MAY 11, 2014
IN A CITY known for its diversity and random urban aesthetics, trash dumpsters, used by thousands of Los Angeles businesses and institutions every day, are not exactly noteworthy sights. The notion that we should start paying more attention to these coordinates of MSW — that’s “municipal solid waste,” or everyday, ordinary trash — might seem a tad bit odd. But look a little closer at the various dumpsters dotting this city and you’ll find a bewildering number of company names, colors, and logos. In fact, these containers represent a dizzying array of waste disposal companies taking part in a kind of free market, privatized trash exchange, with LA’s waste the hot commodity.
This is the way it’s been for decades — a wonderful if not puzzling demonstration of the free market concept gone wild. In Los Angeles, any firm is able to service a business’s waste disposal needs in any part of the city for any rate they choose to set — a combination of tolerable chaos, basic functionality, and unfettered competition.
But things are set to change. Enter the Bureau of Sanitation (LA Sanitation), part of the City’s Department of Public Works. It is rolling out a framework for franchising Los Angeles’ privately operated waste disposal and recycling firms. This is a grand experiment on a monumental scale designed to bring order, uniformity, organization, efficiency and equity to an essential service for the commercial sector: solid waste management.
What is behind LA Sanitation’s decision to enter an arena where it has previously been largely uninvolved, to make such a bold move that will transform its role from marginal player to central coordinator?
In a word, or actually a phrase, AB 939.
In the Beginning
In 1989, the state legislature adopted Assembly Bill (AB) 939 — titled more formally the Integrated Waste Management Act. It’s no exaggeration to say that in the subsequent 25 years there has been an ongoing revolution in waste management practices throughout California. AB 939 fundamentally altered the regulatory, political, and economic framework within which those practices occur to deemphasize landfill disposal and push waste reduction/prevention, reuse, recycling, composting, mulching, and other methods generally referred to as “diversion,” meaning alternatives to burying trash.
Among other provisions, AB 939 created the California Integrated Waste Management Board (CIWMB); established initial diversion rate requirements for all jurisdictions (counties and cities) of 25 percent by 1995 and 50 percent by 2000; required jurisdictions to prepare plans for achieving such diversion; designated public agencies and entities as primarily responsible for reaching the 25 and 50 percent diversion standards; and empowered counties and cities with broad powers to raise funds and engage with the private sector to meet those standards.
AB 939 has been modified and extended over the years. The CIWMB was reinstituted as The Department of Resources Recycling and Recovery of the State of California. You can shorten this to “CalRecycle.”
A significant revision and expansion of AB 939 came in the form of AB 341, which the legislature passed in 2011. AB 341 directed CalRecycle to develop and adopt regulations for mandatory commercial recycling, with compliance beginning July 1, 2012. More specifically, businesses with four cubic yards of trash or more per week (that’s the size of a medium dumpster) and multifamily buildings with five units or more must secure recycling service. This would be done with the assistance of local jurisdictions and the private waste hauling/recycling industry.
AB 341 also said the agency has to submit a report to the Legislature with a plan for reaching 75 percent diversion statewide by 2020. You read that right — 75 percent diversion. The formula for determining the diversion rate is as follows:
► Generation (tons) = Disposal (tons) + Diversion (tons)
► Diversion Rate = Diversion
LA Takes Giant Step
If the state as a whole is to make 75 percent diversion then the big cities need to be on board. That’s why LA Sanitation has rolled out a dramatic initiative to implement exclusive franchises for commercial sector disposal and recycling services throughout the City.
The person leading the effort is Karen Coca, Recycling Division Manager and a 22-year veteran with the City’s solid waste disposal and recycling program.
Up to this point the City’s role in waste management has been limited to the residential sector. Garbage crews wearing City of LA uniforms provide collection of refuse, recyclables, and green waste to single-family homes and multifamily buildings with four units or less for a total of about 750,000 customers (530,000 single — family homes and 220,000 buildings up to four units). This in a city of nearly four million people with 224 identified languages, spread out over more than 468 square miles covering every conceivable form of urban geography — a veritable United Nations of ethnic, cultural, demographic, and socioeconomic groups. What has been limited is the City’s involvement with disposal and recycling services in the commercial sector. Currently private haulers must obtain permits from the City to operate, but aside from that, the free market prevails.
LA Sanitation wants to change all this. The agency has concluded the laissez-faire approach is not consistent with the City achieving some very ambitious diversion priorities, namely the “Zero Waste Goal” from the RENEW LA Plan (Recovering Energy, Natural Resources, and Economic Benefits from Waste for Los Angeles), unanimously adopted by the City Council in 2006. That goal is to reach a 90 percent diversion level by 2025, thus reducing landfill disposal to the absolute minimum.
The “F” Word
LA Sanitation’s definition of zero waste is a broad one that includes waste reduction/prevention, reuse, recycling, composting and mulching. But it also covers all manner of alternative conversion or transformation technologies that turn remaining waste or “residual materials” into energy, fuel, and other beneficial uses. There are two general categories of these technologies: thermal (examples: waste-to-energy incineration, plasma gasification, pyrolysis) and biological/chemical (examples: anaerobic digestion, syngas to ethanol/methanol, thermal depolymerization). Basically whatever avoids landfill disposal fits under the zero waste banner.
To boost diversion, LA Sanitation determined that a much more systematic, structured strategy was needed for the commercial sector to replace the loose arrangements between generators and haulers under the free market status quo. And that meant a significant policy departure from the past, one that would allow LA Sanitation to create exclusive territories, set service standards, and enter into contracts. In a word, franchising.
LA Sanitation spelled out its franchising initiative in a detailed 62-page report titled “Final Implementation Plan for Exclusive Commercial and Multifamily Franchise Hauling System” issued in April 2013 (“Plan”). The main features and purposes of the Plan include the following:
- The franchise system is aimed at municipal solid waste, not medical, hazardous, radioactive, and pharmaceutical waste or construction/demolition (C&D) debris.
- Eleven exclusive franchise zones have been defined, and they will likely range between a low of 1,000 accounts to as high as 13,000 accounts.
Note: LA Sanitation distinguishes between a commercial “generator” and an “account.” As explained by Karen Coca, “In some cases, perhaps many, a generator and an account are the same, like a single retail store. But say for shopping malls or multifamily buildings, the complex as a whole is considered an account even though there are many generators within it.” There are an estimated 75,582 accounts in the 11 franchise zones, according to LA Sanitation. However, based on an analysis prepared for the agency,“the City has more than 150,000 waste generating commercial and industrial businesses, governmental and educational entities” across all the zones (“Zero Waste Progress Report,” March, 2013, prepared by faculty and students at UCLA Engineering Extension’s Recycling and Municipal Solid Waste Management Program).
- The term of the franchise agreements will be 10 years with two five-year renewal options. The benefit of long-term contracts is that they make it easier for the private sector to secure financing for anticipated capital expenditures (like trucks, containers, handling equipment), offer an extended period of time for spreading out costs and therefore controlling rates, and give assurance to lending institutions that debt will be serviced on schedule.
- Franchising is intended to facilitate the recovery of recyclables and organics (food and green waste) for processing and reuse.
- Late model, low emission, clean fuel trucks will be required, thus contributing to improved air quality.
- Franchising will promote consolidation and efficiency in route structures and this will have a positive impact on vehicle/traffic congestion.
- Health and safety conditions for employees of private solid waste/recycling firms will be improved, and LA Sanitation will certify and inspect relevant facilities of the prime franchisees and their subcontractors.
- Franchisees will be required to conduct promotion/education/outreach activities in coordination with LA Sanitation staff.
- LA Sanitation will monitor customer complaints, feedback, and track franchisees’ responsiveness to such concerns.
- The City will be involved with rate-setting and with defining cost-of-living increases that impact rates.
- The provisions of the City’s employment diversity program will be applied to the franchise contracts. Additionally, the City’s Living Wage Ordinance will be in effect.
- The franchises are for solid waste collection and management. Franchisees will be required to provide a baseline “suite” of recycling services but generators/accounts can use those services or set up alternate arrangements with another private recycling service provider if the recycler is not paid for their services. By previous legal precedents, recyclables from commercial sources that are given away or sold cannot be subject to an exclusive franchise.
- For each franchise zone maximum disposal amounts will be defined that the service provider cannot exceed and correspondingly diversion rates will be set that must be achieved.
- To assist LA Sanitation build an accurate database for monitoring and evaluating implementation progress, franchises will have reporting requirements. Potential data to be covered include quantities of material disposed and recycled; number and types of accounts and service levels (container number and size, collection frequency); technical assistance contacts to customers on waste reduction/recycling program development; resolution of customer complaints and service problems; and facilities/subcontractors used for disposal, recycling, and organics.
Other Critical Elements
Karen Coca, three other LA Sanitation staff members, and a consultant team headed by CH2M HILL are preparing a master Request for Proposals (RFP) with sections for each franchise zone to secure qualified service providers. Coca says the project is on schedule, with a necessary Environmental Impact Report and Ordinance submitted to City Council in March and the RFP to be released in June. Responses to the RFP will likely display intense competition due to the size and duration of the franchise agreements. The proposals are expected to showcase state-of-the-art approaches to diversion programs, customer services, and oversight that are tailored to Los Angeles’ unique circumstances.
The overall implementation sequence of 26 steps, portrayed in an accompanying chart, began in 2010 and goes through 2018. The RFP writing/approval/distribution occurs around the midpoint of that timeframe.
As part of the proposed exclusive franchise system, the City intends to charge a franchise fee. “The franchise fees are to be negotiated with the haulers through the contract process, with a floor of 10 percent of gross receipts,” Coca stated, adding “we currently estimate that at this level approximately $21 million per year would flow to the City.”
In examining how to reach their zero waste priorities, LA Sanitation evidently concluded a much more proactive role for the City was needed in the commercial sector. In essence the franchising Plan substantially extends the ability and authority of the City to implement public policy through privately-operated programs the City effectively manages and administers. In this sense the franchises become mechanisms for implementing multifaceted environmental policies with beneficial impacts on air quality, traffic congestion, resource conservation, waste diversion, and alternative fuel use.
The results of the franchise system are intended to be exactly the opposite of existing circumstances in the commercial sector—what LA Sanitation desires is standardization, uniformity, consistency, efficiency, and equity. However, the franchising Plan contains this note of caution: “A franchise system for the City, due to its size, geography, and demographics, will be the largest and most challenging to develop in the nation.”
“The companies and assets of the small haulers now have no value,” said one industry veteran who has lived and worked in the Los Angeles region for decades. His point was, why would anybody buy access to accounts that are going to become part of a franchise?
Good question, and for the haulers involved probably one with not a very encouraging answer.
LA Sanitation spends a lot of ink in the franchising Plan talking about how to keep small haulers competitive in the franchising process. The phrase “small hauler” is, at this juncture, imprecise at best, as Karen Coca acknowledges:
There is really no clear definition of a small hauler right now. In general, we use the term to distinguish those that are primarily local, family-owned businesses from those that are larger regional, national, or even multinational companies.
The economics of garbage and recycling are based on volume and aggregation. Thus it is reasonably clear that big, established firms with extensive resources in the form of personnel, expertise, finances, experience, equipment, and multiple services are in a favorable position to meet the wide-ranging performance standards discussed in the LA Sanitation franchising Plan. Industry consolidation seems inevitable. The dilemma is how to balance those driving realities against the equitable distribution of business opportunities — the franchises — to smaller waste service firms.
LA Sanitation’s franchising Plan acknowledges these issues and proposes a solution:
[…] many small to medium sized haulers currently service less than 1,000 accounts and may not have the resources to provide service to large service areas. When surveyed, these haulers indicated that small zones should be sized in the 2,000 account range. Sanitation designated three smaller zones that will provide opportunities for small to medium sized haulers. These franchise zones are South-East with 2,100 service locations, Downtown with 2,300 locations and East Downtown with 1,100 service locations […] To protect the intention of the smaller zones […] these zones are to be awarded to three separate waste haulers and cannot be combined with other zones.
Still, at the Los Angeles County Disposal Association the mood is subdued but pragmatic. “Clearly the commercial franchising initiative is a major priority of the City,” says Ron Saldana, head of the Association, which counts among its members precisely those haulers targeted by LA Sanitation’s three-zone set-aside scheme. “We don’t have a problem working closely with municipalities,” he explained, “we do that all the time. We’re just not real in favor of them being involved with rate-setting through franchises.”
Saldana further commented that some Association members are wondering whether the standardization and uniformity of rates and services that LA Sanitation is seeking through exclusive franchises is possible, even desirable, given the multidimensional diversity found in LA. “Despite our concerns we will work with the City to assure a smooth transition to the franchising system,” Saldana noted. Indeed, the membership is looking into the idea of merging individual companies together into one or more single entities for purposes of responding to the RFP for several zones.
However, the Association is not deluding itself. “It’s obvious some won’t make it,” Saldana says with regret, “but our attitude is how do we have some control over the situation and cut our losses. The train has left the station and our basic strategy at this point is not to get run over.”
The Los Angeles Review of Books solicited responses from LA Sanitation’s Karen Coca on two pivotal questions:
- What was the rationale for rejecting the non-exclusive franchise approach (Los Angeles County’s Public Works Department followed this approach) and going with exclusive ones? (NOTE: With non-exclusive franchises, distinct operating territories or zones are set up but within them there is open competition, in other words there can be multiple service providers vying for customers.)
- Given that the franchising Plan states the City has already achieved 72 percent diversion, which is quite high, with the existing mixture of public/private services, why is such a significant departure to a system of exclusive commercial franchises needed?
Coca provided a written answer to these questions, as follows:
In our current permit system, the top 10 haulers collect 98 percent of all the materials from multifamily buildings and commercial businesses, and a number of small haulers have minimal recurring commercial collection, but all may work in any area of the City of Los Angeles. And as you can tell by the pie chart we provided, there are nearly two million tons of disposed refuse annually from these sources being handled by private haulers. Inefficient routes overlap each other, and businesses can change haulers, and service at will. Prices for service are negotiated and vary widely from business to business. Recycling is a separate charge, so many businesses do not want to pay for recycling services. This results in a large amount of recyclable material reaching landfill disposal each year. The exclusive franchise system requires that all customers have recycling services, tailored to the needs of each business.
Efficient routing can reduce not only the number of trucks in each commercial corridor and overall, but also smart routing can reduce emissions and accidents as well. Clean fuel trucks will be required, as they are currently in many other communities.
Customer service for problems also varies widely, even for customers that utilize the same solid waste hauler. The exclusive franchise system is being tailored to bring the entire industry up to standards that include communication on all platforms, immediate customer feedback, and timed customer response. Liquidated damages for non-compliance and poor customer service will bring accountability to the solid waste system, which currently is not present. These are a few of the reasons the City is moving to an exclusive franchise system.
Actually the latest information shows that the City of Los Angeles is at 76 percent diversion overall, using the calculation methods employed in the State of California. Although many customers in the City have reduced their waste dramatically since the 1990’s, the City still disposes of 3 million tons of solid waste per year from all sectors. An unregulated market, in which customers and haulers have no incentive to recycle more materials, will not result in the additional diversion needed to reach our goal of 90 percent by 2025. To get to our Zero Waste goals, expanded and new programs must be implemented. The exclusive franchise system will provide secure contracts that solid waste haulers can use to invest in the infrastructure needed to reach Zero Waste.
Also, because the City of Los Angeles is incredibly large and diverse, standardizing the customer experience will reduce confusion about recycling and create a much more understandable, and simpler, system. For example, extending the same commingled or single stream recycling method that exists for all single-family customers, most multifamily buildings, City facilities, and the LA Unified School District to all businesses will create a better customer experience and reduce confusion about recycling by allowing the City to create one set of outreach and education materials. Level, equitable rates will also assist customers in planning for long-term expenses, rather than requiring them to bid and negotiate frequently for services.
Finally, accountability in the system will be improved by performance standards in eight to 11 exclusive franchise agreements that include liquidated damages for non-performance. The exclusive franchise agreements will require additional diversion on a set schedule for the term of the contracts. These requirements cannot be made in a non-exclusive system where a permitted hauler’s customer base is a moving target.
Digging Into the Data
- In 2011, refuse from the City of Los Angeles found its way to no less than 26 landfill sites in California with locations ranging from the Mexican border to the San Francisco Bay Area.
- The overall diversion rate for the City has risen steadily from 21 percent in 1990 to the most recent figure of 76 percent.
- The City’s population has climbed over the last decade to just shy of 4 million.
- There has been a dramatic reduction in disposed tons starting in 2007 and going forward. Between 2007 and 2011 disposal from City sources fell from 3.6 million tons per year to 2.9 million.
- Correspondingly for the same period there has been a decrease in the per capita disposal rate from 5.3 pounds per person per day to 4.2.
- LA Sanitation’s core diversion program provides curbside recovery of commingled or mixed recyclables and yard waste from the residences it services with waste collection. From 2000 to 2011, the total quantity of recyclables and yard waste varied from a low of 452,000 tons per year to a high of 521,000 tons. In other words, a difference of around 70,000 tons. This is not a huge level of variation — it could even be partially explained by seasonal changes in the generation of yard waste. The tonnage amounts indicate that the customer base participating in the program is relatively stable.
These are some of the intriguing statistics and information offered in the previously cited Zero Waste Progress Report which, incidentally, has 500 pages of appendices to plow through if you are so inclined. But let’s step back and look at the context for these numbers to see what they may reveal.
We have three primary, parallel patterns: a decline in disposal, a rising diversion rate, and largely consistent material quantities recovered from the residential sector by LA Sanitation crews. A huge contextual factor is the Great Recession, whose timeframe correlates with the falling amounts of disposed garbage. Indeed, one consultant, who has been closely involved with efforts to measure the impacts of AB 939 since its inception, remarked to me that some of the LA region landfills he deals with have reported annual disposal volume reductions of 20 to 25 percent over the course of the recession. This is a nation-wide pattern on which trade publications in the solid waste field have reported.
And it makes sense — that is, common sense. With persistently high unemployment, marginal wage increases, rising living costs, tight cash flow, and record levels of corporate profits sitting on the sidelines not being invested, people are simply going to spend less and consequently generate less waste.
Now about that increasing diversion rate. Here is where some mathematical trickery could come into play and be partly influential. Remember the definition and formula for calculating the diversion rate presented earlier:
► Generation (tons) = Disposal (tons) + Diversion (tons)
► Diversion Rate = Diversion
So, if disposal is down then the diversion rate will go up even if there is no actual increase in diverted tons. Adding to the mystery, the diversion rate has gone up markedly even with an essentially stable contribution from the residential sector serviced by LA Sanitation. What then, is behind the rising diversion rate?
Three factors really. First, a vast network of private companies throughout Southern California that collect, receive, buy, sort, upgrade, prepare, and process recyclable materials from commercial/institutional sources for shipment to manufacturing and re-manufacturing markets. Some of these companies are trash haulers motivated to recycle by the AB 939 diversion requirements that cities and counties have written into their service contracts. They operate MRFs — material recovery facilities — to perform the intermediate processing functions of recycling after collection and prior to marketing.
The second factor is the Port of Los Angeles/Long Beach and the access it provides to export markets. And the magnet that pulls those container vessels full of American recyclables across the Pacific Ocean? That would be China. This is the third factor. “China is everything” Adam Minter has emphasized (VICE Podcast Interview, December 2, 2013, with Wilbert Cooper). He ought to know. Minter has been reporting from Shanghai for several years on the curious, mutually dependent economic relationship between the US and China as reflected in the flow of scrap metals, paper, and plastics.
We send those materials to China and they are used to modernize, urbanize, industrialize the country. They are the fuel for China’s growth. They also come back to us in the form of consumer products we buy. Minter’s recent book — Junkyard Planet: Travels in the Billion Dollar Trash Trade — is an entertaining, fascinating description of how what is widely perceived in the US as a conservation practice — recycling — has been critical to the expansion of China’s economy. And this is an economy largely energized by coal-fired power plants that are prime sources of greenhouse gases and global warming. So you think politics makes for strange bedfellows?
LA’s Garbage Empire
The commercial sector franchises being pursued by LA Sanitation will result in a major expansion of the City’s power and authority over solid waste management in Los Angeles. The City is already the sole service provider for the residential sector. The franchises will essentially create a solid waste management system for the commercial sector. This will put LA Sanitation in the position of administering the collection, handling, and processing services provided by private companies for the disposal and recycling of materials from commercial generators.
The franchising initiative fundamentally redefines the boundary lines between the public and private sectors regarding solid waste management for the second largest city in America.