In a new commentary today, I discuss Detroit’s new initiative to cut the costs of residential solid waste and recycling collection and disposal through privatization. Here’s an excerpt:
In the wake of Detroit’s bankruptcy filing, it’s become well known that Detroit’s emergency manager Kevin Orr is proposing an aggressive package of reforms to help get the beleaguered city back on its fiscal feet, including such controversial proposals as stopping payments on debt service, asking its creditors to accept pennies on the dollar, transferring its water and wastewater system to an independent authority, reducing pension and healthcare benefits for city workers and retirees, and even selling off art from the Detroit Institute of Art. However, one concept being explored to cut operating costs in the short-term—privatizing residential solid waste and recycling collection—has been implemented by so many other cities that it’s almost surprising it hasn’t already been done in Detroit.
On Monday, Detroit issued a request for proposals seeking potential bidders for a five-year contract (or set of contracts) for the collection and disposal of residential trash, recycling, bulk waste and yard waste. The RFP breaks the city into four collection zones, and bidders are allowed to submit proposals on one or more zones. If a vendor’s performance is satisfactory, the city has the option to extend any contract by one year, up to a total of five additional years beyond the initial five-year term. Bidders are “strongly encouraged”—but not required—to give hiring preference to current city public works staff, and the city is also offering up its current portfolio of collection vehicles for potential purchase, which could create a significant one-time revenue influx. Vendors would take over responsibility for customer service (e.g., tracking and addressing complaints and the like), but the city would retain responsibility for handling customer billing. Any eventual contract would also include penalties for failing to meet specified performance standards, such as a minimum of $1,000 in financial penalties per incident if the vendor fails to collect a household’s waste, for instance.
This RFP has been in the works for some time, and the reason is fairly obvious—the city is seeking to dramatically reduce the costs of its current in-house waste collection as it struggles to maintain its mix of public services. On June 13th, Waste & Recycling News reported that city officials had met with two large, national solid waste management companies—Waste Management Inc. and Republic Services—to discuss the potential privatization of residential solid waste, and the firms reportedly told officials that they believed that they could cut costs by approximately 30 percent ($15 million in savings on the $50 million annual cost of collection currently). Though these are preliminary numbers, and the true cost savings potential will be discovered through the current competitive bidding process, savings of that potential magnitude would be nothing to sneeze at given Detroit’s precarious fiscal position.
Read the full article here. The piece goes on to note Fresno, California’s recent election that saw the narrow defeat of a waste privatization initiative in that city and discusses the lessons that Detroit and others might take away from that situation.
For more of Reason Foundation’s work on local government privatization and solid waste, see here and here.