December 2, 2008
Crushing bottle deposit fraud
Distributors pressing for new laws to cut illegal return of containers bought in other states.
The bottle and can return machines at Hi-Lite Super Market in Monroe are one target of a growing scam that's hitting Michigan and its beverage distributors with million-dollar losses: collecting 10-cent refunds on returnable containers for which no deposit was paid.
Conveniently just 12 miles north of the state line, the grocery is one of many shops in southern Michigan where free money is available through the "return" of nondeposit empties from beverages bought in Indiana, Ohio or other states without bottle deposit laws.
"You can drop off $25 worth of bottles and cans and be on your way," said store manager Randy Montri. "I think it's getting worse as the economy gets worse."
The scammers have figured out that machines used by the state's bigger retailers can't tell the difference between 10-cent-deposit bottles and cans bought in-state, and nondeposit beverage containers from other states. They're costing Michigan at least $13 million a year, according to the Michigan State Police, who last year broke up a million-dollar scheme involving 13 people and several Metro Detroit stores.
The cost of illegal returns is borne by beer and pop distributors, eating into their bottom lines. Distributors are pressing for passage of new crackdown laws during the two-week lame duck legislative session, which begins today, before lawmakers adjourn for the year. After that, all bills die and have to begin anew.
Lawmakers' wish list for the session also includes resolving an estimated $500 million shortfall in the state budget, approving a plan to expand Cobo Center, laying the groundwork for light rail along Woodward Avenue in Detroit, considering Blue Cross and Blue Shield of Michigan's request to change state law regarding individual health insurance rates and assisting homeowners facing foreclosure. There also is growing interest in finalizing legislation to ban smoking in public workplaces, including bars, restaurants and Detroit's casinos.
Beverage distributors don't want their issue to get lost in an ambitious legislative agenda. They say they are losing thousands of dollars through illegal container returns.
"It really, really escalated about three years ago," said Greg O'Niel, president of O.K. Distributors in Niles, which delivers beer in five Michigan counties.
"We had one big-box retailer -- I won't say who -- where in three months, we noticed, our company had lost $66,000" on bottle and can returns, O'Niel said. "I checked with a competitor and he said he'd lost over $80,000. The Coors guy said he'd lost $40,000."
O.K. Distributors severed ties with the retailer, but not before hiring a private investigator who filmed people collecting for nondeposit bottles and cans, then using the money on beer and cigarettes at Indiana stores.
The sting resulted in the prosecution of 33 people by Berrien County authorities, but didn't stem the fraud.
Stores that collect more in deposits than they pay out in refunds have to pay the difference to the state; 75 percent of it goes to a cleanup and development fund. Revenue to that fund has shrunk from $18 million in 2001 to $6.5 million last year.
The package of bills requiring special markings on deposit beverage containers sold in Michigan is controversial because it could involve millions in new costs to retailers across the state. Their bottle and can machines would have to be adapted -- at an estimated $5,000 each -- to read the special markings and deny refunds for nondeposit containers.
Some lawmakers want to exempt stores that can't afford the expense. Larry Steckelberg, state treasury legislative liaison, said the department would try to come up with $1 million in the next year to help reimburse stores for retrofitting about 450 machines in border counties where deposit fraud is most common.
Tom Violante, owner of Holiday Market in Royal Oak, said he supports stiffer penalties against deposit scammers, but not required modifications that would cost $50,000 for his 10 bottle and can return machines.
"You know who's going to be criminalized if they do this? The small-business man who can't afford it," Violante said.
Linda Gobler, president of the Michigan Grocers Association, said many food retailers can't afford the expense. The association opposes the proposals.
Dennis Schornack, executive director of the Michigan Recreation and Park Association, said the problem should be solved with a few good State Police stings. His group prefers that lawmakers concentrate on passage of legislation expanding Michigan's 10-cent deposit law to include containers of bottled water, juice and popular new energy drinks.
The proposed legislation is "like hunting sparrows with howitzers," Schornack said.
Rep. Steve Bieda, D-Warren, main sponsor of two of the six bills, disagreed.
"It's hurting Michigan businesses; they're losing money," he said. "The state's losing money. In a sense, we're a laughingstock. It's criminal, pure and simple."
You can reach Gary Heinlein at (517) 371-3660 or gheinlein@detnews.com.
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