Statement of John Broadway, NFIB
Flow Control Senate-Environment & Public Works Committee
March 18, 1997

Good morning. On behalf of 600,000 members of the National Federation of Independent Business (NFIB), and 11,000 members in Virginia, I appreciate the opportunity to present the views of small business owners on the subject of flow control.

By the way of introduction, NFIB is the nation's largest business association representing a broad cross section of American businesses. About 50 percent of our membership is in the service and retail industries, about 25 percent are in manufacturing and construction, and the rest are in businesses ranging from agriculture to wholesale services. NFIB's typical member has five employees and grosses about $350,000 in revenue annually.

Overview

The vast majority of small businesses are customers of waste disposal services. However, NFIB also represents a number of small waste haulers and recyclers. Consequently, any efforts to maintain and expand the use of flow control ordinances negatively effect small business owners. The reasons are quite simple. Flow control ordinances, which force waste disposal customers to use government-mandated waste facilities, create monopolies under which small business owners will most likely pay higher costs and receive inferior service.

Monopolies, by their very nature, give an advantage to one entity at the expense of all others. It makes little difference whether the local government or a separate entity with a long- term contract run the waste disposal facility. Because monopolies don't have to face free market competition, customers have no power to bargain for better rates and service.

Concerns of Small Business Owners Flow control ordinances have the most obvious impact on price. Currently, in communities where no ordinances exist, haulers, processors, and recyclers compete for market share. As a result, customers can purchase disposal and recycling services that are efficient, safe and cost effective. On the other hand, where ordinances do exist, prices are artificially set to ensure a specific payout, and in some instances the prices are inflated to pay for other municipal services as well. These monopolies limit choice and place a very real tax on small business.

This tax burden, often referred to as a tipping fee, is not inconsequential. Studies conducted by the NFIB Education Foundation indicate that typical NFIB members take out of their businesses less than $40,000 annually to support themselves and their families. Clearly, the price of any service, and particularly one that is as non-discretionary as waste disposal, can be a significant expense for a small business. In fact, a study by the National Economics Research Associates found that flow control increases disposal costs by an average of 40 percent. When small business owners are required to use a government-mandated disposal operation that faces no price or quality competition, they are virtually guaranteed poorer service and higher prices.

A second impact of monopolistic flow control ordinances is inefficiency. Instead of building disposal services to respond to need, flow control ordinances result in facility-driven systems. Government-backed facilities do not need to seek business to stay in business: they are guaranteed a return on their investment. There is no incentive to improve the disposal facility, to implement new technology, to attempt to cut costs, or to pass any savings on to the customer.

In addition, because these facilities are built without regard to market conditions, they are often oversized, built to receive volumes of waste considerably in excess of volumes projected in a free market environment.

Flow control ordinances can also negatively affect environmental quality. Small business owners want the ability to ensure that their waste is being properly disposed. They and their families live in their communities -- they drink the water and they breathe the air. In addition, they face enormous liability for the waste they generate if it is not disposed of responsibly. As the committee is aware, NFIB has been very active this Congress and in the past in the Superfund debate because of the serious problems small business owners face in dealing with past disposal problems.

With respect to flow control ordinances, waste generators may be forced to send their waste to facilities that are environmentally unsafe, leaving them with potentially huge liabilities. Waste generators should be able to control their own liability and their quality of life by choosing the facility that has the safest standards.

NFIB also represents a number of small haulers and recyclers. With flow control ordinances in place, it is highly unlikely that these small businesses would be able to compete for long-term contracts. They will, in effect, lose any opportunity to provide these services or fill new niches in the market as new technologies develop.

Arguments are made that counties and municipalities need flow control ordinances to plan for present and future waste management. While such planning may be desirable, there are better ways to manage it than by interfering in free markets. It is a myth that waste management requires flow control. Such management by local governments can be performed through regulating the quality of service, not by performing it themselves or by establishing long-term exclusive contracts.

I think a good example of that is going on in Virginia right now. A few years ago, the city of Richmond and 12 surrounding counties and other independent cities formed the Central Virginia Waste Management Authority. One of their goals from the beginning has been to maximize the existing private waste management companies. In fact, the director of the authority, Kevin Burns, has written "Unlike most other regional authorities, this authority has implemented all of its programs through private service contracts for recycling and other waste management services. The result has been the development of an integrated regional waste management program. The public investment in contract services is stimulated with the creation of private competition, jobs and a private tax base."

Pending Le~gislation

It should be made clear from my testimony that small business owners do not support flow control ordinances. However, they are not insensitive to the plight of many communities that have on-going facilities in place. If the committee must pass some flow control legislation, NFIB strongly urges that only a strictly limited grandfather provision be established. Specifically, we do not believe that communities that currently have on-going programs should be destined to live under flow control ordinances into eternity. Once the currently operating facility's useful life is finished, any grandfathered flow control ordinance should end. And certainly, any community that had passed an ordinance and was merely in the planning stages of building a facility should not be protected from the free market.

Small business owners face many hurdles in maintaining their businesses, creating jobs, and generating revenue for their communities. They should not be faced with added costs and poorer service that results from monopolistic flow control ordinances. NFIB urges the committee to consider the negative consequences of establishing long-term monopolies that force small businesses to purchase services from a single supplier. It is not in the best interests of small businesses or the nation as a whole.

Thank you for the opportunity to be here today. I would be happy to answer any questions.