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Feature
Article July/August 2000
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The financial assurance portion of the Resource Conservation and Recovery Act Subtitle D Municipal Solid Waste Landfill Criteria seeks to ensure that funding for landfill closure, postclosure maintenance, and corrective action is provided by the landfill owners and operators themselves and doesn’t fall back onto the taxpayer. Many different mechanisms are available for ensuring that funding. Landfill owners and operators around the country talk about which ones they’ve chosen. By Janice Kaspersen Security
for the Small Operator Proving now that you’ll be able to pay later: Financial assurance criteria require landfill owners to ensure that funding is available for properly closing and maintaining landfills. Closure activities, depending on the site, may include capping the landfill; installing monitoring devices if they are not already in place; providing topsoil, seeding, and mulching as necessary; and possibly converting the land for follow-on use. Routine postclosure care continues for 30 years after a landfill stops accepting waste and includes maintaining the surface cover, monitoring gas and leachate, pumping and transporting leachate if necessary, and monitoring groundwater. Estimates for both closure and postclosure-care costs must be based on an engineering estimate of the cost to a third party to perform the necessary work and maintenance. Financial assurance is also required for corrective action, such as remediation of catastrophic events like fire, severe erosion, and groundwater contamination. Financial assurance mechanisms for landfill closure and long-term care fall into three broad categories: cash-in-hand, in the form of trust funds or escrow accounts; third-party insurance, including letters of credit and surety bonds; and various types of self-insurance. Self-insurance can include a financial test or a captive-insurance program, a guarantee by a parent corporation or government entity, or deferred funding in the form of pledge of revenues. States can further determine which mechanisms are allowable for publicly and privately owned landfills and how landfill owners and operators must provide accounting. How do the regulations actually apply case by case? We spoke with landfill owners and operators, public and private, around the country to see what options they considered and which they settled on.
Security for the Small Operator The Twin Landfill Corporation of Denver operates three Colorado landfills. It owns two of them - the Milner Landfill serving Steamboat Springs and the Phantom Landfill serving Canon City and Florence - and operates the Summit County Landfill for the county. All three service small resort communities and have expected life spans of at least 50 years. Owner Les Liman explains that trust funds made the most sense for his two landfills. " I didn’t find an insurance option that was viable. For a letter of credit, I would have to pledge assets equivalent to the amount of the guarantee. If you don’t have, say, $1.2 million of assets you’re wanting to pledge, then you could very well end up pledging your house, your car, your kids’ college educations. It just didn’t make sense for me to do that as a small operator. Building the trust slowly - making a payment every quarter and expensing the payment as a cost of doing business - seemed to be the simplest way to do it. It works out to a set cost per cubic yard that’s manageable."
Liman set up the funds with state-approved trustees, with the State of Colorado as the beneficiary. The trust must be paid over 20 years or the remaining life of the landfill site, whichever is shorter. "The engineering estimate needs to be updated every five years, so the numbers can change for how much you need to get into the trust fund." For the third, county-owned landfill, Summit County has provided a government guarantee. As for a corporate guarantees in the private sector, a government guarantee essentially requires the county to undergo a financial test to meet certain debt ratios.
The publicly owned and operated Cedar Hills Regional Landfill in King County, WA, 20 mi. south of Seattle, maintains a cash reserve for closure and long-term maintenance. "It’s the most conservative mechanism, but I also think it’s the most responsible," remarks Rod Hansen, manager of the King County Solid Waste Division. "We’re a fee-supported enterprise operation, and we have a component of our rate base that accrues closure and postclosure maintenance money that is deposited into the landfill reserve fund," Hansen explains. The cash reserves are invested, and the investment interest also goes into the fund. Closing the Cedar Hills Regional Landfill is not a one-time process; like many others, the landfill has been developed in cells, some of which will close sooner than others. "The closure part of this is not something that waits until the landfill is full like postclosure maintenance does," states Hansen. Three cells remain open at Cedar Hills and are expected to reach capacity in 2004, 2008, and 2012. Closure cost estimates for each are around $20 million. Average annual postclosure maintenance for the entire landfill is estimated at $2.14 million per year, and when the last cell of the landfill closes in 2012, the postclosure maintenance fund will contain enough to cover the entire 30-year postclosure period. Closure and long-term cost estimates are revisited annually. "Each year we’re updating our costs based on the remaining capacity that we have and based on whether we have to make any adjustments for estimated costs of future leachate disposal, which is going to be a big part of our postclosure maintenance expense. We also have projected costs for electricity and labor and things like that. We review those every year to be sure that our funds will be adequate," says Hansen. Even before current financial regulations went into effect, King County had begun accruing funds for landfill postclosure maintenance. Hansen attributes the decision to a forward-looking county council member in the 1980s whose district contained one of the larger landfills. "In our experience it’s been a very good thing to have done. We felt it was a very good principle to be sure that the people who were using the landfill today were responsible for the postclosure maintenance for that landfill, so future people wouldn’t have to pay for something they never used," Hansen comments. "We are responsible right now for 10 closed landfills. There are postclosure maintenance reserves in place for all of them. So the cost of maintaining them is not being paid for by today’s ratepayers."
Los Angeles County Sanitation Districts (LACSD), serving 78 cities and unincorporated areas in Los Angeles County, operate four landfills for various owners. The Spadra Landfill, near the city of Walnut, CA, has stopped accepting waste and closure activities are beginning. Situated on land owned by the California State Polytechnic University, Pomona, after closure the landfill will be converted to perennial pasture land. The other three landfills LACSD operates have expected life spans of 13-18 years. Unlike the Cedar Hills Regional Landfill and others that close in stages, closure is a one-time event for the LACSD landfills. "We don’t really operate our landfills on a cell-by-cell basis, because they’re canyon cut-and-cover types of landfills," explains Lory Rising, senior engineer with the LACSD Solid Waste Management Department. In estimating closure costs, says Rising, "We’ve tried to base those on our understanding of the costs we’ve incurred so far in running similar operations, especially for the maintenance. As far as closure, the main activity is putting on the final cover." Monitoring systems will also be installed at closure. LACSD is responsible for closure and long-term care costs of all except the Scholl Canyon Landfill, which is owned by the City of Glendale. "The city is actually responsible for postclosure maintenance at Scholl Canyon," Rising points out. "Postclosure land use will be up to them." The Calabasas Landfill near the city of Calabasas belongs to Los Angeles County, which will likewise determine postclosure use for the land. Enterprise funds are currently in place for three of the landfills - Spadra, Scholl Canyon, and Calabasas. "We originally set up enterprise funds using fund buildups in accordance with the regulations," says Rising, "but we are currently switching over to trust funds in place of the enterprise funds. We have a program of specific investments. In order to implement it, we prefer that the funds be held at a bank rather than the county treasurer, and to achieve that we have to switch over to trust funds." Of the four landfills operated by LACSD, the Puente Hills Landfill near Whittier is the only one it actually owns. For this landfill, LACSD is using a pledge of revenues arrangement for part of the estimated postclosure cost, which is an option for local governments. A portion of future revenues, such as tipping fees, from the county’s other facilities is pledged to the State of California for long-term costs. Because it is not depositing this money in a trust fund as it does for the other three landfills, LACSD can invest these revenues elsewhere and seek investments with higher yields.
Florida has tailored the federal financial assurance requirements, basing its rules on the 1988 edition of 40 CFR part 264 subpart H, Financial Requirements. The state has set up a landfill management escrow account for government owners and operators to accumulate closure and long-term care funds with the State Board of Administration. "The majority of the landfills in Florida are government-owned," says Fred Wick, financial coordinator with the Florida Department of Environmental Protection (DEP). "In many states it’s completely the opposite. The vast majority of our landfill owners and operators are government, and they really like this mechanism because it gives them a little bit more control. This way the state isn’t necessarily telling them what to do. We let them handle it." Wick estimates that 75-80% of government-owned landfills are using state escrow accounts, and the remaining ones are using financial tests. Similar to a trust fund, the escrow account allows different formulas for determining how large the account should be. The DEP helps operators determine whether they’re meeting minimum funding requirements. The most commonly used is a balance formula based on landfill capacity used. "If 50% of the landfill was full, we would anticipate that you would have 50% of the money in escrow to close the facility," says Wick. Operators also have the option of using a payment formula, similar to the federal formula for a trust fund. "They mostly use the balance formula. It’s just so much easier. They have to understand their capacity because they have to know when they’re running out of space." Jim Thomson, director of environmental services for Charlotte County’s Zemel Road Municipal Solid Waste Management Facility, has opted to use the Florida escrow account. Although the existing landfill is expected to accept waste until 2023, some of its cells will close sooner. The 1999 estimated closure cost for the facility was $8.4 million. "This way we won’t have to go out for a loan for the actual construction of the project," notes Thomson. "We’ll have the funds available as we need them, because we anticipate the closure will be a sequenced event."
Bluestem: Joint City and County Guarantee The Bluestem Solid Waste Agency, which operates two landfills, was jointly established by Linn County, IA, and the City of Cedar Rapids. The county contributed $2.2 million and the city contributed $6.5 million toward the financial assurance requirement. Smaller communities in Linn County can become nonequity partners in the agency without providing financial assurance guarantees. "The mechanism we use is what I would call a bond-rating test, which has been accepted in the state of Iowa," explains David Hogan, the agency’s executive director. "Both the City of Cedar Rapids and Linn County have Moody triple-A bond ratings. We are using the bond-rating test as our primary mechanism, as surety, which means the city and county are guaranteeing the closure and postclosure. But we are also recognizing that liability and putting money away for the actual activity itself, because we know we’re going to finance it ourselves anyway. So we’re really double-insuring the closure assurance for our sites." The larger of the two landfills, Bluestem #1 in Cedar Rapids, will close in about four years. Bluestem #2, in Marion, will close in about six years, both depending on tonnage received. Total closure costs for both landfills is estimated at $13 million. Monitoring wells are already in place at both sites. "We use the formula established in GASB statement number 18. It’s similar to the formula in the Subtitle D regulations," says Hogan. Government Accounting Standards Board statement 18, Accounting for Municipal Solid Waste Landfill Closure and Postclosure Care Costs, is based on the EPA ruling governing landfill closure. It requires state and local governments that operate landfills to estimate closure and postclosure costs based on landfill use rather than on passage of time. GASB also affect how closure and postclosure costs are estimated and during what periods they are reported.
Although many landfills use a single means of financial assurance for both closure and postclosure-care costs, separate methods can be used for each or can be combined for the entire financial obligation. "Right now we have two different mechanisms," points out Michael Ayers, general manager of the Pine Bend Sanitary Landfill near Inver Grove Heights, MN. To satisfy Dakota County, through which it is licensed, Pine Bend has a letter of credit for closure. To satisfy its State of Minnesota permit, however, the landfill also has a performance bond for postclosure care. "We have to have financial assurance for both governmental entities that are permitting or licensing bodies," he adds. Pine Bend is constructed in cells; about one-third of the landfill has already closed, one-third is active, and one-third is still to be constructed. With seven to eight years of remaining capacity for existing and new cells, total closure and long-term care costs are estimated at $11 million. Monitoring systems are already in place, and the landfill has a methane gas–recovery facility; electricity produced from the methane is sold to a local utility company. "The investment group that financed the development of the energy-recovery facility bought the rights to the gas for the production of electricity," Ayers explains. The life of that facility is approximately 30 years, and Ayers says the landfill’s financial assurance will cover the cost of maintaining it as well.
Given the life span of most landfills, financial assurance criteria are still relatively new, yet in Florida, at least, they’ve had a big impact. "Since 1989 every phase or cell or brand-new landfill that has been opened by a government has actually paid its own way toward closing and maintaining it. That, to us, is a very big success story," says the DEP’s Wick. "Some of our governments really didn’t do a very good job prior to 1988 in terms of how they closed. As a matter of fact, some of them just walked away. The good news is that they do not do that anymore. They have actually put the money aside, they have closed as they go, as we like to refer to it, they have been doing their annual maintenance, and that is a vast improvement over how things were in the ’50s, ’60s, and even the ’70s. And that’s all we intended. We just wanted the owner or operator, whoever they are, to be responsible for their own closure and long-term care."
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