City officials will work with Recology Ashland Sanitary Service on a compromise plan to raise garbage rates by 7.5 percent while also reducing volume discounts the garbage company gives to businesses that produce the most trash.

City officials will work with Recology Ashland Sanitary Service on a compromise plan to raise garbage rates by 7.5 percent while also reducing volume discounts the garbage company gives to businesses that produce the most trash.

Recology had asked for an average 23.3 percent garbage rate hike, but on Tuesday night the Ashland City Council balked at approving such a hefty increase.

Recology has a city-approved franchise to provide garbage and recycling services in town, but the council must approve any rate increase or reduction in volume discounts. The council's proposal would be an interim step as city officials consider Recology's case for even higher rates.

A person with a 32-gallon garbage can for home use currently pays $16.61 per month for service. A 7.5 percent rate increase would boost that bill by almost $1.25 to $17.86.

Rates for commercial garbage bins vary based on size and frequency of garbage pick-up.

Currently, garbage customers are subsidizing businesses that produce high volumes of trash. Recology offers discounts of up to 45 percent for volume trash producers, according to company documents.

Recology asked for the 23.3 percent average increase so that it could have a 10 percent profit margin on its businesses. Recology officials said on Tuesday night that an 11 percent increase would put the company at a break-even point.

Its current annual loss is about $434,000, which includes nearly $200,000 in operating losses plus more than $200,000 it pays in franchise fees, company officials said.

According to Recology, it is facing higher costs but is billing less than expected in part because people are recycling more.

If city and Recology officials fail to come to terms on a garbage rate increase, their agreement mandates they enter arbitration, which can be a lengthy and costly process.

Interim City Administrator Larry Patterson said he has seen arbitration cases that cost $100,000, but doubts it would be that expensive in this case.

City Attorney David Lohman said the franchise agreement is not clear about who pays the costs of arbitration.

Mayor John Stromberg said many residents are wondering how the garbage company's finances deteriorated so rapidly after San Francisco-based Recology bought the service in 2009 from local company Ashland Sanitary Service.

"The question in people's minds is how this went south so quickly," Stromberg said.

Recology officials said they had the company's finances audited by an outside accounting firm to provide assurance to city officials that everything is accurate.

Patterson said the city could hire an analyst to examine Recology's finances and its rate structure in Ashland. That would take several months and would cost about $10,000 to $20,000, he estimated.

During Tuesday's discussions, the City Council did not direct staff to take that step.

Staff reporter Vickie Aldous can be reached at 541-479-8199 or vlaldous@yahoo.com.