Recology: How San Francisco’s rubbish big constructed its monopoly and will probably lose it
Recology is no stranger to trouble.
The San Francisco garbage giant, and its predecessor firms, have been plagued by scandal for decades.
A company executive once conspired to bribe a public official in Southern California. A subsidiary of Recology was investigated by the FBI for hiring a prominent state politician to further its interests. Down in San Jose, the company was accused of conspiring to bribe the mayor to influence its contract.
Yet none of these controversies stopped Recology from leveraging its longstanding monopoly on waste collection in San Francisco to build a garbage empire that spans the West Coast, from California to Washington to Oregon.
Now, a new cascade of developments surrounding Recology and the ongoing corruption investigation at San Francisco’s City Hall could weaken that empire. The scandal led to the company and its subsidiaries agreeing to pay major penalties to both the federal government and The City, hoping to make things right and forestall renewed calls to dismantle its long-held local monopoly.
The scandal with The City directly involved the rates San Franciscans pay for garbage collection, giving new leverage to Recology critics who argue that breaking up the monopoly would drive down costs for local ratepayers. As it stands, the owner of every home and business, or their tenant, in San Francisco is required by law to pay Recology for trash pick-up.
How did we get here? In the nearly two years since authorities arrested San Francisco’s former Public Works Director Mohammed Nuru on fraud charges, the probe has ensnared a bevy of city officials and contractors, including two recently departed Recology executives in charge of the company’s local operation. Last month, three Recology subsidiaries admitted to conspiring to bribe Nuru in exchange for his help raising garbage rates.
Retired Judge Quentin Kopp, a longtime Recology critic who has tried to break up the monopoly for years, said the bribery scandal highlights the importance of the exclusive arrangement to the company’s bottom line and reveals the ends to which its representatives were willing to go to maintain it.
“What they have done is insinuate themselves in all the city departments which affect their monopoly,” he said. “You have got to keep the monopoly.”
To understand how the company came to control — and, as critics say, exploit — this lucrative monopoly, one has to go back to the very beginning.
Pasquale, Domenic and Alfred Fontana work on a horse-drawn garbage wagon in 1932. The three brothers, all Italian immigrants, were one of many garbage “scavengers” who were integral in the founding of companies that eventually became Recology. (San Francisco History Center, San Francisco Public Library)
Scavengers and scandals
Recology’s roots go back more than a century, when Italian immigrants, known as scavengers, hauled garbage across San Francisco on horse-drawn wagons, and the trash ended up dumped in the Bay.
Its earliest predecessor firms date back to 1920, when scavengers banded together to form two companies: the Sunset Scavenger Company controlled the residential parts of town, while the Scavenger’s Protective Association (later known as Golden Gate Disposal) worked downtown.
Its lasting power really came over a decade later, when voters approved an ordinance in 1932 that divided San Francisco into 97 garbage routes and allowed only permitted companies to work them. Soon after, its predecessor firms bought out all their smaller competitors and secured every permit issued under the ordinance, creating an early version of the monopoly.
Recology’s predecessor firms hauled large bags using scavenger wagons, shown here in 1936. (San Francisco History Center, San Francisco Public Library)
After becoming president of Sunset Scavenger in 1965, Leonard Stefanelli dreamed of uniting the two firms on the basis of their shared Italian heritage.
“La Cosa Nostra — ‘Our Thing’ — is a traditional term used to refer to the so-called Sicilian Mafia,” Stefanelli wrote before his death in a 2018 memoir entitled, “Garbage: The Saga of a Boss Scavenger in San Francisco.” “It aptly described the program that I was beginning to envision, if it became a reality.”
Stefanelli would ultimately be ousted before his dream came to fruition.
It wasn’t until 1987 that the two firms merged to become Norcal Waste Systems, creating the modern-day monopoly that exists today.
In 2009, the firm changed its name to Recology to reflect its expansion beyond Northern California and its commitment to the environment. The firm is now the only licensed refuse collector in San Francisco today, running a specialized composting and recycling operation that trucks away San Francisco’s garbage and dumps only what can’t be saved in a landfill.
But behind that story of innovation and expansion is a darker history of scandal.
In 1990, news broke that the FBI was investigating a Norcal company for hiring then-Assembly Speaker Willie Brown as its private attorney while seeking to develop a landfill in Solano County. All parties denied wrongdoing at the time, and the probe did not ultimately result in criminal charges.
In 1999, Norcal became embroiled in a bribery scandal over a lucrative garbage contract while growing its business in Southern California. A Norcal vice president and a consultant for the firm pleaded guilty to federal charges for conspiring to bribe a top San Bernardino County official in exchange for his official influence. While Norcal cut ties with the executive and its consultant, the high-profile scandal tarnished the reputation of both the county and the company.
Then in 2006, years after the San Bernardino case, Norcal was caught up in another bribery scandal, this time involving an alleged backroom deal with then-San Jose Mayor Ron Gonzales and a top aide. While Norcal was indicted, a judge ended up tossing the case, calling the allegations politics, not bribery.
While raising questions about its capacity for corruption, none of those scandals struck as close to home as the one embroiling Recology today.
Money and power
Under the 1932 ordinance, Nuru played a key role in setting garbage rates in San Francisco as the director of Public Works. He had a say in whether a panel known as the Rate Board should increase the rates Recology charged residents, and by extension its commercial customers.
Recology also wanted his help as a top official raising the fees it charged San Francisco to dump construction materials at a facility in The City.
So its San Francisco companies showered Nuru with gifts to please him, according to court documents in three cases the U.S. Attorney’s Office filed against the firms and two of their former executives, Paul Giusti and John Porter.
Every other month, Giusti arranged for a Recology company to cut a $30,000 check to a nonprofit called the Clean City Coalition. The coalition would then take a 5% cut and transfer the remaining funds to another nonprofit, the San Francisco Parks Alliance. There, the money landed in two accounts controlled by Nuru, including one prosecutors describe as his “slush fund.”
While federal authorities did not name the two nonprofits in charging documents, they have since been identified by the Controller’s Office.
Giusti funneled about $1 million from the Recology companies to Nuru in this way, prosecutors said. While the payments were ostensibly to benefit an anti-littering program called “Giant Sweep,” Nuru allegedly dipped into one of the funds to buy T-shirts, caps and other stuff for his staff, and also to help pay for increasingly luxurious Public Works holiday parties.
“Mohammed is the director of (Public Works) who ultimately signs off on our rates. Needless to say, keeping him happy is important,” Porter, who is accused of approving the payments, allegedly wrote in an email obtained by the FBI.
Keeping Nuru happy also meant cutting checks totaling $60,000 to a baseball charity for children, the Lefty O’Doul’s Foundation for Kids, prosecutors said. But instead of helping children, the money went toward putting on holiday parties.
On top of those payments, a Recology company hired his son as a laborer and funded paid internships for him at a nonprofit, where he remained on the payroll despite falling asleep at work, according to the U.S. Attorney’s Office.
After conducting his own investigation into the payments, City Attorney Dennis Herrera concluded that Recology’s relationship with Nuru allowed its companies to overcharge San Franciscans nearly $95 million for garbage collection.
In December 2018, Recology and Public Works discussed an error in the rate-setting process that caused prices to go up for San Franciscans, Herrera said. But neither Recology nor Public Works corrected the problem — and Recology continued to overcharge its customers for two years, he said.
A Recology driver lines up recycling and compost bins for collection on Oct. 22. (Kevin N. Hume/The Examiner)
Paying penance
Recology now pledges to stay on the straight and narrow.
While disputing that the overcharging was intentional and describing the error in the rate-making process as a mistake, Recology has since admitted that its San Francisco companies engaged in a conspiracy to bribe Nuru.
Those companies, Recology San Francisco, Sunset Scavenger Company and Golden Gate Disposal & Recycling, have reached an agreement with the City Attorney’s Office to refund ratepayers $95 million, return garbage rates back to justified levels and pay a $7 million civil penalty.
Separately, an agreement with the U.S. Attorney’s Office will allow the Recology companies to avoid a fraud conviction by admitting to the conspiracy and paying a penalty of $29 million to the federal government.
While Giusti has agreed to cooperate with the investigation and plead guilty to bribery and fraud charges, cases against Nuru and Porter are pending.
Recology is now essentially asking San Francisco for forgiveness.
“This is a humbling moment for our company,” Recology spokesperson Robert Reed said. “Recology was born and raised in San Francisco, and has served this city for more than 100 years. We are proud to have built our nationally recognized recycling and composting program from the ground up.”
Recology shook up its leadership after the scandal broke. Longtime CEO Michael Sangiacomo retired at the end of 2020, and was replaced by former Executive Vice President and Chief Operating Officer Sal Coniglio.
In a video statement posted online in response to the agreement with federal prosecutors, Coniglio said the deal allowed Recology to “own up to the mistakes of the past, while continuing to serve you long into the future.”
“I want to make it clear that this type of mistake and this type of conduct was wrong and unacceptable,” said Coniglio, who Recology declined to make available for an interview. “We must ensure that nothing like this never happens again.”
‘The system has been exploited’
Supervisor Aaron Peskin is set on ensuring the corruption stops there.
Peskin is considering sponsoring a ballot measure that would break up the monopoly. He has formed a working group to examine different models for restructuring garbage collection in San Francisco.
Those options include allowing other companies to bid against Recology to provide garbage collection services, creating a municipally owned trash collector or reforming the 1932 ordinance to include anti-corruption measures.
“The system has been exploited,” Peskin said. “They clearly were charging more than they should, the system didn’t work and either we need an entirely new system or we have got to (implement) fail safes.”
Should Peskin decide to move forward with a ballot measure, he could face stern opposition from Recology.
In 2012, Recology outspent its opponents 55-to-1 to defeat the most recent of three attempts at the polls to inject competition into the garbage business, spending $1.7 million to crush his anti-monopoly ballot measure.
While Recology says it offers residents competitive rates compared to other parts of the Bay Area, opponents argue that opening up the business to competitive bidding would inherently lower costs for San Franciscans.
“That’s why for all city and county construction contracts, or equipment supply contracts, competitive bidding is required,” said Kopp, the retired judge. “There is no other monopoly in city and county government.”
Former Supervisor John Avalos was one of the few officials who expressed support for the 2012 measure. He recently described what it’s like to go up against the politically powerful company.
“It feels like intimidation, but you’re not quite sure where it’s all coming from,” Avalos said. “There are a lot of different groups that work together to create that pressure on you, and they come from the highest levels of government to the company itself, its lobbyists (and) labor organizations.”
The measure was rejected overwhelmingly, with nearly 77 percent of voters backing Recology.
Hanging in the balance for Recology is its lucrative monopoly. Over a year-long period ending in 2020, Recology companies reported $170 million in revenue from residential garbage collection alone, as well as another $166 million from the commercial side of the business, among other revenue streams.
Reed defended this monopoly by saying that it was beneficial for both San Franciscans and the environment. He said monthly charges for residents are less expensive in The City than for customers in Oakland and San Jose.
Residents pay $43.04 a month in San Francisco for basic trash pick-up services, compared to $52.36 in Oakland and $51.15 in San Jose, according to Reed.
By comparison, an Examiner review of monthly garbage rates on the Peninsula shows residents pay $31.31 for basic service in Daly City and $31.93 in San Bruno.
Reed defended the monopoly as being “heavily regulated.” He said Recology is committed to “delivering tremendous service and fair value to our customers, providing good-paying union jobs to local workers, and advancing industry-leading environmental programs.”
mbarba@sfexaminer.com
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