09/25/2013 04:20 pm ET Updated Nov 25, 2013

Louisiana's Waste-Tire Program Cleans Up Its Act

(This article is published in "The Louisiana Weekly" in the Sept. 23, 2013 edition.)

Louisiana's waste tire program, costing over $11 million a year, has tested the patience of state-certified processors or shredders with its slow bookkeeping. But the effort is credited with having removed over 800 known, illegal tire dumps in the last decade or so. The program, covering the life of a tire from point of sale to its eventual discard years later and then its processing for reuse, is considered one of the best of its kind nationally. Tire dealers like the policy and processors say the scheme is effective overall.

Under the program, run by the Department of Environmental Quality, consumers pay a $2 fee for each new tire purchased for passenger vehicles and light trucks, $5 for medium-sized truck tires and $10 for off-road tires. With these fees, the state's Waste Tire Management Fund reimburses processors for old or used tires that are collected from retailers and then redirected to new uses. Certified tire haulers or transporters get paid after they deliver a load to a processor so that there's no temptation to dump them illegally.

In addition, the tire fund pays processors for cleaning up piles of discarded tires. Under Louisiana law, tires can't be left along roads or in a landfills and must be processed at waste-tire operations or solid-waste-disposal facilities. Old tires pose threats, and one big local worry is that moisture collects in them, attracting mosquitoes and breeding West Nile virus.

But certified processors in recent years needed deep pockets as they waited for DEQ payments. Tire recycler Colt, Inc. operates a 7-acre, transfer facility on Old Gentilly Rd. in New Orleans East and a 16-acre processing site in Scott, La. With 65 employees, Colt handles 2.8 million tires a year and is a certified transporter and processor under the waste tire program. The firm is one of five state-certified processors that are active now.

"We use a low-speed tire shredder to make various products," Kip Vincent, Colt's president, said last week. "We go out and find end markets for our products." Typical customers are Louisiana paper mills and out-of-state cement plants, both of which use shredded tires for fuel. "For each planned delivery to a user, we submit the end market to DEQ for approval first, and that can take two weeks to two months," he said. "We don't get paid until the material is delivered to the approved user." The state pays processors a minimum of 7.5 cents per pound on material that reaches end users.

Colt also sells products to the asphalt market but Vincent said that's done outside of the tire program.

"From an accounting standpoint, the state program was in surplus in the late 1990s after it began in the mid-1990s," Vincent said. "But it went into shortage in 2003" for reasons that aren't entirely clear, he said. "DEQ was well behind in payments to all of us processors annually, and that went on for several years. The fund had an almost $1 million, annual accounting shortage for awhile. But at least it was equitable because we were all owed the same percentage."

Things have improved, however, he said. "In recent years, DEQ's accounting shortage was less than a half million dollars annually, and last year it didn't have much of a shortage at all," Vincent said. "At the moment, processors are fully paid to date for this year."

One change this year is that DEQ is paying processors on the twelfth of each month. "You may not get 100 percent of what you're owed then but at least you know when the cash will flow," Vincent said.

In the past, processors borrowed money to stay afloat while waiting for DEQ payments. "The bank would ask why the state owes us for twelve months," Vincent said. "It was a lot of aggravation."

But tire recyclers are a tough breed, and have an adage that to make $1 million, they need to start with $2 million, Vincent said. "I've been a tire recycler in six states and began operating in Louisiana in 1998," he said. "Louisiana has the nation's best waste-tire program that I know of because it deals with everything that happens to tires. It's more complicated than programs in other states and therefor needs more management behind it."

A report from Louisiana Legislative Auditor Daryl Purpera, publicly released in July 2012 and spanning mid-2009 to mid-2011, said DEQ's tire program had irregularities in its accounts receivables and its staff time-and-attendance records. The auditor also said that allowing processors to weigh their own material left the system open to abuse.

According to the 2012 audit report, DEQ excluded some of its waste-tire receivables for more than three years, resulting in understated revenue. And the agency didn't have procedures to resolve negative, past-due account balances in a timely way, the report said.

In a May 16, 2012 letter to the Office of the Legislative Auditor, preceding the public report, DEQ Undersecretary Vince Sagnibene said his agency had been hamstrung by changes in Office of Statewide Reporting and Accounting Policy or OSRAP rules, including an inability to report receivables older than three years. He said DEQ in recent years had developed procedures for reconciling negative accounts--which for the tire fund grew to $985,809 in FY 2009. A move to electronic deposits was expected to reduce office work and free up accountants' time, he said.

In another letter to the auditor, dated May 16, 2012, Sagnibene said tire-processor scales were certified annually by the state's Agriculture and Forestry Department. DEQ was developing a program to randomly audit processor inventories of tires and processed material for weight discrepancies, he said. And DEQ was starting to analyze weights on processor documents for accuracy by using Rubber Manufacturer Association per-pound tire equivalents.

Since Sagnibene's letters were penned, DEQ has inspected processors more often, Vincent said. "There's no notice, they just appear," he said.

Last week, DEQ spokesman Tim Beckstrom confirmed that the waste tire program ran surpluses in the 1990s. He also said all waste tire funds have remained within the program. In years when a surplus was generated, that money wasn't used for state budget balancing but was rolled into the tire program for the next fiscal year.

For more than a decade now, the program has cost taxpayers. The legislature, however, cut the program's budget each year from $12.75 million in FY 2010 to $11.19 million in FY 2014.

"The state's fees on tire sales under this program are very reasonable," Paul Bernstein, president of dealers Delta World Tire in New Orleans, said last week. "If the state can find a way to keep fees at these levels, it will be good for consumers, tire dealers and processors." He is a current board member and past president of the Louisiana Independent Tire Dealers Association.

One wrinkle in the program is that tires that didn't have a fee collected by a Louisiana dealer can end up in the state's processing system. "Under the program, these are unintended, unfunded tires," Bernstein said. They can enter the system through used tire dealers, he said.

A used tire isn't necessarily a scrap tire, Vincent explained. "If a dealer buys a hundred used tires and then finds some scrap tires in the load, there's a way--an option for him that started with the FY 2013 legislation--to send money to the state to cover those scrap tires that will have to be processed," he said. "But it's a new option and not a mandate."

Adding to program costs are tires purchased out of state and then discarded in Louisiana. But the flip side is that tires consumers bought in the Pelican State, where the waste tire fee was paid, can be jettisoned in another state--something that occurred when residents relocated after Katrina.

As a new tire dealer, Bernstein likes the state's waste tire program. "Customers bring in their old tires, and transporters or processors enrolled in the program pick them up at no charge to the dealer," he said. "Some minor changes may be needed, mainly for unfunded tires, but from a tire dealer's perspective the program works very well."

Vincent said the dealers he talks with all like the policy. "It's not perfect and probably never will be," he said. "But tires are being taken care of, instead of piling up in the woods." end