EPA grants landfill compliance flexibility

EPA has issued a final rule granting municipalities increased flexibility in meeting their financial assurance obligations for closure, post-closure care and corrective action pertaining to landfills.

Under the agency’s original rule, issued Oct. 9, 1991, the financial assurance vehicles available to owners and operators of municipal solid waste landfills included surety bonds, letters of credit, insurance, guarantees, state-approved mechanisms, or state assumption of responsibility.

Now, however, EPA’s final rule adds a financial test and a cost guarantee for local governments. EPA estimates that, through this test, 91 percent of local governments will be able to use their financial strength to assure at least part of their obligations, and 54 percent will be able to assure all of their obligations.

There are four steps in the Local Government Financial Test:

*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 issued by Standard and Poor’s) on all outstanding general obligation bonds. If there are no outstanding general obligation bonds or 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. Governments will be disqualified if the financial statements show an operating deficit of 5 percent or more of the government’s total annual revenue for each of the past two years or if the most recent financial statement received an adverse opinion or qualified opinion.

* Obligation to give notice. Local governments must include in their annual budgets or financial reports the estimated costs of closure, post-closure and corrective action obligations and when such costs will be incurred.

* Records and reports. The following items must be placed in the facility operating record within specified time frames:

1) A letter signed by the local government’s chief financial officer showing compliance; 2) The independently audited year-end financial statements; 3) The opinion prepared by the government’s year-end financial statement auditor; and 4) A statement signed by the auditor or the state agency confirming data in the CFO’s letter.

* 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.

In addition, EPA’s final rule allows a municipal government to guarantee the costs of closure, post-closure and corrective action costs of other municipal solid waste landfill owners through the financial test or a combination of financial mechanisms.

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 Oct. 9, 1997, to meet the requirements.

In cases where the April deadline did not allow enough time to comply with the requirements, state directors are authorized to waive the requirements for up to 12 months.