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The Progressive Economics Forum

Garbage In, Garbage Out

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.

Enjoy and share:

Comments

Comment from Dennis Brown
Time: February 8, 2011, 4:17 pm

The City of Ottawa said Tuesday it saved close to $5 million, over four years, by using unionized employees to collect garbage in its downtown core….

Accounting firm Ernst & Young audited the garbage collection program and confirmed the city’s statements….

http://www.cbc.ca/canada/ottawa/story/2011/02/08/ottawa-union-garbage-208.html

Comment from nuttler
Time: February 8, 2011, 4:20 pm

Mayor Fords electoral platform includes contracting out not only garbage collection but anything else they can hand over to private companies. It’s more about busting Unions than the actual cost savings they claim will happen, but those educated about these things know that private contracting always starts out cheap and ends up more expensive, and when all the cities equipment is sold off , they will be at the private companies mercy. Typically Conservatives are against organized labor anyway , and more about making their buddies rich, wait and see who gets these contracts.

Comment from rww
Time: February 8, 2011, 5:25 pm

Just as a report comes out showing Ottawa’s unionized garbage collectors saved the city millions over private contractors, with better service on top of that.

http://www.cbc.ca/canada/ottawa/story/2011/02/08/ottawa-union-garbage-208.html

Comment from Joy Taylor
Time: February 8, 2011, 9:22 pm

Rob Ford in striving to keep an election promise is planning to Privatize without down the road planning.lets hope that the Councillors will use common sense when they vote for or against the Privatization of our garbage.

Comment from Toby Sanger
Time: February 9, 2011, 11:08 am

Enzo Di Matteo has written a really excellent summary of 10 Reasons Why Private Garbage is a Trashy Idea in Toronto’s NOW magazine. It’s at
http://www.nowtoronto.com/news/story.cfm?content=179027

Comment from rcp
Time: February 9, 2011, 12:09 pm

Does anyone have figures on the cost of garbage collection in Etobicoke vs. the rest of Toronto? That presumably is the most relevant comparison.

Comment from Paul tulloch
Time: February 10, 2011, 1:23 am

Good point rcp, in fact it is one of the reasons, the fixed effect method used in the study makes the results unacceptable. In order to use said technique, one must be comparing similar entities. Which provides the power of the technique, that is, it can efficiently minimize many differences, and hence error and noise that typically one would worry about using a different technique.

Garbage collection between variious cities is obviouly very different and so two are the cities.

Wow a nasty flu has taken hold of me- hence woke up in middle of the night and what do i do, commenting on this
site. Now how is that for dedication? Or should I say obsessiveness, lol. More meds.

Comment from Brent Gulanowski
Time: February 10, 2011, 6:13 am

It’s fine to do the wrong thing as long as you can make it appear that you’re doing it right. Popular “wisdom” is better than having a clue. More people will agree with you (that is, with Mr. Ford).

Comment from Toby Sanger
Time: February 10, 2011, 9:04 am

In response to rcp’s question about costs of garbage collection in Etobicoke, those figures don’t seem to be publicly available. Since Ford was elected, city officials have refused to provide figures on the costs. However, previous City of Toronto staff reports have noted that the costs of collection in congested downtown streets tend to be higher than in the suburban fairways.

Comment from Paul tulloch
Time: February 10, 2011, 12:09 pm

Just wanted to ensure this bit is mentioned.

Garbage collection is a difficult job, let’s just say, it is no walk in the park office job. Sure it may pay, but it s one of the more demanding jobs in the service sector. So why would a good old hard workin man like ford, want to pick on such hard working people.

Ultimately privatization, opens the door and leads to reduction in wages and benefits of these workers.

Not to mention workload, health and safety and a whole host of issues that confront a worker in this field.

To center out garbage collection as cost savings on the backs of the workers is pathetically immoral.

Comment from Sixth Estate
Time: February 11, 2011, 8:33 am

I think it’s relevant that the “independent” C.D. Howe Institute study was commissioned by the Ontario Waste Management Association (the industry trade association), for $50,000.

Proof here:
http://sixthestate.net/?p=760

Comment from Erin Weir
Time: February 11, 2011, 10:20 am

Nice work, Sixth Estate. I have uploaded the incriminating PDF (just in case it disappears from the OWMA website.) See page 73 of 75.

Comment from Glen
Time: February 11, 2011, 12:34 pm

Unless there is some competitive bidding, it is impossible to say which offers savings. I believe that is the point to the whole exercise.

Comment from Glen
Time: February 11, 2011, 12:38 pm

Here is the reasons for Ottawa’s savings, according to the city…….

Although Ottawa’s costs increased due to new contracts awarded in 2006, the City’s collection costs are still significantly lower than in other OMBI municipalities. This is due to a competitive bidding process, which resulted in favourable contract prices, and the efficiency of Ottawa’s in-house collection group.

Comment from Toby Sanger
Time: February 11, 2011, 12:50 pm

Thanks VERY much to Sixth Estate and to Erin for demonstrating that the CD Howe Study was paid for by the private waste contractors. I had suspected this but the CD Howe Institute has never publicly revealed this.

In response to Glen, you shouldn’t put your faith in supposedly fair “competitive bidding”. Ottawa’s guidelines on this inflate the costs of public delivery by at least 10% by adding on a whole lot of “ghost charges”. This has been confirmed by auditor reports that show that the in-house costs are on average about 10% less than had been originally estimated. Ottawa’s guidelines for competitive bidding were developed and are coordinated by someone from a firm called P3 Advisors and are based on material produced by a U.S. pro-privatization organization that maintains the privatization.org website. They also neglect to account for many of the additional benefits provided by public delivery, including flexibility and future cost savings.

Private contractors tend to bid low at first and then increase their prices at twice the rate of the public sector. If a city has sold off their equipment (often at a loss to its real value), then they face a major barrier to getting back into the business.

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