Philadelphia Needs Competition for Waste Collection

Prior to a conversation with a local reporter yesterday, I was unaware of the extent to which Philadelphia remains stuck in the 20th century when it comes to residential waste collection services.

For example, even though many jurisdictions charge citizens a monthly user fee for waste collection—typically as part of billing for garbage, water and other services loosely defined as “utilities”—Philly funds its waste collection services from general tax revenues, which means trash services have to compete for dollars against hundreds of other spending items in the city budget.

Other jurisdictions have figured out that user fees are a much better approach than general appropriations funding for waste collection. As my colleague Adam Summers discusses in this study, user fees are most appropriate when services are clearly defined and can be directly connected to specific users/consumers. They also prevent the “free-rider” problem of some people using a service for free while others must pay for it whether they use it or not. User fees, furthermore, offer practical benefits including more flexible management and greater financial accountability.

By contrast, the two major downsides of Philly’s general appropriations approach are that: (1) spend-happy politicians won’t set aside enough to properly fund waste collection, and (2) you get almost no financial accountability as costs are obfuscated and smeared across columns in the city budget. We’re seeing these downsides play out in Philly right now, as Philadelphia Daily News reporter Catherine Lucey writes (emphasis mine):

As the city gears up to charge you $300 a year for trash collection, questions linger about whether Philadelphia’s trash operation is as efficient as possible.

“I don’t want someone to tell me what I’ll get for the $300; I want to know what [trash collection] costs,” said Maurice Sampson II, who served as recycling coordinator under former Mayor W. Wilson Goode.

Mayor Nutter last week proposed the trash fee and a 2-cent per-ounce soda tax – moves he described as the best way to balance the city budget without service cuts or changes to the major city taxes. Some low-income families could qualify to pay a reduced $200 trash fee under the plan, which Nutter says is still a work in progress. The trash fee would bring in $107 million annually, covering the cost of the service, officials said. But experts questioned whether the city could be paying less for trash and recycling collection – either through more efficient management in-house, or by privatizing some or all of the system.

“If government is providing this service, it has an obligation to provide it in the most efficient way possible,” said Leonard Gilroy, director of government reform for the Reason Foundation, a nonpartisan, nonprofit conservative policy group. Gilroy said cities that have privatized trash services saw savings of 20 to 40 percent. He also said a system where the public sector employees bid against private firms to collect trash in different parts of the city – such programs exist in Charlotte, N.C., and Phoenix, Ariz. – would provide cost savings.

Linda Morrison, who served as the director of competitive contracting under then-Mayor Ed Rendell, said that competitive bidding would reduce costs. “Just turning something over to a private company may or may not save you any money, but if you open it up to competition, that almost certainly would save you money,” Morrison said.

Mayoral spokesman Doug Oliver yesterday said that the city wasn’t in a position to consider privatization – which would require City Council approval – as it is in the midst of contract negotiations with the city’s blue-collar workers. […] The city unions have long opposed privatization, saying it would kill jobs and not necessarily provide better service.

Later on we find out that the city employs 840 sanitation workers and still uses three-man crews to collect waste (one driver with two workers that hand-toss the trash), even as other cities and private waste companies long abandoned the inefficient, labor-heavy, 1950s-era model in favor of automated, one-man trucks with mechanical arms.

With 840 jobs in sanitation, it’s no wonder “the city unions have long opposed privatization”—why would they want to cut off a good thing (even if its not a good deal for taxpayers)? In its defense, the city claims that automated vehicles aren’t feasible citywide given the constraints of narrow streets and on-street parking. And I won’t discount the possibility that those are indeed challenges, but they don’t seem to me to be insurmountable challenges to a more efficient operation.

At the very least, putting the city’s trash service up for competitive bidding would be a way to quickly evaluate if there is a better and less costly mousetrap. Waste collection is probably the most-often-outsourced function in municipal government. A 2009 Reason Foundation study found that 29.0% of metropolitan core city governments, 57.3% of suburban governments and 39.3% of rural local governments used for-profit contracting as the delivery method for waste collection in 2007. The potential for economies of scale, new technology and vertical integration (from collection to disposal) make this a natural for for-profit service delivery.

Competition would keep the system honest in Philadelphia. And it seems to me that it might be feasible there, given two conditions:

  • Managed competition: Since two mayors have tried to privatize waste collection in recent decades and failed to persuade the labor-friendly City Council, then perhaps the way out for Philadelphia is managed competition—allowing the public employees to pool together, create employee business units and bid against private sector waste services companies. Indianapolis, Phoenix and Charlotte pioneered this approach with great success (see here and here for more). This works because you allow the public employees to streamline themselves and innovate under the pressure of competition (which they don’t have when they’re the monopoly provider, as in Philly). By lifting civil service constraints and allowing public employees to cut their own middle management ranks (which they inevitably do when they actually have to compete), they can and do drive down costs. In Charlotte’s case, over the course of their 15-year managed competition program, waste collection contracts have shifted back and forth over time between the “public option” and private sector providers, with the decision based on bottom-line costs. At the end of the day, taxpayers win when competition drives down costs, regardless of who wins the competition.
  • Competition by zone: Philly city leaders may have a point in noting that some parts of the city will necessarily incur higher per-unit waste collection costs. But that’s the case in practically any city, given variations in density, land use, topography, etc. across the geography of a city. Given that reality, Phoenix and Charlotte have been pioneers on competing waste collection services in specific city zones using the managed competition model. Policymakers can fine-tune the costs of waste collection along geographic lines through competition, which helps to minimize costs systemwide. And as discussed above, Charlotte’s seen their contracts shift back and forth between public and private providers, depending on the specific zone being served and the specific bid costs achieved through regular competition (typically 5 year contract terms).

If you could put those two things together in Philly, then you’d really have something. It certainly makes sense to transition to a user fee model, as city leaders are discussing, but before doing that, taxpayers deserve to know that their leaders have done everything possible to contain the costs of the enterprise. Having a whopping 840 employees and using three-man trucks are signs that this probably hasn’t happened yet.

There is no realistic way to find that minimum price point without competition. The city could go out and hire all the consultants they want, undertake all of the efficiency plans and exercises they want, etc., but at the end of the day a monopoly is a monopoly and won’t feel true pressure until it’s got some competition.