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Annual Privatization Report 2013

Solid Waste Collection Update

Subsection of Annual Privatization Report 2013: Local Government Privatization

Harris Kenny
May 6, 2013

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Solid Waste Collection Update

Over the last three decades, there have been dramatic changes in solid waste collection in the U.S. The Waste Business Journal reports that while more than 75 percent of the collection and disposal of trash was once done by municipalities, the number has now flipped, with 75 percent of collection and disposal being handled by the private sector in what has become a $50 billion industry.1 One reason this reversal continues is that private firms leverage the ability to pool resources and use high-cost capital expenses, such as heavy vehicles, more productively.

In 2012, the solid waste industry pursued the remaining 25 percent of the market, which reportedly represents approximately $8 billion in new revenue.

The changing dynamics of solid waste in the wake of the Great Recession has forced some major players to re-evaluate their position in the marketplace. For example, Paris-based Veolia Environment sold its U.S. solid waste business (which had revenue of $818 million, operating cash flow of $212 million and operating income of $110 million in 2011) to Star Atlantic Waste Holdings LP for $1.91 billion. This move is a part of a larger divestiture strategy by the firm as it looks to move into new markets.2

Below are some highlights from this year’s efforts to privatize solid waste service delivery.

Chicago, Illinois: Mayor Rahm Emanuel pledged in April that he would bring recycling to every home in Chicago by the end of 2013—something that policymakers have been discussing since the late 1980s. The city of Chicago partners with Waste Management and Metal Management Midwest, allowing the firms to compete alongside public employees to process recycling for Chicagoans. This led to dramatic savings ($2.2 million in the first six months) even while expanding service to new households. These savings are fueled by increased productivity by city workers who have lowered their costs by 35 percent from $4.77 per cart down to $3.28 per cart.3 The city currently hauls recycling for 261,000 households, while 340,000 don’t have recycling service at all.4

Fresno, California: Mayor Ashley Swearengin fought for months to outsource the city’s residential trash removal service. The debate over privatization was contentious, both in city hall and in the editorial pages of local newspapers. In December 2012 the city council finally approved Swearengin’s proposal. The city previously provided trash collection for 105,000 Fresno residents. The contract with Mid Valley Disposal pays the company $2.5 million annually with a $1.5 million signing bonus. For residents, it would reduce rates by 17 percent for nearly two years. For employees, it would guarantee jobs for at least one year.5 Officials are reporting that customer complaints are only a quarter of 1 percent, far below the maximum of 3 percent stipulated in the contract.6 In response, public employee labor unions recently submitted a ballot proposal to overturn the contract.7

This outsourcing contract is one of several initiatives to address Fresno’s $5 million budget deficit. Like many cities, Fresno spends a substantial amount of money on public safety—80 percent to be exact—most of which goes toward police. And the city’s contract with the Fresno Police Officers Association includes a no-layoff clause that requires vacancies from attrition and retirement to be filled.8 Therefore, when facing tight budgets, policymakers have little choice but to consider commercial services like trash removal.

Norwalk, Connecticut: The Common Council voted 9–6 on July 24, 2012 to privatize trash pickup in Norwalk. The 10-year contract was signed with Stamford-based City Carting & Recycling Inc., a local firm that already operates Norwalk’s transfer station on Crescent Street.9 The move is considered high profile—despite the ubiquity of comparable contracts across the U.S.—because of the exhaustive campaign run by the American Federation of State County and Municipal Employees (AFSCMCE) Local 2405 against privatization. A July 19, 2012 letter by the union argued the council should abandon or defer privatization to avoid “making a grave mistake Norwalk will suffer from for a long time.”10

In practice, the contract appears to be a significant win for the community and the 33,000 properties that will be affected. The city is expected to save over $600,000 in the first year alone. Then, in July 2013, the city will revamp its entire recycling program by converting to single stream recycling, which has been found to increase the proportion of waste products that are recycled by allowing recyclable materials to go into one container. Combining the switch to single stream with other cost-cutting moves, the contract is eventually expected to save at least $1.2 million per year.11

San Bernardino, California: The San Bernardino City Council voted in 2012 to declare bankruptcy after it became clear the city’s fiscal path was unsustainable. The council also voted in favor of partnering with the private sector to handle trash collection. However, after months of wrangling they decided to table contracting in October.

It began when city officials sent out a request for proposals (RFP) in August to partially privatize trash collection that only received two bids. The council approved proceeding twice, but the mayor vetoed twice. Then, the city hired Sloan Vazquez LLC to consult on procurement and found the contract value could range anywhere from $300–600 million.12

Surprisingly, San Bernardino is subsidizing trash collection through the general fund because rates have not gone up since 2008, while gas prices and landfill fees have, meaning that privatization would likely come with a rate increase. Ultimately, the city council voted to halt procurement and it is unclear whether or not it will revisit the issue in 2013.13

Lockport, New York: In fall 2011 the city privatized its garbage and recycling program. Halfway through 2012 City Clerk Richelle J. Pasceri told the Common Council that partnering with Modern Disposal had yielded $380,000 in savings. Privatization also came with the institution of a user fee and standardization of garbage and recycling containers. There have been several non-fiscal benefits to the transition. First, waste has been reduced by approximately 43 percent from 9,000 tons of trash down to 5,100 tons. Part of this drop is because some commercial businesses opted to partner with another provider, but regardless taxpayers are saving the $30.73 per ton that it cost to dump in Modern’s Lewiston Landfill. The city also has 80 percent participation in its recycling program, and 22 percent of waste produced is being recycled according to the mid-year report.14

Westwood, New Jersey: The Westwood Council voted to contract out recycling beginning on July 1, 2012, signing a single-stream contract with Advanced Waste for weekly pickup (versus twice a month pickup currently provided by the borough). The four-and-a-half-year, $310,000 contract is expected to save the borough on fuel costs and generate more revenue from recycling.15

Brunswick, Florida: The City Commission voted in August 2012 to partner with Waste Management, Inc. to privatize solid waste collection and disposal, signing a $715,000 per year contract. The move is expected to save taxpayers approximately $500,000 each year according to City Manager Bill Weeks, while maintaining weekly garbage pickup, every other week recycling pickup and notably expanding yard trash collection from every six weeks to weekly. The contract also includes a new program called Recycling Rewards, which gives participants an average of $165 a year in discount coupons for local and national businesses.16

Cincinnati, Ohio: The Ohio Auditor of State, Dave Yost, published a performance audit of Cincinnati’s Public Service Department finding the city could save millions of dollars each year by streamlining its operations. Yost found $1.7 million could be saved through civil service reform (overtime, sick leave, staffing levels). He also found that outsourcing solid waste and street sweeping could save $1 million and $930,000 respectively, and that improved salt and fuel purchasing could save more than $1.3 million. The full performance audit highlighted a number of issues that may lead the city to rethink its current service delivery.17

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Endnotes

1 Sagarika Jaisinghani and Kartick Jagtap, “Tough times force garbage firms to dig around for growth,” Reuters, October 16, 2012. http://www.reuters.com/article/2012/10/16/us-refuse-growth-idUSBRE89F17A20121016

2 Ibid.

3 “Mayor Rahm Emanuel Announces Citywide Recycling in 2013,” City of Chicago, April 5, 2012. http://www.cityofchicago.org/city/en/depts/mayor/press_room/press_releases/2012/april_2012/mayor_rahm_emanuelannouncescitywiderecyclingin2013.html

4 Ibid.

5 George Hostetter, “Fresno City Council OKs trash outsourcing,” The Fresno Bee, December 21, 2012. http://www.fresnobee.com/2012/12/21/3109313/fresno-oks-trash-outsourcing.html#storylink=mirelated

6 Rachel Azevedo, “Trash privatization progress report,” CBS 47, January 14, 2013. http://www.cbs47.tv/news/local/story/Trash-privatization-progress-report/jPVcjJCickSBjqE5uSWs1w.cspx

7 Dan Walters, “Fresno joins the ranks of troubled California cities,” The Sacramento Bee, February 11, 2013. http://www.sacbee.com/2013/02/11/5180134/dan-walters-fresno-joins-the-ranks.html

8 George Hostetter, “Swearengin leads pitch to outsource Fresno trash,” The Fresno Bee, November 20, 2012. http://www.fresnobee.com/2012/11/20/3073754/fresno-mayor-city-manager-raise.html

9 Nicole Rivard, “Common Council oks outsourcing of city’s trash collection,” Norwalk Citizen, August 1, 2012. http://www.norwalkcitizenonline.com/news/article/Common-Council-oks-outsourcing-of-city-s-trash-3741287.php

10 Ibid.

11 Ibid.

12 Cassie MacDuff, “SB council hits roadblock on refuse division outsourcing,” Riverside Press-Enterprise, October 18, 2012. http://blog.pe.com/cassie-macduff/2012/10/18/sb-council-hits-roadblock-on-refuse-division-outsourcing/

13 Ibid.

14 Thomas J. Prohaska, “Garbage, recycling program starts by saving $380,000 in 8 months,” Buffalo News, July 5, 2012. http://www.buffalonews.com/incoming/article935114.ece

15 Jason Braff, “Westwood to contract out for recycling,” NorthJersey.com, March 20, 2012. http://www.northjersey.com/news/143496706_Westwood_to_contract_out_for_recycling.html?page=all

16 Mike Morrison, “Brunswick to park its garbage trucks to privatize service,” Jacksonville Times-Union, August 16, 2012. http://jacksonville.com/news/georgia/2012-08-16/story/brunswick-park-its-garbage-trucks-privatize-service

17 “Performance Audit Finds $3.7 Million in Potential Savings for Cincinnati Service Department,” Ohio State Auditor, July 24, 2012. http://www.auditor.state.oh.us/newscenter/press/release/1354


Harris Kenny is Policy Analyst


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