Getting what they want

Steve Kanigher and Erin Neff

Sunday, Feb. 20, 2000 | 9:40 a.m.

When Republic Silver State Disposal won lengthy garbage contract extensions last year worth billions of dollars, it was merely the latest example of the local company getting what it wants.

Silver State has built an invincible 40-year monopoly through "limitation of competition" laws passed by the Nevada Legislature, favorable court rulings and friendly decisions by Clark County and Las Vegas Valley municipalities.

The company benefits from "vertical integration" because it controls all aspects of the local garbage industry. It has exclusive rights to pick up residential and commercial garbage, and owns the three local waste transfer stations as well as the Apex Waste Management Center landfill. Some industry experts say such monopolies are rare for large metropolitan areas and represent questionable public policy because there is no competition.

On the other hand, company officials point out that this arrangement is good for consumers. Silver State's residential rate of $9.86 a month for twice-a-week pick-up is far better than most everywhere else in the Southwest, where once-a-week service is more common. The company also charges some of the lowest landfill dumping fees in the West.

There is no question that the monopoly has made Silver State one of the most powerful companies in Southern Nevada. Tri-State Refuse Service of Bullhead City, Ariz., got a taste of that clout when it had difficulty finding a Las Vegas lawyer willing to take on Silver State over a garbage hauling contract dispute in Laughlin in 1986.

"They are about the most powerful people in Nevada politically," said James Whiting, a former Tri-State co-owner. "They get everything they want."

Allegations that Silver State uses political clout to get what it wants have landed the company in the news lately. On March 23 the state Ethics Commission is tentatively scheduled to hear a complaint that Las Vegas City Councilman Michael McDonald should have disclosed his friendship with company officials when he voted last year to extend Silver State's franchise.

McDonald has dated company employee Jennifer Simich and counts as friends Silver State President Stephen Kalish and company attorney Robert Groesbeck. Kalish hosted a fund-raiser for McDonald's 1999 re-election campaign, which collected $36,800 from the company and its affiliates.

"All this has been a witch hunt," was McDonald's response last month after the Ethics Commission decided to pursue a full hearing against him. McDonald said he saw no conflict in his vote. But there is no question that Silver State is getting bang for its political bucks.

The flip side, Kalish said, is that his company also makes about $1 million in charitable donations annually, including free service for nonprofit customers.

"I don't know that we do anything different than the gamers, the developers," Kalish said. "We support people that are for the betterment of government.

"Are we involved politically? I think, yes. And I think we have to be. Those people who sit down there and cast those votes have to answer to their constituents, who happen to be our customers."

Over the past three years Silver State has given about as much money to candidates for Clark County Commission and the Las Vegas Valley's city councils as any nongaming company in town. In 1998, for instance, Silver State and its affiliates gave Dario Herrera and Erin Kenny $30,300 and $15,900, respectively, for their successful County Commission campaigns.

What Silver State got last year from the Las Vegas City Council and Clark County Commission were contract extensions through 2021 and 2035 respectively that will be worth at least $3 billion. That doesn't even include revenue from the company's contracts with Henderson and North Las Vegas, its waste transfer stations and its landfill.

And on March 1 the Las Vegas City Council will vote on whether to give Silver State an extension to a sludge hauling contract in the face of opposition from recycling companies.

Kalish makes no apologies for Silver State's grip on local garbage.

"If you can't control landfill disposal costs, it will drive up costs to the consumer," he said. "In areas like Salt Lake City where we don't have a landfill our costs are ridiculous."

Garbage industry experts such as Delaware Solid Waste Authority executive N.C. Vasuki don't necessarily think garbage monopolies are good.

"If I had a choice I would break it up into two or three parts of the city so you get better competition and better prices," said Vasuki, former president of the Solid Waste Association of North America. "It also gives smaller companies a chance to bid on jobs."

Control costs

But Kalish said the monopoly allows his company to control costs.

"We went with a Consumer Price Index indicator for rate increases since Republic bought us," he said. "Our (residential) rates only went up 1.6 percent in 1999, or 16 cents a month. When we had high fuel costs in the 1970s, rates went up 18 to 20 percent every three or four years."

Silver State and its previous owners have been the lone hauler in the city of Las Vegas since the late 1950s and in the county since 1965. Kalish said the latest franchise extensions will enable Silver State to spread out costs for planned new waste transfer stations and landfill-related expenses.

"It's not a cheap business," Kalish said. "Garbage trucks cost $160,000. Three years from now that could be $200,000. Every time we go for an extension there is capital (cost) driving that extension."

But it is far more common for metropolitan areas to permit competition for residential and commercial pickup or at least to divide their garbage service into districts so that numerous companies can share the pie. In Los Angeles County, there are at least 160 haulers of commercial or residential waste.

"Competition brings better service and often brings lower costs," said Mike Mohajer, Los Angeles County's waste program manager. "We are working on a nonexclusive franchise system where we divvy up different parts of the county so we don't get monopolized by the big companies."

The Solid Waste Association of North America encourages member local governments to seek competitive bids for garbage contracts, something the county and city of Las Vegas failed to do last year. But John Skinner, the association's chief executive officer, conceded that monopolies have merit because the company can get "economies of scale and integrate their operations to fit together where they can reduce their costs."

Kalish said Silver State's ability to reduce costs is a main reason the $9.86 monthly residential rate compares favorably to other Southwestern cities. By comparison, the monthly residential rates are $16.25 in Phoenix, $12.50 in Salt Lake City and $17.08 in Oakland, Calif.

Silver State, with 1,500 employees, processes 7,000 tons of garbage a day and makes pickups at 115,000 homes daily.

The company's own survey last year revealed that 96 percent of respondents approved of its twice-weekly pickup and 86 percent approved of Silver State's rates. A higher percentage of respondents also said they were "very satisfied" with their garbage collection than was true of other utilities.

Las Vegas City Councilwoman Lynette Boggs McDonald defended the extension of Silver State's franchise with the city largely because of its low residential rates and twice-a-week pick-up.

"Garbage disposal is not like telephone service," she said. "Because of the type of business it is, you wouldn't want five different garbage truck companies racing through your neighborhood every week."

The fact that Silver State also offered to give the city $5.5 million in park money and indemnify local governments from federal litigation related to the clean-up of the shuttered Sunrise Landfill appeased other politicians as well. The landfill clean-up, necessitated in part by a 1998 storm that sent landfill trash into the Las Vegas Wash, is expected to cost the company $36 million.

But County Commissioner Bruce Woodbury is among the minority of politicians who have expressed concern about Silver State's lack of competition. He had favored putting trash service out to bid to see if other companies were interested.

"We had a very strong recommendation from the county manager's office to get this landfill issue resolved," Woodbury said. "The county did face substantial exposure. But for that situation, it would have been better to go out for requests for proposals before extending the contract that long."

The only garbage services not covered by Silver State involve certain recycling operations and the hauling of construction rubbish and excavation debris. But even those companies are required by ordinances to haul solid waste to Apex.

Kalish and Groesbeck argued that those haulers don't have to pay local governments the 5 percent franchise fee on gross receivables that costs Silver State about $7 million annually.

Silver State's grip on the local garbage industry goes back to the 1950s, when the prior owners of the garbage company arrived on the scene. Garbage collection at the time was haphazard when the Isola family moved to Southern Nevada after running scavenger companies in the San Francisco area for generations. The late Alfred and John Isola purchased Southern Nevada Disposal Service Inc. and renamed it Silver State Disposal Service Co.

Garbage empire

Silver State was one of at least five affiliated disposal companies the family ran locally until they sold their garbage empire to publicly held Republic Industries Inc. of Fort Lauderdale, Fla., in 1997 for $378 million. Silver State, which generated $126 million in revenue in 1996, was the nation's 11th largest garbage company the year it was sold, according to Waste Age magazine.

The sale of Silver State followed a company scandal that sent three top officers to prison for tax fraud and placed another on probation. The quartet admitted that they declared illegal business deductions based on construction work performed for them personally by company employees.

Enter Republic Industries, chaired by Miami sports mogul H. Wayne Huizenga, who turned Waste Management Inc. and Blockbuster Entertainment Corp. into billion-dollar companies.

Republic Industries, which also owns automobile dealerships and rental car fleets, spun off Republic Services Inc. in 1998 as a separate publicly held company that concentrated on the solid waste industry. Silver State became a subsidiary of Republic Services, which acquired so many companies so quickly it is now the nation's third-largest garbage conglomerate.

Silver State's monopoly was created in part by state laws passed in 1960 and 1973 that gave counties and cities, respectively, the authority to award garbage hauling and landfill franchises to a single company. These "limitation of competition" laws also extend to ambulance services, taxicabs and airport operations such as concession stands.

Assemblyman Doug Bache, D-Las Vegas, chairman of the Assembly Government Affairs Committee, said it may be time to review those laws since they haven't been discussed for at least the past five legislative sessions.

But state Sen. Ann O'Connell, R-Las Vegas, chairwoman of the Senate Government Affairs Committee, said she doesn't believe such laws need to be changed, arguing that a garbage contract is a "home rule" issue.

The Nevada Supreme Court upheld Silver State's monopoly in 1971, ruling that it was proper for the county to award an exclusive franchise to company affiliate Clark Sanitation Inc. in 1965. But late Sun Publisher Hank Greenspun complained in an April 1965 column that Clark Sanitation slapped businessmen with "gigantic" rate increases after winning the exclusive contract.

"Garbage disposal should be competitive unless it comes under the Public Service Commission, where rates are regulated supposedly with the public's interest paramount," Greenspun wrote. "To leave regulation of rates to city and county commissions is violative of the public's rights, as too often these bodies are more self- and politically than publicly motivated."

Since the high court ruling numerous other local actions served to cement Silver State's monopoly. Among them:

A District Court judge also ruled that the city of Las Vegas could deny BFI Waste Systems of North America a license to collect medical waste in the municipality because Silver State had exclusive rights to that business.

Federal lawsuit

But the medical waste controversy proved that competition can force Republic to lower its prices because some medical facilities that hired BFI locked in their lower rates when Republic regained their business.

Las Vegas attorney Frank Cremen has kept the medical waste debate alive through a federal lawsuit he hopes will cover all such customers in the valley. He has alleged that Silver State is inconsistent because it considers medical waste to be solid waste but charges a much higher rate for the former and can set any price that it wants without local government approval.

"When you are the only game in town the government better make sure the rates set are responsible, but that's not what's happening here," Cremen said.

Groesbeck said his company believes there is no basis "in law or fact" to support the allegations in that lawsuit. But he told the County Commission in April 1998 that he was mystified why his company charged University Medical Center a 45 percent lower rate than other area hospitals for medical waste.

"What we're prepared to do is propose the medical rates be codified just like the residential/commercial rates are," Groesbeck said at the time.

Local recycling companies also are at odds with Silver State. Rob Dorinson, president of construction waste hauler Evergreen Corp. in Las Vegas, complained that Silver State's landfill dumping rates for certain loads are so high they have forced his company and other recyclers to seek alternatives such as the Western Elite Inc. composting facility in Lincoln County.

But Kalish has noted that the Nevada Division of Environmental Protection has sued Western Elite, charging that the facility accepted nearly eight times as much waste as it was licensed to handle. Kalish said Western Elite's facility is an unlined landfill that allows haulers to escape paying dumping fees.

Former U.S. Attorney Lamond Mills, who represents Western Elite, has said the construction debris his company handles is better off returned to soil than dumped in a landfill. He also has denied the state's charge that it is operating an illegal landfill.

Dorinson said his company and other recyclers are also concerned with attempts by Silver State to define comingled construction waste as solid waste that must be taken to Apex. Dorinson said it is often asking too much for construction workers to separate waste materials, even though bins are provided for that purpose. He said companies such as Evergreen are capable of separating recyclable waste at their own facilities.

"They don't want recycling," Dorinson said of Republic. "It's all about the money they can make at the landfill. They would rather legislate us out of business."

Kalish said his company encourages recycling, but complained that some companies that claim to be recycling materials are not doing so.

"We just want to make sure it is handled in a proper manner," he said. "Piling it up and saying you'll plant grass is not recycling."

What worries recyclers most about Silver State is how its monopoly affects them. They see the Apex landfill as a symbol of that monopoly because they are required by local ordinances to dump their solid wastes there. They believe such laws violate their constitutional right to participate in interstate commerce by preventing them from hauling that waste elsewhere.

But Groesbeck said such arguments were nonsense.

"No one has introduced legal arguments in support of that position," he said. "If these ordinances were challenged, I'm confident they would pass constitutional muster and the challenges would be dismissed."

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