Published in the Toronto Star on December 21 2010
By Benjamin Dachis
Now that Rob Ford has become mayor, the city’s focus will turn from what he said he would do to what he does.
Perhaps more than any of his other promises, voters will have high expectations that the new administration deliver on its pledge to contract out more residential waste collection services.
Although contracting collection could save money if done properly, Ford faces many hurdles in following through on this promise.
Toronto’s municipal employees provide most household waste collection within the city’s borders. The main exception is in Etobicoke, which is like most other Canadian cities in that private contracting is the norm for waste collection.
There is more to waste management than what is picked up from the curb. Cities also need recycling services, landfills and to haul waste to its final destination. In all these services, contracting can significantly reduce cost.
Ontario municipalities that contract out all of their waste services have costs that are about one-third lower than similar cities that do not contract out any of their services. Based on these results, Toronto could eventually save nearly $50 million per year if it contracted out all waste services.
However, the city will not realize these savings if it bungles the contracting process.
If the city lays out contracts that are too specific about how services must be provided — for example, by designating the use of particular trucks or types of technology — it will reduce opportunities for innovation by contractors.
To see how this can turn a good idea bad, think back to the expanded street food program in which vendors were required to use city-provided carts. The result was an expensive experiment and poor service.
Although the city could make allowances for retaining the existing bin system, for example, contracts should instead specify standards of outcomes, such as the frequency of service, a low number of customer complaints and other clearly definable and measurable goals.
The city will be no better off if it replaces a public monopoly with a private one. This could happen if the contracting process entrenched the companies that won the first round of bidding.
This problem is acute when private companies own landfills and the municipality cannot easily get access to others. One way to limit that trouble is if cities own a landfill but contract out the operation of it. Indeed, this is exactly what the City of Toronto has done with its landfill near London.
The city should also contract out collection services within neighbourhoods of the city, creating both large and small zones that allow smaller waste companies to bid alongside large waste firms, increasing competition and likely lowering costs.
The biggest impediment to contracting will be the rigidities in the existing union contracts.
The city’s collective agreement specifies that there can be no new contracting of services currently provided by municipal employees. Not only does that mean that contracting can start no earlier than 2012, when the current collective agreement expires, but the city will have to negotiate with the union to remove this clause from the labour contract. Do not expect the union to give this up easily.
The city’s collective agreement also forbids any layoffs of employees with more than 10 years of service, but this need not be the death knell of contracting. Privatization itself does not necessarily reduce costs: it is a competitive tendering system that results in cost savings, whether the services are provided by public employees or private contractors.
The city can allow employee groups, or locals, to compete alongside private contractors. Evidence from the United States shows that municipal employees often win the contracts put up to tender. Municipal employees can be the best option, but cities cannot know that for sure unless they compare their bids to other proposals.
Indeed, tenured employees might be able to form a municipal operation competing against the private sector, ensuring there is a public option available if private contractors fall short of expectations.
The savings from garbage contracting can be huge: the City of Windsor realized significant savings in contracting out all garbage and recycling collection without laying off any unionized waste employees, even though its agreements would have let the city do so for a large share of municipal employees.
Toronto could create contracts that permitted municipal employees the right of first refusal on jobs offered by private contractors, or provide other incentives for the contractors to hire displaced workers. The evidence from U.S. local government services that were contracted out found that very few municipal employees were laid off, and that the majority were transferred elsewhere in the city or went to work for the contractor.
If the new administration follows these guidelines and best practices, it will have a much easier time delivering on its promise of saving money for taxpayers through competitive service contracting.
Benjamin Dachis is a policy analyst at the C.D. Howe Institute. His paper “Picking up Savings: The Benefits of Competition in Municipal Waste Services” is available atwww.cdhowe.org.
