The Proposed Tennessee
Note: The legislation described below is a working draft only and cannot be considered "official" until its sponsors formally introduce a final version in the legislative session that begins January 8, 2019. In the meantime, advocates will be working to educate legislators and legislative candidates, enlist business, organizational, local government and individual support, talk to potential redemption center owners (especially nonprofits), and otherwise ensure that when the bill is ready for hearings, the votes will be there. Please go to our Get Involved page to join that effort.
Key Features of the Proposed 2019 TennCan Bill
The deposit for all covered beverages is 5 cents and is fully refundable.
The deposit applies to most beverages in sealed containers made of glass, plastic or aluminum / metal, regardless of size, containing soft drinks, beer and other malt beverages, plain, flavored and enhanced water, energy and sports drinks, enhanced drinks not marketed as nutritional supplements, iced teas, iced coffees and juices. It does not apply to milk, wine, liquor, nutritional beverages sold as meal replacements, or unprocessed cider. Here in Tennessee, that amounts to nearly five billion cans and bottles every year.
Returns are to redemption centers. Unlike in the old days (and unlike deposit programs today in some other states), Tennesseans won't return their empties to the grocery store (unless the store chooses to open or host its own redemption center). Instead, we'll take them to any of hundreds of mostly small, independent operations across the state known as certified redemption centers. Redemption centers must meet various criteria regarding location, hours, safety, access and so on.
Redemption centers may be owned by any entity meeting certification requirements, including individuals, nonprofit entities, businesses, scrap yards, processors, manufacturers, MRFs, curbside recyclers and local governments.
Every redemption center in Tennessee must either be a nonprofit entity, or it must have a "beneficial relationship" with at least one such organization or community cause. "Beneficial relationship" can range from sponsoring donation bins for the library or animal shelter, to hosting bottle drives for the Little League or school marching band, to offering supervised work opportunities to individuals with special needs.
Redemption centers may be supercenters known as depots. "Depots" are enhanced redemption centers that have been approved to accept nondeposit glass (at a minimum) and other recyclables such as milk jugs or cardboard. Such centers will coordinate with, and may in some cases receive assistance from, state, municipal or private recycling programs.
Redemption centers operate on scrap revenue + a supplement from the program fund. Because scrap revenue alone is not enough to cover the costs of running an a redemption center and ensure a reasonable profit, redemption centers are paid an "overhead allowance" of 1.6¢ per container. This comes from the program fund, which consists mainly of unclaimed deposits, plus any fines, interest and grants, plus an "overhead support fee" paid by the beverage distributors. This fee is 3/4 of a cent per container.
The role of the redemption center is to:
- accept all containers on which the Tennessee deposit has been paid (indicated by TN5¢ or similar imprint)
- calculate the quantity (by hand-count, electronic scan or weighted average)
- sort the containers by material and/or color (not by brand)
- issue the refund (by cash, electronic deposit, redeemable credit slip or donation to a designated nonprofit or community cause)
- if authorized, bale or otherwise compact the containers
- put the redeemed containers in a secure location to await purchase and transport by a certified scrap processor
- maintain transaction records
- In return for performing these services, redemption centers keep the revenue from selling the sorted glass, plastic and aluminum at current market prices, plus they receive an "overhead allowance" of two cents per container. The allowance comes out of the unclaimed deposits plus an "overhead support fee" of three-quarters of a cent per container paid by beverage distributors.
Sorted containers are sold directly to certified processors. Unlike in some deposit programs, beverage distributors in Tennessee will have no role whatever in picking up, transporting, recycling or otherwise dealing with redeemed beverage containers. This is done by "certified processors" (scrap buyers, material recovery facilities, curbside recyclers or contractors) who have been certified by the program to handle this stage of the deposit-return process.
The role of the certified processor is to:
- pick up containers from area redemption centers on a regular or as-needed schedule
- accept all redeemed and properly sorted containers (no cherry-picking)
- sample the containers for the TN5¢ symbol and other proofs of compliance
- verify quantities by weight and other methods
- issue payment to the redemption center within 10 days (5¢ deposit + 1.6¢ overhead allowance + market scrap price less transportation, processing and other costs
- complete a report for each transaction
- submit the transaction report to the program, along with an invoice for reimbursement (5¢ deposit + 1.6¢ overhead allowance) plus an "administrative allowance" of 1/10¢ per container to defray the processor's bookkeeping costs
- compact, bale, crush or otherwise add value to the sorted containers
- sell the processed containers to manufacturers or other scrap buyers
Management by a third-party contractor is possible. Under the proposed legislation, TennCan will be managed as follows: Overall management lies with the Department of Environment and Conservation (TDEC); day-to-day operations are overseen by TDEC's Division of Solid Waste Management; accounting functions, including management of the program fund, are the responsibility of the Department of Revenue; and rulemaking authority is shared between the Department of Revenue and the Underground Storage Tanks and Solid Waste Disposal Control Board. However, the bill also provides that one of more independent third-party agents may be contracted to carry out these functions, with expenses paid by the program fund.
The program ensures the uninterrupted, undiminished funding of Tennessee's existing litter program. Since 1981, Tennessee's beer and soft drink industries have been paying a pair of "litter taxes" (proposed by them in lieu of a deposit on beverage containers) that together raise between $5 million and $6 million a year to fund Keep Tennessee Beautiful as well as county litter education efforts and litter crews from the county jails. Collectively known as the "county litter grants," the program has become extremely popular over the years, putting school kids and communities to work on beautification projects and using inmate labor to clean more than 20 million pounds of litter annually from hundreds of miles of county roads. However, due to a poison-pill provision in the 1981 law, the taxes that fund the program will automatically be revoked should Tennessee pass a mandatory container deposit. To keep the program going, the TennCan legislation stipulates a new "litter-grants fee" of 1/8 cent per container, which is equivalent to what the state collects now via the two existing taxes. (The beer companies pay 50 cents per 31-gallon barrel of beer and the soft drink bottlers pay 0.4 percent of gross receipts.) Everything else about the program will stay the same: The Beautification Division of the Tennessee Department of Transportation will continue to administer it; the funds will be turned over to TDOT every fall as they are now; and moneys will be distributed to the counties and to Keep Tennessee Beautiful according to the same formula and schedule as they are now.
An advance on the litter grants fee pays for start-up costs. In order to make the annual litter grants payment to TDOT during the start-up period, as well as to cover TennCan's other start-up costs, the legislation requires distributors to pay an advance on the litter grants fee. The advance is 1/4 cent per container sold for nine months starting on October 1 after passage, after which it drops to 1/10 cent for the next three fiscal years, at the end of which the advance will have been fully recouped by the distributors and the litter grants fee will stabilize at 1/8 cent.
The program may accept and actively pursue outside grants and donations. The bill allows the fund to accept and pursue donations from public and private sources—for instance, a manufacturing trade group or the EPA. This provision allows recycling advocates and beneficiaries of the program to support its operations and keep fund levels healthy without mandating user fees. It also ensures the program can seek special funding for a variety of program enhancements, from market development for recyclables, to training programs for nonprofits.
• The program is largely self-supporting. The costs of TennCan, including the costs of administering the program, ensuring access to hundreds of independent redemption centers, and compensating processors for acting as pickup agents and bookkeepers, will come mainly from three sources: the scrap value of the containers themselves; the estimated 15 percent to 20 percent of deposits that are not redeemed; and an "overhead support fee" of three-quarters of a cent per container paid into the program fund by the beverage distributors. A word about these three revenue sources:
Scrap value. Deposit beverage containers command a premium on the scrap market because they are (1) collected in reliably high quantities; (2) relatively uncontaminated by other materials; and (3) correctly sorted not only by material (glass, aluminum, PET plastic, HDPE plastic) but in some cases by color as well (clear vs green vs brown glass, clear vs colored PET, and natural vs colored HDPE). Scrap prices fluctuate, and they vary according to how much (or how little) the material has been sorted and processed; but in the southeastern US in mid-2018, baled aluminum cans were averaging 75¢-80¢ a pound (picked up), baled PET was averaging 16¢ to 17.5¢ a pound (picked up), and glass (delivered) ranged from a low of $10 a ton for green glass to a high of $35 for clear glass. Using these values, we calculate that Tennessee's deposit beverage containers in mid-2018 had a collective market value of approximately $50 million. Of course, prices paid to a redemption center by a processor are not going to be as high as prices paid to a processor by a manufacturer, for the obvious reason that the processor has had the expense of picking up the empties, transporting them to a processing facility, baling, crushing or otherwise "processing" them, finding a buyer, possibly delivering them to the buyer, and keeping books on all of these transactions. Still, redemption centers can expected to be paid roughly 80 percent of that $50 million scrap value. And the value of high-quality scrap will likely increase over time.
Unclaimed deposits. Under the proposed bill, unclaimed deposits (projected to total $35 million to $40 million a year) accrue in the program fund, where they may be expended only for purposes authorized by the legislation. Chief among these purposes is covering the administrative costs of the program and providing redemption centers with a small cash cushion (1.6¢ per container) to supplement the revenue they earn from scrap sales.
Distributors' overhead support fee. Scrap value + unclaimed deposits add up to significant money, but they are not enough to sustain the operations of hundreds of independent redemption centers while also ensuring a reasonable return to their owners. Therefore, the 2019 legislation calls for the beverage distributors to contribute toward the cost of the program, via an "overhead support fee" of 0.75¢ per container.
• The bill ensures a variety of redemption options. In addition to storefront redemption centers, the bill authorizes "reverse vending machines," mobile redemption services, "drop-and-go" satellite kiosks (which funnel empties to a centralized automated processing site) and "microsites" (attended rolloff trailers typically located outside grocery stores or other retailers). Every redemption center must meet various criteria for location, hygiene, hours of operation, etc., in order to become and remain certified by the program.
• The bill contains innovative penalties for cheating and rewards for being honest. Fraud has never been a major problem with bottle bills, probably accounting for less than 2 percent of the roughly 45 billion containers redeemed across this country each year. Nonetheless, the Tennessee bill takes some innovative steps to minimize cross-border returns and other fraudulent activity. For instance, the fine for knowingly trying to redeem more than 24 noncompliant containers (e.g., containers purchased before the law went into effect) is a whopping $25,000 or $100 per container, whichever is greater. And if a redemption center or processor detects the fraud and the case is successfully adjudicated, the vigilant party is "rewarded" with half of any fines collected, less court costs.
• The bill makes provisions to assure coverage. In the event an area is deemed "underserved" by redemption locations (as defined during the rulemaking process), the bill stipulates that the program is responsible for seeing that one or more redemption centers be established in the area. Microsites (attended redemption trailers that fit into a single parking space, typically outside a host grocery store) are a good option in such situations.
• The bill may provide extra money for recycling and litter control. The bill stipulates that any moneys in the program fund that are not required to fund the program may be used to provide grants to local governments for solid waste management, recycling, litter control and related activities. At no point may program funds revert to the state's treasury (general fund).