Hello again! It’s Philipp here, with another episode of Talking’ Trash. In our first two segments, we looked at landfill industry trends, and learned that trash can be a real cash cow for a few private companies. Today let’s take a detailed look at how the waste companies and municipalities work together to keep profits high.
Solid waste management companies prefer to have long-term contracts with municipalities, for greater financial stability. The basis for these contracts is landfill capacity, which dictates how many years the landfill can keep accepting waste. With fairly accurate estimates of population growth and pounds of waste per person per year, the landfill operator has a good handle on potential expenses.
More than ninety percent of the landfill’s revenues come from tipping fees, or the amount charged per ton of waste deposited. As we noted in our first segment, tipping fees have risen much faster than inflation over the past four decades. While part of this can be explained by increases in labor costs and regulatory compliance, the main driver is likely to be profit-taking. Remember that this period coincides with the trend toward privatization, and with privatization comes a need to see a return on investment. Long-term contracts allow for periodic increases in tipping fees, and justification is easy to find. (Note that in the case of large public landfills, the objective is still to maximize revenues and minimize costs. We will discuss this further in another episode.
The other aspect of solid waste management finances is, of course, the cost of collection. Waste haulers (usually the same companies that own the landfill, although not always) contract with cities to pick up waste, recycling, and compostable materials on a weekly basis, and charge a monthly fee based on the volume of waste generated by the consumer. These fees can vary widely from city to city and may be increased periodically to cover increases in costs (labor being the largest cost element). Note that although each city negotiates these rates with the waste haulers, there is no direct cost to the municipality. The waste haulers will set the rates and announce them to the public.
As you can see, the waste companies have the advantages of a monopoly but none of the restrictions. This all but guarantees them a profit and insulates public officials from rate increases. Adjustments to or renewals of the long-term contracts are usually made years in advance, making public scrutiny very difficult. The deck, so to speak, is stacked.
In our next episode, we’ll take a look at the theory and realities of recycling, and how it affects landfill finances. Until next time – keep talkin’ trash!