After a year-long delay, dozens of companies recently took the first step toward bidding on commercial waste zones in New York City – even as they don't know how many customers will be available post-pandemic and the city's current implementation budget is limited.

Spurred by Local Law 199 of 2019, the city's Department of Sanitation (DSNY) is now overseeing a pivotal procurement process to make this happen. Responses to Part I of a request for proposals (RFP) were mainly informational, and timing for the solicitation of detailed bids in Part II has not been finalized. Opinions range on the best timing to move ahead, given ongoing uncertainties of economic recovery in one of the country's hardest hit commercial waste markets, but the agency forecasts it could happen by late spring. 

“The conditions that led the council to pass and the mayor to sign Local Law 199 still exist. So there is still a clear need for reform in this industry and we are required by law to implement that reform," said Gregory Anderson, deputy commissioner for policy and external affairs at DSNY. “I think we can be reassured that by the time implementation starts [in 2022], the city will be much closer to where it was pre-COVID than at the depths of the crisis in May 2020."

Following final bids and contract negotiations, implementation could begin next year. Yet Mayor Bill de Blasio's administration hasn't committed full resources to see this process through to date. A long-term consulting contract with Arcadis was suspended last summer and plans to staff up the agency – beyond an existing director of commercial waste position – were frozen by citywide pandemic cutbacks. DSNY is hiring for a deputy director as of this week, but said more personnel will be needed to manage such a major program.

“If there was any indication of how serious the administration was taking this it could be reflected through their staffing," said Antonio Reynoso, chair of the New York City Council's sanitation committee and original sponsor of the waste zone legislation. Reynoso called it "very concerning" to see limited resources available for "arguably the most meaningful reform to the private sanitation industry" in decades.

The months between now and early summer, when the city's FY22 budget will be complete and timing will likely be known on Part II of the RFP, mark a pivotal period for a system that will shape the local market for decades to come.

A crowded field

Commercial waste zones have loomed large over the local industry for many years, affecting business strategies and largely putting recent M&A activity on hold even before the pandemic. Operating in an initial coronavirus epicenter since last year, New York's local hauling sector was hit hard by worker illnesses, lost business and layoffs.

Numerous local companies received federal Paycheck Protection Program funds, including multiple applicants in the latest round that saw less demand from the industry on a national basis. Executives at multiple companies, who spoke on the condition of anonymity due to the ongoing procurement process, described varying degrees of uncertainty about near-term prospects.

Amid all of this, DSNY Commissioner Edward Grayson said at a Brooklyn Solid Waste Advisory Board meeting in early March, according to a person in attendance, that more than 50 applications came in for Part I of the RFP. The agency declined to confirm the number at this time, but numerous sources believe it's generally accurate.

"I’m not surprised by the number of companies that responded to Part I of the city’s RFP. It’s a very valuable opportunity," said David Biderman, CEO of the Solid Waste Association of North America, adding the program could also have broader ripple effects in terms of post-collection opportunities. "Changes in New York City lead to changes in waste flows to and through other Northeastern states."

The 2019 law will shift the city's current open market for commercial waste to a system of 20 non-exclusive zones with up to three haulers allowed to operate in each. Five citywide contracts will also be awarded for containerized waste and compactors. Selected bidders and subcontractors will have to follow a detailed list of safety, environmental and service standards.

The vast majority of existing local haulers are believed to have participated in Part I. This ranges from the market's largest players – Interstate Waste Systems (IWS) and Waste Connections – down to family operations with a handful of trucks. The potential for new entrants is also a factor many are watching closely.

“We have a concern that some of these national operators that are sitting on the sideline and don’t really operate in our marketplace will swoop in," said Mike Hellstrom, secretary treasurer of Laborers Local 108. "The notion was that the local operators would be the ones that would actually be awarded the bids."

Waste Management runs multiple local transfer stations, and works with DSNY on long-term export contracts, but hasn't run collection routes in the city for more than a decade. The company maintains an active hauling license with the city's Business Integrity Commission (BIC) and has long hinted at potential interest in bidding.

Waste Management declined to answer whether it participated in Part I, intended to bid on a citywide container contract, or had submitted any regional post-collection facilities for consideration via a concurrent request for expressions of interest (RFEI). Asked about ideal timing for Part II of the RFP, the company broadly referenced positive signs in other states where businesses had reopened.

"Waste Management continues to watch development of New York City’s franchising plan with great interest," said John Hambrose, regional communications manager, via email. "We believe the dramatic drop in our business witnessed a year ago will be followed by a corresponding rebound as more people are vaccinated and more states and segments of the economy reopen."

Numerous Waste Management employees were present for a virtual meeting about the RFP in January and Council Member Reynoso said he's heard from representatives before on waste issues. A lobbying disclosure confirms the company engaged his office on "commercial waste zone timing" late last year.

Republic Services, which has no recent city presence aside from an export contract for DSNY's Staten Island transfer station, confirmed it did not participate in the RFP.

While sources believe it's possible new companies could enter the zone system in later years via acquisition, a process that would require DSNY approval, the list of current possibilities appears largely set. Any company applying for Part I was required to have a pending license application submitted to BIC, and a list obtained via public records request shows other notable names could be in the mix.

Sizable regional hauler Winters Bros. Waste Systems submitted a license application in November and was represented at the January virtual meeting. The Long Island-based company did not respond to a request for comment.

Hauling license requirements also apply to companies without their own collection assets, currently classified as "trade waste brokers" by BIC, who want to win a zone and subcontract the work to other haulers.

Atlanta-based Rubicon was approved for a hauling license in December. The company declined to comment on whether it participated in Part I or its broader plans for commercial waste zones.

Locally based Recycle Track Systems applied for a hauling license in February and its application is pending. The company has long planned to bid on zones, but also said it would remain adaptable however plans evolve.

“As a company we’re ready for implementation this year and we’re also ready if it’s never implemented," said CEO Gregory Lettieri. “It’s a guessing game from an industry perspective."

Another avenue for new or existing players to gain market share is through specialized services such as organics recycling. As envisioned, bidders can partner with larger subcontractors or microhaulers to handle this work. Yet the process for linking up with potential partners, as DSNY tried to facilitate with the post-collection RFEI, remains undefined.

“I don’t think Part II can happen until subcontractors and microhaulers are able to connect with commercial haulers to talk about their services," said Meredith Danberg-Ficarelli, co-founder of the NYC Microhaulers and Processors Trade Association and director of Common Ground Compost.

She also advocated strongly for more local organics processing infrastructure, saying the "field of dreams scenario" where investment would follow existing commercial organics diversion requirements hasn't come to fruition.

DSNY said more details on organics collection partnerships will follow in the coming months. It declined to confirm the number of RFEI applicants for broader post-collection opportunities before details are made public in Part II of the RFP.

Multiple existing facilities operators said they didn't participate in the RFEI, but could invest in upgrades depending on bidding results. As for DSNY's own role in post-collection for commercial waste – an ongoing point of local speculation – Anderson said it's unlikely that would happen at least within the first year but “we don’t want to close the door to it." 

Predicting the future

Since the pandemic hit, the key message from local companies has centered around economic uncertainty with Manhattan as a focal point.

At the peak, commercial waste volumes in the city dropped by an estimated 70% or more and DSNY cited this as a primary reason for repeatedly delaying the RFP process in 2020. Waste Connections, the only public company currently operating in the city, similarly reported significant declines throughout the year with signs of incremental recovery in the fourth quarter.

Speaking in early January, Mr. T Carting CEO Tom Toscano said his business in Queens and Brooklyn had recovered relatively well in the fall but "Manhattan is really very far away from what we used to consider normal." 

In January, IWS reported its Manhattan revenue was down more than 50% at the low point, and overall revenue in the five boroughs was down 25% prior to the pandemic's winter wave. At the time, nearly 3,000 customers had suspended or canceled service and that trend was continuing at a rate of nearly 100 per week.

“We’re concerned that phase two may come out prematurely and before the city really understands how many customers are in each zone," said Ron Bergamini, executive vice president of government affairs, at a Jan. 26 public hearing, adding that boundaries of the zones themselves should be reassessed based on new customer data. “Today we don’t know what those numbers are and for haulers to properly respond under these conditions is nearly impossible.

That hearing solicited a number of comments on proposed DSNY rules design to govern certain aspects of the system. Haulers raised concerns around expectations to price recycling and organics collection service lower than waste, requirements to keep servicing customers after months of nonpayment, details around acceptable contamination thresholds and much more. The National Waste & Recycling Association described the proposal as too prescriptive and having "major shortcomings," albeit "well-intended." Multiple companies submitted detailed critiques, as is common in the rulemaking process.

A list of 18 haulers, many part of a former group that opposed passage of the zoning law, later asked DSNY to suspend the process in favor of a "a consensus-building 'workshop' approach that engages our companies and other stakeholders in a collaborative dialogue." DSNY rebuffed that request in a March 11 letter, saying the regulatory process allowed adequate opportunity for discussion.

This week, DSNY said it does not see a need to redesign zone boundaries and asked companies to take a longer-term view on the 10-year contracts they will be pursuing.

“Companies are not bidding on commercial waste activity in 2020 or in early 2021. We’re looking at late 2022 or 2023, all the way into 2032 or 2033. So we’re not doing a procurement for pandemic conditions," said Justin Bland, DSNY's director of commercial waste. “I think we are helped by this being a non-exclusive system in that there was never the expectation that there’s a guaranteed amount of business here."

Multiples companies still report limited improvement in the most affected areas of the city, with varying degrees of confidence about how soon lost volumes might return.

Hellstrom reported around 100 of Local 108's waste members are still laid off, down from a high of more than 150 last year, and expressed a desire to see Part II of the RFP delayed by more than a year (a move that would likely require legislation) until the economy further recovers.

Teamsters Local 813, a lead backer of the zone system via the Transform Don't Trash coalition, could not be reached for comment. At the January hearing, the union's leadership reiterated its support for quick implementation.

Other similarly believe it is time to move ahead, with Reynoso for example saying "it's too early to say that we’re not going to have a big rush back to office spaces," and supporters agree.

“There’s no potential inequity with moving forward right now," said Melissa Iachán, senior supervising counsel at New York Lawyers for the Public Interest. “We are all going to recover together and the system is designed in such a way that it can adapt to that recovery."

Two months after his January comments, Toscano was more cautiously optimistic about the months ahead as vaccination rates rise and warmer weather leads to more outdoor dining. Still, he said weekend business remained limited and it is too soon to know when pre-pandemic waste levels could return in the coming years. With companies awaiting confirmation they've made it through Part I of the RFP, let alone the timing for Part II or resulting contract awards, he said the industry is currently in limbo.

“A lot of the people that put in applications for Part I may not do Part II," he said, referring to others besides Mr. T, and adding some companies could hypothetically bid high based on the lower route density that comes with lower volumes. In this case “over time the carters could make out on the deal if they do it too early," but Toscano said it's also possible companies could still lose out based on how volume trends recover relative to their bid expectations.

As the city starts to see a more hopeful tone for the months ahead, sources from all angles have their own anecdotes and metrics for how to assess the pace of economic recovery. Some in the industry said certain office clients are taking this time to reinvent sustainability plans for the long-term, while others wonder if that business will fully come back for years.

City officials project tourism numbers may not hit pre-pandemic levels until 2025 and New York's Independent Budget Office doesn't necessarily foresee employment levels fully recovering until even later. A recent survey by the Partnership for New York said 56% of office workers may still be working remotely part-time by fall. More than 1,000 restaurants may have closed since the pandemic began, a key area haulers are watching as a sign of the city's economic health.

As for what this all means to prospective bidders, one well-known figure in the local industry said DSNY should stick to its plan and haulers shouldn't count out Manhattan.

"They need to move forward. The city is going to be opening back up," said Kathryn Garcia, mayoral candidate and former DSNY commissioner. “If you don’t think it’s going to be what it was before then bid a different number. If I was bidding, I would still bid on those districts because I’m very optimistic and I would want to have those crown jewels in my portfolio."

Next steps

While momentum appears to be building again for this significant shift in New York waste policy, ample work remains before any contracts are awarded.

DSNY staff is already dealing with thousands of pages of documents from Part I and responses to the RFEI, along with finalizing rules governing the system and proposing additional rules including a recent safety package to be discussed on April 13. Once a list of eligible Part I respondents is determined, the work of preparing Part II, negotiating contracts and implementing the system is even more complex.

Pre-pandemic, the city budgeted $290,000 for three new staff to work with Bland and outside consultants during the current fiscal year. Following this week's job posting, the other positions still remain unfilled. The Natural Resources Defense Council has called for at least $4 million in new FY22 funding to help move ahead.

“It’s not a fortune, but it can’t be done without funding," said Eric Goldstein, senior attorney. "That's up to City Hall and the Office of Management and Budget to deliver on what can be a legacy achievement for the de Blasio administration."

DSNY didn't share a specific number it has in mind, but agreed current levels aren't sufficient.

“We need a team of people dedicated to this problem. We are regulating an entire industry and in order to actually achieve all the things we want to and have levels of accountability that we’d like to have, we need staff for that," said Deputy Commissioner Anderson, adding Part II may not be feasible until that happens. “We are hopeful that there will be some additional staff and resources in the executive budget that will come out in April.”

Bland said bringing Arcadis back on was also necessary, along with having a new commercial waste division staffed up for implementation to begin. 

The mayor's office could not be reached for comment.

While incoming federal aid and better-than-expected income tax revenues may help, budget experts say it's still a difficult environment.

“It’s not really easy at this point for city agencies to get significant new hiring, and given the financial crisis that the city’s facing that’s probably the fiscally prudent situation," said Ana Champeny, director of city studies at the Citizens Budget Commission, adding consulting contracts were early targets. While recognizing a clear need for more support at DSNY to implement the program, Champeny said it may still be a complicated discussion with budget officials, "because this really is the time when the city needs to focus on being efficient and effective and trying to push agencies to be more creative and innovative."

Garcia said Arcadis already completed some pre-work for Part II of RFP and eventual franchise fee revenue will help make the case.

“I believe that the city can afford to get this up and running because at the end of the day it becomes revenue neutral. So it’s a small initial investment, but not an ongoing large expense to the city," she said. 

DSNY took heavy budget cuts last year, leading to the suspension of residential organics and e-scrap collection along with greater litter levels. In his last year leading the sanitation committee, Reynoso plans to advocate for commercial waste staffing and other issues in upcoming budget negotiations.

“I’m hoping that this budget reflects that and we see a significant increase," said the council member and Brooklyn borough president candidate. "I’m going to be fighting and I do think that there is flexibility."

If DSNY moves ahead on Part II by late spring, and contracts are awarded in a timely fashion, phased implementation could run from 2022 into 2023. Mayor de Blasio and many others are term-limited at the end this year, meaning oversight of the program will fall to a new set of officials. Many believe career staff at DSNY will carry it through and, despite its significant impact, the issue is unlikely to be high on the next mayor's list of concerns.

“There’s nothing controversial in terms of the politics on this that would make it so it would end up having real resistance. It still is highly supported by the environmental justice community, labor, the business community is in a pretty good place on this," said Garcia. "This is a transformative environmental program that will shape the landscape for the next 20 years."