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A penny for their troubles? By DREW ANDERSEN, Courier Staff Writer
CEDAR FALLS -- A battle for a penny will again be among the prominent issues when the 82nd Iowa General Assembly convenes in January.
More accurately, the battle is over approximately 1.65 million pennies -- the handling fee paid per container to redemption centers and grocers by distribution centers for the collection of eligible containers. Redemption centers claim the current 1 cent handling fee is too small for them to remain profitable, whereas distributors and grocers claim an increase in the handling fee will hurt costs and retail prices, affecting overall sales.
House File 164 was introduced last year, proposing a 1 cent per container increase in the handling fee, but did not make it past subcommittee. Once again the law will be introduced, and once again the sides will prepare for a battle in the state capital.
Redemption reconciliation
The bill in question (? 455C) is commonly referred to as the Iowa Bottle Bill, which forces distributors to add a 5-cent deposit to the cost of each beverage container they sell to retailers. That deposit is passed on to consumers in the final price of the beverage, and can be redeemed at redemption centers or most retailers. In turn, distributors are required to pay back the 5-cent deposit to redemption centers plus a 1-cent handling fee. The cans are then taken by the distributor to an aluminum recycling plant where the distributors are reimbursed for the value of the aluminum.
The Iowa Bottle Bill Coalition (IBBC) is one of the lobbyist organizations pushing to have the handling fee increased from 1 cent to 2 cents. Their argument, according to member Rose Shepard, is that the cost of operating a redemption center has increased since the bill was passed in 1978, making it impossible to remain profitable on a revenue of just 1 cent per container. Because of inflation, a penny in 1978 would be worth over 3 cents today, according to the U.S. Bureau of Labor Statistics' Consumer Price Index calculator.
"We're trying to get the redemption centers a raise and get everyone on even ground," said Shepard, who operates a redemption center in Montezuma. She said distributors had an advantage because of their superior lobbying power in Des Moines.
Employee Terry Wilson sorts through a mountain of cans Wednesday afternoon at Metro Area Redemption on East 18th Street in Cedar Falls.
RICK CHASE / Courier Staff Photographer |
Of course, economies of scale can be a factor, as well. Shepard said large-scale redemption centers can spread out their overhead costs, increasing their profit margins. However, centers in towns with smaller population bases to draw from, like the one Shepard operates in Montezuma, do not have that luxury.
Shepard also argued that distributors benefit from an economic windfall from unredeemed deposits. The distributor charges the $0.05 deposit to retailers, but do not have to pay back deposits to redemption centers on cans that are not collected because they have been thrown away or littered. According to the Iowa Department of Natural Resource's figures, unredeemed deposits amount to approximately $13.5 million in "revenue" for distributors each year.
Adding deposits for bottled waters and teas is another change distributors would like to see made to the Bottle Bill. These types of beverage containers currently do not have deposits, said Chet Hay, owner of Metro Area Redemption in Cedar Falls, and thus are not calculated into the 86 percent of containers with deposits that are recycled each in Iowa. Hay said an increase to the handling fee -- even if by half a cent -- is a more important issue for distributors, but adding the deposit to containers that currently do not have it could also help the bottom line for redemption centers.
Distribution retribution
While redemption centers push for an increase in the handling fee, distributors claim any increase could be detrimental to their bottom line and the beverage industry in general in the state.
The Iowa DNR, which is responsible for overseeing the program, says Iowans recycle beverage containers at a rate of 86 percent, amounting to 1.65 billion cans annually. Therefore, distributors pay out approximately $16.5 million in handling fee expenses to redemption centers and retailers. The $13.5 million "revenue" from unredeemed bottles falls $3 million short of covering the handling fee expense. This difference, spread out across the nearly 2 billion deposit-eligible beverage containers sold in the state, amounts to a nominal 4/25 of a cent ($0.0016) increase in cost per container.
This nominal increase in cost per container creates a balance, argue distributors, that increases the recycling rate while adding very little to the actual cost of beverages. Any change to the current formula could spin the system out of balance.
An increase in cost through a boost to the handling fee would lead to a decrease in demand, dependent on the elasticity of demand for the beverages. Plus, distributors and grocers argue that any increase in the price of beverages in Iowa could lead to an increase in the number of consumers who cross state lines to purchase beverages, said Jerry Fleagle, president of the Iowa Grocery Industry Association (IGIA).
Fleagle said increasing the handling fee would be similar to the $1.00 boost in the tax on cigarettes which was passed in the state of Iowa earlier this year. This increase in the overall price of tobacco has caused consumers who live near state borders to purchase their tobacco products in neighboring states, where the products are cheaper, said Fleagle.
"One retailer in Bloomfield (near the Missouri border) has completely stopped selling cigarettes," said Fleagle. "They are just so uncompetitively priced (compared to outside the state)."
Of the 11 states that require bottle deposits, none border Iowa. "We're like an island," said Fleagle. The only other Midwest state to require a deposit is Michigan, which has a 10-cent per can deposit.
Retailers tend to side with distributors in the debate, even though they can feel the pull of both sides of the argument. Those retailers who collect containers themselves could nullify most of an increase in the handling fee on the retail end by matching the costs with the increased revenue they would receive back from distributors. But the net effect of an increase in the handling fee would be an increase in the revenue for distribution centers, meaning retail costs would increase regardless.
Fleagle and the IGIA offered a solution they consider to be a compromise. The organization proposed a change to the law which would decrease the refund value for consumers from 5 cents per can to 4 cents per can, but still require distributors to add 5 cents to the price on the front end of the supply chain. The extra penny, said Fleagle, would be absorbed by redemption centers when cans are returned.
The IGIA's plan is similar to what some redemption centers have attempted to do themselves in the past when some centers charged customers a 1 cent per container fee for collecting their cans. The DNR put an end to this practice by threatening fines for centers who charged this fee. But Fleagle argues that demand for recycling is not overly-sensitive to a change in redemption value, and being up front with consumers is the best way to tackle the tough issue.
"Most of the cost will be passed on to the consumer anyway, so we should just be upfront about it," said Fleagle.
Shepard said Fleagle's plan was the retailers' way of working towards the eventual elimination of the bottle bill. The dip in redemption value would eventually lead to another until deposits were eventually gone.
The issue is sure to garner more attention in the 2008 legislative session, but with an array of other issues on the table, plus upcoming elections, any adjustments to the Bottle Bill could get swept under the rug for another year.
Contact Drew Andersen at (319) 291-1418 or drew.andersen@wcfcourier.com. | 
