported an increase of about 7%.
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, Mr. 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 Mr. 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 ramifications of our work with the City Attorney on this investigation are not abstract—there are real financial consequences for San Franciscans," Controller Ben Rosenfield said. "It's only right that our residents are repaid for the unjustified rates they were charged, but going forward we need stronger regulations that leave no room for systemic problems to occur. How this anachronistic arrangement for setting garbage rates, which dates from almost a century ago, should be administered in the future will be the subject of the next Public Integrity Review that we will be issuing in coming days."
"We're in a new chapter at Public Works," said Alaric Degrafinried, the Acting Director of Public Works. "There is new leadership in place, and we're committed to being a part of the solution. We've learned from the mistakes of the past, and so many people in this department are working hard every day to rebuild the public's trust. We're committed to ensuring a clean, fair and transparent rate-setting process. The first step is posting these new, lower rates for the public to understand what has changed and what it means for them."
"I want to note that after we began looking into Mr. Nuru's dealings, Recology was forthcoming and cooperative with our office about this matter," Herrera said. "As I have said since the start of this investigation, we are not going to stop until we get to the bottom of this. This is broader than Recology. We are not done yet."
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 Sept. 1, 2021. Recology will be required to do robust public outreach through Dec. 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 Jan. 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.
To report suspected public integrity abuses regarding this investigation, please contact the Public Integrity Tip Line. You can provide information via e-mail at firstname.lastname@example.org or by phone at (415) 554-7657. All tips may be submitted anonymously and will remain confidential. Information regarding City payments, searchable by department and vendor, are available on the Controller's public transparency website at openbook.sfgov.org. As always, any member of the public may file any allegation of improper or illegal public activity with the City's Whistleblower Program at sfcontroller.org/whistleblower-program. That program, administered by the Controller's Office, often partners with the City Attorney's Office on investigations.
The case is: People of the State of California et al. v. Recology San Francisco et al., San Francisco Superior Court, filed March 4, 2021. Additional documentation from the case is available on the City Attorney's website at: sfcityattorney.org.