Last month, as the Memphis City Council debated the possibility of contracting out garbage services, officials in other major cash-strapped cities like Newark and Detroit were doing the same thing.
And even though Memphis lawmakers would ultimately back away from the idea, voting instead to offer buyouts to reduce the number of sanitation workers, it was clear that the idea of privatization, after nearly a decade-long hiatus, was back on the agenda across the nation.
The debates, as they proved in Memphis, would be fierce.
"During a time when municipalities are facing declining revenues and severe budget shortfalls, waste collection, recycling and disposal are among the services most ideal for privatization," said Bruce J. Parker, president and chief executive officer of the National Solid Waste Management Association, a trade association representing for-profit waste collection and disposal companies in the United States.
In March, Parker's group issued a report that privatizing waste collection typically reduces city spending on trash collection by 20 to 40 percent.
The Solid Waste Association of North America, the leading professional association in the solid waste field, immediately issued a scathing rebuttal that disputed that claim and accused the association of private waste companies of distorting the facts and attempting to confuse the public.
"We've seen that when the public sector can bid on a defined contract as the private sector does, instead of having to offer open-ended services, the public sector is almost always cheaper," said Jeremy O'Brien, director of applied research for SWANA.
If the arguments sound familiar, it's because a similar wave in favor of privatization swept through municipal sanitation department in the 1990s -- including an unsuccessful attempt by some on the Memphis City Council in 1993.
The privatization push crested in 2002, with 53 percent of cities relying on private companies to collect residential trash, said Mildred E. Warner, professor of city and regional planning at Cornell University in New York. Since then, most cities, nearly 88 percent of the total, have simply kept doing whatever they already were doing. And of those that did make a change, a slightly larger number took residential garbage collection away from private contractors and gave it to public workers than did the reverse.
Dick Sprague, a member of SWANA's board of directors who has 35 years of solid-waste management experience, mostly with private consulting firms, credited the development of the "Bid to Goal" process by HDR Inc., an Omaha, Neb.-based engineering and architecture firm, with leveling the field for public and private sector bidders. Once that happened, public sector employees won the lion's share of bids -- "much more than 80 percent," Sprague said. By 2004, he said, the privatization push was essentially dead. Sprague retired from HDR in 2009.
Economies of scale
But private trash collection remained more competitive in small municipalities than in large cities, where private trash haulers had only one-third of the market to collect household trash, according to the Reason Foundation, a libertarian think tank for the promotion of the private market.
Lockport, N.Y., which is switching to private trash collection this month, occupies what some researchers consider to be the sweet spot for cities that want to privatize sanitation services. It has fewer than 22,000 residents -- economies of scale disappear once the population exceeds 25,000, Warner said -- and it had three established private trash haulers competing for its contract.
Many parts of the country lack private competition, because, "one large firm controls the market -- not just horizontally across cities, but also vertically from landfill or burn facility all the way to consumer recycling," said Warner, while noting that some large city governments, such as Lubbock, Texas, have sought to replicate the favorable conditions that Lockport enjoys by dividing their cities into several smaller service areas that are bid out separately for waste collection contracts.
Warner said the onward march of privatization was halted because the cost savings that many cities expected failed to materialize. She conducted a statistical analysis of every economic study on the privatization of solid waste collection services published since 1965 and did not find any difference in cost between public and private services.
Instead of debating public delivery versus private delivery of trash collection services, people should be paying more attention to the characteristics and costs of the services they want, the costs of contracting and monitoring compared to the costs of managing their own service, and policies that stimulate competition, Warner said.
But, comparing costs is not always easy. Chaz Miller, director of state programs for the NSWMA, said public departments often don't account for the cost of their overhead on their cost sheets. "The most accurate bidding is when all costs are included," he said.
Shahrzad Habibi, Resource Center director at In The Public Interest, a clearinghouse for information on privatization, said cities often also fail to account for what it costs to monitor and oversee contracts with private trash collectors. "That can add as much as 25 percent to the total contract cost," she said, citing an estimate from the Government Finance Officers Association.
Last year, the Public Works Department of Scottsdale, Ariz., looked at alternatives to public trash collection at the request of its city council. Rick Pence, that city's director of solid waste management, said Scottsdale explored four options: providing trash collection services with city staff, contracting with a private trash hauler, managed competition in which city staff compete against private contractors, and individual mandates that leave residents responsible for properly disposing of their own trash.
When monitoring and oversight costs were included, the city concluded that employing city workers to pick up household trash was as cheap or cheaper than any other method for Scottsdale residents. Individual mandates were the most expensive. The city council later had the study audited to confirm its numbers and findings.
"We've tracked our costs since the 1970s," Pence said. "We're in the service business and we know we have to compete with companies in the private sector that do this for a living. They have their advantages, but we don't have to make a profit and pay a CEO $8 million a year," he said.
Providing oversight
Edouard R. Quatrevaux, inspector general of the city of New Orleans, champions the importance of monitoring and oversight.
"If there is anything unspecified in your contract, if there is anything that is left up to the hauler to report, you need oversight," he said.
New Orleans, which has a long history of contracting with private companies to pick up household trash, last put solid waste collection services out for bid in 2005. Three companies won contracts to pick up trash in different parts of the city. The companies would report the addresses where they collected trash and the city would pay a certain amount for each pick-up.
Last year, Quatrevaux released a report that said city oversight of the trash collection contracts was so lacking that it was impossible to determine if the city was paying contractors the proper amount. That was an urgent question, because the cost of private trash collection for the city nearly doubled between 2004 and 2010, rising from $18.74 million to $35 million. The lack of oversight also exposed the city to risk from lawsuits, he said, because the city had not verified that contractors had the proper insurance and indemnified the city for any damages they caused.
In a follow-up evaluation in October 2010, Quatrevaux's office took a statistically valid sample of billed addresses and attempted to verify them. Quatrevaux said that they found enough ineligible addresses, such as businesses or the sites of demolished houses, that they concluded that, "if the city simply checked a sample of billed addresses once a month, it could save $3 million a year."
"Everything in these contracts is fungible, which is very frustrating for an inspector general. Ideally, you want a contract that is so specific that it minimizes the amount of financial monitoring you have to do, but then you have to worry about service quality," he said.
That is what the South Bayside Waste Management Authority serving cities in northern California discovered. A performance review of the Authority's contract with Allied Waste in 2006 found that residents had made 10,000 complaints to the company in the previous year for failing to pick up trash, far more than the contracted performance goal of 180.
"Bidding and oversight are not simple," Quatrevaux said. "You need industry experts to write the request for proposals and manage the process for you, because most cities don't have that expertise," he said.
Warner said that if the local market and the local organization of the industry are right for private trash pick-up, contracting can be done successfully.
"The keys to success are that you have competition and strategies to ensure that it persists, you have effective monitoring to ensure quality, and you have incentives to ensure innovation and that you get the environmental values you want. If you don't have the apparatus in place to do this, then keep the work in house. In the end, local government is responsible for service quality, no matter who provides the service, so you better contract out with skill or not do it at all," she said.
Both AFSCME Local 1733 administrator Shelley Seeberg and Memphis City Councilman Kemp Conrad, opponents in Memphis' privatization debate, agreed with Warner's conclusion.
It's "a flash of the blindingly obvious," said Conrad.
It's "what I have said since the beginning," Seeberg said.
"I wasn't dead set on privatization," Conrad said. "It didn't matter to me whether we privatize, modernize, or have managed competition. ... but we're already 20 percent outsourced (in annexation areas of the city, such as Cordova.) When you can see that our private providers are doing 1,000 pick-ups a day and we're doing 400, you don't have to be a rocket scientist to see that something is wrong."
Seeberg said the real issue was not whether public workers can compete with private companies, but about the level of services citizens want.
"We're ready to go head-to-head with private companies anytime," she said, but on an apples-to-apples basis.
"We pick up and dump the trash cans, we pick up bulk items people leave on the curb, and we pick up yard waste at the curb. The private trash collector is picking up just the one trash can. Public employees have to come behind him to pick up bulk trash and yard waste.
"The citizens of Memphis should have a say in what services they want, and city government should be honest that that is what this is about," Seeberg said.
Conrad said he will not be back next year with another proposal to outsource the entire trash collection system, because the council improved efficiency this year by approving an incentive plan to encourage older workers to retire.
Top five for-profit waste haulers
1. Waste Management (Houston), 2009 revenues of $11.79 billion
2. Republic Services Inc. (Phoenix), $8.2 billion
3. Veolia Environmental Services North America (Chicago), $1.8 billion
4. Waste Connections Inc. (Folsom, Calif.), $1.19 billion
5. IESI (Toronto, Ontario), $1.01 billion
