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Recycling Part III – Bottom Line For Cities

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In the past decade most cities have benefitted financially from developing robust recycling programs, helping cities financially in two ways. First, by diverting tons of waste away from landfill, cities reduce their landfill costs. Second, by hiring recycling processors who can resell and share profits from the resale of secondary commodities like metal, paper, and plastic, cities have earned positive revenues from their programs.

A slump in commodity prices as well as other market factors, however, have fundamentally shifted this second factor in the municipal economics of recycling. A snapshot of San Antonio and Houston contracts illustrates the market change over just the past three years. 

Houston has seen a swift financial change in their recycling deal. 

Houston

Before 2016, Houston had enjoyed a contract with Waste Management in which the processor would not charge anything to haul recyclables, and would split the upside of revenues as it sold recovered materials into the secondary commodity markets. Recycling made money for Houston, with no financial downside.

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Houston skyline

At the end of that contract in 2016, however, Houston endured temporary contracts and exposure to faltering markets. Between 2016 and 2019, the city paid $92 per ton for hauling and processing, a cost per ton that ended up costing the city an average of $120,000 per month. Also, under temporary contracts, there was no predictability to what the program could cost. 

Houston’s new contract with Spanish processor FCC went into effect in March 2019, requiring the city to pay $87.05 per ton of recycled waste. Like most municipal contracts, Houston can share in the revenue that FCC generates through secondary sales, and use that revenue to offset the costs of hauling and processing. 

Says Sarah Mason, Division Manager of Recycling at Houston’s Solid Waste Management Department “We were aware that the commodities market was on the downside at the time we were working out the [present 2019] contract.” 

Given that exposure, Mason says, they negotiated a maximum net cost of $19 per ton, even if recovered commodity revenues remained weak. Houston has hit the $19 cap every month the contract has been in effect. This cost cap has cut recycling costs to about a third, or an average of $41,000 per month. Still, it’s a contract that reflects the new altered dynamics of the recycling market in 2019. A former revenue source has become a net cost to the city budget.

Meanwhile, a three hours’ drive west on I-10, San Antonio has a few years remaining on its contract, one negotiated in better times. 

San Antonio

Costs to haul and process recycled materials are just over $36 per ton through 2024, according to their contract with Republic Services, which by comparison with Houston seems quite low. An additional “contamination” fee for non-recycled waste that gets mixed in with the recyclables typically raises the costs by another $12.50 per ton. San Antonio’s experience is that contamination fee typically kicks in every month.

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San Antonio skyline

In good years, prior to 2017, San Antonio expected secondary commodity revenues to more than offset its costs. The city enjoyed a 50/50 split on revenues above costs. If revenues brought in $72 per ton, the entire program would be paid for. 

Recovered revenues above $72 per ton ended up as a net revenue-generator for San Antonio. In addition, Republic agreed that if recoveries didn’t fully match costs, the city could roll over its net costs, with a promise of owing nothing if recoveries over the life of the contract proved insufficient. That’s how confident Republic must have been in its ability to make money from recovered paper, plastic, and metal, under the old contract, negotiated in the 2013/2014 period.

Financial data shared by Josephine Valencia of recycling manager of the Solid Waste Management Department of San Antonio show net revenues have on average been negative in 2018 and 2019. Net 2018 revenues from recycling averaged negative $2.60 per ton in 2018, and worsened to an average of negative $9.45 per ton, reflecting declining commodity markets. The average recycling costs would be over $60,000 per month in 2019, although Republic will eventually absorb those monthly losses if commodity markets do not recover. San Antonio’s contract lasts through 2024, but if present conditions persisted the city could expect that kind of cost would factor into any new negotiated contract.

In other words, future municipal recycling contacts – if commodity market conditions do not change – will lock in recycling as a loss-maker rather than revenue-generator for cities in the future. Valencia confirmed that Houston and San Antonio’s shift from monthly gain to monthly loss are probably happening nationwide, at least in cities that employ the popular “single bin” method of household recycling. 

Don’t forget landfill-cost comparison

The contracted costs from Houston and San Antonio simplify the total financial picture somewhat, because they do not reflect at least one big factor. Recycling lowers waste management costs overall by redirecting waste away from landfills. The City of San Antonio estimates 2018 and 2019 savings from reduced landfilling at approximately $1.5 million and $1 million respectively, according to Valencia, on a total waste management budget of $150 million. That’s not nothing, and provides a compelling reason to continue the programs, even as they do not produce the positive cash flows of the past.

A version of this post ran in the San Antonio Express News and Houston Chronicle

Please see related posts

Broken Recycling Markets Part I – The Plastic Ban and Commodity Swoon

Broken Recycling Markets Part II – Commodity Market Prices

Recycling Part IV – Best Household Practices

Organic Recycling – Green to Green

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