Editor’s Note: The following commentary by Bart Begley, President and CEO of Brolin Enterprises, makes a case for why municipalities should be more open to privatizing waste collection services.
The current economic downturn not only has spurred the private sector to cut costs, it also has pushed municipalities to re-evaluate operating budgets. Municipalities have been forced to reduce services, eliminate programs and decrease staff. They continue to review and restructure their operating budgets as tax revenues plummet. This has led many municipalities to consider a measure they are often loath to take: privatizing their solid waste departments.
What makes privatization such a bitter pill for municipalities to swallow? To answer that question, you must first understand the history of the municipal solid waste department. Municipalities always have considered solid waste a utility. Therefore, most municipalities have provided waste services to their residents.
But in recent years, municipal solid waste departments have faced slack operating budgets, increasing operating costs, rising cost-of-replacement capital expenses and skyrocketing exposure to environmental liability. All of which makes privatization an attractive option. Those that take the plunge find many of the aforementioned headaches disappear.
But first, the powers that be must be convinced. Let’s examine the city of Williston, Fla., which took a calculated risk and was rewarded. Williston had underlying budget issues that put the city $50,000 in the red. The city also required new and updated route trucks and container replacements. Marcus Collins, the city manager, decided to put the hauling operations out for bid. The end result of this decision was a $200,000 upswing in the city’s annual budget. The majority of the $200,000 savings was a result of eliminating operating and administration cost from the city’s budget. Freed to sell its antiquated collection equipment, the city netted an additional $75,000 and eliminated all looming environmental liabilities.
Williston’s success story may still elicit the argument from municipalities that they can handle waste collection better and cheaper than a private firm. However, a municipality cannot know that for sure until a privatization scenario is fully evaluated. An effective evaluation should include every nut and bolt of waste operations, including long-term liabilities. But chief areas subject to examination are operating costs, annual capital requirements, liabilities and management.
Of these areas, daily operating expenses are invariably one of the largest and most important items on an operating budget. The municipality has to keep in mind that everyone involved in day-to-day operations, including fleet maintenance, needs to be accounted for. Other factors that should be included in a budget process are the rising costs of healthcare, retirement benefits, worker’s compensation, and rising fuel prices.
Municipalities also have to consider the capital needs for both replacement of equipment, regulator mandates and changes in technology. The cost of replacement capital places an undue burden on the municipality with large cash requirements each year. Changes in technology, along with greater recycling demands, have played an enormous role in increasing capital expenses. Communities utilizing residential containers for both solid waste and recycling present large capital needs. For example, to supply a single home with two such containers costs $100, not including a 10 percent replacement cost each year. Multiply that by the number of households in a municipality, and the expense is staggering.
When considering privatization, most communities discover not only that they are capable of reducing operating costs, but also that, after making the switch, they are able to expand services for less. This might include more curbside recycling options, building new material recovery facilities and landfill operations. Landfill operations alone could include buying out and operating an existing site or designing, permitting and operating a new landfill for the municipality. The intangibles that the private sector provides includes educated and experienced staff, continuous and updated training, best industry practices and environmental knowledge.
Of course, there are some cases where a municipality can operate a solid waste department as cost efficiently as a private company. These instances are usually are in large, heavily populated areas where the municipality operates the landfill. Even in those situations, however, the municipality should take the time to evaluate its options.
The question facing a municipality is, “Do you prefer to manage a multi-faceted operation and expose yourself to uncontrollably rising costs, or instead manage a single contract that enables the elimination of that exposure thereby reducing those costs?” Privatization via a carefully constructed contract allows the municipality to maintain strict oversight of solid waste management while instituting cost controls.
Bart Begley is President and CEO of Brolin Enterprises, LLC, a solid waste consulting firm specializing in acquisition due diligence, operational hauling reviews, transfer station and landfill operations, asset evaluations and environmental consulting services for municipalities. Begley can be contacted directly at [email protected]