Financial Risk Imperils Co-Composting Plant
Unless Los Angeles is willing to take a greater share of the financial risk, plans for a $47-million co-composting plant could fall through before the first formal contracts are signed, a city administrative analyst said Tuesday.
Negotiations between the city and lobbyist Joaquin Acosta, who owns exclusive negotiating rights to build the controversial garbage-to-fertilizer plant, have reached an impasse over financing and sales guarantees that would protect the city’s investment in the project, administrative analyst Drew Sones said.
As a result, Sones said, the City Council is expected to weigh the conflicting proposals in early July. The council could resolve the issues by increasing the city’s financial gamble on the project--a position that city negotiators have opposed--or take the chance that the proposal will collapse, he said.
The plant, patterned after similar projects in Europe, would combine garbage and sewage sludge into an organic compost that would be sold as fertilizer. Initial plans were to build the plant on Gaffey Street in San Pedro, but opposition from residents has forced Acosta and the city to begin searching for a site elsewhere in Southern California.
Proponents say co-composting is a practical alternative to dumping garbage at rapidly disappearing landfills in Los Angeles County. In seven years, the area’s existing landfills will be full, forcing government agencies to find other places or other ways to dispose of trash, Sones said.
“One of the options is to say . . . the facility won’t go at all,” Sones said Tuesday, more than a month after negotiators last met to discuss the project. He said one of the critical questions is which side will put up the financial guarantees to protect investors against poor fertilizer sales.
Based on marketing studies completed more than a year ago, those guarantees would range from $1 million to $5 million, he said.
“We’re not investment bankers and entrepreneurs and risk capitalists,” Sones said. “We . . . don’t think the city has the experience or the capability to do that.”
Acosta, who won a bid for three-month negotiating rights last August, refused to discuss the negotiations but predicted that his plans for the plant will be approved by the City Council. He said he has met all the project guidelines laid down by the council before it awarded him the bid last year.
“There’s nothing holding anything up,” Acosta said. “Our understanding is, we’re moving . . . out of the negotiation mode and into the approval mode.”
The City Administrative Office, which has handled the negotiations, initially recommended that the city back away from the proposal when it was introduced in 1983. A study at that time concluded that the city’s yearly fees for using the plant would total $6.2 million--more than double what the city was already paying to dispose of trash.
The city would pay to dump its trash at the plant, but Acosta and the city would share revenues from the sale of the compost.
Bernie Evans, an aide to City Councilwoman Joan Milke Flores, said the cost of the dumping remains a stumbling block for city negotiators. He said the city is being asked to guarantee that it will dump a minimum amount of trash at the facility each year with no power to control the fees.
“What if the price quadruples?” Evans said. “You could see (Acosta) doing very well and the city doing very poorly.”
Evans said Flores, an outspoken critic of the plan, would continue to oppose the project when it returns to the council. Critics say the plant’s estimated yearly output--75,000 tons of fertilizer--would far exceed the marketable demand.