Red Wing Minnesota Trash Hauling - Background

Litigation Backgrounder

Challenging Barriers
To Economic Opportunity:

Challenging Red Wing’s Anti-Competitive Trash Cartel

The City of Red Wing, Minn., has unconstitutionally turned its local government into a special interest protected from competition. 

On August 28, 2006, the City Council adopted an ordinance that forces all private commercial trash haulers to use the City incinerator for 10 years, effective January 1, 2007, as a condition of doing business in Red Wing.  The incinerator has been burning up taxpayer money since its inception and the ordinance is nothing more than an unconstitutional attempt to prevent the inefficient government boondoggle from facing much-needed competition.

Local haulers, Paul Larson and Dale Gibson, are not going along with the City’s plan.  They built their hauling businesses into successful enterprises by focusing on what is best for their customers.  Larson and Gibson both believe that the citizens of Red Wing should be free to choose low cost, high quality services, rather than being forced to subsidize the City’s incinerator.

The City cannot forbid the exporting of trash any more than it can stop the exporting of its famous Red Wing shoes or the importing of Wisconsin cheese.  The Minnesota Supreme Court and local courts have ruled that city governments like Red Wing cannot impose controls that discriminate against the interstate movement of trash.  Red Wing and other cities cannot ignore these cases and they cannot ignore law.

The Institute for Justice will file a lawsuit on December 6, 2006, on behalf of Paul Larson and Dale Gibson to defend the rights of entrepreneurs in Minnesota and across the country.  This lawsuit is the fifth case in IJ-Minnesota’s campaign to restore economic liberty as a civil right under both the Minnesota and U.S. Constitutions.

Introduction

It’s a hammer,” City Council President Stephen Castner said, explaining why the City Council amended Red Wing’s ordinances last August to make it illegal for entrepreneurs to haul commercial trash without signing and abiding by a City contract that requires the haulers to only use the City’s incinerator instead of less costly landfills.[1]

In one short sentence, the City Council president admits to everything that is wrong with the City of Red Wing’s plan that forced all private haulers to use the Minnesota municipality’s costly incinerator instead of less expensive and environmentally friendly alternatives in Wisconsin and elsewhere.

Castner’s offer is one that many trash haulers couldn’t refuse:  If they want to continue to do business in Red Wing after January 1, 2007, they had to sign the City’s contract by August 28, 2006, and commit to bring their trash to the City’s incinerator in the new year.  If they didn’t go along with the City, come January they’ll be left on the outside looking in.[2]

This is what the City calls “organized collection.”  The City is using the threat of setting itself up as middleman between trash haulers and consumers in order to force the haulers to use the City’s outrageously expensive incinerator.  Whether you call this “organized collection,” “central planning,” or “skimming,” the bottom line is the City wants to use its regulatory power to change the flow of trash toward its inefficient incinerator and take an extra couple of bucks from every business three times a week.  Of course, the added costs of every pick up will be passed on to consumers in Red Wing.

Local haulers, Paul Larson and Dale Gibson, won’t be intimidated by threats from City officials and they are not going along with the City’s plan.  They built their hauling businesses into successful enterprises by focusing on what is best for their customers.  They know the true definition of the word “voluntary.”  It means people have the freedom to choose with whom they do business.  They also know that this is what makes American enterprise the envy of the world. 

Larson and Gibson each refuse to sign the City’s “voluntary contract” because they don’t need a new “partner” in their business or to be told how to best serve their customers.  They also believe their customers should be free to choose their low cost, high quality services, rather than being forced to subsidize the City’s incinerator.[3]

Fortunately, the U.S. Constitution supports their common-sense convictions and prohibits cities from directing the flow of commerce or setting themselves up as an exclusive broker in the interstate waste hauling market.  Specifically, the U.S. Constitution’s Commerce Clause prohibits municipalities like Red Wing from enacting laws that burden interstate commerce.  And in numerous cases, the U.S. Supreme Court and federal and state courts in Minnesota and elsewhere have struck down waste “flow-controls” identical to Red Wing’s.

Larson and Gibson joined with the Institute for Justice Minnesota Chapter to file suit against the City of Red Wing.  In the suit, they are asking the U.S. District Court for the District of Minnesota to declare Red Wing’s new collections ordinances unconstitutional and to enjoin the City from implementing them on its scheduled start date of January 1, 2007.

If successful, Larson and Gibson will not only protect their own customers and preserve their businesses, but they will be striking a blow to the arrogant dictates of municipalities across the country who ignore the Constitutional mandates of both free trade among all states in this country and economic liberty to all Americans seeking to earn an honest living in the professions of their choosing.

 

Interstate Trash Industry

It’s absurd to think the City of Red Wing can engage in economic protectionism by forbidding the exporting of trash any more than it can stop the exporting of shoes or the importing of cheese. The Constitution’s Commerce Clause protects the interstate movement of trash, as it does other products, and prohibits protectionist ordinances that promote narrow-minded economic interests. 

This constitutional protection has allowed the interstate movement of trash to grow significantly in the United States.  In 2003, the latest data available, 38.1 million tons of trash were exported from one state to another; that is an increase of over 200 percent from exports of 12.6 million tons in 1989 when the Congressional Research Service first began to compile nationwide data.[4]  In 2003, Minnesota exported more than 600,000 tons, which equals 10.5 percent of the state total waste of 5.8 million tons.  Minnesota’s export percentage of 10.5 percent is greater than the average export rate of 9.4 percent of other states in the country.[5]

Every state in the Union, including Hawaii, exports trash.[6]  Minnesota exports trash to Illinois, Iowa, Wisconsin and North and South Dakota.  On a nationwide basis, there are more than 207 trade flows among the 50 states.[7]  This crisscrossing of trash across state boarders reflects the varying disposal costs and the low cost of transportation.  Tipping fees at landfills range from around $10 per ton in Nevada to $80 per ton in New Jersey.  Moreover, it costs only 10-15 cents per ton-mile to transport solid waste.[8]

The free flow of trash across state boarders allows it to be dealt with in the most efficient and cost effective manner.  By contrast, a complete prohibition on all cross-border shipping of trash would force households and firms in exporting states to use higher-cost disposal sites.  One analyst estimates that such a prohibition would result in annual economic losses of $3.8 billion.[9]

The free interstate shipping of trash has also has helped to reduce the need for incinerators.  There were approximately 90 incinerators in the United States in 2004, down from 171 in 1991.[10]

 

City of Red Wing’s Incinerator and Ordinance

In 1982, the City opened the Red Wing Solid Waste Boiler Facility (incinerator) which combusts approximately 16,000 tons of solid waste annually.[11]  Commonly recognized as “a constant drain on our tax dollars”[12] requiring governmental intervention to “make the incinerator stand on its own financially,”[13] Red Wing’s incinerator is uncompetitive.  With a tipping fee of over $56 per ton charged to those who drop off trash at the incinerator, the facility is more than twice the fee of $22 a ton for a landfill in Eau Claire, Wis., that has been certified by Wisconsin’s Department of Natural Resources.[14]

Unable to compete in the marketplace, Red Wing officials used their power to stop haulers from using other disposal sites for (1) commercial and industrial solid waste and (2) construction and demolition debris solid waste.  Specifically, the City Council adopted an ordinance on August 28, 2006, requiring all private commercial trash haulers to use only the municipal transfer station and incinerator for 10 years starting on January 1, 2007, as a condition of doing business in Red Wing. 

The City Council achieved this control by amending Municipal Code Section 10.02 to allow existing haulers to continue furnishing commercial and industrial waste services provided that they “voluntarily contract” with the City to use its outrageously expensive incinerator.[15]

In a perfectly transparent abuse of government leverage, the City is saying to haulers that in order to keep doing business in Red Wing, the haulers must sacrifice their freedom to use alternative and lower-priced processing sites in Wisconsin and elsewhere in order to subsidize the City’s inefficient incinerator.

Facing continuing financial losses, the City’s elected officials chose not to make Red Wing’s incinerator cost-effective, sell it to a more efficient private operator, or close it down.  Instead, the City abused its power and required all commercial haulers to deliver their waste to the incinerator to ensure it “has adequate supply of waste to eliminate or reduce the … financial liability [to the] city’s general fund to support the incinerator in its operations.”[16] 

This means that private haulers who refuse to go along with the City’s design are no longer allowed to operate in Red Wing and offer their existing and future customers more efficient service.  But Red Wing customers should not be forced to pay higher bills just because the City Council wants to generate revenues for an inefficient municipal facility.  And Paul Larson and Dale Gibson know that the City controlling trash flows or becoming a costly middleman will only hurt their consumers. 

Paul Larson and Dale Gibson

Paul Larson refuses to go along with the City of Red Wing.  He owns Paul’s Industrial Garage (PIG) of Hagar, Wis., located just across the Mississippi River.  He collects commercial waste in Red Wing and trucks it across the bridge to its own transfer station.  Other haulers also use PIG’s transfer station, directing even more flow to Wisconsin. 

After working nearly 20 years as a welder building recycling dumpsters, Paul purchased a dump truck in 1990.  He started servicing 13 residential customers in Diamond Bluff, Wis. and expanded his business over the years to meet the needs of commercial customers in other municipalities along both sides of the Mississippi River.  Today, he has approximately 3,000 customers of whom more than 2,000 are commercial entities such as factories, restaurants, taverns, groceries and farms.  Paul serves about 25 commercial businesses in Red Wing from which he hauls about 20,000 pounds of construction and demolition waste per week.  It represents about 20 percent of his total business.

Paul’s business is also more sophisticated today than when he started 16 years ago.  After picking up the trash, his employees now separate it at the curb or at his transfer station in Wisconsin into (1) recyclables such as glass, plastics, aluminum and papers that they deliver to the Pierce County Recycling Center in Ellsworth, Wis., and (2) non-recyclable trash that is transferred to larger trucks and transported to a private landfill in Eau Claire, Wis., 77 miles east of Hagar City.

There, the landfill operator, Veolia Environmental Services, recovers methane gas and sells it to Dairyland Power, which then transforms the gas into electricity that is distributed by the Eau Claire Energy Cooperative.  The cooperative has 9,500 members and services 25 distribution cooperatives in Eau Claire and 20 municipalities.  In addition to providing enough electricity to power 2,600 homes, the renewable methods used reduce emissions by the equivalent of 13,000 tons of coal.[17]

Importantly, Veolia’s landfill in Eau Claire will take types of trash that the City of Red Wing will not at its incinerator including food-waste, plastic moldings, window frames, and other specialty types of waste.

According to Paul, “Ninety percent of our business is done on a handshake; the other 10 percent is for pick ups at municipal offices in Wisconsin and they, not me, require a contract.  If we don’t do a good job, the customer can always use someone else.  People have a right to choose who they do business with.”

Dale Gibson also wants to choose with whom he does business.  Dale owns Gibson Sanitation, one of PIG’s transfer-station customers and a competitor in the commercial collection service in Red Wing.  Gibson Sanitation is located in Cannon Falls, Minn., 25 miles west of Red Wing.  Gibson picks up about 10,000 pounds of non-recyclable commercial trash per week in Red Wing and transfers 50 percent of it across the state line to PIG’s transfer station in Wisconsin.  Like PIG, Gibson Sanitation refused to accept the City’s ultimatum and therefore will forfeit his customers in Red Wing on January 1, 2007.

Dale started his business in August 2003 with one truck and has more than doubled its size in each of its three years of existence.  Today, he is serving customers throughout Goodhue, Dakota and Rice counties.  Dale insists that each of his 13 employees embrace his philosophy that Gibson Sanitation will “shower customers with service at a competitive price.”  He refuses to accept the City’s so-called “voluntary agreement” because he “does not want to be controlled by a government agency that takes competition out of free enterprise.”

Consumers, not power-hungry government officials, should determine how trash is cleared in Red Wing.  Fortunately, the Constitution ensures that Paul and Dale have the right to earn an honest living free from discriminatory regulations imposed by misguided bureaucrats. 

 

Commerce Clause: The Constitutional Right to Interstate Commerce

The Commerce Clause grants to Congress the affirmative power “to regulate Commerce among the several States.”[18]  The Commerce Clause was designed to prohibit states from creating protectionist schemes that discriminate against or unduly burden interstate commerce. [19]  In this context, discrimination means “differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter.”[20]  

The Commerce Clause “carries out the Framers’ purpose to prevent a state from retreating into economic isolation or jeopardizing the welfare of the Nation as a whole.”[21]  The central rationale for the rule is to allow for free trade among the states.  It does this by prohibiting state or municipal laws that would “excite those jealousies and retaliatory measures the Constitution was designed to prevent.”[22]

Interpreting the Commerce Clause, the U.S. Supreme Court and Minnesota courts have ruled that governments cannot impose controls that discriminate against the interstate movement of trash.  In drafting and implementing its ordinance, Red Wing appears to have ignored these cases.

Most prominently, in Carbone v. Town of Clarkstown,[23] the U.S. Supreme Court held that an ordinance forcing waste haulers—both in-state and out-of-state—to use a local waste processing facility was in violation of the dormant Commerce Clause.  This precedent is directly applicable to Red Wing’s ordinance.

In Carbone, the Town of Clarkstown, N.Y., contracted with a private individual to build a waste transfer station that the contractor would operate for five years and then sell to the city for $1.  In exchange, the town passed an ordinance requiring all town waste to be processed by this designated facility.  The U.S. Supreme Court held that such an ordinance was facially discriminatory against interstate commerce in waste transfer because “the flow control ordinance . . . hoards solid waste, and the demand to get rid of it, for the benefit of the preferred processing facility. . . . [it] squelches competition in the waste-processing service altogether, leaving no room for investment from outside.”[24]  The fact that in-state haulers and transfer stations were similarly affected by the requirement to use the favored facility made the ordinance no less discriminatory because regardless of how many in-state operators were treated like out-of-state operators, the ordinance still had the practical effect of local protectionism—simply put, the ordinance favored a particular local facility over everyone else.[25]  Finally, the City’s purported purpose of generating revenue to sustain the facility did not justify the discrimination because other means of financing were available, such as taxes or bonds.[26]  Carbone thus establishes that a state or municipality may not enact an ordinance favoring a local waste processing facility.

In Minnesota, the 8th U.S. Circuit Court of Appeals anticipated the holding of Carbone in a case in 1993 involving a flow-control law In Waste Sys. v. Martin County, the 8th Circuit held that the county ordinances requiring all haulers to deliver solid waste to a designated multi-county-owned composting facility discriminated against interstate commerce in violation of the Commerce Clause.[27]  In reaching its determination, the court analyzed the “overall effect on local and interstate commerce” and the “practical impact of the law.”[28]  The Court found that notwithstanding the environmental purposes behind the facility, the ordinance was an economic protectionist measure intended to limit competition and that it was therefore invalid. [29] 

Since then, the 8th Circuit has stated in several cases that local laws requiring the exclusive use of a local waste processing facility amount to violations of the dormant Commerce Clause. [30] 

IJ-Minnesota will ask the U.S. District Court for the District of Minnesota to strike down Red Wing’s flow-control ordinance under the U.S. Constitution’s Commerce Clause. 

 

Knocking Down Barriers to Economic Liberty

The lawsuit, Paul’s Industrial Garage and Gibson Sanitation v. City of Red Wing, is the fifth case in the IJ Minnesota Chapter’s campaign to restore economic liberty as a basic civil right under both the Minnesota and U.S. constitutions.  In Anderson v. Minnesota Board of Barber and Cosmetologist Examiners, the organization freed hairbraiders from Minnesota’s onerous cosmetology licensing regime.  In Crockett v. Minnesota Department of Public Safety, it successfully stopped the government from enforcing a blanket ban on advertising, soliciting or using the Internet to conduct lawful, direct sales of wine.  In Dahlen v. Minneapolis, IJ-MN succeeded in ending the City’s arbitrary application process of licensing of sign hangers.  And in Johnson v. Bd. of Veterinary Medicine, IJ-MN is currently challenging the irrational licensing regime that bars a horse teeth floater from competing with veterinarians.

The Institute for Justice Minnesota Chapter seeks to restore constitutional protection for the right to economic liberty—the right to earn an honest living in the occupation of one’s choice free from excessive government regulation.

The Institute for Justice has scored victories for entrepreneurs across the nation including:

  • Swedenburg v. Kelly—The U.S. Supreme Court declared New York state’s laws that barred the interstate shipment of wine directly to consumers unconstitutional violating the Commerce Clause.  IJ filed the suit on behalf of Virginia vintner Juanita Swedenburg who fought New York’s discrimination against out-of-state wineries that want to ship to in-state consumers.

  • Craigmiles v. Giles—In 2003, a federal appeals court upheld a lower court ruling that found Tennessee’s government-imposed cartel on casket sales unconstitutional.  This is the highest pro-economic liberty court decision since the New Deal.

  • Clutter v. Transportation Services Authority—IJ busted up Las Vegas’ entrenched limousine cartel that had stifled competition by blocking new entrants.

  • Ricketts v. City of New York—IJ’s advocacy helped strike down the New York City Council’s veto of new van services.

  • Farmer v. Arizona Board of Cosmetology—Institute for Justice Arizona Chapter (IJ-AZ) filed a lawsuit on behalf of braider Essence Farmer to dismantle Arizona’s onerous cosmetology regime, which required braiders to attend 1,600 hours of courses that taught nothing about braiding.  As a result of the case, Arizona’s legislature exempted braiders from the regime.

  • Armstrong v. Lunsford—This case successfully challenged Mississippi’s cosmetology regulations, which barred braiders from practicing their craft.  Prior to receiving a ruling from the court, Mississippi’s legislature exempted braiders from the cosmetology licensing requirement in 2005.  This result allows IJ’s client to continue to practice without obtaining a license.

  • Diaw v. Washington State Cosmetology, Barbering, Esthetics, and Manicuring Advisory Board—After being sued by the IJ’s Washington Chapter, Washington State’s Department of Licensing filed an “Interpretative Statement” exempting braiders from the State’s cosmetology licensing requirements.

  • Uqdah v. D.C. Board of Cosmetology—IJ’s work in court and the court of public opinion on behalf of D.C. hairbraiders led the District of Columbia to deregulate the cosmetology industry. 

  • Cornwell v. California Board of Barbering and Cosmetology—IJ represented JoAnne Cornwell, creator of the Sisterlocks technique of hair locking, in defeating California's cosmetology licensing requirement for African-style braiders in 1999.

  • Jones, et. al. v. Temmer, et. al.—Taxi entrepreneurs Leroy Jones, Ani Ebong and Girma Molalegne opened Freedom Cabs, Inc., in Denver in 1995 after IJ helped them overcome Colorado’s protectionist taxicab monopoly.  Stemming from pressure in the court of public opinion created by their lawsuit, the Colorado legislature enabled Freedom Cabs to become the first new cab company in Denver in nearly 50 years.  Testimony by Jones and Institute for Justice President Chip Mellor also contributed to the breakdown of government-sanctioned taxicab monopolies in Indianapolis and Cincinnati.

Litigation Team

IJ-Minnesota filed the case of Paul’s Industrial Garage and Gibson Sanitation v. City of Red Wing on December 6, 2006, in U.S. District Court for the District of Minnesota in St. Paul.  The lead attorneys in this case are Lee McGrath, executive director, and Nick Dranias, staff attorney, of the Institute for Justice Minnesota Chapter.

 

The Institute for Justice

The Institute for Justice is a public interest law firm that advances a rule of law under which individuals can control their destinies as free and responsible members of society.  Through litigation, communication and outreach, IJ secures protection for individual liberty and extends the benefits of freedom to those whose full enjoyment is denied by government.

IJ’s Minnesota Chapter litigates under the state and federal constitutions to reinvigorate economic liberty, preserve property rights, promote educational choice and defend free speech. 

For more information, please see IJ’s website www.ij.org or contact:

Bob Ewing
Communications Coordinator
Institute for Justice
901 North Glebe Road-Suite 900
Arlington VA 22203

Phone:   (703) 682-9320
Cell:       (202) 494-2567

Lee McGrath
Executive Director
Institute for Justice Minnesota Chapter
527 Marquette Avenue-Suite 1600
Minneapolis MN 55402-1330

Phone:   (612) 435-3451 ext. 205
Cell:       (612) 963-0296



[1] Mike Longaecker, Red Wing City Council picks up trash plan, Republican Eagle, June 16, 2006, (emphasis added), available at http://www.republican-eagle.com/articles/index.cfm?id=33450&section=News&presspass

[2] Mike Longaecker, Solid waste: deal or no deal? Republican Eagle, June 14, 2006, available at http://www.republican-eagle.com/articles/index.cfm?id=33368&section=News&presspass.

[3]  Despite claiming it is organizing all commercial collections under a municipal plan, the City exempts the waste from a favored local industry, S. B. Foot Tanning Company (Code § 10.01 subd. 2 E) and all Commercial and Industrial Establishments within the City that desire to be self haulers (Code § 10.02 subd. 5).

[4] Edward W. Repa, Ph.D., Interstate Movement of Municipal Solid Waste, NSWMA Research Bulletin 05-02, Revised Edition, January 2005, p. 1-2.

[5] Ibid at 3  (Noteworthy, Minnesota is only one of six states that does not import trash from another state.  The other five are Alaska, Delaware, Hawaii, Louisiana and Wyoming)

[6] Cindy Skrzycki, On Trash Pickup, Hawaii Is In for the Long Haul, Washington Post, May 30, 2006, D-01

[7] Id.

[8] D. K. Benjamin, Trading in Trash, Prop. & Env. Research Ctr, PERC Reports, Volume 20, Number 2, June 2002.

[9] Id.

[10] Douglas Clement, A Burning Issue, Fedgazette, Fed. Res. Bank of Minn, March 2005.

[11] City of Red Wing, Plan for Organized Collection of Commercial, Industrial and Construction and Demolition Debris Solid Waste. November 28, 2005.

[12] Lance Garrick: Aiming for cooperation, Red Wing Republican Eagle October 26, 2006.

[13] Mike Schultz: Increase city revenue, Red Wing Republican Eagle October 25, 2006.

[14] Recognizing that it must be competitive with landfills and private incinerators, Hennepin County’s Energy Resource Center (HERC) charges a contract tipping fee of $34 per ton to large haulers who commit to deliver an agreed upon volume to its facility in Minneapolis.  By contrast, any one can deliver any amount of trash to HERC and pay the gate rate of $60 per ton, only a $4 premium more than Red Wing’s contract rate. 

[15] Denny Tebbe’s letter to Minn. Chapter of the National Solid Wastes Management Association, August 2, 2006.

[16] City of Red Wing, Plan For Organized Collection of Commercial, Industrial and Construction and Demolition Debris Solid Waste, Nov. 28, 2005, available at http://red-wing.org/files/Public%20Works/ Red_Wing_Plan_for_Organized_Collection_of_Solid_Waste.pdf.

 

[17] Midwest CHP Application Center Fact Sheet revised 9/30/05. Online at www.chpcentermw.org/pdfs/Project_Profile_Veolia Environmental Services_Seven_Mile_Creek_ Landfill.pdf.

The landfill operator estimates that PIG’s waste accounts for approximately one percent of the waste it receives annually.

[18] U.S. Const. art. I, § 8, cl. 3.

[19] South Dakota Farm Bureau, Inc. v. Hazeltine (8 Cir.2003) (state constitutional provision that prohibited corporations and syndicates, subject to certain exemptions, from acquiring or obtaining interest in land used for farming and from otherwise engaging in farming violated dormant Commerce Clause).

[20] Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 99, (1994)).

[21] Fulton Corp. v. Faulkner, 116 S.Ct. 848, (1996)) (additional internal quotation marks omitted).

[22] Carbone. Inc. v. Town of Clarkstown, 511 U.S. 383, 390 (1994) (referencing Federalist No. 22, pp. 143-145 (C. Rossiter ed. 1961) (A. Hamilton); and Madison, Vices of the Political System of the United States, in 2 Writings of James Madison 362-363 (G. Hunt ed. 1901))

[23] Id. at 389.

[24] Id. at 391.

[25] Id. at 391.

[26] Id. at 393-394.

[27] 985 F.2d 1381, 1387 (8th Cir. 1993).

[28] Id. at 1386-1387. Noting counties considered less restrictive means of financing facility, none was sufficient to cure constitutional defects. Id. at 1384, 1387.

[29] City of Philadelphia v. New Jersey, 437 U.S. 617 (1978).

[30] In 1997, the court explicitly embraced Carbone’s argument that “evenhanded” treatment of in-state and out-of-state waste haulers would not prevent a law requiring the use of a local facility from being struck down.


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