The Fate of Unclaimed or “Abandoned” Deposits

What are “unclaimed deposits”?

In eleven U.S. states,1 beverage distributors and retailers are required by law to collect small deposits (usually a nickel) on certain packaged beverages—typically carbonated soft drinks and beer.2 When the consumer returns these beverage containers to a retailer or redemption center, the deposits are returned. When a consumer chooses not to return a deposit container, the deposit money is considered “unredeemed.” Other terms are “abandoned” and “unclaimed.”

In the states where the deposit is 5 cents, 15 to 30 percent of beverage containers sold are not returned for their refund value. Since all of the deposit states also have municipal recycling programs, some of the unredeemed containers are recycled either through curbside programs or drop-off sites.

Redemption rates vary widely depending on a variety of factors, but they are primarily a function of the deposit amount. A higher deposit results in a higher return rate and fewer unclaimed deposits. In Michigan, the only state with a dime deposit, only 5 percent of containers sold are not redeemed. In California, where the deposit ranges from 2.5 to 5 cents, approximately 38% of the containers were not redeemed in 2000.

Who keeps the unclaimed deposits?

Currently California, Massachusetts, and Michigan collect 100% of the unclaimed deposits, although the mechanism for retaining these deposits varies. In California and Hawaii, the state collects the deposits from distributors when the beverages are sold to retailers. The bottler or distributor pays the deposit directly into a state-managed fund and collects the deposit from the retailer. The retailer then collects the deposit from the consumer. Any unclaimed deposits simply remain within this state-managed fund.

In Massachusetts, distributors and bottlers are required to turn over all unclaimed deposits to the state. The unclaimed deposits are said to “escheat” to the state. Michigan escheats 75% of unclaimed deposits, and allows retailers to keep the other 25% as a way to offset their handling costs. In all other deposit states,3 distributors and bottlers keep all of the abandoned deposits. In 2000, abandoned deposits amounted to $84.7 million in New York, $28.5 million in Massachusetts, and $23.5 million in Michigan.4

Why have unclaimed deposits been increasing in recent years?

Redemption rates have been declining slowly in recent years, and as a result, the amount of unclaimed deposits available to the state or to the beverage and grocery industries has been increasing. For example, unclaimed deposits in Massachusetts went from $20 million in 1997 to $31 million in 2001, as the state’s redemption rate dropped from 78.3% to 69.8%.

Similar trends are occuring in all other bottle bill states, primarily because deposits have failed to keep pace with inflation. In 1971, Oregon adopted the nation’s first deposit law, setting the refund value at a nickel per container. Because the enabling legislation did not tie this deposit value to any measure of inflation or purchasing power—such as the Consumer Price Index (CPI) or the minimum wage—it has remained unchanged to the present. Oregon’s nickel refund served as the standard for most of the nation’s other deposit states.5

Like Oregon, none of the other deposit states have tied their refund values to an inflationary index. Seven years after Oregon’s bottle bill was enacted, the nickel was worth 3.1 cents in 1971 terms—62% of its original value. In 2005 it was worth only one cent, as the figure shows.

The effect of the declining value of a nickel can be seen in the sliding redemption rates in several bottle bill states. In Michigan—the only state with a 10-cent refund—the redemption rate has also declined slightly, but still remains well above the other states.

Who should keep unclaimed deposits?

Beer distributors and soft drink bottlers argue that these unredeemed deposits should be utilized to help offset their costs of managing the container deposit return system. Others argue that the beverage industry is already keeping revenue from the sale of scrap container materials (aluminum, plastic and glass) as well as the “float” (deposits collected from retailers that can be invested for short-term returns), and that unclaimed deposits are tax-free, windfall profits for the bottler/distributor. They argue that unclaimed deposits, like other types of abandoned property, should belong to the state and be used for public benefit. Nearly every deposit state has attempted to escheat the unclaimed deposits as a source of revenue, usually to fund environmental programs.

How have unclaimed deposit funds been used?

The first escheat law was passed in Massachusetts in January 1989.6 In 1990, the first year of implementation, 10 percent of the unclaimed deposits went into the state’s Clean Environment Fund (CEF) and 90 percent went into the general fund. Over the next five years, the percent of unclaimed deposits accruing to the CEF increased, while the percentage going into the general fund decreased. As of FY 1995, 100 percent of the unclaimed deposits were earmarked for the CEF. In FY 2002, $35.1 million in unclaimed deposits were collected in Massachusetts.7

The intent of Massachusetts’ original law was to use the CEF exclusively for solid waste management, with specific proportions earmarked to providing support for recycling, composting, solid waste source reduction, and other environmental programs related to the bottle bill.8 However, the actual allocation of the funds is subject to appropriation by each subsequent legislature. Instead of receiving up to $226 million available from the CEF from FY 1990 to FY 2002, no more than $60 million (27%) has been used to stimulate and support recycling, the bottle bill, and other innovative solid waste programs.9 The other $166 million (73%) has gone toward Department of Environmental Protection (DEP) overhead costs unrelated to the original mandate of the law.10

Michigan’s escheat provision was also passed in 1989.11 The provision calls for 75% of the unclaimed deposits to be transferred into the Cleanup and Redevelopment Trust Fund, overseen by the Michigan Department of Treasury, and the other 25% to be distributed by the Treasury to retailers. Amended in 1996, the law specifies how the state must distribute its share of the unclaimed deposits. Eighty percent of this 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. Ten percent is deposited into the Community Pollution Prevention Fund, and the remaining 10% is deposited into and must remain in the Cleanup and Redevelopment Trust Fund until the amount accrues to a maximum of $200 million. In 2001, Michigan collected $17.5 million. From 1989 to 2003, the state collected a total of $126.7 million.12

Maine’s escheat provision was enacted in 1991.13 Unlike the provisions in Massachusetts and Michigan, Maine collected only 50% of the abandoned deposits, and the distributors and bottlers retained the other 50%. The revenue was used to fund the Maine Solid Waste Management Agency. Since the state received only half of all unclaimed deposits, and because Maine’s redemption rate for beverage containers was so high, the state chose to repeal the law in 1995, just a few years after it was implemented, because the State was afraid they might have to pay out more than it took in. A new escheat provision came into effect in 2004, which can be viewed at the bottom of the page.

In all three states, lawsuits were filed to contest the escheat provisions, and in all three states courts resolved the question in favor of the state.

In Massachusetts, Suffolk County Superior Court Judge William Bartlett ruled in October 1991 that the escheat law: a) did not cause an unconstitutional taking of the bottlers’ money; b) was a proper act of the legislature; and c) that refunds belong to the consumer until escheated to the state. The Massachusetts Wholesalers of Malt Beverages appealed this ruling, but the Supreme Judicial Court ultimately upheld the law in 1993.14

In Michigan, a lower court ruled in 1991 that the unclaimed deposits were the property of the beverage industry and that the law resulted in an unconstitutional taking by the state. The case was appealed by the Department of Treasury. The Michigan United Conservation Clubs (MUCC), the group that had spearheaded the original escheat campaign, put together an amicus brief for the Court. They were joined by several other organizations, including the Container Recycling Institute. The Court of Appeals, in 1994, overturned the lower court ruling, claiming that the amendment “constituted a valid exercise of legislative powers.”15 The State Supreme Court chose not to hear an appeal, effectively affirming the Court of Appeals’ ruling.

In Maine in 1991, the beverage industry took the state to court over the escheat amendment. The law was upheld by a Superior Court, but the Maine Beer and Wine Wholesalers and the Maine Soft Drink Association appealed the ruling. In 1993, the State Supreme Court ruled in favor of the state.16 As mentioned above, however, the state voluntarily repealed the escheat provision in 1995.

The Future for Unclaimed Deposits

In the 2003 session, joint committees in the Connecticut and New York State legislatures are considering bills which would escheat unclaimed deposits to the state. These proposals have gotten farther than in years past because the fiscal crises faced by the states are more severe than in the past. Policymakers and activists in New York are hoping to pass escheat legislation that would make $80 to $170 million available to the state’s Environmental Protection Fund. Connecticut lawmakers are considering bills to escheat 50 to 100% of unclaimed deposits to the state, for use in the General Fund or a dedicated recycling or environmental fund. Estimates are that this could range from $15 to $30 million in potential state revenue. Delaware is even considering a bill which would retroactively escheat all unclaimed deposit monies that the industry has retained since the law’s inception in 1983. While the fate of these particular bills is uncertain, it seems clear that the nationwide move to allow states to benefit from unclaimed deposits will not soon disappear.