Going with the flow of flow control
The U.S. Supreme Court’s decision in Carbone v. Clarkstown left many municipalities wondering how they would pay for their waste facilities. But the reality is, most will be all right with or without flow control.
Last year’s U.S. Supreme Court decision regarding legislative flow control of municipal solid waste did what anyone observing the solid waste industry has known and expected for a long time – it officially recognized garbage as a valuable commodity, or, to be more precise, an anti-commodity.
In the May 1994 decision C&A Carbone v. Town of Clarkstown, N.Y, the court ruled that legislation mandating the flow of waste to or through a particular facility – flow control – inhibits interstate commerce and, therefore, is unconstitutional. The decision placed in jeopardy many solid waste facilities that previously had relied on local flow control agreements for steady revenue streams from tipping fees.
Flow control evolved as a result of the need for new and more expensive solid waste facilities, such as waste-to-energy (WTE) plants. In order to finance these facilities, communities (and sometimes states) passed laws mandating that all solid waste go through one particular plant, ensuring a guaranteed tip-fee income.
Indeed, according to the Center for State Policy Research (CSPR), more than 58 percent of WTE facilities are supported by flow control.
Problems arose in the ’80s as recycling became more and more prevalent, and, as a result, the amount of waste sent to landfills and incinerators decreased, since much of what previously was classified as “waste” had become recyclable. According to CSPR, curbside recycling programs grew by more than 560 percent between 1988 and 1993. Also, the recession of the late ’80s and early ’90s reduced the volume of waste being produced across the country and, therefore, going to landfills.
With waste volume declining, tip fees began to inch upward to compensate. Also, some communities were involved in “put-or-pay” contracts with privately owned and operated facilities, which dictated that, should waste volume drop, the municipality would be responsible for making up the difference in revenue.
A year and a half after Carbone, Congress still has not passed legislation addressing the issue, and municipalities and private industry are positioning themselves for a struggle to determine what effect the case will have. Virginia Republican Tom Bliley’s House Commerce Committee is responsible for drafting a bill, but it is still in the works, and, until the bill hits the floor, no one knows how seriously the facilities will be affected.
To private haulers and processors, the issue is simple – flow control creates a legislated monopoly for the facility in question, be it a transfer station, a materials recovery facility (MRF), a WTE plant or even a landfill. They say it drives tipping fees up due to the lack of competition and inhibits innovation and efficiency.
“[Our position] is very complicated; we hate it,” says Alan Blakey, public affairs director for the National Solid Waste Management Association (NSWMA), Washington. “Flow control is bad for consumers, it’s bad for competition, and it’s bad for the waste hauling and disposal industries.
“If there is one thing we’ve learned about the waste industry, it’s that it changes dramatically,” Blakey says. “Flow control is built on assumptions that no longer hold true: that you can guarantee a certain amount of garbage. We’ve learned that’s not true because the definition of garbage has changed; things that were considered throwaways before now are considered recyclables.”
The difference between the two sides is, in large part, a philosophical one on government’s role. “The entire solid waste industry has been built and premised on the ability of business and local governments to guarantee delivery of garbage,” says Dave Gatton, senior environmental advisor for the U.S. Conference of Mayors (USCM). “We’re just saying that any rule has to have built-in flexibility, and local governments have been fighting for flow control to give themselves another option.”
The issue for municipalities is not so much whether flow control creates a monopoly, but rather that the safe disposal of solid waste is a responsibility of government to its citizens, and that duty sometimes requires legislative action.
“Solid waste has traditionally been the responsibility of state and local governments,” says Gatton. “We believe that flow control should be left to the state and localities to work out. The federal government does not have to be involved in determining the specific rules as to the role of solid waste, because Congress has more important things to do.”
Also, should flow control be banned, some states and/or municipalities would be stuck with their put-or-pay contracts. Consequently, the value of bonds issued to finance facilities could drop significantly.
“We now see that the bond market merchant princes/princesses have begun to downgrade the value of bonds that are dependent on waste flow control,” says Lanier Hickman, executive director of the Solid Waste Association of North America (SWANA), in a recent article in World Wastes. “This is only the beginning – watch out for many more downgradings as the years pass.”
But not all public waste officials support flow control.
For instance, prior to Carbone, Minneapolis sent its waste to the county-owned Hennepin Energy Recovery Corporation, a WTE plant, at a relatively high tip fee of $90 per ton.
After Carbone, with the new option of shopping around for a competitive disposal rate, Minneapolis sent out an RFP and, in response, Hennepin County agreed to drop its tip fee to $60 per ton, with an added 9-percent surcharge for residential customers. Minneapolis took the deal.
But, in July, the county recognized it likely would not get flow control back and dropped its tip fee again to $45 to compete with other disposal facilities. When Minneapolis asked the county for the lower rate, county officials pointed out the city was already under contract for the $60 fee.
“At a time when the city is facing huge budget cuts and making tough decisions about what kind of services we’re not going to provide anymore, it’s a little frustrating that the county doesn’t seem to recognize this,” says Susan Young, director of solid waste and recycling for Minneapolis.
But County Commissioner Randy Johnson says the offer to keep Minneapolis’s tip fee identical to that of private haulers, even if the fee dropped in the future, was on the table during negotiations. The city, he says, opted instead for Hennepin County to build a new transfer station downtown and help with some education programs.
County officials, Young says, have stated explicitly that, should legislative flow control be restored, the tip fee will go back to $90. Johnson, however, says that is not the case. “I don’t know where she got that,” he says. “We would go back to a price that covers the cost of the transfer stations, the household hazardous waste programs and perhaps a few other things.”
As if the situation is not messy enough, Young says officials have told her that, if she and other city officials would drop their lobbying efforts against flow control, the county would consider dropping the current tip fee to $45.
“That’s not my position,” Johnson says. “I can’t speak for my 60 elected colleagues, but that’s certainly not the county’s position.”
Johnson says Young speaks more from the perspective of a private hauler than a public official, since Minneapolis is the only one of Hennepin County’s 47 municipalities to haul its own waste. “If the city would do what almost every other progressive city in the country has done and privatize collection, this would not be an issue for Minneapolis,” he says. “It certainly would reduce the cost to the city’s taxpayers.”
Johnson also argues the claim by most private haulers that flow control reduces competition. “Haulers begin to compete and become more efficient in hauling,” he says. “Big haulers, who happen to own big landfills, don’t have that built-in advantage.”
The 104th Congress has not produced a bill for debate yet. And, despite the new Congress’ more favorable attitude toward private interests, any bill from Bliley’s commerce committee is likely to contain a grandfather clause that would allow facilities constructed and financed under the protection of flow control to continue operating as they did before.
“The integrity of the solid waste industry is built on the certainty that private investments will be able to live under the same rules in force when they made those investments,” Gatton says. “That’s why we are fighting for a grandfather bill that protects individual bondholders and individual local governments that invested in technology that required the issuance of debt.”
Jonathan Adler, director of environmental studies for the Competitive Enterprise Institute, acknowledges that reality.
“Politically, it is understandable why is going to be some grandfathering, but in terms of economics, there is no justification,” he says. “It’s not fair for taxpayers to pay for the mistakes of public officials.”
But, according to the National League of Cities (NLC), the commerce committee has indicated there “is simply no time this month for action on a flow control bill.”
The NLC, the National Association of Counties and the USCM have accepted a proposal from Bliley for a bill containing the grandfather clause for existing facilities.
Gatton says the two sides are “very, very close” to reaching a compromise. “The differences are very minor,” he says. “The rhetoric on the issue is way out of proportion to the differences that remain.”
Still, another coalition has formed in opposition to flow control. Adler put together a group of more than 30 organizations, from all sides of the political spectrum, to lobby against the issue. The conservative National Taxpayers Union, as well as environmental groups, like New York Public Interest Research Group and Clean Water Action, have all signed on to efforts to oppose any federal flow control legislation.
“Flow control can and has shut down grassroots recycling efforts, and it allows communities to build facilities that wouldn’t normally be able to support themselves in a free market,” Adler says. “Without flow control, cities and counties simply will be prevented from making bad decisions in the first place.”
Whatever happens in Washington, municipalities would do well to expect the ban on flow control to be upheld in planning for life post-Carbone.
That said, a number of alternatives exist to help cities handle waste collection and disposal.
Though the decision put in legal jeopardy any form of legislated flow control, there are some de facto measures governments can take. For instance, the municipality could assume the duty of collection. As the designated hauler, the city would be free to choose whichever facility it wished to dispose of its waste.
Another possibility is bidding out to haulers and then stipulating in the contractual agreement that waste must go to a particular facility. The key difference is in the voluntary agreement between the municipality and the hauler; contractual flow control is mutually agreed upon and, therefore, legal.
Additionally, municipalities could look at restructuring their debts on facilities. For example, instead of relying completely on tipping fees to support the facility, cities could supplement the tip fee with general revenues, much like they do with the police or fire departments.
“There are a lot of ways [municipalities] can subsidize tipping fees so the Carbone decision will not detrimentally affect them,” says Sandy D’Imperio, vice president for structured finance for Ambac Indemnity, New York.
Once subsidized through general funds, the municipality would keep a close watch on the market rate for tip fees, making sure to keep its facility’s rates competitive. With some innovation and efficiency, the municipality could improve its rates to the point that it attracts haulers from surrounding areas, thus providing more tip fee revenue and reducing the need for a tax subsidy.
This is the system most favored by the haulers. “We say let the market do what it will,” Blakey says. “If you do that, it will keep you away from flow control and lead you toward more creative solutions that will allow the flexibility for things to change.”
However, due to the volatile and – especially right now – changing nature of waste collection and disposal, cities could be reluctant to put the financial responsibility on their general revenues. An Ambac report on waste facility financing in the wake of Carbone listed a number of methods of alternative debt structure.
Ambac’s ideas would eliminate the tipping fee at the facility for the government-contracted hauler so as to prevent any financial leaks and illegal dumping. Collection fees would be paid by the municipality or the user. In addition to the particular municipality’s waste, the facility could take waste from neighboring communities, this time at a market tip-fee rate, to enhance revenues.
One such alternative is the adoption of a waste collection fee as a line item on pre-existing utility bills. The cost would be easily definable for the consumer and implementation would be fairly easy to incorporate in the utility’s billing structure.
Another method is to figure a solid waste tax into local property taxes. Failure to make full payment on this tax would result in a property lien, thus securing a steady stream of funds. Or governments could devise a separate bill for solid waste services, but this approach would require a separate mailing and carry with it the burden of enforcement. No matter what course of action they choose, after Carbone, solid waste officials are almost required to do some deep thinking regarding their facilities.
“A decision like that is going to make any public official or anyone running a solid waste facility leery of what direction solid waste is going,” D’Imperio says. “Even if some utilities have favorable rates now, clearly they’re going to have to keep watching those rates.”
And, regardless of what happens on the legislative front, life will go on for the solid waste industry and for municipalities stuck with expensive facilities. Rates may sharply increase (though probably for only a limited period of time), tipping fees may need to drop in order to compete, and waste facility bonds may lose their value, but the garbage will still have to be taken out every Sunday night and will still be gone by Monday morning.
“Garbage is going to find a place to go,” Blakey says, “because regulations require it to be managed in the right way, whether it’s a flow control facility or not.”
Keeping its two-and-a-half miles of gulf beachfront clean and tidy is important to the city of Clearwater, Fla. Consequently, the city is always on the lookout for equipment to help achieve that end.
Several years ago, Clearwater adopted a new, automated method for emptying beach trash containers. The result was reduced manpower costs and faster trash pickup.
Clearwater’s Parks and Recreation Department purchased a one-person, self-propelled trash pickup vehicle called the “Load-and-Pack,” manufactured by Broyhill, Dakota City, Neb. With this unit, one person can travel the beach, grasp, lift and empty each container into the unit’s compactor box, all without getting out of the vehicle.
City Parks Superintendent Ozell George says the machine can empty the 150 trash containers on the beach and end streets in less than two hours a day. “Before, it took four people and a flatbed truck from two to three hours to empty the containers,” he says. “Besides the driver, we had to have one man on the truck to empty the containers and two walking alongside to lift them up.”
Now, George needs only four workers on his beach maintenance crew. Along with its other maintenance chores, the crew picks up the trash containers seven days a week.
The machine is a four-wheel drive, diesel-powered vehicle that is center-articulated. “This allows the operator to pull up to a trash container and empty it, then turn the vehicle and move on to the next container without having to back up,” George says. “That’s an important safety feature when there are a lot of people on the beach.”
Additionally, the vehicle is equipped with high-flotation tires for getting through soft beach sand easily.
The operator uses simple controls in the cab to operate the hydraulically powered front lift arm, which can control containers from 26 gallons to 90 gallons, including wire baskets. The entire cycle takes about five seconds. The operator can even shake the container to empty “stuck” trash.
The unit’s rear-mounted compactor box holds about 3,700 pounds of compacted material or the equivalent of 100 filled 55-gallon drums. A hydraulic compactor compresses the refuse to about a quarter of its original volume. Usually, each unit has two boxes, so the operator can hydraulically slide one off at a convenient site for later dumping and slide an empty box on to continue beach clean-up.
George says his crew members do the normal preventive maintenance work, such as daily lubrication, on their machines. Oil changes and other maintenance are handled by the city’s motor pool.