Bargain Basement Tipping Fees: Create Chaos In California

Ellen R. Bogardus

An increasing number of government agencies are deciding that it is unprofitable to remain in the solid waste business and are selling off parts of - or the whole system - to private interests.

This sense of frustration and helplessness has been triggered by federal landfill laws which have driven up costs; the 1994 Supreme Court flow control decision which has hampered the development of new public sector facilities and introduced uncertainty about the amount of waste a public agency can count on to support its system; and state recycling laws which have reduced the waste reaching landfills, thereby cutting into the revenue needed to pay for improvements and cover future liabilities.

At first, increasing landfill tipping fees seemed to be the answer. However, private haulers began to pull waste from public facilities to cheaper landfills, oftentimes out of state. In response, slashing tipping fees to remain competitive was the only answer. The result: A tipping fee war.

Where Is This Happening? Within the past two years, there has been genuine chaos in solid waste management, especially in Southern California. As the privatization wave grew, tipping fees gyrated wildly. Market forces pulled waste to the cheapest disposal option without regard for traditional system boundaries, leaving solid waste directors frantically trying to maintain a semblance of control for a system whose new constant is change.

Meanwhile, the California Integrated Waste Management Board, Sacra-mento, became concerned about the impact of out-of-state disposal on its future revenues. Seventeen California jurisdictions have been identified as having the potential to export roughly 11.7 million tons annually, resulting in an approximate $15.8 million revenue loss to the Board.

Approximately 34 million tons of waste are generated yearly in Califor-nia with some of it exported to Arizona, Nevada, Utah and Washing-ton. In Northern California, for example, Tuolume County, which no longer has a landfill, found it cheaper to truck its 26,000 tons per year to a landfill in Reno, Nev.

For the past decade, opening a rail-served "mega" landfill in southern California has been discussed; to date, no facility has been fully permitted. In the interim, waste quantities have decreased, and competing facilities in neighboring states have opened.

California landfill developers find themselves in a race against time: While it takes approximately 10 years to permit a landfill in California, out-of-state landfills, such as the La Paz County, Ariz., landfill operated by Browning-Ferris Industries, Houston, Texas, can obtain all permits and start operations within one year of opening.

Mixture In LA Solid waste management economics for metropolitan Los Angeles County are complex since the area is served by both public and private transfer and disposal facilities whose rates are not regulated. Here, facilities compete on the basis of both cost and convenience.

Disposing approximately 30,000 tons per day (tpd), nine major landfills operate in the county - four by private owners, one by the city of Los Angeles and four by the Los Angeles County Sanitation Districts (LACSD). Within the next decade, however, Los Angeles county will have to either rail or truck its waste beyond its borders or build another landfill.

A tenth site, Sunshine Canyon (6,000 tpd), which had been closed since 1991 because of lawsuits over its expansion, reopened in 1996. In addition, approximately 1,800 tpd of solid waste currently is disposed at two waste-to-energy facilities in Commerce and Long Beach.

Disposal rates for the major landfills serving metropolitan Los Angeles county range from $17.57 to $35.53 per ton. The four LACSD landfills have lower tipping fees to cover system operating costs. The Lopez Canyon Landfill charges no tipping fee and is operated by the city of Los Angeles for its municipally collected waste.

Private landfills adjust fees for certain customers or for their affiliated haulers. In addition, competition from the public sector owned landfills with lower tipping fees keep private rates in check. An increase of tipping fees at the LACSD facilities is usually accompanied by increases at private facilities.

The LACSD landfills have various wasteshed restrictions or may have limited daily tonnage permit restrictions leading to limited hours of operation; private landfills, therefore, can often compete with convenient locations, extended hours and fewer or no restrictions on waste origin.

Orange County's "Fire Sale" Orange County declared bankruptcy in 1994 when billions of dollars were lost after high-risk investments soured. As a result, the Integrated Waste Management Department (IWMD) lost $40 million of its $165 million in reserves. In July 1995, the tipping fee was raised from $22 per ton to $35 per ton to help offset some of the loss.

Part of the bankruptcy recovery plan included selling space at the county landfills at about half the in-county rate. These $18 to $20 tipping fees triggered a tipping fee war in the surrounding counties as solid waste managers struggled to keep their waste within their borders.

Several of the Orange County cities felt the special out-of-county rates were discriminatory and decided to send their waste to cheaper disposal sites in either Los Angeles county or Arizona. On April 1, 1996, the county lowered the tipping fees to county users to $27 per ton.

Although imports were intended to net $15 million per year, the lower in-county fees will result in an annual revenue loss of approximately $19 million.

In addition, this Orange County "fire sale" has absorbed 5,000 tpd of disposal space at below market prices and, in effect, derailed the three projects competing to be the rail haul destination in Southern California.

San Bernardino's Outsourcing A total 1.57 million tons is generated in San Bernardino yearly, including 80 percent from 24 cities and 20 percent from the unincorporated area. In July 1995, the county's Board of Supervisors contracted its entire solid wastes operation to Norcal Waste Systems Inc., San Bernardino. The five-year contract includes two 15-year renewal options.

Norcal is responsible for disposal and fee collection at the county's 17 landfills and two transfer stations, as well as performing most engineering, planning, administration, environmental monitoring and construction ac-tivities. None of the county's liabilities were assumed by the contractor.

The county staff was slashed from approximately 200 to less than 14.

Most of the county was affected by the contract, although four cities export their waste to a private landfill in Riverside County, and one has its own landfill with expansion plans.

Because Orange County dropped its tipping fees in early 1996, the $35.50-per-ton tipping fee was re-viewed. The County Board of Super-visors negotiated long-term contracts at lower rates, from $33 to $30 per ton, depending upon the contract's length.

These long-term contracts are vital for the county, because it must cover its landfill closing costs. All but five of the county's 17 landfills are scheduled to close in the next four years.

Dissent In San Diego In June 1996, the County Board of Supervisors retired $132 million in tax-free bonds that financed its San Marcos North County Resource Recovery Facility (NCRRF). As a result, the tipping fee dropped from $47.50 to $40 per ton.

The NCRRF closed in June 1995, 18 months after it opened. Although designed as a waste-to-energy plant, the facility was used as a material recovery facility with the residue being shredded and trucked less than 11/48 mile to the San Marcos landfill. Operating costs and recycling plant debt service exceeded $15 million per year.

Tipping fees have been a volatile issue in San Diego County since 1991. When the county decided to operate the processing facility, it formed a Solid Waste Authority to ensure a steady stream of waste. But only seven cities signed up, pledging to send all their waste to the county "in perpetuity."

In September 1994, the county began charging differential tipping fees - $55 per ton for the seven cities who were members and $74 per ton for the 10 cities who were non-members. The non-members filed suit the following month and several began shipping their waste outside the county to either the La Paz landfill for $47.50 per ton or to Lancaster, Calif. In mid-1995, the tipping fee dropped to $47.50 per ton to recapture waste that was leaving the system. By July, the tipping fee dropped again to $40 per ton.

What's Next? Pressure to privatize, to stretch budgets and boost efficiency in municipal operations will continue. However, communities should avoid hasty attempts at this process. Introducing competition into public services is not a simple procedure, and dependence on private vendors is not the only solution, nor always the best.

When considering privatization, make sure that the playing field is level. For example, tipping fees are often loaded up to pay for other services. Strip that fee to pay only for the items requested by the taxpayers.

Understand the costs that will be avoided by privatization, such as administrative, clerical, legal, procurement and financial services. Consider additional oversight and management costs that local government will incur when contracting with a private operator. To compare bids properly, the true avoided costs need to be understood by both parties.

Although both sectors have their advantages, in the end it will come down to the lowest cost for the level of services demanded by the public.