Private Benjamins: The Debate Over Privatizing Waste Collection

In a decision that often comes down to economics, communities weigh the pros and cons of privatizing their waste services.

Coke or Pepsi? Mary Ann or Ginger? A private-sector or a public-sector provider of waste and recycling services?

The privatization issue in waste management has long been one of the sector’s fundamental debates. It heated up again recently when the private-sector oriented National Solid Wastes Management Association (NSWMA) issued a report that argued that privatizing the collection and processing of waste and recyclables can produce cost savings of 20 percent to 40 percent. The study also says that private waste operations have better safety records than their public-sector counterparts.

The Solid Waste Association of North America (SWANA), which has more public sector representation, disagreed with conclusions. John Skinner, CEO of SWANA, argues that solid waste is a public health issue and therefore government should at least maintain oversight control.

While NSWMA and SWANA argue back and forth, local governments across the nation, often because of the recession, are wrestling with the privatization issue themselves, and their experiences show there is no one-size-fits-all solution to the debate.

Associations Debate

While Skinner and Bruce Parker, CEO of NSWMA, have sparred over the recent report, based in part on information from the Libertarian-leaning Reason Foundation, they both agree the private versus public debate should be judged largely on a case-by-case basis. “There’s no black and white between privatization and public,” Parker says. “You can always find examples of each and where it hasn’t worked.”

But Parker believes in many instances the private sector can provide waste services better. He characterized waste collection as a commodity business, which some believe make it more suitable for privatizing. “Garbage is pretty simple,” he says.

Part of the claimed cost savings and efficiencies of the private sector come from the lack of politics that sometimes hampers the public sector. “In the private sector, make a decision and it’s done,” Parker says. Also, “it’s much easier to control private haulers because there’s a contractual obligation,” he adds.

Skinner disagrees with the portrait of the public sector as inefficient — “there’s lots of evidence contrary to that,” he says. But he agrees that, in instances of “managed competition” — in which the public sector is made to bid against private companies — the resulting competition and contracts with specific performance goals can make the public sector much more efficient.

And then there’s the safety component of the debate. According to the NSWMA study, the U.S. Department of Labor reports incident rates in the public sector are four times higher and number of days away from work 60 percent greater than in the private sector.

Skinner doesn’t disagree about the safety difference, but he says it’s because manual truck operation is more prevalent in the public sector, as opposed to automated equipment. Automated trucks won’t work in some more densely populated areas, he says, because of factors like traffic, alleys and utility lines. “I’d like to see a comparison using the same technologies and see if there’s any distinction,” he says.

Skinner says he’s not opposed to privatization, depending on how it’s handled. “Either one can work as long the local goals of government are respected.”

“Solid waste is a public service,” Skinner adds. “That is the critical issue. Shortsighted governments that get out completely, with no control over costs in the future — that is very poor policy.“

Toledo Takes the Plunge

The recession and slow economic recovery “has really brought privatization to the forefront,” Parker says. “Communities are thinking about different ways to save money, and that’s privatization.” There are apparently no recent statistics that detail precisely to what extent local governments have privatized their waste operations. According to an R.W. Beck survey, in 1985, only 30 percent of U.S. cities had contracted with the private sector for trash collection; by 1995, that number was 50 percent.

The figures are even more severe for the public sector in 2010 from Waste Business Journal. It reports that municipal markets controlled 22 percent of industry revenues in 2010, or $12.3 billion. That compares with 35 percent and $9.5 billion in 1991. In 2013 the figure is projected to drop to 20 percent and $12 billion.

Toledo, Ohio, is one of the latest cities to privatize. The reason is familiar: “It’s not economically feasible to continue to provide waste service,” says Jim Shaw, sanitary engineer for Toledo’s Lucas County, which includes Toledo.

The city has a lot of concerns about its general fund and its ability to provide police and fire service, and resident fees only cover about $9 million of the annual $16 million cost to Toledo to provide solid waste service. This spring, Toledo decided to turn its waste and recycling services over to Allied Waste, part of Republic Services Inc., and RecycleBank. The transfer of service for Toledo’s 100,000 households is expected to occur on Sept. 1 and is a five-year deal. Officials believe Toledo will save $2.8 million this year and between $5 million and $6 million next year.

Toledo is relinquishing all control over waste and recycling operations; residents will continue to get billed through the city, but the money will then be turned over to Allied. Some of the 66 employees losing their jobs may go to work for Allied, Shaw says. Others may remain with the city if they choose. About 12 employees will retire.

Costs for residents will go up slightly. They pay $8.50 a month now; the rate will go up to $8.95. A homestead exemption for senior citizens will continue to cut those bills down to $5. Shaw pointed out that with RecycleBank’s rewards-based program for recycling, residents will have the opportunity to get the increase back. Shaw says if the city continued to operate the program it would cost each resident $12 to $12.50 a month for the city to break even.

Allied also bought Toledo’s 40 collection trucks at $200,000 each. “It was all economics,” Shaw says. Some have raised concerns in Toledo about customer service. “Anything new is a concern, but [Allied has] assured us that customer service stays intact,” he says.

Public in Plano

However, many municipalities continue to prefer to manage waste and recycling themselves. One of those is Plano, Texas, which provides a variety of solid waste services to approximately 69,000 residents.

“We see no benefit to the citizens to changing to a private program,” says Robert Smouse, sustainability and environmental services manager for the city. That’s because Plano runs its operation like a private program.

“We’re always managing our department like a business,” Smouse says. “We operate as an enterprise fund, so we’re very competitive in the market.” An enterprise fund means the operation is self-supporting. And it means city officials know what programs cost.

Plano officials regularly compare the costs of the services that the city provides — residential trash collection, recycling, education, commercial trash collection —to similar nearby cities. “No one can beat us on price,” Smouse says.

When there have been economic downturns, the city has been proactive and adjusted its budget before problems develop. The city uses gain sharing, where public employees share in cost savings by receiving bonuses and therefore are more motivated to improve efficiency.

But what works for Plano might not work elsewhere. “Our opinion is that every city is different,” Smouse says.

Managing in Charlotte

Somewhere between completely privatized operations and exclusively public-sector operations lies a concept called “managed competition.” In managed competition, a city will take bids from private haulers — and its own solid waste operation. “A key factor that reduces costs is competition,” says Jeremy O’Brien, director of applied research for SWANA. “Managed competition is a good answer to that.”

Managed competition brings a variety of advantageous concepts. “What’s good for the public sector is that for the first time it has a contract that says what to do,” O’Brien says of instances in which a public entity wins a bid. Gain sharing often is introduced.

In “many cases the public sector can provide the best service” if the goals and incentives are clear, O’Brien says.

Critics have charged that in managed competition the public sector has an unfair advantage bidding against the private sector, by not having to pay taxes and often being able to attribute costs elsewhere. “The whole idea is to make it as level as possible,” O’Brien says.

While it seems to offer the best of both worlds, O’Brien says managed competition “is very rare, maybe a dozen cases. It’s difficult to manage.”

The city of Charlotte, N.C., went this route in 1998, and while Charlotte officials moved to a different structure last summer, they say managed competition transformed how their city approaches waste and recycling.

Charlotte divided its solid waste operations into geographic quadrants in the 1990s. Two of the quadrants used managed competition: one was serviced by a private firm, Inland Service Corp., and the other was handled by the city. The city wasn’t the lowest bidder in the latter instance but it was close, so it got the contract, says Ellen Price, administrative officer for the solid waste department. In the other two sections, the city employed gain sharing.

“It’s phenomenal how much efficiency Charlotte achieved because of managed competition,” says Victoria Garland, solid waste director for the city.

According to Price, before managed competition, city officials really didn’t know their solid waste costs. The competition process prompted them to employ goal methods such as benchmarking. “It forced us to operate like a business,” she says.

Deputy Director Michelle Moore says managed competition made the city, with 208,000 customers, more aggressive in using technology and more efficient, and Garland adds that it has helped the city as a whole, in ways such as being better able to assign real costs to budgets.

Over time, however, residents in the various quadrants began to voice concerns that they weren’t receiving the same quality of service as residents in the other quadrants. The city didn’t feel that this was the case, but in order to quell the concerns, Charlotte replaced the quadrant concept in July 2010. City crews now provide waste, yard waste and bulky collection for all of Charlotte, under benchmarking principles. Charlotte did privatize two services: single-family recycling to Inland Service, and multifamily waste, recycling and bulky pickup to Republic Services.

Handling the transitions to managed competition can be difficult. “It was bad when we went through it, but it made us better,” Garland says.

Also, the shortness of the city’s contract — five years — made for some insecurity among its workers. “It affected employee morale,” Garland says. “People might be fearing for their jobs.” She adds that managed competition might cause some workers to cut corners on safety by rushing through work if they’re thinking “if we don’t come in under budget, we’re going home.”

Regarding complaints about managed competition being stacked to favor the public sector, Price says, “We’ve seen it go both ways. [Public sector has] no taxes and financing options, but they don’t have the buying power of the private sector. They’re also not able to be creative in personnel costs.”

Parker says the NSWMA is in favor of managed competition — as long as the playing field is level. Skinner agreed, saying it works best when a detached, third-party entity is choosing the contractor.

Allan Gerlat is a Sagamore Hills, Ohio-based contributing writer. He is the former editor of Waste and Recycling News.

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