Lexington explores privatizing recycling center or raising rates it charges area communities

The city of Lexington is considering privatizing its money-losing regional recycling center or increasing the rates it charges 16 area cities, counties and four private entities.

The city’s material recovery center operated at a loss of $707,684 for the fiscal year that ended June 30, 2015. According to data provided by the city, sales from those recycled materials have declined by 38 percent from 2007 to 2015. Moreover, operation costs have increased by as much as 48 percent during that same time period, Finance Commissioner Bill O’Mara told a committee of the Urban County Council on Tuesday.

O’Mara said the city is proposing either increasing the amount it charges the 16 affiliates to recycle, privatizing operations or changing the mix of what the center recycles to generate more revenue.

No action was taken during the Environmental Quality and Public Works Committee meeting Tuesday. But the committee could return to the issue at its meeting in April.

The Thompson Road center opened in 1992 as a regional recycling center, one of the few in the state. It has been plagued with problems for nearly a decade. A 2014 internal audit showed widespread problems with management and accounting — including excessive overtime, over-payments to a private contractor, and safety and security concerns. Many of those issues have since been addressed. But one issue the audit raised was whether Fayette County was subsidizing the cost of recycling for those 16 affiliates. Tuesday’s report before the Environmental Quality and Public Works Committee was in response to that 2014 audit.

O’Mara told the committee that raising prices to those 16 affiliates from $35 a ton to $50 or $55 a ton was one way to shore up the center’s losses. If approved, that increase would generate between $211,000 and $282,000 in additional revenue. The current rate of $35 a ton has not been raised since the regional recycling center was opened.

Lexington sells and markets the usable recycled goods. It shares the profits from those sales with the 16 affiliates. That means some of those 16 affiliates get a check from Lexington, depending on how much of the material the affiliate sends to the facility can be sold.

“We felt that in the spirit of regional recycling for affiliates to be getting paid and for us to be in a loss position, we are not really sharing the cost of recycling in today’s market,” O’Mara said.

O’Mara said the downside to raising the fees could mean fewer counties and cities would participate in recycling or send their recycling someplace else. If some of those 16 counties and cities opt out, it still costs the same for the city to operate the recycling center.

The city’s recycling center is what’s called a single-stream recycling center. Residents don’t have to pre-sort their recyclables — it all goes into one bin. That means it’s sorted at the facility, costing the city more in operation expenses. In addition, those things the city cannot recycle must go to the landfill, which costs the city roughly $19 per ton.

Single-stream processing centers across the country are struggling because their operating costs are high and the price per ton to sell those recycled materials has dropped, O’Mara said.

That’s why privatization of the facility may be costly, he said. The city won’t know those costs until it requests bids, O’Mara said.

There are privately run recycling centers in Cincinnati, Columbus and Chicago. Transportation costs to those centers would also drive up costs, O’Mara said.

The recycling center used to be able to sell glass as a commodity. Now, it must pay a contractor $15 a ton to remove it from the Thompson Road center. To increase revenue, the city could also decide to no longer accept glass. The city could also explore processing and selling different types of plastics that it currently does not market, O’Mara said.

The proposals on Tuesday did not include raising costs for Fayette County residents. Fayette County residents pay for the recycling service through their property taxes.

The program has never been self-supporting.

The city made $2.1 million from selling recycled materials last year. But it cost $2.8 million to run the facility. For the fiscal year that ended June 30, 2013, the facility generated $1.9 million in revenue but cost roughly $2.52 million to run. At one point, Lexington had set a goal of becoming a zero-waste city by 2020 — meaning no waste would go to the landfill.

That goal is far from being realized.

At-Large Councilman Richard Moloney said Tuesday he supports recycling but said he has ongoing concerns that the recycling center is still not operating efficiently despite changes made in the 2014 audit.

“I feel like the (recycling center) is not doing what it’s capable of,” Moloney said. “I think if we do it right, it can be a money maker.”

Councilman Fred Brown, who spent more than 40 years as an accountant, pointed out that $654,000 of the $2.8 million in costs was due to depreciation — or costs related to equipment and facilities.

“It is not operating at a loss in terms of cash flow,” Brown said.

But O’Mara said that depreciation is still a cost for the city and not the affiliates. Moreover, the recycling facility may need as much as $1 million in capital investment in the near future to address air conditioning, dust control and other issues.

The 2014 audit shows that the city has never had contracts with surrounding counties and cities to process other jurisdictions' recycled goods and did not have a contract with Bluegrass Regional Recycling Center, the broker that markets the recycled goods to sellers.

That was the same problem auditors found in 2004 — no contracts with the 16 affiliates and Bluegrass. After the 2014 audit, the city executed agreements with its affiliates and discontinued its contract with Bluegrass Regional Recycling Center. It also made other management tweaks and changed some of the management structure of the recycling center but never hired someone with recycling or management experience to run the center, which was originally recommended. The city had released a request for proposal for a management company to run the facility but a contract was never awarded.

This story was originally published February 16, 2016 at 5:12 PM with the headline "Lexington explores privatizing recycling center or raising rates it charges area communities."