How San Diego’s Landfill Sale Failed

After seven months of investigation, San Diego Mayor Jerry Sanders found out that no one wanted to buy the city’s stake in the Miramar Landfill.

That knowledge came at a cost. The city spent $500,000 on a consultant to advise on a deal, plus numerous hours of staff time. In the end, no company submitted an acceptable bid to purchase the city’s trash dump, leading Sanders to cancel the privatization proposal in February.

And just like that, a plan that was supposed to save San Diego as much as $100 million over the next decade instead added half a million dollars to the city’s deficit.

Sanders’ office defended the expense as the cost of doing business. Selling a landfill, said city chief operating officer Jay Goldstone in a statement, isn’t like selling a house. You can’t know what a landfill is worth, he said, until you ask companies to bid.

Arriving at an answer was as complicated as Sanders officials thought it was going to be. The deal needed the approval of the U.S. Navy, which owns the landfill site. City officials wanted to shove off future environmental liabilities to a private company and maintain cheap dumping rates for city-run trash disposal. Also, the winning bidder might have only been able to operate the landfill for as few as 10 years before it reached its capacity.

Sanders wanted all of these complexities resolved in time to help resolve the city’s $56.7 million budget deficit next year, and internal emails show city officials struggled to keep up with the timeline. Not even hiring a consultant with an international law firm to work the equivalent of full-time on the project for more than six months could make it happen.

Solid waste consultants who examined the Miramar proposal believed the city could have structured a deal so that private companies would have taken a shot. Bob Wallace, a vice president at Arizona-based waste management firm WIH Resource Group, said a much cheaper consultant could have told the city that no one would have wanted what it was trying to sell.

“Here you’ve got a city that’s virtually broke and they’re spending half a million on stupid stuff,” said Wallace, who consulted for companies interested in Miramar.

Plans to privatize Miramar first leaked in May 2010 when city officials told landfill employees it was considering selling its lease. After that, the proposal became a bargaining chip in negotiations that eventually led to a ballot measure that paired a sales tax increase with fiscal reforms. Getting bids for the landfill was one of the 10 reforms tied to the tax hike, and Goldstone estimated the sale could give the city as much as $10 million annually.

More than a dozen companies showed up to the initial meeting about the landfill sale, but complications quickly became apparent.

Potential bidders weren’t sure how they could squeeze out profits if they gave the city and military below-market rates to dump their trash with such a short life expectancy, said Kelly Sarber, CEO of Strategic Management Group, a local environmental consulting firm.

“When you boiled it down,” Sarber said, “it was a tough deal to do.”

Or as Wallace put it, “It looked to me like the city was really trying to dump all of their problems onto someone else.”

Back in October, that wasn’t clear. Sanders’ staff came to the City Council to ask for $250,000 to extend the contract of its consultant, law firm Greenberg Traurig, saying multiple companies had expressed interest. John Giovannone, Greenberg Traurig’s primary lawyer for the proposal, told the council that his firm had significant experience doing complex deals, including landfill projects and working with the Navy. Giovannone couldn’t be reached for comment for this story.

Soon after the council renewed Greenberg Traurig’s contract, city officials began feeling strained by the timeline, emails show. In late November, Julie Dubick, then the mayor’s policy director, asked the city’s risk management director to review the landfill’s insurance policy quickly. The director responded that the review was complex and time-consuming.

“I agree, it’s complicated and we have all been making ourselves crazy trying to meet the mayor’s timeline,” Dubick replied in an email.

Dubick couldn’t be reached for comment, but mayoral spokesman Alex Roth said Sanders wanted a fast answer on the landfill proposal to address the city’s budget gap as soon as possible. The timeline, Roth said, had nothing to do with the failure to make a deal. Instead, it allowed the city to find out no one wanted to buy it sooner.

By February, the three companies interested enough to consider preparing an offer — local heavyweights Allied Waste and Waste Management and Austin-based Texas Disposal — ultimately didn’t make any that were acceptable. A director at Allied’s parent company declined to comment on Allied’s involvement and a Waste Management spokeswoman issued a statement saying buying the landfill “was not right for us at this time.” Texas Disposal CEO Bob Gregory couldn’t be reached for comment, but he has told the Union-Tribune that the deal “had a great deal of financial risk.”

Two companies didn’t submit anything, Roth said, but one did.

“Their response was not something we were interested in pursuing,” Roth said. He declined to identify which company responded.

Regardless, another key player in the deal, the Navy, wasn’t ready to sign off. In late January, the Navy’s local real estate director sent the city a letter asking officials to hold off on selling its leasehold until the Navy gave its approval — which it hadn’t yet.

Karen Ringel, the Navy director, said via email that the Navy wrote the letter “to ensure that the provisions of the lease were kept in mind during the City of San Diego’s proposal.”

The Navy’s involvement and control over the property, which is atypical in other landfill deals, spooked potential bidders, Sarber and Wallace said.

City officials were concerned that getting Navy approval would take a long time, said Dave Jarrell, the city’s former public works director. The Navy needed about a year before it signed off on raising the landfill’s height, said Jarrell, who now works for the city of Annapolis, Md.

Still, the idea of the Navy scuttling a deal was “a red herring,” he added. Everyone knew, Jarrell said, that the Navy eventually would have signed off.

The same day in February that Sanders announced he was cancelling the landfill privatization, he proposed the city competitively bid out landfill operations instead.

Sanders deputies presented their case to a City Council committee last month. They hope to receive bids from private companies by next January.

Asked at the committee meeting why selling the landfill failed, Sanders policy advisor Erik Caldwell said he couldn’t discuss the reasons. But he conceded that the landfill’s short lifespan played a role as did the Navy.

“Sometimes,” Caldwell said, “it can be even more complex to sell something that you don’t own.”

Please contact Liam Dillon directly at liam.dillon@voiceofsandiego.org or 619.550.5663 and follow him on Twitter: twitter.com/dillonliam.