Toronto’s new mayor Rob Ford and his brother/advisor Doug just announced they are planning to contract-out garbage collection for half of the City of Toronto as soon as possible as the first step to outsourcing everything we can by next year.
According to Doug Ford, this will save the city millions and millions of dollars and ensure that they never have a strike again. Wrong and wrong again. Comparisons with neighbouring regions that contract out show that Toronto’s costs are lower and secondly, there is no guarantee that private waste collectors won’t go on strike.
Now even the Toronto Star has got into the act with an editorial supporting this move and pointing favourably to Mississauga, Brampton and Vaughan as municipalities that have private waste collection.
Much of the rationale for contracting-out is that private waste collection will save the city many millions of dollars. However, these figures are based on misinformation and distorted statistics.
The Toronto Board of Trade first got into the act last year, claiming that Toronto’s in-house costs were twice that of the neighbouring regional municipalities that contract out waste collection. I called up the Board of Trade last summer a few times and they said they they’d send me the numbers, but they never did. So I checked them out myself through the figures that every municipality submits to the Ontario government.
The facts are that Toronto’s costs of waste collection per tonne are actually lower and often substantially lower than every regional municipality that contracts out its waste collection. For example Toronto’s costs in 2009 were $72.22 per tonne. Costs for Mississauga and Brampton as part of the Peel regional municipality were $106.79 per tonne. Vaughan’s costs were $168.40 per tonne. The other regional municipalities also had higher costs: Durham at $85.74 per tonne and Halton at $86.79 per tonne.
In fact if Toronto’s costs from private waste collection are close to what these regional municipalities pay, then costs for residents of Toronto for private waste collection will increase by at least 20% a year or more than $6 milllion per year and could be 50% or $16 million higher.
Recent and also previous reports by the Ontario Municipal Benchmarking Initiative show that Toronto’s costs for waste collection have been consistently below the average for Ontario and also below the average for its neighbouring regional municipalities that contract out waste collection.
More widely quoted are estimates from the C.D. Howe Institute that were based on some econometric regressions they performed in their Picking up Savings Report. From their estimates they claimed that Toronto could save $49 million per year from contracting-out all its waste collection. It also claimed that Vancouver and Calgary could also save many millions.
This is an interesting study: it seems very reasonable until you actually read and understand the econometrics they conducted. In effect they struck out on their first two attempts (simple correlations and OLS regressions) to show that private waste collection was cheaper, so they used an econometric technique called “fixed effects regression” which effectively engineered the results they were looking for.
From these results, they generalized these results in a highly speculative way to claim that municipalities could generate massive savings from full contracting out.
Simple correlations shows no real relationship while their OLS regressions show mixed results, but and with very low R-squares. It is only the fixed effects regressions that show strong results. Fixed effects regressions can be appropriate in some circumstances, but in this case they effectively bias the results. It seems it would only pick up those who change the proportion of services contracted out while ignoring the rest. Few municipalities are going to increase the amount contracted out unless it results in lower costs, so this method effectively excludes those who decide not to because the costs are higher.
The reality is that a lot of other factors have much more impact on the costs of waste collection. For instance, Ottawa’s in-house costs for waste collection have been consistently below the cost of contracted out waste collection — and has saved the City more than a million a year, as the city’s auditor just reported again.
What often happens is that private waste companies bid low to get the contract but then increase costs much more rapidly. This is what Cornell economist Mildred Warner, Germa Bel and others have found from their extensive meta-studies. As they report “The most recent studies have found no difference in costs. Cost savings from privatization erode over time….”. There are a number of possible explanations for this. A recent study by James McDavid of the University of Victoria also found–to his apparent surprise–no cost savings associated with private collection of recycling.
I have some more detail in a critique of the CD Howe and Board of Trade figures posted on the CUPE site called Garbage In, Garbage Out. A more detailed report I did for Peterborough on this issue entitled Costs and Consequences helped to convince that city to keep its garbage collection in-house a few years ago. City officials worked closely with the union local on calculating costs and were able to achieve some major efficiencies.