Only in Texas could a clash unfold around, of all things, mulch.

A scrum between Plano and the mulching industry over the city's composting efforts has revived a debate about whether city halls should ever get into the business of, well, doing business.

State lawmakers now are discussing a bill that could rein in the ability of Texas cities to compete with private industry.

At issue is a venture in which Plano collects yard clippings, then sells the composted material to retailers and bulk customers under the brand Texas Pure.

What began in 1993 as a novel way to save landfill space has become a commercial-grade operation that now includes four other area communities. The endeavor generated sales of more than $700,000 last year, up about 30 percent since 2007.

Texas' biggest composting businesses say they feel threatened. They say Plano has an unfair advantage because the city does not pay property taxes and certain other expenses.

The debate underscores an issue that has gained currency as cities have branched out in search of inventive ways to generate revenues and serve taxpayers.

Local governments have long provided goods or services, such as books in libraries or snow plowing, that private businesses also provide. The city of Houston has even contemplated bottling and selling its water.

But the competition has emerged on new fronts nationwide and become more pronounced in this era of tight budgets: city recreation centers and private gyms; public Internet portals and private Web firms; city catering services and local restaurants.

In all those examples, business and free-market advocates contend that the public sector is unfairly eating into private profits.

"The government performs many good services that Texans need," said Will Newton, Texas president of the National Federation of Independent Business. "But to have the city selling a product that undercuts a private business, that's problematic."

That friction is on display in Plano, where composting companies contend they are on the defensive.

Because ratepayers ultimately subsidize the city's composting effort, Plano can afford to undercut private firms when bidding on work, said Mark Rose, president of Living Earth Technology Co., the state's largest manufacturer of compost and mulch.

At Rose's behest, state Rep. Charlie Howard, R-Sugar Land, has filed legislation that would require Plano to use its composting profits to lower local taxes. Howard's bill also would oblige the city to disclose all costs incurred in its composting operation, although city officials say that information is public already.

While targeting Plano, the bill would apply to all cities in Texas selling goods or services that are also available in the private sector.

"To me, it's a competition between free enterprise and public entities," said Howard, one of the legislature's most conservative members. "When you have a city that doesn't pay taxes and [other charges] ... that's not a level playing field. That is grossly unfair."

Plano officials defend the city's practices as aboveboard. They say the main goal is conservation, not driving profits or market share.

The city and its partners in the endeavor – Allen, Frisco, McKinney and Richardson – last year saved 82,000 tons of material from becoming trash. All told, the five cities sent nearly 650,000 tons of trash to the landfill.

"We're looking for good ways to recycle and reuse," Plano Mayor Pat Evans said. "We do this at fair-market cost. We don't ever compete unfairly."

Plano officials point out that no law prevents the city from selling its composting products.

Austin became one of the nation's first communities to sell its composted material, in 1989. The city of Denton also sells compost products under a local brand, Dyno Dirt, though the operation is far smaller.

Plano officials say solid waste operations are generally regarded as a public function under state law.

Yet Rose of Living Earth contends Plano is overstepping its bounds.

When the compost program expanded, the city began courting landscapers and other large clients that represent the bread-and-butter of Dallas-based Living Earth and other companies.

On larger projects, Rose said the city often outbids his and other firms by as much as 50 percent.

In 2007, Rose unsuccessfully pushed for state legislation that would have required Plano to use as much of its composting material on city land as possible before selling it.

Howard's proposal is likely to generate staunch opposition from cities.

"We're just trying to make a product that's good for the environment and save landfill space," said Gayla Wright, Denton's beneficial reuse manager.

Still, supporters are confident this year's proposal will pass.

"The [environmental] intentions are fine, but they have tried to grow this into a revenue stream," Rose said of Plano.

Nancy Nevil, Plano's sustainability and environmental director, noted that compost revenues fall far short of the venture's full price tag.

The operation cost nearly $3 million last year. Revenues from sales and collection fees totaled about $1.8 million. Ratepayers and income from other solid waste operations covered the rest.

She also dismissed the notion that the city's project bids are unfairly low, emphasizing the program's conservation aspects.

"If we are so dirt cheap, why don't we have all the business?" Nevil asked. "We just want to do our customers right and our residents right."

Plano has been selling composted yard trimmings for some time, but businesses only in recent years complained that the city has an unfair advantage:

1993

2004

Program expands to include Allen, Frisco, McKinney and Richardson.

2006

Products re-branded as Texas Pure.

2007

Composting businesses complain that Plano has an unfair advantage. State legislation is filed to require Plano to use its product on city land before selling it, but the bill fails.

2009

A bill is filed that could force cities to return any product profits to taxpayers.