Oregon-based Schnitzer Steel would save nearly $1.3 million each year if the Honolulu City Council approves a subsidy for scrap metal recycling that would cost the city more than $1.45 million in annual revenue.

Bill 50, introduced by Chair Ernie Martin, would allow certain businesses to claim a 65 percent discount on the disposal fee that companies pay when they deliver solid waste to the landfill. The city created the subsidy in the 1990s, but it was discontinued two years ago.

The measure is scheduled for its second hearing before the City Council Budget Committee on Wednesday.

Schnitzer Steel, which describes itself as “one of the largest manufacturers and exporters of recycled metal products in the United States with operating facilities located in 24 states, Puerto Rico and Western Canada,” testified that the bill would help cover operating costs in light of a market downturn.

Honolulu City Council member Ann Kobayashi.  1 apr 2015.  photograph Cory Lum/Civil Beat

Honolulu City Council member Ann Kobayashi said she hasn’t been persuaded that Bill 50 should pass.

Cory Lum/Civil Beat

The bill “will help to promote metals recycling, thereby helping to ensure that unused cars and other debris are delivered to recycling dealers who are best equipped to handle it,” wrote Schnitzer Steel attorney Jennifer Hudson in her testimony.

Mayor Kirk Caldwell’s administration said the measure doesn’t make sense. Lori Kahikina, director of the Department of Environmental Services, provided data illustrating that the amount of metal recycled didn’t appear to correlate with the subsidy.

Martin, who received $500 in campaign donations from Schnitzer Steel’s general manager in January, didn’t reply to a request for comment.

So far, the measure is missing key support from Ann Kobayashi, chair of the city Budget Committee, who will have a pivotal role Wednesday in deciding whether or not it will advance.

Kobayashi said she hasn’t been persuaded by Schnitzer Steel’s testimony, and that the Council needs a good reason to approve the bill.

“I don’t think at this point it’s needed,” she said.

A Recurring Debate

The debate over the scrap yard subsidy isn’t new. The Council squared off with former Mayor Peter Carlisle in 2011 over the then-$1.9 million subsidy, and Carlisle vetoed a measure preserving it. The Council overrode him.

One of Schnitzer Steel’s former general managers even went public in 2011 to say that Schnitzer Steel was misleading the City Council and the company didn’t really need the subsidy.

At the time, the subsidy was an 80 percent discount on the disposal fees, saving Schnitzer Steel $1.9 million each year. By July 2013, the subsidy was phased out.

The bill to re-establish the subsidy was introduced by Council Chair Ernie Martin, who received $500 in campaign donations from Schnitzer Steel’s general manager in January.

This time around, Schnitzer Steel is arguing that low metal prices are hurting its business and the subsidy would help cover operating costs.

The company hired Melissa Pavlicek, a well-known local lobbyist, to advocate for the bill, in addition to submitting testimony from Hudson.

“A reduction in the disposal fee for recycling residue should help recyclers to weather the storm in a market that continues to experience significant headwinds,” Hudson wrote.

Schnitzer Steel’s third quarter revenue from metals recycling was $363 million, a 30 percent drop from the same quarter last year.

The company suffered an overall fiscal third-quarter loss of $9.6 million.

Hudson declined to speak to Civil Beat, referring questions to the company’s director of public affairs, who did not reply to a request for comment.

Support from Small Businesses

At a committee hearing last July, Bill 50 had strong support from companies that would also benefit from the subsidy.

Paul Perry submitted testimony saying that the bill would help small business like his company, Leeward Auto Recycling.

“Without the tip fee reduction we soon could be out of business as we simply cannot afford to operate,” he wrote.

According to Kahikina’s testimony, several companies would benefit from the discount in addition to Schnitzer Steel, but their estimated savings would be far less. For example, Honolulu Recovery Systems could save $59,010, whereas Schnitzer Steel would save $1,297,580 with the discount.

Honolulu City Council member Brandon Elefante.  1 apr 2015.  photograph Cory Lum/Civil Beat

Brandon Elefante was the only City Council member who voted against the bill at its second reading earlier this month.

Cory Lum/Civil Beat

Apart from Kahikina, Natalie Iwasa, an accountant who unsuccessfully ran for the City Council last year, was the only person who submitted written testimony in opposition to Bill 50.

Kobayashi told Civil Beat she’s not surprised few people testified in opposition, given that the average person probably doesn’t know about the disposal fee. She remains unconvinced that the bill should become law.

“I don’t know that we have to offer a discount,” she said. “Not if the city is going to lose a lot of money.”

But she said she’s open to hearing what the company and others have to say during Wednesday’s hearing, and doesn’t know yet whether the bill will advance or be deferred.

Councilman Brandon Elefante was the lone “no” vote against Bill 50 when it passed second reading earlier this month.

He said he can’t justify the loss of millions of dollars when the city Department of Environmental Services needs money to fix sewers and maintain infrastructure.

He recalled that the department had testified that Schnitzer Steel would gain 89 percent of the revenue from the discount, with the next-highest company receiving only 4 percent.

“To me, that’s alarming,” Elefante said.

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