Honolulu Mayor Kirk Caldwell has vetoed a bill that would have provided a $600,000 annual subsidy to recycling companies. The vast majority — $530,000 — would have gone to Schnitzer Steel Industries, an Oregon-based company that reported $1.9 billion in revenue last year.

“The city’s taxpayers should not be subsidizing large corporations that don’t need a subsidy, such as this one,” Caldwell wrote in a letter to Council members Thursday.

According to its company website, Schnitzer Steel is “one of the largest manufacturers and exporters of recycled ferrous metal products in the United States.” The company has two scrap metal recycling locations in Hawaii on Oahu and Maui.

Bill 50 would impose a 25 percent discount on the disposal fee that recycling companies like Schnitzer Steel pay when they deliver a certain amount of solid waste to the landfill and H-POWER, the city’s waste-to-energy facility.

Honolulu Mayor Kirk Caldwell says a consensus report by state, county and tourism officials offers a more reasonable tax split for the counties.

In vetoing the bill, Mayor Kirk Caldwell says it doesn’t make sense to subsidize large corporations.

Cory Lum/Civil Beat

The City Council passed the measure Feb. 17 on a 7-1 vote. Council members Ernie Martin, Ikaika Anderson, Carol Fukunaga, Joey Manahan, Trevor Ozawa, Ron Menor and Kymberly Pine supported the bill.

Councilwoman Ann Kobayashi, who leads the Budget Committee, was absent during the vote, but said Thursday that she would have voted yes if she had been present. Councilman Brandon Elefante was the only member to oppose the proposal.

The measure was spurred by low commodity prices that have hurt the recycling industry nationwide. Jennifer Hudson from Schnitzer Steel testified that the subsidy would help the company weather the storm.

Several local recycling companies, including Leeward Auto Wrecking and Cash 4 Cars, also supported the bill. Paul Perry from Leeward Auto Recycling contended that he would go out of business if the bill didn’t pass.

His testimony and others’ swayed Kobayashi, who said she didn’t like giving such a big subsidy to Schnitzer Steel but felt it was necessary to help small businesses.

Both she and Martin, the Council chair, said it was hypocritical for Caldwell to suggest that taxpayers shouldn’t subsidize big corporations when the city pays Covanta Honolulu millions to operate H-POWER each year.

A recent audit slammed the city for increasing the value of Corvanta contracts from $313.7 million to $993.3 million as of fiscal year 2013.

“When you talk about $500,000 compared to a $54 million (annual) contract, it’s quite significant the differential, yet that contract has never been bid out,” Martin said. “You cannot say in one respect, ‘I’m critical because Schnitzer Steel would garner the majority of the subsidy potentially,’ yet not be critical of the fact that Covanta has never had to compete for this contract.”

In response to Martin’s remarks Thursday, a spokesman for the mayor noted that H-POWER turns a profit for taxpayers. Schnitzer Steel would not.

Martin added the bill’s $600,000 price tag is the city’s estimate based on current fees, and said the measure may not cost that much.

The North Shore councilman has been pushing Bill 50 since he introduced it last July. Emails obtained through a public records request show that he gave advice to Melissa Pavlicek, a well-known local lobbyist representing Schnitzer Steel, on how to get the measure passed.

“Continue to work with the Budget Chair on her concerns and requests for further info. Additionally, you need to offer a discount percentage that is acceptable,” Martin wrote on Aug. 18. “Lastly, you should also work on a media/editorial opinion for submission to the media, in particular, the print media which has offered an unfavorable opinion on this measure.”

It appears that Pavlicek took at least part of Martin’s advice, which the councilman said Thursday he typically gives to any constituents who ask. The July proposal for a 65 percent discount on the disposal fee had shrunk to 25 percent by the time the measure made it to the Council floor.

Pavlicek could not be reached for comment Thursday.

City Council Chair Ernie Martin during council meeting rail. 27 jan 2016. photograph Cory Lum/Civil Beat

City Council Chairmain Ernie Martin introduced the bill to subsidize recycling companies.

Cory Lum/CIvil Beat

The Caldwell administration consistently opposed the measure, noting repeatedly that 89 percent of the subsidy would benefit Schnitzer Steel, with the next-highest company receiving just 4 percent.

The mayor sent Council members a letter Thursday explaining his opposition to the bill and contending that it doesn’t make sense to reinstate the recycling subsidy, which the city phased out in 2013.

“Yes, metals prices have been down, but that is a cyclical activity that businesses like Schnitzer learn to deal with,” he wrote. “One appropriate way Schnitzer dealt with this was to reduce the CEO’s compensation from $7 million per year in 2011 to $5.5 million in 2015.”

Caldwell said he’s willing to work with the City Council to support local recycling companies if there is a need to do so.

Martin and Kobayashi both said they’d be willing to consider an alternative proposal from the mayor. But the Council only needs six votes to override the veto.

The veto is the latest in a series of clashes between Caldwell and the Council. Caldwell spent much of his Wednesday press conference, when he unveiled his fiscal year 2017 budget proposal, criticizing the Council’s inaction on his housing proposals. Afterward, Martin and Kobayashi lambasted the mayor’s proposed expenditures.

Read the mayor’s letter below:

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