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August 8, 2007
A Government-Created Monopoly That’s Complete Garbage
Jon Pincince of the RI Law Journal, blogging both as someone interested in Rhode Island legal issues and as a South Kingstown resident, provides an interesting summary of the trash hauling situation in his town. Apparently, the South Kingstown Town Council is leaning towards implementing a system that makes it illegal for anyone but one company, selected by the town, to haul trash. This is not a change to a system of “free” (i.e. paid for through tax dollars) municipal trash collection, as residents will still have to individually contract with the favored trash hauler. However, they will have only one company which they are allowed to choose, if they don't want to carry their trash to the town's transfer station themselves. Pincince comments…
Apparently we will not be allowed to hire someone else to do it for us, at least not someone else of our choice. Not only will we no longer be allowed to contract with RPE or other local haulers, but if my neighbor’s enterprising kid wants to offer a service to his neighbors, and he will do it less expensively than the Town’s chosen company? Competition be damned. We’ll have to haul it ourselves or call the chosen one.According to the Liz Boardman article in the South County Independent referenced by RILJ, at least one current South County trash collector is already planning to fight the monopoly ordinance in court, arguing that a town has no legal basis to prevent a company able to meet licensing requirements from running a trash collection business…
[Leo Roode, owner of RPE Waste Services,] plans to fight Town Hall over the loss of business.And already, two of the problems intrinsic and endemic to government monopolies have begun to raise their heads…“We have contracts with our customers and we have a substantial investment in South Kingstown - we probably have $300,000 invested in our clients there,” he said. “We’ll sue the town and will keep picking up trash until the Supreme Court tells us we can’t.”
- One size fits all mandates: The pricing scheme the town wants to impose gives no consideration to the fact that family-households create more trash than single-person households…
The bid asks for quotes on basic service - weekly collection of one 35-gallon trash container and two 64-gallon recycling bins - one for paper and one for bottles and cans. Residents creating additional trash would have to put it in a special bag….But critics said 35 gallons isn’t enough.
It’s expensive enough to raise children these days. Do we really need to penalize families for their trash collection too?“It’s stupid to think a customer has only 35 gallons of trash a week,” said Leo Roode, who owns RPE Waste Services in Wood River Junction. “The poor working slob with four or five kids might get one 35-gallon can for $15 a month, but [then] has to buy two or three bags a week for the extra trash. It’s right back up to what it is now
- Tipping the scales in favor of certain companies: Once the most important aspect of business becomes dealing with the government, rather than making a quality product, or providing a good service, funny things start to happen. Sometimes, for instance, specs get written that can only be satisfied by big companies with lots of resources to devote to something other than a company’s core business…
Under the terms of the bid, the hauler has to find a vendor to make [special bags for trash that exceeds the 35 gallon limit] and is responsible for getting them on the shelves of local stores, where residents can buy them.
Mandates like the above have led several South Kingstownites to wonder if a big, out-of-state trash hauler had a hand in writing the bid…Finding someone to make the bags and marketing them seemed impossible to Roode.
“Who has resources to do it? Allied, BFI, someone owned by investors, not some family,” he said. “They can pull 20 people in to get the bags in the stores.”
“This bid was written by one of the three big haulers. It’s too detailed. The town didn’t come up with it,” Roode said.
“On the business end, the RFP reads as if a Professional Trash Hauler vendor wrote this document,” [South Kingstown Republican Town Committee chairman Dave Coté] wrote in an e-mail to the town manager. “Please confirm how the RFP was created.”
[South Kingstown Public Services Director Jon Schock] said he wrote the bid, along with Ellen Rynasiewicz, an employee of the Public Services Department, and John Merritt and Matt Zettek of Merritt Communications. It was based on specifications from other towns with similar plans but was modified to the fit the town’s needs.
Finally, one footnote: Facing similar circumstances, the town of Narragansett has decided for the time being that it can meet its local trash collection needs without driving the local trash haulers out of town. From Randal Edgar in the Projo...
The town wants to know what South Kingstown residents would pay for curbside pickup should that town choose a single hauler.If the cost is reasonable, Narragansett might consider the single-hauler approach, local officials say. Otherwise, Town Council members have said they prefer staying with a system of multiple haulers, who would have to be licensed and offer recycling.
Five months ago, it appeared the two towns might seek bids together from single haulers, but Narragansett council members concluded that hiring one hauler would put smaller, local haulers out of business.
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Living in SK, and fundamentally conservative, the trash hauling issue strikes a chord with me. In a letter to the SC Independent editor I wrote a few months back (http://www.scindependent.com/articles/2007/06/07/opinion/bedit.txt), I discussed what the inevitable regression of enabling and encouraging a monopoly would be. The central landfill monopoly is at the core of the “problem” here, yet the solution offered merely layers another monopolistic bureaucracy on top of the already dysfunctional one.
The publicly stated issue here is that the landfill is running out of space and the only solution will be to increase diversion (recycling) rates. Towns that do not comply with diversion targets will face higher per ton rates for its residents. On the one hand, there is a sense of embarrassment that a town as “progressive” as SK has the third lowest recycle rate in the state. Ironically, 4 of the 5 worst communities have no Republican representation on their respective Town Councils, while the 3 of the top 5 communities are balanced, non-partisan and/or Republican controlled.
But forget that for a moment and consider an alternative motive driving the “need” to recycle. In the central landfill’s annual report (http://www.rirrc.org/documents/RIRRC%20Financial%20Statements.PDF), it’s not hard to miss the margins on recycling. The cost to operate the recycling center is about $3.9 million as referenced in section 8-2-3 of the Solid Waste Management Report from 2006 (http://www.rirrc.org/documents/SWMP%20Final%20Version%20Submitted%20to%20SPP%201-12-05.pdf). With revenues of $7.5 million from recycling in 2005, the operating margin for recycled waste management is 48% compared to 7% for traditional waste. The RIRRC is simply doing what any business would do by trying to expand its more profitable product line. The downside to citizens is that the surplus generated from recycled material processing gets transferred to the state. In 2005 and 2006, that transfer was a combined $11+ million. We’re talking about a tax here that gets buried in the quasi-public world of waste management. So SK is faced with a choice: a) pay higher rates for regular waste (thus balancing operating margins at the landfill and enabling higher transfers to the State coffers), or b) send more recyclable waste to the landfill and allow greater transfers to the State coffers.
The Town of SK has decided that option (b) is optimal because, in their opinion, no one wants to pay tipping fees at double the current rate. But the societal cost of that choice will mean putting several independent haulers out of work and greatly limiting the service provided to and choices of the taxpayer. So what are the real consequences of choosing option (a) then? Reports state that tonnage rates will increase by approximately $30/ton if SK does not meet diversion targets. The average SK individual generates 0.425 tons per year of non-diverted waste according to this study (http://www.southkingstownri.com/upload/solidwastereport.pdf) on page 5 of attachment 1. Essentially, this means the town is going through all of this effort to save the typical resident $12.50 per YEAR!!! Yet the cost (regardless of funding source) to contract the study and to administer the single franchise Request for Proposal will at least partially offset the $12.50 per resident savings in tipping fees. And if lawsuits arise from disabling companies to do business in town, regardless of the merits of the cases, legal fees will further devalue any savings to the residents. It may be cheaper for us to simply pay the higher rates to the landfill!!!
This is all occurring while technologies to manage Municipal Solid Waste are developing and shrinking. The central landfill is currently evaluating these technologies that can convert waste to electricity through gasification and other technologies. Additionally, the town could take advantage of the advancements in the shrinking footprints, throughputs, and costs of these technologies, but the easiest route is simply to charge more. With NO competitive price pressures (and with the power of the legislation) they will just increase the price to the taxpayer.
This issue is only about recycling on its surface. Prevailing wisdom is that recycling is absolutely needed to address the shrinking resource of land in Johnston. A very sound case can be made, however, that the proponents of recycling as an environmental cause are being manipulated by quasi-public and private interests looking to monopolize the entire process in the state. The taxpayer of SK has nothing to gain going down the path of single franchise and would cede control of the waste management to a small handful of bureaucrats and some of the largest pseudo-monopolies in the world with no price controls on the horizon and no incentive for innovation.
Posted by: Roland at August 8, 2007 4:48 PMThe same thing has happened here in Florida. Waste Management contract will put many small companies out of business. We have lost our right to do business with whom we wish.
Posted by: karen jeffries at August 20, 2009 5:52 PM