Dumping the Garbage Monopoly
"You can't have free competition in trash collection," they say. But the people of Wichita decided to give it a try.
Deregulation of the airlines by the Civil Aeronautics Board has produced many consequences. Perhaps the most unexpected has been the privatization of garbage collection in Wichita, Kansas.
When the CAB began opening the airline market to competition in 1977, among the immediate results was a sharp rise in demand for small and medium-size aircraft. On the one hand, expanding regional and commuter airlines could see the need for new Boeing 737s, Beech 99s, and similar craft. At the same time, cuts in airline service on money-losing routes to small towns prompted many corporations to order more Gates Learjets, Cessna Citations, and other small planes. With Boeing, Beech, Cessna, and Gates Learjet all having large plants in Wichita, by mid-1978 all four were experiencing a major boom.
Unemployment in Wichita dropped to an unheard-of 2.5 percent. Relatively low-skilled, low-paid people such as garbage collectors took new, better-paying jobs in the aircraft plants. And that, in turn, left the municipal garbage service in a bind. By the summer of 1978—the second hottest summer on record in Wichita—the city's garbage pick-ups had fallen more than a month behind because of the shortage of workers. Garbage at the 22,000 homes served by the city piled up higher and higher; as temperatures rose, so did the smell, and so did the tempers of city residents.
Fortunately for those residents, the city government was not the only supplier of garbage service. In the city and surrounding Sedgewick County, about 80 firms were in the garbage business, some serving only commercial and industrial customers but many providing residential service. Only 30 percent of the city's households had contracts with the city. As the garbage piled up, these people began turning to the private haulers. "My garbage hasn't been picked up for the whole month of August," Theda Reeves told reporters. "As soon as our contract [with the city] runs out, we're going to a private service."
City officials, meanwhile, were barraged with complaints. With only three telephone lines at the sanitation department, most callers received nothing but busy signals, only adding to their anger. Limited telephone capacity was symbolic of the sanitation department's general equipment problems. The city had deferred maintenance on its garbage trucks, so even on routes where there were enough workers, equipment kept breaking down, further hampering service.
THE MONOPOLISTS' OPENING Part of the city's problem was financial. The garbage service—charging $5.00 a month for residential, curbside pickup—was losing money. Yet more tax money to subsidize it was out of the question: three separate measures to increase local sales taxes had been placed before the voters in 1978, and all three had been defeated. City officials hardly dared talk about raising the garbage rates for service that wasn't even being provided. It was clear that something else would have to be done to solve the problem.
As the crisis deepened, City Manager Gene Denton met with representatives of the 12 largest private trash haulers. Like would-be monopolists everywhere, these firms had long resented the proliferation of small, independent companies in the garbage collection business and the competitive threat they represented. Their solution to this "chaotic" situation was a system of exclusive franchises, with each large firm guaranteed a monopoly in a given area, and the small "fly-by-night" firms frozen out altogether. The large firms' trade organization—the Wichita Independent Refuse Haulers Association—seized upon the breakdown of municipal service as a way of realizing their long-sought goal.
On August 9 City Manager Denton announced the results of his negotiations with the Refuse Haulers Association. They had come up with a program to solve the crisis:
• The city would be divided into garbage service districts, with a single firm franchised exclusively in each.
• Municipal service would be restricted to a small number of districts, with its customer base shrunk from 22,000 to 10,000.
• "Free" garbage service (that is, taxpayer-supported) would be restored for the poor. (A program to do this had ended in May when its federal grant expired.)
• The city government would send and collect all garbage bills in the city, mailing them along with water bills. Receipts would be turned over to a new entity, to be called Wichita Refuse Incorporated (WRI), to be formed by the Haulers Association to distribute the revenues to its franchised members.
• All haulers with fewer than 300 customers would be forced out of business.
Several nights later the Haulers Association held a by-invitation-only meeting for all garbage collection firms in the area. All but one or two of the 80 firms were represented. The gist of the meeting was that the existing members of the association were going to form WRI and that Denton's plan was going to be adopted. The nonmember firms were told that they had better go along or be left out in the cold when the districts were created.
That carrot-and-stick proposition met with a decidedly mixed reaction from the smaller, nonmember, garbage firms. While some owners feared being frozen out and were attracted by the idea of freedom from competition, many others valued their independence and wanted no part of a bureaucratic system. Many of the smaller haulers owned only one or two trucks and served a relatively small number of customers (though most did have more than 300). Most of the small operators are black, and trash haulers are among the leading small businessmen in Wichita's black community.
In contrast to this array of small entrepreneurs were the large firms, typified by Browning-Ferris Industries. BFI is the nation's largest garbage collection firm, with operations in cities and counties across the country. During the past decade it has bought up more than 100 local firms, including that of Wichita businessman Jay Bond. When BFI acquired his firm (which was serving only commercial and industrial customers), it retained Bond as local manager. Although a modern and efficient firm, BFI is used to operating in exclusive-franchise situations, and Bond actively worked toward that end in Wichita. By the summer of 1978 he was president of the Refuse Haulers Association and the leading advocate of the city manager's districting plan.
Bond's counterpart among the small firms was Willard Garvey, the owner of an apartment complex and operator of his own trash trucks. Well-known in Wichita as an advocate of cuts in taxes and government spending, Garvey set to work with two of his employees, Bud Leu and Leslie Rawlings, to mobilize the mostly black small operators.
Their opening shot was a one-page flier headlined, "Who's Coming into Your Back Yard?" Using free-market arguments, it pointed out that the districting plan would abolish the customer's right to choose his own garbage collector and that it was contrary to free-enterprise principles. The flier closed by asking citizens to contact city hall to oppose the plan, urging the city to hold a public hearing on it, and reasserting the right of everyone to freedom of choice in garbage service.
The response from the public was overwhelmingly in favor of the small firms, at least as measured by letters to the editor of the local newspaper. Only one letter—from a member of the Haulers Association—defended the districting plan, claiming that it would protect customers by requiring all garbage haulers to be bonded—an untrue assertion. Bowing to public pressure, the five-member city commission agreed to hold a public hearing on September 26.
STRATEGY CONFLICTS In their meetings prior to the public hearing, opponents of the districting plan tried to work out a coherent strategy. It was soon apparent that the small haulers were divided into two camps. Free-market advocates wanted the city out of the garbage business altogether, while the moderates simply wanted to defeat the districting plan. Members of the former group argued that, as long as the city was in the garbage business, the situation would be unstable and the threat of the districting plan might be resurrected at any time. They urged consistent opposition to government intervention and pointed out that removing the city from the business would add customers for the private firms.
This popular argument was countered by Bud Leu, one of the leading moderates. Based on a conversation he had had with an official from the city health department, Leu had become convinced that Kansas law did not permit the city to get out of the garbage collection business altogether. Although Leu could not cite a specific statute, he told the group that state law required the city to be responsible for solid waste collection. Consequently, he maintained, efforts to abolish municipal garbage collection were pointless.
Leu's argument did not convince the free-market advocates, and the impasse between the two factions went unresolved. The only consensus was to try to get as many opponents of districting as possible to turn out for the public hearing.
In that aim, they proved successful. Despite the fact that the hearing was held on a weekday, and during working hours, several hundred people showed up. City Manager Denton outlined the plan and its justification and mechanics to the city commissioners. The only alternatives to districting, said Denton, were to raise the rates for municipal collection (politically unpopular) or to get out of the garbage collection business altogether—which Denton opposed.
Also supporting the districting plan was a spokesman for the city health department. Despite a law requiring everyone to have at least once-a-week garbage pickup, the spokesman claimed that 5,000 Wichita households did not have any form of garbage service. Asked where these people lived, or where the figures came from, the official conceded he did not know—someone else had made the estimate. (Actually, there were more than 5,000 households without service at the time of the hearing, though not from disobeying the law. They were the erstwhile customers of the city garbage service.)
FREE-MARKET OPENING Because state law requires each city to have an approved solid waste management plan, an official from the Kansas Department of Health and Environment attended the hearing. Under close questioning from two city commissioners, he acknowledged that there are, indeed, Kansas communities in which the city leaves garbage collection to the private sector but which still manage to have their plans approved by the state. What Bud Leu had been told was incorrect.
Once that cat was out of the bag, the free-market advocates—both haulers and customers—took over, blasting the districting plan. Mayor Connie Peters acknowledged that she had received over 2,500 letters as well as numerous phone calls opposing the plan—but none in favor. Districting, in short, was dead.
The commissioners voted, instead, to get the city out of the garbage collection business, no later than March 1, 1979. The only element of Denton's plan that remained was the provision of "free" service for the poor. Although no complaints had been received in the four months since this service had been suspended, the commissioners were unwilling to trust the marketplace in this one area. They voted to increase the landfill (dump) fees charged to haulers in order to provide no-charge service to up to 700 low-income households.
Despite this variance from complete laissez-faire, the small haulers were jubilant at their victory. Not so the large firms. Threats were made that large, out-of-state firms would come into Wichita, cut rates, take over customers, and force the small haulers out of business. Even the specter of the Mafia was invoked.
City Manager Denton was miffed, as well. Calling the districting plan "the best thing since margarine," he predicted that the small firms would soon regret defeating it. "It was the only thing that could have saved the small companies, and the irony of it was that they were the ones who fought it," he said. "Now there's no protection for the little guy, and there's no protection for the consumer." BFI's Bond echoed these sentiments, "It'll be interesting to see five years from now just how the small haulers feel about the district plan then."
GARBAGE REALITIES By the time the city left the garbage business in December, many of its former customers had already switched to a private firm. Although city records indicated that it still had 18,000 customers remaining, when its routes were auctioned off, there turned out to be fewer than 8,000. The city's equipment was also auctioned off to the private firms.
It took several months for the companies to work through the mountains of trash left uncollected from the summer and fall, a problem made worse by one of the coldest winters in Wichita's history. But all things considered, the demunicipalization went remarkably smoothly.
What happened to prices? Some went up, some went down, and some stayed the same. To attract new business, some firms cut the price for regular curbside pickup from $5.00 to $4.00 a month. Others offered the extra convenience of backyard pickup for $6.00. Some offered their customers "free" trash containers, to standardize and identify their pickups. By the end of 1979, as fuel prices virtually doubled over the course of the year, the backyard rate climbed to $7.00.
But increased competition seems likely to hold down the prices and prevent the sort of price escalation that occurred in the '70s, when the city set the pace. The (subsidized) rate was as low as $2.83 per month until May 1974, when it was raised to $3.50. In 1976 it went up to $4.00, and in 1977 to $5.00. Even at that price, city taxpayers were still kicking in $100,000 a year to cover the city's deficit on the service.
After nearly two years of free-market competition, the threatened outside takeovers and rate wars have failed to materialize. People have free choice of firms, but wasteful duplication of service is minimized by the economics of the situation. There are seldom more than two or three firms doing business in any neighborhood (see box). The largest hauler, Ernie Childers, has over 12,000 customers; his firm does business in about 40 percent of the city. But small, family-operated businesses have survived and prospered in the free-market environment they fought for.
About the only fly in the ointment is the Indigent Sanitation Program for the poor. Sponsored by the city's Community Action Agency, it has grown from 589 to nearly 800 households since its inception last year. Since the current budget will support only 700 households, a further increase in dump fees or taxes may soon be called for. And since anyone with a household income of less than 80 percent of the median is eligible for the program, the potential for further growth is quite real. (Each qualifying recipient selects his own hauler; CAA pays the bills, which range from $4.00 to $7.00 a month.)
So garbage remains something of a political issue in Wichita, even today. There is some talk in city hall about an ordinance requiring garbage pickups on a particular day for curbside service, so that the cans would be out on the sidewalk only on that day. Potentially more serious, a candidate for city commissioner in 1979 attempted to make a campaign issue out of the increase in some garbage rates. She lost…badly.
Wichita thus seems to be coping quite nicely with its nearly free market in garbage collection. Its experience provides a vivid counterexample to the claims of those, like the large company representatives, who argue that open competition is chaotic and wasteful. Freedom of choice is not only the right way to go—it works, too.
Karl Peterjohn has a master's degree in economics. He has worked as a newspaper reporter and is currently employed as a corporate economist.
Countering the Special Pleaders The standard arguments raised in support of city involvement in garbage collection were much bandied about in Wichita. What actually happened shows how lame those arguments are.
1. "An area plan would be more fuel-efficient and reduce air pollution because you wouldn't have several trucks working the same street."
This seems obvious but actually has only minor relevance. All of Wichita's haulers work only in particular areas and do not even seek customers outside certain sections of town. If a firm is contacted by a potential customer from outside its area, often the firm will refer him to a hauler who works that area. This is done mutually. When city customers shifted to private haulers, they often sought references from neighbors who already had private service. As a result of these factors, in many areas a single firm serves most of the residents in a block.
Some customers have been exchanged. Just as new firms buy out established firms and their routes, at least four firms are exchanging customers to consolidate their routes. If the customer is unhappy with the exchange, he may find another hauler, but few have. So there may be over 80 trash firms in Wichita, but only two or three are collecting on a particular street.
2. "The big guys would succeed in forcing the small operator out of business."
This has not happened in Wichita. The small haulers flourished as the city left the business. The national firm, BFI, has been unable to penetrate the residential market. Of course, this could change in the future, but the small haulers have succeeded so far by offering good service.
3. "Government regulation is needed to protect the consumer."
Rubbish! The efforts by the city at all the levels of the bureaucracy in fact had a negative impact on customers. City officials, excluding the elected city commissioners, were more interested in their personal, bureaucratic fiefdoms than in protecting consumers. The elected commissioners acted as they did because they were under substantial public pressure.
4. "Some people won't hire anyone to pick up their trash."
Actually, this wouldn't be a problem if people were allowed to take their own garbage to the dump, but the city allows dumping only by licensed haulers. A few irresponsible people have dumped their trash on city property, but the small amount of trash there is tiny compared to the amount the city allowed to pile up in 1978. Those caught are prosecuted. The city does have a law requiring everyone to have weekly trash pickups. Ironically, a health department official has said this law is "unenforceable."
5. "The transition from city to private service will be chaotic."
Actually, the transition was only difficult. Many of the new customers acquired by private haulers had six to eight weeks' worth of garbage to be removed because of the breakdown of city service. This was a difficulty, however, for the private haulers, not for the ex-customers of the city, who had suffered the most from the lack of service.
6. "The city is needed to provide an efficient operation."
The city couldn't achieve such efficiency while It was In the business, nor could It achieve this by regulating the business. Firms are effecting efficiency by trying out different types of equipment and systems for collecting trash. Customers are contributing to the process by selecting the type of service they prefer.
In the hot summer of 1978, the residents of Wichita lived through the chaos of municipal garbage service. They saw through all the arguments for continuing and "Improving" a monopolistic approach, Instead opting for the smooth functioning of the free market.