Detroit looks to cut costs by shifting its collection of recyclables and solid waste to the private sector.
When U.S. Bankruptcy Judge Steven Rhodes approved Detroit’s application for reorganization under Chapter 9 of the U.S. Bankruptcy Code in December 2013, Detroit became the largest U.S. city to enter bankruptcy. The ruling followed months of wrangling among different parties on how to best remedy the significant fiscal problems that have crippled the city and left it $18 billion in debt.
Rhodes determined that the city was insolvent and that negotiating with tens of thousands of creditors was not feasible.
Michigan Gov. Rick Snyder authorized Kevyn Orr, Detroit’s emergency manager, to seek federal bankruptcy protection July 18, 2013. As it sought ways to reduce its debt, the city proposed a raft of measures, including reducing pension payments and selling off its water and sewer departments as well as city-owned assets, including artwork.
One step the city hopes will help to stabilize its financial footing is shifting the collection of solid waste and recyclables from a city-operated program to the private sector. The move, the city estimates, will cut its costs by $6 million per year. While the potential savings through privatization are still fairly small in comparison with the city’s overall debt, it is a move that city officials says can help shore up its finances while also improving service and increasing recycling.
After issuing a Request for Proposal (RFP) in late July 2013, Detroit received bids from seven different firms in November. After reviewing the bids, the city chose two companies to handle the collection of recyclables and solid waste. Florida-based national solid waste management firm Advance Disposal Services (ADS), which operates a landfill and three transfer stations in the Detroit area, will serve the western half of Detroit, while privately owned Rizzo Services, headquartered in Sterling Heights, Mich., which provides collection services to 32 communities in southeastern Michigan, will serve the eastern half of the city.
Making the final decision for the city was the Solid Waste Review Committee, which consists of Detroit’s Chief Operating Officer Gary Brown, a representative from Detroit’s Emergency Manager’s office, the director of Detroit’s Department of Public Works, the city purchasing director and a representative from the Greater Detroit Resource Recovery Authority, a government unit, separate from Detroit, that is involved with providing waste disposal service to the residential, commercial and industrial sectors of Detroit.
The Solid Waste Review Committee used a 100-point sourcing process to evaluate bidders based upon innovation, capacity to provide services, experience on similar projects and cost to provide basic service. The process narrowed seven original bidders down to three finalists. From there best-and-final negotiations were held and two winners were selected.
“With this contract, the city is saving millions and improving services at the same time; this is a win-win for everyone,” says Brown, who led the committee. “Our review process was extremely thorough and competitive. We let the facts drive our decision and, in the end, the committee concluded that the residents of Detroit are better served by turning over trash collection to private contractors better equipped to provide improved and expanded service.”
As of press time, Rizzo and ADS are in final negotiations with Detroit on their individual contracts. One source says he expects the negotiations to be completed by the end of December 2013. The city says it anticipates the new services to start by March 1, 2014.
The move to privatize its solid waste and recyclables collection program, the city says, will not only save Detroit roughly $6 million per year but also will improve the overall recycling and solid waste collection program throughout the city. The contracts themselves are expected to cost between $23 million to $25 million per year and run for five years with five one-year renewal options, subject to mutual consent of both parties.
The funding for both contracts will come from Detroit’s Special Revenue Solid Waste Fund and Street Fund.
Residences from single-family homes to four-family units in the city will be affected by the privatization of these services.
The general provisions of the contracts include:
- Weekly residential trash collection before 5 p.m.;
- Citywide single-stream curbside recycling service for all residential units that receive solid waste service;
- Biweekly bulk trash collection;
- Twice-monthly collection of paper bagged yard waste;
- Delivery of solid waste to specified facilities within the city;
- Delivery of single-stream recyclables to a designated recycling processing site;
- Delivery of new refuse and recycling carts to residents;
- An incentive system to promote increased recycling;
- Recycling education and outreach;
- A new, fuel-efficient fleet of collection trucks to be on the road beginning on day-one of the contract; and
- Job offers from ADS and Rizzo for qualified current city employees whose jobs will be eliminated when the city privatizes its collection program.
Bringing recycling and solid waste services to the city of 700,000 residents who have not embraced recycling could be a daunting task. “We knew going in that there would be lots of challenges,” says Joe Munem, head of government affairs for Rizzo.
While Detroit presently does not have a citywide curbside recycling program, it does operate four convenience centers throughout the city where residents can drop off various recyclables. Additionally, Recycle Here!, through its contract with the Greater Detroit Resource Recovery Authority, operates a drop-off site three days per week as well as mobile drop-off sites in various neighborhoods throughout the city and pickup services to loft/condo communities and businesses.
In its annual report, the Detroit Department of Public Works notes that close to 2.5 million pounds of recyclables were processed at the city’s drop-off centers in 2012.
Despite its lack of a citywide curbside recycling program, Detroit provided wheeled carts for the collection of recyclables to an additional 12,000 households in the city last year, pushing the number of households with access to curbside recycling to 38,000 by the end of 2012. In total, the Detroit Department of Public Works reported that in 2012 the total tonnage of recyclables collected from drop-off and curbside programs totaled 4.85 million pounds.
Rizzo’s Munem says his company aims to provide Detroit with superior service at a reduced price. Because large swaths of the city are basically vacant, mapping out the best routes to effectively and efficiently service the eastern half of the city Rizzo will be handling will be essential. However, Munem says the company has the advantage in that it presently is serving communities surrounding Detroit, so it will take advantage of some of its economies of scale in handling the curbside recycling program for the city. Munem estimates that the area covered under Rizzo’s contract with Detroit has nearly 106,000 households.
While Rizzo recently acquired Royal Oak Recycling, Royal Oak, Mich., to boost its recycling capabilities, the new contract with the city does not mesh with Royal Oak’s operations, which are not equipped to handle single-stream recyclables. (Royal Oak Recycling was profiled in the January 2013 issue of Recycling Today in the article “Old school approach,” available at www.recyclingtoday.com/rt0113-royal-oak-recycling.aspx). While Rizzo is currently incapable of processing single-stream material, the company has plans to develop the former Pontiac Fiero plant in nearby Pontiac, Mich. The new facility will house a single-stream material recovery facility (MRF) and a transfer station.
Munem says construction on the single-stream MRF could start immediately. However, Rizzo is working with various city, county and state agencies to receive approval for the construction of the transfer station project. The company plans to extract additional recyclables from the solid waste delivered to the transfer station.
“We have to go through a lengthy process with the Michigan Department of Environmental Quality,” Munem says of the transfer station’s construction. The proposal also must be approved by many of the communities in the general area. The best-case scenario is that the facility could receive approval and be built by the end of 2014, he says.
The contract with the city of Detroit also requires Rizzo to add equipment. Munem says the company already is in the process of ordering trucks to serve the city. “The fleet will either be all new, or we will acquire some of Detroit’s existing fleet if they are in good condition,” Munem says.
Additionally, to take on the roughly 106,000 new residences under the contract, Rizzo is in the process of hiring as many as 60 new employees, many who previously worked for Detroit’s Department of Public Works. The addition will boost the company’s total employee ranks to roughly 300.
To help ensure the success of curbside recycling, Rizzo and ADS will offer an incentive program to encourage residents to recycle. The recycling rewards program is designed to improve the city’s overall residential recycling level, which has lagged far below the Department of Public Works’ goal of 40 percent. At the end of 2012, the recycling rate on the east side of the city was 21 percent, while the recycling rate on the west side was 24 percent.
One of the potential beneficiaries of Detroit’s solid waste and recycling privatization program will be the recycling company ReCommunity, based in Charlotte, N.C. The company, with locations throughout the country, has a significant presence in the Detroit area with three single-stream MRFs. As the dominant player in the single-stream processing business in southeastern Michigan, ReCommunity likely will be involved in processing much of the material collected from the city.
Jeff Fielkow, ReCommunity executive vice president of revenue and growth, says his company already has been involved with various projects with the city and expects to be the recipient of a fair amount of material from the haulers. The company has participated in some test recycling programs with Detroit, so it is comfortable that it will be able to handle the material collected through the city’s curbside program, he says.
In fact, in 2012, all the recyclables collected by the city of Detroit were taken to ReCommunity’s facility in Southfield, Mich., Fielkow says.
Munem says Rizzo is excited to start serving the city through its contract and will adopt an opt-in approach for the curbside recycling program, which will include a one-time fee to take part in the program. For that fee, residents will receive a 65-gallon cart for their recyclables.
One big advantage that Munem says Rizzo brings to its half of the city program is the value it has as a local company with knowledge of the area.
As for the recycling component of the city’s program, he says many aspects “will have to be ironed out.”
The author is senior editor of Recycling Today and can be contacted via email at email@example.com.