The city’s contract with its garbage hauler includes a provision that has allowed a fuel surcharge to rise by more than 1,000 percent, increasing the amount taxpayers are required to pay for the service.

The fee that city residents pay to have their trash hauled away – typically about $173 per year – doesn’t come close to covering the cost to do so, forcing the city to subsidize its garbage operation with millions of dollars from the general fund.

The city’s proposed 2013-14 budget calls for a $3.2 million taxpayer subsidy for its solid waste fund, which has accumulated a deficit of $22.8 million over at least the last 10 years.

The $3.2 million gap between proceeds from the city’s garbage user fee and its actual expenses exists partly because a fuel surcharge built into the contract between the city and Modern Corp. has grown exponentially, and will cost the city $1.8 million in 2013-14, up from $150,420 in 2005.

The city’s payments to Modern have increased by 32 percent since the 10-year contract began July 1, 2005, and that increase is due to the fuel surcharge, according to the City Comptroller’s Office.

Though the actual cost of fuel has grown by 88 percent, the cost of the fuel surcharge per ton the city pays to Modern Corp. has grown by more than 1,100 percent, according to the comptroller’s response to Mayor Byron W. Brown’s budget proposal.

“It’s a problem that has to be fixed, period,” said City Comptroller Mark J.F. Schroeder.

But unlike other contracts, this one does not include other cost increases, such as those tied to inflation, according to Modern. Three parts of Modern’s operation require fuel: equipment used at the city’s South Ogden Street transfer station the company runs; trucks that haul garbage to Modern’s Model City landfill; and equipment that maintains the landfill.

The $1.8 million the city will pay Modern for the fuel surcharge does not include the city’s cost to collect the garbage from homes and businesses and bring it to the city’s transfer station, a task completed by city employees.

The fuel surcharge was not a secret, and the contract was competitively bid and negotiated, said Modern Vice President Gary Smith.

“It’s not like this was just sprung on them,” Smith said.

Modern is hoping the city renews the contract, which expires June 30, 2015, although bids from other companies could be sought.

Public Works Commissioner Steven J. Stepniak said that the contract was negotiated by a prior administration and the Common Council and that the city will be looking for the best deal when it expires June 30, 2015.

Stepniak said the city is trying to reduce its costs by increasing recycling rates, which keeps refuse materials out of landfills and decreases the city’s costs to put them there.

In another attempt to close the gap in the solid-waste fund, a proposed law under consideration by the Council would prohibit landlords with many properties from disposing of a ton of waste for free at the city’s transfer station, taking advantage of a courtesy reserved for households.

“City taxpayers should not be bailing out the enterprise fund,” said Council President Richard A. Fontana, sponsor of the measure. Schroeder has assigned a certified public accountant from his office to work with the Brown administration in closing the gap, and he is urging that the issue be taken into account as the city prepares to negotiate a new contract.

Brown’s proposed 2013-14 budget, which is under review by the Council, would not raise taxes or fees, including the user fee, but would use one-time revenues to cover recurring expenses.