“We’re rich. We have less than 4,000 people living here and we have millions of dollars in the bank.” – Town Administrator, Fox Township Pennsylvania
It’s tough to imagine in this economic climate, but some small towns are getting rich.
That may be a surprise. After all, dozens of state and local governments are broke and on the verge of being downgraded to “junk” status. State pension funds have been decimated. A few pundits have even predicted state and local governments’ debt loads may trigger the next phase in the credit crisis.
But that’s not a problem in Fox Township, Pennsylvania. According to Michael Keller, a local administrator, they’re “rich”.
Fox Township isn’t sitting on a hot natural gas shale find. And they didn’t they strike an oil gusher. Or convert their corn fields to a wind farm. No, the tiny Pennsylvania town is turning another man’s trash into their own treasure. Literally.
Fox Township is getting rich off the backs of New Yorkers.
How? By accepting their trash.
New York City generates 36,000 tons of garbage every day and it has nowhere to put it. In 2001, the city’s last garbage dump was closed. NYC now ships all of its waste elsewhere.
In a time when every town screams “Not in my back yard” (NIMBY) when it comes to garbage disposal, some pragmatic communities are saying, “My back yard is fine, but it’ll cost you.”
That’s right Fox Township and a few others are turning New York’s trash into their own treasure. And it’s a growing industry. The total NYC trash disposal bill has doubled from $700 million in 2001 to $1.4 billion dollars this year.
Few people grow up dreaming of getting wealthy in the trash business. But trash is a quietly profitable business that is holding steady during the recession.
When people lose their jobs and feel insecure about their futures, they often change their habits. They may shop less, dine out less, postpone big ticket purchases, etc. But one thing they don’t stop doing is throwing things away.
I know what you’re thinking. Many of the stocks that have recently been touted as “recession proof” have gotten crushed, along with the rest of the market. Pawn shops, alcohol manufacturers, and gambling hubs have suffered right along with the junior mining stocks and the banks. But waste management is a ravenous monster that is always growing.
The $52 billion waste management market is dominated by the “Big Three”: Waste Management (WSI), Allied Waste (AW), and Republic Services (RSG). Together they take out 45% of United States’ garbage.
There are two main components of the waste management industry: garbage removal and landfill.
Removing the garbage (from your home or a construction site) has thin margins and is subject to labor issues. It’s a respectable business, but nothing to get excited about.
Landfills are the enticing part of the business. It’s highly profitable and the barriers to entry are high.
Landfill permits are notoriously difficult to get. NIMBY factors can stretch that process to 10 years.
The Big Three waste management companies own a lot of landfills. In fact, they own nearly two-thirds of the landfills in the country. That means other companies have to pay them fees to dump in their landfills. And at the going rate of between $20 and $40 per ton (costs can vary greatly depending on local laws), the revenue is significant.
Landfills generate the big profits in the waste management industry. Landfills account for only 35% of the Big Three’s revenues, but almost half of their operating profits.
No business is completely recession proof. But the waste management industry has a lot less exposure to economic fluctuations than most others. About 16% of Waste Management’s revenues come from “roll-off activity.” Roll offs are the big containers you see at construction sites and outside factories.
With new building permits in the U.S down 38% from a year earlier, the “roll off” revenue is going to get squeezed. But Waste Management is still going to be picking up garbage from private residences and trucking it to its own landfills.
In the last two years, Waste Management has managed to increase core pricing 11%. With fuel costs unexpectedly declining, that extra revenue goes straight to the bottom line.
New York City has a big problem, and Fox Township is providing a profitable solution. At Q1 Publishing we believe that when corporations and individuals are tightening their belts, the best investments are in companies that provide solutions to inescapable problems. Like Trash Removal.