Detroit Seeking to Privatize Trash Collection

Beleaguered city seeking $15 million in annual savings

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. 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.

In July, 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 divided the city into four collection zones, and bidders were 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.

Last month, the Detroit Free Press reported that the city ultimately received proposals from 10 different bidders, a blend of national and local solid waste firms that includes Waste Management Inc., Republic Services, Midwestern Sanitation, Emterra Group, Kurtz Brothers, Resource Recovery Systems, Advanced Disposal, Unity Midwest Waste & Recycling, and J Fons and Rizzo Services.

The procurement process 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.

In June, the Detroit Free Press’s editorial board offered some perspective on why this type of cost-cutting move hasn’t happened already:

“This is simple stuff. You might call it the low-hanging fruit of improving city services. So why couldn’t the mayor or the Detroit City Council get it done? Well, there’s the city’s anti-privatization ordinance, which requires an arcane set of proofs that work can be performed more efficiently by a private-sector company. Then there’s the procurement process that favors Detroit-based businesses: Companies based in Detroit are awarded so many points during contract evaluation that a low bidder from outside the city often can’t compete with a higher-priced, Detroit-based firm. And let’s not forget the city’s unions, virulently opposed to any form of privatization — whether or not it’s in the best interest of residents.”

On the latter point, union opposition to trash privatization is not just a phenomenon in Detroit. A union-led campaign against trash privatization in Fresno, California successfully (though narrowly) defeated a pro-privatization ballot measure in early June by about 800 votes. In fact, the unions drove the privatization decision to the ballot in the first place, after the city council voted to approve a contract last December with Mid Valley Disposal that would have brought Fresno a $1.5 million upfront payment and a $2.5 million payment from the company each year over the life of the contract. The contract would have also lowered residents’ trash bills by 15 percent, and the company would have hired on nearly all of the city’s current solid waste workers.

Nonetheless, unions were able to sow doubt in enough voters’ minds to squelch the deal, despite the benefits to residents. Worse, Mayor Ashley Swearengin has warned that the rejection of trash privatization would result in a $2.8 million revenue hit in next year’s budget, which may require layoffs of either 25 police officers or elimination of up to 49 other city workers to close the gap. Ironically, unions based their campaign on sympathy for the current solid waste workers, who would have kept their jobs, but at a lower pay rate.

The Fresno result was puzzling, as the privatization of solid waste services is something that in this day and age should not be controversial, given that so many jurisdictions have done it for so long. In fact, a 2007 International City-County Management Association survey of local governments found that residential trash collection was outsourced in over 57 percent of suburban governments, 39 percent of rural towns and 29 percent of large cities. Given the fiscal pressures on many local governments in the wake of the recession, it’s likely that these numbers may be even higher today.

It's unlikely that the Fresno experience will have much bearing on solid waste privatization in Detroit, however. First, Detroit's privatization moves are coming in the context of a much larger fiscal crisis and a historic municipal bankruptcy. Second, Detroit's government unions are likely to be less engaged on the very specific issue of outsourcing solid waste services when their energies and attention are so directly focused on the potential bankruptcy-related threats to employee pensions and post-employment retirement benefits. Last, Fresno's defeat of privatization came at the ballot box and thus was the result of a political campaign, and it's unlikely that opposition to outsourcing solid waste services will rise to that level of political action in Detroit given the many other issues at play there.

Still, Fresno offers an interesting lesson for other cities exploring privatization. Privatization proponents tend to emphasize the fiscal merits of such deals, which are certainly important, but they should also anticipate and be ready to respond to the emotional side, which is inevitable if there are any job transitions at play. Hence, they should be clear in explaining what will happen to affected current public employees, what accomodations have been made in contracts for preferential hiring for current public workers and the like, what the tradeoffs are with regard to pay and benefits, and what retraining or job reassignment opportunities are being made for those current public workers that may not ultimately transfer over to the private side. These are actually routine and common practices most jurisdictions undertake during outsourcing initiatives across the U.S., but they also tend to get less emphasis in the public discourse, which can allow fears of rampant layoffs and economic hardship to fester.  

With the bleak fiscal outlook at the local government level for at least the next generation, we should expect to see more and more attempts to contract out “low-hanging fruit” operations like solid waste collection, as these are hardly inherently governmental functions. And, at least outside of Fresno, most citizens are less concerned with who picks up their trash, so long as it gets picked up at an affordable cost.

As Detroit struggles to provide city services amid its bankruptcy and ongoing fiscal woes, let’s hope we see more common-sense approaches to cost-cutting and government downsizing like the current push to outsource trash collection.

Leonard Gilroy is director of government reform at Reason Foundation. An earlier version of this article was published on Reason.org on July 31, 2013.

Leonard Gilroy is Director of Government Reform





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