How Indy's new recycling deal could cost taxpayers millions

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(NOTE: Different iterations of this story have appeared online, what follows is the version appearing in print.)

The Covanta plant sits on a stretch of Harding Street that's just north of the soon-to-be-gas-fed coal plant, just south of the LilLy Tech campus. It's a typically bleak, urban/industrial location where you'll find freight companies stacked with shipping containers, truck stops and the occasional strip joint.

The Covanta facility itself — a blue and gray affair with a cement stack and giant bays that allow Dumpsters to unload on the "tipping floor" — smells, as you'd expect, like garbage. The front office, a raised, semicircular structure, is clean and quiet — and free of the aroma you'll find near the guts of the plant.

There's space on the property toward West Raymond Street, space where Covanta intends to build what it calls an "ARC," an "advanced recycling center." That's their term; common vernacular in the industry refers to the facility as a "dirty MRF (materials recovery facility)." The price tag's right around 45 million bucks.

Covanta is the company that burns Indy's trash for steam that it can turn into power and sell. They signed a new agreement with Indianapolis, a contract that includes a recycling plan that critics are calling inefficient at best, and there are questions about the lack of public discussion regarding that contract.

That contract's also inspired a lawsuit. The lawsuit and its appeals are over a year old: Two paper companies and an Indy citizen are taking the city of Indianapolis to court. (The plaintiffs lost the first round; a decision on the appeal is expected in January 2016.)

Over trash. Gargbage. The stuff we leave by the curb.

That suit notes that Indy's got the potential to be throwing away a very large stack of taxpayer dollars, along with any possibility for the city to improve its recycling programs.

In fact, what's become the most contentious clause of the contract prevents Indy from improving its recycling capabilities through 2028 — or pay a penalty of $4 million per year. Every year. Through the end of the deal.

The central premise of the suit, brought by Graphic Packaging International, Inc., Rock-Tenn Converting Co. and one Cathy Weinmann, is fairly simple: Indianapolis has signed a new contract with a firm called Covanta without "the appropriate application of the Waste Disposal Statute, Ind. Code 36-9-31, controlling such contracts and the process by which they are entered into." The suit also alleges that the new plan — and the plant Covanta intends to build to support that plan — gives every advantage to Covanta and provides only negative outcomes for Indy's households. The details paint a pretty grim picture for Indy's ability to adopt new recycling technologies that are sure to develop in the next decade.

For Graphic Packaging and Rock-Tenn, the agreement will mean less recycled paper that can be converted in other uses — less resources for their manufacturing processes. For Weinmann and every other taxpayer in Marion County, it extracts millions of dollars in revenue that could be spent on bridges or cops. And for City-County Council Vice President John Barth (D, at-large), it's a "method of continuing to burn trash under the guise of recycling" that may command a price tag that outweighs the savings the city claims it will create.

The trash stream and the cash stream

Indy first signed a contract to engage in this burn-for-energy process with Covanta's forerunner, the more graphically named Massburn, thirty years ago. The agreement has morphed over time, but the most recent iteration of the deal with Covanta has two big appeals: Indy appears to be on the hook for less trash to ship to Covanta, and Covanta is offering Indy what's known as "one-bin" recycling.

That means everything you chuck goes into a single can, and the folks at Covanta separate the reusable stuff from what they can burn — or what winds up in a landfill. There's no curbside bin for you to deal with. Toss it and forget it.

It's a kind of recycling that was first popular roughly twenty years ago. The process was abandoned as too inefficient — until firms like Covanta began claiming that technological advances in their separation process coupled with cost-savings and consumer comfort made one-bin recycling a no-brainer for a town like Indy.

Covanta's ARC will separate the goods from the not-so-good, the stuff that can have a second life without going into an incinerator or into a landfill. It's what seems like an elegant solution to a long-running problem — ensuring that every Indy household will participate in a recycling program without lifting a finger. Only about 10 percent of Indy households subscribe to the curbside pickup provided by independent contractors. It's an out-of-pocket cost that isn't covered by the thirty bucks every Indy household annually pays for solid waste removal. (Two things to note: that 10 percent figure doesn't cover the folks who take their recyclables to open bins like those provided at Broad Ripple Park or in front of Sam's Club on 86th Street, and that $30 fee is roughly a third of what our neighbors in Lawrence and Beech Grove shell out.)

The big problem with the "ARC" that Covanta's proposed, though, is that the process allows for a lot more contamination than the homeowner-sorted, put-the-recyclables-in-a-separate-bin system. That pizza box that's soaked in pepperoni grease isn't usable once it's contaminated, and mingling trash instead of separating it before it goes to a recycling facility ups the percentage of material — especially absorbent products like paper or cardboard — that goes right into the burners. Hence the term "dirty MRF."

But Covanta's given the city what looks to be a pretty good deal with this particular dirty MRF: they've dropped the tonnage the city needs to provide. That's a big incentive, considering that Indy has been paying fines for shorting Covanta the fuel it needs for the fires. For years the city was supposed to provide Covanta 300,000 tons of garbage annually; the actual average has run right around 262,000 tons from Indy households. Missing that mark has meant millions in fines paid by the city to the firm Indy's hired to torch its trash — since 2008, Indy's forked over 2.3 million.

With the new contract and the proposed ARC, Covanta dropped the required tonnage to 260K, clearly a mark under the average. For now.

Here's the rub in that regard: packaging is getting lighter. As technology improves and new containers use less materials to do the same job as the boxes and jugs they're replacing, the bulk weight of what you're tossing is dropping. Felt a plastic water bottle lately? Seen the marketing distributed by companies that are reducing waste? That tonnage is dropping as companies figure out how to package things more cheaply — while looking "greener" in the process.

What's not dropping are the tax breaks Covanta gets out of the gate: the new facility will cost the city 70 percent of Covanta's taxes — up to four million bucks.

With the deal, Covanta's not required to hit any marks — though the company's initial stated goal is to recycle 18% of what comes into the plant. In fact, paragraph 44 of the original filed complaint states: "The Agreement places no minimum recyclable recovery requirement on Covanta."

Additionally, to ensure that the stream into the incinerator stays robust, Covanta's managed to include language in the deal that might actually punish Indy's taxpayers if the city looks for ways to improve its recycling options.

The de facto $4 million gag order

Here's the clause in question, the one that has those who've actually read the agreement concerned:

Section 9.06 City Responsibilities

(c). If, during the Term, and except for Existing Programs ... the City implements, proposes or provides for a program or official action through an ordinance, resolution, contract, franchise, or official press announcement or publication, which requires, incentivizes or promotes separation of any Recyclables from Acceptable Waste prior to delivery ... the parties acknowledge that the company will suffer material damages the full scope of which are difficult to determine and accurately specify ... The liquidated damages will be calculated as of the City Program Commencement Date and will be equal to $333,333.33 per month, multiplied by the number of months remaining in the then-current term of the service agreement. (Boldface added. You can find the entire contract here.)

Even though Covanta claims those "material damages" they'd suffer are ambiguous — "the full scope of which are difficult to determine and accurately specify" — they've specified a penalty, alright: Four million dollars a year.

For the entire length of the contract.

Quite a bit more than the current half-million in penalties we've been paying, right?

Councilman Barth — who says he's been working on this issue for a while now — is pretty direct with his displeasure. "There's a huge financial incentive for the city not to do better with its recycling plans," Barth tells NUVO during a phone conversation. "This contract has been put in place as a means of preserving Covanta's business model," which is to burn trash for profit. It's a model that's rapidly becoming outmoded as other cities across the globe start to expand their recycling programs.

Locking down Indy's recycling options with a single technology through 2028 may prove extremely counterproductive as technology progresses. Although Covanta's part of the agreement states that the company will look for ways to improve the process, again, the deal doesn't include any specifics — there aren't any numbers that Covanta has to hit. Like any technology, recycling science is evolving rapidly. (Think about this illustration: compare a website you visited or a car you drove in 1998 versus one you used in 2010 — that twelve-year gap makes for some staggering differences.)

The other problem's one of language: the 1985 agreement defined the term "city" as "the Consolidated City of Indianapolis, Indiana, acting by and through the Department of Public Works." Some of the legal minds working on the suit can't seem to agree on who that definition might cover: could a City-County Councilor encouraging — "promoting" — more curbside recycling on his or her Facebook page, for example, be construed as acting on the "city's" behalf, and therefore have violated the terms of the deal to the tune of $4 million annually?

When we asked the Ballard administration to clarify "city," they responded via email:

Throughout this agreement, "City" refers to municipal government agencies, and the agreement was created in a way that allows municipal agencies to support and promote existing recycling programs — including the subscription-based curbside program and the 25 drop-off recycling bins operated by DPW.

 Again, "existing." Not new. But what about other programs?

Here's one example: suppose a company from, say, Ohio, decided it wanted to mount a textile drive in Indiana that asked citizens to drop old rugs and clothes by the curb?

Simple Recycling is an Ohio-based company that offers curbside recycling of textiles and household appliances to municipalities and their residents free of charge. Residents are encouraged to separate a variety of household items — everything from clothing, shoes, hats and coats to toys, small appliances, kitchenware and small furniture— and drop the stuff curbside. The public-private partnership allows Simple Recycling collection vehicles to follow municipal trash trucks on their routes for all-in-one-day pickup. The municipality even gets compensated per pound for the amount Simple Recycling takes.

Would that trigger the $4 million annual penalty for "promotion" of "separation of any Recyclables from Acceptable Waste prior to delivery"?

Simple Recycling has expressed an interest in reaching into Indiana markets, including Indianapolis, and has even made a pitch for their services to the city of Danville.

We asked Covanta's business manager Paige Bernacchi about the issue, in her office at the plant, with a PR rep for Covanta at the table.

"That percentage is so small," says Bernacchi, "... look, as we all know, contracts are about intent." The implication: unless the city mounts an aggressive curbside-bin campaign beyond the one in place, Marion County taxpayers are in the clear.

But — it's probably prudent to remember that no lawyers were in fact present during this particular conversation.

"We're looking at the best possible technology available," Bernacchi continues. "Take the laptop you're using right now. Do you buy a new one every year? Is [that one] the very latest model?" Her point: at some moment in time, you've got to go with "best available," and additionally, when the "best available" carries a price tag of 45 million bucks, a publicly-traded, for-profit waste facility has to protect the cash they're shelling out.

The trouble with single bins

Councilor Barth's of the opinion that with "dedicated, focused leadership," Indy could model its recycling program after one like Seattle's — or even improve its efforts to match the current recycling levels seen in Lawrence. When Barth had a chance to discuss the Covanta deal with Mayor Greg Ballard, the administration expressed to Barth that they felt confident in Covanta's technology — and that with Indy's current low recycling rates, this was the best solution.

But Jeff Miller, a Republican member of the City-County Council representing the 19th District, is among quite a few people who doesn't think that the numbers of those who really recycle in Indy is as low as one-tenth.

"I think I might've read the quote in NUVO," says Miller, referring to Covanta's stated defense of its plant: "Covanta would not invest $45 million into building the Advanced Recycling Center if the intention was to just burn the material. That simply doesn't make any business sense." (NUVO, Sept. 2015) "I don't think somebody's lying, but I think the counterpoint that 'Only 10 percent of the city's residents do curbside recycling' — OK, bump that up a little more. I don't do curbside, but I take it somewhere myself."

Miller points out he's not alone: "You look at those [public recycling] bins? They're stuffed. Every time I go."

"I think this should have been the second solution. It's not bad to capture what you can. It wouldn't be bad to encourage people through a campaign of some kind to recycle what they can — but there are people who aren't going to recycle no matter what.

"We should've been looking at a more progressive solution to get as much recycled the right way first."

Miller's point: Some folks just can't or won't separate their stuff. For the trash generated by the non-participants, a MRF makes sense. Encouraging good actors to do more, though, should be job one — and a single bin makes for an efficient "first pass" in a recycling program.

Miller's not entirely happy about the way the deal was struck, either: "The process was tricky because Covanta already had an agreement from the beginning. It was pretty far along before anyone knew it was even being discussed. I don't want to say the mayor didn't give ... the IRC (the Indiana Recycling Coalition, which has been lobbying for alternatives that recycle more goods) a chance, but in their defense, when you've got like a month to put together a proposal — I don't remember the exact amount of time, but it wasn't much — that's really tough."

The IRC understands that Covanta's participation in a broader strategy could work, that the recyclable material that escapes the due diligence of good citizens could be sent to a MRF, and that which is too far gone could be turned into energy. But the best solution for Indy might be the kind of combo-platter that Miller supports: use Covanta's MRF as a backup.

The other issue with the new agreement has to do with behavior: the city's about to train the next generation that throwing everything into a single receptacle is now perfectly "green." And those who currently subscribe to curbside recycling might be encouraged to drop that monthly bill.

Cathy Weinmann, the non-corporate entity named in the lawsuit, lives about a mile-and-a-half from Covanta's current plant. She says she's seen attitudes shift already:

"When I talk to people around here about it, well-informed neighbors of mine, [they say], 'When that comes up, we won't have to pay to recycle anymore. It'll be free.'"

"But don't they (Covanta) make most of their money off of burning trash?"

Covanta's defense

Bernacchi takes issue with comments from those opposed to their plan that Covanta is merely trying to take in more trash for the sake of gathering more burnable material and has no intention of truly gathering recyclable goods. She says again (as she tells us she has said many times before — and as every Covanta spokesperson has as well) that it doesn't make any business sense to spend $45 million dollars on a facility and not use it. "It's frustrating for us," reiterates Bernacchi.

OK, some background here: It's important to remember that Covanta is a business. It might be counterintuitive to think of it as a for-profit, publicly traded institution because of the "utility-like" service it provides the city in the disposal of municipal solid waste. Like the plant currently burning coal down the road, the incinerator that burns our trash creates steam energy that is then used for power. It's just a different fuel. But Covanta is a for-profit, publicly traded concern — designed to provide a service to its clients for a fee. Our city, like every city, has solid waste that has to go somewhere. When the choices are to pile it up in a heaping landfill or incinerate it to ash, Covanta offers the burn option for a price. It's capitalism, in a nutshell: modern society creates a lot of garbage. How can we make money off of it?

But it's also true that Covanta's contract with Indianapolis was about to expire as a new deal was struck, and the proposed investment of $45 million for the MRF could have conceivably been a pretty strong selling point for the city to extend the deal. That's smart business sense, too — if the new contract that runs through 2028 brings in the current price of approximately $33 per ton, that 260,000 ton minimum that the city hands Covanta is worth $8.58 million, or nearly $103 million over the next twelve years.

It's also worth noting that the city of Indianapolis isn't Covanta's only customer. The company has other clients — from trash-hauling businesses (e.g. Ray's, Republic, etc.) to profiled customers with a lot of solid waste that can't or shouldn't go to a landfill. (Ever wonder what happens to those grocery products recalled by a company and returned to the store? Exactly – Covanta burns 'em.)

Thinking of Covanta as a service-providing business and not a utility like Duke Energy or Citizens Energy goes a long way in understanding the "skin" they have in this game with Indy. Like any business — from a small operation to a Fortune 500 company — growing the business model and diversifying the product or service is key to survival. For Covanta, a company with a published mission of providing "sustainable waste and energy solutions to ensure no waste is ever wasted," the world of recycling seems to make sound business sense if a company's trying to diversify — the stuff's already coming through the front door.

According to Bernacchi, the Covanta facility on Harding Street is at capacity. There is only so much solid waste the facility can hold at any given time and the facility can only burn so much tonnage on any given day. When a business hits that type of plateau, diversification is a natural "next-step" conversation.

Another cause for Covanta's growing need for diversification dates back to 2008 and can be laid at the feet of Indy's city fathers. Prior to that date, the incinerator "plant" was owned by the city and operated by Covanta. The facility, which went online in the '80s, was a 20th century alternative to landfills at a time when concerns for Mother Earth were just beginning to take seed and flourish. The city was the landlord and Covanta was the tenant. In 2008, Covanta become owner and operator, responsible for the whole kit and kaboodle. And more responsibility incurs more costs and overhead.

All the perks, none of the oversight

During a recent national recycling conference held in Indianapolis, Scott Holkeboer, Covanta's vice-president of business management, stated that Indianapolis was not looking to expand its recycling options. Holkeboer said it was an "unopened door" that Covanta pushed through to open the city's administration to the possibilities. Covanta, as a business, is looking to diversify its service offerings and their research told them Indianapolis was a great place to start. (Odds are pretty good that if the Circle City thinks that Covanta's plan is sexy, though, other cities may follow suit — a single-bin recycling plan in a city the size of Indy would be a lovely marketing tool for a firm like Covanta.)

And why not? With the current facility running at capacity and customers looking for more disposal options having the ability to separate out the recyclables creates more space for the "burnables," Covanta increases its revenue by selling the collected recycled material and taking in more waste to burn from customers looking to increase their business.

But a central issue remains: none of Covanta's other clients are likely on the hook for a shortage penalty. Indy's signed a utility-style contract without the kind of ongoing oversight usually included in utility agreements. It's not so much a waste stream that won't dry up as it is a revenue stream for Covanta's shareholders guaranteed by Marion County taxpayers. Since Covanta Indy can process 2,175 tons of waste per day, the city of Indianapolis must contribute roughly one-third of the total when the shop's operating at full volume or pay the penalty.

And since the language in the contract is specific regarding city's tonnage minimums and vague on what targets Covanta's required to hit, the fundamental concept behind the ongoing litigation seems reasonable: The contract benefits Covanta and is disadvantageous to homeowners with an Indy zip code.

Bernacchi says the terms and conditions of the contract — which, Bernacchi claims were hammered out over a long back-and-forth between the city and Covanta's legal reps — are not uncommon in this industry. "Put-or-pay" contracts are typical — they're a stopgap against risk for one party. One party — in this case, the city — guarantees to give another party a certain amount of stuff at a fixed price over a specified period (the "put") or cover the shortfall (the "pay").

With $45 million going to a new facility, Bernacchi said there would have to be some sort of incentive for their company needs to be met as insurance on that investment.

When our conversation with Bernacchi turns to what seems to be a beef between Covanta and the IRC over the latter's input into the process — and the apparent lack of light regarding the construction of the amended contract — Bernacchi's fairly adamant regarding several points.

"We met with over 20 stakeholders, including the HEC (Hoosier Environmental Council) and the IRC." Bernacchi says the IRC had six months to offer alternatives and none were forthcoming.

That statement seems to contradict what Covanta veep Scott Holkeboer said (as we noted earlier) at the Indy recycling conference: that Indianapolis was not looking to expand its recycling options. Ballard's people told NUVO in an email they've been looking for recycling options since 2009:

The decision to partner with Covanta to add additional recycling options evolved over several years of discussions with multiple service providers. The City began engaging recycling and waste services providers in 2009 and issued an RFP in 2010 aimed at improving the City's recycling program. Responses to the City's 2010 RFP were limited, and the only viable proposal was contingent on an increase in the City's solid waste fee assessed to homeowners – something the City-County Council has shown little willingness to discuss.

 Carey Hamilton of the IRC has a different read than Bernacchi on the process, as she told NUVO in a recent phone conversation: "In January of 2014, I saw the mayor at an event, and I expressed concerns about this agreement. He said 'Get with my people right away — we're about to sign this deal.' Then we started to get letters of opposition before them, get resources before them ... our intent was to slow things down and get a public, competitive process." (As they themselves will tell you, the IRC is not a recycling service provider.  Only a competitive bidding process could prompt a full proposal to compete with Covanta's deal.)

Hamilton's of the opinion that the way Covanta's describing the process isn't accurate. "We were in dialogue," explains Hamilton further in a followup email, "but we felt we were providing more than enough for the mayor's office to stop and say 'Hey, wait a minute, we've got to slow down and provide a public, competitive process." Doing so will show us what these new recycling grants and new local recycling companies can offer so that we know we are providing the best possible service for taxpayers."

If anything's obvious, it's this: there's some animosity here; bad blood between the Ballard administration and the City-County Council and more than a few disagreements between Covanta and the IRC. Again, let's not be naïve: Covanta agreed to what looked to be a good deal for Covanta — and its shareholders. If anyone at Covanta believed in their hearts that Indy was paying too much for their services with this new agreement, expressing said sentiment makes zero business sense.

The Montgomery example

When NUVO's Renee Sweaney started looking into Covanta's plans to build a dirty MRF in Indy, Covanta directed her to a MRF in Montgomery, Alabama. Infinitus Energy had opened a facility in that city that may have helped sell Indy on the concept — reps from the Ballard administration had toured the facility in 2014.

Unfortunately, the Montgomery plant is currently closed.

On Friday, October 2, 2015, about 100 workers were told the plant would be ceasing operations according to a report by Brad Harper for the Montgomery Advertiser. In short, the commodities market has hit bottom, and the plant doesn't appear to be very cost-effective at this time.

The company said Monday in a statement that it plans to "review a detailed plan that would allow us to resume operations."

"One key element of a successful materials recycling program is the ability to sell recovered material at a price that will support the recycling process," said Kyle Mowitz, Infinitus CEO. "While our customers have been satisfied with the material we have reclaimed unfortunately the market price for these materials have dropped dramatically."

The company said it appreciates the public's understanding and would provide more updates as it works in "a cooperative effort on all fronts" to re-open the plant.

Although the city and Infinitus have spoken about "restructuring" their deal, the plant was still dark as NUVO went to press.

In the meantime, Montgomery, Alabama's trash is headed into a landfill.

The key differences between Indy and Montgomery? Covanta has built a contract that protects Covanta's financial interests first and foremost. The Indianapolis MRF isn't reliant on the success of the recycling program to cover its costs. It's secure because of the financial guarantees in the contract that are still based on the waste energy business — it doesn't matter if the commodities market for recyclables tanks or skyrockets. 

Another problem: according to industry sources, the contract that Infinitus has with the city of Montgomery has pretty strict guidelines on just what constitutes "recoverable materials." In Indy, Covanta gets to determine what is and what isn't recoverable.

Since Covanta's not beholden to any set of standards — and determines what's recoverable — there's no penalty for Covanta to simply burn more if the commodities market plunges through their tipping floor.

Back to the burners and the single bin

What frustrates environmental advocates most are the implications here in Indy regarding the lack of any incentive in the stream to actually improve recycling rates. Moreover, the IRC as well as other green minds contend that investment in a better process than a dirty MRF opens up the potential for creating more jobs than the 60 or 70 that'll be hired to run Covanta's "ARC."

There are other beefs from the folks who'd like to see Indy model its recycling program after Lawrence or Beech Grove: again, we're training citizens to toss everything in a single can with the selling point that we're still, as a community, recycling — when it's been proven that dirty MRFs are obviously less efficient than curbside recycling. Environmental advocates also express frustration over the claim that the program will guarantee "100 percent participation" — that seems disingenuous, since everyone who's simply throwing stuff away is "participating."

Here's Ballard's people again:

Currently, we estimate that 10% of households participate in some type of voluntary recycling program. Through the contract, Covanta will have access to residential waste for the purpose of capturing recyclable materials from 100% of Indianapolis households, but residents may still opt to participate in additional recycling and sustainability programs.   

Residents may opt out, but the city can't promote any non-existing programs. And just because recyclable materials are being "captured" doesn't mean those materials are being "recycled."

All of this vague verbiage is fueling an underlying suspicion from the plan's opponents: Is building a dirty MRF a kind of pricey greenwashing, maybe a marketing tool for Covanta to look like responsible corporate citizens, and, using Indy as a model, pitch similar programs to other municipalities?

Ultimately, we're left with a few questions for those who lead — and those who hope to lead — the city of Indianapolis:

If the deal's really a dog for Indy and her taxpayers, as the lawsuit alleges, why was the Ballard administration so eager to sign the contract?

Mayor Ballard's press office responds thusly:

 In the interest of increasing recycling participation and diverting as much recyclable material as possible from incineration or landfill, the City continued to seek a solution that could increase recycling, while not resulting in a fee or tax increase for property owners. Covanta's ARC accomplishes those objectives.

Whether or not we're "diverting as much recyclable material as possible from incineration or landfill" is clearly a point that's not been settled yet. And while Indy's committed to deliver less tonnage, Covanta still gets the promise of a tax break and the potential to receive massive fines from city coffers if there's disagreement about what constitutes damage to Covanta's stream of refuse.

Which leaves the last queries yet unanswered: If the plaintiffs lose their suit, what are Indy's other options — and with Ballard's exit from office, can the new man at the Mayor's desk cut and run?

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