Since private parties are not subject to the commerce clause, the Supreme Court developed the market participation exception to the commerce clause to level the playing field for states and muni-cipalities who were not acting as governments regulating through law and ordinances, but engaging in commerce just like a private entity.
* Babylon. Following Carbone, Babylon created a commercial garbage collection district and competitively procured a single commercial collection contract. Its collection agreement allows the contractor to dispose, without charge, up to 96,000 tons of garbage yearly at the incinerator with which the town has a service agreement and unlimited amounts of recyclable materials at the town recycling facility. The town imposed an annual benefit assessment against commercial parcels to fund its service contract obligations and support the zero tip fee.
The court said that the town is both a buyer and re-seller of incineration services - a market participant, because it "effectively" owns the incinerator through the service fee it pays and its exclusive right to dispose of waste there - or to sell its rights. The court validated the zero tip fee.
According to the court, the zero tip fee did not discriminate against interstate commerce, because the town could have charged a tip fee (like Smithtown) and let the contractor charge back those costs to the town and its citizens. The court concluded that free disposal is not a contractor subsidy but a "wash."
* Smithtown. Following Carbone,Smithtown created residential garbage collection districts and allowed private haulers to competitively bid for contracts to collect household garbage and deliver it to the incinerator with which it had a 25-year service agreement.
Proposers, including the hauler, SSC, had to estimate the waste amount generated in their district and budget for disposal charges at $65 per ton (the tip fee at the incinerator). Although SSC was paid $65 per ton to pay disposal tip fees at the WTE facility, it disposed the waste for less money elsewhere. SSC sued Smithtown to keep it from enforcing the ordinance requiring SSC to deliver the refuse to the designated incinerator.
The Court of Appeals held that Smithtown's collection contract survived the commerce clause challenge because it constituted Smithtown's participation in both the waste collection and disposal markets, rather than regulation of commerce. It acknowledged that the Carbone opinion did not mention the market participation doctrine. But "collection" and "disposal" costs were itemized on SSC's bid, and Smithtown financed both collection and disposal services with tax dollars.