MSW Management

Six Major Factors to Consider in Privatization of Waste Management Services

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privatization
Exhibit 1. Economies of Scale in Landfills Source: USEPA 1997
The decision by a governmental agency to self-perform versus outsourcing (privatizing) solid waste services is complex and should consider costs, as well as the following six major factors:

1. Continued level of service and rate control
2. Impacts to public employment
3. Impacts to waste reduction and recycling goals
4. Community pride and public perceptions
5. Organizational values.
6. Ability to respond to technological, regulatory, and socio-economic changes.

The decision by a governmental agency to self-perform versus outsourcing (privatizing) solid waste services is complex and should consider costs, as well as the following six major factors:

1. Continued level of service and rate control 2. Impacts to public employment 3. Impacts to waste reduction and recycling goals 4. Community pride and public perceptions 5. Organizational values. 6. Ability to respond to technological, regulatory, and socio-economic changes.

[text_ad] Evaluating the changes to an agency’s cost structure from outsourcing or eliminating certain services (e.g., landfill or drop-off station operation) is relatively straightforward. However, the intangible factors can be just as important as the cost factors in making a decision to outsource services or not. Several factors that could affect the agency’s decision to outsource solid waste services are discussed below:
    • Level of service and control. Solid waste facilities are particularly vulnerable to public scrutiny regarding “environmental concerns,” and some public officials prefer to have more extensive control over the operation of a project than is afforded by private ownership or operation in order to satisfy these public concerns. With public ownership, the agency has control over all aspects of system operation and levels of public services. Some public officials prefer to distance themselves from public involvement in such projects and prefer private ownership or operation. Normally, however, the community has only limited control over operation of a privately owned, solid waste system. This typically includes only the rights to inspect the facility and requiring periodic tests to demonstrate guaranteed performance levels. The decision to retain ownership of all or part of a system can be subjective as it relates to considering the public’s reaction to and rate control when making the ownership decision. Long-term rate control concerns can be mitigated through contract clauses such as consumer price index (CPI) adjustments, set contract periods, and termination provisions.
    • Impacts to public employees. Outsourcing of solid waste services may result in a reduction in an agency’s work force (salary and benefits). When implementing outsourcing, some positions could be transferred to a private contractor or reassigned within the agency. However, it is unlikely that all the positions would transfer to a private company, nor would the benefits provided to the agency’s staff necessarily be comparable to the pay and benefits currently provided by the agency. These impacts need to be taken into consideration when considering privatizing the operation of the system. Use of public employees can be included in the conditions of contracting for the operation of a public system.
    • Impacts to waste reduction and recycling goals. Local government generally is responsible for providing the infrastructure and services to meet state and local diversion goals. Under an agency-operated program, the Agency has direct control over its progress towards these goals and its cost effectiveness. However, under an outsourced solid waste program, a contractor may have incentives that conflict with these waste reduction goals. The contract can be structures to incorporate diversion goals and performance incentives that drive diversion.
    • Community pride and public perceptions. Community pride and public perception are difficult to gauge with respect to solid waste services, except when there are complaints pertaining to problems with the services being provided or inconsistencies or changes in the level of service. Agency staff typically take pride in the services they provide in dealing with special circumstances such as deferring some landfill disposal costs for non-profit organizations or special community events (“free disposal”), or accepting nonhazardous, special wastes from other governmental entities (e.g., public works, agency offices, etc.). Although private companies also take pride in the quality of the services they provide as well, outsourcing solid waste services could change public perceptions, the Agency and private service provider should work together to maintain community involvement and support of the system.
    • Ability to respond to technological, regulatory, and socio-economic changes. Private companies tend to respond quicker than government agencies to changes in technology (e.g., LFG-to-energy), regulatory initiatives (e.g., disposal bans), and socio-economic changes (e.g., downturn in the economy). When change requires capital investment (e.g., new landfill disposal equipment, drop-off station improvements, etc.), the private sector is typically able to more quickly respond to financial impacts through more readily available access to private capital. Due to its nature, use of public capital is subject to careful budgeting, planning, and the political process. Public agency operations also have the added step of gaining consensus and approval of the political decision-makers before implementing major program changes. The political process can affect the speed of change.
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Evaluating the changes to an agency’s cost structure from outsourcing or eliminating certain services (e.g., landfill or drop-off station operation) is relatively straightforward. However, the intangible factors can be just as important as the cost factors in making a decision to outsource services or not. Several factors that could affect the agency’s decision to outsource solid waste services are discussed below:

    • Level of service and control. Solid waste facilities are particularly vulnerable to public scrutiny regarding “environmental concerns,” and some public officials prefer to have more extensive control over the operation of a project than is afforded by private ownership or operation in order to satisfy these public concerns. With public ownership, the agency has control over all aspects of system operation and levels of public services. Some public officials prefer to distance themselves from public involvement in such projects and prefer private ownership or operation. Normally, however, the community has only limited control over operation of a privately owned, solid waste system. This typically includes only the rights to inspect the facility and requiring periodic tests to demonstrate guaranteed performance levels. The decision to retain ownership of all or part of a system can be subjective as it relates to considering the public’s reaction to and rate control when making the ownership decision. Long-term rate control concerns can be mitigated through contract clauses such as consumer price index (CPI) adjustments, set contract periods, and termination provisions.
    • Impacts to public employees. Outsourcing of solid waste services may result in a reduction in an agency’s work force (salary and benefits). When implementing outsourcing, some positions could be transferred to a private contractor or reassigned within the agency. However, it is unlikely that all the positions would transfer to a private company, nor would the benefits provided to the agency’s staff necessarily be comparable to the pay and benefits currently provided by the agency. These impacts need to be taken into consideration when considering privatizing the operation of the system. Use of public employees can be included in the conditions of contracting for the operation of a public system.
    • Impacts to waste reduction and recycling goals. Local government generally is responsible for providing the infrastructure and services to meet state and local diversion goals. Under an agency-operated program, the Agency has direct control over its progress towards these goals and its cost effectiveness. However, under an outsourced solid waste program, a contractor may have incentives that conflict with these waste reduction goals. The contract can be structures to incorporate diversion goals and performance incentives that drive diversion.
    • Community pride and public perceptions. Community pride and public perception are difficult to gauge with respect to solid waste services, except when there are complaints pertaining to problems with the services being provided or inconsistencies or changes in the level of service. Agency staff typically take pride in the services they provide in dealing with special circumstances such as deferring some landfill disposal costs for non-profit organizations or special community events (“free disposal”), or accepting nonhazardous, special wastes from other governmental entities (e.g., public works, agency offices, etc.). Although private companies also take pride in the quality of the services they provide as well, outsourcing solid waste services could change public perceptions, the Agency and private service provider should work together to maintain community involvement and support of the system.
    • Ability to respond to technological, regulatory, and socio-economic changes. Private companies tend to respond quicker than government agencies to changes in technology (e.g., LFG-to-energy), regulatory initiatives (e.g., disposal bans), and socio-economic changes (e.g., downturn in the economy). When change requires capital investment (e.g., new landfill disposal equipment, drop-off station improvements, etc.), the private sector is typically able to more quickly respond to financial impacts through more readily available access to private capital. Due to its nature, use of public capital is subject to careful budgeting, planning, and the political process. Public agency operations also have the added step of gaining consensus and approval of the political decision-makers before implementing major program changes. The political process can affect the speed of change.

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