For 13 years, from a concrete building by the railroad tracks and Dixie Highway, Ayala has run The Patio Furniture Hospital, a five-employee, wholesale distributing and furniture-rehab company. For all those years, his workers tossed vinyl straps from old furniture into a 3-cubic-yard trash container, a "box" in hauling industry jargon. Once a week, a Waste Management truck carted the refuse away -- most recently, for $189 a month.
In 1997, a salesman from a recyclables handling company visited his office with a proposition. Why not recycle the straps, packing cardboard and odd bits of office waste paper that filled Ayala's Waste Management box? The salesman said his company could remove it for $100 -- a decent savings over what Ayala was paying Waste Management to haul it away.
Ayala was all for it. He was angry that Waste Management never told him the plastic straps could be recycled. But he got angrier when he discovered he couldn't get out of his Waste Management contract for another 21¼2 years. And he got even angrier at what happened next.
He signed with Delta Recycling and terminated his Waste Management contract. Waste Management removed its box, but a few weeks later, Ayala got a letter from the city's acting public works director. "Refuse collection in the City of Pompano Beach is mandatory and is required to be done by our city contractor," the letter said. If Ayala didn't sign a contract with Waste Management for trash pickup, the letter warned, he could be fined up to $1,000 a day -- $5,000 a day for repeat violations -- and could be sentenced to up to 60 days in jail. The letter helpfully supplied Waste Management's phone number.
What Ayala learned from the struggle is that a system designed to make trash pickup efficient has become a behemoth that discourages both competition and recycling. Ayala also feels it gouges small-business people like himself. And government may be profiting most of all.
In the world of garbage, Florida's reputation for restricting customer choice is "one of the worst," says Nick Nicholson, chief executive of The Ecology Group, an Ohio company that manages waste service for companies nationally and in Canada. "It's pretty much a 'gotcha' state. It's kind of a nice, cozy, little deal between haulers and city officials. It's just a racket."
Rule No. 1
The Big Three dominate
In Florida, cities and counties take different approaches to commercial garbage. In some, city departments pick up the trash, while others let customers have free choice among competing private haulers. Still others have non-exclusive franchises that allow competition among haulers who pay the municipality a franchise fee, a percentage of the gross and other charges.
In Florida, the top 15 counties account for 78% of all trash and 80% of commercial trash. In nearly each of those cases, the counties themselves or the major cities within them award exclusive franchises -- trash monopolies -- to haulers. Businesses and property owners must sign contracts with that hauler and no one else.
Franchises have some advantages: For one, they impose order on collection -- a big plus in residential collection, which even small, independent haulers see as a beneficial monopoly. Having one hauler means regular pickup schedules, which means trash cans and trucks are on neighborhood streets only a couple days a week, rather than daily as in an open market. Franchises also help provide predictability for haulers, who pay $150,000 a pop for a truck.
The franchise system, however, has contributed to the domination of garbage pickup in Florida by three billion-dollar firms -- Houston-based Waste Management, Fort Lauderdale-based Republic Services and Scottsdale, Ariz.-based Allied Waste's Browning-Ferris Industries. With only a few exceptions, those firms hold a lock on the state's trash-hauling monopolies.
The Big Three became big in part because they're good at what they do: They've succeeded by improving routing systems to cut their costs. They have invested in lowering their single largest cost -- labor -- by using technology to replace men on trucks and devoting more attention to worker safety. (Garbage collecting in Florida is among the nation's most dangerous and deadly jobs, according to a 1998 study by University of Miami Professor James Englehardt.)
But government and its franchise system have spurred on the growth of the majors -- and restricted competition -- through various forms of regulation. High franchise fees, performance bonds and insurance requirements drive up costs and prompt independents to sell out. Republic, the newest member of the Big Three, grew to $1.8 billion in revenues last year from $805 million in 1995, largely by acquiring independent haulers.
The franchise system also can present formidable barriers to entry for entrepreneurs. In Miami, for example, haulers who want to compete for business customers must pay a $5,000 fee, plus $50 per customer, plus 20% of gross receipts. The cost makes it difficult for small independents to compete, says Al Panzarella, founder of Panzarella Waste Services, a fledgling hauler in Fort Lauderdale. Unless he can sign up enough customers to spread out the cost, he may not continue to work in Miami, he says.
The majors protect their status by lobbying and contributing. In the 2000 election cycle, the Big Three have given at least $50,920 to state and federal races. Total giving to Florida municipal races isn't available, but in Pompano Beach, for example, Waste Management gave the maximum $500 allowed by law to select incumbents in the last city commission races. Waste Management first landed the Pompano Beach franchise 26 years ago -- when Gerald Ford was president -- and it runs until 2004.
Franchises also let haulers monopolize a community's growth. Sarasota County's population was 223,462 in 1983, when the county granted 20-year franchises to five local haulers. Waste Management later bought all five haulers and has enjoyed the exclusive profit as the county's population grew by 45% to its current 325,939.
All the consolidation of market share may be on the verge of paying off big for the majors. Haulers, after years of hard competition to win franchises, show signs of raising their bids, says John Archambo, assistant director of customer information services for Palm Beach County. Until recently, the majors seemed more willing to lose money -- or settle for a slim profit -- just to win market share. "The pendulum may be swinging," he says.
Rule No. 2
Cities, counties profit, too
Why do cities and counties encourage monopolies rather than competition? "It's a moneymaker," says Bob Hyres, Florida government affairs director for Waste Management. "We don't create franchises -- we bid on them."
For many municipalities, the choice between providing more customer choice and raking in millions of dollars in franchise fees from a big hauler is an easy one. Miami gets $6 million a year in fees from haulers. Manatee County gets $2 million.
Along with charging the hauler a lump-sum franchise fee, cities and counties often mark up the haulers' charge to business customers. Part of the money goes to cover the cost of billing. The rest goes into government coffers -- in effect shifting some of the cost of everything from litter control to parks onto trash pickup. The system is a win for the hauler, which just passes along the city's or county's charges, and the municipality as well.
Of course, great diversity exists in how cities and counties franchise. Hillsborough County, for example, doesn't charge for the commercial franchises it hands out as part of its residential franchising, believing haulers just "pass it on to the customer," says Daryl Smith, the county's solid waste management director. What it does get in return for the commercial franchise are "some very good prices on residential service," Smith says.
Indeed, businesses routinely subsidize residential collection. Pompano Beach boasts that its homeowners have among the lowest garbage pickup bills around. In return for the low bills, Pompano Beach gives Waste Management the exclusive right to commercial customers in the city.
The real hidden charge to business customers, however, is the cost of disposal. Florida's terrain means it could make economic sense for a hauler to cart trash up to 125 miles away -- if a landfill that far away charged less to dump there, according to a study by the University of West Florida's Mel Droubay. But garbage haulers often can't use the cheapest landfill. Typically, counties write provisions into their franchise contracts requiring haulers to use the home county's landfill, where tipping fees -- the largest slice of a trash bill -- go to pay for landfills, waste incinerators or programs unrelated to disposal. The uninterrupted trash flow ensures landfill bonds get paid off without having to bother taxpayers or shift other local funds.
In Broward and Lake counties, businesses have among the highest trash bills in the state because the counties decided years ago to build expensive garbage-to-energy incinerators. Supplying the incinerators with a steady supply of trash to burn pushes up the cost of disposal for residents of those counties. Broward's tipping fee -- the cost of emptying a truck -- is $82 a ton compared with a statewide average of $42.47 a ton.
Forcing trash to be carried to specific areas is called "flow control." The U.S. Supreme Court outlawed it across state lines, and there are questions about the legality of flow control within a state. Coastal Carting, a Broward hauler, won an important federal court decision last year against Broward, arguing the county engaged in unlawful flow control. A trial for damages is pending.
Waste Management now owns Coastal. Other suits challenging the system are unlikely because the haulers' interests and the governments' are so closely intertwined. The hidden flow-control cost doesn't hurt the haulers, who pass the government disposal fee straight through to the customer. "It's not worth it to take a municipality to court," says Mary Williams, government affairs director for Republic's Southland Waste System.
Rule No. 3
Recycling an out? Maybe
How can businesses shop for cheaper alternatives to the franchised hauler? To encourage recycling, state law forbids cities and counties from franchising the pickup of six categories of so-called recovered materials: paper, plastic, glass, metal, rubber and textiles. The state-mandated free market allows recyclables handlers to undercut the franchise haulers -- as Pompano Beach-based Delta did in promising to cut Ayala's trash bill.
A consulting industry making similar promises to businesses has sprung up in the state. For business owners, "garbage is very time-consuming," says Charles A. Muszynski, president of 11-month-old Independent Waste Consultants in Altamonte Springs. Firms such as his take the time to arrange pickup for clients by a cheaper recyclables handler. The bill from the higher-priced franchise hauler is cut by shrinking the size of the box or lowering frequency of pickup -- two determinants in how much a business gets billed.
The recyclers can undercut the franchise hauler because they don't bear the costs imposed by local government: a maximum age for trucks, requirements that they be painted frequently, bonds, insurance and free service to city hall, fire and police stations and community festivals.
Because franchise haulers and cities lose revenue for every pound recycled through an independent handler, they complain of "sham" recyclers who they say recover only a morsel of trash -- cardboard and high-quality paper -- and then dump the rest of their load at landfills. Just because something can be recycled doesn't mean it is recycled, they say. Hyres, Waste Management's government affairs director, holds up a plastic foam coffee cup and notes the triangle of arrows that means the cup can be recycled. "I challenge anyone in the state of Florida to find a place that will recycle that coffee cup."
And with so much money at stake, municipalities aren't eager to push businesses into the arms of recyclables handlers. "The customer thinks this is the way it has to be because he's told by some official in the county he has to use" the franchise hauler, says Ronald Accomando, founder of ACC Recycling in St. Petersburg.
Roger Troncosco, warehouse manager of paper supply company Expedex in Miramar, figures he can save $7,000 to $8,000 a year by getting a recycling company to haul away his company's paper refuse. But he said he's having trouble convincing Miramar and its franchise hauler, Browning-Ferris, that he has the right to use a recycler. "They're still fighting it," he says.
As with Ayala, businesses willing to switch find the standard contracts they signed with city-designated haulers run for years, with automatic renewals. The contracts also may bind them to use the same hauler for recycling. The savings from recycling thus may be deferred or disappear. The contracts "are hell for a small business to get out of," says Mark Triplett, Escambia County's solid waste director. Big grocery chains and other large or sophisticated bargainers often refuse to sign the contracts, or they negotiate better terms.
In recent years, Miami and Broward's Coral Springs attempted to require recyclables handlers to buy city franchises. Coral Springs wanted 15% of recyclables handlers' gross receipts. David Struhs, secretary of the state Department of Environmental Protection, protested by letter in December directly to the Coral Springs mayor that the law "substantially conflicts with the recycling goals of the state" and would "impede legitimate recycling." Pompano Beach asked for an Attorney General's opinion on setting up a recycling franchise of its own.
The state weighs in
The Legislature last session made it clear cities can't issue recycling monopolies. They can't require that a customer use a particular recyclables handler, but they can issue non-exclusive recycling franchises. Cities can raise money issuing non-exclusive franchises, and the franchisee gets a marketing edge with customers, according to Bob Williams of recyclables handler Jefferson Smurfit in Jacksonville, which sued to stop Coral Springs' move. Coral Springs in September changed its ordinance to follow state law.
The Legislature, at the behest of haulers complaining about "sham" recycling, also established that garbage containers must hold at least 90% recyclable materials to qualify as a recycling load. If not, it must be handled by the franchise hauler.
The Big Three say waste hauling in Florida is a highly competitive business. They point out that hauling has more opportunities for small operators than cable television and major public works projects. "If I was going to go start a restaurant, I wouldn't expect to have a chain of McDonald's around the world," says Republic's Williams. "It takes time and patience."
And indeed, some relatively new competitors have prospered. It's also worth noting that independents make good money selling out to the majors they complain about.
Reform likely will happen only at the margins. Says Bill Hinkley, bureau chief for the state Department of Environmental Protection's Solid Waste Section: "My bottom line is, there's legit reason for the franchise, but the question I have now is, are they being abused by the cities and the haulers, and are they discouraging innovation and entrepreneurs especially in the area of recycling? I think they are."
Ayala, in his tiny office cooled by a window air-conditioner, says Pompano Beach informs him he can expect to appear in front of a hearing officer over his canceling the Waste Management contract. The 40-year-old is adamant about not giving in. "I'll go before a judge before I go with Waste Management again," he says.