BOTTLE RETURN BILL

Popping The Carbonation Requirement In Michigan

BY STACY GITTLEMAN

One would assume that seeing fewer plastic water bottles strewn around the environment and creating new revenue streams and incentives to recycle them would be a bipartisan issue everyone could get behind. But Trotter stresses that the recycling component is not the sticking point.

“What is being questioned is the process of how we get our containers recycled and where consumers can bring their containers,” Trotter explained. “Retailers have a problem with the way the law currently stands because they do not know how they would deal with the expansion inside their properties. But from the hunter-angler perspective, we were motivated by the litter we saw on public lands and roadways that got into our streams and rivers. We made a difference back then, but the consumer products and materials that hold beverages have changed and now we'd like to see the same change for all the plastic we see.”

Under Michigan’s current bottle law, distributors must charge a 10-cent deposit per returnable container when they sell their products to retailers. Retailers then pass the charge onto customers and refund it when containers are returned. Retailers get refunded when distributors pick up the empties, and any unclaimed deposits remaining are split between retailers and environmental cleanup in a 25-75 split. But there was a time when beverage retailers and distributors were collecting all those dimes, and that has been their long-standing point of contention with the current bill. In 1995, former Governor John Engler gutted the polluter pay law which made industry and manufacturers responsible for footing the bill to clean up contaminated sites.

The bottle bill was amended in 1996 and specified how the state must distribute its share of the unclaimed deposits as determined by the state's escheat law, which passed in 1989. That law required 75 percent of the unclaimed deposits to be transferred into the Cleanup and Redevelopment Trust Fund, overseen by the Michigan Department of Treasury, while the remaining 25 percent is to be distributed by the treasury to retailers to offset their handling costs.

According to department of treasury spokesperson Ron Leix, 25 percent of unclaimed bottle deposit escheat revenues are distributed to retailers and 75 percent is retained by the state. Of that 75 percent, the first $1 million is deposited in a Michigan State Police fund to support bottle bill enforcement. The rest of the revenue comes to the Department of Environment, Great Lakes and Energy (EGLE). Ten percent is retained in the Cleanup and Redevelopment Trust Fund until the balance reached $200 million. Another 10 percent is deposited in the Community Pollution Prevention Fund, where $250,000 of the fund’s interest earnings are appropriated each year for pollution prevention grants to local communities. The remaining 80 percent is deposited in the Cleanup and Redevelopment Fund to support contaminated site cleanups.That portion of the Cleanup and Redevelopment Trust Fund is immediately available for appropriation for municipal landfill cost-share grants, matching federal Superfund dollars, response activities addressing public health and environmental problems, redevelopment facilitation or emergency response actions.

However, environmentalists point out the fact that the list of contaminated sites in the state since 1996 has ballooned and has outpaced the money in the fund allocated to clean them up. Currently, there are more than 16,000 sites where EGLE knows hazardous substances have been released. In addition, there are more than 6,800 sites with underground storage tanks that have had more than 8,700 confirmed releases. Ensuring that sites have adequate funding to both complete the remedial activities and maintain a protective remedy is essential to both the protection of human health and the environment and the eventual safe reuse of these properties.

In 2019, unclaimed bottle deposits amounted to $43 million. In 2020, that figure ballooned to $108 million after the COVID-19 pandemic caused a months-long disruption in bottle deposit service.

Environmentalists say the wide fluctuations in this fund is not something the state should bank on to deal with the complexities of environmental cleanups.

To understand the drawbacks of relying on this fund to clean up contaminated sites, Conan Smith, president and chief executive officer of the Michigan Environmental Council (MEC), uses the analogy of thinking of the fund as a nonprofit organization’s endowment. Such organizations configure a threshold dollar amount of how big they want their endowment to be – say $200 million. A well-run nonprofit, Smith said, does not spend the money of the endowment but instead uses the accrued interest to fund its mission and programming.

Instead, the state depends on whatever deposits go unclaimed from year to year.

“The fund can vary from $75 million one year, and then it ballooned in the pandemic (because of the halting of bottle and can redemptions) to over $100 million,” Smith explained. “There is no public policy that states what the next phase of this fund should be. There is no threshold number designated because they are allowed to spend the principal. And that's part of the public policy we want to change. Updates to the bottle bill need to make sure that the principal grows to a substantial threshold level, to the point of where it is consistently throwing off enough money to fund the cleanup and redevelopment of the state’s contaminated sites.”

Overall, Smith said Michigan can boast that it has one of the best can and bottle recycling programs in the world. At an average 90 percent redemption rate, it is the best in the nation, tied with Oregon. Only the Scandinavian countries are doing it better, he noted.

"Our bottles and cans can get recycled up to six times in a given year, making it an incredibly effective program," said Smith. "But since the 1970s, the kinds of bottles that we use for beverages have changed. We are barely covering half of the containers that the bottle bill could be recycling. So that's really the challenges we are seeing.”

Smith added that compounding the problem is that these days, even wine can be sold in a can, and these cans are not accepted for a recycling deposit. Also, if you purchase a beverage product that is the brand product of a retailer, say a Kroger or Costco's Kirkland brand, redemption centers at these retailers do not have a reciprocal agreement to take in each other’s containers.

He explained: “Because it is not carbonated, wine in a can is not covered. Our bottle bill needs some modernization and expanding, so we are capturing as much of those recyclable materials as possible.”

Smith said if retailers were being honest, they would not mind if the whole bill went away. That is because most of the burden to the public, of returning all those bottles and cans and getting those deposits in the form of a receipt, falls on the retail stores and their staff.

“Retailers don't like the burden of the cost of providing this public service, but the MEC sees it as a tradeoff for doing business in Michigan,” said Smith. “There are lots of ways that they could address those challenges that they face in their stores and with their workers, but they choose not to make those. So, I think that's a little bit of a red herring.” usbank.com/mortgage

Andrea Bitely, vice president of marketing and communications for the Michigan Retailers Association said the drawbacks of bringing back dirty bottles and cans to a redemption center which is often located in the back of a store is the potential to contaminate areas in the store where people buy fresh produce, fish or meats.

To be blunt, Bitely said, there is a huge “ick” factor when it comes to store employees having to handle dirty containers. Fear of the spread of disease from these recyclables reached its height when Governor Gretchen Whitmer, under emergency orders at the beginning of the COVID-19 pandemic, halted operations at all redemption centers.

Talk to us about your construction loan options.

Let’s build it together. Building your dream home takes planning and patience. And it all starts with the right nancing. Our experienced, dedicated team can guide you through your construction loan options, providing the highest levels of service at every stage.

Our competitive construction loans o er:

–One closing with one set of fees

–Low down payment options

To learn more, visit my mortgage loan o icer webpage.

–Financing for renovations and expansion projects

Put our knowledge and strength to work for you.

“World’s Most Ethical Companies” and “Ethisphere” names and marks are registered trademarks of Ethisphere LLC. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Visit usbank.com to learn more about U.S. Bank products and services. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC. ©2022 U.S. Bank 869201c 11/22

“While we completely understand the environmental concern that folks have when it comes to seeing cans and bottles and the like on the side of the road, we also have other concerns, and one of them is the health and safety of employees and customers that come through grocery stores every day,” Bitely said. “During the early days of the pandemic, we did not understand how COVID was spread and we were all wiping down every grocery item before it came into our home. So, imagine the horror of grocery store employees who were going to have to sort cans and bottles.”

Even with the pandemic subsiding, Bitely pointed out the issue of stores needing to have the space to stockpile these cans and bottles safely away from fresh produce somewhere in the back warehouse section of the store until they are shipped off for recycling.

“Unwashed pop and beer cans are sticky with sugary residues and that can attract rodents and insects. Our retailers take pride in the sanitary conditions of their stores and collecting dirty bottles adds to this challenge,” she noted.

Bitely continued: "Often, customers in these smaller stores in rural areas come to the service desk, used by other customers to purchase their food, with a case or a six-pack of unwashed cans or bottles for the store clerk to redeem by hand. It's unsanitary, frankly. And even if those return centers are in front of a grocery store, you still have a grocery clerk, a bottle return clerk, that is tasked with handling those items. That's just plain gross. Our retailers then must provide employees with gloves, aprons and other safety equipment at their expense. There must be a better way to do this.”

Spencer Nevins, president of the Michigan Beer and Wine Wholesalers Association, said on average, his association members spend over $60 million a year in the collection and processing of returned bottle and can deposits and fears that number will go even higher if the bottle bill expands to include plastics. Nevins said for an expansion to work, his industry will need a bigger cut from the unreturned deposits.

Nevins said when the bottle bill was first adopted by the voters, his association members kept all the unreturned deposit money. But after the funding shift in the 1990s, the beverage and retail industry saw themselves at a disadvantage to keep up. Nevins said it is his industry that has been saddled with upholding and executing the bottle bill and hopes any revisions to it will give them more support.

“Beer distributors are responsible for implementing the vast majority of the bottle bill,” claimed Nevins. “We have to initiate the deposit when the containers are sold to the retailers. When the retailer gets the container back from the consumer, we have to give that seller back their deposit. It is our responsibility to create all the steps necessary to recycle those cans and bottles.”

Nevins continued: “When the bottle bill was adopted, when people didn’t bring back their containers, all those leftover dimes stayed with the distributors to be reinvested in building the (collection and distribution) infrastructure. When that bill passed, that infrastructure did not exist. No one had the equipment like those collection machines at the retail level, the necessary trucks or the bottle washing equipment. In the beginning of the enactment of the bottle bill, we were given nothing to finance all this infrastructure.”

Nevins said when the funding shifted, beverage distributors and retailers had less money to maintain or expand this infrastructure. There was a brief window in Governor Jennifer Granholm's administration when distributors received a 33 percent tax credit for all their bottle bill costs, but this business tax credit was repealed during Rick Snyder's administration.

“So, except for that brief period of time, the state has never put money into the infrastructure of the bottle bill, but the state did take money away from us in the 1990s.”

Nevins said all the money from unclaimed deposits – not just 25 percent – should go to retailers and distributors, and not to EGLE.

“All those unclaimed deposits should be divided up between the beverage distributors and retailers to invest in and build an expanded infrastructure for the bottle bill,” argued Nevins. “Instead, most of the money gets sent to EGLE and it’s very difficult to figure out what EGLE is doing with that money. It is supposed to help them hire more full time employees, but it seems like an exorbitant amount of money.”

According to EGLE spokesperson Hugh McDiarmid Jr., in fiscal year 2023, EGLE was appropriated $68,649,100 for cleanup and redevelopment funding. It used $64,722,700 for contaminated site cleanups, including $10 million for one-time funding for Buffalo Reef, a 2,200-acre natural cobble feature in Lake Superior which is vital for lake trout and lake whitefish spawning, which is still suffering the adverse effect of milling operations that ceased in the area in 1932. The rest of the money went towards a $1.046 million recycling initiative, and $2.8 million for EGLE departmentwide operations. The Michigan Department of Treasury is anticipated to have its 2022 bottle information available to the public in May.

“Mr. Nevins’ should be well aware that the money from uncollected deposits is deployed directly on sites of environmental contamination – all of which goes to assessment, cleanup and redevelopment of contaminated sites in Michigan, as well as pollution prevention efforts,” said McDiarmid. “In the current year, the funding supports 130 staff who are responsible for working on more than 100 sites across the state. The money also helps leverage federal funding that requires matching dollars.”

McDiarmid said examples of contaminated sites EGLE is working on include the Electro Plating Services site in Madison Heights, where hexavalent chromium was found leaking onto I-696 in December 2019; the Allied Paper site in Kalamazoo where 80 miles of river are contaminated with PCBs; and contamination from activities at the Camp Grayling National Guard training facility in Grayling.

He continued: “Michigan has approximately 24,000 contaminated sites, and resources to fully address only a small percentage of them. The loss of unclaimed deposit dollars will further diminish the state’s ability to protect the environment and keep Michiganders healthy.”

Nevins with the Michigan Beer and Wine Wholesalers Association has testified in Lansing several times in favor of reforms to the bottle bill – just so long as the state makes it easier and more convenient to return plastic bottles by providing his industry with more financial backing and create regional recycling centers that operate independently from the ones found on-site at local retailers and supermarkets.

Introduced by Michigan state Sen. Sean McCann (D-Kalamazoo) and Michigan state Rep.Christine Morse (D-Kalamazoo), Senate Bill 167 and House Bill 4331 propose to expand the state’s current 10cent deposit to include all other non-carbonated beverages, except for milk containers.

Among other reforms, the bills would permit universal redemption, allowing consumers to take any recyclable bottle to a large store while allowing smaller stores to maintain smaller takebacks; create a bottle handling fund to reimburse distributors and dealers on a perbottle-basis; make funding available for audits and fraud enforcement. The proposed legislation also includes language to set a baseline of $25 million each year to address cleanup of the state’s contaminated sites.

That expansion to put a deposit fee on bottled water has raised concerns that this will place a financial burden on residents in some communities which completely rely on bottled water. Keeping equity in mind, Morse said in those communities, such as Flint and Benton Harbor, there are emergency funds that provide bottled water at no cost to those residents. These communities would therefore not bear the extra burden of paying that dime deposit per liter of water if the bill passes, she said.

Morse said she and McCann are in the process of reworking the wording of the pieces of legislation before bringing it to the floor in hopes of it passing with three-quarters vote to move it forward.

“The key factor of this proposed legislation is that it includes all single-use plastic beverage containers under a gallon – from water, tea, wine and spirits and everything excluding milk – will be included in deposits,” said Morse.

“Overall, Michigan's bottle bill has been very successful over the years and typically – outside of 2020 and the onset of the COVID pandemic – the return rate has hovered at 90 percent. However, there has been an explosion in the use of plastic containers, and those should be redeemable as well. Frankly, our curbside recycling efforts have not performed as well as we do with bottle return.”

Responding to concerns of retailers and distributors, Morse said in addition to revving up the bottle bill, Michigan needs to reinstate polluter pay laws to address environmental cleanup.

“The issue with those laws at the time was it put municipalities in a tough spot holding the bag (in managing cleanup),” said Morse. “So, we must find a way to make polluters pay when they damage the environment. Typically, the fund draws about $25 million a year, but we saw a windfall of $100 million after the pandemic. In most years, however, that $25 million is not enough to keep up with the cleanup in Michigan’s many contaminated sites.”

When it comes to sectioning off portions of the funds between environmental needs and that of expanding the collecting and recycling infrastructure, Morse believes retailers are well funded to handle it.

“With every proposed bill, you are going to have negotiations and getting more support for infrastructure is something retailers can bring to the table,” said Morse. “But in the bill we introduced last year, retailers will get .005 percent off the top of every deposit. That is different than the current bottle bill, where they only get a percentage of the escheats. So that’s already a different system. Whether that's enough for them to be able to invest in an expanded, infrastructure, we'd have to have a conversation. That's something that they can bring to the table, and we can try to work it out.”

Susan Collins, president of the Container Recycling Institute based in California, a national nonprofit recycling industry authority, said that based on data from July of 2022, beverage container redemption rates in most U.S. states with container deposit laws did not rebound in 2021 after dramatic drops exacerbated by the COVID-19 pandemic in 2020. And of the 10 states with active bottle deposit programs, Michigan saw the steepest drop at 16 percent during this time.

Collins explained: “Michigan’s bottle bill was deeply impacted by the pandemic as the single state that lost the largest percentage of its redemption rate. It went from 89 percent in 2019 to 73 percent in 2020. Other states saw drops, but not as dramatic. And while other states are recovering in their redemption percentages, Michigan hasn't bounced back as much.”

Collins is also hearing complaints from consumers who are trying to return bottles to retailers – but some retailers never resumed their bottle collections, even after Whitmer lifted the restrictions. Collins said Attorney General Dana Nessel is investigating the issue.

“If retailers in Michigan are not resuming their collection of bottles, they are breaking the law,” said Collins. “If people are finding that they are getting turned away at their local retailer, they have a right to file a complaint about that with Nessel’s office.”

By completely depending on private retailers to be the point source for bottle collection and deposit redemption, Collins said the state is at a disadvantage. She explained, “Michigan is the only deposit state that solely uses return-to-retail, with no redemption centers. Because of this, the state’s suspension of the retailer beverage container takeback requirement from late March to midJune 2020 meant a complete shutdown of the deposit program, leaving consumers with no options to redeem their bottles and cans.”

Collins noted that Michigan was the only state to activate such a draconian restriction during the height of the pandemic. The state reestablished the program in phases, and a requirement for full resumption of retailer collection activities went into effect in October 2020, with some restrictions permitted to comply with health and safety protocols.

By 2021, a year that saw strong economic growth in the U.S., in nearly all cases deposit states had reinstated policies requiring full retailer redemption activities. However, most of them did not see a marked increase in redemption rates. Collins said, "Reports from organizations in deposit states indicate that many retail establishments simply ignored the requirement to resume taking back bottles and cans and provide consumers with the deposit fee they paid upon purchase. With spotty enforcement, regulators can only rely on consumer complaints and respond on a case-by-case basis."

The two states with the largest redemption rate drop from 2019 through 2021 – Michigan, at 14 percent, and Massachusetts, 12 percent – rely solely and heavily, respectively, on return-to-retail for deposit refunds. In late June 2021, the Container Recycling Institute reported that the Michigan Department of Treasury issued a reminder to retailers with bottle return facilities of the requirement to take back beverage containers, with no COVID-related restrictions – suggesting concern over compliance.

In Massachusetts, it is estimated that currently only one-quarter of the retailers required to accept back bottles and cans are doing so. Collins indicated that the uptick in redemption rates in New York and Oregon demonstrates the importance of robust bottle bill infrastructure that includes multiple, convenient ways to return beverage containers. They include returning them to retail outlets with and without machines; redemption centers; and bag drops, which proved popular even during 2020 due to their user-friendly and no-contact nature.

Collins said there are 60 programs worldwide that are taking back plastic bottles through the incentive of redeeming deposits, and Michigan needs to catch up.

“Michigan is one of only four states (with bottle bills) in the United States that doesn't cover water and other non-carbonated beverages in its bottle deposit program,” she said.

Collins pushed back on the notion that an expansion into plastic collection would put a strain on retailers who do not have the way to finance expansions of collection infrastructure.

“Retailers are getting 25 percent of the money from unclaimed deposits, and that number is not a trivial amount,” Collins said. “In 2020, they got $27 million; in 2021, retailers in Michigan got $25 million; in 2018 they got $10.7 million; and in 2019, $10.8 million. So, I think they could afford to purchase some new or additional equipment.”

Conan Smith of the Michigan Environmental Council said that incentivizing consumers to return bottles needs to be increased and not decreased. In his town of Ann Arbor, for example, Smith said he can walk to about eight retailers to redeem his bottles.

“If people have to drive miles to a retailer, especially in rural areas, to redeem their beverage containers, there is less of a chance that Michigan will maintain a high rate of return.”

Smith said it would be beneficial in a revised bill to create a mechanism for retailers to pool their resources – the employees and people power it takes to sort and process the containers after the consumer passes them through the machines – but right now, there is nothing in the present legislation to support it.

“There is no creative thinking, and so the various factions end up fighting. I get it, the retailers do not like taking all these messy bottles and cans back, and they want to know where the funding is going to come from to finance the manpower needed to handle it. So, let’s get rid of the fight. Let’s create the funding to let that creativity and innovation emerge.”