SF Corruption Saga: Under Nuru's Oversight, Garbage Company Recology Overcharged Ratepayers $95 Million

Since 2017, San Francisco's garbage company, Recology, has overcharged ratepayers to the tune of $94.5 million.

Now they're going to pay it back — and then some.

That’s according to the San Francisco City Attorney’s Office, which on Thursday announced it had reached a settlement agreement with Recology, and will also file a lawsuit against the company in San Francisco Superior Court to make the agreement legally binding. The garbage rate overcharge revelation comes from an ongoing public integrity investigation conducted by the City Attorney's Office and City Controller Ben Rosenfield.

Recology's rates went up in 2017 under the oversight of former Public Works Director Mohammed Nuru, who federal authorities accused of accepting bribes from the company at roughly the same time the increases occurred. San Francisco City Attorney Dennis Herrera said Recology reported its incorrect accounting rates to Nuru in 2018, but Nuru did not follow up on the report.

"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 said in a statement. “Mohammed Nuru may have had his challenges keeping the streets clean, but he clearly excelled at cronyism, slush funds, and indifferent oversight."

Under the settlement agreement, Recology will pay back some $95 million to ratepayers. It will also make a $7 million payment to the city, bumping its total tab to over $100 million.

The average residential ratepayer, billed between July 2017 and June 2021, will get back about $190, Herrera said. Some 160,000 San Francisco ratepayers annually were affected by the improper rate increases.

Recology will repay its current customers by Sept. 1, the company said in a statement. Payments to former customers will be made on a "rolling basis," and the company will be required to perform outreach to locate them.

The company will also lower its garbage rates by about 6.8% starting April 1, as part of the deal.

"The ramifications of our work with the City Attorney on this investigation are not abstract — there are real financial consequences for San Franciscans,” Controller Rosenfield said in a statement. "It’s only right that our residents are repaid for the unjustified rates they were charged, but going forward we need stronger regulations that leave no room for systemic problems to occur."

Recology will also be barred, under the agreement, from making any gifts to any city employees or any contribution to nonprofits if directed by a city employee, according to the city attorney.

"We value our customers, and making them whole for this mistake is our top priority," Recology CEO Sal Coniglio said in a statement Thursday. "As soon as we learned of the mistake, we took immediate action."

Herrera's office also alleges that Recology and its affiliated companies — Sunset Scavenger Company and Golden Gate Disposal & Recycling Company — regularly gave gifts of money, meals and accommodations to city employees to influence decisions.

Also on Thursday, Supervisor Aaron Peskin announced plans to form a task force to determine next steps for Recology, which may include recommendations for the city to eventually take over the company and perform its own garbage collection. Peskin said he plans to officially start the process of forming the group — to be composed of labor leaders, public officials and other experts — at the San Francisco Board of Supervisors meeting next Tuesday.

"We all owe the city attorney a debt of gratitude for doing his job rooting out fraud and corruption," Peskin said. "But it still leaves a big public policy question" of how to regulate Recology to prevent further rate fiascos.

"This is not like, 'Uh shit, we just realized we had a problem in our billing system that was inadvertently charging people $100 million over four years.' They knew it, and we now know they knew it," he said.

Running Recology like a local utility could help the city better coordinate across departments to meet its zero-waste goals, Peskin added.

"There's one thing you could say about Recology — their service is actually pretty darn good," he said.

Any changes to the relationship between Recology and the city may need to be approved by voters, but Peskin said he's prepared to introduce a ballot measure next year should the task force recommend it.

This is the latest fallout in the ever-expanding San Francisco public corruption scandal, which now spans a civil investigation by the city attorney and a criminal investigation by the FBI and U.S. attorney's office. Four city department heads have either been removed or stepped down in the ensuing scandal, including Nuru.

And last year, San Francisco Mayor London Breed threw herself into the fray after publicly admitting she had let Nuru — who she once dated — repair her old car as a gift, a job valued at about $5,600.

How It Happened

So how did Recology's overcharges happen in the first place?

Garbage rates are set through a rate-making process originally established in the city's 1932 charter. It gives the city the right to determine how much Recology can charge.

Until his downfall, Nuru was the man tasked with recommending garbage rates to the city, but his recommendations were also garbage, the city essentially said on Thursday. Nuru was arrested by federal authorities in January 2020 on corruption charges. Among the many allegations against him, he was accused of accepting bribes from Recology through a baseball charity: Lefty O'Doul's Foundation for Kids.

According to federal charging documents, Recology sent a $5,000 "holiday donation" on Dec. 5, 2016 to the foundation, whose purported goal was to provide equipment to youth baseball teams. But, in a scheme first revealed by the San Francisco Examiner, and later referenced by the U.S. attorney's office, that money was allegedly spent throwing lavish holiday parties for San Francisco government officials under the direction of Nuru.

That same month, Recology submitted its 2017 rate application increase to Nuru.

By May 2017, Nuru recommended raising San Francisco's garbage rates by 14%.

"I believe that the costs submitted by Recology and adjusted by The City accurately reflect the cost of providing refuse collection and disposal services to San Francisco ratepayers,” Nuru said in a statement that year.

That rate increase can be appealed, per the 1932 agreement with Recology, to a three-person Refuse Rate Board. Two of the members of the Refuse Rate Board are Harlan Kelly and Naomi Kelly, a husband and wife who were formerly the city's Public Utilities Commission general manager and city administrator. Both Kelly's stepped down from their roles after becoming embroiled in the city's corruption scandal, with Harlan Kelly facing corruption-related charges by the U.S. attorney's office.

Fast forward to the 2017 holiday party for city officials, when Recology donated $15,000 to Lefty O'Doul's Foundation for Kids, upping the number from 2016.

By 2018, at roughly the same time of year, that donation increased to $20,000. That same year, Recology disclosed a "revenue error" to the city — an omission of revenues, that if used in the rate-making process would have led to a 7% increase, rather than 14% increase. But Nuru never corrected the error.

Those garbage rates shocked San Franciscans.

“My first reaction was, ‘Oh, my gosh!’ ” Chris Faust, a middle school science teacher, told the San Francisco Chronicle at the time, after learning that his garbage bill had increased from $42.40 a month to $61.30. Other residents called new fees associated with the rate increase "ludicrous."

The donations from Recology to the Lefty O'Doul's charity were requested by Paul Fredrick Giusti, a former Recology executive, the U.S. attorney's office alleged in November last year.

Federal authorities ultimately charged Giusti with laundering $1 million in bribes to nonprofits at the behest of Nuru.

"This is an appalling case for our residents and businesses who have been overpaying their trash rates for years," Mayor Breed said in a statement Thursday. "The good news is that thanks to the City Attorney, they will be getting that money back now. Not only will this make a difference for people who are struggling in this moment, but also it sends a message to everyone — from the corporations and city contractors doing business with the City to the individuals working on the City’s behalf — that we will hold everyone accountable."

Bay City News contributed to this report.