Lobbying heavyweights are at work at Honolulu Hale on what might seem an unglamorous topic: a subsidy for a private scrap yard.

Schnitzer Steel’s Oahu scrap yard gets a $1.9 million subsidy every year for recycling metal and keeping it out of the city landfill. The Portland-based global corporation gets the lion’s share of a city benefit for recycling companies.

Now, with the council eyeing cutting the subsidy in the face of a tough budget climate, Schnitzer is fighting back with the help of John Radcliffe, one of the state’s best known lobbyists, and Communications Pacific, one of its most prominent public relations firms. Pushing for the bill are two former council candidates, Matthew LoPresti and Bob McDermott, and Keith Rollman, who was a top aide to former Honolulu Mayor Mufi Hannemann.

Those who oppose the subsidy call it corporate welfare, and say it helps Schnitzer monopolize the local recycling industry. Schnitzer and some other local recycling companies say the discount helps stabilize a volatile steel market and incentivizes recycling in Hawaii.

The subsidy was created in the mid-’90s as a way to encourage recycling. But Honolulu Environmental Services director Tim Steinberger says it’s time to consider passing Bill 47 to end it. The issue could come up Tuesday, when he presents his budget to the council’s budget committee. Some City Council members are already leaning toward eliminating the subsidy.

“We’ve been helping out Schnitzer throughout the years,” said City Council member Romy Cachola in a committee hearing about the topic in February. “But the city needs the money.”

Firms Get Discount On Tipping Fees

The subsidy comes in the form of a discount on so-called tipping fees when recycling companies deliver waste to the landfill. Ending the discount would mean that the companies would have to pay full price on dumping what’s left after the recycling process. Companies now get an 80 percent break on these so-called tipping fees, with Schnitzer Steel reaping the biggest savings each year because it produces the greatest volume of recycling residue

According to Steinberger, these private companies got discounts from the city last year:

Company 2010 Discount
Schnitzer Steel $1.9 million
Island Recycling $70,000
Honolulu Recover Systems $61,000
Hawaii Earth Products $49,000
RRR Recycling $10,000
United Environmental $5,000
Reynolds Recycling $4,000
TOTAL $2.1 million

The discount is only available to companies that recycle at least 2,000 pounds of material per month, then ship the recyclable material off-island to be re-used or directly incorporate it into a new product. Schnitzer takes in about 100,000 tons of junk per year and strips out the recyclable metal to sell to steel mills in Asia. Schnitzer puts about 20,000 tons of non-recyclable residue in the landfill annually. That’s where the discount comes in.

While all nine City Council members have talked about the importance of saving money, some worry that eliminating the recyclers’ discount on tipping fees would kill major community recycling initiatives like the Aloha Aina program, which Schnitzer Steel helps lead. Schnitzer Steel is also one of the participants in a program that involves shredding fishing lines so they can be burned and converted into electricity.

Last year, in testimony submitted to the City Council in October 2010, then-general manager James Banigan wrote, “if enacted, Bill 47 will bring an abrupt end to Schnitzer Steel Hawaii Corp.’s Aloha Aina and Nets-to-Energy programs.”

Schnitzer Now Says Lack of Subsidy Won’t Affect Aloha Aina Program

Spokespeople for Schnitzer Steel are now walking away from that statement, and emphasize the company is not threatening to yank community programs to get its way.

“We can see why Mr. Banigan said what he did because he was looking at the hard costs we’re investing in these programs,” Jennifer Hudson, governmental and public affairs manager for Schnitzer Steel Industries’ Metals Recycling Business, said in a statement in response to questions from Civil Beat. “The Aloha Aina Day community program costs approximately $6,000 per event and we’re planning 38 events this year alone … To be clear, we have every intention of continuing the Aloha Aina Day and Hawaii Nets to Energy community programs regardless of any potential changes to Hawaii’s recycling incentive program.”

The figures Hudson provides means Schnitzer Steel officials estimate the company will spend nearly $230,000 on Aloha Aina this year. That’s compared to $1.9 million in savings last year from the tipping fee discount. Despite Schnitzer’s recent attempts not to link the subsidy and the cost of community programs, skeptics are quick to contrast them.

“I see the proportion you contribute to Aloha Aina and the amount of money that you’re taking in by the discount, especially at a point of time when the city is hard-pressed to take in revenue,” Cachola told Hudson as she testified before council members in February. “Looking at all of those numbers, I’m not saying that what you folks are doing is not good … But we need to come up with a fair calculation.”

Hudson argues that ending the discount would be “significant as to the profitability of (Schnitzer Steel’s) Hawaii operations.” But the company refuses to release financial records that demonstrate the extent to which this is true. Without the data, council members are left assuming eliminating tipping discounts will drastically alter how Schnitzer does business.

“I want to ensure that the recycling fairs continue, regardless of what entity continues them,” City Council member Ikaika Anderson told Civil Beat. “Whether it be the city, whether it be a nonprofit or a private entity. Some of the proponents of the bill have assured us that other entities are willing to step up. Where are they? Who are they and where they? Show me. You want my support on Bill 47, show me. No one’s been able to show me a darn thing yet.”

But others on the council say it seems like a no-brainer to eliminate a large subsidy for a for-profit company at a time when the city needs revenue.

“If I had to vote today, I would vote yes on Bill 47,” Council member Breene Harimoto told Civil Beat last week. “So I’m in support. There are plenty of companies, like PVT landfill, that are doing wonders without a city subsidy.”

Hudson calls this mindset “bad public policy.” She said there are other cities in the nation that provide discounts. But she couldn’t provide any examples, or say whether other discounts were 80 percent like the discount in Honolulu.

Not all recycling companies benefit from the discount. Paragon Metals, a company that has long tried to battle Schnitzer for control of the local market, hired Matthew LoPresti — a failed City Council candidate who talked about the issue in his campaign — to argue on its behalf.

“End the ironic, unnecessary, and very expensive subsidy that gives recycling businesses an incentive to dump material into our landfills rather than to recycle it!” LoPresti wrote in February testimony. “One avenue for correcting this strange corporate welfare is to pass Bill 47.”

Long-Running Battle Between Schnitzer and Paragon

Throughout the debate, lobbyists for Paragon Metals and Schnitzer Steel have called into question the legitimacy of the other’s business. The dispute over the subsidy is the latest in a long-running battle between the two companies. In 2008, Paragon sued Schnitzer Steel for allegedly dumping recyclable materials into the landfill. A judge dismissed the charges, citing lack of evidence.

While the rivalry may be a factor, members of the public, along with other small recycling operations, are also questioning the current structure of the tipping discount.

“I find it reprehensible that the City and County representatives would even consider under any circumstances the subsidizing in any manner of a private business that enjoys the type of profits that Schnitzer Steel realizes,” wrote Atlas Recycling founder Michael Allen in October testimony. “There is no rationale that justifies it… They’ve created a virtual monopoly on the local steel market. They’ve accomplished this by pricing their competitors out of business. They’ve used their subsidy money to accomplish this.”

More than a dozen members of the public have submitted letters calling the subsidy a waste of tax dollars.

The City Council’s Public Works and Sustainability Committee chairman, Stanley Chang, is now working on a new draft of Bill 47 to optimize support from fellow council members.

“This is a market where there’s one very large player and a number of smaller players and some nonprofit players,” Chang told Civil Beat. “I certainly support the efforts of recycling in Hawaii. We’re certainly very sensitive of not jeopardizing the economic health of the recycling industry in Hawaii but we believe that there are changes that we can make that would ensure the health of the industry as a whole and balance the needs of fairness for all the companies involved.”

Chang would not comment on whether Schnitzer Steel had attempted to leverage programs like Aloha Aina as a way to keep the discount. But it’s clear that’s the driving concern held by city Council members Ann Kobayashi and Anderson. Both said they are open to reducing the discount, but don’t think it should be eliminated.

“Certainly I think the conversation has to be had about possibly decreasing the subsidy,” Anderson said. “But just pulling it all together, I would need to ensure there would be some entity that has to step up to the plate and say, ‘Yeah, we can still do Aloha Aina.’ If that happens, then we can yank the subsidy. But right now, all I’m hearing is a lot of talk and not a lot of action.”

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