Tax-Free Bond Under Fire

William P. Moore

Many of the paper recycling manufacturers' expansions during the past 10 years were financed through tax-exempt municipal solid waste bonds. This attractive financing mechanism was used for constructing new recycle paper mills, expansions and the conversion at many existing facilities to recycle fiber capabilities.

Economically beneficial, this recycle friendly tax policy was significant in the growth of recycled paper demand. However, during the past two years, the Internal Revenue Service (IRS), Washington, D.C., has been having second thoughts about what qualifies as a recycling facility as it applies to its eligibility to use “solid waste bonds.”

Currently, more than 40 operations are under investigation by the IRS. According to a manager from the IRS's Tax-Exempt Bond Field Operation, at least one dozen or so of these facilities are “problematic” and may be denied their tax-exempt status, which significantly could hurt an operation's economic health.

Tax-exempt municipal solid waste bonds equal good public policy that help bolster the country's movement toward increased recycling as part of managing solid waste. To preserve this tax policy, groups such as the National Recycling Coalition (NRC), Alexandria Va., and the American Forest and Paper Association (AFPA), Washington, D.C., are working together to ensure that paper recycling production operations can take advantage of tax-exempt financing.

Personally, it's heartening that these two groups, which frequently see the recycling world in different ways, have joined together for this common cause.

Collectors and recycling processors, such as solid waste management companies, should be interested in this subject. Why? To build additional paper recycling manufacturing capacity, which will keep the recovered paper markets strong, therefore, supporting recycling economics. Creating new demand for recovered paper allows the supply to increase without dramatic falls in the value of recovered paper commodities.

I urge you to weigh in on this important subject, as it may be applicable to paper manufacturing facilities and to other types of recycling processing operations.

Paper Trail author, Bill Moore, welcomes questions and comments from readers. Contact the author via e-mail at [email protected]