San Francisco’s waste management company, Recology, has agreed to repay its customers nearly $95 million after being accused of leveraging its cozy relationship with former Public Works head Mohammed Nuru to overcharge for trash collection services.
The agreement is expected to settle a lawsuit City Attorney Dennis Herrera filed Thursday against Recology, alleging the trash collector secured approval to improperly raise its rates by 14 percent — instead of 7 percent — by under-reporting its revenues in 2017.
Nuru oversaw the process as the director of Public Works but did not correct the issue even after Recology disclosed the revenue error to his department in December 2018, according to the lawsuit. Instead, the company continued to overcharge customers.
The increased rates have cost San Francisco residents and companies an extra $92.7 million between July 1, 2017 and June 30, 2021, the lawsuit said.
“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 told reporters. “Mohammed Nuru may have had his challenges keeping San Francisco streets clean, but he clearly excelled at cronyism, slush funds and indifferent oversight.”
Nuru has been at the center of scrutiny since the U.S. Attorney’s Office charged him and restaurateur Nick Bovis last January in connection with a series of alleged schemes including a failed attempt to bribe an airport commissioner.
The charges prompted the City Attorney’s Office and City Controller to launch their own investigation into Nuru and various others, including Recology. Last February, the office subpoenaed Recology and other companies for records related to donations made to a Bovis-run nonprofit that threw holiday parties for Nuru and his employees at Public Works.
The San Francisco Examiner was first to detail those donations in a February 2020 report.
Recology was further thrust into the scandal last November when a former executive for the trash collector, Paul Giusti, was accused of bribing Nuru for assistance raising garbage rates with a $20,000 donation from Recology to Bovis’ nonprofit.
The lawsuit filed Thursday builds off the federal allegations against Giusti but does not name him as a defendant, accusing the company of regularly funneling gifts through nonprofits to city employees “with the intent to influence city decisions.”
In a statement, Recology acknowledged having “miscalculated” the rates rates based on inaccurate revenue figures in 2017, but called the error “inadvertent.”
“Recology’s investigation has not identified any evidence indicating that the mistake was intentional,” the company said.
The company said its operations staffers notified Public Works, the Department of Environment and an independent rate consultant retained by Public Works after becoming aware of the error in December 2018.
The company confirmed it has agreed to repay customers and also to not make any gifts to city officials or behested payments on their behalf under the proposed settlement with the City Attorney’s Office.
The settlement also calls for Recology to pay a $7 million penalty to San Francisco. The company said the settlement is “in relation to both the gifts issue as well as the rate miscalculation” and does not admit any liability.
Beginning April 1, Recology is expected to lower its rates by nearly 7 percent to correct the error.
Current customers are expected to get a refund plus 5 percent interest by Sept. 1, while Recology is expected to reach out to former customers who may be eligible for reimbursement.
The settlement agreement will need approval from the Board of Supervisors.
The settlement and lawsuit come days after Herrera leveraged a new law for the first time to suspend five contractors implicated in the scandal, as well as their companies, from engaging in city business. The defendants and companies won’t be able to receive contracts while their criminal cases or debarment procedures against them are pending.
When asked why Recology has not been debarred or suspended Thursday, Herrera said the company has had exclusive rights to trash collection under the City Charter since 1932 that would need to be changed by the Board of Supervisors and voters.