v>EPA
United States
Environmental Protection
Agency
Office of
Solid Waste and
Emergency Response
DIRECTIVE NUMBER: 9541.QO-3A
TITLE; Equivalency of State Financial Responsibility Mechanisms
APPROVAL DATE: 09/01/82
EFFECTIVE DATE: 09/0i/82
ORIGINATING OFFICE:
0 FINAL
D DRAFT
STATUS:
REFERENCE (other documents):
OSWER OSWER OSWER
/£ DIRECTIVE DIRECTIVE Di
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United States Environmental Protection Agency
^^^ ^^^_ ^^^^ ^_ \^ I III W^f ^*«t^ W r^^4 ITMWIIIIII..IIVQI IWlWWtlvi* r-iu^||^y
V.CPA . Washington. DC 20460
\/crM QSWER Directive Initiation Request
1. Directive Number
2. Originator Information
Name of Contact Person
j Mail Code
Office
OSW/SPB
Telephone Code
382-2210
3. Title
Equivalency of State Financial Responsibility Mechanisms
4. Summary of Directive (include brief statement of purpose)
This document describes the financial responsibility that a State
must have to receive final authorization. The document is appended
to the Final Authorization Guidance Manual. The primary audience
is EPA HQ and Regional offices and State Agencies. Public requests
have been received.
State Authorization
6a. Does This Directive Supersede Previous Directive(s) 1
What directive (number, title)
b. Does It Supplement Previous Direcltve(s)?
No
Yes What directive (number, title)
7. Draft Level
A - Signed by AA/DAA
B - Signed by Office Director
C - For Review & Comment
0 - In Development
8. Document to be distributed to States by Headquarters?
^l^^^H
Yes
/*
No
This Request Meets OSWER Directives System Format Standards.
9. Signature of Lead Office Directives Coordinator
1 0. Name and Title of Approving Official '
OSW/SPB v
Date
Date
09/01/82
EPA Form 1315-17 (Rev. 5-87) Previous editions are obsolete.
OSWER OSWER OSWER O
VE DIRECTIVE DIRECTIVE DIRECTIVE
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EQUIVALENCY OF STATE FINANCIAL
RESPONSIBLITY MECHANISMS
DRAFT DOCUMENT
FOR AGENCY REVIEW ONLY
Prepared by:
ICF Incorporated
September 1982
8-3
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OSWER POLICY DlKECTiVE KC
9541 . 00-3A
Table of Contents .
Page
Introduction 1
Equivalence for Purposes of State Program Authorization 2
Equivalence of State-Required Mechanisms CJsed to Comply with the
Federal Regulations 3
Fundamental Criteria for Equivalence Determinations 4
Certainty and Availability of the Funds '+
Amount of Funds 5
Time Limits 5
Allowable Mechanisms 7
Cost Estimates . 3
Further Information 3
Equivalency Criteria for Trust Funds 9
Equivalency Criteria for Surety Bonds. .11
Equivalency Criteria for Letters of Credit 13
Equivalency Criteria for Standby Trust Funds 15
Equivalency Criteria for Closure or Post-Closure Insurance 1"
Equivalency Criteria for Financial Test,and Corporate Guarantee
for Closure or Post-Closure Care . . .' 19
Equivalency Criteria for Cash Deposits and Certificates
of Deposit for Closure or Post-Closure Care 22
Equivalency Criteria for Escrows for Closure or
Post-Closure Care 23
Equivalency Criteria for Liability Insurance 25
Equivalency Criteria for Financial Test for Liability
Coverage 27
Equivalency Criteria for State Assumptions of Responsibility
of Closure or Post-Closure Care or Liability Coverage 29
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OSWER POLICY DIRECTIVE MO.
9541.00-3A 4
EQUIVALENCY OF STATE FINANCIAL RESPONSIBILITY REQUIREMENTS
i
Introduction
In issuing financial responsibility standards under RCRA, the Agency
determined that such requirements are (1)^ necessary to assure that funds will
b« available for proper closure of all hazardous waste management facilities,
and for 30 years of post-closure care of land disposal facilities, and (2)
desirable, in the case of liability coverage, to assure that funds will be
available during the operating life of a facility from which third parries can
be compensated for bodily injury and property damage arising from operation of
the facility. These determinations are based on extensive analysis and review
of public comments and consequently define the scope, purpose, and function of
any state financial responsibility regulations under RCRA.
States seeking authorization to administer their hazardous wasta programs
in lieu of the federal RCRA program either have or will .have financial
requirements. States that are not seeking such authorization, however, may
also enact financial responsibility requirements applicable to owners and
operators of hazardous waste management facilities. In either instance, in
reviewing state financial responsibility requirements, the key criterion is
equivalence to the federal requirements.
The review of equivalency of financial responsibility requirements is
necessarily somewhat more judgmental than is the case for other hazardous
waste management standards. While she federal regulations (40 CFR Parrs 264
and 265, Subpart H) serve as a benchmark, the use of more flexible criteria is
essential for two reasons:
(1) States often have more restrictive or curtailed
enabling statutes with respect to financial
responsibility that make it difficult to track the
federal requirements; and
(2) Equivalency of outcome or performance of financial
assurance is more important than equivalency of
methods.
Th« concept of equivalency originates in Section 3006 of RCRA. That
section provides for the authorization of state hazardous waste programs that
are equivalent to the federal program. It also provides for the interim
authorization of existing state programs that are "substantially equivalent"
to the federal program. The concept of equivalence also appears in the
Agency's financial responsibility regulations at 40 CTR 264/265.149 and
264/265.150. Those regulations permit owners or operators to use
state-required mechanisms for 'financial responsibility or state assumptions of
responsibility to meet federal requirements, in whole or part, if the
state-required mechanisms are equivalent to the federal provisions. Thus
equivalence evaluations may be performed in two contexts: (1) as parr of the
review of state financial regulations for interim or final program
authorization or (2) as part of the review of an owner's or operator's
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.7.
compliance wi&h federal requirements in states without authorization chat have
financial requirements.l
Therefore, this guidance has a dual purpose. It addresses:
(1) determining equivalence of a state's regulatory scheme
for financial responsibility in the RCRA program
authorization context, and
(2) determining equivalence of individual mechanisms in
the 264.149/150 and 265.149/150 context for the owner
or operator who must comply with both federal-and
state requirements.
These two topics are addressed next in more detail.
Equivalence for Purposes of State Program Authorization
Pursuant to RCRA §3006(b), for a state program to receive final
authorization, it must (1) be "equivalent" to the Federal program, (2) be
consistent with the Federal program and che programs of other authorized
states, and (3) provide adequate enforcement. EPA has interpreted the terra
"equivalent" to mean "equal in effect." (See 45 Fed. Reg. 6753; January 29,
1980). Moreover, pursuant to RCRA §3009, states may impose "any requirements
... which are .-nore stringent Chan those imposed" by the Federal regulations,
but may not impose any requirements Less stringent than the Federal
requirements. In the context of financial responsibility, EPA will make
judgments of the legal efficacy of the various financial mechanisms in a
state's program which owners and operators may use to demonstrate compliance;
the Agency intends that, for'a state program to receive final authorization,
the program include requirements no less than "equal in effect" to the Federal
requirements for financial assurance of closure and post-closure care, and the
accompanying requirements for closure and post-closure cost estimates,
promulgated at 47 Fed. Reg. 15047-74 (April 7, 1982), and liability-coverage
for third party claims, promulgated at 47 Fed. Reg. 16554-61 (April 16, 1932).
Pursuant to RCRA §3006(c), for a state program to receive interim
authorization, it must be found to be "substantially equivalent" to the
Federal program. The Agency has interpreted substantial equivalence to mean
"to a large degree or in the main, equal in effect." (See 45 Fed. Reg. 6754;
January 29, 1980). Moreover, RCRA §3009 was clearly not intended to mandate
application of a "no lass stringent" standard to a state seeking only interim
authorization. (See 45 Fed. Reg. 33391; May 19, 1980). Thus it is possible
that EPA could grant interim authorization to a state program where the
lFor facilities in states without RCRA authorization but with financial
responsibility requirements applicable to hazardous waste management
facilities, owners or operators must comply with both federal and state
regulations.
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financial mecttanisms allowed under che .program were less than "equal in
effect" co che April 1982 Federal regulacions cited above.
For boch interim and final auchorizacion, a scace financial responsibility
regulatory program should contain che following components:
(1) regulations concerning cost estimates for closure
and post-closure care, and
(2) regulations describing allowable mechanisms and che
conditions of cheir use (e.g., combinations of
mechanisms, eligibility of insurers, incapacicy of
institutions).
Below, equivalence criteria for cost estimate regulations are sec forth.
Later in this document, specific -equivalence criteria for individual scace
financial mechanisms are provided. These criceria are all based on che
benchmarks provided by Subparc H of 40 CFR Parts 264 and 265.
Where cha cypes of allowable mechanisms or cheir specific provisions
(e.g., financial case criceria) are not defined by state statute, che state.
regulations must define che specifics of each allowable mechanism in order
that EPA can make a decertainacion of equivalence. Also, where a scace program
allows cypes of financial responsibilicy mechanisms chat are not allowed by
che federal program, che equivalence criceria included in this docu.-r.enc should
be consulced. The Agency expects chac several scaces will seek to allcw
mechanisms such as escrows, cash deposits, and certificates of deposit which
are not allowed in che federal program. (For an explanation of why chese
mechanisms haven'c been provided in che federal program, see che Preamble ac
46 Fed.-Reg. 2327 (January 12, 1981).)
Equivalence of State-Required Mechanisms Used to Comply
with the Federal Regulations
When an owner or operator wishes to use a scace-required mechanism or a
state assumption of responsibility to comply with federal requirements, che
determination of equivalence is the responsibility of the EPA Regional
Administrator. This situation will only occur in states that do not have
authorization but do have state-required financial mechanisms or state
assumptions of responsibility. In these situations, equivalence should be
determined using che criceria discussed below both for cost estimates and for
the specific assurance mechanism being used for compliance. These criteria
are based on the benchmarks provided by Subpart H of 40 CFR Parts 264 and 265.
In addition to evaluating the equivalency of the mechanism, the Regional
Administrator may only approve use of a state-required mechanism if the
instrument has been executed. To do otherwise would result in a gap in
coverage which must be avoided. This is in contrast to the program
authorization context where financial responsibility requirements may be
determined to be equivalent or substantially equivalent prior co che effective
date of che requiremencs, alchough a Scate program may not be granted
authorization until che Scace's regulations are effective.
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Fundamental Cptaria for Equivalenca Determinations
Inherent in the federal financial assurance regulations are two criteria
which are fundamental for.evaluating equivalence:
(1) Certainty of the availability of funds through a
financial mechanism muse be at least equivalent, and
(2) The amount of funds assured by a financial
mechanism must be at -least equivalent. .
These criteria reflect the Agency's policy that the funds mist be
available in the appropriate amounts when needed. The criteria are equally
applicable when evaluating equivalence in the program authorization context
and in th'e federal/state compliance context. The first criterion is -tore
difficult to evaluate than the second. Of key importance for cartainty
will be the protection of the funds against claias of creditors, the initial
qualifications of financial institutions providing the mechanises, ar.d
provisions required for future contingencies, including bankruptcy,
cancellation, or changing mechanisms. With respect to amount of financial
assurance, both the total amount of funds assured as well as the amount
assured at different points, in time are crucial. These criteria are outlined
next -3 thresholds that must be satisfied in addition to criteria
appropriate for specific types of mechanisms which are provided Later.
Cartainty of Availability of the Funds. To be deemed equivalent in
terns of certainty, state financial requirements muse include minimal
qualifications for the parties'to mechanisms of financial responsibility and
other provisions, as follows:
(1) provision that Regional Administrator or State
Director2 has the sole authority to direct the
payment or use of funds assured whenever needed;
*The phrase "Regional Administrator or State Director" is used in this
document because most state mechanisms are expected to nane a state agency as
beneficiary. Due to the variety in state agencies and their authorities, zhe
specific "State Director" may vary from state to state (e.g., Attorney
General, Director of Office of Environmental Protection, Public Health
Commissioner, State Treasury Department, ecc.) The term "State Director" is
defined in 40 C7H 122.3. As long as a state agency or official (or the EPA
Regional Administrator) is designated as having the power to direct or
authorize use of financial assurance, the mechanism should be deemed
equivalent, in that respect. However, where two or more state agencies are
responsible for administration of financial assurance mechanisms, the "lead"
agency should consider establishing an inter-agency memorandum of
understanding to clearly delineate the respective roles and responsibilities
of each agency.
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C2) .qualifications for participating financial
"institutions, surety companies, and insurers -- these
institutions and their relevant activities (i.e.,
trust fund operations) must be subject to some
regulatory oversight or licensing procedures
(3) qualifications for guarantors -- .including
satisfaction of a financial test and being the
corporate parent of the owner or operator
(4) qualifications for owners or operators using a
financial test -- including independently audited
financial statements
(5) substitution of alternate financial assurance within a
defined time period in the event the required
qualifications are no longer satisfied (for example,
including the bankruptcy of the financial institution,
corporate guarantor, or insurer);
(6) notification within a limited time period after the
commencement of a bankruptcy proceeding naming the
owner or operator as debtor;
(7) notification within a liaited tiae period of intent ~s
cancel, terainate, or a-ilow to lapse a financial
assurance mechanism;
(3) provision that an existing mechanism will not be
cancelled, terminated, or allowed to lapse until a
defined time period has elapsed, or alternate
assurance has been provided, or the owner or operator
has .been released from financial requirements;
(9) provision that the mechanisms cannot be cancelled or
terminated upon commencement of a compliance action;
. and
(10) no restrictions on order of use of mechanisms if more
than o'ne mechanism provides assurance for a given
facility.
These provisions are further specified in the equivalency criteria for
specific financial responsibility mechanisms.
Amount of Funds. In general, the amount of funds assured for closure
and/or post-closure care must be equal to the current cost estimate(s) and the
liability coverage demonstrated must be -at least equal to the amounts required
by RCRA liability requirements, exclusive of legal defense costs. An
exception can be made for owners and operators using trust funds for
closure/post-closure assurance; the full amount need not be available if the
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owner or operator, is in the pay-in period for the trust fund. (See, e.g
264/263.143(a) (3).) In that case, an increasing amount will be assured eau.i
year. For all other mechanisms alone or in combination, the amounts assured
must always meet the total RCRA requirements at all times.
Thus, with respect to the amount, of funds assured, the following
criteria must be met:
(1) The amount assured must equal the latest cost estimate
for closure and/or post-closure care in full, unless
the trust fund mechanism is being used.
(2) If a trust fund is used, the initial and subsequent
payments must assure an amount of closure and/or
post-closure funds each year that in the aggregate' is
no less than that required by the federal formula.
(3) If a trust fund pay-in period is used, it must not be
longer than that allowed under the federal regulations.
(4) The amounts of funds assured for different identified
facilities and purposes (i.e., closure, post-closure
care, liability) must be specifically identified in
the instrument or by an attachment to the instrument.
(5) The Regional Administrator or State Director must have
exclusive authority over disbursements of funds.
(6) The funds cannot be used for other purposes (e.g.,
payment of fines).
(7) The Regional Administrator or State Director must
approve in writing any decreases in the amounts of
assurance provided.
(3) The Regional Administrator or State Director must have
the authority to withhold a portion of the
reimbursement for closure expenses if deemed necessary.
The federal regulations allow owners or operators to use combinations of
mechanisms to provide the required amount of assurance. States can do
likewise. So long as each* mechanism is equivalent in terms of certainty of
the funds, the focus is properly on the total amount assured by the
mechanisms. See 40 CFR 264/265.143(g).
Time Limits. Time limits in state financial mechanisms may not always
parallel the federal requirements. This does not necessarily mean that the
state mechanisms are not equivalent. However, the federal regulations are
based on considerations of the legal and "practical implications of deadlines
that cannot be ignored by state mechanisms. The ultimate aim must be to
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ensure chat chere is no gap in financial coverage. This means chat sufficient
cirae muse be tfilowed for:
providing an alternate mechanism in the event of the
incapacity, disqualification, or.bankruptcy of issuers,
insurers, and guarantors (e.g., 60 days).
responding to a notice of cancellation or termination
(e.g., at least 30-60 days)
alternate assurance of funds before a cancellation
could become e-ffective (e.g., at least 60-90 days)
notifying the Regional Administrator or State
Director of the commencement of a bankruptcy proceeding
naming the owner or operator as debtor (e.g., no more
than 10 days but probably no less)
review by the Regional Administrator or State
Director of financial assurance submissions for new
facilities (e.g., at least 10-IS days before first
receipt of wastes)
States should be encouraged to follow the deadlines in federal system but
some flexibility may be allowed when determining equivalence. The period cf
post-closure care, however, must be a< least thirty years.
Allowable Mechanisms. Current federal regulations allow use of crust
funds, surety bonds, letters of credit, insurance, a financial test, corporate
guarantees, and state assumptions of responsibility. Some states may allow
owners or operators to demonstrate financial responsibility using mechanisms
not currently allowed under RCRA standards. Specifically, these might includa:
cash deposits .
certificates of deposit
escrow accounts
The equivalency of cash deposits or certificates-of deposit can be
assessed using the federal trust fund requirements as a touchstone. Thus,
pay-in periods, payment formulae, and rules for reimbursement of expenses must
be ac least as stringent as under the federal regulations. Where state
regulations require immediate deposit of the full amount, the focus should
shift to whether further payments are required to keep pace with later
increases in cost estimates. Equivalency criteria for cash deposits and
certificates of deposit are presented later in this document.
An escrow is similar to a trust arrangement but it has 'a somewhat
different legal effect. Although the depositary institution is not a trustee,
it is a fiduciary (as is a trustee) and its actions are governed by an escrow
agreement that should resemble the trust agreement. The key-terms and
responsibilities oust be spelled out in. the agreement; an escrow agent has no
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discrecion and must follow the instructions of the escrow agreement co the
letter. Equivalency criteria for escrows are presented later in this document.
Cost Estimates. To be equivalent to federal requirements, state
financial responsibility programs and mechanisms must incorporate equivalent
rules for estimating the costs of closure and post-closure care that are to be
assured. The evaluation of equivalency will depend on affirmative answers to
the following questions:
(1) Muse cost estimates for closure and post-closure be
based on closure .and post-closure plans?
(2) Must cost estimates be revised accordingly whenever
changes in closure or post-closure plans would
increase cost estimates?
(3) Must the closure cos't estimate equal the cost of
closure at the point in 'the facility's operating life
when closure would be the most expensive?
(4) Must the cost estimates be adjusted for.inflation at
least annually during the operating lifa of the
facility using a specifiad inflation factor?
(3) Muse the latest cost estimate based on the closure
and/or post-closure ?laa(s) and the latest adjusted
cost estiaate(s) be kept at the facility?
The rest of this document sets forth a series of criteria for determining
the equivalency of individual state financial assurance mechanisms. Closure
or post-closure mechanisms allowed by the federal regulations are addressed
first, followed by mechanisms not allowed in the current federal regulations,
concluding with liability coverage mechanisms and state assumptions of
responsibility.
Further Information
Readers- desiring further information should consult the Guidance
Manuals on Financial Assurance for Closure and Post-Closure Care and
Liability Coverage and the Background Documents citad there.
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EQUIVALENCY CRITERIA FOR STATE TRUST FUNDS
.«*
EPA will consider che following factors in determining whether a. state-
requirad crust fund is "equivalent" or "substantially equivalent" to the
financial mechanisms prescribed in the federal regulations. As a general
rule, most, if not all of the following questions muse be answered "yes" for
the state-required trust fund to be considered "equivalent" or "substantially
equivalent."
1. Is the trustee required to be an entity that has authority to act as a
trustee and whose trust operations are regulated and examined by a federal or
state agency?
2. Does the trust agreement or an attached schedule list and identify the
facilities and the amount of the closure and/or post-closure cost estimates
covered for each facility?
3. Is the owner or operator required to update the list of facilities and
closure and/or post-closure cost estimates after each change in cost estimates?
4. Does the owner or operator remain liable at all tines for the full
amount of closure and/or post-closure expenses?
5. Is the trust irrevocable except upon agreement of the owner cr
operator, the trustee, and the Regions! Administrator or State Director?
. 5. Does the trust agreement prohibit trustees from investing in
securities of the owner or operator or parent corporations or their
affiliates? (federal regulations include this prohibition in addition to che
general "prudent man" standard. See 40 CFR 264". 151 (a) (1).)
7. For new facilities to be permitted, muse the trust agreement be
submitted to the Regional Administrator or State Director before hazardous
waste is first received?
3. Must the initial payment be made before hazardous waste is first
received for new permitted facilities?
9. For new permitted facilities, oust a receipt from the trustee for the
first payment be submitted to the Regional Administrator or State Director
before hazardous waste is first received at the facility?
10. Are the required initial and annual payments at least as great as
those required by the federal RCRA regulations? (covers pay-in period or
other formulae)*
* For details on the pay-in period and payment formula, see Chapter III in
the Guidance Manual: Financial Assurance for Closure and Post-Closure Care
(1982).
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11. Does the crust agreement require the trustee, during the pay-in
period, to notify the Regional Administrator or State Director if the owner or
operator fails to make an annual payment into the trust fund?.
12. Does the trust agreement require the trustee to value the assets in
the trust fund each year and send a statement of valuation and trust activity
to the owner or .operator and the Regional Administrator or State Director?
13. Is the.owner or operator given at least 90 days following the
trustee's valuation report to object to the trust investment activity?
14. May EPA or State Director object at any time to the trust investment
activity?
15. Once the pay-in period has expired, must the owner or operator-make
additional payments into the trust fund or obtain alternate assurance -vhenever
the cost estimate changes and becomes greater than the value of the trust fur.c
during the operating life of the facility?
16. Must the owner or operator make arrangements for a new trustee or
obtain other financial assurance vhen the existing trustee enters bankruptcy,
ceases operations, or loses its authority to act as a trustee?
17. Can the trustee only be changed upon agreement by the owr.er or
operator, the trustee, and the Regional Administrator cr Stata Director?
13. Can funds be released from the trust fund only upon instruction of
the Regional Administrator or State Director and only for the following
reasons: (1) the value of the trust fund is greater than the current cost
estimate(s); (2) alternate financial assurance is provided; (3) the owner or
operator is released from financial responsibility requirements.
19. Must itemized bills for closure and/or post-closure care be submitted
to the Regional Administrator or State Director before reimbursement will be
authorized?
20. Vhere the cost of closure appears to be significantly greater than
the value of the trust fund, is the Regional Administrator or State Director
empowered to withhold reimbursement from the trust until satisfactory
certification of completion of closure is received?
21. May the trust be terminated only upon written instruction of the
Regional Administrator or State Director?
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EQUIVALENCY CRITERIA FOR SURETY BONOS
_ «* .
EPA will consider the following factors in determining whether a state-
required surety bond is "equivalent" or "substantially equivalent" to the
financial mechanisms prescribed in the federal regulations. As a general
rule, most, if not all of the following questions must be answered "yes" for
the state-required surety bond to be considered "equivalent" or "substantially
equivalent."
1. Is the surety company"1 required to be listed in Circular 570 or
licensed to do business as a surety in the state?
2. Does the underwriting limitation in Circular 570.apply?
3. Must the s.urety company be licensed in the state where the surety bond
is s igned?
4. Are the terns of a required standby trust fund (if any) at least
equivalent to a standby trust fund under the federal RCRA regulations? (see,
e.g., 40 CFH 264.143(b)(3) and the equivalency criteria for standby crust
funds, below.)
5. Must the penal sum of the bond, together with any amount being assured
by other mechanisms be at least equal to the current closure and/or
post-closure cost estimates?
6. Must any surety bond that is used at an interim status facility be a
financial guarantee bond? (performance bonds may not be used under 40 C7R 255
regulations.)
7. For new facilities to be permitted, must the surety bond be submitted
to the Regional Administrator or State Director before hazardous waste is.
first received for treatment, storage or disposal?
8. For new permitted facilities, must the surety bond be effective before
hazardous waste is first received for treatment, storage or disposal?
9. Vh«n cose estimates increase, must the penal sum of the bond be
increased (and evidence of the increase submitted to the Regional
Administrator or State Director) or alternate financial assurance obtained
within a defined period of time? (federal regulations allow 60 days)
10. Can the penal sum b« reduced only if cost estimates decrease and
following written approval of the Regional Administrator or State Director?
11. Must the owner or operator obtain alternative financial assurance
within a defined time period after bankruptcy of the surety or removal of the
surety's name from Circular 570?
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12. Muse che surety give both the owner or operator and che Regional
Administrator or State Director ample notice before.cancellation of che surety
bond_will be allowed? (federal regulations require ac least 120 days)
13. Will the owner or operator have sufficient time after receipt of
notice of cancellation to provide alternative financial assurance and obtain
written approval of the new assurance from the Regional 'Administrator or State
Director? (federal regulations require at least 90 days)
14. Is the surety required to pay the penal sum of a financial guarantee
bond in ac lease these circumstances:
a. The owner or operator has failed to provide funds in
the amount of the cost estimate for closure and/or
post-closure care before the beginning of final closure
of the facility;
b. The Regional Administrator, State Director, or a court
has ordered closure to begin and the owner or operator
has not provided funds within 15 days; or
c. The surety has sent .notice of cancellation of the bond
and the owner or operator has not obtained alternate
financial assurance within a defined time period?
(federal regulations allow 90 days)
15. Must the surety perform closure and/or post-closure care or pay chs
penal sum of a performance bond in at lease the following circumstances:
a. The owner or operator fails to fulfill its closure
and/or pose-closure obligations, even though closure
may occur sooner than expected or the requirements in
che plans, regulations, and/or permit have changed; or
b. The surecy has senc nocice of cancellacion of che bond
and che owner or operacor has noc obcained alternate
financial assurance wichin 90 days?
16. May a surecy bond only be terminaced wich che written consent of the
Regional Adminiscrator or Scace Oireccor?
17. Muat itemized bills for closure and/or pose-closure care be submitted
Co ehe Regional Adminiscracor or Scace Director before payment will be
authorized?
18. Vhere ehe cose of closure appears co be significancly greacer than
the amoune of available funds, is che Regional Adminiscracor or State Director
empowered to withhold reimbursement until satisfactory certification of
complecion of closure is received?
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EQUIVALENCY CRITERIA FOR LETTERS OF CREDIT
.<*
EPA will consider the following factors in determining whether a stata-
required letter of credit is "equivalent" or "substantially equivalent" to the
financial mechanisms prescribed in the federal'regulations. As a general
rule, most, if not all of the following questions must be answered "yes" for
the state-required letter of credit to be considered "equivalent" or
"substantially equivalent." :
1. Is the issuer required to be authorized to issue letters of credit,
and must its letter of credit operations,be regulated by a state or federal
agency?
2. Are the terms of a required standby trust fund (if any) at least
equivalent to the required standby trust fund under the federal RCRA
regulations? (see, e.g., *0 CF3.2a».143(d)(3) and the equivalency criteria
for standby crust funds, belcw.) :
*
3. Must che letter of credit be irrevocable for at least a year and
provide for automatic extensions? ' '.'
:*. Does tha letter of credit- have to be accompanied by a letter or
schedule detailing the coverage for each facility?
5. Must the owner or operator suirait evidence within a reasonable perice
that any cost increases are covered by alternate mechanisms or increases in
the face amount of the latter of credit? (federal regulations' allow up to 50
days.) :
6. Must owners or operators obtain alternate financial assurance within a
specified time if the issuing institution ceases operations, fiias for
bankruptcy, or otherwise ceases to qualify? (federal regulations allow up to
60 days.)
7. Must alternate assurance be obtained within a specified time if the
issuer gives notice of r.onrenewal of the letter? (federal regulations allow
up to 90 days.)
3. Must tha face amount of the letter of credit, together with any amount
being assured by other mechanisms be at least equal to the currant closure and
post-closure cose estimates?
9. Must the letter of credit be submitted to the Regional Administrator
or State Director by a specified time before hazardous waste is first received
for new permitted facilities? (federal regulations require at least 60 days.)
10. For new facilities to be permitted, must the letter of credit be
effective before hazardous waste is first received for treatment, storage or
disposal?
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ll. Con Che amount be reduced only if cose estimates decrease and
following written approval of. the Regional Administrator or State Director?
12. Must itemized bills for closure and/or post-closure care be submitted
to the Regional Administrator or State Director before reimbursement will be
authorized?
13. Where the cost of closure appears to be significantly greater than
the amount of funds available under the letter of credit, is the Regional
Administrator or State Director empowered to withhold reimbursement until
satisfactory certification of completion of closure is received?
14. Is termination of the letter of credit only allowed if (1) alternate
assurance is provided, or (2) the owner or operator has been released frcrs
closure or post-closure financial requirements?
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EQUIVALENCY CRITERIA FOR STANDBY TRUST FUNDS
**
Thara La an important difference between state and federal legal
authorities 'which may affect scace mechanisms. Because the U.S. EPA does noc
have cha authority Co collect, hold or disburse financial assurance funds
itself, the RCRA regulations require the use of a standby trust fund in
conjunction with surety bonds and letters of credit. Some states, on the
other hand, may not have this restriction, thus they may noc need to require
standby trust funds. The lack of standby trust provisions does not
necessarily mean that the state mechanism is not equivalent. If the state
does require standby crusts, they must meet the equivalency criteria set out
below. .
EPA will consider the following factors in determining whether a state-
required standby trust fund is "equivalent" or "substantially equivalent" to
the financial mechanisms prescribed in the federal regulations. As a general
rule, most, if not all of the following questions must be answered "yes" for
the'state-required standby trust fund to be considered "equivalent" or
"substantially equivalent."
1. Is the trustee required to be an entity that has authority to acr as a
trustee and whose crust operations are regulated and examined by a federal or
state agency?
2. Does the trust agreement or a* attached schedule list the facilities
and the amount of the closure and/or post-closure cost estimates covered for
each facility? .
3. Is the trust irrevocable except upon agreement of the owner or
operator, the trustee, and the Regional Administrator or State Director?
4. Does the trust agreement, prohibit trustees .frsnr investing in
securities of the owner or operator or parent corporations? (federal
regulations include this prohibition in addition to the general "prudent man"
standard.) ;' .
3. If closure is not performed, does the crust have to be funded by the
letter of credit, surety bond, or other mechanisms (a) before final closure or
(b.) within a specified period after the Regional Administrator, Scate
Director, or a court orders closure? (federal regulations allow 15 days.)
6. For new facilities to be permitted, must the trust agreement be
submitted to the Regional Administrator or State Diractor before hazardous
waste is first received for treatment, storage or disposal?
7. Is the owner or operator given at least 90 days to object .to che trust
investment activity?
3. May EPA or State Director object at any time to the trust investment
activity?
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9. Muse che owner or operator make arrangements for a new trustee or
obtain other financial assurance when the existing trustee enters bankruptcy,
ceases operations, or loses its authority to ace as a trustee?
10. Can the trustee only be changed upon agreement by the owner or
operator, the trustee, and the Regional Administrator or State Director?
11. Where the cost of closure appears to be significantly greater than
the amount of funds in: the trust, is the Regional Administrator or State
Director authorized to withhold reimbursement until satisfactory certification
of completion of closure is received?
12. Must itemized bills for closure and/or post-closure care be submitted
to the Regional Administrator or State Director before payment will be
authorized?
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EQUIVALENCY CRITERIA FOR CLOSURE OR POST-CLOSURE INSURANC
. '**
EPA will consider Che following factors in. determining whether state-
required closure or post-closure insurance is "equivalent" or "substantially
equivalent" to the financial mechanisms prescribed in the federal
regulations. As a general rule, most, if not all of the following questions
muse be answered "/as" for the state-required closure or post-closure * .
insurance to be considered "equivalent" or "substantially equivalent."
1. Is the insurer required to be licensed to transact the business of
insurance or eligible as a provider of excess or surplus lines insurance in
otx« or more states?
2. Muse the insurance cerrificate, policy, or endorsement List the
facilities covered and the 'amounts of insurance for closure and/or
post-closure care assured for each facility?
3. Muse an insurance.certificate or endorsement be submitted as evidence
of insurance?
4. Does the insurance policy provide that closure and/or post-closure
funds will be provided whenever closure occurs?
. 5. Does the insurance policy, certificate, sr endorsement provide -hat
the insurer will be responsible for paying out funds to parties specified upon
.the direction of .the Regional Administrator or Scate Director?
6. Tor new facilities to be permitted, must the insurance policy,
certificate, or endorsement be submitted to the Regional Administrator or
State Director before hazardous waste is first received for treatment, storage
or disposal?
7. For new facilities to be permitted, muse the insurance policy be
effective before hazardous waste is first received?
3. Muse the face amount of the policy, together with any amount being
assured by other mechanisms, be at least equal to the current closure and/or
post-closure cose estimates?
9. (fuse the insurance policy provide for automatic renewal at least at
the face amount of che expiring policy?
10. When cose estimates increase, muse the face amount of the policy be
increased accordingly (and evidence of the increase submitted to the Regional
Administrator or State Director) or alternate assurance obtained within a
defined time period? (federal regulations allow 60 days)
11. Can the face amount only be reduced when cost estimates decrease and
following written approval of the Regional Administrator or State Director?
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12. Must che owner or operator obtain alternative financial assurance
within a defined ciaie period .following disqualification or liquidation of the
insurer?
13. Must the insurer give both the owner or operator and the Regional
Administrator or State Director sufficient notice before cancellation of the
insurance policy will be allowed? (federal regulations require at least 120
days notice)
14. Muse cancellation, termination, or failure to renew not occur and
the policy remain in full force and effect in the event that on or before the
date of expiration at least one of the following has occurred: CD the
Regional Administrator or State Director has deemed the facility abandoned; or
(2) the permit is removed or terminated or a new permit is denied; or (3)
closure is 'ordered by a competent authority (court, Regional Administrator, or
State Director); or (4) the premium overdue is paid?
15. Must itemized bills for closure and/or post-closure care be submitted
to- the Regional Administrator or State Director before reimbursement will be
authorized?
16. Where the cost of closure.appears to be significantly greater than
the face amount of the policy, is the Regional Administrator or State Director
authorized to withhold reimbursement until satisfactory certification of
completion of closure is received?
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EQUIVALENCY CRITERIA FOR FINANCIAL TEST AND
CORPORATE GUARANTEE FO.R CLOSURE AND POST-CLOSURE CARE
EPA will consider the following factors in determining whether a state-
required financial test or corporate guarantee is "equivalent" or
"substantially equivalent" to the financial mechanisms prescribed in the
federal regulations. As a general rule, most, if not all of the following
questions must be answered "yes" for the state-required financial test or
corporate guarantee to be considered "equivalent" or "substantially
equivalent."
1. Are the owner's, operator's or corporate parent's financial statements
required to be independently audited?
2. Does the independent public accountant have to be certified by a Scace
Board of Accountancy or otherwise eligible to practice public accounting in
the state? -.
T '
3. Are the state's financial test criteria at least as stringent as the
federal criteria? Specifically:
A. Do bond ratings of the fim have to be at least
investment grade; or does net working capital have
to be- six tines the sum of closure and post-closure
cost estimates, and do -.-o of the following three
conditions have to be satisfied: :
.i) total liabilities to net worth have to be less
than 2.0,
ii) net income plus non-cash expenses (i.e.,
depreciation, depletion, and amortization) to
total liabilities have to be greater than 0.1, or
iii) current assets to current liabilities greater
than 1.3?
3. Does the tangible net worth of the firm have to be at
least S10 million and at least six times the sum of
closure and post-closure estimates?
C. Do assets in the United States amount to
i) 90 percent of the total assets, or
ii) six times the sum of closure and post-closure
estimates? '
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&. Are fisms whose financial statements receive an adverse opinion or
a disclaimer of opinion in auditor's standard report disallowed from the
financial test?
5. Is the Regional Administrator or State Director granted discretion to
accepc or reject qualified opinions on a firm's financial statements?
6. Must the corporate parent own at lease 50 percent of the voting stock
of the subsidiary owner or operator?
7. Must the financial test criteria be applied to the closure or
post-closure cost estimates of all facilities for vhich there is no third
party guarantee or funding of financial assurance? (federal regulations
require the inclusion of facilities covered by the financial test guarantee,
the corporate guarantee, facilities covered by state financial tests or
corporate guarantees, and sitas for which no financial assurance has been
demonstrated.)
8. Must the owner, operator, or corporate parent continue to satisfy the
test requirements, or supply alternate assurance, if closure or post-closure
cose estimates increase?
9. Must the owner-, operator, or corporate parent submit updated
information a short time after the close of the firm's fiscal year? (federal
regulations allow up to 90 days -- see iO CJR 25*.143(f)(5).)
*
10. If the financial statements indicate the firm no longer qualifies to
use the financial test, must the owner or operator:
a) Notify the Regional Administrator or State Director
within a specified period? (federal regulations allow
no more than 90 days after the close of the fiscal
year), and
b) Provide alternate financial assurance shortly
thereafter? (federal regulations allow up to 120 days
after close of the fiscal year).
11. Does the Regional Administrator or State counterpart have the
authority to request additional financial reports from the owner, operator, or
corporate parent, and disqualify the firm at any time on the basis of such.
reports or other information?
12. Must satisfaction of the financial test criteria be demonstrated at a
specified period before wastes are received at a new facility? (federal
regulations require at least 60 days for new permitted facilities -- see *0
CFR 264.143(f)(4).)
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13. Is the parent guarantor held responsible for die closure or
post-closuro «*sts until:
a. The owner or operator has been released from the
financial assurance requirements, or
b. The owner or operator has obtained, alternate assurance
within a specified period after notice of cancellation
of the guarantee has been received? (federal
regulations require no more than 90 days.)
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,. EQUIVALENCY CRITERIA FOR CASH DEPOSITS
AND CERTIFICATES OF DEPOSIT
EPA will consider the following factors in determining whether a state-
required cash deposit or certificate of deposit is "equivalent" or
"substantially equivalent"-to the financial mechanisms prescribed in the
.federal regulations. As a general rule, most, if not all of the following
questions must be answered "yes" for the state-required cash deposit or
certificate"'of deposit to be considered "equivalent" or "substantially
equivalent."
1. Must the bank or financial institution holding the cash deposit or
certificate of deposit be regulated and examined by a federal or state agcr.cv?
2. Must the Regional Administrator or State Director be the beneficiary
and be empowered to draw upon or direct payment from the funds if the owner cr
operator fails to perform closure or post-closure care?
2. For new facilities to be permitted, must the cash deposit or
certificate of deposit be established before hazardous waste is first received
for treatment, storage or disposal?
4. Must payments be made pursuant to a pay-in period and formula at laastf
equivalent to federal .RCRA trust fund requirements?
5. Must advance notice be provided to the Regional Administrator or State
Director in a.defined time period prior to termination by the owner or
operator?
6. Must at least one of the following conditions be met for the cash
deposit or certificate of deposit to be terminated: (1) the owner or operator
has performed closure/post-closure to the State Director's or Regional
Administrator's satisfaction, or (2) alternate assurance has been established
(a) in accordance with state regulations or Co) that would be acceptable under
40 CFR 254/265.149?
7. Can funds be released only upon written instruction of the Regional
Administrator or State Director?
3. Muse itemized bills for closure and/or post-closure care be submitted
to the Regional Administrator or State Director before payment will be
authorized?
9. Where the cost of closure appears significantly greater than the
amount of available funds, is the Regional Administrator or State Director
empowered to withhold reimbursement until satisfactory certification of
closure is received?
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EQUIVALENCY CRITERIA FOR ESCROWS
EPA will consider the following factors in decertnining whether a stat.e-
required escrow is "equivalent" or "substantially equivalent" to the financial
mechanisms prescribed in the federal regulations. As a general rule, most, if
npc all of the following questions must be answered "yes" for the
state-required escrow to be considered "equivalent" or "substantially
equivalent."
1. Is the depositary institution licensed or authorized Co act as a
fiduciary or escrow agent and subject to state or federal regulatory oversight?
2. Does the escrow agreement or an attached schedule list the facilities
and the amount of the closure and/or post-closure cost estimates covered for
each facility?
3. Is the owner or operator required to update the list of facilities and
closure and/or post-closure cost estimates after each change in cost estimates?
<*. Does the- owner or operator remain liable at all times for the full
amount of closure and/or post-closure expenses?
5. Does the escrow agreement prohibit the depositary . from investing in
securities of the owner or operator or parent corporations?
6. Is the escrow agreement irrevocable except upon the mutual consent
of the owner or operator and the Regional Administrator or State Director?
7. For new facilities to be permitted, must the escrow agreement be
submitted to the Regional Administrator or State Director before hazardous
waste is first received for treatment, storage or disposal?
3. Must the initial payment be made before hazardous waste is first
received for new permitted facilities?
9. Are the required initial and annual payments at least as great as
those required by the federal RCRA trust fund regulations?
10. Dots the escrow agreement require the depositary to notify che
Regional Administrator or State Director if the owner or operator fails to
make a required deposit?
11. Does the escrow agreement require the depositary to value the assets
in the escrow each year and send a statement of valuation to the owner or
operator and the Regional Administrator or State Director?
12. May the owner or operator and the Regional Administrator or State
Director object at any time to escrow activity?
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13. If the^pay-in period' is less than the operating life of the facility,
must the owner or operator make additional payments to the escrow or obtain
alternate assurance whenever the cost estimate(s) became(s) greater than the
value of the escrow?
14. Must the owner or operator make arrangements for a new depositary or
obtain other financial assurance when the existing depositary enters
bankruptcy, ceases operations, or loses its authority to act as an escrow
agent?
15. Can the depositary only be changed by mutual agreement of the owner
or operator and the Regional Administrator or State Director?
15. Can funds be released from escrow only upon instruction of the
Regional Administrator or.State Director?
17. Must itemized bills for closure and/or post-closure care be submitted
to the Regional Administrator or State Director before payment will be
authorized?
13. Where the cost of closure appears significantly, greater than the
value of the escrow, is the Regional Administrator or State Director empowered
to withhold reimbursement from the escrow until satisfactory certification of
closure is received? 'v
19. May the escrow agreement be terminated only upon instruction of the
Regional Administrator or State Director?
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EQUIVALENCY CRITERIA FOR LIABILITY INSURANCE
r*
EPA will consider che following factors in decermining whether state-
requircd liability insurance is "equivalent" or "substantially equivalent" co
the financial mechanisms prescribed in the federal regulations. As a general
rule, most, if not all of the following questions must be answered "yes" for
the state-required liability insurance to be considered "equivalent" or
"substantially equivalent."
1. Is the insurer required to be licensed to transact the business of
insurance or eligible as a provider of excess or surplus lines insurance in
one or store states?
2. Must the insurance certificate, policy, or endorsement list the
facilities covered?
3. Must an insurance certificate or endorsement be submitted as evidence
of insurance?
4. Must the policy cover both bodily injury and property damage claims?
5. Must the policy provide -- exclusive of legal defense costs -- at
least: (1) 51 million coverage per occurrence, vLch an annual aggregate
amount, of 52 million, for sudden accidental occurrences?; and (2) 53 million
coverage per occurrence, with an annual aggregate amount of 56 million, for
nonsudden accidental occurrences? (the ncrnsudden accidental coverage aust be
required of surface impoundaents, landfills, and land treatment facilities.)
6. Must the coverage be on a "first dollar" basis?-"
7. For sudden accidental occurrences, must the insurance policy be
effective before initial receipt of waste at a new permitted facility?
3. For nonsudden accidental occurrences, must coverage be demonstrated by
the following dates depending on the sales or revenues of the owner or
operator?
(*). Sales or revenues over S10 million January 15, 1983
(b) Sales or revenues greater than January 15, 1934
$5 million and up to S10 million
(c) Sales or revenues 55 million and January 15, 1935
less
* For details, see Chapter 2 of the Guidance Manual: Liability
Coverage (1982).
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9. Muse th£ owner or operator maintain the policy in full forca and
effect' ac lease until released from financial requirements or alternate
coverage is substituted?
10. Must the owner or operator provide alternate coverage within a
defined time period in the event of liquidation or insolvency of the insurer?
(federal regulations allow 60 days)
'>
11. Must the insurer give ample notice of its intent to cancel,
terminate, or r.oc to renew the insurance?
12-. Must cancellation or termination not occur during a defined tine
period following the date of receipt of the notice by the Regional
Administrator or State Director? (federal regulations require =0 days for
cancellation and 30 aays for termination)
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EQUIVALENCY CRITERIA FOR FINANCIAL tEST
** FOR LIABILITY COVERAGE
-s
EPA will consider the following factors in, determining whether a scats-
required financial test for liability coverage is "equivalent" or
"substantially equivalent" to the financial mechanisms prescribed in the
federal regulations. As a general rule, most, if nbt all of the following
questions must be answered "yes" for the state-required financial test for
liability coverage to be considered "equivalent" or "substantially equivalent."
1. Must the owner's or operator's financial statements be independently
audited?
2. Does the independent public accountant have to be certified by a State
Board of Accountancy?
3. Are the financial test criteria at least as:stringent as -he-federal
RCRA criteria?
A. Do bond ratings of the firm havs to be at least
investment grade; or does net working capital have
to be at least six times the amount aggregate liability
requirements?
3. Does the tangible net worth of the firm have to be at
least SLG million and at least six times the annual
aggregate liability requirements?
C. Do assets in the United States amount to at least
i) 90 percent of total assets, or
ii) six times the annual aggregate liability
requirements?
"*. Are firms whose financial statements have received adverse opinions
or disclaimers of opinions disallowed from the financial test?
5. Is che Regional Administrator or State Director granted discretion to
accept or: reject qualified opinions on a firm's financial statements?
6. Muse evidence of insurance be provided in a specified period if a
notice of disallowance has been issued because of an adverse, qualified, or
disclaimer of opinion? (federal regulations allow up to 30 days.)
7. Must the financial test criteria cover - exclusive of legal defense
costs - at least (1) SI million coverage per occurrence, with an annual
aggregate amount of 52 million, for sudden accidental occurrences?; (2) S3
million coverage per occurrence, with an annual aggregate amount of S6
million, for nonsudden accidental occurrences?; and (3) all closure or
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post-closure cast estimates of facilities noc covered by third party
guarantees or funded mechanisms? (federal regulations require the inclusion
of facilities covered by the financial test, the corporate guarantee, and
facilities without any coverage at all.)
3. For sudden accidental occurrences, must the financial test criteria be
satisfied before initial receipt of waste by new permitted facilities?
9. For nonsudden occurrences, must coverage be demonstrated by the
following dates depending on the sales or revenues of the owner or operator?
(a) Sales or revenues over 310 million January 15, 1933
(b) Sales or revenues greater than January 15, 1934
$5 million and up to 310 million
(c) Sales or revenues 55 million and January 15, 1935
less
.10. Must the owner or operator completely satisfy the test criteria at
lease until released from financial requirements or alternate coverage is
substituted?
11. Muse the owner or operator submit updated financial test ir.fcr-ac.cr.
a short time after the close of the firm's fiscal year? (federal ragulatisr.s
allow up to 90 days.)
12. If the year-end financial statements indicate the firm no longer
qualifies to use the financidl test, must the owner or operator supply
evidence of liability insurance within a limited period? (federal regulatisr.s
allow up to 90 days.)
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EQUIVALENCY CRITERIA FOR STATE ASSUMPTIONS
*~ OF RESPONSIBILITY
EPA will consider che -following factors in determining whether a state's
assumption of responsibility for an owner's or operator's closure,
pose-closure care, or liability coverage is "equivalent" or "substantially
equivalent" to the financial mechanisms prescribed in the .federal
regulations. As a general rule, most, if not all, of the following questions
must be answered "yes" for the state's assumption of responsibility to be
considered "equivalent" or "substantially equivalent."
1. Does the letter from the State include, or have attached to it,
identifying information for the facilities and the amounts of funds for
closure, or post-closure care, or liability coverage that are guaranteed by
the State?
2. Is the assumption of responsibility non-contingant and
irrevocable; in other words, are there no conditions which would void the
state's guarantee?''*
3. Does the assumption cover the costs of. all activities required for
proper closure?
*. Does the assumption cover the costs of all activities required for.
post-closure care for'a period of thi*ty years?
5. Does the assumption provide liability coverage for bodily injury in a~
least the amounts required by federal standards per occurrence and in an
annual aggregate, exclusive of legal defense costs?
6. Does the assumption provide liability coverage for property carnage _r.
at Least the amounts required by federal standards per occurrence and in an
annual aggregate, exclusive of legal defense costs?
7. Does the assumption provide liability coverage in the an-.ounts required
by federal -standards for sudden accidental occurrences?
''??*-'.
3. Doisrthe assumption provide liability coverage for Landfil.ls, surface
impoundments-; and land treatment facilities in the amounts required by federal
standards^ for non-sudden accidental occurrences?
* Note: The Agency is aware of some state post-closure funds that are
available only to owners or operators of facilities that have been issued'
permits under RCRA; these funds would not be non-contingent with respect to
interim status or non-permitted facilities.
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