Big Waste Industry Players Challenge New York's Rate Cap

Brook Raflo

New York City's three largest waste haulers have called for an end to the $12.20 per yard rate cap on commercial collection they say is costing them millions. The cap, they say, encourages "cheating" and is prompting them to pull out of a market only recently purged of its long-standing trash cartel.

Waste Management Inc., Houston, Allied Waste Industries, Scottsdale, Ariz., and IESI Corp., Haltom City, Texas, say together they lost $40 million last year because of the cap.

As a result, "[IESI has] cancelled a number of accounts and actually has pulled out of some boroughs," says the company's CEO Mickey Flood.

The problem, according to Waste Management's New York Region Vice President Dennis C. Vacco, is that, "in New York, we must bill on the basis of volume, but we pay for disposal on the basis of weight. Our hands our tied, and our heaviest customers are costing us money."

Flood illustrates this point with an example of "restaurant X" that generates dense wet waste weighing 400 pounds per yard. Based on the $63 per ton tipping fee at the local transfer station, Flood says it costs him $12.60 to dispose of restaurant X's waste.

"I'm 40 cents in the hole before I buy trucks, pay my staff or pay for insurance," he says. "It's a losing situation."

But New York City's Trade Waste Commission, which set the cap in 1996 as part of a sweeping effort to cleanup the city's garbage market, contends there is no need to remove the cap.

"The latest published average rate that carters are charging for waste removal in New York City is $7.52 per cubic yard, which is far below the maximum uncompacted rate of $12.20 per cubic yard," says Raymond V. Casey, executive director of the commission.

Flood admits that the cap does not affect many of his lighter customers' accounts. It does, however, affect "heavier customers and those requiring special services," he says.

Many haulers already have decided not to collect from these customers, Flood continues. And, "the hauler that takes the 400- pound per yard customer either is a philanthropist or does not know the cost."

The current system opens the door to dishonesty, adds Bruce Parker, president and CEO of the Environmental Industry Associations (EIA), Washington, D.C., which includes the National Solid Wastes Management Association (NSWMA).

"It encourages cheating. [Certain haulers] might fabricate how many yards they're picking up," he says.

In addition to ending the rate cap, the three national haulers and NSWMA are calling for an end to New York City's biannual waste surveys, which they say further encourage cheating.

Under the current system, collectors must warn customers in advance of the survey. Then, during a specified week, collectors must weigh the trash at each location to document that fees match what customers generate.

"According to our members, many establishments hide garbage during the survey period," to lower their collection fees, Parker says.

But the Trade Waste Commission's Casey calls suggestions of foul play under the current system "ludicrous."

"Any predictions that the market will `return to the old days' is absolutely untrue," he says.

Although they do not agree with Casey on the rate cap issue, Parker, Vacco and Flood are quick to applaud the Trade Waste Commission for its successes in overhauling New York's garbage business during the past four years.

"Mayor Giuliani has been successful in achieving his goals," Parker says. "The cartel has been eliminated, and there is robust competition in New York. There now are 230 carters picking up commercial waste in the city."

In light of these accomplishments, the NSWMA, Waste Management, IESI and Allied say it's time to return New York's garbage business to a free market system.

"We're not saying, abandon the Trade Waste Commission. We like the licensing requirements," Vacco says. "We're just saying, go to a free market."

But Richard Lipsky, a lobbyist representing a group of locally owned private haulers in New York, says adequate competition does not exist in the city's garbage markets. He insists 230 is a grossly inflated number that includes construction and demolition (C&D) haulers and those who are licensed but not operating.

"There used to be more than 300 [haulers in the city]," Lipsky says. "Now, there's probably only 100 to 150, of which 60 or 70 have the ability to be significant factors. We need to investigate how competitive the market would be."

Lipsky says the haulers he represents can afford to operate under the current cap because they are local and they pay less for overhead than the large national companies do.

"I could live with that rate and [the big companies] can't," he says.

Waste Management's Vacco admits, "We do have a heavy investment in equipment and vehicles." But that investment is necessary to do the job correctly, he says.

Many of the companies Lipsky represents still are in limbo, Vacco continues, noting that these companies are operating without licenses, so their cost structure is lower.

And, not all small haulers agree with Lipsky. John Isabella, owner of a 1,200-customer hauling operation in Manhattan, recently told the New York Times that he agrees with the big companies. It's time to eliminate the cap, he said.

"It has to be done," Isabella said in the article. "With the current cap, there are many customers who, even if you receive the maximum price, it is unprofitable."

While raising collection fees rarely is a popular initiative, EIA's Parker contends that for many in New York, a free market system would lower prices.

"Many customers' rates will go down because right now the lighter-weight customers are being charged more per yard than they would be if their garbage were actually weighed," he says.

If the city refuses to eliminate the cap, many New York establishments could find themselves without garbage collection services, the three national haulers say.

"By the same token," Flood says, "we want to do business here."

Waste Management's Vacco echoes these sentiments. "We're hopeful that we are going to receive a productive response from the city eventually," he says. "We want to stay here and continue to compete - but get at least a reasonable return on our investment."