Cost Of Doing Business

Politico recently reported on a proposed law in Maine that would tax food wrappers. Before you react (either by yawning or rolling your eyes), consider the likely motive for imposing such a tax, and the potential implications.

Maine’s bill is an effort to recoup at least some of the costs governments incur when recycling tons of packaging waste. Managing America’s trash is expensive, its costs continue to escalate, and a significant percentage of those costs are paid with tax dollars. 

According to the report,  business groups actually asked lawmakers to tax food wrappers and containers. Industry groups did emerge to oppose certain parts of the proposal–mainly, who would control the tax revenue and how it’s spent. Packagers and consumer brands wanted authority to manage the money and use it exclusively for recycling. Maine regulators and their allies in the Legislature wanted the revenues to reimburse municipalities for hauling waste to landfills, too.

The industry won that battle, and the bill–that has now passed– designated revenues for recycling. This legislation appears be the first of its kind in the country; it could give momentum to a broader push to curb plastic waste and rationalize a recycling system that is outdated and varies from town to town. 

What I find really hopeful, however, is that I see  this as an (admittedly small) step toward dealing with the serious challenges posed by  externalities.

As I have often noted, I am a proponent of markets and capitalism–properly understood and properly regulated. The usual description of a working–and workable–market is that it is characterized by transactions between willing buyers and willing sellers  who are each in possession of all  information relevant to the transaction. That description is an accurate depiction of the ultimate purchase and sale, but it elides other, equally important assumptions–including the assumption that the pricing of a good accurately reflects the costs of its manufacture plus a reasonable profit.

That assumption isn’t necessarily accurate.

If I am manufacturing widgets, and the process involves the use or creation of a pollutant, the cost of production–and the price charged to the consumer– should include the expense of properly disposing of that pollutant. If –instead of following the rules for such disposal– I dump my contaminated waste in the local river (where it will have to be cleaned up by adjacent municipalities) I can price my widgets more advantageously than widget manufacturers who follow the rules and pay to dispose of their waste properly.

In a properly operating marketplace, the price of goods will reflect the complete cost of their manufacture–the expense of raw materials, all costs of turning those raw materials into a salable item, and the associated expenses of marketing and packaging. Appropriate regulations are those aimed at preventing some companies from gaining unfair advantage by “offloading” a portion of what should be their costs onto unsuspecting taxpayers.

Properly operating markets benefit us all. What doesn’t benefit us are (1) markets in clearly inappropriate economic sectors, like health care, where there is a huge (and unbridgeable) disparity in information and urgency between the parties to a transaction, and (2) inadequately or improperly regulated markets that allow–or even encourage–companies to profit by cheating.  

The packaging issue being addressed in Maine isn’t an instance of cheating; technically, I doubt that the need to recycle packaging is even a true externality–at least, as economists would categorize it–but the need to recycle packaging waste clearly does impose a cost that is currently being covered by taxpayers rather than manufacturers.

Maine appears to be the first state to address the allocation of that expense, and it will be interesting to see how many other states (if any) follow suit. At the very least, efforts of this sort raise awareness of an issue that is all too easy to ignore.


An Impressive Start

Indianapolis’ new Mayor, Joe Hogsett, has hit the ground running, as the old saying goes. He has recruited an impressive team of people who understand how a city works, many of whom bring deep backgrounds to their duties (Kathy Davis and Troy Riggs come immediately to mind, and they aren’t the only ones).

He has also reached out in a bipartisan fashion, both to Republican Councilors and to the departing Ballard Administration (of which Riggs was a part). But I was very pleased to see that courtesy to his predecessor has not trumped willingness to revisit some of that predecessor’s more unfortunate decisions. One of those–a contract with Covanta that locks the city in until 2028–is evidently getting a second look.

According to the IBJ,

Hogsett said the city will take the next 90 days to “reassess” plans for the facility, called an Advanced Recycling Center, which was planned for Covanta’s existing Indianapolis campus near its Harding Street trash incinerator. Hogsett said Covanta has offered assistance to the city in that process.

I’ve written before about the very real problems with the Ballard Administration’s “recycling” agreement with Covanta. I put recycling in quotes, because there is good reason to doubt that Covanta’s untested process would actually produce the promised results. The contract calls for use of a process known as “Dirty Recycling” that would allow residents to throw all their trash into one receptacle; actual separation is to occur at the Covanta facility.

This is a process that is simply not suitable for use in many industries that purchase recycled materials.

There are several other aspects of the contract that raise eyebrows, from the manner in which it was negotiated (without the legally-mandated bidding process), to its duration, to provisions that actually punish the city if recycling rates improve. (Covanta has used our trash to generate steam under an arrangement negotiated during the Hudnut Administration; recycling is most definitely not their real goal.)

The re-examination is welcome–and another indication of the competence of the new administration.


Trash Talking

Back when Indianapolis built its waste incinerator to generate energy, the move was applauded as state of the art, and it was. The “deal” made at that time required the City to provide enough trash to allow the vendor, Covanta, to produce steam used to heat downtown buildings.

But time marches on. As cities across the country have encouraged recycling, Indianapolis has persistently lagged the nation in the percentage of people doing so. (We are one of the few places that charges folks for the “privilege” of recycling, which might have something to do with our lackluster performance.)

Ostensibly to address that low level of participation, the Ballard Administration entered into an agreement with Covanta to build a new recycling facility. But as Carrie Hamilton of the Indiana Recycling Coalition has written:

This facility would move the city’s residential collection to a one-bin system that would mix waste and recyclables in the same bin. Covanta, which already has a contract to burn the city’s waste for energy production, has been contracted to separate recyclables from waste at the proposed MWP facility. In exchange, it gets a minimum $100 million contract putting it in charge of both waste and recycling for all of Indianapolis until 2028…..

There are a number of concerns about this plan, but at the top of the list is this: Covanta secured this contract – and the rights to the city’s recycling future – without having to go through a competitive bidding process.

The contract calls for use of a process known as “Dirty Recycling” –it allows residents to throw all their trash into one receptacle; actual separation is to occur at the Covanta facility. This is a process that is simply not suitable for use in many industries that purchase recyclable materials.

Among the many concerns raised by this contract are its length–it locks Covanta in until 2028– several “put or pay” provisions that actually penalize the city if residents recycle more than the contract anticipates, and the contamination of otherwise recyclable materials in a highly questionable methodology. But the major issue is, once again, the utter disregard of the process by which such agreements should be executed.

There are all sorts of arguments–legitimate and less so– to be made about the impact of recycling (see John Tierney’s Op Ed in last Sunday’s New York Times), but there is no legitimate argument for ignoring the legal processes intended to protect taxpayers against crony capitalism and/or intemperate decision-making.

If the contract with Covanta is good for the City, it would have survived the vetting that the law requires.

If the Ballard Administration were truly interested in protecting the interests of citizens and taxpayers, and genuinely interested in an environmentally-appropriate recycling program, there would be no need to bypass the public bid processes mandated by law.

Garbage isn’t the only thing that smells here.


Let’s Talk Trash

No, not that kind.

Back in Hudnut Administration days, Indianapolis entered into an agreement that was ahead of its time: rather than sending trash and garbage to rapidly-filling and hard to site landfills, we’d use it to generate energy. The City has continued that arrangement ever since.

The problem is, that was then and now is now.

What was a forward-looking effort in the late 1970s is a dinosaur in 2014. In the intervening years, most of America has (grudgingly) recognized the importance of recycling and reuse. Evidently, as with so many other city functions, news of the changes in what constitutes “best practices” hasn’t reached the Mayor’s office. Instead, Ballard has just announced plans for a ten-year extension of its contract with Covanta, the company burning our trash.

The proposed contract would not require people to separate out recyclable items–the promise is that Covanta will handle that messy job by “sorting” at a new plant. As environmentalists have pointed out, the proposed facility is what is known as a “Dirty MRF” (Materials Recovery Facility). It’s called dirty because the quantity and quality of the recycled material is dramatically degraded in the process.

The proposed agreement would recycle a mere 23.5% of the material. Even Governor Pence–hardly an environmentalist–has called for a goal of 50%. Furthermore, the agreement excludes glass, one of the most “recyclable” materials there is. Covanta says there is no  market for it; experts say Indiana’s glass industry is desperate for it. Believe whom you will.

Dirty MRF’s are nearly extinct in the US. Clean ones–like the ones Republic and Ray’s operate locally–are proliferating.

Experts tell us that over 92% of what gets thrown away can be recycled or composted. But that requires a well-thought-out, free curbside recycling program, like those run by most other cities our size.

Doing things that made sense in the 1970s don’t always make sense 35+ years later, and “keeping on keeping on” isn’t public management.