Supreme Court Decision Likely to Send Ripples across $52 Billion Waste Industry

Date: April 30, 2007

Source: News Room

Supreme Court Decision Likely to Send Ripples Across $52 Billion Waste Industry

In a much anticipated decision, the Supreme Court ruled this week that local governments can compel private waste haulers to use municipal owned facilities. In the case of United Haulers Association v. Oneida-Herkimer Solid Waste Management Authority (05-1345), the justices voted 6-3 to uphold so-called "flow control" laws or ordinances that municipalities have used to assure a steady waste and revenue stream into publicly financed waste facilities. The court rejected hauler arguments that the rules unconstitutionally discriminate against interstate commerce by barring shipments to sites that charge lower fees.

The Court basically said that the Authority treats "in-state private business interests exactly the same as out-of-state ones," avoiding any constitutional problems. "It bears mentioning that the most palpable harm imposed by the ordinances -- more expensive trash removal -- is likely to fall upon the very people who voted for the law," Chief Justice John Roberts wrote for the Court. "There is no reason to step in and hand local businesses a victory they could not obtain through the political process," he wrote for the majority.

The Oneida ruling blunts somewhat the Court's earlier finding in its Carbone decision back in 1994. In that case, the Court held that waste was not very different than any other item of commerce whose trade was subject to the Commerce Clause of the Constitution. However, in that case, the facility was privately owned.

Justice Roberts drew the distinction that "unlike private enterprise, government is vested with the responsibility of protecting the health, safety and welfare of its citizens." However Justice Alito wrote in his dissent that "the public-private distinction drawn by the court is both illusory and without precedent." And besides, he said the facility at issue in the 1994 case was only nominally private. The owner had agreed to sell the facility to the town for $1 after five years.

The haulers had also argued that flow control almost always leads to higher prices in the absence of real competition. Oneida-Herkimer charges $72.15 per ton of solid waste, almost three times the $26 the haulers say an out-of-state facility charged at one stage in the litigation. And, according to statistics gathered by Waste Business Journal, that fee is much higher than the average price charged by 19 other landfills operating within 100 miles of Oneida-Herkimer's site. The weighted average price charged by those facilities is just $49.50 per ton.

The case is likely to encourage other municipalities to soon follow suit which may also help bolster the viability of various municipal bond-backed facilities. It is also likely to send ripples throughout the $52 billion waste management industry. Although, as David Biderman of the NSWMA, which wrote an amicus brief in the case, points out, "the impact of the decision will be limited because local governments own only 17 percent of the solid waste disposal capacity in the United States."

Moreover, few other communities will want to assume the political liability and huge capital expenditures required to enter the business they have worked to exit in recent years. The tremendous economies-of-scale in operating a landfill for instance, requires among other things, control of ever larger streams of waste in order to operate at the lowest costs possible. This excludes many municipalities that aren't large enough to command a significant volume of waste. Agreements among groups of municipalities are often uneasy alliances and fraught with political peril.

Oneida-Herkimer has fought dearly for its right to flow control in no small part because the authority is $26 million in debt. According to Standard & Poor's, solid waste authorities in 2005 had more than $3 billion in outstanding bonds secured by system revenue.

The effect of the ruling will be as the Haulers had argued, to push up pricing, especially in the more populated areas of the country, like the Northeast, where landfill capacity is scarce and local pricing is already high owing to transportation costs to export waste to more rural areas. This will benefit recycling programs whose incentive has always relied on the avoided cost of disposal in landfills.

In the end, the ruling is also likely to benefit aspects of the waste business now on the margin, including some of the newer and more cutting edge projects involving new compost techniques, and alternative waste-to-energy approaches.

Note:
For detailed statistics on private versus municipal control of waste disposal including historical statistics, call the staff of Waste Business Journal at (619) 793-5190 or email them at info@wastebusinessjournal.com.