Recycling: a green gamble?

The City Council chooses between an upstart local recycler and two corporate giants with longer track records -- and rap sheets

The bidding for the Minneapolis recycling contract pits a pair of trash-business titans against a local nonprofit. When the City Council meets on Friday, Feb. 27, they will decide which of the three will have rights to the plastic, paper, glass and more that Minneapolis throws away over the next three years.

The three bidders:

  • Recycle America Alliance (RAA), a subsidiary of Houston-based Waste Management, Inc., the nation's largest waste company;

  • Browning Ferris Industries (BFI), a subsidiary of Arizona-based Allied Waste. BFI is the nation's second-biggest waste hauler and current city contract-holder until April 30;

  • Eureka Recycling, the St. Paul nonprofit corporation that handles that city's recycling.

    Minneapolitans recycled over 22,000 tons of materials in 2002, and the city stands to make approximately $900,000 per year selling the collected recyclable materials to the winning bidder.

    Although Eureka was judged the highest bidder, the city's Public Works Department recommended Jan. 30 that RAA/Waste Management get the deal.

    The recommendation promises to spark an environmental and philosophical debate on the Council: go with the larger, more experienced firms despite their checkered legal pasts (see sidebar, page 19), or use the smaller, local recycler with a less sure operational track record.

    Sixth Ward City Councilmember Dean Zimmermann took exception to the city staff's recommendation: "You've got two giant multinational corporations there, first cousins to Enron, who are in the business of making money. And they're competing against a homegrown company who's in the business of recycling. To me, it's a no-brainer."

    Waste Management and Enron's paths have crossed. According to the U.S. Securities and Exchange Commission, Waste Management's profits were overstated by at least $1.7 billion from 1992 to 1997 by its auditor, the now-bankrupt Arthur Andersen, LLP accounting firm. Andersen also worked on Enron's famously cooked books.

    Meanwhile, BFI has been cited for improper wastewater disposal in at least two states.

    However, Councilmember Sandy Colvin Roy (12th Ward), chair of the Transportation and Public Works Committee that will first review the recycling deal, said Waste Management's long legal history doesn't count for a lot in the consideration; of the city contract.

    "What matters more to me is reliable service to the city so that our recycling can continue smoothly," she said.

    The city's recommendation

    Susan Young, director of the city's Division of Solid Waste and Recycling, wrote the staff recommendation. She acknowledges that picking a winner was hard. "I am blown away that the proposals [from the three bidders] are so tight," she said.

    Young said she weighed many factors to determine the preferred bidder, including each company's administrative and management experience and their marketing strength reselling recyclable plastic, glass, aluminum and other commodities.

    She said that she's not allowed by city regulations to consider Eureka's status as a local nonprofit when adding up each bid's positives and negatives. That's a political/philosophical calculation City Councilmembers can include.

    One key measure -- how much money recyclers will pay the city for what citizens collect -- was close, according to an initial staff report. Based on prices paid for recyclables between 1999 and 2003, the city's net return based on each company's bid would be:

    Eureka: $4.64 million

    BFI: $4.53 million

    RAA/Waste Management: $4.52 million

    One reason Eureka slipped to second in the recommendations, according to the report, is that the city might be at risk because the company has "limited annual cash flow."

    Susan Hubbard, CEO of Eureka Recycling, acknowledges her nonprofit can't match the bigger bidder's revenues. "I have to admit that their income statements do look better," Hubbard said. "Waste Management's income statement last year was $15.5 billion and BFI's income statement was $5 billion, and our income statement last year was $4 million. It's like comparing your local coffee shop to Starbucks."

    However, she argues, small is big enough. "We met every requirement of the bid. And we came in with a better price, and now they're saying, 'Hey, your income statement just isn't as big as theirs.'

    "Personally, it looks to me that they were looking for reasons why they weren't going to use us. That's just a ridiculous way to look at it," she said.

    The city's report also cited concerns that Eureka's new Northeast Minneapolis recycling facility (on the border of St. Paul) is not fully operational and might have some problems with cross-traffic when city recycling trucks drop off recyclables.

    Young also notes that Eureka "did not provide the financial stability, the evidence of bondability and the organizational experience that the other proposers did."

    (Bondability fully indemnifies the city if a recycler doesn't live up to the contract.)

    The city report also notes that Eureka has limited organizational experience as a recycler.

    Eureka was spun off in 2001 from the St. Paul Neighborhood Energy Consortium (NEC), formed in 1985 to implement energy conservation programs.

    Eureka took over the collection and processing of St. Paul's recycling last April, and holds the contract through 2013.

    St. Paul Councilmember Jay Benanav (4th Ward) said he thinks Eureka has done a great job of recycling there. "They really are efficient and quick," he said. "I have nothing but good things to say about them. They're extremely cost-effective, and I think it's been a good operation from the city's standpoint -- from an environmental as well as financial standpoint."

    Said Hubbard, "I think it's about who's got deeper pockets. I'm disappointed that [city staff] couldn't come up with a better reason for not working with us. I'm willing to say 'OK, they offered you a better deal and you should work with them.' But I just can't see the risk. The city of St. Paul has worked with us for 17 years, and they've signed a contract with us for 10 more."

    Young notes Eureka's actual processing and marketing experience in St. Paul is far shorter -- 10 months. "I recognize that the NEC, as an educational organization, has been in effect and doing good work for 15 years, but the operational experience for Eureka Recycling has only been in place since April 2003."

    Environmental differences?

    Hubbard believes that sound environmentalism, not just money, should determine who gets the contract.

    "This is an environmental contract for the city," she said. "This is about saying the city of Minneapolis believes in recycling; that it believes the residents should recycle. But we're going to use a company who may or may not always recycle the materials."

    Her charge: Waste Management doesn't recycle all of the glass it currently takes in at its 1800 Broadway St. NE facility. She alleges that Waste Management uses the glass as landfill material because "it's cheaper than dirt."

    She carefully notes that Waste Management won't dump Minneapolis glass into landfills; instead, it landfills suburban glass collected at its Minneapolis facility.

    Waste Management District Manager Steven Dunn said that Hubbard's charge was accurate "for other customers, but it has no bearing on Minneapolis material."

    He said Waste Management would be contractually prohibited from landfilling Minneapolis glass and that his company would handle the materials "just like Eureka would handle it."

    Dunn added, "I'm a little testy on this issue because our competitor has been saying it differentiates them from us as it relates to the Minneapolis contract, but I think that's a little bit misleading to the public."

    Dunn declined to discuss specifics of the company's proposal.

    PVC: commodity or poison?

    Hubbard pointed to another environmental policy that distinguishes the Waste Management and Eureka bids: Waste Management's proposal to recycle PVC plastics.

    PVC is commonly known as vinyl and can be identified by the number 3 in the so-called recycling triangle imbedded in most plastic products. Minneapolis currently does not collect it for recycling.

    Hubbard said Eureka opposes collecting PVC plastic "because it's polyvinyl chloride. The production of that plastic itself is so environmentally devastating that to talk about its recyclability and to try to promote that as being a positive packaging product goes against what we really think is the right thing to do. PVC packaging shouldn't be allowed."

    Hubbard said that during the recycling process, PVC could release toxic dioxin when heated.

    Dunn said Waste Management proposed PVC recycling "because there are some markets for that.

    BFI District Manager Paul Rosland said his company would also consider collecting PVC.

    Councilmember Zimmermann said the PVC debate is "an indication of the thinking of the two companies [Waste Management and Eureka]. One doesn't give a damn about the planet and the life of our great-grandchildren. 'Oh, we can make money on PVC, so let's do it.' And the other is really looking at it from a principled point of view."

    BFI's Rosland focuses his complaint about the staff report on financial grounds. He expressed disappointment in the report, saying his company should be rewarded for past performance and offering the city the best rates on recycled newspaper and aluminum -- the two biggest recycled commodities that account for 77 percent of total revenue.

    "If you look at the future -- and those are going to be good commodities in the future and we're going to have the best payout -- then our numbers beat any of our two competitors," Rosland said.