landfills: Financial Test Adds Flexibility For Owners/Operators

Beth Burnett-Balga

Good news for municipalities: A final rule granting municipalities more flexibility to meet financial assurance obligations for closure, post-closure care and corrective action - required by the municipal solid waste (MSW) landfill criteria - has emerged from the U.S. Environmental Protection Agency (EPA).

Under the original October 9, 1991 rule, the financial assurance vehicles available to owners and operators of MSW landfills included: surety bonds; letters of credit; insurance; guarantees; state-approved mechanisms or state assumption of responsibility.

Now, a financial test and a cost guarantee for local governments have been thrown into the mix. In fact, EPA estimates that through this test, 91 percent of local governments can use their financial strength to assure at least part of their obligations and 54 percent can assure all of their obligations.

The Local Government Financial Test steps include:

1. Qualification. A municipality must qualify to use the financial test by satisfying either the bond rating provision or the financial ratio alternative. A local government must have a current investment-grade bond rating (Aaa, Aa, A, or Baa as issued by Moody's, or AAA, AA, A, or BBB as is-sued by Standard and Poor's) on all outstanding general obligation bonds.

If there are no outstanding general obligation bonds or if the general obligation bonds are unrated, the municipal government can substitute financial ratios for the bond rating requirement - a liquidity ratio and a debt service ratio - so long as it provides financial statements prepared according to generally accepted accounting principles.

2. Obligation to give notice. A local government must include in its annual budget or financial report the estimated costs of closure, post-closure and corrective action obligations and when such costs will be incurred.

3. Records and reports. The following items must be placed in the facility operating record within specified time frames: a letter signed by the local government's chief financial officer showing compliance; the independently audited year-end financial statements; the opinion prepared by the government's year-end financial statement auditor; and a statement signed by the auditor or by the state agency, confirming data in the CFO's letter.

4. Calculations of costs to be assured. The financial test can be used for one purpose: to demonstrate financial assurance for the costs of the local government's total environmental obligations up to an amount not exceeding 43 percent of its total annual revenues.

The effective date for the local government financial assurance requirements was April 9, 1997 for landfill owners and operators. Operators of small, dry or remote landfills have until October 9, 1997 to meet the requirements. In cases where the April deadline does not allow enough time to comply with the requirements, state directors are authorized to waive the requirements for up to 12 months.

With a number of acceptable financial assurance mechanisms to choose from (such as corporate guaranty, bank letters of credit, cash escrow, finite insurance and surety bonds), it is important to understand the implications of each mechanism. So, before making a decision discuss your options with the state EPA, a bank and a professional insurance agent who specializes in environmental bonding and insurance.

New Office R&R International Inc., Akron, Ohio,a construction management, environmental services and facilities operation and maintenance firm, has opened a new Washington area office at 1419 Forest Dr., Ste. 205, Annapolis, Md. 21403. (410) 263-3770. Fax: (410) 263-3791.

Re-Opening Med/Waste Inc., Opa Loca, Fla., has announced that its Hamton, S.C., waste incineration facility, which suffered fire damage, has been granted permission to reopen and resume normal operations by the South Carolina Dept. of Health and Environmental Control. The company's S.C. operation provides medical waste management services to more thann 5,000 healthcare facilities throughout Florida.