Who's Got The Power? Jockeying Over Flow Control

Cheryl L. Dunson

Since the nation's highest court ruled solid waste flow control unconstitutional in the 1994 landmark Carbone decision, many solid waste professionals agree that they've never seen their industry so divided over a single issue. The controversy over who has the legal power to control waste streams has pitted public and private solid waste service providers against one another without a seemingly bridgeable compromise.

Local governments contend that, without flow control, long-term planning is impossible. In their view, any bonds issued to finance disposal facilities are in jeopardy and local governments' credit ratings are in danger of being downgraded.

Experts at the large waste companies disagree. They claim that local governments are crying wolf. As they see it, a lack of flow control actually promotes a more competitive marketplace for all solid waste service providers and keeps disposal costs affordable.

As the industry sifts through these various reactions, one common thread be-comes apparent: Money.

In Whatcom County, Wash., for example, Recomp of Washington is discovering that it interprets Carbone differently than its competitors do. As a result, the company's $15 million investment is now in jeopardy, according to Ken Bell, Recomp's vice president.

In the early 1990s, Recomp financed and constructed a waste-to-energy (WTE) plant at the county's request. The company also operates a materials recovery facility (MRF) and composter. Shortly after the WTE facility was constructed, the county passed a local ordinance specifying a hierarchy of "handling preferences." All solid waste service providers had to follow the hierarchy in order to compete for county waste streams.

Bell is quick to point out that Whatcom's hierarchy differs greatly from Clarkstown's controversial mandate to dispose of all waste at one town-approved facility. "[Whatcom Coun-ty's] ordinance says, 'Follow the hierarchy: Recycle first, remove compostables, incinerate through energy recovery and then, only then, landfill.'"

According to Bell, any private provider that fits into the hierarchy can compete. "If there were companies that could recycle more or compost more they could compete for the garbage," he said. "We can't compete with landfills because [of] the economic differences between WTE facilities and landfills. Recomp doesn't want a monopoly. We only want for everyone to play by the same rules."

Since the Carbone decision, however, those rules have changed. Now, a large, publicly owned waste company intends to construct a transfer station to long-haul waste to its own landfill.

With a county generation rate of 240 tons per day, every truckload of waste is valuable. "In our minds, the Carbone decision didn't apply to our sort of competition," Bell said. "[But] there are other companies out there that obviously think differently."

Feast Or Famine Indeed, Carbone has had a mixed bag of results. For large private companies that feed their facilities by trucking in waste, the Carbone decision opened the flood gates to markets that had been speculative at best. The lucrative opportunities in the industry have led to buying frenzies among many of the large waste conglomerates as they recognize all waste streams as fair game.

While many private providers have enjoyed a banner year, it's been a financially dismal year for many local governments. Last May, Moody's Investors Service issued a municipal credit report and solid waste rating outlook on 76 waste-related bonds. Moody's gave 33 unfavorable ratings outlooks and, prior to issuing the re-port, it downgraded 14 bonds. Officials attributed the poor ratings to declining waste streams and revenues, combined with threats of litigation. In the future, some ratings could be upgraded, should Congress pass legislation aimed at protecting facilities that were financed prior to Car-bone, Moody's said.

In September, the National Association of Counties (NACo) held a press conference to discuss the financial difficulties gripping local governments as they attempt to continue financing waste disposal facilities without the legal right to direct waste streams. One example cited by NACo was the Connecticut Re-sources Recovery Authority which is-sued $189 million in bonds to fi-nance a WTE facility.

In the absence of legislation since the Carbone decision, the authority's waste stream has "plummeted," ac-cording to Diane Shea, NACo associate legislative director. Municipal-ities that had designated the au- thority to manage their wastes now are seeking to cancel their contracts. Consequently, the future of the contracts hinges upon a decision from Congress. "First of all, I don't think any local government believes Con-gress is going to abandon them," Shea said. "Most are holding on until they see some form of legislation."

Shea said she believes local governments will do everything within their means to prevent defaulting on their debt because of the long-term repercussions for other public services. "Local governments are trying to balance many public services - not just solid waste," she said. "Local governments only have two ways to raise money: fees or taxes. And, un-less the state is going to give them money - which isn't likely - what else are they going to do?

Eric Bock, who has worked with Shea during the past few years to coordinate legislative relief, echoed Shea's sentiments. "The downgrading of local governments' bonds affects their ability to borrow money in the open market and it affects the interest rate they have to pay for that money," Bock said. "De-rating affects local governments' credit worthiness, increases interest rates and decreases the amount of money they're able to borrow. In turn, this affects all infrastructure."

At Virginia's Southeast Public Service Authority (SPSA), the effects of Carbone have led officials to reconsider the role of private companies in the solid waste arena. Since the ruling, SPSA reportedly is losing an estimated $12 million annually to newly constructed, privately owned landfills. The loss of waste is jeopardizing the authority's ability to repay $274 million in bonds. To compound SPSA's financial troubles, the agency's bond rating was downgraded this year from A to Triple B+.

In 1977, when SPSA began serving more than 1 million residents in its 2,000-square-mile service area, no landfills existed. The plan adopted by SPSA required the agency to provide its constituents in eight communities with a "completely integrated" solid waste management system, composed of recycling, a regional WTE plant and a landfill.

In the early 1990s, large private companies moved into eastern Virginia and, in the words of SPSA's executive director, Durwood Curling, built "mega-fills for waste from the Northeast." But, when the large volumes of waste didn't materialize, the landfill owners began drawing from SPSA's commercial waste streams. SPSA revamped tipping fees to re-capture lost waste streams, only to be rejected by the large haulers.

In October, Curling became vice president of the Solid Waste Association of North America, which is advocating the theme of Public-Private Partnerships this year.

"[The current practices] don't fit with our theme," Curling claimed. "Where does the taxpayer fit into the scenario that flow control is unnecessary? What about the people who built systems to meet their communities' needs? If adequate legislation isn't passed, the taxpayers are going to bear the brunt of the [resulting] economic decisions."

Unless local governments receive some legislative relief, Curling predicts, some of the nation's integrated systems will be dismantled and there will be a return to a "landfill-only" program. Another scenario would require raising taxes or assessing user fees. "Otherwise," Curling said, "bonds will continue to be down-graded and this system will eventually come apart."

On The Private Side In neighboring North Carolina, Lonnie Poole, former chair of the National Solid Wastes Management Association, said the Carbone ruling proves a great principal about the constitutionality of flow control and its impact on private companies.

Poole is the founder of Waste Indus-tries Inc., a 25-year-old, Raleigh-based hauling/recycling company with 21 operations in three states.

Poole described the situation in one large North Carolina community where Waste Industries operates. The company abided by the county's flow control ordinances and eventually lost a considerable share of its market when another large competitor opened a transfer station and began hauling waste to its landfill.

"We played ball with the county because we were members of that community," Poole explained. "Our company lost 15 percent of its market share. After Carbone, nobody restored it to us. We were good corporate citizens. We played by the rules. We were financially damaged and nobody righted the wrong."

Poole said he believes flow control is "not inherently bad." The problem with it, he said, is giving one entity, whether public or private, all of the control over waste streams. "It's a power issue," he said. "If you're go-ing to implement flow control, put in regulatory authority so someone can have oversight. Otherwise, you have an unregulated utility and, ultimately, greed prevails and nobody protects the public."

When asked why Waste Industries chose not to defy the county's flow control ordinance like his competitors, Poole said that losing market share may have been the lesser of two evils in light of the long-term implications.

"It seemed to us that if the county didn't get revenue for their facility then something would have to be done, and it'd probably be in the form of raising property taxes," Poole said. "We'd lose either way. What the county needed was some time to work on some options. Our philosophy is that we're dependent on the communities we serve for business. The end result was that [this county] lowered its tipping fee. The transfer station went idle, all the waste re-turned and the remainder of the sol-id waste program was subsidized with general tax revenues."

One private firm that certainly stood to lose with Carbone is the large WTE conglomerate Ogden Martin Systems Inc., Fairfield, N.J. Since the ruling, however, Ogden has re-evaluated its agreements with 26 local governments and has determined the majority of its WTE facilities are in "good shape" financially.

Despite the occasional "bargains" resulting from the landfill glut, Og-den has responded to the market, according to Kent Burton, senior vice president for policy and communications. Ogden reported that its facilities' operational costs are $6 to $7 per ton lower than those of neighboring landfills not operating under flow control ordinances.

"In many cases, the tip fee, or the fee to cover the entire solid waste program, goes beyond the operations fee in order to cover the cost of operating MRFs, recycling programs, composting or even landfill closure," Burton said. "Flow control allows communities to choose ... the most environmentally responsible way of managing their waste, which may not always be the cheapest."

Burton admits Carbone caused Ogden to re-think one of its projects for which bonds already had been sold. "It would have been difficult to build in the absence of a bill," he said.

The WTE conglomerate remains hopeful that Congress will pass flow control legislation soon, even if the bill is narrow and only allows for the "grandfathering" of facilities with existing debt. "It's a fairness-in-equity issue," Burton Said. "All we're saying is, `Let's finish the game with the same set of rules with which we started.'"

Remaining Competitive For Jim Lieper, Solid Waste Director for Richmond County, Ga., the opening of a private transfer station has prompted him to take a closer look at the economic efficiency of his operations and devise more creative ways to stay competitive. Since the transfer station opened, the county reportedly is losing approximately $120,000 per month in revenues. Rather than go to the bond market to borrow money, Richmond County turned to its water and sewage department. Regardless, the county still must make monthly installments to repay the debt.

To compete with the transfer station and regain waste, Lieper is considering an array of options including an upcoming government consolidation, downsizing operations and opening up the landfill's service area.

"I'm looking closely at what we can do to make the landfill more [economically] attractive," Lieper explained. "We're looking at our operating costs and there's the possibility of cutbacks in labor. We went from a profitable operation to a marginally profitable - if not a losing - operation and we've got to find a way to recapture the waste."

In addition, an independent hauler in Augusta has begun an advertising campaign to make the community's residents and businesses aware of the county's plight. The effort not only is creating more business for the hauler, but also is helping to retain some of the waste streams.