Hamilton County Solid Waste Management District

Staff Report

To: Hamilton County Solid Waste Management District Policy Committee Members

CC: Cory R. Chadwick, Director - HCDOES

Ali Khodadad, Operations Manager - HCDOES

From: Jeffrey W. Aluotto, Manager

Hamilton County Solid Waste Management District

Re: Request for Assistance From Nu-Blend Paints

Date: August 17, 2001

As reported at the Finance Subcommittee meeting of August 9, 2001, Nu-Blend Paints has recently received notice that they have been approved for Empowerment Zone funding. This funding will give them access to approximately $260,000 for operational and investment purposes. The funding will be usable over the course of a year's time, but should give them the financial leverage to make capital and operational improvements necessary to increase production and sales of their re-blended paint. In addition to typical operating expenses, these funds will make it possible for Nu-Blend to make the capital and managerial investment which should allow the program to become self sustaining by the first quarter of 2003. Specific program improvements entail the following:

Nu-Blend Paints - Planned Program Improvements

Marketing and Promotion

Currently, the majority of Nu-Blend's operating cash and staff time is tied up in maintenance of day to day activities, paying salaries, and delivery of product to current customers. An additional large portion of time is spent applying for grants to sustain the program (Hamilton County grants, Provident Bank grants, Home Depot Grants, Hubert Foundation, Greater Cincinnati Foundation, etc.). With limited staff, this leaves the program's General Manager with little time to implement a comprehensive marketing program - arguably the most crucial element for a small start-up enterprise. The Empowerment Zone funds will, for the first time, provide the funds necessary to undertake such a program. Mr. Wojcik has informed the District that EZ funds will be used to hire one commissioned and one salaried sales persons to actively market the paint. In addition, the funds will provide the resources for a targeted media advertising campaign to Nu-Blend's current target market (The target market currently includes government entities, non-profit organizations, large institutions, apartment owners/managers, rehabilitation projects, painters, and contractors). This media campaign will consist of radio and newspaper advertising as well as a professional brochure and a targeted mailing (4 times per year).

Note: In 2001 and 2002, the District plans on incorporating Nu-Blend into two major promotional efforts. The first is a video the District is putting together to advertise and promote recycled content products which have been used in public improvement projects in Southwestern Ohio. This video will be marketed to all public works and government administration offices in Hamilton and Butler Counties. In addition, the District is planning a more extensive outreach effort for its HHM program. It is hoped that Nu-Blend will benefit from each of these programs.

QA/QC

With EZ funds, Nu-Blend plans on making a concerted effort to improve Quality Assurance and Quality Control procedures involved with manufacture of its product. The organization has brought on a consultant to assist with these activities. This consultant has already revised operations pertaining to the addition of bactericide to the re-blended paint. This revision should reduce the number of batches of paint subject to quality complaints.

Also with EZ funding Nu-Blend plans on creating a laboratory, in its current plant, to test and record the quality of each batch of paint sold for use. In addition, there are plans to purchase a color spectrometer which will allow Nu-Blend to compete more efficiently on large-scale jobs. The color spectrometer will allow the organization to produce an exact color match to an existing paint. Purchase of a gloss meter (for comparing the finishes of two different paint samples) will also allow Nu-Blend to improve its customer service and quality control.

Delivery and Transportation Improvements

Currently Nu-Blend's customer service ability is inhibited by its lack of suitable transportation for picking up and delivering paint. The perils involved with the organization's inability to delivery its product should be obvious. However, equally as concerning is the fact that lack of suitable transportation makes it difficult to maintain an efficient pick-up schedule for the paints dropped-off at Hader Hardware stores. I have recently spoken to Tim Cable, President of Hader Hardware who has insured me that, despite this inconvenience, Hader Hardware remains committed to this program. Hader Hardware has witnessed, first hand, the popularity of this program with the residents of Hamilton County and thus remain firm supporters.

To solve this transportation problem, Nu-Blend plans on purchasing or leasing a box truck with EZ funds.

Funding Request

Although Nu-Blend has been approved for EZ funding, the organization is currently involved in the environmental review portion of this process which could last anywhere from several weeks to several months. Nu-Blend's approval status and the uncertainties inherent with the financing time line have all been confirmed, by the District, through conversations with Empowerment Zone staff. In the mean time, Nu-Blend has informed the District that they are in need of financial assistance. Nu-Blend's General Manager, Mr. Bill Wojcik, has approached the Solid Waste Management District requesting bridge financing until such time as the EZ funding comes through. This purpose of this funding would include:

1. Payment of past debt,

2. Payment of interim operational expenses,

3. Seed money for EZ Fund expenditures (The Empowerment Zone will reimburse organizations for expenditures. Therefore, Nu-Blend requires a certain amount of existing leverage in order to begin tapping that fund).

Following on the direction of the Policy Committee members present at the last Finance meeting, I have met with Nu-Blend to gain a better understanding of the organization's actual funding needs and to determine how the District would structure a potential financing program. Mr. Wojcik has informed me that $50,000 would be adequate to bridge the time until the EZ funding is available.

I informed Mr. Wojcik that it would be the District's desire that, if funding is possible, that it be structured as a contract to provide paint re-blending services for Hamilton County until the EZ funding was made available. If possible, the contract would also contain a provision for repayment. Funding through the contract would be distributed in three monthly payments of $25,000, $15,000 and $10,000. The first two payments would be guaranteed. If EZ funding came through before the dispersal of the $10,000 payment, the District and Nu-Blend would consult on the need for that dispersal. Assuming the full $50,000 is dispersed, Nu-Blend could begin repaying the District beginning on July 1, 2002, enabling the District to recover the full amount of the dispersal in 3 years. It would be recommended that the repayment be structured so that payments of $695/month are made for the first year, $1,390/month for the second year, and $2,085/month for the third year.

Nu-Blend has, in the past, been in a position where a contract repayment was necessary. This situation was as a result of a loan made by KCB during Nu-Blend's spin-off. To my knowledge, Nu-Blend has never defaulted on this payment.

As a worst case scenario District Staff calculated the effect to the District if the contract were entered into with no provision for repayment. Staff has determined that there would be no adverse impact to long-term District programming if Nu-Blend were to completely default on this loan. Obviously, this would not be reason in and of itself to proceed with this project. However, the Policy Committee should be aware of the effect of this decision on long-term District finances.

Nu-Blend Paints - District Costs and Benefits

Costs

District Staff have given much consideration to this request from Nu-Blend Paints. The District has allocated over $80,000 to this program since its inception. This funding history cannot be overlooked. Rarely does the District provide this type of support to organizations other than political subdivisions. However, this amount needs to be examined further before judgement can be made regarding the provision of additional funding:

Approximately $32,000 was distributed to KCB, in 1996, for the expansion of the paint re-blending program into the County outside of Cincinnati. This grant included the hiring of a part-time latex paint specialist and the development of the current Hader Hardware drop-off infrastructure.

An additional grant of $47,000 was provided in 1999 to facilitate the spin-off of Nu-Blend Paints, Inc from KCB. KCB's board had determined that the program had outgrown the ability to be effectively managed within the scope of its current operations. Wisely, and much to their credit, KCB had the foresight to allow Nu-Blend to spin-off and begin operating independently. However, with that spin-off, Nu-Blend faced all of the burdens of a new business start-up. Separated from KCB, Nu-Blend now had the ability to seek funds of its own, but required operating capital on which to function in the mean-time. Thus, the reason for the 1999 grant.

$6,000 has recently been allocated, through a District recycling grant, for Nu-Blend to purchase some capital equipment which has come available through the closure of the Perry and Derrick Paint operation in Norwood.

In total, the District has allocated $79,000 to Nu-Blend since 1996. In addition, the District will be allocating $6,000 in 2001 for equipment purchases. The proposed $50,000 is not included in total costs as it is expected to be recovered within a three year period.

Benefits

In relation to the costs to the District for the development and maintenance of this program, the District has accrued substantial benefits. A summary of these benefits are provided here:

Hader Hardware Pick-ups

Approximately 80,000 pounds of paint are picked up annually from this program. This translates into 40 tons each year or 120 tons every three years (the District's schedule for holding HHM collection events). Assuming that absence of this program would cause 1/3 of this material to be brought to District collection events, the District would see an increase of 40 tons of latex paint at these events. 40 tons translates, using most recent information, into a cost increase of approximately $25,000 for each future event. Obviously, this amount would increase or decrease with the percentage of residents which held their paint for these events.

Miscellaneous Pick-ups

Each year, Nu-Blend picks up approximately 15,000 pounds of paint through miscellaneous collection activities. This translates into 22.5 tons every three years. Again, using the estimate that 1/3 of this material would end up in District sponsored events, these activities save the District approximately $4,500.

Home Depot Mistint Pick-ups

Each year, Nu-Blend picks up approximately 40,000 pounds of mistint latex paint from Home Depot or 120,000 pounds every three years. Most of this paint would probably never reach a District collection event. However, assuming a certain amount was discounted and sold to consumers, there remains the possibility that a small portion could indeed end its life at a District event. Assuming this amount to be 5%, yields an additional cost savings of $1,800 to the District every third year.

Environmental Benefits and Resident Education

First and foremost, the collection of this paint, through the Nu-Blend program, means that this material is diverted from landfill. However, that benefit is negligible when compared to the likelihood that some of this paint may be illegally disposed, or dumped, through lack of a viable management option. These environmental considerations should not be discounted when considering the costs and benefits of the Nu-Blend program.

In addition to the environmental benefits, there remains the opportunity that the infrastructure established for Nu-Blend's paint re-blending program could be leveraged to increase education and awareness of District programs and recycling in general. In 2002, the District plans on conducting more extensive outreach campaigns with each of the individual private sector outlets accepting Household Hazardous Materials. It is hoped that the Hader Hardware Drop-off program may play a substantial role in increasing resident awareness and thus diversion of paint and other materials commonly considered as HHM.

Finally, Nu-Blend paints offers a service and a program seen in only a few other communities throughout the world. Nu-Blend was featured in a 2000 edition of Waste Age Magazine and is consistently contacted by other start-up operations requesting technical assistance on the manufacture of quality re-blended paint. Loss of this program would indeed represent a blow to the image of Hamilton County as an environment where innovative environmental programs can develop and be sustained.

Total Benefits

In summary, each of these activities results in savings of approximately $31,300 to the District in terms of lower costs at HHM collection events. In addition, it has been demonstrated that, even with the Hader Hardware collection program, the District still receives approximately 30,000 pounds of paint (over 20 pounds per vehicle) at its collection events. As Nu-Blend collects this latex paint free of charge, the District saves an additional $9,150. Thus, the District saves over $40,000 at each HHM collection event due to the Nu-Blend program. This financial benefit is in addition to the environmental and public awareness benefits provided by operation of such an innovative program.

Costs vs. Benefits

Summing the total financial costs (grant allocations) and benefits (based upon Staff estimate of benefits), Nu-Blend paints has represented a net cost to the District of approximately $44,550 since 1996. This cost is lower, in actuality, as the District used Nu-Blend to accept latex paint at its 1997 HHM collection. Data from this event, however, is not adequate to calculate a cost savings. Presuming Nu-Blend can continue to exist without further District assistance, the program will become a net financial gain to the District following the scheduled HHM collection event in 2006.

Recommendation:

Based upon the above information, and recognizing the benefits of Nu-Blend to the District and the County, Staff would recommend that the District proceed with this project. However, I would appreciate your opinions, questions, suggestions, etc. before submitting a formal recommendation for the next Policy Committee meeting. This would enable Staff to take whatever actions are possible, before that meeting, to facilitate the-time line involved with this request.

I can be reached at 946-7719 or e-mailed at jeffrey.aluotto@hamilton-co.org. Thank you for your time and attention in this matter.

Second Set of Attachment B