Trash Firm in Probe May Cost Another $17.5 Million

Orange residents are still paying off the $6.5-million loan they underwrote for a trash recycling operation that is under investigation in the suspected theft of up to $6 million in city funds.

Now, newly disclosed documents reveal that the recycling operation is about to become an even bigger financial drain on Orange, which was one of the biggest losers in the county bankruptcy, and is still smarting from a major loss of city funds to a con-man named Steven D. Wymer earlier in the decade.

Although Orange residents were assured in 1993 that the Glassell Street facility would enable the city to meet state-ordered reductions in the tonnage of municipal waste dumped in state landfills--25% less than 1990s volume by Jan. 1, 1995, and a 50% reduction by the year 2000--city records paint an entirely different picture.

Documents released in response to a California Public Records Act request made by The Times show that the city-bought Materials Recovery Facility, or “murf” as it is referred to by city officials, has not met its goals and apparently will require another $17.5-million investment by Orange citizens before it can achieve what was originally promised.

Hugh R. Rhys, a professional engineer hired by the recycling company last year to help convince the city to fork over another $2 million for a partial upgrade of the recycling facility, wrote that it could never achieve the 25% diversion required by state law without major modifications.

In another report, as part of a proposed $17.5-million complete overhaul of the facility, Rhys wrote, “At the outset it is acknowledged that the present waste collection [and] processing system falls short of [meeting a reduction of] 25%.”

Built and equipped with a loan being repaid by a $2.25 monthly charge levied on every home and business in Orange, the recycling center is actually owned and operated under a 10-year contract, awarded without competitive bidding, to Orange Resource Recovery Systems Inc.

The recycling firm is a subsidiary of Orange Disposal Service Inc., the firm that has been Orange’s only trash hauler since the mid-1950s.

Both companies are owned by longtime Orange residents Sam and Alyce Hambarian, and their sons, Michael, Donald and Jeffery.

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In its first full year of operation, city documents reveal, the recycling center only managed to divert 14.32% of the city’s trash stream, meaning that the tonnage was reduced by that percentage through the removal of recyclable materials--plastics, glass and metal, as well as paper and cardboard.

But a 1993 city “fact sheet,” used to sell city residents on the need for the $2.25 monthly surcharge, says that the city had already been diverting from 15% to 17% in 1990-91, well before the new multimillion-dollar facility was built. If that was indeed the case, the city actually slipped backward instead of moving forward toward achieving its 25% target.

Over the past year, the documents show, top city officials have met several times with Michael and Jeffery Hambarian, until recently the respective heads of the city’s trash and recycling operations, and discussed a proposed expansion and automation of the recycling center.

The talks were moving forward, with city officials endorsing the expansion, despite pointed warnings beginning in October 1995 from the Hambarian’s longtime accountant that he could not fully account for salvage revenues belonging to the city.

In letters and reports to city officials in 1996, the warnings from Steven V. Nakada, a certified public accountant in Laguna Niguel, grew stronger and more specific, yet the city continued to maintain its business-as-usual relationship with the recycling contractor.

As recently as Jan. 27, City Manager David L. Rudat informed the City Council that “staff is making excellent progress” on trash and recycling issues, including the contractor’s proposal to automate and expand the recycling facility “and to enter into a new, long-term agreement to address the capital requirements of these new and expanded operations.” Rudat made no mention of Nakada’s concerns.

Less than a month after Rudat’s memo to the council, Nakada quit the Hambarian account, leaving panicked city officials without a certified financial report for any period of the recycling center’s operation, and thus no means to verify whether the city had ever received its share of money from the sale of salvaged items.

A national accounting firm hired by Rudat quickly established that officials should have paid closer attention to what Nakada had been saying, and in mid-April, the matter was turned over to the Orange Police Department for criminal investigation.

From a close reading of 1,500 pages of city documents, it appears that the only official to consistently express concern over the recycling center’s inability to do what taxpayers had been promised was Philip R. Pierce, the street division manager, who oversees the city’s trash and recycling contracts.

Pierce wrote in memo after memo that the company was not meeting the diversion targets specified in the city contract and the California Integrated Waste Management Act, which calls for fining noncomplying cities up to $10,000 a day.

“The act required 25% diversion, not something less,” Pierce wrote in a memo May 8, 1997, to his boss, Harry W. Thomas, the public works director. He also pointed out that the facility had managed to divert only 14.32% as of Jan. 1, 1995.

In the 14 months from April 1996 through May 1997, the facility has never managed to divert more than 21.44% of the city’s trash, dropping to as little 15.6% this past May, according to a memo Pierce requested from another sanitation worker.

Problems reaching the 25% target have been apparent since the operation began, Pierce wrote. In a report to the City Council six months after the center opened, he noted the center was 11.7% short of the 25% goal.

And in July 1995, he informed Sam Hambarian, “this letter is to officially notify you that various provisions of our agreement are not being complied with.” He went on to say, “Since your reports do not demonstrate the 25% diversion, we need some resolution to this primary issue very soon.”

Z. Harry Astor, the Hambarians’ attorney, replied in August 1995 that the problem was partially the city’s fault for, among other things, not preventing scavengers from collecting recyclable cans and bottles inside city limits.

Astor also urged the city to expand and automate the recycling center.

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Citing the pending criminal investigation, city officials, meanwhile, will say very little about the recycling company. But they insist that the city of Orange is meeting the overall state mandate of 25%, because other waste--primarily grass clippings and tree trimmings--recycled by another city firm is not factored when calculating how much of the city’s annual 160,000 tons of garbage is being diverted.

City Atty. David A. De Berry said he notified the company Monday that its failure to meet the 25% target was one of 10 areas in which it had defaulted on its contract.

“The city staff’s position is that the contract requires 25% diversion,” De Berry wrote, adding that he expects the issue to be discussed when the city talks with the Hambarians and their attorneys in coming days.

De Berry will not allow Pierce or public works director Thomas to talk to the media.

Rudat remembered the letter from Rhys, the recycling company’s contracted engineer, and the proposal, but said the city rejected Rhys’ conclusions. Thomas replied to the company more research was needed.

By then, Rudat added, the city was more concerned with noncompliance with the contract than considering a proposal to expand the plant. “It would never be my position to accept such a report,” he said. “We want our own analysis done. We believe [the MRF] can reach its goals.”

Councilman Dan Slater said he had no idea the recycling center’s capabilities had ever been questioned.

Slater said he assumed the diversion rates were low because of the poor management and the suspected fraud. “It just seems like one more thing to add to the pile,” he sighed.

“Given that the facility is so new, the thought has never crossed my mind that it would not be adequate in fulfilling state-mandated diversion requirements,” Slater added.