Wed04162014

Opinion

Talking trash: Big business, powerful friends

As the sanitation industry’s star was rising on Wall Street, the smaller trash contractors and operators on Main Street were being bought out by industry heavyweights. by Linda S. Wallace
Special to the Tri-State Defender

America’s trash collection industry is a big business with a star-studded cast of friends.

In recent years, its rock-star investors have included the likes of Microsoft’s Bill Gates and Berkshire Hathaway’s Warren Buffett.

As the industry’s star was rising on Wall Street, the smaller trash contractors and operators on Main Street were being bought out by industry heavyweights. Consolidation, in turn, pushed prices upward, calling into question the accuracy of the potential savings Memphis City Councilman Kemp Conrad pitched during the public debate over outsourcing garbage collection. (Conrad estimated the city might save as much as $25 million annually, if capital expenditures were included.)

In an exclusive interview Wednesday with the Tri-State Defender, Andy Ashford, deputy director of public works for Memphis, said that department relied upon bid prices that dated back to 2009 to determine that the city might save as much as $17 million from outsourcing garbage and recycling pickup.

“We provided him (Conrad) some numbers,” said Ashford, after the department was approached about “what if we did this and what if we did that.”

“We tried to provide the best we could. We didn’t have bids or anything like that or the opportunity to bid services to get exact figures,” said Ashford. “Really, all we had to go on was numbers that we had received in the most recent bid for services, which started in July 2009 when we began our last contract with the current private hauler that we had.”

Using those old bid prices, the department calculated that the cost for private pick up would be $15 per home. That estimate, however, is out of line with current market prices.  Two months ago, Germantown contracted with Advanced Disposal Services to collect garbage, leaves and recycling materials. Its residents currently pay $20 month for curbside pickup. In addition, Advanced Disposal is allowed to charge fees for collection of excessive construction or demolition debris.

The terrain in the waste management industry changes rapidly and continuously.  At the end of 2008, Republic Services and Allied Waste Services – two powerhouses – formed a union that combined the nation’s second and third-largest trash haulers. Since then, even more local companies have been swallowed up. In late 2009, Advanced Disposal Services acquired All Star Waste in Memphis, which has a contract with the city to empty garbage containers in Cordova and parts of East Memphis.

According to Hoovers, an online business research service, the U.S. waste management industry includes about 18,000 companies with combined annual revenue of about $75 billion. Waste Management, Republic Services, and Waste Connections are the major players – both locally and nationwide.  Hoovers says the industry already is highly concentrated: the 50 largest companies account for about 55 percent of revenues.

The rapid pace of consolidation – both locally and nationally – speaks to the need for independent research and analysis into privatization, a point the American Federation of State, County and Municipal Employees Local 1733 attempted to make – with limited success – throughout the debate process.

Independent academic research lends credence to the union’s belief that local residents could end up paying more to private companies for trash pickup. The Center for Local, State and Urban Policy of the University of Michigan concluded in its 2004 report “Privatization: Issues in Local and State Service Provision” that municipal service costs do not always decline after privatization. Expenses are more likely to decline in markets with intense competition among service providers.

“Researchers disagree about whether there are efficiency gains/cost savings under privatization, and about how sizable the gains are,” the authors Elisabeth R. Gerber, Christianne K. Hall and James R. Hines Jr. wrote. “The conclusion that can be drawn from the existing empirical research is that private providers are potentially more efficient than public ones. Whether privatization leads to greater cost savings depends largely on whether competition exists in service provision (Donahue, 1989 p. 78)”.

The report raises other points that deserve additional research and discussion. It also concluded:

• The quality of privatized services may or may not be higher than publicly provided services.

• In developing and transitional economies, privatization may reduce access to goods and services, particularly for low-income groups. Comparable studies need to be conducted to assess the distributional consequences of privatization programs in the United States.

• Governments can play an important quality assurance role by monitoring and evaluating the delivery of privatized services.

• Privatization tends to lead to substitution of high-skill for low-skill workers and reduction in total employment levels, but no change in net wages.

• Political considerations strongly influence both if and how policymakers contract-out services to private providers. Unions and private contractors both lobby.

(Linda S. Wallace is a Memphis-based speaker and blogger, who previously worked as a national correspondent for the Philadelphia Inquirer. Her blog, Cultural IQ, explores how cultural shades affect decisions in politics, business and life.)

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