Few favor recycling fee hike

Raising concerns about the financial viability of the state’s beverage container recycling program, Department of Health officials plan to increase the nonrefundable handling fee paid by consumers, retailers and the beverage industry despite opposition from those groups and legislators.

Even though the planned increase would be only half a cent per container, or a 50 percent jump, opponents say the agency shouldn’t change any fees until an independent audit is done to ensure numerous accountability problems identified in 2005 by state Auditor Marion Higa have been corrected.

At least one major flaw flagged by Higa still persists.

And despite a statutory requirement that the program be audited every even-numbered fiscal year, Higa has not completed another audit since 2005, the year the recycling system was launched. Audits covering fiscal years 2008 and 2010 are pending.

Beverage industry officials say even a half-cent increase in the handling fee would result in higher prices, though some retailers are unsure how to deal with an odd amount like that. One distributor said retail prices likely would increase by a penny, while a retail representative disputed that.

The 5-cent refundable deposit that consumers must pay per container when they purchase beverages under the so-called HI-5 program would not change. Consumers get those deposits back if they return the empty containers to one of roughly 120 recycling centers around the state.

Hawaii’s recycling rate has averaged roughly 75 percent over the past four years, compared with less than 30 percent before the program started in 2005.

Despite the benefits from recycling to Hawaii’s environment, consumers say they aren’t thrilled with paying even a penny more for soda, beer and other beverages, especially if they believe the money is going to an operation still plagued by inefficiency and lax accountability.

Higa’s 2005 audit, which covered the first six months of the program, described a financial system in which transactions were not properly recorded, records were in disarray and the resulting environment was "ripe for abuse." The program typically collects more than $50 million annually in deposits and handling fees.

"Although that (half cent) doesn’t seem like a lot of money, if it’s coming out of my pocket, I want to make sure it’s being used appropriately," said Christopher Jackson, 28, as he and his girlfriend, Alycia Yee, 26, were unloading about a year’s worth of accumulated cans and bottles at an Ala Moana recycling center last week.

Legislators have raised similar concerns. The House this year passed a resolution urging DOH not to increase the handling fee until Higa completed an updated management and financial audit. No House member voted against the measure.

Industry executives likewise have panned the idea of an increase, especially in the absence of a new audit.

"It’s completely unfair to consumers and distributors," said Michelle Tang, distribution center manager for Coca-Cola Bottling Co. of Hawaii. "This fee increase is just a tax hike in disguise."

DOH officials insist that the half-cent increase is necessary to maintain the financial viability of the program.

As Hawaii’s recycling rate has topped 70 percent — something that has happened each of the past four fiscal years — the program has not generated enough revenue to cover operations while also maintaining a sufficient reserve fund, according to the agency. The program gets its operating money from the handling fee and the 5-cent deposits that are kept because some people don’t recycle; the more the recycling rate rises, the greater the shortfall.

As that shortfall has persisted, the program has had to tap its dwindling reserves. Adding to the financial pressures, the Legislature has twice raided the recycling special fund, taken away the interest the fund earned and repealed an exemption the program had from a 5 percent state fee. Collectively, those actions have cost the fund nearly $10 million the past two fiscal years, further depleting the reserves, according to DOH figures.

"We’ve had a surplus of nickels we could draw down on," said Gary Gill, the department’s deputy director who oversees the recycling operation. "We’re at a point where we can no longer afford to do that."

Until the law was amended several years ago, the handling fee would have increased automatically to 1.5 cents when the recycling rate topped 70 percent.

DOH has until Aug. 1 to decide whether to raise the handling fee on Sept. 1, according to agency officials. While the department is planning for a half-cent hike, the director has yet to make a final decision, which is expected in July, they said.

Beverage industry and retail representatives say a month’s notice wouldn’t give them enough time to adjust their systems to accommodate the increase.

Hawaii’s high recycling rate demonstrates strong public support for the program and keeping the environment clean, according to DOH officials.

"We believe people want to keep recyclable containers out of the waste stream and our landfills. Raising the fee half a cent is the only way to keep this important program running," spokeswoman Janice Okubo said in a statement.

DOH officials said they have taken multiple steps to improve the program’s efficiency since Higa’s 2005 audit, including hiring more inspectors and accounting staff, dramatically reducing the rate of consumer complaints and bolstering accounting oversight of recycling companies.

"You would expect a little bit of growing pains starting a new program like this," said Gill, who helped get the bottle bill passed in 2002, making Hawaii the 11th state to adopt a mandatory deposit program.

But the department still hasn’t changed at least one of the major flaws Higa identified. She noted that payments made to recycling centers in 2005 were based on unverified numbers, creating the potential for the state to be paying for nonexistent containers.

More than six years later, the payment system is largely unchanged, relying on unverified claims, not the actual quantity of containers recycled and shipped elsewhere for processing into other products, department officials acknowledge.

"DOH has in some cases found significant differences between the number of containers claimed for deposit refunds and the number of containers reportedly shipped later," the department wrote in a December report to the Legislature.

Although the agency is planning to switch to a new method that will link recycling center payments to the actual amount of containers shipped to re-processors, that proposed change must go through a public hearing process and is months from expected implementation.

Asked why the department has taken so long to address the issue, Gill said, "It’s a complex system. It takes time to work out (changes), and we’ve been playing catch-up."

Recycling companies are not keen on the proposed change, saying, among other things, that it would force them to carry the cost of consumer deposits for potentially weeks before they are paid.

Terry Telfer, president of Reynolds Recycling, which operates 40 recycling sites around the state — the most of any company — described the state program as being hugely successful, citing the environmental benefits, jobs created and other positive effects.

Because of the higher cost of doing business, Telfer supports raising the handling fee paid to recyclers.

Even though the state collects only 1 cent per container in handling fees, it pays recycling centers 2 cents to 4 cents per container for the transporting and recycling of those materials.

DOH’s Okubo said those fees will not be increased.

Carol Pregill, president of the Retail Merchants of Hawaii, said a half-cent increase in the handling fee would be difficult for retailers to deal with, especially on such short notice and given the odd amount. She questioned whether the state needs the extra revenue to cover program inefficiencies.

"The retailers and consumers will have to pay more money because the system wasn’t managed correctly," Pregill said.